SECURITIES AND EXCHANGE
COMMISSION  Washington, D.C. 20549

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# FORM 10-QSB/A No. 3

Pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934

Amendment No. 3 to
Quarterly Report on Form 10-QSB for the quarter ended March 31, 2005

|WIDEPOINT CORPORATION                                 
|------------------------------------------------------
|(Exact name of registrant as specified in its charter)

|Delaware                        | 000-23967                | 52-2040275                       
|------------------------------- | ------------------------ | ---------------------------------
|(State or other jurisdiction of | (Commission File Number) | (IRS Employer Identification No.)
|incorporation or organization) 

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

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

The
undersigned registrant hereby amends the following items, financial statements, exhibits
or other portions of its Quarterly Report on Form 10-QSB for the quarter ended March 31,
2005, as previously amended by Amendment No. 2 filed on August 17, 2005, as set forth in the pages attached hereto:

|Part I  | Item 1 | Condensed Consolidated Financial Statements              
|------- | ------ | ---------------------------------------------------------
|        | Item 2 | Management's Discussion and Analysis or Plan of Operation
|        | Item 3 | Controls and Procedures                                  
|Part II | Item 6 | Exhibits                                                 

Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this amendment to be signed on its behalf by the undersigned, thereunto duly authorized.

|                        | WidePoint Corporation                     
|----------------------- | ------------------------------------------
|Date:  January 19, 2006 | By:  /s/ James T. McCubbin                
|                        | James T. McCubbin                         
|                        | Vice President and Chief Financial Officer

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INTRODUCTORY NOTE

This Amendment No. 3 of the Companys
 Quarterly Report on Form 10-QSB has been revised as a result of certain  Restatements
 made by the Company, which are further described in the Financial Statements, note No. 1.

WIDEPOINT CORPORATION

INDEX

|                                                                    
|--------------------------------------------------------------------
|Part I.     FINANCIAL INFORMATION                                   
|Item 1.  Condensed Consolidated Financial Statements                
|Condensed Consolidated Balance Sheets as of March 31, 2005,         
|(unaudited) and December 31, 2004 (unaudited).                      
|Condensed Consolidated Statements of Operations for the three       
|months ended March 31, 2005 and 2004 (unaudited).                   
|Condensed Consolidated Statements of Changes in Stockholders Equity
|For the three months ended March 31, 2005 (unaudited).              
|Condensed Consolidated Statements of Cash Flows for the three       
|months ended March 31, 2005 and 2004 (unaudited).                   
|Notes to Condensed Consolidated Financial Statements.               
|Item 2.  Managements Discussion and Analysis or Plan               
|of Operation.                                                       
|Item 3.  Controls and Procedures.                                   
|Part II.     OTHER INFORMATION                                      
|Item 6.  Exhibits                                                   

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# PART 1. FINANCIAL
INFORMATION

# ITEM 1. CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.

# WIDEPOINT CORPORATION
AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS

|                                                                           | March 31,   | RestatedDecember 31,
|-------------------------------------------------------------------------- | ----------- | --------------------
|
|(unaudited)                                                                | (unaudited)
|Assets                                                                     |             |                     
|Current assets:                                                            |             |                     
|Cash and cash equivalents                                                  |             |                     
|Accounts receivable                                                        |             |                     
|Prepaid expenses and other assets                                          |             |                     
|                                                                           |             |                     
|Total current assets                                                       |             |                     
|                                                                           |             |                     
|Property and equipment, net                                                |             |                     
|Goodwill                                                                   |             |                     
|Intangibles                                                                |             |                     
|Other assets                                                               |             |                     
|                                                                           |             |                     
|Total assets                                                               |             |                     
|                                                                           |             |                     
|Liabilities and stockholders' equity                                       |             |                     
|Current liabilities:                                                       |             |                     
|Short-term borrowings                                                      |             |                     
|Accounts payable                                                           |             |                     
|Accrued expenses                                                           |             |                     
|Income taxes payable                                                       |             |                     
|Short-term portion of deferred rent                                        |             |                     
|Financial instruments                                                      |             |                     
|                                                                           |             |                     
|Total current liabilities                                                  |             |                     
|Long-term portion of deferred rent                                         |             |                     
|Deferred income tax liability                                              |             |                     
|                                                                           |             |                     
|Total liabilities                                                          |             |                     
|Temporary equity:                                                          |             |                     
|Preferred stock, $0.001 par value; 10,000,000 shares authorized; 2,045,714 |             |                     
|shares issued and outstanding, respectively                                |             |                     
|Stockholders (deficit) equity:                                            |             |                     
|Common stock, $0.001 par value; 110,000,000 shares authorized; 17,859,009  |             |                     
|shares issued and outstanding, respectively                                |             |                     
|Common stock issuable, $0.001 par value; 1,088,795 and 544,398             |             |                     
|shares, respectively                                                       |             |                     
|Stock warrants                                                             |             |                     
|Related party notes receivable                                             |             |                     
|Additional paid-in capital                                                 |             |                     
|Accumulated deficit                                                        |             |                     
|                                                                           |             |                     
|Total stockholders deficit                                                |             |                     
|                                                                           |             |                     
|Total liabilities, temporary equity and stockholders deficit              |             |                     
|                                                                           |             |                     

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

1

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# WIDEPOINT CORPORATION AND
SUBSIDIARIES

# CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS

|                                                                               | Three Months Ended
March 31,
|------------------------------------------------------------------------------ | ----------------------------
|
|
|Revenues, net                                                                  |                             
|Cost of sales (including depreciation and amortization of $70,550, and $0,     |                             
|respectively, and stock compensation expense of $370,190 and $0, respectively) |                             
|                                                                               |                             
|Gross profit                                                                   |                             
|Sales and marketing                                                            |                             
|General & administrative                                                       |                             
|Depreciation expense                                                           |                             
|                                                                               |                             
|Loss from operations                                                           |                             
|Other income, net:                                                             |                             
|Interest income                                                                |                             
|Interest expense                                                               |                             
|Gain from financial instrument                                                 |                             
|Other                                                                          |                             
|                                                                               |                             
|Net earnings/(loss)                                                            |                             
|                                                                               |                             
|Basic net earnings/(loss) per share                                            |                             
|                                                                               |                             
|Basic weighted average shares outstanding                                      |                             
|                                                                               |                             
|Diluted net earnings/(loss) per share                                          |                             
|                                                                               |                             
|Diluted weighted average shares outstanding                                    |                             
|                                                                               |                             

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

2

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# WIDEPOINT CORPORATION
AND SUBSIDIARIES                                        Condensed Consolidated Statements
of Changes in Stockholders Equity

|                           | Temporary Equity | Permanent Equity |  |           |  |   | Restated | 
|-------------------------- | ---------------- | ---------------- |  | --------- |  | - | -------- | 
|
|
|Balance, December 31, 2004 |                  |                  |  | 2,045,714 |  | $ | 2,046    | 
|                           |                  |                  |  |           |  |   |          | 
|Collections on related     |                  |                 
|party notes receivable     |                  |                  |  | --        |  |   | --       | 
|March 31, 2005 Issuance    |                  |                 
|of common stock           |                  |                 
|Chesapeake                 |                  |                  |  | --        |  |   | --       | 
|Expenses associated from   |                  |                 
|registration statement     |                  |                  |  | --        |  |   | --       | 
|Net gain                   |                  |                  |  | --        |  |   | --       | 
|                           |                  |                  |  |           |  |   |          | 
|Balance, March 31, 2005    |                  |                  |  | 2,045,714 |  | $ | 2,046    | 
|                           |                  |                  |  |           |  |   |          | 

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

3

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# WIDEPOINT CORPORATION
AND SUBSIDIARIES CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS

|                                               | Three Months
Ended March 31,
|---------------------------------------------- | ----------------------------
|
|
|Cash flows from operating activities:          |                             
|Net earnings (loss)                            |                             
|Adjustments to reconcile net earnings/(loss)   |                             
|to net cash provided by  operating             |                             
|activities:                                    |                             
|Depreciation expense                           |                             
|Amortization expense                           |                             
|Stock compensation expense                     |                             
|Deferred income taxes                          |                             
|Deferred financing costs                       |                             
|Gain from financial instrument                 |                             
|Changes in assets and liabilities              |                             
|Accounts receivable                            |                             
|Prepaid expenses and other assets              |                             
|Other assets                                   |                             
|Accounts payable and accrued expenses          |                             
|                                               |                             
|Net cash provided by operating                 |                             
|activities                                     |                             
|                                               |                             
|Net cash flows from investing activities:      |                             
|Purchase of property and equipment             |                             
|Intangible development costs                   |                             
|                                               |                             
|Net cash flows used in investing activities    |                             
|                                               |                             
|Net cash used in financing                     |                             
|activities                                     |                             
|Borrowings on notes payable                    |                             
|Payments on notes payable                      |                             
|Collections on related party notes             |                             
|Expenses related to registration statement     |                             
|Proceeds from exercise of stock options        |                             
|                                               |                             
|Net cash used in financing                     |                             
|activities                                     |                             
|                                               |                             
|Net (decrease) increase in cash                |                             
|                                               |                             
|Cash and cash equivalents, beginning of period |                             
|                                               |                             
|Cash and cash equivalents, end of period       |                             
|                                               |                             
|Supplementary information:                    
|Cash paid for interest                         |                             
|                                               |                             

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

4

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# WIDEPOINT CORPORATION
AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

|1. | Basis
of Presentation, Organization and Nature of Operations:
|-- | -------------------------------------------------------------

WidePoint Corporation (WidePoint or the Company) is an information
technology (IT) services firm with established competencies in federal
government and commercial sector IT consulting services, including planning, managing and
implementing IT solutions, software and secure authentication processes, and specialized
outsourcing arrangements.  Our staff consists of business and computer specialists
who help customers augment and expand their resident technologic skills and
competencies, drive technical innovation, and help develop and maintain a competitive
edge in todays rapidly changing technological environment in business.

