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WIDEPOINT CORP

WIDEPOINT CORPWYYEarnings & Financial Report

NYSE · Information Technology · Services-Computer Integrated Systems Design

WidePoint Corporation is an American company based in Fairfax, Virginia that provides technology-based products and services to the government sector and commercial markets in the United States. The company holds a patent for a digital parsing tool that allows users to access accounts through a secure repository gateway, established using asymmetric authentication employed as public key infrastructure (PKI). WidePoint provides smart card identity verification, wireless expense management, pen...

What changed in WIDEPOINT CORP's 10-K — 2022 vs 2023

Top changes in WIDEPOINT CORP's 2023 10-K

173 paragraphs added · 184 removed · 129 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

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We partner with large systems integrators to collectively pursue large market opportunities that include our some or all of our TMaaS solution within the scope of the solicitations. In these types of arrangements, we generally operate as a subcontractor and manage the customer relationship closely with the prime contractor.
We partner with large systems integrators to collectively pursue large market opportunities that include some or all of our TMaaS solution within the scope of the solicitations. In these types of arrangements, we generally operate as a subcontractor and manage the customer relationship closely with the prime contractor.
We also hold a number of Indefinite Delivery/Indefinite Quantity (“ID/IQ”) contracts, including, but not limited to: · Department of Homeland Security for Cellular Wireless Managed Services (CWMS) 2.0 Indefinite Delivery/Indefinite Quantity Contract (DHS CWMS 2.0 IDIQ). · Subsidiaries of WidePoint are approved subcontractors for the following ID/IQ contracts: o NASA End-User Services and Technologies (NEST) o GSA Alliant 2 o GSA Enterprise Infrastructure Solutions (EIS) o GSA Connections II o National Institutes of Health Chief Information Officer Solutions and Partners (CIO-SP3) o NASA Solutions for Enterprise-Wide Procurement (SEWP) o Department of Justice (DOJ) Enterprise Standard Architecture V (ESA V) We will continue to build on our partnerships with key systems integrators and strategic partners to compete for public and private sector opportunities.
We also hold a number of Indefinite Delivery/Indefinite Quantity (“ID/IQ”) contracts, including, but not limited to: · Department of Homeland Security for Cellular Wireless Managed Services (CWMS) 2.0 ID/IQ Contract (DHS CWMS 2.0 IDIQ). · Subsidiaries of WidePoint are approved subcontractors for the following ID/IQ contracts: o NASA End-User Services and Technologies (NEST) o GSA Alliant 2 o GSA Enterprise Infrastructure Solutions (EIS) o GSA Connections II o National Institutes of Health Chief Information Officer Solutions and Partners (CIO-SP3) o NASA Solutions for Enterprise-Wide Procurement (SEWP) o Department of Justice (DOJ) Enterprise Standard Architecture V (ESA V) We will continue to build on our partnerships with key systems integrators and strategic partners to compete for public and private sector opportunities.
If a contract is terminated for convenience, we are generally reimbursed for our allowable costs through the date of termination and are paid a proportionate amount of the stipulated profit or fee attributable to the work actually performed. 7 Contract vehicles include Government Wide Acquisition Contracts (“GWACs”), and Blanket Purchase Agreements (“BPAs”) based upon GSA Schedule 70, and customer specific contracts.
If a contract is terminated for convenience, we are generally reimbursed for our allowable costs through the date of termination and are paid a proportionate amount of the stipulated profit or fee attributable to the work actually performed. Contract vehicles include Government Wide Acquisition Contracts (“GWACs”), and Blanket Purchase Agreements (“BPAs”) based upon GSA Schedule 70, and customer specific contracts.
WidePoint provides a compensation package that is competitive within our industry such that we will attract, retain, motivate and reward superior employees who must operate in a highly competitive and technologically challenging environment. We seek to link annual changes in compensation to overall Company performance, as well as each individual’s contribution to the results achieved.
WidePoint provides a compensation package that we believe is competitive within our industry such that we will attract, retain, motivate and reward superior employees who must operate in a highly competitive and technologically challenging environment. We seek to link annual changes in compensation to overall Company performance, as well as each individual’s contribution to the results achieved.
Some of our principal competitors include: MDSL/Calero, Tangoe, Inc., Brightfin, DMI, A&T Systems, and Turning Point Global Services, LLC; Identity Management – Entrust Corp., IdenTrust and XTec Inc.; Digital Billing & Analytics – Amdocs Britebill and Globys Inc.; ITaaS - BMC Software, HPE, StratCore; Next Level Technologies, and many others.
Some of our principal competitors include: MDSL/Calero Sortware LLC, Tangoe, Inc., Brightfin, DMI, A&T Systems, and Turning Point Global Services, LLC; Identity Management – Entrust Corp., IdenTrust and XTec Inc.; Digital Billing & Analytics – Amdocs Britebill and Globys Inc.; ITaaS - BMC Software, HPE, StratCore; Next Level Technologies, and many others.
This approach allows us to sell into markets that would be otherwise be costly and difficult to reach. By leveraging these partners’ existing customer relationships, we can shorten the sale cycle and have a higher success rate Internal Sales Force.
This approach allows us to sell into markets that would be otherwise be costly and difficult to reach. By leveraging these partners’ existing customer relationships, we can shorten the sale cycle and have a higher success rate. 5 Internal Sales Force.
The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov.
The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. 11
Therefore, the exact benefits of our patents and the other steps that we have taken to protect our intellectual property cannot be predicted with certainty. 9 Market Competition Our TMaaS market is centered on mobile management, identity management, ITaaS and digital billing and analytics. Target Markets.
Therefore, the exact benefits of our patents and the other steps that we have taken to protect our intellectual property cannot be predicted with certainty. 8 Market Competition Our TMaaS market is centered on mobile management, identity management, ITaaS and digital billing and analytics. Target Markets.
We utilize monitoring technology software tools that continuously checks our servers and key underlying components at regular intervals for issues with system availability and performance, server and application security and penetration vulnerabilities, and other factors that may impact the availability of our systems to our customers.
We utilize monitoring technology software tools that continuously check our servers and key underlying components at regular intervals for issues with system availability and performance, server and application security and penetration vulnerabilities, and other factors that may impact the availability of our systems to our customers.
Our development team is comprised of professionals with hands-on technical and practical customer-side development experience. We believe this allows us to design and deploy enhancements that can resolve real-world problems in a timely manner. 8 We funded and expensed strategic product development initiatives as well as platform and portal integrations and other product and portal enhancements during the year.
Our development team is comprised of professionals with hands-on technical and practical customer-side development experience. We believe this allows us to design and deploy enhancements that can resolve real-world problems in a timely manner. 7 We funded strategic product development initiatives as well as platform and portal integrations and other product and portal enhancements during the year.
Sales commissions are calculated and paid based on net collected gross managed service revenues times a fixed commission rate that declines over the base term of the contract. There are no commissions paid after the base term expires.
Sales commissions, when applicable, are calculated and paid based on net collected gross managed service revenues times a fixed commission rate that declines over the base term of the contract. There are no commissions paid after the base term expires.
After a customer is on boarded, we focus on delivering our service promise and then upsell and cross sell our TMaaS solution offerings. We may enter into preferred supplier network programs agreements with our customers and offer our TMaaS solutions on similar terms and conditions to their suppliers and customer which in turn could increase our potential sales opportunities.
After a customer is on boarded, we focus on delivering our service as contracted and then upsell and cross sell our TMaaS solution offerings. We may enter into preferred supplier network programs agreements with our customers and offer our TMaaS solutions on similar terms and conditions to their suppliers and customer which in turn could increase our potential sales opportunities.
For the years ended December 31, 2022 and 2021, we incurred product development costs associated with our next generation TMaaS platform application, Secure Identity Management Solutions, Unified Communications Analytics (UCAS) solution, and data center of approximately $3.2 million and $2.6 million, respectively, which were capitalized.
For the years ended December 31, 2023 and 2022, we incurred product development costs associated with our next generation TMaaS platform application, Secure Identity Management Solutions, Unified Communications Analytics (UCAS) solution, and data center of approximately $0.9 million and $3.2 million, respectively, which were capitalized.
We do not use this sales approach very often due to the high cost of commissions charged by these channel partners as their commission terms often span the entire life of the customer relationship which may not be financially viable to the customer or us.
We do not use this sales approach very often due to the high cost of commissions charged by these channel partners as their commission terms often span the entire life of the customer relationship which may not be financially viable to the customer or us. We do not anticipate using this sales approach extensively to drive sales opportunities.
If a government audit uncovers improper or illegal activities, we may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines, and suspension or debarment from doing business with U.S. government agencies. 11 Human Capital As of December 31, 2022, WidePoint employed 215 full time employees (183 in United States and 32 in Europe), 5 consultants, 3 part-time staff, and 15 subcontractors.
If a government audit uncovers improper or illegal activities, we may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines, and suspension or debarment from doing business with U.S. government agencies. 10 Human Capital As of December 31, 2023, we employed 206 full time employees (176 in United States and 30 in Europe), 10 consultants, 10 part-time staff, and 8 subcontractors.
It also regulates the transfer of personal data outside the EU and EEA areas The federal government audits and reviews our performance on contracts, pricing practices, cost structure, and compliance with applicable laws, regulations, and standards.
It also regulates the transfer of personal data outside the EU and EEA areas The federal government has audit rights and may review matters such as our performance on contracts, pricing practices, cost structure, and compliance with applicable laws, regulations, and standards.
Our principal executive offices are located at 11250 Waples Mill Rd., South Tower, Suite 210, Fairfax, Virginia 22030. Our internet address is www.widepoint.com. Information on our website is not incorporated into this Form 10-K.
Corporate Information We were incorporated on May 30, 1997 under the laws of the State of Delaware. Our principal executive offices are located at 11250 Waples Mill Rd., South Tower, Suite 210, Fairfax, Virginia 22030. Our internet address is www.widepoint.com. Information on our website is not incorporated into this Form 10-K.
We do not anticipate using this sales approach extensively to drive sales opportunities. 6 Our sales team has a wide variety of skills and expertise to cultivate qualified leads and guide our prospective customers towards finding a solution that meets their organization’s goals and objectives.
Our sales team has a wide variety of skills and expertise to cultivate qualified leads and guide our prospective customers towards finding a solution that meets their organization’s goals and objectives.
Our solutions are delivered in a hosted and secure environment and provide our CSPs with full visibility into their revenue model which drives a stronger customer experience and reduces their operating costs and improves profitability. IT as a Service We provide comprehensive information technology (IT) as a service offerings (ITaaS), including cybersecurity, cloud services, network operations, and professional services.
Our customized solutions give their end customers the ability to view and analyze their bills online via our advanced self-serve user portal 24/7.Our solutions are delivered in a hosted and secure environment and provide our CSPs with full visibility into their revenue model which drives a stronger customer experience and reduces their operating costs and improves profitability. 4 IT as a Service We provide comprehensive information technology (IT) as a service offerings (ITaaS), including cybersecurity, cloud services, network operations, and professional services.
Many of these variables are outside our control and we attempt to manage the financial impact on us by building a large pipeline with opportunities that have overlapping sales cycles. 5 It could take more than 12 months to enter into a contract with a customer from the time we first actively engage a prospective customer and then a full implementation could range from mere weeks to several months depending on the complexity of the customers statement of work and level of engagement by us and the customer to get the deployment completed.
It could take more than 12 months to enter into a contract with a customer from the time we first actively engage a prospective customer and then a full implementation could range from mere weeks to several months depending on the complexity of the customers statement of work and level of engagement by us and the customer to get the deployment completed.
