Attached files
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
|
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For the quarterly period ended June 30, 2020
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or
|
|
☐
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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: 001-33035
WidePoint Corporation
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(Exact name of Registrant as specified in its charter)
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Delaware
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|
52-2040275
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(State or other jurisdiction of
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(I.R.S. employer
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incorporation or organization)
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|
identification no.)
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11250 Waples
Mill Road, South Tower 210, Fairfax, Virginia 22030
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(Address of principal executive offices) (Zip Code)
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(703) 349-2577
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(Registrant’s telephone number, including area
code)
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Securities Registered pursuant to Section 12(b)
of the Act:
Title of Each Class
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Trading Symbol
|
Name of Exchange on Which Registered
|
Common Stock, $0.001 par value per share
|
WYY
|
NYSE
American
|
Indicate by check
mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days: Yes
☑ No ⬜
Indicate by check
mark whether the registrant has submitted electronically every
Interactive Data File required to be submitted pursuant to Rule 405
of Regulation S-T (§ 232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant
was required to submit such files): Yes ☑ No
⬜
Indicate by check
mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated
filer”, “smaller reporting company” and
“emerging growth company” in Rule 12b-2 of the Exchange
Act.
Large
accelerated filer ☐
|
|
Accelerated
filer ☐
|
Non-accelerated
filer ☐
|
|
Smaller
reporting company ☑
Emerging
growth company ☐
|
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. Yes ☐ No
☐
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Act). Yes ☐ No ☑
As of
August 13, 2020, there were 84,418,523 shares of the
registrant’s Common Stock issued and
outstanding.
WIDEPOINT CORPORATION
INDEX
Page
No.
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2
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2
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3
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4
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5
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7
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8
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18
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23
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24
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24
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24
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24
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24
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24
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25
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25
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26
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CERTIFICATIONS
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27
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1
PART I.
FINANCIAL INFORMATION
ITEM 1.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
WIDEPOINT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
|
THREE MONTHS
ENDED
|
SIX MONTHS
ENDED
|
||
|
JUNE
30,
|
JUNE
30,
|
||
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2020
|
2019
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2020
|
2019
|
|
(Unaudited)
|
|||
REVENUES
|
$54,783,790
|
$22,093,153
|
$94,449,146
|
$44,010,055
|
COST OF REVENUES
(including amortization and depreciation of
|
|
|
|
|
$142,150, $232,968,
$301,768, and $465,159, respectively)
|
49,726,210
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18,036,409
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84,426,234
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35,699,468
|
|
|
|
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GROSS
PROFIT
|
5,057,580
|
4,056,744
|
10,022,912
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8,310,587
|
|
|
|
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OPERATING
EXPENSES
|
|
|
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Sales and
marketing
|
439,684
|
415,462
|
931,915
|
808,873
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General and
administrative expenses (including share-based
|
|
|
|
|
compensation of
$209,427, $284,111, $490,868 and $373,377,
respectively)
|
3,733,516
|
3,563,405
|
7,203,608
|
6,698,114
|
Depreciation and
amortization
|
266,404
|
244,064
|
529,632
|
484,612
|
|
|
|
|
|
Total operating
expenses
|
4,439,604
|
4,222,931
|
8,665,155
|
7,991,599
|
|
|
|
|
|
INCOME (LOSS) FROM
OPERATIONS
|
617,976
|
(166,187)
|
1,357,757
|
318,988
|
|
|
|
|
|
OTHER (EXPENSE)
INCOME
|
|
|
|
|
Interest
income
|
(68)
|
259
|
3,025
|
4,721
|
Interest
expense
|
(76,190)
|
(75,372)
|
(158,307)
|
(152,917)
|
Other
income
|
9
|
(9)
|
340
|
-
|
|
|
|
|
|
Total other
expense
|
(76,249)
|
(75,122)
|
(154,942)
|
(148,196)
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|
|
|
|
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INCOME (LOSS)
BEFORE INCOME TAX PROVISION
|
541,727
|
(241,309)
|
1,202,815
|
170,792
|
INCOME TAX
PROVISION
|
53,100
|
66,452
|
230,300
|
94,452
|
|
|
|
|
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NET INCOME
(LOSS)
|
$488,627
|
$(307,761)
|
$972,515
|
$76,340
|
|
|
|
|
|
BASIC EARNINGS PER
SHARE
|
$0.01
|
$0.00
|
$0.01
|
$0.00
|
|
|
|
|
|
BASIC
WEIGHTED-AVERAGE SHARES OUTSTANDING
|
83,920,314
|
83,990,722
|
83,880,197
|
83,902,077
|
|
|
|
|
|
DILUTED EARNINGS
PER SHARE
|
$0.01
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$0.00
|
$0.01
|
$0.00
|
|
|
|
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DILUTED
WEIGHTED-AVERAGE SHARES OUTSTANDING
|
84,964,261
|
83,990,722
|
84,664,395
|
83,965,994
|
|
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|
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|
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
|
SIX MONTHS
ENDED
|
||
|
JUNE
30,
|
JUNE
30,
|
||
|
2020
|
2019
|
2020
|
2019
|
|
(Unaudited)
|
|||
NET INCOME
(LOSS)
|
$488,627
|
$(307,761)
|
$972,515
|
$76,340
|
|
|
|
|
|
Other
comprehensive income (loss):
|
|
|
|
|
Foreign
currency translation adjustments, net of tax
|
27,599
|
13,995
|
(9,731)
|
(15,287)
|
|
|
|
|
|
Other
comprehensive income (loss)
|
27,599
|
13,995
|
(9,731)
|
(15,287)
|
|
|
|
|
|
COMPREHENSIVE
INCOME (LOSS)
|
$516,226
|
$(293,766)
|
$962,784
|
$61,053
|
The
accompanying notes are an integral part of these condensed
consolidated financial statements.
