Company Quick10K Filing
Quick10K
Widepoint
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.60 84 $50
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-06-11 Shareholder Vote
8-K 2019-05-14 Earnings, Exhibits
8-K 2019-04-30 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-04-16 Officers
8-K 2019-04-12 Exhibits
8-K 2019-03-21 Earnings, Exhibits
8-K 2019-02-07 Officers, Regulation FD
8-K 2018-11-14 Earnings, Exhibits
8-K 2018-09-18 Shareholder Vote
8-K 2018-08-14 Earnings, Exhibits
8-K 2018-07-03 Enter Agreement, Officers, Exhibits
8-K 2018-05-14 Earnings, Exhibits
8-K 2018-04-30 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-03-21 Earnings, Exhibits
8-K 2018-02-19 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2017-12-29 Officers, Exhibits
NLY Annaly Capital Management 13,940
SEIC SEI Investments 8,020
PGC Peapack Gladstone Financial 550
ESTE Earthstone Energy 442
OXFD Oxford Immunotec Global 437
LAND Gladstone Land 229
BCAC Bison Capital Acquisition 88
SLGG Super League Gaming 71
HLTH Nobilis Health 16
TEHG Technovative Group 0
WYY 2019-03-31
Item 1. 
EX-31.1 wyy_ex311.htm
EX-31.2 wyy_ex312.htm
EX-32 wyy_ex32.htm

Widepoint Earnings 2019-03-31

WYY 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 wyy_10q.htm QUARTERLY REPORT Blueprint
 

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, 2019
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, Suite 210, Fairfax, Virginia 22030
(Address of principal executive offices) (Zip Code)
 
(703) 349-2577
(Registrant’s telephone number, including area code)
 
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 14, 2019, there were 84,351,018 shares of the registrant’s Common Stock issued and outstanding.
 
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
 

 
 
 
WIDEPOINT CORPORATION
 
INDEX
 
 
 Page No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CERTIFICATIONS
 
 
 
 
 
 
 
 
 
PART I. 
FINANCIAL INFORMATION
 
ITEM 1. 
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
 
WIDEPOINT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
 
 
THREE MONTHS ENDED
 
 
 
MARCH 31,
 
 
 
2019
 
 
2018
 
 
 
(Unaudited)
 
REVENUES
 $21,916,902 
 $20,079,619 
COST OF REVENUES (including amortization and depreciation
    
    
of $232,191, and $295,979, respectively)
  17,663,059 
  16,527,612 
 
    
    
GROSS PROFIT
  4,253,843 
  3,552,007 
 
    
    
OPERATING EXPENSES
    
    
Sales and marketing
  393,411 
  534,637 
General and administrative expenses (including share-based
    
    
compensation of $89,266, and $124,404, respectively)
  3,134,709 
  3,353,341 
Depreciation and amortization
  240,548 
  97,386 
 
    
    
Total operating expenses
  3,768,668 
  3,985,364 
 
    
    
INCOME (LOSS) FROM OPERATIONS
  485,175 
  (433,357)
 
    
    
OTHER (EXPENSE) INCOME
    
    
Interest income
  4,462 
  3,326 
Interest expense
  (77,545)
  (25,950)
Other income
  9 
  (2)
 
    
    
Total other expense
  (73,074)
  (22,626)
 
    
    
INCOME (LOSS) BEFORE INCOME TAX PROVISION
  412,101 
  (455,983)
INCOME TAX PROVISION
  28,000 
  6,190 
 
    
    
NET INCOME (LOSS)
 $384,101 
 $(462,173)
 
    
    
BASIC EARNINGS (LOSS) PER SHARE
 $0.00 
 $(0.01)
 
    
    
BASIC WEIGHTED-AVERAGE SHARES OUTSTANDING
  83,812,448 
  83,041,597 
 
    
    
DILUTED EARNINGS (LOSS) PER SHARE
 $0.00 
 $(0.01)
 
    
    
DILUTED WEIGHTED-AVERAGE SHARES OUTSTANDING
  83,814,670 
  83,041,597 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
2
 
 
WIDEPOINT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 
 
 
THREE MONTHS ENDED
 
 
 
MARCH 31,
 
 
 
2019
 
 
2018
 
 
 
(Unaudited)
 
NET INCOME (LOSS)
 $384,101 
 $(462,173)
 
    
    
Other comprehensive (loss) income:
    
    
Foreign currency translation adjustments, net of tax
  (29,282)
  2,938 
 
    
    
Other comprehensive (loss) income
  (29,282)
  2,938 
 
    
    
COMPREHENSIVE INCOME (LOSS)
 $354,819 
 $(459,235)
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
3
 
 
WIDEPOINT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 
 
 
MARCH 31,
 
 
DECEMBER 31,
 
 
 
2019
 
 
2018
 
 
 
(Unaudited) 
 
 
ASSETS
 
CURRENT ASSETS
 
 
 
 
 
 
Cash and cash equivalents
 $4,567,168 
 $2,431,892 
Accounts receivable, net of allowance for doubtful accounts
    
    
of $112,754 and $106,733 in 2019 and 2018, respectively
  11,220,420 
  11,089,315 
Unbilled accounts receivable
  8,232,585 
  9,566,170 
Other current assets
  1,200,056 
  1,086,686 
 
    
    
Total current assets
  25,220,229 
  24,174,063 
 
    
    
NONCURRENT ASSETS
    
    
Property and equipment, net
  737,766 
  1,012,684 
Operating lease right of use asset, net
  5,969,894 
  - 
Intangibles, net
  2,959,442 
  3,103,753 
Goodwill
  18,555,578 
  18,555,578 
Other long-term assets
  233,073 
  209,099 
 
    
    
Total assets
 $53,675,982 
 $47,055,177 
 
    
    
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
    
    
CURRENT LIABILITIES
    
    
Accounts payable
 $9,374,095 
 $7,363,621 
Accrued expenses
  9,676,357 
  10,716,438 
Deferred revenue
  1,690,592 
  2,072,344 
Current portion of finance leases
  481,562 
  107,325 
Current portion of other term obligations
  88,226 
  192,263 
 
    
    
Total current liabilities
  21,310,832 
  20,451,991 
 
    
    
NONCURRENT LIABILITIES
    
    
Finance leases, net of current portion
  5,594,671 
  122,040 
Other term obligations, net of current portion
  - 
  73,952 
Deferred revenue
  351,262 
  466,714 
Deferred tax liability
  1,558,162 
  1,523,510 
 
    
    
Total liabilities
  28,814,927 
  22,638,207 
 
    
    
STOCKHOLDERS' EQUITY
    
    
Preferred stock, $0.001 par value; 10,000,000 shares
    
    
authorized; 2,045,714 shares issued and none outstanding
  - 
  - 
Common stock, $0.001 par value; 110,000,000 shares
    
    
  authorized; 84,112,446 and 84,112,446 shares
    
    
issued and oustanding, respectively
  84,113 
  84,113 
Additional paid-in capital
  95,015,826 
  94,926,560 
Accumulated other comprehensive loss
  (215,767)
  (186,485)
Accumulated deficit
  (70,023,117)
  (70,407,218)
 
    
    
Total stockholders’ equity
  24,861,055 
  24,416,970 
 
    
    
Total liabilities and stockholders’ equity
 $53,675,982 
 $47,055,177 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
4
 
