SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 000-23967
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WIDEPOINT CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 52-2040275
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
One Mid America Plaza, Suite 403, Oakbrook Terrace, Il 60181
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (630) 645-0003
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Former name, former address and former fiscal year, if changed since last
report.
Indicate by check whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes__X__ No_____
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of May 15, 2001:
12,984,913 shares of common stock, $.001 par value per share.
WIDEPOINT CORPORATION
INDEX
Page No.
Part I. FINANCIAL INFORMATION
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Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2001
(unaudited) and December 31, 2000 1
Condensed Consolidated Statements of Operations for the three
months ended March 31, 2001 and 2000 (unaudited) 2
Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 2001 and 2000 (unaudited) 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 12
Part II. OTHER INFORMATION
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Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
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PART 1. FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
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WIDEPOINT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
2001 2000
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ASSETS
Current assets:
Cash and cash equivalents $ 1,581,412 $ 1,085,696
Accounts receivable,
net of allowance of $107,306 and $208,832, respectively 1,339,658 1,880,165
Prepaid expenses and other assets 133,837 173,698
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Total current assets 3,054,907 3,139,559
Property and equipment, net 290,812 335,935
Intangible assets, net 6,080,964 6,155,850
Other assets 57,145 59,045
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Total assets $ 9,483,828 $ 9,690,389
=============== ==============
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 1,154,606 $ 1,237,879
Current portion of capital lease obligation 27,600 29,830
Total current liabilities 1,182,206 1,267,709
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Long-term capital lease obligation, net of current portion 19,460 24,430
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Total liabilities 1,201,666 1,292,139
Shareholders' equity
Preferred stock, $0.001 par value, 10,000,000 shares authorized,
None issued and outstanding - -
Common stock, $0.001 par value, 50,000,000 shares authorized,
12,984,913 shares issued and outstanding
as of March 31, 2001 and December 31, 2000. 12,985 12,985
Stock warrants 140,000 140,000
Additional paid-in capital 41,931,484 41,931,484
Accumulated deficit (33,802,307) (33,686,219)
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Total shareholders' equity 8,282,162 8,398,250
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Total liabilities & shareholders' equity $ 9,483,828 $ 9,690,389
=============== ==============
The accompanying notes are an integral part of these statements.
1
WIDEPOINT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended
March 31,
2001 2000
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Revenues $ 2,199,867 $ 3,984,854
Operating expenses:
Cost of sales 1,158,428 2,206,585
Sales and marketing 245,888 667,425
General and administrative 783,984 2,747,952
Depreciation and amortization 137,742 254,943
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Loss from operations (126,175) (1,892,051)
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Other income (expenses):
Interest income 11,250 33,953
Interest expense (1,163) (68,507)
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Net loss $ (116,088) $ (1,926,605)
=============== ==============
Basic and diluted net loss per share $ (0.01) $ (0.15)
=============== ==============
Basic and diluted weighted average shares
outstanding 12,984,913 12,961,543
=============== ==============
The accompanying notes are an integral part of these statements.
2
WIDEPOINT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended March 31,
2001 2000
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Cash flows from operating activities:
Net loss $ (116,088) $ (1,926,605)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization expense 137,742 264,504
Amortization of Deferred Compensation - 17,500
Amortization of Discount on Notes Payable - 43,802
Changes in assets and liabilities:
Accounts receivable 540,507 1,706,128
Prepaid expenses and other assets 39,861 65,037
Other assets 1,900 (74,130)
Accounts payable and accrued expenses (83,273) (1,374,925)
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Net cash provided by (used in) operating activities 520,649 (1,278,689)
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Net cash used in investing activities:
Purchases of property and equipment (17,733) (81,168)
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Net cash used in investing activities (17,733) (81,168)
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Net cash (used in) provided by financing activities:
Net payments on long-term obligations (7,200) (6,548)
Net proceeds from the exercise of options - 168,250
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Net cash (used in) provided by financing activities (7,200) 161,702
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Net increase (decrease) in cash and cash equivalents 495,716 (1,198,155)
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Cash, beginning of period 1,085,696 4,226,434
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Cash, end of period $ 1,581,412 $ 3,028,279
=============== ==============
The accompanying notes are an integral part of these statements.
