SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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 September 30, 2001
------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------------------- --------------------
Commission file number 000-23967
-------------
WIDEPOINT CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 52-2040275
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
One Mid America Plaza, Suite 403, Oakbrook Terrace, Il 60181
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (630) 645-0003
----------------
- --------------------------------------------------------------------------------
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 November 1,
2001: 12,984,913 shares of common stock, $.001 par value per share.
WIDEPOINT CORPORATION
INDEX
Page
No.
----
Part I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 2001
(unaudited) and December 31, 2000 (audited) 1
Condensed Consolidated Statements of Operations for the three
and nine months ended September 30, 2001 and 2000 (unaudited) 2
Condensed Consolidated Statements of Cash Flows for the three
and nine months ended September 30, 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 10
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 15
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WIDEPOINT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
2001 2000
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,599,962 $ 1,085,696
Accounts receivable, net of allowance
of $41,900 and $208,832, respectively 1,880,165 639,421
Prepaid expenses and other assets 43,958 173,698
------------ ------------
Total current assets 2,283,341 3,139,559
Property and equipment, net 166,799 335,935
Intangible assets, net 5,929,450 6,155,850
Other assets 57,146 59,045
------------ ------------
Total assets $ 8,436,736 $ 9,690,389
============ ============
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 508,862 $ 1,237,879
Current portion of capital lease
obligation 21,949 29,830
------------ ------------
Total current liabilities 530,811 1,267,709
------------ ------------
Long-term capital lease obligation, net
of current portion 10,189 24,430
------------ ------------
Total liabilities 541,000 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 September 30,
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 (34,188,733) (33,686,219)
------------ ------------
Total shareholders' equity 7,895,736 8,398,250
------------ ------------
Total liabilities & shareholders' equity $ 8,436,736 $ 9,690,389
============ ============
The accompanying notes are an integral part of these statements.
1
WIDEPOINT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
(unaudited) (unaudited)
Revenues $ 1,252,994 $ 3,055,321 $ 5,098,733 $10,616,342
Operating expenses:
Cost of sales 632,633 1,682,578 2,668,738 5,811,819
Sales and marketing 103,383 426,018 532,032 1,592,832
General and administrative 506,937 2,279,565 2,021,771 7,413,550
Facilities closing expense - 273,000 - 273,000
Disposition of subsidiary - 694,220 - 694,220
Depreciation and amortization 135,666 238,624 410,376 716,733
----------- ----------- ----------- -----------
Income (loss) from operations (125,625) (2,538,684) (534,184) (5,885,812)
----------- ----------- ----------- -----------
Other income (expenses):
Interest income 11,204 25,592 35,623 88,493
Interest expense (1,800) (62,341) (3,953) (197,802)
Other - - - -
----------- ----------- ----------- -----------
Net income (loss) $ (116,221) $(2,575,433) $ (502,514) $(5,995,121)
=========== =========== =========== ===========
Basic net income (loss) per share $ (0.01) $ (0.20) $ (0.04) $ (0.46)
=========== =========== =========== ===========
Basic and weighted average
shares outstanding 12,984,913 12,984,913 12,984,913 12,984,913
=========== =========== =========== ===========
The accompanying notes are an integral part of these statements.
2
WIDEPOINT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
(unaudited) (unaudited)
Cash flows from operating
activities:
Net (loss) income $ (116,221) $(2,575,433) $ (502,514) $(5,995,121)
Adjustments to reconcile loss
to net cash:
Depreciation and amortization
expense 135,666 238,624 410,376 716,733
Loss (Gain) on sale of
property and equipment 207 - (357) -
Disposition of subsidiary - 694,220 - 694,220
Changes in assets and
liabilities:
Accounts receivable 255,532 621,772 1,240,744 3,165,782
Prepaid expenses and other
assets 78,854 76,149 129,740 110,628
Other assets - (47,455) 1,899 (121,585)
Accounts payable and accrued
expenses (291,358) 229,091 (729,017) (1,184,645)
----------- ----------- ----------- -----------
Net cash provided by (used
in) operating activities 62,680 (763,032) 550,871 (2,613,988)
----------- ----------- ----------- -----------
Net cash used in investing
activities:
Purchases of property and
equipment - (32,439) (17,733) (71,414)
Proceeds from sale of
property and equipment 250 - 3,250 -
----------- ----------- ----------- -----------
Net cash used in investing
activities 250 (32,439) (14,483) (71,414)
----------- ----------- ----------- -----------
Net cash (used in) provided by
financing activities:
Net (payments) borrowings
on long-term obligations (7,550) (9,119) (22,122) (20,119)
----------- ----------- ----------- -----------
Net cash (used in) provided
by financing activities (7,550) (9,119) (22,122) (20,119)
----------- ----------- ----------- -----------
Net increase (decrease) in cash 55,380 514,266 (804,590) (2,705,521)
----------- ----------- ----------- -----------
Cash, beginning of period 1,544,582 2,325,503 1,085,696 4,226,434
----------- ----------- ----------- -----------
Cash, end of period $ 1,599,962 $ 1,520,913 $ 1,599,962 $ 1,520,913
=========== =========== =========== ===========
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 and nine months ended September
30, 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
4
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 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 September 30, 2001 and 2000, cash and
cash equivalents included investments in overnight sweep accounts of $1,628,826
and $1,081,807, 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.
