WidePoint(WYY) - 2022 Q4 - Annual Report

PART I This section outlines WidePoint Corporation's business operations, strategic solutions, market approaches, and key risk factors affecting its financial stability ITEM 1. BUSINESS WidePoint Corporation is a leading provider of Technology Management as a Service (TMaaS), offering solutions in communications management, identity management, interactive bill presentment and analytics, and IT as a Service - WidePoint Corporation is a leading provider of Technology Management as a Service (TMaaS), offering federally certified communications management, identity management, interactive bill presentment and analytics, and Information Technology as a Service solutions[15] - The company's TMaaS solutions are delivered through a flexible managed services model, hosted on secure federal government certified proprietary and enterprise portals, designed for scalability and quick configuration[17] - WidePoint is one of two DoD designated External Certificate Authorities, offering federally certified digital certificates for strong multifactor authentication (MFA) in government and private sectors[19] - The sales cycle is lengthy and unpredictable, often exceeding 12 months for contract entry and several months for full implementation, influenced by customer processes, budgetary delays, and competitive bidding[22][23] - Sales approaches include a direct sales model and partnerships with large systems integrators and strategic partners, with recent growth significantly driven by partnerships for larger opportunities[24][25][26] - A significant amount of revenue is derived from federal government contracts, making the company's financial performance directly susceptible to changes in federal government fiscal or spending policies[34][36] - Product development initiatives focus on enhancing existing client-facing platforms and software solutions, with approximately $3.2 million and $2.6 million capitalized in 2022 and 2021, respectively, for next-generation TMaaS, Secure Identity Management, and UCAS solutions[41][43] - The TMaaS solution framework holds multiple security certifications and accreditations from federal government agencies, including Authorizations to Operate (ATOs) from DHS, GSA, DoD, and DoC, attesting to high cybersecurity standards[44] - As of December 31, 2022, WidePoint employed 215 full-time employees (183 in the US, 32 in Europe), 5 consultants, 3 part-time staff, and 15 subcontractors, with an average employee tenure of approximately seven years[58][64] Company Overview WidePoint Corporation is a leading provider of Technology Management as a Service (TMaaS), offering federally certified communications management, identity management, interactive bill presentment and analytics, and Information Technology as a Service solutions - WidePoint Corporation is a leading provider of Technology Management as a Service (TMaaS), offering federally certified communications management, identity management, interactive bill presentment and analytics, and Information Technology as a Service solutions[15] - TMaaS solutions are delivered through a flexible managed services model, hosted on secure federal government certified proprietary and enterprise portals, allowing customers to manage, analyze, and protect communications assets and deploy identity management solutions[17] Our Solutions WidePoint offers comprehensive solutions including Telecom Lifecycle Management, Mobile and Identity Management, Digital Billing and Unified Communications Analytics, and IT as a Service - WidePoint offers comprehensive Telecom Lifecycle Management, providing full visibility of telecom assets to reduce costs for public and private sectors[18] - As a DoD designated External Certificate Authority, the company provides federally certified digital certificates for strong multifactor authentication (MFA) and comprehensive mobile security solutions[19] - Digital Billing and Unified Communications Analytics Solutions offer interactive online bill viewing and analysis for large communication service providers (CSPs), improving customer experience and profitability[20] - IT as a Service (ITaaS) includes cybersecurity, cloud services, network operations, professional services, development operations support, AI implementation, and Microsoft stack technologies, with migration to cloud services for scalability and cost savings[21] Sales Cycle The sales cycle for WidePoint's service solutions is long and unpredictable, often taking over 12 months to secure a contract and several months for full implementation - The sales cycle for WidePoint's service solutions is long and unpredictable, often taking over 12 months to secure a contract and several months for full implementation, due to customer-specific processes, budgetary delays, and competitive bidding[22][23] Sales Approaches WidePoint utilizes both direct sales and partnerships with large systems integrators and strategic partners, focusing on upselling existing TMaaS offerings - WidePoint utilizes both direct sales and partnerships with large systems integrators and strategic partners, with recent significant new sales coming through partnerships for larger market opportunities[24][25][26] - The company also focuses on upselling and cross-selling existing TMaaS offerings to onboarded customers and may use indirect sales through third-party channel partners, though less frequently due to high commission costs[27][28] Marketing and Branding Marketing strategy aims to build brand and increase market awareness among key decision-makers through broad-based and targeted campaigns - Marketing strategy aims to build brand and increase market awareness among key decision-makers (IT executives, finance executives, communications managers) through broad-based campaigns (industry events, whitepapers, webcasts) and targeted campaigns (SEO, direct email, co-marketing)[31][32][33] Customer Concentrations A significant portion of WidePoint's revenues is derived from federal government agencies, making the company susceptible to changes in government spending policies - A significant portion of revenues is derived from federal government agencies, with a primary focus on this sector for the foreseeable future, although efforts are underway to increase commercial customer footprint[34][36] - Negative changes in federal government fiscal or spending policies, including budget delays