SECURITIES
AND EXCHANGE COMMISSION




WASHINGTON,
D.C. 20549


FORM
10-K





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


For the
fiscal year ended December 31,
2009.


OR


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


For the
transition period from  to .




Commission
File Number 001-33035





WIDEPOINT CORPORATION





(Exact
name of registrant as specified in its charter.)






Delaware
                      
                      52-2040275(State
      or other jurisdiction of
                      
                      (I.R.S.
      Employer incorporation ororganization)
                      
                      Identification No.)18W100 22ndSt., 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:





Title of each
class:





Common
Stock, $.001 par value per share





Name of
each exchange on which registered





NYSE
Amex





Securities
registered pursuant to section 12(g) of the Act:  None





Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes o   No 
x





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  o   No 
x





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    
o








Indicate by check mark whether the
registrant has submitted electronically all data and posted on its corporate
website, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files):


Yes    o       No    
o
  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.  o





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





Large accelerated
filer    o       
   Accelerated filer    o         
   Non-accelerated filer     o


Smaller Reporting
Company    x





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





Yes    o               No   
x





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.    $25,978,388.




As of March 24, 2010, the registrant
had 61,375,333 shares of its Common Stock issued and outstanding





DOCUMENTS
INCORPORATED BY REFERENCE





The
information called for by Part III of the Form 10-K is incorporated by reference
from the registrant’s definitive proxy statement which will be filed pursuant to
Regulation 14A not later than 120 days after the end of the fiscal year covered
by this report.








1


PART
I





ITEM
1. BUSINESS.





Forward Looking
Statements





This
Annual Report on Form 10-K contains forward-looking statements that involve
substantial risks and uncertainties, many of which are outside of our control.
We believe that these statements are within the definition of the Private
Securities Litigation Reform Act of 1995. You can often identify these
statements by the use of words such as “may,” “will,” “expect,” “intend,”
“anticipate,” “believe,” “plan,” “seek,” “estimate,” “continue” and other
similar words or variations on such words. You should read our forward-looking
statements carefully because they discuss our future expectations, make
projections of our future results of operations or financial condition or state
other “forward-looking” information. Although forward-looking statements in this
Annual Report reflect our good faith judgment, such statements can only be based
on facts and factors currently known by us. Consequently, forward-looking
statements are inherently subject to risks and uncertainties and actual results
and outcomes may differ materially from the results and outcomes discussed in or
anticipated by the forward-looking statements. The factors that could cause or
contribute to such differences include, but are not limited to, those discussed
elsewhere in this Annual Report. We undertake no obligation to update any
forward-looking statement.





In this
document, unless the context indicates otherwise, the terms “Company” and
“WidePoint,” as well as the words “we,” “our,” “ours” and “us,” refer to both
WidePoint Corporation and its consolidated subsidiaries. The term “registrant”
refers only to WidePoint Corporation, a Delaware corporation.





Industry
and market data used throughout this Annual Report on Form 10-K were
obtained through surveys and studies conducted by third parties, industry and
general publications and internal company research. We have not independently
verified any of the data from third-party sources nor have we ascertained any
underlying economic assumptions relied upon therein. While we are not aware of
any misstatements regarding the industry data presented herein, estimates
involve risks and uncertainties and are subject to change based on various
factors.





Overview




WidePoint
Corporation (“WidePoint” or the “Company”) is a provider of technology-based
products and services to both the government sector and commercial
markets.   WidePoint was incorporated in Delaware on May 30,
1997.  We have grown through the acquisition of highly specialized
regional information technology (“IT”) consulting companies.  Since
the first acquisition in 1998, all of the WidePoint companies are united by a
common set of corporate values.




*  The
belief in 100% customer satisfaction.




2


*  An
innovative and entrepreneurial approach to business problems.










Our
expertise lies in three business segments operated through six wholly-owned
operational entities.  Our three business segments include: Wireless
Mobility Management (formerly referred to as our “Wireless Telecommunications
Expense Management Services” segment), Cybersecurity Solutions (formerly
referred to as our “Identity Management” segment), and Consulting Services and
Products.  These segments offer unique solutions and proprietary
intellectual property (“IP”) in mobile and wireless full life cycle management
solutions; cybersecurity solutions with specific subject matter expertise, U.S.
government certifications and authorizations, and IP in identity management and
information assurance services utilizing certificate-based security solutions;
and other associated IT consulting services and products through which we
provide specific subject matter expertise in IT Architecture and Planning,
Software Implementation Services, IT Outsourcing, and Forensic
Informatics.  For additional information related to our three business
segments and operational entities, see our Overview Section of management’s
discussion and analysis of financial condition and results of operations and
Note 9 of our consolidated financial statements in this Form 10-K.




By
delivering advanced, federally certified and other customized technologies, the
Company enables organizations to deploy fully compliant IT services in
accordance with government-requirements and the demands of the commercial
marketplace.




We are
led by an experienced management team and our competencies are aligned with
evolving security and economic priorities. Our proven experience, top secret
security clearances, contract vehicles and fluency across many technologies puts
us in an elite group of advanced solution providers serving a wide array of
customers’ needs.




Our staff
consists of business professionals 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.  Our organization emphasizes an intense commitment to our
people, our customers, and the quality of our solutions offerings.  As
a service organization, our customers are our primary focus.




Business
Segments




Wireless
Mobility Management





WidePoint,
through our wholly-owned subsidiary iSYS LLC (“iSYS”), utilizes our extensive
experience working with government and commercial enterprises to develop
well-managed solutions that take the pain out of managing wireless
telecommunications (“telecom”) expenses and devices.  We work with
carriers to build a complement of services that work in our clients’
interest.  A key to our success is providing a single source from
which to manage the wireless assets of our clients.  We establish a
standard process that focuses on the goals of the entire organization rather
than counter-productive individual desires that often occur with personal
communication devices.  Our approach allows our clients to take an
overall look at their communication network and identify issues that affect
mission requirements, cost to the organization, and employee
performance.   We provide a variety of reports that provide data
for periodic reviews and strategic decision-making.  We find that our
mobile services generally save our clients 30% to 65% of their current wireless
costs.


3




At the
core of our approach is a comprehensive database of all of our client’s telecom
assets.  Our web-based portal allows our clients to view where their
assets are located throughout their organization.  By understanding
the types of devices that are deployed and how they are used, our clients can
effectively manage their current inventory and control new procurements. We also
take advantage of bulk savings for our clients by utilizing all available voice,
data, and message plans offered by the carriers, so our clients only pay for the
services they utilize.  We also secure our clients valuable telecom
assets.  We believe that telecom resources are extremely valuable
assets to our clients’ organizations – valuable both in terms of equipment and
information capture.  With a strong record of working with some of the
most sensitive government and corporate clients, we build solutions that ensure
the privacy of both corporate and personal information.  Our
centralized approach helps to prevent security breaches and ensure that
information resides within our client’s organization instead of within
individual user populations.




Cybersecurity
Solutions





We
believe a trusted digital identity, protection of data in motion, information
assurance and the various tools, infrastructure, and methods to safeguard and
protect digital information is critical in today’s information age. WidePoint
has operational experience and subject matter expertise in all facets of
identity proofing, credential issuing and public key technology.  In
government as in business, knowing whom you’re dealing with is essential when
using any form of electronic communications. Businesses need identity assurance
for commercial enterprises such as e-commerce, online banking and trading,
Internet-based enterprise solutions for process automation, or digital form
signing.





WidePoint
understands and has delivered compliant identity management solutions critical
to our customers’ successes. We believe that, through our subsidiaries
Operational Research Consultants (“ORC”), Protexx, and the recently established
Advanced Response Concepts (“ARCC”), we are positioned at the forefront of
implementing these key solutions.  Our clients get the strength and
experience of a premier organization in the information assurance (“IA”)
industry. We believe we implement a system that is right the first time and
ready to support our clients through the life cycle of identity management
solutions.





We also
provide an analysis of an organization’s business and technical policies across
application and data resources for the implementation of various devices such as
smart cards, security tokens, cell phones and personal computers, and
efficiently implementing these capabilities by incorporating higher levels of
automated infrastructure.  Our implementation enables an organization
to quickly deploy a fully operational capability, providing the highest levels
of identification and authorization of users and devices, securing of sensitive
data, time-stamping and archiving of data, and an auditable process flow.
Further, our credentials used to accomplish all of these requirements are
interoperable with any other U.S. federal agency or organization choosing to
accept U.S. federally-compliant credentials.


4





WidePoint’s
wholly-owned subsidiary, ORC is certified by the federal government to
facilitate public access to the services offered by Government agencies through
the use of information technologies, including on-line access to computers for
purposes of reviewing, retrieving, providing, and exchanging information. Our
digital certificate credentials are authorized to provide trusted individual or
business identity information for use by the Department of Defense (“DoD”),
FirstGov and participating U.S. Government agencies. These Credentials can be
used to:




*
Authenticate to government and organization websites containing “Sensitive But
Unclassified  information.”




*  Contract
for the purchase of goods or services.




*  Verify
the identity of electronic mail correspondents.




*  Verify
the identity of web/ application servers.




*  Verify
the identity of individuals accessing data servers.




*  Verify
the integrity of software and documents posted on data servers.





Our
Digital Certificate Credential services include the Department of Defense
External Certificate Authority, Access Certificates for Electronic Services, and
the General Services Administration Shared Service Provider.





Consulting
Services and Products





We offer
a full range of consulting services and products to support our clients’ IT
needs. We draw upon the expertise and talents of our consultants and combine
this with our business knowledge, so that our clients see results quickly and
responsively.  Through the combination of select products that we
offer along with our consultants’ subject matter expertise we provide our
clients with a diverse selection of IT integrated consulting services. Among
these services are:





IT
Architecture and Planning





We offer
IT architecture and planning services to ensure that our clients get the most
from their IT investments. Our experience enables us to help our clients make
important decisions that align IT with business goals and objectives. Our
approach is to be our client’s strategic advisor without vendor or technology
specific bias in the following areas:


5




*
IT Strategic Planning




*
Software Selection




*
Project Management




Software
Implementation Services





Our
software implementation services team provides our clients with the creative and
technical expertise needed to execute projects of any size. Our consultants
follow a rapid, iterative methodology that provides benefits and reduces the
risks typically associated with software implementation projects.  We
possess specific competencies and experience in the following
areas:




*
Application Development




*
Application Integration




*
Business Intelligence




IT
Outsourcing





Within
today’s business environment, less time spent worrying about the IT needs of our
clients means more time spent on the success of the core activities of their
businesses. Our IT Outsource specialists work with our clients to develop a
customized solution that cost effectively provides for their IT
needs.   We specialize in the following areas:




*
Infrastructure Management




*
Applications Management




*
IT Strategic Planning




Information
Assurance (IA)





Our
wholly-owned subsidiary iSYS provides a full range of Information Assurance
support services to help our customers to protect and defend information and
information systems by ensuring confidentiality, integrity, authentication,
availability, and non-repudiation.  Additionally, our IA services include
strategic risk analysis and management support that includes physical security,
reliability, continuity of operations planning, and support for other enterprise
governance issues such as privacy, compliance, audits and disaster
recovery.   Our IA services include:




* Certification and Accreditation




*
Security Architecture Design




* System
Security Planning




*
Security Risk Assessment and Mitigation Planning




*
Vulnerability Testing and Remediation




*
Customizable IA plans and processes to correspond to customer needs




6




*
Continuity of Operations Planning




Forensic
Informatics





Our
wholly-owned subsidiary iSYS provides systems engineering services that
specialize in forensic informatics (“Forensic Informatics”) to federal, state,
and local government agencies throughout the U.S.  As the need for
faster and more efficient information systems in support of our nation’s law
enforcement personnel continues to increase, we team with our customers and
other IT partner companies to provide superior IT services support.





Our
support services address on-going enhancements to existing IT systems along with
developing new IT systems that incorporate the evolution of long-term advanced
hardware and software technologies. In supporting the federal, state, and local
government agencies, we provide full life cycle system support services that
include: software development, system integration, testing, security
engineering, training, and operations & maintenance services to our
customers.





Business
Growth Strategy




Our
objective is to grow our business profitably as a premier technology-based
provider of product and services to both the government sector and commercial
markets with a current emphasis placed on growing our government sector in two
managed services segments: Wireless Mobility Management and Cybersecurity
Solutions.  Our strategies for achieving this objective include the
following:





·
            Expanding our Customer
      Base.




Since
inception, and with each of the companies we have acquired, we have focused on
providing IT-based solutions and services to our
customers.    We intend to capitalize on our long-term
relationships with our customers and our reputation within the Department of
Defense and other government agencies and corporate clients, to attract new
customers and to cross-sell our array of solutions to our existing customers.
Under the “best value” contracting process that has resulted from reforms in the
government procurement process, past performance and technical approach are key
factors that the government may consider when evaluating competitive bids. Based
on our long-term support to many of our customers, we believe we have a
successful past performance track record and have demonstrated technical
expertise that gives us credibility with our customers and enhances our ability
to be successful in bidding on follow-on contracts and in competing for new
programs of both existing and new customers.  Because many of our
personnel are on-site with our customers or work in close proximity to our
customers, we develop close customer relationships and are often able to enhance
our customers’ operations by rapidly identifying and developing solutions for
customer-specific requirements.





7


·
            Targeting High Growth Segments
      of the Market




We
believe the projected growth in government IT spending and outsourcing of key
components of their processes, such as identity management services and mobile
telecom expense management services, will offer opportunities for the management
and delivery of advanced technology solutions for enterprise applications and
information systems.  We intend to continue to target and expand our
service offerings in high growth program areas.  In particular, we
intend to focus on developing or providing new or improved solutions in cyber
security/information assurance, including cyber security and homeland defense
programs, and other identity management and infrastructure solutions for secured
system environments. We also plan to continue to target customers seeking to
improve their information technology infrastructures and systems, especially
those charged with building and operating enhanced web-based
collaboration/sharing platforms.





·
            Preparing our Infrastructure
      for Growth




We
continue to place emphasis upon developing our operational competencies and
disciplines, and our sales/marketing and financial infrastructure, to allow us
to both support and expand our growth opportunities.  We believe it is
important to strengthen this underlying infrastructure so we can develop new
marketing channels, develop new and continuing customers, identify new market
opportunities, and support the general and administrative requirements
attributable to our growth strategies.





·
            Attracting, Training and
      Retaining Highly Skilled
Professionals




We
continue to attract, train and retain skilled professionals, including
engineers, scientists, analysts, technicians and support specialists, to ensure
that we have the capabilities to fulfill our customers’ requirements. We target
candidates who have served in the military or as civilian experts, as well as
those who are leading specialists in their technology disciplines.  We
believe we can continue to retain our employees by offering competitive
compensation and benefit plans, opportunities for career growth through
company-supported education programs and diverse, challenging
assignments.





·
            Pursuing Strategic
      Acquisitions




We plan
to enhance our internal growth by selectively pursuing strategic acquisitions of
businesses that can cost-effectively broaden our domain expertise and service
offerings and allow us to establish relationships with new customers. We are
focused primarily on acquiring businesses that provide value-added solutions for
our present service offerings and customer base, but we will also consider
opportunities to acquire other businesses where we can leverage our reputation,
core competencies and experienced management team.





Recent
Acquisitions





iSYS, LLC.  In
January 2008, we completed the acquisition of iSYS, LLC.  The iSYS
acquisition expanded our U.S. federal customer base and our information
assurance offerings while adding forensic informatics, information assurance,
and mobile telecom managed services to our product and service
offerings.  iSYS was formed in Virginia, with operations in the
greater Washington, D.C. area and Columbus, Ohio. iSYS provides services
predominantly to the U.S. federal government and has recently expanded its
operations into local and state jurisdictions and to commercial enterprises. We
believe that the introduction of our capabilities in providing credentialing
services to the iSYS client base may provide an attractive cross-selling
opportunity consistent with our product portfolio strategy.




8


Protexx, Inc. In July 2008,
we completed the purchase of the assets and intellectual property of Protexx,
Inc., through our wholly-owned subsidiary, Protexx Acquisition
Corporation.  Protexx, Inc. was a development stage provider of
software-based authentication and encryption solutions to government, military,
first responder and commercial enterprises.  We believe that the
acquisition of the assets and intellectual property of Protexx, Inc. should
allow us to cost effectively expand our capabilities within our identity
management segment, expanding our customer base beyond the federal marketplace
and providing a less expensive alternative to our existing, government certified
public key infrastructure managed service offerings.




Clients




Our
government client base is located predominantly in the Mid-Atlantic region of
the U.S. while our commercial client base is located throughout the continental
U.S.  We have experience and expertise in the following industries:
U.S. federal government agencies and associated contractor suppliers,
manufacturing firms, consumer product goods firms, direct marketing firms,
healthcare firms and financial services firms.  Our clients are, for
the most part, large governmental agencies, federal government contractors or
large commercial enterprises.  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.   The following table
sets forth our significant customers and the percentage of our revenue derived
from each in 2009 and 2008.





Customer
      Name
                  2009
                    (%)
                    Revenue
                  2008
                    (%)
                    RevenueTransportation
      Security Administration (“TSA”)
                  22%
                  26%Department
      of Homeland Security (“DHS”)
                  22%
                  20%Washington
      Headquarters Services (“WHS”)
                  18%
                  14%





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 would have a material adverse effect on
results.





Marketing
and Sales




We focus
sales and marketing efforts on targeting federal government and corporate
clients with significant and/or critical mobile telecom expense management
budgets and requirements, U.S. federal agencies and large corporate user groups
requiring identity management compliant solutions for logical and physical
access to federal installations and systems, and large corporate users with
significant IT budgets and requirements.  While we perform work for
companies in various industries, the majority of our revenues for 2009 and 2008
were derived from contracts and projects with U.S. federal government agencies
and U.S. federal government contractors.  Prospectively, we expect a
majority of our revenue to continue to be derived from contracts with the
federal government and related contracting opportunities.