 
WIDEPOINT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
 
THREE MONTHS ENDED
 
 
 
MARCH 31,
 
 
 
2019
 
 
2018
 
 
 
(Unaudited)
 
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
 
 
Net income (loss)
 $384,101 
 $(462,173)
Adjustments to reconcile net income (loss) to net cash used in
    
    
   operating activities:
    
    
Deferred income tax expense
  34,652 
  - 
Depreciation expense
  273,923 
  131,065 
Provision for doubtful accounts
  7,610 
  (5,766)
Amortization of intangibles
  198,816 
  262,300 
Amortization of deferred financing costs
  1,250 
  7,819 
Share-based compensation expense
  89,266 
  124,404 
Changes in assets and liabilities:
    
    
Accounts receivable and unbilled receivables
  1,151,421 
  1,494,740 
Inventories
  (104,992)
  (170,185)
Prepaid expenses and other current assets
  (45,286)
  (124,058)
Other assets
  (29,710)
  (84,815)
Accounts payable and accrued expenses
  961,804 
  1,166,610 
Income tax payable
  (8,339)
  (5,240)
Deferred revenue and other liabilities
  (486,385)
  (82,833)
 
    
    
Net cash provided by operating activities
  2,428,131 
  2,251,868 
 
    
    
CASH FLOWS FROM INVESTING ACTIVITIES
    
    
Purchases of property and equipment
  (83,797)
  (13,918)
Software development costs
  (58,461)
  (70,674)
 
    
    
Net cash used in investing activities
  (142,258)
  (84,592)
 
    
    
CASH FLOWS FROM FINANCING ACTIVITIES
    
    
Advances on bank line of credit
  6,192,656 
  8,362,503 
Repayments of bank line of credit advances
  (6,192,656)
  (8,362,503)
Principal repayments under finance lease obligations
  (122,300)
  (26,050)
Proceeds from exercise of stock options
  - 
  22,000 
 
    
    
Net cash used in financing activities
  (122,300)
  (4,050)
 
    
    
Net effect of exchange rate on cash and equivalents
  (28,297)
  10,039
 
    
    
NET INCREASE IN CASH
  2,135,276 
  2,173,265
 
    
    
CASH AND CASH EQUIVALENTS, beginning of period
  2,431,892 
  5,272,457 
 
    
    
CASH AND CASH EQUIVALENTS, end of period
 $4,567,168 
 $7,445,722
 
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,
 
 
 
2019
 
 
2018
 
 
 
(Unaudited)
 
SUPPLEMENTAL CASH FLOW INFORMATION
 
 
 
 
 
 
Cash paid for interest
 $63,309 
 $18,130 
Cash paid for income taxes
 $- 
 $11,429 
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
6
 
 
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, 2018
  83,031,595 
 $83,032 
 $94,200,237 
 $(122,461)
 $(68,950,742)
 $25,210,066 
 
    
    
    
    
    
    
Issuance of common stock —
    
    
    
    
    
    
options exercises
  50,000 
  50 
  21,950 
  - 
  - 
  22,000 
 
    
    
    
    
    
    
Issuance of common stock —
    
    
    
    
    
    
restricted
  980,851 
  981 
  (981)
  - 
  - 
  - 
 
    
    
    
    
    
    
Stock compensation expense —
    
    
    
    
    
    
restricted
  -  
  -  
  49,884 
  - 
  -  
  49,884 
 
    
    
    
    
    
    
Stock compensation expense —
    
    
    
    
    
    
non-qualified stock options
  - 
  - 
  74,520 
  - 
  - 
  74,520 
 
    
    
    
    
    
    
Foreign currency translation —
    
    
    
    
    
    
gain
  -  
  -  
  -  
  2,938 
  -  
  2,938 
 
    
    
    
    
    
    
Net loss
  - 
  - 
  - 
    
  (462,173)
  (462,173)
 
    
    
    
    
    
    
Balance, March 31, 2018
  84,062,446 
 $84,063 
 $94,345,610 
 $(119,523)
 $(69,412,915)
 $24,897,235 
 
 
 
 
 
 
 
 
 
Additional
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
 
Paid-In
 
 
Accumulated
 
 
Accumulated
 
 
 
 
 
 
Issued
 
 
Amount
 
 
Capital
 
 
OCI
 
 
Deficit
 
 
Total
 
 
 
 
 
 
 
 
 
                        (Unaudited)
 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2019
  84,112,446 
 $84,113 
 $94,926,560 
 $(186,485)
 $(70,407,218)
 $24,416,970 
 
    
    
    
    
    
    
Stock compensation expense —
 
    
    
    
    
    
restricted
  -  
  -  
  16,737 
  - 
  -  
  16,737 
 
    
    
    
    
    
    
Stock compensation expense — 
    
    
    
    
    
non-qualified stock options
  - 
  - 
  72,529 
  - 
  - 
  72,529 
 
    
    
    
    
    
    
Foreign currency translation —
    
    
    
    
    
    
(loss)
  -  
  -  
  -  
  (29,282)
  -  
  (29,282)
 
    
    
    
    
    
    
Net income
  - 
  - 
  - 
  -  
  384,101 
  384,101 
 
    
    
    
    
    
    
Balance, March 31, 2019
  84,112,446 
 $84,113 
 $95,015,826 
 $(215,767)
 $(70,023,117)
 $24,861,055 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
7
 
 
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 Fairax, Virginia.
 
Nature of Operations
 
The Company is a leading provider of trusted mobility management (TM2). The Company’s TM2 platform and service solutions enable its customers to efficiently secure, manage and analyze the entire lifecycle of their mobile communications assets through its federally compliant platform Intelligent Telecommunications Management System (ITMS™). The Company’s ITMS™ platform is SSAE 18 compliant and was granted an Authority to Operate by the U.S. Department of Homeland Security. Additionally, the Company was granted an Authority to Operate by the General Services Administration with regard to its identity credentialing component of its TM2 platform. The Company’s TM2 platform is internally hosted and accessible on-demand through a secure customer portal that is specially configured for each customer. The Company can deliver these solutions in a number of configurations ranging from utilizing the platform as a service to a full-service solution that includes full lifecycle support for all end users and the organization.
 
The Company derives a significant amount of its revenues from contracts funded by federal government agencies for which WidePoint’s subsidiaries act in the capacity as the prime contractor, or as a subcontractor. The Company believes that contracts with federal government agencies; will be the primary source of revenues for the foreseeable future. External factors outside of the Company’s control such as delays and/or a change in government administrations, budgets and other political matters that may impact the timing and commencement of such work and could result in variations in operating results and directly affect the Company’s financial performance. Successful contract performance and variation in the volume of activity as well as in the number of contracts commenced or completed during any quarter may cause significant variations in operating results from quarter to quarter.
 
A significant portion of the Company’s expenses, such as personnel and facilities costs, are fixed in the short term and may be 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, 2019 and for each of the three month periods ended March 31, 2019 and 2018, respectively, included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Pursuant to such regulations, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted. It is the opinion of management that all adjustments (which include normal recurring adjustments) necessary for a fair statement of financial results are reflected in the financial statements for the interim periods presented. The condensed consolidated balance sheet as of December 31, 2018 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, 2018. The results of operations for the three month period ended March 31, 2019 are not indicative of the operating results for the full year.
 
