SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
---------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 000-23967
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WIDEPOINT CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 52-2040275
- ------------------------------- -------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
One Lincoln Centre,
18W140 Butterfield Road,
Suite 1100,
Oakbrook Terrace, Ill 60181
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (630) 629-0003
---------------
One Mid America Plaza,
Suite 403,
Oakbrook Terrace, Ill 60181
-------------------------------------------------------
Former name, former address and former fiscal year, if
changed since last report.
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 X No
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 under the Securities Exchange Act of 1934). Yes No X
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of May 5, 2003:
15,579,913 shares of common stock, $.001 par value per share.
WIDEPOINT CORPORATION
INDEX
Page No.
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Part I. FINANCIAL INFORMATION
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Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2003
(unaudited) and December 31, 2002 (audited) 1
Condensed Consolidated Statements of Operations for the three
months ended March 31, 2003, and 2002 (unaudited) 2
Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 2003, and 2002 (unaudited) 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 14
Item 4. Controls and Procedures 14
Part II. OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
- ----------
CERTIFICATIONS 17
- --------------
PART 1. FINANCIAL INFORMATION
-----------------------------
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
WIDEPOINT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2003 2002
---------------- ------------------
ASSETS (unaudited) (audited)
Current assets:
Cash and cash equivalents $ 1,174,191 $ 1,208,660
Accounts receivable,
net of allowance of $3,350 and $3,950, respectively 359,655 394,227
Prepaid expenses and other assets 42,827 66,480
---------------- ------------------
Total current assets 1,576,673 1,669,367
Property and equipment, net 14,719 11,965
Other assets 242,806 240,536
---------------- ------------------
Total assets $ 1,834,198 $ 1,921,868
================ ==================
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 54,115 $ 78,384
Accrued expenses 248,158 243,611
Current portion of capital lease obligation 2,581 6,421
---------------- ------------------
Total current liabilities 304,854 328,416
---------------- ------------------
Long-term capital lease obligation, net of current portion - --
---------------- ------------------
Total liabilities 304,854 328,416
Shareholders' equity
Preferred stock, $0.001 par value, 10,000,000 shares authorized,
None issued and outstanding - -
Common stock, $0.001 par value, 50,000,000 shares authorized,
15,579,913 shares issued and outstanding
as of March 31, 2003 and December 31, 2002. 15,580 15,580
Additional paid-in capital 42,110,539 42,110,539
Accumulated deficit (40,596,775) (40,532,667)
---------------- ------------------
Total shareholders' equity 1,529,344 1,593,452
---------------- ------------------
Total liabilities & shareholders' equity $ 1,834,198 $ 1,921,868
================ ==================
The accompanying notes are an integral part of these statements.
1
WIDEPOINT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31,
-----------------------------------
2003 2002
---------------- ----------------
(unaudited)
Revenues $ 922,652 $ 862,760
Operating expenses:
Cost of sales 676,454 540,226
Sales and marketing 126,046 118,738
General & administrative 184,228 280,543
Depreciation & amortization 3,180 21,468
---------------- ----------------
Loss from operations (67,256) (98,215)
Other income (expenses):
Interest income 3,667 5,036
Interest expense (519) (723)
----------------- -----------------
Net loss $ (64,108) $ (93,902)
================= =================
Basic and diluted net loss per share $ (0.00) $ (0.01)
================= =================
Basic and diluted weighted average shares outstanding 15,579,913 12,984,913
================= =================
The accompanying notes are an integral part of these consolidated statements.
2
WIDEPOINT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31,
-----------------------------------
2003 2002
---------------- ----------------
(unaudited)
Cash flows from operating activities:
Net loss $ (64,108) $ (93,902)
Adjustments to reconcile net loss to net cash
Depreciation and amortization expense 3,180 21,468
Changes in assets and liabilities
Accounts receivable 34,572 (111,683)
Prepaid expenses 23,653 7,349
Other assets (2,270) (10,997)
Accounts payable and accrued expenses (19,722) (208,969)
---------------- ----------------
Net cash used in operating activities $ (24,695) $ (396,734)
---------------- ----------------
Net cash used in investing activities:
Purchase of property and equipment (5,934) -
---------------- ----------------
Net cash used in investing activities $ (5,934) $ -
---------------- ----------------
Net cash used in financing activities
Net payments on long-term obligations (3,840) (4,970)
---------------- ----------------
Net cash used in financing activities $ (3,840) $ (4,970)
---------------- ----------------
Net decrease in cash $ (34,469) $ (401,704)
---------------- ----------------
Cash, beginning of period $ 1,208,660 $ 1,563,544
---------------- ----------------
Cash, end of period $ 1,174,191 $ 1,161,840
================ ================
The accompanying notes are an integral part of these consolidated statements.