In 2004, WidePoint acquired
Chesapeake Government Technologies, Inc. (Chesapeake) and Operational Research
Consultants, Inc. (ORC) as part of WidePoints strategy to refocus our
business development initiatives toward the substantial increase in government spending on
infrastructure and automation that has been accelerated by recent geopolitical events that
have created an unprecedented need for systems and process expertise across most
government markets, federal, state and local. WidePoint intends to capitalize on the
expected growth in its target markets through strategic acquisitions, continue rollout
of ORCs Public Key Infrastructure (PKI) initiative, and continue to
implement our project based enterprise strategy emphasizing industry-wide best practices
disciplines. The Company intends to continue to leverage the synergies between its newly
acquired operating subsidiaries and cross sell its technical capabilities into each
separate marketplace serviced by its respective subsidiaries.

The Company has physical locations in
Oakbrook Terrance, Illinois, Fairfax, Virginia, Alexandria, Virginia, and Chesapeake,
Virginia. The Company employees work at various client locations throughout the upper
Midwest, Texas, and Mid Atlantic areas of the United States.

In addition, most of the
Companys current costs consist primarily of the salaries and benefits paid to the
Companys technical, marketing and administrative personnel and as a result of its
plan to expand its operations through a combination of internal growth initiatives
and merger and acquisition opportunities, the Company expects such costs to
increase.  The Companys profitability also depends upon both the volume of
services performed and the Companys ability to manage costs.  As a
significant portion of the Companys costs is labor related, the Company must
effectively manage these costs to achieve and grow its 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 its clients. The
uncertainties relating to its ability to achieve and maintain profitability, obtain
additional funding to fund its growth strategy and provide the necessary investment to
continue to upgrade its management reporting systems to meet the continuing demands of the
present regulatory changes affect the comparability of the information reflected in the
selected consolidated financial information presented above. The Company believes that its
cash on hand, and available senior lending facility are adequate to finance operations
through 2005.

Restatement

Management of the Company determined
that we had not correctly accounted for the Chesapeake acquisition as 1) it should not
have resulted in the recognition of an intangible asset, 2) Company shares that were
placed in escrow for release only upon the achievement of certain future revenue should
not have been recognized immediately, but instead, only upon the achievement of certain
contingencies, 3) as a result of timing differences between the actual release from
escrow on June 30, 2005 of the shares earned as of December 31, 2004, the Company should
not have recorded the shares earned as of December 31, 2004 as common stock but recorded
the shares as common stock issuable until the shares were released from escrow by the
Companys transfer agent, which occurred on June 30, 2005, and 4) as a result of timing
differences between the recording as of March 31, 2005 of the shares earned and the
release of the shares from escrow, which will not occur until after the filing of the
Companys financial statements on Form 10-K in 2006, the Company should not have recorded
the shares as common stock, but recorded the shares as common stock issuable as of March
31, 2005.

While the Companys management
believes that the Company did acquire assets in a business sense when it acquired the
stock of Chesapeake, these assets, consisting primarily of Chesapeakes relationships
with various sources of potential business opportunities, did not meet the criteria for
recognition as assets under Statement of Financial Accounting Standards No. 141 (SFAS 141).
 Additionally, the acquisition could not, alternatively, give rise to goodwill because Chesapeake was in
the development stage at the time of acquisition and therefore not considered a business.

5

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Management has acquiesced to the use
of the ORC revenue as a basis for release of the escrowed shares under the belief that
the revenue of ORC, which management believes was acquired as a result of Chesapeake
relationships, qualifies as revenue for determination of the release of escrowed shares.
 For financial reporting purposes, however, the text of the Chesapeake agreement does not
provide sufficient objective evidence of linkage between release of the shares and ORC
revenue to allow for capitalizing the cost of the release as additional acquisition cost
of ORC.  A portion of the shares escrowed in the Chesapeake transaction were earned by
the former shareholders of Chesapeake as of December 31, 2004 as a result of revenues
realized by ORC since its acquisition by the Company.  The shares were subsequently
released from escrow after the filing of the Companys financial statements on Form 10-K
in 2005, per the conditions of an escrow agreement between the Company and the former
shareholders of Chesapeake.

As a consequence of these
determinations, previously issued financial statements have been restated to eliminate
the intangible asset associated with the Chesapeake acquisition, reverse the related
amortization expense, expense as consulting fees the cost of the transaction attributable
to the cost of issuance of the non-escrowed shares and other related direct costs at the
time of acquisition, to record and expense as consulting fees in cost of sales the
release of the shares from escrow at December 31, 2004, and to expense in cost of sales
and record the value of those shares in equity that met as of March 31, 2005 the
performance measures which would result in the release of those shares from escrow after
the filing of the Companys financial statements on Form 10-K in 2006, per the conditions
of an escrow agreement between the Company and the former shareholders of Chesapeake, and
to record the shares in equity as common stock issuable until such time as they could be
reclassed as common stock upon the release of the shares earned from escrow.

We also determined that certain
amortization costs related to the ORC acquisition should have been recorded in cost of
sales and not in amortization and depreciation; and we determined that under our October
and November 2004 Barron financing agreements, preferred stock recorded should have been
classified as temporary preferred equity and not permanent preferred equity.  As such, we
have restated our financial statements with a summary of the effects of the restatements
to properly reflect the appropriate accounting treatment as follows:

Balance Sheet:

|                      
|----------------------
|
|
|Intangibles           
|                      
|Total assets          
|                      
|                      
|Preferred stock       
|(temporary equity)    
|                      
|Common stock          
|                      
|Common stock issuable 
|                      
|Preferred stock       
|(stockholders equity)
|                      
|Additional paid-in    
|capital               
|                      
|Accumulated deficit   
|                      
|                      
|Total permanent       
|shareholders deficit 
|                      
|                      
|Total liabilities,    
|temporary equity &    
|shareholders deficit 
|                      

6

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Statement of Operations:

|                      
|----------------------
|
|
|Cost of sales         
|                      
|Gross profit          
|                      
|                      
|Depreciation &        
|Amortization          
|                      
|Loss from operations  
|                      
|Net (loss) earnings   
|                      
|                      
|Basic net (loss)      
|earnings per share    
|                      
|                      
|Basic weighted average
|shares outstanding    
|                      
|                      
|Diluted net (loss)    
|earnings per share    
|                      
|                      
|Diluted weighted      
|average shares        
|outstanding           
|                      

Statement of Cash Flows:

|                    
|--------------------
|
|
|
|Net (loss) earnings 
|                    
|Amortization expense
|                    
|Stock compensation  
|expense             
|                    

|2. | Significant
Accounting Policies
|-- | -------------------------------

Principles of
Consolidation

The accompanying consolidated
financial statements include the accounts of acquired entities since their respective
dates of acquisition. All significant intercompany amounts have been eliminated.

7

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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 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 either United States federal agencies or established
companies in the following industries: manufacturing, consumer product goods, direct
marketing, healthcare and financial services. Credit is extended based on evaluation of a
customers financial condition and, generally, collateral is not required. Accounts
receivable are due within 30 to 60 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
for doubtful accounts 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.

|Description                           | Balance at
Beginning of
Period | Additions
Charged to
Costs and
Expenses | Deductions | Balance at
End of
Period
|------------------------------------- | ------------------------------ | --------------------------------------- | ---------- | ------------------------
|For the quarter ended March 31, 2004, |                                |                                         |            |                         
|Allowance for doubtful accounts       |                                |                                         | $          | 18,819                  
|For the quarter ended March 31, 2005, |                                |                                        
|Allowance for doubtful accounts       |                                |                                         | $          | --                      

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 March 31, 2005 and December 31, 2004, unbilled accounts receivable totaled
$12,869 and $0, respectively.

