[Logo]
WIDEPOINT CORPORATION
One Lincoln Centre, Suite 1100
Oakbrook Terrace, Illinois 60181
November 17, 2003
Dear Stockholder:
2002 proved to be the third consecutive year of contraction and very
difficult market conditions for the Information Technology industry. During the
year, Widepoint experienced its share of the continuation of the economic
downturn, characterized by curtailed technology spending and the elimination of
new technology projects and programs by its clients and prospects. In addition,
we began to feel the impact of low cost offshore technology outsourcing
providers on our traditional markets and profit margins.
As I am sure you are all aware, these economic conditions have continued
into the current year, further testing the ability of organizations and
management teams to husband resources, retain intellectual capital, and position
their companies to prosper in the years ahead. Widepoint has adapted to these
changing market conditions by a continued focus on its core customers,
optimizing expenses and infrastructure, preserving capital resources, and
investing in new value-added practice areas.
Early in 2003, WidePoint began implementing initiatives targeting revenue
growth and expansion of our base business, combined with opportunistic expansion
into carefully selected new services and industry sectors. Among these are
Government IT Outsourcing, Wireless/Mobile Solutions, and Business Continuity
Planning. Looking forward, we are confident that these new activities will
generate incremental revenue and earnings growth for the Company.
We are grateful for your continued support, as we strive to re-position
your Company to best take advantage of new opportunities that emerge from our
rapidly changing markets.
Sincerely,
/s/ Steve L. Komar
------------------
Steve L. Komar
Chairman of the Board and
Chief Executive Officer
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
Form 10-K
------------
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the fiscal year ended December 31, 2002.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from ____________ to ____________ .
Commission File Number 000-23967
WidePoint Corporation
(Exact name of registrant as specified in its charter.)
Delaware 52-2040275
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Lincoln Centre, Oakbrook Terrace, IL 60181
(Address of principal executive offices) (Zip Code)
(630) 645-0003
Registrant's phone number, including area code:
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, par value $.001 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X]
The aggregate market value of the registrant's Common Stock, par value
$.001 per share, held as of the last business day of the registrant's most
recently completed second fiscal quarter by non-affiliates of the registrant was
approximately $1,143,892 based on the average bid and asked prices of the Common
Stock on such date.
As of March 17, 2003, the registrant had 15,579,913 shares of its Common
Stock issued and outstanding.
Indicate by check mark if disclosure of delinquent filers pursuant to item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
--------------------------------------------------------------------------------
================================================================================
Item 1. Business
Introduction
WidePoint Corporation ("WidePoint" or the "Company") is a consulting
services firm specializing in planning, managing and implementing Information
Technology ("IT") solutions. Its staff consists of business and technical
specialists that help clients improve their profitability and maintain a
competitive edge in today's rapidly changing business technology environment.
The WidePoint approach is to apply a structured delivery methodology based
on industry standard best practices, enhanced with a set of deliverable
templates that increase productivity and effectiveness. WidePoint focuses on
providing results with significant, tangible business benefits. Our consultants
possess recognized industry-standard certifications and years of successful
project experience.
Since 1996, WidePoint has focused on leveraging leading edge technologies,
methodologies and consultant skills to help clients improve their business
performance. This focus continues to tie together the Company's service
offerings and future direction. WidePoint's clients are increasingly looking to
harness the power of the Internet and leading IT technologies by integrating
these technologies with their existing systems.
In 1996, the Company acquired all of the outstanding shares of Century
Services, Inc. ("CSI"), a corporation that provided re-engineering and
information processing services to users of large-scale computer systems. In
December 1998, the Company acquired all of the outstanding shares of Eclipse
Information Systems, Inc. ("Eclipse"), a corporation that provided IT consulting
services through several practice areas focused in distributed client server
technologies. In October 1999, the Company acquired all of the outstanding
shares of Parker Management Consultants, Ltd. ("PMC"), a corporation that
provided IT consulting services focused in enterprise resource planning ("ERP").
During 1999, the Company established a new subsidiary named WidePoint
Corporation ("WidePoint-Subsidiary") and initiated operations in 2000 through
this subsidiary in an effort to fully transition the Company from a Year 2000
strategic solutions provider to an Internet services company.
In 2000, the Company changed its corporate name from ZMAX Corporation to
WidePoint Corporation and changed the trading symbol for its common stock from
"ZMAX" to "WDPT". During this transition in 2000, the Company experienced
several economic reversals that included an unexpectedly rapid deterioration in
Year 2000 services, and a severe contraction in Internet related services. These
negative events prompted the Company to initiate a refinement in its strategy
during 2000 and on September 29, 2000, the Company sold all of the outstanding
shares of its PMC subsidiary to a third-party purchaser that resulted in the
elimination of substantially all of the Company's long-term debt.
During 2001, the Company continued to further refine its strategy and
consolidated its operations in an attempt to minimize losses, conserve working
capital, and provide a flexible, scaleable, and efficient business model that
was more responsive to the evolving needs of the Company's markets and
customers. Although these actions served to decrease losses through the
reduction of sales and general administrative expenses, they did not result in a
resumption of revenue growth for the Company.
In the latter part of 2001, the Board of Directors of the Company decided
that an updated assessment of strategic alternatives was in order, and soon
thereafter decided that a newly focused strategic direction, plan, and
leadership were required. These mandated changes were initiated prior to the end
of 2001, and put into effect during 2002. Consistent with such changes initiated
by the Board, and the materially deteriorated values of assets acquired in
earlier acquisitions, the Company recorded an impairment of the remaining
intangible assets associated with the acquisition of Eclipse that were acquired
in December 1998.
During 2002, the Company continued to witness a negative economic
environment within the commercial technology sector due to constrained business
investment. In its efforts to overcome the current negative economic environment
and expand its revenue streams, the Company continued to implement and refine
its newly focused strategic plan and laid the groundwork to launch a federal
business initiative, continue its development of new technologies and
capabilities focused on wireless technologies and various other IT practice
areas, and enter into several alliances to expand the Company's ability to
provide new services and reach a wider group of potential customers.
2
Business Strategy and Services
WidePoint's strategy has been to apply a structured delivery methodology
based on industry standard best practices, enhanced with a set of deliverable
templates that boost productivity and effectiveness through its consultants.
WidePoint focuses on providing end results with significant, tangible business
benefits through its consultants that possess recognized industry-standard
certifications and years of successful project experience.
The Company presently focuses on planning, implementing and supporting
IT-based initiatives with the following services:
Architecture and Planning Services
o IT Strategic Planning
o Software Selection
o Program Management
o Project Management
IT Outsource Solutions
o Infrastructure Management
o Applications Management
o Architecture and Design
The Company's ability to successfully expand requires significant revenue
growth from increased services performed for existing and new clients, as well
the potential for strategic acquisitions and/or mergers. The realization of
these events depends on many factors, including successful strategic sales and
marketing efforts and the identification and acquisition of appropriate
businesses. Any difficulties encountered in the expansion of the Company through
successful sales and marketing efforts and/or acquisitions could have an adverse
impact on the Company's revenues and operating results.
Clients
The client base of the Company is located predominantly within North
America. The Company has experience and expertise in the successful completion
of projects in the following industries: manufacturing, consumer product goods,
direct marketing, healthcare and state government.
Historically the Company derived, and may in the future derive, a
significant percentage of its total revenues from a relatively small number of
clients. During 2002, three customers individually represented 22%, 15% and 13%
of revenues, respectively, for that year. Due to the nature of the Company's
business and the relative size of certain contracts, the loss of any single
significant customer could have a material adverse effect on the Company's
results of operations.
Marketing and Sales
The Company focuses its sales and marketing efforts on mid-market
corporations with significant IT budgets and requirements. While the Company
performs work for companies in many various industries, the majority of the
Company's revenues for 2002 were derived from contracts and projects with
manufacturing clients, consumer products clients and healthcare clients.
The Company markets its solutions through its direct sales force, and
alliances with several strategic partnerships in certain industries. The direct
sales force is responsible for providing highly responsive, quality service and
ensuring client satisfaction with the Company's services. The Company's
strategic partnerships and alliances provide the Company with additional access
to potential clients.
Competition
The market for the services that the Company provides is highly
competitive, includes a large number of competitors, and is subject to rapid
change. The primary competitors of the Company include participants from a
variety of market segments, including publicly and privately held firms, large
accounting and consulting firms,
3
systems consulting and implementation firms, application software firms, service
groups of computer equipment companies, and other general management consulting
firms. Increasingly, companies from foreign countries are also targeting this
market.
Intellectual Property
The Company's intellectual property primarily consists of methodologies
developed for use in application development solutions. The Company does not
have any patents and relies upon a combination of trade secrets, copyright and
trademark laws, and contractual restrictions to establish and protect its
ownership of its proprietary methodologies. The Company generally enters into
nondisclosure and confidentiality agreements with its employees, partners,
consultants, independent sales agents and clients. As the number of competitors
providing services similar to the services of the Company increases, the
likelihood of similar methodologies being used by competitors increases.
Although the Company's methodologies have never been subject to an
infringement claim, there can be no assurance that third parties will not assert
infringement claims against the Company in the future, that the assertion of
such claims will not result in litigation, or that the Company would prevail in
such litigation or be able to obtain the license for the use of any allegedly
infringed intellectual property from a third party on commercially reasonable
terms. Further, litigation regardless of its outcome could result in substantial
cost to the Company and divert management's attention from the Company's
operations. Although the Company is not aware of any basis upon which a third
party could assert an infringement claim, any infringement claim or litigation
against the Company could materially adversely affect the Company's business,
operating results and financial condition.
Personnel
As of December 31, 2002, the Company had 34 full time employees and 2
part-time employees including 3 persons in sales and recruiting, 30 persons in
consulting, and 3 persons in management and administration. The Company also
periodically employs additional consultants and temporary employees.
The Company believes that its future success will depend in part on its
continued ability to attract and retain highly skilled managerial, technical,
sales and support personnel. There can be no assurance that the Company will be
able to continue to attract and retain personnel necessary for the development
of its business. The Company generally does not have employment contracts with
its key employees, except as noted in "Employment Agreements and Arrangements"
in ITEM 11. However, the Company does have confidentiality and non-disclosure
agreements with many of its key employees. None of the Company's employees is
subject to a collective bargaining agreement. The Company believes that its
relations with its employees are good.
Item 2. Properties
The principal executive office of the Company consists of approximately
3,500 square feet of office space located at One Lincoln Centre, Suite 1100,
Oakbrook Terrace, Illinois, which is currently being subleased by the Company
through January 2004 for approximately $5,500 per month. The Company's rent in
2002 for the office at One Lincoln Centre was approximately $38,500. The Company
terminated its month-to-month lease at One Mid America Plaza, Oakbrook Terrace,
Illinois effective April 30, 2002. The Company's rent for the office at One Mid
America Centre in 2002 was approximately $54,500.
The Company also leases a branch office located at 4401 Rockside Road,
Suite 405, Independence, Ohio, in approximately 1,131 square feet under a lease
that expires on June 30, 2003. The Company's annual rent in 2002 for such branch
office was approximately $25,000. The Company also pays its pro rata share of
increases in real estate taxes and operating expenses for this office. The
Company is currently subleasing this office space for approximately $1,200 per
month.
During 2000, several offices of the Company were closed and their leases
were either sublet, assigned, or have expired. The Michigan office lease located
at 32000 Northwestern Highway, Suite 165, Farmington Hills, Michigan was sublet
to Galaxy Builders in June 2000 for the same terms as those of the Company's
lease for that location. The Company's annual rent in 2002 for that property was
approximately $35,000 and the lease expires on February 4, 2004. The lease for
the former corporate headquarters office of the Company located at 20251 Century
4
Boulevard, Germantown, Maryland was assigned on December 1, 2000 to GHG
Holdings, Inc., which assigned lease expires on September 30, 2005. The Company
is secondarily liable if GHG Holdings, Inc were to default on that assigned
lease.
For additional information regarding the Company's lease obligations, see
Note 9 of "Notes to Consolidated Financial Statements."
The Company believes that it can obtain additional facilities required to
accommodate its projected needs without difficulty and at commercially
reasonable prices, although no assurance can be given that it will be able to do
so.
Item 3. Legal Proceedings
The Company is not involved in any material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on December 9, 2002.
The following two persons were elected by the following votes to serve as
Class II directors of the Board of Directors for three years or until their
resignation and/or their successors are elected and qualified:
Name Votes For Votes Withheld
---- ----------- ---------------
Steve L. Komar ...................... 9,350,084 1,925,600
James T. McCubbin ................... 9,652,029 1,623,655
Stockholders ratified the selection of Grant Thornton LLP as the
independent accountants for the Company for the current fiscal year. Such
proposal was approved by a vote of 10,932,067 shares for and 335,952 shares
against, with 7,665 shares abstaining.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's Common Stock is quoted on the NASD OTC Bulletin Board under
the symbol "WDPT" and the Frankfurt and Berlin exchanges under the symbol "ZMX".
From July 5, 2000 to March 1, 2001 the Company's Common Stock was traded on the
NASDAQ SmallCap Market under the symbol "WDPT".
The stock prices listed below represent the high and low closing bid prices
of the Common Stock for each of the periods indicated:
2002 High Low
---- ---- ---
First Quarter .................... $0.19 $0.07
Second Quarter ................... 0.13 0.06
Third Quarter .................... 0.15 0.06
Fourth Quarter ................... 0.16 0.07
2001 High Low
---- ---- ---
First Quarter .................... $0.31 $0.09
Second Quarter ................... 0.25 0.11
Third Quarter .................... 0.19 0.07
Fourth Quarter ................... 0.13 0.05
As of March 17, 2003 there were 175 holders of record of the Company's
Common Stock.
Dividend Policy
The Company has never paid cash dividends on its Common Stock and intends
to continue this policy for the foreseeable future. WidePoint plans to retain
earnings for use in its business. Any future determination to pay cash dividends
will be at the discretion of the Board of Directors of the Company and will be
dependent on WidePoint's results of operations, financial condition, contractual
and legal restrictions and any other factors deemed to be relevant.
5
Equity Compensation Plan Information
The following table sets forth information as of December 31, 2002,
regarding the Company's equity compensation plans.
Equity Compensation Plan Information
Number of securities
Number of securities Weighted-average remaining available for
to be issued upon exercise price of future issuance under equity
exercise of outstanding outstanding options, compensation plans (excluding
options, warrants and rights warrants and rights securities reflected in column (a))
Plan category (a) (b) (c)
------------- ---------------------------- -------------------- -----------------------------------
Equity compensation plans
approved by security holders ......... 1,816,000 $0.14 1,184,000
Equity compensation plans not
approved by security holders ......... -- -- --
Total ............................. 1,816,000 $0.14 1,184,00
Recent Sales of Unregistered Securities
Pursuant to stock purchase agreements entered into on July 8, 2002, between
the Company and each of Steve L. Komar, James T. McCubbin and Mark M. Mirabile,
the Company privately sold 865,000 shares of its common stock to each such
person without registration under the Securities Act of 1933, pursuant to the
private offering exemption under Section 4(2) thereof, in consideration of a
three (3) year full-recourse, five percent (5%) interest bearing promissory note
with equal annual principal payments due, issued by each such person to the
Company in the principal amount of $60,550, or $181,650 in the aggregate (which
equals $0.07 per share, being the closing price of the Company's common stock on
July 8, 2002).