3
WIDEPOINT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation, Organization and Nature of Operations:
The accompanying unaudited financial statements have been prepared in accordance
with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States of America ("US GAAP") for complete financial statements.
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments, considered necessary for a fair presentation have been
included. These financial statements should be read in conjunction with the
financial statements of WidePoint Corporation, as of December 31, 2002, and the
notes thereto included in the Annual Report on Form 10-K filed by the Company.
The results of operations for the three months ended March 31, 2003, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2003.
WidePoint Corporation is a consulting services firm specializing in planning,
managing and implementing Information Technology ("IT") solutions. Its staff
consists of business and technical specialists that help customers augment and
expand their technical capabilities, drive new technical innovations, and help
maintain a competitive edge in today's rapidly changing technological
environment.
From 1999 through 2002 the Company undertook several actions in an effort to
transition the Company from a millennium solutions provider to an IT services
company which included establishing the WidePoint brand, changing the corporate
name and organizational structure, and implementing a strategy that was
responsive to the evolving requirements of the Company's markets, customers,
asset base, and capital structure.
During 2002 and into 2003, the Company witnessed a negative economic environment
within the commercial IT sector due to constrained business investment and as a
result a decrease in demand for the IT services that the Company provides to it
customers. In its efforts to overcome the negative environment and expand its
revenue streams, the Company continues to implement and refine its strategic
plan which has included the launch of a federal business initiative, the
continued development of new technologies and capabilities focused within
wireless technologies, the development of various other practice areas, and the
initiation and expansion of several alliances to expand the Company's ability to
provide expanded services and reach to a wider group of new customers.
Most of the Company's current costs consist primarily of the salaries and
benefits paid to the Company's technical, marketing and administrative
personnel. As a result of its plan to expand its operations through new internal
initiatives to expand revenue growth, the Company expects these costs to
increase. The Company's profitability depends upon both the volume of services
performed and the Company's ability to manage costs. Because a significant
portion of the Company's cost structure is labor related, the Company must
effectively manage these costs to achieve profitability. To date, the Company
has attempted to maximize its operating margins through efficiencies achieved by
the use of the Company's proprietary methodologies and by
4
offsetting increases in consultant salaries with increases in consultant fees
received from clients.
2. Significant Accounting Policies:
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
acquired entities since their respective dates of acquisition. All significant
intercompany amounts have been eliminated.
Use of Estimates
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
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. Actual results could differ
from those estimates.
Cash and Cash Equivalents
Investments purchased with original maturities of three months or less are
considered cash equivalents for purposes of these consolidated financial
statements. The Company maintains cash and cash equivalents with various major
financial institutions. At March 31, 2003 and December 31, 2002, cash and cash
equivalents included $1,174,191 and $1,208,660, respectively, on investments in
overnight sweep accounts. At times, cash balances held at financial institutions
were in excess of federally insured limits. The Company places its temporary
cash investments with high-credit, quality financial institutions, and as a
result, the Company believes that no significant concentration of credit risk
exists with respect to these cash investments.
Accounts Receivable
The majority of the Company's accounts receivable are due from established
companies in the following industries: manufacturing, consumer product goods,
direct marketing, healthcare and state government. As of March 31, 2003, three
customers represented 35%, 11%, and 10% percent of accounts receivable,
respectively. As of March 31, 2002, three customers individually represented
20%, 16%, and 14%, respectively, of accounts receivable.
