WidePoint(WYY) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements of WidePoint Corporation, including statements of operations, comprehensive loss, balance sheets, cash flows, and changes in stockholders' equity, along with detailed notes explaining the company's organization, accounting policies, fair value measurements, accounts receivable, intangible assets, and other financial details for the periods ended September 30, 2023 and 2022 Condensed Consolidated Statements of Operations WidePoint Corporation reported a net loss of $0.92 million for the three months ended September 30, 2023, an increase from $0.54 million in the prior year, while the nine-month net loss significantly decreased to $2.71 million from $14.69 million due to the absence of a goodwill impairment charge | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :-------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenues | $25,733,657 | $25,271,572 | $77,770,195 | $70,765,353 | | Gross Profit | $3,894,821 | $3,799,452 | $11,614,398 | $11,015,821 | | Loss from Operations | $(832,729) | $(595,622) | $(2,447,862) | $(18,895,039) | | Net Loss | $(921,114) | $(540,883) | $(2,714,666) | $(14,692,989) | | EPS, Basic and Diluted | $(0.10) | $(0.06) | $(0.31) | $(1.68) | - Goodwill impairment charge of $16,277,000 was recorded in the nine months ended September 30, 2022, with no such charge in 2023, significantly impacting the year-over-year net loss comparison for the nine-month period[9] Condensed Consolidated Statements of Comprehensive Loss The company reported a comprehensive loss of $0.998 million for the three months ended September 30, 2023, and $2.722 million for the nine months ended September 30, 2023, which includes net loss and foreign currency translation adjustments | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net Loss | $(921,114) | $(540,883) | $(2,714,666) | $(14,692,989) | | Foreign currency translation adjustments, net of tax | $(77,162) | $(118,524) | $(7,510) | $(258,213) | | Comprehensive Loss | $(998,276) | $(659,407) | $(2,722,176) | $(14,951,202) | Condensed Consolidated Balance Sheets As of September 30, 2023, total assets decreased slightly to $48.39 million from $49.01 million at December 31, 2022, with total liabilities increasing to $32.83 million, leading to a decrease in total stockholders' equity | Metric | September 30, 2023 | December 31, 2022 | | :------------------------------------ | :----------------- | :---------------- | | ASSETS | | | | Total current assets | $28,728,962 | $27,988,052 | | Total noncurrent assets | $19,615,728 | $21,080,649 | | Total assets | $48,390,693 | $49,012,661 | | LIABILITIES | | | | Total current liabilities | $27,316,608 | $26,143,812 | | Total noncurrent liabilities | $5,513,269 | $5,117,646 | | Total liabilities | $32,829,877 | $31,261,458 | | STOCKHOLDERS' EQUITY | | | | Total stockholders' equity | $15,560,816 | $17,751,203 | | Total liabilities and stockholders' equity | $48,390,693 | $49,012,661 | - Cash increased by $927,184 from $7,530,864 at December 31, 2022, to $8,458,048 at September 30, 2023[12] - Current portion of deferred revenue increased from $1,704,933 to $2,209,524, and deferred revenue, net of current portion, increased from $364,837 to $1,208,293[12] Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2023, net cash provided by operating activities decreased to $1.84 million from $3.22 million, while cash used in investing and financing activities also decreased | Cash Flow Activity | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $1,835,176 | $3,217,347 | | Net cash used in investing activities | $(507,325) | $(3,063,120) | | Net cash used in financing activities | $(423,767) | $(1,314,126) | | Net effect of exchange rate on cash | $23,100 | $(258,761) | | NET INCREASE (DECREASE) IN CASH | $927,184 | $(1,418,660) | | CASH, end of period | $8,458,048 | $5,061,320 | - The decrease in cash from operating activities was a result of systems and process changes that slowed billing in the first half of 2023[121] - The decrease in cash used in investing activities reflects capital investments in delivery platforms beginning to reach completion[124] Condensed Consolidated Statements of Changes in Stockholders' Equity Total stockholders' equity decreased from $17.75 million at January 1, 2023, to $15.56 million at September 30, 2023, primarily due to net losses and foreign currency translation losses, partially offset by stock compensation expense | Metric | January 1, 2023 | September 30, 2023 | | :------------------------------------ | :---------------- | :----------------- | | Common Stock (Issued Amount) | $8,726 | $8,894 | | Additional Paid-In