Revenue Recognition

The majority of the Companys
revenues are derived from cost-plus, or time-and-materials contracts. Under cost-plus
contracts, revenues are recognized as costs are incurred and include an estimate of
applicable fees earned. For time-and-material contracts, revenues are computed by
multiplying the number of direct labor-hours expended in the performance of the contract
by the contract billing rates and adding other billable direct costs. In the event of a
termination of a contract, all billed and unbilled amounts associated with those task
orders where work has been performed would be billed and collected. The termination
provisions of the contract would be accounted for at the time of termination. Any deferred
and/or amortization cost would either be billed or expensed depending upon the termination
provisions of the contract. Further, the Company has had no history of losses nor has it
identified any specific risk of loss at March 31, 2005 or on December 31, 2004 due to
termination provisions and thus has not recorded provisions for such events.

8

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The Companys other revenues are
derived from the delivery of non-customized software.  In such cases revenue is
recognized when there is persuasive evidence that an arrangement exists (generally a
purchase order has been received or  contract signed), delivery has occurred, the charge
for the software is fixed or  determinable, and collectibility is probable.

Significant Customers

For the quarter ended March 31,
2005, two customers, Tangible Software and The Department of Homeland Security,
individually represented approximately 15% and 14% of revenues, respectively, and we
therefore are materially dependent upon such customers.  Due to the nature of our
business and the relative size of certain contracts which are entered into in the
ordinary course of business, the loss of any single significant customer, including the
above customers, would have a material adverse effect on results.  For the quarter ended
March 31, 2004, four customers, Abbot Laboratories, Spencer Stuart, Manpower, and Baxter
Healthcare, individually represented 18%, 14%, 13%, and 13% of revenue, respectively.

Fair value of financial
instruments

The Companys financial
instruments include cash equivalents, accounts receivable, accounts payable, short-term
debt and other financial instruments associated with the issuance of the common stock
warrants attributable to the preferred stock capital investment in the Company in October
of 2004. The carrying values of cash equivalents, accounts receivable and accounts
payable approximate their fair value because of the short maturity of these instruments.
The carrying amounts of the Companys bank borrowings under its credit facility
approximate fair value because the interest rates are reset periodically to reflect
current market rates.

The Companys financial
instruments also include a financial instrument in which a valuation for the warrants
issued by the Company under the Barron Partners, LP preferred financing agreement
contained a registration rights agreement which contained a liquidating damages
provision. Accordingly, a Black Scholes calculation was used to determine the fair value
of those warrants which are classified as a financial instrument. The Financial
Instrument was marked to market at March 31, 2005.

Concentrations of Credit
Risk

Financial instruments that
potentially subject the Company to credit risk, which consist of cash and cash equivalents and
accounts receivable. As of March 31, 2005, two customers, Tangible Software and The
Department of Homeland Security accounted for approximately 25% and 18%, respectively of
accounts receivable. As of December 31, 2004, two customers, The Department of Homeland
Security and Tangible Software, individually represented 24% and 13% of accounts
receivable, respectively.

Income Taxes

The Company accounts for income taxes
in accordance with Statement of Financial Accounting Standards (SFAS)
No. 109, Accounting for Income Taxes. Under SFAS No.109, deferred tax
assets and liabilities are computed based on the difference between the financial
statement and income tax bases of assets and liabilities using the enacted marginal tax
rate. SFAS No. 109 requires that the net deferred tax asset be reduced by a valuation
allowance if, based on the weight of available evidence, it is more likely than not that
some portion or all of the net deferred tax asset will not be realized.

9

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Property and Equipment

Property and equipment are stated at
cost, net of accumulated depreciation and amortization. Property and equipment consisted
of the following:

|                                                | March 31, | December 31,
|----------------------------------------------- | --------- | ------------
|
|Computers, equipment and software               |           |             
|Less- Accumulated depreciation and amortization |           |             
|                                                |           |             
|                                                |           |             
|                                                |           |             

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.

Software Development Costs

WidePoint accounts for software
development costs related to software products for sale, lease or otherwise marketed in
accordance with Statement of Financial Accounting Standards (SFAS) No. 86,
Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed. For projects fully funded by the Company, significant development costs
are capitalized from the point of demonstrated technological feasibility until the point
in time that the product is available for general release to customers. Once the product
is available for general release, capitalized costs are amortized based on units sold, or
on a straight-line basis over a six-year period or other such shorter period as may be
required. WidePoint recorded approximately $14,000 of amortization expense for the period
ending March 31, 2005. WidePoint recorded approximately $9,700 of amortization expense for
the year ended December 31, 2004. Capitalized software costs included in Other Intangibles
at March 31, 2005 and December 31, 2004 were approximately $0.7 and $0.6 million,
respectively.

Goodwill,
Intangibles, and Long-Lived Assets

Goodwill represents costs in excess
of fair values assigned to the underlying net assets acquired. The Company has adopted the
provisions of Statement of Financial Accounting Standards (SFAS) No. 141,
Business Combinations, and SFAS No. 142, Goodwill and Other
Intangible Assets. These standards require the use of the purchase method of
accounting for business combinations, set forth the accounting for the initial recognition
of acquired intangible assets and goodwill and describe the accounting for intangible
assets and goodwill subsequent to initial recognition. Under the provisions of these
standards, goodwill is not subject to amortization and annual review is required for
impairment. The impairment test under SFAS No. 142 is based on a two-step process
involving (i) comparing the estimated fair value of the related reporting unit to its net
book value and (ii) comparing the estimated implied fair value of goodwill to its carrying
value. Impairment losses are recognized whenever the implied fair value of goodwill is
less than its carrying value. The Companys annual impairment testing date is
December 31.

The Company recognizes an acquired
intangible apart from goodwill whenever the intangible arises from contractual or other
legal rights, or when it can be separated or divided from the acquired entity and sold,
transferred, licensed, rented or exchanged, either individually or in combination with a
related contract, asset or liability. Such intangibles are amortized over their useful
lives. Impairment losses are recognized if the carrying amount of an intangible subject to
amortization is not recoverable from expected future cash flows and its carrying amount
exceeds its fair value.

The Company reviews its long-lived
assets, including property and equipment, identifiable intangibles, and goodwill annually
or 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.

10

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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 the conversion of preferred stock to common stock, options, and
warrants to purchase 27,827,156 shares of common stock outstanding at March 31, 2005 has
been included in the calculation of the fully diluted net income per share as such effect
would have been dilutive.  The treasury stock effect of the options and warrants to
purchase 2,112,000 shares of common stock outstanding at March 31, 2004 has not been
included in the calculation of the net loss per share as such effect would have been
anti-dilutive.

Stock-based compensation

Employee 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-BasedCompensation, using the assumptions
described in Note 8, to its stock-based employee plans.

|                                                
|------------------------------------------------
|
|Net earnings (loss), as reported                
|Add:  Total stock-based employee                
|compensation expense determined under fair      
|value based method for awards granted,          
|modified, or settled, net of related tax effects
|                                                
|Pro forma net earnings (loss)                   
|Net earnings (loss) per share:                  
|Basic - as reported                             
|Diluted - as reported                           
|Basic - pro forma                               
|Diluted - pro forma                             

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

For purposes of determining the
effect of these options, the fair value of each option is estimated on the date of grant
based on the Black-Scholes single-option pricing model assuming the following for the
three months ended March 31, 2005:

11

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|Dividend yield              | --        
|--------------------------- | ----------
|Risk-free interest rate (%) | 2.70-4.13%
|Volatility factor (%)       | 156%      
|Expected life in years      | 5         

Non-employee based
compensation:

The Company accounts for stock-based
non-employee compensation arrangements using the fair value recognition provisions of
FASB Statement 123, Accounting for Stock-Based Compensation and Emerging Issues Task
Force EITF 96-18, Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services.

|3. | Debt
|-- | ----

|                                                    | March 31,
2005 | December 31,
2004
|--------------------------------------------------- | -------------- | -----------------
|Borrowings under WidePoint's Senior Debt Agreement: |                |                  

On
October 25, 2004, the Company executed a senior lending agreement with RBC-Centura. The
Agreement initially provides for a $2.5 million revolving credit facility. The maturity
date of the credit facility is October 25, 2005.

The
maximum available borrowing under revolving credit facility at March 31, 2005 and December
31, 2004 was $1.8 million and $2.2 million, respectively. Borrowings under the Agreement
are collateralized by the Companys eligible contract receivables, inventory, all of
its stock in certain of our subsidiaries and certain property and equipment, and bear
interest at the Prime Rate which was 5.75% and 5% on March 31, 2005 and December 31, 2004,
respectively.