3
WIDEPOINT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE
SHEETS
|
JUNE 30,
|
DECEMBER
31,
|
|
2020
|
2019
|
|
(Unaudited)
|
|
ASSETS
|
||
CURRENT
ASSETS
|
|
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Cash
and cash equivalents
|
$7,520,725
|
$6,879,627
|
Accounts
receivable, net of allowance for doubtful accounts
|
|
|
of
$116,898 and $126,235 in 2020 and 2019, respectively
|
22,092,308
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14,580,928
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Unbilled
accounts receivable
|
26,698,793
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13,976,958
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Other
current assets
|
1,397,958
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1,094,847
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|
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Total
current assets
|
57,709,784
|
36,532,360
|
|
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NONCURRENT
ASSETS
|
|
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Property
and equipment, net
|
589,664
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681,575
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Operating
lease right of use asset, net
|
5,606,082
|
5,932,769
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Intangibles,
net
|
2,196,878
|
2,450,770
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Goodwill
|
18,555,578
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18,555,578
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Other
long-term assets
|
641,381
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140,403
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Total
assets
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$85,299,367
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$64,293,455
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LIABILITIES AND STOCKHOLDERS' EQUITY
|
||
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CURRENT
LIABILITIES
|
|
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Accounts
payable
|
$20,107,933
|
$13,581,822
|
Accrued
expenses
|
28,534,306
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14,947,981
|
Deferred
revenue
|
1,892,243
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2,265,067
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Current
portion of operating lease liabilities
|
566,881
|
599,619
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Current
portion of other term obligations
|
31,887
|
133,777
|
|
|
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Total
current liabilities
|
51,133,250
|
31,528,266
|
|
|
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NONCURRENT
LIABILITIES
|
|
|
Operating
lease liabilities, net of current portion
|
5,332,139
|
5,593,649
|
Deferred
revenue, net of current portion
|
354,385
|
363,560
|
Deferred
tax liability
|
2,096,636
|
1,868,562
|
|
|
|
Total
liabilities
|
58,916,410
|
39,354,037
|
|
|
|
Commitments
and contingencies
|
-
|
-
|
|
|
|
STOCKHOLDERS'
EQUITY
|
|
|
Preferred
stock, $0.001 par value; 10,000,000 shares
|
|
|
authorized;
2,045,714 shares issued and none outstanding
|
-
|
-
|
Common
stock, $0.001 par value; 110,000,000 shares
|
|
|
authorized;
84,418,523 and 83,861,453 shares
|
|
|
issued
and outstanding, respectively
|
84,418
|
83,861
|
Additional
paid-in capital
|
95,759,312
|
95,279,114
|
Accumulated
other comprehensive loss
|
(252,325)
|
(242,594)
|
Accumulated
deficit
|
(69,208,448)
|
(70,180,963)
|
|
|
|
Total
stockholders’ equity
|
26,382,957
|
24,939,418
|
|
|
|
Total
liabilities and stockholders’ equity
|
$85,299,367
|
$64,293,455
|
The
accompanying notes are an integral part of these condensed
consolidated financial statements.
4
WIDEPOINT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
SIX MONTHS
ENDED
|
|
|
JUNE
30,
|
|
|
2020
|
2019
|
|
(Unaudited)
|
|
CASH FLOWS FROM
OPERATING ACTIVITIES
|
|
|
Net
income
|
$972,515
|
$76,340
|
Adjustments to
reconcile net income to net cash provided by
|
|
|
(used in) operating
activities:
|
|
|
Deferred income tax
expense
|
228,185
|
58,444
|
Depreciation
expense
|
580,089
|
552,140
|
Provision for
doubtful accounts
|
571
|
11,190
|
Amortization of
intangibles
|
251,311
|
397,631
|
Amortization of
deferred financing costs
|
1,667
|
2,500
|
Share-based
compensation expense
|
490,868
|
373,377
|
Changes in assets
and liabilities:
|
|
|
Accounts receivable
and unbilled receivables
|
(20,204,950)
|
1,457,869
|
Inventories
|
(295,057)
|
(276,256)
|
Prepaid expenses
and other current assets
|
(9,251)
|
77,759
|
Other
assets
|
18,334
|
60,411
|
Accounts payable
and accrued expenses
|
19,998,926
|
810,590
|
Income tax
payable
|
(16,784)
|
(2,442)
|
Deferred revenue
and other liabilities
|
(385,520)
|
(89,365)
|
|
|
|
Net cash provided
by operating activities
|
1,630,904
|
3,510,188
|
|
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES
|
|
|
Purchases of
property and equipment
|
(165,377)
|
(140,052)
|
Capitalized
software development costs
|
(519,312)
|
(125,725)
|
|
|
|
Net cash used in
investing activities
|
(684,689)
|
(265,777)
|
|
|
|
CASH FLOWS FROM
FINANCING ACTIVITIES
|
|
|
Advances on bank
line of credit
|
1,895,659
|
6,258,000
|
Repayments of bank
line of credit advances
|
(1,895,659)
|
(6,258,000)
|
Principal
repayments under finance lease obligations
|
(291,315)
|
(238,675)
|
Debt
issuance costs
|
-
|
(5,000)
|
Common stock
repurchased
|
(10,113)
|
-
|
|
|
|
Net cash used in
financing activities
|
(301,428)
|
(243,675)
|
|
|
|
Net
effect of exchange rate on cash and equivalents
|
(3,689)
|
(10,563)
|
|
|
|
NET INCREASE IN
CASH AND CASH EQUIVALENTS
|
641,098
|
2,990,173
|
|
|
|
CASH AND CASH
EQUIVALENTS, beginning of period
|
6,879,627
|
2,431,892
|
|
|
|
CASH AND CASH
EQUIVALENTS, end of period
|
$7,520,725
|
$5,422,065
|
The
accompanying notes are an integral part of these condensed
consolidated financial statements.