Capital | $101,194,185 | $101,725,806 | | Accumulated Other Comprehensive Loss | $(350,234) | $(357,744) | | Accumulated Deficit | $(83,101,474) | $(85,816,140) | | Total Stockholders' Equity | $17,751,203 | $15,560,816 | - Net loss for the nine months ended September 30, 2023, was $(2,714,666), contributing to the accumulated deficit[9][20] - Share-based compensation expense (restricted and non-qualified options) totaled $535,417 for the nine months ended September 30, 2023, increasing additional paid-in capital[20][63] Notes to Condensed Consolidated Financial Statements The notes provide essential context and detail for the condensed consolidated financial statements, covering the company's operations, accounting principles, specific asset and liability breakdowns, and significant events 1. Organization and Nature of Operations WidePoint Corporation provides Technology Management as a Service (TMaaS) through its federally compliant ITMS™ platform, managing mobile communications assets and identity credentialing, while facing fixed short-term expenses and periodic capital requirements - WidePoint Corporation provides Technology Management as a Service (TMaaS) through its Intelligent Technology Management System (ITMS™) platform[23] - The ITMS™ platform is SSAE 18 compliant and has an Authority to Operate from the U.S. Department of Homeland Security and the General Services Administration for its identity credentialing component[23] - A significant portion of the Company's expenses (personnel, facilities) are fixed in the short term, and there are periodic capital expense requirements for technology infrastructure upgrades[24] 2. Basis of Presentation and Accounting Policies The unaudited condensed consolidated financial statements are prepared in accordance with SEC regulations and U.S. GAAP, maintaining consistent accounting policies with no material impact from the adoption of ASU No. 2016-13 - The condensed consolidated financial statements are unaudited and prepared in conformity with U.S. GAAP, with certain information condensed or omitted as per SEC regulations[25] - There were no significant changes in the Company's significant accounting policies during the first nine months of 2023 from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022[30] - The adoption of ASU No. 2016-13, 'Financial Instruments - Credit Losses (Topic 326),' on January 1, 2023, did not have a material impact on the consolidated financial statements[31] 3. Fair Value Measurements The company's contingent consideration liabilities, totaling $6,900, are categorized as Level 3 fair value measurements, valued using a Monte Carlo simulation model, with no change in fair value for the reported periods | Description | September 30, 2023 | December 31, 2022 | | :------------------------------------ | :----------------- | :---------------- | | Contingent consideration - cash settled | $6,500 | $6,500 | | Contingent consideration - warrants | $400 | $400 | | Total liabilities measured and recorded at fair value | $6,900 | $6,900 | - Contingent consideration is categorized as Level 3 within the fair value hierarchy and valued using a Monte Carlo simulation model[32][33] - There was no change in the fair value of contingent consideration for the three and nine-month periods ended September 30, 2023[34] 4. Accounts Receivable and Significant Concentrations Accounts receivable, net, decreased to $8.91 million, with U.S. Federal Government customers representing a significant concentration of 73% of receivables and 79% of total revenue, exposing the company to credit risk from uninsured deposits | Customer Type | September 30, 2023 | December 31, 2022 | | :------------------------------------ | :----------------- | :---------------- | | U.S. Federal, State, and Local Government | $6,740,135 | $7,272,993 | | Commercial | $2,244,138 | $2,055,782 | | Gross accounts receivable | $8,984,273 | $9,328,775 | | Less: allowances for credit losses | $72,398 | $51,666 | | Accounts receivable, net | $8,911,875 | $9,277,109 | | Customer Type | Sep 30, 2023 (% of Receivables) | Dec 31, 2022 (% of Receivables) | | :---------------------- | :------------------------------ | :------------------------------ | | U.S. Federal Government | 73% | 78% | | Customer Type | Nine Months Ended Sep 30, 2023 (% of Revenue) | Nine Months Ended Sep 30, 2022 (% of Revenue) | | :---------------------- | :------------------------------------------ | :------------------------------------------ | | U.S. Federal Government | 79.9% | 78.9% | - At September 30, 2023, the Company had deposits in excess of FDIC limits of approximately $7.1 million and foreign bank deposits in excess of insured