or shutdowns, directly impact financial performance due to high customer concentration[34] - The loss of any single significant customer could have a material adverse effect on operations, prompting a focus on diversifying revenue across public and private sectors[37] Government Contracts WidePoint holds numerous government contracts and contract vehicles, which typically allow for termination at any time for convenience - WidePoint holds numerous government contracts and contract vehicles, including GWACs, BPAs, and ID/IQ contracts like the DHS CWMS 2.0 IDIQ, and serves as an approved subcontractor for several other major government contracts[38][39] - Government contracts typically allow for termination at any time for convenience, with reimbursement for allowable costs and proportionate profit on work performed[38] Product Development and Technology Solution Enhancements Product development focuses on enhancing existing client-facing platforms and software solutions to improve efficiency, effectiveness, and meet evolving customer requirements - Product development focuses on enhancing existing client-facing platforms and software solutions to improve efficiency, effectiveness, and meet evolving customer requirements[41] Product Development Costs Capitalized | Year Ended December 31, | Capitalized Costs ($) | | :---------------------- | :---------------- | | 2022 | $3.2 million | | 2021 | $2.6 million | - Current development activities are centered on integrating heterogeneous services delivery platforms and improving the security posture and delivery of IT services[41] Security Certification and Accreditation WidePoint's TMaaS solution framework has multiple security certifications and Authorizations to Operate (ATOs) from federal agencies, confirming compliance with cybersecurity requirements - WidePoint's TMaaS solution framework has multiple security certifications and Authorizations to Operate (ATOs) from DHS, GSA, DoD, and DoC, confirming compliance with Federal Information Management Act cybersecurity requirements at Moderate and High levels[44] Data Centers The company hosts proprietary solutions and operates servers in multiple data centers in North America and Europe, with plans to migrate more customers to the cloud - The company hosts proprietary solutions and operates servers in multiple data centers in North America and Europe, with plans to migrate more customers to the cloud[45] - Data centers feature robust security, redundant environmental controls, fire suppression, and electrical generators, along with a multi-tiered system configuration for near real-time data recovery and asynchronous data replication[45] Intellectual Property WidePoint protects its intellectual property through a combination of patent, copyright, trademark, service mark, trade secret, and contractual provisions - WidePoint protects its intellectual property through a combination of patent, copyright, trademark, service mark, trade secret, and contractual provisions, including confidentiality agreements with employees, customers, consultants, and partners[46] Market Competition The TMaaS market is highly fragmented, with WidePoint competing with various companies but differentiating itself by offering all four critical services with transparent pricing - The TMaaS market is highly fragmented, with WidePoint competing with various companies in mobile management, identity management, ITaaS, and digital billing/analytics, but believes it is the only provider offering all four critical services[47][48] - WidePoint emphasizes transparent pricing, offering full-service or selected services for a single inclusive fee, contrasting with competitors who often use opaque pricing and heavy discounts[49][50] - Principal competitors include MDSL/Calero, Tangoe, Brightfin, DMI, A&T Systems, Entrust Corp., IdenTrust, XTec Inc., Amdocs Britebill, Globys Inc., BMC Software, HPE, and large federal government integrators like Lockheed Martin and Northrop Grumman[53][54] Contracting WidePoint prefers to serve as the prime contractor but frequently partners with large systems integrators or enters strategic teaming agreements to pursue market opportunities - WidePoint prefers to serve as the prime contractor but frequently partners with large systems integrators as a subcontractor or enters strategic teaming agreements to pursue market opportunities[55] Seasonality WidePoint's business is not seasonal, but revenues and operating results can fluctuate quarterly due to contract timing, billable days, carrier services revenues, and the U.S. Federal Government's budgeting process - WidePoint's business is not seasonal, but revenues and operating results can fluctuate quarterly due to contract timing, billable days, carrier services revenues, and the U.S. Federal Government's budgeting process[56] Regulation The company is subject to significant regulation related to U.S. government contracts, with non-compliance potentially leading to severe penalties - The company is subject to significant regulation related to U.S. government contracts, including the Federal Acquisition Regulation, Truthful Cost or Pricing Data Act, Procurement Integrity Act, Cost Accounting Standards, and restrictions on classified/sensitive data[57][60] - Non-compliance with government contract regulations can lead to civil and criminal penalties, contract termination, forfeiture of profits, and debarment from doing business with U.S. government agencies[57] Human Capital WidePoint considers human capital a strategic asset, fostering a safe, professional work environment with competitive compensation and benefits Employee Count (as of December 31, 2022) | Category | Count | | :-------------- | :---- | | Full-time (US) | 183 | | Full-time (Europe)| 32 | | Consultants | 5 | | Part-time staff | 3 | | Subcontractors | 15 | | Total | 238 | - WidePoint considers human capital a strategic asset, fostering a safe, professional, and harassment-free work environment guided by core values of People, Service, and Integrity[59][61][62] - The company offers a competitive compensation package and benefits, including healthcare, training, 401K, and paid time off, contributing to an average employee tenure of approximately seven years[63][64] Corporate Information WidePoint Corporation was incorporated in Delaware on May 30, 1997, with its principal executive offices located in Fairfax, Virginia - WidePoint