 
8
 
 
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 (loss) income, a component of stockholders’ equity. Translation adjustments are reclassified to earnings upon the sale or substantial liquidation of investments in foreign operations. Revenues and expenses are translated at the average month-end exchange rates during the year. Gains and losses related to transactions in a currency other than the functional currency, including operations outside the U.S. where the functional currency is the U.S. dollar, are reported net in the Company’s condensed consolidated statements of operations, depending on the nature of the activity.
 
Use of Estimates
 
The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant areas requiring use of estimates and judgment relate to revenue recognition, accounts receivable valuation reserves, ability to realize intangible assets and goodwill, ability to realize deferred income tax assets, fair value of certain financial instruments and the evaluation of contingencies and litigation. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates. There were no significant changes in accounting estimates used by management during the quarter.
 
Segment Reporting
 
Our TM2 solution offerings comprise an overall single business from which the Company earns revenues and incurs costs. The Company’s TM2 solution offerings are centrally managed and reported on that basis to its Chief Operating Decision Maker who evaluates its business as a single segment. See Note 14 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 2019 from those disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on March 22, 2019, except as further described below.
 
Recently Adopted Accounting Standards
 
In February 2016, the FASB issued new accounting guidance on leases. Effective January 1, 2019, the Company adopted an accounting standards update with new guidance intended to increase transparency and comparability among organizations relating to leases. The new guidance requires lessees to recognize a liability to make lease payments and a right-of-use asset representing the right to use the underlying asset for the lease term. The standards update retained a dual model for lease classification, requiring leases to be classified as finance or operating leases to determine recognition in the statements of operations and cash flows; however, substantially all leases are now required to be recognized on the balance sheet. The standards update also requires quantitative and qualitative disclosures regarding key information about leasing arrangements.
 
 
 
9
 
 
The Company elected the modified retrospective transition method and applied the new guidance at the date of adoption, without adjusting the comparative periods presented. The Company also elected the practical expedients permitted under the transition guidance that retain the lease classification and initial direct costs for any leases that existed prior to adoption of the standard. In addition, the Company did not reassess whether any contracts entered into prior to adoption are leases.
 
Upon adoption of the standard, the Company recorded approximately $6.1 million of right of use assets and finance lease-related liabilities, respectively. The adoption of this standards update had a material impact on the Company’s Consolidated Balance Sheets and related disclosures. The adoption of this standards update did not have a material impact on the Company’s results of operations or cash flows.
 
The cumulative effect of the changes made to our January 1, 2019 balance sheet for the adoption of the standards update was as follows:
 
 
 
 
 
 
 
 
 
As Reported
 
 
 
As Previously
 
 
 
 
 
under
 
 
 
Reported
 
 
 
 
 
Topic 842
 
 
 
DECEMBER 31,
 
 
Adoption
 
 
JANUARY 1,
 
 
 
2018
 
 
Adjustment
 
 
2019
 
Operating lease right of use asset, net
 $- 
 $6,061,566 
 $6,061,566 
Property and equipment, net
  1,012,684 
  (170,000)
  842,684 
Other current assets
  1,086,686 
  (38,015)
  1,048,671 
Current portion of finance leases
  122,040 
  268,711 
  390,751 
Current portion of other term obligations
  192,263 
  (40,859)
  151,404 
Finance leases, net of current portion
  122,040 
  5,699,651 
  5,821,691 
Other term obligations, net of current portion
  73,952 
  (73,952)
  - 
 
In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718); Improvements to Nonemployee Share-Based Payment Accounting. Effective January 1, 2019, the Company adopted ASU 2018-07. The new guidance simplifies the accounting for share-based payments made to nonemployees so the accounting for such payments is substantially the same as those made to employees. Under this ASU, share-based awards to nonemployees will be measured at fair value on the grant date of the awards, entities will need to assess the probability of satisfying performance conditions if any are present, and awards will continue to be classified according to ASC 718 upon vesting, which eliminates the need to reassess classification upon vesting, consistent with awards granted to employees. The Company has not historically issued a material amount of share-based payments to non-employees. There was no material effect on the Company’s consolidated financial statements upon adoption.
 
Accounting Standards under Evaluation
 
In January 2017, ASU No. 2017-04, “Simplifying the Test for Goodwill Impairment” was issued. Under the amendments in this ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value; however, the loss should not exceed the total amount of goodwill allocated to that reporting unit. The ASU also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity should apply this ASU on a prospective basis and for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company is continuing to evaluate the effect this guidance will have on the consolidated financial statements and related disclosures.
 
 
10
 
 
3. 
Accounts Receivable and Significant Concentrations
 
A significant portion of the Company’s receivables are billed under firm fixed price contracts with agencies of the U.S. federal government and similar pricing structures with several corporations. Accounts receivable consist of the following by customer type in the table below as of the periods presented:
 
 
 
MARCH 31,
 
 
DECEMBER 31,
 
 
 
2019
 
 
2018
 
 
 
(Unaudited)
 
Government (1)
 $8,689,290 
 $7,332,338 
Commercial (2)
  2,643,884 
  3,863,710 
Gross accounts receivable
  11,333,174 
  11,196,048 
Less: allowances for doubtful
    
    
accounts (3)
  112,754 
  106,733 
 
    
    
Accounts receivable, net
 $11,220,420 
 $11,089,315 
 
(1) Government contracts are generally firm fixed price not to exceed arrangements with a term of five (5) years, which consists of a base year and four (4) annual option year renewals. Government receivables are billed under a single consolidated monthly invoice and are billed approximately thirty (30) to sixty (60) days in arrears from the date of service and payment is generally due within thirty (30) days of the invoice date. Government accounts receivable payments could be delayed due to administrative processing delays by the government agency, continuing budget resolutions that may delay availability of contract funding, and/or administrative only invoice correction requests by contracting officers that may delay payment processing by our government customer.
 
(2) Commercial contracts are generally fixed price arrangements with contract terms ranging from two (2) to three (3) years. Commercial accounts receivables are billed based on the underlying contract terms and conditions which generally have repayment terms that range from thirty (30) to ninety (90) days. Commercial receivables are stated at amounts due from customers net of an allowance for doubtful accounts if deemed necessary.
 
(3) For the three months ended March 31, 2019, the Company did not recognize any material provisions for bad debt, write-offs or recoveries of existing provisions for bad debt. The Company has not historically maintained a bad debt reserve for its government customers as it has not experienced material or recurring bad debt charges and the nature and size of the contracts has not necessitated the Company’s establishment of such a bad debt reserve.
 
Significant Concentrations
 
The following table presents customers that represent ten (10) percent or more of consolidated trade accounts receivable in the current and/or comparative period:
 
 
 
MARCH 31,
 
 
DECEMBER 31,
 
 
 
2019
 
 
2018
 
 
 
As a % of
 
 
As a % of
 
Customer Name
 
Receivables
 
 
Receivables
 
 
 
(Unaudited)
 
U.S. Customs Border Patrol
  12%
  14%
U.S. Department of Homeland Security HQ
  11%
  -- 
U.S. Coast Guard
  13%
  13%
Iron Bow Technologies
  -- 
  15%
 
 
11
 
 
The following table presents customers that represent ten (10) percent or more of consolidated revenues in the current and/or comparative period:
 
 
 
THREE MONTHS ENDED
 
 
 
MARCH 31,
 
 
 
2019
 
 
2018
 
 
 
As a % of
 
 
As a % of
 
Customer Name
 
Revenues
 
 
Revenues
 
 
 
(Unaudited)
 
U.S. Immigration and Customs Enforcement
  15%
  16%
U.S. Customs Border Patrol
  14%
  -- 
U.S. Federal Air Marshall Service
  -- 
  11%
 
4. 
Unbilled Accounts Receivable
 
Unbilled accounts receivable represent revenues earned but not invoiced to the customer at the balance sheet date due to either timing of invoice processing or delays due to fixed contractual billing schedules. A significant portion of our unbilled accounts receivable consist of carrier services and hardware and software products delivered but not invoiced at the end of the reporting period.
 