limits of approximately €560,000, exposing it to credit risk[38] 5. Unbilled Accounts Receivable Unbilled accounts receivable, representing earned but uninvoiced revenues, decreased to $9.96 million, with the U.S. Federal Government remaining the primary customer for 96% of these receivables - Unbilled accounts receivable represent revenues earned but not invoiced due to timing or fixed contractual billing schedules, primarily consisting of carrier services and hardware/software products[39] | Customer Type | September 30, 2023 (% of Receivables) | December 31, 2022 (% of Receivables) | | :---------------------- | :------------------------------------------ | :------------------------------------------ | | U.S. Federal Government | 96% | 97% | 6. Other Current Assets and Accrued Expenses Other current assets increased to $1.40 million due to higher inventories and prepaid assets, while accrued expenses decreased to $10.62 million, driven by a reduction in carrier service costs | Other Current Assets | September 30, 2023 | December 31, 2022 | | :--------------------- | :----------------- | :---------------- | | Inventories | $494,101 | $222,279 | | Prepaid insurance and other assets | $908,744 | $713,699 | | Total other current assets | $1,402,845 | $935,978 | | Accrued Expenses | September 30, 2023 | December 31, 2022 | | :--------------------- | :----------------- | :---------------- | | Carrier service costs | $7,845,150 | $8,402,770 | | Salaries and payroll taxes | $1,665,088 | $1,637,628 | | Inventory purchases, consultants and other costs | $1,004,362 | $1,205,209 | | Total accrued expenses | $10,624,832 | $11,327,269 | 7. Property and Equipment Net property and equipment decreased to $0.86 million as of September 30, 2023, from $0.98 million at December 31, 2022. Depreciation expense for the nine months ended September 30, 2023, was approximately $281,900, a slight decrease from $305,100 in the prior year | Property and Equipment | September 30, 2023 | December 31, 2022 | | :--------------------- | :----------------- | :---------------- | | Gross property and equipment | $4,218,473 | $4,067,664 | | Less: accumulated depreciation and amortization | $3,360,606 | $3,089,446 | | Property and equipment, net | $857,867 | $978,218 | - Property and equipment depreciation expense was approximately $281,900 for the nine months ended September 30, 2023, compared to $305,100 for the same period in 2022[42] 8. Leases Effective January 1, 2022, the company amended its Tampa office lease, allowing termination on June 30, 2022. As a result, the lease right-of-use asset and lease liability were removed from the balance sheet, and the lease was accounted for on a month-to-month basis - The Company amended its Tampa office lease agreement, changing the term to allow termination on June 30, 2022[44] - As a result of the amendment, the lease right-of-use asset and lease liability for the Tampa office were removed from the condensed consolidated balance sheet, and monthly rent expense was recorded[44] 9. Goodwill and Intangible Assets Goodwill remained constant at $5.81 million as of September 30, 2023. Net intangible assets decreased to $7.13 million from $7.40 million, primarily due to amortization. The company capitalized $832,400 in internally developed software costs for the nine months ended September 30, 2023, related to ITMS™ and secure identity management upgrades. Aggregate amortization expense for intangible assets was $1.53 million for the nine-month period - Goodwill remained at $5,811,578 as of September 30, 2023, with no changes in its carrying amount during the nine-month period[45] | Intangible Assets | September 30, 2023 (Net Book Value) | December 31, 2022 (Net Book Value) | | :-------------------------- | :---------------------------------- | :--------------------------------- | | Customer Relationships | $1,913,600 | $2,093,000 | | Channel Relationships | $978,230 | $1,109,634 | | Internally Developed Software | $3,232,563 | $3,119,550 | | Trade Name and Trademarks | $1,009,452 | $1,075,976 | | Total | $7,133,845 | $7,398,160 | - For the nine months ended September 30, 2023, the Company capitalized $832,400 of internally developed software costs, primarily for upgrading its ITMS™ and secure identity management technology[47] - Aggregate amortization expense for intangible assets was approximately $1,533,900 for the nine months ended September 30, 2023[50] 10. Line of Credit and Factoring Agreement WidePoint's Loan and Security Agreement with Atlantic Union Bank matured in June 2023 and was not renewed. The company subsequently entered into an Accounts Receivable Purchase Agreement with Republic Capital Access, LLC