We expect all of our customers to be motivated to meet their organizational needs for mobile management, IT management, and security objectives in this challenging environment. As a result of delivering our TMaaS service solution we can often save our customers a significant portion of their total spend on mobility and security management which translates into real cash savings.
As a result of delivering our TMaaS service solution we can often save our customers a significant portion of their total spend on mobility and security management which translates into real cash savings.
Accordingly, negative changes in federal government fiscal or spending policies (including continuing budget resolutions and government shutdowns) that impact the spending budgets of our key government customers, including Department of Homeland Security, will directly affect our financial performance.
Accordingly, negative changes in federal government fiscal or spending policies (including continuing budget resolutions and government shutdowns) that impact the spending budgets of our key government customers, including Department of Homeland Security, will directly affect our financial performance. 6 We expect all of our customers to be motivated to meet their organizational needs for mobile management, IT management, and security objectives in this challenging environment.
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. 4 Our Solutions Our TMaaS framework combines the strengths of our core capabilities into a single secure comprehensive enterprise-wide solution set that offers our customer’s the ability to securely enable and manage their mobile IT and telecommunication assets as described below: Telecom Lifecycle Management We offer comprehensive telecom lifecycle management solutions to enterprises both in the public and the private sectors.
Our Solutions Our TMaaS framework combines the strengths of our core capabilities into a single secure comprehensive enterprise-wide solution set that offers our customer’s the ability to securely enable and manage their mobile IT and telecommunication assets as described below: Telecom Lifecycle Management We offer comprehensive telecom lifecycle management solutions to enterprises both in the public and the private sectors.
Our government customer base is located predominantly in the Mid-Atlantic region of the U.S. while our commercial customer base is located throughout the continental U.S., Canada, Europe and the Middle East. Historically, we have derived, and may continue to derive in the future, a significant percentage of our total revenues from federal government contracts in the United States.
Historically, we have derived, and may continue to derive in the future, a significant percentage of our total revenues from federal government contracts in the United States.
Due to our significant federal government contract concentrations, we also experience competition from a variety of both large and small companies, including divisions of large federal government integrators such as Lockheed Martin Corporation, Northrop Grumman Corporation, and other large and mid-sized federal contractors, as well as a limited number of small to mid-sized subject matter expert organizations offering specialized capabilities within the identity management space. 10 If we are unable to keep pace with the intense competition in our marketplace, deliver cost-effective and relevant solutions to our target market, our business, financial condition and results of operations will suffer.
Due to our significant federal government contract concentrations, we also experience competition from a variety of both large and small companies, including divisions of large federal government integrators such as Leidos, Peraton, SAIC, Booz Allen Hamilton, CACI International, and other large and mid-sized federal contractors, as well as a limited number of small to mid-sized subject matter expert organizations offering specialized capabilities within the identity management space.
We believe we have an attractive set of solutions and we also believe that government spending for mobility management and for cybersecurity services and solutions will increase for the foreseeable future.
We have an attractive set of solutions and we believe that government spending for mobility management and for cybersecurity services and solutions will increase for the foreseeable future. Our government customer base is located predominantly in the Mid-Atlantic region of the U.S. while our commercial customer base is located throughout the continental U.S., Canada, Europe and the Middle East.
Contracting We prefer to serve as the prime contractor when we win contract awards; however, we will often serve as a subcontractor and partner with a large systems integrator to win a larger market opportunity. We also may enter into strategic teaming agreements with another competitor or a vertical supplier to capture a market opportunity.
We also may enter into strategic teaming agreements with another competitor or a vertical supplier to capture a market opportunity.
Digital Billing and Unified Communications Analytics Solutions We offer innovative and interactive billing communications and analytics solutions to large communications service providers (CSPs). Our customized solutions give their end customers the ability to view and analyze their bills online via our advanced self-serve user portal 24/7.
Digital Billing and Unified Communications Analytics Solutions We offer innovative and interactive billing communications and analytics solutions to large communications service providers (CSPs).
As of December 31, 2022, the average tenure of our employees was approximately seven (7) years and more than one fourth of our employees have been employed by us for more than ten (10) years. 12 Corporate Information We were incorporated on May 30, 1997 under the laws of the State of Delaware.
We believe the combination of competitive compensation package and career growth and development opportunities have helped increase employee tenure and reduce voluntary turnover. As of December 31, 2023, the average tenure of our employees was approximately eight (8) years and more than one fourth of our employees have been employed by us for more than ten (10) years.
In 2023, we will continue to work with our strategic partners to continue and focus our product development efforts as well as with customer integrations. Security Certification and Accreditation Our TMaaS solution framework has received multiple security certifications and accreditations from the federal government.
At December 31, 2023, we believe we have substantially completed our capital investments related to our delivery platforms for the foreseeable future; however, future updates and enhancements will be likely to address the changes in technology. Security Certification and Accreditation Our TMaaS solution framework has received multiple security certifications and accreditations from the federal government.
Removed
We recognize the benefits of building a corporate culture that promotes diversity, equity and inclusion (“DEI”) and build teams that focus on: · cultivating an environment that encourages collaboration, flexibility and fairness to enable all employees to contribute to their full potential; · promoting diversity in our talent management and succession planning processes and employee development programs; and · ensuring leadership commitment in facilitating the Company’s DEI efforts We believe the combination of competitive compensation package and career growth and development opportunities have helped increase employee tenure and reduce voluntary turnover.
Added
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.
Added
Many of these variables are outside our control and we attempt to manage the financial impact on us by building a large pipeline with opportunities that have overlapping sales cycles.
Added
If we are unable to keep pace with the intense competition in our marketplace, deliver cost-effective and relevant solutions to our target market, our business, financial condition and results of operations will suffer. 9 Contracting We prefer to serve as the prime contractor when we win contract awards; however, we will often serve as a subcontractor and partner with a large systems integrator to win a larger market opportunity.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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These risks include: · geographic localization of our software products, including translation into foreign languages and adaptation for local practices and regulatory requirements; · lack of familiarity with and unexpected changes in foreign regulatory requirements; · longer accounts receivable payment cycles and difficulties in collecting accounts receivable; · difficulties in managing, staffing and overseeing international implementations and operations, including increased reliance on foreign subcontractors; · challenges in integrating our software with multiple country-specific billing or communications support systems for international customers; · challenges in providing procurement, help desk and fulfillment capabilities for our international customers; · fluctuations in currency exchange rates; · potentially adverse tax consequences, including the complexities of foreign value added or other tax systems and restrictions on the repatriation of earnings; 18 · the burdens of complying with a wide variety of foreign laws and legal standards; · increased financial accounting and reporting burdens and complexities; · potentially slower adoption rates of communications management solutions services internationally; · political, social and economic instability abroad, terrorist attacks and security concerns in general; and · reduced or varied protection for intellectual property rights in some countries.
These risks include: · geographic localization of our software products, including translation into foreign languages and adaptation for local practices and regulatory requirements; · lack of familiarity with and unexpected changes in foreign regulatory requirements; · longer accounts receivable payment cycles and difficulties in collecting accounts receivable; · difficulties in managing, staffing and overseeing international implementations and operations, including increased reliance on foreign subcontractors; · challenges in integrating our software with multiple country-specific billing or communications support systems for international customers; · challenges in providing procurement, help desk and fulfillment capabilities for our international customers; · fluctuations in currency exchange rates; · potentially adverse tax consequences, including the complexities of foreign value added or other tax systems and restrictions on the repatriation of earnings; · the burdens of complying with a wide variety of foreign laws and legal standards; · increased financial accounting and reporting burdens and complexities; · potentially slower adoption rates of communications management solutions services internationally; · political, social and economic instability abroad, terrorist attacks and security concerns in general; and · reduced or varied protection for intellectual property rights in some countries.
Subject to certain exceptions, an “interested stockholder” is (i) a person who, together with affiliates and associates, owns 15% or more of our voting stock or (ii) an affiliate or associate of ours who was the owner, together with affiliates and associates, of 15% or more of our outstanding voting stock at any time within the 3-year period prior to the date for determining whether such person is “interested.” Our certificate of incorporation also provides that any action required or permitted to be taken by our stockholders at an annual meeting or special meeting of stockholders may be taken without such meeting only by the unanimous consent of all stockholders entitled to vote on the particular action.
Subject to certain exceptions, an “interested stockholder” is (i) a person who, together with affiliates and associates, owns 15% or more of our voting stock or (ii) an affiliate or associate of ours who was the owner, together with affiliates and associates, of 15% or more of our outstanding voting stock at any time within the 3-year period prior to the date for determining whether such person is “interested.” 25 Our certificate of incorporation also provides that any action required or permitted to be taken by our stockholders at an annual meeting or special meeting of stockholders may be taken without such meeting only by the unanimous consent of all stockholders entitled to vote on the particular action.
These claims, whether or not successful, could: · divert management’s attention; · result in costly and time-consuming litigation; 24 · require us to enter into royalty or licensing agreements, which may not be available on acceptable terms, or at all; or · require us to redesign our software products to avoid infringement.
These claims, whether or not successful, could: · divert management’s attention; · result in costly and time-consuming litigation; · require us to enter into royalty or licensing agreements, which may not be available on acceptable terms, or at all; or · require us to redesign our software products to avoid infringement.
In addition, we could suffer serious harm to our reputation if allegations of impropriety were made against us, whether true or not true. RISKS RELATED TO OUR SECURITIES AND CAPITAL STRUCTURE Our common stock price has been volatile and is likely to be volatile in the future.
In addition, we could suffer serious harm to our reputation if allegations of impropriety were made against us, whether true or not true. 24 RISKS RELATED TO OUR SECURITIES AND CAPITAL STRUCTURE Our common stock price has been volatile and is likely to be volatile in the future.
Any delay in completing, or failure to complete, sales in a particular quarter or year could harm our business and could cause our operating results to vary significantly. Our financial resources are limited and the failure of one or more new product or service offerings could materially harm our financial results.
Any delay in completing, or failure to complete, sales in a particular quarter or year could harm our business and could cause our operating results to vary significantly. 13 Our financial resources are limited and the failure of one or more new product or service offerings could materially harm our financial results.
The market price of our common stock has experienced, and may continue to be subject to volatility due to a variety of factors, including: · public announcements concerning us, our competitors or our industry; · externally published articles and analyses about us by retail investors and non-analysts; · changes in analysts’ earnings estimates; · information in third party chat rooms, third party publications and social media outlets; · the failure to meet the expectations of analysts; · fluctuations in operating results; · additional financings or capital raises; 26 · introductions of new products or services by us or our competitors; · announcements of technological innovations; · additional sales of our common stock or other securities; · trading by individual investors that causes our stock prices to straddle at a low price for prolonged periods of time; · our inability to gain market acceptance of our products and services; · general economic conditions and events, including adverse changes in the financial markets, terrorist attacks, health pandemics such as COVID-19, government shutdowns, war, adverse weather events and other disasters; and · Impairment of goodwill resulting from the fair value of our single reporting unit below its carrying value.
The market price of our common stock has experienced, and may continue to be subject to volatility due to a variety of factors, including: · public announcements concerning us, our competitors or our industry; · externally published articles and analyses about us by retail investors and non-analysts; · changes in analysts’ earnings estimates; · information in third party chat rooms, third party publications and social media outlets; · the failure to meet the expectations of analysts; · fluctuations in operating results; · additional financings or capital raises; · introductions of new products or services by us or our competitors; · announcements of technological innovations; · additional sales of our common stock or other securities; · trading by individual investors that causes our stock prices to straddle at a low price for prolonged periods of time; · our inability to gain market acceptance of our products and services; · general economic conditions and events, including adverse changes in the financial markets, terrorist attacks, health pandemics, government shutdowns, war, adverse weather events and other disasters; and · Impairment of goodwill resulting from the fair value of our single reporting unit below its carrying value.