Corporation was incorporated in Delaware on May 30, 1997, with its principal executive offices in Fairfax, Virginia[65] ITEM 1A. RISK FACTORS WidePoint faces significant risks across its business operations, including intense market competition, the challenge of keeping pace with rapid technological changes, and the potential for loss of key customer contracts, particularly with the federal government - The market is highly competitive and fragmented, with rapid technological changes posing a risk to WidePoint's ability to maintain market acceptance and profitability[11][67][70] - The loss of significant customer contracts, especially the DHS IDIQ (which accounted for approximately 39% of 2022 managed service revenue), could materially impact financial results and operating cash flow[16][72] - Inflationary pressures on device, labor, and distribution costs are expected to continue into 2023, potentially impacting financial condition and operating results if not offset by price increases or cost-saving initiatives[11][73][74] - The company has significant fixed operating costs that are difficult to adjust to revenue fluctuations, and an unanticipated decrease or delay in contracts could lead to underutilized employees and adverse financial effects[11][78] - WidePoint was not in compliance with its Tangible Net Worth covenant at December 31, 2022, and expects to be out of compliance through the June 15, 2023, credit facility expiration, requiring a waiver or alternative funding[11][81] - Federal agencies and certain large commercial customers can terminate contracts for convenience at any time without penalty, posing a risk of lost revenues and increased expenses for allocated staff[16][83][84] - Security breaches or cybersecurity events could result in loss of customers, negative publicity, and substantial liability due to the management and protection of sensitive government and personal data[16][115][116][117][118][119] - Failure to comply with complex government procurement laws and regulations could lead to civil and criminal penalties, contract termination, forfeiture of profits, and debarment from government business[57][128][129][130][131] - The company's common stock price has been volatile due to various factors, including public announcements, analyst estimates, operating results, and general economic conditions, and future sales of common stock may be dilutive[135][136][138] PART II This section covers administrative and operational disclosures, including property leases, legal status, market for common equity, and management's financial analysis ITEM 1B. UNRESOLVED STAFF COMMENTS WidePoint Corporation has no unresolved staff comments from the SEC - The company has no unresolved staff comments[144] ITEM 2. PROPERTIES WidePoint Corporation leases all of its property locations, including its headquarters in Fairfax, VA, and operational offices in Columbus, OH, Hampton, VA, and Dublin, Ireland - All of WidePoint's property locations are leased, including its headquarters in Fairfax, VA, and other offices in Columbus, OH, Hampton, VA, and Dublin, Ireland[144] Property Locations (as of December 31, 2022) | Location | Lease Expiration | Approx. Sqft | Base Annual Cost ($) | | :---------------------------- | :--------------- | :----------- | :--------------- | | Fairfax, VA (Headquarters) | March 2029 | 11,852 | $328,000 | | Columbus, OH (Sales/Operations)| September 2038 | 18,833 | $189,000 | | Hampton, VA (Customer Support)| December 2024 | 6,440 | $109,000 | | Dublin 18, Ireland (Europe office)| March 2026 | 6,000 | $185,000 | ITEM 3. LEGAL PROCEEDINGS WidePoint Corporation is not currently involved in any material legal proceedings, governmental actions, investigations, or claims that are expected to have a material adverse effect on its business or financial condition - The company is not currently involved in any material legal proceedings, governmental actions, investigations, or claims[145] ITEM 4. MINE SAFETY DISCLOSURES WidePoint Corporation has no disclosures related to mine safety - Mine safety disclosures are not applicable to the company[146] ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES WidePoint's common stock is listed on the NYSE American, with no dividends paid, a terminated ATM equity program, and a suspended stock repurchase plan - WidePoint's common stock is listed on the NYSE American under the symbol "WYY"[147] - As of March 23, 2023, there were 80 registered holders of record for the company's common stock[148] - The company has never paid dividends on its common stock and plans to retain earnings for business growth, with any future dividend decisions at the discretion of the Board of Directors[150] - An At-The-Market (ATM) Issuance Sales Agreement, allowing for the sale of up to $24 million in common stock, was terminated on March 27, 2023; no shares were sold under this program in 2022[151][152][214] - A stock repurchase plan, initially approved for $2.5 million and increased to $5.0 million in November 2021, was suspended in March 2022 after repurchasing 196,586 shares for $818,200, to reallocate funds for business investment[153] ITEM 6. [RESERVED] This item is reserved and contains no information ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS WidePoint Corporation, a TMaaS provider, reported a net loss of $23.6 million in 2022, a significant decline from a net income of $0.34 million in 2021, primarily due to a $16.3 million goodwill impairment charge - WidePoint Corporation is a leading provider of Technology Management as a Service (TMaaS), offering federally certified communications management, identity management, interactive bill presentment and unified communication analytics solutions, and IT as a Service[157] - The company's strategic goals for 2023 include expanding its critical mass, funding technology investments, introducing new sales and marketing initiatives, and expanding solution offerings into the commercial space[159][160][161] - WidePoint operates as a single segment, providing managed services for government and commercial clients, including Identity Management, secure Mobility Managed Services, Telecom Lifecycle Management, Digital Billing & Analytics, and IT as a Service[166] - Revenue recognition policies vary by service type: managed services are recognized monthly based on user/device counts, identity services upon issuance, proprietary software ratably over