WidePoints
credit facility requires that the Company maintain specified financial covenants relating
to fixed charge coverage, interest coverage, and debt coverage, and maintain a certain
level of consolidated net worth. The weighted average borrowings under the revolving
portion of the facility and the prior agreement for the quarter ended March 31, 2005 and
during the year ended December 31, 2004, were $1.5 and $1.5 million, respectively. In
conjunction with the execution of the credit facility, the Company recorded $0.1 million
in loan origination costs, included in other assets, which have been amortized ratably
over the term of the credit facility which commenced in October of 2004 and will expire in
October of 2005.

The
total interest and finders fees paid were approximately $34,000 for the year ended
December 31, 2004. The total interest fees paid for the quarter ended March 31, 2005 was
approximately $20,000.

|4. | Goodwill
and Intangibles
|-- | ------------------------

Effective
January 1, 2002, WidePoint adopted SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS 142 requires, among other things, the discontinuance of goodwill
amortization. Under SFAS 142, goodwill is to be reviewed at least annually for impairment.
The Company has elected to perform this review on December 31st of each
calendar year. These reviews have resulted in no adjustments in goodwill.

During
2004, WidePoint completed the acquisition of Operational Research Consultants, Inc. As a result of
this acquisition the Company has
acquired goodwill and intangibles. The following details the components of goodwill and
intangibles:

12

---

|                                                                                                                              | As of March 31, 2005
|----------------------------------------------------------------------------------------------------------------------------- | --------------------
|
|Amortized intangible assets                                                                                                   |                     
|(1)  ORC Intangible (Includes customer relationships and PKI business opportunity purchase accounting preliminary valuations) |                     
|(2)  PKI-I Intangible (Related to internally generated software)                                                              |                     
|                                                                                                                              |                     
|Total                                                                                                                         |                     
|                                                                                                                              |                     
|Unamortized intangible assets                                                                                                 |                     
|(3)  Other (PKI-II Intangible)                                                                                                |                     
|                                                                                                                              |                     
|Total                                                                                                                         |                     
|Aggregate Amortization Expense:                                                                                               |                     
|For quarter ended 3/31/05                                                                                                     |                     
|Estimated Amortization Expense:                                                                                               |                     
|For year ended 12/31/05                                                                                                       |                     
|For year ended 12/31/06                                                                                                       |                     
|For year ended 12/31/07                                                                                                       |                     
|For year ended 12/31/08                                                                                                       |                     
|For year ended 12/31/09                                                                                                       |                     

|(1) | The
ORC intangible is made up of the estimated preliminary purchase accounting
               associated with the valuation assigned by the Company to ORCs
customer                relationships and PKI business opportunity. The PKI business opportunity
intangible has                an estimated life of 6 years and ORCs customer
relationships have an                estimated life of 5 years. The PKI business opportunity
was estimated based upon the                contractual life assigned to the authority to
issue PKI certificates by the                federal government. The fair value of the
PKI business opportunity was estimated using the                expected present value of future
cash flows estimated by the Company for                ORCs PKI business opportunity.
ORCs customer relationship intangible                was estimated based upon an
analysis of the historic life of ORCs present                customer relationships
and their present contract opportunities. A fair value                was estimated using
the expected present value of the estimated future cash                flows generated
from those relationships. The weighted average life of this                intangible
asset class is 5.5 years.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

13

---

|(2) | The
PKI-I intangible is related to internally generated software that was
               associated with ORCs PKI-I development of its phase 1 software
offerings.                ORC commenced sales of its PKI-I service in August of 2004. It
has a weighted                average life of 5 years and is based upon the contractual
life assigned to the                authority to issue PKI certificates by the federal
government.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | The
PKI-II intangible is related to a secondary PKI software development effort
               by ORC which is still ongoing. Therefore, no amortization expense has been
               incurred.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The total weighted average life of
all of the intangibles is approximately 5 years.

There were no amounts of research
and development assets acquired during the quarter ending March 31, 2005, nor any written
off in the period.

There were no changes in the
carrying amount of goodwill for the quarter ended March 31, 2005.

The goodwill acquired is associated
with the acquisition of ORC in October of 2004. No impairment was required as of March
31, 2005.

|5. | Income
Taxes
|-- | ------------

The Company accounts for income taxes
in accordance with Statement of Financial Accounting Standards (SFAS)
No. 109, Accounting for Income Taxes. Under SFAS No.109, deferred tax
assets and liabilities are computed based on the difference between the financial
statement and income tax bases of assets and liabilities using the enacted marginal tax
rate. SFAS No. 109 requires that the net deferred tax asset be reduced by a valuation
allowance if, based on the weight of available evidence, it is more likely than not that
some portion or all of the net deferred tax asset will not be realized.

The Company 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, less the deferred liability related to the Section 481(a)
adjustment.

As of December 31, 2004 the
Company had net operating loss carry forwards of approximately $20,628,000 to offset
future taxable income. These carry forwards expire between 2010 and 2024. 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. 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. | Temporary
Preferred Stock
|-- | -------------------------

Temporary Preferred Stock

Our certificate of incorporation
authorizes the Company to issue up to 10,000,000 shares of preferred stock, $0.001 par
value per share, of which 2,045,714 shares were outstanding at December 31, 2004.

Pursuant to the Certificate of
Designation of Preferences, Rights and Limitations of Series A Convertible Preferred
Stock, filed with the Secretary of State of the State of Delaware on November 9, 2004,
2,045,714 shares of the Companys preferred stock are designated as Series A
Convertible Preferred Stock having the following rights:

14

---

Each share of Series A Convertible
Preferred Stock has a conversion rate equal to $0.175 per share and is convertible at the option of the holder into
ten shares of common stock.

The conversion of the Series A
Convertible Preferred Stock is subject to the following conditions:

| |  | Subject
to waiver, holders of Series A Convertible Preferred Stock do not have the right to
convert any portion of the preferred stock to the extent that after giving effect to such
conversion, the holder (together with any affiliates of the holder), would beneficially
own in excess of 4.99% of the number of shares of the common stock outstanding
immediately after giving effect to such conversion. In the event the converted shares
when issued and combined with all other shares of common stock beneficially owned by the
holder and its affiliates equals, at any time, more than 4.99% of the total number of
then outstanding shares of common stock, then for so long as such holder and its
affiliates beneficially owns more than 4.99% of the total number of then outstanding
shares of common stock, the holder of the converted shares and its affiliates shall have
no more than 22% of the total voting power of all outstanding shares of common stock at
any time.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Holders
of WidePoints Series A Convertible Preferred Stock are entitled to receive a
liquidation preference equal to $1.75 per share in the event of the liquidation,
dissolution, or winding up of the Companys business.

Holders
of Series A Convertible Preferred Stock are not entitled to voting rights. However, unless
approved by the holders of the outstanding Series A Convertible Preferred Stock, the
Company cannot: (a) alter or change adversely the powers, preferences or rights given to
the Series A Convertible Preferred Stock or alter or amend the certificate of designation
relating to the Series A Convertible Preferred Stock, (b) authorize or create any class of
stock ranking as to dividends or distribution of assets upon a liquidation senior to or
otherwise pari passu with the Series A Convertible Preferred Stock, (c) amend the
certificate of incorporation or other charter documents in breach of the certificate of
designations, or (d) increase the authorized number of shares of Series A Convertible
Preferred Stock.

Dividends
are not payable with respect to the Series A Convertible Preferred Stock.

Shares
of Series A Convertible Preferred Stock are subject to automatic conversion generally
under the following circumstances: (i) a change in control of WidePoint, (ii) the
consummation of a public offering (with a value of at least $5 million or more) of our
common stock, (iii) upon receipt of the consent of all holders of the Series A Convertible
Preferred Stock, or (iv) in the event that the fair market value of the outstanding shares
of our common stock exceeds $100 million.

As
a result of the issuance of a registration rights agreement that contained a liquidated
damages clause, the Company is required to follow the Emerging Issues Task Force EITF 00-19, Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Companys Own Stock
by the Company (see footnote 8). In light of the required accounting treatment under EITF
00-19, the entire proceeds of the issuance were allocated to warrants and as such no
proceeds have been allocated to the preferred stock issuance.

Registration Rights Agreement

The shares of common stock issuable
by WidePoint to Barron upon a conversion of shares of the Series A Convertible  Preferred
 Stock or an election to exercise all or a portion of the warrants will not be registered
 under the  Securities  Act of 1933. To provide for the registration of such underlying
 shares,  Barron and WidePoint entered into a registration  rights  agreement,  dated
October 20, 2004, requiring  WidePoint to prepare and file a  registration  statement
 covering the resale of the shares of common stock  underlying  the Series A Convertible
 Preferred Stock and warrants.  The registration  statement was filed on January 5, 2005.
The registration  rights agreement  further  required  WidePoint  to use its best
 efforts to cause such  registration  statement  to be declared  effective  by February
22, 2005 (i.e., 120 days following the closing of the sale of the Series A Convertible
Preferred Stock).

