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 March 31, 2023
or
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from __________________ to ___________________
	Commission File Number: 001-33035

WidePoint Corporation

(Exact name of Registrant as specified in its charter)

Delaware	52-2040275
(State or other jurisdiction of	(I.R.S. employer
incorporation or organization)	identification no.)

11250 Waples Mill Road, South Tower 210, Fairfax, Virginia	22030
(Address of principal executive offices)	(Zip Code)

(703) 349-2577

(Registrant’s telephone number, including area code)

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

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

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

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

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

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

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

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

As of May 8, 2023, there were 8,785,616 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 month periods ended March 31, 2023 and 2022	3
	Condensed Consolidated Statements of Comprehensive Loss for the three month periods ended March 31, 2023 and 2022	4
	Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022	5
	Condensed Consolidated Statements of Cash Flows for the three month periods ended March 31, 2023 and 2022	6
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three month periods ended March 31, 2023 and 2022	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	25
Part II.	OTHER INFORMATION	26
Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 3.	Default Upon Senior Securities	27
Item 4.	Mine Safety Disclosures	27
Item 5.	Other Information	27
Item 6.	Exhibits	28
SIGNATURES		29
CERTIFICATIONS

2

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

WIDEPOINT CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

	THREE MONTHS ENDED
	MARCH 31,
	2023			2022
	(Unaudited)
REVENUES	$	25,273,681		$	22,436,427
COST OF REVENUES (including amortization and depreciation of
$502,560 and $287,518, respectively)		21,463,741			18,539,702
GROSS PROFIT		3,809,940			3,896,725
OPERATING EXPENSES
Sales and marketing		521,678			575,169
General and administrative expenses (including share-based
compensation of $140,116 and $179,741, respectively)		3,910,820			3,745,229
Depreciation and amortization		265,843			264,361
Total operating expenses		4,698,341			4,584,759
LOSS FROM OPERATIONS		(888,401	)		(688,034	)
OTHER INCOME (EXPENSE)
Interest income		2,196			6,570
Interest expense		(58,778	)		(63,521	)
Other (expense) income, net		(194	)		301,013
Total other income (expense), net		(56,776	)		244,062
LOSS BEFORE INCOME TAX PROVISION (BENEFIT)		(945,177	)		(443,972	)
INCOME TAX PROVISION (BENEFIT)		6,302			(51,075	)
NET LOSS	$	(951,479	)	$	(392,897	)
EARNINGS PER SHARE, BASIC AND DILUTED	$	(0.11	)	$	(0.04	)
WEIGHTED-AVERAGE SHARES OUTSTANDING, BASIC AND DILUTED		8,739,317			8,782,452

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

3

WIDEPOINT CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

	THREE MONTHS ENDED
	MARCH 31,
	2023			2022
	(Unaudited)
NET LOSS	$	(951,479	)	$	(392,897	)
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax		37,248			(4,835	)
Other comprehensive income (loss):		37,248			(4,835	)
COMPREHENSIVE LOSS	$	(914,231	)	$	(397,732	)

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

4

WIDEPOINT CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	MARCH 31,			DECEMBER 31,
	2023			2022
	(Unaudited)
ASSETS
CURRENT ASSETS
Cash	$	4,577,963		$	7,530,864
Accounts receivable, net of allowance for credit losses
of $72,271 and $51,666 in 2023 and 2022, respectively		10,202,272			9,277,109
Unbilled accounts receivable		11,843,638			10,244,101
Other current assets		939,187			935,978
Total current assets		27,563,060			27,988,052
NONCURRENT ASSETS
Property and equipment, net		978,633			978,218
Lease right of use asset, net		4,556,571			4,723,899
Intangible assets, net		7,179,206			7,398,160
Goodwill		5,811,578			5,811,578
Deferred tax assets, net		88,360			86,909
Other long-term assets		2,211,695			2,025,845
Total assets	$	48,389,103		$	49,012,661
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable	$	13,584,437		$	12,515,081
Accrued expenses		10,652,753			11,327,269
Deferred revenue		1,579,040			1,704,933
Current portion of lease liabilities		606,055			596,529
Total current liabilities		26,422,285			26,143,812
NONCURRENT LIABILITIES
Lease liabilities, net of current portion		4,610,296			4,745,909
Contingent consideration		6,900			6,900
Deferred revenue, net of current portion		376,162			364,837
Total liabilities		31,415,643			31,261,458
Commitments and contingencies (Note 16)		-			-
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value; 10,000,000 shares
authorized; 2,045,714 shares issued and none outstanding		-			-
Common stock, $0.001 par value; 30,000,000 shares
authorized; 8,739,317 and 8,725,476 shares
issued and outstanding, respectively		8,740			8,726
Additional paid-in capital		101,330,659			101,194,185
Accumulated other comprehensive loss		(312,986	)		(350,234	)
Accumulated deficit		(84,052,953	)		(83,101,474	)
Total stockholders’ equity		16,973,460			17,751,203
Total liabilities and stockholders’ equity	$	48,389,103		$	49,012,661

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

5

WIDEPOINT CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	THREE MONTHS ENDED
	MARCH 31,
	2023			2022
	(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(951,479	)	$	(392,897	)
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation expense		267,309			265,185
(Recovery) provision for credit losses		35,858			-
Amortization of intangibles		501,094			286,653
Share-based compensation expense		140,116			179,741
Warrants expense		-			108,000
Change in fair value of contingent consideration		-			(301,000	)
Changes in assets and liabilities:
Accounts receivable and unbilled receivables		(2,528,761	)		4,413,557
Inventories		(17,294	)		104,365
Other current assets		15,790			311,218
Other assets		-			1,112
Accounts payable and accrued expenses		113,869			(1,509,330	)
Income tax payable		55,703			7,111
Deferred revenue and other liabilities		(121,253	)		(369,633	)
Other liabilities		-			(278,655	)
Net cash (used in) provided by operating activities		(2,489,048	)		2,825,427
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment		(96,721	)		(203,274	)
Capitalized hardware and software development costs		(262,549	)		(780,599	)
Net cash used in investing activities		(359,270	)		(983,873	)
CASH FLOWS FROM FINANCING ACTIVITIES
Advances on bank line of credit		4,313,007			-
Repayments of bank line of credit advances		(4,313,007	)		-
Principal repayments under finance lease obligations		(125,568	)		(147,405	)
Withholding taxes paid on behalf of employees on net settled restricted stock awards		(3,628	)		(49,224	)
Common stock repurchased		-			(818,211	)
Net cash used in financing activities		(129,196	)		(1,014,840	)
Net effect of exchange rate on cash		24,613			(38,950	)
NET (DECREASE) INCREASE IN CASH		(2,952,901	)		787,764
CASH, beginning of period		7,530,864			6,479,980
CASH, end of period	$	4,577,963		$	7,267,744

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)

	THREE MONTHS ENDED
	MARCH 31,
	2023		2022
	(Unaudited)
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest	$	55,979	$	63,521
Cash paid for income taxes	$	-	$	27,559
NONCASH INVESTING AND FINANCING ACTIVITIES
Capitalized hardware and software development costs in accounts payable	$	190,773	$	213,770
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, 2022		8,842,026		$	8,842		$	101,424,922		$	(241,586	)	$	(59,516,183	)	$	41,675,995
Common stock repurchased		(196,586	)		(197	)		(818,014	)		-			-			(818,211	)
Issuance of common stock —
restricted		50,345			51			(49,275	)		-			-			(49,224	)
Issuance of warrants in acquisition of IT Authorities, Inc.		-			-			108,000			-			-			108,000
Stock compensation expense —
restricted		-			-			179,741			-			-			179,741
Foreign currency translation —
(loss)		-			-			-			(4,835	)		-			(4,835	)
Net loss		-			-			-			-			(392,897	)		(392,897	)
Balance, March 31, 2022		8,695,785		$	8,696		$	100,845,374		$	(246,421	)	$	(59,909,080	)	$	40,698,569

					Additional
	Common Stock				Paid-In			Accumulated			Accumulated
	Issued		Amount		Capital			OCI			Deficit			Total
	(Unaudited)
Balance, January 1, 2023		8,725,476	$	8,726		101,194,185			(350,234	)		(83,101,474	)		17,751,203
Issuance of common stock —
restricted		13,841		14		(3,642	)		-			-			(3,628	)
Stock compensation expense —
restricted		-		-		140,116			-			-			140,116
Foreign currency translation —
gain		-		-		-			37,248			-			37,248
Net loss		-		-		-			-			(951,479	)		(951,479	)
Balance, March 31, 2023		8,739,317	$	8,740	$	101,330,659		$	(312,986	)	$	(84,052,953	)	$	16,973,460

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 March 31, 2023 and for each of the three month periods ended March 31, 2023 and 2022, included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Pursuant to such regulations, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted. It is the opinion of management that all adjustments (which include normal recurring adjustments) necessary for a fair statement of financial results are reflected in the financial statements for the interim periods presented. The condensed consolidated balance sheet as of December 31, 2022 was derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. The results of operations for the three month period ended March 31, 2023 are not necessarily indicative of the operating results for the full year.