Credit is extended based on evaluation of a customers' financial condition and,
generally, collateral is not required. Accounts receivable are due within 30 to
45 days and are stated at amounts due from customers net of an allowance for
doubtful accounts. Accounts outstanding longer than the contractual payment
terms are considered past due. The Company determines its allowance by
considering a number of factors, including the length of time trade accounts
receivable are past due, the Company's previous loss history, the customer's
current ability to pay its obligation to the Company, and the condition of the
general economy and the industry as a whole. The Company writes off accounts
receivable when they become uncollectible, and payments subsequently received on
such receivables are credited to the allowance for doubtful accounts. The
following table sets forth the rolling forward balances of the Allowance for
doubtful accounts of the Company.
5
Additions
Balance at Charged to Balance at
Beginning of Costs and End of
Description Period Expenses Deductions Period
- -------------------------------------------------- ------------ ----------- ---------- ----------
For the quarter ended March 31, 2002,
Allowance for doubtful accounts................ $ 30,000 $ - $ - $ 30,000
For the quarter ended March 31, 2003,
Allowance for doubtful accounts................ $ 3,950 $ 189 $ 789 $ 3,350
Unbilled accounts receivable on time-and-materials contracts represent costs
incurred and gross profit recognized near the period-end but not billed until
the following period. Unbilled accounts receivable on fixed-price contracts
consist of amounts incurred that are not yet billable under contract terms. At
March 31, 2003 and 2002, unbilled accounts receivable totaled $0 and $3,725,
respectively.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to credit risk
consist of cash and cash equivalents and accounts receivable.
Fair Value of Financial Instruments
WidePoint financial instruments consist of cash, accounts receivable, accounts
payable and accrued expenses. The fair value of these financial instruments
approximates their carrying value as of March 31, 2003, due to their short-term
nature.
Revenue Recognition
Revenue on time-and-materials contracts is recognized based upon hours incurred
at contract rates plus direct costs. Revenue on fixed-price contracts is
recognized on the percentage-of-completion method based on costs incurred in
relation to total estimated costs. Anticipated losses are recognized as soon as
they become known. Provisions for estimated losses on uncompleted contracts are
made in the period in which such losses are determined.
Significant Customers
During the first quarter of 2003, four customers individually represented 20%,
16%, 13%, and 10% percent of revenue. During the first quarter of 2002, four
customers individually represented 14%, 14%, 13.5%, and 10% percent of revenue.
Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting
6
Standards ("SFAS") No. 109, "Accounting for Income Taxes." Under SFAS No.109,
deferred tax assets and liabilities are computed based on the difference between
the financial statement and income tax bases of assets and liabilities using the
enacted marginal tax rate. SFAS No. 109 requires that the net deferred tax asset
be reduced by a valuation allowance if, based on the weight of available
evidence, it is more likely than not that some portion or all of the net
deferred tax asset will not be realized.
Stock-based compensation
The Company accounts for stock-based employee compensation arrangements using
the intrinsic value method in accordance with the provisions of Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees," and complies with the disclosure provisions of SFAS No. 123
"Accounting for Stock-Based Compensation." Under APB Opinion No. 25,
compensation cost is generally recognized based on the difference, if any, on
the date of grant between the fair value of the Company's common stock and the
amount an employee must pay to acquire the stock. The following table
illustrates the effect on net income and earnings per share if the Company had
applied the fair value recognition provisions of FASB Statement 123, Accounting
for Stock-Based Compensation, using the assumptions described in Note 8, to its
stock-based employee plans.
Quarter ended
March 31,
--------------------------------
2003 2002
Net loss, as reported $ 64,108 $ 93,902
Deduct: Total stock-based employee
compensation expense determined under fair
value based method for awards granted,
modified, or settled, net of related tax effects 152,363 161,045
Pro forma net loss $216,460 $254,947
Earnings per share:
Basic and diluted - as reported $ (0.00) $ (0.01)
Basic and diluted - pro forma $ (0.01) $ (0.02)
The pro forma disclosure is not likely to be indicative of pro forma results
which may be expected in future years because of the fact that options vest over
several years, pro forma compensation expense is recognized as the options vest
and additional awards may also be granted.