on April 28, 2023, for the non-recourse sale of eligible U.S. Government receivables, with a maximum limit of $4 million outstanding, expandable to $14 million. For the nine months ended September 30, 2023, the company sold $5.2 million in receivables, receiving $5.1 million net of fees - The Loan and Security Agreement with Atlantic Union Bank matured in June 2023 and was not renewed[51] - On April 28, 2023, the Company entered into an Accounts Receivable Purchase Agreement with Republic Capital Access, LLC for the non-recourse sale of eligible U.S. Government receivables[52] - The Purchase Agreement has a maximum limit of $4 million outstanding Purchased Receivables, with an available increase to $14 million. For the nine months ended September 30, 2023, the Company sold $5.2 million of receivables for proceeds net of fees of $5.1 million[52][54] 11. Income Taxes The company's effective tax rate for the nine months ended September 30, 2023, was (2.6)%, compared to 19% in the prior year. This difference is primarily due to a full valuation allowance against deferred tax assets and state minimum taxes | Period | Effective Tax Rate (2023) | Effective Tax Rate (2022) | | :------------------------------------ | :------------------------ | :------------------------ | | Three Months Ended September 30 | (1.5)% | 18% | | Nine Months Ended September 30 | (2.6)% | 19% | - The difference in the effective tax rate and the U.S. federal statutory rate was primarily due to the full valuation allowance the Company maintains against its deferred tax assets and state minimum taxes[54] 12. Stockholders' Equity As of September 30, 2023, there were 8,893,220 shares of common stock issued and outstanding. The 2017 Omnibus Incentive Plan was amended to increase authorized shares by 1.3 million. The company accounts for contingent warrants as a liability and suspended its stock repurchase plan in March 2022 to invest excess funds into the business. The At-The-Market Issuance Sales Agreement was terminated effective March 27, 2023 - As of September 30, 2023, there were 8,893,220 shares of common stock issued and outstanding[55] - The 2017 WidePoint Omnibus Incentive Plan was amended on June 22, 2023, to increase the number of shares authorized for issuance by 1,300,000[55] - The stock repurchase plan was suspended in March 2022 to use excess funds for business investments, and the At-The-Market Issuance Sales Agreement was terminated effective March 27, 2023[61][62] 13. Share-based Compensation Total share-based compensation expense before taxes for the nine months ended September 30, 2023, was $535,417, an increase from $384,267 in the prior year, driven by both restricted share-based compensation and non-qualified option expense. The company granted 628,572 restricted stock shares and 288,570 stock option awards during the nine-month period in 2023. A new Long-Term Incentive Plan (LTIP) was approved in August 2023, including 250,000 RSUs and 250,000 performance-based RSUs | Share-based Compensation Expense | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Restricted share-based compensation expense | $276,570 | $115,141 | $512,140 | $384,267 | | Non-qualified option share-based compensation expense | $23,277 | - | $23,277 | - | | Total share-based compensation before taxes | $299,847 | $115,141 | $535,417 | $384,267 | - During the nine months ended September 30, 2023, the Company granted 628,572 restricted stock shares and 288,570 stock option awards[64][67] - A Long-Term Incentive Plan (LTIP) was approved in August 2023, covering 2023-2026, including 250,000 RSUs and 250,000 performance-based RSUs, none of which have been awarded as of September 30, 2023[68] 14. Earnings Per Common Share (EPS) Basic and diluted loss per share for the three months ended September 30, 2023, was $(0.10), compared to $(0.06) in the prior year. For the nine-month period, it improved significantly to $(0.31) from $(1.68). Unexercised stock options, RSAs, and warrants were anti-dilutive for both periods | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net loss | $(921,114) | $(540,883) | $(2,714,666) | $(14,692,989) | | Weighted average number of common shares | 8,893,220 | 8,725,476 | 8,809,644 | 8,734,471 | | Basic and Diluted Loss Per Share | $(0.10) | $(0.06) | $(0.31) | $(1.68) | - Unexercised stock options, RSAs, and warrants (150,000 shares) were anti-dilutive for both the three and nine-month periods ended September 30, 2023 and 2022[70][71] 15. Revenue from Contracts with Customers Total revenues for the nine months ended September 30, 2023, increased to $77.77 million from $70.77 million in the prior year. Carrier Services and Managed