# SECURITIES AND
EXCHANGE COMMISSIONWASHINGTON, D.C. 20549FORM 10-K

[X]     ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the fiscal
year ended December 31, 2005.

OR

[_]     TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period
from _________ to __________.

Commission File Number
000-23967

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

|Delaware                        | 52-2040275         
|------------------------------- | -------------------
|(State or other jurisdiction of | (I.R.S. Employer   
|incorporation or organization)  | Identification No.)

|One Lincoln Centre, Oakbrook Terrace, IL | 60181     
|---------------------------------------- | ----------
|(Address of principal executive offices) | (Zip Code)

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

Securities registered pursuant to
Section 12(b) of the Act:   None

Securities registered pursuant to
section 12(g) of the Act:

|Common Stock, par value $.001 per share
|---------------------------------------
|(Title of Class)                       

Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act.      Yes    NoX

Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act.  Yes    NoX

Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days:    Yes  X   No

---

Indicate
by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K.  [X]

Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer (as defined in Rule 12b-2 of the Act).

Large
accelerated filer______      Accelerated filer______      Non-accelerated filerX

Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act).  Yes____     NoX

State
the aggregate market value of the registrants voting and non-voting common equity
held by non-affiliates of the registrant computed by reference to the price at which the
common equity was last sold or the average bid and asked price of such common equity, as
of the last business day of the registrants most recently completed second fiscal
quarter.    $30,957,115.

As
of March 27, 2006, the registrant had 47,504,222 shares of its Common Stock issued and
outstanding.

DOCUMENTS INCORPORATED
BY REFERENCE

List hereunder the following
documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part
II, etc.) into which the document is incorporated: (1) Any annual report to security
holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to
Rule 424(b) or (c) under the Securities Act 1933. The listed documents should be clearly
described for identification purposes (e.g., annual report to security holders for fiscal
year ended December 24, 1980).

2

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# PART I

# ITEM 1. BUSINESS.

# Background and
Environment

WidePoint
Corporation is a technology-based provider of product and services to both the government
sector and commercial markets. We specialize in providing systems engineering, information
technology services and information assurance in the form of identity management services.
Our subsidiary Operational Research Consultants, Inc. (ORC) is the leading provider of
E-Authentication Federation credential and Federal compliant Public Key Infrastructure
(PKI) managed services to the federal government. We intend to grow over the next few
years through a combination of aggressive organic growth, the acquiring of selective
strategic assets and by driving operational efficiencies among our subsidiaries.

WidePoint
was incorporated in Delaware on May 30, 1997. Our staff consists of business 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. We have developed thorough, comprehensive policies,
procedures and controls to mitigate the threat, or potential threat, of intentional,
unintentional, physical, natural or electronic compromise or disruption of any portion of
our systems or services. The talent and technology are available, and the resident
expertise experienced in working together, to ensure goals are achieved quickly and
seamlessly. Contract instruments are already in place and a substantive reference base
with an assortment of Federal agencies are available.

From
2000 through 2003, we undertook several initiatives in an effort to transition from a
millennium solutions provider to an integrated IT services company with a focus on the
evolving requirements of our customers and target markets.

As
a result of those initiatives, in 2004, we acquired ORC as part of our strategy to refocus
our business development initiatives toward the substantial increase in government
spending on security, infrastructure and automation that has been accelerated by recent
geopolitical events that have created an unprecedented need for improved systems and
process expertise across most federal, state and local government markets.

In
2005, WidePoint focused on the consolidation of its recent acquisitions, accelerating the
rollout of the ORC E-Authentication and PKI identity management initiatives, and
continuing to implement our project based enterprise strategy emphasizing industry-wide
best practices disciplines. With the addition of the customer base and the increase in
revenues attributable to the ORC acquisition, WidePoints opportunity to leverage
and expand further into the federal marketplace has improved dramatically. ORCs
past client successes, top facility security clearances, security personnel expertise,
and additional breadth of management talent have expanded our reach into markets that
previously were not accessible to WidePoint. 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 will
further enhance our present base of business, which has been augmented by our recent
acquisitions and internal growth initiatives.

3

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Specifically,
the Computer Security Act of 1987, the Health Insurance Portability and Accountability Act
of 1996 (HIPAA), the Federal Privacy Act, Homeland Security Presidential
Directive (HSPD)-12 concern over lack of critical infrastructure protection, increasing
preoccupation over proprietary design information, requirements for digital information
archiving, and legal and political expectations for businesses and citizens to be able to
conduct business with state and federal agencies in a secure environment, have increased
expectations for 24 hour a day, 7 day a week service and information availability (as well
as efficiency and cost savings of providing electronic/digital forms processing). With the
establishment by the U.S. Government of the Department of Homeland Security (DHS), the
U.S. Government is focused on the requirement to ensure the integrity of sensitive or
confidential information. Addressing the threats to our countrys information
infrastructure, such as the spread of the Code-Red Worm (CRv2)1 to 359,000 computer
servers in less than 14 hours, the events of 9/11, and the recent ATM piracy from abroad,
have become a vital component in information assurance and security.

Looking
forward, the strong authenticated identity market opportunity expands by orders of
magnitude as information is increasingly circulated on the Internet among limited, but
frequently changing audiences of specifically named individuals. Society dictates that
digital transactions must have the capability to prove who the provider of a piece of
information is (by name, not simply office), as well as to verify that no one has modified
the information subsequent to its issuance. There must be no question as to exactly when
information is published. There must be a means of reviewing an auditable history of
transactions and there must also be a means to archive all information securely, as well
as a means to recall the information from the secure archive at a later time. The
information age has created an urgent need for these requirements to be realized in an
environment that is easy to use, suitable for senior executives and managers, highly
reliable, and that supports the increasingly mobile demands of our democracy.

WidePoint
and our wholly-owned subsidiary, ORC, are strategically postured to help federal agencies
and commercial concerns implement meaningful and efficient security into Internet/Intranet
operations to protect sensitive information and billions of dollars in transactions each
day. ORCs Common Identity Enabling Infrastructure (CIEI)© and services fully
support these needs by leveraging existing infrastructures and creating a digital
credential for each individual and device recognized and accepted both internally to an
organization and externally by any other infrastructure recognizing federally authorized
credentials as trustworthy.

WidePoint,
through our ORC subsidiary, has solidly established our reputation as an elite provider of
these information assurance and security of digital transactions for the U.S. Department
of Defense (DoD), the U.S. Navy, the U.S. Air Force, the U.S. National Security Agency
(NSA), the U.S. Coast Guard, U.S. Office of Management and Budget (OMB), U.S. General
Services Administration (GSA), the U.S. General Accounting Office (GAO), several state
governments and fortune 500 commercial clients. ORC has distinguished itself by providing
the highest levels of professionalism, on-time delivery of solutions and superior managed
services.

_____________________1 David Moore (dmoore@caida.org),
analysis on the spread of the Code-Red (CRv2) Worm.

4

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Through
our ORC subsidiary, WidePoint offers iDentity Management and eAuthentication
Services© based on existing technology and open systems standards. ORC provides
Identification and Authentication (I&A) interoperability among users and relying
parties (Government, businesses, trading partners, and citizens) at the assurance level
and rigor required by the owner of the protected resource. These services include four
major US Government Certifications:

| |  | GSA
E-Authentication Federation
| | - | -------------------------------

| |  | US
Government External Certificate Authority (ECA)
| | - | --------------------------------------------------

| |  | GSA
Access Certificates for Electronic Services (ACES)
| | - | ------------------------------------------------------

| |  | GSA
Shared Service Provider (SSP), supporting the Federal PKI Common Policy Framework,
HSPD-12, and Federal Information Processing Standard (FIPS) 201 initiatives
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

iDentity
Management and eAuthentication Services© fully support Business-to-Government,
Government-to-Government, and Citizen-to-Government secure digital transaction
requirements, and, because ORC-provided digital credentials are an allowable direct charge
(or ODC) under the Federal Acquisition Regulation rules, the cost of such services and
products can be passed-on by ORCs customers in a government contracts
and/or proposals.

WidePoint
anticipates capturing a significant market share in iDentity Management and
eAuthentication Services©, which are expected to be a growing market that will have
the potential of providing significant revenue growth for the Company.

Most of our current costs consist of
salaries and benefits paid to our technical, marketing and administrative personnel, as
well as the solutions required to maintain the secure facilities and infrastructure that
support our information assurance and security offerings. As a result of our plan to
expand operations through a combination of internal growth initiatives and acquisition
opportunities, such costs are expected to increase. Our profitability depends upon both
the volume of services performed and the ability to manage costs. A significant portion of
our cost structure is labor related and we must effectively manage these costs in order to
achieve growth and profitability. To date, we have attempted to maximize our operating
margins through efficiencies achieved by the use of our proprietary methodologies and by
offsetting increases in consultant salaries with increases in consultant fees charged to
our clients.

Enterprise Strategy

In
the continuing effort to differentiate our services and products and overcome the highly
competitive environment that has been an obstacle to the expansion of our revenue streams,
we have modified our strategic plan; including the launch of a federal sector business
initiative, continued development of new technologies and capabilities tied to wireless
technologies, and the initiation and expansion of several alliances and relationships to
expand our ability to penetrate new market segments.

5

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As
a result of our 2003 efforts, the Company was awarded a GSA Corporate Schedule in February
2004 that enhanced our ability to market to federal government markets. In addition, the
Company acquired Chesapeake Government Technologies, Inc. (Chesapeake) on
March 24, 2004. The acquisition of Chesapeake accelerated our ability to compete for
federal business as the result of Chesapeakes existing alliances and expertise
within the federal marketplace. WidePoint intends to leverage our GSA Schedule to expand
our revenue base, even as it continues to look for and analyze growth alternatives via
other selected merger and acquisition opportunities.

On
October 25, 2004, we completed the acquisition of ORC. ORC specializes in information
technology, or IT, including the provision of integration and strong identity
authentication processes and software and related services to the United States
Government. ORC holds a number of large indefinite quantity, indefinite (IDIQ) contracts
that extends WidePoint capability to expand our revenue base, including:

| |  | Information
Technology Professional Services, FSC Group 70, GSA FSS # GS-35F-0164J $100 million
ceiling contract that offers a full range of IT Professional Services to all federal
Government agencies on a fee-for-service basis. This contract is also available to state
and local governments under a cooperative procurement agreement.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Worldwide
Federal Supply Schedule for Management, Organizational and Business Improvement Services
(MOBIS), FSC Group 874, GSA FSS # GS-10F-0152M  $100 million ceiling contract that
offers a full range of services and products to enable all Federal Government Agencies to
improve performance, quality, timeliness and efficiency throughout their organizations.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Worldwide
Federal Supply Schedule for Professional Engineering Services (PES), FSC Class 871, GSA
FSS # GS-23F-0162L  $100 million ceiling contract that offers a full range of
Professional Engineering Services to all federal Government agencies on a fee-for-service
basis. There are four primary engineering disciplines (Chemical, Civil, Electrical and
Mechanical) addressed under PES.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | GSA
Solutions and More (SAM), FSC Group 61 Part V, GSA FSS # GS-07F-0099L  $100 million
ceiling contract that offers supply Power Distribution Equipment, Generators, and
Batteries worldwide.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | SeaPort-e
Contract N00178-04-D-4099  $100 million ceiling contract to provide engineering,
technical, and programmatic support services to the Naval Surface Warfare Centers (NSWC)
and the Naval Undersea Warfare Centers (NUWC). ORC has the demonstrated experience to
provide seamless integrated in twelve core Product Areas.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Most
recently, ORC was awarded a Basis Purchasing Agreement (BPA), FTS-BPA-60-0001 (awarded in
December 2005), under a special item category for Authentications services under the GSA
IT Professional Services contract. This $100 million ceiling BPA specifically certifies
ORC as the first contractor authorized to provide authentication products and services
provide for authentication of individual for purposes of physcial and logial access
control, electronic signature, performance of e-business transactions and delivery of
Government services. Authentication Products and Services consist of hardware, software
components and supporting services that provide for identity assurance.

6

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We
intend to leverage ORCs capabilities, in concert with our GSA Corporate Schedule, to
expand our revenue base, as we continue to seek and analyze growth alternatives via
selective merger and acquisition growth opportunities. In addition, we are actively
seeking the acquisition of other companies with complementary technical capabilities in
IT, software and related services to the federal government (both defense and civilian),
state governments and local government agencies. If successful in our organic growth and
acquisition activities, we anticipate that we will become a significantly larger company
with broader capabilities and resources than has been the case historically.

At
the heart of the Companys enterprise strategy is the vision of a
commonwealth of semi-autonomous but intertwined business units, focused on the
provision of a broad range of IT-based products and services to a clearly defined target
market. While leveraging financial and support resources, and motivated to aggressively
cross-market and cross-sell, these business units would retain their entrepreneurial
cultures and management teams and be accountable for the performance and growth of their
own lines of business and relationships. WidePoint believes this model to be quite
attractive to individuals who have built quality businesses with inherent value, but who
seek assistance and support in driving their businesses to the next level of growth and
maturity. Such individuals will be provided with the opportunity to participate in the
growth and performance of the total WidePoint enterprise and potentially capitalize upon
the enterprise valuation they have helped build over the years within their respective
organizations.

# Business Strategy and
Services

Our
strategy for our project-based initiatives is to apply a structured delivery methodology
based on industry standard best practices, enhanced with a set of deliverable templates
that boost productivity and effectiveness through the services of our staff. We focus on
providing end results with significant, tangible business benefits through personnel that
possess recognized industry-standard certifications, expertise and years of successful
project execution experience. The ancillary strategy of staff augmentation services
provides our customer base with value added services based on the best to
market practices developed internally, that utilizes a rapid response capability
tailored to our clients needs.

WidePoints
focus is on planning, implementing and supporting IT-based initiatives with the following
services:

# Systems Engineering and
Integration

Systems
engineering and integration consists of working with government and commercial clients to
develop a plan, policies and specific requirements that are tailored to their unique
needs. An electronic information approach, policy and implementation plan for any customer
is developed after conducting an analysis of that customers requirements, including:

| |  | Survey
of existing systems hardware and software;
| | - | -------------------------------------------------

| |  | Review/
audit of current requirements, directives, etc.;
| | - | --------------------------------------------------------

7

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| |  | Presentation
of tools, systems and techniques available to support customer needs;
| | - | ----------------------------------------------------------------------------------

| |  | Consultation
with and advice to customer concerning optimum investment options within available
budget, including phasing recommendations;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------

| |  | Information
Assurance and Security technology update and refresh;
| | - | -----------------------------------------------------------------

| |  | Support
Services such as training, education and help desk;
| | - | -----------------------------------------------------------

| |  | Data
archiving; and
| | - | -------------------

| |  | Consulting
for application development, establishment of enterprise directories and establishment of
validation capabilities across a heterogeneous environment.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

By
leverage standards based, mature commercial-off-the-shelf components that have been proven
in the technology market, our CIEI© and other services offer the efficiency of a
common solution for multiple applications within an enterprise and interoperability with
the Federal Government and trading partners. We can also replicate these services (in part
or whole) to provide an enterprise the following advantages:

| |  | Enabling
organizations applications with multiple IA/validation interfaces rapidly;
| | - | ------------------------------------------------------------------------------------

| |  | Enabling
enterprise applications to have enterprise or local access to account data;
| | - | ------------------------------------------------------------------------------------

| |  | Centralizing
enterprise configuration management, managing information with multiple authentication
methods;
| | - | ------------------------------------------------------------------------------------------------------------

| |  | Enabling
local policy to determine trusted authentications by each application (i.e., application
does not inherit trust that is not wanted);
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------

| |  | Implementing
of components designed to manage specific tasks so that applications do not have to
support all authentication functions natively;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------

| |  | Enabling
an easy migration path from less elegant eAuthentication schemes through higher
assurance, including full PKI implementations and federated identities; and,
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Enabling
organizations to leverage a government approved solution.
| | - | ------------------------------------------------------------------

Focused in the medium to high assurance
level market, our CIEI© allows enterprise and application owners to begin where they
currently are architecturally and migrate toward a vision of a secure network identity
model. We are poised to support these secure network identity enterprise requirements
(in-house or outsourced), by providing seamless integration of four services that make up
our CIEI©:

| |  | iDentity
Management  providing infrastructure and processes that provide for creation and
maintenance of an identity, including centralized administration and self-service of user
accounts.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | eAuthentication
 providing authoritative repositories for identity, network and/or resource
profiles combined with security services that enable identification, validation and
support for authorization.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Access
Management  providing authorization, audit functions and session management that
enable enterprise and application owners to define access rights for individuals carrying
out roles such as business partners, suppliers, customers or employees.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Provisioning
and Workflow  implementing business policies across enterprises, applications and
data that support a higher degree of automation (devices such as identity tokens, credit
cards, cell phones and personal computers).
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

8

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# Architecture and
Planning Services

Preparing
an IT Architecture requires analysis, evaluation, integration, administration and
maintenance. We are in an era where many government and commercial entities have an
increasingly urgent need to enhance their digital presence while protecting sensitive
business and personal information from the Internet information thieves of our time.
Indeed, some would argue that protecting shared information and having the opportunity to
guarantee trusted digital identity verification must be assured before full communications
can take place. WidePoint an established reputation for developing solutions individually
tailored to a customers many needs, while remaining within that customers
schedule and time constraints. We are an advisor to our clients, not a sales organization
for specific equipment or software.

We
believe that effective IT communications and computer systems need not be seen as
requiring huge dollar outlays, inevitably requiring wholesale replacement of existing
systems, servers, hardware, software and security tools/firewalls, etc. Through our
operating subsidiaries, we apply open systems technology and Commercial Off-The-Shelf (COTS)
tools, which complement rather than replace existing systems wherever possible. Further,
our preferred recommendation is to migrate as many existing systems as possible from
their current capabilities to more effective, robust capabilities by augmenting those
systems with supported products. One objective is to make changes that are largely
invisible to operators and managers so there is little in the way of training challenges
for the customer and only modest requirements for equipment investment. We do not design
unique and proprietary software that forces the customer to work through us or tie them
to a costly internal IT development organization when subsequent (and inevitable)
upgrades are required.

WidePoints
strength is that we value our people, our customers, and the quality of the services we
provide. As a services organization, the focus of our business is our customers. We have
developed thorough, comprehensive policies, procedures and controls to mitigate the
threat, or potential threat, of compromise or disruption to any portion of our systems as
a result of intentional, unintentional, physical, natural or electronic means. These
policies, procedures and controls are implemented and adhered to by those individuals
fulfilling various trusted roles key to our customer service.

The
people selected to fill trusted roles have proven to be diligent and trustworthy. The
functions performed in these roles form the basis of trust our clients have in our
capabilities. For our managed services, we also assign roles and functions responsible for
security among several people, so that any malicious activity would require collusion.
Through sound security planning based on proven techniques and industry standards, our
systems are operated and maintained to provide highest levely of reliability and
availability to our clients depending on these services. These policies, procedures and
controls are periodically reviewed for currency. Random testing is performed and
documented for use as a tool to further refine the means and methods used to maintain the
integrity of our managed services.

WidePoints
management staff are people-oriented systems engineering professionals with leadership
competence capable of determining the most effective ways to meet the clients
requirements. Our client focused management team are facilitators, integrators, team
builders, and relationship managers. Within our requirements-driven, performance-based,
people oriented environment, our project managers have responsibility and authority for
all project requirements. They are responsible to the client for applying the systems
engineering discipline to ensure that the technical, cost and schedule requirements are
clearly defined and communicated and quality products and/or services are rendered. Our
Project Managers are responsible for getting the job done correctly, on time, and on
budget.

9

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Our
mid-level management team are people-oriented engineering professionals capable of
determining the most effective ways to execute delegated assignment(s). They are
complimented by competency specialists (or subject matter experts) focused on area(s) of
expertise that meet our customer requirements and provide quality products and services.
WidePoint develops our competencies, from the apprentice through expert level by matching
task assignments with skill and knowledge. Competency expertise varies depending on
project requirements. Individuals with certain skills may be added or removed from
projects, as required. On the job training at our Company is key to developing expertise.

# IT Outsource Solutions

By
leveraging our systems engineering experiences, we have become one of the nations
premier systems engineering firms with a specialization in managed information assurance
and security solutions. This is evidenced by the following accomplishments:

| |  | Our
ORC subsidiary was distinguished as the first designated DoD Interim External Certificate
Authority (IECA-1) and more recently the first US Government External Certificate
Authority.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Our
ORC subsidiary is distinguished as one of only three GSA Access Certificates for
Electronic Services contract recipients.
| | - | -----------------------------------------------------------------------------------------------------------------------------

| |  | Our
ORC subsidiary is distinguished as the first commercial GSA eAuthentication Service
Provider.
| | - | -------------------------------------------------------------------------------------------------

Our
ORC subsidiary has been engaged as the lead systems engineer for the DoD PKI, which is
currently issuing 15,000 to 20,000 Common Access Cards (with DoD certificates) daily.

Our
ORC subsidiary is certified by the GSA eAuthentication Program Management Office as an
eAuthentication Service Provider to facilitate public access to the services offered by
Federal Government agencies through use of information technologies, including on-line
access to computers for purposes of reviewing, retrieving, providing, and exchanging
information. Our ORC subsidiary offers various authentication credentials that include
Userid/Password (Level 1 and 2 assurance), as well as Digital Certificates (Level 3
assurance).

ORCs
eAuthentication, defined by the System Security Plan for Operational Research
Consultants (ORC) Information Assurance/ Identity Management (IA/ IDM)©
supports multiple authentication methods, from Level 1 Userid/Password to Level 3 Digital
Certificates to authenticate users and validate their credentials. Real-time consumer and
business authentication methods are used to extend ORCs eAuthentication offering,
allowing an organization to address broad audiences of users for eGovernment and internal
applications in a timely manner. These are proven capabilities that are compliant with
existing laws and regulations that can be integrated and rapidly deployed. ORCs
eAuthentication services apply a variety of proven methods that can be incorporated and
validated quickly, developing confidence among users and relying applications.

10

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ORC
is certified as a trusted third party under the US Government ECA program, as defined by
the ORC External Certification Authority (ECA) Certification Practice
Statement© and the ORC External Certification Authority (ECA) Key
Recovery Practice Statement©". ORC is currently the only ECA authorized to issue
Server (Device) Certificates and Code Signing Certificates, in addition to personal
certificates.

| |  | Server
Certificates provide trusted verification of the identity of web/application servers and
enable those servers to support encrypted (Secure Sockets Layer) transaction protection.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Code
Signing Certificates provide trusted verification of the integrity of software and
documents.
| | - | --------------------------------------------------------------------------------------------------

ORC
is a certified trusted third party under the GSA ACES program to provide digital
certificates to the citizenry of the United States, as defined by the ORC ACES
Certification Practice Statement©". The ACES certificates are available to
provide each and every American citizen, as well as federal, state and local government
and business entities the accepted digital certificate to conduct business electronically
with Federal agencies, such as the Veterans Administration, Social Security
Administration and any other agency offering services via the Internet. In addition to the
ACES contract, ORC is authorized as a trusted third party to sell ACES certificates
directly to the business and private citizen communities. This offering is currently
migrating to an ORC ACES/Shared Service Provider (SSP) capability that will expand the
ACES program to offering full B2G and G2G PKI services.

The
documents, described above, define the system and process intellectual property that
allows us to be the leader in this market.

Our
ability to successfully expand requires significant revenue growth from increased services
performed for existing and new clients, as well the potential for strategic acquisitions
and/or mergers. The realization of these events depends on many factors, including
successful strategic sales and marketing efforts and the identification and acquisition of
appropriate businesses. Any difficulties encountered in our expansion through successful
sales and marketing efforts and/or acquisitions could have an adverse impact on our
revenues and operating results.

# Clients

Our
commercial client base is located predominantly in the continental United States, while
our government client base is located in the East Coast region of the United States
complimented by a smaller practice in Texas. We have experience and expertise in the
successful completion and staff augmentation of projects in the following industries:
Federal Government agencies and associated contractor suppliers, manufacturing, consumer
product goods, direct marketing, healthcare and financial services.

11

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Historically
we have derived, and may continue to derive in the future, a significant percentage of our
total revenues from a relatively small number of clients. For the year ended December 31,
2005, one customer, The U.S. Department of Homeland Security, represented 18% of our
revenues, and we therefore are materially dependent on such customer. During 2004, two
customers, Abbott Laboratories and The U.S.Department of Homeland Security individually
represented 12% and 11% of revenues, respectively. During 2003, four customers, Abbot
Laboratories, Spencer Stuart, Manpower, and Baxter Healthcare, individually represented
18%, 14%, 13%, and 13% of revenues, respectively. 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 may have a material adverse effect
on our business and financial results. Further, with the acquisition of ORC, we have
expanded our clientele dramatically with the following additional clients:

| |  | United
States Treasury
| | - | ----------------------

| |  | United
States Patent & Trademark Office
| | - | ---------------------------------------

| |  | Administrative
Office of U.S. Courts
| | - | ------------------------------------

| |  | United
States Department of Agriculture
| | - | ---------------------------------------

| |  | United
States Census Bureau
| | - | ---------------------------

| |  | United
States Maritime Administration
| | - | -------------------------------------

| |  | United
States General Services Administration
| | - | ---------------------------------------------

| |  | Commonwealth
of Pennsylvania
| | - | ----------------------------

| |  | Northrop
Grumman IT
| | - | -------------------

| |  | Lockheed
Martin
| | - | ---------------

| |  | Boeing
| | - | ------

| |  | Maryland
Procurement Office
| | - | ---------------------------

| |  | United
States Central Intelligence Agency
| | - | -----------------------------------------

| |  | United
States Department of Homeland Security
| | - | ---------------------------------------------

| |  | U.S.
Coast Guard
| | - | ----------------

| |  | United
States Department of Defense
| | - | -----------------------------------

| |  | U.S.
Defense Information Systems Agency
| | - | ---------------------------------------

| |  | Dependent
Schools System
| | - | ------------------------

| |  | White
House Communication Agency
| | - | --------------------------------

| |  | U.S.
Navy
| | - | ---------

| |  | U.S.
Marine Corps
| | - | -----------------

| |  | U.S.
Air Force
| | - | --------------

| |  | U.S.
Army
| | - | ---------

# Marketing and Sales

We
focus sales and marketing efforts on targeting Federal Government and corporate clients
with significant IT and identity management budgets and requirements. While we perform
work for companies in various industries, the majority of our revenues for 2003, 2004, and
2005 were derived from contracts and projects with manufacturing clients, consumer
products clients, healthcare clients, and financial services clients. Prospectively, we
expect a majority of our revenue to be derived from contracts with the Federal Government
and related contracting opportunities.

12

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We
market our solutions through our direct sales force, and alliances with several strategic
partnerships in specific industries. The direct sales force is responsible for providing
highly responsive, quality service and ensuring client satisfaction with our services.
Strategic partnerships and alliances provide us with additional access to potential
clients.

Because
of the mandates of the federal government and the urgency of our countries critical
infrastructure protection, we believe our proven CIEI© and services will scale well
to the commercial market. By eliminating the lead-time needed to become operational while
waiting for in-house development efforts, we can enable an organization to quickly deploy
a fully operational capability, providing the highest levels of authentication of users
and devices, securing of sensitive data, time-stamping and archiving of data, and an
auditable process flow. Further, the credentials used to accomplish all of these
requirements are interoperable with any other agency or organization choosing to accept
Federal-compliant credentials. The resulting answers can be immediately gleaned, thereby
mitigating overall costs dramatically.

