# SECURITIES AND
EXCHANGE COMMISSIONWASHINGTON, 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, 2006.
|--- | ----------------------------------------------------------------------------------------------------------------------------------

OR

||_| | TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the
transition period from _____________ to _____________.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------

Commission File Number
000-23967

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

|Delaware                                 | 52-2040275         
|---------------------------------------- | -------------------
|(State or other jurisdiction of          | (I.R.S. Employer   
|incorporation or organization)           | Identification No.)
|One Lincoln Centre, Oakbrook Terrace, IL | 60181              
|(Address of principal executive offices) | (Zip Code)         

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

Securities registered pursuant to
Section 12(b) of the Act:

Title of each class

Common Stock, $.001 par
value per share

Name of each exchange
on which registered

American Stock
Exchange

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          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          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

---

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. [   ]

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

Large accelerated
filer        Accelerated filer   X      Non-accelerated filer

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

Yes
         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.    $123,807,418.

As
of March 12, 2007, the registrant had 52,497,699 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.

2

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# PART I

# ITEM 1. BUSINESS.

# Background and
Environment

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

The Company is comprised of the
following two segments: (i) consulting services and (ii) PKI credentialing and managed
services. For additional information related to our segments, see Note 11 to our financial
statements included in this Form 10-K.

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

On October 25, 2004, we completed the
acquisition of ORC. ORC specializes in Information Technology (IT) systems
integration and secure authentication processes and software, and providing services to
the United States Government. ORC has been at the forefront of implementing
E-Authentication Federation and PKI technologies. These identity management technologies
are 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. Based on asymmetric key cryptography, PKI effectively deploys a public
key and a private key to each individual and or device, ensuring that the private key is
only accessible to that individual and/ or device. Thus, the algorithms used in PKI
achieve a level of authentication of users and information that maintains a high integrity
of all data and communications, non-repudiation of data and communications, and
confidentiality of data and communications. The public key also enables encryption of all
information and/or communication from any sender, where the associated private key allows
only the holder of that key to unlock and decrypt such information and/or communication.
PKI and E-Authentication technologies also speed up and simplify the delivery of products
and services by providing a common, secure, electronic approach to processes that
historically have been paper based and single or reduced sign-on to multiple electronic
applications without degrading security across mission-related transactions internal to an
organization and with external organizations. ORC is designated by the United States
Government as the first External Certificate Authority for the U.S. Government. ORC is
authorized to issue all permissible certificate types and services in accordance with
Defense Information Systems Agency and National Security Agency standards, necessary for
the interoperable, secure exchange of information between U.S. Governmental agencies,
contractors, and international allies such as members of NATO.

3

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

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

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

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

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

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

In 2005 and 2006, WidePoint focused
on the consolidation of its recent acquisition of ORC, accelerating the rollout of the ORC
E-Authentication Federation and PKI identity management initiatives, and continuing to
implement our project based enterprise strategy, emphasizing our industry-wide best
practices disciplines. With the addition of the customer base and the increase in revenues
attributable to the ORC acquisition, WidePoints opportunity to leverage and expand
further into the federal marketplace has improved dramatically. ORCs past client
successes, top facility security clearances, security personnel expertise, and additional
breadth of management talent have expanded our reach into markets that previously were not
accessible to WidePoint. We intend to continue to market and sell our technical
capabilities into the governmental and commercial marketplace. Further, we are continuing
to actively search out new synergistic acquisitions that we believe may further enhance
our present base of business and service offerings, which has been augmented by our recent
acquisition of ORC and our internal growth initiatives.

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

4

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

WidePoint has solidly established our
reputation as an elite provider of these information assurance and security of digital
transactions for the U.S. Department of Defense (DoD), the U.S. Navy, the U.S. Air Force,
the U.S. National Security Agency (NSA), the U.S. Coast Guard, U.S. Office of Management
and Budget (OMB), U.S. General Services Administration (GSA), the U.S. General Accounting
Office (GAO), several state governments and Fortune 500 commercial clients. WidePoint has
distinguished itself by providing the highest levels of professionalism, on-time delivery
of solutions and superior managed services. WidePoint anticipates capturing a significant
market share within the identity management marketplace which we believe has the
potential of providing significant revenue growth for the Company.

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

# Enterprise Strategy

In the continuing effort to
differentiate our services and overcome the highly competitive environment within the
general IT marketplace, we have modified our strategic plan; including the launch of a
federal sector business initiative, continued development of new capabilities, and the
initiation and expansion of several alliances and relationships to expand our ability to
penetrate new market segments.

Widepoints acquisition of ORC
provided a number of large indefinite delivery, indefinite quantity (IDIQ)
contracts that extend WidePoints capability to expand our revenue base, including,
but not limited to:

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

5

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| | ° | Special
item categories 132-60, 132-61, and 132-62 for Authentications services under the GSA IT
Professional Services contract. This certified ORC as the first contractor authorized to
provide authentication products and services to provide for authentication of individuals
for purposes of physical and logical access control, electronic signature, performance of
e-business transactions and delivery of government services. Authentication products and
services consist of hardware, software components and supporting services that provide
for identity assurance.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | ° | The
Managed Validation Service (MVTS) contract provides PKI certificate validation services
for those e-Gov initiatives and other Federal agency information applications that elect
to use it. The MVTS contract directly benefits stakeholders, including Federal, State,
and local government entities, private industry, the scientific community, and the
public. It improves efficiencies and reduces costs by providing identity authentication
services in a consistent fashion.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

| |  | GSA
Solutions and More (SAM), FSC Group 61 Part V, GSA FSS # GS-07F-0099L  $100 million
ceiling contract that offers supply power distribution equipment, generators, and
batteries worldwide.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | SeaPort-e
Contract N00178-04-D-4099  $100 million ceiling contract to provide engineering,
technical, and programmatic support services to the Naval Surface Warfare Centers (NSWC)
and the Naval Undersea Warfare Centers (NUWC).
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition, WidePoint has extended
its business development reach with strategic partners who package our identity management
solutions and services under branded offerings. Partnerships with companies such as RSA
 the Security Division of EMC, Siemens, Maximus, Tumbleweed, and Wave Systems have
added dozens of resources to our sales team.

We intend to leverage our internal
resources and these partnerships to expand our revenue base, as we continue to seek and
analyze growth alternatives via selective acquisition growth opportunities and service
offering expansion opportunities. In addition, we are actively seeking the acquisition of
other companies with complementary technical capabilities in IT, software and information
assurance related services to the federal government (both defense and civilian), state
governments, local governments, and commercial entities. If successful in our organic
growth and acquisition activities, we anticipate that we will become a larger company with
broader capabilities and resources.

6

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# Business Strategy and
Services

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

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

# Systems Engineering and
Integration

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

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

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

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

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

| |  | Information
assurance and security technology update and refresh;
| | - | -----------------------------------------------------------------

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

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

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

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

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

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

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

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

7

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

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

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

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

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

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

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

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

# Architecture and
Planning Services

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

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

8

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

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

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

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

# IT Outsource Solutions

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

| |  | Distinguished
as the first designated DoD Interim External Certificate Authority (IECA-1) and more
recently the first US Government External Certificate Authority.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Distinguished
as one of only three GSA Access Certificates for Electronic Services contract recipients.
| | - | -------------------------------------------------------------------------------------------------------

| |  | Distinguished
as the first commercial GSA eAuthentication Service Provider.
| | - | ---------------------------------------------------------------------------

9

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Our ORC subsidiary had been engaged
as the lead systems engineer for the DoD PKI.

ORC is certified by the GSA
E-Authentication Program Management Office as an E-Authentication Federation Service
Provider to facilitate public access to the services offered by Federal Government
agencies through use of information technologies, including on-line access to computers
for purposes of reviewing, retrieving, providing, and exchanging information. Our ORC
subsidiary offers various authentication credentials that include Userid/Password (Level 1
and 2 assurance), as well as Digital Certificates (Level 3 and 4 assurance).

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

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

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

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

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

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

10

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

# Clients

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

Historically, we have derived, and
may continue to derive in the future, a significant percentage of our total revenues from
a relatively small number of clients. For the year ended December 31, 2006, one customer,
Headquarters Cryptologic Systems Group (HQ CPSG), represented 29% of our revenues, and we
therefore are materially dependent on such customer. For the year ended December 31, 2005,
one customer, The U.S. Department of Homeland Security, represented 18% of our revenues.
During 2004, two customers, Abbott Laboratories and The U.S. Department of Homeland
Security represented 12% and 11% of revenues, respectively. Due to the nature of our
business and the relative size of certain contracts which are entered into in the ordinary
course of business, the loss of any single significant customer may have a material
adverse effect on our business and financial results. Further, with the acquisition of
ORC, we have expanded our clientele dramatically which includes the following additional
clients:

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

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

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

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

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

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

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

| |  | Environmental
Protection Agency
| | - | -------------------------------

| |  | Federal
Trade Commission
| | - | ------------------------

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

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

| |  | Boeing
| | - | ------

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

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

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

| | ° | U.S.
Coast Guard
| | - | ----------------

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

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

| | ° | Dependent
Schools System
| | - | ------------------------

| | ° | White
House Communication Agency
| | - | --------------------------------

11

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| | ° | U.S.
Navy
| | - | ---------

| | ° | U.S.
Marine Corps
| | - | -----------------

| | ° | U.S.
Air Force
| | - | --------------

| | ° | U.S.
Army
| | - | ---------

# Marketing and Sales

We focus sales and marketing efforts
on targeting federal government and corporate clients with significant IT and identity
management budgets and requirements. While we perform work for companies in various
industries, the majority of our revenues for 2004, 2005, and 2006 were derived from
contracts and projects with U.S. federal government agencies, U.S. federal government
contractors, manufacturing clients, consumer products clients, healthcare clients, and
financial services clients. Prospectively, we expect a majority of our revenue to be
derived from contracts with the federal government and related contracting opportunities.

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

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

# Backlog

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

| | Contracts
that allow us to actively market specific tasking and initiatives throughout the federal
government, including:
| | -------------------------------------------------------------------------------------------------------------------------

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

| | ° | Special
item categories 132-60, 132-61, and 132-62 for Authentications services under the GSA IT
Professional Services contract. This certified ORC as the first contractor authorized to
provide authentication products and services to provide for authentication of individuals
for purposes of physcial and logial access control, electronic signature, performance of
e-business transactions and delivery of Government services. Authentication products and
services consist of hardware, software components and supporting services that provide
for identity assurance.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

12

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| | ° | The
Managed Validation Service (MVTS) contract provides Public Key Infrastructure (PKI)
certificate validation services for those e-Gov initiatives and other Federal agency
information applications that elect to use it. The MVTS contract directly benefits
stakeholders, including Federal, State, and local government entities, private industry,
the scientific community, and the public. It improves efficiencies and reduces costs by
providing identity authentication services in a consistent fashion.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

| |  | GSA
Solutions and More (SAM), FSC Group 61 Part V, GSA FSS # GS-07F-0099L  $100 million
ceiling contract that offers supply power distribution equipment, generators, and
batteries worldwide.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | SeaPort-e
Contract N00178-04-D-4099  $100 million ceiling contract to provide engineering,
technical, and programmatic support services to the Naval Surface Warfare Centers (NSWC)
and the Naval Undersea Warfare Centers (NUWC).
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We
also hold contracts with specific government agencies, including:

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

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

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

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

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

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

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

13

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The dollar amount of our backlog
orders as of December 31, 2006 and December 31, 2005 were approximately $3.4 million and
$6.6 million, respectively. The portion of backlog reasonably expected to be filled during
2007 is $3.4 million.

# Government Contracts

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

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

# Competition

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

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

14

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

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

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

# Intellectual Property

Our intellectual property primarily
consists of methodologies developed for use in application development solutions. The
services, described above, define the system and process intellectual property that allows
us to be the leader in our markets. 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.

