UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.  20549





FORM
10-Q


(Mark
One)





x
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For the
quarterly period ended September 30,
2010


OR


 ̈
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For the
transition period from _______ to _______





Commission
file number 001-33035





WIDEPOINT CORPORATION








Delaware
                  
                  52-2040275(State
      or other jurisdiction of
                  
                  (IRS
      Employer Identification No.)incorporation
      or organization)





18W100 22ndSt. Suite 124, Oakbrook Terrace,
      IL
                  60181(Address
      of principal executive offices)
                  (Zip
      Code)





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





Indicate by check whether the
registrant: (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.  Yes xNo  ̈





Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit
and post such files).   Yes  ̈  No  ̈





Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company.  See the definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act. (Check one):





Large
accelerated filer  ̈
     Accelerated filer  ̈   
Non-accelerated filer  ̈
   Smaller reporting company x





Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    Yes  ̈No x





As of
November 12, 2010, 62,095,133 shares of common stock, $.001 par value per share,
were outstanding.








WIDEPOINT
CORPORATION





INDEX





Page No.Part I.
                          FINANCIAL INFORMATIONItem
      1.
                          Condensed
      Consolidated Financial StatementsCondensed
      Consolidated Balance Sheets as of September 30, 2010 (unaudited) and
      December 31, 2009 (unaudited)
                          
                          2Condensed
      Consolidated Statements of Operations for the three months and nine months
      ended September 30, 2010 and 2009 (unaudited)
                          
                          3Condensed
      Consolidated Statements of Cash Flows for the nine months  ended
      September 30, 2010 and 2009 (unaudited)
                          
                          4Notes
      to Condensed Consolidated Financial Statements
                          
                          5Item
      2.
                          Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                          
                          18Item
      4.
                          Controls
      and Procedures
                          
                          25Part II.
                          OTHER INFORMATIONItem
      5.
                          Other
      Information
                          
                          27Item
      6.
                          Exhibits
                          
                          27SIGNATURES
                          
                          28CERTIFICATIONS
                          
                          29


1





PART
I. FINANCIAL
INFORMATION





ITEM
1. CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.





WIDEPOINT
CORPORATION AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS





September 30,
              
              
              December 31,2010
              
              
              2009(unaudited)AssetsCurrent
      assets:Cash
      and cash equivalents
              
              $
              3,702,895
              
              
              $
              6,238,788Accounts
      receivable, net of allowance of $156,010 and $52,650,
      respectively
              
              
              9,263,580
              
              
              
              7,055,525Unbilled
      accounts receivable
              
              
              2,584,604
              
              
              
              1,334,455Prepaid
      expenses and other assets
              
              
              343,387
              
              
              
              359,563Total
      current assets
              
              
              15,894,466
              
              
              
              14,988,331Property
      and equipment, net
              
              
              472,841
              
              
              
              538,811Goodwill
              
              
              10,475,513
              
              
              
              9,770,647Other
      Intangibles, net
              
              
              1,196,996
              
              
              
              1,381,580Other
      assets
              
              
              62,377
              
              
              
              75,718Total
      assets
              
              $
              28,102,193
              
              
              $
              26,755,087Liabilities
      and stockholders’ equityCurrent
      liabilities:Short
      term note payable
              
              $
              25,922
              
              
              $
              102,074Accounts
      payable
              
              
              6,546,112
              
              
              
              7,120,168Accrued
      expenses
              
              
              2,819,436
              
              
              
              2,304,995Deferred
      revenue
              
              
              393,317
              
              
              
              768,504Short-term
      portion of long-term debt
              
              
              548,195
              
              
              
              520,855Short-term
      portion of deferred rent
              
              
              15,793
              
              
              
              54,497Short-term
      portion of capital lease obligation
              
              
              59,286
              
              
              
              112,576Total
      current liabilities
              
              
              10,408,061
              
              
              
              10,983,669Deferred
      income tax liability
              
              
              431,450
              
              
              
              313,782Long-term
      debt, net of current portion
              
              
              192,707
              
              
              
              604,048Fair
      value of earnout liability
              
              
              300,000
              
              
              
              —Deferred
      rent, net of current portion
              
              
              102,462
              
              
              
              7,312Capital
      lease obligation, net of current portion
              
              
              32,485
              
              
              
              67,632Total
      liabilities
              
              $
              11,467,165
              
              
              $
              11,976,443Stockholders’
      equity:Common
      stock, $0.001 par value; 110,000,000 shares authorized; 61,380,133 and
      61,375,333 shares issued and outstanding, respectively
              
              
              61,380
              
              
              
              61,375Stock
      warrants
              
              
              24,375
              
              
              
              24,375Additional
      paid-in capital
              
              
              67,963,301
              
              
              
              67,874,394Accumulated
      deficit
              
              
              (51,414,028
              )
              
              
              (53,181,500
              )Total
      stockholders’ equity
              
              
              16,635,028
              
              
              
              14,778,644Total
      liabilities and stockholders’ equity
              
              $
              28,102,193
              
              
              $
              26,755,087





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


2




WIDEPOINT
      CORPORATION AND SUBSIDIARIESCONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS
  Three Months
                                            Ended September 30,
                                          
                                          
                                          Nine Months
                                            Ended September 30,2010
                                          
                                          
                                          2009
                                          
                                          
                                          2010
                                          
                                          
                                          2009(unaudited)Revenues,
      net
                                          
                                          $
                                          13,757,098
                                          
                                          
                                          $
                                          11,378,793
                                          
                                          
                                          $
                                          37,372,274
                                          
                                          
                                          $
                                          31,906,457Cost
      of sales (including amortization and depreciation of $201,375, $245,876,
      $670,937, and $731,767, respectively)
                                          
                                          
                                          9,824,729
                                          
                                          
                                          
                                          8,704,275
                                          
                                          
                                          
                                          27,985,311
                                          
                                          
                                          
                                          24,986,779Gross
      profit
                                          
                                          
                                          3,932,369
                                          
                                          
                                          
                                          2,674,518
                                          
                                          
                                          
                                          9,386,963
                                          
                                          
                                          
                                          6,919,678Sales
      and marketing
                                          
                                          
                                          463,846
                                          
                                          
                                          
                                          333,130
                                          
                                          
                                          
                                          1,294,849
                                          
                                          
                                          
                                          827,913General
      and administrative (including shared-based compensation expense of
      $30,007, $20,093, $86,752, and $126,680, respectively)
                                          
                                          
                                          2,240,189
                                          
                                          
                                          
                                          1,711,688
                                          
                                          
                                          
                                          5,954,721
                                          
                                          
                                          
                                          4,824,670Depreciation
      expense
                                          
                                          
                                          50,857
                                          
                                          
                                          
                                          46,887
                                          
                                          
                                          
                                          149,334
                                          
                                          
                                          
                                          130,999Income
      from operations
                                          
                                          
                                          1,177,477
                                          
                                          
                                          
                                          582,813
                                          
                                          
                                          
                                          1,988,059
                                          
                                          
                                          
                                          1,136,096Interest
      income
                                          
                                          
                                          2,128
                                          
                                          
                                          
                                          3,548
                                          
                                          
                                          
                                          10,973
                                          
                                          
                                          
                                          22,287Interest
      expense
                                          
                                          
                                          (18,418
                                          )
                                          
                                          
                                          (31,678
                                          )
                                          
                                          
                                          (68,588
                                          )
                                          
                                          
                                          (145,678
                                          )Other
      expense
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (49
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (49
                                          )Net
      income before income tax expense
                                          
                                          $
                                          1,161,187
                                          
                                          
                                          $
                                          554,634
                                          
                                          
                                          $
                                          1,930,444
                                          
                                          
                                          $
                                          1,012,656Income
      tax expense
                                          
                                          
                                          6,472
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          45,304
                                          
                                          
                                          
                                          -Deferred
      income tax expense
                                          
                                          
                                          39,223
                                          
                                          
                                          
                                          39,223
                                          
                                          
                                          
                                          117,668
                                          
                                          
                                          
                                          117,668Income
      tax expense
                                          
                                          
                                          45,695
                                          
                                          
                                          
                                          39,223
                                          
                                          
                                          
                                          162,972
                                          
                                          
                                          
                                          117,668Net
      income
                                          
                                          $
                                          1,115,492
                                          
                                          
                                          $
                                          515,411
                                          
                                          
                                          $
                                          1,767,472
                                          
                                          
                                          $
                                          894,988Basic
      earnings per share
                                          
                                          $
                                          0.02
                                          
                                          
                                          $
                                          0.01
                                          
                                          
                                          $
                                          0.03
                                          
                                          
                                          $
                                          0.02Basic
      weighted average shares outstanding
                                          
                                          
                                          61,375,698
                                          
                                          
                                          
                                          60,348,616
                                          
                                          
                                          
                                          61,375,456
                                          
                                          
                                          
                                          58,990,406Diluted
      earnings per share
                                          
                                          $
                                          0.02
                                          
                                          
                                          $
                                          0.01
                                          
                                          
                                          $
                                          0.03
                                          
                                          
                                          $
                                          0.01Diluted
      weighted average shares outstanding
                                          
                                          
                                          63,170,833
                                          
                                          
                                          
                                          62,063,726
                                          
                                          
                                          
                                          63,155,043
                                          
                                          
                                          
                                          61,440,208





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


3




WIDEPOINT
CORPORATION AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS





Nine Months
                      Ended September 30,2010
                    
                    
                    2009Cash
      flows from operating activities:Net
      income
                    
                    $
                    1,767,472
                    
                    
                    $
                    894,988Adjustments
      to reconcile net income to net cash provided by operating
      activities:Deferred
      income tax expense
                    
                    
                    117,668
                    
                    
                    
                    117,668Depreciation
      expense
                    
                    
                    218,674
                    
                    
                    
                    176,112Amortization
      of intangibles
                    
                    
                    601,597
                    
                    
                    
                    686,654Amortization
      of deferred financing costs
                    
                    
                    5,423
                    
                    
                    
                    6,665Stock
      options expense
                    
                    
                    86,752
                    
                    
                    
                    126,680Loss
      on disposal of equipment
                    
                    
                    -
                    
                    
                    
                    49Changes
      in assets and liabilities (net of business combinations):Accounts
      receivable and unbilled accounts receivable
                    
