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WIDEPOINT CORP - Quarter Report: 2004 March (Form 10-Q)

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, 2004

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 Lincoln Centre, 18W140 Butterfield Road, Suite 1100, Oakbrook Terrace, Ill
60181
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code:    (630) 629-0003

One Mid America Plaza, Suite 403, Oakbrook Terrace, Ill
60181
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        

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 under the Securities Exchange Act of 1934).  Yes            No    X  

        APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of May 14, 2004: 20,162,893 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, 2004,
         (unaudited) and December 31, 2003 (unaudited)

Condensed Consolidated Statements of Operations for the three
         months ended March 31, 2004 and 2003 (unaudited)

Condensed Consolidated Statements of Cash Flows for the three
         months ended March 31, 2004 and 2003 (unaudited)

Notes to Condensed Consolidated Financial Statements

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 

Item 4.  Controls and Procedures
15 

Part II.    OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K
15 

SIGNATURES
16 

CERTIFICATIONS
17 

PART 1.    FINANCIAL INFORMATION

ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

WIDEPOINT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

March 31,
2004

December 31,
2003

ASSETS (unaudited) (unaudited)
Current assets:            
        Cash and cash equivalents   $ 960,001   $ 949,612  
        Accounts receivable,  
            net of allowance of $18,819    314,119    405,662  
        Prepaid expenses and other assets    34,411    49,645  


        Total current assets    1,308,531    1,404,919  

Property and equipment, net
    5,201    6,990  

Other assets
    56,891    60,639  



         Total assets
   $ 1,370,623   $ 1,472,548  



LIABILITIES & SHAREHOLDERS' EQUITY
  

Current liabilities:
  
         Accounts payable   $ 34,117   $ 52,382  
         Accrued expenses    244,344    238,902  


         Total current liabilities    278,461    291,284  

Long-term portion of deferred rent
    5,567    --  



Total Liabilities
   $ 284,028   $ 291,284  

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,  
                15,579,913 shares issued and outstanding  
                as of March 31, 2004 and December 31, 2003    15,580    15,580  
         Related party notes receivable    (121,100 )  (121,100 )
         Additional paid-in capital    42,110,539    42,110,539  
         Accumulated deficit    (40,918,424 )  (40,823,755 )



         Total shareholders' equity
    1,086,595    1,181,264  



Total liabilities & shareholders' equity
   $ 1,370,623   $ 1,472,548  


The accompanying notes are an integral part of these statements.

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WIDEPOINT CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended
March 31,

2004
2003
(unaudited)
Revenues, net     $ 723,083   $ 922,652  

Operating expenses:
  
          Cost of sales    565,766    676,454  
          Sales and marketing    101,881    126,046  
          General & administrative    150,063    184,228  
          Depreciation & amortization    1,789    3,180  



                Loss from operations
    (96,416 )  (67,256 )

Other income, net:
  
            Interest income, net    1,747    3,148  



Net loss
   $ (94,669 ) $ (64,108 )



Basic and diluted net loss per share
   $ (0.01 ) $ 0.00  



Basic and diluted weighted average shares outstanding
    15,579,913    15,579,913  










The accompanying notes are an integral part of these consolidated statements.

2


WIDEPOINT CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months
Ended March 31,

2004
2003
(unaudited)
Cash flows from operating activities:            

    Net loss
   $ (94,669 ) $ (64,108 )
    Adjustments to reconcile net loss  
     to net cash provided by (used in) operating  
     activities  
        Depreciation and amortization expense    1,789    3,180  

    Changes in assets and liabilities
  
        Accounts receivable    91,543    34,572  
        Prepaid expenses    15,234    23,653  
        Other assets    3,748    (2,270 )
        Accounts payable and accrued expenses    (7,256 )  (19,722 )



            Net cash provided by (used in)
  
            operating activities   $ 10,389   $ (24,695 )



    Net cash flows from investing activities:
  
        Purchase of property and equipment    --    (5,934 )



            Net cash flows from investing
  
            activities   $ --   $ (5,934 )



    Net cash (used in) financing
  
    Activities  
        Net payments on long-term obligations    --    (3,840 )


            Net cash used in financing  
            activities   $ -- $ (3,840 )



    Net increase (decrease) in cash
   $ 10,389   $ (34,469 )



    Cash and equivalents, beginning of period
   $ 949,612   $ 1,208,660  



    Cash and equivalents, end of period
   $ 960,001   $ 1,174,191  



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, 2003, 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, 2004, are not necessarily indicative of the results that may be expected for the year ending December 31, 2004.