The following table presents customers that represent ten (10) percent or more of consolidated unbilled accounts receivable in the current and/or comparative period:
 
 
 
MARCH 31,
 
 
DECEMBER 31,
 
 
 
2019
 
 
2018
 
 
 
As a % of
 
 
As a % of
 
Customer Name
 
Receivables
 
 
Receivables
 
 
 
(Unaudited)
 
U.S. Department of Homeland Security Headquarters
  13%
  11%
U.S. Immigration and Customs Enforcement
  28%
  37%
U.S. Coast Guard
  13%
  11%
U.S. Transportation Safety Administration
  12%
  10%
 
5. 
Other Current Assets and Accrued Expenses
 
Other current assets consisted of the following as of the periods presented below:
 
 
 
MARCH 31,
 
 
DECEMBER 31,
 
 
 
2019
 
 
2018
 
 
 
(Unaudited)
 
Inventories
 $288,842 
 $183,900 
Prepaid rent, insurance and other assets
  911,214 
  902,786 
 
    
    
Total other current assets
 $1,200,056 
 $1,086,686 
 
 
12
 
 
Accrued expenses consisted of the following as of the periods presented below:
 
 
 
MARCH 31,
 
 
DECEMBER 31,
 
 
 
2019
 
 
2018
 
 
 
(Unaudited)
 
Carrier service costs
 $7,410,640 
 $8,476,110 
Salaries and payroll taxes
  1,249,276 
  1,308,726 
Inventory purchases, consultants and other costs
  1,006,307 
  913,038 
Severance costs
  1,634 
  1,634 
U.S. income tax payable
  5,900 
  8,550 
Foreign income tax payable
  2,600 
  8,380 
 
    
    
Total accrued expenses
 $9,676,357 
 $10,716,438 
 
6.        
Property and Equipment
 
Major classes of property and equipment consisted of the following as of the periods presented below:
 
 
 
MARCH 31,
 
 
DECEMBER 31,
 
 
 
2019
 
 
2018
 
 
 
(Unaudited)
 
Computer hardware and software
 $1,883,645 
 $1,820,075 
Furniture and fixtures
  338,141 
  333,539 
Leasehold improvements
  263,996 
  268,561 
Automobiles
  83,689 
  82,997 
Gross property and equipment
  2,569,471 
  2,505,172 
Less: accumulated depreciation and
    
    
amortization
  1,831,705 
  1,738,357 
 
    
    
Property and equipment, net
 $737,766 
 $766,815 
 
During the three month period ended March 31, 2019 and 2018, property and equipment depreciation expense was approximately $135,000 and $131,100, respectively.
 
During the three month period ended March 31, 2019 there were no material disposals of owned property and equipment. During the three month period ended March 31, 2018 there were other disposals of fully depreciated owned property and equipment with related cost and accumulated depreciation of approximately $129,600.
 
 
13
 
 
There were no changes in the estimated useful lives used to depreciate property and equipment during the three month periods ended March 31, 2019 and 2018.
 
7.        
Leases
 
The Company entered into operating leases for corporate and operational facilities (“real estate leases”), computer hardware for datacenters and automobiles (“all other leases”).
 
Real estate leases. Substantially all real estate operating leases have remaining terms of seven (7) to ten (10) years, with additional five (5) year extensions available. All of these leases require a fixed lease payment that contains an annual lease payment escalation provision ranging from 3% to 4% per year. Certain finance leases contain early termination provisions that would require payment of unamortized tenant improvements, real estate broker commissions paid, and up to six (6) months of rent to compensate the landlord for early termination. The cost to exist a lease would be significant and potentially range $0.2 million to $0.8 million. The earliest any lease termination provisions could be exercised would be in 2023.
 
All other leases. Non-real estate operating leases have remaining terms of two (2) to three (3) years. All of these leases require a fixed lease payment over the entire lease term with no escalation provision. There are no early termination provisions under such arrangements.
 
The components of lease expense were as follows:
 
 
 
THREE MONTHS ENDED
 
 
 
MARCH 31,
 
 
 
2019
 
 
 
(Unaudited)
 
Operating lease expense
 $59,000 
 
    
Finance lease expense:
    
Amortization of right of use assets
 $139,035 
Interest on finance lease liabilities
  69,735 
 
    
Total finance lease expense
 $208,770 
 
Operating lease expense is included in general and administrative expenses in the condensed consolidated statement of operations. Amortization of right of use assets is included in depreciation and amortization in the condensed consolidated statement of operations.
 
Supplemental cash flow information related to leases was as follows:
 
 
 
THREE MONTHS ENDED
 
 
 
MARCH 31,
 
 
 
2019
 
 
 
(Unaudited)
 
Cash paid for amounts included in the measurement of lease liabilities:
 
 
 
Operating cash flows from operating leases
 $47,573 
Operating cash flows from finance leases
  69,735 
Financing cash flows from finance leases
  122,300 
 
 
14
 
 
Supplemental balance sheet information related to leases was as follows:
 
 
 
MARCH 31,
 
 
 
2019
 
 
 
(Unaudited)
 
Operating lease right of use assets, net
 $5,969,894 
Current portion of finance leases
  481,562 
Finance leases, net of current portion
  5,594,671 
 
    
Weighted average remaining lease term
    
Operating leases
  12.3 
Finance leases
  1.8 
Weighted average discount rate
    
Operating leases
  5%
Finance leases
  5%
 
Maturities of lease liabilities as of March 31, 2019, were as follows:
 
 
 
Operating Leases
 
 
Finance Leases
 
2019
 $681,960 
 $97,417 
2020
  650,944 
  121,934 
2021
  694,063 
  - 
2022
  680,233 
  - 
2023
  665,728 
  - 
Thereafter
  4,605,847 
  - 
Total undiscounted operating lease payments
  7,978,775 
 219,351
Less: Imputed interest
  2,106,613 
  15,280 
Total finance lease liability
 $5,872,162 
 $204,071 
 
During the three month period ended March 31, 2019, there were no new material operating leases or modifications to existing operating leases.
 
8. 
Goodwill and Intangible Assets
 
The Company has recorded goodwill of $18,555,578 as of March 31, 2019. There were no changes in the carrying amount of goodwill during the three month period ended March 31, 2019. There were no indicators of impairment during the three month period ended March 31, 2019.
 
The Company has recorded net intangible assets of $2,959,442, consisting of purchased intangibles and internally developed software used to deliver managed service solutions offered by the Company. For the three month periods ended March 31, 2019 and 2018, the Company capitalized internally developed software costs of approximately $58,500 and $70,700, respectively, related to costs associated with our next generation TDI Optimiser™ application. There were no disposals of intangible assets during the three month periods ended March 31, 2019 and 2018.
 