However, the COVID-19 pandemic or another pandemic could lead to an extended disruption of economic activity and high unemployment levels, and disruption of the global supply chain, and as such, cause a material negative impact on our consolidated results of operations, financial position and cash flows.
The COVID-19 pandemic or another future pandemic or epidemic could lead to an extended disruption of economic activity and high unemployment levels, and disruption of the global supply chain, and as such, cause a material negative impact on our consolidated results of operations, financial position and cash flows.
These rights and remedies allow government customers, among other things, to: · terminate existing contracts, with short notice, for convenience, as well as for default; · reduce orders under or otherwise modify contracts; · for larger contracts subject to the Truth in Negotiations Act, reduce the contract price or cost where it was increased because a contractor or subcontractor during negotiations furnished cost or pricing data that was not complete, accurate, and current; · for GSA multiple award schedule contracts, government-wide acquisition agreements, and blanket purchase agreements, demand a refund, make a forward price adjustment, or terminate a contract for default if a contractor provided inaccurate or incomplete data during the contract negotiation process, or reduce the contract price under certain triggering circumstances, including the revision of pricelists or other documents · upon which the contract award was predicated, the granting of more favorable discounts or terms and conditions than those contained in such documents, and the granting of certain special discounts to certain customers; · terminate our facility security clearances and thereby prevent us from receiving classified contracts; · cancel multi-year contracts and related orders if funds for contract performance for any subsequent year become unavailable; · decline to exercise an option to renew a multi-year contract or issue task orders in connection with indefinite delivery/indefinite quantity contracts; · claim rights in solutions, systems, and technology produced by us; · prohibit future procurement awards with a particular agency due to a finding of organizational conflict of interest based upon prior related work performed for the agency that would give a contractor an unfair advantage over competing contractors or the existence of conflicting roles that might bias a contractor’s judgment; · subject the award of contracts to protest by competitors, which may require the contracting federal agency or department to suspend our performance pending the outcome of the protest and may also result in a requirement to resubmit offers for the contract or in the termination, reduction, or modification of the awarded contract; and · suspend or debar us from doing business with the federal government. 22 If a federal government customer terminates one of our contracts for convenience, we may recover only our incurred or committed costs, settlement expenses, and profit on work completed prior to the termination.
These rights and remedies allow government customers, among other things, to: · terminate existing contracts, with short notice, for convenience, as well as for default; · reduce orders under or otherwise modify contracts; · for larger contracts subject to the Truth in Negotiations Act, reduce the contract price or cost where it was increased because a contractor or subcontractor during negotiations furnished cost or pricing data that was not complete, accurate, and current; · for GSA multiple award schedule contracts, government-wide acquisition agreements, and blanket purchase agreements, demand a refund, make a forward price adjustment, or terminate a contract for default if a contractor provided inaccurate or incomplete data during the contract negotiation process, or reduce the contract price under certain triggering circumstances, including the revision of pricelists or other documents · upon which the contract award was predicated, the granting of more favorable discounts or terms and conditions than those contained in such documents, and the granting of certain special discounts to certain customers; · terminate our facility security clearances and thereby prevent us from receiving classified contracts; · cancel multi-year contracts and related orders if funds for contract performance for any subsequent year become unavailable; 20 · decline to exercise an option to renew a multi-year contract or issue task orders in connection with indefinite delivery/indefinite quantity contracts; · claim rights in solutions, systems, and technology produced by us; · prohibit future procurement awards with a particular agency due to a finding of organizational conflict of interest based upon prior related work performed for the agency that would give a contractor an unfair advantage over competing contractors or the existence of conflicting roles that might bias a contractor’s judgment; · subject the award of contracts to protest by competitors, which may require the contracting federal agency or department to suspend our performance pending the outcome of the protest and may also result in a requirement to resubmit offers for the contract or in the termination, reduction, or modification of the awarded contract; and · suspend or debar us from doing business with the federal government.
We have significant fixed operating costs, which may be difficult to adjust in response to unanticipated fluctuations in revenues . A high percentage of our operating expenses, particularly personnel, rent and communications costs, are fixed in advance of any particular quarter.
We have significant fixed operating costs, which may be difficult to adjust in response to unanticipated fluctuations in revenues . A high percentage of our operating cash outlays, particularly personnel, rent and communications costs, are fixed in advance of any particular quarter.
Many states have enacted laws requiring companies to notify consumers of data security breaches involving their personal data. These mandatory disclosures regarding a security breach often lead to widespread negative publicity, which may cause our customers to lose confidence in the effectiveness of our data security measures.
The US Federal Government and many states have enacted laws requiring companies to notify consumers of data security breaches involving their personal data. These mandatory disclosures regarding a security breach often lead to widespread negative publicity, which may cause our customers to lose confidence in the effectiveness of our data security measures.
If we are unable to meet future covenants, our lender could take adverse actions that might include raising our variable interest rate, accelerating in part or in full payment of all unpaid principal and interest, reducing the amount of our credit facility, or offering renewal terms that are unfavorable, all of which could have a material adverse impact on our ability to meet periodic short term operational cash flow requirements and manage through prolonged government shutdowns.
If we are unable to meet future covenants, our lender could take adverse actions that might include accelerating in part or in full payment of all unpaid principal and interest, reducing the amount of our credit facility, or offering renewal terms that are unfavorable, or refusing to renew our credit agreement, all of which could have a material adverse impact on our ability to meet periodic short term operational cash flow requirements and manage through prolonged government shutdowns.
Our long-term success in our industry depends, in part, on our ability to expand the sales of our solutions to customers located outside of the United States, and thus our business is susceptible to risks associated with international sales and operations. We are currently seeking to expand the international sales and operations of our portfolio of solutions.
Our long-term success in our industry depends, in part, on our ability to expand the sales of our solutions to customers located outside of the United States, and thus our business is susceptible to risks associated with international sales and operations. We may to expand the international sales and operations of our portfolio of solutions.
Risks from acquisitions include integration challenges, a failure to achieve objectives, and the assumption of liabilities. Acquisitions, such as our acquisition of ITA Authorities, often present significant challenges and risks.
Risks from acquisitions include integration challenges, a failure to achieve objectives, and the assumption of liabilities. Acquisitions, such as our acquisition of IT Authorities, Inc., often present significant challenges and risks.
In 2021 and throughout 2022, the costs of these inputs and the costs of labor necessary to develop and maintain our networks and our products and services have rapidly increased.
In 2021 and throughout 2023, the costs of these inputs and the costs of labor necessary to develop and maintain our networks and our products and services rapidly increased.
We estimate that the loss of any large contract with annual managed service revenues of more than $1 million, without any offsetting aggregate contract wins, could have a significant adverse impact on our operating cash flow and financial results; and we would likely be faced with a decision to initiate cost reduction actions that would largely include reductions in force for personnel and assets affected by the contract loss.
We estimate that the loss of any large contract, without any offsetting aggregate contract wins, could have a significant adverse impact on our operating cash flow and financial results; and we would likely be faced with a decision to initiate cost reduction actions that would largely include reductions in force for personnel and assets affected by the contract loss.
There is no guarantee that we will be able to sustain our recent improvements in financial performance and meet our financial goals of growing top line revenue and positive net income without closing significant new business and incremental contract expansions.
There is no guarantee that we will be able to leverage our recent improvements in financial performance and meet our financial goals of growing top line revenue and positive net income without closing significant new business and incremental contract expansions and maintain control over operating costs.
Competitive procurements impose substantial upfront costs and present a number of risks, including: · the substantial cost and managerial time and effort that we spend to prepare bids and proposals for contracts that may not be awarded to us; · requirements to register to conduct business in another state or country could increase our compliance costs; · requirements to post a bid guarantee or similar performance guarantee as part of a bid submission; and · the expense and delay that we may face if our competitors protest or challenge contract awards made to us pursuant to competitive procedures, and the risk that any such protest or challenge could result in the resubmission of offers, or in termination, reduction, or modification of the awarded contract.
Competitive procurements impose substantial upfront costs and present a number of risks, including: · the substantial cost and managerial time and effort that we spend to prepare bids and proposals for contracts that may not be awarded to us; · requirements to register to conduct business in another state or country could increase our compliance costs; · requirements to post a bid guarantee or similar performance guarantee as part of a bid submission; and · the expense and delay that we may face if our competitors protest or challenge contract awards made to us pursuant to competitive procedures, and the risk that any such protest or challenge could result in the resubmission of offers, or in termination, reduction, or modification of the awarded contract. 19 The costs we incur in the competitive procurement process may be substantial and, to the extent we participate in competitive procurements and are unable to win particular contracts, these costs could negatively affect our operating results.
We currently derive a majority of our annual revenues from contracts funded by federal government agencies. We believe that contracts with federal government agencies will continue to be a significant source of our revenues for the foreseeable future. Accordingly, changes in federal government fiscal or spending policies or the U.S. federal budget could directly affect our financial performance.
We believe that contracts with federal government agencies will continue to be a significant source of our revenues for the foreseeable future. Accordingly, shutdowns or changes in federal government fiscal or spending policies or the U.S. federal budget could directly affect our financial performance.
In addition, many of these inputs are subject to price fluctuations and supply issues from a number of factors, including, but not limited to, market conditions, demand for raw materials used in the production of these devices and network components, weather, climate change, energy costs, currency fluctuations, supplier capacities, governmental actions, war (including the conflict between Ukraine and Russia), import and export requirements (including tariffs), and other factors beyond our control.
In addition, many of these inputs are subject to price fluctuations and supply issues from a number of factors, including, but not limited to, market conditions, demand for raw materials used in the production of these devices and network components, weather, climate change, energy costs, currency fluctuations, supplier capacities, governmental actions, wars or other low-intensity conflicts, acts of terror, import and export requirements (including tariffs), and other factors beyond our control.
We may be unable to successfully acquire complementary businesses, services or technologies to support our growth strategy . We have in the past and may in the future acquire or invest in complementary and supplementary businesses, services or technologies, such as our acquisition in October 2021 of substantially all of the assets of IT Authorities, Inc.
We have in the past and may in the future acquire or invest in complementary and supplementary businesses, services or technologies, such as our acquisition in October 2021 of substantially all of the assets of IT Authorities, Inc.
Higher product prices may result in reductions in sales volume. Consumers may be less willing to pay a price differential for our products and may increasingly purchase lower-priced offerings, or may forego some purchases altogether, during an economic downturn.
Consumers may be less willing to pay a price differential for our products and may increasingly purchase lower-priced offerings, or may forego some purchases altogether, during an economic downturn.
This in turn could limit our ability to compete with the internally developed communications management solutions of those enterprises, require us to incur additional expenses to license access to that billing and usage data from the communications carrier, if such a license is made available to us at all, or put us at a competitive disadvantage against any third-party communications management solutions service provider that licenses access to that data. 20 RISKS RELATED TO BUSINESS WITH GOVERNMENT AGENCIES Changes in the spending policies or budget priorities of the federal government could cause us to lose revenues .
This in turn could limit our ability to compete with the internally developed communications management solutions of those enterprises, require us to incur additional expenses to license access to that billing and usage data from the communications carrier, if such a license is made available to us at all, or put us at a competitive disadvantage against any third-party communications management solutions service provider that licenses access to that data.
