Cautionary Note Regarding Forward-Looking Statements

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



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The impact of the COVID-19 pandemic on our business and operations;
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Our ability to successfully execute our strategy;
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Our ability to sustain profitability and positive cash flows;
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Our ability to gain market acceptance for our products;
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Our ability to win new contracts, execute contract extensions and expansion of
services of existing contracts;
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Our ability to compete with companies that have greater resources than us;
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Our ability to penetrate the commercial sector to expand our business;
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Our ability to retain key personnel; and
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The risk factors set forth in our Annual Report on Form 10-K for the year ended
December 31, 2020 filed with the SEC on March 24, 2021.

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



                               Business Overview

We are a leading provider of Trusted Mobility Management (TM2) that consists of federally certified communications management, identity management, and interactive bill presentment and analytics solutions. We help our clients achieve their organizational missions for mobility management and security objectives in this challenging and complex business environment.

We offer our TM2 solutions through a flexible managed services model which includes both a scalable and comprehensive set of functional capabilities that can be used by any customer to meet the most common functional, technical and security requirements for mobility management. Our TM2 solutions were designed and implemented with flexibility in mind such that it can accommodate a large variety of customer requirements through simple configuration settings rather than through costly software development. The flexibility of our TM2 solutions enables our customers to be able to quickly expand or contract their mobility management requirements. Our TM2 solutions are hosted and accessible on-demand through a secure federal government certified proprietary portal that provides our customers with the ability to manage, analyze and protect their valuable communications assets, and deploy identity management solutions that provide secured virtual and physical access to restricted environments.




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                                  Revenue Mix

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

For additional information related to our business operations, see the description of our business set forth in the Company's Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 23, 2021.



                       Strategic Focus and Notable Events

We believe that demand for our TM2 solutions will continue to grow as public and private sectors seek to address the additional requirements for supporting a mobile workforce. We also believe that the current COVID-19 pandemic and the post pandemic environment will increase the need for WidePoint's services as our customers and potential customers seek to manage, secure and gain visibility into their mobility assets as a result of a larger number of employees working remotely. Our longer-term strategic focus and goals are driven by our need to expand our critical mass so that we have more flexibility to fund investments in technology solutions and introduce new sales and marketing initiatives in order to expand our marketplace share and increase the breadth of our offerings in order to improve company sustainability and growth.

In fiscal 2021, we will continue to focus on the following key goals:



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selling high margin managed services,
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growing our sales pipeline by investing in our business development and sales
team assets,
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pursuing additional opportunities with our key systems integrator and strategic
partners ,
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improving our proprietary platform and products, which includes pursuing FedRAMP
certification for ITMS™ and maintaining our ATOs with our federal government
agencies, as well as upgrading our secure identity management technology,
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working to successfully deliver and expand the scope of work under the newly
awarded DHS CWMS 2.0 IDIQ, and
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expanding our solution offerings into the commercial space.

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



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pursuing accretive and strategic acquisitions to expand our solutions and our
customer base,
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delivering new incremental offerings to add to our existing TM2 offering,
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developing and testing innovative new offerings that enhance our TM2 offering,
and
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transitioning our data center and support infrastructure into a more
cost-effective and federally approved cloud environment to comply with perceived
future contract requirements.

We believe these actions could drive a strategic repositioning of our TM2 offering and may include the sale of non-aligned offerings coupled with acquisitions of complementary and supplementary offerings that could result in a more focused core set of TM2 offerings.




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                             Results of Operations

Three Months Ended March 31, 2021 as Compared to Three Months Ended March 31,


                                      2020

Revenues. Revenues for the three month period ended March 31, 2021 were approximately $20.6 million, a decrease of approximately $19.0 million (or 48%), as compared to approximately $39.6 million in 2020. Our mix of revenues for the periods presented is set forth below:




                             THREE MONTHS ENDED


                             MARCH 31,                   Dollar


                             2021          2020          Variance



                                     (Unaudited)
Carrier Services              $11,348,869   $28,143,270   $(16,794,401)

Managed Services: Managed Service Fees 8,259,430 7,475,439 783,991 Billable Service Fees 1,021,517 1,304,541 (283,024) Reselling and Other Services 21,027 2,742,106 (2,721,079)


                              9,301,974     11,522,086    (2,220,112)

                              $20,650,843   $39,665,356   $(19,014,513)

Our carrier services decreased as compared to last year primarily as a result of the expected winding down of the U.S. Department of Commerce contract supporting the 2020 Census and to a lesser extent as a result of the carrier credits and lower revenue from the U.S. Customs and Border Protection (CBP), partially offset by higher revenue from the U.S. Coast Guard. We continue to expect managed services revenue to be lower in 2021 than 2020 as a result of the winding down of the 2020 Census project.

Our managed service fees increased as compared to last year due to expansion of managed services to existing and new customers and higher accessories sale.