license term, billable services based on hours/costs, and reselling/carrier services on a gross basis when control is exercised[171][172][173] - Goodwill is tested for impairment annually and between annual tests if circumstances change; a $16.3 million non-cash goodwill impairment charge was recorded in Q2 2022 due to a significant decrease in share price and market capitalization[175][177] - The company recorded an additional valuation allowance against all domestic deferred tax assets in 2022, as management determined it was unlikely to earn sufficient income to realize these assets[186] - Net cash provided by operations significantly increased to $6.1 million in 2022 from $1.2 million net cash used in 2021, driven by accounts receivable collections and an Employee Retention Tax Credit[216] - Cash used in investing activities decreased to $3.4 million in 2022 from $7.4 million in 2021, primarily due to the absence of a large acquisition like ITA in 2022[218] - The company's $7.0 million working capital credit facility requires maintaining financial covenants, including minimum adjusted EBITDA and tangible net worth; a waiver was obtained for the tangible net worth covenant at December 31, 2022[213][223] Organizational Overview WidePoint Corporation, incorporated in Delaware on May 30, 1997, is a leading provider of Technology Management as a Service (TMaaS), offering federally certified communications management, identity management, interactive bill presentment and unified communication analytics solutions, and IT as a Service - WidePoint Corporation, incorporated in Delaware on May 30, 1997, is a leading provider of Technology Management as a Service (TMaaS), offering federally certified communications management, identity management, interactive bill presentment and unified communication analytics solutions, and IT as a Service[157] - The company's TMaaS solutions are delivered through a flexible managed services model, hosted on a secure federal government certified proprietary portal, enabling customers to manage, analyze, and protect communications assets and deploy identity management solutions[158] Strategy WidePoint's strategy focuses on expanding its customer base, leveraging strategic partnerships, and growing high-margin managed services, with long-term goals including technology investments and commercial expansion - In 2022, WidePoint achieved FedRAMP "In Process" status for ITMS™ and completed the integration of IT Authorities, Inc. assets, focusing on customer base expansion and leveraging strategic partnerships[159] - Long-term strategic goals include expanding critical mass, funding technology investments, introducing new sales and marketing initiatives, and expanding solution offerings into the commercial space to improve sustainability and growth[160][161] - Key strategies for achieving long-term goals involve selling high-margin managed services, executing cross-sell opportunities from the ITA acquisition, growing the sales pipeline, pursuing opportunities with system integrators, and expanding into the commercial sector[161] Critical Accounting Policies and Estimates WidePoint operates in a single segment, with revenue recognition varying by service type, and goodwill tested annually for impairment, leading to a significant charge in 2022 - WidePoint operates in a single segment, providing managed services for government and commercial clients, including Identity Management, secure Mobility Managed Services, Telecom Lifecycle Management, Digital Billing & Analytics, and IT as a Service[165][166] - Revenue recognition for managed services is generally on a monthly basis, fixed-price per device or user, while identity services are recognized upon issuance, and proprietary software is recognized ratably over the license term[170][171] - Goodwill is tested for impairment annually, and an interim test in Q2 2022 resulted in a $16.3 million non-cash impairment charge due to a significant decrease in the company's share price and market capitalization[175][177] - Deferred tax assets and liabilities are determined based on temporary differences, with a valuation allowance established when realization is not more likely than not; an additional allowance was recorded in 2022 against domestic deferred tax assets[183][186] - Business combinations and contingent consideration require significant estimates and judgments, with the fair value of contingent consideration valued using a Monte Carlo Simulation Model[188][190] 2022 Results of Operations WidePoint reported an 8% revenue increase to $94.1 million in 2022, but gross profit decreased due to a higher mix of lower-margin carrier services, leading to a net loss of $23.6 million primarily from a goodwill impairment charge Revenue Breakdown (Years Ended December 31) | Category | 2022 Revenue ($) | 2021 Revenue ($) | Change ($) | Change (%) | | :--------------------------- | :--------------- | :--------------- | :------------- | :--------- | | Carrier Services | 53,339,949 | 49,730,949 | 3,609,000 | 7.26% | | Managed Service Fees & Billable Fees | 28,102,695 | 25,215,996 | 2,886,699 | 11.45% | | Reselling and Other Services | 12,660,721 | 12,391,152 | 269,569 | 2.18% | | Total Revenues | 94,103,365 | 87,338,097 | 6,765,268 | 7.75% | Revenue by Customer Type (Years Ended December 31) | Customer Type | 2022 Revenue ($) | 2021 Revenue ($) | Change ($) | | :--------------------------- | :--------------- | :--------------- | :------------- | | U.S. Federal Government | 74,416,288 | 73,130,465 | 1,285,823 | | U.S. State and Local Governments | 411,511 | 240,473 | 171,038 | | Foreign Governments | 146,538 | 69,718 | 76,820 | | Commercial Enterprises | 19,129,028 | 13,897,441 | 5,231,587 | | Total Revenues | 94,103,365 | 87,338,097 | 6,765,268 | - Cost of revenues increased to $79.5 million (85% of revenues) in 2022 from $70.9 million (81% of revenues) in 2021, driven by an increase in lower-margin carrier services and higher costs in the ITA business[200] - Gross profit decreased to $14.6 million (15% of revenues) in 2022 from $16.4 million (19% of revenues) in 2021, primarily due to the higher mix of lower-margin carrier services and lower margins from the ITA acquisition[202] - General and administrative expenses increased to $14.7 million in 2022 from $12.7 million in 2021, due to the absence of a $1.3 million payroll tax credit recognized in 2021 and a full year of ITA