Services are the primary revenue streams, with the U.S. Federal Government being the largest customer segment, contributing $62.16 million. North America remains the dominant geographic region for revenue | Revenue Type | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--------------------- | :----------------------------- | :----------------------------- | | Carrier Services | $42,487,301 | $39,495,108 | | Managed Services | $35,282,894 | $31,270,245 | | Total Revenues | $77,770,195 | $70,765,353 | | Customer Type | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :-------------------------- | :----------------------------- | :----------------------------- | | U.S. Federal Government | $62,160,270 | $55,846,663 | | U.S. State and Local Governments | $318,528 | $313,112 | | Foreign Governments | $61,942 | $74,253 | | Commercial Enterprises | $15,229,455 | $14,531,325 | | Total Revenues | $77,770,195 | $70,765,353 | | Geographic Region | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------------ | :----------------------------- | :----------------------------- | | North America | $74,712,967 | $68,222,879 | | Europe | $3,057,228 | $2,542,474 | | Total Revenues | $77,770,195 | $70,765,353 | 16. Commitments and Contingencies The company has employment agreements with certain executives that include compensation levels and severance provisions. WidePoint is not currently involved in any material legal proceedings - The Company has employment agreements with certain executives that set forth compensation levels and provide for severance payments[76] - The Company is not involved in any material legal proceedings[77] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance, condition, and future outlook, including a business overview, revenue mix factors, strategic focus, detailed results of operations for the three and nine-month periods, liquidity, capital resources, and the impact of inflation Cautionary Note Regarding Forward-Looking Statements This section highlights that the report contains forward-looking statements about the company's business, operations, and financial performance, which are subject to known and unknown risks and uncertainties beyond the company's control - The report contains forward-looking statements concerning business, operations, and financial performance, subject to risks and uncertainties[79] - These statements are based on current expectations and assumptions but are not guarantees of future performance[79] - The Company undertakes no obligation to publicly update or revise any forward-looking statement, except as required by law[80] Business Overview WidePoint is a leading provider of Technology Management as a Service (TMaaS), offering federally certified solutions for communications management, identity management, interactive bill presentment, analytics, and ITaaS. Its flexible managed services model, delivered through secure portals, helps clients manage and protect communications assets and deploy identity management solutions - WidePoint is a leading provider of Technology Management as a Service (TMaaS), including communications management, identity management, interactive bill presentment and analytics, and Information Technology as a Service solutions[82] - TMaaS solutions are offered through a flexible managed services model, designed for scalability and comprehensive functional capabilities[83] - Solutions are hosted and accessible on-demand through secure federal government certified proprietary and enterprise portals[83] Revenue Mix The company's revenue mix is subject to fluctuations influenced by customer-driven factors such as technology refresh cycles, new customer onboarding, optimization of carrier services, product/service delivery delays, and changes in customer control or funding. These factors can lead to quarterly variations in revenue - Revenue mix fluctuates due to customer-driven factors including timing of technology/accessory refresh, onboarding of new customers requiring carrier services, and subsequent decreases in carrier services as usage is optimized[85] - Other factors include delays in delivering products or services, and changes in customer control, leadership, laws, or funding[85] Strategic Focus and Notable Events WidePoint's long-term strategy focuses on expanding critical mass to fund technology investments, increase market share, and broaden offerings for sustainability and growth. Key 2023 goals include new sales opportunities, customer service, FedRAMP certification, growing high-margin managed services, M&A, and cloud environment transition. The company continues to face supply chain issues and price increases, mitigating them through