15

---

The registration rights agreement
also contains a liquidated damages provision which calls for Barron to receive from
WidePoint a specified amount if: (i) WidePoint fails to file a registration statement
covering the underlying shares of common stock; (ii) the registration statement is not
declared effective by February 22, 2005; or (iii) the registration statement is not
effective in the period from April 23, 2005 (i.e., 180 days following the October 25,
2004 closing of the preferred financing) through the two years following the date of the
registration rights agreement, subject to permissible blackout periods and registration
maintenance periods.  In the event that one of the aforementioned events occurs, the
registration rights agreement calls for WidePoint to pay Barron a cash amount equal to
the lesser of $20,000 or 1% of the purchase price of that portion of the Series A
Convertible Preferred Stock which has not been converted into common stock as of the
occurrence of such event, with such amount to be paid by WidePoint to Barron on a monthly
basis after the occurrence of such event.  Barron is entitled to receive the
aforementioned damages until such time as the registration statement is declared
effective.  Since the registration statement registering the underlying shares of common
stock has not yet been declared effective, Barron is currently entitled to receive such
damages.  However, WidePoint has received a waiver from Barron for all damages accrued
under this provision through September 30, 2005.   As such, WidePoint has paid no damages
under this provision to date. If the registration statement is not declared effective by
the SEC and does not remain effective during the above two-year period, the maximum
amount of damages payable pursuant to this provision would be $260,000.

|7. | Stockholders Equity
|-- | --------------------

The Company is authorized to issue
110,000,000 shares of common stock, $.001 par value per share.  As of March 31, 2005 and
December 31, 2004, respectively, there were 18,947,804 and 18,403,407 shares of common
stock outstanding.  The shares of common stock outstanding as of March 31, 2005 does not
include escrowed common stock for 5,555,556 and 2,177,590 shares that are associated with
shares issued and held in escrow pending contingent release.  The shares of common stock
outstanding as of December 31, 2004 does not include escrowed common stock for 5,555,556
and 2,721,987 shares that are associated with shares issued and held in escrow pending
contingent release.  As of March 31, 2005, 5,555,556 common shares have been issued and
placed into escrow with none of those shares yet having been earned under a purchase
agreement between WidePoint and ORC.  As of March 31, 2005, 2,721,987 common shares have
been issued and placed into escrow with 544,397 of those escrowed common shares having
met certain performance measures as of March 31, 2005 that will allow for their release
pending the completion of the Companys audited financial statements for the period
ending December 31, 2005, as further described under a purchase agreement between
WidePoint and Chesapeake.  The rights, preferences and privileges of holders of common
stock are subject to, and may be adversely affected by the rights of the holders of
shares Series A Convertible Preferred Stock and of any additional series of preferred
stock that may be designated and issued in the future.

Common Stock

On October 25, 2004, WidePoint
completed the acquisition of Operational Research Consultants, Inc., or ORC, a privately
held IT and engineering firm providing mission-critical sensitive and strategic
information security solutions to the United States Government. Pursuant to the terms of a
Purchase Agreement entered into on October 25, 2004, between the Company and the ORC
shareholders, the Company issued 5,555,556 common shares of the Companys common stock and
placed it into an escrow to be released to the ORC shareholders in the event they attain
certain performance parameters in 2004 and 2005. As of March 31, 2005, no common shares
were released from escrow.

16

---

On April 30, 2004, the Company
closed upon the acquisition of all the issued and outstanding shares of Chesapeake,
pursuant to the terms of an Agreement and Plan of Merger, dated as of March 24, 2004.
 WidePoint issued 4,082,980 shares of its common stock to stockholders of Chesapeake in
consideration for all of the issued and outstanding shares of Chesapeake owned by them.
 In conjunction with this closing, the sole stockholders also entered into an escrow
agreement and deposited 3,266,384 shares of the 4,082,980 newly issued shares of
WidePoint common stock into escrow.  The 3,266,384 shares of common stock placed into
escrow have not been recorded in equity and will be released to the Chesapeake
Shareholders in the event of the satisfaction of certain conditions set forth in the
merger agreement, which provides that during the period commencing after the closing of
the merger and ending on December 31, 2005, the 3,266,384 shares of common stock will be
released to the Chesapeake Shareholders in a ratio based on the amount of revenues
actually received by the Company from the business acquired from Chesapeake.  The December 31,
2005 escrow expiration date may be extended for one additional year in the event it is
determined that Chesapeake has achieved certain performance levels in the latter part of
2005.  In the event that WidePoint does not receive certain levels of revenues from the
business acquired from Chesapeake, then any of the 3,266,384 shares of common stock to
which the Chesapeake Shareholders have not become entitled to receive will be returned to
the Company.  The Company recorded in equity and issued 816,596 of the common shares out
of 4,082,980 common shares issued to the Chesapeake Shareholders at the time of the
acquisition of Chesapeake.  The Company recorded the shares in common stock issuable at
the time of the acquisition and subsequently recorded the shares in common stock after
the shares were issued by the Companys transfer agent on July 13, 2004.  As a result of
meeting certain performance measures by December 31, 2004 the Company recorded in equity
544,398 common shares, which were held in escrow by the Company.  The shares were
recorded as common stock issuable.  Per an agreement between the Company and the original
shareholders of Chesapeake, the shares will be released from escrow and subsequently
recorded as common stock after the filings of the Companys financial statements on Form
10-K for the period ending December 31, 2004.  As a result of meeting certain performance
measures by March 31, 2005, the Company recorded in equity the pending release of 544,397
additional common shares on March 31, 2005, which will continue to be held in escrow
until the after the filing of the Companys financial statements on Form 10-K for the year ended December 31, 2005
per an agreement between the Company and the original shareholders of Chesapeake.  These
shares have not been recorded in common stock but in common stock issuable.  The
remaining unearned Chesapeake common shares held in escrow that have not met certain
performance measures as of March 31, 2005 have not been expensed or recorded within
equity.

Pursuant to an agreement on April 30,
2004 between the Company and Tripoint Capital Advisors, LLP, the company issued 500,000
shares of its common stock without registration under the Securities Act of 1933 for
services rendered in association with the Chesapeake acquisition. These shares were
reported at the fair value at the date of issuance.

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-year full-recourse note.

Common Stock Issuable

The Company entered into an escrow
agreement with the original Chesapeake shareholders, which required certain performance
measures to be achieved to cause the shares to be earned and subsequently released.  The
difference between the dates the shares were earned and subsequently released from escrow
resulted in a timing difference, which required the Company to record the shares when
they were earned as common stock issuable and subsequently reclassed as common stock upon
the release of the shares from escrow.  The Company recorded the shares that have been
earned per certain performance measures at each recording date, while the escrow
agreement only allowed for the release of the shares earned after the Companys fiscal
year filings of its financial statements on Form 10-K, for each respective period, per
the terms of the escrow agreement.

On December 31, 2004 the original
shareholders of Chesapeake earned 544,398 shares, which will be released from escrow
after the filing of the Companys financial statements on Form 10-K for the period ending
December 31, 2004, per an escrow agreement between the Company and the original
Chesapeake shareholders.  As such, the shares were recorded as Common Stock Issuable as
of December 31, 2004.  Upon the filing of the Companys financial statements on Form 10-K
for the period ending December 31, 2004, the shares will be released from escrow and at
that time reclassed as Common Stock.  On March 31, 2005, the original shareholders of
Chesapeake earned 544,397 shares, which will not be released from escrow until after the
filing of the Companys financial statements on Form 10-K for the period ending December
31, 2005, per an agreement between the Company and the original Chesapeake shareholders.
 Therefore, the Company has recorded the shares as Common Stock Issuable as of March 31,
2005.  The remaining unearned Chesapeake common shares held in escrow that have not met
certain performance measures as of March 31, 2005 have not been expensed or recorded
within equity.

Stock Warrants

On October 27, 2004 and November 22,
2004, the Company issued warrants to purchase 30,612 and 5,556 shares of common stock,
respectively to Liberty Capitol as part of a consulting agreement in which Liberty Capitol
assisted the Company in arranging its senior debt financing with RBC-Centura. The warrants
have a term of 5 years. The Company used a fair-value option pricing model to value these
stock warrants at approximately $14,291. This value has been reflected as part of stock
warrants in the stockholders equity section of the consolidated balance sheet and
is being amortized over the life of the debt as interest expense.