expenses[205] - A goodwill impairment charge of $16.3 million was recorded in 2022, with no such charge in 2021[206] - Net loss for 2022 was $23.6 million, compared to a net income of $0.34 million in 2021, primarily due to the goodwill impairment charge, lower margins, and increased expenses[212] Liquidity and Capital WidePoint's liquidity is supported by cash and a $7.0 million credit facility, despite non-compliance with a tangible net worth covenant in 2022, with improved operating cash flow and reduced investing activities - Immediate liquidity sources include cash and cash equivalents, accounts receivable, unbilled receivables, and a $7.0 million working capital credit facility with Atlantic Union Bank[213][222] - The company was not in compliance with its Tangible Net Worth covenant ($4.5 million vs. $6.5 million required) at December 31, 2022, but received a waiver from the lender[213][223] - Net cash provided by operating activities was $6.1 million in 2022, a significant improvement from $1.2 million net cash used in 2021, driven by accounts receivable collections and a $1.3 million Employee Retention Tax Credit[216] - Cash used in investing activities decreased to $3.4 million in 2022 (primarily for hardware/software purchases and capitalized development costs) from $7.4 million in 2021 (which included $4.7 million for the ITA acquisition)[218] - Cash used in financing activities was $1.5 million in 2022, reflecting lease principal repayments, common stock repurchases ($818,200), and withholding taxes on restricted stock awards[219] - The At-The-Market (ATM) equity program, with $18.2 million remaining capacity as of December 31, 2022, was terminated on March 27, 2023, with no shares sold in 2022[214] ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK WidePoint Corporation, as a smaller reporting company, is not required to provide quantitative and qualitative disclosures about market risk - Quantitative and qualitative disclosures about market risk are not required for smaller reporting companies[226] ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA This section refers to the consolidated financial statements and schedules, including the Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Statements of Operations, Comprehensive (Loss) Income, Changes in Stockholders' Equity, Cash Flows, and Notes to Consolidated Financial Statements, which are listed under Item 15 - The consolidated financial statements and schedules are listed under Item 15[227] ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE WidePoint Corporation reports no changes in or disagreements with accountants on accounting and financial disclosure - There are no changes in or disagreements with accountants on accounting and financial disclosure[228] ITEM 9A. CONTROLS AND PROCEDURES WidePoint's management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2022, with no material changes during the fourth quarter - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of December 31, 2022[230] - Management assessed and concluded that internal control over financial reporting (ICOFR) was effective as of December 31, 2022, based on the COSO framework[231] - As a non-accelerated filer, WidePoint is not required to include an attestation report from its independent registered public accounting firm regarding ICOFR[232] - There were no changes in the company's ICOFR during the fourth quarter of 2022 that materially affected, or are reasonably likely to materially affect, ICOFR[234] ITEM 9B. OTHER INFORMATION This item contains no other information - There is no other information to disclose under this item[235] ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS WidePoint Corporation has no disclosures regarding foreign jurisdictions that prevent inspections - This item is not applicable[236] PART III This section provides information on WidePoint's corporate governance, executive compensation, security ownership, and related party transactions ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Information regarding WidePoint's directors, executive officers, and corporate governance is incorporated by reference from its definitive proxy statement for the 2023 Annual Meeting of Stockholders - Information concerning directors, executive officers, and corporate governance is incorporated by reference from the 2023 Annual Meeting of Stockholders proxy statement[237] ITEM 11. EXECUTIVE COMPENSATION Information regarding executive compensation is incorporated by reference from WidePoint's definitive proxy statement for the 2023 Annual Meeting of Stockholders - Information concerning executive compensation is incorporated by reference from the 2023 Annual Meeting of Stockholders proxy statement[239] ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Information on security ownership of certain beneficial owners and management, along with related stockholder matters, is incorporated by reference from WidePoint's definitive proxy statement for the 2023 Annual Meeting of Stockholders - Information about security ownership is incorporated by reference from the 2023 Annual Meeting of Stockholders proxy statement[240] Equity Compensation Plan Information (as of December 31, 2022) | Category | Number of Securities to be Issued | Weighted Average Exercise Price ($) | Number of Securities Remaining Available | | :------------------------------------- | :-------------------------------- | :------------------------------ | :--------------------------------------- | | Approved by security holders | 7,500 | $4.90 | 241,273 | | Not approved by security holders | - | $0.00 | - | | Total | 7,500 | $4.90 | 241,273 | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Information regarding certain relationships and related transactions, as well as director independence, is incorporated by reference from WidePoint's definitive proxy statement for the 2023 Annual Meeting of Stockholders - Information concerning certain relationships and related transactions, and director independence, is incorporated by reference from the 2023 Annual Meeting of Stockholders proxy statement[243] ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Information regarding principal accounting fees and services is incorporated by reference from WidePoint's definitive proxy statement for the 2023 Annual Meeting of Stockholders - Information concerning principal accounting fees and services is