The aggregate amortization expense recorded for the three month periods ended March 31, 2019 and 2018 were approximately $198,800 and $262,300, respectively. The total weighted remaining average life of all purchased intangible assets and internally developed software costs was approximately 5.2 years and 1.2 years, respectively, at March 31, 2019.
 
 
15
 
 
 
9.        
Line of Credit
 
On June 15, 2017, the Company entered into a Loan and Security Agreement with Access National Bank (the “Loan Agreement”). The Loan Agreement provides for a $5.0 million working capital revolving line of credit. Effective April 30, 2018, the Company entered into a second modification agreement with Access National Bank that extended the maturity date of the facility through April 30, 2019, increased the interest rate to the Wall Street Journal prime rate plus 1.0%, and added an additional financial covenant requiring the Company to maintain consolidated minimum adjusted earnings before interest, taxes, depreciation and amortization, plus share-based compensation, plus non-cash charges (EBITDA) (as defined in the second modification) of at least two times interest expense (excluding interest reported under recently adopted lease accounting standards) to be measured as of the last day of each quarterly period.
 
Effective, April 30, 2019, the Company entered into a fourth modification agreement (“Modification Agreement”) with Access National Bank to amend the existing Loan Agreement expiring on April 30, 2019. The Modification Agreement extended the maturity date of the facility through April 30, 2020 and changed the variable interest rate to the Wall Street Journal prime rate plus 0.50%.
 
The Loan Agreement requires that the Company meet the following financial covenants on a quarterly basis: (i) maintain a minimum adjusted tangible net worth of at least $2.0 million, (ii) maintain minimum consolidated adjusted EBITDA of at least two times interest expense and (iii) maintain a current ratio of 1.10:1 (excluding finance lease liabilities reported under recently adopted lease accounting standards).
 
The available amount under the working capital line of credit is subject to a borrowing base, which is equal to the lesser of (i) $5.0 million or (ii) 70% of the net unpaid balance of the Company’s eligible accounts receivable. The facility is secured by a first lien security interest on all of the Company’s personal property, including its accounts receivable, general intangibles, inventory and equipment maintained in the United States. As of March 31, 2019, the Company was eligible to borrow up to $4.9 million under the borrowing base formula.
 
10. 
Income Taxes
 
The Company files U.S. federal income tax returns with the Internal Revenue Service (“IRS”) as well as income tax returns in various states and certain foreign countries. The Company may be subject to examination by the IRS or various state taxing jurisdictions for tax years 2003 and forward. The Company may be subject to examination by various foreign countries for tax years 2014 forward. As of March 31, 2019, the Company was not under examination by the IRS, any state or foreign tax jurisdiction. The Company did not have any unrecognized tax benefits at either March 31, 2019 or December 31, 2018. In the future if applicable, any interest and penalties related to uncertain tax positions will be recognized in income tax expense.
 
As of March 31, 2019, the Company had approximately $38.5 million in net operating loss (NOL) carry forwards available to offset future taxable income for federal income tax purposes, net of the potential Section 382 limitations. These federal NOL carry forwards expire between 2020 and 2037. Included in the recorded deferred tax asset, the Company had a benefit of approximately $39.8 million available to offset future taxable income for state income tax purposes. These state NOL carry forwards expire between 2024 and 2036. Because of the change of ownership provisions of the Tax Reform Act of 1986, use of a portion of our domestic NOL may be limited in future periods. Further, a portion of the carryforwards may expire before being applied to reduce future income tax liabilities.
 
Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. Under existing income tax accounting standards such objective evidence is more heavily weighted in comparison to other subjective evidence such as our projections for future growth, tax planning and other tax strategies. A significant piece of objective negative evidence considered in management’s evaluation of the realizability of its deferred tax assets was the existence of cumulative losses over the latest three-year period. Management forecast future taxable income, but concluded that there may not be enough of a recovery before the end of the fiscal year to overcome the negative objective evidence of three years of cumulative losses. On the basis of this evaluation, management recorded a valuation allowance against all deferred tax assets. If management’s assumptions change and we determine we will be able to realize these deferred tax assets, the tax benefits relating to any reversal of the valuation allowance on deferred tax assets will be accounted for as a reduction of income tax expense.
 
 
16
 
 
11.              
Stockholders’ Equity
 
Preferred Stock
 
There were no issuances of preferred stock during the three month periods ended March 31, 2019 and 2018.
 
Common Stock
 
The Company is authorized to issue 110,000,000 shares of common stock, $.001 par value per share. As of March 31, 2019, there were 84,112,446 shares issued and outstanding (including 200,010 restricted shares not vested). There were no shares of common stock issued as a result of the vesting of restricted stock awards (RSA) or stock option exercises during the three month periods ended March 31, 2019 and 2018. See Note 12 for additional information regarding RSA activity.
 
There were no shares of common stock issued as a result of stock option exercises during the three month period ended March 31, 2019. Shares of common stock issued as a result of stock option exercises and realized gross proceeds during the three month period ended March 31, 2018 were 50,000 and $22,000, respectively. See Note 12 for additional information regarding the stock incentive plans.
 
12.              
Stock Award Programs
 
The Company’s stock incentive plan is administered by the Compensation Committee and authorizes the grant or award of incentive stock options, non-qualified stock options (NQSO), restricted stock awards (RSA), stock appreciation rights, dividend equivalent rights, performance unit awards and phantom shares. The Company issues new shares of common stock upon the exercise of stock options. Any shares associated with options forfeited are added back to the number of shares that underlie stock options to be granted under the stock incentive plan. The Company has issued restricted stock awards and non-qualified stock option awards as described below.
 
Valuation of Stock Awards
 
Restricted Stock. The Company records the fair value of all restricted stock awards based on the grant date fair value and amortizes stock compensation on a straight-line basis over the vesting period. Restricted stock award shares are issued when granted and included in the total number of common shares issued but not included in total common shares outstanding until the vesting requirements have been met. As of March 31, 2019, there were 300,000 shares of restricted stock included in shares issued and outstanding. There were no restricted stock awards granted during the three month period ended March 31, 2019. During the three month period ended March 31, 2018, the Company granted 980,851 RSAs, of which i) 300,000 of RSAs were awarded as part of additional compensation plan to align key employees with the Company’s long term financial goals, and ii) 680,851 were awarded to members of the Company’s board of directors.
 
Non-Qualified Stock Options. The Company estimates the fair value of nonqualified stock awards using a Black-Scholes Option Pricing model (“Black-Scholes model”). The fair value of each stock award is estimated on the date of grant using the Black-Scholes model, which requires an assumption of dividend yield, risk free interest rates, volatility, forfeiture rates and expected option life. The risk-free interest rates are based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant. Expected volatilities are based on the historical volatility of our common stock over the expected option term. The expected term of options granted is based on analyses of historical employee termination rates and option exercises. There were 25,000 of non-qualified stock option awards granted to a non-employee as compensation for investor relations services during the three month period ended March 31, 2019.
 