5
WIDEPOINT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
|
SIX MONTHS
ENDED
|
|
|
JUNE
30,
|
|
|
2020
|
2019
|
|
(Unaudited)
|
|
SUPPLEMENTAL CASH
FLOW INFORMATION
|
|
|
Cash paid for
interest
|
$153,609
|
$127,583
|
Cash paid for
income taxes
|
$-
|
$8,904
|
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,
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
|
Issuance of common stock
—
|
|
|
|
|
|
|
restricted
|
662,740
|
663
|
(663)
|
-
|
-
|
-
|
|
|
|
|
|
|
|
Stock compensation expense
—
|
|
|
|
|
|
|
restricted
|
-
|
-
|
180,863
|
-
|
-
|
180,863
|
|
|
|
|
|
|
|
Stock compensation expense
—
|
|
|
|
|
|
|
non-qualified stock
options
|
-
|
-
|
103,248
|
-
|
-
|
103,248
|
|
|
|
|
|
|
|
Foreign currency translation
—
|
|
|
|
|
|
|
gain
|
-
|
-
|
-
|
13,995
|
-
|
13,995
|
|
|
|
|
|
|
|
Net loss
|
-
|
-
|
-
|
-
|
(307,761)
|
(307,761)
|
|
|
|
|
|
|
|
Balance, June 30,
2019
|
84,775,186
|
$84,776
|
$95,299,274
|
$(201,772)
|
$(70,330,878)
|
$24,851,400
|
|
|
|
Additional
|
|
|
|
|
Common
Stock
|
Paid-In
|
Accumulated
|
Accumulated
|
|
|
|
Issued
|
Amount
|
Capital
|
OCI
|
Deficit
|
Total
|
|
(Unaudited)
|
|||||
Balance, January
1, 2020
|
83,861,453
|
$83,861
|
$95,279,114
|
$(242,594)
|
$(70,180,963)
|
$24,939,418
|
|
|
|
|
|
|
|
Common stock repurchased
|
(24,164)
|
(24)
|
(10,089)
|
|
|
(10,113)
|
|
|
|
|
|
|
|
Stock
compensation expense —
|
|
|
|
|
|
|
restricted
|
-
|
-
|
254,499
|
-
|
-
|
254,499
|
|
|
|
|
|
|
|
Stock
compensation expense —
|
|
|
|
|
|
|
non-qualified
stock options
|
-
|
-
|
26,942
|
-
|
-
|
26,942
|
|
|
|
|
|
|
|
Foreign currency
translation —
|
|
|
|
|
|
|
(loss)
|
-
|
-
|
-
|
(37,330)
|
-
|
(37,330)
|
|
|
|
|
|
|
|
Net
income
|
-
|
-
|
-
|
-
|
483,888
|
483,888
|
|
|
|
|
|
|
|
Balance, March
31, 2020
|
83,837,289
|
$83,837
|
$95,550,466
|
$(279,924)
|
$(69,697,075)
|
$25,657,304
|
|
|
|
|
|
|
|
Issuance of
common stock —
|
|
|
|
|
|
|
restricted
|
581,234
|
581
|
(581)
|
-
|
-
|
-
|
|
|
|
|
|
|
|
Stock
compensation expense —
|
|
|
|
|
|
|
restricted
|
-
|
|
182,928
|
-
|
-
|
182,928
|
|
|
|
|
|
|
|
Stock
compensation expense —
|
|
|
|
|
|
|
non-qualified
stock options
|
-
|
-
|
26,499
|
-
|
-
|
26,499
|
|
|
|
|
|
|
|
Foreign currency
translation —
|
|
|
|
|
|
|
gain
|
-
|
-
|
-
|
27,599
|
-
|
27,599
|
|
|
|
|
|
|
|
Net
income
|
-
|
-
|
-
|
|
488,627
|
488,627
|
|
|
|
|
|
|
|
Balance, June
30, 2020
|
84,418,523
|
$84,418
|
$95,759,312
|
$(252,325)
|
$(69,208,448)
|
$26,382,957
|
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 Fairfax,
Virginia.