9


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.




Government
Contracts




We have
numerous government contracts and contract vehicles. Contract vehicles include
Government Wide Acquisition Contracts (GWACS), Indefinite Delivery/Indefinite
Quantity (ID/IQ) contracts, and Blanket Purchase Agreements (BPAs) based upon
GSA Schedule rates. Our major prime contracts are with various departments of
the Department of Defense (“DoD”), the Transportation Security Administration
(“TSA”), the Department of Homeland Security (“DHS”), the Centers for Disease
Control (“CDC”), and Customs and Border Protection (“CBP”).  We also
hold a number of large indefinite-delivery, indefinite-quantity (“IDIQ”)
contracts that extend our capability to expand our revenue base, including, but
not limited to:




·
            The
      General Services Administration (“GSA”) contracts for the Federal
      Strategic Sourcing Initiative (FSSI) for Telecommunications Expense
      Management (TEM), Federal Supply Schedule for Management, Organizational
      and Business Improvement Services (“MOBIS”), the Federal Supply Schedule
      for Professional Engineering Services (PES), the Solutions and More
      (“SAM”), Streamlined Technology Acquisition Resources for Services
      (STARS), and the IT Schedule – 70.




·
            The
      Department of Justice (“DOJ”) Information Technology Support Services
      (“ITSS “) 3 contract.




·
            The
      Federal Bureau of Investigation (“FBI”) Technical Support and Development
      Contract (TSDP).




·
            The
      SeaPort-e Contract to provide engineering, technical, and programmatic
      support services to the Naval Surface Warfare Centers (NSWC) and the Naval
      Undersea Warfare Centers (NUWC).




We also
have various relationships with other contractors that allow us to act as a
subcontractor, thereby providing us access to various other contracts and
contract vehicles in biometrics and identity management infrastructure support,
and Information Technology Support Services.




10


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.




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 we have not experienced
terminations for defaults in the past, and thus have not had any material
adverse effect on us historically, no assurance can be given that such
terminations will not have an effect on our financial condition or results of
operations in the future.




Seasonality




Our
business is not seasonal. However, our revenues and operating results may vary
significantly from quarter-to-quarter, due to revenues earned on contracts, the
number of billable days in a quarter, the timing of the pass-through of other
direct costs, the commencement and completion of contracts during any particular
quarter, the schedule of the government agencies for awarding contracts, the
term of each contract that we have been awarded and general economic conditions.
Because a significant portion of our expenses, such as personnel and facilities
costs, are fixed in the short term, successful contract performance and
variation in the volume of activity as well as in the number of contracts
commenced or completed during any quarter may cause significant variations in
operating results from quarter to quarter.





Competition




The
competitive profiles for the services we provide vary for each of our three
segments.




Our key
competitors in our Wireless Mobility Management segment within the U.S. federal
marketplace currently include:  Avalon Technologies, Profitline
(working through Booz Allen & Hamilton), Tangoe, and
Rivermine.  We believe that the major competitive factors in the
federal marketplace are distinctive technical competencies, successful past
contract performance, price of services, reputation for quality and key
management personnel with domain expertise.  Our key competitors in
the commercial marketplace other than the above-named competitors are a large
number of small-sized participants, as the marketplace is presently
fragmented.  The key competitive factors in the commercial marketplace
are the same as in the federal marketplace with an added focus on cost-effective
pricing of services.




11


Our key
competitors in our Cybersecurity Solutions segment currently include a variety
of both large and small companies, including divisions of large federal
government integrators such as Lockheed Martin Corporation, Northrop Grumman
Corporation, and other large and mid-sized federal contractors, as well as a
limited number of small to mid-sized subject matter expert organizations
offering specialized capabilities within the identity management
space.  The same companies that are our competitors will, at times,
team with us or subcontract to us in the pursuit of new business.  We
believe that the major competitive factors in this segment are distinctive
technical competencies, governmental approvals to operate within this space,
successful past contract performance, price of services, reputation for quality,
and key management personnel with domain expertise.




Our key
competitors in our consulting services segment include divisions of large
defense contractors such as Lockheed Martin Corporation, Northrop Grumman
Corporation, EDS, Unisys, Computer Services Corporation, Science Applications
International Corporation, and Manpower, as well as a number of small and
mid-size companies.  Because of the diverse requirements of U.S.
government customers and large corporate customers and the highly competitive
nature of large procurements, corporations frequently form alliances or teams to
pursue contract opportunities.  The same companies listed as
competitors will, at another point in time, team with us or subcontract to us in
the pursuit of new business.   Our consulting services segment is
highly competitive in both the U.S. federal government as well as in the
commercial marketplace.




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. In addition, our ORC subsidiary holds a patent for a digital parsing
toolthat 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.


12





Personnel





As of
December 31, 2009, we had a total of 92 employees with 87 full time employees
and 5 part-time employees.  We also periodically employ additional
consultants and temporary employees.




Our
offices are located in areas populated by military personnel (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 including
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.




Available
Information




Our
internet address is www.widepoint.com.  We make available through our
website our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, current
reports on Form 8-K, and amendments to those reports filed or furnished pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as
reasonably practicable after we electronically file such material with, or
furnish it to, the United States Securities and Exchange Commission (the
“SEC”).




ITEM 1B.UNRESOLVED
STAFF COMMENTS.




None.




ITEM
2.  PROPERTIES.





The
Company’s principal executive office as of December 31, 2009 is located at
18W100 22nd St.,
Suite 104, Oakbrook Terrace, Illinois and consists of approximately 1,500 square
feet of office space that expires in August 2010, with an option for an
additional year. The annual rental cost for this office is approximately
$17,000.




The
principal office of ORC, a WidePoint subsidiary, is located at 1723 South Park
Court, Chesapeake, Virginia and consists of approximately 2,400 square feet
under a month-to-month lease that expires on April 30, 2012.  The
annual lease for this office is approximately $34,000.




13


ORC also
maintains a secure facility in Fairfax, Virginia.  The Fairfax office,
which houses the Company’s identity assurance managed services business segment
and its related Secure Network Operating Center, is located at 11250 Waples Mill
Road, South Tower, Suite 210, Fairfax, Virginia 22030, and consists of a total
rentable area of approximately 11,900 sq. ft.  The lease for this
office has been extended and will expire March 15, 2014, and costs approximately
$343,000 annually.




The
principal office of iSYS, a WidePoint subsidiary, is located at 7926 Jones
Branch Drive, McLean, Virginia and consists of approximately 2,400 square feet
under a lease with an annual rent of approximately $55,000 expiring December 31,
2014. iSYS also maintains a call center for the mobile telecom managed services
group in Columbus, Ohio and consists of a total rentable area of approximately,
4,400 square feet.  The annual rental cost is approximately $66,000
under the lease expiring May 31, 2012.




Our
Protexx subsidiary’s facility at 10 Fairway Drive, Suite 216, Deerfield Beach,
Florida is under a month-to-month lease with a total annual rental cost of
approximately $14,000.




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.




ITEM
3.  LEGAL
PROCEEDINGS.





We are
not involved in any material legal proceedings.





EXECUTIVE
OFFICERS OF THE REGISTRANT





The
following sets forth information regarding the executive officers and certain
significant employees of the Company as of March 31, 2010:








14





Name
            
            Age
            
            PositionSteve
      L. Komar
            
            68
            
            Chief
      Executive Officer and Chairman of the BoardJames
      T. McCubbin
            
            46
            
            Executive
      Vice President, Chief Financial Officer, Secretary, Treasurer, and
      DirectorRonald
      S. Oxley
            
            63
            
            Executive
      Vice President – Business Development, and DirectorDaniel
      E. Turissini
            
            50
            
            Chief
      Technology Officer and Chief Executive Officer and President - Operational
      Research Consultants, Inc.Jin
      Kang
            
            45
            
            Chief
      Executive Officer and President – iSYS
LLC.





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.




James T.
McCubbin has served as a director and as our Secretary since November 1998. In
May 2008, Mr. McCubbin was promoted to Executive Vice President and Chief
Financial Officer.  Prior to that time, from August 1998 till May
2008, Mr. McCubbin 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 joining WidePoint in November 1997, Mr. McCubbin held
various financial management positions with several companies in the financial
and government sectors. Mr. McCubbin presently serves on the Board of Directors
of Tianjin Pharmaceutical Company and is Chairman of its Audit Committee,
Nominating Committee, and Compensation Committee. Mr. McCubbin also serves on
the Board of Directors of The Quigley Corporation and serves on its Audit
Committee.  Mr. McCubbin was on the Board of Directors of Redmile
Entertainment until his resignation on March 1, 2008. 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.




Ronald S.
Oxley has served as a director since his appointment on August 15, 2006. Mr.
Oxley became the Executive Vice President – Business Development for the Company
in May 2008 and as a result, resigned from his position as Chairman of the
Corporate Governance and Nominating Committee, and member of the Audit Committee
and Compensation Committee. Mr. Oxley has had a distinguished career within the
U.S. Federal Government and industry. His U.S. federal government career spanned
almost 28 years with the Office of the Secretary of Defense and with the
Departments of the Navy, Army and Air Force where he held various senior level
executive positions. The last nine years of his federal career were at the
Office of the Secretary of Defense where he monitored the development of the
office’s defense-wide strategic vision and implementation plan for command,
control, communications, intelligence, surveillance and
reconnaissance.  Subsequent to his U.S. federal government career he
also successfully honed his business skills as a senior level executive with
several prominent U.S. federal government contractors that included Litton/PRC,
Emergent Information Technologies and L-3 Communications. Mr. Oxley currently
serves as an executive vice president of ARC International Corporation. Prior to
joining ARC in 2004, Mr. Oxley was president and general manager of L-3
Communications Analytics Corporation based in Vienna, Virginia. Mr. Oxley came
to L-3 in April 2000, from Litton/PRC Inc, where he was senior vice president of
business development and marketing.  Mr. Oxley was awarded a series of
Meritorious Service Awards and was nominated for a Presidential Executive Career
Award in 1996. Mr. Oxley holds a top secret SCI clearance with life style
polygraph. He holds a Master of Science degree in systems management from the
University of Southern California and a Bachelor of Science degree in business
administration from California State University.




15


Daniel E.
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 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 principal 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.  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 U.S. Merchant
Marine Academy with a Bachelor of Science Degree in Engineering and holds a
Masters of Engineering Administration from The George Washington
University.




Jin Kang
serves as the Chief Executive
Officer and President of iSYS, a wholly-owned subsidiary of the Company, since
our acquisition of iSYS on January 4, 2008.  Mr. Kang
founded the company in 1999 and has managed iSYS since its inception. Mr. Kang
has over 20 years of professional experience in the Federal Government
Information Technology Services field. Prior to founding iSYS, Mr. Kang was a
Division Manager for Science Applications International Corporation (SAIC). His
responsibilities included the Combined DNA Index System (CODIS), a marquee
program for the FBI Laboratory Division. As the Engineering Manager for Northrop
Grumman Corporation, Mr. Kang played a critical role in the successful
management of the Defense Medical Information Systems/Systems Integration,
Design Development, Operations and Maintenance Services (D/SIDDOMS) contract
from its inception with zero revenues to a program of $190 million in
sales.  Mr. Kang received a Bachelor and a Masters Degrees in Computer
Science and Computer Systems Management from the University of
Maryland.




16


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




PART
II





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





The
Company’s Common Stock trades on the NYSE Amex under the symbol “WYY” and the
Frankfurt and Berlin exchanges under the symbol “ZMX.”





The stock
prices listed below represent the high and low closing prices of the Common
Stock on the NYSE Amex for each of the periods indicated:




2009
                    High
                    LowFourth
      Quarter
                    $0.88
                    $0.64Third
      Quarter
                    0.70
                    0.53Second
      Quarter
                    0.63
                    0.40First
      Quarter
                    0.42
                    0.182008
                    High
                    LowFourth
      Quarter
                    $
      0.45
                    $0.15Third
      Quarter
                    1.17
                    0.35Second
      Quarter
                    1.35
                    1.02First
      Quarter
                    1.44
                    1.14




As of the
close of business on March 23, 2010 there were 159 registered holders of record
of the Company’s Common Stock.




Equity
Compensation Plan Information:





Information regarding our equity
compensation plans and the securities authorized for issuance thereunder is
incorporated by reference in Item 12.





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.


17





Recent Sales of Unregistered
Securities





None.





Repurchases of Equity
Securities




The
Company repurchased no shares of its Common Stock during the fourth quarter of
2009.




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





Our
expertise lies in the following three business segments: Wireless Mobility
Management Solutions; Cybersecurity Solutions; and Consulting Services and
Products.  These business segments offer unique solutions in wireless
mobility, cybersecurity and other associated IT consulting services and products
in which we provide specific subject matter expertise in IT Architecture and
Planning, Software Implementation Services, IT Outsourcing, and Forensic
Informatics.  For additional information related to our three business
segments, see Note 9 to our financial statements in this Form 10-K.





WidePoint
has three material operational entities, iSYS, which we acquired in January
2008; ORC, which we acquired in November, 2004; and WidePoint IL, Inc.. We also
operate Protexx Acquisition Corp as Protexx, which we acquired in July 2008, and
which is still in the developmental stage.




18


iSYS
specializes in wireless mobility solutions, forensic informatics, and IA
services, predominantly to various agencies and departments of the U.S.
Government.





ORC
specializes in cybersecurity solutions with a focus in IT integration and secure
authentication processes and software, and providing services to the U.S.
Government.  ORC has been at the forefront of implementing Public Key
Infrastructure (PKI) technologies. PKI technology uses a class of algorithms in
which a user can receive two electronic keys, consisting of a public key and a
private key, to encrypt any information and/or communication being transmitted
to or from the user within a computer network and between different computer
networks. PKI technology is rapidly becoming the technology of choice to enable
security services within and between different computer systems utilized by
various agencies and departments of the U.S. Government.





WidePoint,
IL specializes in IT consulting services predominately in the Chicagoland area
and cross-sells various services of our other operating
subsidiaries.





Protexx,
which is a development stage company, specializes in identity assurance, and
mobile and wireless data protection products and services.





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




With the
addition of the customer base and the increase in revenues attributable to our
iSYS acquisition, WidePoint’s opportunity to leverage and expand further into
the federal marketplace has improved substantially.  iSYS’s past
client successes, top security clearances for their personnel, and additional
breadth of management talent have expanded the Company’s reach into markets that
previously were not fully accessible to WidePoint. The Company intends to
continue to leverage the synergies between itself and iSYS, and cross sell its
technical capabilities into each separate marketplace serviced by our respective
subsidiaries.




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




As a
result of our acquisitions, which predominantly operate in the U.S. federal
marketplace, we rely upon a larger portion of our revenues from the federal
government directly or as a subcontractor. The federal government’s fiscal year
ends September 30. If a budget for the next fiscal year has not been approved by
that date, our clients may have to suspend engagements that we are working on
until a budget has been approved. Such suspensions may cause us to realize lower
revenues in the fourth calendar quarter (i.e., the first quarter of the
government’s fiscal year). Further, a change in senior government officials may
negatively affect the rate at which the federal government purchases the
services that we offer.




19


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




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




Our staff
consists of business process and computer specialists who help our government
and civilian customers augment and expand their resident 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.




Critical
Accounting Policies and Estimates




The
Company’s consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the U.S., 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:


20





·           Revenue
recognition;




·           Allowance
for doubtful accounts;





·
            Stock-based
      compensation;





·           Goodwill
value;





·
            Intangible
      assets value; and





·           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





We
recognize revenues when persuasive evidence of an arrangement exists, services
have been rendered, the contract price is fixed or determinable and
collectability is reasonably assured. We have a standard internal process that
we use to determine whether all required criteria for revenue recognition have
been met.





Revenue
from the sale of PKI credentials is recognized when delivery
occurs.  Arrangements with customers on PKI related contracts may
involve multiple deliverable elements.  In these cases, the Company
applies the principles prescribed in ASC 605-25, “Multiple-Element
Arrangements.”  The Company analyzes various factors, including a
review of the nature of the contract or product sold, the terms of each specific
transaction, the relative fair values of the elements required by ASC 605-25,
any contingencies that may be present, its historical experience with like
transactions or with like products, the creditworthiness of the customer, and
other current market and economic conditions.


21





Our
revenues are derived primarily from services provided by our employees and the
pass through of costs for materials and subcontract efforts under contracts with
our customers. We derive the majority of our revenue from cost-plus-fixed-fee,
cost-plus-award-fee, firm-fixed-price or time-and-materials
contracts.





§
            Cost-reimbursable
      contracts – Revenues for cost-reimbursable contracts are recorded as
      reimbursable costs are incurred, including an estimated share of the
      applicable contractual fees earned. For performance-based fees under
      cost-reimbursable contracts, we recognize the relevant portion of the
      expected fee to be awarded by the client at the time such fee can be
      reasonably estimated, based on factors such as our prior award experience
      and communications with the client regarding performance. For
      cost-reimbursable contracts with performance-based fee incentives that are
      subject to customer acceptance,  we recognize the relevant
      portion of the fee upon customer approval in accordance with the guidance
      of  “Customer-Specific acceptance provisions  outlined
      in SEC Topic 13, Revenue Recognition, par.
3b.





§
            Time
      and materials – For time-and-material contracts, revenue is recognized to
      the extent of billable rates times hours delivered plus material and other
      reimbursable costs incurred. For long-term fixed-price production
      contracts, revenue is recognized at a rate per unit as the units are
      delivered or by other methods to measure services
  provided.





