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WidePoint Corp. Reports Operating Results (10-Q)

August 16, 2010 | About:
10qk

10qk

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WidePoint Corp. (WYY) filed Quarterly Report for the period ended 2010-06-30.

Widepoint Corp. has a market cap of $46.03 million; its shares were traded at around $0.75 with a P/E ratio of 37.5 and P/S ratio of 1.06.

Highlight of Business Operations:

Income taxes. Income taxes for the three month periods ended June 30, 2010 and June 30, 2009 were approximately $78,000 and $39,000, respectively. The increase was predominately attributable to the inclusion of our estimate for alternative minimum taxes. The Company also incurred a deferred income tax expense of approximately $39,000 for each three month period, as a result of the recognition of a deferred tax liability attributable to the differences in our treatment of the amortization of goodwill for tax purposes versus book purposes as it relates to our acquisition of iSYS in January 2008. As goodwill is amortized for tax purposes but not book purposes and is considered a permanent asset rather than a temporary asset, the related deferred tax liability cannot be reversed until some indeterminate future period when the goodwill either becomes impaired and/or is disposed of.

Cost of sales. Cost of sales for the six month period ended June 30, 2010 was approximately $18.2 million (or 77% of revenues), as compared to cost of sales of approximately $16.3 million (or 79% of revenues), for the six month period ended June 30, 2009. This absolute increase in cost of sales was primarily attributable to an increase in revenues. The decrease in our cost of sales as a percentage of revenues was primarily attributable to margin improvements in all three of our segments. Our Wireless Mobility Management and Cyber Security Solutions segments realized greater margins from the benefit of economies of scale with our direct costs centers realizing greater efficiencies. Our IT Consulting Services and Products segment realized greater margins as a result of a larger mix of higher margin consulting services, versus a lesser amount of lower margin software reselling that was realized during the quarter. We anticipate improvements in our costs of sales on a percentage basis as our Wireless Mobility Management and Cyber Security Solutions segments add economies of scale, which may be partially offset at times by the fluctuation in our IT Consulting Services and Products segment revenue mix.

Income taxes. Income taxes for the six month periods ended June 30, 2010 and June 30, 2009 were approximately $117,000 and $78,000, respectively. The increase was predominately attributable to the inclusion of our estimate for alternative minimum taxes. The Company also incurred a deferred income tax expense of approximately $78,000 for each six month period, as a result of the recognition of a deferred tax liability attributable to the differences in our treatment of the amortization of goodwill for tax purposes versus book purposes as it relates to our acquisition of iSYS in January 2008. As goodwill is amortized for tax purposes but not book purposes and is considered a permanent asset rather than a temporary asset, the related deferred tax liability cannot be reversed until some indeterminate future period when the goodwill either becomes impaired and/or is disposed of.

Net cash used in operating activities for the three months ended June 30, 2010 was approximately $0.5 million, as compared to cash used in operating activities of $1.1 million for the three months ended June 30, 2009. This increase in cash used in operating activities for the three months ended June 30, 2010 was primarily a result of a decrease in accounts payable during the second quarter of 2010. The decrease in accounts payable resulted from an acceleration of payments to certain vendors who requested shorter payment terms and as a result of shorter payment terms associated with new vendors that we are establishing credit with in support of our newly established subsidiary Advanced Response Concepts. Net cash used in investing activities for the three months ended June 30, 2010 was approximately $43,000, as compared to $74,000 in cash used in investing activities for the three months ended June 30, 2009. The decrease in net cash used in investing activities was primarily attributable to decreased purchases of property and equipment by the Company. Net cash used in financing activities amounted to approximately $196,000 in the three months ended June 30, 2010, as compared to net cash used in financing activities of approximately $177,000 in the three months ended June 30, 2009. This increase in net cash used in financing activities primarily related to the reduction of debt during the three months ended June 30, 2010 as compared to the three months ended June 30, 2009. As a result of the Company s capital raising in 2008 and its profitability in 2009 and in the first six months of 2010, the Company has had excess liquidity to pay down short-term and long-term debt, while still maintaining sufficient levels of capital resources to fund operations.

As of June 30, 2010, the Company had a net working capital of approximately $4.3 million. The Company s primary source of liquidity consists of approximately $2.6 million in cash and cash equivalents and approximately $10.1 million of accounts receivable and unbilled accounts receivable. Current liabilities include approximately $7.8 million in accounts payable and accrued expenses.

Per the terms of the Komar Employment Agreement, Mr. Komar will receive a base salary of $205,000 for the first year of the term, $230,000 for the second year of the term, and $255,000 for the optional third year of the term. Mr. Komar will also be eligible for annual bonus awards at the discretion of the Board of Directors, and will be eligible to participate in Company incentive stock, option and bonus plans. The Komar Employment Agreement entitles Mr. Komar to all employee benefits the Company makes available to its senior executives, as well as to certain benefits that have been offered to him to complete his overall annual compensation package. These benefits include a monthly home office and automobile expense allowance and a monthly phone allowance to cover expenses incurred in pursuit of Company business.

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