incorporated by reference from the 2023 Annual Meeting of Stockholders proxy statement[244] PART IV This section presents the company's consolidated financial statements, schedules, and a comprehensive list of exhibits ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES This section lists the consolidated financial statements, including the Independent Auditor's Report, Balance Sheets, Statements of Operations, Comprehensive Income, Changes in Equity, Cash Flows, and Notes, along with all filed exhibits - The financial statements include the Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Statements of Operations, Comprehensive (Loss) Income, Changes in Stockholders' Equity, Cash Flows, and Notes to Consolidated Financial Statements[245][246] - Exhibits filed include corporate governance documents (Certificate of Incorporation, Bylaws), loan agreements, employment agreements, and certifications (CEO/CFO Sarbanes-Oxley certifications)[247][248][254] Financial Statements and Financial Statement Schedule This section details the consolidated financial statements and schedules, including the Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Statements of Operations, Comprehensive (Loss) Income, Changes in Stockholders' Equity, Cash Flows, and Notes to Consolidated Financial Statements - The financial statements include the Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Statements of Operations, Comprehensive (Loss) Income, Changes in Stockholders' Equity, Cash Flows, and Notes to Consolidated Financial Statements[245][246] Exhibits Exhibits include corporate governance documents, loan and security agreements, employment agreements, and various certifications filed with the Form 10-K - Exhibits include corporate governance documents (Amended and Restated Certificate of Incorporation, Bylaws), loan and security agreements, employment agreements, and various certifications (e.g., Sarbanes-Oxley Act certifications)[247][254] Report of Independent Registered Public Accounting Firm Moss Adams LLP issued an unqualified opinion on WidePoint's consolidated financial statements, identifying goodwill valuation as a critical audit matter due to significant judgment and the 2022 impairment expense - Moss Adams LLP, the independent registered public accounting firm, issued an unqualified opinion on WidePoint Corporation's consolidated financial statements for the years ended December 31, 2022 and 2021, stating they are presented fairly in all material respects[259] - The valuation of goodwill was identified as a critical audit matter due to significant management judgment and audit effort involved in evaluating valuation methods and assumptions, particularly after a $16.3 million impairment expense in 2022[265][266] Consolidated Balance Sheets Total assets decreased significantly by 35.07% in 2022, primarily due to a $16.3 million goodwill impairment charge and a substantial reduction in net deferred tax assets, leading to a 57.41% decrease in total stockholders' equity Consolidated Balance Sheet Highlights (as of December 31) | Item | 2022 ($) | 2021 ($) | Change ($) | Change (%) | | :------------------------ | :----------- | :----------- | :------------ | :--------- | | Total Assets | 49,012,661 | 75,489,338 | (26,476,677) | -35.07% | | Total Liabilities | 31,261,458 | 33,813,343 | (2,551,885) | -7.55% | | Total Stockholders' Equity| 17,751,203 | 41,675,995 | (23,924,792) | -57.41% | | Cash and cash equivalents | 7,530,864 | 6,479,980 | 1,050,884 | 16.22% | | Accounts receivable, net | 9,277,109 | 12,536,584 | (3,259,475) | -26.00% | | Goodwill | 5,811,578 | 22,088,578 | (16,277,000) | -73.70% | | Deferred tax assets, net | 86,909 | 5,127,482 | (5,040,573) | -98.30% | - Total assets decreased significantly by 35.07% in 2022, primarily driven by a $16.3 million goodwill impairment charge and a substantial reduction in net deferred tax assets[270] - Total stockholders' equity decreased by 57.41% in 2022, largely due to the net loss of $23.6 million and the goodwill impairment[274] Consolidated Statements of Operations Revenues increased by 7.75% to $94.1 million in 2022, but gross profit decreased by 10.95% due to a higher proportion of lower-margin carrier services and increased cost of revenues, resulting in a significant net loss of $23.6 million primarily from a goodwill impairment charge Consolidated Statements of Operations Highlights (Years Ended December 31) | Item | 2022 ($) | 2021 ($) | Change ($) | Change (%) | | :---------------------------- | :------------ | :------------ | :------------ | :--------- | | Revenues | 94,103,365 | 87,338,097 | 6,765,268 | 7.75% | | Cost of Revenues | 79,527,893 | 70,970,391 | 8,557,502 | 12.06% | | Gross Profit | 14,575,472 | 16,367,706 | (1,792,234) | -10.95% | | Sales and marketing | 2,134,240 | 2,008,733 | 125,507 | 6.25% | | General and administrative expenses | 14,720,497 | 12,724,522 | 1,995,975 | 15.69% | | Goodwill impairment | 16,277,000 | - | 16,277,000 | N/A |\ | Total operating expenses | 34,209,177 | 15,760,093 | 18,449,084 | 117.06% | | (Loss) Income from Operations | (19,633,705) | 607,613 | (20,241,318) | -3331.00% | | Net (Loss) Income | (23,585,291) | 341,096 | (23,926,387) | -7014.90% | | Basic EPS | (2.70) | 0.04 | (2.74) | -6850.00% | | Diluted EPS | (2.70) | 0.04 | (2.74) | -6850.00% | - Revenues increased by 7.75% to $94.1 million in 2022, but gross profit decreased by 10.95% due to a higher proportion of lower-margin carrier services and increased cost of revenues[276] - The company reported a significant net loss of $23.6 million in 2022, compared to a net income of $0.34 million in 2021, primarily driven by a $16.3 million goodwill impairment charge[276] Consolidated Statements of Comprehensive (Loss) Income Comprehensive loss for 2022 was $23.7 million, a significant decrease from comprehensive income of $0.2 million in 2021, primarily due to the net loss Consolidated Statements of Comprehensive (Loss) Income (Years Ended December 31) | Item | 2022 ($) | 2021 ($) | | :---------------------------- | :------------ | :------------ | | Net (Loss) Income | (23,585,291) | 341,096 | | Foreign currency translation adjustments, net of tax | (108,648) | (136,971) | | Comprehensive (Loss) Income | (23,693,939)| 204,125 | - Comprehensive loss for 2022 was $23.7 million, a significant decrease from comprehensive income of $0.2 million in 2021, primarily due to the net