SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q/A No. 1
(For Quarterly Period Ended September 30, 2001)
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
WIDEPOINT CORPORATION
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(Exact name of Registrant as specified in its charter)
Delaware 000-23967 52-2040275
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification
Number)
One Mid-America Plaza
Oakbrook Terrace, Illinois 60181
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(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (630) 645-0003
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The undersigned registrant hereby includes the following item of its
Quarterly Report on Form 10-Q for the period ended September 30, 2001, as set
forth on the pages attached hereto:
Part I. Item 1. Financial Statements
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
WIDEPOINT CORPORATION
By: /s/ James T. McCubbin
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James T. McCubbin
Vice President, Secretary
and Treasurer
Date: November 15, 2001
WIDEPOINT CORPORATION
AMENDMENT NO. 1 TO QUARTERLY REPORT ON FORM 10-Q
WidePoint Corporation ("WidePoint" or the "Company") hereby files this
Amendment No. 1 to its Quarterly Report on Form 10-Q for the period ended
September 30, 2001, to correct an inadvertent transposition in the EDGAR
conversion process of the amounts shown on (i) its Balance Sheet for Accounts
Receivable as of September 30, 2001 and December 31, 2000, and (ii) its Cash
Flow Statement for Net Increase (decrease) in Cash as of the Three Months Ended
September 30, 2000 and the Nine Months Ended September 30, 2001.
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WIDEPOINT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
2001 2000
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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 639,421 1,880,165
Prepaid expenses and other assets 43,958 173,698
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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
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Total assets $ 8,436,736 $ 9,690,389
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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
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Total current liabilities 530,811 1,267,709
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Long-term capital lease obligation, net of
current portion 10,189 24,430
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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)
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Total shareholders' equity 7,895,736 8,398,250
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Total liabilities & shareholders' equity $ 8,436,736 $ 9,690,389
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The accompanying notes are an integral part of these statements.
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WIDEPOINT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Nine Months
Ended September 30, Ended 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
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Income (loss) from operations (125,625) (2,538,684) (534,184) (5,885,812)
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Other income (expenses):
Interest income 11,204 25,592 35,623 88,493
Interest expense (1,800) (62,341) (3,953) (197,802)
Other -- -- -- --
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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.
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WIDEPOINT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Nine Months
Ended September 30, Ended 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)
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Net cash provided by (used in) operating
activities 62,680 (763,032) 550,871 (2,613,988)
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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 --
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Net cash used in investing activities 250 (32,439) (14,483) (71,414)
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Net cash (used in) provided by financing activities:
Net(payments) borrowings on long-term
obligations (7,550) (9,119) (22,122) (20,119)
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Net cash (used in) provided by financing
activities (7,550) (9,119) (22,122) (20,119)
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Net increase (decrease) in cash 55,380 (804,590) 514,266 (2,705,521)
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Cash, beginning of period 1,544,582 2,325,503 1,085,696 4,226,434
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Cash, end of period $ 1,599,962 $ 1,520,913 $ 1,599,962 $ 1,520,913
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The accompanying notes are an integral part of these statements.
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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
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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.
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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.
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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
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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
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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.
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