Nature of Operations
The
Company is a leading provider of trusted mobility management (TM2).
The Company’s TM2 platform and service solutions enable its
customers to efficiently secure, manage and analyze the entire
lifecycle of their mobile communications assets through its
federally compliant platform Intelligent Telecommunications
Management System (ITMS™). The Company’s
ITMS™ platform is SSAE 18 compliant and was granted an
Authority to Operate by the U.S. Department of Homeland Security.
Additionally, the Company was granted an Authority to Operate by
the General Services Administration with regard to its identity
credentialing component of its TM2 platform. The Company’s
TM2 platform is internally hosted and accessible on-demand through
a secure customer portal that is specially configured for each
customer. The Company can deliver these solutions in a number of
configurations ranging from utilizing the platform as a service to
a full-service solution that includes full lifecycle support for
all end users and the organization.
The
Company derives a significant amount of its revenues from contracts
funded by federal government agencies for which WidePoint’s
subsidiaries act in the capacity as the prime contractor, or as a
subcontractor. The Company believes that contracts with federal
government agencies will be the primary source of revenues for the
foreseeable future. External factors outside of the Company’s
control such as delays and/or a change in government
administrations, budgets and other political matters that may
impact the timing and commencement of such work could result in
variations in operating results and directly affect the
Company’s financial performance. Successful contract
performance and variation in the volume of activity as well as in
the number of contracts commenced or completed during any quarter
may cause significant variations in operating results from quarter
to quarter.
A
significant portion of the Company’s expenses, such as
personnel and facilities costs, are fixed in the short term and may
not be easily modified to manage through changes in the
Company’s market place that may create pressure on pricing
and/or costs to deliver its services.
The
Company has periodic capital expense requirements to maintain and
upgrade its internal technology infrastructure tied to its hosted
solutions and other such costs may be significant when incurred in
any given quarter.
The
coronavirus (“COVID-19”) pandemic has created
significant macroeconomic uncertainty, volatility and disruption.
The assessment of how COVID-19 will impact our business is on-going
and encompasses all aspects of our business, including how COVID-19
will impact our customers, employees, subcontractors, business
partners and the capital markets. Although the Company did not
experience significant disruptions during the three and six months
ended June 30, 2020, we are unable to fully predict the impact the
COVID-19 pandemic will have on our future financial position,
results of operations, or cash flows.
Additionally, changes in
spending policies, budget priorities and funding levels are a key
factor influencing the purchasing levels of government customers.
With the current COVID-19 pandemic, future budget priorities and
funding levels for these customers may be adversely
affected.
8
2.
Basis
of Presentation and Accounting Policies
Basis of Presentation
The
unaudited condensed consolidated financial statements as of June
30, 2020 and for each of the three and six month periods ended June
30, 2020 and 2019, respectively, included herein have been prepared
by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission (the “SEC”).
Pursuant to such regulations, certain information and footnote
disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the
United States (“U.S. GAAP”) have been condensed or
omitted. It is the opinion of management that all adjustments
(which include normal recurring adjustments) necessary for a fair
statement of financial results are reflected in the financial
statements for the interim periods presented. The condensed
consolidated balance sheet as of December 31, 2019 was derived from
the audited consolidated financial statements included in the
Company’s Annual Report on Form 10-K for the year ended
December 31, 2019. The results of operations for the three and six
month periods ended June 30, 2020 are not necessarily indicative of
the operating results for the full year.
Principles of Consolidation
The
accompanying condensed consolidated financial statements include
the accounts of the Company, its wholly owned subsidiaries and
acquired entities since their respective dates of acquisition. All
significant inter-company amounts were eliminated in
consolidation.
Foreign Currency
Assets
and liabilities denominated in foreign currencies are translated
into U.S. dollars based upon exchange rates prevailing at the end
of each reporting period. The resulting translation adjustments,
along with any related tax effects, are included in accumulated
other comprehensive income, a component of stockholders’
equity. Translation adjustments are reclassified to earnings upon
the sale or substantial liquidation of investments in foreign
operations. Revenues and expenses are translated at the average
month-end exchange rates during the year. Gains and losses related
to transactions in a currency other than the functional currency,
including operations outside the U.S. where the functional currency
is the U.S. dollar, are reported net in the Company’s
condensed consolidated statements of operations, depending on the
nature of the activity.
Use of Estimates
The
preparation of condensed consolidated financial statements in
conformity with accounting principles generally accepted in the
U.S. requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. The more significant areas
requiring use of estimates and judgment relate to revenue
recognition, accounts receivable valuation reserves, ability to
realize intangible assets and goodwill, ability to realize deferred
income tax assets, fair value of certain financial instruments and
the evaluation of contingencies and litigation. Management bases
its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the
circumstances. Actual results could differ from those estimates.
There were no significant changes in accounting estimates used by
management during the quarter.
