Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements concerning our business, operations and financial performance and condition as well as our plans, objectives and expectations for our business operations and financial performance and condition that are subject to risks and uncertainties. All statements other than statements of historical fact included in this Form 10-Q are forward-looking statements. You can identify these statements by words such as "aim," "anticipate," "assume," "believe," "could," "due," "estimate," "expect," "goal," "intend," "may," "objective," "plan," "potential," "positioned," "predict," "should," "target," "will," "would" and other similar expressions that are predictions of or indicate future events and future trends. These forward-looking statements are based on current expectations, estimates, forecasts and projections about our business and the industry in which we operate and our management's beliefs and assumptions. These statements are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected, including:





    ·   The impact of the COVID-19 pandemic on our business and operations;
    ·   The impact of increasingly volatile public equity markets on our market
        capitalization;
    ·   The impact of supply chain issues;
    ·   Our ability to successfully execute our strategy;
    ·   Our ability to sustain profitability and positive cash flows;
    ·   Our ability to gain market acceptance for our products;
    ·   Our ability to win new contracts, execute contract extensions and expand
        scope of services on existing contracts;
    ·   Our ability to compete with companies that have greater resources than us;
    ·   Our ability to penetrate the commercial sector to expand our business;
    ·   Our ability to identify potential acquisition targets and close such
        acquisitions;
    ·   Our ability to successfully integrate acquired businesses with our
        existing operations;
    ·   Our ability to maintain a sufficient level of inventory necessary to meet
        our customers demand due to supply shortage and pricing;
    ·   Our ability to retain key personnel;
    ·   Our ability to mitigate the impact of inflation; and
    ·   The risk factors set forth in our Annual Report on Form 10-K for the year
        ended December 31, 2021 filed with the SEC on March 28, 2022.

The forward-looking statements included in this Form 10-Q are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law. Readers are cautioned not to put undue reliance on forward-looking statements. In this Quarterly Report on Form 10-Q, unless the context indicates otherwise, the terms "Company" and "WidePoint," as well as the words "we," "our," "ours" and "us," refer collectively to WidePoint Corporation and its consolidated subsidiaries.





                               Business Overview

We are a leading provider of Technology Management as a Service (TMaaS) that consists of federally certified communications management, identity management, interactive bill presentment and analytics, and Information Technology as a Service solutions. We help our clients achieve their organizational missions for mobility management, information technology management, and cybersecurity objectives in this challenging and complex business environment.

We offer our TmaaS solutions through a flexible managed services model which includes both a scalable and comprehensive set of functional capabilities that can be used by any customer to meet the most common functional, technical and security requirements for mobility management. Our TmaaS solutions were designed and implemented with flexibility in mind such that it can accommodate a large variety of customer requirements through simple configuration settings rather than through costly software development. The flexibility of our TmaaS solutions enables our customers to be able to quickly expand or contract their mobility management requirements. Our TmaaS solutions are hosted and accessible on-demand through both a secure federal government certified proprietary portal and/or through a secure enterprise portal that provides our customers with the ability to manage, analyze and protect their valuable communications assets, and deploy identity management solutions that provide secured virtual and physical access to restricted environments.






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                                  Revenue Mix

Our revenue mix fluctuates due to customer driven factors including: i) timing of technology and accessory refresh requirements from our customers; ii) onboarding of new customers that require carrier services; iii) subsequent decreases in carrier services as we optimize their data and voice usage; iv) delays in delivering products or services; and v) changes in control or leadership of our customers that lengthens our sales cycle, changes in laws or funding, among other circumstances that may unexpectedly change the revenue earned and/or duration of our services. As a result, our revenue will vary by quarter.

For additional information related to our business operations, see the description of our business set forth in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 28, 2022.





                       Strategic Focus and Notable Events

We believe that demand for our TmaaS solutions will continue to grow as public and private sectors seek to address the additional requirements for supporting a mobile workforce. We also believe that the current post COVID-19 pandemic environment will increase the need for WidePoint's services as our customers and potential customers seek to manage, secure and gain visibility into their mobility assets as a result of a larger number of employees working remotely. Our longer-term strategic focus and goals are driven by our need to expand our critical mass so that we have more flexibility to fund investments in technology solutions and introduce new sales and marketing initiatives in order to expand our marketplace share and increase the breadth of our offerings in order to improve company sustainability and growth.

In fiscal 2022, we will continue to focus on the following key goals:





    ·   Continue to find additional avenues for capturing new sales opportunities
        given the pandemic environment,
    ·   Continue to provide unmatched level of services to our current customer
        base,
    ·   Attain full FedRAMP certification in 2022 and continued technology refresh
        of our delivery infrastructure,
    ·   Grow our recurring high margin managed services revenues,
    ·   Add incremental capabilities to our Technology Management solution set and
        develop and acquire new high margin business lines,
    ·   Enhance our software platforms to grow our SaaS revenues and take
        advantage of the opportunities emerging from the growth in remote working,
    ·   Expand our customer base organically and inorganically,
    ·   Continue to leverage the R2v3 Certification to further our ESG commitment
    ·   Executing cross-sell opportunities identified from ITA acquisition,
        including Identity Management (IdM), Telecommunications Lifecycle
        Management (TLM) and Digital Billing & Analytics (DB&A) solution,
    ·   Growing our sales pipeline by continuing to invest in our business
        development and sales team assets,
    ·   Pursuing additional opportunities with our key systems integrator and
        strategic partners, and
    ·   Expanding our solution offerings into the commercial space.