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 customers augment and expand their technical capabilities, drive new technical innovations and help maintain a competitive edge in today’s rapidly changing technological environment.

During 2002 and 2003, the Company witnessed a negative economic environment within the commercial IT sector due to constrained business investment and an excessive supply of IT Consultants which as a result reduced gross margins and decreased demand for the IT services that the Company provided to it’s customers.

In its efforts to overcome the negative environment and expand its revenue streams, the Company continued in 2003 and early 2004 to implement and refine a strategic plan that has included the launch of a federal business initiative in 2003, the continued development of new technologies and capabilities focused within wireless technologies, the development of various other practice areas, the initiation and expansion of several alliances to expand the Company’s ability to provide expanded services and reach to a wider group of new customers, and an expansion of both management talent and reach through its focused efforts to acquire additional business assets and revenues streams through targeted merger and acquisition activities in 2004.

On March 24, 2004 the Company entered into a merger agreement to acquire the stock of Chesapeake Government Technologies, Inc. (“CGT”), a Delaware Corporation. The Company closed on the transaction on April 30, 2004 through a reverse triangular merger between Chesapeake Acquisition Corporation, Chesapeake Government Technologies, Inc. and WidePoint Corporation with Chesapeake Government Technologies, Inc. becoming a wholly owned subsidiary of WidePoint Corporation. The consideration included the issuance of stock and the assumption of debt as further described within a Form 8-K filed on May 14, 2004. The executive management expertise of the Company was greatly expanded through this transaction and further augmented the reach and expertise of the Company. CGT additionally brings to WidePoint several additional alliances, relationships, and targeted companies that CGT is in various phases of discussion in regards to merger and acquisition opportunities with CGT and WidePoint.

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The Company continues it efforts to expand the operations of WidePoint through merger and acquisitions. The Company is also presently attempting to negotiate several other transactions that will expand the public sector segment of the Company.

Most of the Company’s current costs consist primarily of the salaries and benefits paid to the Company’s technical, marketing and administrative personnel. As a result of its plan to expand its operations through new internal initiatives and merger and acquisition related activities, the Company expects these costs to 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 maximize its operating margins through efficiencies achieved by the use of the Company’s proprietary methodologies and by offsetting increases in consultant salaries with increases in consultant fees received from clients. The current business environment has witnessed an increase in the competitive environment for the Company’s services. The Company anticipates that this trend may continue until an economic recovery is further underway and unemployment levels fall in which resource scarcity should improve the Company’s margins.

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 accounting principles generally accepted in the United States of America 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 purchased with original maturities of three months or less are considered cash equivalents for purposes of these consolidated financial statements. The Company maintains cash and cash equivalents with various major financial institutions. At March 31, 2004 and December 31, 2003, cash and cash equivalents included $350,492 and $250,144, respectively, on investments in interest bearing 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.

5


Accounts Receivable

The majority of the Company’s accounts receivable are due from established companies in the following industries: manufacturing, consumer product goods, direct marketing, healthcare and other service companies.

Credit is extended based on evaluation of a customers’ financial condition and, generally, collateral is not required. Accounts receivable are due within 30 to 45 days and are stated at amounts due from customers net of an allowance for doubtful accounts. Accounts outstanding longer than the contractual payment terms are considered past due. The Company determines its allowance by considering a number of factors, including the length of time trade accounts receivable are past due, the Company’s previous loss history, the customer’s current ability to pay its obligation to the Company and the condition of the general economy and the industry as a whole. The Company writes-off accounts receivable when they become uncollectible and payments subsequently received on such receivables are credited to the allowance for doubtful accounts. The following table sets forth the rolling forward balances of the Allowance for doubtful accounts of the Company.