# Backlog

Through
our operating subsidiaries we maintain a backlog of multiple award government contracts
that include:

Contracts
that allow us to actively market specific tasking and initiative throughout the Federal
Government, including:

| |  | Information
Technology Professional Services, FSC Group 70, GSA FSS # GS-35F-0164J $100 million
ceiling contract that offers a full range of IT Professional Services to all federal
Government agencies on a fee-for-service basis. This contract is also available to state
and local governments under a cooperative procurement agreement.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Worldwide
Federal Supply Schedule for Management, Organizational and Business Improvement Services
(MOBIS), FSC Group 874, GSA FSS # GS-10F-0152M  $100 million ceiling contract that
offers a full range of services and products to enable all Federal Government Agencies to
improve performance, quality, timeliness and efficiency throughout their organizations.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Worldwide
Federal Supply Schedule for Professional Engineering Services (PES), FSC Class 871, GSA
FSS # GS-23F-0162L  $100 million ceiling contract that offers a full range of
Professional Engineering Services to all federal Government agencies on a fee-for-service
basis. There are four primary engineering disciplines (Chemical, Civil, Electrical and
Mechanical) addressed under PES.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | GSA
Solutions and More (SAM), FSC Group 61 Part V, GSA FSS # GS-07F-0099L  $100 million
ceiling contract that offers supply Power Distribution Equipment, Generators, and
Batteries worldwide.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

13

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| |  | SeaPort-e
Contract N00178-04-D-4099  $100 million ceiling contract to provide engineering,
technical, and programmatic support services to the Naval Surface Warfare Centers (NSWC)
and the Naval Undersea Warfare Centers (NUWC). ORC has the demonstrated experience to
provide seamless integrated in twelve core Product Areas.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Basis
Purchasing Agreement (BPA), FTS-BPA-60-0001  $100 million ceiling BPA specifically
certifing ORC as the first contractor authorized to provide authentication products and
services provide for authentication of individual for purposes of physcial and logial
access control, electronic signature, performance of e-business transactions and delivery
of Government services. Authentication Products and Services consist of hardware,
software components and supporting services that provide for identity assurance.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We also hold contracts with specific
government agencies, including:

| |  | U.S.
Naval Supply Systems Command
| | - | ---------------------------------

| |  | U.S.
Department of Homeland Security
| | - | ------------------------------------

| |  | US
Patent and Trademark Office (Subcontract)
| | - | --------------------------------------------

| |  | U.S.
Defense Information Systems Agency (Subcontract)
| | - | -----------------------------------------------------

| |  | US
Air Force PKI System Project Office (Subcontract)
| | - | ----------------------------------------------------

Additionally,
ORC has over two-dozen iDentity Management and eAuthentication Services© pricing
agreements with commercial companies for lots of 1,000, 5,000 and 10,000 credentials and
associated services in various stages of agreement. The iDentity Management and
eAuthentication Services© are expected to be our largest growth market.

We
also hold several non-governmental contracts and preferred vendor relationships with major
international corporations to provide IT manpower, consulting support and various
outsourcing services.

The
dollar amount of our backlog orders as of December 31, 2005 and December 31, 2004 were
approximately $6.6 million and $6.0 million, respectively. The portion of backlog
reasonably expected to be filled during 2006 is $6.6 million.

# Government Contracts

Our
contracts with the U.S. Government, and many contracts with other entities, permit the
government client to modify, curtail or terminate the contract at any time for the
convenience of the government or for default by the contractor. If a contract is
terminated for convenience, we are generally reimbursed for our allowable costs through
the date of termination and are paid a proportionate amount of the stipulated profit or
fee attributable to the work actually performed. Although contract and program
modifications, curtailments or terminations have not had a material adverse effect on us
in the past, no assurance can be given that such modifications, curtailments or
terminations will not have a material adverse effect on our financial condition or results
of operations in the future.

14

---

In
addition, the U.S. Government and other government entities may terminate a contract for
default. If a contract is terminated for default, we may be unable to recover amounts
billed or billable under the contract and may be liable for other costs and damages.
Although terminations for default have not occurred to us in the past and, thus, have not
had a material adverse effect on us in the past, no assurance can be given that such
terminations will not have a material adverse effect on our financial condition or results
of operations in the future.

# Competition

The
market for the services that we provide is highly competitive, includes a large number of
competitors, and is subject to rapid change. Our primary competitors include participants
from a variety of market segments, including publicly and privately held firms, large
accounting and consulting firms, systems consulting and implementation firms, application
software firms, service groups of computer equipment companies, and other general
management consulting firms. Increasingly, companies with third-world and emerging markets
operations bases are also targeting this market. Competition generally is based on
quality, timeliness, cost of services, and relevant targeted expertise.

With
relation to systems engineering in the governmental sector, our long-range concern is the
uncertainty in the Federal budget, and its impact upon competition among the many
contractors. We believe that the best way to meet the challenge of this market is to
maintain a low overhead, employ quality personnel, and continue to deliver a product of
the highest quality. Many corporations that are active in this market have reputable
corporate histories and a great number of employees from which to draw. They have the
ability to absorb losses in operation. Additionally, they have an established network to
assimilate data and formulate strategy in todays competitive environment. Their
strength is often their mass that gives them flexibility in both proposing and responding
to new requirements. Also, while there are advantages to being small, name recognition is
a problem in major contracts even if we have been successful in our past performance.

However,
some of these same corporations have higher overhead costs. They have policies and
procedures in effect that quite frequently cause a longer response time to meet the needs
of the customer. Management personnel can be far removed from their workforce, thus
fostering employee dissatisfaction.

Within
the information security market the competition is still minimal. The most significant
competition is in the planning and analysis portion of the market, in which many of the
same companies referred to above, also participate, such as: Booz-Allen Hamilton, SAIC,
CACI/AMS, BAE Systems, Northrop Grumman, and others. However, the market in which we
provide our CIEI© products and services has limited competition. Most of that
competition (such as Verisign, Digital Signature Trust, BeTrusted, and GeoTrust) are
focused on low to medium levels of assurance. We believe we are presently the only company
that has satisfied all of the certification requirements to serve the more targeted medium
to high level assurance market, and, as such, we believe that we maintain an advantage
over our competition.

15

---

Additionally,
we believe our advantages in each of the markets described above are two-fold: highly
experienced personnel and relatively low overhead. Our professional staff has a proven
record of success in meeting service needs of both private industry and public sector
clients. Our senior staff personnel include advanced degrees in science, engineering, and
operations research, specializing in the resolution of complex operational problems.
Experienced personnel, competitive overhead, and being first to market will allow us to be
very competitive.

# Intellectual Property

Our
intellectual property primarily consists of methodologies developed for use in application
development solutions. The services, described above, define the system and process
intellectual property that allows us to be the leader in our markets. Our ORC subsidiary
holds a Patent for a Digital Parsing Tool that provides a secure repository gateway that
will allow users, including first time users, the ability to immediately establish and
access accounts by presenting their certificates to a directory validated by the gateway.
In this manner, we rely upon a combination of trade secrets, copyright and trademark laws,
and contractual restrictions to establish and protect the ownership of our proprietary
methodologies. We generally enter into nondisclosure and confidentiality agreements with
our employees, partners, consultants, independent sales agents and clients. As the number
of our competitors increase, the likelihood that such competitors will use similar
methodologies increases. Although our methodologies have never been subject to an
infringement claim, there can be no assurance that third parties will not assert
infringement claims against us in the future; that the assertion of such claims will not
result in litigation; or that we would prevail in such litigation or be able to obtain the
license for the use of any allegedly infringed intellectual property from a third party on
commercially reasonable terms. Further, regardless of its outcome, litigation can result
in substantial costs and divert managements attention from our operations. Although
we are not aware of any basis upon which a third party could assert an infringement claim,
any infringement claim or litigation could materially adversely affect our business,
operating results and financial condition.

# Personnel

As
of December 31, 2005, we had 71 full time employees and 4 part-time employees, including 7
persons in sales and recruiting, 62 persons in consulting, and 6 persons in management and
administration. We also periodically employ additional consultants and temporary
employees.

Our
facilities are located in areas populated by military (both retired and active duty) and
highly skilled civilian personnel. Potential employees possessing the unique
qualifications required are readily available for both part-time and full-time employment.
The primary method of soliciting personnel is through recruiting resources directly
utilizing all known sources that include electronic databases, public forums, and personal
networks of friends and former coworkers.

We
believe that our future success will depend in part on our continued ability to attract
and retain highly skilled managerial, technical, sales and support personnel. There can be
no assurance that we will be able to continue to attract and retain personnel necessary
for the development of our business. We generally do not have employment contracts with
our employees, but we do maintain employment agreements with our key employees. However,
confidentiality and non-disclosure agreements are in place with many of our employees.
None of our employees are subject to a collective bargaining agreement. We believe that
our relations with our employees are good.

16

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# Acquisitions During 2004

Acquisition of Chesapeake
Government Technologies, Inc.

On
April 30, 2004, we acquired all the issued and outstanding shares of Chesapeake Government
Technologies, Inc. (Chesapeake), pursuant to the terms of an Agreement and
Plan of Merger, dated as of March 24, 2004. Were issued 4,082,980 shares of our Common
Stock to Mark Fuller, John Crowley and Jay Wright, who were the sole stockholders of
Chesapeake as the sole stockholders in consideration for all of the issued and outstanding
shares of Chesapeake owned by them. In conjunction with this closing, these three
stockholders of Chesapeake also entered into an escrow agreement with us and deposited
3,266,384 shares of such 4,082,980 shares of Common Stock into escrow.

The
3,266,384 shares of Common Stock placed into escrow may be released to Messrs. Fuller,
Crowley and Wright in the event of the satisfaction of certain conditions set forth in the
merger agreement, which provides that during the period commencing after the closing of
the merger and ending on December 31, 2005, the 3,266,384 escrowed shares of Common Stock
would be released to Messrs. Fuller, Crowley and Wright in a ratio based on the amount of
revenues actually received by us during 2004 and 2005 from the business acquired from
Chesapeake. Based on the revenues received by us in 2004 from the business acquired from
Chesapeake, 544,398 shares of Common Stock were released from escrow to Messrs. Fuller,
Crowley, and Wright. Based on revenues received by us in 2005 from the business acquired
from Chesapeake, an additional 1,905,390 shares of Common Stock will be released from
escrow to Messrs. Fuller, Crowley, and Wright. The remaining 816,596 shares of Common
Stock held in escrow will be returned to us and cancelled.

Pursuant
to the terms of the Chesapeake transaction, we also issued warrants to Messrs. Fuller,
Crowley, and Wright to purchase an aggregate of 1,814,658 shares of Common Stock at an
exercise price of $0.235 per share, with such warrants only being exercisable in the event
that the revenues actually received by us from the business acquired from Chesapeake
exceeded the maximum levels required for Messrs. Fuller, Crowley, and Wright to receive
all of the 3,266,384 shares of Common Stock placed in escrow. As a result of the failure
by these persons to receive all of the 3,266,384 shares of Common Stock placed in escrow
by December 31, 2005, these warrants will be terminated.

Acquisition of
Operational Research Consultants, Inc.

On
October 25, 2004, we completed the acquisition of Operational Research Consultants, Inc.
(ORC), a privately held IT and engineering firm providing mission-critical
sensitive and strategic information security solutions to the United States Government. To
finance the acquisition, we sold shares of our convertible preferred stock to Barron
Partners, L.P. (Barron), an accredited investor, and utilized a line of credit
which we maintain with RBC-Centura Bank. We entered into a stock purchase agreement with
ORC and Fred Thornton, Richard Montgomery and Daniel Turissini, as the sole stockholders
of ORC, to effectuate the acquisition, and entered into a preferred stock purchase
agreement and a registration rights agreement with Barron in connection with the
financing.

17

---

Pursuant
to the ORC stock purchase agreement, we agreed to purchase and acquire all of ORCs
outstanding common stock for an aggregate consideration of $5,000,000 payable in a
combination of cash, promissory note and shares of our Common Stock, which amount was
subject to post-closing adjustments. The promissory note was extinguished in November of
2004. The consideration paid for ORC was reduced by approximately $298,000 as of June 30,
2005 to reflect adjustments attributable to ORCs net working capital deficit at the
time of the acquisition and other adjustments related to the settlement of ORCs
outstanding purchase accounting escrow items. The shares of our Common Stock issued to the
former ORC shareholders was held in escrow and subject to certain earnout provisions that
were required to be met as of December 31, 2005. Those escrow provisions were not met as
of December 31, 2005, and as a result such 5,555,556 shares of our Common Stock are being
returned to us for cancellation.

# ITEM 1A. RISK FACTORS.

# Risks Related to our
Operations

We have a history of net losses, and
while we expect to realize an increase in future period revenues and we anticipate the
realization of net income, there is no assurance that this will be the case and we may not
achieve or maintain profitability.

We are engaged primarily in the
business of providing information technology (IT ) services with established
competencies in federal government and private consulting, planning, managing and
implementing IT solutions, software and secure authentication processes. We have incurred
substantial net losses through December 31, 2005. Although we anticipate an increase in
revenues and operational profitability in future quarters, there is no assurance that this
will be the case. Revenues and profits generated from our services will depend upon
numerous factors, including:

| |  | Demand
of commercial and federal marketplaces for our range of services,
| | - | ------------------------------------------------------------------------

| |  | Effectiveness
of our sales and marketing efforts,
| | - | -------------------------------------------------

| |  | Ability
to deliver capabilities cost-effectively, and
| | - | -----------------------------------------------------

| |  | Competitive
environment.
| | - | ------------------------

We may need to obtain additional
funding to meet our future capital needs. If we are unable to obtain such financings, we
may be required to significantly cut back our operations, sell assets or cease operations.

18

---

If
we continue to have operating losses and without the realization of additional capital, or
net profit from operations, and/or if we continue to seek out and make acquisitions which
require a cash component, then we may need to raise additional capital. On October 25,
2004 and October 29, 2004, we issued and sold shares of our Series A Convertible Preferred
Stock and warrants to Barron for an aggregate purchase price of approximately $3.58
million. In that financing transaction, we also issued a warrant to Westcap Securities,
Inc. (Westcap) to purchase 511,428 shares of our Common Stock at an exercise
price of $0.40 per share. In April and May of 2005, Barron converted a portion of its
Series A Convertible Preferred Stock into 3,000,000 shares of Common Stock and exercised
warrants to purchase 2,000,000 shares of Common Stock for an aggregate purchase price of
$800,000. In August and September 2005, Barron exercised warrants for 2,500,000 shares of
Common Stock providing $1,000,000 in gross proceeds to the Company. In December 2005,
warrants for an additional 5,728,572 shares of Common Stock were exercised by the holders
thereof providing $2,291,429 of additional gross proceeds to the Company. We may require
additional funding to support our operations. Additional funding may be unavailable on
favorable terms, if at all. If we are unable to obtain sufficient additional funding when
needed, we may have to significantly cut back our operations, defer potentially favorable
acquisitions, sell some or all of our assets and/or cease operations. In addition, if we
raise additional capital by issuing additional equity or convertible debt securities, our
existing stockholders may suffer significant dilution and the securities issued could have
rights, preferences and privileges more favorable than those of our current stockholders.

# We may have difficulty
responding to changing technology.

The
IT industry is characterized by rapidly advancing technology. Our future success will
depend, in large part, upon our ability to anticipate and keep pace with advancing
technology and competitive innovations. However, we may not be successful in identifying,
developing and marketing new products or services or enhancing our existing products or
services. In addition, we can give no assurance that new products or services may be
developed that will render our current or planned products or services obsolete or
inferior. Rapid technological development by competitors may result in our products or
services becoming obsolete before we recover a significant portion of the research and
development expenses incurred with respect to such products or services.

# We may be unable to
implement our acquisition program.

Demand
for businesses with credible business relationships and capabilities to provide services
to various government agencies at the federal, state and local levels is very competitive.
To the extent that this competition causes the price for these businesses to elevate
beyond reasonable levels where funding for such acquisitions is no longer available,
WidePoint may not be able to implement our acquisition strategy. Any significant change in
the spending pattern of the federal government could potentially have an adverse effect on
acquisition targets and as such, argue against making such acquisitions.

# We may have difficulty
integrating acquisitions into our existing operations.

To
the extent that some acquisitions may have operational complexities due to the nature of
their business, the election to not fully integrate such acquisitions may be made if such
integration does not quantitatively improve operational or financial efficiencies. Some
integration efforts will be phased in to ensure that desired efficiencies are quickly and
cost effectively realized. Any element of integration must be justified rationally on
potential cost savings realized by the business. If we are unable to successfully
integrate some or all of the operations of ORC or future acquisitions this could have a
material adverse effect on our business and operations.

19

---

# We may not receive the
full amount of our backlog, which could harm our business.

Our
total backlog includes both funded and unfunded orders for services under existing signed
contracts, assuming the exercise of all options relating to those contracts that we
reasonably believe will be exercised. The U.S. Congress often appropriates funds for our
clients on a yearly basis, even though their contracts with us may call for performance
that is expected to take a number of years. As a result, contracts typically are only
partially funded at any point during their term, and all or some of the work to be
performed under the contracts may remain unfunded unless and until the U.S. Congress makes
subsequent appropriations and the procuring agency allocates funding to the contract.

The
dollar amount of our backlog orders believed to be firm as of December 31, 2005 and
December 31, 2004 were $6.6 million and $6.0 million, respectively. The portion of backlog
reasonably expected to be filled during 2006 is $6.6 million.

There
can be no assurance that our backlog will result in actual revenues in any particular
period, or at all, or that any contract included in backlog will be profitable. This is
because the actual receipt and timing of any of these revenues is subject to various
contingencies, many of which are beyond our control. In addition, we may never realize
revenues from some of the engagements that are included in our backlog, and there is a
higher degree of risk in this regard with respect to unfunded backlog. The federal
governments ability to select multiple winners under multiple award schedule
contracts, government-wide acquisition contracts, blanket purchase agreements and other
indefinite delivery/indefinite quantity contracts, as well as its right to award
subsequent task orders among such multiple winners, means that there is no assurance that
unfunded contract backlog will result in actual orders. The actual receipt of revenues on
engagements included in backlog may never occur or may change because a program schedule
could change or the program could be canceled, or a contract could be reduced, modified,
or terminated early. Moreover, under multiple award schedule contracts, government wide
acquisition contracts, blanket purchase agreements, and other indefinite
delivery/indefinite quantity contracts, the government is frequently not obligated to
order more than a minimum quantity of goods or services.

# We have identified
ineffective disclosure controls and procedures and material weaknesses in the design of
our internal control over financial reporting in the past and would be adversely affected
if we identify additional ineffective disclosure controls or material internal control
weaknesses in the future.

We
determined that our disclosure controls and procedures were ineffective at December 31,
2004 and December 31, 2005, and that we had material weaknesses in the design of our
internal control over financial reporting as of such dates, as discussed below. We believe
such ineffective controls or material weaknesses were remediated by January 19, 2006 when
we filed amendments to certain of our previous periodic reports. However, if we encounter
additional ineffective controls or material weaknesses in the future, they could result in
our non-timely filing of periodic reports or in accounting deficiencies in financial
reporting.

20

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With
respect to ineffective disclosure controls and procedures, we discovered in November 2004
that the service provider we had engaged to Edgarize and file the proxy statement used in
connection with our December 2003 annual meeting of stockholders and our 2002 annual
report to stockholders inadvertently had not made such filings with the U.S. Securities
and Exchange Commission (SEC). We immediately arranged for the making of those filings in
November 2004 and have subsequently used other service providers to Edgarize and make our
SEC filings. An additional internal reporting process was instituted in the first quarter
of 2004 to track and confirm our filing of SEC reports. Furthermore, the material weaknesses
in our internal control over financial reporting identified during the year ended December
31, 2005 and discussed below contributed to the ineffectiveness of our controls and
procedures as of such date.

The
material weaknesses in our internal control over financial reporting identified at the end
of each of the quarters in 2005 and at December 31, 2005, resulted from insufficient
technical accounting expertise within our accounting function to resolve non-routine or
complex accounting and tax matters that occurred in connection with: (i) our acquisition
of ORC in October 2004; (ii) the determination of the proper accounting treatment of the
financial instrument relating to the warrants issued by the Company to Barron
in October 2004; and (iii) the determination of the proper accounting treatment of the
shares of Common Stock issued and held in escrow following the acquisition by the Company
of Chesapeake in April 2004. The material weaknesses in internal controls resulted in: (i)
our late filing on April 19, 2005 (four days after the extended due date) of our Annual
Report on Form 10-K for the year ended December 31, 2004; (ii) the need to restate the
recorded amount of the financial instrument at December 31, 2004 and March 31, 2005 due to
the failure to mark-to-market such instrument at December 31, 2004; (iii) the need to
reclassify the amortized costs relating to the ORC acquisition in cost of sales and not in
amortization and depreciation, and to record the convertible preferred stock issued to
Barron as temporary preferred equity and not permanent preferred equity; and (iv) the need
to restate our financial statements for the year ended December 31, 2004 and the first
three quarters of 2005 to reflect changes in our accounting relating to the Chesapeake
acquisition. The Chesapeake-related restatements: (i) eliminated the intangible asset
associated with the acquisition; (ii) reversed the related amortization expense; (iii)
expensed as consulting fees the cost of the transaction attributable to the cost of
issuance of the non-escrowed shares and other direct costs at the time of the acquisition;
(iv) recorded and expensed as consulting fees in cost of sales the release of the shares
from escrow at December 31, 2004; (v) expensed in cost of sales and recorded the value of
those shares in equity meeting the contractual performance measures that would result in
the release of those shares from escrow for the year ended December 31, 2005; and (vi)
recorded the shares in equity as Common Stock issuable until such time as they can be
reclassified as issued shares of Common Stock upon the release of the shares from escrow.

21

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It
should be noted that all of the warrants issued in October 2004 to Barron, which resulted
in the recognition of the financial instrument liability due to the cash penalty provision
in the registration rights agreement relating thereto, were exercised prior to the end of
2005. Consequently, the liability related to the financial instrument at December 31, 2005
has been extinguished.

We
began the remediation of the weakness in our internal control over financial reporting by
the employment of a consulting firm in January 2005 with the requisite accounting
expertise to resolve the above issues, which arose as a result of accounting comments
raised by the SEC in connection with its review of the Companys annual and quarterly
reports. We believe that the past results of the above material weaknesses in our internal
control over financial reporting, and related ineffective disclosure controls and
procedures resulting therefrom, were remedied on January 19, 2006 upon the filing by the
Company of amendments to its prior periodic reports containing restated financial
statements reflecting the resolution of the above accounting issues. We believe that
internal control weakness itself has been remedied as of March 2006. The total costs
associated with the remediation were not material in amount.

# Risks Related to Our
Industry

# The demand for business
and technology consulting services weakened significantly in 2001 and 2002, and demand
may resume its weakened state if the current improvement in the economic climate does not
continue.

The
market for our consulting services and the technologies used in our solutions has changed
rapidly over the last five years. The market for advanced technology consulting services
expanded dramatically during 1999 and most of 2000, but declined significantly in 2001 and
2002. Since the second half of 2000, many companies have experienced financial
difficulties or uncertainty, and canceled or delayed spending on technology initiatives as
a result. These companies typically are not demonstrating the same urgency regarding
technology initiatives that existed during the economic expansion that stalled in 2000.
This trend worsened for some companies following the September 11, 2001 terrorist attacks
in the United States and the accounting scandals involving Enron, Worldcom, Tyco and other
companies. The economic uncertainty caused by recent military actions in Afghanistan and
Iraq further depressed technology spending in the commercial sector, although increased
requirements and capabilities have characterized spending levels in the government sector.
While the overall economic climate has begun to show signs of improvement since the third
quarter of 2003, this improvement may not continue for a meaningful period of time. If the
economic climate does not improve significantly, large companies may continue to cancel or
delay their business and technology consulting initiatives because of the weak economic
climate, or for other reasons, and our business, financial condition and results of
operations would be materially and adversely affected.

# Our market is highly
competitive and we may not be able to continue to compete effectively.

22

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The
markets for the services we provide are highly competitive. We currently compete with
companies from a variety of market segments, including publicly and privately held firms,
large accounting and consulting firms, systems consulting and implementation firms,
application software firms, service groups of computer equipment companies and other
general management consulting firms. We also compete regularly with offshore outsourcing
companies, and we expect competition from these companies to increase in the future,
especially on development, application management services and outsourcing engagements. We
compete frequently for client engagements against companies with far higher revenues and
larger numbers of consultants than we have. Recent consolidations of large consulting
companies within our market have further increased the size and resources of some of these
competitors. These competitors are often able to offer more scale, which in some instances
has enabled them to significantly discount their services in exchange for revenues in
other areas or at later dates. Additionally, in an effort to maintain market share, many
of our competitors are heavily discounting their services to unprofitable levels. Some of
our competitors have gone out of business. If we cannot keep pace with the intense
competition in our marketplace, our business, financial condition and results of
operations will suffer.

# We have significant
fixed operating costs, which may be difficult to adjust in response to unanticipated
fluctuations in revenues.

A
high percentage of our operating expenses, particularly personnel, rent and depreciation,
are fixed in advance of any particular quarter. As a result, an unanticipated decrease in
the number or average size of, or an unanticipated delay in the scheduling for, our
projects may cause significant variations in operating results in any particular quarter
and could have a material adverse effect on operations for that quarter.

An
unanticipated termination or decrease in size or scope of a major project, a clients
decision not to proceed with a project we anticipated or the completion during a quarter
of several major client projects could require us to maintain underutilized employees and
could have a material adverse effect on our business, financial condition and results of
operations. Our revenues and earnings may also fluctuate from quarter to quarter because
of such factors as:

| |  | the
contractual terms and timing of completion of projects, including achievement of certain
business results;
| | - | --------------------------------------------------------------------------------------------------------------

| |  | any
delays incurred in connection with projects;
| | - | ------------------------------------------------

| |  | the
adequacy of provisions for losses and bad debts;
| | - | ----------------------------------------------------

| |  | the
accuracy of our estimates of resources required to complete ongoing projects;
| | - | ---------------------------------------------------------------------------------

| |  | loss
of key highly skilled personnel necessary to complete projects; and
| | - | ------------------------------------------------------------------------

| |  | general
economic conditions.
| | - | ----------------------------

23

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# We may lose money if we
do not accurately estimate the costs of fixed-price engagements.

Some
of our projects may be based on fixed-price, fixed-time contracts, rather than contracts
in which payment to us is determined on a time and materials basis. Our failure to
accurately estimate the resources required for a project, or our failure to complete our
contractual obligations in a manner consistent with the project plan upon which our
fixed-price, fixed-time contract was based, could adversely affect our overall
profitability and could have a material adverse effect on our business, financial
condition and results of operations. In addition, we may fix the price for some projects
at an early stage of the process, which could result in a fixed price that turns out to be
too low and, therefore, could adversely affect our business, financial condition and
results of operations.

# Our clients could
unexpectedly terminate their contracts for our services.

In
both our commercial and government sector businesses, some of our contracts can be
canceled by the client with limited advance notice and without significant penalty.
Termination by any client of a contract for our services could result in a loss of
expected revenues and additional expenses for staff that were allocated to that
clients project. We could be required to maintain underutilized employees who were
assigned to the terminated contract. The unexpected cancellation or significant reduction
in the scope of any of our large projects could have a material adverse effect on our
business, financial condition and results of operations.

# We may be liable to our
clients for damages caused by our services or by our failure to remedy system failures.

Many
of our projects involve technology applications or systems that are critical to the
operations of our clients businesses. If we fail to perform our services correctly,
we may be unable to deliver applications or systems to our clients with the promised
functionality or within the promised time frame, or to satisfy the required service levels
for support and maintenance. While we have taken precautionary actions to create
redundancy and back-up systems, any such failures by us could result in claims by our
clients for substantial damages against us. Although we attempt to limit the amount and
type of our contractual liability for defects in the applications or systems we provide,
and carry insurance coverage that mitigates this liability in certain instances, we cannot
be assured that these limitations and insurance coverages will be applicable and
enforceable in all cases. Even if these limitations and insurance coverages are found to
be applicable and enforceable, our liability to our clients for these types of claims
could be material in amount and affect our business, financial condition and results of
operations.