                    
                    (3,458,204
                    )
                    
                    
                    (345,903
                    )Prepaid
      expenses and other current assets
                    
                    
                    58,176
                    
                    
                    
                    (99,572
                    )Other
      assets
                    
                    
                    7,918
                    
                    
                    
                    12,534Accounts
      payable and accrued expenses
                    
                    
                    (300,303
                    )
                    
                    
                    817,045Deferred
      revenue
                    
                    
                    (375,187
                    )
                    
                    
                    (704,362
                    )Net
      cash (used in) provided by operating activities
                    
                    $
                    (1,270,014
                    )
                    
                    $
                    1,688,558Cash
      flows from investing activities:Purchase
      of subsidiary, net of cash acquired
                    
                    
                    (533,701
                    )
                    
                    
                    13,627Purchase
      of property and equipment
                    
                    
                    (109,029
                    )
                    
                    
                    (189,347
                    )Software
      development costs
                    
                    
                    (35,593
                    )
                    
                    
                    (26,530
                    )Net
      cash used in investing activities
                    
                    $
                    (678,323
                    )
                    
                    $
                    (202,250
                    )Cash
      flows from financing activities:Borrowings
      on notes payable
                    
                    
                    -
                    
                    
                    
                    400,737Principal
      payments on notes payable
                    
                    
                    (501,279
                    )
                    
                    
                    (2,867,593
                    )Principal
      payments under capital lease obligation
                    
                    
                    (88,437
                    )
                    
                    
                    (86,120
                    )Proceeds
      from exercise of stock options
                    
                    
                    2,160
                    
                    
                    
                    3,750Costs
      related to renewal fee for line of credit
                    
                    
                    -
                    
                    
                    
                    (12,000
                    )Net
      cash used in financing activities
                    
                    $
                    (587,556
                    )
                    
                    $
                    (2,561,226
                    )Net
      decrease in cash
                    
                    $
                    (2,535,893
                    )
                    
                    $
                    (1,074,918
                    )Cash
      and cash equivalents, beginning of period
                    
                    $
                    6,238,788
                    
                    
                    $
                    4,375,426Cash
      and cash equivalents, end of period
                    
                    $
                    3,702,895
                    
                    
                    $
                    3,300,508Non-cash
      investing activities:Capital
      leases for acquisition of property and equipment
                    
                    $
                    -
                    
                    
                    $
                    94,402Supplementary
      Information:Cash
      paid for income tax
                    
                    $
                    45,304
                    
                    
                    $
                    -Cash
      paid for interest
                    
                    $
                    65,690
                    
                    
                    $
                    293,498





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


4


WIDEPOINT
CORPORATION AND SUBSIDIARIES





NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





1.
            Basis
      of Presentation




WidePoint
Corporation (“WidePoint,” the “Company,” “we,” or “our”) is a provider of
technology-based products and services to both the government sector and
commercial markets. WidePoint was incorporated in Delaware on May 30,
1997.  We have grown through the merger with and acquisition of highly
specialized regional IT consulting companies.





Our
expertise lies within three business segments operated through six wholly-owned
operational entities.  Our three business segments include: Wireless
Mobility Management (formerly referred to as our “Wireless Telecommunications
Expense Management Services” segment), Cybersecurity Solutions (formerly
referred to as our “Identity Management” segment), and IT Consulting Services
and Products.  These segments offer unique solutions and proprietary
intellectual property (“IP”) in mobile and wireless full life cycle management
solutions; cybersecurity solutions with specific subject matter expertise, U.S.
government certifications and authorizations, and IP in identity management and
information assurance services utilizing certificate-based security solutions;
and other associated IT consulting services and products through which we
provide specific subject matter expertise in IT Architecture and Planning,
Software Implementation Services, IT Outsourcing, and Forensic
Informatics.





WidePoint
has three material operational entities, Operational Research Consultants, Inc.
(“ORC”), iSYS, LLC (“iSYS”), and WidePoint IL, Inc. (“WP IL”) (operating in
conjunction with WP NBIL, Inc.), and with two early stage development companies:
Protexx Technology Corporation (formerly Protexx Acquisition Corporation) doing
business as Protexx, and Advanced Response Concepts Corporation, doing business
as Advanced Response Concepts. ORC specializes in IT integration and secure
authentication processes and software, and is a provider of services to the U.S.
Government.  ORC has been at the forefront of implementing Public Key
Infrastructure (“PKI”) technologies.  PKI technology uses a class
of algorithms in which a user can receive two electronic keys, consisting of a
public key and a private key, to encrypt any information and/or communication
being transmitted to or from the user within a computer network and between
different computer networks. PKI technology is rapidly becoming the technology
of choice to enable security services within and between different computer
systems utilized by various agencies and departments of the U.S.
Government.  iSYS specializes in mobile telecommunications expense
management services and forensic informatics, as well as information assurance
services, predominantly to the U.S. Government.  WP IL and WP NBIL,
Inc. provide IT consulting services predominately to large commercial
enterprises.  Protexx specializes in identity assurance and mobile and
wireless data protection services.





On
January 29, 2010, we completed the asset purchase and assumption of certain
liabilities from Vuance, Inc, including acquisition of their Government Services
Division.  These assets are now housed in our wholly-owned subsidiary
Advanced Response Concepts Corporation.  Advanced Response Concepts
develops and markets leading-edge secure critical response management solutions
designed to improve coordination within emergency services organizations and
critical infrastructure agencies.





Our staff
consists of business process and computer specialists who help our government
and civilian 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. Our organization emphasizes an intense commitment to our people, our
customers, and the quality of our solutions offerings. As a services
organization, our customers are our primary focus.





The
condensed consolidated balance sheet as of September 30, 2010, and the condensed
consolidated statements of operations and statements of cash flows for the three
months and nine months ended September 30, 2010 and 2009, respectively, have
been prepared by the Company and are unaudited.  The condensed
consolidated balance sheet as of December 31, 2009 was derived from the audited
consolidated financial statements included in the Company’s Annual Report on
Form 10-K for the year ended December 31, 2009.





The
unaudited condensed consolidated financial statements included herein have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission (the “SEC”).  Pursuant to such rules and
regulations, certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles (“GAAP”) have been condensed or omitted. It is the opinion of
management that all adjustments (which include normal recurring adjustments)
necessary for a fair statement of financial results are reflected in the interim
periods presented.  The results of operations for the three months and
nine months, respectively, ended September 30, 2010 are not necessarily
indicative of the operating results for the full year.


5





2.
            Significant
      Accounting Policies




Accounting
Standards Updates




In
September, 2009, the Financial Accounting Standards Board (“FASB”) issued
Accounting Standard Update No. 2009-13 (“ASU 2009-13”), Multiple Element Revenue
Arrangements, which applies to ASC Topic 605, Revenue
Recognition.  ASU 2009-13, among other things, establishes the use of
the best estimate of selling price to determine the separate units of accounting
in a multiple element arrangement in the absence of vendor-specific objective
evidence or third party evidence.  ASU 2009-13 also removes the
requirement to use the residual method to allocate arrangement consideration to
the separate units of accounting in an arrangement, and instead requires the use
of management’s best estimate of the relative selling prices of each unit of
accounting to determine the consideration allocation. ASU 2009-13 is effective
for arrangements entered into or materially modified in a fiscal year beginning
on or after June 15, 2010. This update to the ASC will be applied on a
prospective basis. The Company has evaluated this update and has determined that
there was no material impact upon adoption based on its current revenue
arrangements.





In
October 2009, the FASB issued ASU Update No. 2009-14, Certain Revenue
Arrangements That Include Software Elements, which applies to Topic 985,
Software, among other things, clarifies that software-enabled tangible products
are not within the scope of Topic 985. Accordingly, if a tangible product
contains software that is not essential to the product’s functionality then it
is within the scope of Topic 985 and vendor specific objective evidence of
selling price of the undelivered elements sold with a software-enabled tangible
product would is longer be required. ASU 2009-14 is effective for arrangements
entered into or materially modified in a fiscal year beginning on or after June
15, 2010.  The Company has evaluated this update and has determined
that there was no material impact upon adoption based on its current revenue
arrangements.





Revenue
Recognition




A
material portion of the Company’s revenue arrangements are derived from
cost-plus-fixed-fee, cost-plus-award-fee, firm-fixed-price or time-and-materials
contracts with federal and state governments and their
agencies.  Customer orders are generally submitted through task orders
or purchase requisitions under a master contract or under an individual purchase
requisition.  Tangible goods and services provided under customer
contracts are generally not interdependent.  The Company’s revenue
streams and related revenue recognition are as follows:





§
            Mobile
      telecommunications expense management services and device management are
      billed under a time and materials contract.  Revenue is
      recognized when persuasive evidence of an arrangement exists, services
      have been rendered, the contract price is fixed or determinable and
      collectability is reasonably assured. The Company has a standard internal
      process that is used to determine whether all required criteria for
      revenue recognition have been met.  Revenue is recognized to the
      extent of billable rates times hours delivered plus material and other
      reimbursable costs incurred to manage telecommunications carrier air and
      data services.  The Company also charges a monthly user access
      and device management fee. The Company acquires telecommunication devices
      for the customer and recognizes revenue upon receipt of inventory and
      bills for services at cost plus applicable contractual fees
      earned.  The Company also offers billing management services
      which may subject the Company to credit risk.  The Company
      recognizes revenues and related costs on a gross basis.  Certain
      federal and state governments and their agencies may pay for services
      and/or devices in advance. These advance payments are recorded as deferred
      revenue and recognized as services are performed and/or devices
      delivered.





§
            Purchase
      and sale of third party hardware/software and maintenance services are
      billed under cost-reimbursable contracts.  Revenue is recognized
      when persuasive evidence of an arrangement exists, services have been
      rendered, the contract price is fixed or determinable and collectability
      is reasonably assured. The Company has a standard internal process that is
      used to determine whether all required criteria for revenue recognition
      have been met.  Revenue is recognized for the re-sale of
      hardware equipment and software support and maintenance upon delivery to
      the customer, including applicable contractual fees earned.  The
      Company bears credit risk associated with purchases made on behalf of
      customers. The Company recognizes revenues and related costs on a gross
      basis.