Segment Reporting
Our TM2
solution offerings comprise an overall single business from which
the Company earns revenues and incurs costs. The Company’s
TM2 solution offerings are centrally managed and reported on that
basis to its Chief Operating Decision Maker who evaluates its
business as a single segment. See Note 13 for detailed information
regarding the composition of revenues.
Significant Accounting Policies
There
were no significant changes in the Company’s significant
accounting policies during the first six months of 2020 from those
disclosed in the Company’s Annual Report on Form 10-K for the
year ended December 31, 2019 filed with the SEC on March 24,
2020.
9
Accounting Standards under Evaluation
In June 2016, the FASB issued ASU No. 2016-13,
“Financial Instruments - Credit Losses (Topic
326): Measurement of Credit Losses
on Financial Instruments”
(“Topic 326”). Topic 326 amends guidance on reporting
credit losses for assets held at amortized cost basis and available
for sale debt securities. For assets held at amortized cost basis,
Topic 326 eliminates the probable initial recognition threshold in
current GAAP and, instead, requires an entity to reflect its
current estimate of all expected credit losses. The allowance for
credit losses is a valuation account that is deducted from the
amortized cost basis of the financial assets to present the net
amount expected to be collected. For available for sale debt
securities, credit losses should be measured in a manner similar to
current GAAP, however Topic 326 will require that credit losses be
presented as an allowance rather than as a write-down. This ASU
update affects entities holding financial assets and net investment
in leases that are not accounted for at fair value through net
income. This update is effective for the company for fiscal years
beginning after December 15, 2022, including interim periods within
those fiscal years. The Company is currently evaluating the impact
of the pending adoption of this new standard on its consolidated
financial statements.
3.
Accounts
Receivable and Significant Concentrations
A
significant portion of the Company’s receivables are billed
under firm fixed price contracts with agencies of the U.S. federal
government and similar pricing structures with several
corporations. Accounts receivable consist of the following by
customer type in the table below as of the periods
presented:
|
JUNE 30,
|
DECEMBER
31,
|
|
2020
|
2019
|
|
(Unaudited)
|
|
Government
(1)
|
$20,319,761
|
$12,604,582
|
Commercial
(2)
|
1,889,445
|
2,102,581
|
Gross accounts
receivable
|
22,209,206
|
14,707,163
|
Less: allowances
for doubtful
|
|
|
accounts
(3)
|
116,898
|
126,235
|
|
|
|
Accounts
receivable, net
|
$22,092,308
|
$14,580,928
|
(1)
Government contracts are generally firm fixed price not to exceed
arrangements with a term of five (5) years, which consists of a
base year and four (4) annual option year renewals. Government
receivables are billed under a single consolidated monthly invoice
and are billed approximately thirty (30) to sixty (60) days in
arrears from the date of service and payment is generally due
within thirty (30) days of the invoice date. Government accounts
receivable payments could be delayed due to administrative
processing delays by the government agency, continuing budget
resolutions that may delay availability of contract funding, and/or
administrative only invoice correction requests by contracting
officers that may delay payment processing by our government
customer.
(2)
Commercial contracts are generally fixed price arrangements with
contract terms ranging from two (2) to three (3) years. Commercial
accounts receivables are billed based on the underlying contract
terms and conditions which generally have repayment terms that
range from thirty (30) to ninety (90) days. Commercial receivables
are stated at amounts due from customers net of an allowance for
doubtful accounts if deemed necessary.
(3) For
the six months ended June 30, 2020, the Company did not recognize any material provisions for bad
debt, write-offs or recoveries of existing provisions for bad
debt. The Company has not historically maintained a bad debt
reserve for its government customers as it has not experienced
material or recurring bad debt charges and the nature and size of
the contracts has not necessitated the Company’s
establishment of such a bad debt reserve.
10
Significant Concentrations
The
following table presents customers that represent ten (10) percent
or more of consolidated trade accounts receivable as of the periods
presented below:
|
JUNE 30,
|
DECEMBER
31,
|
|
2020
|
2019
|
|
As a %
of
|
As a %
of
|
Customer
Name
|
Receivables
|
Receivables
|
|
(Unaudited)
|
|
National
Aeronautics and Space Administration
|
16%
|
21%
|
U.S. Census
Bureau
|
50%
|
18%
|
The
following table presents customers that represent ten (10) percent
or more of consolidated revenues in the current and/or comparative
periods:
|
THREE MONTHS
ENDED
|
SIX MONTHS
ENDED
|
||
|
JUNE
30,
|
JUNE
30,
|
||
|
2020
|
2019
|
2020
|
2019
|
|
As a %
of
|
As a %
of
|
As a %
of
|
As a %
of
|
Customer Name
|
Revenues
|
Revenues
|
Revenues
|
Revenues
|
|
(Unaudited)
|
|||
U.S. Immigration
and Customs Enforcement
|
--
|
15%
|
10%
|
15%
|
U.S. Customs Border
Patrol
|
--
|
--
|
--
|
11%
|
U.S. Coast
Guard
|
--
|
11%
|
--
|
10%
|
U.S. Census
Bureau
|
60%
|
--
|
51%
|
--
|
4.