# If we do not attract and
retain qualified professional staff, we may not be able to adequately perform our client
engagements and could be limited in accepting new client engagements.

Our
business is labor intensive, and our success depends upon our ability to attract, retain,
train and motivate highly skilled employees. Intense competition exists for employees who
have specialized skills or significant experience in business and technology consulting.
The improvement in demand for business and technology consulting services that began in
the third quarter of 2003 has also increased the need for highly skilled employees. We may
not be successful in attracting enough employees to achieve our desired expansion or
staffing plans. Furthermore, the industry turnover rates for these types of employees are
high, and we may not be successful in retaining, training and motivating the employees we
are able to attract. Any inability to attract, retain, train and motivate employees could
impair our ability to adequately manage and complete existing projects and to bid for or
accept new client engagements. Such inability may also force us to hire expensive
independent contractors, which could increase our costs and reduce our profitability on
client engagements. We must also devote substantial managerial and financial resources to
monitoring and managing our workforce and other resources. Our future success will depend
on our ability to manage the levels and related costs of our workforce and other resources
effectively.

24

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# We may be unable to
protect our proprietary methodology.

Our
success depends, in part, upon our proprietary methodology and other intellectual property
rights. We rely upon a combination of trade secrets, nondisclosure and other contractual
arrangements, and copyright and trademark laws to protect our proprietary rights. We
generally enter into nondisclosure and confidentiality agreements with our employees,
partners, consultants, independent sales agents and clients, and limit access to and
distribution of our proprietary information. We cannot be certain that the steps we take
in this regard will be adequate to deter misappropriation of our proprietary information
or that we will be able to detect unauthorized use and take appropriate steps to enforce
our intellectual property rights. Specifically in the Government sector, statutory
contracting regulations protect the rights of Federal Agencies to retain access to, and
utilization of, proprietary intellectual property utilized in the delivery of contracted
services to such Agencies. Although we believe that our services and products do not
infringe on the intellectual property rights of others, infringement claims may be
asserted against us in the future, and, if asserted, these claims may be successful. A
successful claim against us could materially adversely affect our business, financial
condition and results of operations.

# Our directors and
officers have significant voting power and may substantially influence the outcome of any
stockholder vote.

At
December 31, 2005, our directors and officers, in the aggregate, beneficially owned
approximately 9,917,499 shares of our common stock, or approximately 21.8% of our issued
and outstanding shares of Common Stock. As a result, they have the ability to
substantially influence, and may effectively control the outcome of corporate actions
requiring stockholder approval, including the election of directors. This concentration of
ownership may also have the effect of delaying or preventing a change in control of
WidePoint, even if such a change in control would benefit other investors.

We
have a concentrated ownership structure and shares of Common Stock beneficially owned by
our directors and officers at December 31, 2005, in conjunction with shares of Common
Stock owned by Barron, including shares it would own upon its conversion of all of the
Series A Convertible Preferred Stock, would constitute approximately 51% of the
outstanding shares of our common stock.

# We are dependent on our
key employees.

Our
success will depend in large part upon the continued services of a number of key
employees, including Steve Komar, our Chairman, President and Chief Executive Officer,
James McCubbin, our Vice President, Secretary and Chief Financial Officer, Mark Mirabile,
our Vice President and Chief Operations Officer, and Dan Turissini, our Vice President and
Chief Technology Officer and the Chief Executive Officer of our wholly owned subsidiary
ORC. On July 1, 2002, we entered into employment arrangements with Messrs. Komar, McCubbin
and Mirabile. Each of these three employment agreements was for an initial term of two
years, with four renewable one-year options. On October 25, 2004, we entered into an
employment arrangement with Mr. Turissini. Mr. Turissinis employment agreement was
for an initial term of two years.

25

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We
generally do not have employment agreements with our other employees. The loss of the
services of any of our key personnel could have a material adverse effect on our business,
financial condition and results of operations. In addition, if our key employees resign
from WidePoint or its subsidiaries to join a competitor or to form a competing company,
the loss of such personnel and any resulting loss of existing or potential clients to any
such competitor could have a material adverse effect on our business, financial condition
and results of operations. Although we require our employees to sign agreements
prohibiting them from joining a competitor, forming a competing company or soliciting our
clients or employees for certain periods of time, we cannot be certain that these
agreements will be effective in preventing our key employees from engaging in these
actions or that courts or other adjudicative entities will substantially enforce these
agreements. Furthermore, for those employees whom we involuntarily terminated in
connection with our restructuring actions, we have waived the non- competition clause of
their agreements in exchange for releases of claims. We granted these waivers only in
connection with the restructuring actions, and our general practice is not to waive the
non-competition obligations of other departing employees.

# The loss of one or more
significant customers could have an adverse impact on our results of operations.

Historically,
we have derived, and may in the future derive, a significant percentage of our total
revenues from a relatively small number of clients. For the year ended December 31, 2005,
one customer, The U.S. Department of Homeland Security, individually represented
approximately 18% of revenues, and we therefore are materially dependent on such
customer. During 2004, two customers, Abbott Laboratories and The U.S. Department of
Homeland Security, individually represented 12%, and 11% of revenues, respectively.
During 2003, four customers, Abbot Laboratories, Spencer Stuart, Manpower, and Baxter
Healthcare, individually represented 18%, 14%, 13%, and 13% of revenues, respectively.
Although this concentration was lessened by the acquisition of ORC, in the event we lose
any one of those significant customers, our results of operations would be materially
adversely affected.

# We may incur substantial
costs in connection with contracts awarded through a competitive procurement process,
which could negatively impact our operating results.

Many
federal government contracts are awarded through a competitive procurement process. We
expect that much of the government business we seek in the foreseeable future will be
awarded through competitive procedures. Competitive procurements impose substantial costs
and present a number of risks, including:

26

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| |  | the
 substantial  cost and  managerial  time and effort that we spend to prepare bids and
proposals for contracts  that may not be awarded to us; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------

| |  | the
expense and delay that we may face if our competitors protest or challenge contract
awards made to us pursuant to competitive procedures, and the risk that any such protest
or challenge could result in the resubmission of offers, or in termination, reduction, or
modification of the awarded contract.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
costs we incur in the competitive procurement process may be substantial and, to the
extent we participate in competitive procurements and are unable to win particular
contracts, these costs could negatively affect our operating results. In addition, GSA
multiple award schedule contracts, government-wide acquisitions contracts, blanket
purchase agreements, and other indefinite delivery/indefinite quantity contracts do not
guarantee more than a minimal amount of work for us, but instead provide us access to work
generally through further competitive procedures. This competitive process may result in
increased competition and pricing pressure, requiring that we make sustained post-award
efforts to realize revenues under the relevant contract.

# Unfavorable government
audit results could subject us to a variety of penalties and sanctions, and could harm
our reputation and relationships with our clients.

The
federal government audits and reviews our performance on contracts, pricing practices,
cost structure, and compliance with applicable laws, regulations, and standards. Like most
large government contractors, our contracts are audited and reviewed on a continual basis
by federal agencies, including the Defense Contract Audit Agency. An unfavorable audit of
us, or of our subcontractors, could have a substantial adverse effect on our operating
results. For example, any costs that were originally reimbursed could subsequently be
disallowed. In this case, cash we have already collected may need to be refunded and
future operating margins may be reduced.

If
a government audit uncovers improper or illegal activities, we may be subject to civil and
criminal penalties and administrative sanctions, including termination of contracts,
forfeiture of profits, suspension of payments, fines, and suspension or debarment from
doing business with U.S. government agencies. In addition, we could suffer serious harm to
our reputation if allegations of impropriety were made against us, whether or not true.

# Security breaches in
sensitive government systems could result in the loss of clients and negative publicity.

Many
of the services we provide involve managing and protecting information involved in
intelligence, national security, and other sensitive or classified government functions. A
security breach in one of these systems could cause serious harm to our business, damage
our reputation, and prevent us from being eligible for further work on sensitive or
classified systems for federal government clients. We could incur losses from such a
security breach that could exceed the policy limits under our errors and omissions and
product liability insurance. Damage to our reputation or limitations on our eligibility
for additional work resulting from a security breach in one of the systems we develop,
install, and maintain could materially reduce our revenues.

27

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# Our failure to obtain
and maintain necessary security clearances may limit our ability to perform classified
work for government clients, which could cause us to lose business.

Some
government contracts require us to maintain facility security clearances, and require some
of our employees to maintain individual security clearances. If our employees lose or are
unable to timely obtain security clearances, or we lose a facility clearance, the
government client can terminate the contract or decide not to renew it upon its
expiration. As a result, to the extent we cannot obtain or maintain the required security
clearances for a particular contract, or we fail to obtain them on a timely basis, we may
not derive the revenues anticipated from the contract, which, if not replaced with
revenues from other contracts, could harm our operating results. To the extent we are not
able to obtain facility security clearances or engage employees with the required security
clearances for a particular contract, we will be unable to perform that contract and we
may not be able to compete for or win new contracts for similar work.

# Changes in the spending
policies or budget priorities of the federal government could cause us to lose revenues.

We
derive a significant amount of our revenues from contracts funded by federal government
agencies. We believe that contracts with federal government agencies, and defense agencies
in particular, will be a significant source of our revenues for the foreseeable future.
Accordingly, changes in federal government fiscal or spending policies or the U.S. defense
budget could directly affect our financial performance. For example, the reduction in the
U.S. defense budget during the early 1990s caused some defense-related government
contractors to experience decreased sales, reduced operating margins and, in some cases,
net losses. Among the factors that could harm our business are:

| |  | curtailment
of the federal governments use of technology services firms;
| | - | -------------------------------------------------------------------------

| |  | a
 significant  decline in spending by the federal  government,  in general,  or by
specific  agencies  such as the  Department of Defense;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------

| |  | reductions
in federal government programs or requirements;
| | - | ----------------------------------------------------------

| |  | a
shift in spending to federal programs and agencies that we do not support or where we
currently do not have contracts;
| | - | ------------------------------------------------------------------------------------------------------------------------

| |  | delays
in the payment of our invoices by government payment offices;
| | - | --------------------------------------------------------------------

| |  | federal
governmental shutdowns, such as the shutdown that occurred during the governments
1996 fiscal year, and other potential delays in the government appropriations process;
and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | general
economic and political conditions, including any event that results in a change in
spending priorities of the federal government.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------

These
or other factors could cause federal government agencies and departments to reduce their
purchases under contracts, to exercise their right to terminate contracts, or not to
exercise options to renew contracts, any of which could cause us to lose revenues. In
addition, any limitations imposed on spending by U.S. government agencies that result from
efforts to reduce the federal deficit may limit both the continued funding of our existing
contracts and our ability to obtain additional contracts.

28

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# Federal government
contracts contain provisions giving government clients a variety of rights that are
unfavorable to us, including the ability to terminate a contract at any time for
convenience.

Federal
government contracts contain provisions and are subject to laws and regulations that
provide government clients with rights and remedies not typically found in commercial
contracts. These rights and remedies allow government clients, among other things, to:

| |  | terminate
existing contracts, with short notice, for convenience, as well as for default;
| | - | -----------------------------------------------------------------------------------------

| |  | reduce
orders under or otherwise modify contracts;
| | - | --------------------------------------------------

| |  | for
larger contracts subject to the Truth in Negotiations Act, reduce the contract price or
cost where it was increased because a contractor or subcontractor during negotiations
furnished cost or pricing data that was not complete, accurate, and current;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | for
GSA multiple award schedule contracts, government-wide acquisition agreements, and
blanket purchase agreements, demand a refund, make a forward price adjustment, or
terminate a contract for default if a contractor provided inaccurate or incomplete data
during the contract negotiation process, or reduce the contract price under certain
triggering circumstances, including the revision of pricelists or other documents upon
which the contract award was predicated, the granting of more favorable discounts or
terms and conditions than those contained in such documents, and the granting of certain
special discounts to certain clients;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | terminate
our facility security clearances and thereby prevent us from receiving classified
contracts;
| | - | ------------------------------------------------------------------------------------------------------

| |  | cancel
multi-year contracts and related orders if funds for contract performance for any
subsequent year become unavailable;
| | - | ----------------------------------------------------------------------------------------------------------------------------

| |  | decline
to exercise an option to renew a multi-year contract or issue task orders in connection
with indefinite delivery/indefinite quantity contracts;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | claim
rights in solutions, systems, and technology produced by us;
| | - | ------------------------------------------------------------------

| |  | prohibit
future procurement awards with a particular agency due to a finding of organizational
conflict of interest based upon prior related work performed for the agency that would
give a contractor an unfair advantage over competing contractors or the existence of
conflicting roles that might bias a contractors judgment;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | subject
the award of contracts to protest by competitors, which may require the contracting
federal agency or department to suspend our performance pending the outcome of the
protest and may also result in a requirement to resubmit offers for the contract or in
the termination, reduction, or modification of the awarded contract; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

29

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| |  | suspend
or debar us from doing business with the federal government.
| | - | --------------------------------------------------------------------

If
a federal government client terminates one of our contracts for convenience, we may
recover only our incurred or committed costs, settlement expenses, and profit on work
completed prior to the termination. If a federal government client were to unexpectedly
terminate, cancel, or decline to exercise an option to renew with respect to one or more
of our significant contracts or suspend or debar us from doing business with the federal
government, our revenues and operating results would be materially harmed.

# Our failure to comply
with complex procurement laws and regulations could cause us to lose business and subject
us to a variety of penalties.

We
must comply with laws and regulations relating to the formation, administration, and
performance of federal government contracts, which affect how we do business with our
federal government clients and may impose added costs on our business. Among the most
significant laws and regulations are:

| |  | the
Federal Acquisition Regulation, and agency regulations analogous or supplemental to the
Federal Acquisition Regulation, which comprehensively regulate the formation,
administration, and performance of government contracts;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | the
Truth in Negotiations Act, which requires certification and disclosure of all cost or
pricing data in connection with some contract negotiations;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------

| |  | the
Cost Accounting Standards, which impose cost accounting requirements that govern our
right to reimbursement under some cost-based government contracts; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | laws,
regulations, and executive orders restricting the use and dissemination of information
classified for national security purposes and the exportation of specified solutions and
technical data.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

If
a government review or investigation uncovers improper or illegal activities, we may be
subject to civil and criminal penalties and administrative sanctions, including the
termination of our contracts, the forfeiture of profits, the suspension of payments owed
to us, fines, and our suspension or debarment from doing business with federal government
agencies. In particular, the civil False Claims Act provides for treble damages and
potentially substantial civil penalties where, for example, a contractor presents a false
or fraudulent claim to the government for payment or approval, or makes a false statement
in order to get a false or fraudulent claim paid or approved by the government. Actions
under the civil False Claims Act may be brought by the government or by other persons on
behalf of the government. These provisions of the civil False Claims Act permit parties,
such as our employees, to sue us on behalf of the government and share a portion of any
recovery. Any failure to comply with applicable laws and regulations could result in
contract termination, price or fee reductions, or suspension or debarment from contracting
with the government, each of which could lead to a material reduction in our revenues.

30

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# The adoption of new
procurement laws or regulations could reduce the amount of services that are outsourced
by the federal government and cause us to experience reduced revenues.

New
legislation, procurement regulations, or labor organization pressure could cause federal
agencies to adopt restrictive procurement practices regarding the use of outside IT
providers. The American Federation of Government Employees, the largest federal employee
union, strongly endorses legislation that may restrict the procedure by which services are
outsourced to government contractors. One such proposal, the Truthfulness, Responsibility,
and Accountability in Contracting Act, would have effectively reduced the volume of
services that is outsourced by the federal government by requiring agencies to give
in-house government employees expanded opportunities to compete against contractors for
work that could be outsourced. Although the legislation did not pass committee in either
house of the U.S. Congress last term, and it has not been reintroduced in the current
term, if such legislation, or similar legislation, were to be enacted, it would likely
reduce the amount of IT services that could be outsourced by the federal government, which
could materially reduce our revenues.

# Risks Related To Our
Common Stock

# Our Common Stock price
could be volatile, which could cause investors to lose all or part of their investment.

The
stock market has, from time to time, experienced extreme price and volume fluctuations.
The market prices of the securities of IT companies have been especially volatile. Broad
market fluctuations of this type may adversely affect the market price of our common
stock.

The
market price of our Common Stock has experienced, and may continue to be subject to
volatility due to a variety of factors, including:

| |  | public
announcements concerning us, our competitors or the IT industry;
| | - | -----------------------------------------------------------------------

| |  | fluctuations
in operating results;
| | - | ----------------------------------

| |  | introductions
of new products or services by us or our competitors;
| | - | -------------------------------------------------------------------

| |  | changes
in analysts earnings estimates; and
| | - | --------------------------------------------

| |  | announcements
of technological innovations.
| | - | -------------------------------------------

In
the past, some companies that have experienced volatility in the market price of their
stock have been the object of securities class action litigation. If we were the object of
securities class action litigation, we could incur substantial costs and experience a
diversion of our managements attention and resources and such securities class
action litigation could have a material adverse effect on our business, financial
condition and results of operations.

# A third party could be
prevented from acquiring shares of our Common Stock at a premium to the market price
because of our anti-takeover provisions.

31

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Various
provisions of our certificate of incorporation, by-laws and Delaware law could make it
more difficult for a third party to acquire us, even if doing so might be beneficial to
our stockholders.

# The future sale of
shares of our Common Stock may negatively affect our Common Stock price.

If
our stockholders sell substantial amounts of our Common Stock, including shares issuable
to Barron upon its conversion of the Series A Convertible Preferred Stock and upon the
exercise of outstanding warrants and options, the market price of our Common Stock could
fall. These sales also might make it more difficult for us to sell equity securities in
the future at a time and price that we deem appropriate.

# The fact that our
directors and officers beneficially own 21.8% of our outstanding Common Stock may
decrease your influence on stockholder decisions.

At
December 31, 2005, our executive officers and directors, in the aggregate, beneficially
owned 21.8% of our outstanding Common Stock. As a result, our officers and directors, will
have the ability to influence our management and affairs and the outcome of matters
submitted to stockholders for approval, including the election and removal of directors,
amendments to our bylaws and any merger, consolidation or sale of all or substantially all
of our assets.

# There may not be
sufficient liquidity in the market for our securities in order for investors to sell
their securities.

There
is currently only a limited public market for our Common Stock, which is traded on the
Over-the-Counter Bulletin Board, and there can be no assurance that a trading market will
develop further or be maintained in the future. As of March 27, 2006, the closing sale
price of our Common Stock on the Over-the-Counter Bulletin Board was $2.69. As of March
27, 2006 there were approximately 190 registered holders of record not including shares
held in street name. During the month of December 2005, our Common Stock traded an average
of 158,095 shares per day with a trading range of $1.81 per share to $2.31 per share.
During the past year our Common Stock has traded an average of 71,458 shares of Common
Stock per day and over the past three years our Common Stock has traded an average of
37,623 shares of Common Stock per day. In addition, during 2004 and 2005 our Common Stock
has had a trading range with a low price of $0.13 per share and a high price of $2.31 per
share.

# We could issue
additional shares of Common Stock, which might dilute the book value of our Common Stock.

We
have a total of 110,000,000 authorized shares of Common Stock, of which 45,575,272 shares
were issued and outstanding as of December 31, 2005. As of December 31, 2005, 8,277,543
shares of the 45,575,272 shares were held in escrow, pending release per escrow agreements
between the Company and ORC for 5,555,556 shares and between the Company and Chesapeake
for 2,721,987 shares. In addition, we have warrants, options and convertible preferred
stock outstanding with respect to which 19,844,046 shares of Common Stock are reserved for
issuance. Our board of directors has the authority, without action or vote of our
stockholders in most cases, to issue all or a part of any authorized but unissued shares
of our Common Stock. Such stock issuances may be made at a price that reflects a discount
from the then-current trading price of our Common Stock. In addition, in order to raise
capital for acquisitions or other general corporate purposes that we may need at
todays stock prices, we would likely need to issue securities that are convertible
into or exercisable for a significant number of shares of our Common Stock. These
issuances would dilute our stockholders percentage ownership interest, which would have
the effect of reducing our stockholders influence on matters on which our stockholders
vote, and might dilute the book value of our Common Stock. Our stockholders may incur
additional dilution of net tangible book value if holders of stock options or warrants,
whether currently outstanding or subsequently granted, exercise their options or warrants
to purchase shares of our Common Stock.

32

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# The sale of a large
number of shares of our Common Stock could depress our stock price.

As
of December 31, 2005, we have reserved 7,886,907 shares of Common Stock for issuance upon
exercise of stock options and warrants. We have also reserved 11,957,139 shares of Common
Stock for issuance upon conversion of our Series A Convertible Preferred Stock. As of
December 31, 2005, holders of warrants and options to purchase an aggregate of 6,783,258
shares of our Common Stock may exercise those securities and transfer the underlying
Common Stock at any time subject, in some cases, to Rule 144 of the Securities Act of
1933. In addition, in connection with our financing with Barron, we have registered (i)
all of the shares of Common Stock issuable upon conversion of the Series A Convertible
Preferred Stock that we issued and sold in the Barron financing and (ii) all of the shares
of Common Stock that are issuable upon exercise of the warrants issued to Westcap in
connection with the financing. The Series A Convertible Preferred Stock was initially
convertible into 20,457,143 shares of our Common Stock and the warrants initially entitled
the holders to acquire an additional 10,739,999 shares of our Common Stock. During April,
May, September, October, and December 2005, Barron converted a portion of its shares of
Series A Convertible Preferred Stock into 8,500,000 shares of Common Stock and exercised
warrants to purchase 7,428,572 shares of Common Stock. In December 2005, Barron
transferred warrants to purchase 2,800,000 shares of Common Stock to other institutional
investors. In December 2005, the holders of such warrants to acquire such 2,800,000 shares
of Common Stock exercised such warrants. These shares of Common Stock are registered for
possible resale by the holders thereof under a Registration Statement filed by the Company
under the Securities Act of 1933. The market price of our Common Stock could decline as a
result of sales of a large number of shares of our Common Stock in the market, or the
perception that these sales could occur. These sales might also make it more difficult for
us to issue equity securities in the future at a price that we think is appropriate, or at
all.

# Financial investors may
have interests different than our stockholders or WidePoint, and may be able to impact
corporate actions requiring stockholder approval because they own a significant amount of
our Common Stock.

Barron
presently owns securities that are convertible into approximately 11,957,139 shares of our
common stock. If issued, such shares would constitute approximately 26.2% of the then
outstanding shares of our Common Stock. In future financings, we may also issue securities
that are convertible into or exercisable for a significant number of shares of our
outstanding common stock. Financial investors may have short-term financial interests
different from our long-term goals and the long-term goals of our management and other
stockholders. In addition, based on the significant ownership of our outstanding Common
Stock, financial investors may be able to impact corporate actions requiring stockholder
approval.

33

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# ITEM 1B. UNRESOLVED
STAFF COMMENTS.

Not applicable.

# ITEM 2. PROPERTIES.

The Companys principal
executive office consists of approximately 3,500 square feet of office space located at
One Lincoln Centre, Suite 1100, Oakbrook Terrace, Illinois, which is leased through July
2007 for approximately $6,600 per month. The annual rent including a pro rata share of
real estate taxes and operating expenses for this office is approximately $79,200, plus a
pro rata share of increases in real estate taxes and operating expenses

WidePoints ORC subsidiary has
its principal offices at 1723 South Park Court, Chesapeake, Virginia in approximately
2,400 square feet under a lease that expires on April 30, 2006. The annual rent for this
office is approximately $26,400, plus a pro rata share of increases in real estate taxes
and operating expenses.

ORC also maintains two secure
facilities in Alexandria, VA and Fairfax, VA. The Alexandria office is located at 1625
Prince Street, Suite 350, Alexandria, Virginia. This office is currently leased through
January 31, 2008 for approximately $7,400 per month. The Fairfax office is located at
11250 Waples Mill Road, South Tower, Suite 210, Fairfax, Virginia 22030. The lease for
this office expires February 28, 2009 and costs approximately $28,000 per month. The
Alexandria office consists of approximately 3,100 square feet of office space and the
Fairfax office consists of approximately 11,900 square feet of office space. A pro rata
share of increases in real estate taxes and operating expenses are also paid for these
offices.

During 2000, several of the
Companys offices were closed and their leases were either sublet, assigned, or have
expired. The Michigan office lease located at 32000 Northwestern Highway, Suite 165,
Farmington Hills, Michigan was sublet to Galaxy Builders in June 2000 on the same terms as
the primary lease for that location. Annual rent in 2004 for that property was
approximately $38,400 and the lease expired on February 24, 2004. The lease for the
Companys former corporate headquarters office located at 20251 Century Boulevard,
Germantown, Maryland was assigned on December 1, 2000 to GHG Holdings, Inc., and such
assigned lease expired on September 30, 2005.

WidePoint believes that it can obtain
additional facilities required to accommodate its projected needs without difficulty and
at commercially reasonable prices, although no assurance can be given that it will be able
to do so.

34

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ITEM 3. LEGAL PROCEEDINGS.

We are not involved in any material
legal proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS.

None.

35

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PART II

|ITEM 5. | MARKET FOR REGISTRANT'S COMMON
EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES.
|------- | -------------------------------------------------------------------------------------------------------------

The Companys Common Stock is quoted
on the NASD OTC Bulletin Board under the symbol WDPT and the Frankfurt and
Berlin exchanges under the symbol ZMX. From July 5, 2000 to March 1, 2001 the
Companys Common Stock was traded on the NASDAQ SmallCap Market under the symbol
WDPT.

The stock prices listed below
represent the high and low closing bid prices of the Common Stock on the NASD OTC Bulletin
Board for each of the periods indicated:

|2005           | High  | Low  
|-------------- | ----- | -----
|Fourth Quarter | $2.31 | $0.75
|Third Quarter  | 1.00  | 0.76 
|Second Quarter | 1.01  | 0.62 
|First Quarter  | 0.86  | 0.62 

|2004           | High  | Low  
|-------------- | ----- | -----
|Fourth Quarter | $0.86 | $0.31
|Third Quarter  | 0.38  | 0.26 
|Second Quarter | 0.53  | 0.29 
|First Quarter  | 0.54  | 0.13 

As
of March 27, 2006 there were 190 registered holders of record of the Companys Common
Stock.

Equity Compensation Plan
Information

The
following table sets forth information as of December 31, 2005, with respect to the
Companys compensation plans under which its Common Stock is authorized for issuance:

|                                 | (a)       | (b)   | (c)      
|-------------------------------- | --------- | ----- | ---------
|
|Equity Compensation Plans:       |           |       |          
|Approved by security holders     | 3,795,862 | $0.31 | 6,204,138
|Not approved by security holders | 4,091,045 | $0.49 | - 0 -    
|Total                            | 7,886,907 | $0.45 | 6,204,138

36

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Dividend Policy

The Company has never paid cash
dividends on its Common Stock and intends to continue this policy for the foreseeable
future. WidePoint plans to retain earnings for use in growing its business base. Any
future determination to pay cash dividends will be at the discretion of the Board of
Directors of the Company and will be dependent on WidePoints results of operations,
financial condition, contractual and legal restrictions and any other factors deemed by
the management and the Board of Directors to be a priority requirement of the business.

Repurchases of Equity
Securities

The Company repurchased no shares of
its Common Stock during the fourth quarter of 2005.

ITEM 6. SELECTED FINANCIAL DATA.

The selected financial data presented
below for each of the years in the five-year period ended December 31, 2005 is derived
from our audited consolidated financial statements. You should read the selected financial
data presented below in conjunction with our consolidated financial statements, the notes
to our consolidated financial statements and Item 7Managements
Discussion and Analysis of Financial Condition and Results of Operations.