Description
Balance at
Beginning of
Period

Additions
Charged to
Costs and
Expenses

Deductions
Balance at
End of
Period

For the quarter ended December, 2003, Allowance                    
   for doubtful accounts   $ 1,800   $ 17,319   $ 300   $ 18,819  

For the quarter ended March 31, 2004,
  
   Allowance for doubtful accounts   $ 18,819   $ 14   $ 14   $ 18,819  

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 $0 and $6,207 at March 31, 2004 and December 31, 2003, 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, 2004, four customers represented 17%, 15%, 13% and 11% percent of accounts receivable, respectively. As of December 31, 2003, three customers individually represented 26%, 11%, and 10% of accounts receivable.

6


Fair Value of Financial Instruments

WidePoint financial instruments consist of cash, accounts receivable, accounts payable and accrued expenses. The fair value of these financial instruments approximates their carrying value as of March 31, 2004, due to their short-term nature.

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. Out of pocket expenses for billable work are recognized as revenues and such out of pocket expenses are expensed in Cost of Revenues.

Significant Customers

During the first quarter of 2004, four customers individually represented 22%, 17%, 14%, and 10% percent of revenue. During the first quarter of 2003, four customers individually represented 20%, 16%, 13%, and 10% percent of revenue.

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. The Company continues to reduce its net deferred taxes by a 100% valuation allowance.

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. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FASB Statement 123, “Accounting for Stock-Based Compensation,” using the assumptions described below, to its stock-based employee plans.

7


Three Months ended
March 31,
2004 2003
Net loss, as reported      ($ 94,669 ) $ 64,108  

Deduct: Total stock-based employee
  
compensation expense determined under fair  
value based method for awards granted,  
modified, or settled, net of related tax  
effects    87,712    152,363  



Pro forma net loss
   $ 182,381   $ 216,460  

Net loss per share:
  
Basic and diluted - as reported   $ (0.01 ) $ 0.00  
Basic and diluted - pro forma   $ (0.01 ) $ (0.01 )

The pro forma disclosure is not likely to be indicative of pro forma results which may be expected in future years because of the fact that options vest over several years, pro forma compensation expense is recognized as the options vest and additional awards may also be granted.

For purposes of determining the effect of these options, the fair value of each option is estimated on the date of grant based on the Black-Scholes single-option pricing model assuming the following for the three months ended March 31, 2004 and 2003:

2004
2003
Dividend yield -- --
Risk-free interest rate (%) 2.7-4.13% 2.7-4.13%
Volatility factor (%) 156% 156%
Expected life in years 5 5

Basic and Diluted Net Loss Per Share

Basic income or loss per share includes no dilution and is computed by dividing net income or loss by the weighted-average number of common shares outstanding for the period. Diluted income or loss per share includes the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. The treasury stock effect of options and warrants to purchase 2,112,000 and 1,816,000 shares of common stock outstanding at March 31, 2004 and 2003, respectively, has not been included in the calculation of the net loss per share as such effect would have been anti-dilutive. As a result of these items, the basic and diluted loss per share for all periods presented are identical.

8


Reclassifications

Certain amounts in prior years’ financial statements have been reclassified to conform with the current year presentation.

3.  Promissory Notes:

Promissory Notes

Pursuant to stock purchase agreements entered into on July 8, 2002, between the Company and each of Steve L. Komar, James T. McCubbin and Mark M. Mirabile, the Company privately sold 865,000 shares of its common stock to each such person without registration under the Securities Act of 1933, pursuant to the private offering exemption under Section 4(2) thereof, in consideration of a three (3) year full-recourse, five percent (5%) interest bearing promissory note with equal annual principal payments due, issued by each such person to the Company in the principal amount of $60,550, or $181,650 in the aggregate (which equals $0.07 per share, being the closing price of the Company’s common stock on July 8, 2002). The individuals have repaid to date $21,500 individually, or $64,500 in aggregate to the Company.

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 ANALYSISOF 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, 2003.

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 customers augment and expand their technical capabilities, drive new technical innovations and help maintain a competitive edge in today’s rapidly changing technological 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.

During 2002 and 2003, the Company witnessed a negative economic environment within the commercial IT sector due to constrained business investment and an excessive supply of IT Consultants which as a result reduced gross margins and decreased demand for the IT services that the Company provided to it’s customers.