# Personnel

15

---

As of December 31, 2006, we had 55
full time employees and 6 part-time employees, including 7 persons in sales and
recruiting, 48 persons in consulting, and 6 persons in management and administration. We
also periodically employ additional consultants and temporary employees.

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

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

# 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 SEC.

# ITEM 1A. RISK FACTORS.

# Risks Related to our
Operations

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

We are engaged primarily in the
business of providing information technology (IT) services with established
competencies in federal government and private consulting, planning, managing and
implementing IT solutions, software and secure authentication processes. We have incurred
substantial net losses through December 31, 2006. Although we anticipate an increase in
revenues and operational profitability in future quarters, there is no assurance that this
will be the case. Revenues and profits generated from our services will depend upon
numerous factors, including:

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

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

16

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

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

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

If we continue to have operating
losses and without the realization of additional capital, or net profit from operations,
and/or if we continue to seek out and make acquisitions which require a cash component,
then we may need to raise additional capital. On October 25, 2004 and October 29, 2004, we
issued and sold shares of our Series A Convertible Preferred Stock and warrants to Barron
Partners, L.P. (Barron) or an aggregate purchase price of approximately $3.58
million. In that financing transaction, we also issued a warrant to Westcap Securities,
Inc. (Westcap) to purchase 511,428 shares of our Common Stock at an exercise
price of $0.40 per share. In April and May of 2005, Barron converted a portion of its
Series A Convertible Preferred Stock into 3,000,000 shares of Common Stock and exercised
warrants to purchase 2,000,000 shares of Common Stock for an aggregate purchase price of
$800,000. In August and September 2005, Barron exercised warrants for 2,500,000 shares of
Common Stock providing $1,000,000 in gross proceeds to the Company. In December 2005,
warrants for an additional 5,728,572 shares of Common Stock were exercised by the holders
thereof providing $2,291,429 of additional gross proceeds to the Company. During the
period from January 1, 2006 through December 31, 2006, Barron converted a total of
1,000,500 shares of Series A Convertible Preferred Stock into a total of 10,005,000 shares
of Common Stock, and Westcap exercised warrants to purchase 173,856 shares of Common Stock
for a total exercise price of $69,542. We may require additional funding to support our
operations. Additional funding may be unavailable on favorable terms, if at all. If we are
unable to obtain sufficient additional funding when needed, we may have to significantly
cut back our operations, defer potentially favorable acquisitions, sell some or all of our
assets and/or cease operations. In addition, if we raise additional capital by issuing
additional equity or convertible debt securities, our existing stockholders may suffer
significant dilution and the securities issued could have rights, preferences and
privileges more favorable than those of our current stockholders.

# We may have difficulty
responding to changing technology.

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

# We may be unable to
implement our acquisition program.

17

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

We may have difficulty integrating
acquisitions into our existing operations.

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

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

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

The dollar amount of our backlog
orders believed to be firm as of December 31, 2006 and December 31, 2005 were $3.4 million
and $6.6 million, respectively. The portion of backlog reasonably expected to be filled
during 2007 is $3.4 million.

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

18

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

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

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

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

19

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

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

# Risks Related to
Our Industry

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

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

20

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

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

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

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

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

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

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

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

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

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

21

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

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

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

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

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

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

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

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

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

22

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# We may be unable to
protect our proprietary methodology.

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

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

At December 31, 2006, our directors
and officers, in the aggregate, beneficially owned approximately 9,384,111 shares of our
common stock, or approximately 18.6% of our issued and outstanding shares of Common Stock.
Each of such amounts includes shares that may be acquired upon the exercise of exercisable
warrants and options. As a result, they have the ability to substantially influence, and
may effectively control the outcome of corporate actions requiring stockholder approval,
including the election of directors. This concentration of ownership may also have the
effect of delaying or preventing a change in control of WidePoint, even if such a change
in control would benefit other investors.

We have a concentrated ownership
structure and shares of Common Stock beneficially owned by our directors and officers at
December 31, 2006, in conjunction with shares of Common Stock owned by Barron, including
shares it would own upon its conversion of all of the Series A Convertible Preferred
Stock, would constitute approximately 22.5% of the then outstanding shares of our common
stock.

# We are dependent on our
key employees.

23

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Our success will depend in large part
upon the continued services of a number of key employees, including Steve Komar, our
Chairman, President and Chief Executive Officer, James McCubbin, our Vice President,
Secretary and Chief Financial Officer, Mark Mirabile, our Vice President and Chief
Operations Officer, and Dan Turissini, our Vice President and Chief Technology Officer and
the Chief Executive Officer of our wholly owned subsidiary, ORC. On July 1, 2002, we
entered into employment arrangements with Messrs. Komar, McCubbin and Mirabile. Each of
these three employment agreements was for an initial term of two years, with four
renewable one-year options. On October 25, 2004, we entered into an employment arrangement
with Mr. Turissini. Mr. Turissinis employment agreement provides for annual extensions through October 31, 2009.

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

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

Historically, we have derived, and
may in the future derive, a significant percentage of our total revenues from a relatively
small number of clients. For the year ended December 31 2006, one customer, Headquarters
Cryptologic Systems Group (HQ CPSG), individually represented approximately 29% of
revenues. Due to the nature of our business and the relative size of certain contracts,
which are entered into in the ordinary course of business, the loss of any single
significant customer, including the above customer, could have a material adverse effect
on results. For the year ended December 31, 2005, one customer, The U.S. Department of
Homeland Security, individually represented approximately 18% of revenues. During 2004,
two customers, Abbott Laboratories and The U.S. Department of Homeland Security,
represented 12%, and 11% of revenues, respectively. In the event we lose any one of those
significant customers, our results of operations would be materially adversely affected.

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

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

24

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

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

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

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

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

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

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

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

25

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

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

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

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

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

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

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

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

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

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

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

26

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

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

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

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

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

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

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

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

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

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

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

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

27

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

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

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

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

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

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

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

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

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

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

28

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

New legislation, procurement
regulations, or labor organization pressure could cause federal agencies to adopt
restrictive procurement practices regarding the use of outside IT providers. The American
Federation of Government Employees, the largest federal employee union, strongly endorses
legislation that may restrict the procedure by which services are outsourced to government
contractors. One such proposal, the Truthfulness, Responsibility, and Accountability in
Contracting Act, would have effectively reduced the volume of services that is outsourced
by the federal government by requiring agencies to give in-house government employees
expanded opportunities to compete against contractors for work that could be outsourced.
If such legislation, or similar legislation, were to be enacted, it would likely reduce
the amount of IT services that could be outsourced by the federal government, which could
materially reduce our revenues.

# Risks Related To Our
Common Stock

# Our common stock price
could be volatile.

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

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

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

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

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

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

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

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

29

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

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

The future sale of shares of our
common stock may negatively affect our common stock price.

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

The fact that our directors and
officers beneficially own 18.6% of our outstanding common stock may decrease your
influence on stockholder decisions.

At December 31, 2006, our executive
officers and directors, in the aggregate, beneficially owned 18.6% of our outstanding
common stock. Such amounts include shares that may be acquired upon the exercise of
exercisable warrants and options. As a result, our officers and directors, will have the
ability to influence our management and affairs and the outcome of matters submitted to
stockholders for approval, including the election and removal of directors, amendments to
our bylaws and any merger, consolidation or sale of all or substantially all of our
assets.

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

There is currently only a limited
public market for our common stock, which was listed on the American Stock Exchange on
September 26, 2006, and previously was traded on the Over-the-Counter Bulletin Board, and
there can be no assurance that a trading market will develop further or be maintained in
the future. As of December 31, 2006, the closing sale price of our common stock on the
American Stock Exchange was $2.22. As of that date, there were approximately 177
registered holders of record not including shares held in street name. During year ended
December 31, 2006, our common stock traded an average of 250,923 shares per day with a
trading range of $2.10 per share to $3.13 per share. Over the past three years our common
stock has traded an average of 116,306 shares of common stock per day. In addition, over
the past three years our common stock had a trading range with a low price of $0.13 per
share and a high price of $3.13 per share.

We could issue additional shares
of common stock, which might dilute the book value of our common stock.

30

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We have a total of 110,000,000
authorized shares of common stock, of which 50,494,759 shares were issued and outstanding
as of December 31, 2006. In addition, we had warrants, options and convertible preferred
stock outstanding as of that date with respect to which 9,146,450 shares of common stock
were reserved for issuance. Our board of directors has the authority, without action or
vote of our stockholders in most cases, to issue all or a part of any authorized but
unissued shares of our common stock. Such stock issuances may be made at a price that
reflects a discount from the then-current trading price of our common stock. In addition,
in order to raise capital for acquisitions or other general corporate purposes that we may
need at todays stock prices, we would likely need to issue securities that are
convertible into or exercisable for a significant number of shares of our common stock.
These issuances would dilute our stockholders percentage ownership interest, which would
have the effect of reducing our stockholders influence on matters on which our
stockholders vote, and might dilute the book value of our common stock. You may incur
additional dilution of net tangible book value if holders of stock options or warrants,
whether currently outstanding or subsequently granted, exercise their options or warrants
to purchase shares of our common stock.

The sale of a large number of
shares of our common stock could depress our stock price.

As of December 31, 2006, we had
reserved 7,194,307 shares of common stock for issuance upon exercise of stock options and
warrants. We have also reserved 1,952,143 shares of common stock for issuance upon
conversion of our Series A Convertible Preferred Stock. As of December 31, 2006, holders
of warrants and options to purchase an aggregate of 6,440,830 shares of our common stock
may exercise those securities and transfer the underlying common stock at any time
subject, in some cases, to Rule 144 of the Securities Act of 1933. In addition, in
connection with our financing with Barron, we have registered (i) all of the shares of
common stock issuable upon conversion of the Series A Convertible Preferred Stock that we
issued and sold in the Barron financing and (ii) all of the shares of common stock that
are issuable upon exercise of the warrants issued to Westcap in connection with the
financing. The Series A Convertible Preferred Stock was initially convertible into
20,457,143 shares of our common stock and the warrants initially entitled the holders to
acquire an additional 10,739,999 shares of our common stock. In January and February of
2007, Barron converted all of its remaining shares of Series A Convertible Preferred
Stock, which conversion resulted in the issuance to Barron of a total of 1,952,140 shares
of our Common Stock. From January 1 through December 31, 2006, Barron converted a portion
of its shares of Series A Convertible Preferred Stock into 10,005,000 shares of common
stock. During April, May, September, October, and December 2005, Barron converted a
portion of its shares of Series A Convertible Preferred Stock into 8,500,000 shares of
common stock and exercised warrants to purchase 7,428,572 shares of common stock. In
December 2005, Barron transferred warrants to purchase 2,800,000 shares of common stock to
other institutional investors. In December 2005, the holders of such warrants to acquire
such 2,800,000 shares of common stock exercised such warrants. These shares of common
stock are registered for possible resale by the holders thereof under the Securities Act
of 1933. The market price of our common stock could decline as a result of sales of a
large number of shares of our common stock in the market, or the perception that these
sales could occur. These sales might also make it more difficult for us to issue equity
securities in the future at a price that we think is appropriate, or at all.

31

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

In future financings, we may issue
securities that are convertible into or exercisable for a significant number of shares of
our outstanding common stock. Financial investors may have short-term financial interests
different from our long-term goals and the long-term goals of our management and other
stockholders. In addition, based on the significant ownership of our outstanding common
stock, financial investors may be able to impact corporate actions requiring stockholder
approval.

# ITEM 1B. UNRESOLVED
STAFF COMMENTS.

Not applicable.

# ITEM 2. PROPERTIES.

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

WidePoints ORC subsidiary has
its principal offices at 1723 South Park Court, Chesapeake, Virginia in approximately
2,400 square feet under a lease that expires on April 30, 2007. The annual rent for this
office is approximately $29,200, plus a pro rata share of increases in real estate taxes
and operating expenses.