In addition, any future acquisition may require us to: · issue additional equity securities that would dilute our stockholders; · use cash that we may need in the future to operate our business; · incur debt on terms unfavorable to us or that we are unable to repay; · incur large charges or substantial liabilities; or · become subject to adverse tax consequences, substantial depreciation or deferred compensation charges. 19 If any of these risks materializes, our business and operating results would be harmed.
In addition, any future acquisition may require us to: · issue additional equity securities that would dilute our stockholders; 17 · use cash that we may need in the future to operate our business; · incur debt on terms unfavorable to us or that we are unable to repay; · incur large charges or substantial liabilities; or · become subject to adverse tax consequences, substantial depreciation or compensation charges.
If customers believe that we may be subject to requirements to disclose sensitive customer information to governmental authorities, or that our systems and software products do not provide adequate security for the storage of confidential information or its transmission over the Internet or corporate extranets, or are otherwise inadequate for Internet or extranet use, our business will be harmed.
In addition, if we are required to disclose any of this sensitive customer information to governmental authorities, that disclosure could expose us to a risk of losing customers or could otherwise harm our business. 21 If customers believe that we may be subject to requirements to disclose sensitive customer information to governmental authorities, or that our systems and software products do not provide adequate security for the storage of confidential information or its transmission over the Internet or corporate extranets, or are otherwise inadequate for Internet or extranet use, our business will be harmed.
If our software products are unavailable for significant periods of time, we may lose a substantial number of our customers as a result of these contractual rights, we may suffer harm to our reputation, and we may be required to provide our customers with significant credits or pay our customers significant contractual penalties, any of which could harm our business, financial condition, results of operations.
If our software products are unavailable for significant periods of time, we may lose a substantial number of our customers as a result of these contractual rights, we may suffer harm to our reputation, and we may be required to provide our customers with significant credits or pay our customers significant contractual penalties, any of which could harm our business, financial condition, results of operations. 16 A global pandemic similar to the COVID 19 pandemic, or an epidemic impacting our could have a material adverse impact on our business and operations..
Customers’ concerns about security could deter them from using the Internet to conduct transactions that involve confidential information, including transactions of the types included in our solution, so our failure to prevent security breaches, or the occurrence of well-publicized security breaches affecting the Internet in general, could significantly harm our business and financial results. 23 We may be liable to our customers for damages caused by our services or by our failure to remedy system failures.
Customers’ concerns about security could deter them from using the Internet to conduct transactions that involve confidential information, including transactions of the types included in our solution, so our failure to prevent security breaches, or the occurrence of well-publicized security breaches affecting the Internet in general, could significantly harm our business and financial results.
Many of our projects involve technology applications or systems that are critical to the operations of our customers’ businesses. If we fail to perform our services correctly, we may be unable to deliver applications or systems to our customers with the promised functionality or within the promised time frame, or to satisfy the required service levels for support and maintenance.
If we fail to perform our services correctly, we may be unable to deliver applications or systems to our customers with the promised functionality or within the promised time frame, or to satisfy the required service levels for support and maintenance.
Operating in international markets also requires significant management attention and financial resources. The investment and additional resources required to establish operations and manage growth in other countries may not produce desired levels of revenue or profitability.
Operating in international markets also requires significant management attention and financial resources. The investment and additional resources required to establish operations and manage growth in other countries may not produce desired levels of revenue or profitability. We may be unable to successfully acquire complementary businesses, services or technologies to support our growth strategy .
The pandemic has in the past and continues to adversely affect certain elements of our business and our operations due to quarantines, government orders and guidance, facility closures, illness, travel restrictions, implementation of precautionary measures and other restrictions.
Pandemics have in the past adversely affected certain elements of our business and our operations due to quarantines, government orders and guidance, facility closures, illness, travel restrictions, implementation of precautionary measures and other restrictions applicable to us and our business partners.
Other factors that may negatively affect our earnings from quarter to quarter include changes in: · the contractual terms and timing of completion of projects, including achievement of certain business results; · acceptance of our products to commercial or government customers; · budgets for government customers; · the implementation of new projects; · the adequacy of provisions for losses and bad debts; · the accuracy of our estimates of resources required to complete ongoing projects; · personnel, including the loss of key highly skilled personnel necessary to complete projects; · labor shortages; · supply chain issues; · inflationary pressures; · natural disasters, cyberattacks, war and/or terrorist attacks; · global pandemics, such as the coronavirus (COVID 19); and · general economic conditions and international hostilities including war, such as the current conflict between Russia and Ukraine. 15 These factors could adversely affect customer demand, the Company’s operations, and its ability to source and deliver services to its customers, which could have a material adverse effect on the Company’s financial results.
Other factors that may negatively affect our earnings from quarter to quarter include changes in: · the contractual terms and timing of completion of projects, including achievement of certain business results; · acceptance of our products to commercial or government customers; · budgets for government customers; · the implementation of new projects; · the adequacy of provisions for losses and bad debts; · the accuracy of our estimates of resources required to complete ongoing projects; · personnel, including the loss of key highly skilled personnel necessary to complete projects; · labor shortages; · supply chain issues; · inflationary pressures; · natural disasters, cyberattacks, war and/or terrorist attacks; · global pandemics,; and · general economic conditions and international hostilities including war.
Continued proliferation of communications products and services could significantly increase our research and development costs and increase the lag time between the initial release of new technologies and products and our ability to provide support for them in our software products, which would limit the potential market of customers that we have the ability to serve and the financial feasibility of our TMaaS offering.
Continued proliferation of communications products and services could significantly increase our research and development costs and increase the lag time between the initial release of new technologies and products and our ability to provide support for them in our software products, which would limit the potential market of customers that we have the ability to serve and the financial feasibility of our TMaaS offering. 18 If a communications carrier prohibits customer disclosure of communications billing and usage data to us, the value of our solution to customers of that carrier would be impaired, which may limit our ability to compete for their business.
Although we require certain of our employees to sign agreements prohibiting them from joining a competitor, forming a competing company or soliciting our customers or employees for certain periods of time, we cannot be certain that these agreements will be effective in preventing our key employees from engaging in these actions or that courts or other adjudicative entities will substantially enforce these agreements. 17 We provide minimum service-level commitments to many of our customers, and our inability to meet those commitments could result in significant loss of customers, harm to our reputation and costs to us.
Although we require certain of our employees to sign agreements prohibiting them from joining a competitor, forming a competing company or soliciting our customers or employees for certain periods of time, we cannot be certain that these agreements will be effective in preventing our key employees from engaging in these actions or that courts or other adjudicative entities will substantially enforce these agreements.
Among the most significant laws and regulations are: · the Federal Acquisition Regulation, and agency regulations analogous or supplemental to the Federal Acquisition Regulation, which comprehensively regulate the formation, administration, and performance of government contracts; · the Truth in Negotiations Act, which requires certification and disclosure of all cost or pricing data in connection with some contract negotiations; · the Cost Accounting Standards, which impose cost accounting requirements that govern our right to reimbursement under some cost-based government contracts; and · laws, regulations, and executive orders restricting the use and dissemination of information classified for national security purposes and the exportation of specified solutions and technical data. 25 If a government review or investigation uncovers improper or illegal activities, we may be subject to civil and criminal penalties and administrative sanctions, including the termination of our contracts, the forfeiture of profits, the suspension of payments owed to us, fines, and our suspension or debarment from doing business with federal government agencies.
Among the most significant laws and regulations are: · the Federal Acquisition Regulation, and agency regulations analogous or supplemental to the Federal Acquisition Regulation, which comprehensively regulate the formation, administration, and performance of government contracts; · the Truth in Negotiations Act, which requires certification and disclosure of all cost or pricing data in connection with some contract negotiations; · the Cost Accounting Standards, which impose cost accounting requirements that govern our right to reimbursement under some cost-based government contracts; and · laws, regulations, and executive orders restricting the use and dissemination of information classified for national security purposes and the exportation of specified solutions and technical data.
Additionally, frequent changes in mobile computing hardware and software technology, and resulting inconsistencies between the billing platforms utilized by major communications carriers and the changing demands of customers regarding the means of delivery of communications management solutions could affect our ability to efficiently deliver our services and harm our profit margins. 13 To achieve and maintain market acceptance for our solution, we must effectively anticipate these changes and offer software products and services that respond to them in a timely manner.
Additionally, frequent changes in mobile computing hardware and software technology, and resulting inconsistencies between the billing platforms utilized by major communications carriers and the changing demands of customers regarding the means of delivery of communications management solutions could affect our ability to efficiently deliver our services and harm our profit margins.
These provisions may also discourage another person or entity from making a tender offer for our common stock, because such person or entity, even if it acquired a majority of our outstanding voting securities, would be able to take action as a stockholder (such as electing new directors or approving a merger) only at a duly called stockholders’ meeting, and not by written consent. 27 The General Corporation Law of Delaware provides generally that the affirmative vote of a majority of the shares entitled to vote on any matter is required to amend a corporation’s certificate of incorporation or bylaws, unless a corporation’s certificate of incorporation or bylaws, as the case may be, requires a greater percentage.
These provisions may also discourage another person or entity from making a tender offer for our common stock, because such person or entity, even if it acquired a majority of our outstanding voting securities, would be able to take action as a stockholder (such as electing new directors or approving a merger) only at a duly called stockholders’ meeting, and not by written consent.
There can be no assurance that any acquisition we complete achieves the results and/or synergies that we expected. 14 Our sales cycles can be long, unpredictable and require considerable time and expense, which may cause our operating results to fluctuate.
Finally, the assumption of liabilities related to litigation or other legal proceedings involving the acquired business may present a significant risk. There can be no assurance that any acquisition we complete achieves the results and/or synergies that we expected. Our sales cycles can be long, unpredictable and require considerable time and expense, which may cause our operating results to fluctuate.
We have access to a credit facility, which consists of a variable line of credit primarily to meet short-term working capital requirements and to partially fund acquisition growth. Our credit facility agreement requires us to maintain certain financial covenants on a quarterly and annual basis.
We have access to a new credit facility, which consists of a variable line of credit primarily to meet short-term working capital requirements. Our credit facility agreement requires us to maintain certain financial covenants measured annually commencing on December 31, 2024.
These issuances would dilute our stockholders percentage ownership interest, which would have the effect of reducing our stockholders’ influence on matters on which our stockholders vote, and might dilute the book value of our common stock.
Such stock issuances may be made at a price that reflects a discount from the then-current trading price of our common stock. These issuances would dilute our stockholders percentage ownership interest, which would have the effect of reducing our stockholders’ influence on matters on which our stockholders vote, and might dilute the book value of our common stock.
If we fail to develop software products and services that satisfy customer preferences in a timely and cost-effective manner, our ability to renew our agreements with existing customers and our ability to create or increase demand for our solution will be harmed.
If we fail to develop software products and services that satisfy customer preferences in a timely and cost-effective manner, our ability to renew our agreements with existing customers and our ability to create or increase demand for our solution will be harmed. 12 The loss of significant customer contracts, including our IDIQ with the Department of Homeland Security, could also have an adverse impact on our financial results.
Most of our contracts with customers have terms of three (3) to five (5) years, with optional additional renewal periods. Our government contracts generally consist of a base period award with 4 option periods depending on the needs of the agency issuing the contract award.
Our government contracts generally consist of a base period award with 4 option periods depending on the needs of the agency issuing the contract award. Our commercial contracts have contractual terms of 3 or more years with automatic annual renewals in most cases.
We may not be able to respond to rapid technological changes with new software products and services, which could harm our sales and profitability . Our portfolio of products, services, and solutions could become obsolete due to rapid technological changes and frequent new product and service introductions by our competitors in the mobile world.