stock on hand and volume discounts - Long-term strategic focus is to expand critical mass to fund technology investments, introduce new sales/marketing initiatives, and increase market share and breadth of offerings[89] - Key goals for 2023 include capturing new sales, providing unmatched customer service, attaining full FedRAMP certification, growing recurring high-margin managed services, and pursuing accretive acquisitions[90] - The company continues to experience ongoing supply chain issues and supply price increases, which it mitigates by keeping sufficient stock and seeking volume discounts[91] Results of Operations This section details the financial performance for both the three and nine-month periods ended September 30, 2023, compared to the prior year, highlighting changes in revenues, cost of revenues, gross profit, operating expenses, and net loss, with specific explanations for key variances Three Months Ended September 30, 2023 as Compared to Three Months Ended September 30, 2022 For the three months ended September 30, 2023, revenues increased by 2% to $25.7 million. Carrier services revenue grew by $0.58 million, and billable service fees increased by $0.65 million, while reselling and other services decreased by $1.36 million. Gross profit remained consistent at 15% of revenues, and net loss increased to $0.92 million from $0.54 million, primarily due to higher general and administrative expenses and a shift from an income tax benefit to a provision | Metric | Sep 30, 2023 | Sep 30, 2022 | Dollar Variance | | :---------------------- | :----------- | :----------- | :-------------- | | Revenues | $25,733,657 | $25,271,572 | $462,085 | | Carrier Services | $14,648,540 | $14,062,700 | $585,840 | | Managed Service Fees | $8,094,912 | $7,513,642 | $581,270 | | Billable Service Fees | $1,560,177 | $909,943 | $650,234 | | Reselling and Other Services | $1,430,028 | $2,785,287 | $(1,355,259) | | Gross Profit | $3,894,821 | $3,799,452 | $95,369 | | Net Loss | $(921,114) | $(540,883) | $(380,231) | - Reselling and other services decreased primarily due to the timing of reselling opportunities near the government fiscal year end, as these services are transactional[97] - General and administrative expenses increased primarily due to an increase in share-based compensation expense[100] Nine Months Ended September 30, 2023 as Compared to Nine Months Ended September 30, 2022 For the nine months ended September 30, 2023, revenues increased by 8% to $77.8 million, driven by a $2.99 million increase in carrier services and a $1.65 million increase in billable service fees. Gross profit rose to $11.6 million, though the percentage slightly decreased to 15% due to costs related to reselling new capabilities. Net loss significantly improved to $2.7 million from $14.7 million, primarily due to the absence of a $16.3 million goodwill impairment charge recorded in the prior year | Metric | Sep 30, 2023 | Sep 30, 2022 | Dollar Variance | | :---------------------- | :----------- | :----------- | :-------------- | | Revenues | $77,770,195 | $70,765,353 | $7,004,842 | | Carrier Services | $42,487,299 | $39,495,109 | $2,992,190 | | Managed Service Fees | $21,865,158 | $21,470,041 | $395,117 | | Billable Service Fees | $4,666,084 | $3,016,746 | $1,649,338 | | Reselling and Other Services | $8,751,654 | $6,783,457 | $1,968,197 | | Cost of Revenues | $66,155,797 | $59,749,532 | $6,406,265 | | Gross Profit | $11,614,398 | $11,015,821 | $598,577 | | Net Loss | $(2,714,666) | $(14,692,989) | $11,978,323 | - The increase in carrier services revenue is primarily due to increased contracting activity with federal customers[106] - The significant improvement in net loss is primarily due to the absence of a $16.3 million non-cash goodwill impairment charge recorded in the nine months ended September 30, 2022[114][118] Liquidity and Capital Resources WidePoint's liquidity sources include cash, receivables, and a factoring arrangement with Republic Capital Access, LLC, with an initial capacity of $4 million, expandable to $14 million. Net working capital decreased to $1.4 million at September 30, 2023, from $1.8 million at December 31, 2022. Cash balance was $8.5 million, temporarily increased due to working capital management in anticipation of a potential US government shutdown. Net cash from operations decreased to $1.8 million for the nine months ended September 30, 2023, due to billing slowdowns - Immediate liquidity sources include cash, accounts receivable, unbilled receivables, and a factoring arrangement with Republic Capital Access, LLC, with an initial capacity of $4 million, expandable to $14 million[120] - Net working capital