3
WIDEPOINT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION, ORGANIZATION, AND NATURE OF OPERATIONS:
The accompanying unaudited financial statements have been prepared in
accordance with Rule 10-01 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by accounting principles generally
accepted in the United States of America ("US GAAP") for complete financial
statements. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, considered necessary for a fair presentation have
been included. These financial statements should be read in conjunction with the
financial statements of WidePoint Corporation, as of December 31, 2000, and the
notes thereto included in the Annual Report on Form 10-K filed by the Company.
The results of operations for the three months ended March 31, 2001, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2001.
WidePoint Corporation (the "Company") focuses on implementing middle market
companies' Information Technology ("IT") e-strategies. The Company helps its
clients analyze, design, implement, and support e-business solutions that
improves the value of their e-business initiatives.
In 1996, the Company acquired all of the outstanding shares of Century
Services, Inc. ("CSI"), a corporation that provided re-engineering and
information processing services to users of large-scale computer systems. In
December 1998, the Company acquired all of the outstanding shares of Eclipse
Information Systems, Inc. ("Eclipse"), a corporation that provides IT consulting
services through several practice areas focused in distributed client server
technologies. In October 1999, the Company acquired all of the outstanding
shares of Parker Management Consulting, Ltd. ("PMC"), a corporation that
provides IT consulting services focused in Enterprise Resource Planning ("ERP").
During 1999, the Company established a new subsidiary named WidePoint
Corporation ("WidePoint-Subsidiary"). During the first half of 2000, the Company
substantially consolidated all of the Company's IT services into its
WidePoint-Subsidiary. Further, in June 2000, the Company merged CSI, Eclipse and
WidePoint-Subsidiary into the Company, with the Company being the surviving
entity in such mergers. In conjunction with such mergers, the Company changed
its corporate name from ZMAX Corporation to WidePoint Corporation and changed
the trading symbol for its common stock from "ZMAX" to "WDPT." On September 29,
2000, the Company sold all of the outstanding shares of its PMC subsidiary to a
third-party purchaser.
The Company's operations are subject to certain risks and uncertainties,
including among others, rapidly changing technology; current and potential
competitors with greater financial, technological, production and marketing
resources; reliance on certain significant customers; the need to develop
additional products and services; the integration of acquired businesses;
dependence upon strategic alliances; the need for additional technical
personnel; dependence on key management personnel; management of growth;
uncertainty of future profitability; and possible fluctuations in financial
results. The Company has devoted substantial resources to shifting its business
mix to comprehensive e-business services and implementing a refined
4
strategy. As a result, the Company experienced operating losses and negative
cash flows from operations during 2000. These losses and negative operating cash
flows may continue for additional periods in the future. There can be no
assurance that the Company's operations will become profitable or will produce
positive cash flows. The Company intends to fund its operational and capital
requirements using cash on hand and with debt financing that it may be able to
arrange in the future. There can be no assurance that such new financing will be
available, or available on terms management finds acceptable.
2. Significant Accounting Policies:
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the acquired entities since their respective dates of acquisition. All
significant intercompany amounts have been eliminated.
Use of Estimates
The preparation of consolidated financial statements in conformity with US
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Cash and Cash Equivalents
Investments with purchased maturities of three months or less are
considered cash equivalents for purposes of these condensed consolidated
financial statements. The Company maintains cash and cash equivalents with
various major financial institutions. At March 31, 2001 and 2000, cash and cash
equivalents included investments in overnight sweep accounts of $1,369,571 and
$2,522,781, respectively. At times, cash balances held at financial institutions
were in excess of federally insured limits. The Company places its temporary
cash investments with high-credit, quality financial institutions, and as a
result, the Company believes that no significant concentration of credit risk
exists with respect to these cash investments.