7
For purposes of determining the effect of these options, the fair value of each
option is estimated on the date of grant based on the Black-Scholes
single-option pricing model assuming the following for the quarters ended March
31, 2003 and 2002:
2003 2002
---- ----
Dividend yield - -
Risk-free interest rate (%) 2.70 - 4.13% 2.70 - 4.13%
Volatility factor (%) 156% 156%
Expected life in years 5 5
Basic and Diluted Net Loss Per Share
Basic income or loss per share includes no dilution and is computed by dividing
net income or loss by the weighted-average number of common shares outstanding
for the period. Diluted income or loss per share includes the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock. The treasury stock effect of options
and warrants to purchase 1,816,000 and 2,845,500 shares of common stock
outstanding at March 31, 2003 and 2002, respectively, has not been included in
the calculation of the net loss per share as such effect would have been
anti-dilutive. As a result of these items, the basic and diluted loss per share
for all periods presented are identical.
Reclassifications
Certain amounts in prior years' financial statements have been reclassified to
conform with the current year presentation.
New accounting pronouncements
In 2001, the FASB issued SFAS 143, Accounting for Asset Retirement Obligations.
SFAS 143 requires companies to record the fair value of a liability for an asset
retirement obligation in the period in which it is incurred, which is adjusted
to its present value each subsequent period. In addition, companies must
capitalize a corresponding amount by increasing the carrying amount of the
related long-lived asset, which is depreciated over the useful life of the
related long-lived asset. We will adopt SFAS 143 effective as of January 1,
2003, and do not expect that this statement will have a material impact on our
consolidated financial position or results of operations.
In 2002, the FASB issued SFAS 146, Accounting for Costs Associated with Exit or
Disposal Activities. SFAS 146 requires that a liability for a cost associated
with an exit or disposal activity be recognized when the liability is incurred.
Severance pay under SFAS 146, in many cases, would be recognized over the
remaining service period rather than at the time the plan is communicated. The
provisions of SFAS 146 are effective for exit or disposal activities that are
initiated after December 31, 2002. We will adopt SEAS 146 for any actions
initiated after January 1, 2003, and any future exit costs or disposal
activities will be subject to this statement.
8
In 2003, the FASB issued FIN 46, Consolidation of Variable Interest Entities.
FIN 46 defines a variable interest entity (VIE) as a corporation, partnership,
trust, or any other legal structure that does not have equity investors with a
controlling financial interest or has equity investors that do not provide
sufficient financial resources for the entity to support its activities. FIN 46
requires consolidation of a VIE by the primary beneficiary of the assets,
liabilities, and results of activities effective in 2003. FIN 46 also requires
certain disclosures by all holders of a significant variable interest in a VIE
that are not the primary beneficiary. We do not have any material investments in
variable interest entities; therefore, the adoption of this interpretation will
have no impact on our consolidated financial position or results of operations.
3. Promissory Notes:
Promissory Notes
Pursuant to stock purchase agreements entered into on July 8, 2002, between the
Company and each of Steve L. Komar, James T. McCubbin and Mark M. Mirabile, the
Company privately sold 865,000 shares of its common stock to each such person
without registration under the Securities Act of 1933, pursuant to the private
offering exemption under Section 4(2) thereof, in consideration of a three (3)
year full-recourse, five percent (5%) interest bearing promissory note with
equal annual principal payments due, issued by each such person to the Company
in the principal amount of $60,550, or $181,650 in the aggregate (which equals
$0.07 per share, being the closing price of the Company's common stock on July
8, 2002).
4. Commitments and Contingencies:
Litigation
The Company is periodically a party to disputes arising from normal business
activities. In the opinion of management, resolution of these matters will not
have a material adverse effect upon the financial position or future operating
results of the Company and adequate provision for any potential losses has been
made in the accompanying consolidated financial statements.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of the financial condition and results of
operations of the Company should be read in conjunction with the financial
statements and the notes thereto which appear elsewhere in this quarterly report
and the Company's Annual Report on Form 10-K for the year ended December 31,
2002.
Overview
WidePoint Corporation is a consulting services firm specializing in planning,
managing and implementing Information Technology ("IT") solutions. Its staff
consists of business and technical specialists that help customers augment and
expand their technical capabilities, drive new technical innovations, and help
maintain a competitive edge in today's rapidly changing technological
environment.