In its efforts to overcome the negative environment and expand its revenue streams, the Company continued in 2003 and early 2004 to implement and refine a strategic plan which has included the launch of a federal business initiative in 2003, the continued development of new technologies and capabilities focused within wireless technologies, the development of various other practice areas, the initiation and expansion of several alliances to expand the Company’s ability to provide expanded services and reach to a wider group of new customers, and an expansion of both management talent and reach through its focused efforts to acquire additional business assets and revenues streams through targeted merger and acquisition activities in 2004.

10


On March 24, 2004 the Company entered into a merger agreement to acquire the stock of Chesapeake Government Technologies, Inc. (“CGT”), a Delaware Corporation. The Company closed on the transaction on April 30, 2004 through a reverse triangular merger between Chesapeake Acquisition Corporation, Chesapeake Government Technologies, Inc. and WidePoint Corporation with Chesapeake Government Technologies, Inc. becoming a wholly owned subsidiary of WidePoint Corporation. The consideration included the issuance of stock and the assumption of debt as further described within a Form 8-K filed on May 14, 2004. The executive management expertise of the Company was greatly expanded through this transaction and further augmented the reach and expertise of the Company. CGT additionally brings to WidePoint several additional alliances, relationships, and targeted companies that CGT is in various phases of discussion in regards to merger and acquisition opportunities with CGT and WidePoint.

The Company continues it efforts to expand the operations of WidePoint through merger and acquisitions. On April 19, 2004, WidePoint entered into a non-binding letter of intent to acquire all of the stock of Knowledge Workers, Inc., (“KWI”) a Colorado based corporation, for the consideration of the issuance of WidePoint common stock and the assumption of debt. KWI’s business expertise resides in the improved utilization of Human Capital services through the use of its proprietary software and solutions with clients in both the commercial and government marketplace. The Company is working towards a definitive closing of this transaction no later than the third quarter of 2004. The Company is also presently attempting to negotiate several other transactions that will expand the public sector segment of the Company.

For the quarterly period ended March 31, 2004, revenue was approximately $723,000 as compared to revenue of approximately $923,000 for the quarterly period ended March 31, 2003. The decrease in revenues in the three months ended March 31, 2004, was attributable to fewer hours billed and a lower average bill rate. The Company has witnessed a stabilization in billable hours worked during the first quarter of 2004, pricing pressures within the industry have continued to place downward pressure on average billable rates as compared to the first quarter of 2003. The continued weakness within the IT marketplace continues to create negative pricing pressures and an increase in competitiveness that creates a more difficult environment to expand revenues internally for the Company. The Company anticipates these trends may continue into the second quarter of 2004 with a modest pickup in revenue possible during the second quarter of 2004 and into the second half of 2004. The Company further anticipates that if it is successful in executing its business strategy to expand into the government marketplace through mergers and acquisitions that revenue growth can be expected to expand.

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 will 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 within the IT marketplace the Company has witnessed a degradation of its operating margins and continues to experience margin pressures for the services that the Company offers. To be successful the Company must continue to win new business, expand its revenues, and manage its operating margins along with its general overhead costs to mitigate the Company’s losses and restore positive cashflow and earnings growth.

11


Results of Operations

Three Months Ended March 31, 2004 as Compared to Three Months Ended March 31, 2003

        Revenue. Revenue for the three month period ended March 31, 2004 was approximately $723,000 as compared to approximately $923,000 for the three month period ended March 31, 2003. The revenue decline was attributable to a smaller number of billable hours and a lower average bill rate by consultants in the quarterly period ending March 31, 2004 as compared to the quarterly period ended March 31, 2003.

        Gross profit. Gross profit for the three month period ended March 31, 2004, was approximately $157,000, or 22% of revenues, a decrease of approximately $89,000 from gross profit of approximately $246,000, or 27% of revenues, for the three month period ended March 31, 2003. The decline of gross profit was materially attributable to 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, 2004, were approximately $102,000, or 14% of revenues, a decrease of approximately $24,000, as compared to approximately $126,000, or 14% of revenues, for the three month period ended March 31, 2003. The decrease was materially attributable to reduced labor cost due to the reduction of a sales associate position in the second quarter of 2003 that has not been replaced subsequently.