Unbilled
Accounts Receivable
Unbilled accounts
receivable represent revenues earned but not invoiced to the
customer at the balance sheet date due to either timing of invoice
processing or delays due to fixed contractual billing schedules. A
significant portion of our unbilled accounts receivable consist of
carrier services and hardware and software products delivered but
not invoiced at the end of the reporting period.
The
following table presents customers that represent ten (10) percent
or more of consolidated unbilled accounts receivable as of the
periods presented below:
|
JUNE 30,
|
DECEMBER
31,
|
|
2020
|
2019
|
|
As a %
of
|
As a %
of
|
Customer
Name
|
Receivables
|
Receivables
|
|
(Unaudited)
|
|
U.S.
Immigration and Customs Enforcement
|
19%
|
24%
|
U.S. Census
Bureau
|
61%
|
23%
|
11
5.
Other
Current Assets and Accrued Expenses
Other
current assets consisted of the following as of the periods
presented below:
|
JUNE 30,
|
DECEMBER
31,
|
|
2020
|
2019
|
|
(Unaudited)
|
|
Inventories
|
$508,826
|
$213,713
|
Prepaid rent,
insurance and other assets
|
889,132
|
881,134
|
|
|
|
Total other current
assets
|
$1,397,958
|
$1,094,847
|
Accrued
expenses consisted of the following as of the periods presented
below:
|
JUNE 30,
|
DECEMBER
31,
|
|
2020
|
2019
|
|
(Unaudited)
|
|
Carrier service
costs
|
$25,379,290
|
$12,274,440
|
Salaries and
payroll taxes
|
2,243,588
|
1,781,628
|
Inventory
purchases, consultants and other costs
|
870,606
|
834,131
|
Severance
costs
|
7,612
|
7,612
|
U.S. income tax
payable
|
3,670
|
8,850
|
Foreign income tax
payable
|
29,540
|
41,320
|
|
|
|
Total accrued
expenses
|
$28,534,306
|
$14,947,981
|
6.
Property
and Equipment
Major
classes of property and equipment consisted of the following as of
the periods presented below:
|
JUNE 30,
|
DECEMBER
31,
|
|
2020
|
2019
|
|
(Unaudited)
|
|
Computer hardware
and software
|
$2,148,624
|
$2,041,978
|
Furniture and
fixtures
|
420,705
|
399,521
|
Leasehold
improvements
|
285,903
|
299,340
|
Automobiles
|
54,783
|
56,800
|
Gross property and
equipment
|
2,910,015
|
2,797,639
|
Less: accumulated
depreciation and
|
|
|
amortization
|
2,320,351
|
2,116,064
|
|
|
|
Property and
equipment, net
|
$589,664
|
$681,575
|
During
the three and six month periods ended June 30, 2020, property and
equipment depreciation expense was approximately $130,000 and
$216,200, respectively, as compared to $140,000 and $275,000,
respectively, for the three and six month periods ended June 30,
2019.
12
During
the six month periods ended June 30, 2020 and 2019, there were no
material disposals of owned property and equipment.
There
were no changes in the estimated useful lives used to depreciate
property and equipment during the three and six month periods ended
June 30, 2020 and 2019.
7.
Goodwill
and Intangible Assets
The
Company has recorded goodwill of $18,555,578 as of June 30, 2020.
There were no changes in the carrying amount of goodwill during the
six month period ended June 30, 2020.
Intangible assets
consists of the following:
|
Gross
Carrying
|
Accumulated
|
Net
Book
|
|
Amount
|
Amortization
|
Value
|
|
|
|
|
Customer
Relationships
|
$1,980,000
|
$(1,980,000)
|
$-
|
Channel
Relationships
|
2,628,080
|
(1,080,433)
|
1,547,647
|
Internally
Developed Software
|
1,623,298
|
(1,145,122)
|
478,176
|
Trade
Name and Trademarks
|
290,472
|
(119,417)
|
171,055
|
|
|
|
|
|
$6,521,850
|
$(4,324,972)
|
$2,196,878
|
|
DECEMBER 31,
2019
|
||
|
|
|
|
|
|
|
|
|
Gross
Carrying
|
Accumulated
|
Net
Book
|
|
Amount
|
Amortization
|
Value
|
|
|
|
|
Customer
Relationships
|
$1,980,000
|
$(1,980,000)
|
$-
|
Channel
Relationships
|
2,628,080
|
(992,830)
|
1,635,250
|
Internally
Developed Software
|
1,623,122
|
(988,340)
|
634,782
|
Trade
Name and Trademarks
|
290,472
|
(109,734)
|
180,738
|
|
|
|
|
|
$6,521,674
|
$(4,070,904)
|
$2,450,770
|
For the
three and six month periods ended June 30, 2020, the Company
capitalized $178,000 and $519,000, respectively, of internally
developed software costs, primarily associated with upgrading our
secure identity management technology and network operations
center. For the three and six month periods ended June 30, 2019,
the Company capitalized internally developed software costs of
approximately $67,225 and $125,725, 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 June 30, 2020 and 2019.
The
aggregate amortization expense recorded for the three month periods
ended June 30, 2020 and 2019 was approximately $125,700 and
$198,800, respectively. The aggregate amortization expense recorded
for the six month periods ended June 30, 2020 and 2019 waas
approximately $251,300 and $397,600, respectively The total
weighted remaining average life of all purchased intangible assets
and internally developed software costs was approximately 4.5 years
and 2.5 years, respectively, at June 30, 2020.