The WidePoint approach is to apply a structured delivery methodology based on
industry standard best practices, enhanced with a set of deliverable templates
that increase productivity and effectiveness. WidePoint focuses on providing end
results with significant, tangible business benefits. Our consultants possess
recognized industry-standard certifications and years of successful project
experience.
Since 1996, WidePoint has focused on leveraging leading edge technologies,
methodologies and consultants to help clients improve their business
performance. This focus continues to tie together the Company's service
offerings and future direction. WidePoint's clients are increasingly looking to
harness the power of the Internet and leading IT technologies by integrating
these technologies with their existing systems as they transition, expand, and
refine their business environments.
From 1999 through 2002 the Company undertook several actions in an effort to
transition the Company from a millennium solutions provider to an IT services
company which included establishing the WidePoint brand, changing the corporate
name and organizational structure, and implementing a strategy that was
responsive to the evolving requirements of the Company's markets, customers,
asset base, and capital structure.
During 2002 and into 2003, the Company witnessed a negative economic environment
within the commercial IT sector due to constrained business investment and as a
result a decrease in demand for the IT services that the Company provides to it
customers. In its efforts to overcome the negative environment and expand its
revenue streams, the Company continues to implement and refine its strategic
plan which has included the launch of a federal business initiative, continued
development of new technologies and capabilities focused within wireless
technologies, the development of various other practice areas, and the
initiation and expansion of several alliances to expand the Company's ability to
provide expanded services and reach to a wider group of new customers.
For the quarter ended March 31, 2003 revenue was approximately $923,000 as
compared to
10
revenue of approximately $863,000 for the quarter ended March 31, 2002. The
revenue growth was attributable a greater number of billable hours by
consultants in the quarter ending March 31, 2003 as compared to the quarter
ended March 31, 2002. The Company continues to witness constrained demand for
its consultants as a result of the continuing constrained technology investment
environment in the marketplace and anticipates weakness to continue into the
second quarter of the year. As a result of the current diminished demand for the
Company's consultants and services, the Company has undertaken several
initiatives to expand its reach into new marketplaces to mitigate and enhance
its ability to expand revenues in the future.
Most of the Company's current costs consist primarily of the salaries and
benefits paid to the Company's technical, marketing and administrative personnel
and depreciation expenses related to property and equipment. Consistent with the
development of a new focused strategic direction, the Company expects to expand
its operations through internal growth and by potential acquisition of new
personnel and assets. Therefore, the Company anticipates these costs may
increase.
The Company's profitability depends upon both the volume of services performed
and the Company's ability to manage costs. Because a significant portion of the
Company's cost structure is labor related, the Company must effectively manage
these costs to achieve profitability. To date, the Company has attempted to
manage its operating margins by offsetting increases in consultant salaries with
increases in consultant fees received from clients and by effectively managing
general overhead costs. During this economic slowdown the Company has witnessed
a degradation of its operating margins and continues to experience margin
pressures for the services that the Company offers. To be successful the Company
must continue to win new business, expand its revenues, and manage its operating
margins along with its general overhead costs to mitigate the Company's losses
and restore positive cashflow and earnings growth.
Results of Operations
Three Months Ended March 31, 2003 as Compared to Three Months Ended
- -------------------------------------------------------------------
March 31, 2002
- --------------
Revenue. Revenue for the three month period ended March 31, 2003 was
approximately $923,000 as compared to approximately $863,000 for the three month
period ended March 31, 2002. The revenue growth was attributable to a greater
number of billable hours by consultants in the quarter ending March 31, 2003 as
compared to the quarter ended March 31, 2002.
Gross profit. Gross profit for the three month period ended March 31, 2003,
was approximately $246,000, or 27% of revenues, a decrease of approximately
$77,000 from gross profit of approximately $323,000, or 37% of revenues, for the
three month period ended March 31, 2002. The decline of gross profit was
materially attributable to a reduction in gross margin as a result of negative
pricing pressures that are present within the current marketplace for the
company's services.
Sales and marketing. Sales and marketing expenses for the three month
period ended March 31, 2003, were approximately $126,000, or 14% of revenues, an
increase of approximately $7,000, as compared to approximately $119,000, or 14%
of revenues, for the three month period ended March 31, 2002. The increase was
materially attributable to additional sales and marketing
11
expenses related to the launch of our federal initiative.