On October 25, 2004, WidePoint
acquired the stock of Operational Research Consultants, Inc. (ORC), a Virginia
corporation. The accompanying financial data includes the accounts of ORC as of the date
of the acquisition. A further description of that purchase is set forth in the
Companys Form 8-K/A, filed on January 7, 2005 with the Securities and Exchange
Commission. On April 30, 2004, WidePoint closed on the acquisition of Chesapeake
Government Technologies, Inc. (Chesapeake), a Delaware corporation. A further
description of that purchase is set forth in the Companys Form 8-K, filed on May 14,
2004.

The reflected changes as a result of
the acquisitions and disposition described above along with the Companys strategy to
continue to acquire additional businesses might cause the data described in the tables
below not to be indicative of the Companys future financial condition or results of
operations.

37

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# Selected Financial Data

|                                            |  |  |   |            |  
|------------------------------------------- |  |  | - | ---------- | -
|
|Statement of Operations Data:               |  |  |   |            |  
|Revenues                                    |  |  | $ | 13,263,164 |  
|Cost of revenues                            |  |  |   | 11,868,292 |  
|                                            |  |  |   |            |  
|Gross Profit                                |  |  |   | 1,394,872  |  
|Sales and marketing expense                 |  |  |   | 701,162    |  
|General and administrative expense          |  |  |   | 2,907,663  |  
|Facilities closing expense                  |  |  |   | --         |  
|Disposition of subsidiary                   |  |  |   | --         |  
|Impairment of long-term assets              |  |  |   | --         |  
|Depreciation and amortization               |  |  |   | 25,217     |  
|                                            |  |  |   |            |  
|Loss from operations                        |  |  |   | (2,239,170 | )
|                                            |  |  |   |            |  
|Other income (expense):                     |  | 
|Interest income                             |  |  |   | 6,961      |  
|Interest expense                            |  |  |   | (164,692   | )
|Loss from financial instruments             |  |  |   | (5,405,601 | )
|Other                                       |  |  |   | 2,135      |  
|                                            |  |  |   |            |  
|Net loss before income taxes                |  |  |   | (7,800,367 | )
|Income taxes (benefit)                      |  |  |   | (355,420   | )
|                                            |  |  |   |            |  
|Net loss                                    |  |  | $ | (7,444,947 | )
|                                            |  |  |   |            |  
|Basic and diluted loss per share            |  |  | $ | (0.30      | )
|                                            |  |  |   |            |  
|Basic and diluted weighted average          |  | 
|shares outstanding                          |  |  |   | 25,103,257 |  
|                                            |  |  |   |            |  
|Dividends                                   |  |  |   | --         |  
|Total Assets                                |  |  | $ | 10,676,892 |  
|Long-term debt                              |  |  |   | --         |  
|Long-term obligations (Capital leases only) |  |  |   | --         |  
|Capital leases, current portion             |  |  |   | --         |  

38

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|ITEM 7. | MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
|------- | --------------------------------------------------------------------------------------

# Forward Looking
Statements

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
is a technology-based provider of product and services to both the government sector and
commercial markets. We specialize in providing systems engineering, information technology
services and information assurance in the form of credentialing services and PKI
eAuthentication. Our subsidiary ORC is the leading provider of high-level PKI services to
the federal government. We intend to grow significantly over the next few years through a
combination of aggressive organic growth, the acquiring of selective strategic assets and
by driving operational efficiencies among our subsidiaries.

WidePoint
Corporation was incorporated in Delaware on May 30, 1997. Our staff consists of business
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.

From
2000 through 2003, we undertook several initiatives in an effort to transition from a
millennium solutions provider to an integrated IT services company with a focus on the
evolving requirements of our customers and target markets.

As
a result of those initiatives, in 2004, we acquired Chesapeake Government Technologies,
Inc. and Operational Research Consultants, Inc. (ORC) as part of our strategy
to refocus our business development initiatives toward the substantial increase in
government spending on security, infrastructure and automation that has been accelerated
by recent geopolitical events that have created an unprecedented need for improved systems
and process expertise across most federal, state and local government markets.

In
2005, WidePoint focused on the consolidation of its recent acquisitions, continuing
rollout of the ORC Public Key Infrastructure (PKI) initiative, and continuing
to implement our project based enterprise strategy emphasizing industry-wide best
practices disciplines. With the addition of the customer base and the increase in revenues
attributable from the ORC acquisition, WidePoints opportunity to leverage and expand
further into the federal marketplace has improved dramatically. ORCs past client
successes, top security clearances in their facilities and with their personnel, and
additional breadth of management talent have expanded the Companys reach into
markets that previously were not accessible to WidePoint. The Company intends to continue
to leverage the synergies between the newly acquired operating subsidiaries and cross sell
those technical capabilities into each separate marketplace serviced by its respective
subsidiaries. Further, the Company is continuing to actively search out new synergistic
acquisitions that WidePoint believes will further enhance the present base of business,
which has been augmented by its recent acquisitions and internal growth initiatives.

39

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As a result of these actions in 2005,
the Companys revenues for the period ending December 31, 2004 increased by
approximately 142% from approximately $5.5 million in 2004 to $13.3 million in 2005. This
increase was materially due to the additional revenues generated from the acquisition of
ORC. As a result of the revenues provided by the acquisition of ORC taken together with
the results of WidePoints revenues for the same period, the combined total
materially affects the comparability of the information reflected in the selected
consolidated financial information presented above, and therefore may not be indicative of
the Companys future financial condition or results of operations. Further, as the
Company attempts to continue to implement its strategy of strategic growth driven both by
internal growth and potential merger and acquisition activity, we believe that future
performance may continue to affect the comparability of the information reflected in the
selected consolidated financial information presented above.

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

The
Company reported non-cash losses from financial instruments of $3.1 million and $5.4
million in 2004 and 2005, respectively. The recognition of the financial instruments
resulted from the warrants issued in October 2004 to Barron in connection with a preferred
stock financing and the related cash penalty provision in the registration rights
agreement entered into by the Company and Barron in connection therewith. The warrants
were required under EITF 00-19 to be accounted for as a liability and periodically
marked-to-market upon conversion of the warrants to reflect changes in the market value of
the common stock underlying the warrants. Consequently, due to the significant increases
in the market value of the common stock during 2004 and 2005, non-cash losses from the
financial instruments were recognized during those years. All of Barrons warrants
were exercised by it prior to the end of 2005, so there was no recognition of the
financial instruments at December 31, 2005 and there will be no need to recognize the
financial instruments or record any loss or gain therefrom in future financial statements.

40

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# Critical Accounting
Policies and Estimates

The Companys consolidated
financial statements are prepared in accordance with accounting principles generally
accepted in the United States, or U.S. GAAP. These accounting principles require us to
make certain estimates, judgments and assumptions. WidePoint believes that the estimates,
judgments and assumptions upon which the Company relies are reasonably based upon
information available to it at the time that these estimates, judgments and assumptions
are made. These estimates, judgments and assumptions can affect the reported amounts of
assets and liabilities as of the date of the financial statements, as well as the reported
amounts of revenue and expenses during the periods presented. To the extent there are
material differences between these estimates, judgments and assumptions and actual
results, the Companys financial statements will be affected. The significant
accounting policies that WidePoint believes are the most critical to aid in fully
understanding and evaluating our reported financial results include the following:

| | Revenue
recognition;
|- | --------------------

| | Accounting
for certain consulting fees;
|- | ---------------------------------------

| | Goodwill;
|- | ---------

| | Intangibles;
|- | ------------

| | Accounting
for income taxes.
|- | ----------------------------

In many cases, the accounting
treatment of a particular transaction is specifically dictated by U.S. GAAP and does not
require managements judgment in its application. There are also areas in which
managements judgment in selecting among available alternatives would not produce a
materially different result. The Companys senior management has reviewed these
critical accounting policies and related disclosures with its Audit Committee. See Notes
to Consolidated Financial Statements, which contain additional information regarding
accounting policies and other disclosures required by U.S. GAAP.

Revenue Recognition

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

41

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

Allowance for Doubtful
Accounts

WidePoint determines its Allowance by
considering a number of factors, including the length of time trade accounts receivable
are past due, previous loss history, the customers current ability to pay its
obligations, and the condition of the general economy and the industry as a whole. The
Company makes judgments as to its ability to collect outstanding receivables based on
these factors and provide allowances for these receivables when collections become
doubtful. Provisions are made based on specific review of all significant outstanding
balances. Because of the Companys history of minimal credit losses and the nature of
the Companys customers at the time, no allowance for doubtful accounts was believed
necessary at December 31, 2005 and 2004.

Goodwill

Goodwill represents costs in excess
of fair values assigned to the underlying net assets acquired. The Company has adopted the
provisions of Statement of Financial Accounting Standards (SFAS) No. 141,
Business Combinations, and SFAS No. 142, Goodwill and Other Intangible
Assets. These standards require the use of the purchase method of accounting for
business combinations, set forth the accounting for the initial recognition of acquired
intangible assets and goodwill and describe the accounting for intangible assets and
goodwill subsequent to initial recognition. Under the provisions of these standards,
goodwill is not subject to amortization and annual review is required for impairment. The
impairment test under SFAS No. 142 is based on a two-step process involving (i) comparing
the estimated fair value of the related reporting unit to its net book value and (ii)
comparing the estimated implied fair value of goodwill to its carrying value. Impairment
losses are recognized whenever the implied fair value of goodwill is less than its
carrying value. The Companys annual impairment testing date is December 31. Goodwill
is a significant item on the Companys balance sheet and represents approximately 24%
of our total assets as of December 31, 2005. Goodwill is identified on the face of the
Balance Sheet.

Intangibles

The Company recognizes an acquired
intangible apart from goodwill whenever the intangible arises from contractual or other
legal rights, or when it can be separated or divided from the acquired entity and sold,
transferred, licensed, rented or exchanged, either individually or in combination with a
related contract, asset or liability. The application of purchase accounting to a business
acquisition requires that the Company identify the individual assets acquired and
liabilities assumed and estimate the fair value of each.

42

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The intangibles recognized in the
acquisition are amortized over the Companys estimate of their useful lives.
Impairment losses are recognized if the carrying amount of an intangible subject to
amortization is not recoverable from expected future cash flows and its carrying amount
exceeds its fair value.

The Company reviews its long-lived
assets, including property and equipment and identifiable intangibles whenever events or
changes in circumstances indicate that the carrying amount of the assets may not be fully
recoverable. To determine recoverability of its long-lived assets, the Company evaluates
the probability that future undiscounted net cash flows will be less than the carrying
amount of the assets.

As of December 31, 2005, the Company
is not aware of any known trends, demands, commitments, events or uncertainties that are
reasonably likely to occur and materially affect the methodology or the assumptions the
Company has used to value long-lived assets. Long-lived assets are a significant item on
the Companys balance sheet and represent approximately 17% of our total assets. Any
impairment as a result of the estimate utilizing net cash flows to determine the assumed
value of long-lived assets could have a significant impact on the Companys financial
condition, changes in financial condition and results of operations. Long-lived assets are
identified on the face of the Balance Sheet as Intangibles. Amortization of Intangibles is
identified on the face of the Statement of Operations within Cost of Sales.

The Companys senior management
has discussed the development and selection of the accounting estimates relating to the
purchase accounting for the ORC acquisition, the amortization period of the acquired
intangibles and the lack of impairment of the assets, and the MD&A disclosure
regarding those estimates, with the audit committee of the Companys board of
directors. Also, the Company engaged MP&S Valuations to perform an independent
analysis to provide a qualified opinion on the Companys methodology and calculations
in determining the related intangibles valuations associated with the purchase accounting
for the ORC acquisition.

Accounting for Income
Taxes

WidePoint accounts for income taxes
in accordance with Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes. Under the asset and liability method of SFAS No. 109, deferred
income taxes are recognized for the expected future tax consequences of temporary
differences between financial statement carrying amounts, and the tax bases of existing
assets and liabilities using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or settled.

The Company has incurred historical
net operating losses, or NOLs, for federal income tax purposes. Accordingly, no federal
income tax provision has been recorded to date and there are no taxes payable. In
assessing the realizability of deferred tax assets, management considers whether it is
more likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon generation of
future taxable income during the periods in which those temporary differences become
deductible.

43

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Based upon the level of historical
losses that may limit utilization of NOL carry forwards in future periods, management is
unable to predict whether these net deferred tax assets will be utilized prior to
expiration. The unused NOL carry forwards expire in years 2010 through 2024. As such, the
Company has recorded a full valuation allowance against net deferred tax assets. WidePoint
believes that its estimates are reasonable, given the lack of historical earnings and the
fact that there may be significant limitations placed on the use of the NOL carryforwards.
There is, however, a significant possibility that the Company will have sufficient income
in the future to utilize substantial portions of the deferred tax assets. No assurance can
be given that the final outcome of these matters will not be different than that which is.
Such a change in the estimate reflected in the historical income tax provisions could have
a material effect on the income tax provision and net income in the period in which such
determination is made.

New Accounting
Pronouncements

In December 2004, the Financial
Accounting Standards Board issued Statement 123 (revised 2004), Share-Based Payment
(Statement 123(R)). This Statement requires that the costs of employee share-based
payments be measured at fair value on the awards grant date using an option-pricing
model and recognized in the financial statements over the requisite service period. This
Statement does not change the accounting for stock ownership plans, which are subject to
American Institute of Certified Public Accountants SOP 93-6, Employers
Accounting for Employee Stock Ownership Plans. Statement 123(R) supersedes Opinion
25, Accounting for Stock Issued to Employees and its related interpretations, and
eliminates the alternative to use Opinion 25, intrinsic value method of accounting, which
the Company is currently using.

Statement 123(R) allows for two
alternative transition methods. The first method is the modified prospective application
whereby compensation cost for the portion of awards for which the requisite service has
not yet been rendered that are outstanding as of the adoption date will be recognized over
the remaining service period. The compensation cost for that portion of awards will be
based on the grant-date fair value of those awards as calculated for pro forma disclosures
under Statement 123, as originally issued. All new awards and awards that are modified,
repurchased, or cancelled after the adoption date will be accounted for under the
provisions of Statement 123(R). The second method is the modified retrospective
application, which requires that the Company restate prior period financial statements.
The modified retrospective application may be applied either to all prior periods or only
to prior interim periods in the year of adoption of this statement. The Company is
currently determining which transition method it will adopt and is evaluating the impact
Statement 123(R) will have on its financial position, results of operations, EPS and cash
flows when the Statement is adopted. Upon making its determination of the transition
method the Company will adopt Statement 123(R). The Company will adopt this Statement on
January 1, 2006 in accordance with the requirements.

In December 2004, the FASB
issued Staff Position No. FAS 109-1 (FAS 109-1), Application of
FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on
Qualified Production Activities Provided by the American Jobs Creation Act of 2004".
FSP 109-1 clarifies SFAS No. 109s guidance that applies to the new tax
deduction for qualified domestic production activities. FAS 109-1 was adopted at the
beginning of 2005. This standard did not have a material impact on the Companys
consolidated financial statements.

44

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In May 2005, the FASB issued
SFAS No. 154, Accounting Changes and Error Corrections- a replacement of APB
Opinion No. 20 and FASB Statement No. 3", which replaces APB No. 20,
Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in
Interim Financial Statements, and changes the requirements for the accounting for
and reporting of a change in accounting principle. SFAS No. 154 applies to all
voluntary changes in accounting principle, and also applies to changes required by an
accounting pronouncement in the unusual instance that the pronouncement does not include
specific transition provisions. SFAS No. 154 will be effective for accounting changes
and corrections of errors made in fiscal years beginning after December 15, 2005. SFAS
No. 154 does not change the transition provisions of any existing accounting
pronouncements, including those that are in a transition phase as of the effective date of
SFAS No. 154. The Company does not currently believe that the adoption of SFAS No.154
will have a material impact on its consolidated financial statements.

In December 2004, the FASB
issued SFAS No. 153, Exchanges of Nonmonetary Assets  an amendment of APB
Opinion No. 29". APB No. 29 requires a nonmonetary exchange of assets to be
accounted for at fair value, recognizing any gain or loss, if the exchange meets a
commercial substance criterion and fair value is determinable. The commercial substance
criterion is assessed by comparing the entitys expected cash flows immediately
before and after the exchange. SFAS No. 153 eliminates the similar productive
assets exception, which accounts for the exchange of assets at book value with no
recognition of gain or loss. SFAS No. 153 will be effective for nonmonetary asset
exchanges occurring in fiscal periods beginning after June 15, 2005. The Company does
not currently believe that the adoption of SFAS No. 153 will have a material impact
on its consolidated financial statements.

# Results of Operations

Year Ended December 31, 2005 Compared
to the Year ended December 31, 2004

Revenues. Revenues for the year ended December 31, 2005, were approximately $13.3
          million, an increase of $7.8 million, as compared to revenues of approximately
          $5.5 million for the year ended December 31, 2004. The 142% increase in
          revenues in 2005 was primarily attributable to revenues of Operational Research
          Consultants, Inc. (ORC). ORC contributed approximately $9.7 million
          in revenues for the year ended December 31, 2005, as compared to $2.2 million
          for the year ended December 31, 2004 subsequent to its acquisition by the
          Company on October 25, 2004.

Gross profit. Gross profit for the
year ended December 31, 2005, was approximately $1.4 million, or 11% of
revenues, an increase of $0.3 million as compared to gross profit of approximately
$1.1 million, or 19% of revenues, for the year ended December 31, 2004.

45

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The increase in the amount of gross
profit was primarily attributable to the increased revenues, partially offset by the
recording of the issuance of 1,905,390 shares of the Companys Common Stock in 2005,
as compared to the issuance of 544,398 shares in 2004, to the former Chesapeake
shareholders as a result of Chesapeake meeting performance measures related to the
realization of revenues by ORC during 2005 and the fourth quarter ended December 31, 2004,
respectively. The release of those shares from escrow represented a compensation expense
in cost of revenues of approximately $1,900,000 and $381,000 in 2005 and 2004,
respectively. The compensation expense associated with Chesapeake meeting performance
measures related to the realization of revenues by ORC was concluded as of December 31,
2005.

The cost elements related to
consultant salaries, benefits and expenses at both ORC and WidePoint are substantially
similar.

Sales and marketing. Sales and
marketing expenses for the year ended December 31, 2005 were approximately $0.7
million, or 5% of revenues, as compared to $0.6 million, or 11% of revenues, for the year
ended December 31, 2004. The $0.1 million increase in sales and marketing expenses
for the year ended December 31, 2004, was primarily attributable to an increase in
the amount of sales and marketing expenditures as a result of the Companys recent
acquisition of ORC. During 2005 we focused our efforts on completing the development of
our PKI services and as a result our sales and marketing efforts were only slightly
increased.

General and administrative. General
and administrative expenses for the year ended December 31, 2005 were approximately
$2.9 million, or 22% of revenues, as compared to $1.6 million, or 29% of revenues, for the
year ended December 31, 2004. The $1.3 million increase in general and administrative
expenses in 2005 was primarily attributable to an increase in the amount of general and
administrative expenses associated with the acquisitions of both Chesapeake and ORC, the
Companys implementation of its federal sector business initiative, while 2004
included the recording of the issuance 500,000 shares of the Companys common stock
to TriPoint Capital Advisors for corporate advisory services that resulted in a
compensation expense of approximately $72,000.

Interest income (expense). Interest
income for the year ended December 31, 2005 was $6,961, an increase of $1,120, or
19%, as compared to $5,841 for the year ended December 31, 2004. The increase in
interest income in 2005 was primarily attributable to greater amounts of available cash
and other securities. Interest expense for the year ended December 31, 2005 was
$164,692, an increase of $126,548, or 332%, as compared to $38,144 in interest expense for
the year ended December 31, 2004. The increase in interest expense in 2005 was
primarily attributable to the Companys increase in interest expense associated with
its recent secured senior lending facility with RBC-Centura, which was utilized in
association with the purchase of ORC.

Loss from Financial Instruments. The
Company recognized a non-cash loss from financial instruments of approximately $5.4
million for the year ended December 31, 2005, as compared to a non-cash loss from
financial instruments of $3.1 million for the year ended December 31, 2004. The
recognition of the financial instruments resulted from the warrants issued in October 2004
to Barron Partners, LLP in connection with a preferred stock financing, and the related
cash penalty provision in the registration rights agreement entered into by the Company
and Barron in connection therewith. The warrants were required under EITF 00-19 to be
accounted for as a liability and marked-to-market upon conversion of the warrants to
reflect changes in the market value of the common stock underlying the warrants. The loss
from financial instruments is based on the difference between the fair value of the
warrants and the market price of the common stock underlying them. For the nine months
ended September 30, 2005, the Company recorded a $1.2 million gain from financial
instruments as a result of a decline in the market value of the Common Stock during the
nine-month period. However, a loss from financial instruments of $6.6 million was recorded
for the quarter ended December 31, 2005 as a result of the significant increase in the
market value of the Companys Common Stock during that quarter. Consequently, a
cumulative loss from financial instruments of $5.4 million was recorded for the full year
ended December 31, 2005. All of Barrons warrants were exercised by it prior to the
end of 2005, so there was no recognition of the financial instruments at December 31, 2005
and there will be no need to recognize the financial instruments or record any loss or
gain therefrom in future financial statements.

46

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Income taxes (benefit). Income
taxes  (benefit)  for the year ended  December 31,  2005 was $355,420,  an increase of
 $354,604,  as compared to $816 for the year ended  December 31,  2004.  The increase in
income taxes  (benefit) for the year ended  December 31, 2005 was the result of our
determination that we were able to offset all of the ORC tax liabilities with WidePoints
tax losses.

Net loss. As a result of the
above, the net loss for the year ended December 31, 2005 was approximately $7.4
million, an increase of $3.1 million, as compared to the net loss of approximately $4.3
million for the year ended December 31, 2004.

Year Ended December 31, 2004 Compared
to the Year ended December 31, 2003

Revenues. Revenues
 for the year ended December 31, 2004, were approximately $5.5
          million, an increase of $2.2 million, as compared to revenues of approximately
          $3.3 million for the year ended December 31, 2003. The 68% increase in
          revenues in 2004 was primarily attributable to revenues of ORC, which
          contributed approximately $2.2 million in revenues subsequent to its acquisition
          by the Company on October 25, 2004.

Gross profit. Gross profit for the
year ended December 31, 2004, was approximately $1.1 million, or 19% of
revenues, an increase of $0.3 million as compared to gross profit of approximately
$0.8 million, or 25% of revenues, for the year ended December 31, 2003.

The increase in the amount of gross
profit was primarily attributable to higher billing rates as a result of the greater
demand for the IT security skill sets of the consultants at ORC, partially offset by the
recording of the issuance of 544,398 shares of the Companys common stock to the
former Chesapeake shareholders as a result of meeting performance measures related to the
realization of revenues by ORC during the fourth quarter ended December 31, 2004. The
release of those shares from escrow represented a compensation expense in cost of revenues
of approximately $381,000.

The cost elements related to
consultant salaries, benefits and expenses at both ORC and WidePoint are substantially
similar. ORCs ability to contain its salary, benefit, and other cost elements on
both an absolute and per capita basis, while revenue per capita was increasing, resulted
in WidePoints realization of an improvement in gross profit for the year ended
December 31, 2004 as compared to December 31, 2003.

Sales and marketing. Sales and
marketing expenses for the year ended December 31, 2004 were approximately $0.6
million, or 11% of revenues, as compared to $0.4 million, or 13% of revenues, for the year
ended December 31, 2003. The $0.2 million increase in sales and marketing expenses
for the year ended December 31, 2003, was primarily attributable to an increase in
the amount of sales and marketing expenditures as a result of the Companys recent
acquisition of ORC.

47

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General and administrative. General
and administrative expenses for the year ended December 31, 2004 were approximately
$1.6 million, or 29% of revenues, as compared to $0.7 million, or 21% of revenues, for the
year ended December 31, 2003. The $0.9 million increase in general and administrative
expenses in 2004 was primarily attributable to an increase in the amount of general and
administrative expenses associated with the acquisitions of both Chesapeake and ORC, the
Companys implementation of its federal sector business initiative and the recording
of the issuance 500,000 shares of the Companys common stock to TriPoint Capital
Advisors for corporate advisory services that resulted in a compensation expense of
approximately $72,000.

Interest income (expense). Interest
income for the year ended December 31, 2004 was $5,841, a decrease of $5,710, or 51%,
as compared to $11,551 for the year ended December 31, 2003. The decrease in interest
income in 2004 was primarily attributable to lesser amounts of available cash and other
securities. Interest expense for the year ended December 31, 2004 was $38,144, an
increase of $36,840, or 2,725%, as compared to $1,304 in interest expense for the year
ended December 31, 2003. The increase in interest expense in 2004 was primarily
attributable to the Companys increase in interest expense associated with its recent
secured senior lending facility with RBC-Centura, which was utilized in association with
the purchase of ORC.

Loss from Financial Instruments. The
Company recognized a loss from financial instruments of approximately $3,071,000 in the
year ended December 31, 2004, which was based on the difference between the fair value of
the warrants issued to Barron in connection with the preferred stock financing and the
market price of the common stock underlying such warrants at December 31, 2004. No such
financial instruments or loss was recognized in the year ended December 31, 2003.

Net loss. As a result of the above,
the net loss for the year ended December 31, 2004 was approximately $4.3 million, an
increase of $4.0 million, as compared to the net loss of approximately $0.3 million for
the year ended December 31, 2003.

# 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 2005 and 2004, operations were materially financed with
working capital, senior debt, the proceeds from a convertible preferred stock issuance,
and stock option and warrant exercises.

Cash provided by operating activities
for the year ended December 31, 2005, was approximately $246,000 as compared to cash used
in operating activities of approximately $280,000 for the year ended December 31, 2004.
The increase in cash balances available for operating activities for the years ended
December 31, 2005 and 2004, respectively, were primarily a result of the exercise of all
Barrons warrants. Capital expenditures in property and equipment were approximately
$3,400 for the year ended December 31, 2005, as compared to capital expenditures in
property and equipment of approximately $15,000 for the year ended December 31, 2004.

48

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The Company had material increases in
our balance sheet in cash and cash equivalents, accounts receivables, prepaid expenses,
intangibles, and other assets offset by a decrease in goodwill, increases in accounts
payable, deferred revenue and income taxes payable, and a decrease in short term
borrowings and financial instruments as of December 31, 2005 as compared to December 31,
2004. The increase in the assets and decrease in the liabilities in our balance sheet were
primarily due to our recent acquisition of ORC and the exercise of the Barron warrants.
Accounts receivable increased as a result of the increase in revenues from ORC and prepaid
expenses increased as a result of the additional cost associated with operating ORC. The
increase in accounts receivable attributable to the ORC acquisition allowed the Company to
secure from RBC Centura Bank a senior line of credit from RBC Centura Bank for up to $2.5
million dollars. The line of credit allowed the Company to partially finance the purchase
of ORC and presently provides additional liquidity and working capital for the Company. As
a result of the acquisition of ORC, the Companys accounts receivable aging
measurement criteria has declined. This has primarily been as a result of a longer payment
cycle at ORC. ORC invoices monthly while WidePoint invoices, weekly and monthly. As a
result of the monthly billing cycle at ORC, the Company has experienced a longer average
period to collect its accounts receivable from its clients. As of December 31, 2004, the
Company has not witnessed any problems associated with collectibility or billing problems
with any major customers or any significant changes in credit terms, collection efforts,
credit utilization and/or delinquency policies. Goodwill decreased as a result of the
settlement of a working capital deficit with the ORC shareholders which resulted in a
reduction of the purchase price. Intangible assets increased as a result of the increased
investment to ORCs PKI credentialing services. Accounts payable increased as a
result of the higher level of costs of operating ORC.

As of December 31, 2005, the Company
had net working capital of approximately $3.0 million. WidePoints primary source of
liquidity consists of approximately $2.5 million in cash and cash equivalents and
approximately $3.3 million of accounts receivable. Current liabilities include
approximately $2.9 million in accounts payable and accrued expenses; no balance in the
line of credit with RBC Centura Bank; and no balance in financial instruments which may be
converted to equity upon the extinguishment of the Companys liquidation damages
clause within the registration rights agreement entered into with Barron.