5
Unbilled accounts receivable on time-and-materials contracts represent
costs incurred and gross profit recognized near the period-end but not billed
until the following period. Unbilled accounts receivable on fixed-price
contracts consist of amounts incurred that are not yet billable under contract
terms. Unbilled accounts receivable totaled $5,227 and $82,331 at September 30,
2001 and 2000, respectively.
Significant Customers
For the three months ended September 30, 2001, three customers individually
represented 16%, 13% and 11%, respectively, of revenue. For the nine months
ended September 30, 2001, two customers individually represented 18% and 10%,
respectively, of revenue. For the three months ended September 30, 2000, one
customer individually represented 13% 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 September 30, 2001, two customers individually represented 16%
and 12% percent of accounts receivable. As of September 30, 2000, no customer
individually represented more than 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 shares of common
stock outstanding at September 30, 2001 and 2000 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.
6
Reclassifications
Certain amounts in prior years' financial statements have been reclassified
to conform with the current year presentation.
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
On July 20, 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No.141 (SFAS No. 141), "Business
Combinations," and Statement of Financial Accounting Standards No. 142 (SFAS No.
142), "Goodwill and Intangible Assets." SFAS No. 141 is effective for all
business combinations completed after June 30, 2001. SFAS No. 142 is effective
for fiscal years beginning after December 15, 2001; however, certain provisions
of this Statement apply to goodwill and other intangible assets acquired between
July 1, 2001, and the effective date of SFAS No. 142. Major provisions of these
Statements and their effective dates for the Company are as follows:
1. All business combinations initiated after June 30, 2001 must use the
purchase method of accounting. The pooling of interest method of
accounting is prohibited except for transactions initiated before July
1, 2001.
2. Intangible assets acquired in a business combination must be recorded
separately from goodwill if they arise from contractual or other legal
rights or are separable from the acquired entity and can be sold,
transferred, licensed, rented, or exchanged, either individually or as
part of a related contract, asset, or liability.
3. Goodwill, as well as intangible assets with indefinite lives, acquired
after June 30, 2001, will not be amortized. Effective January 1, 2002,
all previously recognized goodwill and intangible assets with
indefinite lives will no longer be subject to amortization.
4. Effective January 1, 2002, goodwill and intangible assets with
indefinite lives will be tested for impairment annually and whenever
there is an impairment indicator.
5. All acquired goodwill must be assigned to reporting units for purposes
of impairment testing and segment reporting.
Goodwill (using current exchange rates) is currently being amortized at
approximately $76,000 quarterly and is projected to have a net carrying value of
approximately $5.9 million at the date of
7
adoption of this standard. The Company is currently evaluating the provisions of
SFAS No. 142 and has not yet determined the effect that adoption of this
standard will have on its financial statements.
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 June 30, 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 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. As of
September 30, 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
8
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.
9
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and
results of operations of the Company should be read in conjunction with the
financial statements and the notes thereto which appear elsewhere in this
quarterly report and the Company's Annual Report on Form 10-K for the year ended
December 31, 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 three-month period ended September 30, 2001, the Company's revenues
decreased by 59% from approximately $3.1 million in 2000 to approximately $1.3
million in 2001. For the nine month period ended September 30, 2001, the
Company's revenues decreased by 52% from approximately $10.6 million in 2000 to
approximately $5.1 million in 2001. These decreases were materially due to the
economic slowdown in IT spending that caused the delay and termination of
several opportunities and projects in e-technology initiatives and from the loss
of revenues generated by the sale of the Company's PMC subsidiary. As a result
of the loss of revenues from
10
the current economic slowdown in IT spending and from the sale of 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.