§
            Other
      long term contracts – Revenue from other long-term fixed-price contracts
      is recognized ratably over the contract period or by other appropriate
      methods to measure services provided. Contract costs are expensed as
      incurred except for certain limited long-term contracts noted below. For
      long-term contracts we apply the percentage of completion method. Under
      the percentage of completion method, income is recognized at a consistent
      profit margin over the period of performance based on estimated profit
      margins at completion of the contract. This method of accounting requires
      estimating the total revenues and total contract cost at completion of the
      contract. During the performance of long-term contracts, these estimates
      are periodically reviewed and revisions are made as required. The impact
      on revenue and contract profit as a result of these revisions is included
      in the periods in which the revisions are made. This method can result in
      the deferral of costs or the deferral of profit on these contracts.
      Because we assume the risk of performing a fixed-price contract at a set
      price, the failure to accurately estimate ultimate costs or to control
      costs during performance of the work could result, and in some instances
      has resulted, in reduced profits or losses for such contracts. Estimated
      losses on contracts at completion are recognized when identified. In
      certain circumstances, revenues are recognized when contract amendments
      have not been finalized.





22


Allowance
for Doubtful Accounts





WidePoint
determines its allowance for doubtful accounts 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.  As of December 31, 2009 there was a
reserve of approximately $52,000 made after the Company reviewed and determined
that a specific receivable was doubtful as to it collectability. Predominately
and because of the Company’s history of minimal credit losses and the nature of
the Company’s customers the Company does not make general reserves for bad debts
but does make specific allowances in certain cases.  As no specific
accounts were in doubt at December 31, 2008, no allowance for doubtful accounts
was believed necessary at that time.





Goodwill




Goodwill
represents costs in excess of fair values assigned to the underlying net assets
acquired. Authoritative guidance on accounting for business combinations
indicates that goodwill is not subject to amortization and annual review is
required for impairment.  The impairment test under current guidance
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 impairment
tests were applied to the two reporting units having goodwill, ORC and
iSYS.  The allocation of goodwill to those two units is based upon the
original purchase price allocations when those subsidiaries were acquired. The
Company’s annual impairment testing date is December 31.  Goodwill is
a significant item on the Company’s balance sheet and represents approximately
37% of our total assets as of December 31, 2009.  Goodwill is
identified on the face of the Balance Sheet.





Intangibles





Purchase
Accounting 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.





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.


23





Internally
Developed Intangibles:





The
Company recognizes an internally developed software whenever the costs of the
internally generated software are beyond the research and development stage and
is provable for which the costs of such efforts are specifically identifiable,
has a determinate life, and is not inherent in a continuing business and is not
related to a reporting entity as a whole.  The software development
costs recognized as internally developed 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 the 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, 2009, 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 42% of our total
assets.  Any impairment as a result of the estimate utilizing
undiscounted 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.





Accounting
for Income Taxes





WidePoint
accounts for income taxes under the asset and liability method whereby 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.


24





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 2010through 2029.  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 described above.  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.  The Company has performed a Section 382
analysis and we have determined preliminarily that approximately $4.9 million of
the Company’s net operating losses may be limited as a result of expirations
that may occur prior to the utilization of those net operating losses under the
limitations from certain changes of control that have occurred.  The
result of the potential limitations was not significant to the results of
operations and financial condition for the year ended December 31,
2009.





Accounting
Standards Updates





Revenue Recognition – In
October 2009, the Financial Accounting Standards Board (FASB) issued guidance to
enable vendors to account for products or services (deliverables) separately
rather than as a combined unit as these products or services often are provided
at different points in time or over different time periods.  This
guidance establishes how to separate deliverables and how to measure and
allocate arrangement consideration to one or more units of accounting and
expands the disclosures related to a vendor’s multiple-deliverable revenue
arrangement. The guidance will be effective prospectively for revenue
arrangements entered into or materially modified in fiscal years beginning on or
after June 15, 2010. Early adoption is permitted. We do not anticipate that
the adoption of this standard will have any significant impact on the Company’s
results of operations or financial position.




FASB Codification - On July 1,
2009, the Financial Accounting Standards Board (FASB) Accounting Standards
Codification (ASC) became the single authoritative source for nongovernmental
U.S. generally accepted accounting principles (GAAP). The ASC supersedes all
previous authoritative GAAP applicable to the Company and is effective for
interim and annual periods ended after September 15, 2009.




Business Combinations and
Identification of Reporting Units - On January 1, 2009, the Company
adopted authoritative guidance on accounting for business
combinations.  The guidance establishes principles and requirements
for determining how an enterprise recognizes and measures the fair value of
assets and liabilities acquired in a business combination, including
non-controlling interests, contingent consideration, and certain acquired
contingent liabilities. The guidance also requires acquisition-related
transaction and restructuring costs be expensed as incurred rather than
capitalized as a component of the business combination. Any changes in the
Company’s valuation allowances for acquired deferred tax assets attributable to
prior business combinations will generally be reflected in income tax expense in
the period in which the change occurs. At December 31, 2009, there was no
deferred tax asset valuation allowance that was attributable to prior business
combinations.


25




Additionally,
the newly adopted authoritative guidance changes the definition of a “business”
which can have impacts on the identification of reporting units used to measure
goodwill for impairment. The Company has assessed this impact and has determined
there are no material impacts to the identified reporting units to which
goodwill is assigned and the related impairment testing of such goodwill.Goodwill is more fully
described in Note 4 to the financial statements.




Fair Value Measurements - On
September 2006, FASB issued guidance that defines fair value, establishes a
single definition of fair value and a framework for measuring fair value in that
is intended to result in increased consistency and comparability in fair value
measurements. The guidance was originally effective for financial statements
issued for fiscal years beginning after November 15, 2007, and interim periods
within those years with early adoption permitted.  In early 2008, the
FASB delayed by one year the effective date of the guidance for all nonfinancial
assets and nonfinancial liabilities, except those that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at
least annually). The Company elected to adopt this deferral.




On
January 1, 2009, the Company adopted the authoritative guidance on fair value
measurements for nonfinancial assets and liabilities that was
deferred.  With the expiration of the deferral, the fair value
measurement and disclosure requirements now apply for the first time impact the
Company in the following areas:




·
            Goodwill
      and indefinite-lived intangible asset impairment testing which involves
      the fair value measurement of reporting units, assets, and/or
      liabilities




·
            Nonfinancial
      long-lived assets (such as PP&E) measured at fair value for impairment
      assessment




Subsequent Events - Subsequent
events are events or transactions that occur after the balance sheet date but
before financial statements are issued. The Company recognizes in the financial
statements the effects of all subsequent events that provide additional evidence
about conditions that existed at the date of the balance sheet, including the
estimates inherent in the process of preparing the financial statements. The
Company’s financial statements do not recognize subsequent events that provide
evidence about conditions that did not exist at the date of the balance sheet
but arose after the balance sheet date and before financial statements are
issued.




Results
of Operations





26


Year Ended December 31, 2009
Compared to the Year ended December 31, 2008




Revenues.  Revenues
for the year ended December 31, 2009, were approximately $43.3 million, an
increase of $7.8 million, as compared to revenues of approximately $35.5 million
for the year ended December 31, 2008. This increase was materially
attributable to growth in our Wireless Mobility Management and Cybersecurity
Solutions segments, offset by a slight reduction in revenues in our Consulting
Services segment.  This revenue growth in the Wireless Mobility
Management and Cybersecurity Solutions segments was attributable to expansions
in their respective current customer base along with the addition of new
customers in 2009.




Our
Wireless Mobility Management segment experienced revenue growth of approximately
30% with revenues increasing approximately $6.3 million from approximately $21.0
million for the year ended December 31, 2008 to approximately $27.3 million for
the year ended December 31, 2009.  This growth occurred primarily as a
result of continuing adoption and expansion of the Company’s services within the
U.S. federal government agencies it presently represents, augmented by the
addition of several additional agencies that awarded the Company contracts in
2009.  In the long-term we anticipate our Wireless Mobility Management
segment should continue to expand as we witness further adoption by the U.S.
federal agencies and departments, and as we reach out and continue to expand our
marketing to state and local municipalities and large commercial
enterprises.




Our
Cybersecurity Solutions segment experienced revenue growth of approximately 50%
with revenues increasing approximately $1.9 million from approximately $3.8
million for the year ended December 31, 2008, to approximately $5.7 million for
the year ended December 31, 2009.  This growth occurred primarily as a
result of the continued adoption and expansion of several programs supported by
various U.S. Federal Government agencies.  In the long-term we
anticipate that our Cybersecurity Solutions segment should continue to grow as
various U.S. Federal Government agencies continue to sponsor and expand programs
that strengthen their ability to monitor and maintain identity management
solutions and as commercial enterprises adopt similar goals.




Our
Consulting Services segment experienced decreased revenues of approximately $0.3
million from approximately $10.7 million for the year ended December 31, 2008 as
compared to approximately $10.4 million for the year ended December 31,
2009.  This decrease in revenues for the year ended December 31, 2009
as compared to the year ended December 31, 2008 was primarily due to a reduction
in revenues associated with our software reselling activities within this
segment during the fourth quarter of 2009.




Cost of
Sales.Cost of sales for the year ended December 31, 2009, was
approximately $33.8 million, or 78% of revenues, an increase of approximately
$4.9 million above cost of sales of approximately $28.9 million, or 81% of
revenues, for the year ended December 31, 2008.  Cost of sales as a
percentage decreased approximately 3% from 81% of revenues for the year ended
December 31, 2008 to 78% of revenues for the year ended December 31,
2009.  The percentage decrease was materially due to a greater mix of
higher margin services sold in our fiscal year 2009 as compared to our fiscal
year 2008.  The increased mix was related to the growth in our
Wireless Mobility Management and Cybersecurity Solutions segments as they
related to our overall product mix in the two fiscal periods.  The
absolute dollar increase in cost of sales was substantially attributable to
higher revenues, combined with iSYS’ service offering that includes an option
that provides for the payments of carrier charges on behalf of some of the
customer base.   These charges are embedded into the service fees
associated with the cost of providing some of our mobile telecom offerings to
certain customers. We do not separately measure our profit margins for contracts
with this feature.    Depreciation and amortization applied
to cost of sales also increased approximately $105,000 from $846,000 for the
year ended December 31, 2008 to approximately $951,000 for the year ended
December 31, 2009.  The increase was substantially a result of the
addition of internally generated software amortization expense in support of our
Cybersecurity Solutions segment. We believe that as our percentage of business
from our higher margin services expands in relationship to our lower margin
services that our overall cost of sales as a percentage may decrease in the
future.  The cost elements related to consultant salaries, benefits
and expenses at all of our subsidiaries are substantially similar.




27


Gross
profit.  Gross profit for the year ended December 31, 2009
was approximately $9.5 million, or 22% of revenues, an increase of $2.9
million as compared to gross profit of approximately $6.6 million, or 19% of
revenues, for the year ended December 31, 2008.  Gross profit
expanded 3% as a result of a percentage decrease in cost of sales related to a
greater mix of higher margin services offered by the Company’s Wireless Mobility
Management and Cybersecurity Solutions segments in relationship to the Company’s
overall revenue mix.




Sales and
marketing.  Sales and marketing expenses for the year ended
December 31, 2009 were approximately $1.1 million, or 3% of revenues, as
compared to approximately $0.9 million, or 3% of revenues, for the year ended
December 31, 2008.  The increase in sales and marketing expenses
for the year ended December 31, 2009, was primarily attributable to an
increase in sales and marketing expenditures for new personnel and tools as we
increased our efforts to expand our sales and marketing infrastructure as part
of our strategy to further increase our presence into the federal marketplace,
which was partially offset by reductions in sales and marketing personnel within
our commercial marketplace.  As we expand our sales and marketing
efforts these costs may increase.




General and
administrative.  General and administrative expenses for the
year ended December 31, 2009 were approximately $6.5 million, or 15% of
revenues, as compared to $6.2 million, or 18% of revenues, for the year ended
December 31, 2008.  The absolute dollar increase was attributable
to increasing general and administrative infrastructure costs associated with
operating a larger business while the percentage decrease was primarily
attributable to greater revenues that more than offset the absolute dollar
increase in our general and administrative expenses.




Depreciation
expense.  Depreciation expense, net of depreciation in cost of
sales, for the year ended December 31, 2009 was approximately $179,000, or less
than 1% of revenues, an increase of approximately $18,000, as compared to
approximately $161,000 of such expenses, or less than 1% of revenues, recorded
by the Company for the year ended December 31, 2008. The increase in
depreciation expenses for the year ended December 31, 2009 was primarily
attributable to the increased pool of depreciable assets.


28





Interest income
(expense).  Interest income for the year ended
December 31, 2009 was $28,000, a decrease of $107,000 as compared to
$135,000 for the year ended December 31, 2008.  The decrease in
interest income in 2009 was primarily attributable to lower interest rates
payable on savings accounts in comparison to 2008. Interest expense for the year
ended December 31, 2009 was $176,000, a decrease of $161,000 as compared to
$337,000 of interest expense for the year ended December 31,
2008.  The decrease in interest expense in 2009 was primarily
attributable to lesser expenses associated with the debt instruments issued by
the Company in connection with the acquisition of iSYS.




Income
taxes.  Income taxes for the year ended December 31, 2009 were
approximately $157,000 as compared to $157,000 in income taxes for the year
ended December 31, 2008.  The Company incurred a deferred income tax
expense of approximately $157,000 and $157,000 for the years ended December 31,
2009 and 2008, respectively, as a result of the recognition of a deferred tax
liability attributable to the differences in our treatment of the amortization
of goodwill for tax purposes versus book purposes as it relates to our
acquisition of iSYS in January 2008. Because the goodwill is not amortized for
book purposes but is amortized for tax purposes and goodwill is considered a
permanent asset and not a temporary asset, the related deferred tax liability
cannot be reversed until some indeterminate future period when the goodwill
becomes impaired, and/or is disposed of.  The deferred tax liability
can be offset by future taxable earnings and the deferred tax expense is a
non-cash expense.  ASC Topic 740 requires the expected timing of
future reversals of deferred tax liabilities to be taken into account when
evaluating the realizability of deferred tax assets. Therefore, the reversal of
deferred tax liabilities related to the goodwill is not to be considered a
source of future taxable income when assessing the realization of deferred tax
assets.  Because the Company has a valuation allowance for the full
amount of the deferred income tax asset, the deferred income liability
associated with the tax deductible goodwill has been recorded and not offset
against existing deferred income tax assets.





Net income
(loss).  As a result of the above, the net income for the year
ended December 31, 2009 was approximately $1.4 million, an increase of $2.5
million, as compared to the net loss of approximately $1.1 million for the year
ended December 31, 2008.




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


29







2009Wireless
                
                
                Cyber
                
                
                Consulting
                
                
                Corp
                
                
                ConsolRevenue
                
                $
                27,305,834
                
                
                $
                5,675,467
                
                
                $
                10,362,752
                
                
                $
                -
                
                
                $
                43,344,053Operating
      income
                  including
      amortization and
                  depreciation
      expense
                
                
                3,047,541
                
                
                
                1,030,700
                
                
                
                289,780
                
                
                
                (2,651,891
                )
                
                
                1,716,130Interest
      Income (expense), net
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (148,734
                )
                
                
                (148,734
                )Other
      income (expense), net
                
                
                
                
                
                
                
                
                
                
                (49
                )
                
                
                
                
                
                
                (49
                )Pretax
      income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                1,567,347Income
      tax expense
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (156,891
                )
                
                
                (156,891
                )Net
      earnings
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                1,410,4562008Wireless
                
                
                Cyber
                
                
                Consulting
                
                
                Corp
                
                
                ConsolRevenue
                
                $
                20,989,371
                
                
                $
                3,755,122
                
                
                $
                10,714,460
                
                
                $
                -
                
                
                $
                35,458,953Operating
      income (loss)
                  Including
      amortization and depreciation expense
                
                
                1,400,183
                
                
                
                7,105
                
                
                
                269,016
                
                
                
                (2,403,831
                )
                
                
                (727,527
                )Interest
      Income (expense), net
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (202,107
                )
                
                
                (202,107
                )Other
      income (expense), net
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (3,927
                )
                
                
                (3,927
                )Pretax
      income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (933,561
                )Income
      tax expense
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (156,891
                )
                
                
                (156,891
                )Net
      loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (1,090,452
                )




Liquidity
and Capital





The
Company has, since inception, financed its operations and capital expenditures
through the sale of preferred and common stock, seller notes, convertible notes,
convertible exchangeable debentures, senior secured loans and the proceeds from
the exercise of the warrants related to a convertible exchangeable
debenture.  During 2009 and 2008, operations were primarily financed
with working capital, senior debt, issuance of common stock, and stock option
and warrant exercises.




Cash
provided by operating activities for the year ended December 31, 2009, was
approximately $5.1 million as compared to cash provided by operating activities
of approximately $2.7 million for the year ended December 31, 2008.  The
increase in cash generated from operating activities for the year ended December
31, 2009 was primarily a result of higher accounts payable and accrued expenses,
offset somewhat by a decrease in deferred revenue as a result of the performance
of a prepayment on work contracted and paid by a customer in
2008.  Accounts payable increased solely due to the timing of payments
being pushed to January 2010.  The 2009 cash portion of the earnout of
approximately $690,000 is included in the accrued expenses at December 31,
2009.  The decrease in cash used in investing and financing activities
were primarily due to the payoff of a sellers note for the purchase of iSYS,
associated payments to the former owner of iSYS, pursuant to earnout provisions
in connection with the Company’s purchase of iSYS and the attainment by such
former owner of the required performance thresholds, and for the additional
purchase of equipment. Capital expenditures in property and equipment were
approximately $258,000, excluding any capital leases for the year ended December
31, 2009, as compared to capital expenditures in property and equipment of
approximately $96,000, excluding capital leases for the year ended December 31,
2008.


30


Substantially
all of the increases in assets and liabilities in the Company’s balance sheet
were attributable to the Company’s greater revenues and profitability in 2009,
which increased current assets and liabilities. This was augmented by increases
in goodwill as the result of the realization of the earnout by iSYS, LLC in
fiscal year 2009, and further augmented by the continuing payoff of debt related
to the Company’s term note in connection with the purchase of iSYS, LLC in
fiscal year 2008.