Principles of Consolidation

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

9

Foreign Currency

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

Use of Estimates

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

Segment Reporting

The Company’s TMaaS offerings are substantially managed service driven solutions that use our proprietary technology platform to deliver our services and reported on that basis to its Chief Operating Decision Maker who evaluates its business as a single segment. See Note 15 for detailed information regarding the composition of revenues.

Significant Accounting Policies

There were no significant changes in the Company’s significant accounting policies during the first three months of 2023 from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 31, 2023.

Recently Adopted Accounting Standards

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“Topic 326”). Topic 326 amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 requires that credit losses be presented as an allowance rather than as a write-down. The adoption of this standard on January 1, 2023, did not have a material impact on the consolidated financial statements.

3. Fair Value Measurements

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

10

	MARCH 31,		Quoted Prices in Active Markets		Significant Other Observable Inputs		Unobservable Inputs
Description	2023		(Level 1)		(Level 2)		(Level 3)
Liabilities:	(Unaudited)
Contingent consideration - cash settled	$	6,500		-		-	$	6,500
Contingent consideration - warrants		400		-		-		400
Total liabilities measured and recorded at fair value	$	6,900	$	-	$	-	$	6,900

	DECEMBER 31,		Quoted Prices in Active Markets		Significant Other Observable Inputs		Unobservable Inputs
Description	2022		(Level 1)		(Level 2)		(Level 3)
Liabilities:
Contingent consideration - cash settled	$	6,500		-		-	$	6,500
Contingent consideration - warrants		400		-		-		400
Total liabilities measured and recorded at fair value	$	6,900	$	-	$	-	$	6,900

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

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

There was no change in fair value of contingent consideration for the three months ended March 31, 2023.

4. Accounts Receivable and Significant Concentrations

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

11

	MARCH 31,		DECEMBER 31,
	2023		2022
	(Unaudited)
U.S. Federal, State, and Local Government (1)	$	7,952,334	$	7,272,993
Commercial (2)		2,322,209		2,055,782
Gross accounts receivable		10,274,543		9,328,775
Less: allowances for credit
losses (3)		72,271		51,666
Accounts receivable, net	$	10,202,272	$	9,277,109

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

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

(3) For the three month period ended March 31, 2023, the Company did not recognize any material provisions of recoveries of existing provision for credit losses. The Company has not historically maintained an allowance for credit losses for its government customers as it has not experienced material or recurring credit losses and the nature and size of the contracts has not necessitated the Company’s establishment of such an allowance for credit losses.

Significant Concentrations

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

	THREE MONTHS ENDED
	MARCH 31,
Customer Type	2023			2022
	(Unaudited)
U.S. Federal Government (1)		80.0	%		77.7	%

(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.

Credit Risk

Financial instruments that potentially expose the Company to concentrations of credit risk consist principally of cash on deposit with financial institutions, the balances of which frequently exceed federally insured limits. If the financial institution with whom we do business were to be placed into receivership, we may be unable to access to the cash we have on deposit with such institutions. If we are unable to access our cash and cash equivalents as needed, our financial position and ability to operate our business could be adversely affected.

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5. Unbilled Accounts Receivable

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

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

	MARCH 31,			DECEMBER 31,
	2023			2022
	As a % of			As a % of
Customer Type	Receivables			Receivables
	(Unaudited)
U.S. Federal Government		96	%		97	%

6. Other Current Assets and Accrued Expenses

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

	MARCH 31,		DECEMBER 31,
	2023		2022
	(Unaudited)
Inventories	$	239,658	$	222,279
Prepaid insurance and other assets		699,529		713,699
Total other current assets	$	939,187	$	935,978

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

	MARCH 31,		DECEMBER 31,
	2023		2022
	(Unaudited)
Carrier service costs	$	8,159,230	$	8,402,770
Salaries and payroll taxes		1,609,058		1,637,628
Inventory purchases, consultants and other costs		746,113		1,205,209
U.S. Income tax payable		61,490		61,490
Other		76,862		20,172
	$	10,652,753	$	11,327,269

7. Property and Equipment

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

	MARCH 31,		DECEMBER 31,
	2023		2022
	(Unaudited)
Computer hardware and software	$	3,268,634	$	3,158,428
Furniture and fixtures		501,973		502,391
Leasehold improvements		288,215		284,321
Automobiles		125,664		122,524
Gross property and equipment		4,184,486		4,067,664
Less: accumulated depreciation and
amortization		3,205,853		3,089,446
Property and equipment, net	$	978,633	$	978,218

During the three month periods ended March 31, 2023 and 2022, property and equipment depreciation expense was approximately $116,400 and $93,700, respectively.

During the three month periods ended March 31, 2023 and 2022, there were no material disposals of owned property and equipment.

There were no changes in the estimated useful lives used to depreciate property and equipment during the three month periods ended March 31, 2023 and 2022.

8. Leases

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

9. Goodwill and Intangible Assets

Goodwill consisted of the following:

The Company has recorded goodwill of $5,811,578 as of March 31, 2023. There were no changes in the carrying amount of goodwill during the three month period ended March 31, 2023

Intangible assets consists of the following:

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	MARCH 31, 2023
	Gross Carrying		Accumulated			Net Book
	Amount		Amortization			Value
	(Unaudited)
Customer Relationships	$	2,392,000	$	(358,800	)	$	2,033,200
Channel Relationships		2,628,080		(1,562,248	)		1,065,832
Internally Developed Software		5,948,518		(2,922,146	)		3,026,372
Trade Name and Trademarks		1,330,472		(276,670	)		1,053,802
	$	12,299,070	$	(5,119,864	)	$	7,179,206

	DECEMBER 31, 2022
	Gross Carrying		Accumulated			Net Book
	Amount		Amortization			Value
Customer Relationships	$	2,392,000	$	(299,000	)	$	2,093,000
Channel Relationships		2,628,080		(1,518,446	)		1,109,634
Internally Developed Software		5,665,957		(2,546,407	)		3,119,550
Trade Name and Trademarks		1,330,472		(254,496	)		1,075,976
	$	12,016,509	$	(4,618,349	)	$	7,398,160

For the three month period ended March 31, 2023, the Company capitalized $453,300 of internally developed software costs, primarily associated with upgrading our ITMS™ (Intelligent Technology Management System), secure identity management technology and secure network operations center of which $280,220 was transferred from capital work in progress to internally developed software during the period. Capital work in progress is included in other long-term assets in the consolidated balance sheet.

For the three month period ended March 31, 2022, the Company capitalized $820,000 of internally developed software costs, primarily associated with upgrading our ITMS™ (Intelligent Telecommunications Management System), secure identity management technology and network operations center of which $243,500 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.

There were no disposals of intangible assets during the three month period ended March 31, 2023.

The aggregate amortization expense recorded for the three month periods ended March 31, 2023 and 2022 were approximately $501,100 and $286,700, respectively.

As of March 31, 2023, estimated annual amortization for our intangible assets is approximately:

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Remainder of 2023	$	1,497,301
2024		1,797,411
2025		1,123,850
2026		526,714
2027		511,170
Thereafter		1,722,760
Total	$	7,179,206

10. Line of Credit

Since June 15, 2017, the Company had a Loan and Security Agreement with Atlantic Union Bank (formerly known as Access National Bank) (the “Loan Agreement”).

In June 2022, the Company entered into a seventh and eighth 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 measured quarterly, (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 and increased the maximum amount 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 March 31, 2023, there was no outstanding balance under the line of credit. At December 31, 2022 and March 31, 2023, the Company was not in compliance with the tangible net worth covenant as its tangible net worth did not equal at least approximately $6,500,000. Atlantic Union Bank provided a waiver of the December 31, 2022 violation. As a result of the maturity date of June 15, 2023 and the potential that Atlantic Union Bank would not renew the line of credit, the Company secured an additional financing arrangement. The Company does not plan to renew its Loan and Security Agreement with Atlantic Union Bank.

On April 28, 2023, the Company entered into an Accounts Receivable Purchase Agreement (the “Agreement”) with Republic Capital Access, LLC (the “Buyer”) for the non-recourse sale of eligible trade receivables. Pursuant to the Agreement, the Company may from time to time offer and sell eligible accounts receivable to the Buyer at an initial purchase price equal to 90% of the receivable (85% if the account receivable debtor is not a government entity), subject to increase based on, among other things, the total amount collected and the discount factor applicable to the receivable. The facility is limited to a total of $4 million outstanding at any time, with an available increase to $10 million, subject to adequate receivables. The Agreement contains customary fees, covenants and representations.

11. Income Taxes

The Company’s effective tax rate was (0.7)% and 11.5% for the three month periods ended March 31, 2023 and 2022, respectively. The difference in the effective tax rate and the U.S. federal statutory rate was primarily due to the full valuation allowance the Company maintains against its deferred tax assets and state minimum taxes in the United States. The effective tax rate is calculated by dividing the Provision (benefit) for income taxes by the Loss before provision (benefit) for income taxes.