loss[279] Consolidated Statements of Changes in Stockholders' Equity Total stockholders' equity decreased from $41.7 million at the end of 2021 to $17.8 million at the end of 2022, primarily due to the net loss of $23.6 million Changes in Stockholders' Equity (Years Ended December 31) | Item | 2022 ($) | 2021 ($) | | :------------------------------------ | :------------ | :------------ | | Balance, January 1 | 41,675,995 | 40,551,723 | | Common stock repurchased | (818,211) | (1,243,069) | | Issuance of common stock — restricted | (49,224) | (140,894) | | Issuance of common stock — warrants | 108,000 | - | | Stock compensation expense — restricted | 528,582 | 804,192 | | Stock compensation expense — non qualified stock options | - | 79,571 | | Foreign currency translation — (loss) | (108,648) | (136,971) | | Net (Loss) Income | (23,585,291) | 341,096 | | Balance, December 31 | 17,751,203| 41,675,995| - Total stockholders' equity decreased from $41.7 million at the end of 2021 to $17.8 million at the end of 2022, primarily due to the net loss of $23.6 million[282] Consolidated Statements of Cash Flows Net cash provided by operating activities significantly improved to $6.1 million in 2022 from a net cash outflow of $1.2 million in 2021, while investing activities decreased, leading to a $1.05 million increase in cash and cash equivalents Consolidated Statements of Cash Flows Highlights (Years Ended December 31) | Cash Flow Activity | 2022 ($) | 2021 ($) | | :---------------------------------- | :------------ | :------------ | | Net cash provided by (used in) operating activities | 6,068,227 | (1,222,662) | | Net cash used in investing activities | (3,408,679) | (7,443,525) | | Net cash used in financing activities | (1,467,873) | (705,699) | | Net effect of exchange rate on cash and equivalents | (140,791) | (144,982) | | Net Increase (Decrease) in Cash | 1,050,884 | (9,516,769)| | Cash and cash equivalents, end of period | 7,530,864 | 6,479,980 | - Net cash provided by operating activities significantly improved to $6.1 million in 2022 from a net cash outflow of $1.2 million in 2021[284] - Net cash used in investing activities decreased to $3.4 million in 2022, compared to $7.4 million in 2021, primarily due to lower acquisition-related spending[285] - Cash and cash equivalents increased by $1.05 million in 2022, reaching $7.53 million at year-end, reversing a decrease of $9.52 million in 2021[285] Notes to Consolidated Financial Statements This section provides detailed explanatory notes to the consolidated financial statements, offering further context and breakdown of reported figures PART III This section provides information on WidePoint's corporate governance, executive compensation, security ownership, and related party transactions ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Information regarding WidePoint's directors, executive officers, and corporate governance is incorporated by reference from its definitive proxy statement for the 2023 Annual Meeting of Stockholders - Information concerning directors, executive officers, and corporate governance is incorporated by reference from the 2023 Annual Meeting of Stockholders proxy statement[237] ITEM 11. EXECUTIVE COMPENSATION Information regarding executive compensation is incorporated by reference from WidePoint's definitive proxy statement for the 2023 Annual Meeting of Stockholders - Information concerning executive compensation is incorporated by reference from the 2023 Annual Meeting of Stockholders proxy statement[239] ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Information on security ownership of certain beneficial owners and management, along with related stockholder matters, is incorporated by reference from WidePoint's definitive proxy statement for the 2023 Annual Meeting of Stockholders - Information about security ownership is incorporated by reference from the 2023 Annual Meeting of Stockholders proxy statement[240] Equity Compensation Plan Information (as of December 31, 2022) | Category | Number of Securities to be Issued | Weighted Average Exercise Price ($) | Number of Securities Remaining Available | | :------------------------------------- | :-------------------------------- | :------------------------------ | :--------------------------------------- | | Approved by security holders | 7,500 | $4.90 | 241,273 | | Not approved by security holders | - | $0.00 | - | | Total | 7,500 | $4.90 | 241,273 | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Information regarding certain relationships and related transactions, as well as director independence, is incorporated by reference from WidePoint's definitive proxy statement for the 2023 Annual Meeting of Stockholders - Information concerning certain relationships and related transactions, and director independence, is incorporated by reference from the 2023 Annual Meeting of Stockholders proxy statement[243] ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Information regarding principal accounting fees and services is incorporated by reference from WidePoint's definitive proxy statement for the 2023 Annual Meeting of Stockholders - Information concerning principal accounting fees and services is incorporated by reference from the 2023 Annual Meeting of Stockholders proxy statement[244] PART IV This section presents the company's consolidated financial statements, schedules, and a comprehensive list of exhibits ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES This section lists the consolidated financial statements, including the Independent Auditor's Report, Balance Sheets, Statements of Operations, Comprehensive Income, Changes in Equity, Cash Flows, and Notes, along with all filed exhibits Financial Statements and Financial Statement Schedule This section details the consolidated financial statements and schedules, including the Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Statements of Operations, Comprehensive (Loss) Income, Changes in Stockholders' Equity, Cash Flows, and Notes to Consolidated Financial Statements - The financial statements include the Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Statements of Operations, Comprehensive (Loss) Income, Changes in Stockholders' Equity, Cash Flows, and Notes to Consolidated Financial Statements[245][246] Exhibits Exhibits include corporate governance documents, loan and security agreements, employment agreements, and