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 September 30, 2001 as Compared to Three Months Ended
September 30, 2000
Revenues. Revenues for the three month period ended September 30, 2001,
were $1.3 million, a decrease of approximately $1.8 million, as compared to
revenues of $3.1 million for the three month period ended September 30, 2000.
The decrease was materially due to the economic slowdown in IT spending that
caused the delay and termination of several opportunities and projects in
e-technology initiatives and from the loss of revenues generated by the sale of
the Company's PMC subsidiary.
Gross profit. Gross profit for the three month period ended September 30,
2001, was $0.6 million, or 50% of revenues, a decrease of $0.8 million from
gross profit of $1.4 million, or 45% of revenues, for the three month period
ended September 30, 2000. The decline of gross profit was materially
attributable to a decrease in revenues.
Sales and marketing. Sales and marketing expenses for the three month
period ended September 30, 2001, were $0.1 million, or 8% of revenues, a
decrease of $0.3 million, as compared to $0.4 million, or 14% of revenues, for
the three month period ended September 30, 2000. The decrease in sales and
marketing expenses for the three months ended September 30, 2001 was primarily
attributable to actions the Company undertook in the second quarter that aligned
the sales and marketing expenses to those of future anticipated revenue streams.
General and administrative. General and administrative expenses for the
three month period ended September 30, 2001, were $0.5 million, or 40% of
revenues, a decrease of $1.8 million, as compared to $2.3 million, or 75% of
revenues, incurred by the Company for the three month period ended September 30,
2000. The decrease in general and administrative expenses for the
11
three months ended September 30, 2001 was primarily attributable to the
alignment of expenses with future anticipated revenue streams, the consolidation
of several of the Company's separate business units and offices, and the sale of
the Company's PMC subsidiary during 2000.
Facilities closing expense. Facilities closing expense for the three month
period ended September 30, 2000, were $0.3 million, or 9% of revenues. The
facilities closing expense is related to costs associated with the elimination
of the Company's Germantown and satellite locations.
Disposition of subsidiary. The disposition of subsidiary expense for the
three month period ended September 30, 2000, was $0.7 million, or 23% of
revenues. The disposition of subsidiary expense is related to costs associated
with the Company's sale of its PMC subsidiary on September 29, 2000.
Depreciation and amortization. Depreciation and amortization expenses for
the three month period ended September 30, 2001, was $0.1 million, or 11% of
revenues, a decrease of $0.1 million, as compared to $0.2 million of such
expenses, or 8% of revenues, incurred by the Company for the three month period
ended September 30, 2000. The decrease in depreciation and amortization expenses
for the three month period ended September 30, 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
September 30, 2001, was $11,204, or 1% of revenues, a decrease of $14,388 as
compared to $25,592, or 1% of revenues, for the three month period ended
September 30, 2000. The decrease in interest income for the three month period
ended September 30, 2001 was primarily attributable to falling short term
interest rates that were available to the Company on investment in overnight
sweep accounts. Interest expense for the three month period ended September 30,
2001 was $1,800, a decrease of $60,541, as compared to $62,341, or 2% of
revenues, for the three month period ended September 30, 2000. The decrease in
interest expense for the three months ended September 30, 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 September 30, 2001, was $0.1 million as compared to the net
loss of approximately $2.6 million for the three months ended September 30,
2000, which represents a difference of approximately $2.5 million.
Nine Months Ended September 30, 2001 as Compared to Nine Months Ended September
30, 2000
Revenues. Revenues for the nine month period ended September 30, 2001, were
$5.1 million, a decrease of approximately $5.5 million, as compared to revenues
of $10.6 million for the nine month period ended September 30, 2000. The
decreases was materially due to the economic slowdown in IT spending that caused
the delay and termination of several opportunities and projects in e-technology
initiatives and from the loss of revenues generated by the sale of the Company's
PMC subsidiary.
12
Gross profit. Gross profit for the nine month period ended September 30,
2001, was $2.4 million, or 48% of revenues, a decrease of $2.4 million over
gross profit of $4.8 million, or 45% of revenues, for the nine month period
ended September 30, 2000. The decline of gross profit was attributable to a
decrease in revenues.