Revenue Recognition
Revenue on time-and-materials contracts is recognized based upon hours
incurred at contract rates plus direct costs. Revenue on fixed-price contracts
is recognized on the percentage-of-completion method based on costs incurred in
relation to total estimated costs. Anticipated losses are recognized as soon as
they become known. Provisions for estimated losses on uncompleted contracts are
made in the period in which such losses are determined. Revenue from the resale
of hardware products is recognized upon shipment.
Unbilled accounts receivable on time-and-materials contracts represent
costs incurred and gross profit recognized near the period-end but not billed
until the following period. Unbilled
5
accounts receivable on fixed-price contracts consist of amounts incurred that
are not yet billable under contract terms. At March 31, 2001 and 2000, unbilled
accounts receivable totaled $31,540 and $39,959, respectively.
Significant Customers
For the three months ended March 31, 2001, one customer individually
represented 18% of revenue. For the three months ended March 31, 2000, two
customers individually represented 11% and 10% percent of revenue. Due to the
nature of the Company's business and the relative size of certain contracts, the
loss of any single significant customer could have a material adverse effect on
the Company's results of operations.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to credit risk
consist of cash and cash equivalents and accounts receivable. Accounts
receivable include amounts due from relatively large companies in a variety of
industries. As of March 31, 2001, one customer represented 11% percent of
accounts receivable. As of March 31, 2000, two customers represented 24% and 10%
of accounts receivable.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes."
Under SFAS No.109, deferred tax assets and liabilities are computed based on the
difference between the financial statement and income tax bases of assets and
liabilities using the enacted marginal tax rate. SFAS No. 109 requires that the
net deferred tax asset be reduced by a valuation allowance if, based on the
weight of available evidence, it is more likely than not that some portion or
all of the net deferred tax asset will not be realized.
Basic and Diluted Net Loss Per Share
In March 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings per Share." SFAS No. 128 requires dual presentation of
basic and diluted earnings per share. Basic income or loss per share includes no
dilution and is computed by dividing net income or loss by the weighted-average
number of common shares outstanding for the period. Diluted income or loss per
share includes the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
The treasury stock effect of options and warrants to purchase 2,976,500 and
2,983,500 shares of common stock outstanding at March 31, 2001 and 2000,
respectively, has not been included in the calculation of the net loss per share
as such effect would have been antidilutive. As a result of these items, the
basic and diluted loss per share for all periods presented are identical.
Reclassifications
Certain amounts in prior years' financial statements have been reclassified
to conform with the current year presentation.
6
Stock-based compensation
The Company accounts for stock-based employee compensation arrangements
using the intrinsic value method in accordance with the provisions of Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees," and complies with the disclosure provisions of SFAS No. 123
"Accounting for Stock-Based Compensation." Under APB Opinion No. 25,
compensation cost is generally recognized based on the difference, if any, on
the date of grant between the fair value of the Company's common stock and the
amount an employee must pay to acquire the stock.
New accounting pronouncements
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") 101, "Revenue Recognition in Financial
Statements," which provides guidance related to revenue recognition based on
interpretations and practices followed by the SEC. SAB 101 requires companies to
report any changes in revenue recognition as a cumulative change in accounting
principles in accordance with Accounting Principles Board Opinion 20,
"Accounting Changes." The SEC subsequently issued SAB 101A, "Amendment: Revenue
Recognition in Financial Statements," which delayed implementation of SAB 101
until the Company's second fiscal quarter of 2000 and SAB 101B, which delayed
the implementation date of SAB 101 until no later than the Company's fourth
fiscal quarter of 2000. The Company has evaluated the implications of SAB 101
and has not identified any changes in the Company's historical practices with
regards to revenue recognition.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). This statement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
In June 1999, the FASB issued Statement of Financial Accounting Standards No.
137, which deferred the effective date of SFAS 133 to all fiscal quarters of all
fiscal years beginning after June 15, 2000. The Company has adopted SFAS 133, as
amended, for the fiscal quarter ending March 31, 2001. The Company does not
expect the adoption of SFAS 133 to have a material impact on its financial
position or results of operations.