 
17
 
 
Restricted Stock Award Activity
 
A summary of RSA activity as of March 31, 2019 and 2018, and changes during the three month periods ended March 31, 2019 and 2018 are set forth below:
 
 
 
2019
 
 
 
 
 
2018
 
 
 
 

(unaudited)
 
 
 
NON-VESTED AWARDS
 
 
 
 
 
 
 
 
 
 
 
 
Non-vested awards outstanding, January 1,
  300,000 
 
 
 
  - 
 
 
 
Granted (+)
  - 
 
 
 
  980,851 
  (2)
Vested (-)
  99,990 
  (1)
  - 
    
Non-vested awards outstanding, March 31,
  200,010 
  (3)
  980,851 
 (3)
 
    
    
    
    
Weighted-average remaining contractual life (in years)
  1.76 
    
  1.3 
    
 
    
    
    
    
Unamortized RSA compensation expense
 $119,573 
    
 $474,116 
    
 
    
    
    
    
Aggregate intrinsic value of RSAs non-vested, March 31
 $84,004 
    
 $568,894 
    
 
    
    
    
    
Aggregate intrinsic value of RSAs vested, March 31
 $- 
    
 $- 
    
 
(1)  During the three month period ended March 31, 2019, 99,990 RSAs vested during the period.
 
(2)  During the three month period ended March 31, 2018, the Company granted 980,851 RSAs, of which i) 300,000 of RSAs were awarded as part of additional compensation plan to align key employees with the Company’s long term financial goals, and ii) 680,851 were awarded to members of the Company’s board of directors as part of their annual board retainer fee and vested during the period.
 
(3)  There were no RSAs that were cancelled or expired during the three month periods ended March 31, 2019 and 2018, respectively.
 
Non-Qualified Stock Option Award Activity
 
A summary of stock option activity as of March 31, 2019 and 2018, and changes during the three month periods ended March 31, 2019 and 2018 are set forth below:
 
 
 
2019
 
 
2018
 
 
 
 
 
 
Weighted
 
 
 
 
 
Weighted
 
 
 
 
 
 
Average
 
 
 
 
 
Average
 
 
 
 
 
 
Grant Date
 
 
 
 
 
Grant Date
 

 
Shares
 
 
Fair Value
 
 
Shares
 
 
Fair Value
 
NON-VESTED AWARDS
(unaudited)
Non-vested balances, January 1,
  2,067,503 
 $0.36 
  2,685,004 
 $0.35 
Granted (+)
  25,000(1)
 $0.15 
  -(1) 
 $0.00 
Non-vested balances, March 31,
  2,092,503 
 $0.35 
  2,685,004 
 $0.35 
 
 
 
18
 
 
 
 
 
2019
 
 
2018
 
 
 
 
 
 
Weighted
 
 
 
 
 
Weighted
 
 
 
 
 
 
Average
 
 
 
 
 
Average
 

 
Shares
 
 
Exercise Price
 
 
Shares
 
 
Exercise Price
 
OUTSTANDING AND EXERCISABLE AWARDS
(unaudited)
Awards outstanding, January 1,
  4,013,334 
 $0.58 
  4,173,334 
 $0.60 
Granted (+)
  25,000(1)
 $0.41 
 -(1)
 $0.00 
Exercised (-)
  - 
 $0.00 
  50,000(2)
 $0.44 
Awards outstanding, March 31,
  4,038,334 
 $0.58 
  4,123,334 
 $0.00 
 
    
    
    
    
Awards vested and expected to vest,
    
    
    
    
March 31,
  3,447,184 
 $0.58 
  3,527,089 
 $0.60 
 
    
    
    
    
Awards outstanding and exercisable,
    
    
    
    
March 31,
  1,945,831 
 $0.56 
  1,438,330 
 $0.62 
 
(1) During the three month period ended March 31, 2019, there were NQSO grants of 25,000 granted to a non-employee as compensation for investor relations services. This stock award grant was valued using a Black-Scholes model that assumed a 1-year vesting period, 2-year option term, a risk free rate of 2.5%, volatility of 64.6%, no assumed dividend yield, and a forfeiture rate estimate of 1.2%. During the three month period ended March 31, 2018, there were no grants of non-qualified stock options.
 
(2) The total intrinsic value of stock options exercised during the three month ended March 31, 2018 was approximately $5,500.
 
The weighted-average remaining contractual life of the non-qualified stock options outstanding, exercisable, and vested and expected to vest as of March 31, 2019 were 2.9 years, 2.7 years and 2.7 years, respectively.
 
The aggregate intrinsic value associated with options outstanding, vested and expected to vest, and exercisable as of March 31, 2019 was approximately $7,250, $6,209 and $3,625, respectively. Aggregate intrinsic value represents total pretax intrinsic value (the difference between WidePoint’s closing stock price on March 31, 2019 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on March 31, 2019. The intrinsic value will change based on the fair market value of WidePoint’s stock.
 
Share-Based Compensation Expense
 
Share-based compensation (including restricted stock awards) represents both stock options based expense and stock grant expense. The following table sets forth the composition of stock compensation expense included in general and administrative expense for the periods then ended:
 
 
 
THREE MONTHS ENDED
 
 
 
MARCH 31,
 
 
 
2019
 
 
2018
 
 
 (Unaudited)
Restricted stock compensation expense
 $16,737 
 $49,884 
Non-qualified option stock compensation expense
  72,529 
  74,520 
 
    
    
Total share-based compensation before taxes
 $89,266 
 $124,404 
 
 
 
19
 
 
At March 31, 2019, the Company had approximately $394,600 of total unamortized share-based compensation expense, net of estimated forfeitures, related to stock option plans that will be recognized over the weighted average remaining period of 1.1 years.
 
13.              
Earnings (Loss) 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,
 
 
 
2019
 
 
2018
 
 
 
 (unaudited)
 
Basic Earnings (Loss) Per Share Computation:
 
 
 
 
 
 
Net income (loss)
 $384,101 
 $(462,173)
Weighted average number of common shares
  83,812,448 
  83,041,597 
Basic Loss Per Share
 $0.00 
 $(0.01)
 
    
    
Diluted Earnings (Loss) Per Share Computation:
    
    
Net income (loss)
 $384,101 
 $(462,173)
 
    
    
Weighted average number of common shares
  83,812,448 
  83,041,597 
Incremental shares from assumed conversions
    
    
of stock options
  2,222 
  - 
Adjusted weighted average number of
    
    
common shares
  83,814,670 
  83,041,597 
 
    
    
Diluted Earnings (Loss) Per Share
 $0.00 
 $(0.01)
 
The dilutive effect of unexercised stock options and restricted stock awards excludes 4,313,334 of options from the computation of loss per share for the three month periods ended March 31, 2018, respectively, because inclusion of the options would have been anti-dilutive.
 
 
20
 
14.              
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,
 
 
 
2019
 
 
2018
 
 
 
(Unaudited)
 
Carrier Services
 $14,343,010
 $11,812,144 
Managed Services
  7,573,892
  8,267,475 
 
    
    
 
 $21,916,902 
 $20,079,619 
 
The Company recognized revenues from contracts with customers for the following customer types as set forth below:
 
 
 
THREE MONTHS ENDED
 
 
 
MARCH 31,
 
 
 
2019
 
 
2018
 
 
 
(Unaudited)
 
U.S. Federal Government
 $18,162,498 
 $14,274,046 
U.S. State and Local Governments
  115,839 
  107,002 
Foreign Governments
  44,544 
  26,544 
Commercial Enterprises
  3,594,021 
  5,672,027 
 
    
    
 
 $21,916,902 
 $20,079,619 
 
The Company recognized revenues from contracts with customers in the following geographic regions:
 
 
 
THREE MONTHS ENDED
 
 
 
MARCH 31,
 
 
 
2019
 
 
2018
 
 
 
(Unaudited)
 
North America
 $20,780,311 
 $18,743,650 
Europe
  1,136,591 
  1,335,969 
 
    
    
 
 $21,916,902 
 $20,079,619 
 
15.              
Commitments and Contingencies
 
The Company has employment agreements with certain senior executives that set forth compensation levels and provide for severance payments in certain instances.
 