13
As of
June 30, 2020, estimated annual amortization for our intangible
assets for each of the next five years is
approximately:
Remainder
of 2020
|
$202,924
|
2021
|
333,714
|
2022
|
273,937
|
2023
|
194,570
|
2024
|
194,570
|
Thereafter
|
997,163
|
Total
|
$2,196,878
|
8.
Line
of Credit
On June
15, 2017, the Company entered into a Loan and Security Agreement
with Atlantic Union Bank (formerly known as Access National Bank)
(the “Loan Agreement”). The Loan Agreement provides for
a $5.0 million working capital revolving line of
credit.
Effective, April
30, 2020, the Company entered into a fifth modification agreement
(“Modification Agreement”) with Atlantic Union Bank to
amend the existing Loan Agreement. The Modification Agreement
extended the maturity date of the facility from April 30, 2020
through April 30, 2021 and changed the variable interest rate from
the Wall Street Journal prime rate plus 0.50% to the Wall Street
Journal prime rate plus 0.25%.
The
Loan Agreement requires that the Company meet the following
financial covenants on a quarterly basis: (i) maintain a minimum
adjusted tangible net worth of at least $2.0 million, (ii) maintain
minimum consolidated EBITDA of at least two times interest expense
and (iii) maintain a current ratio of 1.10:1.
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 June 30, 2020, the Company was eligible
to borrow up to $4.9 million under the borrowing base
formula.
9.
Income
Taxes
In
response to the COVID-19 pandemic, the U.S. federal, state and
local governments have enacted tax-related relief programs to
provide both direct and indirect tax assistance in the form of tax
subsidies, exemptions, deferrals and credits. The
Company is continuously analyzing these programs as they are
introduced in order to determine our eligibility and the risks and
benefits of participation.
During
the quarter ended June 30, 2020, the Company elected to participate
in several COVID-19 tax-relief programs for which it was eligible.
For example, pursuant to the Coronavirus Aid, Relief and Economic
Security (“CARES”) Act, the Company exercised the
option to defer payment of the employer portion of the Social
Security tax, with 50% to be repaid by December 31, 2021 and the
remainder by December 31, 2022. The Company deferred
payment of approximately $166,200 of employer Social Security taxes
during the quarter ended June 30, 2020.
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 June 30, 2020, the Company was not under
examination by the IRS, any state or foreign tax jurisdiction. The
Company did not have any unrecognized tax benefits at either June
30, 2020 or December 31, 2019. In the future if applicable, any
interest and penalties related to uncertain tax positions will be
recognized in income tax expense.
As of
June 30, 2020, the Company had approximately $37.5 million in net
operating loss (NOL) carry forwards available to offset future
taxable income for federal income tax purposes, net of the
potential Section 382 limitations. These federal NOL carry forwards
expire between 2020 and 2037. Included in the recorded deferred tax
asset, the Company had a benefit of approximately $39.5 million
available to offset future taxable income for state income tax
purposes. These state NOL carry forwards expire between 2024 and
2036. Because of the change of ownership provisions of the Tax
Reform Act of 1986, use of a portion of our domestic NOL may be
limited in future periods. Further, a portion of the carryforwards
may expire before being applied to reduce future income tax
liabilities.
14
Management assesses
the available positive and negative evidence to estimate if
sufficient future taxable income will be generated to use the
existing deferred tax assets. Under existing income tax accounting
standards such objective evidence is more heavily weighted in
comparison to other subjective evidence such as our projections for
future growth, tax planning and other tax strategies. A significant
piece of objective negative evidence considered in
management’s evaluation of the realizability of its deferred
tax assets was the existence of cumulative losses over the latest
three-year period. Management forecast future taxable income, but
concluded that there may not be enough of a recovery before the end
of the fiscal year to overcome the negative objective evidence of
three years of cumulative losses. On the basis of this evaluation,
management has recorded a valuation allowance against all deferred
tax assets. If management’s assumptions change and we
determine we will be able to realize these deferred tax assets, the
tax benefits relating to any reversal of the valuation allowance on
deferred tax assets will be accounted for as a reduction of income
tax expense.
10.
Stockholders’
Equity
Common Stock
The
Company is authorized to issue 110,000,000 shares of common stock,
$.001 par value per share. As of June 30, 2020, there were
84,418,523 shares issued and outstanding. During the six month
period ended June 30, 2020, the Company granted 2,355,039
restricted stock awards (RSAs), of which 1,737,415 remain unvested.
The Company issued 238,572 shares of
common stock as a result of the vesting portion of RSAs during the
six month period ended June 30, 2019.
11.