Item 6. Selected Consolidated Financial Information
The tables below present selected historical financial data of WidePoint.
The WidePoint historical data for the years ended December 31, 2002, 2001, and
2000 are derived from the historical financial statements of WidePoint
Corporation as audited by Grant Thornton LLP in 2002 and 2001 and Arthur
Andersen LLP in year 2000, included elsewhere in this Form 10-K.
On September 29, 2000, WidePoint sold PMC. The accompanying financial data
includes the accounts of PMC through that date of sale. A further description of
that sale transaction is set forth in the Company's Form 8-K/A filed on December
13, 2000 with the Securities and Exchange Commission.
The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical financial statements and notes thereto included
elsewhere herein.
6
Selected Consolidated Financial Information
Year Ended December 31,
------------------------------------------------------------------------------
2002 2001 2000 1999 1998
------------- --------------- ---------------- ----------------- -------------
Statement of Operations Data:
Revenues ................................ $ 3,495,160 $ 5,902,728 $12,834,474 $27,196,125 $ 9,916,276
Cost of revenues ........................ 2,489,983 3,122,061 7,014,045 12,140,007 3,478,982
Research and development
expense ................................ -- -- -- 325,651 473,362
Sales and marketing expense ............. 525,322 614,786 1,856,694 2,617,117 1,190,548
General and administrative
expense ................................ 643,771 2,549,661 8,535,062 9,701,672 3,515,391
Facilities closing expense .............. -- 43,500 376,289 -- --
Disposition of subsidiary ............... -- -- 699,203 -- --
Employee stock compensation
expense ................................ -- -- -- -- 534,384
Impairment of long-term assets .......... -- 5,853,693 -- 1,703,825 --
Depreciation and amortization ........... 51,792 545,290 851,562 1,817,329 1,268,338
----------- ----------- ----------- ----------- -----------
Loss from operations ................. (215,708) (6,826,263) (6,498,381) (1,109,476) (544,729)
----------- ----------- ----------- ----------- -----------
Other income (expense):
Interest income ......................... 17,658 44,655 103,351 161,123 270,337
Interest expense ........................ (1,559) (5,231) (198,971) (76,296) (9,140)
Other ................................... 140,000 -- -- (33,756) 821
----------- ----------- ----------- ----------- -----------
Net loss before income taxes ......... (59,609) (6,786,839) (6,594,001) (1,058,405) (282,711)
Income taxes ............................ -- -- -- 37,648 --
----------- ----------- ----------- ----------- -----------
Net loss ................................ $ (59,609) $(6,786,839) $(6,594,001) $(1,096,053) $ (282,711)
=========== =========== =========== =========== ===========
Basic and diluted loss per
share ............................... $ (0.00) $ (0.52) $ (0.51) $ (0.08) $ (0.03)
=========== =========== =========== =========== ===========
Basic and diluted weighted
average shares outstanding $14,243,310 12,984,913 12,979,055 12,949,913 10,638,680
=========== =========== =========== =========== ===========
Item 7. Mangement's Discussion and Analysis of Financial Condition and Results
of Operations
The information set forth below includes forward-looking statements.
Certain factors that could cause results to differ materially from those
projected in the forward-looking statements are set forth below under "Forward
Looking Statements." Readers are cautioned not to put undue reliance on
forward-looking statements. The Company disclaims any intent or obligation to
update publicly these forward-looking statements, whether as a result of new
information, future events or otherwise.
Overview
WidePoint Corporation is a consulting services firm specializing in
planning, managing and implementing Information Technology ("IT") solutions. Its
staff consists of business and technical specialists that help clients improve
their profitability and maintain a competitive edge in today's rapidly changing
business technology environment.
In 2000, the Company changed its corporate name from ZMAX Corporation to
WidePoint Corporation and changed the trading symbol for its common stock from
"ZMAX" to "WDPT". During this transition in 2000, the Company experienced
several economic reversals that included an unexpectedly rapid deterioration in
Year 2000 services, and a severe contraction in Internet related services. These
negative events prompted the Company to initiate a refinement in its strategy
during 2000 and on September 29, 2000, the Company sold all of the outstanding
shares of its PMC subsidiary to a third-party purchaser that resulted in the
elimination of substantially all of the Company's long-term debt.
7
During 2001, the Company continued to further refine its strategy and
consolidated its operations in an attempt to minimize losses, conserve working
capital, and provide a flexible, scaleable, and efficient business model that
was more responsive to the evolving needs of the Company's markets and
customers. Although these actions served to decrease losses through the
reduction of sales and general administrative expenses, they did not result in a
resumption of revenue growth for the Company. In the latter part of 2001, the
Board of Directors of the Company decided that an updated assessment of
strategic alternatives was in order, and soon thereafter decided that a newly
focused strategic direction, plan, and leadership were required. These mandated
changes were initiated prior to the end of 2001, and put into effect during
2002. Consistent with such changes initiated by the Board, and the materially
deteriorated values of assets acquired in earlier acquisitions, the Company
recorded an impairment of the remaining intangible assets associated with the
acquisition of Eclipse that were acquired in December 1998.
During 2002, the Company continued to witness a negative economic
environment within the commercial technology sector due to constrained business
investment. In its efforts to overcome the current negative economic environment
and expand its revenue streams, the Company continued to implement and refine
its newly focused strategic plan and launched a federal business initiative,
continued its development of new technologies and capabilities focused on
wireless technologies and various other IT practice areas, and initiated several
alliances to expand the Company's ability to provided expanded services and
reach to a wider group of new customers.
For the year ended December 31, 2002, the Company's revenues decreased by
41% from approximately $5.9 million in 2001 to approximately $3.5 million in
2002. This decrease was primarily due to the significant decrease in IT based
initiatives among the Company's clients as a result of economic instability that
resulted in a materially reduced level of capital investment in new technologies
during 2002.
Most of the Company's current costs consist primarily of the salaries and
benefits paid to the Company's technical, marketing and administrative
personnel. As a result of the Company's plan to expand revenue growth through
new internal initiatives, the Company anticipates these costs to increase.
The Company's profitability depends upon both the volume of services
performed and the Company's ability to manage costs. Because a significant
portion of the Company's cost structure is labor related, the Company must
effectively manage these costs to achieve profitability. To date, the Company
has attempted to maximize its operating margins through efficiencies achieved by
the use of the Company's proprietary methodologies and by offsetting increases
in consultant salaries with increases in consultant fees received from clients.
Critical Accounting Policies
Our consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America, or
GAAP. These accounting principles require us to make certain estimates,
judgments and assumptions. We believe that the estimates, judgments and
assumptions upon which we rely are reasonably based upon information available
to us at the time that these estimates, judgments and assumptions are made.
These estimates, judgments and assumptions can affect the reported amounts of
assets and liabilities as of the date of the financial statements, as well as
the reported amounts of revenue and expenses during the periods presented. To
the extent there are material differences between these estimates, judgments and
assumptions and actual results, our financial statements will be affected. The
significant accounting policies that we believe are the most critical to aid in
fully understanding and evaluating our reported financial results include the
following:
o Revenue recognition;
o Allowance for doubtful accounts; and
o Accounting for income taxes.
In many cases, the accounting treatment of a particular transaction is
specifically dictated by GAAP and does not require management's judgment in its
application. There are also areas in which management's judgment in selecting
among available alternatives would not produce a materially different result.
Our senior management has reviewed these critical accounting policies and
related disclosures with our Audit Committee. See Notes to Consolidated
Financial Statements, which contain additional information regarding our
accounting policies and other disclosures required by GAAP.
8
Revenue Recognition
Revenue on time-and-materials contracts is recognized based upon hours
incurred at contract rates plus direct costs. Revenue on fixed-price contracts
is recognized on the percentage-of-completion method based on costs incurred in
relation to total estimated costs. Anticipated losses are recognized as soon as
they become known. Provisions for estimated losses on uncompleted contracts are
made in the period in which such losses are determined.
Allowance for Doubtful Accounts
We determine our allowance by considering a number of factors, including
the length of time trade accounts receivable are past due, our previous loss
history, the customer's current ability to pay its obligation to us, and the
condition of the general economy and the industry as a whole. We make judgments
as to our ability to collect outstanding receivables based on these factors and
provide allowances for these receivables when collections become doubtful.
Provisions are made based on specific review of all significant outstanding
balances.
Accounting for Income Taxes
We account for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Under the asset and
liability method of SFAS No. 109, deferred income taxes are recognized for the
expected future tax consequences of temporary differences between financial
statement carrying amounts, and the tax bases of existing assets and liabilities
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
We have incurred historical net operating losses, or NOLs, for federal
income tax purposes. Accordingly, no federal income tax provision has been
recorded to date and there are no taxes payable. In assessing the realizability
of deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon generation of
future taxable income during the periods in which those temporary differences
become deductible.
Based upon the level of historical losses that may limit utilization of NOL
carry forwards in future periods, management is unable to predict whether these
net deferred tax assets will be utilized prior to expiration. The unused NOL
carry forwards expire in years 2010 through 2022. As such, we have recorded a
full valuation allowance against net deferred tax assets. Although we believe
that our estimates are reasonable, no assurance can be given that the final
outcome of these matters will not be different than that which is reflected in
our historical income tax provisions. Such differences could have a material
effect on our income tax provision and net income in the period in which such
determination is made.
Results of Operations
Year Ended December 31, 2002, Compared to the Year ended December 31, 2001
Revenues. Revenues for the year ended December 31, 2002, were approximately
$3.5 million, a decrease of $2.4 million, as compared to revenues of
approximately $5.9 million for the year ended December 31, 2001. The 41%
decrease in revenues in 2002 was primarily attributable to the severe
contraction of IT based initiatives among the Company's clients as a result of
economic instability that resulted in a materially reduced level of capital
investment in new technologies during 2002.
Gross profit. Gross profit for the year ended December 31, 2002, was $1.0
million, or 29% of revenues, a decrease of $1.8 million as compared to gross
profit of $2.8 million, or 47% of revenues, for the year ended December 31,
2001. The decrease in the amount of gross profit was attributable to a reduction
in revenues and a degradation of operating margins caused by a decrease in
demand for the Company's services as a result of the difficult economic
marketplace during 2002 as compared to 2001.
Sales and marketing. Sales and marketing expenses for the year ended
December 31, 2002 were $0.5 million, or 15% of revenues, as compared to $0.6
million, or 10% of revenues, for the year ended December 31, 2001. The $0.1
million decrease in sales and marketing expenses for the year ended December 31,
2002, was primarily attributable to the Company's attempt to match the size of
the Company's sales force with the operational requirements of the Company's
business.
9
General and administrative. General and administrative expenses for the
year ended December 31, 2002 were $0.6 million, or 18% of revenues, as compared
to $2.5 million, or 43% of revenues, for the year ended December 31, 2001. The
$1.9 million decrease in general and administrative expenses in 2002 was
primarily attributable to the Company's efforts to match general and
administrative expenses to the operational requirements of the Company's
business which resulted in a reduction in employees and overhead expenses.
Facilities closing expense. The loss from operations for the year ended
December 31, 2001 included a one-time charge of $43,500 for facilities closing
expense related to the closure of the Company's Ohio office.
Asset Impairment. The impairment of assets for the year ended December 31,
2001 included a charge of approximately $5.9 million related to the write-down
of intangible assets associated with the purchase of Eclipse in December 1998.
Interest income (expense). Interest income for the year ended December 31,
2002 was $17,658, a decrease of $26,996 or 60%, as compared to $44,654 for the
year ended December 31, 2001. The decrease in interest income in 2002 was
primarily attributable to lower interest rates. Interest expense for the year
ended December 31, 2002 was $1,559, a decrease of $3,672 or 70%, as compared to
$5,231 in interest expense for the year ended December 31, 2001. The decrease in
interest expense in 2002 was primarily attributable to the elimination of the
long-term portion of capital lease obligations.
Net loss. As a result of the above, the net loss for the year ended
December 31, 2002 was $(0.06) million, a decrease of $6.7 million, as compared
to the net loss of $6.8 million for the year ended December 31, 2001.
Year Ended December 31, 2001, Compared to the Year ended December 31, 2000
Revenues. Revenues for the year ended December 31, 2001, were approximately
$5.9 million, a decrease of $6.9 million, as compared to revenues of
approximately $12.8 million for the year ended December 31, 2000. The 54%
decrease in revenues in 2001 was primarily attributable to the severe
contraction of Internet based initiatives among the Company's clients and an
economic recession in the United States.
Gross profit. Gross profit for the year ended December 31, 2001, was $2.8
million, or 47% of revenues, a decrease of $3.0 million as compared to gross
profit of $5.8 million, or 45% of revenues, for the year ended December 31,
2000. The decrease in the amount of gross profit was attributable to a reduction
in revenues generated during 2001 as compared to 2000.
Sales and marketing. Sales and marketing expenses for the year ended
December 31, 2001 were $0.6 million, or 10% of revenues, as compared to $1.9
million, or 15% of revenues, for the year ended December 31, 2000. The $1.3
million decrease in sales and marketing expenses for the year ended December 31,
2001, was primarily attributable to the refinement of corporate strategy that
matched the size of the Company's sales force with the operational requirements
of the Company's business.
General and administrative. General and administrative expenses for the
year ended December 31, 2001 were $2.5 million, or 43% of revenues, as compared
to $8.5 million, or 66% of revenues, for the year ended December 31, 2000. The
$6.0 million decrease in general and administrative expenses in 2001 was
primarily attributable to the reduction in employees and consultants of the
Company and the closure of offices that resulted from the continued cost
containment strategy of the Company.
Facilities closing expense. The loss from operations for the year ended
December 31, 2001 included a one-time charge of $43,500 for facilities closing
expense related to the closure of the Company's Ohio office. For the year ended
December 31, 2000, the facilities closing expense was $0.4 million, which was
the result of the consolidation and closure of the Company's offices in
Minnesota, Michigan, Maryland, and Massachusetts.
Disposition of Subsidiary. The loss from operations for the year ended
December 31, 2000 included a one-time charge of $0.7 million related to the
write-off of intangible assets associated with the sale of PMC. The loss
included the write-off of intangible assets with a remaining net book value of
approximately $3,400,000 and direct costs associated with the sale of
approximately $200,000.