6





§
            Cyber
      security solutions consist of Public Key Infrastructure (PKI) identity
      credentialing software certificates and identity credentialing software
      certificate consoles. PKI credentialing is usually controlled by the
      Company and revenue is recognized upon issuance.  PKI
      credentialing may be controlled by the customer, which may give rise to
      multiple deliverable elements as the Company must deliver the
      certificates, hardware, installation and training support for the
      customer.  Arrangements with customers on PKI related contracts
      may involve multiple deliverable elements which are accounted for as
      prescribed in ASC 985-605-25, “Multiple-Element
      Arrangements.”  The Company analyzes various factors, including
      a review of the nature of the contract or product sold, the terms of each
      specific transaction, the relative fair values of the elements required by
      ASC 985-605-25, any contingencies that may be present, its historical
      experience with like transactions or with like products, the
      creditworthiness of the customer, and other current market and economic
      conditions.





§
            Information
      technology and assurance consulting services are billed under a time and
      materials contract.  Revenue is recognized when persuasive
      evidence of an arrangement exists, services have been rendered, the
      contract price is fixed or determinable and collectability is reasonably
      assured. The Company has a standard internal process that is used to
      determine whether all required criteria for revenue recognition have been
      met.  Revenue is recognized to the extent of billable rates
      times hours delivered plus material and other reimbursable costs incurred
      to provide services.





A small
portion of the Company’s revenue arrangements are derived from contracts that
extend more than one year.  For these contracts we apply the
percentage of completion method. Under the percentage of completion method,
income is recognized at a consistent profit margin over the period of
performance based on estimated profit margins at completion of the contract.
This method of accounting requires estimating the total revenues and total
contract cost at completion of the contract. During the performance of long-term
contracts, these estimates are periodically reviewed and revisions are made as
required. The impact on revenue and contract profit as a result of these
revisions is included in the periods in which the revisions are made. This
method can result in the deferral of costs or the deferral of profit on these
contracts. Because we assume the risk of performing a fixed-price contract at a
set price, the failure to accurately estimate ultimate costs or to control costs
during performance of the work could result, and in some instances has resulted,
in reduced profits or losses for such contracts. Estimated losses on contracts
at completion are recognized when identified. In certain circumstances, revenues
are recognized when contract amendments have not been finalized.





Significant
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 could have a material adverse effect on our results of
operations.  For the three and nine months ended September 30,
customers that represented more than 10% of consolidated revenues were as
follows:





For the Three Months
                      Ended September 30,
                    
                    
                    For the Nine Months
                      Ended September 30,Customer
      Name
                    
                    2010
                      (%)
                      Revenue
                    
                    
                    2009
                      (%)
                      Revenue
                    
                    
                    2010
                      (%)
                      Revenue
                    
                    
                    2009
                      (%)
                      RevenueConquest
      Security
                    
                    
                    21
                    %
                    
                    
                    -
                    
                    
                    
                    8
                    %
                    
                    
                    -TSA
                    
                    
                    21
                    %
                    
                    
                    21
                    %
                    
                    
                    21
                    %
                    
                    
                    22
                    %DHS
                    
                    
                    19
                    %
                    
                    
                    21
                    %
                    
                    
                    19
                    %
                    
                    
                    23
                    %WHS
                    
                    
                    10
                    %
                    
                    
                    17
                    %
                    
                    
                    14
                    %
                    
                    
                    18
                    %





A major
portion of the work performed for TSA, DHS, and WHS includes providing mobile
telecommunications expense management services and device management that
includes managing and optimizing mobile assets and calling minutes under
multi-year contract arrangements that allows for annual renewals.  The
services we provide under these arrangements are recognized as they are
delivered and are not part of multiple element revenue
arrangements.  The revenue associated with Conquest Security during
the third quarter of 2010 represented a purchase made by the Department of the
Navy through Conquest Security under a task order for the delivery of cyber
security related consoles that were delivered during the third
quarter.  The revenue we recognized during the quarter with the
delivery of the consoles was not a part of any multiple element revenue
arrangement.


7





Concentrations
of Credit Risk




Financial
instruments potentially subject the Company to credit risk, which consist of
cash and cash equivalents and accounts receivable.  As of September
30, 2010 and December 31, 2009, respectively, customers that represented at
least ten percent of our accounts receivable and unbilled accounts receivable
were as follows in the table below:





As of September
                    30, 2010
                  
                  
                  As of December 31,
                    2009Customer
      Name
                  
                  (%)
                    Receivables
                  
                  
                  (%)
                    ReceivablesDHS
                  
                  
                  25
                  %
                  
                  
                  30
                  %Conquest
      Security
                  
                  
                  25
                  %
                  
                  
                  -TSA
                  
                  
                  22
                  %
                  
                  
                  26
                  %WHS
                  
                  
                  5
                  %
                  
                  
                  20
                  %





Fair
Value of Financial Instruments




The
Company’s financial instruments include cash equivalents, accounts receivable,
notes receivable, accounts payable, short-term debt and other financial
instruments associated with the issuance of the common stock.  The
carrying values of cash equivalents, accounts receivable, notes 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.





Accounts
Receivable





The
majority of the Company's accounts receivable is due from the federal government
and established private sector companies in the following industries:
manufacturing, customer product goods, direct marketing, healthcare, and
financial services.  Credit is extended based on evaluation of a
customer’s financial condition and, generally, collateral is not
required.  Accounts receivable are usually due within 30 to 60 days
and are stated at amounts due from customers net of an allowance for doubtful
accounts if deemed necessary.  Customer account balances outstanding
longer than the contractual payment terms are reviewed for collectability and
after 90 days 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.





The
Company has not historically maintained a bad debt reserve for our federal
government or commercial customers as we have not witnessed any material or
recurring bad debt charges and the nature and size of the contracts has not
necessitated the Company’s establishment of such a bad debt
reserve.  Upon specific review and our determination that a bad debt
reserve may be required, we will reserve such amount if we view the account as
potentially uncollectable.





Since the
fourth quarter of fiscal 2009, the Company has been pursuing final approval and
collection of a single sales invoice of approximately $500,000 from a single
customer.  During the third quarter of fiscal 2010, while the Company’s
management believes they have properly followed the dispute resolution
procedures, they re-considered further pursuit of collecting on the disputed
invoice and determined that it was not a good business decision to invest more
time and resources and risk damaging their long term relationship with this
customer.  Management is working with the parties on a settlement
arrangement and expects to have this resolved during the fourth quarter of
fiscal 2010.  The Company’s management believes it had sufficient
information to understand the economic impact of settling the uncollected
invoice and recorded a reserve of approximately $154,000, which would resolve
the outstanding customer invoice and related accounts payable due to the
vendor.


8





Basic
and Diluted Net Income Per Share




Basic net
income per share includes no dilution and is computed by dividing net income by
the weighted-average number of common shares outstanding for the period. Diluted
net income 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. Net income per common share was computed as
follows:





For the Three Months
                                                
                                                
                                                For the Nine MonthsEnded September 30,
                                                
                                                
                                                Ended September 30,2010
                                                
                                                
                                                2009
                                                
                                                
                                                2010
                                                
                                                
                                                2009Basic
      Net Income Per Common Share:Net
      income
                                                
                                                $
                                                1,115,492
                                                
                                                
                                                $
                                                515,411
                                                
                                                
                                                $
                                                1,767,472
                                                
                                                
                                                $
                                                894,998Weighted
      average number ofcommon shares
                                                
                                                
                                                61,375,698
                                                
                                                
                                                
                                                60,348,616
                                                
                                                
                                                
                                                61,375,456
                                                
                                                
                                                
                                                58,990,406Income
      per common share
                                                
                                                $
                                                0.02
                                                
                                                
                                                $
                                                0.01
                                                
                                                
                                                $
                                                0.03
                                                
                                                
                                                $
                                                0.02Diluted net Income
      per
      Common Share:Net
      income
                                                
                                                $
                                                1,115,492
                                                
                                                
                                                $
                                                515,411
                                                
                                                
                                                $
                                                1,767,472
                                                
                                                
                                                $
                                                894,998Weighted
      average number ofcommon shares
                                                
                                                
                                                61,375,698
                                                
                                                
                                                
                                                60,348,616
                                                
                                                
                                                
                                                61,375,456
                                                
                                                
                                                
                                                58,990,406Incremental
      shares fromassumed conversions of stockOptions
                                                
                                                
                                                1,795,135
                                                
                                                
                                                
                                                1,715,110
                                                
                                                
                                                
                                                1,779,587
                                                
                                                
                                                
                                                2,449,802Adjusted
      weighted averagenumber of common shares
                                                
                                                
                                                63,170,833
                                                
                                                
                                                
                                                62,063,726
                                                
                                                
                                                
                                                63,155,043
                                                
                                                
                                                
                                                61,440,208Income
      per common share
                                                
                                                $
                                                0.02
                                                
                                                
                                                $
                                                0.01
                                                
                                                
                                                $
                                                0.03
                                                
                                                
                                                $
                                                0.01





Stock-based
compensation





The
Company recognizes share-based compensation ratably using the straight-line
attribution method over the requisite service period.  In addition,
the Company is required to estimate the amount of expected forfeitures when
calculating share-based compensation.





The
amount of compensation expense recognized during the three month and nine month
periods ended September 30, 2010 and 2009, respectively, under our plans was
comprised of the following:


9





Three Months ended
                      September 30,
                    
                    
                    Nine Months ended
                      September 30,2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009General
      and administrative expense
                    
                    $
                    30,007
                    
                    
                    $
                    20,093
                    
                    
                    $
                    86,752
                    
                    
                    $
                    126,680Share-based
      compensation before taxes
                    
                    
                    30,007
                    
                    
                    
                    20,093
                    
                    
                    
                    86,752
                    
                    
                    
                    126,680Total
      net share-based compensation expense
                    
                    $
                    30,007
                    
                    
                    $
                    20,093
                    
                    
                    $
                    86,752
                    
                    
                    $
                    126,680Net
      share-based compensation expenses per basic and diluted common
      share
                    
                    
                    - 0
      -
                    
                    
                    
                    - 0
      -
                    
                    
                    
                    - 0
      -
                    
                    
                    
                    - 0
      -





Since we
have cumulative operating tax losses as of September 30, 2010, for which a
valuation allowance has been established, we recorded no income tax benefits for
share-based compensation arrangements.  Additionally, no incremental tax
benefits were recognized from stock options exercised during the three months
and nine months ended September 30, 2010, which would have resulted in a
reclassification to reduce net cash provided by operating activities with an
offsetting increase in net cash provided by financing
activities.





