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 March 31, 2002
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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 Lincoln Centre, 18W140 Butterfield Road, Suite 1100,
Oakbrook Terrace, Ill 60181
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (630) 629-0003
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One Mid America Plaza, Suite 403, Oakbrook Terrace, Ill 60181
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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
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APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of May 1, 2002:
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 March 31, 2002
(unaudited) and December 31, 2001 (audited) 1
Condensed Consolidated Statements of Operations for the three
months ended March 31, 2002 and 2001 (unaudited) 2
Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 2002 and 2001 (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 14
Part II. OTHER INFORMATION
Item 5. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
WIDEPOINT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
2002 2001
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,161,840 $ 1,563,544
Accounts receivable,
net of allowance of $30,000 459,983
571,666
Prepaid expenses and other assets 40,592 47,941
------------ ------------
Total current assets 1,774,098 2,071,468
Property and equipment, net 42,290 63,758
Other assets 69,110 58,113
------------ ------------
Total assets $ 1,885,498 $ 2,193,339
============ ============
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 63,139 $ 110,339
Accrued expenses 285,390 447,159
Current portion of capital lease obligation 16,879 18,009
------------ ------------
Total current liabilities 365,408 575,507
------------ ------------
Long-term capital lease obligation, net of current portion 2,581 6,421
------------ ------------
Total liabilities 367,989 581,928
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, 2002 and December 31, 2001 12,985 12,985
Stock warrants 140,000 140,000
Additional paid-in capital 41,931,484 41,931,484
Accumulated deficit (40,566,960) (40,473,058)
------------ ------------
Total shareholders' equity 1,517,509 1,611,411
------------ ------------
Total liabilities & shareholders' equity $ 1,885,498 $ 2,193,339
============ ============
The accompanying notes are an integral part of these statements.
1
WIDEPOINT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31,
----------------------------
2002 2001
---- ----
(unaudited)
Revenues $ 862,760 $ 2,199,867
Operating expenses:
Cost of sales 540,226 1,158,428
Sales and marketing 118,738 245,888
General & administrative 280,543 783,984
Depreciation & amortization 21,468 137,742
------------ ------------
Loss from operations
(98,215) (126,175)
Other income (expenses):
Interest income 5,036 11,250
Interest expense (723) (1,163)
------------ ------------
Net loss $ (93,902) $ (116,088)
============ ============
Basic and diluted net loss per share $ (0.01) $ (0.01)
============ ============
Basic and diluted weighted average shares outstanding 12,984,913 12,984,913
============ ============
The accompanying notes are an integral part of these consolidated statements.
2
WIDEPOINT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31,
----------------------------
2002 2001
---- ----
(unaudited)
Cash flows from operating activities:
Net loss $ (93,902) $ (116,088)
Adjustments to reconcile net loss to net cash
Depreciation and amortization expense 21,468 137,742
Changes in assets and liabilities
Accounts receivable (111,683) 540,507
Prepaid expenses 7,349 39,861
Other assets (10,997) 1,900
Accounts payable and accrued expenses (208,969) (83,273)
----------- -----------
Net cash (used in) provided by operating
activities $ (396,734) $ 520,649
----------- -----------
Net cash used in investing activities:
Purchase of property and equipment -- (17,733)
----------- -----------
Net cash used in investing activities $ -- $ (17,733)
----------- -----------
Net cash used in financing activities
Net payments on long-term obligations (4,970) (7,200)
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Net cash used in financing activities $ (4,970) $ (7,200)
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Net (decrease) increase in cash $ (401,704) $ 495,716
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Cash, beginning of period $ 1,563,544 $ 1,085,696
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Cash, end of period $ 1,161,840 $ 1,581,412
=========== ===========
The accompanying notes are an integral part of these consolidated 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, 2001, 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, 2002, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2002.
WidePoint Corporation is a consulting services firm specializing in planning,
managing and implementing Information Technology solutions. Its staff consists
of business and technical specialists that help clients improve their bottom
line and maintain a competitive edge in today's rapidly changing business
environment.
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
provided IT consulting services focused in Enterprise Resource Planning ("ERP").