ORC also maintains two secure
facilities in Alexandria, VA and Fairfax, VA. The Alexandria office is located at 1625
Prince Street, Suite 350, Alexandria, Virginia. This office is currently leased through
January 31, 2008 for approximately $8,100 per month. The Fairfax office is located at
11250 Waples Mill Road, South Tower, Suite 210, Fairfax, Virginia 22030. The lease for
this office expires March 15, 2009 and costs approximately $30,900 per month. The
Alexandria office consists of approximately 3,100 square feet of office space and the
Fairfax office consists of approximately 11,900 square feet of office space. A pro rata
share of increases in real estate taxes and operating expenses are also paid for these
offices.

During 2000, several of the
Companys offices were closed and their leases were either sublet, assigned, or have
expired. The lease for the Companys former corporate headquarters office located at
20251 Century Boulevard, Germantown, Maryland was assigned on December 1, 2000 to GHG
Holdings, Inc., and such assigned lease expired on September 30, 2005.

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

# ITEM 3. LEGAL
PROCEEDINGS.

32

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We are not involved in any material
legal proceedings.

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

None.

# ITEM 4A. EXECUTIVE
OFFICERS OF THE REGISTRANT.

The following sets forth information
regarding the executive officers and certain significant employees of the Company as of
March 15, 2007:

|Name                | Age | Position                                              
|------------------- | --- | ------------------------------------------------------
|Steve L. Komar      | 65  | Chief Executive Officer and Chairman of the Board     
|James T. McCubbin   | 42  | Vice President, Chief Financial Officer, Secretary,   
|                    |     | Treasurer, and Director                               
|Mark F. Mirabile    | 44  | Vice President and Chief Operations Officer           
|Daniel E. Turissini | 47  | Vice President, Chief Technology Officer and Chief    
|                    |     | Executive Officer and President - Operational Research
|                    |     | Consultants, Inc.                                     

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 and Treasurer since November 1998. Since August 1998, Mr.
McCubbin has also served as our Vice President and Chief Financial Officer. Prior to that
time, from December 1997 to August 1998, Mr. McCubbin served as Vice President,
Controller, Assistant Secretary and Treasurer. Prior to the commencement of his employment
with WidePoint in November 1997, Mr. McCubbin held various financial management positions
with several companies in the financial and government sectors. Mr. McCubbin is a graduate
of the University of Maryland with a Bachelor of Science Degree in Finance and a Masters
Degree in International Management. Mr. McCubbin is also a director and chairman of the
audit committee for Red Mile Entertainment, Inc. Red Mile Entertainment, Inc. is a
worldwide developer and publisher of interactive entertainment software. Headquartered in
Sausalito, California, the company creates, incubates and licenses premier intellectual
properties and develops products for console video game systems, personal computers and
other interactive entertainment platforms.

33

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Mark F. Mirabile served as a director
from April 2002 until March 5, 2007. Mr. Mirabile also continues to serve as Vice
President and Chief Operations Officer, a position he has held since December 2001. From
June 2000 to November 2001, Mr. Mirabile served as Vice President of Sales and Marketing.
Prior to that time, from November 1992 to May 2000, Mr. Mirabile served as the Vice
President of Eclipse Information Systems, Inc., a wholly-owned subsidiary of WidePoint.
Mr. Mirabile was a co-founder of Eclipse Information Systems, Inc. prior to its
acquisition by WidePoint in December 1998. Mr. Mirabile has over 20 years experience in IT
at both the executive and technical levels. He has an Associates degree in Applied
Science-Accounting from Daley Community College in Chicago.

Daniel 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 Operational Research
Consultants, Inc. (ORC), a wholly-owned subsidiary, since our acquisition of
ORC on October 25, 2004. Mr. Turissini was a founding partner of ORC in 1991 and served as
ORCs 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 (a
user community of approximately 36 million personnel, devices, and applications) and has
been certified as the first of three certificate authorities for the Department of
Defenses External Certificate Authority (ECA) program and by the General Services
Administration to provide Access Certificates for Electronic Services (ACES). From 1982
until 1991, Mr. Turissini held various systems engineering and acquisition management
positions in support of the U.S. Federal Government with a variety of companies including
Tracor Applied Sciences, Inc., National Technologies Associates, Inc., and Gibbs and Cox,
Inc. From 1981 to 1982, Mr. Turissini served in the Merchant Marine on various vessels as
Engineer and Mate. Mr. Turissini is a graduate of the United States Merchant Marine
Academy with a Bachelor of Science Degree in Engineering and holds a Masters of
Engineering Administration from The George Washington University.

Our executive officers are 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.

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# PART II

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

The Companys Common Stock has
been quoted on the American Stock Exchange since September 26, 2006 under the symbol
WYY and the Frankfurt and Berlin exchanges under the symbol ZMX.
From July 6, 2000 to September 25, 2006 the Companys Common Stock was traded on the
OTC Bulletin Board under the symbol WDPT. From July 5, 2000 to March 1, 2001
the Companys Common Stock was traded on the NASDAQ SmallCap Market under the symbol
WDPT.

The stock prices listed below
represent the high and low closing prices of the Common Stock on the AMEX since September
26, 2006, and the high and low closing bid prices of the Common Stock on the OTC Bulletin
Board for each of the periods indicated:

|2006           | High  | Low  
|-------------- | ----- | -----
|Fourth Quarter | $3.05 | $2.14
|Third Quarter  | 3.00  | 2.73 
|Second Quarter | 3.08  | 2.57 
|First Quarter  | 3.13  | 2.10 

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

As
of March 12, 2007 there were 174 registered holders of record of the Companys Common
Stock.

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|                         | 12/01  | 12/02  | 12/03  | 12/04  | 12/05   | 12/06  
|------------------------ | ------ | ------ | ------ | ------ | ------- | -------
|WidePoint Corporation    | 100.00 | 120.00 | 104.00 | 560.00 | 1792.00 | 1776.00
|Russell 2000             | 100.00 | 79.52  | 117.09 | 138.55 | 144.86  | 171.47 
|RDG Technology Composite | 100.00 | 62.44  | 92.49  | 95.27  | 97.49   | 106.14 

36

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Equity Compensation Plan
Information

The
following table sets forth information as of December 31, 2006, with respect to the
Companys compensation plans under which its Common Stock is authorized for issuance:

|                                 | (a)       | (b)   | (c)      
|-------------------------------- | --------- | ----- | ---------
|
|Equity Compensation Plans:       |           |       |          
|Approved by security holders     | 3,103,262 | $0.52 | 6,246,138
|Not approved by security holders | 4,091,045 | $0.25 | - 0 -    
|Total                            | 7,194,307 | $0.36 | 6,246,138

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.

Recent Sales of
Unregistered Securities

During 2006, WidePoint issued to
Westcap Securities, Inc. a total of 511,428 shares of its Common Stock. The Shares were
issued pursuant to four separate exercises by Westcap of portions of its Common Stock
Purchase Warrant between the Company and Westcap. Such warrant gave Westcap the right to
purchase an aggregate of 511,428 shares of Common Stock from the Company at an exercise
price of $0.40 per share. During 2006, Westcap purchased the following amounts of shares
as of the following dates pursuant to such warrant: (i) March 15, 2006  50,000
shares; (ii) April 13, 2006  25,571 shares; (iii) June 13, 2006  35,857
shares; and (iv) September 28, 2006  400,000 shares. All such shares were sold
pursuant to the private offering exemption under Section 4(2) of the
Securities Act of 1933.

Repurchases of Equity
Securities

The Company repurchased no shares of
its Common Stock during the fourth quarter of 2006.

# ITEM 6. SELECTED
FINANCIAL DATA.

The selected financial data presented
below for each of the years in the five-year period ended December 31, 2006 is derived
from our audited consolidated financial statements. You should read the selected financial
data presented below in conjunction with our consolidated financial statements, the notes
to our consolidated financial statements and Item 7Managements
Discussion and Analysis of Financial Condition and Results of Operations.

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

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

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# Selected Financial Data

---

|                                            | 2006 | 2005 | 2004 | 2003       | 2002
|------------------------------------------- | ---- | ---- | ---- | ---------- | ----
|Statement of Operations Data:               |      |      |      |            |     
|Revenues                                    |      |      | $    | 17,953,209 |     
|Cost of revenues                            |      |      |      | 14,255,892 |     
|Gross Profit                                |      |      |      | 3,697,317  |     
|Sales and marketing expense                 |      |      |      | 851,070    |     
|General and administrative expense          |      |      |      | 3,328,710  |     
|Depreciation and amortization               |      |      |      | 35,131     |     
|Loss from operations                        |      |      |      | (517,594   | )   
|Other income (expense):                     |      |     
|Interest income                             |      |      |      | 92,669     |     
|Interest expense                            |      |      |      | (9,713     | )   
|Loss from financial instruments             |      |      |      | --         |     
|Other                                       |      |      |      | --         |     
|Net loss before income taxes                |      |      |      | (434,638   | )   
|Income taxes (benefit)                      |      |      |      | (83        | )   
|Net loss                                    |      |      | $    | (434,555   | )   
|Basic and diluted loss per share            |      |      | $    | (0.01      | )   
|Basic and diluted weighted average          |      |     
|Shares outstanding                          |      |      |      | 45,437,154 |     
|                                            |      |      |      |            |     
|Dividends                                   |      |      |      | --         |     
|Total Assets                                |      |      | $    | 13,604,371 |     
|Long-term debt                              |      |      |      | --         |     
|Long-term obligations (Capital leases only) |      |      |      | 67,851     |     
|Capital leases, current portion             |      |      |      | 45,020     |     

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# ITEM 7.  MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

# Forward Looking
Statements

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

# Overview

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

WidePoint was incorporated in
Delaware on May 30, 1997. Our staff consists of business and computer specialists who help
our government and civilian customers augment and expand their resident technologic skills
and competencies, drive technical innovation, and help develop and maintain a competitive
edge in todays rapidly changing technological environment in business. Our
organization emphasizes an intense commitment to our people, our customers, and the
quality of our solutions offerings. As a services organization, our customers are our
primary focus. We have developed thorough, comprehensive policies, procedures and controls
to mitigate the threat, or potential threat, of intentional, unintentional, physical,
natural or electronic compromise or disruption of any portion of our systems or services.
The talent and technology are available, and the resident expertise experienced in working
together, to ensure goals are achieved quickly and seamlessly. Contract instruments are
already in place and a substantive reference base with an assortment of Federal agencies
are available.

On October 25, 2004, we completed the
acquisition of ORC. ORC specializes in IT integration and secure authentication processes
and software, and providing services to the United States Government. ORC has been at the
forefront of implementing PKI technologies. 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. Based on
asymmetric key cryptography, 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. The user provides his or her public key
to any and all desired persons or entities. The user does not share the private key with
anyone else. The public key will encrypt all information and/or communication from any
sender and the private key will allow only the holder of the private key to unlock and
decrypt such information and/or communication. Thus, the algorithms used in PKI
technologies help to achieve authentication of users and information, integrity of all
data and communications, non-repudiation or rejection of data and communications, and
support confidentiality of data and communications. PKI also speeds up and simplifies the
delivery of products and services by providing electronic approaches to processes that
historically have been paper based. These electronic solutions depend on PKI for
identification and authentication; data integrity; confidentiality of information and
transactions; and non-repudiation to facilitate mission-related transactions internal to
an organization and with external organizations. ORC is currently one of two entities that
has been designated by the United States Government as an External Certificate Authority
for the U.S. Government. As such, ORC is authorized to issue all permissible certificate
types and services in accordance with Defense Information Systems Agency and National
Security Agency standards, necessary for the interoperable, secure exchange of information
between U.S. Governmental agencies, contractors, and international allies such as members
of NATO.