Asset Impairment. The impairment of assets for the year ended December 31,
2001 included a charge of approximately $5.9 million related to the write-down
of intangible assets associated with the purchase of Eclipse in December 1998.
10
Interest income (expense). Interest income for the year ended December 31,
2001 was $44,654, a decrease of $58,697 or 57%, as compared to $103,351 for the
year ended December 31, 2000. The decrease in interest income in 2001 was
primarily attributable to lesser amounts of invested cash and lower interest
rates. Interest expense for the year ended December 31, 2001 was $5,231, a
decrease of $193,740 or 97%, as compared to $198,971 in interest expense for the
year ended December 31, 2000. The decrease in interest expense in 2001 was
primarily attributable to the elimination of the Company's debt through the sale
of PMC.
Net loss. As a result of the above, the net loss for the year ended
December 31, 2001 was $6.8 million, an increase of $0.2 million, as compared to
the net loss of $6.6 million for the year ended December 31, 2000.
Liquidity and Capital Resources
The Company has, since inception, financed its operations and capital
expenditures through the sale of common stock, convertible notes, convertible
exchangeable debentures, the proceeds from an exchange offer of debt for equity
and the exercise of warrants related to convertible exchangeable debentures.
Cash used in operating activities for the year ended December 31, 2002 was
approximately $0.3 million, as compared to cash provided by operating activities
of $0.5 million for the year ended December 31, 2001. Total cash used for the
year ended December 31, 2002 was approximately $0.4 million, as compared to cash
provided of $0.5 million for the year ended December 31, 2001. The cash used
during the year ended December 31, 2002 was primarily a result of slower
collections of accounts receivable and a reduction in accounts payable, accrued
expenses, and other liabilities that resulted from lesser revenues in 2002 as
compared to 2001. There were no capital expenditures on property and equipment
for the year ended December 31, 2002.
As of December 31, 2002, the Company had working capital of $1.3 million.
The Company's primary source of liquidity consists of $1.2 million in cash and
cash equivalents and $0.4 million of accounts receivable. The Company's current
liabilities include $0.3 million in accounts payable and accrued expenses.
The Company's business environment is characterized by rapid technological
changes. In 2002, the Company continued to implement a strategic plan to reverse
its declining revenue trend by expanding into additional markets and services.
The Company requires substantial working capital to fund these endeavors and the
future growth of its business, particularly to finance accounts receivable,
sales and marketing efforts, and capital expenditures. The Company currently has
no material commitments for capital expenditures. The Company's future capital
requirements will depend on many factors, including the rate of revenue growth,
if any, the timing and extent of spending for new product and service
development, technological changes and market acceptance of the Company's
services. The Company believes that its current cash position is sufficient to
meet its capital expenditure and working capital requirements for the near term;
however, the Company's declining revenue growth and the investment to add new
markets and services make it difficult for the Company to predict future
liquidity requirements with certainty. Over the longer term, the Company must
successfully execute its plans to generate significant positive cash flows from
increased revenues if it is to sustain adequate liquidity without impairing
growth or requiring the infusion of additional funds from external sources.
Additionally, a major expansion, such as would occur with the acquisition of a
significant new subsidiary, might also require external financing that could
include additional debt or equity capital. There can be no assurance that
additional financing, if required, will be available on acceptable terms, if at
all.
Other
Inflation has not had a significant effect on the Company's operations, as
increased costs to the Company have generally been offset by increased prices of
products and services sold.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
11
Forward Looking Statements
This report contains forward-looking statements setting forth the Company's
beliefs or expectations relating to future revenues and profitability. Actual
results may differ materially from projected or expected results due to changes
in the demand for the Company's products and services, uncertainties relating to
the results of operations, dependence on its major customers, risks associated
with rapid technological change and the emerging services market, potential
fluctuations in quarterly results, and its dependence on key employees and other
risks and uncertainties affecting the technology industry generally. The Company
disclaims any intent or obligation to up-date publicly these forward-looking
statements, whether as a result of new information, future events or otherwise.
Item 7A. Quantitative and Qualitative Disclosures About Market Risks
None.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements and schedules required hereunder and
contained herein are listed under Item 15(a) below.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
12
Part III.
Item 10. Directors and Executive Officers of the Registrant
The following sets forth information regarding the directors, executive
officers and certain significant employees of the Company:
Position with Became
Name the Company Age Director
---- ---------------------------------- ----- --------
Steve L. Komar Chairman of the Board of
Directors and
Chief Executive Officer 61 1997
James T. McCubbin Director, Secretary and
Treasurer, and
Chief Financial Officer 39 1998
James M. Ritter Director and Assistant Secretary 59 1999
G.W. Norman Wareham Director 49 1997
Mark Mirabile Director and Vice President 40 2002
and Chief Operations Officer
Steve L. Komar has served as a director of the Company since December 1997
and became Chairman of the Board of Directors in October 2001. Mr. Komar has
also served as the Chief Executive Officer of the Company since January 2002.
From June 2000 until December 2001, Mr. Komar served as a founding partner in
C-III Holdings, a development stage financial services company. From 1991 to
June 2000, Mr. Komar served as Group Executive Vice President of Fiserv, Inc., a
company that provides advanced data processing services and related products to
the financial industry. Mr. Komar is a graduate of the City University of New
York with a Bachelor of Science Degree in Accounting and holds a Masters Degree
in Finance from Pace University.
James T. McCubbin has served as a director and Secretary and Treasurer of
the Company since November 1998. Since August 1998, Mr. McCubbin has also served
as the Company's Vice President and Chief Financial Officer. Prior to that time,
from December 1997 to August 1998, Mr. McCubbin served as the Vice President,
Controller, Assistant Secretary and Treasurer of the Company. Prior to his
employment with the Company in November 1997, Mr. McCubbin held various
financial management positions with a wide range of companies. Mr. McCubbin is a
graduate of the University of Maryland with a Bachelor of Science Degree in
Finance and a Masters Degree in International Management.
James M. Ritter has served as a director of the Company since December 1999
and Assistant Secretary since December 2002. Mr. Ritter is the retired Corporate
Headquarters Chief Information Officer of Lockheed Martin Corporation. Prior to
his retirement in February 2001, Mr. Ritter was employed at Lockheed Martin
Corporation for over 32 years in various positions involving high level IT
strategic planning and implementation, e-commerce development, integrated
financial systems, and large-scale distributed systems.
G.W. Norman Wareham has served as a director of the Company since December
1997. Mr. Wareham served as the Company's Vice President, Secretary and Chief
Financial Officer from September 1996 until August 1998. Mr. Wareham is
President of Wareham Management Ltd. and provides management consulting and
accounting services to public companies in Canada and the United States. Mr.
Wareham is a certified general accountant and has been engaged in the public
practice of accounting for over 20 years.
Mark Mirabile has served as a Director of the Company since his appointment
in April, 2002. Mr Mirabile has also served as the Vice President and Chief
Operations Officer for the Company since December 2001. From June 2000 to
November 2001, Mr. Mirabile served as the Vice President of Sales and Marketing
for the Company. Prior to that time, from November 1992 to May 2000, Mr.
Mirabile served as the Vice President of Eclipse Information Systems, Inc.
("Eclipse"), a wholly-owned subsidiary of the Company. Mr. Mirabile was a
co-founder of Eclipse prior to its acquisition by the Company in December 1998.
Mr. Mirabile has over 20 years experience
13
in information technology at both the executive and technical levels. He has an
Associates Degree in Applied Science-Accounting from Daley Community College in
Chicago.
Item 11. Executive Compensation.
The following Summary Compensation Table sets forth the annual salary
(column c) and bonus (column d) paid and options granted (column g) during each
of the past three years to executive officers of the Company at December 31,
2002 whose annual salary and bonus in 2002 exceeded $100,000.
Summary Compensation Table
Long-Term Compensation
-------------------------------------
Annual Compensation Awards Payouts
----------------------------------------------------------------------------- ------------------ --------
(a) (b) (c) (d) (e) (f) (g) (h)
Other Annual Restricted Stock LTIP
Salary Bonus Compensation(1) Award(s) Options Payouts
Name and Principal Position Year ($) ($) ($) $ (#)(2) ($)
--------------------------- ------ ----------- ---------- ----------------- ------------------ --------- --------
James McCubbin .............. 2002 $119,000 $ -0- $-0- $-0- -0- $-0-
Vice President & Chief 2001 $134,302 $ -0- $-0- $-0- 500,000 $-0-
Financial Officer 2000 $136,855 $92,400 $-0- $-0- -0- $-0-
Mark Mirabile ............... 2002 $119,000 $ -0- $-0- $-0- -0- $-0-
Vice President & Chief 2001 $133,681 $ -0- $-0- $-0- 500,000 $-0-
Operations Officer 2000 $131,250 $ 9,750 $-0- $-0- 45,000 $-0-
------------
(1) Does not report the approximate cost to the Company of an automobile
allowance furnished to the above persons, which amounts do not exceed the
lesser of either $50,000 or 10% of the total of the person's annual salary
and bonuses for 2002.
(2) Reports the number of shares underlying options granted during each of the
respective years.
The following Option Grants Table sets forth, for each of the named
executive officers, information regarding individual grants of options granted
in 2002 and their potential realizable value. Information regarding individual
option grants includes the number of options granted, the percentage of total
grants to employees represented by each grant, the per-share exercise price and
the expiration date. The potential realizable value of the options are based on
assumed annual 0%, 5% and 10% rates of stock price appreciation over the term of
the option.
Option Grants Table
Individual Grants
--------------------------------------------------
% of Total Potential Realizable Value at
Options Assumed Annual Rates of Stock
Granted to Price Appreciation for Option
Options Employees Term(4)
Granted in Fiscal Exercise Expiration ------------------------------
Name (#)(1) Year(2) Price($/SH)(3) Date 0% 5% 10%
---- --------- ----------- ---------------- ----------- ------ ----------- -----------
Steve Komar ....... 500,000 81% $0.07 7/7/2012 $0 $17,778 $36,123
------------
(1) The reported options were granted by the Company to the named executive
officers under the Company's 1997 Stock Option Plan and become exercisable
and may be accelerated upon the achievement by the executive officer of
certain annual performance criteria set each year by the Compensation
Committee of the Company's Board of Directors.
(2) Based on options for a total of 620,000 shares granted to all employees in
2002.
(3) The exercise price is equal to the fair market value on the date of grant
of the option.
(4) The potential realizable values shown in the columns are net of the option
exercise price. These amounts assume annual compounded rates of stock price
appreciation of 0%, 5%, and 10% from the date of grant to the option
14
expiration date, a term of ten years. These rates have been set by the U.S.
Securities and Exchange Commission and are not intended to forecast future
appreciation, if any, of the Company's Common Stock. Actual gains, if any,
on stock option exercises are dependent on several factors including the
future performance of the Company's Common Stock, overall stock market
conditions, and the optionee's continued employment through the vesting
period. The amounts reflected in this table may not actually be realized.
The following Option Exercises and Year-End Value Table is set forth herein
because it sets forth, for each of the named executive officers, information
regarding the number and value of unexercised options at December 31, 2002. No
options were exercised by such persons during 2002.
Aggregate Option Exercises and Fiscal Year-End Option Value Table
(a) (b) (c) (d) (e)
Value of
Number of Unexercised
Unexercised In-The-Money
Options at Options at
FY-End(#) (1) FY-End($)
Number of ------------------------ ------------------
Shares Acquired Value Realized Exercisable/ Exercisable/
Name on Exercise ($) Unexercisable Unexercisable (2)
---- ----------------- ---------------- ------------------------ ------------------
Steve Komar ............ -0- -0- 328,000/200,000(3) $22,960/$14,000
James McCubbin ......... -0- -0- 301,000/200,000(4) $0/$0
Mark Mirabile .......... -0- -0- 301,000/200,000(5) $0/$0
------------
(1) The reported options were granted by the Company to the named executive
officer.
(2) Market value of underlying shares at December 31, 2002, minus the exercise
price.
(3) The above-reported options entitle Mr. Komar to purchase from the Company
(i) 300,000 common shares at a price of $0.07 per share through July 7,
2012, pursuant to a stock option granted to him on July 7, 2002 under the
Incentive Plan, and (iii) 200,000 shares at a price of $0.07 per share
through July 7, 2012, under an option granted on July 7, 2002, with such
shares vesting 100,000 shares annually through January 2, 2004 or by the
earlier vesting by the compensation committee, 12,000 shares of Common
Stock that may be purchased by Mr. Komar from the Company at a price of
$14.06 per share until May 20, 2007, pursuant to a stock option granted to
him on May 20, 1997 under the Director Plan, (iii) 6,000 shares of Common
Stock that may be purchased by Mr. Komar from the Company at a price of
$7.66 per share until March 24, 2008, pursuant to a stock option granted to
him on March 24, 1998 under the Director Plan, and (iv) 10,000 shares of
Common Stock that may be purchased by Mr. Komar from the Company at a price
of $3.97 per share until December 10, 2008, pursuant to a stock option
granted to him on December 10, 1998 under the Director Plan.
(4) The above-reported options entitle Mr. McCubbin to purchase from the
Company (i) 1,000 common shares at a price of $1.35 per share through July
3, 2010 under an option granted on July 3, 2000, of which 1,000 shares are
currently exercisable, (ii) 300,000 common shares at a price of $0.17 per
share through January 2, 2011, pursuant to a stock option granted to him on
January 2, 2001 under the Incentive Plan, and (iii) 200,000 shares at a
price of $0.17 per share through January 2, 2011, under an option granted
on January 2, 2001, with such shares vesting 100,000 shares annually
through January 2, 2004 or by the earlier vesting by the compensation
committee.
(5) The above-reported options entitle Mr. Mirabile to purchase from the
Company (i) 1,000 common shares at a price of $1.35 per share through July
3, 2010 under an option granted on July 3, 2000, of which 1,000 shares are
currently exercisable, (ii) 300,000 common shares at a price of $0.17 per
share through January 2, 2011, pursuant to a stock option granted to him on
January 2, 2001 under the Incentive Plan, and (iii) 200,000 shares at a
price of $0.17 per share through January 2, 2011, under an option granted
on January 2, 2001, with such shares vesting 100,000 shares annually
through January 2, 2004 or by the earlier vesting by the compensation
committee.
No Long-Term Incentive Plan Awards Table is set forth herein because no
long-term incentive plan awards were made to the above-named executive officers
during 2002.
15
Employment Agreements and Arrangements
On July 1, 2002, the Company entered into an employment agreement with
Steve Komar, Chief Executive Officer for the Company. The employment agreement
continues through July 1, 2003 with five renewable one-year options. The
agreement provides for (1) a home office/automobile expense allowance of $500
per month to cover such expenses incurred in the pursuit of Company business;
(2) a phone allowance of $100 per month to cover such expenses incurred in the
pursuit of Company business; (3) reimbursement for additional actual business
expenses consistent with the Company's existing policies that have been incurred
for the benefit of the Company; (4) paid medical and other benefits consistent
with the Company's existing policies with respect to key executives of the
Company, as such policies may be amended from time to time in the future; and
(5) performance incentive bonuses as may be granted annually at the discretion
of the Compensation Committee of the Board of Directors.