Our longer-term strategic focus and goals are driven by our need to expand our critical mass so that we have more flexibility to fund investments in technology solutions and introduce new sales and marketing initiatives to expand our marketplace share and increase the breadth of our offerings in order to improve company sustainability and growth. Our strategy for achieving our longer-term goals include:





    ·   pursuing accretive and strategic acquisitions to expand our solutions and
        our customer base,
    ·   delivering new incremental offerings to add to our existing TMaaS
        offering,
    ·   developing and testing innovative new offerings that enhance our TMaaS
        offering, and
    ·   transitioning our data center and support infrastructure into a more
        cost-effective and federally approved cloud environment to comply with
        perceived future contract requirements.

We believe these actions could drive a strategic repositioning our TMaaS offering and may include the sale of non-aligned offerings coupled with acquisitions of complementary and supplementary offerings that could result in a more focused core set of TMaaS offerings.






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                             Results of Operations

Three Months Ended March 31, 2022 as Compared to Three Months Ended March 31,


                                      2021

Revenues. Revenues for the three month period ended March 31, 2022 were approximately $22.4 million, an increase of approximately $1.8 million (or 9%), as compared to approximately $20.6 million in 2021. Our mix of revenues for the periods presented is set forth below:





                                    THREE MONTHS ENDED
                                         MARCH 31,                  Dollar
                                   2022             2021           Variance
                                        (Unaudited)
Carrier Services               $ 12,932,059     $ 11,348,869     $  1,583,190
Managed Services:
Managed Service Fees              7,258,277        8,259,430       (1,001,153 )
Billable Service Fees             1,120,106        1,021,517           98,589
Reselling and Other Services      1,125,985           21,027        1,104,958
                                  9,504,368        9,301,974          202,394

                               $ 22,436,427     $ 20,650,843     $  1,785,584

Our carrier services increased compared with the same period in 2021 primarily due to carrier credits of approximately $1.7 million reflected in the first quarter of 2021, but not in the first quarter of 2022, otherwise carrier services remained relatively constant from period to period.

Our managed service fees decreased by $1.0 million largely due to lower device recycling service volumes and accessory sales, which was partially offset by approximately $1.6 million of managed services revenue from our ITA acquisition which is not included in the first quarter of 2021.

Billable service fee revenue remained consistent with the same period in 2021

Reselling and other services increased as compared to last year due to product resales to federal government customers. Reselling and other services are transactional in nature and as a result the amount and timing of revenue will vary significantly from quarter to quarter.

Cost of Revenues. Cost of revenues for the three months period ended March 31, 2022 were approximately $18.5 million (or 83% of revenues), as compared to approximately $15.9 million (or 77% of revenues) in 2021. The increase in cost of revenues was driven by a reduction to cost of revenues of approximately $1.7 million related to carrier credits booked in the first quarter of 2021 but not in the first quarter of 2022, and incremental cost of revenue in the approximate amount of $1.7 million related to ITA, for which results were not included first quarter of 2021 results.

Gross Profit. Gross profit for the three months period ended March 31, 2022 was approximately $3.9 million (or 17% of revenues), as compared to approximately $4.7 million (or 23% of revenues) in 2021. Approximately two-percentage points (2%) of the decrease in gross profit percentage was driven by the impact of carrier credits being reduced from both revenues and cost of revenues in 2021 as well as the relative lower margin percentage of ITA in the first quarter of 2022. Our gross profit percentage will vary from quarter to quarter due to revenue mix between carrier services and managed services revenue.






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Sales and Marketing. Sales and marketing expense for the three month period ended March 31, 2022 was approximately $---0.6 million (or -2% of revenues), as compared to approximately $0.5 million (or 1% of revenues) in 2021. We continue to invest in our business development and sales team assets as identified as one of our key goals for 2022.

General and Administrative. General and administrative expenses for the three months period ended March 31, 2022 were approximately $3.7 million (or 9% of revenues), as compared to approximately $3.3 million (or 6% of revenues) in 2021. The increase in general and administrative expense is due in part to an additional $0.6 million of additional general and administrate expenses related to ITA and due to increased labor costs and data center costs.

Depreciation and Amortization. Depreciation and amortization expense for the three month period ended March 31, 2022 was approximately $264,400 as compared to approximately $250,900 in 2021. The increase in depreciation and amortization expense reflects the decrease in our depreciable asset base.

Other Income. Other income (expense) for the three month period ended March 31, 2022 was approximately $244,000 as compared to approximately an expense of $(66,100) in 2021. The income in 2022 is primarily driven by the fair value adjustments of contingent consideration.