40

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In 2005 and 2006, WidePoint focused
on the consolidation of its recent acquisition of ORC, accelerating the rollout of the ORC
E-Authentication and PKI identity management initiatives, and continuing to implement our
project based enterprise strategy, emphasizing our industry-wide best practices
disciplines. With the addition of the customer base and the increase in revenues
attributable to the ORC acquisition, WidePoints opportunity to leverage and expand
further into the federal marketplace has improved dramatically. ORCs past client
successes, top facility security clearances, security personnel expertise, and additional
breadth of management talent have expanded our reach into markets that previously were not
accessible to WidePoint. We intend to continue to market and sell our technical
capabilities into the governmental and commercial marketplace. Further, we are continuing
to actively search out new synergistic acquisitions that we believe may further enhance
our present base of business and service offerings, which has been augmented by our recent
acquisition of ORC and our internal growth initiatives.

As a result of these actions in 2006,
the Companys revenues for the period ending December 31, 2006 increased by
approximately 35% from approximately $13.3 million in 2005 to $18.0 million in 2006. This
increase was materially attributable to an increase in sales associated with the initial
rollout of contract awards in support of the federal governments mandate under
Homeland Security Presidential Directive No. 12 (HSPD-12) and the continuing
adoption of the External Certificate Authority (ECA) program by the U.S.
Department of Defense (DoD) and related DoD contractors.

Our PKI credentialing and managed
services segment experienced revenue growth of approximately 213% with revenues increasing
approximately $1,191,000 from approximately $560,000 for the year ended December 31, 2005,
to approximately $1,751,000 for the year ended December 31, 2006, as a result of
continuing early adoption of the Federal Governments HSPD-12 program and the
continuing adoption of the ECA. We sold 37,853 credentials for the year ended December 31,
2006 as compared to 4,478 credentials for the year ended December 31, 2005. In the
long-term we anticipate that credential sales should continue to increase as we witness
the continued adoption of the ECA program and the HSPD-12 program is increasingly adopted
by the federal government agencies, and departments. In the short-term we do anticipate a
greater variability in revenue growth as we await contract awards that have been delayed
as a result of the lack of a 2007 fiscal year federal budget that directly impacts the
adoption of the HSPD-12 program.

41

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Based upon estimates provided by
independent analyst and U.S. government estimates, management believes there is a base of
5 million to 15 million users for the Companys PKI credentials that is comprised of
U.S. Federal Government agencies employees and their contractors. The Company further
believes that there is a developing market place for PKI credentials within the state and
local governments and other national programs that extend beyond the U.S. federal
government agencies, employees and their contractors. These other opportunities relate to
the requirements underlying the mandates for the HSPD-12 program that effect state and
local governments as well as other national programs. The Companys credentials are
currently priced from approximately $27.50 to $150.00 per user on government pricing
schedules depending upon the quantity purchased and the level of managed services and
support selected by the customer. Pricing of the Companys credentials by user are
driven by a competitive marketplace and may change at any time. The Company believes it is
well-positioned to effectively compete within this market segment as a result of its past
successes and experience within the PKI field.

Our consulting services segment
experienced increasing revenues of approximately $3.5 million from approximately $12.7
million for the year ended December 31, 2005 as compared to approximately $16.2 million
for the year ended December 31, 2006. The increase in revenues for the year ended December
31, 2006 as compared to the year ended December 31, 2005 was materially the result of the
resale of software in and services in support of the DODs preparation
for their widescale launch of the ECA program.

As the Company attempts to continue
to implement its strategy of strategic growth driven both by internal growth and potential
merger and acquisition activity, we believe that future performance may continue to affect
the comparability of the information reflected in the selected consolidated financial
information presented above.

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

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

42

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

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

The Company reported non-cash losses
from financial instruments of $0 and $5.4 million in 2006 and 2005, respectively. The
recognition of the financial instruments in 2005 resulted from the warrants issued in
October 2004 to Barron in connection with a preferred stock financing and the related cash
penalty provision in the registration rights agreement entered into by the Company and
Barron in connection therewith. The warrants were required under EITF 00-19, Accounting
for Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Companys Own Stock, to be accounted for as a liability and periodically
marked-to-market upon conversion of the warrants to reflect changes in the market value of
the common stock underlying the warrants. Consequently, due to the significant increases
in the market value of the common stock during 2004 and 2005, non-cash losses from the
financial instruments were recognized during those years. All of Barrons warrants
were exercised by it prior to the end of 2005, so there was no recognition of the
financial instruments at December 31, 2005 and there will be no need to recognize the
financial instruments or record any loss or gain therefrom in future financial statements.

# Critical Accounting
Policies and Estimates

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

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

| |  | Allowance
for Doubtful Accounts;
| | - | --------------------------------

| |  | Goodwill;
| | - | ---------

| |  | Intangibles;
| | - | ------------

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

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

Revenue Recognition

The majority of WidePoints
revenues are derived from cost-plus, or time-and-materials contracts. Under cost-plus
contracts, revenues are recognized as costs are incurred and include an estimate of
applicable fees earned. For fixed-price contracts, revenue is generally recorded as
delivery is made. For time-and-material contracts, revenues are computed by multiplying
the number of direct labor-hours expended in the performance of the contract by the
contract billing rates and adding other billable direct costs. In the event of a
termination of a contract, all billed and unbilled amounts associated with those task
orders where work has been performed would be billed and collected. The termination
provisions of the contract would be accounted for at the time of termination. Any deferred
and/or amortization cost would either be billed or expensed depending upon the termination
provisions of the contract. Further, the Company has had no material history of losses nor
has it identified any specific risk of loss at December 31, 2006 due to termination
provisions and thus has not recorded provisions for such events.

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

Allowance for Doubtful
Accounts

WidePoint determines its Allowance by
considering a number of factors, including the length of time trade accounts receivable
are past due, previous loss history, the customers current ability to pay its
obligations, and the condition of the general economy and the industry as a whole. The
Company makes judgments as to its ability to collect outstanding receivables based on
these factors and provide allowances for these receivables when collections become
doubtful. Provisions are made based on specific review of all significant outstanding
balances. Because of the Companys history of minimal credit losses and the nature of
the Companys customers at the time, no allowance for doubtful accounts was believed
necessary at December 31, 2006 and 2005.

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Goodwill

Goodwill represents costs in excess
of fair values assigned to the underlying net assets acquired. The Company has adopted the
provisions of Statement of Financial Accounting Standards (SFAS) No. 141,
Business Combinations, and SFAS No. 142, Goodwill and Other
Intangible Assets. These standards require the use of the purchase method of
accounting for business combinations, set forth the accounting for the initial recognition
of acquired intangible assets and goodwill and describe the accounting for intangible
assets and goodwill subsequent to initial recognition. Under the provisions of these
standards, goodwill is not subject to amortization and annual review is required for
impairment. The impairment test under SFAS No. 142 is based on a two-step process
involving (i) comparing the estimated fair value of the related reporting unit to its net
book value and (ii) comparing the estimated implied fair value of goodwill to its carrying
value. Impairment losses are recognized whenever the implied fair value of goodwill is
less than its carrying value. The Companys annual impairment testing date is
December 31. Goodwill is a significant item on the Companys balance sheet and
represents approximately 19% of our total assets as of December 31, 2006. Goodwill is
identified on the face of the Balance Sheet.

Intangibles

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

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

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

As of December 31, 2006, 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 30% of our total assets. Any
impairment as a result of the estimate utilizing net cash flows to determine the assumed
value of long-lived assets could have a significant impact on the Companys financial
condition, changes in financial condition and results of operations. Long-lived assets are
identified on the face of the Balance Sheet as Intangibles. Amortization of Intangibles is
identified on the face of the Statement of Operations within Cost of Sales.

45

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Specific intangibles arose as a
result of the Companys acquisition of ORC. The Company allocated approximately
$1,145,000 ($666,000 net book value at December 31, 2006) to customer list and
relationships and $2,526,000 to goodwill. The Companys senior management has
discussed the development and selection of the accounting estimates relating to the
purchase accounting for the ORC acquisition, the amortization period of the acquired
intangibles and the lack of impairment of the assets, and the MD&A disclosure
regarding those estimates, with the audit committee of the Companys board of
directors. Also, the Company engaged MP&S Valuations to perform an independent
analysis to provide a qualified opinion on the Companys methodology and calculations
in determining the related intangibles valuations associated with the purchase accounting
for the ORC acquisition.

Accounting for Income
Taxes

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

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

Based upon the level of historical
losses that may limit utilization of NOL carry forwards in future periods, management is
unable to predict whether these net deferred tax assets will be utilized prior to
expiration. The unused NOL carry forwards expire in years 2010 through 2026. 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.

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New Accounting
Pronouncements

In December 2004, the FASB
issued SFAS No. 153, Exchanges of Nonmonetary Assets (SFAS 153). This
Statement addresses the measurement of exchanges of nonmonetary assets and is effective
for nonmonetary asset exchanges occurring in fiscal years beginning after June 15, 2005.
The adoption of SFAS 153 has not had a material effect on the Companys financial
position or results of operations.

In December 2004, FASB issued SFAS
No. 123(R), Share-Based Payment (SFAS 123(R)). SFAS 123(R) revises
FASB Statement No. 123, Accounting for Stock-Based Compensation, and
supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS
123(R) focuses primarily on accounting for transactions in which an entity obtains
employee services in share-based payment transactions. SFAS 123(R) requires companies to
recognize in the statement of operations the cost of employee services received in
exchange for awards of equity instruments based on the grant-date fair value of such
awards (with limited exceptions). SFAS 123(R) is effective as of the first reporting
period beginning after June 15, 2005.  Accordingly, the Company adopted SFAS 123(R)
in the first quarter of 2006. The adoption of SFAS 123(R) resulted in a $403,000 expense
in fiscal 2006.

In March 2006, the FASB issued FASB
Statement No. 156, Accounting for Servicing of Financial Assetsan amendment of
FASB Statement No. 140 (FASB Statement No. 156). FASB No. 156 amends FASB
Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, with respect to the accounting for separately
recognized servicing assets and servicing liabilities. FASB No. 156 is effective for years
beginning after September 15, 2006. The Company does not believe FASB No. 156 will have a
material effect on the Companys financial statements.

In June 2006, the FASB issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes  an
interpretation of FASB Statement No. 109 (FIN 48), which clarifies the
accounting for uncertainty in income taxes recognized in an enterprises financial
statements in accordance with SFAS No. 109, Accounting for Income Taxes. FIN
48 prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be taken in a
tax return. FIN 48, which is effective for fiscal years beginning after December 15, 2006,
also provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. The Company plans on reviewing
in detail its tax situation to determine whether there are any uncertain tax positions but
does not presently believe that there are any material such matters.

In September 2006, the FASB issued
Statement No. 157, Fair Value Measurements (FASB No. 157). FASB
No. 157 defines fair value, establishes a framework for measuring fair value in generally
accepted accounting principles (GAAP), and expands disclosures about fair value
measurements. FASB No. 157 applies under other accounting pronouncements that require or
permit fair value measurements, the FASB having previously concluded in those accounting
pronouncements that fair value is the relevant measurement attribute. Accordingly, this
Statement does not require any new fair value measurements.

47

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In September 2006, the Securities and
Exchange Commission issued Staff Accounting Bulletin No. 108, Considering the
Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year
Financial Statements(SAB 108). SAB 108 provides guidance on
consideration of the effects of prior year misstatements in quantifying current year
misstatements for the purpose of a materiality assessment. SAB 108 is effective for
fiscal years ending after November 15, 2006. The adoption of SAB 108 did not
have an impact on our consolidated financial statements.