The
Company requires substantial working capital to fund the future growth of its
business, particularly to finance accounts receivable, sales and marketing
efforts, and capital expenditures.  There are currently no material
commitments for capital expenditures but that could change with the addition of
material contract awards.  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.




WidePoint
believes that its current cash position is sufficient to meet capital
expenditure and working capital requirements through 2010.  However,
constant growth and technological change in our market makes 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.  The Company must also
continue to generate positive cash flows to support our debt service and the
continued paydown of our outstanding term note. Additionally, a major expansion
might require external financing that could include additional debt or equity
capital. There can be no assurance that additional financing, if required, will
be available on acceptable terms, if at all, for future acquisitions and/or
growth initiatives.




As of
December 31, 2009, the Company had net working capital of approximately $4.0
million.  WidePoint’s primary source of liquidity consists of
approximately $6.2 million in cash and cash equivalents and approximately $8.4
million of accounts receivable and unbilled accounts
receivable.  Current liabilities include approximately $9.4 million in
accounts payable and accrued expenses.




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




31


Off-Balance
Sheet Arrangements




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




Other




Inflation
has not had a significant effect on the Company’s operations, as increased costs
to the Company have generally been offset by increased prices of products and
services sold.





The
preparation of financial statements in conformity with accounting principles
generally accepted in the U.S. 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 substantially 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.




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
9A.  CONTROLS AND
PROCEDURES.





Disclosure
Controls and Procedures





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


32





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





Management's
Report on Internal Control Over Financial Reporting





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over financial reporting is
defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of
1934, as amended, as a process designed by, or under the supervision of, our
principal executive and principal financial officers and effected by our board
of directors, management and other personnel to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles and includes those policies and procedures
that:





o
            pertain
      to the maintenance of records that in reasonable detail accurately and
      fairly reflect the transactions and dispositions of our
      assets;





o
            provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with
      U.S.  generally accepted accounting principles, and that
      receipts and expenditures of the company are being made only in accordance
      with authorizations of our management and directors;
  and





o
            provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use or disposition of the company's assets that
      could have a material effect on the financial
  statements.





33


Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Additionally, projections of any evaluation of
effectiveness to future periods are subject to the risks that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.





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





Based on
this assessment, management concluded that our internal control over financial
reporting was not effective as of December 31, 2009 due to the existence of the
material weaknesses as of December 31, 2009, discussed below. A material
weakness is a control deficiency, or a combination of control deficiencies, that
results in more than a remote likelihood that a material misstatement of the
annual or interim financial statements will not be prevented or
detected.





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





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





This
annual report does not include an attestation report of the company’s registered
public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by the company’s registered
public accounting firm pursuant to temporary rules of the SEC that permit the
company to provide only management’s report in this annual report.





Remediation
Plan for Material Weaknesses





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





34


Management
has formulated a remediation plan in the first quarter of 2010 that will be
implemented in our fiscal year 2010, which includes (i) recruiting and adding
specific financial subject matter experts as consultants or employees to the
financial staff and, (ii) augmenting and allowing for additional training and
education for select members of our financial staff.





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





This
Annual Report on Form 10-K does not contain an attestation report by the
Company’s registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to temporary rules of the
SEC that permit the Company to provide only management’s report in this Annual
Report on Form 10-K.





Changes
in Internal Control Over Financial Reporting





We are
currently undertaking a number of measures to remediate the material weaknesses
discussed under “Management’s Report on Internal Control Over Financial
Reporting” above.  Those measures, described under “Remediation Plan
for Material Weaknesses,” will be implemented during our fiscal year 2010, and
will materially affect, or are reasonably likely to materially affect, our
internal control over financial reporting.  Other than as described
above, there have been no changes in our internal control over financial
reporting during the fiscal year 2009 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.





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





ITEM
9B.  OTHER
INFORMATION.





Submission
of Matters to a Vote of Security Holders




The
Company’s Annual Meeting of Stockholders was held on December 15,
2009.  The following three persons were elected by the following votes
to serve as Class III directors of the Board of Directors.  Class III
directors will serve for three years or until their resignation and/or their
successors are elected and qualified:






35





Votes
      For
              Votes
      Against or Withheld
              Abstentions
      and
                Broker
      Non-VotesJames
      M. Ritter
              48,272,794
              336,338
              0Otto
      J. Guenther
              48,396,845
              212,287
              0George
      W. Norwood
              48,372,136
              336,996
              0





In
addition, the terms of current directors, Steve L. Komar, James T. McCubbin,
Morton S. Taubman, and Ronald S. Oxley, continued following the Annual Meeting
of Stockholders.





Stockholders
approved the Company’s amendment to the 2008 Stock Incentive Plan by a vote of
24,142,398 shares votes for, 1,416,008 shares votes against, and 122,920 shares
votes withheld or abstained.





Stockholders
ratified the selection of Moss Adams LLP as the independent accountants for the
Company for the fiscal year ended December 31, 2009. Such proposal was approved
by a vote of 48,565,200 shares for and 22,873 shares against, with 21,059 shares
abstaining





Acquisition of Vuance
Government Services Division





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





Part
III.





ITEM
10.  DIRECTORS, EXECUTIVE
OFFICERS AND CORPORATE GOVERNANCE.





Except
for the information regarding executive officers required by Item 401 of
Regulation S-K, which is included under the caption "Executive
Officers of the Registrant" at the end of Part I of this Annual Report
on Form 10-K, pursuant to General Instruction G(3) of Form 10-K, the
information called for by this item is hereby incorporated by reference from our
definitive proxy statement or amendment hereto to be filed pursuant to
Regulation 14A not later than 120 days after the end of the fiscal year covered
by this report.


36








ITEM
11.  EXECUTIVE
COMPENSATION.





Pursuant
to General Instruction G(3) of Form 10-K, the information called for by this
item is hereby incorporated by reference from our definitive proxy statement or
amendment hereto to be filed pursuant to Regulation 14A not later than 120 days
after the end of the fiscal year covered by this report.





ITEM
12.  SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS.





Pursuant
to General Instruction G(3) of Form 10-K, the information called for by this
item is hereby incorporated by reference from our definitive proxy statement or
amendment hereto to be filed pursuant to Regulation 14A not later than 120 days
after the end of the fiscal year covered by this report.





ITEM
13.  CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.





Pursuant
to General Instruction G(3) of Form 10-K, the information called for by this
item is hereby incorporated by reference from our definitive proxy statement or
amendment hereto to be filed pursuant to Regulation 14A not later than 120 days
after the end of the fiscal year covered by this report.





ITEM
14.  PRINCIPAL ACCOUNTING FEES
AND SERVICES.





Pursuant
to General Instruction G(3) of Form 10-K, the information called for by this
item is hereby incorporated by reference from our definitive proxy statement or
amendment hereto to be filed pursuant to Regulation 14A not later than 120 days
after the end of the fiscal year covered by this report.




Part
IV.




ITEM
      15.
            EXHIBITS AND FINANCIAL
      STATEMENT SCHEDULES.





(a)
            Financial Statements
      and Financial Statement
Schedule





(1)  Financial
Statements:





Report of
Moss Adams LLP, Independent Registered Public Accounting Firm





37


Consolidated
Balance Sheets as of December 31, 2009 and 2008





Consolidated
Statements of Operations for the Years Ended December 31, 2009 and
2008.





Consolidated
Statements of Changes in Stockholders’Equity for the Years
Ended December 2009 and 2008.





Consolidated
Statements of Cash Flow for the Years Ended December 31, 2009 and
2008.





Notes to
Consolidated Financial Statements




All other
schedules are omitted either because they are not applicable or not 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:




38





EXHIBIT


NO.                           DESCRIPTION




2.1
            Membership
      Interest Purchase Agreement, dated as of January 2, 2008, between the
      Company, iSYS LLC, and Jin Kang.  (Incorporated
      herein by reference to Exhibit 2.1 to the Registrant’s Current Report on
      Form 8-K filed on January 8, 2008.)




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
            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.))




10.1
            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))




10.2
            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)




10.5
            Employment
      and Non-Compete Agreement between WidePoint Corporation, Operational
      Research Consultants, Inc and Daniel Turissini.* (Incorporated herein by
      reference to Exhibit 10.15 to the Registrant’s Annual Report on Form 10-K
      for the year ended December 31,
2006.)




10.6
            Addendum
      to Employment and Non-Compete Agreement between the Registrant and Daniel
      E. Turissini, effective as of July 25, 2007. *(Incorporated herein by
      reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K
      filed on July 30, 2007.)




____________________


*
      Management contract or compensatory
plan.


39




10.7
            Commercial
      Loan Agreement, dated August 16, 2007, between the Company and Cardinal
      Bank. (Incorporated herein by reference to Exhibit 10.1 to the
      Registrant’s Current Report on Form 8-K filed on August 21,
      2007.)




10.8
            Security
      Agreement, dated August 16, 2007, between the Company and Cardinal Bank.
      (Incorporated herein by reference to Exhibit 10.2 to the Registrant’s
      Current Report on Form 8-K filed on August 21,
  2007.)




10.9
            Promissory
      Note, dated August 16, 2007, issued by the Company in favor of Cardinal
      Bank. (Incorporated herein by reference to Exhibit 10.3 to the
      Registrant’s Current Report on Form 8-K filed on August 21,
      2007.)




10.10
            Promissory
      Note, dated November 5, 2007, between Protexx, Inc. and its subsidiaries,
      including but not limited to 22THEN LLC, as borrower, WidePoint
      Corporation, as lender, and Peter Letizia, as guarantor. (Incorporated
      herein by reference to Exhibit 10.1 to the Registrant’s Current Report on
      Form 10-Q filed on November 9,
2007.)




10.11
            Revolving
      Line of Credit Agreement, dated as of November 5, 2007, by and among
      Protexx, Inc. and its subsidiaries, including but not limited to 22THEN
      LLC, as borrower, Peter Letizia, as guarantor, and WidePoint Corporation,
      as lender. (Incorporated herein by reference to Exhibit 10.2 to the
      Registrant’s Current Report on Form 10-Q filed on November 9,
      2007.)




10.12
            Security
      Agreement, dated as of November 5, 2007, given by Protexx, Inc. and each
      of its subsidiaries and 22THEN LLC, collectively, as debtors, to and in
      favor of WidePoint Corporation, as secured party. (Incorporated herein by
      reference to Exhibit 10.3 to the Registrant’s Current Report on Form 10-Q
      filed on November 9, 2007.)




10.13
            Software
      Escrow Agreement, dated as of November 5, 2007, between 22THEN LLC and
      Protexx Incorporated, collectively, as supplier, WidePoint Corporation, as
      user, and Foley & Lardner LLP, as escrow agent. (Incorporated herein
      by reference to Exhibit 10.4 to the Registrant’s Current Report on Form
      10-Q filed on November 9,
2007.)




10.14
            $2,000,000
      Installment Cash Promissory Note, dated January 4, 2008, issued by the
      Company in favor of Jin Kang. (Incorporated herein by reference to Exhibit
      10.1 to the Registrant’s Current Report on Form 8-K filed on
      January 8, 2008.)




____________________


*
      Management contract or compensatory
plan.


40




10.15
            Employment
      and Non-Compete Agreement, dated as of January 4, 2008, between the
      Company, iSYS LLC and Jin Kang. * (Incorporated herein by reference to
      Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on
      January 8, 2008.)




10.16
            Commercial
      Loan Agreement, dated January 2, 2008, between the Company and Cardinal
      Bank. (Incorporated herein by reference to Exhibit 10.3 to the
      Registrant’s Current Report on Form 8-K filed on January 8,
      2008.)




10.17
            Security
      Agreement, dated January 2, 2008, between the Company and Cardinal Bank.
      (Incorporated herein by reference to Exhibit 10.4 to the Registrant’s
      Current Report on Form 8-K filed on January 8,
  2008.)




10.18
            $5,000,000
      Promissory Note, dated January 2, 2008, issued by the Company in favor of
      Cardinal Bank. (Incorporated herein by reference to Exhibit 10.5 to the
      Registrant’s Current Report on Form 8-K filed on January 8,
      2008.)




10.19
            Security
      Agreement, dated January 2, 2008, between the Company and Cardinal Bank.
      (Incorporated herein by reference to Exhibit 10.6 to the Registrant’s
      Current Report on Form 8-K filed on January 8,
  2008.)




10.20
            $2,000,000
      Promissory Note, dated January 2, 2008, issued by the Company in favor of
      Cardinal Bank. (Incorporated herein by reference to Exhibit 10.7 to the
      Registrant’s Current Report on Form 8-K filed on January 8,
      2008.)




10.21
            Debt
      Subordination Agreement, dated January 2, 2008, between the Company and
      Cardinal Bank. (Incorporated herein by reference to Exhibit 10.8 to the
      Registrant’s Current Report on Form 8-K filed on January 8,
      2008.)




10.22
            Common
      Stock Purchase Agreement, dated April 29, 2008, between the Company and
      Deutsche Bank AG, London Branch.  (Incorporated herein by
      reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K
      filed on May 5, 2008.)




10.23
            Escrow
      Agreement, dated April 29, 2008, between the Company, Deutsche Bank AG,
      London Branch and Foley & Lardner LLP as Escrow
      Agent.  (Incorporated herein by reference to Exhibit 10.2 to the
      Registrant’s Current Report on Form 8-K filed on May 5,
      2008.)




____________________


*
      Management contract or compensatory
plan.


41


10.24
            Common
      Stock Purchase Agreement, dated May 16, 2008, between the Company and
      Endurance Partners, L.P.  (Incorporated herein by reference to
      Exhibit 10.11 to the Registrant’s Quarterly Report on Form 10-Q filed on
      May 20, 2008.)




10.25
            Escrow
      Agreement, dated May 16, 2008, between the Company, Endurance Partners,
      L.P. and Foley & Lardner LLP as Escrow Agent.  (Incorporated
      herein by reference to Exhibit 10.12 to the Registrant’s Quarterly Report
      on Form 10-Q filed on May 20,
2008).




10.26
            Common
      Stock Purchase Agreement, dated May 16, 2008, between the Company and
      Endurance Partners (Q.P.), L.P.  (Incorporated herein by
      reference to Exhibit 10.13 to the Registrant’s Quarterly Report on Form
      10-Q filed on May 20, 2008).




10.27
            Escrow
      Agreement, dated May 16, 2008, between the Company, Endurance Partners
      (Q.P.), L.P. and Foley & Lardner LLP as Escrow
      Agent.  (Incorporated herein by reference to Exhibit 10.14 to
      the Registrant’s Quarterly Report on Form 10-Q filed on May 20,
      2008).




10.28
            Amendment,
      dated as of July 25, 2008, between the Registrant and Steven L.
      Komar.*  (Incorporated herein by reference to Exhibit 10.1 to
      the Registrant’s Current Report on Form 8-K filed on July 31,
      2008).




10.29
            Amendment,
      dated as of July 25, 2008, between the Registrant and James T.
      McCubbin.*  (Incorporated herein by reference to Exhibit 10.2 to
      the Registrant’s Current Report on Form 8-K filed on July 31,
      2008).




10.30
            Asset
      Purchase Agreement, dated July 31, 2008, by and among the Registrant,
      Protexx Acquisition Corporation, Protexx Incorporated, Peter Letizia,
      Charles B. Manuel, Jr. and William Tabor.  (Incorporated herein
      by reference to Exhibit 10.1 to the Registrant’s Current Report on Form
      8-K filed on August 6, 2008).




10.31
            Debt
      Modification Agreement, dated as of March 17, 2009, between the Registrant
      and its subsidiaries and Cardinal Bank. (Incorporated herein by reference
      to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on
      March 23, 2009)




10.32
            Commercial
      Loan Agreement, dated as of March 17, 2009, between the Registrant and its
      subsidiaries and Cardinal Bank. (Incorporated herein by reference to
      Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on March
      23, 2009)




____________________


*
      Management contract or compensatory
plan.


42




10.33
            Debt
      Modification Agreement, dated as of March 17, 2009, between the Registrant
      and its subsidiaries and Cardinal Bank. (Incorporated herein by reference
      to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on
      March 23, 2009)




10.34
            Commercial
      Loan Agreement, dated as of March 17, 2009, between the Registrant and its
      subsidiaries and Cardinal Bank. (Incorporated herein by reference to
      Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed on March
      23, 2009)




10.35
            Addendum
      Employment and Non-Compete Agreement*, dated July 15, 2009, by and between
      Registrant and Daniel E. Turissini (Incorporated herein by reference to
      Exhibit 99.1 to the Registrant's Current Report on Form 8-K filed on July
      21, 2009)




10.35
            Supplement
      to Exhibit A to the Membership Interest Purchase Agreement, dated as of
      August 14, 2009 (Incorporated herein by reference to Exhibit 10.1 to the
      Registrants Report on Form 10-K/A filed on August 18,
  2009)




21
            Subsidiaries
      of WidePoint Corporation   (Filed
  herewith).




23.1        Consent
of Moss Adams LLP (Filed herewith).




31.1
            Certification
      of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002 (Filed herewith).




31.2
            Certification
      of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002 (Filed herewith).




32
            Certification
      of Chief Executive Officer and Chief Financial Officer Pursuant to Section
      906 of the Sarbanes-Oxley Act of 2002 (Filed
  herewith).




____________________


*
      Management contract or compensatory
plan.