Our portfolio of products, services, and solutions could become obsolete due to rapid technological changes such as the advancement and application of artificial intelligence and frequent new product and service introductions by our competitors in the mobile world.
RISKS RELATED TO REGULATION Our failure to comply with complex procurement laws and regulations could cause us to lose business and subject us to a variety of penalties.
If we are unable to protect our proprietary software and methodology, the value of our business may decrease, and we may face increased competition. 23 RISKS RELATED TO REGULATION Our failure to comply with complex procurement laws and regulations could cause us to lose business and subject us to a variety of penalties.
Whether or not we are responsible for our software’s failure or defect, we could be required to spend significant time and money in litigation, arbitration or other dispute resolution, and potentially pay significant settlements or damages.
Whether or not we are responsible for our software’s failure or defect, we could be required to spend significant time and money in litigation, arbitration or other dispute resolution, and potentially pay significant settlements or damages. 22 Assertions by a third party that our software products or technology infringes its intellectual property, whether or not correct, could subject us to costly and time-consuming litigation or expensive licenses.
There is frequent litigation in the communications and technology industries based on allegations of infringement or other violations of intellectual property rights. As we face increasing competition, the possibility of intellectual property rights claims against us may increase.
Although we believe that our services and products do not infringe on the intellectual property rights of others, infringement claims may be asserted against us in the future. There is frequent litigation in the communications and technology industries based on allegations of infringement or other violations of intellectual property rights.
This competitive process may result in increased competition and pricing pressure, requiring that we make sustained post-award efforts to realize revenues under the relevant contract. 21 Our failure to obtain and maintain security certifications and necessary security clearances may limit our ability to perform classified work directly for government customers as a prime contractor or subcontractor, which could cause us to lose business.
Our failure to obtain and maintain security certifications and necessary security clearances may limit our ability to perform classified work directly for government customers as a prime contractor or subcontractor, which could cause us to lose business.
Additionally, our failure to complete our contractual performance obligations in a manner consistent with the contract could adversely affect our overall profitability and could have a material adverse effect on our business, financial condition and results of operations.
Additionally, our failure to complete our contractual performance obligations in a manner consistent with the contract could adversely affect our overall profitability and could have a material adverse effect on our business, financial condition and results of operations. 15 If we fail to effectively manage and develop our strategic relationships with key systems integrators, or if those third parties choose not to market and sell our TMaaS offering, our operating results would suffer.
Our commercial contracts have contractual terms of 3 or more years with automatic annual renewals in most cases. Most of our contracts are offered at firm fixed price per performance obligation such as price per unit managed.
Most of our contracts are offered at firm fixed price per performance obligation such as price per unit managed.
Although we are unable to predict the impact on our ability to source materials in the future, we expect these supply and inflationary pressures to continue into 2023. Our attempts to offset these cost pressures, such as through increases in the selling prices of some of our products and services, may not be successful.
Although we are unable to predict the impact on our ability to source materials in the future, we expect these supply and inflationary pressures to continue into 2024.
Similarly, our credit facility expires in June 2023 and if we are unable to renew the credit facility with our current lender or any other lender in the future, our business and operating results will suffer and we may need to obtain additional funding or raise capital, which may not be available on favorable terms or at all.
If we are unable to achieve and maintain our covenants under our credit facility, our business and operating results could suffer and we may need to obtain additional funding or raise capital, which may not be available on favorable terms or at all. We may be unable to sustain profitability . We have a history of operating losses.
Approximately 39% of our managed service revenue in 2022 was generated under our DHS contracts. If DHS CWMS 2.0 IDIQ were terminated, it would have a material adverse impact on our future revenue, profitability and cash flows. Inflationary pressures on costs, such as inputs for devices, labor and distribution costs may impact our financial condition or results of operations.
Approximately 45% of our managed service revenue in 2023 was generated under our DHS contracts. If DHS CWMS 2.0 IDIQ were terminated or we did not re-win the contract upon re-bidding in November 2025, it would have a material adverse impact on our future revenue, profitability and cash flows.
The unexpected cancellation or significant reduction in the scope of any of our large projects could have an immediate material adverse effect on our business, financial condition and results of operations. 16 Our inability to accurately price and sell our product offerings at an acceptable profit margin that customers are willing to pay will have a negative impact on our business that could extend for a number of years.
The unexpected cancellation or significant reduction in the scope of any of our large projects could have an immediate material adverse effect on our business, financial condition and results of operations.
If we fail to effectively manage and develop our strategic relationships with key systems integrators, or if those third parties choose not to market and sell our TMaaS offering, our operating results would suffer. The successful implementation of our strategic goals is dependent in part on strategic relationships with key systems integrators and other strategic partners.
The successful implementation of our strategic goals is dependent in part on strategic relationships with key systems integrators and other strategic partners.
Our policies and procedures stipulate that intellectual property created by employees and its consultants remain our property. If we are unable to protect our proprietary software and methodology, the value of our business may decrease, and we may face increased competition.
Our policies and procedures stipulate that intellectual property created by employees and its consultants remain our property.
We incur significant costs to protect against security breaches and may incur significant additional costs to alleviate problems caused by any breaches. In addition, if we are required to disclose any of this sensitive customer information to governmental authorities, that disclosure could expose us to a risk of losing customers or could otherwise harm our business.
We incur significant costs to protect against security breaches and may incur significant additional costs to alleviate problems caused by any breaches.
We currently have access to a credit facility agreement, which requires us to maintain financial covenants and failure to maintain such covenants could limit our access to debt capital and simultaneously require immediate repayment of borrowings by our lender.
These factors could adversely affect customer demand, the Company’s operations, and its ability to source and deliver services to its customers, which could have a material adverse effect on the Company’s financial results. 14 We currently have access to a credit facility, which provides for short term cashflow needs and requires us to maintain financial covenants and failure to achieve and maintain such covenants could limit our access to debt.
Removed
The loss of significant customer contracts, including our IDIQ with the Department of Homeland Security, could also have an adverse impact on our financial results.
Added
We may not be able to respond to rapid technological changes with new software products and services, which could harm our sales and profitability .
Removed
Finally, the assumption of liabilities related to litigation or other legal proceedings involving the acquired business may present a significant risk.
Added
To achieve and maintain market acceptance for our solution, we must effectively anticipate these changes and offer software products and services that respond to them in a timely manner.
Removed
The Company was not in compliance with its Tangible Net Worth covenant at December 31, 2022; however, the lender provided a waiver of that December 31, 2022 covenant violation.
Added
Inflationary pressures on costs, such as inputs for devices, labor and distribution costs may impact our financial condition or results of operations.
Removed
The Company expects to be out of compliance with its covenants in the period through the June 15, 2023 expiration of the credit facility and is working with the bank to obtain a waiver as necessary, though there is no certainty that such a waiver will be provided.
Added
Our attempts to offset these cost pressures, such as through increases in the selling prices of some of our products and services, may not be successful and in certain events we may be required to honor contractual prices that are no longer profitable to us. Higher product prices may result in reductions in sales volume.
Removed
We may be unable to sustain profitability . Although we achieved profitability during the prior three years, we have a long history of losses prior thereto.
Added
Our inability to accurately price and sell our product offerings at an acceptable profit margin that customers are willing to pay will have a negative impact on our business that could extend for a number of years. Most of our contracts with customers have terms of three (3) to five (5) years, with optional additional renewal periods.
Removed
The COVID-19 pandemic or another pandemic could have a material adverse impact on our business and operations. We continue to monitor the impact of the COVID-19 pandemic and taking steps to mitigate the risks to us posed by its spread, including by working with our customers, employees, suppliers and other stakeholders.
Added
We provide minimum service-level commitments to many of our customers, and our inability to meet those commitments could result in significant loss of customers, harm to our reputation and costs to us.
Removed
Furthermore, the pandemic has impacted and may further impact the broader economies of affected countries, including negatively impacting economic growth, the proper functioning of financial and capital markets, foreign currency exchange rates and interest rates. Our offices remain operational, and we are maintaining social distancing and enhanced cleaning protocols and usage of personal protective equipment, where appropriate.
Added
If any of these risks materializes, our business and operating results would be harmed.
Removed
Expansion into international markets could require us to comply with additional billing, invoicing, communications, data privacy and similar regulations, which could make it costly or difficult to operate in these markets .
Added
RISKS RELATED TO BUSINESS WITH GOVERNMENT AGENCIES A government shutdown or changes in the spending policies or budget priorities of the federal government could cause us to lose revenues . We currently derive a majority of our annual revenues from contracts funded by federal government agencies.
Removed
Many international regulatory agencies have adopted regulations related to where and how communications bills may be sent and how the data on such bills must be handled and protected.
Added
For example, our DHS contract is up for renewal in November 2025 and we may be unable to win such contract or may be required to incur significant concessions in order to renew it.
Removed
For instance, certain countries restrict communications bills from being sent outside of the country, either physically or electronically, while other countries require that certain information be encrypted or redacted before bills may be transmitted electronically. These regulations vary from jurisdiction to jurisdiction and international expansion of our business could subject us to additional similar regulations.
Added
This competitive process may result in increased competition and pricing pressure, requiring that we make sustained post-award efforts to realize revenues under the relevant contract.
Removed
Failure to comply with these regulations could result in significant monetary penalties and compliance with these regulations could require expenditure of significant financial and administrative resources.
Added
If a federal government customer terminates one of our contracts for convenience, we may recover only our incurred or committed costs, settlement expenses, and profit on work completed prior to the termination.
Removed
In addition, personally identifiable information is increasingly subject to legislation and regulations in numerous jurisdictions around the world, the intent of which is to protect the privacy of personal information that is collected, processed and transmitted in or from the governing jurisdiction.
Added
We may be liable to our customers for damages caused by our services or by our failure to remedy system failures. Many of our projects involve technology applications or systems that are critical to the operations of our customers’ businesses.
Removed
Our failure to comply with applicable safe harbor, privacy laws and international security regulations or any security breakdown that results in the unauthorized release of personally identifiable information or other customer data could result in fines or proceedings by governmental agencies or private individuals, which could harm our results of operations.

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Item 2. Properties

Properties — owned and leased real estate

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The following table presents our property locations at December 31, 2022 for our U.S. locations: Base Base Lease Approx. Cost per Annual Physical Street Address City, State Zip Code Expiration Sqft Sqft Cost Description of use 11250 Waples Mill Rd S.
The following table presents our property locations at December 31, 2023 for our U.S. locations: Base Base Lease Approx. Cost per Annual Physical Street Address City, State Zip Code Expiration Sqft Sqft Cost Description of use 11250 Waples Mill Rd S.
Tower, Suite 210 Fairfax, VA 22030 March 2029 11,852 $ 28 $ 328,000 Headquarters, Sales, Operations 8351 N High Street, Suite 200 Columbus, OH 43235 September 2038 18,833 $ 10 $ 189,000 Sales and Operations 2101 Executive Drive, Suite 400 Hampton, VA 23669 December 2024 6,440 $ 17 $ 109,000 Customer Support 28 The following table presents our property locations at December 31, 2022 for our international locations: Lease Approx.
Tower, Suite 210 Fairfax, VA 22030 March 2029 11,852 $ 28 $ 328,000 Headquarters, Sales, Operations 8351 N High Street, Suite 200 Columbus, OH 43235 November 2038 18,833 $ 10 $ 195,000 Sales and Operations 2101 Executive Drive, Suite 400 Hampton, VA 23669 December 2024 6,440 $ 17 $ 109,000 Customer Support The following table presents our property locations at December 31, 2023 for our international locations: Base Base Lease Approx.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Transfer Agent and Registrar The transfer agent and registrar for our common stock is American Stock Transfer & Trust Company. Dividend Policy We have never paid dividends on our Common Stock and intend to continue this policy for the foreseeable future. We plan to retain earnings for use in growing our business base.