3. Stock Warrants:
Stock Warrants
On September 20, 1999, the Company entered in a two-year agreement with an
international investment banking firm to provide investment banking, mergers and
acquisitions and strategic planning services. In conjunction with this
agreement, the Company issued a stock warrant to purchase 200,000 shares of
common stock at $2.75 per share, an amount that exceeded the stock's trading
price on that date. The Company used a fair-value option pricing model to value
this stock
7
warrant, and it was determined to have a fair value of approximately $140,000 at
the date of grant. The deferred compensation associated with the warrant was
reflected as a separate component of stockholders' equity. During the three
months ended March 31, 2001, approximately $37,000 of expense had been
recognized related to the warrant because the warrant was issued to a third
party in exchange for services the Company utilizes variable plan accounting to
measure the fair value of the warrant. As of March 31, 2001, because the
exercise price of the warrant significantly exceeded the fair value of the
Company's common stock, the fair value of the warrant as measured under a
fair-value option pricing model is zero.
On October 1, 1999, the Company issued a stock warrant to purchase 200,000
shares of common stock at $5.00 per share, an amount that exceeded the stock's
trading price on that date, as part of the PMC acquisition. The warrant has a
term of 3 years. The Company used a fair-value option pricing model to value
this stock warrant at approximately $140,000. This value has been reflected as
part of stock warrants in the stockholders' equity section of the consolidated
balance sheet and has been included as part of the Company's purchase accounting
for the PMC acquisition. This warrant remains outstanding subsequent to the sale
of the PMC subsidiary.
4. Commitments and Contingencies:
Litigation
The Company is periodically a party to disputes arising from normal business
activities. In the opinion of management, resolution of these matters will not
have a material adverse effect upon the financial position or future operating
results of the Company, and adequate provision for any potential losses has been
made in the accompanying consolidated financial statements.
8
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and
results of operations of the Company should be read in conjunction with the
financial statements and the notes thereto which appear elsewhere in this
quarterly report and the Company's Annual Report on Form 10-K for the year ended
December 31, 2000.
The information set forth below includes forward-looking statements.
Certain factors that could cause results to differ materially from those
projected in the forward-looking statements are set forth below. Readers are
cautioned not to put undue reliance on forward-looking statements. The Company
disclaims any intent or obligation to update publicly these forward-looking
statements, whether as a result of new information, future events or otherwise.
Overview
WidePoint Corporation (the "Company") focuses on implementing middle market
companies' Information Technology ("IT") e-strategies. The Company helps its
clients analyze, design, implement, and support e-business solutions that
improve the value of their e-business initiatives.
In 1996, the Company acquired all of the outstanding shares of Century
Services, Inc. ("CSI"), a corporation that provided re-engineering and
information processing services to users of large-scale computer systems. In
December 1998, the Company acquired all of the outstanding shares of Eclipse
Information Systems, Inc. ("Eclipse"), a corporation that provided IT consulting
services through several practice areas focused in distributed client server
technologies. In October 1999, the Company acquired all of the outstanding
shares of Parker Management Consulting, Ltd. ("PMC"), a corporation that
provides IT consulting services focused in Enterprise Resource Planning ("ERP").
During 1999, the Company established a new subsidiary named WidePoint
Corporation ("WidePoint-Subsidiary"). During the first half of 2000, the Company
substantially consolidated all of the Company's IT services into its
WidePoint-Subsidiary. Further, in June 2000, the Company merged CSI, Eclipse and
WidePoint-Subsidiary into the Company, with the Company being the surviving
entity in such mergers. In conjunction with such mergers, the Company changed
its corporate name from ZMAX Corporation to WidePoint Corporation and changed
the trading symbol for its common stock from "ZMAX" to "WDPT." On September 29,
2000, the Company sold all of the outstanding shares of its PMC subsidiary to a
third-party purchaser.