During 1999, the Company established a new subsidiary named WidePoint
Corporation ("WidePoint-Subsidiary") and initiated operations in 2000 through
this subsidiary in an effort to fully transition the Company from a Year 2000
strategic solutions provider to an Internet Services company. In 2000, 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". During this transition in 2000, the Company experienced several economic
reversals that included an unexpected rapid deterioration in Year 2000 services,
and a severe contraction in Internet related services. These negative events
prompted the Company to initiate a refinement in its strategy during 2000 and on
September 29, 2000, the Company sold all of the outstanding shares of its PMC
subsidiary to a third-party purchaser that resulted in the elimination of
materially all of the Company's long-term debt.
During 2001, the Company continued to further refine its strategy and
consolidate its operations in an attempt to minimize losses, conserve working
capital, and provide a flexible, scaleable and
4
efficient business model that was more responsive to the evolving needs of the
Company's markets and customers. Although these actions served to somewhat limit
losses, they did not result in a resumption of revenue growth for the Company.
Late in 2001, the Board of Directors of the Company decided that an updated
assessment of strategic alternatives was in order, and soon thereafter decided
that a newly focused strategic direction, plan and leadership were required.
These mandated changes were initiated prior to the end of 2001 and continued
during the first calendar quarter of 2002. Consistent with the re-focus mandated
by the Board, and the materially deteriorated values of assets acquired in
earlier acquisitions, the Company recorded an impairment of the remaining
intangible assets associated with the acquisition of Eclipse that were acquired
in December 1998.
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 strategy. As
a result, the Company experienced operating losses and negative cash flows in
2000 and in 2001. 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 on terms
management finds acceptable or at all.
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
inter-company amounts have been eliminated.
Use of Estimates
The preparation of consolidated financial statements in conformity with US GAPP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, 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 purchased with original maturities of three months or less are
considered cash
5
equivalents for purposes of these consolidated financial statements. The Company
maintains cash and cash equivalents with various major financial institutions.
At March 31, 2002 and 2001, cash and cash equivalents included $1,160,968 and
$1,369,571, respectively, on investments in overnight sweep accounts. 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 accounts receivable on fixed-price contracts
consist of amounts incurred that are not yet billable under contract terms. At
March 31, 2002 and 2001, unbilled accounts receivable totaled $3,725 and
$31,540, respectively.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to credit risk
consist of cash and cash equivalents and accounts receivable. As of March 31,
2002, three customers individually represented 20%, 16%, and 14%, respectively
of accounts receivable. As of March 31, 2001, one customer represented 11%
percent 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
6
contracts to issue common stock were exercised or converted into common stock.
The treasury stock effect of options and warrants to purchase 2,845,500 and
2,976,500 shares of common stock outstanding at March 31, 2002 and 2001,
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.
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 FASB issued SFAS No.141, "Business Combinations," and 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 such 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.
As of December 31, 2001, the Company does not have any intangible assets
recorded on the
7
books, and, therefore, will not be currently affected by SFAS No. 141 or SFAS
No. 142.
During 2001, the FASB issued SFAS 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," to address significant implementation issues
related to SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," and to develop a single accounting model
to account for long-lived assets to be disposed of. SFAS 144 carries over the
recognition and measurement provisions of SFAS 121. Accordingly, an entity
should recognize an impairment loss if the carrying amount of a long-lived asset
or asset group (a) is not recoverable and (b) exceeds its fair value. Similar to
SFAS 121, SFAS 144 requires an entity to test an asset or asset group for
impairment whenever events or circumstances indicate that its carrying amount
may not be recoverable. SFAS 144 provides guidance on estimating future cash
flows to test recoverability. SFAS 144 includes criteria that have to be met for
an entity to classify a long-lived asset or asset group as held for sale.
However, if the criteria to classify an asset as held for sale are met after the
balance sheet date but before the issuance of the financial statements, the
asset group would continue to be classified as held and used in those financial
statements when issued, which is a change from current practice. The measurement
of a long-lived asset or asset group classified as held for sale is at the lower
of its carrying amount of fair value less cost to sell. Expected future losses
associated with the operations of a long-lived asset or asset group classified
as held for sale are excluded from that measurement.
SFAS 144 is effective for financial statements issued for fiscal years beginning
after December 15, 2001, and interim periods within those fiscal years. However,
the provisions of SFAS 144 related to assets to be disposed of are effective for
disposal activities initiated by an entity's commitment to a plan after the
effective date or after the Statement are initially applied
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 was 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
8
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,
2001.
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 is a consulting services firm specializing in planning,
managing and implementing Information Technology (IT) solutions. Its staff
consists of business and technical specialists that help clients improve their
profitability and maintain a competitive edge in today's rapidly changing
business environment.