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Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. Under existing income tax accounting standards such objective evidence is more heavily weighted in comparison to other subjective evidence such as our projections for future growth, tax planning and other tax strategies. The Company increased its valuation allowance approximately $238,000 during the three month period ended March 31, 2023. 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

12. Stockholders’ Equity

Common Stock

The Company is authorized to issue 30,000,000 shares of common stock, $.001 par value per share. As of March 31, 2023, there were 8,741,310 shares issued and outstanding. During the three month period ended March 31, 2023, there were 15,837 shares of common stock vested in accordance with the vesting terms of the RSAs. Two employees received less than the shares vested because they elected to have a total of 1,993 shares withheld in satisfaction of the employees corresponding tax liability of approximately $3,600. The Company’s payment of this tax liability was recorded as a cash flow from financing activity on the consolidated statement of cash flows.

During the three-month period ended March 31, 2022, there were 50,345 shares of common stock vested in accordance with the vesting terms of the RSAs. Three employees received less than the shares vested because they elected to have a total of 11,280 shares withheld in satisfaction of the employees corresponding tax liability of approximately $49,300. The Company’s payment of this tax liability was recorded as a cash flow from financing activity on the consolidated statement of cash flows.

There were no stock option exercises during the three month periods ended March 31, 2023 and 2022.

Contingent Warrants

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

Warrants Issued

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

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At The Market Offering Agreement

On August 18, 2020, the Company entered into an At-The-Market Issuance Sales Agreement (the “Sales Agreement”). The Company did not sell any shares during the three month period ended March 31, 2023.

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

13. Share-based Compensation

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

	THREE MONTHS ENDED
	MARCH 31,
	2023		2022
	(Unaudited)
Restricted share-based compensation expense	$	140,116	$	179,741
Total share-based compensation before taxes	$	140,116	$	179,741

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. There were no RSAs granted during the three month periods ended March 31, 2023 and 2022.

At March 31, 2023, the Company had approximately $140,300 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.

14. Earnings Per Common Share (EPS)

The computations of basic and diluted earnings per share were as follows for the periods presented below:

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	THREE MONTHS ENDED
	MARCH 31,
	2023			2022
	(Unaudited)
Basic Earnings Per Share Computation:
Net loss	$	(951,479	)	$	(392,897	)
Weighted average number of common shares		8,739,317			8,782,452
Basic Loss Per Share	$	(0.11	)	$	(0.04	)
Diluted Earnings Per Share Computation:
Net loss	$	(951,479	)	$	(392,897	)
Weighted average number of common shares		8,739,317			8,782,452
Incremental shares from assumed conversions
of dilutive securities		-			-
Adjusted weighted average number of
common shares		8,739,317			8,782,452
Diluted Loss Per Share	$	(0.11	)	$	(0.04	)

For the three months ended March 31, 2023 and 2022, the Company had unexercised stock options and RSAs of 34,682 and 30,513, respectively, and warrants to purchase 150,000 and 150,000 shares of common stock, outstanding, that were anti-dilutive.

15. Revenue from Contracts with Customers

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

	THREE MONTHS ENDED
	MARCH 31,
	2023		2022
	(Unaudited)
Carrier Services	$	13,597,701	$	12,932,055
Managed Services		11,675,980		9,504,372
	$	25,273,681	$	22,436,427

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

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	THREE MONTHS ENDED
	MARCH 31,
	2023		2022
	(Unaudited)
U.S. Federal Government	$	20,230,576	$	17,433,723
U.S. State and Local Governments		91,023		126,142
Foreign Governments		16,557		32,407
Commercial Enterprises		4,935,525		4,844,155
	$	25,273,681	$	22,436,427

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

	THREE MONTHS ENDED
	MARCH 31,
	2023		2022
	(Unaudited)
North America	$	24,209,410	$	21,434,634
Europe		1,064,271		1,001,793
	$	25,273,681	$	22,436,427

During the three months ended March 31, 2023 and 2022, the Company recognized approximately $709,400 and $1,079,900, respectively, of revenue related to amounts that were included in deferred revenue as of December 31, 2022 and 2021, respectively.

16.  Commitments and Contingencies

Employment Agreements

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

Litigation

The Company is not involved in any material legal proceedings.

17. Subsequent Events

As described in Note 11, effective April 28, 2023, the Company has entered into an Accounts Receivable Purchase Agreement (the Receivables Facility) with Republic Capital Access, LLC for the non-recourse sale of eligible trade receivables.

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

Cautionary Note Regarding Forward-Looking Statements

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

· The impact of supply chain issues;

· Our ability to successfully execute our strategy;

· Our ability to sustain profitability and positive cash flows;

· Our ability to access sufficient financing on acceptable terms given the tightening credit markets due to the current banking environment;

· Our ability to gain market acceptance for our products;

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

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

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

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

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

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

· Our ability to retain key personnel;

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

· The impact and outcome of negotiations around the Federal debt ceiling.

· Our ability to mitigate the impact of inflation; and

· The risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 31, 2023.

The forward-looking statements included in this Form 10-Q are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law. Readers are cautioned not to put undue reliance on forward-looking statements. In this Quarterly Report on Form 10-Q, unless the context indicates otherwise, the terms “Company” and “WidePoint,” as well as the words “we,” “our,” “ours” and “us,” refer collectively to WidePoint Corporation and its consolidated subsidiaries.

Business Overview

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

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

Revenue Mix

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

For additional information related to our business operations, see the description of our business set forth in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 31, 2023. 

Strategic Focus and Notable Events

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

During 2023, we continue to focus on the following key goals:

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

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

· Attain full FedRAMP certification and make strategic investments in our delivery infrastructure,

· Grow our recurring high margin managed services revenues,

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

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

· Expand our customer base organically and inorganically,

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

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

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

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

· Expanding our solution offerings into the commercial space.

Our strategy for achieving our longer-term goals include:

· Establishing a market leadership position in the trusted mobility management (TM2) sector,

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

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

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

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

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

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

Results of Operations

Three Months Ended March 31, 2023 as Compared to Three Months Ended March 31, 2022

Revenues. Revenues for the three month period ended March 31, 2023 were approximately $25.3 million, an increase of approximately $2.8 million (or 13%), as compared to approximately $22.4 million in 2022. Our mix of revenues for the periods presented is set forth below:

	THREE MONTHS ENDED
	MARCH 31,				Dollar
	2023		2022		Variance
	(Unaudited)
Carrier Services	$	13,597,699	$	12,932,059	$	665,640
Managed Services:
Managed Service Fees		6,852,099		7,258,277		(406,178	)
Billable Service Fees		1,250,334		1,120,106		130,228
Reselling and Other Services		3,573,549		1,125,985		2,447,564
		11,675,982		9,504,368		2,171,614
	$	25,273,681	$	22,436,427	$	2,837,254

Our carrier services revenue was $13.6 million, an increase of approximately $700,000, as compared with the same period in 2022. 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.

Our managed service fees were $6.9 million and remained relatively constant from period to period.

Billable service fees, reselling and other revenues remained consistent with the same period in 2022.

Reselling and other services increased by $2.5 million from the same period last year primarily due to the resale of new capabilities provided by a third party partner for two large federal contracts. While Reselling and other services are transactional in nature, we expect to have additional sales of these new technical capabilities throughout the year, although the amount and timing of revenue could vary significantly from quarter to quarter.

Cost of Revenues. Cost of revenues for the three months period ended March 31, 2023 were approximately $21.5 million (or 85% of revenues), as compared to approximately $18.5 million (or 83% of revenues) in 2022. The increase in cost of revenues was a result of the corresponding costs related to the resale of the new capabilities provided by a third-party partner for two large federal contracts.

Gross Profit. Gross profit for the three months period ended March 31, 2023 was approximately $3.8 million (or 15% of revenues), as compared to approximately $3.9 million (or 17% of revenues) in 2022.

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The Gross Profit percentage excluding carrier services was 33% for the first quarter in 2023 compared to 41% in the same period last year. The lower gross margin percentage excluding carrier services was almost entirely related to the resale of the third party partner capabilities mentioned above. Our gross profit percentage will vary from quarter to quarter due to our revenue mix

Sales and Marketing.Sales and marketing expense for the three month period ended March 31, 2023 was approximately $0.5 million (or 2% of revenues), as compared to approximately $0.6 million (or 2% of revenues) in 2022. We continue to invest in our business development and sales team assets as identified as one of our key goals for 2023.

General and Administrative. General and administrative expenses for the three month period ended March 31, 2023 were approximately $3.7 million (or 15% of revenues), as compared to approximately $3.7 million (or 17% of revenues) in 2022. The change in general and administrative was not significant.

Depreciation and Amortization. Depreciation and amortization expense for the three month period ended March 31, 2023 was approximately $265,800 as compared to approximately $264,400 in 2022. The change in depreciation and amortization expense is related to capital investments in our delivery platforms reaching completion and beginning to be amortized.

Other Income (Expense).Other income (expense) for the three month period ended March 31, 2023 was an expense of approximately $(56,800) as compared to income of approximately $244,000 in 2022. The income in 2022 is primarily driven by the fair value adjustments of contingent consideration.

Income Taxes. Income tax provision for the three month period ended March 31, 2023 was approximately $6,300 as compared to income tax benefit of $51,100 in 2022. Income taxes were accrued at an estimated effective tax rate of (0.7)% for the three months ended March 31, 2023 compared to 11.5% for the three months ended March 31, 2022.