Transfer Agent and Registrar The transfer agent and registrar for our common stock is Equiniti Trust Company, LLC. Dividend Policy We have never paid dividends on our Common Stock and intend to continue this policy for the foreseeable future. We plan to retain earnings for use in growing our business base.
Repurchases of Equity Securities On October 7, 2019, the Company announced that its Board of Directors approved a stock repurchase plan (the “Repurchase Plan”) to purchase up to $2.5 million of the Company’s common stock.
Unregistered Sale of Securities None Repurchases of Equity Securities On October 7, 2019, the Company announced that its Board of Directors approved a stock repurchase plan (the “Repurchase Plan”) to purchase up to $2.5 million of the Company’s common stock.
During the three-month period ended March 31, 2022, we repurchased 196,586 shares of our common stock for a total of $818,200 and subsequently in March of 2022, the Board suspended the repurchase plan in order to use the company’s excess funds to invest into the business. No shares were repurchased during the quarter ended December 31, 2022.
During the three-month period ended March 31, 2022, we repurchased 196,586 shares of our common stock for a total of $818,200 and subsequently in March of 2022, the Board suspended the repurchase plan in order to use the company’s excess funds to invest into the business.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock is listed on the NYSE American under the symbol “WYY”. Holders As of the close of business on March 23, 2023, there were 80 registered holders of record of our common stock.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock is listed on the NYSE American under the symbol “WYY”. Holders As of the close of business on March 20, 2024, there were 72 registered holders of record of our common stock.
Removed
At The Market Offering Agreement On August 18, 2020, the Company entered into an At-The-Market Issuance Sales Agreement (the “Sales Agreement”) with B. Riley Securities, Inc. (“B. Riley FBR”), The Benchmark Company, LLC (“Benchmark”) and Spartan Capital Securities, LLC (“Spartan”, and together with B.
Removed
Riley FBR and Benchmark, the “Sales Agents”) which establishes an at-the-market equity program pursuant to which the Company may offer and sell shares of our common stock, par value $0.001 per share, from time to time as set forth in the Sales Agreement.
Removed
The Sales Agreement provides for the sale of shares of the Company’s common stock (“Shares”) having an aggregate offering price of up to $24,000,000. The Company did not sell any shares during the year ended December 21, 2022.
Removed
During the three-month period ended March 31, 2021, the Company sold 100,687 shares for gross proceeds of $1.1 million and incurred $62,700 of offering costs. On March 27, 2023, we provided notice to the Sales Agents that we were terminating the Sales Agreement. Accordingly, no future sales will be made pursuant to the Sales Agreement.
Removed
Total Number of Shares Average Price Paid Total Number of Shares Purchased as Part of Publicly Announced Plans or Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan or Purchased Per Share Programs Programs - $ - - $ 3,361,023 March 196,586 $ 4.16 196,586 $ 818,200 Total 196,586 $ 4.16 196,586 $ 2,542,823 30

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

38 edited+26 added−32 removed36 unchanged
Critical Accounting Policies and Estimates Refer to Note 2 to the consolidated financial statements for a summary of our significant accounting policies referenced, as applicable, to other notes. In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. GAAP and does not require management’s judgment in its application.
Critical Accounting Policies Refer to Note 2 to the consolidated financial statements for a summary of our significant accounting policies referenced, as applicable, to other notes. In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. GAAP and does not require management’s judgment in its application.
Our revenue recognition policies for our managed services is summarized and shown below: ■ Managed services are delivered on a monthly basis based on a standard fixed pricing scale and sensitive to significant changes in per user or device counts which form the basis for monthly charges.
Our revenue recognition policies for our managed services are summarized and shown below: ■ Managed services are delivered on a monthly basis based on a standard fixed pricing scale and sensitive to significant changes in per user or device counts which form the basis for monthly charges.
Our strategy for achieving our longer-term goals include: ■ Establishing a market leadership position in the trusted mobility management (TM2) sector, ■ pursuing accretive and strategic acquisitions to expand our solutions and our customer base, ■ delivering new incremental offerings to add to our existing TM2 offering, ■ developing and testing innovative new offerings that enhance our TM2 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.
Our strategy for achieving our longer-term goals include: ■ Establishing a market leadership position in the trusted mobility management (TM2) sector, ■ pursuing accretive and strategic acquisitions to expand our solutions and our customer base, ■ delivering new incremental offerings to add to our existing TM2 offering, ■ creating and testing innovative new offerings that enhance our TM2 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 recognize revenues for professional services performed based on actual hours worked and actual costs incurred. Our revenue recognition policies for our reselling services is summarized and shown below: ■ Reselling services require the Company to acquire third party products and services to satisfy customer contractual obligations.
We recognize revenues for professional services performed based on actual hours worked and actual costs incurred. Our revenue recognition policy for our reselling services is summarized and shown below: ■ § Reselling services require the Company to acquire third party products and services to satisfy customer contractual obligations.
In fiscal 2023, we will continue to focus on the following key goals: · selling high margin managed services, · executing cross-sell opportunities identified from ITA acquisition, including Identity Management (IdM), Telecommunications Lifecycle Management (TLM) and Digital Billing & Unified Communication Analytics (DB&UCA) solutions, 31 · growing our sales pipeline by continue 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.
In fiscal 2023, we will continue to focus on the following key goals: · selling high margin managed services, · executing cross-sell and upsell opportunities identified from ITA acquisition, including Identity Management (IdM), Telecommunications Lifecycle Management (TLM) and Digital Billing & Unified Communication Analytics (DB&UCA) solutions, · rowing our sales pipeline by continue 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.
Revenue from this service does not require significant accounting estimates . 33 Our revenue recognition policies for our labor services is summarized and shown below: ■ Billable services are professional services provided on a project basis determined by our customers’ specific requirements. These technical professional services are billed based on time incurred and actual costs.
Revenue from this service does not require significant accounting estimates . Our revenue recognition policy for our labor services is summarized and shown below: ■ Billable services are professional services provided on a project basis determined by our customers’ specific requirements. These technical professional services are billed based on time incurred and actual costs.
General and administrative expenses for the year ended December 31, 2022 were approximately $14.7 million (or 16% of revenues), as compared to approximately $12.7 million (or 15% of revenues) in 2021.
General and administrative expenses for the year ended December 31, 2023 were approximately $15.9 million (or 15% of revenues), as compared to approximately $14.7 million (or 16% of revenues) in 2022.
Our CODM is our chief executive officer. We operate in one segment based on the consolidated information used by our CODM in evaluating the financial performance of our business and allocation resources.
We operate in one segment based on the consolidated information used by our CODM in evaluating the financial performance of our business and allocation resources.
For those transactions in which we procure and deliver products and services for our customers’ on their own account we do not recognize revenues and related costs on a gross basis for these arrangements. We only recognize revenues earned for arranging the transaction and any related costs.
For those transactions in which we procure and deliver products and services for our customers’ on their own account we do not recognize revenues and related costs on a gross basis for these arrangements.
For the year ended December 31, 2022, cash used in investing activities was approximately $3.4 million and consisted of $3.4 million of computer hardware and software purchases and capitalized internally developed software costs of computer hardware and software purchases and capitalized internally developed software costs, primarily associated with upgrading our ITMS™ and Soft-ex platform, secure identity management technology and network operations center. 39 For the year ended December 31, 2021, cash used in investing activities was approximately $7.4 million and consisted of $4.7 million related to acquisition of assets of ITA, and $2.8 million of computer hardware and software purchases and capitalized internally developed software costs of computer hardware and software purchases and capitalized internally developed software costs, primarily associated with upgrading our ITMS™ and Soft-ex platform, secure identity management technology and network operations center.
For the year ended December 31, 2022, cash used in investing activities was approximately $3.4 million and consisted of $3.4 million of computer hardware and software purchases and capitalized internally developed software costs of computer hardware and software purchases and capitalized internally developed software costs, primarily associated with upgrading our ITMS™ and Soft-ex platform, secure identity management technology and network operations center.
In fiscal 2022, we continue to focus on the following key goals: ■ Continue to find additional avenues for capturing new sales opportunities in the post 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.
In fiscal 2024, we will continue to focus on the following key goals: ■ Continue to find additional avenues for capturing new sales opportunities in the post pandemic environment, ■ Continue to provide unmatched level of services to our current customer base, ■ Attain full FedRAMP certification in 2024, ■ 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, ■ Leverage our software platforms to grow our SaaS revenues and take advantage of the opportunities emerging from the growth in remote working, 31 ■ Expand our customer base organically, ■ Continue to leverage the R2v3 Certification to further our ESG commitment, ■ Execute 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, ■ Explore integration of artificial intelligence into our solution to provide better information security, and improve service delivery while reducing response time and cost.
Provision for Income Taxes Income tax provision for the year ended December 31, 2022 was approximately $5.1 million, as compared to approximately $0.6 million in 2021.
Provision for Income Taxes Income tax provision for the year ended December 31, 2023 was $0.1 million as compared to an income tax provision of $5.1 million in 2022.
This single segment represents our Company’s business, which is providing managed services for government and commercial clients that include Identity Management (IdM), secure Mobility Managed Services (MMS), Telecom Lifecycle Management, Digital Billing & Analytics and IT as a service (ITaaS). We present a single segment for purposes of financial reporting and prepared consolidated financial statements upon that basis.
This single segment represents our Company’s business, which is providing managed services for government and commercial clients that include Identity Management (IdM), secure Mobility Managed Services (MMS), Telecom Lifecycle Management, Digital Billing & Analytics and IT as a service (ITaaS).
The various sections of this discussion contain a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this Annual Report on Form 10-K. See “Cautionary Note Regarding Forward Looking Statements and Risk Factor Summary.” Our actual results may differ materially.
The various sections of this discussion contain a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this Annual Report on Form 10-K.
We recognize revenues and related costs on a gross basis for such arrangements whenever we control the services before they are transferred to the customer.
These services require us to procure, process and pay communications carrier invoices. We recognize revenues and related costs on a gross basis for such arrangements whenever we control the services before they are transferred to the customer.
Strategy We executed on our key initiative for 2022 by obtaining FedRAMP “In Process” status for ITMS™ and completing the integration of our newly acquired assets of IT Authorities, Inc. In addition, we focused on increasing our customer base and our sales pipeline and leveraging our strategic relationships with key system integrators and strategic partners to capture additional market share.
Strategy During 2023, we obtained FedRAMP “In Process” status for ITMS™ and completed the integration of the acquired assets of ITA. In addition, we focused on increasing our customer base and our sales pipeline and leveraging our strategic relationships with key system integrators and strategic partners to capture additional market share.
Accounting for Income Taxes Deferred tax assets and liabilities are determined based on the differences between the financial statement and tax bases of assets and liabilities using the enacted tax rates expected to be in effect for the years in which the differences are expected to reverse.
The assessment did not result in any additional impairment of goodwill at December 31, 2023. 34 Accounting for Income Taxes Deferred tax assets and liabilities are determined based on the differences between the financial statement and tax bases of assets and liabilities using the enacted tax rates expected to be in effect for the years in which the differences are expected to reverse.
Revenue Recognition Our managed services solutions may require a combination of labor, third party products and services. Our managed services are generally not interdependent and our contract performance obligations are delivered consistently on a monthly basis.