The fair
value of each option award is estimated on the date of grant using a
Black-Scholes option pricing model, which uses the assumptions of no dividend
yield, risk-free interest rates and expected life in years of approximately 3
years.  The option awards are for the period from 1999 through 2010.
Expected volatilities are based on the historical volatility of our common
stock. The expected term of options granted is based on analyses of historical
employee termination rates and option exercises. The risk-free interest rates
are based on the U.S. Treasury yield for a period consistent with the expected
term of the option in effect at the time of the grant.





Share-based
compensation expense recognized during the period is based on the value of the
portion of share-based payment awards that is ultimately expected to vest during
the period.  The estimated forfeiture rates are based on analyses of
historical data, taking into account patterns of involuntary termination and
other factors.  A summary of the option activity under our plans during the
nine month periods ended September 30, 2010 and 2009 is presented
below:





NON-VESTED





# of Shares
                  
                  
                  Weighted average
                    grant date fair value
                    per shareNon-vested
      at January 1, 2010
                  
                  
                  1,215,004
                  
                  
                  $
                  0.39Granted
                  
                  
                  75,000
                  
                  
                  $
                  0.41Vested
                  
                  
                  (170,001
                  )
                  
                  $
                  0.16Forfeited
                  
                  
                  -
                  
                  
                  
                  -Non-vested
      at September 30, 2010
                  
                  
                  1,120,003
                  
                  
                  $
                  0.43Non-vested
      at January 1, 2009
                  
                  
                  1,314,000
                  
                  
                  $
                  0.57Granted
                  
                  
                  25,000
                  
                  
                  $
                  0.54Vested
                  
                  
                  (123,996
                  )
                  
                  $
                  0.79Forfeited
                  
                  
                  -
                  
                  
                  
                  -Non-vested
      at September 30, 2009
                  
                  
                  1,215,004
                  
                  
                  $
                  0.39


10





OUTSTANDING AND
EXERCISABLE





# of Shares
                
                
                Weighted average
                  grant date fair value
                  per shareTotal
      outstanding at January 1, 2010
                
                
                4,517,411
                
                
                $
                0.54Issued
                
                
                75,000
                
                
                $
                0.65Cancelled
                
                
                (10,611
                )
                
                $
                0.70Exercised
                
                
                (4,800
                )
                
                $
                0.45Total
      outstanding at September 30, 2010
                
                
                4,577,000
                
                
                $
                0.54Total
      exercisable at September 30, 2010
                
                
                3,456,997
                
                
                $
                0.44Total
      outstanding at January 1, 2009
                
                
                8,523,411
                
                
                $
                0.45Issued
                
                
                25,000
                
                
                $
                0.54Cancelled
                
                
                (1,001
                )
                
                $
                1.35Exercised
                
                
                (4,029,999
                )
                
                $
                0.23Total
      outstanding at September 30, 2009
                
                
                4,517,411
                
                
                $
                0.54Total
      exercisable at September 30, 2009
                
                
                3,302,407
                
                
                $
                0.43





The
aggregate remaining contractual lives in years for the options outstanding and
exercisable on September 30, 2010 were 3.93 and 3.18,
respectively.  In comparison, the aggregate remaining contractual
lives in years for the options outstanding and exercisable on September 30,
2009, were 4.95 and 4.20, respectively.





Aggregate
intrinsic value represents total pretax intrinsic value (the difference between
WidePoint’s closing stock price on September 30, 2010, and the exercise price,
multiplied by the number of in-the-money options) that would have been received
by the option holders had all option holders exercised their options on
September 30, 2010. The intrinsic value will change based on the fair market
value of  WidePoint’s stock. The total intrinsic values of options
outstanding and exercisable as of September 30, 2010, were $2,700,040 and
$2,404,863, respectively. The total intrinsic value of options exercised for the
third quarter of fiscal 2010 was $3,408. The Company issues new shares of common
stock upon the exercise of stock options.  At September 30, 2010,
4,436,438 Shares were available for future grants under the Company's 2008 Stock
Incentive Plan.




At
September 30, 2010, the Company had approximately $255,000 of total unamortized
compensation expense, net of estimated forfeitures, related to stock option
plans that will be recognized over the weighted average period of 3.33
years.





Non-Employee
Stock-based Compensation:





The
Company accounts for stock-based non-employee compensation arrangements using
the fair value recognition provisions of ASC Topic 505-50, “Equity-Based
Payments to Non-Employees” (formerly known as FASB Statement 123, Accounting for Stock-Based
Compensationand “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




On
January 2, 2008, the Company entered into a Commercial Loan Agreement with
Cardinal Bank relating to a $5,000,000 revolving credit facility, which
agreement was amended pursuant to that certain Amended Commercial Loan Agreement
by and between the Company and Cardinal Bank, dated as of March 17, 2009 and
that certain Debt Modification Agreement by and between the Company and Cardinal
Bank, dated as of May 25, 2010 (as so amended, the “2009 Commercial Loan
Agreement”).  The 2009 Commercial Loan Agreement provided for a
repayment date of September 1, 2010.


11





On August
26, 2010, the Company entered into a new Debt Modification Agreement with
Cardinal Bank (the 2010 Debt Modification Agreement”).  The 2010 Debt
Modification Agreement sets forth the agreement of the Company and Cardinal Bank
to amend the 2009 Commercial Loan Agreement to extend the repayment date of the
Company’s revolving credit facility with Cardinal Bank from September 1, 2010 to
September 30, 2011.





On August
26, 2010, the Company also entered into a new Commercial Loan Agreement with
Cardinal Bank (the “2010 Commercial Loan Agreement”), which agreement replaces
the 2009 Commercial Loan Agreement. The 2010 Commercial Loan Agreement provides
for a $5,000,000 revolving credit facility from Cardinal Bank to the
Company.  Advances under the new revolving credit facility will bear
interest at a variable rate equal to the Wall Street Journal prime rate plus
0.5%.  The Company is required to maintain certain financial covenants
quarterly on materially the same terms and conditions as the 2009 Commercial
Loan Agreement. Presently there is no borrowing on the revolving
credit facility.





The
Company also has a four-year term note with Cardinal Bank that we entered into
January 2008 in the principal amount of $2 million, which bears interest at the
rate of 7.5% with 48 equal principal and interest payments. At September 30,
2010, we owed approximately $0.7 million under the term note.





4.
            Goodwill
      and Intangible Assets





Goodwill
is to be reviewed at least annually for impairment. The Company has elected to
perform this review annually on December 31st of each calendar year. We
have not identified any impairment as of September 30, 2010.





The
changes in the carrying amount of goodwill for the nine-month period ended
September 30, 2010 and for the year ended December 31, 2009, respectively,
are as follows:





TotalBalance
      as of December 31, 2009
                    
                    $
                    9,770,647Advanced
      Response Concepts asset purchase
                    
                    
                    704,866Balance
      as of September 30, 2010
                    
                    $
                    10,475,513




12




Purchased
and Internally Developed Intangible Assets





The
following table summarizes purchased and internally developed intangible assets
subject to amortization:




As
      of September 30, 2010Gross
      Carrying
                            Amount
                          
                          
                          Accumulated
                            Amortization
                          
                          
                          Weighted
                            Average
                            Amortization
                            Period
      (in years)Purchased
      Intangible AssetsORC
      Intangible (includes customer relationships and PKI business opportunity
      purchase accounting preliminary valuations)
                          
                          $
                          1,145,523
                          
                          
                          $
                          (1,142,179
                          )
                          
                          
                          5iSYS
      (includes customer relationships, internal use software and trade
      name)
                          
                          $
                          1,230,000
                          
                          
                          $
                          (691,084
                          )
                          
                          
                          5Protexx
      (Identity Security Software)
                          
                          $
                          506,463
                          
                          
                          $
                          (365,779
                          )
                          
                          
                          3Advanced
      Response Concepts (includes preliminary values for customer relationships
      and first responder security software)
                          
                          $
                          381,420
                          
                          
                          $
                          (63,570
                          )
                          
                          
                          4$
                          3,263,406
                          
                          
                          $
                          (2,262,612
                          )
                          
                          
                          4Internally
      Developed Intangible AssetsORC
      PKI-I Intangible (Related to internally generated
software)
                          
                          $
                          334,672
                          
                          
                          $
                          (334,672
                          )
                          
                          
                          6ORC
      PKI-II Intangible (Related to internally generated
    software)
                          
                          $
                          649,991
                          
                          
                          $
                          (621,807
                          )
                          
                          
                          6ORC
      PKI-III Intangible (Related to internally generated
    software)
                          
                          $
                          211,680
                          
                          
                          $
                          (170,520
                          )
                          
                          
                          3ORC
      PKI-IV Intangible (Related to internally generated
    software)
                          
                          $
                          42,182
                          
                          
                          $
                          (33,981
                          )
                          
                          
                          3ORC
      PKI-V Intangible (Related to internally generated
software)
                          
                          $
                          147,298
                          
                          
                          $
                          (28,641
                          )
                          
                          
                          31,385,823
                          
                          
                          $
                          (1,189,621
                          )
                          
                          
                          5Total
                          
                          $
                          4,649,229
                          
                          
                          $
                          (3,452,233
                          )
                          
                          
                          5Aggregate
      Amortization Expense:For
      the three months ended 9/30/10
                          
                          $
                          178,202For
      the nine months ended 9/30/10
                          
                          $
                          601,597Estimated
      Amortization Expense:For
      the year ending 12/31/10
                          
                          $
                          725,064For
      the year ending 12/31/11
                          
                          $
                          478,256For
      the year ending 12/31/12
                          
                          $
                          332,121For
      the year ending 12/31/13
                          
                          $
                          255,204For
      the year ending 12/31/14
                          
                          $
                          7,948Total
                          
                          $
                          1,798,593




The total
weighted average life of all of the intangibles is approximately 3
years.




There
were no amounts of research and development assets acquired or written-off
during the three month or nine month period ended September 30,
2010.