In December 2006, the FASB issued
FASB Staff Position EITF 00-19-2, Accounting for Registration Payment Arrangements(FSP EITF 00-19-2). FSP EITF 00-19-2 specifies that the contingent
obligation to make future payments or otherwise transfer consideration under a
registration payment arrangement, whether issued as a separate agreement or included as a
provision of a financial instrument or other agreement, should be separately recognized
and measured in accordance with FASB Statement No. 5, Accounting for
Contingencies. A registration payment arrangement is defined in FSP EITF 00-19-2 as an
arrangement with both of the following characteristics: (1) the arrangement specifies
that the issuer will endeavor (a) to file a registration statement for the resale of
specified financial instruments and/or for the resale of equity shares that are issuable
upon exercise or conversion of specified financial instruments and for that registration
statement to be declared effective by the US SEC within a specified grace period, and/or
(b) to maintain the effectiveness of the registration statement for a specified
period of time (or in perpetuity); and (2) the arrangement requires the issuer to
transfer consideration to the counterparty if the registration statement for the resale of
the financial instrument or instruments subject to the arrangement is not declared
effective or if effectiveness of the registration statement is not maintained. FSP EITF
00-19-2 is effective for registration payment arrangements and the financial instruments
subject to those arrangements that are entered into or modified subsequent to
December 21, 2006. For registration payment arrangements and financial instruments
subject to those arrangements that were entered into prior to the issuance of FSP EITF
00-19-2, this guidance is effective for financial statements issued for fiscal years
beginning after December 15, 2006, and interim periods within those fiscal years. We
do not expect the adoption of FSP EITF 00-19-2 to have a material impact on our
consolidated financial statements.

In February 2007, the FASB issued
SFAS No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities(SFAS 159) which permits entities to choose to measure
many financial instruments and certain other items at fair value that are not currently
required to be measured at fair value. SFAS 159 will be effective for us on
January 1, 2008. We are currently evaluating the impact of adopting SFAS 159 on
our financial position, cash flows, and results of operations.

# Results of Operations

Year Ended December 31,
2006 Compared to the Year ended December 31, 2005

Revenues.          Revenues
for the year ended December 31, 2006, were approximately $18.0           million, an
increase of $4.7 million, as compared to revenues of approximately           $13.3
million for the year ended December 31, 2005. This increase was           materially
attributable to increased sales associated with the initial rollout           of contract
awards in support of the federal governments HSPD-12 mandate           and the DODs
ECA program.

48

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Our PKI credentialing and managed
services segment experienced revenue growth of approximately 213% with revenues
increasing approximately $1,191,000 from approximately $560,000 for the year ended
December 31, 2005, to approximately $1,751,000 for the year ended December 31, 2006, as a
result of continuing early adoption of the Federal Governments mandate under
Homeland Security Presidential Directive No. 12 (HSPD-12) and the continuing
adoption of the External Certificate Authority (ECA) by Department of Defense
and its federal contractors. We sold 37,853 credentials for the year ended December 31,
2006 as compared to 4,478 credentials for the year ended December 31, 2005. The pricing
on the credentials decreased from approximately $125 per credential in 2005 to
approximately $46 per credential in 2006. The pricing decreased as we sold more in larger
volume contracts in 2006. In the long-term we anticipate that credential sales should
continue to increase as we witness the continued adoption of the ECA program by the
Department of Defense federal contractors and the HSPD-12 program is increasingly adopted
by the Federal Government agencies and departments. In the short-term we do anticipate a
greater variability in revenue growth as we await contract awards that have been delayed
as a result of delays in the 2007 fiscal year budget appropriations cycle that directly
impacts the adoption of the HSPD-12 program and the GSAs recent cancellation of a
HSPD-12 contract and the re-bidding of that contract that we believe has delayed agency
contract decisions and awards under this mandate. Further, average credential pricing
fell as bulk buyers entered into larger quantity purchasing agreements with the Company,
which materially drove the increase in amount of credentials sold. We believe that in the
short-term there will be a greater variability in average price as the pricing for bulk
buyers will at times influence the average costs as larger contracts for credentials are
awarded and delivered.

Our consulting services segment
experienced increased revenues of approximately $3.5 million from approximately $12.7
million for the year ended December 31, 2005 as compared to approximately $16.2 million
for the year ended December 31, 2006. The increase in revenues for the year ended December
31, 2006 as compared to the year ended December 31, 2005 was primarily the result of the
resale of software and services in support of the DODs preparation for their
widescale launch of the ECA program. The 2006 revenue includes a single sale transaction of $3,375,000.

Cost of Sales.Cost of sales
for the year ended December 31, 2006, was approximately $14.3 million, or 79% of revenues,
an increase of approximately $2.4 million over cost of sales of approximately $11.9
million, or 89% of revenues, for the year ended December 31, 2005. The percentage decrease
in cost of sales was primarily attributable to the decrease in stock based expenses
associated with our purchase price allocation of ORC, and the decrease in compensation
expense associated with the Chesapeake shares, which were earned as a result of revenues
from ORC during the third quarter of 2005 and did not reoccur after the completion of
Chesapeakes earnout as of December 31, 2005. The compensation expense of
approximately $1.9 million was the result of an expense related to the release of
1,905,390 common shares earned during the year ended December 31, 2005 by the former
shareholders of Chesapeake. The absolute increase in cost of sales was materially
attributable to higher revenues partially offset by the non-recurrence of the stock
compensation expense associated with the Chesapeake shares.

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

49

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Gross profit. Gross profit for
the year ended December 31, 2006, was approximately $3.7 million, or 21% of
revenues, an increase of $2.3 million as compared to gross profit of approximately
$1.4 million, or 11% of revenues, for the year ended December 31, 2005.

Sales and marketing. Sales and
marketing expenses for the year ended December 31, 2006 were approximately $0.9
million, or 5% of revenues, as compared to $0.7 million, or 5% of revenues, for the year
ended December 31, 2005. The $0.2 million increase in sales and marketing expenses
for the year ended December 31, 2006, was primarily attributable to an increase in
the amount of sales and marketing expenditures as a result of the Companys recent
acquisition of ORC. During 2005 we focused our efforts on completing the development of
our PKI services and as a result our sales and marketing efforts were only slightly
increased.

General and administrative.
General and administrative expenses for the year ended December 31, 2006 were
approximately $3.3 million, or 19% of revenues, as compared to $2.9 million, or 22% of
revenues, for the year ended December 31, 2005. The $0.4 million increase in general
and administrative expenses in 2006 was primarily attributable to the recognition of
employee stock options expense of approximately $0.4 million specific to our
adoption of SFAS 123(R).

Depreciation expense.Depreciation expense for year ended December 31, 2006, was approximately $35,000, or
less than 1% of revenues, an increase of $10,000, as compared to approximately $25,000 of
such expenses, or less than 1% of revenues, recorded by the Company for the year ended
December 31, 2005. The increase in depreciation expenses for the year ended December 31,
2006, was primarily attributable to the increased pool of depreciable assets.

Interest income (expense).
Interest income for the year ended December 31, 2006 was $92,669, an increase of
$85,708 as compared to $6,961 for the year ended December 31, 2005. The increase in
interest income in 2006 was primarily attributable to greater amounts of available cash
and other securities. Interest expense for the year ended December 31, 2006 was
$9,713, a decrease of $154,979 as compared to $164,692 in interest expense for the year
ended December 31, 2005. The decrease in interest expense in 2006 was primarily
attributable to the repayment in 2005 of the Companys secured senior lending
facility with RBC-Centura, which was utilized in association with the purchase of ORC.

Loss from Financial
Instruments. The Company recognized no non-cash loss from financial instruments for
the year ended December 31, 2006, as compared to a non-cash loss from financial
instruments of approximately $5.4 million for the year ended December 31, 2005. The
recognition of the financial instruments resulted from the warrants issued in October 2004
to Barron Partners, LP in connection with a preferred stock financing, and the related
cash penalty provision in the registration rights agreement entered into by the Company
and Barron in connection therewith. The warrants were required under EITF 00-19 to be
accounted for as a liability and marked-to-market upon conversion of the warrants to
reflect changes in the market value of the common stock underlying the warrants. The loss
from financial instruments is based on the difference between the fair value of the
warrants and the market price of the common stock underlying them. A
cumulative loss from financial instruments of $5.4 million was recorded for the full year
ended December 31, 2005. All of Barrons warrants were exercised by it prior to the
end of 2005, so there was no recognition of the financial instruments at December 31, 2005
and there will be no need to recognize the financial instruments or record any loss or
gain therefrom in future financial statements.

50

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Income tax benefit. The income
tax benefit for the year ended December 31, 2006 was $83, a decrease of $355,337, as
compared to $355,420 for the year ended December 31, 2005. The decrease in the income
tax benefit for the year ended December 31, 2006 over the income tax benefit for the year
ended December 31, 2005 was primarily the result of our determination that we were able to
offset all of the ORC tax liabilities with WidePoints tax losses in 2005 as compared
to 2006.

Net loss. As a result of the
above, the net loss for the year ended December 31, 2006 was approximately $0.4
million, a decrease of $7.0 million, as compared to the net loss of approximately $7.4
million for the year ended December 31, 2005.

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

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

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

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

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

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

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

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

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

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

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

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. There were no segmented assets or revenues
during the year ended December 31, 2004.

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|                                      
|--------------------------------------
|
|Consulting services                   
|                                      
|Revenues                              
|                                      
|Operating income                      
|                                      
|Total assets                          
|                                      
|PKI Credentialing and Managed Services
|                                      
|Revenues                              
|                                      
|Operating income/(loss)               
|                                      
|Total assets                          
|                                      
|Credentials sold                      
|                                      
|Total Company                         
|                                      
|Revenues                              
|                                      
|Operating loss                        
|                                      
|Depreciation expense                  
|                                      
|Interest income (expense), net        
|                                      
|Loss from financial instruments       
|                                      
|Other income                          
|                                      
|Income tax benefit                    
|                                      
|Net loss                              
|                                      
|Total Corporate assets                
|                                      
|Total assets                          
|                                      

|(1) | Includes
$221,078 in amortization expense in cost of sales associated with the purchase of ORC,
which is not allocated among the segments and includes $1,122,379 in unallocated
corporate costs in sales, general and administrative expense.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|(2) | Includes
$1,878,171 in compensation expense in cost of sales associated with the Chesapeake
acquisition, which is not allocated among the segments, includes $221,078 in amortization
expense in cost of sales associated with the purchase of ORC, which is not allocated
among the segments and includes $798,922 in unallocated corporate costs in general and
administrative expense.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Liquidity and Capital
Resources

The Company has, since inception,
financed its operations and capital expenditures through the sale of preferred and common
stock, seller notes, convertible notes, convertible exchangeable debentures, senior
secured loans and the proceeds from the exercise of the warrants related to a convertible
exchangeable debenture. During 2006 and 2005, operations were primarily financed with
working capital, senior debt, and stock option and warrant exercises.

Cash provided by operating activities
for the year ended December 31, 2006, was approximately $508,000 as compared to cash
provided by operating activities of approximately $246,000 for the year ended December 31,
2005.  The increase in cash balances available for operating activities for the years
ended December 31, 2006 and 2005, respectively, were primarily a result of the exercise of
all of Barrons warrants.  Capital expenditures in property and equipment were
approximately $72,000, excluding any capital leases for the year ended December 31, 2006,
as compared to capital expenditures in property and equipment of approximately $3,000 for
the year ended December 31, 2005.

The Company had material increases in
our balance sheet in cash and cash equivalents, accounts receivables, prepaid expenses,
intangibles, and other assets offset by a decrease in goodwill related to the ORC shareholder settlement in 2005, increases in accounts
payable, deferred revenue and income taxes payable, and a decrease in short term
borrowings and financial instruments as of December 31, 2006 as compared to December 31,
2005. The increase in the assets and decrease in the liabilities in our balance sheet were
primarily due to our recent acquisition of ORC and the exercise of the Barron warrants.
Accounts receivable increased as a result of the increase in revenues from ORC and prepaid
expenses increased as a result of the additional cost associated with operating ORC. As a
result of the acquisition of ORC, the Companys accounts receivable aging measurement
criteria had declined. This has primarily been as a result of a longer payment cycle at
ORC. ORC invoices monthly while WidePoint invoices, weekly and monthly. As a result of the
monthly billing cycle at ORC, the Company has experienced a longer average period to
collect its accounts receivable from its clients. As of December 31, 2006, the Company has
not witnessed any problems associated with collectibility or billing problems with any
major customers or any significant changes in credit terms, collection efforts, credit
utilization and/or delinquency policies. Goodwill decreased as a result of the settlement
of a working capital deficit with the ORC shareholders which resulted in a reduction of
the purchase price. Intangible assets increased as a result of the increased investment to
ORCs PKI credentialing services during 2005. Accounts payable increased as a result
of the higher level of costs of operating ORC.