17

---

Related Party 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-year full-recourse, 5% interest bearing promissory note with equal annual principal
payments due, issued by each such person to the Company in the principal amount of
$60,550.00, or $181,650.00 in the aggregate (which equals $0.07 per share, being the
closing price of the Companys common stock on July 8, 2002). Amounts outstanding
under these notes are reflected as a reduction to stockholders equity until paid.

|8. | Financial
Instrument
|-- | --------------------

In October of 2004, the Company
issued warrants to purchase 10,228,571 shares of common stock to Barron Partners, LP as
part of a preferred stock financing. The warrants have a term of 5 years. The value of
these warrants has been reflected as a financial instrument in the short-term liabilities
section of the consolidated balance sheet as a result of the issuance of a registration
rights agreement that included a liquidated damages clause, which is linked to an
effective registration of such securities. Accordingly, the Company applied EITF 00-19,
Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled
in, a Companys Own Stock and accounted for the warrants as a liability. In
light of the required accounting treatment under EITF 00-19, the Company is also required
to value the fair market price of the financial instrument as of March 31, 2005.
The Company utilized a Black-Scholes calculation
to determine the fair valuation of the financial instrument on March 31, 2005.  We used a
volatility input of 101% and a risk free interest rate of 4.18% and a warrant exercise
price of $0.40 per common share.  The fair value utilizing this calculation produced a
computed result for the financial instrument of $5,652,308.  As of December 31, 2004, the
value of the financial instrument was $6,648,571.  The difference between the measured
fair value marked to market at December 31, 2004 and March 31, 2005 resulted in the gain
from financial instrument of $996,263.

|9. | Litigation
|-- | ----------

As of December 31, 2004, ORC was the
defendant in a lawsuit entitled Fleuette v. ORC, C.A. No. 1:04-cv-1054, in the Eastern
District of Virginia, in which Renee Fleuette Gallagher, a former employee of ORC, alleged
that ORC wrongfully terminated her employment with ORC. The plaintiff sought an
unspecified amount of damages from ORC. Prior administrative and judicial proceedings
instituted by Ms. Gallagher against ORC have been dismissed or found to be without merit.
ORC did not believe that it had committed any wrong against Ms. Gallagher and therefore
vigorously defended itself in the lawsuit filed by Ms. Gallagher. As part of the
agreements entered into between WidePoint, ORC and the former stockholders of ORC at the
time of WidePoints acquisition of ORC, the former stockholders of ORC agreed to
indemnify WidePoint and ORC from any liability involving the claims by Ms. Gallagher
against ORC, including the above-captioned lawsuit. In February of 2005, a settlement was
reached between the parties and the complaints were dismissed.

Other than as described above, the
Company is not involved in any material legal proceedings.

|10. | Subsequent
events
|--- | -----------------

In April and May of 2005, Barron
Partners LP converted 300,000 preferred shares into 3,000,000 common shares and
subsequently sold the 3,000,000 common shares in private transactions to three
institutional investors. Barron Partners LP also exercised warrants purchasing 2,000,000
common shares and subsequently sold the 2,000,000 common shares in private transactions to
two institutional investors. As a result of the exercise of the 2,000,000 warrants, the Company realized gross
proceeds of $800,000.

18

---

# ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

The following discussion and analysis
of the financial condition and results of operations of the Company should be read in
conjunction with the financial statements and the notes thereto which appear elsewhere in
this quarterly report and the Companys Annual Report on Amended Form 10-K for the year ended
December 31, 2004.

The information set forth below
includes forward-looking statements. Certain factors that could cause results to differ
materially from those projected in the forward-looking statements are set forth below.
Readers are cautioned not to put undue reliance on forward-looking statements. The Company
disclaims any intent or obligation to update publicly these forward-looking statements,
whether as a result of new information, future events or otherwise.

# Restatement and Overview

WidePoint is an information
technology (IT) services firm with established competencies in federal
government and commercial sector IT consulting services, including planning, managing and
implementing IT solutions, software and secure authentication processes, and specialized
outsourcing arrangements. Our staff consists of business and computer specialists who help
customers augment and expand their resident technologic skills and competencies,
drive technical innovation, and help develop and maintain a competitive edge in
todays rapidly changing technological environment in business.

In 2004, WidePoint acquired
Chesapeake Government Technologies, Inc. (Chesapeake) and Operational Research
Consultants, Inc. (ORC) as part of WidePoints strategy to refocus the
Companys business development initiatives toward the substantial increase in
government spending on infrastructure and automation that has been accelerated by recent
geopolitical events that have created an unprecedented need for systems and process
expertise across most government markets, federal, state and local. This market is also
growing due to the fact that many government legacy systems and processes are approaching
the end of their technologically useful lives, indicating the need for significant upgrade
and enhancement. WidePoint intends to capitalize on the expected growth in its target
markets through its strategic acquisitions, continuing rollout of the ORC Public Key
Infrastructure (PKI) initiative, and by continuing to implement our project
based enterprise strategy emphasizing industry-wide best practices disciplines.

With the addition of the customer
base and the increase in revenues attributable from the ORC acquisition, WidePoints
opportunity to leverage and expand further into the federal marketplace has improved
dramatically. ORCs past client successes, top security clearances in their
facilities and with their personnel, and additional breadth of management talent have
expanded the Companys reach into markets that previously were not accessible to
WidePoint. WidePoint intends to continue to leverage the synergies between the newly
acquired operating subsidiaries and cross sell those technical capabilities into each
separate marketplace serviced by its respective subsidiaries. Further, WidePoint is
continuing to actively search out new synergistic acquisitions that we believe will
further enhance the present base of business, which has been augmented by our recent
acquisitions and internal growth initiatives.

As a result of these actions
WidePoints revenues for the period ending March 31, 2005 increased by approximately
285% from approximately $0.7 million for the period ending March 31, 2004 to $2.7 million
for the period ending March 31, 2005. This increase was materially due to the additional
revenues generated by WidePoints acquisition of ORC in October 2004. Due to our
recent acquisition of ORC we presently derive a relatively larger base of revenue from
contracts with U.S. government agencies and U.S. government contractors that are focused
on national security. Funding for these programs and services are generally linked to
trends in U.S. government spending in the areas of defense, intelligence and homeland
security. Leading up to and following the terrorist events of September 11, 2001, the U.S.
government substantially increased its overall defense, intelligence and homeland security
budgets. Because of the increasing focus on national security, ORCs client
relationships in this sector, and ORCs PKI initiative we anticipate that quarterly
revenues will continue at these levels or higher levels in future quarters.

A number of factors, including the
progress of contracts, revenues earned on contracts, the number of billable days in a
quarter, the timing of the pass-through of other direct costs, the commencement and
completion of contracts during any particular quarter, the schedule of the government
agencies for awarding contracts, the term of each contract that we have been awarded and
general economic conditions may subject our revenues and operating results to significant
variation from quarter to quarter. Because a significant portion of our expenses, such as
personnel and facilities costs, are fixed in the short term, successful contract
performance and variation in the volume of activity as well as in the number of contracts
commenced or completed during any quarter may cause significant variations in operating
results from quarter to quarter.

19

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With our recent acquisition of ORC we
rely upon a larger portion of our revenues from the Federal Government directly or as a
subcontractor. The Federal Governments fiscal year ends September 30. If a budget
for the next fiscal year has not been approved by that date, our clients may have to
suspend engagements that we are working on until a budget has been approved. Such
suspensions may cause us to realize lower revenues in the fourth quarter and/or first
quarter of the year. Further, a change in presidential administrations and in senior
government officials may negatively affect the rate at which the Federal Government
purchases the services which we offer.

As a result of the factors above,
period-to-period comparisons of our revenues and operating results may not be meaningful.
You should not rely on these comparisons as indicators of future performance as no
assurances can be given that quarterly results will not fluctuate, causing a possible
material adverse effect on our operating results and financial condition.

In addition, most of WidePoints
current costs consist primarily of the salaries and benefits paid to WidePoints
technical, marketing and administrative personnel. As a result of our plan to expand
WidePoints operations through a combination of internal growth initiatives and
merger and acquisition opportunities, WidePoint expects such costs to
increase.  WidePoints profitability also depends upon both the volume of
services performed and the Companys ability to manage costs.  As a
significant portion of the Companys cost is labor related, WidePoint must
effectively manage these costs to achieve and grow its profitability.  To date, the
Company has attempted to maximize its operating margins through efficiencies achieved by
the use of its proprietary methodologies, and by offsetting increases in consultant
salaries with increases in consultant fees received from its clients. The uncertainties
relating to the ability to achieve and maintain profitability, obtain additional funding
to partially fund the Companys growth strategy and provide the necessary investment
to continue to upgrade its management reporting systems to meet the continuing demands of
the present regulatory changes affect the comparability of the information reflected in
the selected consolidated financial information presented above.