The WidePoint approach is to apply a structured delivery methodology based on
industry standard best practices, enhanced with a set of deliverable templates
that increase productivity and effectiveness. WidePoint focuses on providing end
results with significant, tangible business benefits. Our consultants possess
recognized industry-standard certifications and years of successful project
experience.
Since 1996, WidePoint has focused on leveraging leading edge technologies,
methodologies and consultants to help clients improve their business
performance. This focus continues to tie together the Company's service
offerings and future direction. WidePoint's clients are increasingly looking to
harness the power of the Internet and leading IT technologies by integrating
these technologies with their existing systems as they transition, expand and
refine their business environments.
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 Consultants, Ltd. ("PMC"), a corporation that
provided IT consulting services focused in Enterprise Resource Planning ("ERP").
During 1999, the Company established a new subsidiary named WidePoint
Corporation ("WidePoint-Subsidiary") and initiated operations in 2000 through
this subsidiary in an effort to fully transition the Company from a Year 2000
strategic solutions provider to an Internet services company. In 2000, the
Company changed its corporate name from ZMAX Corporation to WidePoint
Corporation and changed the trading symbol for its common stock from
10
"ZMAX" to "WDPT". During this transition in 2000, the Company experienced
several economic reversals that included an unexpectedly rapid deterioration in
Year 2000 services, and a severe contraction in Internet related services. These
negative events prompted the Company to initiate a refinement in its strategy
during 2000 and on September 29, 2000, the Company sold all of the outstanding
shares of its PMC subsidiary to a third-party purchaser that resulted in the
elimination of substantially all of the Company's long-term debt.
During 2001, the Company continued to refine its strategy and consolidate its
operations in an attempt to minimize losses, conserve working capital, and
provide a flexible, scaleable, and efficient business model that was more
responsive to the evolving needs of the Company's markets and customers.
Although these actions served to decrease losses, they did not result in a
resumption of revenue growth for the Company. In the latter part of 2001, the
Board of Directors of the Company decided that an updated assessment of
strategic alternatives was in order, and soon thereafter decided that a newly
focused strategic direction, plan and leadership were required. These mandated
changes were initiated prior to the end of 2001 and continued during the first
calendar quarter of 2002. Consistent with such changes initiated by the Board,
and the materially deteriorated values of assets acquired in earlier
acquisitions, the Company recorded an impairment of the remaining intangible
assets associated with the acquisition of Eclipse that were acquired in December
1998.
For the Quarter ended March 31, 2002, the Company's revenues decreased from
approximately $2.2 million in 2001 to approximately $0.9 million in 2002. This
decrease was materially due to a reduction in demand for the Company's billable
consultants as a result of an economic slowdown that constrained technology
investment in the marketplace in 2001. The Company continues to operate within
an environment of constrained technology investment in 2002 and anticipates this
to continue into the second quarter.
Most of the Company's current costs consist primarily of the salaries and
benefits paid to the Company's technical, marketing and administrative personnel
and depreciation expenses related to property and equipment. Consistent with the
development of a new focused strategic direction, the Company expects to expand
its operations through internal growth and by potential acquisition of new
personnel and assets. Therefore, the Company anticipates these costs may
increase.
The Company's profitability depends upon both the volume of services performed
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. To date, the Company has attempted to
manage its operating margins by offsetting increases in consultant salaries with
increases in consultant fees received from clients and by effectively managing
general overhead costs. During this economic slowdown the Company witnessed a
degradation of its operating margins. To be successful the Company must continue
to win new business and manage its operating margins along with its general
overhead costs.
11
Results of Operations
Three Months Ended March 31, 2002 as Compared to Three Months Ended March 31,
2001
Revenues. Revenues for the three month period ended March 31, 2002, were
$0.9 million, a decrease of approximately $1.3 million, as compared to revenues
of $2.2 million for the three month period ended March 31, 2001. The decrease
was materially due to a reduction in billable consultants as a result of the
economic slowdown that constrained technology investment in the marketplace in
2001 and early 2002.
Gross profit. Gross profit for the three month period ended March 31,
2001, was $0.3 million, or 37% of revenues, a decrease of $0.7 million from
gross profit of $1.0 million, or 46% of revenues, for the three month period
ended March 31, 2001. The decline of gross profit was materially attributable to
a decline in revenues and a reduction in gross margin as a result of negative
pricing pressures that are present within the current marketplace for the
company's services.