General and administrative. General and administrative expenses for the
three month period ended March 31, 2003, were approximately $184,000, or 20% of
revenues, a decrease of approximately $97,000, as compared to approximately
$281,000, or 33% of revenues, incurred by the Company for the three month period
ended March 31, 2002. The decrease in general and administrative expenses for
the three months ended March 31, 2003, was primarily attributable to an increase
in utilization of our consultants which resulted in a decrease in non billable
labor expenses and a decrease in general overhead expenses materially due to a
reduction in office rent expense as a result of the re-location of the Company's
offices to a less costly location.
Depreciation and amortization. Depreciation and amortization expenses for
the three month period ended March 31, 2003, was $3,180, or less than 1% of
revenues, a decrease of $18,288, as compared to $21,468 of such expenses, or 2%
of revenues, incurred by the Company for the three month period ended March 31,
2002. The decrease in depreciation and amortization expenses for the three month
period ended March 31, 2003, was primarily attributable to a lesser amount of
depreciable assets as a result of the reduced equipments requirements of a
smaller consultant base.
Other income (expense). Interest income for the three month period ended
March 31, 2003, was $3,667, or less than 1% of revenues, a decrease of $1,369 as
compared to $5,036, or less than 1% of revenues, for the three month period
ended March 31, 2002. The decrease in interest income for the three month period
ended March 31, 2003, was primarily attributable to lesser amounts of cash and
cash equivalents along with lower short term interest rates that were available
to the Company on investments in overnight sweep accounts. Interest expense for
the three month period ended March 31, 2003, was $519, a decrease of $204, as
compared to $723, or less than 1% of revenues, for the three month period ended
March 31, 2001. The decrease in interest expense for the three months ended
March 31, 2003, was primarily attributable to a lesser interest expense
component associated with the Company's capital lease obligations.
Net loss. As a result of the above, the net loss for the three month period
ended March 31, 2003, was approximately $64,000 as compared to the net loss of
approximately $94,000 for the three months ended March 31, 2002.
Liquidity and Capital Resources
The Company has, since inception, financed its operations and capital
expenditures through the sale of stock, seller notes, convertible notes,
convertible exchangeable debentures and the proceeds from the exchange offer and
exercise of the warrants related to a convertible exchangeable debenture.
Cash used in operating activities for the quarter ended March 31, 2003, was
approximately $25,000 as compared to cash used in operating activities of
approximately $397,0000 for the quarter ended March 31, 2002. The decrease in
cash used by operations during the first quarter of 2003 as compared to the
first quarter of 2002 was primarily a result of a decrease in the number of days
which accounts receivable remained outstanding, a reduction in accounts payable
and accrued expenses, and a reduction in losses. There was no material amount of
capital expenditures on
12
property for the quarters ended March 31, 2003 and 2002.
As of March 31, 2003, the Company had net working capital of approximately $1.3
million. The Company's primary source of liquidity consists of approximately
$1.2 million in cash and cash equivalents and approximately $0.4 million of
accounts receivable. The Company's current liabilities include $0.3 million in
accounts payable and accrued expenses.
The market for the Company's services is experiencing an environment of
constrained technology investment as a result of an economic slowdown that has
reduced new technology initiatives. As a result of this negative environment,
the demand for IT consultants ranging from software programmers to network
engineers has been negatively effected. This has reduced demand for the
Company's Consultants as well as created downward pricing pressures and an
increase in competition from both domestic and foreign firms for the diminished
amount of new and ongoing IT initiatives. The Company anticipates in the future
a reversal of these negative events as economic growth is restored and the
constrained environment in new technology initiatives ebb. Therefore, the
Company's business environment is characterized by rapid technological changes
and experiences times of high growth and contraction.
During 2002 and 2003 the Company has embarked upon several new initiatives to
counter the current negative environment within our industry and expand our
capacity to restore revenue growth. The Company requires substantial working
capital to fund the future growth of its business, particularly to finance
accounts receivable, sales and marketing efforts, and capital expenditures. The
Company currently has no commitments for capital expenditures. The Company's
future capital requirements will depend on many factors including the rate of
revenue growth, if any, the timing and extent of spending for new product and
service development, technological changes and market acceptance of the
Company's services.