13





5.
            Income
      Taxes




The
Company accounts for income taxes in accordance with ASC Topic 740, “Income
Taxes” (formerly known as SFAS No. 109, “Accounting for Income Taxes”).
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.  Income tax accounting guidance 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 recognizes the financial statement benefit of a tax position only after
determining that the relevant tax authority would more likely than not sustain
the position following an audit.  For tax positions meeting the
more-likely-than-not threshold, the amount recognized in the financial
statements is the largest benefit that has a greater than 50 percent likelihood
of being realized upon ultimate settlement with the relevant tax
authority.  The Company’s assessments of its tax positions did not
result in changes that had a material impact on results of operations, financial
condition or liquidity. As of September 30, 2010 and December 31, 2009,
respectively, the Company had no unrecognized tax benefits. While the Company
does not have any interest and penalties in the periods presented, the Company’s
policy is to recognize such expenses as tax expense.





The
Company files U.S. federal income tax returns with the Internal Revenue Service
(“IRS”) as well as income tax returns in various states. The Company may be
subject to examination by the IRS for tax years 2002 through 2009. Additionally,
the Company may be subject to examinations by various state taxing jurisdictions
for tax years 2002 through 2009. The Company is currently under examination by
the IRS for its fiscal period ending December 31, 2008. The Company is not
currently under examination by the IRS for any other fiscal period and is not
currently under examination by any other state taxing authority.





As of
September 30, 2010, the Company had net operating loss (NOL) carry forwards of
approximately $15 million to offset future taxable income. There are also up to
approximately in $8 million in state tax NOL carry forwards.  These
carry forwards expire between 2010 and 2029. In assessing the ability to realize
deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon generation of
future taxable income during the periods in which those temporary differences
become deductible. Based upon the level of historical losses that may limit
utilization of NOL carry forwards in future periods, management is unable to
predict whether these net deferred tax assets will be utilized prior to
expiration. 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 NOL carry forwards may be limited. As a result of WidePoint’s
equity transactions, the Company’s NOLs will be subject to such limitations and
may not be available to offset future income for tax purposes. In the fourth
quarter of 2009, the Company completed its “Section 382” analysis and
preliminarily determined that some of the Company’s NOLs may be limited as a
result of expirations that may occur prior to the utilization of those net
operating losses under the limitations from certain changes of control
that  occurred in past years.   Such limitations will result
in approximately $4,907,000 of tax benefits related to federal NOL carryforwards
that will expire unused. Accordingly, the related NOL carryforwards have been
removed from deferred tax assets accompanied by a corresponding reduction of the
valuation allowance. Due to the existence of the valuation allowance,
limitations created by future ownership changes, if any, related to our
operations in the U.S. will not impact our effective tax rate.





For the
three and nine months ending September 30, 2009 and 2010, respectively, no tax
benefit has been realized because of the existence of NOL
carryforwards.  There will be no credit to additional paid in capital
for such stock option exercises until the associated benefit is realized through
a reduction of income taxes payable.





The
Company has determined that its net deferred tax asset did not satisfy the
recognition criteria and, accordingly, established a valuation allowance for
100 percent of the net deferred tax asset.





The
Company incurred a deferred income tax expense of approximately $39,000 for the
three months ended September 30, 2010, and September 30, 2009, respectively.
This deferred income tax expense is attributable to the differences in our
treatment of the amortization of goodwill for tax purposes versus book purposes
as it relates to our acquisition of iSYS in January 2008. Because the
goodwill is not amortized for book purposes but is for tax purposes, the related
deferred tax liability cannot be reversed until some indeterminate future period
when the goodwill either becomes impaired and/or is disposed of. The deferred
tax liability can be offset by deferred income tax assets that may be recognized
in the future and the deferred tax expense is a non-cash expense. Income tax
accounting guidance requires the expected timing of future reversals of deferred
tax liabilities to be taken into account when evaluating the realizability of
deferred tax assets. Therefore, the reversal of deferred tax liabilities related
to the goodwill is not to be considered a source of future taxable income when
assessing the realization of deferred tax assets. Because the Company has a
valuation allowance for the full amount of the deferred income tax asset, the
deferred income liability associated with the tax deductible goodwill has been
recorded and not offset against existing deferred income tax
assets.


14





6.  Segment
reporting





Segments
are defined by authoritative guidance as components of a company in which
separate financial information is available and is evaluated by the chief
operating decision maker, or a decision making group, in deciding how to
allocate resources and in assessing performance.  Management evaluates
segment performance primarily based on revenue and segment operating
income.





The
Company operates as three segments, which include Wireless Mobility Management,
Cybersecurity Solutions, and IT Consulting Services and Products.





Segment
operating income consists of the revenues generated by a segment, less the
direct costs of revenue and selling, general and administrative costs that are
incurred directly by the segment.  Unallocated corporate costs include
costs related to administrative functions that are performed in a centralized
manner that are not attributable to a particular segment.  These
administrative function costs include costs for corporate office support, all
office facility costs, costs relating to accounting and finance, human
resources, legal, marketing, information technology and company-wide business
development functions, as well as costs related to overall corporate
management.





The
following tables set forth selected segment and consolidated operating results
and other operating data for the periods indicated. Segment operating income
consists of the revenues generated by a segment, less the direct costs of
revenue and selling, general and administrative costs that are incurred directly
by the segment. Unallocated corporate costs include costs related to
administrative functions that are performed in a centralized manner that are not
attributable to a particular segment.  Management does not analyze
assets for decision making purposes as it relates to the segments below.
Accordingly, information is not available for long-lived assets or total
assets.


Three
      Month Period Ending September 30, 2010Wireless
                            
                            
                            Cyber
                            
                            
                            Consulting
                            
                            
                            Corp
                            
                            
                            ConsolRevenue
                            
                            $
                            6,859,984
                            
                            
                            $
                            4,017,627
                            
                            
                            $
                            2,879,487
                            
                            
                            $
                            -
                            
                            
                            $
                            13,757,098Operating
      income including amortization and depreciation
expense
                            
                            
                            583,384
                            
                            
                            
                            984,104
                            
                            
                            
                            339,531
                            
                            
                            
                            (729,542
                            )
                            
                            
                            1,177,477Interest
      Income (expense), net
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            (16,290
                            )
                            
                            
                            (16,290
                            )Pretax
      income
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            1,161,187Income
      tax expense
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            (45,695
                            )
                            
                            
                            (45,695
                            )Net
      income
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            1,115,492
  Three
      Month Period Ending September 30, 2009Wireless
                            
                            
                            Cyber
                            
                            
                            Consulting
                            
                            
                            Corp
                            
                            
                            ConsolRevenue
                            
                            $
                            6,761,176
                            
                            
                            $
                            1,557,940
                            
                            
                            $
                            3,059,677
                            
                            
                            $
                            -
                            
                            
                            $
                            11,378,793Operating
      income including amortization and depreciation
expense
                            
                            
                            963,141
                            
                            
                            
                            245,853
                            
                            
                            
                            60,448
                            
                            
                            
                            (686,629
                            )
                            
                            
                            582,813Interest
      Income (expense), net
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            (28,130
                            )
                            
                            
                            (28,130
                            )Other
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            (49
                            )
                            
                            
                            (49
                            )Pretax
      income
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            554,634Income
      tax expense
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            (39,223
                            )
                            
                            
                            (39,223
                            )Net
      income
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            515,411


15






Wireless
                          
                          
                          Cyber
                          
                          
                          Consulting
                          
                          
                          Corp
                          
                          
                          ConsolRevenue
                          
                          $
                          20,665,783
                          
                          
                          $
                          7,929,954
                          
                          
                          $
                          8,776,537
                          
                          
                          $
                          -
                          
                          
                          $
                          37,372,274Operating
      income including amortization and depreciation expense
                          
                          
                          1,829,916
                          
                          
                          
                          1,865,531
                          
                          
                          
                          501,748
                          
                          
                          
                          (2,359,136
                          )
                          
                          
                          1,988,059Interest
      Income (expense), net
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          (57,615
                          )
                          
                          
                          (57,615
                          )Pretax
      income
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          1,930,444Income
      tax expense
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          (162,972
                          )
                          
                          
                          (162,972
                          )Net
      income
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          1,767,472Nine
      Month Period Ending September 30, 2009Wireless
                          
                          
                          Cyber
                          
                          
                          Consulting
                          
                          
                          Corp
                          
                          
                          ConsolRevenue
                          
                          $
                          20,232,001
                          
                          
                          $
                          4,302,030
                          
                          
                          $
                          7,372,426
                          
                          
                          $
                          -
                          
                          
                          $
                          31,906,457Operating
      income (loss) Including amortization and depreciation
    expense
                          
                          
                          2,173,809
                          
                          
                          
                          730,945
                          
                          
                          
                          228,610
                          
                          
                          
                          (1,997,268
                          )
                          
                          
                          1,136,096Interest
      Income (expense), net
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          (123,391
                          )
                          
                          
                          (123,391
                          )Other
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          (49
                          )
                          
                          
                          (49
                          )Pretax
      income
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          1,012,656Income
      tax expense
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          (117,668
                          )
                          
                          
                          (117,668
                          )Net
      income
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          894,988





8.  Advanced Response
Concepts Corporation Asset Purchase.





On
January 29, 2010, the Company, together with its wholly-owned subsidiary,
Advanced Response Concepts Corporation (“Advanced Response Concepts”), a
Delaware corporation, entered into an Asset Purchase Agreement with Vuance, Inc.
(“Vuance”), a Delaware corporation, and Vuance’s sole shareholder, Vuance, Ltd.,
a public company organized in the State of Israel under the Israeli Companies
Law (the “Vuance Agreement”), pursuant to which Advanced Response Concepts
acquired certain assets and assumed certain liabilities of Vuance as further
specified in the Vuance Agreement.  Advanced Response Concepts
acquired all assets of the collective business of Vuance relating to its
Government Services Division. The purchased assets include, but are not limited
to, the operation by Vuance of identity assurance and priority resource
management solutions; crime scene management and information protection, and
other activities related or incidental thereto; and the development,
maintenance, enhancement and provision of software, services, products and
operations for identity management and information protection, which are offered
primarily to state and local government agency markets.





The
acquisition of Vuance’s net assets was accounted for using the acquisition
method of accounting.  The fair value of the consideration was
approximately $684,000.  Based upon a review of the costs of
performing certain assumed obligations we increased the amount reserved to
perform these obligation approximately $76,000 increasing the consideration to
approximately $759,000.