Management of the Company determined
that we had not correctly accounted for the Chesapeake acquisition as 1) it should not
have resulted in the recognition of an intangible asset, 2) Company shares that were
placed in escrow for release only upon the achievement of certain future revenue should
not have been recognized immediately, but instead, only upon the achievement of certain
contingencies, 3) as a result of timing differences between the actual release from
escrow on June 30, 2005 of the shares earned as of December 31, 2004, the Company should
not have recorded the shares earned as of December 31, 2004 as common stock but recorded
the shares as common stock issuable until the shares were released from escrow by the
Companys transfer agent, which occurred on June 30, 2005, and 4) as a result of timing
differences between the recording as of March 31, 2005 of the shares earned and the
release of the shares from escrow, which will not occur until after the filing of the
Companys financial statements on Form 10-K for the year ended December 31, 2005, the Company should not have recorded
the shares as common stock, but recorded the shares as common stock issuable as of March
31, 2005.

While the Companys management
believes that the Company did acquire assets in a business sense when it acquired the
stock of Chesapeake, these assets, consisting primarily of Chesapeakes relationships
with various sources of potential business opportunities, did not meet the criteria for
recognition as assets under Statement of Financial Accounting Standards No. 141 (SFAS 141).
 Additionally, the acquisition could not, alternatively, give rise to goodwill because
Chesapeake was in the development stage at the time of acquisition and therefore not
considered a business.

Management has acquiesced to the use
of the ORC revenue as a basis for release of the escrowed shares under the belief that
the revenue of ORC, which management believes was acquired as a result of Chesapeake
relationships, qualifies as revenue for determination of the release of escrowed shares.
 For financial reporting purposes, however, the text of the Chesapeake agreement does not
provide sufficient objective evidence of linkage between release of the shares and ORC
revenue to allow for capitalizing the cost of the release as additional acquisition cost
of ORC.  A portion of the shares escrowed in the Chesapeake transaction were earned by
the former shareholders of Chesapeake as of December 31, 2004 as a result of revenues
realized by ORC since its acquisition by the Company.  The shares were subsequently
released from escrow after the filing of the Companys financial statements on Form 10-K
in 2005, per the conditions of an escrow agreement between the Company and the former
shareholders of Chesapeake.

20

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As a consequence of these
determinations, previously issued financial statements have been restated to eliminate
the intangible asset associated with the Chesapeake acquisition, reverse the related
amortization expense, expense as consulting fees the cost of the transaction attributable
to the cost of issuance of the non-escrowed shares and other related direct costs at the
time of acquisition, to record and expense as consulting fees in cost of sales the
release of the shares from escrow at December 31, 2004, and to expense in cost of sales
and record the value of those shares in equity that met as of March 31, 2005 the
performance measures which would result in the release of those shares from escrow after
the filing of the Companys financial statements on Form 10-K in 2006, per the conditions
of an escrow agreement between the Company and the former shareholders of Chesapeake, and
to record the shares in equity as common stock issuable until such time as they could be
reclassed as common stock upon the release of the shares earned from escrow.

We also determined that certain
amortization costs related to the ORC acquisition should have been recorded in cost of
sales and not in amortization and depreciation; and we determined that under our October
and November 2004 Barron financing agreements, preferred stock recorded should have been
classified as temporary preferred equity and not permanent preferred equity.   For
further information related to the quantitative effects of the restatement, see note 1 of
the Companys financial statements.

# Results of Operations

Three Months Ended March
31, 2005 as Compared to Three Months Ended March 31, 2004

Revenue. Revenue
for the three month period ended March 31, 2005 was approximately           $2,670,000 as
compared to approximately $723,000 for the three month period           ended March 31,
2004. The increase in revenue was primarily attributable to a           full quarter of
revenues from our acquisition of ORC in October 2004.

Cost
of sales.Cost of sales for the three month period ended March 31, 2005, was
approximately $2,273,000, or 85% of revenues, an increase of approximately $1,707,000
over cost of sales of approximately $566,000, or 78% of revenues, for the three month
period ended March 31, 2004. The percentage increase in cost of sales was primarily
attributable to the amortization expense of intangible assets associated with the
purchase price allocation from the Companys acquisition of ORC and the compensation
expense of approximately $370,000 that resulted from an earnout of 544,397 escrowed
shares that were derived by ORC revenues during the three month period ending March 31, 2005,
that triggered the recording in equity of the 544,397 escrowed shares. The absolute increase in cost of sales was materially attributable to higher
revenues and cost of sales as a direct result of our acquisition of ORC in October 2004.

Gross
profit. As a result of the above, gross profit for the three month period ended March
31, 2005, was approximately $397,000, or 15% of revenues, an increase of approximately
$240,000 over gross profit of approximately $157,000, or 22% of revenues, for the three
month period ended March 31, 2004.

Sales
and marketing. Sales and marketing expense for the three month period ended March 31,
2005, was approximately $176,000, or 7% of revenues, an increase of approximately $74,000,
as compared to approximately $102,000, or 14% of revenues, for the three month period
ended March 31, 2004. The increase was materially attributable to the increase in sales
and marketing expenses from our acquisition of ORC in October 2004.

General
and administrative. General and administrative expenses for the three month period
ended March 31, 2005, were approximately $728,000, or 27% of revenues, an increase of
approximately $578,000, as compared to approximately $150,000, or 21% of revenues,
incurred by the Company for the three month period ended March 31, 2004. The increase in
general and administrative expenses for the three months ended March 31, 2005, was
primarily attributable to an increase of approximately $578,000 in additional general and
administrative expenses associated with our acquisition of ORC in October 2004, other
general and administrative costs associated with the integration of ORC with WidePoint,
increases in our accounting and legal fees associated with our requisite filings with the
Securities and Exchange Commission, and WidePoints mergers and acquisitions efforts
currently underway.

Depreciation.
Depreciation expense for the three month period
ended March 31, 2005, was approximately $6,200, or less than 1% of revenues, an increase of
approximately $4,400, as compared to approximately $1,800 of such expenses, or less than 1% of revenues,
recorded by the Company for the three month period ended March 31, 2004. The increase in
depreciation expense for the three month period ended March 31, 2005,
was primarily attributable to greater amounts of depreciable assets as a result of the
acquisition of ORC in October 2004 and an increase in amortization expense associated with
the purchase accounting related to the purchase of ORC in October 2004.

21

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Interest
income. Interest income for the three month period ended March 31, 2005, was $770, or
less than 1% of revenues, a decrease of $1,092 as compared to $1,862, or less than 1% of
revenues, for the three month period ended March 31, 2004. The decrease in interest income
for the three month period ended March 31, 2005, was primarily attributable to lesser
amounts of cash and cash equivalents along with lower short term interest rates that were
available to the Company on investments in overnight sweep accounts.

Interest
expense. Interest expense for the three month period ended March 31, 2005, was
$52,783, or 2% of revenues, an increase of $52,668 as compared to $115, or less than 1% of
revenues, for the three month period ended March 31, 2004. The increase in interest
expense for the three month period ended March 31, 2005 was primarily attributable to
WidePoints increase in interest expense associated with its recent secured senior
lending facility with RBC-Centura which was utilized in association with the purchase of
ORC.

Gain
on Financial instrument.  The gain on financial instrument for the three month period
ended March 31, 2005, was approximately $996,000. The gain on financial instrument
represents the decrease during the three months ended March 31, 2005 in the estimated
fair value of the warrants issued to Barron Partners, L. P. in connection with the
preferred stock financing.  The estimated fair value of the warrants decreased  principally because
the estimated volatility of the Companys stock declined.  This decline in turn resulted
from the relatively narrow trading range of the Companys stock in the quarter as
compared to past history.  A less volatile stock provides a lower probability that the
warrant holder will be able to eventually realize a gain on exercise.  The effect of the
decreased estimated volatility was partially offset by the increase in the value of the
Company stock underlying the warrants, as well as the increased market interest rates
during the quarter which have an upward effect on the warrant value.

Other.  Other
income for the three month period ended March 31, 2005, was $2,150, or           less
than 1% of revenues. Other income was primarily attributable to           finders
fees. There was no other income for the three month period ended           March 31,
2004.

Net
income.As a result of the above, the net income for the three month period ended March
31, 2005, was approximately $433,000 as compared to the net loss of approximately
$95,000 for the three months ended March 31, 2004.

# Liquidity and Capital
Resources

The Company has, since inception,
financed its operations and capital expenditures through the sale of preferred and common
stock, seller notes, convertible notes, convertible exchangeable debentures, senior
secured loans and the proceeds from the exercise of the warrants related to a convertible
exchangeable debenture. During 2004 and the quarter ended March 31, 2005, operations were
materially financed with working capital, senior debt and the proceeds from a convertible
preferred stock issuance.