Net Loss.As a result of the cumulative factors annotated above, net loss for the three month period March 31, 2023 was approximately $951,500 as compared to net loss of approximately $392,900 in the same period last year.

Liquidity and Capital Resources

Our immediate sources of liquidity include cash, accounts receivable, unbilled receivables and access to factoring arrangement with Republic Capital Access, LLC with an initial capacity of $4 million, expandable to $10 million if needed. At March 31, 2023 the Company has a working capital facility with a Bank that is not expected to be renewed when it expires in June of 2023. The Company was not in compliance with the net tangible worth covenant as of December 31, 2022; however, the lender provided a waiver of that December 31, 2022 covenant violation. The Company expects no to be in compliance with the net tangible worth covenant and will let the facility expire on June 15, 2023.

At March 31, 2023, our net working capital was approximately $1.4 million as compared to $1.8 million at December 31, 2022. The decrease in net working capital was primarily driven by investments in computer hardware and software purchases and capitalized internally developed software costs, which was partially offset by temporary receivable/payable timing differences. We believe that our existing cash and our anticipated cash flows from operations, along with access to the factoring arrangement, will be sufficient to meet our working capital, expenditure, and contractual obligation requirements for the next 12 months and the foreseeable future.

Cash Flows from Operating Activities

For the three months ended March 31, 2023, net cash used by operations was approximately $2.5 million as compared to approximately $2.8 million net cash provided by operations for the three months ended March 31, 2022. The decrease from the same period in 2022 is a result of systems and process changes that slowed billing in the first quarter of 2023. The Company expects that billings will resume to a regular pace, or faster during 2023.

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Our single largest cash operating expense is the cost of labor and the 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 expenditures 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. We also may experience temporary collection timing differences from time to time due to customer invoice processing delays that are often beyond our control.

Cash Flows from Investing Activities

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

For the three months ended March 31, 2023, cash used in investing activities was approximately $0.4 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.

For the three months ended March 31, 2022, cash used in investing activities was approximately $1.0 million and consisted of computer hardware and software purchases and capitalized internally developed software costs, primarily associated with upgrading our ITMS™ platform, secure identity management technology and network operations center, and TDI™.

Cash Flows from Financing Activities

Cash provided by (used in) financing activities provides an indication of our debt financing and proceeds from capital raise transactions and stock option exercises.

For the three months ended March 31, 2023, cash used in financing activities was approximately $0.1 million and reflects line of credit advances and payments of approximately $4.3 million, lease principal repayments of approximately $125,600, and withholding taxes paid on behalf of employees on net settled restricted stock awards of approximately $3,600.

For the three months ended March 31, 2022, cash provided by financing activities was approximately $1.0 million and reflects lease principal repayments of approximately $147,400, repurchases of common stock of $0.8 million and withholding taxes paid on behalf of employees on net settled restricted stock awards of approximately $49,200.

Net Effect of Exchange Rate on Cash and Equivalents

For the three months ended March 31, 2023 and 2022, the gradual appreciation of the Euro relative to the US dollar increased the translated value of our foreign cash balances by approximately $42,939 as compared to last year.

Inflation

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

Off-Balance Sheet Arrangements

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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 March 31, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

25

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, 2022.

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.

Repurchase of Securities

The following table represents information with respect to shares of common stock withheld from vesting’s of stock-based compensation awards for employee income tax withholding for the periods indicated:

26

					Dollar Value of Shares Purchased as		Maximum Dollar Value of Shares that
	Total Number of		Average		as Part of Publicly		may be Purchased
	Shares Purchased		Price Paid Per Share		Announced Plans or Programs		Under Approved Plans or Programs
March		1,993	$	1.82		-	$	-
Total		1,993	$	1.82		-	$	-

ITEM 3 DEFAULT UPON SENIOR SECURITIES

None

ITEM 4 MINE SAFETY DISCLOSURES

None

ITEM 5 OTHER INFORMATION

None

27

ITEM 6. EXHIBITS

EXHIBIT NO.	DESCRIPTION
10.1*	Accounts Receivable Purchase Agreement with Republic Capital Access, LLC dated April 28, 2023 (incorporated by reference from Form 8K filed May 2, 2023 )
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)

28

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	WIDEPOINT CORPORATION
Date: May 15 , 2023	By:	/s/ JIN H. KANG
		Jin H. Kang
		President and Chief Executive Officer

Date: May 15, 2023	By:	/s/ ROBERT J. GEORGE
		Robert J. George
		Chief Financial Officer

29

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: May 15, 2023	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: May 15, 2023	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 March 31, 2023 (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: May 15, 2023     

XML

Cover - shares	3 Months Ended
	Mar. 31, 2023	May 08, 2023
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	Mar. 31, 2023
Entity Filer Category	Non-accelerated Filer
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2023
Entity Common Stock Shares Outstanding		8,785,616
Document Quarterly Report	true
Document Transition Report	false
Entity File Number	001-33035
Entity Incorporation State Country Code	DE
Entity Tax Identification Number	52-2040275
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
Entity Interactive Data Current	Yes

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
REVENUES	$ 25,273,681	$ 22,436,427
COST OF REVENUES (including amortization and depreciation of $502,560 and $287,518, respectively)	21,463,741	18,539,702
GROSS PROFIT	3,809,940	3,896,725
OPERATING EXPENSES
Sales and marketing	521,678	575,169
General and administrative expenses (including share-based compensation of $140,116 and $179,741, respectively)	3,910,820	3,745,229
Depreciation and amortization	265,843	264,361
Total operating expenses	4,698,341	4,584,759
LOSS FROM OPERATIONS	(888,401)	(688,034)
OTHER INCOME (EXPENSE)
Interest income	2,196	6,570
Interest expense	(58,778)	(63,521)
Other (expense) income, net	(194)	301,013
Total other income (expense), net	(56,776)	244,062
LOSS BEFORE INCOME TAX PROVISION (BENEFIT)	(945,177)	(443,972)
INCOME TAX PROVISION (BENEFIT)	6,302	(51,075)
NET LOSS	$ (951,479)	$ (392,897)
EARNINGS PER SHARE, BASIC AND DILUTED	$ (0.11)	$ (0.04)
WEIGHTED-AVERAGE SHARES OUTSTANDING, BASIC AND DILUTED	8,739,317	8,782,452

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Parenthetical) - USD ($)	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
COST OF REVENUES , Depreciation and Amortization	$ 502,560	$ 287,518
Share-Based Compensation Expense	$ 140,116	$ 179,741

XML

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Unaudited)
NET LOSS	$ (951,479)	$ (392,897)
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax	37,248	(4,835)
Other comprehensive income (loss)	37,248	(4,835)
COMPREHENSIVE LOSS	$ (914,231)	$ (397,732)

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)	Mar. 31, 2023	Dec. 31, 2022
CURRENT ASSETS
Cash	$ 4,577,963	$ 7,530,864
Accounts receivable, net of allowance for credit losses of $72,271 and $51,666 in 2023 and 2022, respectively	10,202,272	9,277,109
Unbilled accounts receivable	11,843,638	10,244,101
Other current assets	939,187	935,978
Total current assets	27,563,060	27,988,052
NONCURRENT ASSETS
Property and equipment, net	978,633	978,218
Lease right of use asset, net	4,556,571	4,723,899
Intangible assets, net	7,179,206	7,398,160
Goodwill	5,811,578	5,811,578
Deferred tax assets, net	88,360	86,909
Other long-term assets	2,211,695	2,025,845
Total assets	48,389,103	49,012,661
CURRENT LIABILITIES
Accounts payable	13,584,437	12,515,081
Accrued expenses	10,652,753	11,327,269
Deferred revenue	1,579,040	1,704,933
Current portion of lease liabilities	606,055	596,529
Total current liabilities	26,422,285	26,143,812
NONCURRENT LIABILITIES
Lease liabilities, net of current portion	4,610,296	4,745,909
Contingent consideration	6,900	6,900
Deferred revenue, net of current portion	376,162	364,837
Total liabilities	31,415,643	31,261,458
Commitments and contingencies (Note 16)	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; 8,739,317 and 8,725,476 shares issued and outstanding, respectively	8,740	8,726
Additional paid-in capital	101,330,659	101,194,185
Accumulated other comprehensive loss	(312,986)	(350,234)
Accumulated deficit	(84,052,953)	(83,101,474)
Total stockholders' equity	16,973,460	17,751,203
Total liabilities and stockholders' equity	$ 48,389,103	$ 49,012,661

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)	Mar. 31, 2023	Dec. 31, 2022
CONDENSED CONSOLIDATED BALANCE SHEETS
Allowance for doubtful accounts receivable	$ 72,271	$ 51,666
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	8,739,317	8,725,476
Common stock, shares outstanding	8,739,317	8,725,476