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

Since 2002, WidePoint has embarked
upon several new initiatives to counter the current negative environment within our
industry and expand our capacity to restore revenue growth. The Company requires
substantial working capital to fund the future growth of its business, particularly to
finance accounts receivable, sales and marketing efforts, and capital expenditures.

49

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There are currently no commitments
for capital expenditures. Future capital requirements will depend on many factors,
including the rate of revenue growth, if any, the timing and extent of spending for new
product and service development, technological changes and market acceptance of the
Companys services.

On October 25 and 29, 2004,
WidePoint completed financings with Barron Partners L.P. (Barron), a private
equity fund that engages in investing primarily in private investments in publicly traded
entities, for an aggregate amount of $3,580,000, under a preferred stock purchase
agreement and related agreements. Net proceeds from the financing after costs and
expenses, including fees of finders and agents, were approximately $3,030,000. WidePoint
issued an aggregate of 2,045,714 shares of its Series A Convertible Preferred Stock that
are convertible into an aggregate of 20,457,143 shares of its Common Stock at a conversion
rate equal to $0.175 per share. In addition, WidePoint issued to Barron a warrant to
purchase up to an additional 10,228,571 shares of its Common Stock at an exercise price of
$0.40 per common share. The shares of Common Stock which may be acquired by Barron upon
its conversion of its Series A Convertible Preferred Stock and/or the exercise of its
warrant are subject to contractual restrictions which restrict the ability of Barron and
its affiliates to acquire shares of Common Stock which equal no more than 4.99% of the
outstanding shares of WidePoints Common Stock at any time. This contractual
restriction may be removed upon 61 days notice to WidePoint from Barron, but in the event
Barron elects to remove this restriction, then Barron and its affiliates agreed that
Barron and its affiliates can only vote the shares of Common Stock held by Barron and its
affiliates which result in Barron and its affiliates having no more than 22% of the total
voting power of all outstanding shares of WidePoints Common Stock at any time. As a
result of the Barron financing transaction, WidePoint issued warrants to Westcap
Securities, Inc., a registered broker-dealer and WidePoints placement agent in such
transaction, to purchase 511,428 shares of Common Stock at an exercise price of $0.40 per
share, which warrants expire in October 2009.

Pursuant to the registration rights
agreement, between Barron and WidePoint, related to the stock issuances described in the
preceding paragraph, WidePoint filed a registration statement on January 5, 2005, covering
the resale of the shares of Common Stock issuable upon conversion and/or exercise of the
Series A Convertible Preferred Stock and the warrants issued to Barron. Under the
agreement, if the registration statement was not declared effective by April 23, 2005 and
thereafter kept effective through October 20, 2007, subject to permissible blackout
periods and registration maintenance periods, then WidePoint would be required to pay
Barron a maximum penalty of up to $20,000 for each month the registration statement was
not effective. Barron waived this penalty provision through February 9, 2006, when the
registration statement was declared effective by the SEC.

50

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WidePoint 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 occurred with the acquisition of ORC or
any other major new subsidiaries, might require external financing that could include
additional debt or equity capital. The Company obtained a one year senior line of credit
from RBC-Centura Bank in October 2004 for up to $2.5 million dollars, collateralized
against accounts receivables, that also allows for the expansion of this line of credit up
to $5.0 million upon the successful completion of an additional acquisition. No borrowings
under the line of credit were outstanding at December 31, 2005. The interest rate on the
line of credit is variable, and is based upon the prime lending rate. Our failure to
comply with the restrictive covenants under our revolving credit facility could result in
an event of default, which, if not cured, amended, or waived, could result in us being
required to repay these borrowings before their due date. To date any covenants with which
we have not been compliant have either been amended or waived and we continue to work with
RBC-Centura to structure appropriate covenants that match our present business condition
and environment. At December 31, 2005 we currently are not in compliance with two of our
covenants, which includes our EBITDA to debt ratio covenant and our net income covenant.
RBC-Centura has extended our line of credit until June 1, 2006 and continues to let us
draw from this line. RBC-Centura is presently waiting for the completion of our audited
financial statements so they may structure appropriate convenants that match our present
business condition and environment. Presently we have no borrowings under our line of
credit but if we were to effect borrowings and were forced to refinance these borrowings
on less favorable terms, our results of operations and financial condition could be
adversely affected by increased cost and rate. In addition, the Company raised
approximately $3.6 million dollars in connection with the aforementioned equity
investments by Barron Partners, LP, that were used in the acquisition of ORC. Further, the
Company raised approximately $4.1 million dollars in connection with the attached warrants
associated with the aforementioned equity investments by Barron Partners, LP during the
year ended 2005. There can be no assurance that additional financing, if required, will be
available on acceptable terms, if at all, for future acquisitions and/or growth
initiatives.

# Off-Balance Sheet
Arrangements

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

# Contractual Obligations

The following table summarizes the
Companys contractual obligations at December 31, 2005 and the effect such
obligations are expected to have on liquidity and cash flow in future periods.

|                           
|---------------------------
|Contractual Obligations    
|Long-Term                  
|Capital Lease              
|Convertible debt           
|Operating lease (1)        
|Purchase Obligations       
|Other Long-Term Liabilities
|                           
|Total                      
|                           

51

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(1)    
          WidePoints office located at One Lincoln Center, Oakbrook Terrace,
          Illinois 60181 has a lease which runs through July 31, 2007, with payments
          in 2006 representing an obligation of approximately $44,100 and payments in 2007
          representing obligations of approximately $26,400. The office at 1736 South Park
          Court, Chesapeake, VA has a lease which runs through April 30, 2006, with
          payments in 2006 representing an obligation of approximately $9,000. The office
          at 11250 Waples Mill Rd., Fairfax, VA, has a lease which runs through March 15,
          2009, with payments in 2006 representing an obligation of approximately $354,700
          and payments in 2007 through 2009 representing obligations of approximately
          $832,900. The office at 1625 Prince St., Alexandria, VA, has a lease, which runs
          through January 31, 2008, with payments in 2006 representing an obligation of
          approximately $94,400 and payments in 2007 through 2008 representing obligations
          of approximately $97,200.

# Other

Inflation has not had a significant
effect on the Companys operations, as increased costs to the Company have generally
been offset by increased prices of products and services sold, although this has been more
recently compromised by some of the competitive pricing pressures referenced under
Competition in Item 1 of this document.

The preparation of financial
statements in conformity with accounting principles generally accepted in the United
States requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

This report contains forward-looking
statements setting forth the Companys beliefs or expectations relating to future
revenues and profitability. Actual results may differ materially from projected or
expected results due to changes in the demand for the Companys products and
services, uncertainties relating to the results of operations, dependence on its major
customers, risks associated with rapid technological change and the emerging services
market, potential fluctuations in quarterly results, and its dependence on key employees
and other risks and uncertainties affecting the technology industry generally. The Company
disclaims any intent or obligation to update publicly these forward-looking statements,
whether as a result of new information, future events or otherwise.

52

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ITEM 7A.  QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The Company is subject to market risk
associated principally with changes in interest rates associated with its senior
short-term line of credit provided by RBC-Centura. No borrowings under that line of credit
were outstanding at December 31, 2005. These borrowings bear interest at variable rates
and are determined by the Prime Rate. A hypothetical 10% increase in interest rates would
have increased the Companys annual interest expense for the year ended December 31,
2005 by less than $4000.

WidePoint does not use derivative
financial instruments for speculative or trading purposes. Excess cash is invested in
short-term, investment grade, interest-bearing securities. Investments are made in
accordance with an investment policy approved by the Board of Directors. Under this
policy, no investment securities can have maturities exceeding one year and the average
maturity of the portfolio cannot exceed 90 days.

ITEM 8.  FINANCIAL
STATEMENTS AND SUPPLEMENTAL DATA.

The consolidated financial statements
and schedules required hereunder and contained herein are listed under Item 15 below.

ITEM 9.  CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

By letter dated February 24, 2006,
the Audit Committee of the Board of Directors of WidePoint Corporation (the
"Company") informed the firm of Grant Thornton LLP ("Grant
Thornton") that it was dismissed and would no longer serve as the Companys
independent accounting firm effective February 24, 2006. There were no disagreements with
Grant Thornton. For information regarding Grant Thorntons previous determination
that the Company had certain material weaknesses in its internal control over financial
reporting, reference is made to the Companys Form 8-K dated February 24, 2006
reporting the change in the Companys independent accounting firm and Item 9A below.

On February 24, 2006, the Audit
Committee of the Board of Directors of the Company engaged the independent accounting firm
of Epstein, Weber and Conover PLC ("Epstein Weber") to serve as its new
independent accounting firm effective February 24, 2006.

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ITEM 9A. CONTROLS AND PROCEDURES.

# Disclosure Controls and
Procedures

The
Companys disclosure controls and procedures are designed to ensure that information
required to be disclosed by the Company in the reports that it files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within
the time periods specified in the Securities and Exchange Commissions rules and
forms, and include controls and procedures designed to ensure that such information is
accumulated and communicated to the Companys management, including its principal
executive and financial officers, to allow timely decisions regarding required disclosure.
Based on the evaluation of the effectiveness of the Companys disclosure controls and
procedures as of December 31, 2005 required by Rule 13a-15(b) under the Securities
Exchange Act of 1934 and conducted by the Companys chief executive officer and chief
financial officer, such officers concluded that the Companys disclosure controls and
procedures were not effective as of December 31, 2005. That conclusion was based on the
fact that during the first quarter of 2005, the Company identified a material weakness in
its internal control over financial reporting due to insufficient technical accounting
expertise within the accounting function to resolve non-routine or complex accounting and
tax matters such as those that occur in connection with a material acquisition such as the
Companys recent acquisition of Operational Research Consultants, Inc. The existence
of that weakness was further demonstrated by the subsequent determination during 2005 of
the need for certain financial statement corrections and restatements. Additional
information regarding those matters is set forth below under Changes in Internal
Control Over Financial Reporting. As a result of that material weakness, the Company
failed to timely file its Annual Report on Form 10-K for the year ended December 31, 2004.
The Company filed a Form 12b-25 extending the March 31, 2005 filing due date for the
report to April 15, 2005, but did not file the report until April 19, 2005.

# Changes in Internal
Control Over Financial Reporting

In
connection with the evaluation by the principal executive officer and principal financial
officer of the Company required by Rule 13a-15(d) under the Securities Exchange Act of
1934, such officers determined that the following change in the Companys internal
control over financial reporting occurred during the quarter ended December 31, 2004, that
has materially affected, or is reasonably likely to materially affect, the Companys
internal control over financial reporting. As discussed above under Disclosure
Controls and Procedures, that change in internal control over financial reporting
was designed to remediate the weakness in the Companys internal control over
financial reporting relating to the tracking of the timeliness of its filings and
submissions with the SEC. That change implemented an additional internal control that
involved an additional reporting process to track and confirm the filing of SEC filings
whereby confirmations are routed to executive management after each new filing is
submitted and accepted to track and confirm the filing.

During
the first quarter of 2005, in connection with the Companys preparation of this
Annual Report on Form 10-K, the Company identified a material weakness in the design of
its internal control over financial reporting related to insufficient technical accounting
expertise within our accounting function to resolve non-routine or complex accounting and
tax matters that occurred in connection with (i) our recent material acquisition of
Operational Research Consultants, Inc. in October 2004; and (ii) determination of the
proper accounting treatment of the financial instrument relating to the warrants issued by
the Company in October 2004.

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

The
material weaknesses in our internal control over financial reporting identified at the end
of each of the quarters in 2005 and at December 31, 2005, resulted from insufficient
technical accounting expertise within our accounting function to resolve non-routine or
complex accounting and tax matters that occurred in connection with: (i) our acquisition
of ORC in October 2004; (ii) the determination of the proper accounting treatment of the
financial instrument relating to the warrants issued by the Company to Barron
in October 2004; and (iii) the determination of the proper accounting treatment of the
shares of Common Stock issued and held in escrow following the acquisition by the Company
of Chesapeake in April 2004. The material weaknesses in internal controls resulted in: (i)
our late filing on April 19, 2005 (four days after the extended due date) of our Annual
Report on Form 10-K for the year ended December 31, 2004; (ii) the need to restate the
recorded amount of the financial instrument at December 31, 2004 and March 31, 2005 due to
the failure to mark-to-market such instrument at December 31, 2004; (iii) the need to
reclassify the amortized costs relating to the ORC acquisition in cost of sales and not in
amortization and depreciation, and to record the convertible preferred stock issued to
Barron as temporary preferred equity and not permanent preferred equity; and (iv) the need
to restate our financial statements for the year ended December 31, 2004 and the first
three quarters of 2005 to reflect changes in our accounting relating to the Chesapeake
acquisition. The Chesapeake-related restatements: (i) eliminated the intangible asset
associated with the acquisition; (ii) reversed the related amortization expense; (iii)
expensed as consulting fees the cost of the transaction attributable to the cost of
issuance of the non-escrowed shares and other direct costs at the time of the acquisition;
(iv) recorded and expensed as consulting fees in cost of sales the release of the shares
from escrow at December 31, 2004; (v) expensed in cost of sales and recorded the value of
those shares in equity meeting the contractual performance measures that would result in
the release of those shares from escrow after the filing of the Companys Form 10-K
for the year ended December 31, 2005; and (vi) recorded the shares in equity as Common
Stock issuable until such time as they can be reclassified as Common Stock issued shares
upon the release of the shares from escrow.

We
began the remediation of the weakness in our internal control over financial reporting by
the employment of a consulting firm in January 2005 with the requisite accounting
expertise to resolve the above issues, which arose as a result of accounting comments
raised by the SEC in connection with its review of the Companys annual and quarterly
reports. We believe that the past results of the above material weaknesses in our internal
control over financial reporting, and related ineffective disclosure controls and
procedures resulting therefrom, were remedied on January 19, 2006 upon the filing by the
Company of amendments to its prior periodic reports containing restated financial
statements reflecting the resolution of the above accounting issues. We believe that
internal control weakness itself has been remedied as of March 2006. The total costs
associated with the remediation were not material in amount.

55

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ITEM 9B. OTHER INFORMATION.

None.

# Part III.

The
following sets forth information regarding the directors, executive officers and certain
significant employees of the Company as of March 31, 2006:

|Age              | Position
|---------------- | --------
|Steve Komar      | 64      
|James McCubbin   | 42      
|                 |         
|James Ritter     | 61      
|Morton Taubman   | 62      
|                 |         
|Mark Mirabile    | 43      
|                 |         
|Daniel Turissini | 46      
|                 |         
|                 |         
|                 |         

Steve
L. Komar has served as a director since December 1997 and became Chairman of the Board of
Directors in October 2001. Mr. Komar has also served as Chief Executive Officer since
December 2001. From June 2000 until December 2001, Mr. Komar served as a founding partner
in C-III Holdings, a development stage financial services company. From 1991 to June 2000,
Mr. Komar served as Group Executive Vice President of Fiserv, Inc., a company that
provides advanced data processing services and related products to the financial industry.
From 1980 to 1991, Mr. Komar served in a number of financial management positions with
CitiGroup, including the role of Chief Financial Officer of Diners Club International and
Citicorp Information Resources, respectively. Mr. Komar is a graduate of the City
University of New York with a Bachelor of Science Degree in Accounting and holds a Masters
Degree in Finance from Pace University.

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James
T. McCubbin has served as a director and as our Secretary and Treasurer since November
1998. Since August 1998, Mr. McCubbin has also served as our Vice President and Chief
Financial Officer. Prior to that time, from December 1997 to August 1998, Mr. McCubbin
served as Vice President, Controller, Assistant Secretary and Treasurer. Prior to the
commencement of his employment with WidePoint in November 1997, Mr. McCubbin held various
financial management positions with several companies in the financial and government
sectors. Mr. McCubbin is a graduate of the University of Maryland with a Bachelor of
Science Degree in Finance and a Masters Degree in International Management.

James
M. Ritter has served as a director since December 1999 and as Assistant Secretary since
December 2002. Mr. Ritter is the retired Corporate Headquarters Chief Information Officer
of Lockheed Martin Corporation. Prior to his retirement in February 2001, Mr. Ritter was
employed at Lockheed Martin Corporation for over 32 years in various positions involving
high level IT strategic planning and implementation, e-commerce development, integrated
financial systems, and large-scale distributed systems.

Morton
S. Taubman has served as a director since his appointment on March 10, 2006 to serve out
the remaining term of G.W. Norman Wareham who resigned his position on March 7, 2006. Mr.
Taubman is also the Chairman of the Audit Committee. Mr. Taubman is an attorney and
certified public accountant with an expertise in corporate law, government contracting and
international relations. Prior to forming his own law firm on, Mr. Taubman was the senior
vice president and general counsel to DIGICON Corporation, an IT and telecommunications
company. Before joining DIGICON, he was a senior and executive partner at Ginsburg,
Feldman and Bress, LLP an established Washington, D.C. firm that provided expertise in
tax, telecommunications, litigation, federal regulatory issues, capital reformation,
government contracting and international issues. Before that, he was a founding partner at
a number of law firms, was the partner-in-charge of the Washington D.C. office of
Laventhol & Harworth, a partner at Coopers & Lybrand and a special agent with the
U.S. Treasury Department. Mr. Taubman has been an adjunct law professor for more than 15
years at Georgetown University and George Washington University. He presently also serves
as special corporate counsel to Global Options Group, Inc. and Global Options, Inc., a
company focusing on U.S. federal security services and as general counsel to Interior
Systems, Inc. d/b/a ISI Professional Services, a United States federal contractor. He
holds a bachelors degree in accounting from the University of Baltimore, a J.D. in
Law from the University of Baltimore Law School and a Master of Law degree from
Georgetown.

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Mark
Mirabile has served as a director since his appointment in April 2002. Mr. Mirabile has
also served as Vice President and Chief Operations Officer since December 2001. From June
2000 to November 2001, Mr. Mirabile served as Vice President of Sales and Marketing. Prior
to that time, from November 1992 to May 2000, Mr. Mirabile served as the Vice President of
Eclipse Information Systems, Inc., a wholly-owned subsidiary of WidePoint. Mr. Mirabile
was a co-founder of Eclipse Information Systems, Inc. prior to its acquisition by
WidePoint in December 1998. Mr. Mirabile has over 20 years experience in IT at both the
executive and technical levels. He has an Associates Degree in Applied Science-Accounting
from Daley Community College in Chicago.

Daniel
Turissini has served as the Vice President and Chief Technology Officer of WidePoint since
December 2005. Mr. Turissini has also served as the Chief Executive Officer of Operational
Research Consultants, Inc. (ORC), a wholly-owned subsidiary, since our
acquisition of ORC on October 25, 2004. Mr. Turissini was a founding partner of ORC in
1991 and served as ORCs principle operating officer since its inception. An
innovator in systems engineering and integration, Mr. Turissini has focused in the field
of Information Assurance and Information Security while at ORC. While under his
leadership, ORC has played a key systems integrator role for the DoD Public Key
Infrastructure (PKI), the standard information assurance program being implemented across
all branches of the DoD (a user community of approximately 36 million personnel, devices,
and applications) and has been certified as the first of three certificate authorities for
the Department of Defenses External Certificate Authority (ECA) program and by the
General Services Administration to provide Access Certificates for Electronic Services
(ACES). From 1982 until 1991, Mr. Turissini held various systems engineering and
acquisition management positions in support of the U.S. Federal Government with a variety
of companies including Tracor Applied Sciences, Inc., National Technologies Associates,
Inc., and Gibbs and Cox, Inc. From 1981 to 1982, Mr. Turissini served in the Merchant
Marine on various vessels as Engineer and Mate. Mr. Turissini is a graduate of the United
States Merchant Marine Academy with a Bachelor of Science Degree in Engineering and holds
a Masters of Engineering Administration from The George Washington University.

Our
executive officers are elected by and serve at the discretion of the board of directors.
There are no family relationships among any of our executive officers or directors.

# Code of Ethics

The Companys Board of Directors
recently adopted a code of ethics for the chief executive and principal financial and
accounting officers. The Company has posted a copy of the code on its website located at
www.widepoint.com.

ITEM 11. EXECUTIVE COMPENSATION.

The following Summary Compensation
Table sets forth the annual salary (column c) and bonus (column d) paid and options
granted (column g) during each of the past three years to the Chief Executive Officer of
the Company, as well as the executive officers of the Company at December 31, 2005 whose
annual salary and bonus in 2005 exceeded $100,000.

58

---

|                           
|---------------------------
|Summary Compensation Table 
|                           
|Annual Compensation        
|(a)                        
|Name and Principal
Position
|Steve Komar                
|Chief Executive Officer    
|and President              
|                           
|James McCubbin             
|Vice President & Chief     
|Financial Officer          
|                           
|Mark Mirabile              
|Vice President & Chief     
|Operations Officer         
|                           
|Dan Turissini 2            
|Vice President & Chief     
|Technology Officer         
|                           

---

| | 1 | Does
not report the approximate cost to the Company of an automobile allowance furnished to
the above persons, which amounts do not exceed the lesser of either $50,000 or 10% of the
total of the persons annual salary and bonuses for 2004.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2 | Mr.
Turissini's employment with WidePoint commenced upon the acquisition of ORC by WidePoint
in October 2004.
| | - | -------------------------------------------------------------------------------------------------------------

The
following Option Grants Table sets forth, for each of the named executive officers,
information regarding individual grants of options granted in 2005 and their potential
realizable value. Information regarding individual option grants includes the number of
options granted, the percentage of total grants to employees represented by each grant,
the per-share exercise price and the expiration date. The potential realizable value of
the options are based on assumed annual 0%, 5% and 10% rates of stock price appreciation
over the term of the option.

|                   
|-------------------
|Option Grants Table
|Individual Grants  
|Name               
|Dan Turissini      
|                   

---

| | 1  The
reported amount consists solely of an option granted under our 1997 Stock
          Incentive Plan. The option vested on December 31, 2005 and expires on September
          14, 2015.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

59

---

| | 2  Based
on options and warrants for a total of 900,000 shares of Common Stock           granted
to all employees or directors in 2005.
| | ---------------------------------------------------------------------------------------------------------------------------------------

| | 3  The
per share exercise price is equal to the fair market value per share of Common Stock on
the date of grant of the option.
| | -------------------------------------------------------------------------------------------------------------------------------

| | 4  The
potential realizable values shown in the columns are net of the option exercise price.
These amounts assume annual compounded rates of stock price appreciation of 0%, 5%, and
10% from the date of grant to the option expiration date, a term of five years. These
rates have been set by the U.S. Securities and Exchange Commission and are not intended
to forecast future appreciation, if any, of our Common Stock. Actual gains, if any, on
stock option exercises are dependent on several factors including the future performance
of our Common Stock, overall stock market conditions, and the optionees continued
employment through the vesting period. The amounts reflected in this table may not
actually be realized.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
following Option Exercises and Year-End Value Table is set forth herein because it sets
forth, for each of the named executive officers, information regarding the number and
value of unexercised options at December 31, 2005. No options were exercised by such
persons during 2005.

|                                                                                     
|-------------------------------------------------------------------------------------
|Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Value Table
|(a)                                                                                  
|Name                                                                                 
|Steve Komar                                                                          
|                                                                                     
|James McCubbin                                                                       
|                                                                                     
|Mark Mirabile                                                                        
|                                                                                     
|Dan Turissini                                                                        
|                                                                                     

| | 1 | The
reported options were granted to the named executive officer under our 1997
          Stock Incentive Plan (the Plan).
| | - | ----------------------------------------------------------------------------------------------------------------------------

| | 2 | Market
value of underlying shares at December 31, 2005, minus the exercise           price.
| | - | -------------------------------------------------------------------------------------------

60

---

| | 3 | The
above-reported options entitle Mr. Komar to purchase (i) 500,000 shares of Common Stock
that may be purchased by Mr. Komar at a price of $0.07 per share until July 7, 2012,
pursuant to a stock option grant to him on January 7, 2002, (ii) 50,000 shares of Common
Stock at an exercise price of $0.09 per share through April 24, 2013 pursuant to a stock
option granted to him on April 24, 2003, (iii) 50,000 shares of Common Stock at an
exercise price of $0.13 per share through December 31, 2013 pursuant to a stock option
granted to him on December 31, 2003, and (iv) 1,333,333 shares of Common Stock at an
exercise price of $0.235 per share through July 13, 2009 pursuant to a warrant issued to
Mr. Komar on July 14, 2004.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4 | The
above-reported options entitle Mr. McCubbin to purchase (i) 500,000 shares of Common
Stock that may be purchased by Mr. McCubbin at a price of $0.17 per share until January
2, 2011, pursuant to a stock option grant to him on January 2, 2001, (ii) 1,000 shares of
Common Stock that may be purchased by Mr. McCubbin at a price of $1.35 per share until
July 3, 2010, pursuant to a stock option granted to him on July 3, 2000 and (iii)
1,333,333 shares of Common Stock at an exercise price of $0.235 per share through July
13, 2009 pursuant to a warrant issued to Mr. McCubbin on July 14, 2004.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 5 | The
above-reported options entitle Mr. Mirabile to purchase (i) 500,000 shares of Common
Stock that may be purchased by Mr. Mirabile at a price of $0.17 per share until January
2, 2011, pursuant to a stock option grant to him on January 2, 2001, (ii) 1,000 shares of
Common Stock that may be purchased by Mr. Mirabile at a price of $1.35 per share until
July 3, 2010, pursuant to a stock option granted to him on July 3, 2000 and (iii)
1,333,333 shares of Common Stock at an exercise price of $0.235 per share through July
13, 2009 pursuant to a warrant issued to Mr. Mirabile on July 14, 2004.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 6 | The
above-reported options entitle Mr. Turissini to purchase (i) 500,000 share of Common
Stock that may be purchased by Mr. Turissini at a price of $0.76 per share until
September 14, 2015, pursuant to a stock option grant to him on September 14, 2005.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

No
Long-Term Incentive Plan Awards Table is set forth herein because no long-term incentive
plan awards were made to the above-named executive officers during 2005.

# Employment Agreements
and Arrangements

On
July 1, 2002, we entered into an employment agreement with Steve Komar, our Chief
Executive Officer and President. The employment agreement had an initial term expiring on
July 1, 2004 with four renewable one-year options remaining. On July 1, 2005, the second
of the one-year renewal options was exercised. The agreement provides for (1) a base
salary of $40,000 per year, (2) a home office/automobile expense allowance of $500 per
month to cover such expenses incurred in the pursuit of our business; (3) a phone
allowance of $100 per month to cover such expenses incurred in the pursuit of our
business; (4) reimbursement for additional actual business expenses consistent with our
existing policies that have been incurred for our benefit; (5) paid medical and other
benefits consistent with our existing policies with respect to our key executives, as such
policies may be amended from time to time in the future; and (6) performance incentive
bonuses as may be granted annually at the discretion of the Compensation Committee of the
Board of Directors.

61

---

On
July 1, 2002, we entered into an employment agreement with James McCubbin, our Chief
Financial Officer. The employment agreement had an initial term expiring on July 1, 2004
with four renewable one-year options remaining. On July 1, 2005, the second of the
one-year renewal options was exercised. The agreement provides for (1) a base salary of
$119,000 per year, (2) a home office/automobile expense allowance of $500 per month to
cover such expenses incurred in the pursuit of our business; (3) reimbursement for
additional actual business expenses consistent with our existing policies that have been
incurred for our benefit; (4) paid medical and other benefits consistent with our existing
policies with respect to our key executives, as such policies may be amended from time to
time in the future; and (5) performance incentive bonuses as may be granted annually at
the discretion of the Compensation Committee of the Board of Directors.