Sales and marketing. Sales and marketing expenses for the three month
period ended March 31, 2002, were $0.1 million, or 14% of revenues, a decrease
of $0.1 million, as compared to $0.2 million, or 12% of revenues, for the three
month period ended March 31, 2001. The decrease in sales and marketing expenses
for the three months ended September 30, 2002, was primarily attributable to
actions the Company undertook in the second quarter of 2001 that attempted to
align 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 March 31, 2002, were $0.3 million, or 33% of revenues,
a decrease of $0.5 million, as compared to $0.8 million, or 36% of revenues,
incurred by the Company for the three month period ended March 31, 2001. The
decrease in general and administrative expenses for the three months ended March
31, 2002, was primarily attributable to greater utilization of consultants that
resulted in a reduction in general consultant overhead costs and a reduction in
general personnel support costs associated with Company's goals of attempting to
match future expenses with future revenue streams.
Depreciation and amortization. Depreciation and amortization expenses for
the three month period ended March 31, 2002, was $21,468, or 2% of revenues, a
decrease of $116,274, as compared to $137,742 of such expenses, or 6% of
revenues, incurred by the Company for the three month period ended March 31,
2001. The decrease in depreciation and amortization expenses for the three month
period ended March 31, 2002, was primarily attributable to the impairment charge
associated with the write-off of certain intangible assets associated with the
Company's Eclipse subsidiary in the fourth quarter of 2001.
Other income (expense). Interest income for the three month period ended
March 31, 2002, was $5,036, or less than 1% of revenues, a decrease of $6,214 as
compared to $11,250, or less than 1% of revenues, for the three month period
ended March 31, 2001. The decrease in interest income for the three month period
ended March 31, 2002, was primarily attributable to lesser amounts of cash and
cash equivalents along with lower short term interest rates that were available
12
to the Company on investments in overnight sweep accounts. Interest expense for
the three month period ended March 31, 2002, was $723, a decrease of $440, as
compared to $1,163, or less than 1% of revenues, for the three month period
ended March 31, 2001. The decrease in interest expense for the three months
ended March 31, 2002, was primarily attributable to a lesser interest expense
component associated with the Company's capital lease obligations.
Net loss. As a result of the above, the net loss for the three month
period ended March 31, 2002, was $0.1 million as compared to the net loss of
approximately $0.1 million for the three months ended September 30, 2000.
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 used in operating activities for the quarter ended March 31, 2002, was
approximately $0.4 million as compared to cash provided by operating activities
of approximately $0.5 for the quarter ended March 31, 2001. The increase in cash
used by operations during the first quarter of 2002 was primarily a result of an
increase in days sales outstanding in accounts receivable and a reduction in
accounts payable and accrued expenses as a result of the payout of an employee
separation agreement in the first quarter of 2002, an increase in the final
payout of vacation accruals associated with the Company's reduced consultant
base, and a reduction in accounts payable associated with the declining expense
base associated with the Company's current revenue base. There was no material
amount of capital expenditures on property for the quarters ended March 31,
2002, and 2001.
As of March 31, 2002, the Company had net working capital of
approximately $1.4 million. The Company's primary source of liquidity consists
of approximately $1.2 million in cash and cash equivalents and approximately
$0.6 million of accounts receivable. The Company's current liabilities include
$0.4 million in accounts payable and accrued expenses.
This decrease was materially due to a reduction in demand for the
Company's billable consultants as a result of an economic slowdown that
constrained technology investment in the marketplace in 2001. The Company
continues to operate within an environment of constrained technology investment
in 2002 and anticipates this to continue into the second quarter.
The market for the Company's services is experiencing an environment of
constrained technology investment as a result of an economic slowdown. The
Company's business environment is characterized by rapid technological changes
and experiences times of high growth and contraction. In 1999, the Company began
to shift away from millennium services and has focused its efforts within IT
Consulting services. 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
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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.
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.
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PART II.
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibits are filed herewith:
None.
(b) Reports on Form 8-K
None.
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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 15, 2002 /s/ STEVE L. KOMAR
------------------
Steve L. Komar
President and Chief
Executive Officer
/s/ JAMES T. MCCUBBIN
---------------------
James T. McCubbin
Vice President -
Principal Financial
and Accounting Officer
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