Cash provided by operating activities
for the quarter ended March 31, 2005, was approximately $169,600 as compared to cash
provided by operating activities of approximately $10,400 for the quarter ended March 31,
2004. The decrease in cash balances available for operating activities for the quarters
ended March 31, 2005 and 2004, respectively, were primarily a result of investments in
which we expanded our sales and general and administrative cost structure to implement our
growth strategy. Capital expenditures in property and equipment were approximately $1,000
for the quarter ended March 31, 2005, as compared to capital expenditures in property and
equipment of no material amount for the quarter ended March 31, 2004.

As of March 31, 2005, the Company had
a net working capital deficit of approximately $6.3 million.

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WidePoints primary source of
liquidity consists of approximately $0.3 million in cash and cash equivalents and
approximately $2.3 million of accounts receivable. The increase in accounts receivable was
primarily the result of the Companys acquisition of ORC and is attributable to
slower processing and collection times associated with the normal billing and collecting
cycle of ORC as compared to WidePoint. Current liabilities include approximately $2.0
million in accounts payable and accrued expenses; $1.4 million in a line of credit with
RBC Centura Bank; and $5.7 million in financial instruments which may be converted to
equity upon the extinguishment of the Companys liquidated damages clause within the
registration rights agreement entered into with Barron Partners, LP. The material increase
in liabilities is predominately the result of the acquisition of ORC and the increase in
the computed valuation of the financial instrument as of March 31, 2005.

The Companys business
environment is characterized by rapid technological change, experiences times of high
growth and contraction and is influenced by material events such as mergers and
acquisitions that can substantially change the Companys outlook.

Since 2002, WidePoint has embarked
upon several new initiatives to counter the current negative environment within our
industry and expand our capacity to restore revenue growth. The Company requires
substantial working capital to fund the future growth of its business, particularly to
finance accounts receivable, sales and marketing efforts, and capital expenditures. There
are currently no commitments for capital expenditures. 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.

On October 25 and 29, 2004,
WidePoint completed financings with Barron Partners L.P. (Barron), a private
equity fund that engages in investing primarily in private investments in publicly traded
entities, for an aggregate amount of $3,580,000, under a preferred stock purchase
agreement and related agreements. Net proceeds from the financing after costs and
expenses, including fees of finders and agents, were approximately $3,030,000. WidePoint
issued an aggregate of 2,045,714 shares of its Series A Convertible Preferred Stock that
are convertible into an aggregate of 20,457,143 shares of its Common Stock at a conversion
rate equal to $0.175 per share. In addition, WidePoint issued to Barron warrants to
purchase up to an additional 10,228,571 shares of its Common Stock at an exercise price of
$0.40 per common share. In April and May, 2005, Barron exercised warrants for 2,000,000
shares of common stock, providing $800,000 in gross proceeds to the Company.

Pursuant to the registration rights
agreement, between Barron and WidePoint, related to the stock issuances described in the
preceding paragraph, WidePoint filed a registration statement on January 5, 2005, covering
the resale of the shares of common stock issuable upon conversion and/or exercise of the
Series A Convertible Preferred Stock and the warrants issued to Barron. If our
registration statement is not declared effective by the Securities and Exchange Commission
by April 23, 2005 and thereafter kept effective through October 20, 2007, subject to
permissible blackout periods and registration maintenance periods, then WidePoint may be
required to pay Barron a maximum penalty of up to $20,000 for each month the registration
statement is not effective. As of May 16, 2005, the registration statement has not been
made effective.

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WidePoint believes that its current
cash position and line of credit is sufficient to meet capital expenditure and working
capital requirements for the near term. From a current trend perspective, WidePoint
believes that the net working capital deficit of $6.3 Million will improve modestly, as the investment costs of software development
programs are substantially reduced and additional proceeds are realized from the exercise
of Warrants by investors; both of which will be partially offset by incremental working
capital needs associated with the projected Revenue growth of the business. WidePoint is
unaware of any additional known trends or uncertainties not described herein that are
reasonably likely to result in liquidity increasing or decreasing in any material way.However, the growth and technological change of the market make it difficult to
predict future liquidity requirements with certainty. Over the longer term, the Company
must successfully execute its plans to increase revenue and income streams that will
generate significant positive cash flows if it is to sustain adequate liquidity without
impairing growth or requiring the infusion of additional funds from external sources.
Further, our failure to comply with the restrictive covenants under our revolving credit
facilities could result in an event of default, which, if not cured, amended, or waived,
could result in us being required to repay these borrowings before their due date. To date
any covenants that we have not been compliant with have either been amended or waived and
we continue to work with RBC-Centura to structure appropriate covenants that match our
present business condition and environment. Although we currently are not in compliance
with two of our covenants, which includes our ebitda to debt ratio covenant and our net
income covenant, RBC-Centura has waived such violations until such time as the Company
delivers to RBC-Centura the Companys financial statements for the quarter ended June
30, 2005 evidencing that the Company is in compliance with the above covenants. If we are
forced to refinance these borrowings on less favorable terms, our results of operations
and financial condition could be adversely affected due to the increased cost and interest
rate. Additionally, a major expansion, such as occurred with the acquisition of ORC or any
other major new subsidiaries, might require external financing that could include
additional debt or equity capital. The Company obtained a one year senior line of credit
from RBC-Centura Bank in October 2004 for up to $2.5 million dollars, collateralized
against accounts receivables, that also allows for the expansion of this line of credit up
to $5.0 million upon the successful completion of an additional acquisition. The interest
rate on the line of credit is variable, and is based upon the prime lending rate.
Approximately $1.2 million dollars of the senior line of credit was utilized in the
acquisition of ORC. In addition, the Company raised approximately $3.6 million dollars in
connection with the aforementioned equity investments by Barron Partners, LP, that were
used in the acquisition of ORC. There can be no assurance that additional financing, if
required, will be available on acceptable terms, if at all, for future acquisitions and/or
growth initiatives.

# Off-Balance Sheet
Arrangements

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

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# ITEM 3. CONTROLS AND
PROCEDURES.

# Disclosure Controls and
Procedures

The
Companys disclosure controls and procedures are designed to ensure that information
required to be disclosed by the Company in the reports that it files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within
the time periods specified in the Securities and Exchange Commissions rules and
forms, and include controls and procedures designed to ensure that such information is
accumulated and communicated to the Companys management, including its principal
executive and principal financial officers, to allow timely decisions regarding required
disclosure. Based on the evaluation of the effectiveness of the Companys disclosure
controls and procedures as of March 31, 2005 required by Rule 13a-15(b) under the
Securities Exchange Act of 1934 and conducted by the Companys principal executive
and principal financial officers, such officers concluded that the Companys
disclosure controls and procedures were not effective as of March 31, 2005. That conclusion
was based on the existence of the material weakness in our internal control over
financial reporting discussed below.

# Changes in Internal
Control Over Financial Reporting

In
connection with the evaluation by the Companys principal executive and principal
financial officers required by Rule 13a-15(d) under the Securities Exchange Act of 1934,
such officers determined that the following change in the Companys internal control
over financial reporting occurred during the quarter ended March 31, 2005, that has
materially affected, or is reasonably likely to materially affect, the Companys
internal control over financial reporting.

We
identified a material weakness in our internal control over financial reporting in the
first quarter of 2005 that related to insufficient technical accounting expertise within
our accounting function to resolve non-routine or complex accounting and tax matters that
occurred in connection with (i) our recent material acquisition of Operational Research
Consultants, Inc. in October 2004; and (ii) determination of the proper accounting
treatment of the financial instrument relating to the warrants issued by the Company in
October 2004.

In
addition, during the fourth quarter of 2005, as a result of comments raised by the SEC in
connection with the Companys pending Registration Statement on Form S-1, the Company
determined it would be necessary to restate prior financial statements to (i) reclassify
the amortization expense associated with the acquisition of ORC to cost of sales, (ii)
reclassify the Companys preferred stock as temporary preferred stock, and (iii) expense
certain costs associated with the Companys acquisition of Chesapeake.

The
material weakness in internal controls resulted in (i) our late filing on April 19, 2005
(four days after the extended due date) of our Annual Report on Form 10-K for the year
ended December 31, 2004, (ii) the need to restate the recorded amount of the financial
instrument at December 31, 2004 and March 31, 2005 due to the failure to mark-to-market
such instrument at December 31, 2004 and (iii) the need to restate the prior financial
statements as set forth in this amendment.  In order to remediate that material weakness,
we engaged a consulting firm in January 2005 with the requisite accounting expertise, and
are continuing to use the services of that firm in connection with such complex
accounting matters.

We
believe that the material weakness in our internal controls will be remediated during the
first quarter of 2006 as we expect the above-referenced complex accounting issues
will have been resolved, and further believe that the total costs associated with the
remediation will be immaterial.

25

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# PART II.

# OTHER INFORMATION

# ITEM 6. EXHIBITS.

|(a) | Exhibits
|--- | --------

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

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

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

26