 
21
 
 
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:
 
● 
Our ability to successfully recompete and renew our existing U.S. Department of Homeland Security Blanket Purchase Agreement (DHS BPA);
● 
Our ability to achieve sustainable profitability and positive cash flows;
● 
Our ability to gain market acceptance for our products;
● 
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 successfully implement our strategic plan;
● 
Our ability to continue to deliver contracted services and products to our existing customers;
● 
Our ability to sell higher margin services;
● 
Our ability to borrow funds against our credit facility;
● 
Our ability to raise additional capital on favorable terms or at all;
● 
Our ability to retain key personnel; and
● 
The risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on March 22, 2019.
 
The forward-looking statements included in this Form 10-Q are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law. Readers are cautioned not to put undue reliance on forward-looking statements.  In this Quarterly Report on Form 10-Q, unless the context indicates otherwise, the terms “Company” and “WidePoint,” as well as the words “we,” “our,” “ours” and “us,” refer collectively to WidePoint Corporation and its consolidated subsidiaries.
 
Business Overview
 
We are a leading provider of trusted mobility solutions (TM2) to the government and commercial sectors. We offer our TM2 solutions through a flexible managed services model which includes both a scalable and comprehensive set of functional capabilities that can be used by any customer to meet most of the common functional, technical and security requirements for mobility management. Our TM2 solutions were designed and implemented with flexibility in mind such that it can accommodate a large variety of customer requirements through simple configuration settings rather than through costly software development. The flexibility of our TM2 solutions enables our customers to be able to quickly expand their mobility capabilities and contract for their mobility management requirements. Our TM2 solutions are hosted and accessible on-demand through a secure proprietary portal that provides our customers with the ability to manage, analyze and protect their valuable communications assets, and deploy federal government compliant identity management solutions that provide secured virtual and physical access to restricted environments.
 
 
 
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Revenue Mix
 
Our revenue mix fluctuates due to customer driven factors including: i) timing of technology and accessory refresh requirements from our customers; ii) onboarding of new customers that require carrier services; iii) subsequent decreases in carrier services as we optimize their data and voice usage; iv) delays in delivering products or services; and v) changes in control or leadership of our customers that lengthens our sales cycle, changes in laws or funding, among other circumstances that may unexpectedly change the revenue earned and/or duration of our services. As a result our revenue will vary by quarter.
 
For additional information related to our business operations see the description of our business set forth in the Company's Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on March 22, 2019. 
 
Strategic Focus and Goals
 
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.
 
For fiscal 2019, we will be focusing more of our attention on the following key goals:
 
■ 
continued focus on selling high margin managed services,
■ 
growing our sales pipeline by investing in our business development and sales team assets,
■ 
pursuing additional opportunities with our key systems integrator partners,
■ 
improving our proprietary platform and products, which includes placing ITMS™ onto GovCloud and receive a FedRAMP certification,
■ 
working to successfully renew our existing U.S. Department of Homeland Security Blanket Purchase Agreement (DHS BPA), and
■ 
expanding our solution offerings into the commercial space.
 
Our next steps towards achieving our longer-term goals include:
 
■ 
pursuing accretive and strategic acquisitions to expand our solutions and our customer base,
■ 
delivering new incremental offerings to add to our existing TM2 offering,
■ 
developing and testing innovative new offerings that enhance our TM2 offering, and
■ 
transitioning our data center and support infrastructure into a more cost-effective and federally approved cloud environment to comply with perceived future contract requirements.
 
We believe these actions could drive a strategic repositioning of our TM2 offering and may include the sale of non-aligned offerings coupled with acquisitions of complementary and supplementary offerings that could result in a more focused core set of TM2 offerings.
 
Results of Operations
 
Three Months Ended March 31, 2019 as Compared to Three Months Ended March 31, 2018
 
Revenues. Revenues for the three month period ended March 31, 2019 were approximately $21.9 million, an increase of approximately $1.8 million (or 9%), as compared to approximately $20.1 million in 2018. Our mix of revenues for the periods presented is set forth below:
 
 
 
THREE MONTHS ENDED
 
 
 
MARCH 31,
 
 
 
2019
 
 
2018
 
 
 
(Unaudited)
 
Carrier Services
 $14,343,010 
 $11,812,144 
Managed Services:
    
    
Managed Service Fees
  5,831,074 
  5,562,977 
Billable Service Fees
  1,080,618 
  603,831 
Reselling and Other Services
  662,200 
  2,100,667 
 
    
    
 
 $21,916,902 
 $20,079,619 
 
 
 
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Our carrier services increased due to the implementation of the U.S. Coast Guard contract during the second half of fiscal 2018 and to a lesser extent task orders that were issued under our DHS BPA for additional carrier services, as compared to last year.
 
Our managed service fees increased due to expansion of managed services for existing government and commercial customer, as well as increases in sales of accessories to our government customers as compared to last year.
 
Billable service fee revenue increased as compared to last year due to ramp up of services delivered through our partnerships with large systems integrators as we complete a government project. We are focusing our subject matter experts on this higher margin billable service arrangements.
 
Reselling and other services decreased as compared to last year due to a fewer large product resales to agencies of the U.S. federal government. Reselling and other services are transactional in nature and as a result the amount and timing of revenue will vary significantly from quarter to quarter.
 
Cost of Revenues. Cost of revenues for the three month period ended March 31, 2019 was approximately $17.7 million (or 81% of revenues), as compared to approximately $16.5 million (or 82% of revenues) in 2018. The increase was driven by higher labor costs to support billable service fee contracts and inventory costs related to accessory sales as compared to last year. Our cost of revenues may fluctuate due to accessories sales activities which depends heavily on customer mobility equipment accessory requirements.
 
Gross Profit. Gross profit for the three month period ended March 31, 2019 was approximately $4.3 million (or 19% of revenues), as compared to approximately $3.6 million (or 18% of revenues) in 2018. The dollar increase in gross profit dollars reflects higher margins related to billable services and accessories sales as compared to last year. Our gross profit percentage will vary from quarter to quarter and negatively impacted due to recognition of low margin reselling transactions and expansion of carrier services with our U.S. federal government customers.
 
Sales and Marketing. Sales and marketing expense for the three month period ended March 31, 2019 was approximately $0.4 million (or 2% of revenues), as compared to approximately $0.5 million (or 3% of revenues) in 2018. We maintained our conservative deployment of sales and marketing assets during the current quarter which enabled us to keep our cost profile unchanged. We expect to make strategic hires of sales and marketing resources in the second quarter of 2019 in an effort to build our commercial sales pipeline opportunities.
 