As of December 31, 2006, the Company
had net working capital of approximately $3.7 million. WidePoints primary source of
liquidity consists of approximately $2.8 million in cash and cash equivalents and
approximately $6.2 million of accounts receivable. Current liabilities include
approximately $5.2 million in accounts payable and accrued expenses. The Companys
business environment is characterized by rapid technological change, experiences times of
high growth and contraction and is influenced by material events such as mergers and
acquisitions that can substantially change the Companys outlook.

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The Company requires substantial
working capital to fund the future growth of its business, particularly to finance
accounts receivable, sales and marketing efforts, and capital expenditures. There are
currently no commitments for capital expenditures. Future capital requirements will depend
on many factors, including the rate of revenue growth, if any, the timing and extent of
spending for new product and service development, technological changes and market
acceptance of the Companys services.

On October 25 and 29, 2004,
WidePoint completed financings with Barron Partners L.P. (Barron), a private
equity fund that engages in investing primarily in private investments in publicly traded
entities, for an aggregate amount of $3,580,000, under a preferred stock purchase
agreement and related agreements. Net proceeds from the financing after costs and
expenses, including fees of finders and agents, were approximately $3,030,000. WidePoint
issued an aggregate of 2,045,714 shares of its Series A Convertible Preferred Stock that
were convertible into an aggregate of 20,457,143 shares of its Common Stock at a
conversion rate equal to $0.175 per share. As of February 2007, Barron had converted all
of its Series A Convertible Preferred Stock into shares of Common Stock. In addition,
WidePoint issued to Barron a warrant to purchase up to an additional 10,228,571 shares of
its Common Stock at an exercise price of $0.40 per common share. All such warrants were
exercised as of December 31, 2005. The shares of Common Stock acquired by Barron upon its
conversion of its Series A Convertible Preferred Stock and/or the exercise of its warrant
are subject to contractual restrictions which restrict the ability of Barron and its
affiliates to acquire shares of Common Stock which equal no more than 4.99% of the
outstanding shares of WidePoints Common Stock at any time. This contractual
restriction may be removed upon 61 days notice to WidePoint from Barron, but in the event
Barron elects to remove this restriction, then Barron and its affiliates agreed that
Barron and its affiliates can only vote the shares of Common Stock held by Barron and its
affiliates which result in Barron and its affiliates having no more than 22% of the total
voting power of all outstanding shares of WidePoints Common Stock at any time. As a
result of the Barron financing transaction, WidePoint issued warrants to Westcap
Securities, Inc., a registered broker-dealer and WidePoints placement agent in such
transaction, to purchase 511,428 shares of Common Stock at an exercise price of $0.40 per
share, which warrants were to expire in October 2009 and were fully exercised in 2006.

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

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WidePoint believes that its current
cash position is sufficient to meet capital expenditure and working capital requirements
through 2007. However, the growth and technological change of the market make it difficult
to predict future liquidity requirements with certainty. Over the longer term, the Company
must successfully execute its plans to increase revenue and income streams that will
generate significant positive cash flows if it is to sustain adequate liquidity without
impairing growth or requiring the infusion of additional funds from external sources.
Additionally, a major expansion, such as occurred with the acquisition of ORC or any other
major new subsidiaries, might require external financing that could include additional
debt or equity capital. In addition, the Company raised approximately $3.6 million dollars
in connection with the aforementioned equity investments by Barron Partners, LP, that were
used in the acquisition of ORC. Further, the Company raised approximately $4.1 million
dollars in connection with the attached warrants associated with the aforementioned equity
investments by Barron Partners, LP during the year ended 2005. There can be no assurance
that additional financing, if required, will be available on acceptable terms, if at all,
for future acquisitions and/or growth initiatives.

# Off-Balance Sheet
Arrangements

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

# Contractual Obligations

The following table summarizes the
Companys contractual obligations at December 31, 2006 and the effect such
obligations are expected to have on liquidity and cash flow in future periods.

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

|(1) | WidePoints
office located at One Lincoln Center, Oakbrook Terrace,           Illinois 60181 has a
lease which runs through July 31, 2007, with payments           in 2007 representing
an obligation of approximately $41,200. The office at 1736           South Park Court,
Chesapeake, VA has a lease which runs through April 30, 2009,           with payments in
2007 representing an obligation of approximately $29,200. The           first year ending
April 30, 2007, is binding, and the second and third years are           on a
month-to-month basis. The office at 11250 Waples Mill Rd., Fairfax, VA, has           a
lease which runs through March 15, 2009, with payments in 2007 representing an
          obligation of approximately $371,200 and payments in 2008 through 2009
          representing obligations of approximately $450,400. The office at 1625 Prince
          St., Alexandria, VA, has a lease, which runs through January 31, 2008, with
          payments in 2007 representing an obligation of approximately $97,200.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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# Other

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

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

This report contains forward-looking
statements setting forth the Companys beliefs or expectations relating to future
revenues and profitability. Actual results may differ materially from projected or
expected results due to changes in the demand for the Companys products and
services, uncertainties relating to the results of operations, dependence on its major
customers, risks associated with rapid technological change and the emerging services
market, potential fluctuations in quarterly results, and its dependence on key employees
and the risk factors discussed under Item 1A above 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 7A. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are not exposed to market risks
related to changes in interest rates and changes in the market value of our investments as
we have no borrowings outstanding under a bank credit agreement as of December 31, 2006
and we only invest our excess cash in marketable securities in a money market account
which due to the short maturity and our availability to withdraw those securities at any
time does not present any material market exposure. A hypothetical 10% increase in
interest rates would not have increased the Companys annual interest expense for the
year ended December 31, 2006.

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

# ITEM 8. FINANCIAL
STATEMENTS AND SUPPLEMENTAL DATA.

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

58

---

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

Effective January 1, 2007, Epstein,
Weber & Conover, PLC (EWC) combined its practice with Moss Adams LLP
(Moss Adams) and therefore resigned as the independent registered public
accounting firm of WidePoint. The Company was notified of such resignation on January 22,
2007. According to information provided to the Company, all of the partners of EWC have
become partners of Moss Adams.

On February 24, 2006, the Company
engaged EWC as its independent registered public accounting firm. From the date of
engagement of EWC through January 22, 2007, there were no disagreements (within the
meaning of Item 304 of Regulation S-K) between the Company and EWC on any matters of
accounting principles or practices, financial statement disclosure or auditing scope or
procedure, which, if not resolved to the satisfaction of EWC, would have been referred to
in its report. EWCs report on the Companys financial statements for the year
ended December 31, 2005 did not contain an adverse opinion or a disclaimer of opinion and
was not qualified or modified as to uncertainty, audit scope, or accounting principles.

On January 22, 2007, the Audit
Committee of the Board of Directors of the Company engaged the independent accounting firm
of Moss Adams to serve as its new independent accounting firm effective January 22, 2007.

During the fiscal years ended
December 31, 2005 and December 31, 2006 and during the subsequent period prior to the
engagement of Moss Adams as its new independent accounting firm, the Company did not
consult with Moss Adams regarding either (i) the application of accounting principles to a
specified transaction or the type of audit opinion that might be rendered on the
Companys financial statements or (ii) any matter that was either the subject of a
disagreement or a reportable event (as defined in Item 304 of Regulation S-K).

# ITEM 9A. CONTROLS AND
PROCEDURES.

# Conclusions regarding disclosure
controls and procedures.

The Companys disclosure
controls and procedures are designed to provide reasonable assurance that information
required to be disclosed by it in its periodic reports filed with the Securities and
Exchange Commission is recorded, processed, summarized and reported, within the time
periods specified in the Commissions rules and forms. Our principal executive
officers and principal financial officers, after evaluating the effectiveness of our
disclosure controls and procedures (as defined in the Securities Exchange Act of 1934
Rule 13a-15(e) as of the end of the period covered by this report, have concluded
that, based on the evaluation of these controls and procedures required by paragraph
(b) of Exchange Act Rule 13a-15, our disclosure controls and procedures were
effective.

SEC rules require that a company
that is an accelerated filer, as defined by Rule 12b-2 under the Securities Exchange
Act of 1934, must set forth in its annual report on Form 10-K a managements annual
report on internal control over financial reporting pursuant to Rule 13a-15(f).  The
Company did not become an accelerated filer until December 31, 2006, based on the
calculation called for by paragraph (i) of the definition of that term under Rule 12b-2.
 During 2006, prior to the Companys becoming an accelerated filer, the SEC extended the
deadline date for compliance with that requirement for non-accelerated filers until the
first fiscal year ending on or after December 15, 2007.  The Company was a
non-accelerated filer at the time of the SECs granting of that extended compliance
deadline.  Accordingly, the Company will set forth a managements annual report on
internal control over financial reporting in its Form 10-K for the year ending December
31, 2007.

# Changes in internal
control over financial reporting.

There were no changes in our internal
control over financial reporting identified in connection with the evaluation required by
paragraph (d) of Exchange Act Rule 13a-15 that occurred during our last fiscal
quarter that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.

59

---

# ITEM 9B. OTHER
INFORMATION.

None.

# 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 in
Part I of this Annual Report on Form 10-K as Item 4A, 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 11. EXECUTIVE
COMPENSTATION.

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.

60

---

# 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
| | -----------------------------------------------------------------------

| | Report
of Epstein, Weber & Conover PLC
| | --------------------------------------

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

| | Consolidated
Balance Sheets as of December 31, 2006 and 2005
| | ------------------------------------------------------------

| | Consolidated
Statements of Operations for the Years Ended December 31, 2006, 2005, and 2004
| | -------------------------------------------------------------------------------------------

| | Consolidated
Statements of Changes in Stockholders Equity for the Years Ended December
2006, 2005, and 2004
| | ------------------------------------------------------------------------------------------------------------

| | Consolidated
Statements of Cash Flow for the Years Ended December 31, 2006, 2005, and 2004
| | ------------------------------------------------------------------------------------------

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

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

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

61

---

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

|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)
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.3 | Employment
Agreement between WidePoint Corporation and Mark Mirabile, dated July 1, 2002.*
(Incorporated herein by reference to Exhibit 10.26 to Registrants Report of Form
10Q, as filed on August 15, 2002 (File No. 000-23967)
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.4 | Preferred
Stock Purchase Agreement Between WidePoint Corporation and Barron Partners LP.
(Incorporated herein by reference to Exhibit 10.1 to the Registrants Current Report
on Form 8-K/A filed on November 2, 2004.)
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.5 | Common
Stock Purchase Warrant between WidePoint Corporation and Barron Partners LP.
(Incorporated herein by reference to Exhibit 10.2 to the Registrants Current Report
on Form 8-K/A filed on November 2, 2004.)
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.6 | Registration
Rights Agreement between WidePoint Corporation and Barron Partners LP. (Incorporated
herein by reference to Exhibit 10.3 to the Registrants Current Report on Form 8-K/A
filed on November 2, 2004.)
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.7 | Stock
Purchase Agreement between WidePoint Corporation, Operational Research Consultants, Inc.
(Incorporated herein by reference to Exhibit 10.5 to the Registrants Current Report
on Form 8-K/A filed on November 2, 2004.)
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

* Management contract or
compensatory plan.