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$ (951,479)	$ (392,897)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation expense	267,309	265,185
(Recovery) provision for credit losses	35,858	0
Amortization of intangibles	501,094	286,653
Share-based compensation expense	140,116	179,741
Warrants expense	0	108,000
Change in fair value of contingent consideration	0	(301,000)
Changes in assets and liabilities:
Accounts receivable and unbilled receivables	(2,528,761)	4,413,557
Inventories	(17,294)	104,365
Other current assets	15,790	311,218
Other assets	0	1,112
Accounts payable and accrued expenses	113,869	(1,509,330)
Income tax payable	55,703	7,111
Deferred revenue and other liabilities	(121,253)	(369,633)
Other liabilities	0	(278,655)
Net cash (used in) provided by operating activities	(2,489,048)	2,825,427
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment	(96,721)	(203,274)
Capitalized hardware and software development costs	(262,549)	(780,599)
Net cash used in investing activities	(359,270)	(983,873)
CASH FLOWS FROM FINANCING ACTIVITIES
Advances on bank line of credit	4,313,007	0
Repayments of bank line of credit advances	(4,313,007)	0
Principal repayments under finance lease obligations	(125,568)	(147,405)
Withholding taxes paid on behalf of employees on net settled restricted stock awards	(3,628)	(49,224)
Common stock repurchased	0	(818,211)
Net cash used in financing activities	(129,196)	(1,014,840)
Net effect of exchange rate on cash	24,613	(38,950)
NET (DECREASE) INCREASE IN CASH	(2,952,901)	787,764
CASH, beginning of period	7,530,864	6,479,980
CASH, end of period	4,577,963	7,267,744
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest	55,979	63,521
Cash paid for income taxes	0	27,559
NONCASH INVESTING AND FINANCING ACTIVITIES
Capitalized hardware and software development costs in accounts payable	190,773	213,770
Leased assets and lease liabilities terminated	$ 0	$ 876,281

XML

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) - USD ($)	Total	Additional Paid-In Capital	Common Stock	Accumulated other comprehensive loss	Retained Earnings (Accumulated Deficit)
Balance, shares at Dec. 31, 2021			8,842,026
Balance, amount at Dec. 31, 2021	$ 41,675,995	$ 101,424,922	$ 8,842	$ (241,586)	$ (59,516,183)
Common stock repurchased, shares			(196,586)
Common stock repurchased, amount	(818,211)	(818,014)	$ (197)	0	0
restricted, shares			50,345
restricted, amount	(49,224)	(49,275)	$ 51	0	0
Issuance of warrants in acquisition of IT Authorities, Inc.	108,000	108,000	0	0	0
Issuance of common stock - restricted	179,741	179,741	0	0	0
Foreign currency translation - gain (loss)	(4,835)	0	0	(4,835)	0
Net loss	(392,897)	0	$ 0	0	(392,897)
Balance, shares at Mar. 31, 2022			8,695,785
Balance, amount at Mar. 31, 2022	40,698,569	100,845,374	$ 8,696	(246,421)	(59,909,080)
Balance, amount at Dec. 31, 2022	17,751,203	101,194,185	$ 8,726	(350,234)	(83,101,474)
restricted, shares			13,841
Issuance of common stock - restricted	140,116	140,116	$ 0	0	0
Net loss	(951,479)	0	0	0	(951,479)
restricted, amount	(3,628)	(3,642)	14	0	0
Foreign currency translation - gain (loss)	37,248	0	$ 0	37,248	0
Balance, shares at Mar. 31, 2023			8,725,476
Balance, amount at Mar. 31, 2023	$ 16,973,460	$ 101,330,659	$ 8,740	$ (312,986)	$ (84,052,953)

XML

Organization and Nature of Operations

3 Months Ended

Mar. 31, 2023

Organization and Nature of Operations

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

3 Months Ended

Mar. 31, 2023

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 March 31, 2023 and for each of the three month periods ended March 31, 2023 and 2022, included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Pursuant to such regulations, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted. It is the opinion of management that all adjustments (which include normal recurring adjustments) necessary for a fair statement of financial results are reflected in the financial statements for the interim periods presented. The condensed consolidated balance sheet as of December 31, 2022 was derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. The results of operations for the three month period ended March 31, 2023 are not necessarily indicative of the operating results for the full year.

Principles of Consolidation

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

Foreign Currency

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

Use of Estimates

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

Segment Reporting

The Company’s TMaaS offerings are substantially managed service driven solutions that use our proprietary technology platform to deliver our services and reported on that basis to its Chief Operating Decision Maker who evaluates its business as a single segment. See Note 15 for detailed information regarding the composition of revenues.

Significant Accounting Policies

There were no significant changes in the Company’s significant accounting policies during the first three months of 2023 from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 31, 2023.

Recently Adopted Accounting Standards

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“Topic 326”). Topic 326 amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 requires that credit losses be presented as an allowance rather than as a write-down. The adoption of this standard on January 1, 2023, did not have a material impact on the consolidated financial statements.

XML

Fair Value Measurements

3 Months Ended

Mar. 31, 2023

Fair Value Measurements

Fair Value Measurements

3. Fair Value Measurements

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

	MARCH 31,		Quoted Prices in Active Markets		Significant Other Observable Inputs		Unobservable Inputs
Description	2023		(Level 1)		(Level 2)		(Level 3)
Liabilities:	(Unaudited)
Contingent consideration - cash settled	$	6,500		-		-	$	6,500
Contingent consideration - warrants		400		-		-		400
Total liabilities measured and recorded at fair value	$	6,900	$	-	$	-	$	6,900

	DECEMBER 31,		Quoted Prices in Active Markets		Significant Other Observable Inputs		Unobservable Inputs
Description	2022		(Level 1)		(Level 2)		(Level 3)
Liabilities:
Contingent consideration - cash settled	$	6,500		-		-	$	6,500
Contingent consideration - warrants		400		-		-		400
Total liabilities measured and recorded at fair value	$	6,900	$	-	$	-	$	6,900

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

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

There was no change in fair value of contingent consideration for the three months ended March 31, 2023.

XML

Accounts Receivable and Significant Concentrations

3 Months Ended

Mar. 31, 2023

Accounts Receivable and Significant Concentrations

Accounts Receivable and Significant Concentrations

4. Accounts Receivable and Significant Concentrations

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

	MARCH 31,		DECEMBER 31,
	2023		2022
	(Unaudited)
U.S. Federal, State, and Local Government (1)	$	7,952,334	$	7,272,993
Commercial (2)		2,322,209		2,055,782
Gross accounts receivable		10,274,543		9,328,775
Less: allowances for credit
losses (3)		72,271		51,666
Accounts receivable, net	$	10,202,272	$	9,277,109

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

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

(3) For the three month period ended March 31, 2023, the Company did not recognize any material provisions of recoveries of existing provision for credit losses. The Company has not historically maintained an allowance for credit losses for its government customers as it has not experienced material or recurring credit losses and the nature and size of the contracts has not necessitated the Company’s establishment of such an allowance for credit losses.

Significant Concentrations

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

	THREE MONTHS ENDED
	MARCH 31,
Customer Type	2023			2022
	(Unaudited)
U.S. Federal Government (1)		80.0	%		77.7	%

(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.

Credit Risk

Financial instruments that potentially expose the Company to concentrations of credit risk consist principally of cash on deposit with financial institutions, the balances of which frequently exceed federally insured limits. If the financial institution with whom we do business were to be placed into receivership, we may be unable to access to the cash we have on deposit with such institutions. If we are unable to access our cash and cash equivalents as needed, our financial position and ability to operate our business could be adversely affected.

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Unbilled Accounts Receivable

3 Months Ended

Mar. 31, 2023

Accounts Receivable and Significant Concentrations

Unbilled Accounts Receivable

5. Unbilled Accounts Receivable

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

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

	MARCH 31,			DECEMBER 31,
	2023			2022
	As a % of			As a % of
Customer Type	Receivables			Receivables
	(Unaudited)
U.S. Federal Government		96	%		97	%

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Other Current Assets and Accrued Expenses

3 Months Ended

Mar. 31, 2023

Other Current Assets and Accrued Expenses

Other Current Assets and Other Long Term Assets

6. Other Current Assets and Accrued Expenses

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

	MARCH 31,		DECEMBER 31,
	2023		2022
	(Unaudited)
Inventories	$	239,658	$	222,279
Prepaid insurance and other assets		699,529		713,699
Total other current assets	$	939,187	$	935,978

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

	MARCH 31,		DECEMBER 31,
	2023		2022
	(Unaudited)
Carrier service costs	$	8,159,230	$	8,402,770
Salaries and payroll taxes		1,609,058		1,637,628
Inventory purchases, consultants and other costs		746,113		1,205,209
U.S. Income tax payable		61,490		61,490
Other		76,862		20,172
	$	10,652,753	$	11,327,269

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Property and Equipment

3 Months Ended

Mar. 31, 2023

Property and Equipment

Property and Equipment

7. Property and Equipment

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

	MARCH 31,		DECEMBER 31,
	2023		2022
	(Unaudited)
Computer hardware and software	$	3,268,634	$	3,158,428
Furniture and fixtures		501,973		502,391
Leasehold improvements		288,215		284,321
Automobiles		125,664		122,524
Gross property and equipment		4,184,486		4,067,664
Less: accumulated depreciation and
amortization		3,205,853		3,089,446
Property and equipment, net	$	978,633	$	978,218

During the three month periods ended March 31, 2023 and 2022, property and equipment depreciation expense was approximately $116,400 and $93,700, respectively.

During the three month periods ended March 31, 2023 and 2022, there were no material disposals of owned property and equipment.