The
Company has engaged a valuation consultant to assist in finalizing the
determination of the purchase price and fair value of assets and liabilities
acquired. This process has not been completed as of the end of the quarter. As
such, amounts disclosed are provisional and subject to change based on the final
determination of the purchase price and fair value of assets and liabilities
acquired.  The purchase price was based upon management’s estimates
and assumptions using the latest available information.  The following
table summarizes the estimated fair values of the assets acquired and
liabilities assumed in this business combination:


16




As
      of
                    Jan.
      29, 2010Consideration:Cash
                  
                  $
                  370,000Cash
      to be paid (post-closing adjustments)
                  
                  
                  89,478Contingent
      consideration arrangement
                  
                  
                  300,000Fair
      value of total consideration transferred
                  
                  $
                  759,478Approximate
      acquisition related costs (including general & administrative expenses
      in WidePoint’s income statement for the period ending September 30,
      2010)
                  
                  $
                  70,000Recognized
      amounts of identifiable assets acquired & liabilities
      assumed:Current
      Assets
                  
                  $
                  42,000Property,
      plant, and equipment, net
                  
                  
                  43,675Identifiable
      intangible assets
                  
                  
                  381,420Current
      liabilities assumed
                  
                  
                  (412,483
                  )Total
      identifiable net assets & liabilities assumed
                  
                  
                  54,612Goodwill
                  
                  
                  704,866Total
                  
                  $
                  759,478





The
operations of Advanced Response Concepts have been included in the Company’s
results of operations beginning on January 29, 2010, the acquisition date. The
earnout provision of the Vuance Agreement provides for additional consideration
of up to $1,500,000 during the earnout period of the calendar years 2010 - 2012,
subject to Advanced Response Concepts receiving minimum qualified revenues of at
least $4,000,000 per year.  In the event Advanced Response Concepts
receives at least $4,000,000 in qualified revenues in an earnout year, then
Vuance will have the right to receive an earnout payment equal to twenty percent
(20%) of the amount by which such qualified revenues for that earnout year
exceed $4,000,000; provided, however, that the first $270,000 of any such
earnout payment will be retained by the Company for its sole account as
reimbursement for certain accounts payable and deferred revenue liabilities
assumed by Advanced Response Concepts in connection with the Vuance
Agreement.


17


ITEM
2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.





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 Form 10-K for the year ended December 31,
2009.





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.





Overview





WidePoint
Corporation is a technology-based provider of products and services to both the
government sector and commercial markets. WidePoint was incorporated in Delaware
on May 30, 1997. We have grown through the merger with and acquisition of
highly specialized regional IT consulting companies.




Our
expertise lies in three business segments operated through six wholly-owned
operational entities.  Our three business segments include: Wireless
Mobility Management (formerly referred to as our “Wireless Telecommunications
Expense Management Services” segment), Cybersecurity Solutions (formerly
referred to as our “Identity Management” segment), and IT Consulting Services
and Products.  These segments offer unique solutions and proprietary
intellectual property (“IP”) in mobile and wireless full life cycle management
solutions; cybersecurity solutions with specific subject matter expertise, U.S.
government certifications and authorizations, and IP in identity management and
information assurance services utilizing certificate-based security solutions;
and other associated IT consulting services and products through which we
provide specific subject matter expertise in IT Architecture and Planning,
Software Implementation Services, IT Outsourcing, and Forensic
Informatics.





See Note
7 to the Condensed Consolidated Financial Statements included in this report for
a description of the operating results for each segment.





We intend
to continue to market and sell our technical capabilities into the governmental
and commercial marketplace. Further, we are continuing to actively search out
new synergistic acquisitions that we believe may further enhance our present
base of business and service offerings, which has already been augmented by our
acquisitions of ORC and iSYS, our asset purchases of Protexx and Advanced
Response Concepts, and our internal growth initiatives.





Each of
our acquisitions have provided WidePoint the opportunity to leverage and expand
further into the federal government marketplace and reach into markets that
previously were not fully accessible to the Company. Further supplemented by the
addition of the Protexx and Advanced Response Concepts asset acquisitions, the
Company intends to continue to leverage the synergies between its acquired
operating subsidiaries, and cross sell its technical capabilities into each
separate marketplace serviced by our respective business segments.





Our
revenues and operating results may vary significantly from quarter-to-quarter,
due to 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.  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.





As a
result of our ORC and iSYS acquisitions, which predominantly operate in the U.S.
federal government marketplace, 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 calendar quarter (first quarter of the government’s fiscal
year).  Further, a change in senior government officials, or
realignment of responsibilities, may negatively affect the rate at which the
federal government purchases the services that we offer.


18





As a
result of the factors above, period-to-period comparisons of our revenues and
operating results may not be meaningful. These comparisons are not indicators of
future performance and 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 well as vendor-related costs in connection with our Wireless
Mobility Management segment.  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.  The
Company must also manage our telephony airtime plans and other vendor related
offerings under our mobile telecom managed services provided to our customers as
they also represent a significant portion of our costs.  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 financial information presented above.





Our staff
consists of business process and computer specialists who help our government
and civilian customers augment and expand their resident technological skills
and competencies, drive technical innovation, and help develop and maintain a
competitive edge in today’s rapidly changing technological environment in
business.  Our organization emphasizes an intense commitment to our
people, our customers, and the quality of our solutions offerings.  As
a services organization, our customers are our primary focus.





Results
of Operations





Three Months Ended September
30, 2010 as Compared to Three Months Ended September 30,
2009





Revenues,
net.Revenues for the three month period ended September 30,
2010, were approximately $13.8 million as compared to approximately $11.4
million for the three month period ended September 30, 2009.  The
increase in revenues was primarily attributable to increases in our Cyber
Security Solutions and Wireless Mobility Management segments as a result of the
performance of recent contract awards and expansions.





§
            Our
      Wireless Mobility
      Management segment recorded revenue of approximately $6.9 million
      for the quarter ended September 30, 2010 versus approximately $6.8 million
      for the quarter ended September 30, 2009.  This 1% growth in
      revenue was predominately the result of growth in new customer expansions
      as a result of recent awards partially offset by a reduction in services
      for billable calling minutes we provide to our WHS
      customer.  Short-term, we may witness a reduction or variability
      in revenue growth as the revenue mix in this segment experiences a
      reduction of billable calling minutes as compared to managed fees as we
      shift our attention to expanding the fee portion of our sales
      mix.  We are presently pursuing several significant service
      contract award opportunities at a number of federal agencies and are also
      initiating a new strategy to expand into state and local municipalities
      and commercial enterprises by utilizing intermediary sales channels to
      potentially expand our reach beyond the federal sector and help to support
      the long-term growth of this
segment.





§
            Our
      Cyber Security Solutions
      segment recorded revenue of approximately $4.0 million for the
      three month period ended September 30, 2010 versus approximately $1.6
      million for the three month period ended September 30,
      2009.  This 158% growth was primarily a result of a purchase by
      the Department of the Navy for services related our credential services
      for approximately $2.9 million, as well as the continued rollout for the
      State of Delaware under an award issued to us during the 2nd
      quarter of 2010 by Delaware State University, and continued increases in
      our credential sales associated with several initiatives requiring the use
      of those credentials by government agencies.  We anticipate that
      this segment should continue to demonstrate revenue growth in the future
      as various federal agency mandates continue to be implemented in order to
      strengthen their requirements for greater levels of identity management
      and better protect the federal information technology infrastructure
      within federal agencies.  We have entered into a number of
      affiliations with partners who support the end user base, which facilitate
      access to these various federal agencies and the related technology
      infrastructure in order to take advantage of these identity management
      improvement mandates.  We believe these new partnerships should
      widen our sales reach.


19





§
            OurIT Consulting Services and
      Products segment recorded revenue of approximately $2.9 million for
      the three month period ended September 30, 2010 versus $3.1 million for
      the three month period ended September 30, 2009.  This 6%
      decrease was materially due to weakness in our commercial marketplace as a
      result of negative economic conditions.  We anticipate long-term
      that this segment should continue to grow at a moderate rate but given the
      nature and variability of the products and services we offer within this
      segment the growth may be erratic quarter to
  quarter.





Cost of
sales.Cost of salesfor the three month
period ended September 30, 2010 was approximately $9.8 million (or 71% of
revenues), as compared to cost of sales of approximately $8.7 million (or 76% of
revenues), for the three month period ended September 30, 2009.  The
decrease in our cost of sales as a percentage of revenues was primarily
attributable to margin improvements driven by growth in our Cyber Security
Solutions segment.  Our Cyber Security Solutions segments realized
higher margins from incremental revenue growth, primarily attributable to
greater economies of scale. We anticipate continued improvements in our cost of
sales as a percentage of Revenue in both our Wireless Mobility Management and
Cyber Security Solutions segments, which may at times be partially offset by the
fluctuation in our IT Consulting Services and Products segment revenue and net
margin performance.





Gross
profit.  Gross profit for the three month period ended
September 30, 2010 was approximately $3.9 million (or 29% of revenues), as
compared to gross profit of approximately $2.7 million (or 24% of revenues) for
the three month period ended September 30, 2009.  The percentage of
gross profit was higher in the third quarter of 2010 as compared to the third
quarter of 2009 as a result of greater revenues and higher margins associated
with improved economies of scale in our Cyber Security Solutions segment. We
anticipate gross profit as a percentage of revenues should increase as cost of
sales as a percentage of revenues decreases due to a greater mix of higher
margin services.  We believe that as revenues expand in the future,
there will be periods of variability in margin growth associated with changes in
our product mix.





Sales and
marketing.  Sales and marketing expense for the three month
period ended September 30, 2010 was approximately $464,000 (or 3% of revenues),
as compared to approximately $333,000 (or 3% of revenues) for the three month
period ended September 30, 2009.  The absolute dollar amount of sales
and marketing expanded as we increased investment in our sales and marketing
efforts to increase our bids for future work and establish new channel
relationships to bolster our ability to continue to scale our services to a
greater customer base.    We believe that with our niche
capabilities and the present latent demand for our services the investment
within our sales and marketing will support our ability to continue to expand
our revenues.