62

---

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

|10.8 | Master
Amendment between WidePoint Corporation and Barron Partners L.P. (Incorporated herein by
reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K filed on
November 11, 2004.)
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.9 | Loan
and Security Agreement, dated as of October 22, 2004, by and between RBC Centura Bank and
the Registrant. (Incorporated herein by reference to Exhibit 10.46 to the Registrants
Annual Report on Form 10-K for the year ended December 31, 2004, as filed with Form
10-K/A No. 1 thereto.)
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.11 | Letter
Amendment to Loan and Security Agreement, dated as of February 7, 2005, by and between
RBC Centura Bank and the Registrant. (Incorporated herein by reference to Exhibit 10.47
to the Registrants Annual Report on Form 10-K for the year ended December 31, 2004,
as filed with Form 10-K/A No. 1 thereto.)
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.12 | Form
of Letter  Agreement  between  Goldman,  Sachs & Co., Barron Partners L.P. and WidePoint
 Corporation,  as executed on April          26, 2005. (Filed as Exhibit 10.46 to the
Registrant's Amendment No. 1 to Form S-1 as filed on May 5, 2005.)
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.13 | Form
of Letter  Agreement  between  Goldman,  Sachs & Co., Barron Partners L.P. and WidePoint
 Corporation,  as executed on April          28, 2005. (Filed as Exhibit 10.47 to the
Registrant's Amendment No. 1 to Form S-1 as filed on May 5, 2005.)
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.14 | Employment
 and  Non-Compete  Agreement  between  WidePoint  Corporation,  Operational  Research
 Consultants,  Inc  and  Daniel         Turissini.* (Incorporated herein by reference to Exhibit 10.50 to the
Registrants Amendment No. 3 to Form S-1 filed on January 27, 2006.)
|----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.15 | Addendum
to Employment and Non-Compete Agreement, dated as of October 25, 2006, between Daniel
Turissini and the Registrant.* (Filed herewith)
|----- | ----------------------------------------------------------------------------------------------------------------------------------------------

|21 | Subsidiaries
of WidePoint Corporation (Filed herewith)
|-- | ------------------------------------------------------

|23.1 | Consent
of Moss Adams LLP (Filed herewith)
|---- | ------------------------------------------

|23.2 | Consent
of Epstein Weber & Conover P.L.C. (Filed herewith)
|---- | ----------------------------------------------------------

|23.3 | Consent
of Grant Thornton 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.

63

---

# 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 15, 2007 | /s/ STEVE L. KOMAR                          
|                                | Steve L. Komar                              
|                                | Chief Executive Officer                     
|Date:            March 15, 2007 | /s/ JAMES T. MCCUBBIN                       
|                                | James T. McCubbin                           
|                                | Vice President - Principal Financial Officer

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

|Dated: | March 15, 2007 | /s/STEVE L. KOMAR                                                            
|------ | -------------- | -----------------------------------------------------------------------------
|       |                | Steve L. Komar                                                               
|       |                | Director and Chief Executive Officer                                         
|Dated: | March 15, 2007 | /s/JAMES T. MCCUBBIN                                                         
|       |                | James T. McCubbin                                                            
|       |                | Director, Vice President and Chief Financial Officer, Secretary and Treasurer
|Dated: | March 15, 2007 | /s/JAMES M. RITTER                                                           
|       |                | James M. Ritter                                                              
|       |                | Director, Assistant Secretary,                                               
|       |                | Chairman of the Compensation Committee                                       
|Dated: | March 15, 2007 | /s/MORTON S. TAUBMAN                                                         
|       |                | Morton S. Taubman                                                            
|       |                | Director, Chairman of the Audit and Finance Committee                        
|Dated: | March 15, 2007 | /s/RON S. OXLEY                                                              
|       |                | Ron Oxley                                                                    
|       |                | Director, Chairman of the Nominations Committee                              

64

---

INDEX TO FINANCIAL
STATEMENTS

|                                                                   
|-------------------------------------------------------------------
|Reports of Independent Registered Public Accounting Firms          
|Consolidated Balance Sheets as of December 31, 2006 and 2005       
|Consolidated Statements of Operations for the Years ended          
|December 31, 2006, 2005, and 2004                                  
|Consolidated Statements of Stockholders' Equity for the Years ended
|December 31, 2006, 2005, and 2004                                  
|Consolidated Statements of Cashflows for the Years ended           
|December 31, 2006, 2005, and 2004                                  
|Notes to Consolidated Financial Statements                         

65

---

# REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and
Shareholders              of Widepoint Corporation:

We have audited the accompanying
consolidated balance sheet of Widepoint Corporation and subsidiaries as of December 31,
2006 and the related consolidated statements of operations, stockholders equity and
cash flows for the year then ended. These financial statements are the responsibility of
the Companys management. Our responsibility is to express an opinion of these
financial statements based on our audit.

We conducted our audit in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. We were not 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 audit provides 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, 2006 and
the results of their operations and their cash flows for the year then ended, in
conformity with accounting principles generally accepted in the United States of America.

As described in Note 2 to the
consolidated financial statements, the Company adopted a new principle of accounting for
share-based payments in accordance with Financial Accounting Standards Board Statement
No. 123R, Share-Based Payment.

/s/Moss Adams
LLPScottsdale, Arizona  March 12, 2007

The accompanying notes
are an integral part of these consolidated statements

F-1

---

# REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and
Shareholders              of Widepoint Corporation:

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

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

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

/s/EPSTEIN, WEBER &CONOVER,
PLC  Scottsdale, ArizonaMarch 27, 2006

The accompanying notes
are an integral part of these consolidated statements

F-2

---

# REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and
Stockholders of WidePoint Corporation:

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

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

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

/s/ Grant Thornton LLP

Chicago, Illinois April
14, 2005

The accompanying notes
are an integral part of these consolidated statements

F-3

---

# WIDEPOINT CORPORATION
AND SUBSIDIARIES        Consolidated Balance Sheets

|                                                                              | December 31,
|----------------------------------------------------------------------------- | ------------
|
|Assets                                                                        |             
|Current assets:                                                               |             
|Cash and cash equivalents                                                     |             
|Accounts receivable                                                           |             
|Prepaid expenses and other assets                                             |             
|                                                                              |             
|Total current assets                                                          |             
|                                                                              |             
|Property and equipment, net                                                   |             
|Goodwill                                                                      |             
|Intangibles, net                                                              |             
|Other assets                                                                  |             
|                                                                              |             
|Total assets                                                                  |             
|                                                                              |             
|Liabilities and stockholders equity                                          |             
|Current liabilities:                                                          |             
|Accounts payable                                                              |             
|Accrued expenses                                                              |             
|Deferred revenue                                                              |             
|Short-term portion of deferred rent                                           |             
|Short-term portion of capital lease obligation                                |             
|Total current liabilities                                                     |             
|                                                                              |             
|Long-term portion of deferred rent                                            |             
|Capital lease obligation, net of current portion                              |             
|                                                                              |             
|Total liabilities                                                             |             
|Temporary equity:                                                             |             
|Preferred stock, $0.001 par value; 10,000,000 shares                          |             
|authorized; 0 and 1,195,714 shares issued and outstanding,                    |             
|respectively                                                                  |             
|Stockholders equity:                                                         |             
|Preferred stock, $0.001 par value; 10,000,000 shares                          |             
|authorized; 195,214 and 0 shares issued and outstanding,                      |             
|respectively, liquidation value $3,416,245                                    |             
|Common stock, $0.001 par value; 110,000,000 and 50,000,000 shares authorized, |             
|respectively; 50,494,759 shares and 37,297,729 shares issued and outstanding, |             
|respectively                                                                  |             
|Common stock issuable, $0.001 par value; 0 and 1,905,390 shares               |             
|Stock warrants                                                                |             
|Additional paid-in capital                                                    |             
|Accumulated deficit                                                           |             
|                                                                              |             
|Total stockholders equity                                                    |             
|                                                                              |             
|Total liabilities, temporary equity and stockholders' equity                  |             
|                                                                              |             

The accompanying notes
are an integral part of these consolidated statements

F-4

---

# WIDEPOINT CORPORATION
AND SUBSIDIARIES  Consolidated statements of operations

|                                                                      | For the Years Ended December 31,
|--------------------------------------------------------------------- | --------------------------------
|
|Revenues, net                                                         |                                 
|Cost of revenues (including depreciation and amortization of          |                                 
|$428,394, $323,916, and $46,547, respectively, and stock compensation |                                 
|expense of $0, $1,878,171,  and $381,079, respectively)               |                                 
|                                                                      |                                 
|Gross profit                                                          |                                 
|Sales and marketing                                                   |                                 
|General and administrative                                            |                                 
|Depreciation expense                                                  |                                 
|                                                                      |                                 
|Loss from operations                                                  |                                 
|Other income (expenses):                                              |                                 
|Interest income                                                       |                                 
|Interest expense                                                      |                                 
|Loss from financial instruments                                       |                                 
|Other                                                                 |                                 
|                                                                      |                                 
|Net loss before provision for income taxes                            |                                 
|                                                                      |                                 
|Income tax benefit                                                    |                                 
|                                                                      |                                 
|Net loss                                                              |                                 
|                                                                      |                                 
|Basic and diluted net loss per share                                  |                                 
|                                                                      |                                 
|Basic and diluted weighted-average shares outstanding                 |                                 
|                                                                      |                                 

The accompanying notes
are an integral part of these consolidated statements

F-5

---

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

|                           | Temporary Equity | Permanent Equity
|-------------------------- | ---------------- | ----------------
|
|
|Balance, December 31, 2003 |                  |                 
|                           |                  |                 
|Collections on related     |                  |                 
|party notes receivable     |                  |                 
|Issuance of common stock   |                  |                 
|Tripoint                   |                  |                 
|Issuance of common stock   |                  |                 
|- Chesapeake               |                  |                 
|December 31, 2004          |                  |                 
|Issuance of common stock   |                  |                 
|issuable - Chesapeake      |                  |                 
|Issuance of common stock   |                  |                 
|- ORC                      |                  |                 
|Sale of preferred stock    |                  |                 
|Expenses associated from   |                  |                 
|preferred stock            |                  |                 
|Issuance of common         |                  |                 
|stock warrants             |                  |                 
|Net loss                   |                  |                 
|                           |                  |                 
|Balance, December 31, 2004 |                  |                 
|                           |                  |                 

The accompanying notes
are an integral part of these consolidated statements

F-6

---

|                              |  |  |  |           |   |   |       |   |  |          |   |  
|----------------------------- |  |  |  | --------- | - | - | ----- | - |  | -------- | - | -
|Collections on related        |  |  |  |           |   |   |       |   |  |          |   |  
|party notes receivable        |  |  |  | --        |   |   | --    |   |  | --       |   |  
|Issuance of                   |  | 
|common stock                  |  |  |  | --        |   |   | --    |   |  | --       |   |  
|Issuance of                   |  | 
|common stock issuable         |  | 
|- Chesapeake                  |  |  |  | --        |   |   | --    |   |  | --       |   |  
|Conversion of preferred stock |  |  |  | (850,000  | ) |   | (850  | ) |  | --       |   |  
|Costs associated              |  | 
|from registration statement   |  |  |  | --        |   |   | --    |   |  | --       |   |  
|Warrants                      |  | 
|valuation adjustments         |  |  |  | --        |   |   | --    |   |  | --       |   |  
|Costs associated              |  | 
|from warrant exercise         |  |  |  | --        |   |   | --    |   |  | --       |   |  
|Issuance of                   |  | 
|common stock -                |  | 
|Chesapeake                    |  |  |  | --        |   |   | --    |   |  | --       |   |  
|Issuance of                   |  |  |  |           |   |   |       |  
|common stock warrants         |  |  |  | --        |   |   | --    |   |  | --       |   |  
|Net loss                      |  |  |  | --        |   |   | --    |   |  | --       |   |  
|                              |  |  |  |           |   |   |       |   |  |          |   |  
|Balance, December 31, 2005    |  |  |  | 1,195,714 |   | $ | 1,196 |   |  | --       |   |  
|                              |  |  |  |           |   |   |       |   |  |          |   |  
|Issuance of                   |  | 
|common stock                  |  |  |  | --        |   |   | --    |   |  | --       |   |  
|Issuance of                   |  | 
|common stock -                |  | 
|options exercises             |  |  |  | --        |   |   | --    |   |  | --       |   |  
|Issuance of                   |  | 
|common stock -                |  | 
|Chesapeake                    |  |  |  | --        |   |   | --    |   |  | --       |   |  
|Conversion of preferred stock |  |  |  | (197,000  | ) |   | (197  | ) |  | (803,500 | ) |  
|Reclass from                  |  | 
|Temporary to Permanent equity |  |  |  | (998,714  | ) |   | (999  | ) |  | 998,714  |   |  
|Costs associated              |  | 
|from registration statement   |  |  |  | --        |   |   | --    |   |  | --       |   |  
|Issuance of                   |  |  |  |           |   |   |       |  
|common stock  warrants        |  |  |  | --        |   |   | --    |   |  | --       |   |  
|Stock options expense         |  |  |  | --        |   |   | --    |   |  | --       |   |  
|Net loss                      |  |  |  | --        |   |   | --    |   |  | --       |   |  
|                              |  |  |  |           |   |   |       |   |  |          |   |  
|Balance, December 31, 2006    |  |  |  | --        |   | $ | --    |   |  | 195,214  |   | $
|                              |  |  |  |           |   |   |       |   |  |          |   |  