On September 1, 1999, the Company entered into employment agreements with
each of Michael C. Higgins and James T. McCubbin. Mr. Higgins resigned his
position with the Company on December 31, 2001. Mr. Higgins entered into a
separation agreement that amended and superseded his employment agreement with
the Company upon his resignation. The separation agreement contained
non-competition, non-solicitation and non-disclosure provisions restricting Mr.
Higgins from employment with any competing business, soliciting or diverting
Company employees and customers to a competing business, soliciting or diverting
Company employees and customers to a competing business or disclosing the
Company's proprietary information to third parties during the term of the
separation agreement. The separation agreement provided for a single payment of
$95,625 by the Company to Mr. Higgins, representing six (6) months salary at his
then current pay rate of $191,250 per annum and the Company paid benefits for
six (6) months from his date of resignation in consideration for, among other
things, the early termination of Mr. Higgins' employment agreement. In October
2001, Mr. McCubbin volunteered to reduce his current pay rate from $140,000 per
annum to $119,000 per annum with an office expense allowance of $500 per month.
In July of 2002, the Company entered into a new employment agreement with Mr.
McCubbin that continues his current base pay rate of $119,000 per annum with an
office expense allowance of $500.00 through July 2003 with five renewable
one-year options.
On December 14 1998, the Company entered into an employment agreement with
Mark Mirabile, Vice President of Sales and Marketing for the Company. The
employment agreement was for a three year term and expired on December 14, 2001.
The agreement provided for a base salary of at least $130,000 plus a bonus of up
to 30% of his annual gross salary bonus and an automobile expense in the amount
of $500 per month. Mr. Mirabile voluntarily reduced his pay rate to $119,000 per
annum and an automobile expense allowance in the amount of $500 per month. In
July 2002, the Company entered into a new employment agreement with Mr. Mirabile
that continues his current base pay rate of $119,000 per annum with an
automobile allowance of $500.00 through July 2003 with five renewable one-year
options.
Compensation Committee Report on Executive Compensation
The Compensation Committee consists of Steve L. Komar, G.W. Norman Wareham
and James Ritter. The Compensation Committee determines the compensation paid to
the Chief Executive Officer and the other executive officers and consultants of
the Company. Mr Komar, who is currently serving as the Chief Executive Officer
of the Company, does not participate in the determination by the Committee of
the compensation paid to the Chief Executive Officer. The Compensation Committee
believes that for the Company to be successful long-term and for the Company to
increase stockholder value, the Company must be able to hire, retain, adequately
compensate and financially motivate talented and ambitious executives. The
Compensation Committee attempts to reward executives for both individual
achievement and overall Company success.
Executive compensation is made up of three components:
Base Salary. An executive's base salary is initially determined by
considering the executive's level of responsibility, prior experience and
compensation history. Published salaries of executives in similar positions at
other companies of comparable size (sales and/or number of employees) is also
considered in establishing base salary.
Stock Options. In 1997, the Company adopted the 1997 Incentive Stock Plan
to provide stock option awards to certain executives of the Company and its
subsidiaries. The Compensation Committee believes that the granting
16
of stock options is directly linked to increased executive commitment and
motivation and to the long-term success of the Company. The Compensation
Committee awards stock options to certain executives of the Company and its
subsidiaries. Mr Komar,who is currently serving as the Chief Executive Officer
of the Company, does not participate in the determination by the Committee of
any stock options to be granted to the Chief Executive Officer. The Compensation
Committee uses both subjective appraisals of the executive's performance and the
Company's performance and financial success during the previous year to
determine option grants.
Bonus. The Company has also implemented an executive bonus program for
certain of its executives. Such bonuses are based, in part, on the Company's
financial performance during the previous fiscal year including achievement of
gross revenue and net income targets. In addition, objective individual measures
of performance compared to the individual's business unit profit performance may
be considered. A subjective rating of the executive's personal performance may
also be considered. Bonuses may be paid in cash or Company Common Stock or a
combination of cash and Company Common Stock. Bonuses are typically linked to a
percentage of base salary.
In early 2002, the Compensation Committee recommended to the Board of
Directors and the Board of Directors approved a compensation package for the
Company's Chief Operations Officer, Mark Mirabile, and the Company's Vice
President and Chief Financial Officer, James McCubbin, that included a base
salary of approximately $119,000 in 2002 for both Mr. Mirabile and Mr. McCubbin,
plus a possible bonus for each of them of up to 100% of their base salary, which
represented a decrease in the base salary for both such persons since 1999 due
to the declining revenues of the Company. Mr. Mirabile and Mr. McCubbin both
voluntarily reduced their base salaries in October 2001 to approximately
$119,000 per annum. Receipt of the bonus is subject to the Company's achievement
of certain performance criteria, including gross revenue and net income targets.
If the performance criteria are not achieved or the executive is no longer
employed by the Company (other than for cause termination), a bonus may be
awarded in the discretion of the Compensation Committee. No bonuses were awarded
in 2002.
In determining the 2002 compensation packages for these executive officers,
the Compensation Committee considered that the Company was conserving its cash
and reducing its costs and expenses in response to declining revenues.
Exceptions to the general principles stated above can be made when the
Compensation Committee deems them appropriate and in the best interests of
stockholders. The Compensation Committee regularly considers other forms of
compensation and modifications of its present policies, and will make changes as
it deems appropriate. The competitive opportunities to which the Company's
executives are exposed frequently come from private companies or divisions of
large companies, for which published compensation data is often unavailable and,
therefore, the Compensation Committee's information about such opportunities is
often anecdotal.
Section 162(m) of the Internal Revenue Code of 1986, as amended,
establishes a limit on the deductibility of annual compensation for certain
executive officers that exceeds $1,000,000 per year unless certain requirements
are met. The Company does not anticipate that any employee will exceed such
$1,000,000 cap in the near future but will consider whether any necessary
adjustments are appropriate if it becomes likely that any executive officer's
compensation may exceed the $1,000,000 limit.
Compensation Committee
Steve L. Komar
G.W. Norman Wareham
James Ritter
The foregoing Compensation Committee report shall not be deemed to be filed with
the Securities and Exchange Commission for purposes of the Securities Exchange
Act of 1934 (the "1934 Act"), nor shall such report be deemed to be incorporated
by reference in any past or subsequent filing by the Company under the 1934 Act
or the Securities Act of 1933, as amended (the "1933 Act").
Stock Options
1997 Stock Incentive Plan. In May 1997, the Board of Directors adopted, and
in December 1997 the stockholders of the Company approved, the Company's 1997
Stock Incentive Plan (the "Incentive Plan"), which provides for the award of a
variety of equity-based incentives, including stock awards, stock options, stock
17
appreciation rights, phantom shares, performance unit appreciation rights and
dividend equivalents (collectively, "Stock Incentives"). The Incentive Plan is
administered by a committee, which is presently comprised of Steve L. Komar,
G.W. Norman Wareham and James Ritter, and provides for the grant of Stock
Incentives officers, key employees and consultants of the Company to purchase up
to an aggregate of 3,000,000 shares of Common Stock at not less than 100% of
fair market value on the date granted; provided, however that Mr. Komar, who is
currently serving as the Chief Executive Officer of the Company, does not
participate in the determination by the committee of any Stock Incentives to be
granted to the Chief Executive Officer. The vesting and exercisability of any
Stock Incentives granted under the Incentive Plan is subject to the
determination of and criteria set by the committee. As of March 17, 2002,
options to purchase a total of 1,878,000 shares of Common Stock under the
Incentive Plan, at prices ranging from $0.07 to $1.35 per share, were
outstanding, of which options to purchase 1,025,673 shares were presently
exercisable.
1997 Directors Formula Stock Option Plan. In May 1997, the Board of
Directors adopted, and in December 1997 the stockholders of the Company
approved, the Company's 1997 Directors Formula Stock Option Plan (the "Director
Plan"). Other than Messrs. Komar, Wareham, and Ritter, directors of the Company
who are not employed by the Company and who do not perform services for the
Company are eligible to receive options under the Director Plan.
The Director Plan is administered by a committee which presently consists
of Messrs. Komar and McCubbin. Options become exercisable when vested and expire
ten years after the date of grant, subject to such shorter period as may be
provided in the agreement. A total of 140,000 shares of Common Stock are
reserved for possible issuance upon the exercise of options under the Director
Plan. As of December 31, 2002, options to purchase a total of 68,000 shares of
Common Stock had been granted under the Director Plan, at prices ranging from
$2.06 to $14.06 per share, of which options to purchase 68,000 shares were
vested and presently exercisable.
Directors' Fees
Directors who are not officers or employees of the Company receive an
annual fee of $12,000.
Audit Committee Report
Overview
The Board of Directors has an Audit and Finance Committee, which conducted
four meetings during 2002 and presently consists of Steve L. Komar, G.W. Norman
Wareham and James Ritter. Mr. Komar is a director and also serves as the Chief
Executive Officer of the Company. Mr. Wareham and Mr. Ritter are independent,
non-employee directors. The Audit and Finance Committee is responsible for
meeting with the Company's independent accountants to review the proposed scope
of the annual audit of the Company's books and records, reviewing the findings
of the independent accountants upon completion of the annual audit, and
reporting to the Board of Directors with respect thereto. All of the members of
the Audit Committee are considered by the Board to be financially literate and
at least two, Mr. Wareham and Mr. Komar, are considered by the Board to have
accounting or related financial management expertise.
Financial Statement Review.
The Audit Committee has: (a) reviewed and discussed the audited financial
statements with the management of the Company; (b) discussed with the Company's
independent auditors, Grant Thornton LLP, the matters required to be discussed
by Statement on Auditing Standards No. 61; (c) received from the Company's
independent auditors the written disclosures and the letter required by
Independence Standard Board Standard No. 1, and has discussed with the Company's
independent auditors their independence; and (d) based on the review and
discussions referred to in clauses (a), (b) and (c) above, recommended to the
Board that the audited financial statements be included in the Company's Annual
Report on Form 10-K for fiscal year 2002 for filing with the Securities and
Exchange Commission.
18
Independent Auditors.
The Company's Board of Director's appointed the accounting firm of Grant
Thornton LLP to serve as the Company's independent accountants for the fiscal
years ending December 31, 2002 and 2001. During the year ended December 31, 2000
Arthur Andersen LLP acted as the firm's independent accountants. Upon the
recommendation of the Audit Committee, the Board has selected Grant Thornton LLP
as the Company's independent auditor for fiscal year 2002.
Audit Fees
The Company paid Grant Thornton LLP approximately $32,000 in audit and
review fees for fiscal year 2002.
Financial Information Systems Design and Implementation Fees
The Company did not pay Grant Thornton LLP any financial information
systems design and implementation fees for fiscal year 2002.
All Other Fees
The Company did not pay Grant Thornton LLP any nonaudit fees for fiscal
year 2002.
Audit Committee Composition
The foregoing report is submitted by the members of the Audit Committee:
G.W. Norman Wareham (Chairman), James Ritter, and Steve L. Komar.
19
STOCK PERFORMANCE CHART
The following chart compares the cumulative total stockholder return for
the Common Stock of the Company (and its predecessors) with the NASDAQ Stock
market (U.S.) Index, the NASDAQ Computer & Data Processing Industry Index, the
Russell 2000, and the RDG Technology Composite since December 31, 1997. The
Company in an effort to provide a more relevant comparative return has included
the Russell 2000 and the RDG Technology Composite.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG WIDEPOINT CORPORATION, THE NASDAQ STOCK MARKET (U.S.) INDEX,
THE RUSSELL 2000 INDEX, THE NASDAQ COMPUTER & DATA PROCESSING INDEX
AND THE RDG TECHNOLOGY COMPOSITE INDEX
[THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
12/97 12/98 12/99 12/00 12/01 12/02
WidePoint Corporation $100.00 $ 53.21 $ 32.12 $ 2.29 $ 1.83 $ 2.20
NASDAQ (U.S.) Index 100.00 140.99 261.48 157.42 124.89 86.34
NASDAQ C&DP Index 100.00 178.39 392.44 180.62 145.44 100.29
Russell 2000 100.00 97.45 118.17 114.60 117.45 93.39
RDG Technology Composite 100.00 176.09 348.88 216.36 158.21 93.38
*$100 invested on 12/31/97 in stock or index -- including reinvestment of
dividends. Fiscal year ending December 31.
1997 1998 1999 2000 2001 2002
------------ ------------ ------------ ----------- ----------- -----------
WidePoint Corporation ............. $100.00 $ 53.21 $ 32.12 $ 2.29 $ 1.83 $ 2.20
NASDAQ (U.S.) Index ............... 100.00 140.99 261.48 157.42 124.89 86.34
NASDAQ C&DP Index ................. 100.00 178.39 392.44 180.62 145.44 100.29
Russell 2000 ...................... 100.00 97.45 118.17 114.60 117.45 93.39
RDG Technology Composite .......... 100.00 176.09 348.88 216.36 158.21 93.38
The foregoing Stock Performance Chart shall not be deemed to be filed with
the Securities and Exchange Commission for purposes of the 1934 Act, nor shall
such material be deemed to be incorporated by reference in any past or
subsequent filing by the Company under the 1934 Act or the 1933 Act.
20
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors, and persons who own more than 10% of a
registered class of the Company's equity securities, to file reports of
securities ownership and changes in such ownership with the Securities and
Exchange Commission. Statements of Changes in Beneficial Ownership of Securities
on Form 4 are required to be filed before the end of the second business day
following the day on which the change in beneficial ownership occurred. The
Company believes that all reports of securities ownership and changes in such
ownership required to be filed during 2002 were timely filed.
Item 12. Security Ownerhip of Certain Beneficial Owners and Management and
Related Stockholder Matters
Principal Stockholders
The following table sets forth the number of shares of Common Stock
beneficially owned as of December 31, 2002 by: (i) each person known by the
Company to be the beneficial owner of 5% or more of such class of securities,
(ii) each director of the Company and (iii) all directors and officers of the
Company as a group.
Number of Percent of
Shares of Outstanding
Directors, Nominees and 5% Stockholders Common Stock(1) Common Stock(1)
--------------------------------------- ----------------- ----------------
Michael C. Higgins(2) ........................ 1,588,000 10.2%
Michael S. Cannon(3) ......................... 1,046,730 7.4%
Steve L. Komar(4) ............................ 1,193,000 5.7%
G.W. Norman Wareham(5) ....................... 28,000 0.1%
James T. McCubbin(6) ......................... 1,166,000 7.5%
James M. Ritter(7) ........................... 13,500 0.1%
Mark Mirabile(8) ............................. 1,436,000 9.2%
All directors and officers as a group
(5 persons)(9) .............................. 3,836,500 24.6%
------------
(1) Assumes in the case of each stockholder listed in the above list that all
presently exercisable warrants or options held by such stockholder were
fully exercised by such stockholder, without the exercise of any warrants
or options held by any other stockholders.