Income Taxes. Income tax benefit for the three month period ended March 31, 2022 was approximately $51,100 as compared to income tax expense of $23,500 in 2021. Income taxes were accrued at an estimated effective tax rate of 28.7% for the three months ended March 31, 2022 compared to 27.1% for the three months ended March 31, 2021.

Net (Loss) Income. As a result of the cumulative factors annotated above, net loss for the three month period ended March 31, 2022 was approximately $392,900 as compared to net income of approximately $585,400 million in the same period last year.







                        Liquidity and Capital Resources

Our immediate sources of liquidity include cash and cash equivalents, accounts receivable, unbilled receivables and access to a working capital credit facility with Atlantic Union Bank for up to $5.0 million. In addition, we maintain an at-the-market (ATM) equity sales program (described below) that permits us to sell, from time to time, up to $24.0 million of our common stock through the sales agents under the program. There is no assurance that, if needed, we will be able to raise capital on favorable terms or at all.

At March 31, 2022, our net working capital was approximately $5.0 million as compared to $7.1 million at December 31, 2021. The decrease in net working capital was primarily driven by investments in computer hardware and software purchases and capitalized internally developed software costs and the repurchase of our common stock, which was partially offset by temporary receivable/payable timing differences. We may need to raise additional capital to fund major growth initiatives and/or acquisitions and there can be no assurance that additional capital will be available on acceptable terms or at all.





ATM Sales Program

On August 18, 2020, we entered into an At-The-Market Issuance Sales Agreement (the "Sales Agreement") with B. Riley Securities, Inc., The Benchmark Company, LLC and Spartan Capital Securities, LLC which establishes an ATM equity program pursuant to which we may offer and sell up to $24.0 million of shares of our common stock, par value $0.001 per share, from time to time as set forth in the Sales Agreement. We have no obligation to sell any of the Shares, and, at any time, we may suspend offers under the Sales Agreement or terminate the Sales Agreement. No shares were sold during the three months ended March 31, 2022. The Company had remaining capacity of $18.2 million as of March 31, 2022.






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Cash Flows from Operating Activities

Cash provided by operating activities provides an indication of our ability to generate sufficient cash flow from our recurring business activities. Our single largest cash operating expense is the cost of labor and company sponsored healthcare benefit programs. Our second largest cash operating expense is our facility costs and related technology communication costs to support delivery of our services to our customers. We lease most of our facilities under non-cancellable long term contracts that may limit our ability to reduce fixed infrastructure costs in the short term. Any changes to our fixed labor and/or infrastructure costs may require a significant amount of time to take effect depending on the nature of the change made and cash payments to terminate any agreements that have not yet expired. We experience temporary collection timing differences from time to time due to customer invoice processing delays that are often beyond our control.

For the three months ended March 31, 2022, net cash provided by operations was approximately $2.8 million driven by collections of accounts receivable and temporary payable timing differences, as compared to approximately $1.0 million net cash provided for the three months ended March 31, 2021.

Cash Flows from Investing Activities

Cash used in investing activities provides an indication of our long term infrastructure investments. We maintain our own technology infrastructure and may need to make additional purchases of computer hardware, software and other fixed infrastructure assets to ensure our environment is properly maintained and can support our customer obligations. We typically fund purchases of long term infrastructure assets with available cash or capital lease financing agreements.

For the three months ended March 31, 2022, cash used in investing activities was approximately $1.0 million and consisted of computer hardware and software purchases and capitalized internally developed software costs, primarily associated with upgrading our ITMS™ platform, secure identity management technology and network operations center, and TDI™.

For the three months ended March 31, 2021, cash used in investing activities was approximately $641,200 and consisted of computer hardware and software purchases and capitalized internally developed software costs, primarily associated with upgrading our ITMS™ platform, secure identity management technology and network operations center.

Cash Flows from Financing Activities

Cash provided by (used in) financing activities provides an indication of our debt financing and proceeds from capital raise transactions and stock option exercises.

For the three months ended March 31, 2022, cash used in financing activities was approximately $1.0 million and reflects lease principal repayments of approximately $147,400, repurchases of common stock of $0.8 million and withholding taxes paid on behalf of employees on net settled restricted stock awards of approximately $49,200.

For the three months ended March 31, 2021, cash provided by financing activities was approximately $813,800 and reflects proceeds from issuance of common stock through ATM sales of $1.1 million, net of issuance costs, proceeds of approximately $10,250 from the exercise of stock options, offset by lease principal repayments of approximately $144,000 and withholding taxes paid on behalf of employees on net settled restricted stock awards of approximately $140,900.

Net Effect of Exchange Rate on Cash and Equivalents

For the three months ended March 31, 2022 and 2021, the gradual depreciation of the Euro relative to the US dollar decreased the translated value of our foreign cash balances by approximately $38,900 as compared to last year.





                         Off-Balance Sheet Arrangements

The Company has no existing off-balance sheet arrangements as defined under SEC regulations.






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