There were no changes in the estimated useful lives used to depreciate property and equipment during the three month periods ended March 31, 2023 and 2022.

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Leases

3 Months Ended

Mar. 31, 2023

Leases

Leases

8. Leases

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

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Goodwill and Intangible Assets

3 Months Ended

Mar. 31, 2023

Goodwill and Intangible Assets

Goodwill and Intangible Assets

9. Goodwill and Intangible Assets

Goodwill consisted of the following:

The Company has recorded goodwill of $5,811,578 as of March 31, 2023. There were no changes in the carrying amount of goodwill during the three month period ended March 31, 2023

Intangible assets consists of the following:

	MARCH 31, 2023
	Gross Carrying		Accumulated			Net Book
	Amount		Amortization			Value
	(Unaudited)
Customer Relationships	$	2,392,000	$	(358,800	)	$	2,033,200
Channel Relationships		2,628,080		(1,562,248	)		1,065,832
Internally Developed Software		5,948,518		(2,922,146	)		3,026,372
Trade Name and Trademarks		1,330,472		(276,670	)		1,053,802
	$	12,299,070	$	(5,119,864	)	$	7,179,206

	DECEMBER 31, 2022
	Gross Carrying		Accumulated			Net Book
	Amount		Amortization			Value
Customer Relationships	$	2,392,000	$	(299,000	)	$	2,093,000
Channel Relationships		2,628,080		(1,518,446	)		1,109,634
Internally Developed Software		5,665,957		(2,546,407	)		3,119,550
Trade Name and Trademarks		1,330,472		(254,496	)		1,075,976
	$	12,016,509	$	(4,618,349	)	$	7,398,160

For the three month period ended March 31, 2023, the Company capitalized $453,300 of internally developed software costs, primarily associated with upgrading our ITMS™ (Intelligent Technology Management System), secure identity management technology and secure network operations center of which $280,220 was transferred from capital work in progress to internally developed software during the period. Capital work in progress is included in other long-term assets in the consolidated balance sheet.

For the three month period ended March 31, 2022, the Company capitalized $820,000 of internally developed software costs, primarily associated with upgrading our ITMS™ (Intelligent Telecommunications Management System), secure identity management technology and network operations center of which $243,500 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.

There were no disposals of intangible assets during the three month period ended March 31, 2023.

The aggregate amortization expense recorded for the three month periods ended March 31, 2023 and 2022 were approximately $501,100 and $286,700, respectively.

As of March 31, 2023, estimated annual amortization for our intangible assets is approximately:

Remainder of 2023	$	1,497,301
2024		1,797,411
2025		1,123,850
2026		526,714
2027		511,170
Thereafter		1,722,760
Total	$	7,179,206

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Line of Credit

3 Months Ended

Mar. 31, 2023

Line of Credit

Line of Credit

10. Line of Credit

Since June 15, 2017, the Company had a Loan and Security Agreement with Atlantic Union Bank (formerly known as Access National Bank) (the “Loan Agreement”).

In June 2022, the Company entered into a seventh and eighth 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 measured quarterly, (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 and increased the maximum amount 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 March 31, 2023, there was no outstanding balance under the line of credit. At December 31, 2022 and March 31, 2023, the Company was not in compliance with the tangible net worth covenant as its tangible net worth did not equal at least approximately $6,500,000. Atlantic Union Bank provided a waiver of the December 31, 2022 violation. As a result of the maturity date of June 15, 2023 and the potential that Atlantic Union Bank would not renew the line of credit, the Company secured an additional financing arrangement. The Company does not plan to renew its Loan and Security Agreement with Atlantic Union Bank.

On April 28, 2023, the Company entered into an Accounts Receivable Purchase Agreement (the “Agreement”) with Republic Capital Access, LLC (the “Buyer”) for the non-recourse sale of eligible trade receivables. Pursuant to the Agreement, the Company may from time to time offer and sell eligible accounts receivable to the Buyer at an initial purchase price equal to 90% of the receivable (85% if the account receivable debtor is not a government entity), subject to increase based on, among other things, the total amount collected and the discount factor applicable to the receivable. The facility is limited to a total of $4 million outstanding at any time, with an available increase to $10 million, subject to adequate receivables. The Agreement contains customary fees, covenants and representations.

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Income Taxes

3 Months Ended

Mar. 31, 2023

Income Taxes

Income Taxes

11. Income Taxes

The Company’s effective tax rate was (0.7)% and 11.5% for the three month periods ended March 31, 2023 and 2022, respectively. The difference in the effective tax rate and the U.S. federal statutory rate was primarily due to the full valuation allowance the Company maintains against its deferred tax assets and state minimum taxes in the United States. The effective tax rate is calculated by dividing the Provision (benefit) for income taxes by the Loss before provision (benefit) for income taxes.

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. The Company increased its valuation allowance approximately $238,000 during the three month period ended March 31, 2023. 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

3 Months Ended

Mar. 31, 2023

Stockholders Equity

Stockholders' Equity

12. Stockholders’ Equity

Common Stock

The Company is authorized to issue 30,000,000 shares of common stock, $.001 par value per share. As of March 31, 2023, there were 8,741,310 shares issued and outstanding. During the three month period ended March 31, 2023, there were 15,837 shares of common stock vested in accordance with the vesting terms of the RSAs. Two employees received less than the shares vested because they elected to have a total of 1,993 shares withheld in satisfaction of the employees corresponding tax liability of approximately $3,600. The Company’s payment of this tax liability was recorded as a cash flow from financing activity on the consolidated statement of cash flows.

During the three-month period ended March 31, 2022, there were 50,345 shares of common stock vested in accordance with the vesting terms of the RSAs. Three employees received less than the shares vested because they elected to have a total of 11,280 shares withheld in satisfaction of the employees corresponding tax liability of approximately $49,300. The Company’s payment of this tax liability was recorded as a cash flow from financing activity on the consolidated statement of cash flows.

There were no stock option exercises during the three month periods ended March 31, 2023 and 2022.

Contingent Warrants

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

Warrants Issued

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

At The Market Offering Agreement

On August 18, 2020, the Company entered into an At-The-Market Issuance Sales Agreement (the “Sales Agreement”). The Company did not sell any shares during the three month period ended March 31, 2023.

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

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Sharebased Compensation

3 Months Ended

Mar. 31, 2023

Stockholders Equity

Share-based Compensation

13. Share-based Compensation

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

	THREE MONTHS ENDED
	MARCH 31,
	2023		2022
	(Unaudited)
Restricted share-based compensation expense	$	140,116	$	179,741
Total share-based compensation before taxes	$	140,116	$	179,741

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. There were no RSAs granted during the three month periods ended March 31, 2023 and 2022.

At March 31, 2023, the Company had approximately $140,300 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)

3 Months Ended

Mar. 31, 2023

Earnings Per Common Share (EPS)

Earnings Per Common Share (EPS)

14. Earnings Per Common Share (EPS)

The computations of basic and diluted earnings per share were as follows for the periods presented below:

	THREE MONTHS ENDED
	MARCH 31,
	2023			2022
	(Unaudited)
Basic Earnings Per Share Computation:
Net loss	$	(951,479	)	$	(392,897	)
Weighted average number of common shares		8,739,317			8,782,452
Basic Loss Per Share	$	(0.11	)	$	(0.04	)
Diluted Earnings Per Share Computation:
Net loss	$	(951,479	)	$	(392,897	)
Weighted average number of common shares		8,739,317			8,782,452
Incremental shares from assumed conversions
of dilutive securities		-			-
Adjusted weighted average number of
common shares		8,739,317			8,782,452
Diluted Loss Per Share	$	(0.11	)	$	(0.04	)

For the three months ended March 31, 2023 and 2022, the Company had unexercised stock options and RSAs of 34,682 and 30,513, respectively, and warrants to purchase 150,000 and 150,000 shares of common stock, outstanding, that were anti-dilutive.

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Revenue from Contracts with Customers

3 Months Ended

Mar. 31, 2023

Revenue from Contracts with Customers

Revenue from Contracts with Customers

15. Revenue from Contracts with Customers

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

	THREE MONTHS ENDED
	MARCH 31,
	2023		2022
	(Unaudited)
Carrier Services	$	13,597,701	$	12,932,055
Managed Services		11,675,980		9,504,372
	$	25,273,681	$	22,436,427

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

	THREE MONTHS ENDED
	MARCH 31,
	2023		2022
	(Unaudited)
U.S. Federal Government	$	20,230,576	$	17,433,723
U.S. State and Local Governments		91,023		126,142
Foreign Governments		16,557		32,407
Commercial Enterprises		4,935,525		4,844,155
	$	25,273,681	$	22,436,427

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

	THREE MONTHS ENDED
	MARCH 31,
	2023		2022
	(Unaudited)
North America	$	24,209,410	$	21,434,634
Europe		1,064,271		1,001,793
	$	25,273,681	$	22,436,427

During the three months ended March 31, 2023 and 2022, the Company recognized approximately $709,400 and $1,079,900, respectively, of revenue related to amounts that were included in deferred revenue as of December 31, 2022 and 2021, respectively.