For the quarter ended March 31, 2001, the Company's revenues decreased by
45% from approximately $4.0 million in 2000 to approximately $2.2 million in
2001. This decrease was materially due to the loss of revenues generated by the
Company's PMC subsidiary. As a result of the loss of the revenues from the PMC
subsidiary the Company believes the period-to-period comparisons of its
financial results are not necessarily meaningful and should not be relied upon
as an indication of future performance.
9
Most of the Company's current costs consist primarily of the salaries and
benefits paid to the Company's technical, marketing and administrative
personnel. Amortization and depreciation expenses relate to property, equipment
and intangible assets. As a result of its plan to expand its operations through
internal growth and acquisitions, the Company expects these costs to increase.
The Company's profitability depends upon both the volume of service and the
Company's ability to manage costs. Because a significant portion of the
Company's cost structure is labor related, the Company must effectively manage
these costs to achieve profitability. The profitability on an individual project
depends upon completing the project within the estimated number of staff hours
and within the agreed upon time frame. To date, the Company has been able to
maintain its operating margins through efficiencies achieved by the use of the
Company's proprietary methodologies, by offsetting increases in consultant
salaries with increases in consultant fees, and by effectively managing general
overhead costs.
Results of Operations
Three Months Ended March 31, 2001 as Compared to Three Months Ended March 31,
2000
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Revenues. Revenues for the three month period ended March 31, 2001, were
$2.2 million, a decrease of approximately $1.8 million, as compared to revenues
of $4.0 million for the three month period ended March 31, 2000. The decrease in
revenues was primarily attributable to decreased sales from the sale of the
Company's PMC subsidiary and a reduction of staff augmentation services that
were not offset by revenues from the Company's intentional shift to
project-based E-value chain services.
Gross profit. Gross profit for the three month period ended March 31, 2001,
was $1.1 million, or 47% of revenues, a decrease of $0.7 million over gross
profit of $1.8 million, or 45% of revenues, for the three month period ended
March 31, 2000. The decline of gross profit was attributable to a decrease in
revenues associated with the sale of the Company's PMC subsidiary and an
economic slowdown that increased competitive pressures and reduced gross margins
on revenues as compared to the prior quarter.
Sales and marketing. Sales and marketing expenses for the three month
period ended March 31, 2001, were $0.3 million, or 11% of revenues, a decrease
of $0.4 million, as compared to $0.7 million, or 17% of revenues, for the three
month period ended March 31, 2000. The decrease in sales and marketing expenses
for the three months ended March 31, 2001 was primarily attributable to actions
the Company undertook during the fourth quarter of 2000 and the first quarter of
2001 to align those expenses with future anticipated revenue streams.
General and administrative. General and administrative expenses for the
three month period ended March 31, 2001, were $0.8 million, or 36% of revenues,
a decrease of $2.0 million, as compared to $2.8 million, or 69% of revenues,
incurred by the Company for the three month period ended March 31, 2000. The
decrease in general and administrative expenses for the three months ended March
31, 2001 was primarily attributable to the consolidation of several of the
Company's separate business units and offices and the sale of the Company's PMC
subsidiary during 2000.
10
Depreciation and amortization. Depreciation and amortization expenses for
the three month period ended March 31, 2001, was $0.1 million, or 6% of
revenues, a decrease of $0.1 million, as compared to $0.2 million of such
expenses, or 6% of revenues, incurred by the Company for the three month period
ended March 31, 2000. The decrease in depreciation and amortization expenses for
the three month period ended March 31, 2000 was primarily attributable to the
write-off of certain intangible assets associated with the Company's PMC
subsidiary that was sold in the fourth quarter of 2000.
Other income (expense). Interest income for the three month period ended
March 31, 2001, was $11,250, or 1% of revenues, a decrease of $22,701 as
compared to $33,951, or 1% of revenues, for the three month period ended March
31, 2000. The decrease in interest income for the three month period ended March
31, 2001 was primarily attributable to lesser amounts of cash available for
investment in overnight sweep accounts. Interest expense for the three month
period ended March 31, 2001 was $1,163, a decrease of $67,344, as compared to
$68,507, or 2% of revenues, for the three month period ended March 31, 2000. The
decrease in interest expense for the three months ended March 31, 2001 was
primarily attributable to the extinguishments of the $3.0 million promissory
note from the sale of the Company's PMC subsidiary.