Share-based
Compensation
Share-based
compensation (including restricted stock awards) represents both
stock options based expense and stock grant expense. The following
table sets forth the composition of stock compensation expense
included in general and administrative expense for the periods then
ended:
|
THREE MONTHS
ENDED
|
SIX MONTHS
ENDED
|
||
|
JUNE
30
|
JUNE
30
|
||
|
2020
|
2019
|
2020
|
2019
|
|
(Unaudited)
|
|||
Restricted stock
compensation expense
|
$182,928
|
$180,863
|
$437,427
|
$197,600
|
Non-qualified
option stock compensation expense
|
26,499
|
103,248
|
53,441
|
175,777
|
|
|
|
|
|
Total share-based
compensation before taxes
|
$209,427
|
$284,111
|
$490,868
|
$373,377
|
At June
30, 2020, the Company had approximately $772,498 of total
unrecognized share-based compensation expense, net of estimated
forfeitures, related to shared-based compensation that will be
recognized over the weighted average remaining period of 1.0
year.
12.
Earnings
Per Common Share (EPS)
The
computations of basic and diluted earnings per share were as
follows for the periods presented below:
15
|
THREE MONTHS
ENDED
|
SIX MONTHS
ENDED
|
||
|
JUNE
30,
|
JUNE
30,
|
||
|
2020
|
2019
|
2020
|
2019
|
|
(Unaudited)
|
|||
Basic
Earnings Per Share Computation:
|
|
|
|
|
Net income
(loss)
|
$488,627
|
$(307,761)
|
$972,515
|
$76,340
|
Weighted average
number of common shares
|
83,920,314
|
83,990,722
|
83,880,197
|
83,902,077
|
Basic Earnings Per
Share
|
$0.01
|
$0.00
|
$0.01
|
$0.00
|
|
|
|
|
|
Diluted
Earnings Per Share Computation:
|
|
|
|
|
Net income
(loss)
|
$488,627
|
$(307,761)
|
$972,515
|
$76,340
|
|
|
|
|
|
Weighted average
number of common shares
|
83,920,314
|
83,990,722
|
83,880,197
|
83,902,077
|
Incremental shares
from assumed conversions
|
|
|
|
|
of dilutive
securities
|
1,043,947
|
-
|
784,198
|
63,917
|
Adjusted weighted
average number of
|
|
|
|
|
common
shares
|
84,964,261
|
83,990,722
|
84,664,395
|
83,965,994
|
|
|
|
|
|
Diluted Earnings
Per Share
|
$0.01
|
$0.00
|
$0.01
|
$0.00
|
Unexercised stock
options and restricted stock awards of 4,632,501 for the three
month period ended June 30, 2019 have been excluded from the
computation of loss per share because inclusion of these securities
would have been anti-dilutive.
13.
Revenue
from Contracts with Customers
The
following table was prepared to provide additional information
about the composition of revenues from contracts with customers for
the periods presented:
|
THREE MONTHS
ENDED
|
SIX MONTHS
ENDED
|
||
|
JUNE
30,
|
JUNE
30,
|
||
|
2020
|
2019
|
2020
|
2019
|
|
(Unaudited)
|
|||
Carrier
Services
|
$44,944,155
|
$14,023,930
|
$73,087,424
|
$28,366,941
|
Managed
Services
|
9,839,635
|
8,069,223
|
21,361,722
|
15,643,114
|
|
|
|
|
|
|
$54,783,790
|
$22,093,153
|
$94,449,146
|
$44,010,055
|
The
Company recognized revenues from contracts with customers for the
following customer types as set forth below:
16
|
THREE MONTHS
ENDED
|
SIX MONTHS
ENDED
|
||
|
JUNE
30,
|
JUNE
30,
|
||
|
2020
|
2019
|
2020
|
2019
|
|
(Unaudited)
|
|||
U.S.
Federal Government
|
$51,338,765
|
$18,441,671
|
$84,874,450
|
$36,604,169
|
U.S.
State and Local Governments
|
25,773
|
126,342
|
51,286
|
242,181
|
Foreign
Governments
|
59,737
|
24,353
|
65,906
|
68,897
|
Commercial
Enterprises
|
3,359,515
|
3,500,787
|
9,457,504
|
7,094,808
|
|
|
|
|
|
|
$54,783,790
|
$22,093,153
|
$94,449,146
|
$44,010,055
|
The
Company recognized revenues from contracts with customers in the
following geographic regions:
|
THREE MONTHS
ENDED
|
SIX MONTHS
ENDED
|
||
|
JUNE
30,
|
JUNE
30,
|
||
|
2020
|
2019
|
2020
|
2019
|
|
(Unaudited)
|
|||
North
America
|
$53,706,367
|
$20,950,816
|
$92,248,748
|
$41,731,127
|
Europe
|
1,077,423
|
1,142,337
|
2,200,398
|
2,278,928
|
|
|
|
|
|
|
$54,783,790
|
$22,093,153
|
$94,449,146
|
$44,010,055
|
During the three
months ended June 30, 2020 and 2019, we recognized
approximately $492,600 and $391,612, respectively, of
revenue related to amounts that were included in deferred revenue
as of December 31, 2019 and 2018,
respectively.
During the six
months ended June 30, 2020 and 2019, we recognized
approximately $1.3 million and $996,639, respectively, of
revenue related to amounts that were included in deferred revenue
as of December 31, 2019 and 2018,
respectively.
14.
Commitments
and Contingencies
The
Company has employment agreements with certain senior executives
that set forth compensation levels and provide for severance
payments in certain instances.
17
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 busine