General and Administrative. General and administrative expenses for the three month period ended March 31, 2019 were approximately $3.1 million (or 14% of revenues), as compared to approximately $3.4 million (or 17% of revenues) in 2018. The decrease in general and administrative expense reflects the impact of our adoption of new lease accounting guidance which requires us to treat lease payments similar to term debt with recognition of interest expense and amortization expense. Excluding the impact of our adoption of this new lease accounting standing our general and administrative expense would have been $3.2 million (of 15% of revenues) for the current quarter.
 
Product Development. We incurred product development activities related to its next generation TDI Optimiser™ application during the three months ended March 31, 2019 and 2018. The Company capitalized product development costs of approximately $58,500 and $70,900 during the three month periods ended March 31, 2019 and 2018, respectively. The Company has a mature set of products and services that do not include significant ongoing development activities and as such there could be periods of time where our level of internal and external spending on product development may not be significant. We concluded significant development activities of our TDI Optimiser™ application that qualify for capitalization during the third quarter of 2018.
 
Depreciation and Amortization. Depreciation and amortization expense for the three month period ended March 31, 2019 was approximately $240,500 as compared to approximately $97,400 in 2018.  The increase in general and administrative expense reflects the impact of our adoption of new lease accounting guidance which requires us to treat lease payments similar to term debt with recognition of interest expense and amortization expense. Excluding the impact of our adoption of this new lease accounting standing our depreciation and amortization expense would have been $135,000 for the current quarter, which represents an increase as compared to last year because our depreciable asset based increased by $6.0 million. 
 
 
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Other Income (Expense). Net other expense for the three month period ended March 31, 2019 was approximately $73,100, as compared to approximately $22,600 in 2018.  The increase in net expense substantially reflects higher interest expense as a result of the adoption of the new lease accounting standard during the current quarter and to a lesser extent interest expense associated with advances against our line of credit.
 
Income Taxes. Income tax expense for the three month period ended March 31, 2019 was approximately $28,000, as compared to $6,200 in 2018.  The increase in income tax expense reflects higher taxable foreign earnings in the Republic of Ireland and deferred tax expense related to the amortization of goodwill.
 
Net Income (Loss). As a result of the cumulative factors annotated above, net income for the three month period ended March 31, 2019 was approximately $384,100, as compared to a net loss of approximately $462,200 in the same period last year. 
 
Liquidity and Capital Resources
 
We have, since inception, financed operations and capital expenditures through our operations and the sale of securities. Our immediate sources of liquidity include cash and cash equivalents, accounts receivable, unbilled receivables and access to a working capital credit facility with Access National Bank for up to $5.0 million.
 
At March 31, 2019, our net working capital was approximately $3.9 million as compared to $3.7 million at December 31, 2018. The increase in net working capital related to improved collections of accounts receivable and temporary payable timing differences. We utilized our credit facility to manage short term cash flow requirements during the quarter. We must successfully execute our strategic goals and tactically execute our cost savings and new revenue initiatives as described above in order to generate positive cash flows, improve our liquidity position and meet our minimum operating requirements. We will continue to identify additional opportunities for cost savings that can further reduce our fixed operating costs and/or provide us better flexibility to match our cost structure with our revenue streams. We may need to raise additional capital to fund major growth initiatives and/or acquisitions and there can be no assurance that additional capital will be available on acceptable terms or at all.
 
Cash Flows from Operating Activities
 
Cash provided by operating activities provides an indication of our ability to generate sufficient cash flow from our recurring business activities. We are actively renegotiating our contracts with customers to improve our cash flow by billing more than once a month, including tiered price increases and charging more for labor intensive services that were previously billed under firm fixed price contracts. Our single largest cash operating expenses is the cost of labor and company sponsored healthcare benefit programs. Our second largest cash operating expense is our facility costs and related technology communication costs to support delivery of our services to our customers. We lease most of our facilities under non-cancellable long term contracts that may limit our ability to reduce fixed infrastructure costs in the short term. Any changes to our fixed labor and/or infrastructure costs may require a significant amount of time to take effect depending on the nature of the change made and cash payments to terminate any agreements that have not yet expired. We experience temporary collection timing differences from time to time due to customer invoice processing delays that are often beyond our control.
 
For the three months ended March 31, 2019, net cash provided by operations was approximately $2.4 million driven by improved collections of accounts receivable and temporary payable timing differences.
 
For the three months ended March 31, 2018, net cash provided by operations was approximately $2.3 million driven by improved collections of accounts receivable.
 
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.
 
 
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For the three months ended March 31, 2019, cash used in investing activities was approximately $142,300 and consisted computer hardware and software purchases and capitalized internally developed software costs related to our TDI Optimiser™ solutions.
 
For the three months ended March 31, 2018, cash used in investing activities was approximately $84,600 and consisted computer hardware and software purchases and capitalized internally developed software costs related to our TDI Optimiser™ solutions.
 
Cash Flows from Financing Activities
 
Cash used in financing activities provides an indication of our debt financing and proceeds from capital raise transactions and stock option exercises.
 
For the three months ended March 31, 2019, cash used in financing activities was approximately $122,300 and reflects line of credit advances and payments of approximately $6.1 million, and finance lease principal repayments of approximately $122,300.
 
For the three months ended March 31, 2018, cash used in financing activities was approximately $4,050 and reflects scheduled capital lease payments of approximately $26,000, partially offset by proceeds of approximately $22,000 from the exercise of stock options. The Company was advanced and repaid approximately $8.4 million in line of credit advances.
 
Net Effect of Exchange Rate on Cash and Equivalents
 
For the three months ended March 31, 2019 and 2018, the gradual depreciation of the Euro relative to the US dollar decreased the translated value of our foreign cash balances by approximately $28,300 as compared to last year.
 
Off-Balance Sheet Arrangements
 
The Company has no existing off-balance sheet arrangements as defined under SEC regulations.
 
ITEM 3.   
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Not required.
 
 
 
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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 interim 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 interim chief financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report on Form 10-Q to ensure information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC's rules and forms. These disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit is accumulated and communicated to management, including our chief executive officer and interim chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
 
Changes in Internal Controls over Financial Reporting
 
The Company modified its internal lease accounting procedures to comply with the new lease accounting presentation and disclosure requirements. Except for changes in our internal controls related to lease accounting, there were no changes in the Company’s internal controls over financial reporting during the three month period ended March 31, 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
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, 2018.
 
ITEM 2  
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
None
 
ITEM 3  
DEFAUTLT UPON SENIOR SECURITIES
 
None
 
ITEM 4  
MINE SAFETY DISCLOSURES
 
None
 
ITEM 5   
OTHER INFORMATION
 
None
 
ITEM 6
EXHIBITS
 
EXHIBIT
NO.
DESCRIPTION
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith).
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Filed herewith).
32 
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Filed herewith).
 
 
101
Interactive Data Files
101.INS+
XBRL Instance Document
101.SCH+
XBRL Taxonomy Extension Schema Document
101.CAL+
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF+
XBRL Taxonomy Definition Linkbase Document
101.LAB+
XBRL Taxonomy Extension Label Linkbase Document
101.PRE+
XBRL Taxonomy Extension Presentation Linkbase Document
 
 
27
 
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
 
WIDEPOINT CORPORATION
 
 
 
Date:
May 14, 2019
/s/ JIN H. KANG
 
 
Jin H. Kang
 
 
President and Chief Executive Officer
  
Date:
May 14, 2019
/s/  IAN SPARLING
 
 
Ian Sparling
 
 
Interim Chief Financial Officer
 

 
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