General and
administrative.  General and administrative expenses for the
three month period ended September 30, 2010 were approximately $2.2 million (or
16% of revenues) as compared to approximately $1.7 million (or 15% of revenues)
for the three month period ended September 30, 2009.  This increase in
general and administrative expenses was primarily attributable to operational
costs for Advanced Response Concepts which was acquired in fiscal 2010 and thus
not present in the comparative period expenses.  As we continue our
efforts to comply with pending additional financial compliance requirements, we
anticipate that our general and administrative costs may rise slightly in the
future. We believe that our general and administrative costs on a percentage of
revenue will level out or decrease in future financial reporting
periods.





Depreciation.  Depreciation
expense for the three month period ended September 30, 2010, was approximately
$51,000 (or less than 1% of revenues), as compared to approximately $47,000 of
such expenses (or less than 1% of revenues) for the three month period ended
September 30, 2009.  This increase in depreciation expense over such
expenses for the three month period ended September 30, 2009 was primarily
attributable to recent acquisitions of additional depreciable
assets.  We do not anticipate any material changes within depreciation
expense in the short-term.  However, as our revenue base increases
within our Wireless Mobility Management  and Cyber Security Solutions
segments, there may be a need from time to time to increase the purchase of
equipment in support of new revenue streams that may then increase our annual
depreciation expenses.


20





Interest
income.  Interest income for the three month period ended
September 30, 2010 was approximately $2,000 (or less than 1% of revenues), as
compared to approximately $4,000 (or less than 1% of revenues) for the three
month period ended September 30, 2009.  This decrease in interest
income for the three month period ended September 30, 2010 was primarily
attributable to reduced amounts of invested cash and cash equivalents, combined
with lower short-term interest rates that were available to the Company on
investments in interest bearing accounts.  We do not anticipate any
material changes in trends in our interest income for the near-term as a result
of continuing low short-term interest rates presently payable by financial
institutions in connection with the present monetary policy of the U.S. federal
government.





Interest
expense.  Interest expense for the three month period ended
September 30, 2010 was approximately $18,000 (or less than 1% of revenues) as
compared to approximately $32,000 (or less than 1% of revenues) for the three
month period ended September 30, 2009.  This decrease in interest
expense for the three month period ended September 30, 2010 was primarily
attributable to lower interest bearing debt and lower interest rates compared to
the same period last year. We anticipate our interest expense will continue to
decrease as the Company continues to pay down the principal on its term note
held by Cardinal Bank, with the exception that in the event we purchase the
Columbus, Ohio facility that presently houses our call center for our Wireless
Mobility Management segment, interest expense might then increase as a result of
utilizing a mortgage loan to partially fund this purchase.





Income taxes. Income taxes
for the three month periods ended September 30, 2010 and September 30, 2009 were
approximately $46,000 and $39,000, respectively. These costs were predominately
attributable to deferred taxes and to a lesser extent the inclusion of our
estimate for alternative minimum taxes.  The Company’s deferred income
tax expense results from the recognition of a deferred tax liability related to
the differences in our treatment of the amortization of goodwill for tax
purposes versus book purposes as it relates to our acquisition of iSYS in
January 2008.  As goodwill is amortized for tax purposes but not book
purposes and is considered a permanent asset rather than a temporary asset, the
related deferred tax liability cannot be reversed until some indeterminate
future period when the goodwill either becomes impaired and/or is disposed
of.





Net income.As a
result of the above, the net income for the three month period ended September
30, 2010 was approximately $1.1 million as compared to the net income of
approximately $0.5 million for the three month period ended September 30,
2009.





Nine Months Ended September
30, 2010 as Compared to Nine Months Ended September 30, 2009





Revenues,
net.Revenues for the nine month period ended September 30,
2010 were approximately $37.4 million as compared to approximately $31.9 million
for the three month period ended September 30, 2009.  The increase in
revenues was primarily attributable to increases in all three of our segments as
a result of the performance of contract awards and expansions.





§
            Our
      Wireless Mobility
      Managementsegment recorded revenue of approximately $20.7 million for the
      nine months ended September 30, 2010, versus approximately $20.2 million
      for the nine months ended September 30, 2009.  This 2% growth in
      revenue primarily resulted from the execution of contract awards and
      renewals and expansion work from our current customer
      base.  Short-term we may witness a reduction or variability in
      revenue growth as the revenue mix in this segment experiences a reduction
      of billable calling minutes as compared to managed fees as we shift our
      attention to expanding the fee portion of our sales mix.  We are
      presently pursuing several significant service contract award
      opportunities at a number of federal agencies and are also initiating a
      new strategy to expand into state and local municipalities and commercial
      enterprises by utilizing intermediary supply channels to potentially
      expand our reach beyond the federal sector and help to support the
      long-term growth of this segment.





§
            Our
      Cyber Security Solutions
      segment recorded revenue of approximately $7.9 million for the nine
      month period ended September 30, 2010, versus approximately $4.3 million
      for the nine month period ended September 30, 2009.  This
      impressive 84% growth was primarily a result of increases in our
      credential sales associated with several initiatives requiring the use of
      those credentials by government agencies, including a recent purchase by
      the Department of the Navy for $2.9 million, and as a result of continued
      work from contract awards made to our newly acquired subsidiary, Advanced
      Response Concepts.  We have entered into a number of
      affiliations with partners who support the end user base, which facilitate
      access to these various federal agencies and the related technology
      infrastructure in order to take advantage of these identity management
      improvement mandates.  We believe these new partnerships should
      widen our sales reach, which we anticipate should support the continued
      long-term growth of this
segment.


21





§
            Our
      IT Consulting Services
      and Products segment recorded revenue of approximately $8.8 million
      for the nine month period ended September 30, 2010, versus Revenues of
      approximately $7.4 million for the nine month period ended September 30,
      2009. This 19% revenue improvement resulted primarily from new contract
      awards and renewals and expansion work from our current customer base. We
      anticipate that this segment should continue to realize modest growth but
      given the nature and variability of the products and services we offer
      within this segment, the growth may prove
  unpredicatabe





Cost of
sales.Cost of salesfor the nine month
period ended September 30, 2010 was approximately $28.0 million (or 75% of
revenues), as compared to cost of sales of approximately $25.0 million (or 78%
of revenues), for the nine month period ended September 30, 2009. The decrease
in our cost of sales as a percentage of revenues was primarily attributable to
margin improvements in all three of our segments.  Our Wireless
Mobility Management and Cyber Security Solutionssegments realized
greater margins from the benefit of economies of scale with our direct costs
centers realizing greater efficiencies, along with reduced revenues from
billable calling minutes that we provide in our Wireless Mobility Management
segment.  Our IT Consulting Services and Products segment realized
greater margins as a result of a larger mix of higher margin consulting
services, versus a lesser amount of lower margin software reselling that
realized during the nine month period.  We anticipate improvements in
our costs of sales on a percentage basis as our Wireless Mobility Management and
Cyber Security Solutions segments continue to add economies of scale, which may
be partially offset at times by the fluctuation in our IT Consulting Services
and Products segment revenue mix.





Gross
profit.  Gross profit for the nine month period ended September
30, 2010 was approximately $9.4 million (or 25% of revenues) as compared to
gross profit of approximately $6.9 million (or 22% of revenues), for the nine
month period ended September 30, 2009.  The percentage of gross profit
was higher in the first nine months of 2010 as compared to the first nine months
of 2009 as a result of higher margins associated with improved economies of
scale in our Wireless Mobility Management and Cyber Security Solutions segments
as well as a greater mix of higher margin direct consulting services as compared
to lower margin software reselling in our IT Consulting Services and Products
segment.  We anticipate gross profit as a percentage of revenues
should continue to increase as cost of sales as a percentage of revenues
decreases due to a greater mix of higher margin services.  We believe
as revenues expand in the future there will be periods of variability in margin
growth associated with changes in our product mix.





Sales and
marketing.  Sales and marketing expense for the nine month
period ended September 30, 2010 was approximately $1.3 million (or 3% of
revenues), as compared to approximately $0.8 million (or 3% of revenues), for
the nine month period ended September 30, 2009.  The dollar amount of
sales and marketing increased substantially as we increased our sales and
marketing capabilities through the addition of several new hires, tools, and
services infrastructure improvements, as well as business development
expenditures in support of our Protexx and Advanced Response Concepts emerging
market initiatives.  We believe that with our niche capabilities and
the present latent demand for our services the investment within our sales and
marketing will support our ability to continue to expand our
revenues.





General and
administrative.  General and administrative expenses for the
nine month period ended September 30, 2010 were approximately $6.0 million (or
16% of revenues), as compared to approximately $4.8 million (or 15% of revenues)
for the nine month period ended September 30, 2009.  This increase in
general and administrative expenses over those for the nine months ended
September 30, 2009 was primarily attributable to increases in general and
administrative costs as we added a new subsidiary Advanced Response Concepts
that added to our general and administrative expense base, along with: (i) a one
time increase in legal expenses associated with the purchase of the assets of
the government business of Vuance, Inc., which we are operating as Advanced
Response Concepts; (ii) some additional non-recurring associated carrying costs
for consultants that we incurred in connection with security clearance
approvals; (iii) an allowance made for a potential settlement associated with an
outstanding accounts receivable matter currently under review; and (iv) the
payments of certain performance bonuses awarded earlier this
year.    We anticipate that our general and administrative
costs may rise slightly in the future as our support costs rise to facilitate
our expectations of a greater revenue base as we continue our efforts to comply
with pending additional financial compliance requirements.  We believe
that our general and administrative costs on a percentage of revenue basis will
level out or decrease in future financial reporting periods.


22





Depreciation.  Depreciation
expense for the nine month period ended September 30, 2010 was approximately
$149,000 (or less than 1% of revenues), as compared to approximately $131,000 of
such expenses (or less than 1% of revenues) for the nine month period ended
September 30, 2009.  This increase in depreciation expense over those
for the nine month period ended September 30, 2009 was primarily attributable to
recent acquisitions of additional depreciable assets.  We do not
anticipate any material changes within depreciation expense in the
short-term.  However, as our revenue base increases within our
Wireless Mobility Management and Cyber Security Solutions segments, there may be
a need from time to time to increase the purchase of equipment in support of new
revenue streams that may then increase our depreciation expenses.