        General and administrative. General and administrative expenses for the three month period ended March 31, 2004, were approximately $150,000, or 21% of revenues, a decrease of approximately $34,000, as compared to approximately $184,000, or 20% of revenues, incurred by the Company for the three month period ended March 31, 2003. The decrease in general and administrative expenses for the three months ended March 31, 2004, was primarily attributable to a decrease in general overhead expenses.

        Depreciation and amortization. Depreciation and amortization expenses for the three month period ended March 31, 2004, was $1,789, or less than 1% of revenues, a decrease of $1,391, as compared to $3,180 of such expenses, or less than 1% of revenues, incurred by the Company for the three month period ended March 31, 2003. The decrease in depreciation and amortization expenses for the three month period ended March 31, 2004, was primarily attributable to a lesser amount of depreciable assets as a result of the reduced equipments requirements of a smaller consultant base.

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        Other income (expense). Interest income for the three month period ended March 31, 2004, was $1,862, or less than 1% of revenues, a decrease of $1,805 as compared to $3,667, or less than 1% of revenues, for the three month period ended March 31, 2003. The decrease in interest income for the three month period ended March 31, 2004, was primarily attributable to lesser amounts of cash and cash equivalents along with lower short term interest rates that were available to the Company on investments in overnight sweep accounts. Interest expense for the three month period ended March 31, 2004, was $115, a decrease of $404, as compared to $519, or less than 1% of revenues, for the three month period ended March 31, 2003. The decrease in interest expense for the three months ended March 31, 2004, was primarily attributable to the elimination of 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, 2004, was approximately $95,000 as compared to the net loss of approximately $64,000 for the three months ended March 31, 2003.

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 a convertible exchangeable debenture. During 2004 and 2003 the Company has financed its operations with its working capital.

Cash provided by operating activities for the quarter ended March 31, 2004, was approximately $20,000 as compared to cash used in operating activities of approximately $25,000 for the quarter ended March 31, 2003. The increase in cash provided by operations during the first quarter of 2004 as compared to the first quarter ending March 31, 2003 was primarily a result of a decrease in days sales outstanding in accounts receivable partially offset by a decrease in accounts payable and accrued expenses and an increase in losses. There was no material amount of capital expenditures on property for the quarters ended March 31, 2004 and 2003.

As of March 31, 2004, the Company had net working capital of approximately $1.0 million. The Company’s primary source of liquidity consists of approximately $1.0 million in cash and cash equivalents and approximately $0.3 million of accounts receivable. The Company’s current liabilities include approximately $0.3 million in accounts payable and accrued expenses.

The market for the Company’s services is experiencing an environment of constrained technology investment as a result of an economic slowdown that has reduced new technology initiatives. As a result of this negative environment, the demand for IT consultants ranging from software programmers to network engineers has been negatively effected. This has reduced demand for the Company’s consultants as well as created downward pricing pressures and an increase in competition from both domestic and foreign firms for the diminished amount of new and ongoing IT initiatives. The Company anticipates in the future a reversal of these negative events as economic growth is restored and the constrained environment in new technology initiatives ebb. Therefore, the Company’s business environment is characterized by rapid technological changes and experiences times of high growth and contraction.

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Since 2002, the Company has embarked upon several new initiatives to counter the current negative environment within our industry and expand our capacity to restore revenue growth. 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.

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, profitability, and performance. Statements that contain words such as ‘believes”, “expects”, “anticipates”, “intends”, “estimates”, or similar expressions are forward-looking statements. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. 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, its ability to successfully effect acquisitions of and mergers with other companies, 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.

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ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable.

ITEM 4.  CONTROLS AND PROCEDURES

An evaluation was carried out under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and Chief Financial Officer, regarding the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-14(c) under the Securities Exchange Act of 1934) as of March 31, 2004. As a result of their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms. There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended March 31, 2004, that has materially affected and is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II.

OTHER INFORMATION

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits

  31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

  31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

  32 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K

        The Company filed a Form 8-K on May 14, 2004 describing the acquisition of Chesapeake Government Technologies, Inc.

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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 17, 2004
/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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