Net income (loss). As a result of the above, the net loss for the three
month period ended March 31, 2001, was $0.1 million as compared to the net loss
of approximately $1.9 million for the three months ended March 31, 2000, which
represents a difference of approximately $1.8 million.
Liquidity and Capital Resources
The Company has, since inception, financed its operations and capital
expenditures through the sale of stock, seller notes, convertible notes,
convertible exchangeable debentures and the proceeds from the exchange offer and
exercise of the warrants related to the convertible exchangeable debentures.
Cash generated in operating activities for the quarter ended March 31, 2001, was
approximately $0.5 million as compared to cash used in operating activities of
$1.3 million for the quarter ended March 31, 2000. The increase in cash provided
by operations during the first quarter of 2001 was primarily a result of the
improvement in collections of accounts receivable and a decrease in expenses
incurred from the Company's operations. Capital expenditures on property and
equipment were less than $0.1 million for the quarters ended March 31, 2001, and
2000.
As of March 31, 2001, the Company had net working capital of approximately
$1.9 million. The Company's primary source of liquidity consists of
approximately $1.6 million in cash and cash equivalents and approximately $1.3
million of accounts receivable. The Company's current liabilities include $1.2
million in accounts payable and accrued expenses.
The market for the Company's services is expanding and the Company's
business environment is characterized by rapid technological changes. In 1999,
the Company began to shift away from millennium services and has consolidated
its current subsidiaries into one operating
11
company. The Company requires substantial working capital to fund the future
growth of its business, particularly to finance accounts receivable, sales and
marketing efforts, and capital expenditures. The Company currently has no
commitments for capital expenditures. The Company's future capital requirements
will depend on many factors including the rate of revenue growth, if any, the
timing and extent of spending for new product and service development,
technological changes, and market acceptance of the Company's services. The
Company believes that its current cash position is sufficient to meet its
capital expenditure and working capital requirements for the near term; however,
the growth and technological change of the market make it difficult for the
Company to predict future liquidity requirements with certainty. Over the longer
term, the Company must successfully execute its plans to generate significant
positive cash flows if it is to sustain adequate liquidity without impairing
growth or requiring the infusion of additional funds from external sources.
Additionally, a major expansion, such as would occur with the acquisition of a
major new subsidiary, might also require external financing that could include
additional debt or capital. There can be no assurance that additional financing,
if required, will be available on acceptable terms, if at all.
Other
Inflation has not had a significant effect on the Company's operations, as
increased costs to the Company have generally been offset by increased prices of
services sold.
The preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
This report contains forward-looking statements setting forth the Company's
beliefs or expectations relating to future revenues and profitability. Actual
results may differ materially from projected or expected results due to changes
in the demand for the Company's products and services, uncertainties relating to
the results of operations, dependence on its major customers, risks associated
with rapid technological change and the emerging services market, potential
fluctuations in quarterly results, its dependence on key employees and other
risks and uncertainties affecting the technology industry generally. The Company
disclaims any intent or obligation to up-date publicly these forward-looking
statements, whether as a result of new information, future events or otherwise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------ ----------------------------------------------------------
NOT APPLICABLE
12
PART II. OTHER INFORMATION
- --------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
None
ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K
- ------------------------------------------
(a) Exhibits
--------
The following exhibits are filed herewith:
27 - Financial Data Schedule
(b) Reports on Form 8-K
-------------------
On May 10, 2001, the Company filed a Form 8-K with the Securities and
Exchange Commission reporting the change of accountants from Arthur
Andersen, LLP To Grant Thornton LLP.
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WIDEPOINT CORPORATION
Date: May 21, 2001 /s/ MICHAEL C. Higgins
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Michael C. Higgins
President and Chief Executive Officer
/s/ JAMES T. MCCUBBIN
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James T. McCubbin
Vice President - Principal Financial
and Accounting Officer
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