Billable service fee revenue decreased as compared to last year due to winding of professional services supporting the 2020 Census project, partially offset by additional services to U.S. Department of Homeland Security Headquarters and U.S. Coast Guard

Reselling and other services decreased as compared to last year due to timing of large product resales. Reselling and other services are transactional in nature and as a result the amount and timing of revenue varies significantly from quarter to quarter.

Cost of Revenues. Cost of revenues for the three month period ended March 31, 2021 were approximately $15,9 million (or 77% of revenues), as compared to approximately $34.7 million (or 87% of revenues) in 2020. The decrease was driven by lower carrier services and pass through carrier credit.

Gross Profit. Gross profit for the three month period ended March 31, 2021 was approximately $4.7 million (or 23% of revenues), as compared to approximately $4.9 million (or 13% of revenues) in 2020. The increase in gross profit percentage was driven by the increase in higher margin managed services revenue. Our gross profit percentage varies from quarter to quarter due to revenue mix between carrier services and managed services revenue.




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Sales and Marketing. Sales and marketing expense for the three month period ended March 31, 2021 was approximately $0.5 million (or 2% of revenues), as compared to approximately $0.5 million (or 1% of revenues) in 2020.

General and Administrative. General and administrative expenses for the three month period ended March 31, 2021 were approximately $3.3 million (or 16% of revenues), as compared to approximately $3.5 million (or 9% of revenues) in 2020. The dollar decrease in general and administrative expense is due to lower payroll costs and stock-based compensation expense, partially offset by increased data center costs.

Depreciation and Amortization.Depreciation and amortization expense for the three month period ended March 31, 2021 was approximately $250,900 as compared to approximately $263,200 in 2020. The increase in depreciation and amortization expense reflects the increase in our depreciable asset base.

Other (Expense) Income. Net other expense for the three month period ended March 31, 2021 was approximately $66,100 as compared to approximately an expense of $78,700 in 2020. The decrease in net expense is a result of lower interest expense related to less borrowings on the line of credit and lease liability compared to prior year.

Income Taxes. Income tax expense for the three month period ended March 31, 2021 was approximately $23,500, as compared to $177,200 in 2020. Income taxes were accrued at an estimated effective tax rate of 27.1% for the three months ended March 31, 2021 compared to 26.8% forthe three months ended March 31, 2020. We recognized $170,000 of tax benefit due to permanent tax difference in the period ended March 31, 2021.

Net Income. As a result of the cumulative factors annotated above, net income for the three month period ended March 31, 2021 was approximately $585,400, as compared to net income of approximately $483,888 in the same period last year.




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                        Liquidity and Capital Resources

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

At March 31, 2021, our net working capital was approximately $14.5 million as compared to $13.0 million at December 31, 2020. The increase in net working capital was primarily driven by proceeds from issuance of common stock through the ATM sales program, and temporary payable timing differences. We may need to raise additional capital to fund major growth initiatives and/or acquisitions and there can be no assurance that additional capital will be available on acceptable terms or at all.

ATM Sales Program

On August 18, 2020, we entered into an At-The-Market Issuance Sales Agreement (the "Sales Agreement") with B. Riley Securities, Inc., The Benchmark Company, LLC and Spartan Capital Securities, LLC which establishes an ATM equity program pursuant to which we may offer and sell up to $24.0 million of shares of our common stock, par value $0.001 per share, from time to time as set forth in the Sales Agreement. We have no obligation to sell any of the Shares, and, at any time, we may suspend offers under the Sales Agreement or terminate the Sales Agreement. We sold 100,687 Shares during the three months ended March 31, 2021 for net proceeds of $1.1 million under the ATM program and had remaining capacity of $18.6 million as of March 31, 2021.

Cash Flows from Operating Activities

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

For the three months ended March 31, 2021, net cash provided by operations was approximately $1.0 million driven by collections of accounts receivable and temporary payable timing differences, as compared to approximately $3.0 million for the three months ended March 31, 2020.

Cash Flows from Investing Activities

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

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




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For the three months ended March 31, 2020, cash used in investing activities was approximately $393,000 and consisted of computer hardware and software purchases and capitalized internally developed software costs, primarily associated with upgrading our ITMS™ platform,secure identity management technology and network operations center.

Cash Flows from Financing Activities

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

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

For the three months ended March 31, 2020, cash used in financing activities was approximately $153,800 and reflects line of credit advances and payments of approximately $1.8 million, and finance lease principal repayments of approximately $143,600.

Net Effect of Exchange Rate on Cash and Equivalents

For the three months ended March 31, 2021 and 2020, the gradual depreciation of the Euro relative to the US dollar decreased the translated value of our foreign cash balances by approximately $65,900 as compared to last year.



                         Off-Balance Sheet Arrangements

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

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