decreased to approximately $1.4 million at September 30, 2023, from $1.8 million at December 31, 2022[120] - Cash balance at September 30, 2023, was $8.5 million, temporarily increased as a defensive position against a potential US government shutdown[121] - Net cash provided by operations decreased to approximately $1.8 million for the nine months ended September 30, 2023, from $3.2 million in the prior year, due to systems and process changes that slowed billing[121] Inflation Heightened inflation and potential macroeconomic worsening pose risks to WidePoint, impacting costs, profits, margins, and cash flows, especially for fixed-price contracts without economic price adjustments. Inflation also affects borrowing costs and fair value measurements of intangible assets. Management continues to monitor and evaluate these effects - Heightened inflation presents a risk, potentially increasing costs and pressuring profits, margins, and cash flows, particularly for existing fixed-price contracts[130] - The Company has not been able to secure economic price adjustments (EPA) on its fixed-price contracts to mitigate unexpected inflation[130] - Inflation will affect the cost of borrowing and may impact gross and net margins due to wage inflation, as well as fair value measurements of intangible assets[130] Off-Balance Sheet Arrangements WidePoint Corporation has no existing off-balance sheet arrangements as defined under SEC regulations - The Company has no existing off-balance sheet arrangements as defined under SEC regulations[132] Item 3. Quantitative and Qualitative Disclosures About Market Risk This item is not required for this filing - This item is not required for the current filing[133] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of September 30, 2023. There were no material changes in internal control over financial reporting during the three-month period - The company's disclosure controls and procedures were evaluated and concluded to be effective as of September 30, 2023[134] - No material changes in internal control over financial reporting occurred during the three-month period ended September 30, 2023[135] PART II. OTHER INFORMATION Item 1. Legal Proceedings WidePoint Corporation is not currently involved in any material legal proceedings - The Company is not currently involved in any material legal proceeding[136] Item 1A. Risk Factors The company's risk factors have not materially changed from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2022 - Risk factors have not changed materially from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022[137] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company's stock repurchase plan, which had been increased to $5.0 million, was suspended in March 2022 after repurchasing $818,200 of common stock, to redirect funds towards business investments. For the period, 1,993 shares were withheld from vested stock-based compensation awards for employee income tax withholding - The Board suspended the stock repurchase plan in March 2022 to use the company's excess funds to invest into the business, after repurchasing 196,586 shares for $818,200[139] | Shares Withheld for Tax | Number of Shares | Price Paid Per Share | | :---------------------- | :--------------- | :------------------- | | March | 1,993 | $1.82 | Item 3. Default Upon Senior Securities There was no default upon senior securities during the reported period - There was no default upon senior securities[141] Item 4. Mine Safety Disclosures There are no mine safety disclosures to report - There are no mine safety disclosures[141] Item 5. Other Information During the three months ended September 30, 2023, there were no modifications, adoptions, or terminations by any directors or officers to any Rule 10b5-1 trading agreements - During the three months ended September 30, 2023, there were no modifications, adoptions, or terminations by any directors or officers to any Rule 10b5-1 trading agreements[141] Item 6. Exhibits This section lists the exhibits filed as part of the Form 10-Q, including a task order, certifications from the CEO and CFO, and various Interactive Data Files (XBRL) - Exhibits include a Task Order dated October 11, 2023, CEO and CFO certifications (302 and 906 of Sarbanes-Oxley Act), and Interactive Data Files (XBRL)[142][143] SIGNATURES Signatures The report is duly signed on November 14, 2023, by Jin H. Kang, President and Chief Executive Officer, and Robert J. George, Chief Financial Officer, on behalf of WidePoint Corporation - The report was signed on November 14, 2023, by Jin H. Kang, President and Chief Executive Officer, and Robert J. George, Chief Financial Officer[147]