43


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, 2010
                /s/ STEVE L. KOMARSteve
      L. KomarChief
      Executive OfficerDate:
                March
      31, 2010
                /s/ JAMES T. MCCUBBINJames
      T. McCubbinVice
      President – Principal Financial andAccounting
      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, 2010
                /s/ STEVE L. KOMARSteve
      L. KomarDirector
      and Chief Executive OfficerDated:
                March
      31, 2010
                /s/ JAMES T. MCCUBBINJames
      T. McCubbinDirector,
      Vice President and Chief Financial OfficerDated:
                March
      31, 2010
                /s/ JAMES M. RITTERJames M.
      RitterDirectorDated:
                March
      31, 2010
                /s/ MORTON S. TAUBMANMorton S.
      TaubmanDirectorDated:
                March
      31, 2010
                /s/ RON S. OXLEYRon
      OxleyDirectorDated:
                March
      31, 2010
                /s/ OTTO GUENTHEROtto
      GuentherDirectorDated:
                March
      31, 2010
                /s/ GEORGE NORWOODGeorge
      NorwoodDirector
  44
  INDEX TO FINANCIAL STATEMENTS
 
 PageReport
      of Independent Registered Public Accounting Firm
                            F-1Consolidated
      Balance Sheets as of December 31, 2009 and 2008
                            F-2Consolidated
      Statements of Operations for the Years endedDecember
      31, 2009 and 2008
                            F-3Consolidated
      Statements of Stockholders’ Equity for the Yearsended
      December 31, 2009 and 2008
                            F-4Consolidated
      Statements of Cashflows for the Years endedDecember
      31, 2009 and 2008
                            F-5Notes
      to Consolidated Financial Statements
                            F-7
 45


REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM











To the
Board of Directors and Shareholders of WidePoint Corporation:





We have
audited the accompanying consolidated balance sheets of WidePoint Corporation
and subsidiaries as of December 31, 2009 and 2008 and the related consolidated
statements of operations, stockholders’ equity and cash flows for the years then
ended.  These consolidated financial statements are the responsibility
of the Company’s management.  Our responsibility is to express an
opinion of these consolidated financial statements based on our
audits.





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 audit 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 includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  We believe that our audits provide a reasonable basis
for our opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of WidePoint Corporation and
subsidiaries as of December 31, 2009 and 2008 and the results of their
operations and their cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of
America.











/s/Moss
Adams LLP


Scottsdale,
Arizona


March
31, 2010


F-1


WIDEPOINT
CORPORATION AND SUBSIDIARIES




Consolidated
      Balance Sheets
                        
                        December 31,2009
                        
                        
                        2008AssetsCurrent
      assets:Cash
      and cash equivalents
                        
                        $
                        6,238,788
                        
                        
                        $
                        4,375,426Accounts
      receivable, net of allowance of $52,650 and $0,
      respectively
                        
                        
                        7,055,525
                        
                        
                        
                        5,282,192Unbilled
      accounts receivable
                        
                        
                        1,334,455
                        
                        
                        
                        2,301,893Prepaid
      expenses and other assets
                        
                        
                        359,563
                        
                        
                        
                        267,666Total
      current assets
                        
                        
                        14,988,331
                        
                        
                        
                        12,227,177Property
      and equipment,
      net
                        
                        
                        538,811
                        
                        
                        
                        431,189Goodwill
                        
                        
                        9,770,647
                        
                        
                        
                        8,575,881Intangibles,
      net
                        
                        
                        1,381,580
                        
                        
                        
                        2,236,563Other
      assets
                        
                        
                        75,718
                        
                        
                        
                        110,808Total
      assets
                        
                        $
                        26,755,087
                        
                        
                        $
                        23,581,618Liabilities
      and stockholders’ equityCurrent
      liabilities:Related
      party note payable
                        
                        $
                        -
                        
                        
                        $
                        2,140,000Short
      term note payable
                        
                        
                        102,074
                        
                        
                        
                        97,158Accounts
      payable
                        
                        
                        7,120,168
                        
                        
                        
                        2,465,394Accrued
      expenses
                        
                        
                        2,304,995
                        
                        
                        
                        2,548,106Deferred
      revenue
                        
                        
                        768,504
                        
                        
                        
                        1,667,969Short-term
      portion of long-term debt
                        
                        
                        520,855
                        
                        
                        
                        486,707Short-term
      portion of deferred rent
                        
                        
                        54,497
                        
                        
                        
                        -Short-term
      portion of capital lease obligation
                        
                        
                        112,576
                        
                        
                        
                        107,141Total
      current liabilities
                        
                        
                        10,983,669
                        
                        
                        
                        9,512,475Deferred
      income tax liability
                        
                        
                        313,782
                        
                        
                        
                        156,891Long-term
      debt, net of current portion
                        
                        
                        604,048
                        
                        
                        
                        1,117,230Deferred
      rent, net of current portion
                        
                        
                        7,312
                        
                        
                        
                        -Capital
      lease obligation, net of current portion
                        
                        
                        67,632
                        
                        
                        
                        95,248Total
      liabilities
                        
                        
                        11,976,443
                        
                        
                        
                        10,881,844Stockholders’
      equity:Common
      stock, $0.001 par value; 110,000,000 shares authorized; 61,375,333 and
      58,275,514 shares issued and outstanding, respectively
                        
                        
                        61,375
                        
                        
                        
                        58,276Stock
      warrants
                        
                        
                        24,375
                        
                        
                        
                        38,666Additional
      paid-in capital
                        
                        
                        67,874,394
                        
                        
                        
                        67,194,788Accumulated
      deficit
                        
                        
                        (53,181,500
                        )
                        
                        
                        (54,591,956
                        )Total
      stockholders’ equity
                        
                        
                        14,778,644
                        
                        
                        
                        12,699,774Total
      liabilities and stockholders’ equity
                        
                        $
                        26,755,087
                        
                        
                        $
                        23,581,618







F-2




WIDEPOINT
CORPORATION AND SUBSIDIARIES




Consolidated
Statements of Operations




For
      the Years Ended
                                  December
      31,2009
                                
                                
                                2008Revenues,
      net
                                
                                $
                                43,344,053
                                
                                
                                $
                                35,458,953Cost
      of revenues (including
      depreciation and amortization of $950,947 and$846,340,
      respectively)
                                
                                
                                33,845,685
                                
                                
                                
                                28,877,994Gross
      profit
                                
                                
                                9,498,368
                                
                                
                                
                                6,580,959Sales
      and marketing
                                
                                
                                1,145,955
                                
                                
                                
                                901,007General
      and administrative (including stock compensation expense of $146,782 and
      $563,108, respectively)
                                
                                
                                6,456,870
                                
                                
                                
                                6,246,914Depreciation
      expense
                                
                                
                                179,413
                                
                                
                                
                                160,565Income
      (loss) from operations
                                
                                
                                1,716,130
                                
                                
                                
                                (727,527
                                )Other
      income (expenses):Interest
      income
                                
                                
                                27,690
                                
                                
                                
                                134,531Interest
      expense
                                
                                
                                (176,424
                                )
                                
                                
                                (336,638
                                )Other
      expense
                                
                                
                                (49
                                )
                                
                                
                                (3,927
                                )Net
      income (loss) before provision for income taxes
                                
                                
                                1,567,347
                                
                                
                                
                                (933,561
                                )Deferred
      income tax expense
                                
                                
                                156,891
                                
                                
                                
                                156,891Net
      income (loss)
                                
                                $
                                1,410,456
                                
                                
                                $
                                (1,090,452
                                )Basic
      net income (loss) per share
                                
                                $
                                0.02
                                
                                
                                $
                                (0.02
                                )Basic
      weighted-average shares outstanding
                                
                                
                                59,419,383
                                
                                
                                
                                56,673,952Diluted
      net income (loss) per share
                                
                                $
                                0.02
                                
                                
                                $
                                (0.02
                                )Diluted
      weighted-average shares outstanding
                                
                                
                                60,608,984
                                
                                
                                
                                56,673,952









F-3




WIDEPOINT
CORPORATION AND SUBSIDIARIES




Consolidated
Statements of Changes in Stockholders’ Equity




Common
      Stock
                  
                  
                  Stock
                  
                  
                  Additional
      Paid-In
                  
                  
                  Accumulated
                  
                  
                  EquityShares
                  
                  
                  Amount
                  
                  
                  Warrants
                  
                  
                  Capital
                  
                  
                  Deficit
                  
                  
                  TotalBalance,
      December 31, 2007
                  
                  
                  52,558,697
                  
                  
                  $
                  52,559
                  
                  
                  $
                  38,666
                  
                  
                  $
                  60,873,273
                  
                  
                  $
                  (53,501,504
                  )
                  
                  $
                  7,462,994Issuance
      of common stock – options exercises
                  
                  
                  32,000
                  
                  
                  
                  32
                  
                  
                  
                  
                  
                  
                  
                  14,368
                  
                  
                  
                  
                  
                  
                  
                  14,400Issuance
      of common stock —iSYS earnout
                  
                  
                  184,817
                  
                  
                  
                  185
                  
                  
                  
                  
                  
                  
                  
                  38,627
                  
                  
                  
                  
                  
                  
                  
                  38,812Issuance
      of common stock—iSYS acquisition
                  
                  
                  1,500,000
                  
                  
                  
                  1,500
                  
                  
                  
                  
                  
                  
                  
                  1,798,500
                  
                  
                  
                  
                  
                  
                  
                  1,800,000Issuance
      of common stock—Capital raise
                  
                  
                  4,000,000
                  
                  
                  
                  4,000
                  
                  
                  
                  
                  
                  
                  
                  4,076,000
                  
                  
                  
                  
                  
                  
                  
                  4,080,000Costs
      related to  issuance of stock—Capital raise
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (169,088
                  )
                  
                  
                  
                  
                  
                  
                  (169,088
                  )Stock
      options expense
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  563,108
                  
                  
                  
                  
                  
                  
                  
                  563,108Net
      loss
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (1,090,452
                  )
                  
                  
                  (1,090,452
                  )Balance,
      December 31, 2008
                  
                  
                  58,275,514
                  
                  
                  $
                  58,276
                  
                  
                  $
                  38,666
                  
                  
                  $
                  67,194,788
                  
                  
                  $
                  (54,591,956
                  )
                  
                  $
                  12,699,774Issuance
      of common stock – options exercises
                  
                  
                  30,000
                  
                  
                  
                  30
                  
                  
                  
                  
                  
                  
                  
                  3,720
                  
                  
                  
                  
                  
                  
                  
                  3,750Issuance
      of common stock —iSYS earnout
                  
                  
                  690,510
                  
                  
                  
                  690
                  
                  
                  
                  
                  
                  
                  
                  517,192
                  
                  
                  
                  
                  
                  
                  
                  517,882Issuance
      of common stock – warrants exercises
                  
                  
                  2,379,309
                  
                  
                  
                  2,379
                  
                  
                  
                  
                  
                  
                  
                  (2,379
                  )Expiration
      of common stock warrants
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (14,291
                  )
                  
                  
                  14,291Stock
      options expense
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  146,782
                  
                  
                  
                  
                  
                  
                  
                  146,782Net
      income
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1,410,456
                  
                  
                  
                  1,410,456Balance,
      December 31, 2009
                  
                  
                  61,375,333
                  
                  
                  $
                  61,375
                  
                  
                  $
                  24,375
                  
                  
                  $
                  67,874,394
                  
                  
                  $
                  (53,181,500
                  )
                  
                  $
                  14,778,644
 
 
 F-4


WIDEPOINT
CORPORATION AND SUBSIDIARIES




Consolidated
Statements of Cash Flows




For
      the Years Ended December 31,2009
              
              
              2008Cash
      flows from operating activities:Net
      earnings (loss)
              
              $
              1,410,456
              
              
              $
              (1,090,452
              )Adjustments
      to reconcile net earnings (loss) to net cash provided by operating
      activitiesDeferred
      income tax expense
              
              
              156,891
              
              
              
              156,891Depreciation
      expense
              
              
              244,980
              
              
              
              218,052Amortization
      expense
              
              
              885,380
              
              
              
              788,852Amortization
      of deferred financing costs
              
              
              9,576
              
              
              
              8,571Share-based
      compensation expense
              
              
              146,782
              
              
              
              563,108Loss
      on disposal of equipment
              
              
              49
              
              
              
              3,927Changes
      in assets and liabilities, net of business combination –Accounts
      receivable and unbilled accounts receivable
              
              
              (805,895
              )
              
              
              1,436,910Prepaid
      expenses and other assets
              
              
              123,096
              
              
              
              145,411Accounts
      payable and accrued expenses
              
              
              3,802,779
              
              
              
              (1,123,802
              )Deferred
      revenue
              
              
              (899,465
              )
              
              
              1,571,295Net
      cash provided by operating activities
              
              
              5,074,629
              
              
              
              2,678,763Cash
      flows from investing activities:Purchase
      of asset/subsidiary, net of cash
                acquired
              
              
              (171,191
              )
              
              
              (5,192,020
              )Software
      development costs
              
              
              (30,397
              )
              
              
              (123,490
              )Proceeds
      from sale of office equipment
              
              
              —
              
              
              
              250Purchases
      of property and equipment
              
              
              (258,249
              )
              
              
              (96,300
              )Net
      cash used in investing activities
              
              
              (459,837
              )
              
              
              (5,411,560
              )







F-5


WIDEPOINT
CORPORATION AND SUBSIDIARIES




Consolidated
Statements of Cash Flows




Cash
      flows from financing activities:Borrowings
      on notes payable
                              
                              
                              400,737
                              
                              
                              
                              3,800,000Principal
      payments on notes payable
                              
                              
                              (3,027,334
                              )
                              
                              
                              (2,315,060
                              )Principal
      payments under capital lease obligation
                              
                              
                              (116,583
                              )
                              
                              
                              (120,307
                              )Costs
      related to renewal fee for line of credit
                              
                              
                              (12,000
                              )
                              
                              
                              —Costs
      related to financing purchase of subsidiary
                              
                              
                              —
                              
                              
                              
                              (13,713
                              )Proceeds
      from issuance of stock
                              
                              
                              —
                              
                              
                              
                              4,080,000Costs
      related to issuance of stock
                              
                              
                              —
                              
                              
                              
                              (169,088
                              )Proceeds
      from exercise of stock options
                              
                              
                              3,750
                              
                              
                              
                              14,400Net
      cash (used in) provided by financing activities
                              
                              
                              (2,751,430
                              )
                              
                              
                              5,276,232Net
      increase in cash
                              
                              
                              1,863,362
                              
                              
                              
                              2,543,435Cash
      and cash equivalents, beginning of period
                              
                              
                              4,375,426
                              
                              
                              
                              1,831,991Cash
      and cash equivalents, ending of period
                              
                              $
                              6,238,788
                              
                              
                              $
                              4,375,426Supplementary
      cash flow information:Cash
      paid for–Interest
                              
                              $
                              321,780
                              
                              
                              $
                              178,088Income
      taxes
                              
                              $
                              —
                              
                              
                              $
                              —Supplementary
      Disclosure of non-cash Investing and Financing Activities:Promissory
      Note issued for iSYS
                                acquisition
                              
                              $
                              —
                              
                              
                              $
                              2,000,000Value
      of 1.5 million common shares
                                issued
      as consideration in the acquisition of iSYS
                              
                              $
                              —
                              
                              
                              $
                              1,800,000Value
      of 690,510 and 184,817 earnout shares issued as additional consideration
      in the acquisition of iSYS
                              
                              $
                              517,882
                              
                              
                              $
                              38,812Insurance
      policies financed by short
                                term
      notes payable
                              
                              $
                              152,479
                              
                              
                              $
                              142,657Capital
      leases for acquisition of property
                                and
      equipment
                              
                              $
                              94,402
                              
                              
                              $
                              41,473







F-6





Notes
to Consolidated Financial Statements




1.
            Basis
      of Presentation, Organization and Nature of
  Operations




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





Our
expertise lies within three business segments. Our three business segments
include Wireless Mobility Management (formerly referred to as our “Wireless
Telecommunication Expense Management Services” segment), Cybersecurity Solutions
(formerly referred to as our “Identity Management” segment), as Consulting
Services and Products.  These segments offer unique solutions and
proprietary IP in mobile and wireless full life cycle management solutions;
cybersecurity solutions with an expertise in identity management services
utilizing certificate-based security solutions; and other associated IT
consulting services and products in which we provide specific subject matter
expertise in IT Architecture and Planning, Software Implementation Services, IT
Outsourcing, and Forensic Informatics.





WidePoint
has three material operational entities: Operational Research Consultants, Inc.
(“ORC”), iSYS, LLC (“iSYS”), and WidePoint IL, Inc., which, along with a
development stage company named Protexx Acquisition Corporation, is doing
business as Protexx. In January 2008, we completed the acquisition of iSYS.
iSYS specializes in mobile telecommunications expense management services and
forensic informatics, and information assurance services predominantly to the
U.S. government. In July 2008, we completed the purchase of the operating assets
and proprietary intellectual property of Protexx, Inc. through our acquisition
subsidiary, Protexx Acquisition Corporation. Protexx specializes in identity
assurance and mobile and wireless data protection services. ORC specializes in
IT integration and secure authentication processes and software, and providing
services to the U.S. Government. ORC has been at the forefront of implementing
Public Key Infrastructure (PKI) technologies. PKI technology uses a class
of algorithms in which a user can receive two electronic keys, consisting of a
public key and a private key, to encrypt any information and/or communication
being transmitted to or from the user within a computer network and between
different computer networks. PKI technology is rapidly becoming the technology
of choice to enable security services within and between different computer
systems utilized by various agencies and departments of the U.S.
government.





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







F-7


2.
            Significant
      Accounting Policies




Principles
of Consolidation




The
accompanying condensed consolidated financial statements include the accounts of
acquired entities since their respective dates of acquisition.  All
significant inter-company amounts have been eliminated in
consolidation.




Use
of Estimates




The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the U.S. 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.  The more significant areas requiring use of
estimates and judgment relate to revenue recognition, accounts receivable
valuation reserves, realizability of intangible assets, realizability of
deferred income tax assets and the evaluation of contingencies and
litigation.  Management bases its estimates on historical experience
and on various other assumptions that are believed to be reasonable under the
circumstances.  Actual results could differ from those
estimates.




Reclassifications




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




Significant
Customers




For the
years ended December 31, 2009 and 2008, respectively, three customers, the
Department of Homeland Security, the Transportation Security Administration ,
and the Washington Headquarters Services , an agency of the Department of
Defense (“DoD”) that provides services for many DoD agencies and organizations
represented individually the respective percentages of our revenues set forth in
the table below.  Due to the nature of our business and the relative
size of certain contracts, which are entered into in the ordinary course of
business, the loss of any single significant customer could have a material
adverse effect on results.