various certifications filed with the Form 10-K - Exhibits include corporate governance documents (Amended and Restated Certificate of Incorporation, Bylaws), loan and security agreements, employment agreements, and various certifications (e.g., Sarbanes-Oxley Act certifications)[247][254] Report of Independent Registered Public Accounting Firm Moss Adams LLP issued an unqualified opinion on WidePoint's consolidated financial statements, identifying goodwill valuation as a critical audit matter due to significant judgment and the 2022 impairment expense - Moss Adams LLP, the independent registered public accounting firm, issued an unqualified opinion on WidePoint Corporation's consolidated financial statements for the years ended December 31, 2022 and 2021, stating they are presented fairly in all material respects[259] - The valuation of goodwill was identified as a critical audit matter due to significant management judgment and audit effort involved in evaluating valuation methods and assumptions, particularly after a $16.3 million impairment expense in 2022[265][266] Consolidated Balance Sheets Total assets decreased significantly by 35.07% in 2022, primarily due to a $16.3 million goodwill impairment charge and a substantial reduction in net deferred tax assets, leading to a 57.41% decrease in total stockholders' equity Consolidated Balance Sheet Highlights (as of December 31) | Item | 2022 ($) | 2021 ($) | Change ($) | Change (%) | | :------------------------ | :----------- | :----------- | :------------ | :--------- | | Total Assets | 49,012,661 | 75,489,338 | (26,476,677) | -35.07% | | Total Liabilities | 31,261,458 | 33,813,343 | (2,551,885) | -7.55% | | Total Stockholders' Equity| 17,751,203 | 41,675,995 | (23,924,792) | -57.41% | | Cash and cash equivalents | 7,530,864 | 6,479,980 | 1,050,884 | 16.22% | | Accounts receivable, net | 9,277,109 | 12,536,584 | (3,259,475) | -26.00% | | Goodwill | 5,811,578 | 22,088,578 | (16,277,000) | -73.70% | | Deferred tax assets, net | 86,909 | 5,127,482 | (5,040,573) | -98.30% | - Total assets decreased significantly by 35.07% in 2022, primarily driven by a $16.3 million goodwill impairment charge and a substantial reduction in net deferred tax assets[270] - Total stockholders' equity decreased by 57.41% in 2022, largely due to the net loss of $23.6 million and the goodwill impairment[274] Consolidated Statements of Operations Revenues increased by 7.75% to $94.1 million in 2022, but gross profit decreased by 10.95% due to a higher proportion of lower-margin carrier services and increased cost of revenues, resulting in a significant net loss of $23.6 million primarily from a goodwill impairment charge Consolidated Statements of Operations Highlights (Years Ended December 31) | Item | 2022 ($) | 2021 ($) | Change ($) | Change (%) | | :---------------------------- | :------------ | :------------ | :------------ | :--------- | | Revenues | 94,103,365 | 87,338,097 | 6,765,268 | 7.75% | | Cost of Revenues | 79,527,893 | 70,970,391 | 8,557,502 | 12.06% | | Gross Profit | 14,575,472 | 16,367,706 | (1,792,234) | -10.95% | | Sales and marketing | 2,134,240 | 2,008,733 | 125,507 | 6.25% | | General and administrative expenses | 14,720,497 | 12,724,522 | 1,995,975 | 15.69% | | Goodwill impairment | 16,277,000 | - | 16,277,000 | N/A | | Total operating expenses | 34,209,177 | 15,760,093 | 18,449,084 | 117.06% | | (Loss) Income from Operations | (19,633,705) | 607,613 | (20,241,318) | -3331.00% | | Net (Loss) Income | (23,585,291) | 341,096 | (23,926,387) | -7014.90% | | Basic EPS | (2.70) | 0.04 | (2.74) | -6850.00% | | Diluted EPS | (2.70) | 0.04 | (2.74) | -6850.00% | - Revenues increased by 7.75% to $94.1 million in 2022, but gross profit decreased by 10.95% due to a higher proportion of lower-margin carrier services and increased cost of revenues[276] - The company reported a significant net loss of $23.6 million in 2022, compared to a net income of $0.34 million in 2021, primarily driven by a $16.3 million goodwill impairment charge[276] Consolidated Statements of Comprehensive (Loss) Income Comprehensive loss for 2022 was $23.7 million, a significant decrease from comprehensive income of $0.2 million in 2021, primarily due to the net loss Consolidated Statements of Comprehensive (Loss) Income (Years Ended December 31) | Item | 2022 ($) | 2021 ($) | | :---------------------------- | :------------ | :------------ | | Net (Loss) Income | (23,585,291) | 341,096 | | Foreign currency translation adjustments, net of tax | (108,648) | (136,971) | | Comprehensive (Loss) Income | (23,693,939)| 204,125 | - Comprehensive loss for 2022 was $23.7 million, a significant decrease from comprehensive income of $0.2 million in 2021, primarily due to the net loss[279] Consolidated Statements of Changes in Stockholders' Equity Total stockholders' equity decreased from $41.7 million at the end of 2021 to $17.8 million at the end of 2022, primarily due to the net loss of $23.6 million Changes in Stockholders' Equity (Years Ended December 31) | Item | 2022 ($) | 2021 ($) | | :------------------------------------ | :------------ | :------------ | | Balance, January 1 | 41,675,995 | 40,551,723 | | Common stock repurchased | (818,211) | (1,243,069) | | Issuance of common stock — restricted | (49,224) | (140,894) | | Issuance of common stock — warrants | 108,000 | - | | Stock compensation expense — restricted | 528,582 | 804,192 | | Stock compensation expense — non qualified stock options | - | 79,571 | | Foreign currency translation — (loss) | (108,648) | (136,971) | | Net (Loss) Income | (23,585,291) | 341,096 | | Balance, December 31 | 17,751,203| 41,675,995| - Total stockholders' equity decreased from $41.7 million at the end of 2021 to $17.8 million at the end of 2022, primarily due to the net loss of $23.6 million[282] Consolidated Statements of Cash Flows Net cash provided by operating activities significantly improved to $6.1 million in 2022 from a net cash outflow of $1.2 million in 2021, while investing activities decreased, leading to a $1.05 million increase in cash and cash equivalents Consolidated Statements of Cash Flows Highlights (Years Ended December 31) | Cash Flow Activity | 2022 ($) | 2021 ($) | | :---------------------------------- | :------------ | :------------ | | Net cash provided by (used in) operating activities | 6,068,227 | (1,222,662) | | Net cash used in investing activities | (3,408,679