On
July 1, 2002, we entered into an employment agreement with Mark Mirabile, our Chief
Operations Officer. The employment agreement had an initial term expiring on July 1, 2004
with four renewable one-year options remaining. On July 1, 2005, the second of the
one-year renewal options was exercised. The agreement provides for (1) a base salary of
$119,000 per year, (2) a home office/automobile expense allowance of $500 per month to
cover such expenses incurred in the pursuit of our business; (3) reimbursement for
additional actual business expenses consistent with our existing policies that have been
incurred for our benefit; (4) paid medical and other benefits consistent with our existing
policies with respect to our key executives, as such policies may be amended from time to
time in the future; and (5) performance incentive bonuses as may be granted annually at
the discretion of the Compensation Committee of the Board of Directors.

On
October 25, 2004, we entered into an employment agreement with Dan Turissini, our Chief
Technology Officer and the Chief Executive Officer of our wholly owned subsidiary
Operational Research Consultants, Inc. The employment agreement has an initial term
expiring on October 25, 2006. The agreement provides for (1) a base salary of $225,000 per
year, (2) reimbursement for additional actual business expenses consistent with our
existing policies that have been incurred for our benefit; (3) paid medical and other
benefits consistent with our existing policies with respect to our key executives, as such
policies may be amended from time to time in the future; and (4) performance incentive
bonuses as may be granted annually at the discretion of the Compensation Committee of the
Board of Directors.

62

---

# Stock Options

1997
Stock Incentive Plan. In May 1997, the Board of Directors adopted, and in December 1997
our stockholders approved, our 1997 Stock Incentive Plan (the Plan), which
provides for the award of a variety of equity-based incentives, including stock awards,
stock options, stock appreciation rights, phantom shares, performance unit appreciation
rights and dividend equivalents (collectively, Stock Incentives). The Plan is
administered by the Compensation Committee and initially provided for the grant of Stock
Incentives to our officers, key employees and consultants to purchase up to an aggregate
of 10,000,000 shares of Common Stock at not less than 100% of fair market value of the
Common Stock on the date granted. The vesting and exercisability of any Stock Incentives
granted under the Incentive Plan is subject to the determination of and criteria set by
the Committee. As of December 31, 2005, options to purchase a total of 3,892,361 shares of
Common Stock under the Plan, at prices ranging from $0.07 to $1.35 per share, were
outstanding, of which options to purchase 3,219,850 shares were presently exercisable.
This does not include 1,333,333 warrants granted and vested to each Messrs. Komar,
McCubbin, and Mirabile, which were not issued under the 1997 Stock Incentive Plan.

1997
Directors Formula Stock Option Plan. In May 1997, the Board of Directors adopted, and in
December 1997 our stockholders approved, our 1997 Directors Formula Stock Option Plan (the
Director Plan). Other than Mr. Ritter, directors who are not employed by us
and who do not perform services for us are eligible to receive options under the Director
Plan. The Director Plan is administered by a committee that presently consists of Messrs.
Komar and McCubbin. Options become exercisable when vested and expire ten years after the
date of grant, subject to such shorter period as may be provided in the agreement. A total
of 140,000 shares of Common Stock are reserved for possible issuance upon the exercise of
options under the Director Plan. During 2004, options granted to and vested with the
directors were returned to us. There are no options presently outstanding under the
Director Plan.

Other
Options. Options were granted on April 21, 2003 by the Board of Directors outside of the
Director Plan to Mr. Ritter, who abstained from voting on such matter, to purchase (i)
50,000 shares of Common Stock at a price of $0.09 per share through April 21, 2013, of
which options to purchase 25,000 shares vested on July 21, 2003, 12,500 shares vested on
April 21, 2004, and the remaining 12,500 shares vested on April 21, 2005, and (ii) 50,000
shares of Common Stock at a price of $0.13 per share through December 31, 2013 with all of
the shares vesting on December 31, 2004.

63

---

# Directors Fees

Directors
who are not also officers or employees receive an annual fee of $12,000.

|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS.
|-------- | ----------------------------------------------------------------------------------------------

The following table sets forth the
number of shares of our Common Stock beneficially owned as of December 31, 2005 by: (i)
each person known to be the beneficial owner of 5% or more of such class of securities,
(ii) each director and (iii) all directors and officers as a group.

|Directors, Nominees
and 5% Stockholders | Number of
Shares of
Common Stock (1) | Percent of
Outstanding
Common Stock (1)
|--------------------------------------- | ------------------------------------ | ---------------------------------------
|Endurance Partners, (Q.P.), L.P. (2)    | 2,364,600                            | 5.2%                                   
|Steve Komar (3)                         | 2,798,833                            | 6.1%                                   
|Norman Wareham (4)                      | 75,000                               | 0.1%                                   
|James McCubbin (5)                      | 2,699,333                            | 5.9%                                   
|James Ritter (6)                        | 100,000                              | 0.1%                                   
|Mark Mirabile (7)                       | 2,869,333                            | 6.3%                                   
|Daniel Turissini (8)                    | 1,375,000                            | 3.0%                                   
|All directors and                      
|officers as a group                    
|(6 persons) (9)                         | 9,917,499                            | 21.8%                                  

---

|(1) | Assumes
in the case of each stockholder listed in the above list that all
                    presently exercisable warrants or options held by such stockholder
were fully                     exercised by such stockholder, without the exercise of any
warrants or options                     held by any other stockholders.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

64

---

|(2) | The
address of Endurance Partners, (Q.P.), L.P. is 4514 Cole Avenue, Suite 808,
                    Dallas, Texas.
|--- | ------------------------------------------------------------------------------------------------------------------

|(3) | Includes
(i) 865,000 shares of Common Stock purchased by Mr. Komar on July 8,
                    2002 in a private transaction without registration under the
Securities Act of                     1933, pursuant to the private offering exemption
under Section 4(2) thereof,                     (ii) 500,000 shares of Common Stock that
may be purchased by Mr. Komar at a                     price of $0.07 per share until
July 7, 2012, pursuant to a stock option grant to                     him on January 7,
2002, (iii) 50,000 shares of Common Stock at an exercise price                     of
$0.09 per share through April 24, 2013 pursuant to a stock option granted to
                    him on April 24, 2003, (iv) 50,000 shares of Common Stock at an
exercise price                     of $0.13 per share through December 31, 2013 pursuant
to a stock option granted                     to him on December 31, 2003, with all such
shares fully vesting on December 31,                     2004 or by an earlier vesting
decision as may be granted by the Compensation                     Committee, and (v)
1,333,333 shares of Common Stock at an exercise price of                     $0.235 per
share through July 14, 2009 pursuant to a warrant granted to him on
                    July 14, 2004.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Includes
(i) 25,000 shares of Common Stock that may be purchased by Mr. Wareham
                    at a price of $0.09 per share until April 24, 2013, pursuant to a
stock option                     granted to him on April 24, 2003 under the Plan, and
(ii) 50,000 shares of                     Common Stock that may be purchased by him at a
price of $0.13 per share through                     December 31, 2013, under an option
granted on December 31, 2003. Mr Wareham                     resigned from the Board of
Directors on March 7, 2006.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Includes
(i) 865,000 shares of Common Stock purchased by Mr. McCubbin on July 8,
                    2002 in a private transaction without registration under the
Securities Act of                     1933, pursuant to the private offering exemption
under Section 4(2) thereof,                     (ii) 500,000 shares of Common Stock that
may be purchased by Mr. McCubbin at a                     price of $0.17 per share until
January 2, 2011, pursuant to a stock option grant                     to him on January
2, 2001, (iii) 1,000 shares of Common stock that may be                     purchased by
Mr. McCubbin at a price of $1.35 per share until July 3, 2010,
                    pursuant to a stock option granted to him on July 3, 2000, and (iv)
1,333,333                     shares of Common Stock at an exercise price of $0.235 per
share through July 14,                     2009 pursuant to a warrant granted to him on
July 14, 2004.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Includes
(i) 1,500 shares of Common Stock owned directly by Mr. Ritter, (ii)
                    50,000 shares of Common Stock that may be purchased by Mr. Ritter at
a price of                     $0.09 per share until April 24, 2013, pursuant to a stock
option granted to him                     on April 24, 2003 under the Plan, and (iii)
50,000 shares of Common Stock that                     may be purchased by him at a price
of $0.13 per share through December 31, 2013,                     under an option granted
on December 31, 2003.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

65

---

|(7) | Includes
(i) 865,000 shares of Common Stock purchased by Mr. Mirabile on July 8,
                    2002 in a private transaction without registration under the
Securities Act of                     1933, pursuant to the private offering exemption
under Section 4(2) thereof,                     (ii) 170,000 shares of Common Stock
issued to Mr. Mirabile in December 1998 in                     connection with our prior
acquisition of Eclipse, (iii) 500,000 shares of Common                     Stock that may
be purchased by Mr. Mirabile at a price of $0.17 per share until
                    January 2, 2011, pursuant to a stock option grant to him on January
2, 2001,                     (iv) 1,000 shares of Common Stock that may be purchased by
Mr. Mirabile at a                     price of $1.35 per share until July 3, 2010,
pursuant to a stock option granted                     to him on July 3, 2000, and (v)
1,333,333 shares of Common Stock at an exercise                     price of $0.235 per
share through July 14, 2009 pursuant to a warrant granted to                     him on
July 14, 2004.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(8) | Includes
(i) 875,000 shares of Common Stock issued to Mr. Turissini in
                    connection with our acquisition in October 2004 of Operational
Research                     Consultants, Inc. (ORC), and (ii) 500,000 shares
of Common Stock                     that may be purchased by Mr. Turissini at a price of
$0.76 per share until                     September 14, 2015, pursuant to a stock option
grant to him on September 14,                     2005 . Does not include 1,851,852
shares which are held in escrow and subject to                     possible return to us
in the event ORC does not achieve certain performance                     levels on a
post-closing basis as provided in such acquisition agreements.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(9) | Includes
the shares referred to as included in notes (3), (4), (5), (6), (7) and
                    (8), above. Does not include the shares referred to as not included
in note (8)                     above.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Barron Partners Stock
Ownership

In
October 2004, we completed a financing with Barron Partners L.P. (Barron) for
an aggregate amount of $3,580,000, under a preferred stock purchase agreement and related
agreements. As a result of the financing, and giving effect ot Barrons conversion of
Series A Convertible Preferred Stock and exercise of warrants during April, May, August,
September, and December 2005, Barron owns 1,195713 shares of our Series A Convertible
Preferred Stock, which are convertible into a total of 11,957,139 shares of Common Stock
and no common shares related to its warrants. As a result of the conversion of Series A
Convertible Preferred Stock and the exercise of warrants during April, May, August,
September, and December 2005, Barron owns 1,328,572 shares of our Common Stock as of
December 31, 2005. Barrons rights to convert such Series A Convertible Preferred
Stock are subject to contractual limitations which restrict its ability to acquire such
shares at any time in the event Barron would own more than a total of 4.99% of the
outstanding shares of Common Stock following such conversion and/or exercise. The
aforementioned restriction may be removed by Barron upon 61 days notice to us from Barron,
but in the event that Barron elects to remove such restriction, then Barron and its
affiliates can only vote the shares of Common Stock held by Barron and its affiliates
which result in Barron and its affiliates having no more than 22% of the total voting
power of all outstanding shares of Common Stock at any time. Assuming that Barron elects
to remove the restriction on its ability to own no more than 4.99% of the outstanding
shares of Common Stock, then in the event Barron were to convert all of its Series A
Convertible Preferred Stock into shares of Common Stock, then it would own an aggregate of
29% of the then outstanding shares of Common Stock, subject to the above-described voting
restriction.

66

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ITEM 13.  CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS.

Promissory Notes with
Executive Officers of the Company

Pursuant to stock purchase agreements
entered into on July 8, 2002, between the Company and each of Messrs. Komar, McCubbin and
Mirabile, the Company privately sold 865,000 shares of Common Stock to each such person
without registration under the Securities Act of 1933, pursuant to the private offering
exemption under Section 4(2) thereof, in consideration for the issuance by each such
person to the Company of a three-year full-recourse promissory note in the principal
amount of $181,650 (which equals $0.07 per share, being the closing price of the Common
Stock on July 8, 2002) and bearing interest at 5% per annum, with equal annual principal
payments of $60,550 being due on July 5th of each year. In 2005, the largest aggregate
amount of indebtedness outstanding under these promissory notes equaled the total of the
following approximate amounts for each such person: Mr. Komar  $44,000; Mr. McCubbin
 $44,000; and Mr. Mirabile  $44,000. In 2004 and 2005, the largest aggregate
amount of indebtedness outstanding under these promissory notes equaled the total of the
following approximate amounts for each such person: Mr. Komar  $24,000; Mr. McCubbin
 $24,000; and Mr. Mirabile  $24,000. As of December 31, 2005, there was no
amount of indebtedness outstanding under these promissory notes.

ITEM 14. PRINCIPAL ACCOUNTING FEES
AND SERVICES.

| | Audit
Fees
| | ----------

| | The
Company paid Grant Thornton LLP approximately $165,194 and $53,000 in audit and review
fees for fiscal year 2005 and 2004, respectively. The Company will pay Epstein,
Weber & Conover,  PLC $40,000 plus expenses for the audit and review fees associated
with the Companys 2005 audit.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

67

---

| | Audit-Related
Fees
| | ------------------

| | The
Company did not pay Grant Thornton LLP any audit-related fees for fiscal year 2005 or
2004, respectively.
| | -------------------------------------------------------------------------------------------------------------

| | Financial
Information Systems Design and Implementation Fees
| | ------------------------------------------------------------

| | The
Company did not pay Grant Thornton LLP any financial information systems design and
implementation fees for fiscal year 2005 or 2004, respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------

| | Tax
Fees
| | --------

| | The
Company did not pay Grant Thornton LLP any tax fees for fiscal year 2005 or 2004,
respectively.
| | ---------------------------------------------------------------------------------------------------

| | All
Other Fees
| | --------------

| | The
Company did not pay Grant Thornton LLP any nonaudit fees for fiscal year 2005 or 2004,
respectively.
| | --------------------------------------------------------------------------------------------------------

68

---

# Part IV.

ITEM 15. EXHIBITS AND FINANCIAL
STATEMENT SCHEDULES.

(a)
       Financial Statements and Financial Statement
Schedule

| | (1)
       Financial Statements:
| | --------------------------------

| | Report
of Epstein Weber & Conover LLP, Independent Registered Public Accounting Firm
| | ------------------------------------------------------------------------------------

| | Report
of Grant Thornton LLP, Independent Registered Public Accounting Firm
| | ---------------------------------------------------------------------------

| | Consolidated
Balance Sheets as of December 31, 2005 and 2004
| | ------------------------------------------------------------

| | Consolidated
Statements of Operations for the Years Ended December 31, 2005, 2004, and 2003
| | -------------------------------------------------------------------------------------------

| | Consolidated
Statements of Changes in Stockholders Equity for the Years Ended December 2005,
2004, and 2003
| | ------------------------------------------------------------------------------------------------------------

| | Consolidated
Statements of Cash Flow for the Years Ended December 31, 2005, 2004, and 2003
| | ------------------------------------------------------------------------------------------

| | Notes
to Consolidated Financial Statements
| | ------------------------------------------

All other schedules are omitted
either because they are not applicable or required, or because the required information is
included in the financial statements or notes thereto:

(b)              Exhibits:
The following exhibits are filed herewith or incorporated herein by           reference:

69

---

|EXHIBITNO. | DESCRIPTION
|---------- | -----------

|2.1 | Stock
Purchase  Agreement among ZMAX  Corporation,  Michael C. Higgins and Michael S. Cannon,
 dated November 6, 1996, for the          acquisition  of Century  Services,  Inc.
 (Incorporated  herein by reference to Exhibit 2.1 to the  Registrant's  Registration
         Statement on Form S-4 (File No. 333-29833).)
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.2 | Agreement
and Plan of Merger between ZMAX  Corporation and New ZMAX  Corporation,  dated June 10,
1999.  (Incorporated  herein          by reference to Exhibit 2.2 to the Registrant's
Registration Statement on Form S-4 (File No. 333-29833).)
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.1 | Amended
and Restated  Certificate of Incorporation of WidePoint  Corporation.  (Incorporated
 herein by reference to Exhibit A          to the Registrant's Definitive Proxy
Statement, as filed on December 27, 2004.)
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.2 | Bylaws
of ZMAX Corporation.  (Incorporated  herein by reference to Exhibit 3.6 to the
Registrant's  Registration  Statement on          Form S-4 (File No. 333-29833).)
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.1 | Form
of Warrant to  Purchase  Common  Stock of ZMAX  Corporation.  (Incorporated  herein by
 reference  to Exhibit  4.2 to the          Registrant's Registration Statement on Form
S-4 (File No. 333-29833).)
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.1 | ZMAX
 Corporation  1999  Stock  Incentive  Plan.  (Incorporated  herein  by  reference  to
 Exhibit  10.1 to the  Registrant's          Registration Statement on Form S-4 (File No.
333-29833).)*
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.2 | Form
of ZMAX Corporation 1999  Non-qualified  Stock Option Award (form of grant and vesting
 schedule).  (Incorporated  herein          by reference to Exhibit 10.2 to the
Registrant's Registration Statement on Form S-4 (File No. 333-29833).)*
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.3 | ZMAX
 Corporation  1999  Directors  Formula  Stock  Option  Plan.  (Incorporated  herein by
 reference  to Exhibit 10.3 to the          Registrant's Registration Statement on Form
S-4 (File No. 333-29833).)*
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.4 | Form
of ZMAX Corporation  Directors Formula Stock Option Award (form of grant and vesting
schedule).  (Incorporated  herein by          reference to Exhibit 10.4 to the
Registrant's Registration Statement on Form S-4 (File No. 333-29833).)*
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.5 | Employment
Agreement between Century Services,  Inc. and Michael C. Higgins,  dated November 6,
1996.  (Incorporated herein by          reference to Exhibit 10.5 to the Registrant's
Registration Statement on Form S-4 (File No. 333-29833).)*
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

____________________ * -
Management contract or compensatory plan

70

---

|10.6 | First
 Amendment to the  Employment  Agreement  between  Century  Services,  Inc. and Michael
C. Higgins,  dated May 21, 1999.          (Incorporated  herein  by  reference  to
 Exhibit  10.6 to the  Registrant's  Registration  Statement  on Form S-4  (File  No.
         333-29833).)*
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.7 | Employment
 Agreement between Century Services,  Inc. and Joseph Yeh, dated June 18, 1999.
 (Incorporated  herein by reference          to Exhibit 10.7 to the Registrant's
Registration Statement on Form S-4 (File No. 333-29833).)*
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.8 | Separation
 Agreement  between Century Services,  Inc. and Michael S. Cannon,  dated April 22, 1999.
 (Incorporated  herein by          reference to Exhibit 10.8 to the Registrant's
Registration Statement on Form S-4 (File No. 333-29833).)*
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.9 | Consulting
 Agreement  among ZMAX  Corporation,  MBY,  Inc. and Michel  Berty,  dated April 1, 1999.
 (Incorporated  herein by          reference to Exhibit 10.9 to the Registrant's
Registration Statement on Form S-4 (File No. 333-29833).)*
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.10 | Consulting
 Agreement  among  ZMAX  Corporation,  Wareham  Management  Ltd.  and G.W.  Norman
 Wareham,  dated  May 30,  1999.          (Incorporated  herein  by  reference  to
 Exhibit  10.10 to the  Registrant's  Registration  Statement  on Form S-4  (File No.
         333-29833).)*
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.11 | Consulting
 Agreement between ZMAX Corporation and Shafiq Nazerali,  dated May 30, 1999.
 (Incorporated herein by reference to          Exhibit 10.11 to the Registrant's
Registration Statement on Form S-4 (File No. 333-29833).)*
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.12 | Earn
Out Stock Escrow Agreement among ZMAX Corporation,  Michael C. Higgins, Michael S. Cannon
and Powell,  Goldstein,  Frazer          & Murphy,  dated  November 6, 1996.
 (Incorporated  herein by  reference  to Exhibit  10.12 to the  Registrant's
 Registration          Statement on Form S-4 (File No. 333-29833).)
|----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.13 | ZMAX
Corporation  Stockholders Agreement among Michael C. Higgins,  Michael S. Cannon and ZMAX
Corporation,  dated November 6,          1996.  (Incorporated  herein by reference to
Exhibit 10.13 to the  Registrant's  Registration  Statement on Form S-4 (File No.
         333-29833).)
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.14 | Stock
 Pledge  and  Security  Agreement  from  Michael  C.  Higgins  in favor of ZMAX
 Corporation,  dated  November  6, 1996.          (Incorporated  herein  by  reference
 to  Exhibit  10.14 to the  Registrant's  Registration  Statement  on Form S-4  (File No.
         333-29833).)
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

____________________ * -
Management contract or compensatory plan

71

---

|10.15 | Letter
Agreement among ZMAX Corporation,  IMS  International,  Inc., Wan Hsien Information
 International  Corporation,  Ltd.,          Multi-Dimension  International,  and
Institute for  Information  Industry  Regarding the Purchase by ZMAX  Corporation  of the
         "COCACT"  Software  Program,  dated April 30, 1999.  (Incorporated  herein by
reference to Exhibit  10.15 to the  Registrant's          Registration Statement on Form
S-4 (File No. 333-29833).)
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.16 | Letter
Agreement  between ZMAX Corporation and Institute for Information  Industry  Regarding
the Purchase by ZMAX Corporation          of the  "COCACT"  Software  Program,  dated
 April  30,  1999.  (Incorporated  herein by  reference  to  Exhibit  10.16 to the
         Registrant's Registration Statement on Form S-4 (File No. 333-29833).)
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.17 | Letter
Agreement between ZMAX Corporation and Wan Hsien Information  International  Corporation
Ltd. Regarding the Purchase by          ZMAX Corporation of the "COCACT"  Software
 Program,  dated April 30, 1999, as amended.  (Incorporated  herein by reference to
         Exhibit 10.17 to the Registrant's Registration Statement on Form S-4 (File No.
333-29833).)
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.18 | Conversion
 Agreement between Fiserv Federal Systems,  Inc. and ZMAX Corporation,  dated April 28,
1999.  (Incorporated herein          by reference to Exhibit 10.18 to the Registrant's
Registration Statement on Form S-4 (File No. 333-29833).)
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.19 | Agreement
between ZMAX Corporation and Investor  Communications  Company, LLC, dated as of May 20,
1999.  (Incorporated herein          by reference to Exhibit 2.2 to the Registrant's
Registration Statement on Form S-4 (File No. 333-29833).)
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.20 | Investor
Relations Consulting  Agreement between ZMAX Corporation and Investor  Communications
 Company,  LLC, dated as of May          20, 1999.  (Incorporated  herein by reference to
Exhibit 10.20 to the  Registrant's  Registration  Statement on Form S-4 (File
         No. 333-29833).)
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.21 | Agreement
and Plan of Merger,  dated as of December 14, 1998, by and among ZMAX  Corporation,
 Eclipse  Acquisition  Corporation,          Eclipse  Information  Systems,  Inc., and
Frank Schultz,  Mark Mirabile,  John Schultz,  Scott Shedd, Brad Adams, Ron Hilicki,
         Fred Anderson,  Harold Zimmerman,  Chris Gildone, Dave Vittitow,  Kristina
Palmer, Tom Carroll and Gary Singer.  (Incorporated          herein by  reference  to
Exhibit 2 to the  Registrant's  Current  Report of Form 8-K, as filed on December  29,
1998 (File No.          333-555993).)
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

____________________ * -
Management contract or compensatory plan

72

---

|10.22 | Agreement
 and Plan of Merger,  dated as of October 1, 1999,  by and among ZMAX  Corporation,
 Parker  Acquisition  Corporation,          Parker Management  Consultants,  Ltd.,
Westmont Non-Grantor Trust, and Kenneth W. Parker and Jennifer L Parker.  (Incorporated
         herein by  reference  to Exhibit 2 to the  Registrant's  Current  Report of Form
8-K,  as filed on October  18, 1999 (File No.          333-55993).)
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.23 | Employment
Agreement between ZMAX Corporation and Michael C. Higgins, dated September 1, 1999.*
(Incorporated herein by          reference to Exhibit 10.23 to Registrant's Report of
Form 10-K, as filed on March 30, 2000 (File No. 000-23967).)
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.24 | Employment
 Agreement  between ZMAX  Corporation  and James T. McCubbin,  dated  September 1, 1999.*
 (Incorporated  herein by          reference to Exhibit 10.24 to Registrant's Report of
Form 10-K, as filed on March 30, 2000 (File No. 000-23967).)
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.25 | Separation
Agreement between WidePoint Corporation and Michael C. Higgins, dated December 31, 2001.*
|----- | ----------------------------------------------------------------------------------------------------

|10.26 | Employment
 Agreement between WidePoint  Corporation and Steve Komar, dated July 1, 2002.*
 (Incorporated  herein by reference          to Exhibit 10.26 to Registrant's Report of
Form 10Q, as filed on August 15, 2002 (File No.  000-23967)
|----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.27 | Employment
 Agreement  between  WidePoint  Corporation  and James  McCubbin,  dated  July 1,  2002.*
 (Incorporated  herein by          reference to Exhibit 10.26 to Registrant's Report of
Form 10Q, as filed on August 15, 2002 (File No.  000-23967)
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.28 | Employment
 Agreement  between  WidePoint  Corporation  and Mark  Mirabile,  dated  July 1,  2002.*
 (Incorporated  herein  by          reference to Exhibit 10.26 to Registrant's Report of
Form 10Q, as filed on August 15, 2002 (File No.  000-23967)
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.29 | Agreement
and Plan of Merger by and among WidePoint  Corporation,  Chesapeake Acquisition
 Corporation,  Chesapeake Government          Technologies,  Inc. and Mark C. Fuller,
 John D. Crowley and Jay O. Wright.  (Incorporated herein by reference to Exhibit 10.1
         to the Registrant's Current Report on Form 8-K filed on May 14, 2004.)
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.30 | Escrow
Agreement by and among WidePoint  Corporation,  Mark C.  Fuller,  John D.  Crowley,  Jay
O.  Wright and Foley & Lardner          LLP.  (Incorporated  herein by  reference  to
Exhibit  10.2 to the  Registrant's  Current  Report on Form 8-K filed on May 14,
         2004.)
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.31 | Stock
Pledge  Agreement by and among  WidePoint  Corporation,  Mark C.  Fuller,  John D.
 Crowley,  Jay O.  Wright and Foley &         Lardner  LLP.  (Incorporated  herein by
 reference to Exhibit  10.3 to the  Registrant's  Current  Report on Form 8-K filed on
         May 14, 2004.)
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

____________________  * -
Management contract or compensatory plan

73

---

|10.32 | Employment
and Non-Compete  Agreement between WidePoint  Corporation and Mark C.  Fuller.*
 (Incorporated  herein by reference          to Exhibit 10.4 to the Registrant's Current
Report on Form 8-K filed on May 14, 2004.)
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.33 | Employment
and Non-Compete  Agreement between WidePoint  Corporation and John D.  Crowley.*
 (Incorporated herein by reference          to Exhibit 10.5 to the Registrant's Current
Report on Form 8-K filed on May 14, 2004.)
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.34 | Consulting
and Non-Compete Agreement between WidePoint  Corporation and Jay O.  Wright.*
 (Incorporated herein by reference to          Exhibit 10.6 to the Registrant's Current
Report on Form 8-K filed on May 14, 2004.)
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.35 | Warrant
Agreement  between  WidePoint  Corporation and Mark C.  Fuller.  (Incorporated  herein by
reference to Exhibit 10.7 to          the Registrant's Current Report on Form 8-K filed
on May 14, 2004.)
|----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.36 | Warrant
Agreement  between WidePoint  Corporation and John D.  Crowley.  (Incorporated  herein by
reference to Exhibit 10.8 to          the Registrant's Current Report on Form 8-K filed
on May 14, 2004.)
|----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.37 | Warrant
Agreement between WidePoint  Corporation and Jay O.  Wright.  (Incorporated herein by
reference to Exhibit 10.9 to the          Registrant's Current Report on Form 8-K filed
on May 14, 2004.
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.38 | Preferred
Stock Purchase  Agreement Between WidePoint  Corporation and Barron Partners LP.
 (Incorporated  herein by reference          to Exhibit 10.1 to the Registrant's Current
Report on Form 8-K/A filed on November 2, 2004.)
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.39 | Common
Stock Purchase  Warrant between  WidePoint  Corporation and Barron  Partners LP.
 (Incorporated  herein by reference to          Exhibit 10.2 to the Registrant's Current
Report on Form 8-K/A filed on November 2, 2004.)
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.40 | Registration
 Rights Agreement  between  WidePoint  Corporation and Barron Partners LP.  (Incorporated
 herein by reference to          Exhibit 10.3 to the Registrant's Current Report on Form
8-K/A filed on November 2, 2004.)
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.41 | Certificate
 Of  Designations,  Rights  And  Preferences  Of The  Series  A  Convertible  Preferred
 Stock  between  WidePoint          Corporation and Barron Partners LP  (Incorporated
 herein by reference to Exhibit 10.4 to the  Registrant's  Current Report on
         Form 8-K/A filed on November 2, 2004.)
|----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

* Management contract or
compensatory plan.