Sales and marketing. Sales and marketing expenses for the nine month period
ended September 30, 2001, were $0.5 million, or 10% of revenues, a decrease of
$1.1 million, as compared to $1.6 million, or 15% of revenues, for the nine
month period ended September 30, 2000. The decrease in sales and marketing
expenses for the nine months ended September 30, 2001 was primarily attributable
to actions the Company undertook during the fourth quarter of 2000 through the
second quarter of 2001 to align those expenses with future anticipated revenue
streams.
General and administrative. General and administrative expenses for the
nine month period ended September 30, 2001, were $2.0 million, or 40% of
revenues, a decrease of $5.4 million, as compared to $7.4 million, or 70% of
revenues, incurred by the Company for the nine month period ended September 30,
2000. The decrease in general and administrative expenses for the nine months
ended September 30, 2001 was primarily attributable to the alignment of expenses
with future anticipated revenue streams, the consolidation of several of the
Company's separate business units and offices, and the sale of the Company's PMC
subsidiary during 2000.
Facilities closing expense. Facilities closing expense for the nine month
period ended September 30, 2000, was $0.3 million, or 3% of revenues. The
facilities closing expense is related to costs associated with the termination
of the Company's Germantown and satellite locations.
Disposition of subsidiary. The disposition of subsidiary expense for the
nine month period ended September 30, 2000, was $0.7 million, or 7% of revenues.
The disposition of subsidiary expense is related to costs associated with the
Company's sale of its PMC subsidiary on September 29, 2000.
Depreciation and amortization. Depreciation and amortization expenses for
the nine month period ended September 30, 2001, was $0.4 million, or 8% of
revenues, a decrease of $0.3 million, as compared to $0.7 million of such
expenses, or 7% of revenues, incurred by the Company for the nine month period
ended September 30, 2000. The decrease in depreciation and amortization expenses
for the nine month period ended September 30, 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 nine month period ended
September 30, 2001, was $35,623, or 1% of revenues, a decrease of $52,870 as
compared to $88,493, or 1% of revenues, for the nine month period ended
September 30, 2000. The decrease in interest income for the nine month period
ended September 30, 2001 was primarily attributable to falling short term
interest rates that were available to the Company on investment in overnight
sweep accounts. Interest expense for the nine month period ended September 30,
2001 was $3,953, a decrease of
13
$193,849, as compared to $197,802, or 2% of revenues, for the nine month period
ended September 30, 2000. The decrease in interest expense for the nine months
ended September 30, 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 nine
month period ended September 30, 2001, was $0.5 million as compared to the net
loss of approximately $6.0 million for the nine months ended September 30, 2000,
which represents a difference of approximately $5.5 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 provided by operating activities for the quarter ended September 30, 2001,
was approximately $0.1 million as compared to approximately $0.8 million in cash
used in operating activities for the quarter ended September 30, 2000. The
increase in cash provided by operations during the third quarter of 2001 was
primarily a result of improvements in collections of accounts receivable and a
decrease in expenses incurred from the Company's operations. There was no
material amount of capital expenditures on property and for the quarters ended
September 30, 2001, and 2000.
As of September 30, 2001, the Company had net working capital of
approximately $1.8 million. The Company's primary source of liquidity consists
of approximately $1.6 million in cash and cash equivalents and approximately
$0.6 million of accounts receivable. The Company's current liabilities include
$0.5 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 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 increase revenue and income streams that will
generate significant positive cash flows if it is to sustain adequate liquidity
without impairing growth or requiring the infusion of additional funds from
external sources. Additionally, a major expansion, such as would occur with the
acquisition of a major new subsidiary, might also require external financing
that could include additional debt or capital. There can be no assurance that
additional financing, if required, will be available on acceptable terms, if at
all.
14
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 accounting
principles generally accepted in the United States of America ("US GAAP") which
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
15
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
None
(b) Reports on Form 8-K
None.
16
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: Nov. 14, 2001 /s/ MICHAEL C. Higgins
-------------------------------------
Michael C. Higgins
President and Chief Executive Officer
/s/ JAMES T. MCCUBBIN
-------------------------------------
James T. McCubbin
Vice President - Principal Financial
and Accounting Officer
17