(2) Includes (i) a stock option granted on December 31, 2001, to Mr. Higgins
under the Incentive Plan to purchase 100,000 shares of stock at $0.17 until
December 31, 2002.
(3) Mr. Cannon died in November 2001. The address of Mr. Cannon prior to his
death was PMB 422, 12179 South Apopka Vineland Road, Orlando, Florida.
(4) Includes (i) 865,000 shares of Common Stock purchased by Mr. Komar from the
Company on July 8, 2002 in a private transaction without registration under
the Securities Act of 1933, pursuant to the private offering exemption
under Section 4(2) thereof, (ii) 300,000 common shares at a price of $0.07
per share through July 7, 2012, pursuant to a stock option granted to him
on July 7, 2002 under the Incentive Plan, and (iii) 200,000 shares at a
price of $0.07 per share through July 7, 2012, under an option granted on
July 7, 2002, with such shares vesting 100,000 shares annually through
January 2, 2004 or by the earlier vesting by the compensation committee,
(iii) 12,000 shares of Common Stock that may be purchased by Mr. Komar from
the Company at a price of $14.06 per share until May 20, 2007, pursuant to
a stock option granted to him on May 20, 1997 under the Director Plan,
(iii) 6,000 shares of Common Stock that may be purchased by Mr. Komar from
the Company at a price of $7.66 per share until March 24, 2008, pursuant to
a stock option granted to him on March 24, 1998 under the Director Plan,
and (iv) 10,000 shares of Common Stock that may be purchased by Mr. Komar
from the Company at a price of $3.97 per share until December 10, 2008,
pursuant to a stock option granted to him on December 10, 1998 under the
Director Plan.
(5) Includes (i) 12,000 shares of Common Stock that may be purchased by Mr.
Wareham from the Company at a price of $14.06 per share until May 20, 2007,
pursuant to a stock option granted to him on May 20, 1997
21
under the Director Plan, (ii) 6,000 shares of Common Stock that may be
purchased by Mr. Wareham from the Company at a price of $7.66 per share
until March 24, 2008, pursuant to a stock option granted to him on March
24, 1998 under the Director Plan, and (iii) 10,000 shares of Common Stock
that may be purchased by Mr. Wareham from the Company at a price of $3.97
per share until December 10, 2008, pursuant to a stock option granted to
him on December 10, 1998 under the Director Plan
(6) Includes (i) 865,000 shares of Common Stock purchased by Mr. McCubbin from
the Company on July 8, 2002 in a private transaction without registration
under the Securities Act of 1933, pursuant to the private offering
exemption under Section 4(2) thereof, (ii) 300,000 shares of Common Stock
that may be purchased by Mr. McCubbin from the Company at a price of $0.17
per share until January 2, 2011, pursuant to a stock option granted to him
on January 2, 2001, and (iii) includes 1,000 shares of Common Stock that
may be purchased by Mr. McCubbin from the Company at a price of $1.35 per
share until July 3, 2010, pursuant to a stock option granted to him on July
3, 2000. Does not include (i) 200,000 shares of Common Stock that may be
purchased by Mr. McCubbin from the Company at a price of $0.17 per share
pursuant to a stock option granted to him on January 2, 2001, with such
shares vesting annually through January 2, 2004 or by the earlier vesting
by the Compensation Committee.
(7) Includes (i) 1,500 shares of Common Stock owned directly by Mr. Ritter and
(ii) 12,000 shares of Common Stock that may be purchased by Mr. Ritter from
the Company at a price of $2.06 per share until December 1, 2009, pursuant
to a stock option granted to him on December 1, 1999 under the Director
Plan. 1, 1999, with such shares vesting on December 1, 2001.
(8) Includes (i) 865,000 shares of Common Stock purchased by Mr. Mirabile from
the Company on July 8, 2002 in a private transaction without registration
under the Securities Act of 1933, pursuant to the private offering
exemption under Section 4(2) thereof, (ii) 270,000 shares of Common Stock
issued to Mr. Mirabile in connection with the Company's prior acquisition
of Eclipse, (iii) includes 300,000 shares of Common Stock that may be
purchased by Mr. Mirabile from the Company at a price of $0.17 per share
until January 2, 2011, pursuant to a stock option granted to him on January
2, 2001, and (iv) includes 1,000 shares of Common Stock that may be
purchased by Mr. Mirabile from the Company at a price of $1.35 per share
until July 3, 2010, pursuant to a stock option granted to him on July 3,
2000. Does not include (i) 200,000 shares of Common Stock that may be
purchased by Mr. Mirabile from the Company at a price of $0.17 per share
pursuant to a stock option granted to him on January 2, 2001, with such
shares vesting annually through January 2, 2004 or by the earlier vesting
by the Compensation Committee.
(9) Includes the shares referred to as included in notes (2), (4), (5), (6),
(7), and (8) above. Does not include the shares referred to as not included
in notes (3), (6), and (8) above.
Item 13. Certain Relationships and Related Transactions
Pursuant to stock purchase agreements entered into on July 8, 2002, between
the Company and each of Steve L. Komar, James T. McCubbin and Mark M. Mirabile,
the Company privately sold 865,000 shares of its common stock to each such
person without registration under the Securities Act of 1933, pursuant to the
private offering exemption under Section 4(2) thereof, in consideration of a
three (3) year full-recourse, five percent (5%) interest bearing promissory note
with equal annual principal payments due, issued by each such person to the
Company in the principal amount of $60,550, or $181,650 in the aggregate (which
equals $0.07 per share, being the closing price of the Company's common stock on
July 8, 2002).
There have been no other transactions, or series of similar transactions,
since the beginning of the Company's last fiscal year, or any currently proposed
transactions, or series of similar transactions, greater than $60,000, to which
the Company or any of its subsidiaries were a party involving any of the
directors, executive officers, control persons, more than 5% security holder
known to the registrant, or member of the immediate family of any of the
foregoing persons.
Item 14. Controls and Procedures
We maintain a set of disclosure controls and procedures designed to ensure
that information required to be disclosed by WidePoint in reports that it files
or submits under the Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange Commission
rules and forms.
22
Within the 90-day period prior to the filing of this report, an evaluation was
carried out under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of our disclosure controls and procedures. Based on that
evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that WidePoint's disclosure controls and procedures are effective.
Subsequent to the date of their evaluation, there have been no significant
changes in WidePoint's internal controls or in other factors that could
significantly affect these controls.
Part IV.
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Financial Statements and Financial Statement Schedule
(1) Financial Statements:
Report of Grant Thornton LLP, Independent Certified Public Accountants
Report of Arthur Andersen LLP, Independent Public Accountants
Consolidated Balance Sheets as of December 31, 2002 and 2001
Consolidated Statements of Operations for the Years Ended December 31,
2002, 2001, and 2000
Consolidated Statements of Changes in Stockholders' Equity for the Years
Ended December 2002, 2001, and 2000
Consolidated Statements of Cash Flow for the Years Ended December 31, 2002,
2001, and 2000
Notes to Consolidated Financial Statements
Exhibit 21 -- Subsidiaries of WidePoint Corporation
All other schedules are omitted either because they are not applicable or
required, or because the required information is included in the financial
statements or notes thereto:
(b) Reports on Form 8-K
None
(c) Exhibits: The following exhibits are filed herewith or incorporated herein
by reference:
Exhibit
No. Description
--- -----------
2.1 Stock Purchase Agreement among ZMAX Corporation, Michael C. Higgins and Michael S. Cannon,
dated November 6, 1996, for the acquisition of Century Services, Inc. (Incorporated herein by reference
to Exhibit 2.1 to the Registrant's Registration Statement on Form S-4 (File No. 333-29833).)
2.2 Agreement and Plan of Merger between ZMAX Corporation and New ZMAX Corporation, dated
June 10, 1999. (Incorporated herein by reference to Exhibit 2.2 to the Registrant's Registration
Statement on Form S-4 (File No. 333-29833).)
3.1 Amended and Restated Certificate of Incorporation of ZMAX Corporation. (Incorporated herein by
reference to Exhibit 3.5 to the Registrant's Registration Statement on Form S-4 (File No. 333-29833).)
3.2 Bylaws of ZMAX Corporation. (Incorporated herein by reference to Exhibit 3.6 to the Registrant's
Registration Statement on Form S-4 (File No. 333-29833).)
4.1 Form of Warrant to Purchase Common Stock of ZMAX Corporation. (Incorporated herein by reference
to Exhibit 4.2 to the Registrant's Registration Statement on Form S-4 (File No. 333-29833).)
23
Exhibit
No. Description
--- -----------
10.1 ZMAX Corporation 1999 Stock Incentive Plan. (Incorporated herein by reference to Exhibit 10.1 to
the Registrant's Registration Statement on Form S-4 (File No. 333-29833).)*
10.2 Form of ZMAX Corporation 1999 Non-qualified Stock Option Award (form of grant and vesting
schedule). (Incorporated herein by reference to Exhibit 10.2 to the Registrant's Registration Statement
on Form S-4 (File No. 333-29833).)*
10.3 ZMAX Corporation 1999 Directors Formula Stock Option Plan. (Incorporated herein by reference to
Exhibit 10.3 to the Registrant's Registration Statement on Form S-4 (File No. 333-29833).)*
10.4 Form of ZMAX Corporation Directors Formula Stock Option Award (form of grant and vesting
schedule). (Incorporated herein by reference to Exhibit 10.4 to the Registrant's Registration Statement
on Form S-4 (File No. 333-29833).)*
10.5 Employment Agreement between Century Services, Inc. and Michael C. Higgins, dated November 6,
1996. (Incorporated herein by reference to Exhibit 10.5 to the Registrant's Registration Statement on
Form S-4 (File No. 333-29833).)*
10.6 First Amendment to the Employment Agreement between Century Services, Inc. and Michael C.
Higgins, dated May 21, 1999. (Incorporated herein by reference to Exhibit 10.6 to the Registrant's
Registration Statement on Form S-4 (File No. 333-29833).)*
10.7 Employment Agreement between Century Services, Inc. and Joseph Yeh, dated June 18, 1999.
(Incorporated herein by reference to Exhibit 10.7 to the Registrant's Registration Statement on Form
S-4 (File No. 333-29833).)*
10.8 Separation Agreement between Century Services, Inc. and Michael S. Cannon, dated April 22, 1999.
(Incorporated herein by reference to Exhibit 10.8 to the Registrant's Registration Statement on Form
S-4 (File No. 333-29833).)*
10.9 Consulting Agreement among ZMAX Corporation, MBY, Inc. and Michel Berty, dated April 1, 1999.
(Incorporated herein by reference to Exhibit 10.9 to the Registrant's Registration Statement on Form
S-4 (File No. 333-29833).)*
10.10 Consulting Agreement among ZMAX Corporation, Wareham Management Ltd. and G.W. Norman
Wareham, dated May 30, 1999. (Incorporated herein by reference to Exhibit 10.10 to the Registrant's
Registration Statement on Form S-4 (File No. 333-29833).)*
10.11 Consulting Agreement between ZMAX Corporation and Shafiq Nazerali, dated May 30, 1999.
(Incorporated herein by reference to Exhibit 10.11 to the Registrant's Registration Statement on Form
S-4 (File No. 333-29833).)*
10.12 Earn Out Stock Escrow Agreement among ZMAX Corporation, Michael C. Higgins, Michael S. Cannon
and Powell, Goldstein, Frazer & Murphy, dated November 6, 1996. (Incorporated herein by reference
to Exhibit 10.12 to the Registrant's Registration Statement on Form S-4 (File No. 333-29833).)
10.13 ZMAX Corporation Stockholders Agreement among Michael C. Higgins, Michael S. Cannon and
ZMAX Corporation, dated November 6, 1996. (Incorporated herein by reference to Exhibit 10.13 to
the Registrant's Registration Statement on Form S-4 (File No. 333-29833).)
10.14 Stock Pledge and Security Agreement from Michael C. Higgins in favor of ZMAX Corporation, dated
November 6, 1996. (Incorporated herein by reference to Exhibit 10.14 to the Registrant's Registration
Statement on Form S-4 (File No. 333-29833).)
24
Exhibit
No. Description
--- -----------
10.15 Letter Agreement among ZMAX Corporation, IMS International, Inc., Wan Hsien Information
International Corporation, Ltd., Multi-Dimension International, and Institute for Information Industry
Regarding the Purchase by ZMAX Corporation of the "COCACT" Software Program, dated April 30,
1999. (Incorporated herein by reference to Exhibit 10.15 to the Registrant's Registration Statement on
Form S-4 (File No. 333-29833).)
10.16 Letter Agreement between ZMAX Corporation and Institute for Information Industry Regarding the
Purchase by ZMAX Corporation of the "COCACT" Software Program, dated April 30, 1999.
(Incorporated herein by reference to Exhibit 10.16 to the Registrant's Registration Statement on Form
S-4 (File No. 333-29833).)
10.17 Letter Agreement between ZMAX Corporation and Wan Hsien Information International Corporation
Ltd. Regarding the Purchase by ZMAX Corporation of the "COCACT" Software Program, dated
April 30, 1999, as amended. (Incorporated herein by reference to Exhibit 10.17 to the Registrant's
Registration Statement on Form S-4 (File No. 333-29833).)
10.18 Conversion Agreement between Fiserv Federal Systems, Inc. and ZMAX Corporation, dated April 28,
1999. (Incorporated herein by reference to Exhibit 10.18 to the Registrant's Registration Statement on
Form S-4 (File No. 333-29833).)
10.19 Agreement between ZMAX Corporation and Investor Communications Company, LLC, dated as of
May 20, 1999. (Incorporated herein by reference to Exhibit 2.2 to the Registrant's Registration
Statement on Form S-4 (File No. 333-29833).)
10.20 Investor Relations Consulting Agreement between ZMAX Corporation and Investor Communications
Company, LLC, dated as of May 20, 1999. (Incorporated herein by reference to Exhibit 10.20 to the
Registrant's Registration Statement on Form S-4 (File No. 333-29833).)
10.21 Agreement and Plan of Merger, dated as of December 14, 1998, by and among ZMAX Corporation,
Eclipse Acquisition Corporation, Eclipse Information Systems, Inc., and Frank Schultz, Mark Mirabile,
John Schultz, Scott Shedd, Brad Adams, Ron Hilicki, Fred Anderson, Harold Zimmerman, Chris
Gildone, Dave Vittitow, Kristina Palmer, Tom Carroll and Gary Singer. (Incorporated herein by
reference to Exhibit 2 to the Registrant's Current Report of Form 8-K, as filed on December 29, 1998
(File No. 333-555993).)