We present a single segment for purposes of financial reporting and prepared consolidated financial statements upon that basis. 32 Revenue Recognition Our managed services solutions may require a combination of labor, third party products and services. Our managed services are generally not interdependent and our contract performance obligations are delivered consistently on a monthly basis.
During the year ended December 31, 2022, the Company recorded an additional valuation allowance against all domestic deferred tax assets because management determined that it is more likely than not that the Company will not earn income sufficient to realize the deferred tax assets during the carry forward period.
During the year ended December 31, 2022, the Company recorded a partial valuation allowance on its deferred tax assets related to net operating losses because management determined that it is more likely than not that the Company will not produce taxable income sufficient to realize the deferred tax assets during the carry forward period.
For the year ended December 31, 2022, net cash provided by operations was approximately $6.1 million driven by collections of accounts receivable and collection of the Employee Retention Tax Credit (ERTC) of approximately $1.3 million, that was reflected in 2021 and temporary payable timing difference, as compared to approximately $1.2 million net cash used in operations for the year ended December 31, 2021.
For the year ended December 31, 2023, net cash provided by operations was approximately $0.6 million driven by collections of accounts receivable and temporary payable timing difference, as compared to approximately $6.1 million net cash provided by operations for the year ended December 31, 2022.
For the year ended December 31, 2022, cash used in financing activities was approximately $1.5 million and reflects lease principal repayments of approximately $600,400, repurchases of common stock of $818,200 and withholding taxes paid on behalf of employees on net settled restricted stock awards of approximately $49,200.
For the year ended December 31, 2023, cash used in financing activities was approximately $0.6 million and reflects line of credit advances and payments of approximately $6.5 million, finance lease principal repayments of approximately $586,500 and withholding taxes paid on behalf of employees on net settled restricted stock awards of approximately $3,600.
Should a change in facts or circumstances lead to a change in judgment about the ultimate ability to realize a deferred tax asset (including our utilization of historical net operating losses and share-based compensation expense), the Company records or adjusts the related valuation allowance in the period that the change in facts or circumstances occurs, along with a corresponding increase or decrease to the income tax provision. 35 During the year ended December 31, 2022, the Company recorded an additional valuation allowance against all domestic deferred tax assets because management determined that it is more likely than not that the Company will not earn income sufficient to realize the deferred tax assets during the carry forward period.
Should a change in facts or circumstances lead to a change in judgment about the ultimate ability to realize a deferred tax asset (including our utilization of historical net operating losses and share-based compensation expense), the Company records or adjusts the related valuation allowance in the period that the change in facts or circumstances occurs, along with a corresponding increase or decrease to the income tax provision.
The following section below provides information about certain critical accounting policies that are important to the consolidated financial statements and that require significant management assumptions and judgments. 32 Segments Segments are defined by authoritative guidance as components of a company in which separate financial information is available and is evaluated by the chief operating decision maker (CODM), or a decision-making group, in deciding how to allocate resources and in assessing performance.
Segments Segments are defined by authoritative guidance as components of a company in which separate financial information is available and is evaluated by the chief operating decision maker (CODM), or a decision-making group, in deciding how to allocate resources and in assessing performance. Our CODM is our chief executive officer.
As a result of this review and additional testing, the Company did not identify an impairment to its definite-lived intangible assets or other long lived assets, but the Company did identify an impairment to goodwill resulting in recording a $16.3 million non-cash goodwill impairment charge for the three month period ended June 30, 2022. 34 The Company performed its additional goodwill impairment test with support from an external consultant and estimated the fair value of its single reporting unit based on a combination of the income (estimates of future discounted cash flows) and the market approach (market multiples for similar companies).
As a result of this review and additional testing, the Company did not identify an impairment to its definite-lived intangible assets or other long lived assets, but the Company did identify an impairment to goodwill resulting in recording a $16.3 million non-cash goodwill impairment charge for the three month period ended June 30, 2022.
Our revenue recognition policies for our billable carrier services is summarized and shown below: ■ Carrier services are delivered on a monthly basis and consist of phone, data and satellite and related mobile services for a connected device or end point. These services require us to procure, process and pay communications carrier invoices.
We only recognize revenues earned for arranging the transaction and any related costs. 33 Our revenue recognition policies for our billable carrier services is summarized and shown below: ■ Carrier services are delivered on a monthly basis and consist of phone, data and satellite and related mobile services for a connected device or end point.
Other (Expense) Income Net other income for the year ended December 31, 2022 was approximately $1.1 million as compared to net other income of approximately $374,000 in 2021. The increase in 2022 is primarily driven by the fair value adjustments of contingent consideration.
Other (Expense) Income Net other expense for the year ended December 31, 2023 was $(0.2) million as compared to net other income of $1.1 million in 2022. The net other income in 2022 included the fair value adjustments of contingent consideration. There were no adjustments to contingent consideration in 2023.
The increased expenses in 2022 are also a result of higher labor costs to support professional services. Goodwill impairment charge for the year ended December 31, 2022 was $16.3 million following goodwill impairment testing performed as a result of sustained decreases in our publicly quoted share price and market capitalization.
The increase primarily relates to an increase in share-based compensation expense compared to the same period last year. 37 Goodwill impairment charge for the year ended December 31, 2022 was $16.3 million following goodwill impairment testing performed as a result of sustained decreases in our publicly quoted share price and market capitalization. There was no goodwill impairment during 2023.
Cost of Revenues Cost of revenues for the year ended December 31, 2022 were approximately $79.5 million (or 85% of revenues) as compared to approximately $70.9 million (or 81% of revenues) in 2021.
Cost of revenues also includes amortization of capitalized software related to delivering our solutions. Cost of revenues for the year ended December 31, 2023 were $90.4 million (or 85% of revenues) as compared to $79.5 million (or 85% of revenues) in 2022.
Our cost of revenues may fluctuate due to our revenue mix. 37 Gross Profit Gross profit for the year ended was approximately $14.6 million (or 15% of revenues), as compared to approximately $16.4 million (or 19% of revenues) in 2021.
Gross profit for the year ended was $15.6 million (or 15% of revenues), as compared to $14.6 million (or 15% of revenues) in 2022. The percentage of gross profit to revenues is consistent from year to year.
For the year ended December 31, 2021, the depreciation of the Euro relative to the US dollar decreased the translated value of our foreign cash balances by approximately $145,000. Credit Facilities and Other Commitments At December 31, 2022, there were no outstanding borrowings against the Company’s $7.0 million working capital credit facility with Atlantic Union Bank.
For the year ended December 31, 2022, the depreciation of the Euro relative to the US dollar decreased the translated value of our foreign cash balances by approximately $140,800. Credit Facilities and Other Commitments From June 15, 2017 to June 2023, the Company had a Loan and Security Agreement with Atlantic Union Bank (the “Loan Agreement”).
Organizational Overview We were incorporated on May 30, 1997 under the laws of the state of Delaware. We are a leading provider of Technology Management as a Service (TMaaS) that consists of federally certified communications management, identity management, and interactive bill presentment and unified communication analytics solutions and IT as a Service.
We are a leading provider of Technology Management as a Service (TMaaS) that consists of federally certified communications management, identity management, and interactive bill presentment and unified communication analytics solutions and IT as a Service. We help our clients achieve their organizational missions for mobility management and security objectives in this challenging and complex business environment.
The Company performed its annual impairment assessment as of December 31, 2022, using the same external consultant as used in the previous impairment analyses. In connection with its annual budgeting and forecast process, the Company projected future cashflows based on existing business, projected new business as well considering modifications to the Company’s cost structure.
In connection with its annual budgeting and forecast process, the Company projected future cashflows based on existing business, projected new business as well considering modifications to the Company’s cost structure. The market approach utilizes multiples of earnings before interest expense, taxes, depreciation and amortization (EBITDA) to estimate the fair value of our reporting unit.
The Company did not use its line of credit during the year. Net Effect of Exchange Rate on Cash and Equivalents For the year ended December 31, 2022, the gradual depreciation of the Euro relative to the US dollar decreased the translated value of our foreign cash balances by approximately $140,800 as compared to last year.
For the year ended December 31, 2022, cash used in financing activities was approximately $1.5 million and reflects line of credit advances and payments of approximately $15.3 million, payments of approximately $1.5 million finance lease principal repayments of approximately $600,400, repurchases of common stock of $818,200 and withholding taxes paid on behalf of employees on net settled restricted stock awards of approximately $49,200. 39 Net Effect of Exchange Rate on Cash and Equivalents For the year ended December 31, 2023, the gradual depreciation of the Euro relative to the US dollar decreased the translated value of our foreign cash balances by approximately $23,800 as compared to last year.
The market approach utilizes multiples of earnings before interest expense, taxes, depreciation and amortization (EBITDA) to estimate the fair value of our reporting unit. The market multiples used for our single reporting unit were based on a group of comparable companies’ market multiples applied to the Company’s revenue and EBITDA.
The market multiples used for our single reporting unit were based on a group of comparable companies’ market multiples applied to the Company’s revenue and EBITDA. The Company performed its annual impairment assessment as of December 31, 2023, using the same external consultant as used in the previous impairment analyses.
There was no goodwill impairment during the same period in 2021. Depreciation and amortization expense for the year ended December 31, 2022 was approximately $1.1 million, as compared to approximately $1.0 million in 2021.
Definite-lived intangible asset impairment charge for the year ended December 31, 2023 was $0.2 million following impairment testing on definite-lived intangible assets performed during the year. There was no definite-lived intangible asset impairment during 2022. Depreciation and amortization expense were consistent for the year ended December 31, 2023 and 2022.
Revenues by customer type for the periods presented is set forth below: YEARS ENDED DECEMBER 31, Dollar Customer Type 2022 2021 Variance U.S. Federal Government $ 74,416,288 $ 73,130,465 $ 1,285,823 U.S.
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. Revenues by customer type for the periods presented is set forth below: YEARS ENDED DECEMBER 31, Dollar Customer Type 2023 2022 Variance U.S. Federal Government $ 84,475,325 $ 74,416,288 $ 10,059,037 U.S.
Operating Expenses Sales and marketing expense for the year ended December 31, 2022 was approximately $2.1 million (or 2% of revenues) and was relatively flat, as compared to approximately $2.0 million (or 2% of revenues) in 2021.
Net Loss As a result of the factors above, net loss for the year ended December 31, 2023 was $4.0 million or negative $0.46 per share as compared to a net loss of $23.6 million in 2022 or negative $2.70 per share.
Our mix of revenues for the periods presented is set forth below: YEARS ENDED DECEMBER 31, 2022 2021 Carrier Services $ 53,339,949 $ 49,730,949 Managed Services: Managed Service Fees and Billable Fees 28,102,695 25,215,996 Reselling and Other Services 12,660,721 12,391,152 Total Managed Services: 40,763,416 37,607,148 $ 94,103,365 $ 87,338,097 ■ Our carrier services revenues increased by $3.6 million to $53.3 million from $49.7 million last year, primarily due to a large federal government customer increasing the number of phone lines we manage by approximately 75% during 2022.
Our mix of revenues for the periods presented is set forth below: YEARS ENDED DECEMBER 31, Dollar 2023 2022 Variance Carrier Services $ 58,233,989 $ 53,339,949 $ 4,894,040 Managed Services: Managed Service Fees and Billable Fees 30,989,985 28,102,695 2,887,290 Reselling and Other Services 16,802,386 12,660,721 4,141,665 Total Managed Services: 47,792,371 40,763,416 7,028,955 $ 106,026,360 $ 94,103,365 $ 11,922,995 ■ Our carrier services revenues increased by $4.9 million to $58.2 million from $53.3 million last year, primarily due to increased contracting activity with our federal customers, where we pay carrier invoices on behalf of those customers. ■ Our managed and billable service fees increased by $2.9 million from $28.1 million to $31.0 million as a result of increased professional services being utilized by out Telecommunications Life-cycle Management customers and projects for Identity and Access Management customers. ■ Reselling and other services increased by $4.1 million from $12.7 million to $16.8 million as a result of selling third-party software for recording and storing text messages which is now required under an expansion of the Federal Records Act and identity management solution to our government customers.