Customer
      Name
              2009
                (%)
                Revenue
              2008
                (%)
                RevenueTransportation
      Security Administration (“TSA”)
              22%
              26%Department
      of Homeland Security (“DHS”)
              22%
              20%Washington
      Headquarters Services (“WHS”)
              18%
              14%







F-8


Concentrations
of Credit Risk




Financial
instruments potentially subject the Company to credit risk, which consist of
cash and cash equivalents and accounts receivable.  As of December 31,
2009, three customers, DHS, WHS, and TSA accounted for approximately 30%, 26%,
and 20%, respectively, of accounts receivable and unbilled accounts
receivable.  As of December 31, 2008, three clients, DHS, TSA, and
WHS, represented approximately 24%, 17%, and 14%, respectively, of accounts
receivable and unbilled accounts receivable.




Fair
value of financial instruments




The
Company’s financial instruments include cash equivalents, deferred revenue,
accounts receivable, notes receivable, accounts payable, short-term debt and
other financial instruments
associated with the issuance of the common stock.  The carrying values
of cash equivalents, accounts receivable, notes receivable, and accounts payable
approximate their fair value because of the short maturity of these instruments.
The carrying amounts of the Company’s bank borrowings under its credit facility
approximate fair value because the interest rates are reset periodically to
reflect current market rates.




The Company adoptedguidance related toFair Value Measurementson January 1,
2008.This
authoritative guidanceamong other things, defines fair value, establishes a consistent framework for
measuring fair value and expands disclosure for each major asset and liability
category measured at fair value on either a recurring or nonrecurring basis.This authoritative
guidanceclarifies that
fair value is an exit price, representing the amount that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between
market participants. As such, fair value is a market-based measurement that
should be determined based on assumptions that market participants would use in
pricing an asset or liability. As a basis for considering such assumptions,this authoritative
guidanceestablishes a
three-tier fair value hierarchy, which prioritizes the inputs used in measuring
fair value as follows:




Level 1: Observable inputs such as
quoted prices in active markets;




Level 2: Inputs, other than the quoted
prices in active markets, that are observable either directly or indirectly;
and




Level 3: Unobservable inputs in which
there is little or no market data, which require the reporting entity to develop
its own assumptions.




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.    The Company had
deposits with financial institutions in excess of federally insured
limits.  The Company's financial institution participates in the
FDIC's Transaction Account Guarantee Program (TAG) whereby all non-interest
bearing transactions accounts are fully guaranteed by the FDIC for the entire
amount of the account through June 30, 2010.  Effective May 20, 2009,
deposits not covered under the temporary TAG program at FDIC-insured
institutions are insured up to at least $250,000 per depositor through December
31, 2013. On January 1, 2014, the standard insurance amount will return to
$100,000 per depositor for all account categories except for IRAs and other
certain retirement accounts which will remain at $250,000 per
depositor.  At December 31, 2009, the Company had interest bearing
deposits in excess of FDIC insured limits was approximately
$5,712,000.




F-9


Accounts
Receivable




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




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




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




The
Company is following a customer’s procedural guidelines in pursuing final
approval and collection of a single sales invoice of approximately
$500,000.  The aging of this invoice exceeds the 90 day past due threshold
noted above.  However, the Company believes that it has adequately
responded to the customer’s questions and substantiated the billing to the
customer and that it is probable that the balance will be fully collected upon
completion of this customer’s formal process.




Unbilled
Accounts Receivable




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, 2009 and December 31, 2008, unbilled
accounts receivable totaled approximately $1,334,000 and $2,302,000,
respectively.




F-10


Revenue
Recognition




The
Company has revenue contracts with customers which may involve multiple
deliverable elements.  The Company analyzes various factors, including
a review of the nature of the contract or product sold, the terms of each
specific transaction, the relative fair values of the elements, any
contingencies that may be present, its historical experience with like
transactions or with like products, the creditworthiness of the customer, and
other current market and economic conditions.  The Company allocates
revenue to each component of the arrangement using the residual value method
based on the fair value of the undelivered elements. The Company defers revenue
from the arrangement equivalent to the fair value of the undelivered elements
and recognizes the remaining amount at the time of the delivery of the product
or when all other revenue recognition criteria have been met.





Revenue
from the sale of PKI credentials is recognized when delivery
occurs.  Arrangements with customers on PKI related contracts may
involve multiple deliverable elements.  In these cases, the Company
applies the principles prescribed in ASC 605-25, “Multiple-Element
Arrangements.”  The Company analyzes various factors, including a
review of the nature of the contract or product sold, the terms of each specific
transaction, the relative fair values of the elements required by ASC 605-25,
any contingencies that may be present, its historical experience with like
transactions or with like products, the creditworthiness of the customer, and
other current market and economic conditions.





Revenue
from our mobile telecom expense management services (“MTEMS”) is recognized upon
delivery of services as they are rendered.  Arrangements with
customers on MTEMS-related contracts are recognized ratably over a period of
performance.





Revenue
from the sale of PKI credentials whereby the Company controls issuance of the
credentials is recognized when delivery occurs or the credential is available to
the customer.  In connection with the sale of PKI credentials the
Company generates revenues 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 collectability is probable.





Revenue
from the sale of PKI credentials whereby the customer controls issuance of the
credential (for example, the sale of PKI Credential Seats along with the sale of
maintenance, hosting and support to be delivered over the contract period), the
Company allocates revenue to each component of the arrangement using the
residual value method based on the fair value of the undelivered elements. The
Company defers revenue from the arrangement equivalent to the fair value of the
undelivered elements and recognizes the remaining amount at the time of the
delivery of the product or when all other revenue recognition criteria have been
met.





A portion
of our 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.






F-11





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 material history of losses nor has it identified
any material specific risk of loss at December 31, 2009 and 2008, respectively,
due to termination provisions and thus has not recorded provisions for such
events.




Income
Taxes




The
Company accounts for income taxes in accordance with authoritative guidance
which requires that deferred tax assets and liabilities be computed based on the
difference between the financial statement and income tax bases of assets and
liabilities using the enacted marginal tax rate.  The guidance
requires that the net deferred tax asset be reduced by a valuation allowance if,
based on the weight of available evidence, it is more likely than not that some
portion or all of the net deferred tax asset will not be
realized.  The Company recognizes the impact of an uncertain tax
position taken or expected to be taken on an income tax return in the financial statements
at the amount that is more likely than not to be sustained upon audit by the
relevant taxing authority. An uncertain income tax position will not be
recognized in the financial statements unless it is more likely than not of
being sustained




Property
and Equipment




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




December31,
                  2009
              
              
              December31,
                  2008Automobiles,
      computers, equipment and software
              
              $
              1,194,831
              
              
              $
              867,013Less–
      Accumulated depreciation and amortization
              
              
              (656,020
              )
              
              
              (435,824
              )$
              538,811
              
              
              $
              431,189





Depreciation
expense is computed using the straight-line method over the estimated useful
lives of between two and five years depending upon the classification of the
property and/or equipment.





The
Company capitalizes costs related to software and implementation in connection
with its internal use software systems.




F-12


Software
Development Costs




For
software development costs (or “internally developed intangible assets”) related
to software products for sale, lease or otherwise marketed, 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 such other such shorter period as
may be required. WidePoint recorded approximately $268,000 of amortization
expense for the year ended December 31, 2009, as compared to approximately
$240,000 for the year ended December 31, 2008.





WidePoint
capitalized approximately $30,000 for the year ended December 31, 2009, as
compared to approximately $123,000 in capitalized costs for the year ended
December 31, 2008. Capitalized software development costs, net, included in
Intangibles, net, on the Company’s condensed consolidated balance sheets at
December 31, 2009 were approximately $0.4 million, compared to approximately
$0.6 million at December 31, 2008.  During 2009, we estimated that we
would be capitalizing approximately $50,000 more prior to the issuance of the
Authority To Operate (“ATO”), but the project timeframe has been extended into
April of 2010 with an estimated cost of approximately $65,000.  Upon
completion, we will commence amortizing the ATO over an approximate three year
life.





Goodwill,
Other Intangible Assets, and Long-Lived Assets




On
January 1, 2009, the Company adopted authoritative guidance on accounting for
business combinations.  The guidance establishes principles and
requirements for determining how an enterprise recognizes and measures the fair
value of assets and liabilities acquired in a business combination, including
non-controlling interests, contingent consideration, and certain acquired
contingent liabilities. The guidance also requires acquisition-related
transaction and restructuring costs be expensed as incurred rather than
capitalized as a component of the business combination. Any changes in the
Company’s valuation allowances for acquired deferred tax assets attributable to
prior business combinations will generally be reflected in income tax expense in
the period in which the change occurs.  At December 31, 2009, there
were no deferred tax asset valuation allowance was attributable to prior
business combinations.




Additionally,
the newly adopted authoritative guidance changes the definition of a “business”
which can have impacts on the identification of reporting units used to measure
goodwill for impairment. The Company has assessed this impact and has determined
there are no material impacts to the identified reporting units to which
goodwill is assigned and the related impairment testing of such goodwill.Goodwill is more fully
described in Note 4.





Under the
provisions of these standards, goodwill is not subject to amortization and
annual review is required for impairment.  The impairment test 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. As of December 31, 2009, no
impairment had occurred.






F-13





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 Earnings (Loss) Per Share




Basic
earnings or loss per share includes no dilution and is computed by dividing net
earnings or loss by the weighted-average number of common shares outstanding for
the period. Diluted earnings or loss per share includes the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock.  The treasury stock effect
of the conversion of options and warrants to purchase 1,189,601 shares of common
stock outstanding for the year ended December 31, 2009 has been included in the
calculations of the diluted net income per share. Outstanding options and
warrants to purchase 8,614,457 shares for year ended December 31, 2008 have 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 net
loss per share for the year ended December 31, 2008 are presented as
identical.  Earnings per common share were computed as follows for the
years ended December 31, 2009 and 2008, respectively:





Years
      EndedDec.
      31,
                
                
                Dec.
      31,2009
                
                
                2008Basic
      income (loss) Per Common Share:Net
      income (loss)
                
                $
                1,410,456
                
                
                $
                (1,090,452
                )Weighted
      average number of common shares
                
                
                59,419,383
                
                
                
                56,673,952Income
      (loss) per common share.
                
                $
                0.02
                
                
                $
                (0.02
                )Diluted
      Income Per Common Share:Net
      income (loss)
                
                $
                1,410,456
                
                
                $
                (1,090,452
                )Weighted
      average number of common shares
                
                
                59,419,383
                
                
                
                56,673,952Incremental
      shares from assumed conversions of stock options
                
                
                1,189,601
                
                
                
                -Adjusted
      weighted average number of common shares
                
                
                60,608,984
                
                
                
                56,673,952Income
      (loss) per common share
                
                $
                0.02
                
                
                $
                (0.02
                )







F-14







Stock-based
compensation





The
Company previously adopted the provisions of ASC 718-10, “Stock Compensation”
(formerly known as SFAS No. 123R), using the modified prospective application
transition method.  Under this method, 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 is recognized over the remaining service
period.  The compensation cost for that portion of awards is based on
the grant-date fair value of those awards as calculated for pro forma
disclosures under ASC 718-10, as originally issued.  All new awards
that are modified, repurchased, or cancelled after the adoption date are
accounted for under provisions of ASC 718-10.  The Company recognizes
share-based compensation ratably using the straight-line attribution method over
the requisite service period.  In addition, pursuant to ASC 718-10,
the Company is required to estimate the amount of expected forfeitures when
calculating share-based compensation, instead of accounting for forfeitures as
they occur, which was the Company’s practice prior to the adoption of ASC
718-10.





The
amount of compensation expense recognized under ASC 718-10 during the years
ended December 31, 2009 and 2008, respectively, under our plans was comprised of
the following:





Years ended
      December 312009
                          
                          
                          2008General
      and administrative expense
                          
                          $
                          146,782
                          
                          
                          $
                          563,108Share-based
      compensation before taxes
                          
                          $
                          146,782
                          
                          
                          $
                          563,108Total
      net share-based compensation expense
                          
                          $
                          146,782
                          
                          
                          $
                          563,108Net
      share-based compensation expenses per basic and diluted common
      share
                          
                          
                          nil
                          
                          
                          $
                          0.01





Since we
have cumulative operating tax losses as of December 31, 2009 and December 31,
2008 for which a valuation allowance has been established, we recorded no income
tax benefits for share-based compensation arrangements.  Additionally, no
incremental tax benefits were recognized from stock options exercised during the
years ended December 31, 2009 and December 31, 2008, respectively, which would
have resulted in a reclassification to reduce net cash provided by operating
activities with an offsetting increase in net cash provided by financing
activities.






F-15





The fair
value of each option award is estimated on the date of grant using a
Black-Scholes option pricing model (“Black-Scholes model”), which uses the
assumptions of no dividend yield, risk free interest rates and expected life in
years of approximately 3 years.  The option awards are for the period
from 1999 through 2009. Expected volatilities are based on the historical
volatility of our common stock. The expected term of options granted is based on
analyses of historical employee termination rates and option exercises. The
risk-free interest rates are based on the U.S. Treasury yield for a period
consistent with the expected term of the option in effect at the time of the
grant.





2009
              2008Expected
      dividend yield
              
              0
              0Expected
      volatility
              
              98%
              66-70%Risk-free
      interest rate
              
              2.04%
              2.61-3.45%Expected
      life – Employees options
              
              3.5
      years
              3-5
      yearsExpected
      life – Board of directors options
              
              3.5-10
      years
              3.0
      years





Share-based
compensation expense recognized during the period is based on the value of the
portion of share-based payment awards that is ultimately expected to vest during
the period.  The estimated forfeiture rates are based on analyses of
historical data, taking into account patterns of involuntary termination and
other factors.  A summary of the option activity under our plans during the
years ended December 31, 2009 and 2008 is presented below:





NON-VESTED


#
      of Shares
              
              
              Weighted
      average grant date fair value per shareNon-vested
      at January 1, 2008
              
              
              457,044
              
              
              $
              0.73Granted
              
              
              1,480,000
              
              
              $
              0.46Vested
              
              
              (623,044
              )
              
              $
              0.72Forfeited
              
              
              —
              
              
              
              —Non-vested
      at December 31, 2008
              
              
              1,314,000
              
              
              $
              0.43Granted
              
              
              25,000
              
              
              $
              0.54Vested
              
              
              (123,996
              )
              
              $
              0.79Forfeited
              
              
              —
              
              
              
              —Non-vested
      at December 31, 2009
              
              
              1,215,004
              
              
              $
              0.39







F-16





OUTSTANDING AND
EXERCISABLE





#
      of Shares
              
              
              Weighted
      average grant date fair value of exercise price per shareTotal
      outstanding at January 1, 2008
              
              
              7,085,211
              
              
              $
              0.37Issued
              
              
              1,480,000
              
              
              $
              0.87Cancelled
              
              
              (9,800
              )
              
              $
              0.45Exercised
              
              
              (32,000
              )
              
              $
              0.45Total
      outstanding at December 31, 2008
              
              
              8,523,411
              
              
              $
              0.45Total
      exercisable at December 31, 2008
              
              
              7,209,411
              
              
              $
              0.37Granted
              
              
              25,000
              
              
              $
              0.54Cancelled
              
              
              (1,001
              )
              
              $
              1.35Exercised
              
              
              (4,029,999
              )
              
              $
              0.23Total
      outstanding at December 31, 2009
              
              
              4,517,411
              
              
              $
              0.54Total
      exercisable at December 31, 2009
              
              
              3,302,407
              
              
              $
              0.43




The
aggregate remaining contractual lives in years for the options outstanding and
exercisable on December 31, 2009 were 4.70 and 3.95, respectively.  In
comparison, the aggregate remaining contractual lives in years for the options
outstanding and exercisable on December 31, 2008 were 3.25 and 2.50,
respectively.




Aggregate
intrinsic value represents total pretax intrinsic value (the difference between
WidePoint’s closing stock price on December 31, 2009 and the exercise price,
multiplied by the number of in-the-money options) that would have been received
by the option holders had all option holders exercised their options on December
31, 2009. The intrinsic value will change based on the fair market value of
WidePoint’s stock. The total intrinsic value of options outstanding as of
December 31, 2009 and 2008, respectively, were $ 1,233,873 and $112,650.
The total intrinsic value of options exercisable on December 31, 2009 and
2008, respectively, were $1,178,222 and $112,650. The total intrinsic value of
options exercised during the year ended December 31, 2009 and 2008,
respectively, were $1,384,000 and $29,120. The Company issues new shares of
common stock upon the exercise of stock options.




F-17


At
December 31, 2009, the Company had approximately $312,000 of total unamortized
compensation expense, net of estimated forfeitures, related to stock option
plans that will be recognized over the weighted average period of 3.84
years.





At
December 31, 2008, the Company had approximately $375,871 of total
unamortized compensation expense, net of estimated forfeitures, related to stock
option plans that will be recognized over the weighted average period of
3.25 years.





On May
11, 2009, the Company’s Compensation Committee of the Board of Directors voted
to cancel 950,000 options held by management and other employees (the "Cancelled
Options") and issue replacement options to such individuals (the "Replacement
Options").  The optionees all concurred with such action by the
Compensation Committee.  The Cancelled Options had varying exercise prices
ranging from $0.85 to $2.80 with a weighted average exercise price of
$1.06.  The exercise price of the Replacement Options was set at
$0.54.  Other than the exercise price, there are no differences in the
terms between the Cancelled Options and the Replacement Options.  The
incremental additional fair value of the Replacement Options was calculated to
be approximately $64,000, which was determined by calculating the fair value of
the Cancelled Options as they existed on May 11, 2009 immediately prior to
cancellation as compared to the fair value on the same date of the exercise
price of the Replacement Options.  This amount of additional fair value of
the Replacement Options will be recognized over the vesting period of the
Replacement Options.  There is approximately $123,000 in remaining
unrecognized compensation costs to recognize on these
options.   Since some of the Replacement Options were fully
vested at May 11, 2009, there was an expense of approximately $45,000 recognized
in the three months ended September 30, 2009 as a result of the cancellation of
the Cancelled Options and the issuance of the Replacement Options.