10.22 Agreement and Plan of Merger, dated as of October 1, 1999, by and among ZMAX Corporation, Parker
Acquisition Corporation, Parker Management Consultants, Ltd., Westmont Non-Grantor Trust, and
Kenneth W. Parker and Jennifer L Parker. (Incorporated herein by reference to Exhibit 2 to the
Registrant's Current Report of Form 8-K, as filed on October 18, 1999 (File No. 333-55993).)
10.23 Employment Agreement between ZMAX Corporation and Michael C. Higgins, dated September 1,
1999.* (Incorporated herein by reference to Exhibit 10.23 to Registrant's Report of Form 10-K, as filed
on March 30, 2000 (File No. 000-23967).)
10.24 Employment Agreement between ZMAX Corporation and James T. McCubbin, dated September 1,
1999.* (Incorporated herein by reference to Exhibit 10.24 to Registrant's Report of Form 10-K, as filed
on March 30, 2000 (File No. 000-23967).)
10.25 Separation Agreement between WidePoint Corporation and Michael C. Higgins, dated December 31,
2001.* (Incorporated herein by reference to Exhibit 10.25 to Registrant's Report of Form 10-K, as filed
on March 30, 2000 (File No. 000-23967).)
10.26 Employment Agreement between WidePoint Corporation and Steve Komar, dated July 1, 2002.*
(Incorporated herein by reference to Exhibit 10.26 to Registrant's Report of Form 10-Q, as filed on
August 15, 2002 (File No. 000-23967).)
25
Exhibit
No. Description
--- -----------
10.27 Employment Agreement between WidePoint Corporation and James McCubbin, dated July 1, 2002.*
(Incorporated herein by reference to Exhibit 10.27 to Registrant's Report of Form 10-Q, as filed on
August 15, 2002 (File No. 000-23967).)
10.28 Employment Agreement between WidePoint Corporation and Mark Mirabile, dated July 1, 2002.*
(Incorporated herein by reference to Exhibit 10.28 to Registrant's Report of Form 10-Q, as filed on
August 15, 2002 (File No. 000-23967).)
10.29 Stock Purchase Agreement between WidePoint Corporation and Steve Komar, dated July 7, 2002.*
(Incorporated herein by reference to Exhibit 10.29 to Registrant's Report of Form 10-Q, as filed on
August 15, 2002 (File No. 000-23967).)
10.30 Stock Purchase Agreement between WidePoint Corporation and Steve Komar, dated July 7, 2002.*
(Incorporated herein by reference to Exhibit 10.30 to Registrant's Report of Form 10-Q, as filed on
August 15, 2002 (File No. 000-23967).)
10.31 Stock Purchase Agreement between WidePoint Corporation and Steve Komar, dated July 7, 2002.*
(Incorporated herein by reference to Exhibit 10.31 to Registrant's Report of Form 10-Q, as filed on
August 15, 2002 (File No. 000-23967).)
21 Subsidiaries of WidePoint Corporation
23.1 Consent of Grant Thornton LLP
24 Schedule II Valuation and Qualifying Accounts
99.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
99.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
------------
* Management contract or compensatory plan
26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WidePoint Corporation
Date: March 29, 2003 /s/ STEVE L. KOMAR
---------------------
Steve L. Komar
Chief Executive Officer
Date: March 29, 2003 /s/ JAMES T. MCCUBBIN
---------------------
James T. McCubbin
Vice President -- Principal Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons, on behalf of the
Registrant and in the capacities and on the dates indicated.
Dated: March 29, 2003 /s/ STEVE L. KOMAR
---------------------
Steve L. Komar
Director and Chief Executive Officer
Dated: March 29, 2003 /s/ JAMES T. MCCUBBIN
---------------------
James T. McCubbin
Director, Vice President and Chief Financial
Officer, Secretary and Treasurer
Dated: March 29, 2003 /s/ G.W. NORMAN WAREHAM
---------------------
G.W. Norman Wareham
Director
Dated: March 29, 2003 /s/ JAMES M. RITTER
---------------------
James M. Ritter
Director, Assistant Secretary
Dated: March 29, 2003 /s/ MARK MIRABILE
---------------------
Mark Mirabile
Director, Vice President and
Chief Operations Officer
27
INDEX TO FINANCIAL STATEMENTS
Page
-----
Reports of Independent Certified Public Accountants ...................................... F-1
Reports of Independent Public Accountants ................................................ F-2
Consolidated Balance Sheets as of December 31, 2002 and 2001 ............................. F-3
Consolidated Statements of Operations for the Years ended December 31, 2002, 2001, and F-4
2000
Consolidated Statement of Stockholders' Equity for the Years ended December 31, 2000,
2001, and 2002 .......................................................................... F-5
Consolidated Statements of Cashflows for the Years ended December 31, 2002, 2001, and F-6
2000
Notes to Consolidated Financial Statements ............................................... F-7
28
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
WidePoint Corporation
We have audited the accompanying consolidated balance sheets of WidePoint
Corporation (a Delaware corporation) and subsidiaries, as of December 31, 2002
and 2001, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits. The financial
statements of WidePoint Corporation and subsidiaries as of as of December 31,
2000, and for the year then ended, was audited by other auditors who have ceased
operations. These auditors expressed an unqualified opinion on those financial
statements in their report dated March 23, 2001.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
WidePoint Corporation and subsidiaries as of December 31, 2002 and 2001, and the
consolidated results of their operations and their cash flows for the years then
ended, in conformity with accounting principles generally accepted in the United
States of America.
/s/ GRANT THORNTON LLP
Chicago, Illinois
March 21, 2003
F-1
The following is a copy of the audit report previously issued by Arthur Andersen
LLP in connection with WidePoint Corporation's filing on Form 10-K for the year
ended December 31, 2000. This audit report has not been reissued by Arthur
Andersen LLP in connection with this filing on Form 10-K. The consolidated
balance sheet as of December 31, 2000, and the consolidated statements of
operations, stockholders' deficit and cash flows for the year ended December 31,
1999 have not been included in the accompanying financial statements.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To WidePoint Corporation:
We have audited the accompanying consolidated balance sheets of WidePoint
Corporation (a Delaware corporation) and subsidiaries as of December 31, 2000
and 1999, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the two years in the period ended December 31,
2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of WidePoint Corporation and
its subsidiaries, as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the two years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.
/s/ ARTHUR ANDERSEN LLP
Vienna, Virginia
March 23, 2001
F-2
WIDEPOINT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
-----------------------------------
2002 2001
---------------- ----------------
ASSETS
Current assets:
Cash and cash equivalents ........................................... $ 1,208,660 $ 1,563,544
Accounts receivable, net of allowance of $3,950 and $30,000,
respectively ...................................................... 394,227 459,983
Prepaid expenses and other assets ................................... 66,480 47,941
------------ ------------
Total current assets ............................................. 1,669,367 2,071,468
------------ ------------
Property and equipment, net ......................................... 11,965 63,758
Other assets ........................................................ 240,536 58,113
------------ ------------
Total assets ..................................................... $ 1,921,868 $ 2,193,339
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................................... $ 78,384 $ 110,339
Accrued expenses .................................................... 243,611 447,159
Current portion of capital lease obligation ......................... 6,421 18,009
------------ ------------
Total current liabilities ........................................ 328,416 575,507
------------ ------------
Capital lease obligation, net of current portion ..................... -- 6,421
------------ ------------
Total liabilities ................................................ 328,416 581,928
------------ ------------
Commitments and contingencies (Note 9) -- --
Stockholders' equity:
Preferred stock, $0.001 par value; 10,000,000 shares authorized; none
issued and outstanding ............................................ -- --
Common stock, $0.001 par value; 50,000,000 shares authorized;
15,579,913 and 12,984,913 shares issued and outstanding as of
December 31, 2002 and 2001, respectively .......................... 15,580 12,985
Stock warrants ...................................................... -- 140,000
Additional paid-in capital .......................................... 42,110,539 41,931,484
Accumulated deficit ................................................. (40,532,667) (40,473,058)
------------ ------------
Total stockholders' equity ....................................... 1,593,452 1,611,411
------------ ------------
Total liabilities and stockholders' equity ....................... $ 1,921,868 $ 2,193,339
============ ============
The accompanying notes are an integral part of these consolidated statements.
F-3
WIDEPOINT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31,
--------------------------------------------------
2002 2001 2000
-------------- --------------- ---------------
Revenues ...................................................... $3,495,160 $ 5,902,728 $12,834,474
Operating expenses:
Cost of revenues ............................................. 2,489,983 3,122,061 7,014,045
Sales and marketing .......................................... 525,322 614,786 1,856,694
General and administrative ................................... 643,771 2,549,661 8,535,062
Facilities closing expense ................................... -- 43,500 376,289
Disposition of subsidiary .................................... -- -- 699,203
Impairment of long-term assets ............................... -- 5,853,693 --
Depreciation and amortization ................................ 51,792 545,290 851,562
----------- ----------- -----------
Loss from operations .......................................... (215,708) (6,826,263) (6,498,381)
Other income (expenses):
Interest income .............................................. 17,658 44,655 103,351
Interest expense ............................................. (1,559) (5,231) (198,971)
Other ........................................................ 140,000 -- --
----------- ----------- -----------
Net loss before provision for income taxes .................... (59,609) (6,786,839) (6,594,001)
----------- ----------- -----------
Income tax provision .......................................... -- -- --
----------- ----------- -----------
Net loss ...................................................... $ (59,609) $(6,786,839) $(6,594,001)
=========== =========== ===========
Basic and diluted net loss per share .......................... $ (0.00) $ (0.52) $ (0.51)
=========== =========== ===========
Basic and diluted weighted-average shares outstanding ......... 14,243,310 12,984,913 12,979,055
=========== =========== ===========
The accompanying notes are an integral part of these consolidated statements.
F-4
WIDEPOINT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Preferred Stock Common Stock
----------------- ----------------------- Stock
Shares Amount Shares Amount Warrants
-------- -------- ------------ ---------- --------------
Balance, January 1, 1999 .... -- $-- 12,949,913 $12,950 $ 280,000
== === ========== ======= =========
Adjustment of warrant
valuation ................ -- $-- -- $ -- $(140,000)
Exercise of stock options . -- -- 35,000 35 --
Net loss .................. -- -- -- -- --
-- --- ---------- ------- ---------
Balance, December 31, 2000 .. -- $-- 12,984,913 $12,985 $ 140,000
== === ========== ======= =========
Net loss .................. -- $-- -- $ -- $ --
-- --- ---------- ------- ---------
Balance, December 31, 2001 .. -- $-- 12,984,913 $12,985 $ 140,000
== === ========== ======= =========
Adjustment of warrant
valuation ................ -- $-- -- $ -- $(140,000)
Sale of Common Stock ...... -- -- 2,595,000 2,595 --
Net loss .................. -- -- -- -- --
-- --- ---------- ------- ---------
Balance, December 31, 2002 .. -- $-- 15,579,913 $15,580 $ --
== === ========== ======= =========
Additional
Deferred Paid-In Accumulated
Compensation Capital Deficit Total
-------------- -------------- ----------------- ----------------
Balance, January 1, 1999 .... $(120,587) $41,763,268 $(27,092,218) $14,843,413
========= =========== ============ ===========
Adjustment of warrant
valuation ................ $ 120,587 $ -- $ -- $ (19,413)
Exercise of stock options . -- 168,216 -- 168,251
Net loss .................. -- -- (6,594,001) (6,594,001)
--------- ----------- ------------ -----------
Balance, December 31, 2000 .. $ -- $41,931,484 $(33,686,219) $ 8,398,250
========= =========== ============ ===========
Net loss .................. $ -- $ -- $ (6,786,839) $(6,786,839)
--------- ----------- ------------ -----------
Balance, December 31, 2001 .. $ -- $41,931,484 $(40,473,058) $ 1,611,411
========= =========== ============ ===========
Adjustment of warrant
valuation ................ $ -- $ -- $ -- $ (140,000)
Sale of Common Stock ...... -- 179,055 -- 181,650
Net loss .................. -- -- (59,609) (59,609)
--------- ----------- ------------ -----------
Balance, December 31, 2002 .. $ -- $42,110,539 $(40,532,667) $ 1,593,452
========= =========== ============ ===========
The accompanying notes are an integral part of these consolidated statements.
F-5
WIDEPOINT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
---------------------------------------------------
2002 2001 2000
------------- ---------------- ----------------
Cash flows from operating activities:
Net loss ....................................................... $ (59,609) $(6,786,839) $(6,594,001)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities
Depreciation and amortization expense ........................ 51,792 545,290 851,562
Impairment of long-term assets ............................... -- 5,853,693 --
(Gain) Loss on sale of property and equipment ................ (750) 43,527 149,807
Disposition of subsidiary .................................... -- -- 699,203
Deferred compensation ........................................ -- -- (19,413)
Adjustment of warrant valuation .............................. (140,000) -- --
Changes in assets and liabilities--
Accounts receivable .......................................... 65,756 1,420,182 3,667,958
Prepaid expenses and other assets ............................ (19,312) 126,689 161,811
Accounts payable and accrued expenses ........................ (235,502) (680,381) (2,146,728)
---------- ----------- -----------
Net cash (used in) provided by operating activities ......... (337,625) 522,161 (3,229,801)
---------- ----------- -----------
Net cash provided by (used in) investing activities:
Purchases of property and equipment ............................ -- (17,733) (82,038)
Proceeds from sale of property and equipment ................... 750 3,250 30,000
---------- ----------- -----------
Net cash provided by (used) in investing activities ......... 750 (14,483) (52,038)
---------- ----------- -----------
Net cash provided by (used in) financing activities:
Proceeds from exercise of stock options ........................ -- -- 168,251
Net payments on long-term obligations .......................... (18,009) (29,830) (27,150)
---------- ----------- -----------
Net cash (used in) provided by financing activities ......... (18,009) (29,830) 141,101
---------- ----------- -----------
Net (decrease) increase in cash ................................. (354,884) 477,848 (3,140,738)
Cash and cash equivalents, beginning of period .................. 1,563,544 1,085,696 4,226,434
---------- ----------- -----------
Cash and cash equivalents, ending of period ..................... $1,208,660 $ 1,563,544 $ 1,085,696
========== =========== ===========
Supplementary cash flow information:
Cash paid for--
Interest ..................................................... $ -- $ -- $ 177,817
========== =========== ===========
Income taxes ................................................. $ -- $ -- $ --
========== =========== ===========
Supplementary disclosure of non cash financing activities:
Issuance of common stock in exchange for notes payable ......... $ 181,650 $ -- $ --
========== =========== ===========
The accompanying notes are an integral part of these consolidated statements.