Interest
income.  Interest income for the nine month period ended
September 30, 2010 was approximately $11,000 (or less than 1% of revenues), as
compared to approximately $22,000 (or less than 1% of revenues), for the nine
month period ended September 30, 2009.  This decrease in interest
income for the nine month period ended September 30, 2010, was primarily
attributable to lesser amounts of invested cash and cash equivalents, and
combined with lower short-term interest rates that were available to the Company
on investments in interest bearing accounts.  We do not anticipate any
material changes in trends in our interest income for the near-term as a result
of continuing low short-term interest rates presently payable by financial
institutions in connection with the present monetary policy of the U.S. federal
government.





Interest
expense.  Interest expense for the nine month period ended
September 30, 2010 was approximately $69,000 (or less than 1% of revenues), as
compared to approximately $146,000 (or less than 1% of revenues), for the nine
month period ended September 30, 2009.  This decrease in interest
expense for the nine month period ended September 30, 2010 was primarily
attributable to lower interest bearing debt and lower interest rates compared to
the same period last year. We anticipate our interest expense will continue to
decrease as the Company continues to pay down the principal on its term note
held by Cardinal Bank, with the exception that in the event we purchase the
Columbus, Ohio facility that presently houses our call center for our Wireless
Mobility Management segment, interest expense might then increase as a result of
utilizing a mortgage loan to partially fund this purchase.





Income taxes.Income taxes
for the nine month periods ended September 30, 2010 and September 30, 2009 were
approximately $163,000 and $118,000, respectively. These costs were
predominately attributable to deferred taxes and to a lesser extent the
inclusion of our estimate for alternative minimum taxes.  The
Company’s deferred income tax expense results from the recognition of a deferred
tax liability related to the differences in our treatment of the amortization of
goodwill for tax purposes versus book purposes as it relates to our acquisition
of iSYS in January 2008.   As goodwill is amortized for tax
purposes but not book purposes and is considered a permanent asset rather than a
temporary asset, the related deferred tax liability cannot be reversed until
some indeterminate future period when the goodwill either becomes impaired
and/or is disposed of.





Net income.As a
result of the above, the net income for the nine month period ended September
30, 2010 was approximately $1.8 million as compared to the net income of
approximately $0.9 million for the nine months ended September 30,
2009.





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 2009 and through the period ended September 30,
2010, operations were primarily financed with working capital, senior debt, and
stock option and warrant exercises.





Net cash
used in operating activities for the nine months ended September 30, 2010 was
approximately $1.3 million, as compared to cash provided by operating activities
of $1.7 million for the nine months ended September 30, 2009.  The
increase in net cash used in operating activities were predominately the result
of increases in accounts receivable and unbilled accounts receivable as a result
of greater revenues generated in the comparative periods.  Net cash
used in investing activities for the nine months ended September 30, 2010 was
approximately $678,000, as compared to $202,000 in cash used in investing
activities for the nine months ended September 30, 2009.  The increase
in net cash used in investing activities was primarily attributable to the
establishment of our Advance Response Concepts subsidiary and subsequent
purchase of the net assets of Vuance’s Government Services
business.  Net cash used in financing activities amounted to
approximately $588,000 in the nine months ended September 30, 2010, as compared
to net cash used in financing activities of approximately $2,561,000 in the nine
months ended September 30, 2009. This decrease in net cash used in financing
activities primarily related to the reduction of debt during the nine months
ended September 30, 2009 as compared to the nine months ended September 30,
2010.  As a result of the
Company’s capital raising in 2008 and its profitability in 2009 and in the first
nine months of 2010, the Company has had excess liquidity to pay down short-term
and long-term debt, while still maintaining sufficient levels of capital
resources to fund operations.


23





As of
September 30, 2010, the Company had a net working capital of approximately $5.5
million.  The Company’s primary source of liquidity consists of
approximately $3.7 million in cash and cash equivalents and approximately $11.8
million of accounts receivable and unbilled accounts
receivable.  Current liabilities include approximately $9.4 million
inaccounts payable
and accrued expenses.





The
Company’s business environment is characterized by rapid technological change,
as well as periods of high growth and contraction and is influenced by material
events such as mergers and acquisitions, with each of the foregoing able to
substantially change the Company’s outlook.





The
Company has embarked upon several new initiatives to expand revenue growth,
which have included both acquisitions and organic 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.




Currently
there are no material commitments for capital expenditures and software
development costs. 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.




Management
believes that its current cash position is sufficient to meet capital
expenditure and working capital requirements for the near
term.  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. Additionally, a major expansion, such as that which occurred with the
acquisition of iSYS or any other potential new subsidiaries, might require
external financing that could include additional debt or equity capital. There
can be no assurance that additional financing, if required, will be available on
acceptable terms, if at all, for future acquisitions and/or growth
initiatives.   The Company presently has an unused credit
facility in the amount of $5 million that has been renewed through September 1,
2011.




Off-Balance
Sheet Arrangements





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


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ITEM 4. CONTROLS AND
PROCEDURES




Disclosure
Controls and Procedures





We
maintain disclosure controls and procedures designed to provide reasonable
assurance that material information required to be disclosed by us in the
reports we file or submit under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms, and that the information is accumulated and communicated
to our management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate to allow timely decisions regarding required disclosure.
We performed an evaluation, under the supervision and with the participation of
our management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures as of the end of the period covered by this report.
Based on the existence of the material weaknesses discussed below in “Material
Weakness in Internal Control Over Financial Reporting,” our management,
including our Chief Executive Officer and Chief Financial Officer, concluded
that our disclosure controls and procedures were not effective at the reasonable
assurance level as of the end of the period covered by this report.




We do not
expect that our disclosure controls and procedures will prevent all errors and
all instances of fraud. Disclosure controls and procedures, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the disclosure controls and procedures are met. Further,
the design of disclosure controls and procedures must reflect the fact that
there are resource constraints, and the benefits must be considered relative to
their costs. Because of the inherent limitations in all disclosure controls and
procedures, no evaluation of disclosure controls and procedures can provide
absolute assurance that we have detected all our control deficiencies and
instances of fraud, if any. The design of disclosure controls and procedures
also is based partly on certain assumptions about the likelihood of future
events, and there can be no assurance that any design will succeed in achieving
its stated goals under all potential future conditions.





Material
Weakness in Internal Control Over Financial Reporting





A
material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the Company's annual or interim financial
statements will not be prevented or detected on a timely basis.





Management
assessed the effectiveness of our internal control over financial reporting as
of December 31, 2009.  In making this assessment, management used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control-Integrated Framework.





Based on
this assessment, management concluded that our internal control over financial
reporting was not effective as of December 31, 2009 due to the existence of the
following material weaknesses:





Inadequate segregation of duties
within a significant account or process. Management determined that it
did not have appropriate segregation of duties within our internal controls that
would ensure the consistent application of procedures in our financial reporting
process by existing personnel. This control deficiency could result in a
misstatement to substantially all of our financial statement accounts and
disclosures that would result in a material misstatement to the annual or
interim financial statements that would not be prevented or detected.
Accordingly, management has concluded that this control deficiency constitutes a
material weakness.





Lack of sufficient subject matter
expertise.Management determined that it lacks certain subject
matter expertise accounting for and the disclosure of complex transactions. Our
financial staff currently lacks sufficient training or experience in accounting
for complex transactions and the required disclosure therein.





Remediation
Plan for Material Weaknesses





The
material weaknesses described above in "Material Weaknesses in Internal Control
Over Financial Reporting" comprise control deficiencies that we discovered
during the financial close process for the December 31, 2009 fiscal
period.


25





Management
commenced a remediation plan during the first quarter of 2010 that is being
implemented during our fiscal year 2010, which includes (i) recruiting and
adding specific financial subject matter experts as consultants or employees to
the financial staff, and (ii) augmenting and allowing for additional training
and education for select members of our financial staff.  Management
is presently recruiting additional staff and has allowed for additional training
and education of its present staff in addressing the material
weaknesses.  In November of 2010 the Company hired an additional
financial expert to assist with our remediation plan.





We
believe that these measures, if effectively implemented and maintained, will
remediate the material weaknesses discussed above.





Changes
in Internal Control Over Financial Reporting





We are
currently undertaking the measures discussed above to remediate the material
weaknesses discussed under “Material Weaknesses in Internal Control Over
Financial Reporting” above.  Those measures, described under
“Remediation Plan for Material Weaknesses,” were commenced during the first
quarter of 2010, will continue to be implemented during our fiscal year 2010,
and will materially affect, or are reasonably likely to materially affect, our
internal control over financial reporting.





Other
than as described above, there have been no changes in our internal control over
financial reporting during the three-month period ended September 30, 2010 that
have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.





Because
of its inherent limitations, a system of internal control over financial
reporting can provide only reasonable assurance and may not prevent or detect
misstatements.  Further, because of changes in conditions,
effectiveness of internal controls over financial reporting may vary over
time.  Our system contains self-monitoring mechanisms, and actions are
taken to correct deficiencies as they are identified.


26


PART
II – OTHER INFORMATION




ITEM
6.  EXHIBITS.





EXHIBITNO.
            
            DESCRIPTION10.1
            
            Debt
      Modification Agreement, dated as of August 26, 2010, between WidePoint
      Corporation and its subsidiaries and Cardinal Bank (Incorporated by
      reference to the Company’s Current Report on Form 8-K filed on August 27,
      2010).10.2
            
            Commercial
      Loan Agreement, dated as of August 26, 2010, between WidePoint Corporation
      and its subsidiaries and Cardinal Bank (Incorporated by reference to the
      Company’s Current Report on Form 8-K filed on August 27,
      2010).31.1
            
            Certification
      of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002 (Filed herewith).31.2
            
            Certification
      of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002 (Filed herewith).32
            
            Certification
      of Chief Executive Officer and Chief Financial Officer Pursuant to Section
      906 of the Sarbanes-Oxley Act of 2002 (Filed
  herewith).


27


SIGNATURES





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





WIDEPOINT
      CORPORATIONDate:     November
      12, 2010
              
              /s/ STEVE L. KOMARSteve
      L. KomarChief
      Executive OfficerDate:     November
      12, 2010
              
              /s/ JAMES T. MCCUBBINJames
      T. McCubbinExecutive
      Vice President, Chief FinancialOfficer,
      Secretary and Treasurer


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