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Commitments and Contingencies

3 Months Ended

Mar. 31, 2023

Commitments and Contingencies

Commitments and Contingencies

16.  Commitments and Contingencies

Employment Agreements

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

Litigation

The Company is not involved in any material legal proceedings.

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Subsequent Events

3 Months Ended

Mar. 31, 2023

Subsequent Events

Subsequent Events

17. Subsequent Events

As described in Note 11, effective April 28, 2023, the Company has entered into an Accounts Receivable Purchase Agreement (the Receivables Facility) with Republic Capital Access, LLC for the non-recourse sale of eligible trade receivables.

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Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2023

Basis of Presentation and Accounting Policies

Basis of Presentation

The unaudited condensed consolidated financial statements as of March 31, 2023 and for each of the three month periods ended March 31, 2023 and 2022, included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Pursuant to such regulations, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted. It is the opinion of management that all adjustments (which include normal recurring adjustments) necessary for a fair statement of financial results are reflected in the financial statements for the interim periods presented. The condensed consolidated balance sheet as of December 31, 2022 was derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. The results of operations for the three month period ended March 31, 2023 are not necessarily indicative of the operating results for the full year.

Principles of Consolidation

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

Foreign Currency

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

Use of Estimates

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

Segment Reporting

The Company’s TMaaS offerings are substantially managed service driven solutions that use our proprietary technology platform to deliver our services and reported on that basis to its Chief Operating Decision Maker who evaluates its business as a single segment. See Note 15 for detailed information regarding the composition of revenues.

Significant Accounting Policies

There were no significant changes in the Company’s significant accounting policies during the first three months of 2023 from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 31, 2023.

Recently Adopted Accounting Standards

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“Topic 326”). Topic 326 amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 requires that credit losses be presented as an allowance rather than as a write-down. The adoption of this standard on January 1, 2023, did not have a material impact on the consolidated financial statements.

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Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2023

Fair Value Measurements

Schedule of liabilities measured at fair value on a recurring basis

	MARCH 31,		Quoted Prices in Active Markets		Significant Other Observable Inputs		Unobservable Inputs
Description	2023		(Level 1)		(Level 2)		(Level 3)
Liabilities:	(Unaudited)
Contingent consideration - cash settled	$	6,500		-		-	$	6,500
Contingent consideration - warrants		400		-		-		400
Total liabilities measured and recorded at fair value	$	6,900	$	-	$	-	$	6,900

	DECEMBER 31,		Quoted Prices in Active Markets		Significant Other Observable Inputs		Unobservable Inputs
Description	2022		(Level 1)		(Level 2)		(Level 3)
Liabilities:
Contingent consideration - cash settled	$	6,500		-		-	$	6,500
Contingent consideration - warrants		400		-		-		400
Total liabilities measured and recorded at fair value	$	6,900	$	-	$	-	$	6,900

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Accounts Receivable and Significant Concentrations (Tables)

3 Months Ended

Mar. 31, 2023

Accounts Receivable and Significant Concentrations

Schedule of accounts receivable

	MARCH 31,		DECEMBER 31,
	2023		2022
	(Unaudited)
U.S. Federal, State, and Local Government (1)	$	7,952,334	$	7,272,993
Commercial (2)		2,322,209		2,055,782
Gross accounts receivable		10,274,543		9,328,775
Less: allowances for credit
losses (3)		72,271		51,666
Accounts receivable, net	$	10,202,272	$	9,277,109

Schedule of presents revenue by customer

	THREE MONTHS ENDED
	MARCH 31,
Customer Type	2023			2022
	(Unaudited)
U.S. Federal Government (1)		80.0	%		77.7	%

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Unbilled Accounts Receivable (Tables)

3 Months Ended

Mar. 31, 2023

Accounts Receivable and Significant Concentrations

Schedule of concentration of risk

	MARCH 31,			DECEMBER 31,
	2023			2022
	As a % of			As a % of
Customer Type	Receivables			Receivables
	(Unaudited)
U.S. Federal Government		96	%		97	%

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Other Current Assets and Accrued Expenses (Tables)

3 Months Ended

Mar. 31, 2023

Other Current Assets and Accrued Expenses

Schedule of Other current assets

	MARCH 31,		DECEMBER 31,
	2023		2022
	(Unaudited)
Inventories	$	239,658	$	222,279
Prepaid insurance and other assets		699,529		713,699
Total other current assets	$	939,187	$	935,978

Schedule of Accrued Expenses

	MARCH 31,		DECEMBER 31,
	2023		2022
	(Unaudited)
Carrier service costs	$	8,159,230	$	8,402,770
Salaries and payroll taxes		1,609,058		1,637,628
Inventory purchases, consultants and other costs		746,113		1,205,209
U.S. Income tax payable		61,490		61,490
Other		76,862		20,172
	$	10,652,753	$	11,327,269

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Property and Equipment (Tables)

3 Months Ended

Mar. 31, 2023

Property and Equipment

Property, plant and equipment

	MARCH 31,		DECEMBER 31,
	2023		2022
	(Unaudited)
Computer hardware and software	$	3,268,634	$	3,158,428
Furniture and fixtures		501,973		502,391
Leasehold improvements		288,215		284,321
Automobiles		125,664		122,524
Gross property and equipment		4,184,486		4,067,664
Less: accumulated depreciation and
amortization		3,205,853		3,089,446
Property and equipment, net	$	978,633	$	978,218

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Goodwill and Intangible Assets (Tables)

3 Months Ended

Mar. 31, 2023

Goodwill and Intangible Assets

Schedule of Intangible assets

	MARCH 31, 2023
	Gross Carrying		Accumulated			Net Book
	Amount		Amortization			Value
	(Unaudited)
Customer Relationships	$	2,392,000	$	(358,800	)	$	2,033,200
Channel Relationships		2,628,080		(1,562,248	)		1,065,832
Internally Developed Software		5,948,518		(2,922,146	)		3,026,372
Trade Name and Trademarks		1,330,472		(276,670	)		1,053,802
	$	12,299,070	$	(5,119,864	)	$	7,179,206

	DECEMBER 31, 2022
	Gross Carrying		Accumulated			Net Book
	Amount		Amortization			Value
Customer Relationships	$	2,392,000	$	(299,000	)	$	2,093,000
Channel Relationships		2,628,080		(1,518,446	)		1,109,634
Internally Developed Software		5,665,957		(2,546,407	)		3,119,550
Trade Name and Trademarks		1,330,472		(254,496	)		1,075,976
	$	12,016,509	$	(4,618,349	)	$	7,398,160

Schedule of Estimated annual amortization of Intangible assets

Remainder of 2023	$	1,497,301
2024		1,797,411
2025		1,123,850
2026		526,714
2027		511,170
Thereafter		1,722,760
Total	$	7,179,206

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Sharebased Compensation (Tables)

3 Months Ended

Mar. 31, 2023

Stockholders Equity

Share-based Compensation

	THREE MONTHS ENDED
	MARCH 31,
	2023		2022
	(Unaudited)
Restricted share-based compensation expense	$	140,116	$	179,741
Total share-based compensation before taxes	$	140,116	$	179,741

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Earnings Per Common Share (EPS) (Tables)

3 Months Ended

Mar. 31, 2023

Earnings Per Common Share (EPS)

Schedule of earnings per share, basic and diluted

	THREE MONTHS ENDED
	MARCH 31,
	2023			2022
	(Unaudited)
Basic Earnings Per Share Computation:
Net loss	$	(951,479	)	$	(392,897	)
Weighted average number of common shares		8,739,317			8,782,452
Basic Loss Per Share	$	(0.11	)	$	(0.04	)
Diluted Earnings Per Share Computation:
Net loss	$	(951,479	)	$	(392,897	)
Weighted average number of common shares		8,739,317			8,782,452
Incremental shares from assumed conversions
of dilutive securities		-			-
Adjusted weighted average number of
common shares		8,739,317			8,782,452
Diluted Loss Per Share	$	(0.11	)	$	(0.04	)

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Revenue from Contracts with Customers (Tables)

3 Months Ended

Mar. 31, 2023

Revenue from Contracts with Customers

Schedule of composition of revenues from contracts with customers

	THREE MONTHS ENDED
	MARCH 31,
	2023		2022
	(Unaudited)
Carrier Services	$	13,597,701	$	12,932,055
Managed Services		11,675,980		9,504,372
	$	25,273,681	$	22,436,427

Revenue from external customers by customers type

	THREE MONTHS ENDED
	MARCH 31,
	2023		2022
	(Unaudited)
U.S. Federal Government	$	20,230,576	$	17,433,723
U.S. State and Local Governments		91,023		126,142
Foreign Governments		16,557		32,407
Commercial Enterprises		4,935,525		4,844,155
	$	25,273,681	$	22,436,427

Revenue from external customers by geographic areas

	THREE MONTHS ENDED
	MARCH 31,
	2023		2022
	(Unaudited)
North America	$	24,209,410	$	21,434,634
Europe		1,064,271		1,001,793
	$	25,273,681	$	22,436,427