Non-employee
stock-based compensation:





The
Company accounts for stock-based non-employee compensation arrangements using
the fair value recognition provisions of ASC 505-50, “Equity-Based Payments to
Non-Employees” (formerly known as FASB Statement 123, Accounting for Stock-Based
Compensationand “Emerging Issues Task Force” EITF 96-18, Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services).





Accounting
Standards Updates





Revenue
Recognition– In October
2009, theFinancial Accounting Standards Board (FASB) issued guidance to
enable vendors to account for
products or services (deliverables) separately rather than as a combined unit as
these products or services often are provided at different points in time or
over different time periods.  This guidance establishes how to
separate deliverables and how to measure and allocate arrangement consideration
to one or more units of accounting and expands the disclosures related to a
vendor’s multiple-deliverable revenue arrangement. The guidance will be
effective prospectively for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010. Early
adoption is permitted. We do not anticipate that the adoption of this standard
will have any significant impact on the Company’s results of operations or
financial position.






F-18




Business Combinations and
Identification of Reporting Units - On January 1, 2009, the Company
adopted authoritative guidance on accounting for business
combinations.  The guidance establishes principles and requirements
for determining how an enterprise recognizes and measures the fair value of
assets and liabilities acquired in a business combination, including
non-controlling interests, contingent consideration, and certain acquired
contingent liabilities. The guidance also requires acquisition-related
transaction and restructuring costs be expensed as incurred rather than
capitalized as a component of the business combination. Any changes in the
Company’s valuation allowances for acquired deferred tax assets attributable to
prior business combinations will generally be reflected in income tax expense in
the period in which the change occurs. At December 31, 2009, there was no
deferred tax asset valuation allowance that were attributable to prior business
combinations.




Additionally,
the newly adopted authoritative guidance changes the definition of a “business”
which can have impacts on the identification of reporting units used to measure
goodwill for impairment. The Company has assessed this impact and has determined
there are no material impacts to the identified reporting units to which
goodwill is assigned and the related impairment testing of such goodwill.Goodwill is more fully
described in Note 4.




Fair Value Measurements - On
September 2006, FASB issued guidance that defines fair value, establishes a
single definition of fair value and a framework for measuring fair value in that
is intended to result in increased consistency and comparability in fair value
measurements. The guidance was originally effective for financial statements
issued for fiscal years beginning after November 15, 2007, and interim periods
within those years with early adoption permitted.  In early 2008, the
FASB delayed by one year the effective date of the guidance for all nonfinancial
assets and nonfinancial liabilities, except those that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at
least annually). The Company elected to adopt this deferral.




On
January 1, 2009, the Company adopted the authoritative guidance on fair value
measurements for nonfinancial assets and liabilities that was
deferred.  With the expiration of the deferral, the fair value
measurement and disclosure requirements now apply for the first time impact the
Company in the following areas:




·
            Goodwill
      and indefinite-lived intangible asset impairment testing which involves
      the fair value measurement of reporting units, assets, and/or
      liabilities




·
            Nonfinancial
      long-lived assets (such as PP&E) measured at fair value for impairment
      assessment




Subsequent Events - Subsequent
events are events or transactions that occur after the balance sheet date but
before financial statements are issued. The Company recognizes in the financial
statements the effects of all subsequent events that provide additional evidence
about conditions that existed at the date of the balance sheet, including the
estimates inherent in the process of preparing the financial statements. The
Company’s financial statements do not recognize subsequent events that provide
evidence about conditions that did not exist at the date of the balance sheet
but arose after the balance sheet date and before financial statements are
issued. Note 10 provides disclosure of certain subsequent events that did not
result in recognition in the financial statements.






F-19




The
Company has evaluated subsequent events through March 31, 2010, which is the
date the financial statements were issued.




3.     Debt




The
Company entered into a senior lending agreement with Cardinal Bank on August 16,
2007.  In January of 2008, the Company modified this credit facility
with Cardinal Bank to allow for up to $7 million, which included a four-year
term note for $2 million that the Company had entered into with Cardinal Bank in
January 2008. The Company borrowed approximately $1.8 million under this credit
facility to finance the acquisition of iSYS, LLC in January of 2008 and repaid
the advance in full in May 2008 from the proceeds raised in a subsequent capital
raise that occurred in April and May of 2008.  As of December 31,
2009, the Company had no borrowings under this credit facility, which previously
had a $5 million borrowing cap at an interest rate of 6.5%.  As
explained below, this credit facility was superseded by the Company’s new
revolving credit facility entered into with Cardinal Bank.





On March
17, 2009, the Company entered into a Debt Modification Agreement and Commercial
Loan Agreement (“2009 Commercial Loan Agreement”) with Cardinal Bank. This new
revolving credit facility replaced the Company’s prior $5 million revolving
credit facility with Cardinal Bank. The 2009 Commercial Loan Agreement allows
for the Company to borrow up to $5 million. The repayment date of the revolving
credit facility was extended to June 1, 2010 and advances under the revolving
credit facility will bear interest at a variable rate equal to the prime rate
plus 0.5% with an interest rate floor of 5%. Borrowings under the 2009
Commercial Loan Agreement were collateralized by the Company’s eligible contract
receivables, inventory, all of its stock in certain of its subsidiaries and
certain property and equipment. As part of the credit facility, the Company must
comply with certain financial covenants that include tangible net worth and
interest coverage ratios.  The Company was in full compliance with
these financial covenants on December 31, 2009.





The
Company also has a four-year term note with Cardinal Bank that we entered into
January 2008 in the principal amount of $2 million, which bears interest at the
rate of 7.5% with 48 equal principal and interest payments. At December 31,
2009, we owed approximately $1.1 million under the term note.





The
Company also had a subordinated seller financed note for $2 million in favor of
Jin Kang, a related party of the Company and the former owner and current
officer of iSYS, LLC, which was due the earlier of April 1, 2009 or upon the
filing of the Company’s Form 10-K. The note bore interest at the simple rate of
7% through December 31, 2008, that increased to 10% on January 1, 2009 and
remained in effect at 10% through the repayment of the note. As mentioned above,
on March 17, 2009, the Company entered into the 2009 Commercial Loan Agreement
with Cardinal Bank. The 2009 Commercial Loan Agreement excluded the
subordination agreement of Jin Kang from our prior credit facility, which
allowed for the repayment of the seller’s note on March 27, 2009.  As
of December 31, 2009 the Company does not have any outstanding balances due Mr.
Kang under any seller’s notes.  The seller’s note was paid from excess
cash balances held by the Company as a result of positive cashflows from
operations.






F-20








4. Goodwill
and Intangible Assets





Goodwill
is to be reviewed at least annually for impairment; the Company has elected to
perform this review annually on December 31st of each calendar year. We
have not identified any impairment as of December 31, 2009.  These
reviews have resulted in no adjustments in goodwill.  Management
believes that as of December 31, 2009 the carrying value of our goodwill was not
impaired.





The
changes in the carrying amount of goodwill for the years ended December 31, 2009
and 2008, respectively, are as follows:





TotalBalance
      as of December 31, 2008
                
                $
                8,575,881iSYS
      additional earn-out purchase consideration
                
                
                1,194,766Balance
      as of December 31, 2009
                
                $
                9,770,647





In 2008,
$6,049,771 in goodwill was acquired as a result of the acquisition of iSYS, LLC.
In 2009, $1,194,766 in goodwill was added as a result of the additional
consideration earned under the terms of the earnout agreement with respect to
the acquisition of iSYS, LLC.  Management believes that as of December
31, 2009 the carrying value of our goodwill was not impaired.





Purchased
and Internally Developed Intangible Assets





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







F-21





As
      of December 31, 2009Gross
      Carrying Amount
                                                                      
                                                                      
                                                                      Accumulated
      Amortization
                                                                      
                                                                      
                                                                      Weighted
      Average Amortization Period (in years)Purchased
      Intangible AssetsORC
      Intangible (Includes customer relationships and PKI business opportunity
      purchase accounting preliminary valuations)
                                                                      
                                                                      $
                                                                      1,145,523
                                                                      
                                                                      
                                                                      $
                                                                      (1,112,080
                                                                      )
                                                                      
                                                                      
                                                                      5iSYS
      (includes customer relationships, internal use software and trade
      name)
                                                                      
                                                                      $
                                                                      1,230,000
                                                                      
                                                                      
                                                                      $
                                                                      (515,334
                                                                      )
                                                                      
                                                                      
                                                                      5Protexx (Identity Security
      Software)
                                                                      
                                                                      $
                                                                      506,463
                                                                      
                                                                      
                                                                      $
                                                                      (239,163
                                                                      )
                                                                      
                                                                      
                                                                      3$
                                                                      2,881,986
                                                                      
                                                                      
                                                                      $
                                                                      (1,866,577
                                                                      )
                                                                      
                                                                      
                                                                      4Internally
      Developed Intangible AssetsORC
      PKI-I Intangible (Related to internally generated
software)
                                                                      
                                                                      $
                                                                      334,672
                                                                      
                                                                      
                                                                      $
                                                                      (300,720
                                                                      )
                                                                      
                                                                      
                                                                      6ORC
      PKI-II Intangible (Related to internally generated
    software)
                                                                      
                                                                      $
                                                                      649,991
                                                                      
                                                                      
                                                                      $
                                                                      (542,305
                                                                      )
                                                                      
                                                                      
                                                                      6ORC
      PKI-III Intangible (Related to internally generated
    software)
                                                                      
                                                                      $
                                                                      211,680
                                                                      
                                                                      
                                                                      $
                                                                      (117,600
                                                                      )
                                                                      
                                                                      
                                                                      3ORC PKI-IV Intangible (Related to
      internally generated software)
                                                                      
                                                                      $
                                                                      42,182
                                                                      
                                                                      
                                                                      $
                                                                      (23,434
                                                                      )
                                                                      
                                                                      
                                                                      3ORC PKI-V Intangible (Related to
      internally generated software)
                                                                      
                                                                      $
                                                                      111,705
                                                                      
                                                                      
                                                                      
                                                                      —
                                                                      
                                                                      
                                                                      
                                                                      31,350,230
                                                                      
                                                                      
                                                                      $
                                                                      (984,059
                                                                      )
                                                                      
                                                                      
                                                                      5Total
                                                                      
                                                                      $
                                                                      4,232,216
                                                                      
                                                                      
                                                                      $
                                                                      (2,850,636
                                                                      )
                                                                      
                                                                      
                                                                      5Aggregate
      Amortization Expense:For the year ended
      12/31/09
                                                                      
                                                                      $
                                                                      885,380Estimated
      Amortization Expense:For the year ended
      12/31/10
                                                                      
                                                                      $
                                                                      637,319For the year ended
      12/31/11
                                                                      
                                                                      $
                                                                      367,693For the year ended
      12/31/12
                                                                      
                                                                      $
                                                                      224,902For the year ended
      12/31/13
                                                                      
                                                                      $
                                                                      151,666Total
                                                                      
                                                                      $
                                                                      1,381,580









F-22




5.
            Income
      Taxes




The
Company accounts for income taxes in accordance with ASC 740, “Income Taxes”
(formerly known as SFAS No. 109, “Accounting for Income Taxes”). Under ASC
740, 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.  ASC 740 requires that the net
deferred tax asset be reduced by a valuation allowance if, based on the weight
of available evidence, it is more likely than not that some portion or all of
the net deferred tax asset will not be realized.  The Company has
further adopted the provisions of ASC 740-10-15 (formerly known as
Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes”).  The Company recognizes the financial statement benefit of a
tax position only after determining that the relevant tax authority would more
likely than not sustain the position following an audit.  For tax
positions meeting the more-likely-than-not threshold, the amount recognized in
the financial statements is the largest benefit that has a greater than 50
percent likelihood of being realized upon ultimate settlement with the relevant
tax authority.  The Company’s assessments of its tax positions in
accordance with ASC 740 did not result in changes that had a material impact on
results of operations, financial condition or liquidity. As of December 31, 2009
and at December 31, 2008, the Company had no unrecognized tax benefits. While
the Company does not have any interest and penalties in the periods presented,
the Company’s policy is to recognize such expenses as tax expense.




The
Company files U.S. federal income tax returns with the Internal Revenue Service
(“IRS”) as well as income tax returns in various states. The Company may be
subject to examination by the IRS for tax years 2002 through 2009. Additionally,
the Company may be subject to examinations by various state taxing jurisdictions
for tax years 2002 through 2009. The Company is currently not under examination
by the IRS or any state tax jurisdiction.




F-23


As of
December 31, 2009, the Company had net operating loss (NOL) carry forwards of
approximately $14,731,000 to offset future taxable income for federal income tax
purposes, net of the potential limitation discussed below. There are also up to
approximately $7,925,000 in state income tax NOL carryforwards.  These
carry forwards expire between 2010 and 2029. In assessing the ability to realize
of deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon generation of
future taxable income during the periods in which those temporary differences
become deductible. Based upon the level of historical losses that may limit
utilization of NOL carry forwards in future periods, management is unable to
predict whether these net deferred tax assets will be utilized prior to
expiration. 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 Company has completed a “Section 382” analysis and we
have determined preliminarily that some of the Company’s net operating losses
may be limited as a result of expirations that may occur prior to the
utilization of those net operating losses under the limitations from certain
changes of control that had occurred.  Utilization of the NOL
carryforwards will be subject to an annual limitation under Section 382 of the
Internal Revenue Code of 1986 and similar state provisions due to ownership
change limitations that have occurred. These ownership changes will limit the
amount of NOL carryforwards that can be utilized to offset future taxable
income. In general, an ownership change, as defined by Section 382, results from
transactions increasing ownership of certain stockholders or public groups in
the stock of the corporation by more than 50 percentage points over a three-year
period. An analysis was performed which indicated that multiple ownership
changes have occurred in previous years which created annual limitations on our
ability to utilize NOL and tax credit carryovers. Such limitations will result
in approximately $4,907,000 of tax benefits related to federal NOL carryforwards
that will expire unused. Accordingly, the related NOL carryforwards have been
removed from deferred tax assets accompanied by a corresponding reduction of the
valuation allowance. Due to the existence of the valuation allowance,
limitations created by future ownership changes, if any, related to our
operations in the U.S. will not impact our effective tax rate.




No tax
benefit has been realized associated with the exercise of stock options for the
years ended December 31, 2009 and 2008, respectively, because of the
existence of net operating loss carryforwards. There will be no credit to
additional paid in capital for such until the associated benefit is realized
through a reduction of income taxes payable.




The
Company has determined that its net deferred tax asset did not satisfy the
recognition criteria set forth in ASC 740 and, accordingly, established a
valuation allowance for 100 percent of the net deferred tax
asset.





The
Company incurred a deferred income tax expense of approximately $157,000 for the
twelve months ended December 31, 2009. This deferred income tax expense is
attributable to the differences in our treatment of the amortization of goodwill
for tax purposes versus book purposes as it relates to our acquisition of iSYS
in January 2008. Because the goodwill is not amortized for book purposes
but is for tax purposes, the related deferred tax liability cannot be reversed
until some indeterminate future period when the goodwill either becomes impaired
and/or is disposed of. The deferred tax liability can be offset by deferred
Income tax assets that may be recognized In the future and the deferred tax
expense is a non-cash expense. ASC 740 requires the expected timing of future
reversals of deferred tax liabilities to be taken into account when evaluating
the realizability of deferred tax assets. Therefore, the reversal of deferred
tax liabilities related to the goodwill is not to be considered a source of
future taxable income when assessing the realization of deferred tax assets.
Because the Company has a valuation allowance for the full amount of the
deferred income tax asset, the deferred income liability associated with the tax
deductible goodwill has been recorded and not offset against existing deferred
income tax assets.




F-24


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




2009
                  
                  
                  2008Current
      provision (benefit)
                  
                  $
                  -
                  
                  
                  $
                  -Deferred
      provision (benefit)
                  
                  $
                  156,891
                  
                  
                  $
                  156,891





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





2009
                  
                  
                  2008Statutory
      federal income tax rate
                  
                  
                  34.0
                  %
                  
                  
                  (34.0
                  )%State
      income taxes, net of federal benefit
                  
                  
                  4.9
                  
                  
                  
                  (4.9
                  )Non-deductible
      expenses
                  
                  
                  1.1
                  
                  
                  
                  1.0(Decrease)
      increase in valuation allowance
                  
                  
                  (101.9
                  )
                  
                  
                  72.7Permanent
      difference related to tax deductible goodwill
                  
                  
                  10.0
                  
                  
                  
                  (16.8
                  )Expiration
      of federal NOL due to section 382 limitation
                  
                  
                  106.8
                  
                  
                  
                  0.00Expiration
      of state loss carryforwards and change in state tax rate
                  
                  
                  (4.1
                  )
                  
                  
                  0.0Permanent
      difference related to tax deduction of stock options
                  
                  
                  (34.5
                  )
                  
                  
                  0.0True-up
      differences from prior years
                  
                  
                  (1.9
                  )
                  
                  
                  0.0Other
                  
                  
                  (4.4
                  )
                  
                  
                  (1.3
                  )10.0
                  %
                  
                  
                  16.7
                  %





The
deferred tax assets (liabilities) consisted of the following as of
December 31, 2009 and 2008:







F-25








December 31,2009
                    
                    
                    2008Deferred
      tax assets:Net
      operating loss carryforwards
                    
                    $
                    5,858,547
                    
                    
                    $
                    8,155,662AMT
      credit
                    
                    
                    13,420
                    
                    
                    
                    13,420Stock
      based compensation
                    
                    
                    500,449
                    
                    
                    
                    -Advanced
      payments
                    
                    
                    271,813
                    
                    
                    
                    443,400Other
      assets
                    
                    
                    124,862
                    
                    
                    
                    81,296Total
      deferred tax assets
                    
                    
                    6,769,091
                    
                    
                    
                    8,693,778Deferred
      tax liabilities:Intangibles
                    
                    
                    476,604
                    
                    
                    
                    716,570Goodwill
      amortization
                    
                    
                    313,782
                    
                    
                    
                    156,756Capitalized
      software costs
                    
                    
                    159,038
                    
                    
                    
                    251,375Total
      deferred tax liabilities
                    
                    
                    949,424
                    
                    
                    
                    1,124,701Net
      deferred tax asset
                    
                    
                    5,819,667
                    
                    
                    
                    7,569,077Less–
      Valuation allowance
                    
                    
                    (6,133,449
                    )
                    
                    
                    (7,725,968
                    )Net
      deferred income tax liability
                    
                    $
                    (313,782
                    )
                    
                    $
                    (156,891
                    )





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




2009
                            
                            
                            2008Opening
      balance
                            
                            $
                            (7,725,968
                            )
                            
                            $
                            (7,045,540
                            )Decrease
      (Increase)
                            
                            
                            1,592,519
                            
                            
                            
                            (680,428
                            )Ending
      balance
                            
                            $
                            (6,133,449
                            )
                            
                            $
                            (7,725,968
                            )





6. Stockholders’
Equity




The
Company is authorized to issue 110,000,000 shares of common stock, $.001 par
value per share.  As of December 31, 2009, there were 61,375,334
shares of common stock outstanding.