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We help our clients achieve their organizational missions for mobility management and security objectives in this challenging and complex business environment.
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See “Cautionary Note Regarding Forward Looking Statements and Risk Factor Summary.” Our actual results may differ materially. 30 Organizational Overview We were incorporated on May 30, 1997 under the laws of the state of Delaware.
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As compared to the Company’s impairment testing on December 31, 2021, for the June 30, 2022 testing the Company updated certain inputs into the valuation models, including the discount rate used in the DCF analysis which increased reflecting, in part, higher interest rates and market volatility, and also the market factors used in the market approach.
Added
The following section below provides information about certain critical accounting policies that are important to the consolidated financial statements and that require significant management assumptions and judgments.
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In addition, the Company reviewed its estimated future cash flows used in the impairment assessment and due to updated business conditions made reductions to those estimates, including revenues, margin, and capital expenditures, to reflect its best estimates as of such date.
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The Company performed its additional goodwill impairment test with support from an external consultant and estimated the fair value of its single reporting unit based on a combination of the income (estimates of future discounted cash flows) and the market approach (market multiples for similar companies).
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The assessment did not result in any additional impairment of goodwill at December 31, 2022.
Added
During the year ended December 31, 2023, the Company recorded a valuation allowance against a portion of domestic deferred tax assets because management determined that is it more likely than not the Company will not earn income sufficient to realize the deferred tax assets during the carryforward period. 2023 Results of Operations Year Ended December 31, 2023 Compared to the Year ended December 31, 2022 35 Revenues Revenues for the year ended December 31, 2023 were $106.0 million, an increase of $11.9 million (or 13%), as compared to approximately $94.1 million in 2022.
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Business Combinations The application of the acquisition method of accounting for business combinations requires the use of significant estimates, assumptions and judgments in the determination of the estimated fair value of assets acquired and liabilities assumed in order to properly allocate the purchase price at the acquisition date.
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State and Local Governments 561,378 411,511 149,867 Foreign Governments 79,556 146,538 (66,982 ) Commercial Enterprises 20,910,101 19,129,028 1,781,073 $ 106,026,360 $ 94,103,365 $ 11,922,995 ■ Our sales to federal government customers increased primarily as a result of the increased carrier services revenues of $4.9 million and increased reselling and other services to US government customers of $4.1 million and the remaining increases of $1.2 million is related to a new customer in our IAM business and general increased contracting activity with our federal customers. ■ Our sales to state and local government customers increased primarily due to increased activity to Identity Management solutions. ■ Our sales to foreign government customers decreased compared to last year due to reduction in managed services to one of our foreign customers. ■ Our sales to commercial enterprise customers increased primarily as a result of new customers in our Unified Communications Analytics offering. 36 Cost of Revenues Our cost of revenues include employee labor, excluding fringe benefit costs, and subcontractors directly associated with satisfying customer performance obligations, and the associated cost of products and third-party software that we resell to our end customers.
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For the ITA acquisition, the Company used valuation methods including the “monte carlo simulation” method to estimate the fair value of the contingent consideration, the “multi-period excess earnings method” to estimate the fair value of customer relationships and the “relief from royalty” method to estimate the fair value of the acquired tradename.
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Increased carrier services costs as well as increased depreciation and amortization expense included in cost of revenues contributed to the increase. Our cost of revenues will fluctuate due to our revenue mix. Gross Profit Managed services gross profit increases were offset by lower gross profit experienced in our reselling and other services.
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Although we believe the estimates, assumptions and judgments we have made are reasonable, they are based in part on historical experience, industry data, information obtained from the management of the acquired companies and assistance from independent third-party appraisal firms and are inherently uncertain.
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Gross profit percentage for the year ended December 2023 excluding carrier services was 33% as compared to 36% in 2022 due to increased depreciation and amortization expense, an increase in reselling and other services which are lower margin revenues.
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Contingent Consideration To value both the cash and warrant portions of the contingent consideration, we used a Monte Carlo Simulation Model, which incorporates significant inputs that are not observable in the market.
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Operating Expenses Sales and marketing expenses include employee labor, excluding fringe benefit costs, and sales commissions associated with our sales force, commission fees paid non-employee sales agents and partners, and costs associated with travel and trade shows. Sales and marketing expense were consistent between the year ended December 31, 2023 and 2022.
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Fluctuations in the fair value of contingent obligations are impacted by several unobservable inputs that are estimated by management, including forecasted revenue growth rates, forecasted costs and expenses, volatility, and discount rates. Significant changes in any of those inputs in isolation may result in a significantly higher or lower fair value measurement.
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General and administrative expenses include employees in finance, human resources, information technology, and other administrative support functions; employee labor not associated with any single revenue producing activity, all company fringe benefits, including paid time off, employee health and medical insurance, 401k matching contributions, and payroll taxes.
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The unobservable inputs utilized for measuring the fair value of the contingent consideration reflect management’s own assumptions about the assumptions that market participants would use in valuing the contingent consideration. 2022 Results of Operations Year Ended December 31, 2022 Compared to the Year ended December 31, 2021 Revenues Revenues for the year ended December 31, 2022 were approximately $94.1 million, an increase of approximately $6.8 million (or 8%), as compared to approximately $87.3 million in 2021.
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General and administrative expenses also include professional services to include audit, consulting, outside legal, and outsourcing services. Certain of these expenses, including those associated with the operation of our technical infrastructure as well as components of our operating expenses, are generally less variable in nature and may not correlate to the changes in revenue.
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Additionally, carrier credits of approximately $1.7 million were experienced in 2021 that did not occur in 2022. 36 ■ Our managed and billable service fees increased by $2.9 million from $25.2 million to $28.1 million as a result of the acquisition of IT Authorities (“ITA”) which added $ 5.1 million as a result of a full year of ITA results compared to only one quarter of results in 2021 as a result of the acquisition timing in 2021.
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Liquidity and Capital Net Working Capital At December 31, 2023, our net working capital was approximately $1.4 million as compared to $1.8 million at December 31, 2022. The decrease in net working capital was primarily driven by investments in computer hardware and software purchases and capitalized internally developed software costs, which was partially offset by temporary receivable/payable timing differences.
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The increase was partially offset by lower sales in our legacy lines of business. ■ Reselling and other services increased by $0.3 million as a result of the acquisition of ITA which added $2.4 million for the full year of 2022, compared to only one quarter of results in 2021 as a result of the acquisition timing in 2021.
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Our sources of liquidity include cash on hand, our anticipated cash flows from operations, and access to our new credit agreement with Old Dominion National Bank.
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The increase was partially offset by lower sales in our legacy lines of business. 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.
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While through most of 2023 we had a factoring arrangement available which is set to expire in April of 2024, the credit agreement with Old Dominion National Bank limits our ability to utilize the factoring agreement in the period prior to its expiration.
Removed
State and Local Governments 411,511 240,473 171,038 Foreign Governments 146,538 69,718 76,820 Commercial Enterprises 19,129,028 13,897,441 5,231,587 $ 94,103,365 $ 87,338,097 $ 6,765,268 ■ Our sales to federal government customers increased primarily as a result of the increase phone-lines managed and a decrease in carrier credits occurring in 2022. ■ Our sales to state and local government customers increased primarily due to increased activity in Identity Management solutions. ■ Our sales to foreign government customers increased as compared to last year due to increased activity in our Unified Communications Analytics offering. ■ Our sales to commercial enterprise customers increased primarily as a result of the addition of ITA which contributed approximately $7.5 million of the increase.
Added
We believe that our existing cash on hand, our anticipated cash flows from operations, and interim funds available under the Old Dominion Credit Facility, through its maturity on February 28, 2025 will be sufficient to meet our working capital, expenditure, and contractual obligation requirements for the next 12 months. 38 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.
Removed
The increase in the percentage relative to sales was driven by the increase in lower margin carrier services and higher cost of sales relative to revenues in ITA compared with our legacy business lines. The increased costs are also a result of higher labor costs to support professional services.
Added
For the year ended December 31, 2023, cash used in investing activities was approximately $0.6 million and consisted of $0.5 million in proceeds from factoring arrangement offset by $1.1 million of computer hardware and software purchases and capitalized internally developed software costs primarily associated with upgrading our ITMS™ and Soft-ex platform, secure identity management technology and network operations center.
Removed
The dollar and percentage of sales decrease in gross profit is primarily a result of an increase in lower gross margin carrier services as compared to last year, and lower margins in the ITA business than are experienced in our legacy businesses.
Added
The decrease in amounts capitalized for the year ended December 31, 2023 reflects the capital investments in our delivery platforms beginning to reach completion.
Removed
The increase in general and administrative expense is primarily due to recognition of a qualified payroll tax credit of $1.3 million in 2021 and increased general and administrative costs related to a full year of ITA expenses compared to only the fourth quarter of expenses in 2021.
Added
The Loan Agreement with Atlantic Union Bank matured in June 2023 and was not renewed. On April 28, 2023, the Company entered into an Accounts Receivable Purchase Agreement (the “Purchase Agreement”) with Republic Capital Access, LLC (the “Buyer”) for the non-recourse sale of eligible accounts receivable relating to U.S.
Removed
Net (Loss) Income As a result of the one-time goodwill impairment charge, an increase lower margin and increase in expenses in 2022, net loss for the year ended December 31, 2022 was approximately $23.6 million as compared to a net income of approximately $341,100 in 2021. 38 Liquidity and Capital Net Working Capital 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 $7.0 million.
Added
Government prime contracts or subcontracts of the Company (collectively, the “Purchased Receivables”) to replace the Company’s matured Loan Agreement with Atlantic Union Bank. Upon purchase, Buyer becomes the absolute owner of any such Purchased Receivables, which are payable directly to the Buyer.
Removed
Access to the credit facility depends on our ability (i) to maintain a minimum consolidated adjusted EBITDA of no less than $1.0 million on a trailing 12-month basis determined on a quarterly basis: and (ii) maintain a minimum adjusted tangible net worth of at least $6.5 million measured quarterly.
Added
The total amount of Purchased Receivables is subject to a maximum limit of $4 million outstanding Purchased Receivables at any time, with an available increase to $14 million, subject to adequate receivables. The Purchase Agreement contains customary fees, covenants and representations.
Removed
The Company was not in compliance with the Tangible Net Worth covenant as of December 31, 2022; however, the lender provided a waiver of that December 31, 2022 covenant violation.
Added
Pursuant to the Purchase Agreement, the Company may from time to time offer and sell eligible accounts receivable to the Buyer. The Buyer pays the sales proceed of the purchase of the receivable invoices in two installments; first installment is Initial Purchase Price, which is 90% if the debtor is an agency of the U.S.
Removed
The Company expects to be out of compliance with the financial covenants through the June 15, 2023 expiration of the credit facility, and is working with the lender to obtain a waiver as necessary. There can be no assurance that the Company will be able to negotiate a more favorable covenant, or at all.
Added
Government, and 85% if the debtor is not an agency of the U.S. Government, of the invoice amount. The second and final installment is the residual purchase price that is the invoice amount less the initial purchase price less applicable discount factor and fees.

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