The Company believes that its current cash position is sufficient to meet its
capital expenditure and working capital requirements for the near term; however,
the growth and technological change of the market make it difficult for the
Company to predict future liquidity requirements with certainty. Over the longer
term, the Company must successfully execute its plans to increase revenue and
income streams that will generate significant positive cash flows if it is to
sustain adequate liquidity without impairing growth or requiring the infusion of
additional funds from external sources. Additionally, a major expansion, such as
would occur with the acquisition of a major new subsidiary, might also require
external financing that could include additional debt or capital. There can be
no assurance that additional financing, if required, will be available on
acceptable terms, if at all.
Other
Inflation has not had a significant effect on the Company's operations, as
increased costs to the Company have generally been offset by increased prices of
services sold.
The preparation of financial statements in conformity with US GAAP 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
13
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
This report contains forward-looking statements setting forth the Company's
beliefs or expectations relating to future revenues, profitability, and
performance. Statements that contain words such as `believes", "expects",
"anticipates", "intends", "estimates", or similar expressions are
forward-looking statements. Forward-looking statements involve risks and
uncertainties that could cause actual results to differ materially from those
expressed or implied by such forward-looking statements. Actual results may
differ materially from projected or expected results due to changes in the
demand for the Company's products and services, uncertainties relating to the
results of operations, dependence on its major customers, risks associated with
rapid technological change and the emerging services market, potential
fluctuations in quarterly results, its dependence on key employees and other
risks and uncertainties affecting the technology industry generally. The Company
disclaims any intent or obligation to up-date publicly these forward-looking
statements, whether as a result of new information, future events or otherwise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
ITEM 4. CONTROLS AND PROCEDURES
Within 90 days prior to the filing of the Form 10-Q, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chairman and Chief Executive Officer along
with the Company's Chief Financial Officer, of the effectiveness of the design
and operation of the Company's disclosure controls and procedures pursuant to
Exchange Act Rule 13a-14 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Based upon that evaluation, the Company's Chief Executive
Officer along with the Company's Chief Financial Officer concluded that as of
the evaluation date, the Company's disclosure controls and procedures (1) are
effective in timely alerting them to material information relating to the
Company (including its consolidated subsidiaries) required to be included in the
Company's periodic SEC filings and (2) are adequate to ensure that information
required to be disclosed by the Company in the reports filed or submitted by the
Company under the Exchange Act is recorded, processed and summarized and
reported within the time periods specified in the SEC's rules and forms.
Further, the Company's Chairman and Chief Executive Officer, along with the
Company's Chief Financial Officer, are not aware of any significant changes in
disclosure controls and procedures subsequent to the evaluation date.
PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is periodically a party to disputes arising from normal
business activities. In the opinion of management, resolution of these matters
will not have a material adverse effect
14
upon the financial position or future operating results of the Company and
adequate provision for any potential losses has been made in the accompanying
consolidated financial statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
--------
99.1 Certificate of the Chief Executive Officer
99.2 Certificate of the Chief Financial Officer
(b) Reports on Form 8-K
-------------------
None.
15
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, 2003 /s/ STEVE L. KOMAR
------------------------------------------
Steve L. Komar
President and Chief Executive Officer
/s/ JAMES T. MCCUBBIN
------------------------------------------
James T. McCubbin
Vice President - Principal Financial
and Accounting Officer
16
CERTIFICATIONS
--------------
I, Steve L. Komar, certify that:
1. I have reviewed this quarterly report on Form 10-Q of WidePoint Corporation;
2. Based on my knowledge, this quarterly 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures 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 quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 14, 2003
/s/ STEVE L. KOMAR
- ------------------
Steve L. Komar
Chief Executive Officer
17
CERTIFICATIONS
--------------
I, James T. McCubbin, certify that:
1. I have reviewed this quarterly report on Form 10-Q of WidePoint Corporation;
2. Based on my knowledge, this quarterly 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures 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 quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 14, 2003
/s/ JAMES T. MCCUBBIN
- --------------------
James T. McCubbin
Chief Financial Officer and Corporate Treasurer and Secretary
18