74

---

|10.42 | Stock
Purchase  Agreement between WidePoint  Corporation,  Operational  Research  Consultants,
 Inc.  (Incorporated  herein by          reference to Exhibit 10.5 to the Registrant's
Current Report on Form 8-K/A filed on November 2, 2004.)
|----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.43 | Master
Amendment  between  WidePoint  Corporation and Barron Partners L.P.  (Incorporated
 herein by reference to Exhibit 10.1          to the Registrant's Current Report on Form
8-K filed on November 11, 2004.)
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.44 | Common
Stock Purchase  Warrant between the Registrant and Westcap  Securities Inc.  relating to
285,714 shares.  (Incorporated          herein by reference to Exhibit 10.44 to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 2004.)
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.45 | Common
Stock Purchase  Warrant between the Registrant and Westcap  Securities Inc.  relating to
225,714 shares.  (Incorporated          herein by reference to Exhibit 10.45 to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 2004.)
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.46 | Loan
 and  Security  Agreement,  dated  as of  October  22,  2004,  by and  between  RBC
 Centura  Bank  and  the  Registrant.          (Incorporated  herein by reference to
Exhibit 46 to the  Registrant's  Annual Report on Form 10-K for the year ended  December
         31, 2004, as filed with Form 10-K/A No. 1 thereto.)
|----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.47 | Letter
 Amendment  to Loan and  Security  Agreement,  dated as of  February 7, 2005,  by and
between RBC Centura  Bank and the          Registrant.  (Incorporated  herein by
reference to Exhibit 10.47 to the  Registrant's  Annual Report on Form 10-K for the year
         ended December 31, 2004, as filed with Form 10-K/A No. 1 thereto.)
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|21 | Subsidiaries
of WidePoint Corporation
|-- | -------------------------------------

|23.1A | Consent
of Epstein Weber & Conover  LLP
|----- | ---------------------------------------

|23.1B | Consent
of Grant Thornton LLP
|----- | -----------------------------

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

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

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

75

---

# SIGNATURES

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

WidePoint Corporation

|                     |                                             
|-------------------- | --------------------------------------------
|Date: March 31, 2006 | /s/ STEVE L. KOMAR                          
|                     | Steve L. Komar                              
|                     | Chief Executive Officer                     
|Date: March 31, 2006 | /s/ JAMES T. MCCUBBIN                       
|                     | James T. McCubbin                           
|                     | Vice President - Principal Financial Officer

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons, on behalf of the Registrant and in the capacities and on
the dates indicated.

|                      |                                              
|--------------------- | ---------------------------------------------
|Dated: March 31, 2006 | /s/STEVE L. KOMAR                            
|                      | Steve L. Komar                               
|                      | Director and Chief Executive Officer         
|Dated: March 31, 2006 | /s/JAMES T. MCCUBBIN                         
|                      | James T. McCubbin                            
|                      | Director, Vice President and Chief Financial 
|                      | Officer, Secretary and Treasurer             
|Dated: March 31, 2006 | /s/MARK MIRABILE                             
|                      | Mark Mirabile                                
|                      | Director, Vice President and Chief Operations
|                      | Officer                                      
|                     
|Dated: March 31, 2006 | /s/JAMES M. RITTER                           
|                      | James M. Ritter                              
|                      | Director, Assistant Secretary                
|Dated: March 31, 2006 | /s/MORTON S. TAUBMAN                         
|                      | Morton S. Taubman                            
|                      | Director, Chairman of the Audit Committee    

76

---

INDEX TO FINANCIAL
STATEMENTS

|                                                                   
|-------------------------------------------------------------------
|Report of Independent Registered Public Accounting Firms           
|Consolidated Balance Sheets as of December 31, 2005 and 2004       
|Consolidated Statements of Operations for the Years ended          
|December 31, 2005, 2004, and 2003                                  
|Consolidated Statements of Stockholders Equity for the Years ended
|December 31, 2005, 2004, and 2003                                  
|Consolidated Statements of Cashflows for the Years ended           
|December 31, 2005, 2004, and 2003                                  
|Notes to Consolidated Financial Statements                         

77

---

# REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and
Shareholders      of Widepoint Corporation:

We have audited the accompanying
consolidated balance sheet of Widepoint Corporation and subsidiaries as of December 31,
2005 and the related consolidated statements of operations, stockholders equity and
cash flows for the year then ended. These financial statements are the responsibility of
the Companys management. Our responsibility is to express an opinion of these
financial statements based on our audit.

We conducted our audit in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the financial
statements referred to above present fairly, in all material respects, the financial
position of Widepoint Corporation and subsidiaries as of December 31, 2005 and the results
of their operations and their cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States of America.

/s/EPSTEIN, WEBER &
CONOVER, PLCScottsdale, ArizonaMarch 27, 2006

F - 1

---

# REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and
Stockholders ofWidePoint Corporation:

We have audited the accompanying
consolidated balance sheet of WidePoint Corporation and subsidiaries as of December 31,
2004 and the related consolidated statements of operations, shareholders equity, and
cash flows for the years ended December 31, 2004 and 2003. These financial statements are
the responsibility of the Corporations management. Our responsibility is to express
an opinion on the financial statements based on our audit.

We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform an audit of its internal control over
financial reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated
financial statements referred to above present fairly, in all material respects, the
financial position of WidePoint Corporation and subsidiaries at December 31, 2004, and the consolidated results of their operations and their consolidated cash flows
for the year ended December 31, 2004 and 2003, in conformity with accounting principles
generally accepted in the United States of America.

/s/ Grant Thornton LLP

Chicago, IllinoisApril 14, 2005, except for
the effects of the restatementas discussed in Note 1, titled
"Basis of Presentation, Organization,and Nature of Operations" as to which
the date is January 19, 2006

F - 2

---

# WIDEPOINT CORPORATION
AND SUBSIDIARIES      Consolidated Balance Sheets

|                                                                              | December 31,
|----------------------------------------------------------------------------- | ------------
|
|Assets                                                                        |             
|Current assets:                                                               |             
|Cash and cash equivalents                                                     |             
|Accounts receivable                                                           |             
|Prepaid expenses and other assets                                             |             
|                                                                              |             
|Total current assets                                                          |             
|                                                                              |             
|Property and equipment, net                                                   |             
|Goodwill                                                                      |             
|Intangibles, net                                                              |             
|Other assets                                                                  |             
|                                                                              |             
|Total assets                                                                  |             
|                                                                              |             
|Liabilities and stockholders equity                                          |             
|Current liabilities:                                                          |             
|Short-term borrowings                                                         |             
|                                                                              |             
|Accounts payable                                                              |             
|Accrued expenses                                                              |             
|Deferred revenue                                                              |             
|Income taxes payable                                                          |             
|Short-term portion of deferred rent                                           |             
|Financial instruments                                                         |             
|                                                                              |             
|Total current liabilities                                                     |             
|                                                                              |             
|Long-term portion of deferred rent                                            |             
|Deferred income tax liability                                                 |             
|                                                                              |             
|Total liabilities                                                             |             
|Temporary equity:                                                             |             
|Preferred stock, $0.001 par value; 10,000,000 shares                          |             
|authorized; 1,195,714 and 2,045,714 shares issued and outstanding,            |             
|respectively                                                                  |             
|Stockholders equity (deficit):                                               |             
|Common stock, $0.001 par value; 110,000,000 and 50,000,000 shares authorized, |             
|respectively; 37,297,729 shares and 17,859,009 shares issued and outstanding, |             
|respectively                                                                  |             
|Common stock issuable, $0.001 par value; 1,905,390 and 544,398 shares         |             
|                                                                              |             
|Stock warrants                                                                |             
|Related party notes receivable                                                |             
|Additional paid-in capital                                                    |             
|Accumulated deficit                                                           |             
|                                                                              |             
|Total stockholders equity (deficit)                                          |             
|                                                                              |             
|Total liabilities, temporary equity and stockholders equity                  |             
|(deficit)                                                                     |             
|                                                                              |             

The accompanying notes
are an integral part of these consolidated statements

F - 3

---

# WIDEPOINT CORPORATION
AND SUBSIDIARIES Consolidated statements of operations

|                                                                | For the Years Ended December 31,
|--------------------------------------------------------------- | --------------------------------
|
|Revenues, net                                                   |                                 
|Cost of revenues (including depreciation and amortization of    |                                 
|$323,916, $46,547, and $0, respectively, and stock compensation |                                 
|expense of $1,878,171, $381,079, and $0, respectively)          |                                 
|                                                                |                                 
|Gross profit                                                    |                                 
|Sales and marketing                                             |                                 
|General and administrative                                      |                                 
|Depreciation expense                                            |                                 
|                                                                |                                 
|Loss from operations                                            |                                 
|Other income (expenses):                                        |                                 
|Interest income                                                 |                                 
|Interest expense                                                |                                 
|Loss from financial instruments                                 |                                 
|Other                                                           |                                 
|                                                                |                                 
|Net loss before provision for income taxes                      |                                 
|                                                                |                                 
|Income tax benefit                                              |                                 
|                                                                |                                 
|Net loss                                                        |                                 
|                                                                |                                 
|Basic and diluted net loss per share                            |                                 
|                                                                |                                 
|Basic and diluted weighted-average shares outstanding           |                                 
|                                                                |                                 

The accompanying notes
are an integral part of these consolidated statements

F - 4

---

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

|                            | Temporary Equity
Preferred Stock | Permanent Equity
Common Stock | Common
Stock | Stock     | Related
Party Notes | Additional
Paid-In | Restated
Accumulated | Permanent
Equity
|--------------------------- | -------------------------------- | ----------------------------- | ------------ | --------- | ------------------- | ------------------ | -------------------- | ----------------
|
|Balance, December 31, 2003  |                                  |                               |              | --        |                     | $                  | --                   |                 
|                            |                                  |                               |              |           |                     |                    |                      |                 
|Collections on related      |                                  |                              
|party notes receivable      |                                  |                               |              | --        |                     |                    | --                   |                 
|Issuance of common stock    |                                  |                              
|Tripoint                    |                                  |                               |              |           |                     |                    |                      |                 
|Issuance of common stock    |                                  |                              
|- Chesapeake                |                                  |                               |              | --        |                     |                    | --                   |                 
|Issuance of common stock    |                                  |                              
|issuable - Chesapeake       |                                  |                               |              |           |                     |                    |                      |                 
|December 31, 2004           |                                  |                              
|Issuance of common          |                                  |                              
|stock issuable -            |                                  |                              
|Chesapeake                  |                                  |                               |              |           |                     |                    |                      |                 
|Issuance of common stock    |                                  |                              
|- ORC                       |                                  |                               |              |           |                     |                    |                      |                 
|Sale of preferred stock     |                                  |                               |              | 2,045,714 |                     |                    | 2,046                |                 
|Expenses associated from    |                                  |                              
|preferred stock             |                                  |                               |              |           |                     |                    |                      |                 
|Issuance of common          |                                  |                              
|stock  warrants             |                                  |                               |              |           |                     |                    |                      |                 
|Net loss                    |                                  |                               |              |           |                     |                    |                      |                 
|                            |                                  |                               |              |           |                     |                    |                      |                 
|Balance, December 31, 2004  |                                  |                               |              | 2,045,714 |                     | $                  | 2,046                |                 
|                            |                                  |                               |              |           |                     |                    |                      |                 
|Collections on related      |                                  |                              
|party notes receivable      |                                  |                               |              | --        |                     |                    | --                   |                 
|Issuance of common stock    |                                  |                               |              | --        |                     |                    | --                   |                 
|Issuance of common          |                                  |                              
|stock issuable - Chesapeake |                                  |                               |              | --        |                     |                    | --                   |                 
|Conversion of preferred     |                                  |                              
|stock                       |                                  |                               |              | (850,000  | )                   |                    | (850                 | )               
|Costs associated from       |                                  |                              
|registration statement      |                                  |                               |              | --        |                     |                    | --                   |                 
|Warrants valuation          |                                  |                              
|adjustments                 |                                  |                               |              | --        |                     |                    | --                   |                 
|Costs associated from       |                                  |                              
|warrant exercise            |                                  |                               |              | --        |                     |                    | --                   |                 
|Issuance of common stock -  |                                  |                              
|Chesapeake                  |                                  |                               |              | --        |                     |                    | --                   |                 
|Issuance of common          |                                  |                              
|stock  warrants             |                                  |                               |              | --        |                     |                    | --                   |                 
|Net loss                    |                                  |                               |              |           |                     |                    |                      |                 
|                            |                                  |                               |              |           |                     |                    |                      |                 
|Balance, December 31, 2005  |                                  |                               |              | 1,195,714 |                     | $                  | 1,196                |                 
|                            |                                  |                               |              |           |                     |                    |                      |                 

The accompanying notes
are an integral part of these consolidated statements

F - 5

---

# WIDEPOINT CORPORATION
AND SUBSIDIARIES Consolidated Statements of Cash Flows

|                                                                   | For the Years Ended December 31,
|------------------------------------------------------------------ | --------------------------------
|
|Cash flows from operating activities:                              |                                 
|Net loss                                                           |                                 
|Adjustments to reconcile net loss to net cash provided by (used    |                                 
|in) operating activities                                           |                                 
|Deferred tax benefit                                               |                                 
|Depreciation expense                                               |                                 
|Amortization expense                                               |                                 
|Stock compensation expense                                         |                                 
|Amortization of deferred financing costs                           |                                 
|Loss on sale of property and equipment                             |                                 
|Loss from financial instruments                                    |                                 
|Changes in assets and liabilities-                                 |                                 
|Accounts receivable                                                |                                 
|Prepaid expenses and other assets                                  |                                 
|Accounts payable and accrued expenses                              |                                 
|                                                                   |                                 
|Net cash provided by (used in) operating activities .              |                                 
|                                                                   |                                 
|Cashflows from investing activities:                               |                                 
|Purchase of subsidiaries, net of cash acquired                     |                                 
|Software development costs                                         |                                 
|Purchases of property and equipment                                |                                 
|Proceeds from sale of property and equipment                       |                                 
|                                                                   |                                 
|Cashflows used in investing activities                             |                                 
|                                                                   |                                 
|Cashflows from financing activities:                               |                                 
|Borrowings on notes payable                                        |                                 
|Payments on notes payable                                          |                                 
|Collections on related party notes                                 |                                 
|Net payments on long-term obligations                              |                                 
|Costs related to registration statement                            |                                 
|Proceeds from exercise of stock options                            |                                 
|Proceeds from exercise of warrants                                 |                                 
|Costs related to warrant exercise                                  |                                 
|Proceeds from issuance of warrants                                 |                                 
|Net proceeds from issuance of preferred stock                      |                                 
|                                                                   |                                 
|Cashflows provided by (used in) financing activities               |                                 
|                                                                   |                                 
|Net increase (decrease) in cash                                    |                                 
|Cash and cash equivalents, beginning of period                     |                                 
|Cash and cash equivalents, ending of period                        |                                 
|                                                                   |                                 
|Supplementary cash flow information:                               |                                 
|Notes receivable from former ORC shareholders for purchase price   |                                 
|adjustment                                                         |                                 
|Liabilities incurred but not yet paid relating to warrant exercise |                                 
|Liabilities incurred but not yet paid relating to registration     |                                 
|statement                                                          |                                 
|Receivables for 2005 options exercise -- received in 2006          |                                 
|Cash paid for-                                                     |                                 
|Interest                                                           |                                 
|                                                                   |                                 
|Income taxes                                                       |                                 
|                                                                   |                                 

The accompanying notes
are an integral part of these consolidated statements

F - 6

---

# Notes to Consolidated
Financial Statements

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

WidePoint is a technology-based
provider of product and services to both the government sector and commercial markets.
The Company specialize in providing systems engineering, information technology services
and information assurance in the form of credentialing services and PKI eAuthentication.
Our subsidiary ORC is the leading provider of high-level PKI services to the federal
government. The Company intends to grow significantly over the next few years through a
combination of aggressive organic growth, the acquiring of selective strategic assets and
by driving operational efficiencies among our subsidiaries.

WidePoint Corporation was
incorporated in Delaware on May 30, 1997. Our staff consists of business 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.

From 2000 through 2003, we undertook
several initiatives in an effort to transition from a millennium solutions provider to an
integrated IT services company with a focus on the evolving requirements of our customers
and target markets.

As a result of those initiatives, in
2004, we acquired Chesapeake Government Technologies, Inc. and Operational Research
Consultants, Inc. (ORC) as part of our strategy to refocus our business
development initiatives toward the substantial increase in government spending on
security, infrastructure and automation that has been accelerated by recent geopolitical
events that have created an unprecedented need for improved systems and process expertise
across most federal, state and local government markets.

In 2005, WidePoint focused on the
consolidation of its recent acquisitions, continuing rollout of the ORC Public Key
Infrastructure (PKI) initiative, and continuing to implement our project
based enterprise strategy emphasizing industry-wide best practices disciplines. With the
addition of the customer base and the increase in revenues attributable from the ORC
acquisition, WidePoints opportunity to leverage and expand further into the federal
marketplace has improved dramatically. ORCs past client successes, top security
clearances in their facilities and with their personnel, and additional breadth of
management talent have expanded the Companys reach into markets that previously
were not accessible to WidePoint. The Company intends to continue to leverage the
synergies between the newly acquired operating subsidiaries and cross sell those
technical capabilities into each separate marketplace serviced by its respective
subsidiaries. Further, the Company is continuing to actively search out new synergistic
acquisitions that WidePoint believes will further enhance the present base of business,
which has been augmented by its recent acquisitions and internal growth initiatives.

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

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

F - 7

---

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

As a consequence of these
 determinations,  previously issued financial statements have been restated to eliminate
the intangible asset associated  with the Chesapeake  acquisition,  reverse the related
 amortization  expense,  expense as consulting  fees the cost of the transaction
 attributable  to the  cost of  issuance  of the  non-escrowed  shares  and  other
 related  direct  costs  at the  time of acquisition,  to record and expense as
 consulting  fees in cost of sales the release of the shares from escrow at December  31,
 2004, and to expense in cost of sales and  record the value of those  shares in equity
 that met as of March 31,  2005,  June 30,  2005,  and September  30, 2005,  the
 performance  measures  which would result in the release of those shares from escrow
after the filing of the Companys  financial  statements on Form 10-K for the year ended
December 31, 2005, per the conditions of an escrow  agreement  between the Company and
the former  shareholders of Chesapeake,  and to record the shares in equity as common
stock issuable until such time as they could be reclassed as common stock upon the
release of the shares earned from escrow.

We also determined that certain
 amortization  costs related to the ORC acquisition  should have been recorded in cost of
sales and not in amortization and  depreciation;  and we determined that under our
October and November 2004 Barron financing  agreements,  preferred stock recorded should
have been classified as temporary preferred equity and not permanent preferred equity.

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

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

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

Principles of
Consolidation

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

Use of Estimates

The preparation of consolidated
financial statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those
estimates.

Reclassifications

Certain amounts in prior years financial
statements have been reclassified to conform with the current year presentation.

Cash and Cash Equivalents

Investments purchased with original
maturities of three months or less are considered cash equivalents for purposes of these
consolidated financial statements. The Company maintains cash and cash equivalents with
various major financial institutions. Included in the December 31, 2005 cash balances was
$2,079,080 in interest bearing balances in one bank in excess of federally insured
amounts, as compared to $46,065 for December 31, 2004. The Company places its temporary
cash investments with high credit-quality financial institutions, and as a result, the
Company believes that no significant credit risk exists with respect to these cash
investments.

F - 8

---

Accounts Receivable

The majority of the Companys
accounts receivable is due from the Federal Government and established companies in the
following industries: manufacturing, consumer product goods, direct marketing, healthcare
and financial services. Credit is extended based on evaluation of a customers
financial condition and, generally, collateral is not required. Accounts receivable are
due within 30 to 60 days and are stated at amounts due from customers net of an allowance
for doubtful accounts. Accounts outstanding longer than the contractual payment terms are
reviewed for collectability and after 90 days are considered past due.

The Company determines its allowance
by considering a number of factors, including the length of time trade accounts receivable
are past due, the Companys previous loss history, the customers current
ability to pay its obligation to the Company, and the condition of the general economy and
the industry as a whole. The Company writes-off accounts receivable when they become
uncollectible, and payments subsequently received on such receivables are credited to the
allowance for doubtful accounts.

|Description                           | Balance at
Beginning of
Period | Additions
Charged to
Costs and
Expenses | Deductions | Balance at
End of
Period
|------------------------------------- | ------------------------------ | --------------------------------------- | ---------- | ------------------------
|For the year ended December 31, 2003, |                                |                                         |            |                         
|Allowance for doubtful accounts       |                                |                                         | $          | 3,950                   
|                                      |                                |                                         |            |                         
|For the year ended December 31, 2004, |                                |                                        
|Allowance for doubtful accounts       |                                |                                         | $          | 18,819                  
|                                      |                                |                                         |            |                         
|For the year ended December 31, 2005, |                                |                                        
|Allowance for doubtful accounts       |                                |                                         | $          | --                      

Unbilled accounts receivable on
time-and-materials contracts represent costs incurred and gross profit recognized near the
period-end but not billed until the following period. Unbilled accounts receivable on
fixed-price contracts consist of amounts incurred that are not yet billable under contract
terms. At December 31, 2005 and 2004, unbilled accounts receivable totaled $38,977
and $138,529, respectively.

Revenue Recognition

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

F - 9

---

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

Significant Customers

During 2005, one customer, The
Department of Homeland Security, individually represented 18% of revenues, and we
therefore are materially dependent upon such customer. Due to the nature of our business
and the relative size of certain contracts which are entered into in the ordinary course
of business, the loss of any single significant customer, including the above customers,
would have a material adverse effect on results. During 2004, two customers, Abbot
Laboratories and The Department of Homeland Security, individually represented 12%, and
11% of revenue, respectively.

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 warrants attributable to the
preferred stock capital investment in the Company in October of 2004. 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.

The Companys financial
instruments also include a financial instrument in which a valuation for the warrants from
the Barron Partners, LP preferred financing agreement contained a registration rights
agreement which contained a liquidating damages provision. Accordingly, a Black Scholes
calculation was used to determine the fair value of those warrants which are classified as
a financial instrument. The Financial Instrument was marked to market at December 31,
2004, and all such warrants were exercised as of December 31, 2005.

Concentrations of Credit
Risk

Financial instruments that
potentially subject the Company to credit risk consist of cash and cash equivalents and
accounts receivable. As of December 31, 2005, one customer, The Department of Homeland
Security represented 30% of accounts receivable. As of December 31, 2004, two customers,
The Department of Homeland Security and Tangible Software, individually represented 24%
and 13% of accounts receivable, respectively.

F - 10

---

Income Taxes

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

Property and Equipment

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

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

Depreciation expense is computed
using the straight-line method over the estimated useful lives of three years.

In accordance with the American
Institute of Certified Public Accountants Statement of Position 98-1 Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use, the Company
capitalizes costs related to software and implementation in connection with its internal
use software systems.

Software Development Costs

WidePoint accounts for software
development costs related to software products for sale, lease or otherwise marketed in
accordance with Statement of Financial Accounting Standards (SFAS) No. 86,
Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed. For projects fully funded by the Company, significant development costs
are capitalized from the point of demonstrated technological feasibility until the point
in time that the product is available for general release to customers. Once the product
is available for general release, capitalized costs are amortized based on units sold, or
on a straight-line basis over a six-year period or other such shorter period as may be
required. WidePoint recorded $99,920 of amortization expense for the year ended December
31, 2005. The Company recorded $9,700 of amortization expense for the year ended
December 31, 2004. Capitalized software costs included in Other
Intangibles at December 31, 2005 were approximately $0.9 million. WidePoint had
approximately $0.6 million of capitalized software costs included in Other Intangibles
at December 31, 2004.

F - 11

---

Goodwill, Intangible
Assets, and Long-Lived Assets

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

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

The Company reviews its long-lived
assets, including property and equipment, identifiable intangibles, and goodwill annually
or whenever events or changes in circumstances indicate that the carrying amount of the
assets may not be fully recoverable. To determine recoverability of its long-lived assets,
the Company evaluates the probability that future undiscounted net cash flows will be less
than the carrying amount of the assets.

Basic and Diluted Net
Loss Per Share

Basic income or loss per share
includes no dilution and is computed by dividing net income or loss by the
weighted-average number of common shares outstanding for the period. Diluted income or
loss per share includes the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock. The
treasury stock effect of escrowed shares, options and warrants to purchase 25,723,173,
20,942,127, and 2,112,000, shares of common stock outstanding at December 31, 2005,
2004, and 2003, respectively, has not been included in the calculation of the net loss per
share as such effect would have been anti-dilutive. As a result of these items, the basic
and diluted loss per share for all periods presented are identical.

F - 12

---

Stock-based compensation

Employee based
compensation:

The Company accounts for stock-based
employee compensation arrangements using the intrinsic value method in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock
Issued to Employees, and complies with the disclosure provisions of SFAS No. 123
Accounting for Stock-Based Compensation. Under APB Opinion No. 25,
compensation cost is generally recognized based on the difference, if any, on the date of
grant between the fair value of the Companys common stock and the amount an employee
must pay to acquire the stock. The following table illustrates the effect on net income
and earnings per share if the Company had applied the fair value recognition provisions of
FASB Statement 123, Accounting for Stock-Based Compensation, using the assumptions below
to its stock-based employee plans.

|                                      | Year ended December 31,
|------------------------------------- | -----------------------
|
|Net loss, as reported                 |                        
|Add: Total stock-based employee       |                        
|compensation expense determined under |                        
|fair value based method for awards    |                        
|granted, modified, or settled, net of |                        
|related tax effects                   |                        
|Pro forma net loss                    |                        
|Loss per share:                       |                        
|Basic and diluted  as reported       |                        
|Basic and diluted  pro forma         |                        

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

For purposes of determining the
effect of these options, the fair value of each option is estimated on the date of grant
based on the Black-Scholes single-option pricing model assuming the following for the
years ended December 31, 2005, 2004 and 2003:

F - 13

---

|                       
|-----------------------
|Dividend yield         
|Risk-free interest rate
|Volatility factor      
|Expected life in years 

Non-employee based compensation:

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

New accounting
pronouncements

In December 2004, the Financial
Accounting Standards Board issued Statement 123 (revised 2004), Share-Based Payment
(Statement 123(R)). This Statement requires that the costs of employee share-based
payments be measured at fair value on the awards grant date using an option-pricing
model and recognized in the financial statements over the requisite service period. This
Statement does not change the accounting for stock ownership plans, which are subject to
American Institute of Certified Public Accountants SOP 93-6, Employers
Accounting for Employee Stock Ownership Plans. Statement 123(R) supersedes Opinion
25, Accounting for Stock Issued to Employees and its related interpretations, and
eliminates the alternative to use Opinion 25s intrinsic value method of accounting,
which the Company is currently using.