F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation, Organization and Nature of Operations:
WidePoint Corporation is a consulting services firm specializing in
planning, managing and implementing Information Technology ("IT") solutions. Its
staff consists of business and technical specialists that help clients improve
their profitability and maintain a competitive edge in today's rapidly changing
business technology environment.
During 1999, the Company established a new subsidiary named WidePoint
Corporation and initiated operations in 2000 through this subsidiary in an
effort to fully transition the Company from a Year 2000 strategic solutions
provider to an Internet services company. In 2000, the Company changed its
corporate name from ZMAX Corporation to WidePoint Corporation and changed the
trading symbol for its common stock from "ZMAX" to "WDPT". During this
transition in 2000, the Company experienced several economic reversals that
included an unexpectedly rapid deterioration in Year 2000 services, and a severe
contraction in Internet related services. These negative events prompted the
Company to initiate a refinement in its strategy during 2000 and on September
29, 2000, the Company sold all of the outstanding shares of its PMC subsidiary
to a third-party purchaser that resulted in the elimination of substantially all
of the Company's long-term debt.
During 2001, the Company continued to further refine its strategy and
consolidated its operations in an attempt to minimize losses, conserve working
capital, and provide a flexible, scaleable, and efficient business model that
was more responsive to the evolving needs of the Company's markets and
customers. Although these actions served to decrease losses through the
reduction of sales and general administrative expenses, they did not result in a
resumption of revenue growth for the Company. In the latter part of 2001, the
Board of Directors of the Company decided that an updated assessment of
strategic alternatives was in order, and soon thereafter decided that a newly
focused strategic direction, plan, and leadership were required. These mandated
changes were initiated prior to the end of 2001, and put into effect during
2002. Consistent with such changes initiated by the Board, and the materially
deteriorated values of assets acquired in earlier acquisitions, the Company
recorded an impairment of the remaining intangible assets associated with the
acquisition of Eclipse that were acquired in December 1998.
During 2002, the Company continued to witness a negative economic
environment within the commercial technology sector due to constrained business
investment. In its efforts to overcome the current negative economic environment
and expand its revenue streams, the Company continued to implement and refine
its newly focused strategic plan and launched a federal business initiative,
continued its development of new technologies and capabilities focused on
wireless technologies and various other IT practice areas, and initiated several
alliances to expand the Company's ability to provided expanded services and
reach to a wider group of new customers.
Most of the Company's current costs consist primarily of the salaries and
benefits paid to the Company's technical, marketing and administrative
personnel. As a result of its plan to expand its operations through new internal
initiatives to expand revenue growth, the Company expects these costs to
increase. The Company's profitability depends upon both the volume of services
performed and the Company's ability to manage costs. Because a significant
portion of the Company's cost structure is labor related, the Company must
effectively manage these costs to achieve profitability. The profitability on an
individual project depends upon completing the project within the estimated
number of staff hours and within the agreed upon time frame. To date, the
Company has attempted to maximize its operating margins through efficiencies
achieved by the use of the Company's proprietary methodologies and by offsetting
increases in consultant salaries with increases in consultant fees received from
clients.
2. Significant Accounting Policies:
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the acquired entities since their respective dates of acquisition. All
significant intercompany amounts have been eliminated.
F-7
Use of Estimates
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Cash and Cash Equivalents
Investments purchased with original maturities of three months or less are
considered cash equivalents for purposes of these consolidated financial
statements. The Company maintains cash and cash equivalents with various major
financial institutions. At December 31, 2002 and 2001, cash and cash equivalents
included $1,207,847 and $1,618,818 of investments in overnight sweep accounts,
respectively. At times, cash balances held at financial institutions were in
excess of federally insured limits. The Company places its temporary cash
investments with high-credit, quality financial institutions, and as a result,
the Company believes that no significant concentration of credit risk exists
with respect to these cash investments.
Accounts Receivable
The majority of the Company's accounts receivable are due from established
companies in the following industries: manufacturing, consumer product goods,
direct marketing, healthcare and state government. Credit is extended based on
evaluation of a customers' financial condition and, generally, collateral is not
required. Accounts receivable are due within 30 to 45 days and are stated at
amounts due from customers net of an allowance for doubtful accounts. Accounts
outstanding longer than the contractual payment terms are considered past due.
The Company determines its allowance by considering a number of factors,
including the length of time trade accounts receivable are past due, the
Company's previous loss history, the customer's current ability to pay its
obligation to the Company, and the condition of the general economy and the
industry as a whole. The Company writes-off accounts receivable when they become
uncollectible, and payments subsequently received on such receivables are
credited to the allowance for doubtful accounts. The following table sets forth
the rolling forward balances of the Allowance for doubtful accounts of the
Company.
Additions
Balance at Charged to Balance
Beginning Costs and at End of
Description of Period Expenses Deductions Period
----------- ------------ ------------ ------------ ----------
For the year ended December 31, 2000,
Allowance for doubtful accounts ......... $110,000 $541,607 $442,775 $208,832
For the year ended December 31, 2001,
Allowance for doubtful accounts ......... $208,832 $ 10,000 $188,832 $ 30,000
For the year ended December 31, 2002,
Allowance for doubtful accounts ......... $ 30,000 $ 3,950 $ 30,000 $ 3,950
Unbilled accounts receivable on time-and-materials contracts represent
costs incurred and gross profit recognized near the period-end but not billed
until the following period. Unbilled accounts receivable on fixed-price
contracts consist of amounts incurred that are not yet billable under contract
terms. At December 31, 2002 and 2001, unbilled accounts receivable totaled
$5,483 and $1,901, respectively.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to credit risk
consist of cash and cash equivalents and accounts receivable. As of December 31,
2002, two customers individually represented 41 and 11 percent of accounts
receivable. As of December 31, 2001, three customers individually represented
23, 22, and 11 percent of accounts receivable.
F-8
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation
and amortization. Property and equipment consisted of the following:
December 31,
----------------------------
2002 2001
------------ -------------
Computer equipment and software ................................. $ 43,596 $ 265,592
Less -- Accumulated depreciation and amortization ............... (31,631) (201,834)
-------- ---------
$ 11,965 $ 63,758
======== =========
Depreciation expense is computed using the straight-line method over the
estimated useful lives of three years.
In accordance with the American Institute of Certified Public Accountants
Statement of Position 98-1 "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use," the Company capitalizes costs related
to software and implementation in connection with its internal use software
systems. Such costs are amortized principally over three years.
Long-Lived Assets
The Company reviews its long-lived assets, including property and
equipment, identifiable intangibles, and goodwill whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be fully
recoverable. To determine recoverability of its long-lived assets, the Company
evaluates the probability that future undiscounted net cash flows will be less
than the carrying amount of the assets.
During the fourth quarter of 2001, the Company determined that certain of
its long-lived assets related to its acquisition of Eclipse were impaired and
should be written off in accordance with the guidance of SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of". This analysis was based in part on the Company's continued
refinement of its strategic direction and changes to its business plan that
eliminated the Eclipse business unit. The assets impaired included the remaining
intangible assets related to the goodwill associated with the original Eclipse
acquisition transaction. The Company recorded an impairment charge of $5,853,693
to write-off the net book value of these long-lived assets in the 2001
consolidated statement of operations.
Fair Value of Financial Instruments
WidePoint financial instruments consist of cash, accounts receivable,
accounts payable and accrued expenses. The fair value of these financial
instruments approximates their carrying value as of December 31, 2002, due to
their short-term nature.
Revenue Recognition
Revenue on time-and-materials contracts is recognized based upon hours
incurred at contract rates plus direct costs. Revenue on fixed-price contracts
is recognized on the percentage-of-completion method based on costs incurred in
relation to total estimated costs. Anticipated losses are recognized as soon as
they become known. Provisions for estimated losses on uncompleted contracts are
made in the period in which such losses are determined.
Significant Customers
During 2002, three customers individually represented 22, 15, and 13
percent of revenue. During 2001, two customers individually represented 15 and
11 percent of revenue.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes."
Under SFAS No.109, deferred tax assets and liabilities are computed based on the
difference between the financial statement and income tax bases of assets and
liabilities
F-9
using the enacted marginal tax rate. SFAS No. 109 requires that the net deferred
tax asset be reduced by a valuation allowance if, based on the weight of
available evidence, it is more likely than not that some portion or all of the
net deferred tax asset will not be realized.
Stock-based compensation
The Company accounts for stock-based employee compensation arrangements
using the intrinsic value method in accordance with the provisions of Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees," and complies with the disclosure provisions of SFAS No. 123
"Accounting for Stock-Based Compensation." Under APB Opinion No. 25,
compensation cost is generally recognized based on the difference, if any, on
the date of grant between the fair value of the Company's common stock and the
amount an employee must pay to acquire the stock. The following table
illustrates the effect on net income and earnings per share if the Company had
applied the fair value recognition provisions of FASB Statement 123, Accounting
for Stock-Based Compensation, using the assumptions described in Note 8, to its
stock-based employee plans.
Year ended December 31,
----------------------------------------------------
2002 2001 2000
-------------- ---------------- ----------------
Net income, as reported .................... $ (59,609) $(6,786,839) $(6,594,001)
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for awards
granted, modified, or settled, net of
related tax effects ...................... $(644,178) $ (654,658) $ (802,839)
Pro forma net income (loss) ................ $(703,787) $(7,441,497) $(7,396,840)
Earnings per share:
Basic and diluted -- as reported ......... $ (0.00) $ (0.52) $ (0.51)
Basic and diluted -- pro forma ........... $ (0.05) $ (0.57) $ (0.57)
The pro forma disclosure is not likely to be indicative of pro forma
results which may be expected in future years because of the fact that options
vest over several years, pro forma compensation expense is recognized as the
options vest and additional awards may also be granted.
For purposes of determining the effect of these options, the fair value of
each option is estimated on the date of grant based on the Black-Scholes
single-option pricing model assuming the following for the years ended December
31, 2002, 2001 and 2000:
2002 2001 2000
------------ ------------ -----------
Dividend yield .................. -- -- --
Risk-free interest rate ......... 2.70-4.13% 4.38-5.28% 4.10-6.73%
Volatility factor ............... 156% 140% 140%
Expected life in years .......... 5 5 5
Basic and Diluted Net Loss Per Share
Basic income or loss per share includes no dilution and is computed by
dividing net income or loss by the weighted-average number of common shares
outstanding for the period. Diluted income or loss per share includes the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock. The treasury stock
effect of options and warrants to purchase 1,978,000, 2,845,500, and 1,701,500
shares of common stock outstanding at December 31, 2002, 2001, and 2000,
respectively, has not been included in the calculation of the net loss per share
as such effect would have been anti-dilutive. As a result of these items, the
basic and diluted loss per share for all periods presented are identical.
Reclassifications
Certain amounts in prior years' financial statements have been reclassified
to conform with the current year presentation.
F-10
New accounting pronouncements
In 2001, the Financial Accounting Standards Board (FASB) issued SFAS 142,
Goodwill and Other Intangible Assets. SFAS 142 applies to all acquired
intangible assets. It requires that goodwill and other identifiable intangible
assets with an indefinite useful life not be amortized but instead be tested for
impairment at least annually. Identifiable intangible assets are amortized when
their useful life is determined to no longer be indefinite. The adoption of this
statement on January 1, 2002, did not have a material impact on our consolidated
financial position or results of operations.
In 2001, the FASB issued SFAS 143, Accounting for Asset Retirement
Obligations. SFAS 143 requires companies to record the fair value of a liability
for an asset retirement obligation in the period in which it is incurred, which
is adjusted to its present value each subsequent period. In addition, companies
must capitalize a corresponding amount by increasing the carrying amount of the
related long-lived asset, which is depreciated over the useful life of the
related long-lived asset. We will adopt SFAS 143 effective as of January 1,
2003, and do not expect that this statement will have a material impact on our
consolidated financial position or results of operations.
In 2001, the FASB issued SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS 144 provides additional restrictive criteria
that are required to be met to classify an asset as held-for-sale. This
statement also requires expected future operating losses from discontinued
operations to be recorded in the period in which the losses are incurred (rather
than as of the date management commits to a formal plan to dispose of a segment
as previously required). In addition, more dispositions will qualify for
discontinued operations treatment in the income statement. We adopted SFAS 144
effective as January 1, 2002, and any future impairments or disposals of
long-lived assets will be subject to this statement.
In 2002, the FASB issued SFAS 145, Rescission of FASB Statements No. 4, 44,
and 64, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS 145
eliminates the classification of debt extinguishments as extraordinary items.
The adoption of this statement will have no impact on our net results of
operations.
In 2002, the FASB issued SFAS 146, Accounting for Costs Associated with
Exit or Disposal Activities. SFAS 146 requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred. Severance pay under SFAS 146, in many cases, would be recognized over
the remaining service period rather than at the time the plan is communicated.
The provisions of SFAS 146 are effective for exit or disposal activities that
are initiated after December 31, 2002. We will adopt SEAS 146 for any actions
initiated after January 1, 2003, and any future exit costs or disposal
activities will be subject to this statement.
In 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation -- Transition and Disclosure, which provides alternative transition
methods for a voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, it amends the disclosure and
certain transition provisions of Statement 123, "Accounting for Stock-Based
Compensation" to require prominent disclosures in annual financial statements
about the method of accounting for stock-based employee compensation and the pro
forma effect on reported results of applying the fair value based method for
entities that use the intrinsic value method of accounting. The pro forma effect
disclosures are also required to be prominently disclosed in interim period
financial statements. The Company does not plan a change to the fair value based
method of accounting for stock-based employee compensation and has adopted the
disclosure provisions of this standard for the year ended December 31, 2002.
In 2002, the FASB issued FASB Interpretation (FIN) 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. FIN 45 requires an issuer of a guarantee
to recognize an initial liability for the fair value of the obligations covered
by the guarantee. FIN 45 also addresses the disclosures required by a guarantor
in interim and annual financial statements regarding obligations under
guarantees. We will adopt the requirement for recognition of the liability for
the fair value of guaranteed obligations prospectively for guarantees entered
into after January 1, 2003. We adopted the disclosure provisions as of December
31, 2002.