Common
Stock





During
the twelve month period ended December 31, 2009, in addition to the common stock
transactions discussed below, 30,000 shares of common stock were issued as the
result of the exercise of employee stock options.





On July
8, 2009, each of Steve L. Komar, James T. McCubbin and Mark F. Mirabile
exercised, in the form of a cashless exercise, his respective warrant to
purchase 1,333,333 shares of common stock of the Company, which warrant was
previously issued to such individual pursuant to a Warrant Purchase Agreement,
dated July 14, 2004, by and between the Company and each such
individual.  As a result of his respective cashless exercise of such
warrant, each of Steve L. Komar, James T. McCubbin and Mark F. Mirabile, as
applicable, was issued 793,103 shares of common stock of the Company, with
540,230 shares of common stock of the Company being withheld by the Company from
each such warrant as payment of the respective exercise price of each such
warrant.  The shares issued pursuant to the exercise of these warrants
have not been registered under the Securities Act of 1933, as amended (the
“Securities Act”).  Such shares are exempt from the registration
requirements under the Securities Act pursuant to the “private offering”
exemption under Section 4(2) of the Securities Act.






F-26





The
Company granted Mr. Oxley 250,000 options in connection with the commencement of
his employment with the Company in May of 2008, with such options being granted
on July 25, 2008 at a price per common share of $0.81 and with an intrinsic
value of $202,500.





On
January 8, 2008, pursuant to the terms of a Membership Interest Purchase
Agreement (the “Membership Agreement”) between the Company, iSYS, LLC and Jin
Kang, dated January 4, 2008, the Company issued 1,500,000 shares of Company
common stock on January 8, 2008 at a stock price of $1.20 per common share
(based on the closing market price of the Company’s common shares the issuance
date) for a value of $1,800,000. The Company also issued an additional 3,000,000
shares of Company common stock on January 8, 2008, which shares were
delivered into escrow to be held subject to the satisfaction of certain earnout
provisions under the Membership Agreement. Under the Membership Agreement the
initial $1.4 million in earnings before interest, taxes, depreciation and
amortization (“EBITDA”) from iSYS is excluded from the earnout for the initial
3 years, with 66% of the value in excess of such initial $1.4 million
being paid to the former owner of iSYS, with 50% of the amount being paid in
cash and 50% being valued and released in escrow shares. In the fourth year the
value in excess of 50% is used instead of 66%, with the total earnout capped at
$6 million, with $3 million payable in cash and $3 million payable in
the release of earnout shares. Performance of the earnout is measured annually
and awarded within 30 days following the end of the Company’s fiscal year
and filing of the Company’s Form 10-K for that year. As of December 31,
2009 performance measures were attained allowing for the release of 690,510
common shares valued at $1.00 per common share from the common shares placed
into escrow at the time of the acquisition of iSYS by the Company. As of
December 31, 2008 performance measures were attained allowing for the
release of 184,817 common shares valued at $1.00 per common share from the
common shares placed into escrow at the time of the acquisition of iSYS by the
Company.  The remaining amount of earnout that can be attained
assuming the meeting of all requirements allows for the release of 2,124,673
common shares valued at $1.00 and the payout of $2,124,673 in cash
compensation.





On
April 29, 2008, the Company entered into a Common Stock Purchase Agreement
(the “Purchase Agreement”) with Deutsche Bank AG, London Branch (“Deutsche
Bank”), and related agreements, as part of a private equity financing to raise
additional funds for working capital. Under the Purchase Agreement, Deutsche
Bank agreed to purchase 2,500,000 shares of WidePoint common stock for a total
purchase price of $2,550,000, or $1.02 per share. Pursuant to the Purchase
Agreement, the Company issued 2,500,000 shares of its common stock to Deutsche
Bank on May 2, 2008. The offer and sale of the shares were not registered
under the Securities Act of 1933, as amended, in reliance on the “private
offering” exemption provided under Section 4(2) thereof.





F-27








On
May 16, 2008, the Company entered into two Common Stock Purchase Agreements
(collectively, the “Endurance Purchase Agreements”) with Endurance Partners,
L.P. and Endurance Partners (Q.P), L.P., and related agreements, as part of a
private equity financing to raise additional funds for working capital. Under
the Endurance Purchase Agreements, Endurance Partners, L.P. agreed to purchase
428,954 shares of WidePoint common stock for a total purchase price of $437,533,
or $1.02 per share, and Endurance Partners (Q.P.), L.P. agreed to purchase
1,071,046 shares of WidePoint common stock for a total purchase price of
$1,092,467, or $1.02 per share. Pursuant to the Endurance Purchase Agreements,
on May 19, 2008, the Company issued 428,954 shares of its common stock to
Endurance Partners, L.P. and 1,071,046 shares of its common stock to Endurance
Partners (Q.P.), L.P. The offer and sale of the shares were not registered under
the Securities Act of 1933, as amended, in reliance on the “private offering”
exemption provided under Section 4(2) thereof.





As a
result of the equity transactions to raise additional capital that we entered
into during the second quarter of 2008, the Company issued a combined cumulative
total of 4,000,000 common shares of the Company which provided gross proceeds of
approximately $4.1 million and net proceeds after various legal and other
expenses of $3.9 million.




On
July 31, 2008, pursuant to the terms of the Asset Purchase Agreement
between the Company, Protexx Acquisition Corporation, a Delaware corporation,
Protexx Incorporated, a Delaware corporation (“Protexx”), and Peter Letizia,
Charles B. Manuel, Jr. and William Tabor, the Company issued 2,500,000 shares of
its common stock in the name of Protexx and delivered such shares to the
parties’ escrow agent to be held in escrow pending the possible release of such
shares as part of the potential earnout to which Protexx may be entitled under
the Purchase Agreement for calendar year 2008. The 2008 earnout was not
attained. For calendar year 2009, Protexx shall have the opportunity to earn an
additional Two Million Two Hundred Fifty Thousand Dollars ($2,250,000) worth of
privately issued shares of WidePoint common stock as part of the earnout for
that calendar year. The maximum number of shares of WidePoint common stock that
Protexx shall have the opportunity to earn for calendar year 2009 shall be equal
to the number of shares of WidePoint common stock that results from Two Million
Two Hundred Fifty Thousand Dollars ($2,250,000) divided by the greater of
(x) One Dollar and Twenty-Five Cents ($1.25) or (y) the average
closing sale price of the WidePoint common stock for the twenty
(20) trading days immediately preceding December 31,
2009.  The 2009 earnout was not attained and the 2,500,000 shares held
in escrow will be cancelled.





Stock
Warrants




On
November 1, 2005, the Company issued a warrant to purchase 54,878 shares of
common stock at a price of $0.80 per share 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 ASC 505-50, “Equity-Based Payments
to Non-Employees” (formerly known as EITF 96-18).




On
October 27, 2004 and November 22, 2004, the Company issued two warrants to
purchase 30,612 shares and 5,556 shares of common stock at a price of $0.49 and
$0.45 per share, 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 Bank. The warrants have a term of 5 years. The
Company used a fair-value option pricing model to value these stock warrants at
approximately $14,291.  This value had been reflected as part of stock
warrants in the stockholders’ equity section of the consolidated balance sheet
but the warrants expired unexercised.  Therefore the fair-value
reflected as part of stock warrants has been reduced and reflected in Additional
Paid in Capital in the stockholders’ equity section as of December 31,
2009.




F-28





7.
            Stock
      Options and Stock-Based
Compensation:




2008
Stock Incentive Plan




Effective
December 18, 2007, the Board of Directors of the Company adopted the 2008 Stock
Incentive Plan (the “2008 Plan”), which was adopted by the Company’s
shareholders on December 18, 2008.  The 2008 Plan is intended to
replace the 1997 Stock Incentive Plan and the 1997 Directors Formula Stock
Option Plan, discussed below. The 2008 Plan is administered by the Compensation
Committee and authorizes the grant or award of incentive stock options,
non-qualified stock options, stock appreciation rights, dividend equivalent
rights, performance unit awards and phantom shares. The 2008 Plan is intended to
(a) provide incentive to officers and key employees of the Company and its
affiliates to stimulate their efforts toward the continued success of the
Company and to operate and manage the business in a manner that will provide for
the long-term growth and profitability of the Company; (b) encourage stock
ownership by directors, officers and key employees by providing them with a
means to acquire a proprietary interest in the Company, acquire shares of the
Company’s common stock, or to receive compensation which is based upon
appreciation in the value of the Company’s common stock; and (c) provide a means
of obtaining, rewarding and retaining key personnel and
consultants.  The 2008 Plan will terminate on December 17,
2017.  The 2008 Plan was amended on December 15, 2009 upon approval of
the Company’s shareholders to allow for the grant or award of restricted stock
and restricted stock units in addition to the other items that may be granted or
awarded





A total
of 6,015,438 shares of common stock are authorized for possible issuance under
the 2008 Plan.  There
were4,510,438shares available for issuance under the
2008 Plan at December 31, 2009. Of such shares,4,510,438shares can be issued for future
grants. At December 31, 2009, options to purchase a total of1,505,000shares of common stock, at prices ranging from $0.54 to
$1.22per share, were
outstanding.





1997
Stock Incentive Plan




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




F-29


The 1997
Plan allowed for the grant of incentive stock options and nonqualified stock
options.  The exercise price of the options was established by the
Committee.  The term of an option will be specified in the applicable
agreement, provided, however, that no option could be exercised ten years
after the date of grant.  In addition to stock options, the 1997 Plan
also allowed for the grant of other Stock Incentives, including stock
appreciation rights, stock awards, phantom shares, performance unit appreciation
rights and dividend equivalent rights.  Stock Incentives granted under
the 1997 Plan are subject to the terms prescribed by the Committee in accordance
with the provisions of the 1997 Plan.




1997
Directors Formula Stock Option Plan




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




Awards of
stock options under the Director Plan were determined by the express terms of
the Director Plan.  Generally, only non-employee directors of the
Company who did not perform services for the Company were eligible to
participate in the Director Plan.  The Director Plan provided for
option grants to purchase 12,000 shares of common stock upon a non-employee
director’s initial appointment to the Board of Directors.  Options
granted under the Director Plan vest immediately to 8,000 shares of common
stock underlying such options, vest to an additional 2,000 shares after the
director’s completion of the first year of continued service to the Company, and
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 was evidenced by an agreement and is 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.




A summary
of the WidePoint options activity can be found in Footnote 2.




8.   
Commitments and Contingencies:




The
company has entered into a number of leases for its office locations as
described 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.  Rent expenses under these
operating leases for 2009 and 2008 were approximately $517,000 and $557,000,
respectively. The terms of the operating leases run through 2014 and the total
commitments per year are as follows:




F-30




Year
      Ended
                      
                      OperatingDecember 31,
                      
                      Leases2010
                      
                      $
                      430,8732011
                      
                      
                      495,7772012
                      
                      
                      450,7752013
                      
                      
                      428,9512014
                      
                      
                      121,232Total
                      
                      $
                      1,927,608


Capital
Leases





The Company has leased certain
equipment under capital lease arrangements.


Future minimum payments required under
the leases are as follows:


Year2010
                                122,3722011
                                48,3172012
                                23,579194,268
 
 Less
      portion representing interest
                                      
                                      
                                      (14,060
                                      )Present
      value of minimum lease paymentsUnder
      capital leases
                                      
                                      
                                      180,208Current
      portion
                                      
                                      
                                      (112,576
                                      )Long-term
      portion
                                      
                                      $
                                      67,632


The
Company entered into an additional capital lease inthe year ended December 31,
2009 which is for a period of three years.  Total carrying value of
assets under capital leases at December 31, 2009 was
$180,209.  Amortization for the year ended December 31, 2009 was
$90,466, and accumulated amortization at December 31, 2009 was
$269,028.





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.




9.  Segment
reporting






F-31


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




The
Company operates as three segments, which includes Wireless Mobility Management,
Cybersecurity Solutions, and IT consulting services.




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




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




2009Wireless
                                                                                  
                                                                                  
                                                                                  Cyber
                                                                                  
                                                                                  
                                                                                  Consulting
                                                                                  
                                                                                  
                                                                                  Corp
                                                                                  
                                                                                  
                                                                                  ConsolRevenue
                                                                                  
                                                                                  $
                                                                                  27,305,834
                                                                                  
                                                                                  
                                                                                  $
                                                                                  5,675,467
                                                                                  
                                                                                  
                                                                                  $
                                                                                  10,362,752
                                                                                  
                                                                                  
                                                                                  $
                                                                                  -
                                                                                  
                                                                                  
                                                                                  $
                                                                                  43,344,053Operating
      income
                                                                                    including
      amortization and
                                                                                    depreciation
      expense
                                                                                  
                                                                                  
                                                                                  3,047,541
                                                                                  
                                                                                  
                                                                                  
                                                                                  1,030,700
                                                                                  
                                                                                  
                                                                                  
                                                                                  289,780
                                                                                  
                                                                                  
                                                                                  
                                                                                  (2,651,891
                                                                                  )
                                                                                  
                                                                                  
                                                                                  1,716,130Interest
      Income (expense), net
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  (148,734
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (148,734
                                                                                  )Other
      income (expense), net
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  (49
                                                                                  )
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  (49
                                                                                  )Pretax
      income
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  1,567,347Income
      tax expense
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  (156,891
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (156,891
                                                                                  )Net
      earnings
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  1,410,4562008Wireless
                                                                                  
                                                                                  
                                                                                  Cyber
                                                                                  
                                                                                  
                                                                                  Consulting
                                                                                  
                                                                                  
                                                                                  Corp
                                                                                  
                                                                                  
                                                                                  ConsolRevenue
                                                                                  
                                                                                  $
                                                                                  20,989,371
                                                                                  
                                                                                  
                                                                                  $
                                                                                  3,755,122
                                                                                  
                                                                                  
                                                                                  $
                                                                                  10,714,460
                                                                                  
                                                                                  
                                                                                  $
                                                                                  -
                                                                                  
                                                                                  
                                                                                  $
                                                                                  35,458,953Operating
      income (loss)
                                                                                    Including
      amortization and depreciation expense
                                                                                  
                                                                                  
                                                                                  1,400,183
                                                                                  
                                                                                  
                                                                                  
                                                                                  7,105
                                                                                  
                                                                                  
                                                                                  
                                                                                  269,016
                                                                                  
                                                                                  
                                                                                  
                                                                                  (2,403,831
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (727,527
                                                                                  )Interest
      Income (expense), net
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  (202,107
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (202,107
                                                                                  )Other
      income (expense), net
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  (3,927
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (3,927
                                                                                  )Pretax
      income
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  (933,561
                                                                                  )Income
      tax expense
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  (156,891
                                                                                  )
                                                                                  
                                                                                  
                                                                                  (156,891
                                                                                  )Net
      loss
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  
                                                                                  (1,090,452
                                                                                  )








F-32




10.  Subsequent
Events.





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





The
purchase price included approximately $370,000 in cash paid, the assumption of
certain liabilities, net of assets acquired, of approximately $72,000, along
with an earnout provision that provides that the purchase price shall include
the right of Vuance to receive an aggregate maximum total earnout amount of up
to $1,500,000.00 during the earnout period of the calendar years 2010, 2011 and
2012, subject to ARCC receiving minimum qualified revenues of at least
$4,000,000.00 per year from the assets acquired by ARCC from Vuance before any
earnout amount is payable to Vuance.  In the event ARCC receives at
least $4,000,000.00 in qualified revenues in an earnout year from the assets
acquired from Vuance, then Vuance will have the right to receive an earnout
payment equal to twenty percent (20%) of the amount by which such qualified
revenues for that earnout year exceed $4,000,000.00; provided, however, that the
first $270,000.00 of any such earnout payment will be retained by the Company
for its sole account as reimbursement for certain accounts payable and deferred
revenue liabilities assumed by ARCC in connection with the Vuance
Agreement.







F-33


EXHIBIT
INDEX





21
                      Subsidiaries
      of WidePoint Corporation (Filed herewith)23.1
                      Consent
      of Moss Adams LLP (Filed herewith)31.1
                      Certification
      of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002 (Filed herewith)31.2
                      Certification
      of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002 (Filed herewith)32
                      Certification
      of Chief Executive Officer and Chief Financial Officer Pursuant to Section
      906 of the Sarbanes-Oxley Act of 2002 (Filed
  herewith)