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Fair Value Measurements (Details) - USD ($)	Mar. 31, 2023	Dec. 31, 2022
Contingent consideration - cash settled	$ 6,500	$ 6,500
Contingent consideration - warrants	400	400
Total liabilities measured and recorded at fair value	6,900	6,900
Fair Value, Inputs, Level 3 [Member]
Contingent consideration - cash settled	6,500	6,500
Contingent consideration - warrants	400	400
Total liabilities measured and recorded at fair value	6,900	6,900
Fair Value, Inputs, Level 2 [Member]
Contingent consideration - cash settled	0	0
Contingent consideration - warrants	0	0
Total liabilities measured and recorded at fair value	0	0
Fair Value, Inputs, Level 1 [Member]
Contingent consideration - cash settled	0	0
Contingent consideration - warrants	0	0
Total liabilities measured and recorded at fair value	$ 0	$ 0

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Accounts Receivable and Significant Concentrations (Details) - USD ($)	Mar. 31, 2023	Dec. 31, 2022
Accounts Receivable Gross	$ 10,274,543	$ 9,328,775
Less: allowances for doubtful accounts	72,271	51,666
Accounts receivable, net	10,202,272	9,277,109
Government
Accounts Receivable Gross	7,952,334	7,272,993
Commercial
Accounts Receivable Gross	$ 2,322,209	$ 2,055,782

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Accounts Receivable and Significant Concentrations (Details 1)	3 Months Ended	12 Months Ended
	Mar. 31, 2023	Dec. 31, 2022
U.S Federal Government
Concentration risk	80.00%	77.70%

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Unbilled Accounts Receivable (Details)	Mar. 31, 2023	Dec. 31, 2022
U.S Federal Government
Concentration Risk of receivable	96.00%	97.00%

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Other Current Assets and Accrued Expenses (Details) - USD ($)	Mar. 31, 2023	Dec. 31, 2022
Other Current Assets
Inventories	$ 239,658	$ 222,279
Prepaid insurance and other assets	699,529	713,699
Other current assets	$ 939,187	$ 935,978

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Other Current Assets and Accrued Expenses (Details 1) - USD ($)	Mar. 31, 2023	Mar. 31, 2022
Other Current Assets and Accrued Expenses
Carrier service costs	$ 8,159,230	$ 8,402,770
Salaries and payroll taxes	1,609,058	1,637,628
Inventory purchases, consultants and other costs	746,113	1,205,209
U.S. Income tax payable	61,490	61,490
Other	76,862	20,172
Accrued expenses	$ 10,652,753	$ 11,327,269

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Property and Equipment (Details) - USD ($)	Mar. 31, 2023	Dec. 31, 2022
Less: accumulated depreciation and amortization	$ 3,205,853	$ 3,089,446
Property and equipment, net	978,633	978,218
Gross property and equipment	4,184,486	4,067,664
Computer Hardware Software
Gross property and equipment	3,268,634	3,158,428
Furniture and Fixtures
Gross property and equipment	501,973	502,391
Leasehold Improvements
Gross property and equipment	288,215	284,321
Automobiles
Gross property and equipment	$ 125,664	$ 122,524

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Property and Equipment (Details Narrative) - USD ($)	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Property and Equipment
Property and equipment depreciation expense	$ 116,400	$ 93,700

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Goodwill and Intangible Assets (Details) - USD ($)	Dec. 31, 2023	Mar. 31, 2023	Dec. 31, 2022
Gross carrying amount		$ 12,299,070	$ 12,016,509
Accumulated amortization		(5,119,864)	(4,618,349)
Net book value	$ 7,179,206	7,179,206	7,398,160
Trademarks and Trade Names
Gross carrying amount		1,330,472	1,330,472
Accumulated amortization		(276,670)	(254,496)
Net book value		1,053,802	1,075,976
Customer Relationships
Gross carrying amount		2,392,000	2,392,000
Accumulated amortization		(358,800)	(299,000)
Net book value		2,033,200	2,093,000
Channel Relationships
Gross carrying amount		2,628,080	2,628,080
Accumulated amortization		(1,562,248)	(1,518,446)
Net book value		1,065,832	1,109,634
Internally Developed Software
Gross carrying amount		5,948,518	5,665,957
Accumulated amortization		(2,922,146)	(2,546,407)
Net book value		$ 3,026,372	$ 3,119,550

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Goodwill and Intangible Assets (Details 1) - USD ($)	Dec. 31, 2023	Mar. 31, 2023	Dec. 31, 2022
Goodwill and Intangible Assets
2023	$ 1,497,301
2024	1,797,411
2025	1,123,850
2026	526,714
2027	511,170
Thereafter	1,722,760
Total	$ 7,179,206	$ 7,179,206	$ 7,398,160

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Goodwill and Intangible Assets (Details Narrative) - USD ($)	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022	Dec. 31, 2022
Aggregate amortization expense	$ 501,100	$ 286,700
Goodwill	5,811,578		$ 5,811,578
Capitalized Software Development Costs	453,300	820,000
Property, Plant and Equipment [Member]
Capitalized Software Development Costs		316,900
Internally Developed Software
Capitalized Software Development Costs	$ 280,220	$ 243,500

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Line of Credit (Details Narrative) - USD ($)	1 Months Ended	3 Months Ended
	Jun. 15, 2022	Mar. 31, 2023
Net paid percentage		90.00%
Line of credit description		The facility is limited to a total of $4 million outstanding at any time, with an available increase to $10 million, subject to adequate receivables
Loan Agreement
Borrowing base amount	$ 1,000,000
Working capital revolving line of credit		$ 6,500,000
Line of credit borrowing capacity		$ 7,000,000.0
Borrowing term	12 months
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	$ 650,000,000,000	$ 7,000,000.0
Loan Agreement | Minimum
Working capital revolving line of credit		$ 5,000,000.0

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Income Taxes (Details Narrative) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Income Taxes
Valuation allowance	$ 23,800.0
Income tax rate	(0.70%)	11.50%

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Stockholders Equity (Details Narrative) - USD ($)	3 Months Ended
	Mar. 31, 2023	Dec. 31, 2022
Gross proceeds for issuance of common stock for stock option exercises	$ 40
Gross proceeds	$ 74,310
Preferred stock, par value		$ 0.001
Common stock, shares authorized	30,000,000	30,000,000
Share-Based Payment Arrangement, Decrease for Tax Withholding Obligation	$ 49,300
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares issued	8,741,310	50,345
Sold of common stock	100,687
Offering costs		$ 62,700
Gross proceeds from sale of common stock	$ 110,000
Repurchase Plan
Stock repurchase plan of common stock		$ 150,000
Stock repurchase shares	196,586
Stock repurchase Amount	$ 818,200
Warrants
Issued warrants to purchase		75,000
Strike price		$ 5.33
Warrants Fair Value	$ 108,000
Warrants Term	5.33
Number of securities called by warrants		75,000
Restricted Stock Units (RSUs) [Member]
common stock vested sharaes	15,837
Share-Based Payment Arrangement, Decrease for Tax Withholding Obligation	$ 3,600
Share-Based Payment Arrangement, Shares Withheld for Tax Withholding Obligation	11,280

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Share-based Compensation (Details) - Employee Stock Option - USD ($)	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Restricted stock compensation expense	$ 140,116	$ 179,741
Total share-based compensation before taxes	$ 140,116	$ 179,741

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Share-based Compensation (Details Narrative)	3 Months Ended
	Mar. 31, 2023 shares
Share-based Compensation (Details)
Restricted stock awards granted	140,300
Weighted average remaining	1 year

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Earnings Per Common Share (EPS) (Details) - USD ($)	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Basic EPS Computation:
Net loss	$ (951,479)	$ (392,897)
Weighted average number of common shares	8,739,317	8,782,452
Basic EPS	$ (0.11)	$ (0.04)
Diluted EPS Computation:
Net loss	$ (951,479)	$ (392,897)
Weighted average number of common shares	8,739,317	8,782,452
Incremental shares from assumed conversions of stock options	0	0
Adjusted weighted average number of common shares	8,739,317	8,782,452
Diluted EPS	$ (0.11)	$ (0.04)

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Earnings Per Common Share (EPS) (Details Narrative) - shares	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Earnings Per Common Share (EPS)
Stock options	34,682	30,513
Warrants to purchase	150,000	150,000

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Revenue from Contracts with Customers (Details) - USD ($)	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Revenues, net	$ 25,273,681	$ 22,436,427
Carrier Services [Member]
Revenues, net	13,597,701	12,932,055
Management Services [Member]
Revenues, net	$ 11,675,980	$ 9,504,372

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Revenue from Contracts with Customers (Details 1) - USD ($)	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Revenue, net	$ 25,273,681	$ 22,436,427
U.S. State and Local Governments
Revenue, net	91,023	126,142
Foreign Governments
Revenue, net	16,557	32,407
Commercial Enterprises
Revenue, net	4,935,525	4,844,155
U.S Federal Government
Revenue, net	$ 20,230,576	$ 17,433,723

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Revenue from Contracts with Customers (Details 2) - USD ($)	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Revenue, net	$ 25,273,681	$ 22,436,427
North America
Revenue, net	24,209,410	21,434,634
Europe
Revenue, net	$ 1,064,271	$ 1,001,793

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Revenue from Contracts with Customers (Details Narrative) - USD ($)	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Revenue from Contracts with Customers
Revenue Related Approximately	$ 709,400	$ 1,079,900