In 2003, the FASB issued FIN 46, Consolidation of Variable Interest
Entities. FIN 46 defines a variable interest entity (VIE) as a corporation,
partnership, trust, or any other legal structure that does not have equity
investors with a controlling financial interest or has equity investors that do
not provide sufficient financial resources for the entity
F-11
to support its activities. FIN 46 requires consolidation of a VIE by the primary
beneficiary of the assets, liabilities, and results of activities effective in
2003. FIN 46 also requires certain disclosures by all holders of a significant
variable interest in a VIE that are not the primary beneficiary. We do not have
any material investments in variable interest entities; therefore, the adoption
of this interpretation will have no impact on our consolidated financial
position or results of operations.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") 101, "Revenue Recognition in Financial
Statements," which provides guidance related to revenue recognition based on
interpretations and practices followed by the SEC. SAB 101 requires companies to
report any changes in revenue recognition as a cumulative change in accounting
principles in accordance with Accounting Principles Board Opinion 20,
"Accounting Changes." The SEC subsequently issued SAB 101A, "Amendment: Revenue
Recognition in Financial Statements," which delayed implementation of SAB 101
until the Company's second fiscal quarter of 2000 and SAB 101B, which delayed
the implementation date of SAB 101 until no later than the Company's fourth
fiscal quarter of 2000. The Company has evaluated the implications of SAB 101
and has not identified any changes in the Company's historical practices with
regards to revenue recognition.
3. Promissory Notes:
Promissory Notes
Pursuant to stock purchase agreements entered into on July 8, 2002, between
the Company and each of Steve L. Komar, James T. McCubbin and Mark M. Mirabile,
the Company privately sold 865,000 shares of its common stock to each such
person without registration under the Securities Act of 1933, pursuant to the
private offering exemption under Section 4(2) thereof, in consideration of a
three (3) year full-recourse, five percent (5%) interest bearing promissory note
with equal annual principal payments due, issued by each such person to the
Company in the principal amount of $60,550, or $181,650 in the aggregate (which
equals $0.07 per share, being the closing price of the Company's common stock on
July 8, 2002).
4. Intangible Assets:
As described in Note 2, the Company recognized an impairment charge in 2001
related to the acquisition of Eclipse. Prior to this write-off, intangible
assets associated with the Eclipse acquisition were being amortized over a
weighted-average life of 25 years. Accumulated amortization related to the
Eclipse intangibles was approximately $1,167,000 prior to write-off. The Company
recognized amortization expense of approximately $302,000 during 2001 prior to
the disposition. During 2000, the accumulated amortization related to the
intangible assets associated with the Eclipse transaction was approximately
$890,000.
Prior to the disposition of the PMC subsidiary, intangible assets
associated with the PMC acquisition were being amortized over a weighted average
life of 10 years. Accumulated amortization related to the PMC intangibles was
approximately $94,000 as of December 31, 1999 and the Company recognized
amortization expense of approximately $282,000 during 2000 prior to the
disposition.
5. Income Taxes:
The Company had no provision for income taxes for the years ended December
31, 2002, 2001, and 2000.
The provision (benefit) for income taxes results in effective rates, which
differ from the federal statutory rate as follows:
For the Years Ended
December 31,
------------------------------------------
2002 2001 2000
------------- ------------- ----------
Statutory federal income tax rate ................. 34.0% 34.0% 34.0%
Amortization and write-off of intangibles ......... -- (30.8)% --
Increase in valuation allowance ................... (36.4)% (3.6)% --
Non-deductible expenses ........................... (2.1)% -- 21.0%
Other ............................................. 4.5% 0.4% 13.0%
----- ----- ----
-- -- --
===== ===== ====
F-12
The deferred tax assets (liabilities) consisted of the following as of
December 31, 2002 and 2001 (in thousands):
December 31,
---------------------------------
2002 2001
--------------- ---------------
Deferred tax assets:
Net operating loss carryforwards ............... $ 6,440,151 $ 6,497,356
AMT credit ..................................... 13,853 13,853
Capital losses in excess capital gains ......... 696,215 696,215
Other assets ................................... 321,545 242,655
----------- -----------
Total deferred tax assets ................... 7,471,764 7,450,079
Deferred tax liabilities:
Depreciation and amortization .................. -- --
Other .......................................... -- --
----------- -----------
Total deferred tax liabilities .............. -- --
Net deferred tax asset ........................... 7,471,764 7,450,079
Less -- Valuation allowance ...................... (7,471,764) (7,450,079)
----------- -----------
$ -- $ --
=========== ===========
The Company has determined that its net deferred tax asset did not satisfy
the recognition criteria set forth in SFAS No. 109 and, accordingly, established
a valuation allowance for 100 percent of the net deferred tax asset.
As of December 31, 2002 the Company had net operating loss carry forwards
of approximately $16,100,000 to offset future taxable income. These carry
forwards expire between 2010 and 2022. Under the provision of the Tax Reform Act
of 1986, when there has been a change in an entity's ownership of 50 percent or
greater, utilization of net operating loss carry forwards may be limited. The
capital losses in excess of capital gains expire in the year 2005. As a result
of WidePoint's equity transactions, the Company's net operating losses will be
subject to such limitations and may not be available to offset future income for
tax purposes.
6. Interest Expense:
Interest Due from Promissory Note
In conjunction with the PMC acquisition the Company issued a $3.0 million
note payable to the sole shareholder of PMC. This $3.0 million note payable
accrued interest at a rate of 6 percent per annum. The Company imputed interest
on this note at 8.5 percent and as a result, recorded a discount on the
promissory note payable of approximately $167,000. This discount was being
amortized using the effective interest method over the term of the note. In
connection with the sale of the PMC subsidiary, the note payable was
extinguished as consideration in the transaction. The expense realized in 2000
was approximately $170,000.
7. Common Stock:
Pursuant to stock purchase agreements entered into on July 8, 2002, between
the Company and each of Steve L. Komar, James T. McCubbin and Mark M. Mirabile,
the Company privately sold 865,000 shares of its common stock to each such
person without registration under the Securities Act of 1933, pursuant to the
private offering exemption under Section 4(2) thereof, in consideration of a
three (3) year full-recourse note. (See note 3.)
8. Stock Options and Stock-Based Compensation:
1997 Stock Incentive Plan
In May 1997, the Company adopted the 1997 Stock Incentive Plan (the
"Incentive Plan"). The purpose of the Incentive Plan is to provide additional
compensation to employees, officers, directors and consultants of the Company or
its affiliates. Under the terms of the Incentive Plan, as amended, 3,000,000
shares of common stock have been reserved for issuance as incentive awards under
the Incentive Plan. The number of shares of Company common stock associated with
any forfeited stock incentive will be added back to the number of shares that
can be issued under the Incentive Plan. Awards under the Incentive Plan and
their terms are determined by a committee
F-13
(the "Committee") that has been selected by the Board of Directors. The
Incentive Plan permits the Committee to make awards of a variety of equity-based
incentives (collectively, "Stock Incentives").
The Incentive Plan allows for the grant of incentive stock options and
nonqualified stock options. The exercise price of the options will be
established by the Committee. The term of an option will be specified in the
applicable agreement provided, however, that no option can be exercised ten
years after the date of grant. In addition to stock options, the Incentive Plan
also allows for the grant of other Stock Incentives, including stock
appreciation rights, stock awards, phantom shares, performance unit appreciation
rights and dividend equivalent rights. These Stock Incentives will be subject to
the terms prescribed by the Committee in accordance with the provisions of the
Incentive Plan.
In February 1998, the Company amended the Incentive Plan to permit the
adjustment of the terms and conditions of outstanding options.
1997 Directors Formula Stock Option Plan
In May 1997, the Company adopted the 1997 Directors Formula Stock Option
Plan (the "Director Plan"). The Company has reserved 120,000 shares of common
stock to underlie stock options granted under the Director Plan. Any shares
associated with forfeited options are added back to the number of shares that
underlie stock options to be granted under the Director Plan.
The awards of stock options under the Director Plan are determined by the
express terms of the Director Plan. Generally, only non-employee directors of
the Company who do not perform services for the Company are eligible to
participate in the Director Plan. The Director Plan provides for option grants
to purchase 12,000 shares of common stock upon a non employee director's initial
appointment to the Board of Directors. The options will vest immediately to
8,000 shares of common stock underlying such options, will vest to an additional
2,000 shares after the director's completion of the first year of continued
service to the Company, and will vest to the remaining 2,000 shares after the
completion of the second year of continued service to the Company. Each option
granted pursuant to the Director Plan will be evidenced by an agreement and will
be subject to additional terms as set forth in the agreement. Options become
exercisable when vested and expire ten years after the date of grant, subject to
any shorter period that may be provided in the agreement.
The following is a summary of the WidePoint options activity:
Weighted-
Number of Option Price Average
Shares Range Exercise Price
--------------- --------------- ---------------
Outstanding, December 31, 1999 ......... 2,498,500 $2.06-14.06 $4.12
Granted .............................. 260,000 0.52- 2.56 1.82
Canceled or expired .................. (1,457,000) 0.52- 2.45 3.78
---------- ----------- -----
Outstanding, December 31, 2000 ......... 1,301,500 $0.52-14.06 $3.90
========== =========== =====
Granted .............................. 1,742,000 $0.12- 0.19 $0.17
Canceled or expired .................. (605,000) 0.17-14.06 3.55
---------- ------------ -----
Outstanding, December 31, 2001 ......... 2,438,500 $0.12-14.06 $1.37
========== =========== =====
Granted .............................. 620,000 $0.07- 0.07 $0.07
Canceled or expired .................. 1,242,500 0.14-14.06 2.42
---------- ----------- -----
Outstanding, December 31, 2002 ......... 1,816,000 $0.07- 1.35 $0.14
========== =========== =====
As of December 31, 2002 and 2001, options to purchase 1,075,673 and
1,153,840 shares, respectively of common stock were exercisable with a weighted
average exercise price of $0.15 and $1.65, respectively. The weighted-average
remaining contractual life of the options outstanding at December 31, 2002 and
December 31, 2001, was 8.17 and 7.69 years, respectively. The weighted-average
fair value of options granted in 2002 and 2001 was $0.06 and $0.15,
respectively.
Had compensation expense been determined based on the fair value of the
options at the grant dates consistent with the method of accounting under SFAS
No. 123, the Company's net loss and net loss per share would have been increased
to the pro forma amounts indicated below:
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For the Years Ended December 31,
---------------------------------------------------
2002 2001 2000
------------- ---------------- ----------------
Net loss:
As reported ................................. $ (59,609) $(6,786,839) $(6,594,001)
Pro forma ................................... $(703,787) (7,441,497) $(7,396,840)
Pro forma basic and diluted net loss per share:
As reported ................................. $ (0.00) $ (0.52) $ (0.51)
Pro forma ................................... $ (0.05) (0.57) $ (0.57)
The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions: no dividend
yield, expected volatility of 156 percent, risk-free interest rates of 2.70 to
6.73 percent and an expected term of five years.
Stock Warrants
On September 20, 1999, the Company entered in a two-year agreement with an
international investment banking firm to provide investment banking, mergers and
acquisitions and strategic planning services. In conjunction with this
agreement, the Company issued a stock warrant to purchase 200,000 shares of
common stock at $2.75 per share, an amount that exceeded the stock's trading
price on that date. The Company used a fair-value option pricing model to value
this stock warrant, and it was determined to have a fair value of approximately
$140,000 at the date of grant. The deferred compensation associated with the
warrant was reflected as a separate component of stockholders' equity. During
the year ended December 31, 1999, approximately $19,000 of expense had been
recognized related to the warrant. Because the warrant was issued to a third
party in exchange for services, the Company utilizes variable plan accounting to
measure the fair value of the warrant. As of December 31, 2000, because the
exercise price of the warrant significantly exceeded the fair value of the
Company's common stock, the fair value of the warrant as measured under a
fair-value option pricing model is zero. As such, the Company reversed the
expense recognized in 1999 and reduced the amounts allocated to deferred
compensation and to the warrant.
On October 1, 1999, the Company issued a stock warrant to purchase 200,000
shares of common stock at $5.00 per share, an amount that exceeded the stock's
trading price on that date, as part of the PMC acquisition. The warrant has a
term of 3 years. The Company used a fair-value option pricing model to value
this stock warrant at approximately $140,000. This value has been reflected as
part of stock warrants in the stockholders' equity section of the consolidated
balance sheet and has been included as part of the Company's purchase accounting
for the PMC acquisition. This warrant expired on October 1, 2002 and as such,
the Company reversed the expense recognized in 1999 and reduced the amounts
allocated to deferred compensation and to the warrant.
9. Commitments and Contingencies:
The Company leases office space and equipment under operating leases that
expire on various dates through 2004. The Company also leases various pieces of
computer and office equipment under capital leases that expire on various dates
through 2003.
In connection with the change in the Company's strategic plan, certain
offices in Maryland, Minnesota, Cleveland, and Detroit were closed. The
remaining contractual expense under the lease agreements related to these
locations was accrued at the time that the Company committed to the plan to exit
these locations. Operations had ceased at these locations as of December 31,
2001.
As of December 31, 2002, the Company's office space and equipment leases,
including those for closed locations, extend through 2004. The Company also
leases various computer equipment and office equipment under capital leases that
expire on various dates through 2003. The future minimum lease obligations under
operating and capital leases as of December 31, 2002 are as follows:
F-15
Operating Capital
Year Ended December 31, Leases Leases
----------------------- ---------- ---------
2003 ......................................... $69,320 $6,568
2004 ......................................... 6,231 --
------- ------
Total ...................................... $75,551 6,568
------
Amount representing interest ......... 147
------
Current portion ...................... $6,421
======
Employment Agreements
The Company has employment agreements with certain executives that
prescribe compensation levels and provide for severance payments in certain
instances.
Litigation
The Company is periodically a party to disputes arising from normal
business activities. In the opinion of management, resolution of these matters
will not have a material adverse effect upon the financial position or future
operating results of the Company, and adequate provision for any potential
losses has been made in the accompanying consolidated financial statements.
10. Segment reporting.
During 1998, the Company adopted SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information" SFAS No. 131 requires a business
enterprise, based upon a management approach, to disclose financial and
descriptive information about its operating segments. Operating segments are
components of an enterprise about which separate financial information is
available and regularly evaluated by the chief operating decision maker(s) of an
enterprise. Under this definition, the Company operated as a single segment for
all periods presented.
11. Selected Quarterly Financial Data (Unaudited)
A summary of selected quarterly information for 2002 and 2001 is as
follows:
2002 Quarter Ended
(in thousands of U.S. dollars except per share amounts)
March 31 June 30 Sep. 30 Dec. 31
---------- ----------- --------- ----------
Net Sales .................... $ 863 $ 839 $ 917 $ 876
Gross Profit ................. 266 261 259 219
Net (Loss) Earnings .......... (94) (51) 0 84
Earnings per Share ........... $(0.01) $(0.00) $0.00 $0.01
2001 Quarter Ended
(in thousands of U.S. dollars except per share amounts)
March 31 June 30 Sep. 30 Dec. 31
---------- ----------- ----------- -----------
Net Sales ................... $2,200 $1,646 $1,253 $ 804
Gross Profit ................ 1,041 768 620 351
Net Loss .................... (116) (270) (116) (6,284)
Earnings per Share .......... $(0.01) $(0.02) $(0.01) $ (0.48)
F-16