Statement 123(R) allows for two
alternative transition methods. The first method is the modified prospective application
whereby compensation cost for the portion of awards for which the requisite service has
not yet been rendered that are outstanding as of the adoption date will be recognized over
the remaining service period. The compensation cost for that portion of awards will be
based on the grant-date fair value of those awards as calculated for pro forma disclosures
under Statement 123, as originally issued. All new awards and awards that are modified,
repurchased, or cancelled after the adoption date will be accounted for under the
provisions of Statement 123(R). The second method is the modified retrospective
application, which requires that the Company restates prior period financial statements.
The modified retrospective application may be applied either to all prior periods or only
to prior interim periods in the year of adoption of this statement. The Company is
currently determining which transition method it will adopt and is evaluating the impact
Statement 123(R) will have on its financial position, results of operations, EPS and cash
flows when the Statement is adopted. Upon making its determination of the transition
method the Company will adopt Statement 123(R). The Company will adopt this Statement on
January 1, 2006 in accordance with the requirements.

F - 14

---

In December 2004, the FASB
issued Staff Position No. FAS 109-1 (FAS 109-1), Application of
FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on
Qualified Production Activities Provided by the American Jobs Creation Act of 2004.
FSP 109-1 clarifies SFAS No. 109s guidance that applies to the new tax
deduction for qualified domestic production activities. FAS 109-1 was adopted at the
beginning of 2005. This standard did not have a material impact on the Companys
consolidated financial statements.

In May 2005, the FASB issued
SFAS No. 154, Accounting Changes and Error Corrections- a replacement of APB
Opinion No. 20 and FASB Statement No. 3, which replaces APB No. 20,
Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in
Interim Financial Statements, and changes the requirements for the accounting for
and reporting of a change in accounting principle. SFAS No. 154 applies to all
voluntary changes in accounting principle, and also applies to changes required by an
accounting pronouncement in the unusual instance that the pronouncement does not include
specific transition provisions. SFAS No. 154 will be effective for accounting changes
and corrections of errors made in fiscal years beginning after December 15, 2005. SFAS
No. 154 does not change the transition provisions of any existing accounting
pronouncements, including those that are in a transition phase as of the effective date of
SFAS No. 154. The Company does not currently believe that the adoption of SFAS No.154
will have a material impact on its consolidated financial statements.

In December 2004, the FASB
issued SFAS No. 153, Exchanges of Nonmonetary Assets  an amendment of APB
Opinion No.29. APB No. 29 requires a nonmonetary exchange of assets to be
accounted for at fair value, recognizing any gain or loss, if the exchange meets a
commercial substance criterion and fair value is determinable. The commercial substance
criterion is assessed by comparing the entitys expected cash flows immediately
before and after the exchange. SFAS No. 153 eliminates the similar productive
assets exception, which accounts for the exchange of assets at book value with no
recognition of gain or loss. SFAS No. 153 will be effective for nonmonetary asset
exchanges occurring in fiscal periods beginning after June 15, 2005. The Company does
not currently believe that the adoption of SFAS No. 153 will have a material impact
on its consolidated financial statements.

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

|                                                    | December 31,
|--------------------------------------------------- | ------------
|
|Borrowings under WidePoints Senior Debt Agreement: | $0          

On
October 25, 2004, the Company executed a senior lending agreement with RBC-Centura. The
Agreement initially provides for a $2.5 million revolving credit facility. The maturity
date of the credit facility is October 25, 2005. RBC has extended the credit facility to
June 1, 2006.

F - 15

---

The
maximum available borrowing under the revolving credit facility at December 31, 2005 and
2004 was $2.3 and $2.2 million, respectively. Borrowings under the Agreement are
collateralized by the Companys eligible contract receivables, inventory, all of its
stock in certain of our subsidiaries and certain property and equipment, and bear interest
at the Prime Rate plus 100 basis points.

WidePoints
credit facility requires that the Company maintain specified financial covenants relating
to fixed charge coverage, interest coverage, and debt coverage, and maintain a certain
level of consolidated net worth. As of and during the year ended December 31, 2005 and
2004, respectively, WidePoint was either in compliance with each of these financial
covenants or received waivers. The weighted average borrowings under the revolving portion
of the facility during the year ended December 31, 2005 and 2004, were $0.8 million and
$1.5 million, respectively.

The
total interest and finders fees paid, was approximately $83,000 and $34,000 for the
year ended December 31, 2005 and 2004, respectively.

|4. | Acquisitions:
|-- | -------------

On October 25, 2004, WidePoint
completed the acquisition of 100 percent of the outstanding common shares of Operational
Research Consultants, Inc., or ORC. ORC specializes in information technology, or IT,
integration and secure authentication solutions and providing services to the United
States Government. The results of operations for ORC have been included in our
consolidated financial statements since that date.

In consideration for the ORC stock,
the Company paid the ORC shareholders an aggregate of $5,000,000 payable in a combination
of cash of approximately $4.6 million, approximately $0.4 million of the Companys
common stock, and approximately $0.1 million in a receivables holdback. In addition an
earnout provision worth up to $5 million in consideration in the form of Company common
stock of up to $2.5 million at $0.45 per common share and cash consideration up to $2.5
million may be realized upon performance parameters disclosed within the purchase
agreement further described in an 8-K filing on October 29, 2004. The earnout provisions
may be realized through December 31, 2005. No earnout provisions have been earned as of
December 31, 2005 and 2004, respectively.

The following table summarizes the
estimated fair values of the assets acquired and liabilities assumed at the date of
acquisition (in thousands):

|                      
|----------------------
|Current assets        
|PP&E, net             
|Goodwill              
|Intangible assets(1)  
|Other assets          
|Current liabilities   
|Deferred tax liability
|                      
|Total                 

F - 16

---

| | (1)
Intangible assets. As part of the Companys preliminary purchase
          accounting for ORC, an estimated preliminary intangible valuation amount of
          $1,145,523 was allocated to intangibles for ORCs customer relationships
          and ORCs PKI business opportunity. The preliminary purchase accounting
for           ORC has been finalized after the completion of the Companys
intangible           valuation methodology by an independent appraisal performed for the
Company. An           intangible asset was also identified as internally generated
software that was           associated with ORCs PKI-I development of its PKI phase
1 software product           application with a valuation amount of $334,672. Further,
ORC subsequently           initiated an additional development measure in which ORC was
accumulating the           costs associated with the further development of an additional
software product           application, ORCs PKI-II development, with an intangible
value of           $175,399, for which ORC continues to accumulate development costs.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
weighted average lives of 6 and 5 years is associated with the estimated preliminary
purchase valuation of the intangible value attributed to the ORC purchase accounting that
is related to ORCs customer relationships and ORCs PKI business opportunity.
The 5-year period was used as the estimate for the intangible asset allocated to ORCs
customer relationships, and 6 years was used as the estimate for the PKI business
opportunity.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following table summarizes the
pro forma statement of operations of ORC and WidePoint consolidated for the periods ending
December 31, 2003 and 2004, respectively:

|                               
|-------------------------------
|Revenues                       
|Net Loss                       
|Loss per share                 
|Basic common shares outstanding

|5. | Goodwill
and Intangible Assets:
|-- | -------------------------------

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

F - 17

---

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

|                            | As of December 31, 2005
|--------------------------- | -----------------------
|
|Amortized intangible assets
|(1)                         |                        
|                            |                        
|                            |                        
|                            |                        
|(2)                         |                        
|                            |                        
|                            |                        
|(3)                         |                        
|                            |                        
|                            |                        
|                            |                        
|                            |                        
|                            |                        
|                            |                        
|                            |                        
|                            |                        
|                            |                        
|                            |                        
|                            |                        
|                            |                        
|                            |                        
|                            |                        
|                            |                        
|                            |                        
|                            |                        
|                            |                        
|                            |                        

F - 18

---

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

| | (2) | The
PKI-I intangible is related to internally generated software that was
               associated with ORCs PKI-I development of its phase 1 software
offerings.                ORC commenced sales of its PKI-I service in August of 2004. It
has a weighted                average life of 5.5 years and is based upon the contractual
life assigned to the                authority to issue PKI certificates by the federal
government.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

There were no amounts of research and
development assets acquired in 2005 or 2004, nor any written off in the period.

The
changes in the carrying amount of goodwill for the year ended December 31, 2005 and 2004
are as follows:

|                                | Total
|------------------------------- | -----
|Balance as of January 1, 2004   |      
|                                |      
|Goodwill acquired               |      
|Balance as of December 31, 2004 |      
|Balance as of January 1, 2005   |      
|Goodwill adjusted               |      
|Balance as of December 31, 2005 |      

The goodwill acquired is associated
with the acquisition of ORC in October of 2004. The goodwill adjusted was the result of
various adjustments and the which included the discovery of a working capital threshold
deficit that was not met as a condition of the purchase price paid for ORC. Upon
completion of our audit and the realization of the shortfall, the original shareholders
agreed to correct the deficit through a combination of cash and notes, which subsequently
reduced the amount of goodwill associated with our purchase of ORC. Management believes
that as of December 31, 2005 the carrying value of the goodwill of ORC was not impaired.

F - 19

---

|6. | Promissory
Notes:
|-- | -----------------

Related Party Notes

Pursuant to stock purchase agreements
entered into on July 8, 2002, between the Company and each of Steve L. Komar, James T.
McCubbin and Mark M. Mirabile, the Company privately sold 865,000 shares of its common
stock to each such person without registration under the Securities Act of 1933, pursuant
to the private offering exemption under Section 4(2) thereof, in consideration of a three
(3) year full-recourse, five percent (5%) interest bearing promissory note with equal
annual principal payments due, issued by each such person to the Company in the principal
amount of $60,550, or $181,650 in the aggregate (which equals $0.07 per share, being the
closing price of the Companys common stock on July 8, 2002). Amounts outstanding
under these notes are reflected as a reduction to stockholders equity until paid. As
of December 31, 2005 all amounts outstanding under these notes have been paid.

|7. | Income
Taxes:
|-- | -------------

Income taxes for the years ended
December 31 are as follows:

|                            
|----------------------------
|Current provision/(benefit) 
|Deferred provision/(benefit)
|                            
|                            
|                            

Substantially
all of the 2005 income tax benefit results from a change in the prior year's estimate of
the Company's tax liabilities.

The
provision (benefit) for income taxes results in effective rates, which differs from the
federal and state statutory rate as follows:

|                                           | For the Years Ended
December 31,
|------------------------------------------ | --------------------------------
|
|Statutory federal income tax rate          |                                 
|State income taxes, net of federal benefit |                                 
|Non-deductible expenses                    |                                 
|Decrease (increase) in valuation allowance |                                 
|Intangibles                                |                                 
|Capitalized software cost                  |                                 
|Section 481(a) adjustment                  |                                 
|Expiration of Capital Losses               |                                 
|Financial Instruments                      |                                 
|                                           |                                 
|Change in estimate                         |                                 
|                                           |                                 
|Other                                      |                                 
|                                           |                                 
|                                           |                                 
|                                           |                                 

F - 20

---

The
deferred tax assets (liabilities) consisted of the following as of December 31, 2005
and 2004:

|                                          | December 31,
|----------------------------------------- | ------------
|
|Deferred tax assets:                      |             
|Net operating loss carryforwards          |             
|AMT credit                                |             
|Capital losses in excess of capital gains |             
|                                          |             
|Financial instrument                      |             
|                                          |             
|Other assets                              |             
|                                          |             
|Total deferred tax assets                 |             
|                                          |             
|Deferred tax liabilities:                 |             
|Section 481(a) adjustment                 |             
|                                          |             
|Intangibles                               |             
|Depreciation and amortization             |             
|Capitalized software costs                |             
|                                          |             
|Total deferred tax liabilities            |             
|Net deferred tax asset                    |             
|Less- Valuation allowance                 |             
|                                          |             
|                                          |             
|                                          |             

The
Company has determined that its net deferred tax asset did not satisfy the recognition
criteria set forth in SFAS No. 109 and, accordingly, established a valuation
allowance for 100 percent of the net deferred tax asset.

As
of December 31, 2005 the Company had net operating loss carry forwards of
approximately $22,792,163 to offset future taxable income. These carry forwards expire
between 2010 and 2025. Under the provision of the Tax Reform Act of 1986, when there has
been a change in an entitys ownership of 50 percent or greater, utilization of
net operating loss carry forwards may be limited. As a result of WidePoints equity
transactions, the Companys net operating losses will be subject to such limitations
and may not be available to offset future income for tax purposes. The capital losses in
excess of capital gains in the amount of $696,215 expired in the year 2005.

F - 21

---

Changes
in the valuation allowance for the years ended December 31, are as follows:

|                       
|-----------------------
|Opening balance        
|Current year adjustment
|                       
|Ending balance         

|8. | Temporary
Preferred Equity
|-- | --------------------------

Temporary Preferred Stock

Our certificate of incorporation authorizes
the Company to issue up to 10,000,000 shares of preferred stock, $0.001 par value per
share, of which 1,195,714 and 2,045,714 shares were outstanding at December 31, 2005 and
2004, respectively.

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

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

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

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

F - 22

---

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

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

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

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

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

Registration Rights
Agreement

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

F - 23

---

The registration rights agreement
also contains a liquidated damages provision which calls for Barron to receive from
WidePoint a specified amount if: (i) WidePoint fails to file a registration statement
covering the underlying shares of common stock; (ii) the registration statement is not
declared effective by February 22, 2005; or (iii) the registration statement is not
effective in the period from April 23, 2005 (i.e., 180 days following the October 25, 2004
closing of the preferred financing) through the two years following the date of the
registration rights agreement, subject to permissible blackout periods and registration
maintenance periods. In the event that one of the aforementioned events occurs, the
registration rights agreement calls for WidePoint to pay Barron a cash amount equal to the
lesser of $20,000 or 1% of the purchase price of that portion of the Series A Convertible
Preferred Stock which has not been converted into common stock as of the occurrence of
such event, with such amount to be paid by WidePoint to Barron on a monthly basis after
the occurrence of such event. Barron is entitled to receive the aforementioned damages
until such time as the registration statement is declared effective. The registration
statement registering the underlying shares of common stock was declared effective on
February 9, 2006. Barron has waived any damages through February 9, 2006. If the
registration statement does not remain effective during the above two-year period, the
maximum future damages that would have to be paid subsequent to that date
presuming that it ceased to be effective would be $160,000.

|9. | Stockholders
Equity:
|-- | --------------------

The Company is authorized to issue
50,000,000 shares of common stock, $.001 par value per share. At the annual meeting of
stockholders that was held on January 27, 2005, stockholders approved a proposal to
increase the authorized shares of common stock from 50,000,000 to 110,000,000. As of
December 31, 2005, there were 37,297,729 shares of common stock outstanding, which does
not include escrowed common stock of 5,555,556 and 2,721,987, respectively, that are
associated with shares issued and held in escrow pending contingent release. The rights,
preferences and privileges of holders of common stock are subject to, and may be adversely
affected by the rights of the holders of shares Series A Convertible Preferred Stock and
of any additional series of preferred stock that may be designated and issued in the
future.

| | Common Stock
| | ------------

On October 25, 2004, WidePoint
completed the acquisition of Operational Research Consultants, Inc., or ORC, a privately
held IT and engineering firm providing mission-critical sensitive and strategic
information security solutions to the United States Government. Pursuant to the terms of a
Purchase Agreement entered into on October 25, 2004, between the Company and the ORC
Shareholders, the Company issued 5,555,556 common shares of the Companys stock and
placed it into an escrow to be released to the ORC shareholders in the event they attain
certain performance parameters in 2004 and 2005. As of December 31, 2004 and 2005,
respectively, no common shares have been earned and upon the filing of the Companys
Form 10-K for the period ending December 31, 2005, they will be cancelled.

F - 24

---

On April 30, 2004, the Company
closed upon the acquisition of all the issued and outstanding shares of Chesapeake,
pursuant to the terms of an Agreement and Plan of Merger, dated as of March 24, 2004.
This transaction was accounted for as a consulting arrangement because Chesapeake did not
meet the definition of a business under FAS 141. WidePoint issued 4,082,980 shares of its
common stock to stockholders of Chesapeake in consideration for all of the issued and
outstanding shares of Chesapeake owned by them. In conjunction with this closing, the sole
stockholders also entered into an escrow agreement and deposited 3,266,384 shares of the
4,082,980 newly issued shares of WidePoint common stock into escrow. The 3,266,384 shares
of common stock placed into escrow was not recorded in equity at the time of the
acquisition and will only be released to the Chesapeake Shareholders in the event of the
satisfaction of certain conditions set forth in the merger agreement, which provides that
during the period commencing after the closing of the merger and ending on
December 31, 2005, the 3,266,384 shares of common stock will be released to the
Chesapeake Shareholders in a ratio based on the amount of revenues actually received by
the Company from the business acquired from Chesapeake. The December 31, 2005 escrow
expiration date may have been extended for one additional year in the event that it was
determined that Chesapeake has achieved certain performance levels in the latter part of
2005. This event did not occur and as a result the escrow expiration date will not be
extended beyond December 31, 2005. Further, in the event that WidePoint did not receive
certain levels of revenues from the business acquired from Chesapeake, then any of the
3,266,384 shares of common stock to which the Chesapeake Shareholders had not become
entitled to receive would be returned to the Company. The Company recorded in equity
816,596 of the common shares out of 4,082,980 common shares issued to the Chesapeake
Shareholders at the time of the acquisition. The Company recorded the 816,596 common
shares at the time of the acquisition as common stock issuable and upon the issuance of
the common stock by the Companys transfer agent on July 13, 2004, reclassed the
common shares as common stock. Further, for the period ending December 31, 2004, the
Company recorded in equity and released 544,398 common shares from the escrow to the
Chesapeake Shareholders after the filing of the Companys Form 10-K with the
Securities and Exchange Commission with 2,721,987 common shares continuing to be held
within escrow and not recorded within equity. The Company recorded as compensation expense
the initial 816,596 shares issued at the time of the acquisition of Chesapeake. As a
result of meeting certain performance measures, the Company recorded in equity the release
of 544,398 additional common shares on December 31, 2004. These shares were recorded as
common stock issuable as they had not been released from escrow as of December 31, 2004,
per an escrow agreement between the Company and the original Chesapeake shareholders. The
remaining unearned Chesapeake shares that had not met certain performance measures as of
December 31, 2004 were not recorded within equity. For the one year period ending December
31, 2005,the Chesapeake shareholders earned 1,905,390, which have been recorded as common
stock issuable. The remaining 816,597 shares will be returned and cancelled after the
filing of our Form 10-K for the period ending December 31, 2005.

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

Pursuant to stock purchase agreements
entered into on July 8, 2002, between the Company and each of Steve L. Komar, James T.
McCubbin and Mark M. Mirabile, the Company privately sold 865,000 shares of its common
stock to each such person without registration under the Securities Act of 1933, pursuant
to the private offering exemption under Section 4(2) thereof, in consideration of a three
(3) year full-recourse note. (See note 6)

F - 25

---

Common stock issuable

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

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

Stock Warrants

On November 1, 2005, the Company
issued 54,878 warrants, respectively to Hawk Associates as part of a consulting agreement
in which Hawk Associates agreed to act as the Companys investor relations
representative. The warrant has a term of 5 years. We are accounting for this award in
accordance with EITF 96-18.

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

Related Party Notes

Pursuant to stock purchase agreements
entered into on July 8, 2002, between the Company and each of Steve L. Komar, James T.
McCubbin and Mark M. Mirabile, the Company privately sold 865,000 shares of its common
stock to each such person without registration under the Securities Act of 1933, pursuant
to the private offering exemption under Section 4(2) thereof, in consideration of a three
(3) year full-recourse, five percent (5%) interest bearing promissory note with equal
annual principal payments due, issued by each such person to the Company in the principal
amount of $60,550, or $181,650 in the aggregate (which equals $0.07 per share, being the
closing price of the Companys common stock on July 8, 2002). The Amounts outstanding
under these notes have been fully paid in 2005 and prior to their payoff were reflected as
a reduction to stockholders equity.

F - 26

---

|10. | Financial
Instruments:
|--- | ----------------------

In October of 2004, the Company
issued 10,228,571 warrants to Barron Partners, LP as part of a preferred stock financing.
The warrants have a term of 5 years. The Company used a fair-value option pricing model to
value this stock warrant. The value of these warrants has been reflected as financial
instruments in the long-term liabilities section of the consolidated balance sheet as a
result of the issuance of a registration rights agreement that included a liquidated
damages clause, which is linked to an effective registration of such securities.
Accordingly, the Company applied EITF 00-19, Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Companys Own Stock and
accounted for the warrants as a liability. In light of the required accounting treatment
under EITF 00-19, the Company was required to value the fair market price of the financial
instruments as of December 31, 2004. The Company recorded a loss on the financial
instruments of $3,070,617 for the period ending December 31, 2004, to adjust the
difference between the fair-value of these warrants and the market price of the common
stock underlying the warrants. As a result of Barron Partners, LP exercising all of their
warrants by December 31, 2005, the Company no longer reflects the financial instrument as
a liability at December 31, 2005. The Company recorded a loss on the financial instruments
of $5,405,601 for the year ending December 31, 2005, to adjust the difference between the
fair-value of these warrants and the market price prior to their exercise.

As a result of the valuation of the
warrants and exercises, additional paid in capital was credited an aggregate amount of
$12,054,172 during the year ended December 31, 2005. The credit represents the difference
between the exercise price and the carrying value of the financial instrument liability
at the time of exercise.

|11. | Stock
Options and Stock-Based Compensation:
|--- | -------------------------------------------

1997 Stock Incentive Plan

In May 1997, the Company adopted
the 1997 Stock Incentive Plan (the Incentive Plan). The purpose of the
Incentive Plan is to provide additional compensation to employees, officers, and
consultants of the Company or its affiliates. Under the terms of the Incentive Plan, as
amended, 10,000,000 shares of common stock have been reserved for issuance as incentive
awards under the Incentive Plan. The number of shares of Company common stock associated
with any forfeited stock incentive will be added back to the number of shares that can be
issued under the Incentive Plan. Awards under the Incentive Plan and their terms are
determined by a committee (the Committee) that has been selected by the
Board of Directors. The Incentive Plan permits the Committee to make awards of a variety
of equity-based incentives (collectively, Stock Incentives).

F - 27

---

The Incentive Plan allows for the
grant of incentive stock options and nonqualified stock options. The exercise price of the
options will be established by the Committee. The term of an option will be specified in
the applicable agreement provided, however, that no option can be exercised ten years
after the date of grant. In addition to stock options, the Incentive Plan also allows for
the grant of other Stock Incentives, including stock appreciation rights, stock awards,
phantom shares, performance unit appreciation rights and dividend equivalent rights. These
Stock Incentives will be subject to the terms prescribed by the Committee in accordance
with the provisions of the Incentive Plan.

In February 1998, the Company
amended the Incentive Plan to permit the adjustment of the terms and conditions of
outstanding options. On January 27, 2005, the shareholders of the Company approved an
amendment to increase the common stock reserved for issuance as incentive awards under the
Incentive Plan to 10,000,000.

1997 Directors Formula
Stock Option Plan

In May 1997, the Company adopted
the 1997 Directors Formula Stock Option Plan (the Director Plan). The Company
has reserved 120,000 shares of common stock to underlie stock options granted under the
Director Plan. Any shares associated with forfeited options are added back to the number
of shares that underlie stock options to be granted under the Director Plan.

The awards of stock options under the
Director Plan are determined by the express terms of the Director Plan. Generally, only
non-employee directors of the Company who do not perform services for the Company are
eligible to participate in the Director Plan. The Director Plan provides for option grants
to purchase 12,000 shares of common stock upon a non employee directors initial
appointment to the Board of Directors. The options will vest immediately to
8,000 shares of common stock underlying such options, will vest to an additional
2,000 shares after the directors completion of the first year of continued
service to the Company, and will vest to the remaining 2,000 shares after the
completion of the second year of continued service to the Company. Each option granted
pursuant to the Director Plan will be evidenced by an agreement and will be subject to
additional terms as set forth in the agreement. Options become exercisable when vested and
expire ten years after the date of grant, subject to any shorter period that may be
provided in the agreement.

F - 28

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The following is a summary of the
WidePoint options and management warrant activity:

|                               | Number of
Shares | Option Price Range | Weighted-Average
Exercise Price
|------------------------------ | ---------------- | ------------------ | -------------------------------
|Outstanding, December 31, 2003 |                  |                    |                                
|                               |                  |                    |                                
|Granted                        |                  |                    |                                
|Canceled or expired            |                  |                    |                                
|                               |                  |                    |                                
|Outstanding, December 31, 2004 |                  |                    |                                
|                               |                  |                    |                                
|Granted                        |                  |                    |                                
|Exercised                      |                  |                    |                                
|Canceled or expired            |                  |                    |                                
|                               |                  |                    |                                
|Outstanding, December 31, 2005 |                  |                    |                                
|                               |                  |                    |                                

As of December 31, 2005 and
2004, options and management warrants to purchase 6,692,212 and 7,223,111 shares,
respectively of common stock were exercisable with a weighted average exercise price of
$0.25 and $0.24, respectively. The weighted-average remaining contractual life of the
options outstanding at December 31, 2005 and December 31, 2004, was 5.5 and
6 years, respectively. The weighted-average fair value of options and management
warrants granted in 2005 and 2004 was $0.89 and $0.28, respectively.

Had compensation expense been
determined based on the fair value of the options at the grant dates consistent with the
method of accounting under SFAS No. 123, the Companys net loss and net loss per
share would have been increased to the pro forma amounts indicated below:

|                                                | For the Years Ended December 31,
|----------------------------------------------- | --------------------------------
|
|Net loss:                                       |                                 
|As reported                                     |                                 
|Pro forma                                       |                                 
|Pro forma basic and diluted net loss per share: |                                 
|As reported                                     |                                 
|Pro forma                                       |                                 

The fair value of each option is
estimated on the date of grant using the Black-Scholes option-pricing model with the
following assumptions: no dividend yield, expected volatility of 80 - 166 percent,
risk-free interest rates from 2.7 to 4.2 percent and an expected term of 4 - 5 years.

F - 29

---

|12. | Commitments
and Contingencies:
|--- | ------------------------------

The Company has entered into a number
of leases for its offices location as describe above in Note 1. The Companys
commitments and contingencies are as follows for its operating leases, which include those
leases, and other operating leases. The terms of the operating leases run through 2009 and
the total commitments per year are as follows:

|Year Ended
December 31, | Operating Leases
|----------------------- | ----------------
|2006                    |                 
|2007                    |                 
|2008                    |                 
|2009                    |                 
|Total                   |                 
|                        |                 

Employment Agreements

The Company has employment agreements
with certain executives that set forth compensation levels and provide for severance
payments in certain instances.

Litigation

The Company is not involved in any
material legal proceedings.

|13. | Segment
reporting:
|--- | ------------------

During 1998, the Company adopted SFAS
No. 131, Disclosures about Segments of an Enterprise and Related Information.
SFAS No. 131 requires a business enterprise, based upon a management approach, to disclose
financial and descriptive information about its operating segments. Operating segments are
components of an enterprise about which separate financial information is available and
regularly evaluated by the chief operating decision maker(s) of an enterprise. Under this
definition, the Company operated as a single segment for all periods presented. The single
segment is comprised of our Consulting services segment within the Commercial and Federal
Government Marketplaces.

|14. | Selected
Quarterly Financial Data (Unaudited):
|--- | ----------------------------------------------

A summary of selected quarterly
information for 2005 and 2004 is as follows:

|                     
|---------------------
|March 31             
|Net Sales            
|Gross Profit         
|Net Gain/(Loss)      
|Gain/(Loss) per Share

|              
|--------------
|March 31      
|Net Sales     
|Gross Profit  
|Net Loss      
|Loss per Share

F - 30