The accompanying notes
are an integral part of these consolidated statements

F-7

---

# WIDEPOINT CORPORATION
AND SUBSIDIARIES  Consolidated Statements of Cash Flows

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

The accompanying notes
are an integral part of these consolidated statements

F-8

---

# Notes to Consolidated
Financial Statements

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

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

WidePoint was incorporated in
Delaware on May 30, 1997. Our staff consists of business and computer specialists who help
our government and civilian customers augment and expand their resident technologic skills
and competencies, drive technical innovation, and help develop and maintain a competitive
edge in todays rapidly changing technological environment in business. Our
organization emphasizes an intense commitment to our people, our customers, and the
quality of our solutions offerings. As a services organization, our customers are our
primary focus. We have developed thorough, comprehensive policies, procedures and controls
to mitigate the threat, or potential threat, of intentional, unintentional, physical,
natural or electronic compromise or disruption of any portion of our systems or services.
The talent and technology are available, and the resident expertise experienced in working
together, to ensure goals are achieved quickly and seamlessly. Contract instruments are
already in place and a substantive reference base with an assortment of federal agencies
are available.

On October 25, 2004, we completed the
acquisition of ORC. ORC specializes in IT integration and secure authentication processes
and software, and providing services to the United States Government. ORC has been at the
forefront of implementing PKI technologies. 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. Based on
asymmetric key cryptography, 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. The user provides his or her public key
to any and all desired persons or entities. The user does not share the private key with
anyone else. The public key will encrypt all information and/or communication from any
sender and the private key will allow only the holder of the private key to unlock and
decrypt such information and/or communication. Thus, the algorithms used in PKI
technologies help to achieve authentication of users and information, integrity of all
data and communications, non-repudiation or rejection of data and communications, and
support confidentiality of data and communications. PKI also speeds up and simplifies the
delivery of products and services by providing electronic approaches to processes that
historically have been paper based. These electronic solutions depend on PKI for
identification and authentication; data integrity; confidentiality of information and
transactions; and non-repudiation to facilitate mission-related transactions internal to
an organization and with external organizations. ORC is authorized to issue all
permissible certificate types and services in accordance with Defense Information Systems
Agency and National Security Agency standards, necessary for the interoperable, secure
exchange of information between U.S. Governmental agencies, contractors, and international
allies such as members of NATO.

F-9

---

In 2005 and 2006, WidePoint focused
on the consolidation of its recent acquisition of ORC, accelerating the rollout of the ORC
E-Authentication and PKI identity management initiatives, and continuing to implement our
project based enterprise strategy, emphasizing our industry-wide best practices
disciplines. With the addition of the customer base and the increase in revenues
attributable to the ORC acquisition, WidePoints opportunity to leverage and expand
further into the federal marketplace has improved dramatically. ORCs past client
successes, top facility security clearances, security personnel expertise, and additional
breadth of management talent have expanded our reach into markets that previously were not
accessible to WidePoint. We intend to continue to market and sell our technical
capabilities into the governmental and commercial marketplace. Further, we are continuing
to actively search out new synergistic acquisitions that we believe may further enhance
our present base of business and service offerings, which has been augmented by our recent
acquisition of ORC and our internal growth initiatives.

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

In addition, most of the
Companys current costs consist primarily of the salaries and benefits paid to the
Companys technical, marketing and administrative personnel and as a result of its
plan to expand its operations through a combination of internal growth initiatives
and merger and acquisition opportunities, the Company expects such costs to
increase.  The Companys profitability also depends upon both the volume of
services performed and the Companys ability to manage costs.  As a
significant portion of the Companys costs is labor related, the Company must
effectively manage these costs to achieve and grow its profitability.  To date, the
Company has attempted to maximize its operating margins through efficiencies achieved by
the use of the Companys proprietary methodologies, and by offsetting increases in
consultant salaries with increases in consultant fees received from its clients. The
uncertainties relating to its ability to achieve and maintain profitability, obtain
additional funding to fund its growth strategy and provide the necessary investment to
continue to upgrade its management reporting systems to meet the continuing demands of the
present regulatory changes affect the comparability of the information reflected in the
selected consolidated financial information presented above. The Company believes that its
cash on hand is adequate to finance operations through 2007.

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

Principles of
Consolidation

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

F-10

---

Use of Estimates

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

Cash and Cash Equivalents

Investments purchased with original
maturities of three months or less are considered cash equivalents for purposes of these
consolidated financial statements. The Company maintains cash and cash equivalents with
various major financial institutions.  Included in the December 31, 2006 cash
balances was $1,924,324 in interest bearing balances in one bank in excess of federally
insured amounts, as compared to $2,079,080 for December 31, 2005. The Company places its
temporary cash investments with high credit-quality financial institutions, and as a
result, the Company believes that no significant credit risk exists with respect to these
cash investments.

Accounts Receivable

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

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

|Description                           | Balance at
Beginning of
Period | Additions
Charged to
Costs and
Expenses | Deductions | Balance at
End of
Period
|------------------------------------- | ------------------------------ | --------------------------------------- | ---------- | ------------------------
|For the year ended December 31, 2004, |                                |                                         |            |                         
|Allowance for doubtful accounts       |                                |                                         | $          | 18,819                  
|For the year ended December 31, 2005, |                                |                                        
|Allowance for doubtful accounts       |                                |                                         | $          | --                      
|For the year ended December 31, 2006, |                                |                                        
|Allowance for doubtful accounts       |                                |                                         | $          | --                      

F-11

---

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, 2006 and 2005, unbilled accounts receivable totaled $354,123
and $38,977, respectively.

Revenue Recognition

The majority of the Companys
revenues are derived from cost-plus, or time-and-materials contracts. Under cost-plus
contracts, revenues are recognized as costs are incurred and include an estimate of
applicable fees earned. For fixed-price contracts, revenues are generally recorded as
delivery is made. For time-and-material contracts, revenues are computed by multiplying
the number of direct labor-hours expended in the performance of the contract by the
contract billing rates and adding other billable direct costs. In the event of a
termination of a contract, all billed and unbilled amounts associated with those task
orders where work has been performed would be billed and collected. The termination
provisions of the contract would be accounted for at the time of termination. Any deferred
and/or amortization cost would either be billed or expensed depending upon the termination
provisions of the contract. Further, the Company has had no material history of losses nor
has it identified any specific material risk of loss at December 31, 2006 due to
termination provisions and thus has not recorded provisions for such events.

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

Significant Customers

During 2006, one customer,
Headquarters Cryptologic Systems Group (HQ CPSG), individually represented 29% of
revenues, and we therefore are materially dependent upon such customer. Due to the nature
of our business and the relative size of certain contracts which are entered into in the
ordinary course of business, the loss of any single significant customer, including the
above customers, would have a material adverse effect on results. During 2005, one
customer, The Department of Homeland Security, individually represented 18% of revenue.
During 2004, two customers, Abbott Laboratories and The Department of Homeland Security,
individually represented 12%, and 11% of revenues, respectively.

F-12

---

Fair value of financial
instruments

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

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

Concentrations of Credit
Risk

Financial instruments that
potentially subject the Company to credit risk consist of cash and cash equivalents and
accounts receivable. As of December 31, 2006, one customer, Headquarters Cryptologic
Systems Group (HQ CPSG), represented 54% of accounts receivable. As of December 31, 2005,
one customer, The Department of Homeland Security, represented 30% of accounts receivable.

Income Taxes

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

Property and Equipment

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

F-13

---

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

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

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

Software Development Costs

WidePoint accounts for software
development costs related to software products for sale, lease or otherwise marketed in
accordance with Statement of Financial Accounting Standards (SFAS) No. 86,
Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed. For projects fully funded by the Company, significant development costs
are capitalized from the point of demonstrated technological feasibility until the point
in time that the product is available for general release to customers. Once the product
is available for general release, capitalized costs are amortized based on units sold, or
on a straight-line basis over a six-year period or other such shorter period as may be
required. WidePoint recorded $183,351 of amortization expense for the year ended December
31, 2006, as compared to $99,920 of amortization expense for the year ended December 31,
2005. Capitalized software costs included in Other Intangibles at December 31, 2006 were
approximately $0.7 million, as compared to approximately $0.9 million of capitalized
software costs included in Other Intangibles at December 31, 2005 and as compared to
approximately $0.6 million of capitalized software costs included in Other Intangibles at
December 31, 2004.

Goodwill, Intangible
Assets, and Long-Lived Assets

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

F-14

---

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

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

Basic and Diluted Net
Loss Per Share

Basic income or loss per share
includes no dilution and is computed by dividing net income or loss by the
weighted-average number of common shares outstanding for the period. Diluted income or
loss per share includes the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock. The
treasury stock effect of escrowed shares, options and warrants to purchase 12,658,853,
25,723,173, and 20,942,127, shares of common stock outstanding at December 31, 2006,
2005, and 2004, respectively, has not been included in the calculation of the net loss per
share as such effect would have been anti-dilutive. As a result of these items, the basic
and diluted loss per share for all periods presented are identical. Subsequent to December
31, 2006, the remaining preferred stock held by Barron Partners was converted into
1,419,214 common shares of the Companys common stock.

Stock-based compensation

Employee based
compensation:

In December 2004, the Financial
Accounting Standards Board issued SFAS No. 123 (revised 2004), Share-Based
Payment, (SFAS No. 123R). This statement requires that the costs
of employee share-based payments be measured at fair value on the awards grant date
and recognized in the financial statements over the requisite service period.

Effective January 1, 2006, the
Company adopted the provisions of 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 SFAS No. 123, as originally issued. All new awards that
are modified, repurchased, or cancelled after the adoption date are accounted for under
provisions of SFAS No. 123R. Prior periods have not been restated under this transition
method. The Company recognizes share-based compensation ratably using the straight-line
attribution method over the requisite service period. In addition, pursuant to SFAS No.
123R, 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 SFAS 123R. As of January 1,
2006, the cumulative effect of adopting the estimated forfeiture method was not material.

F-15

---

Prior to January 1, 2006, the Company
accounted for share-based compensation using the intrinsic value method prescribed by
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations and elected the disclosure option of SFAS
No. 123 as amended by SFAS No. 148, Accounting for Stock-Based Compensation 
Transition and Disclosure. SFAS No. 123 requires that companies either recognize
compensation expense for grants of stock, stock options and other equity instruments based
on fair value, or provide pro forma disclosure of net income and earnings per share in the
notes to the financial statements. Accordingly, the Company measured compensation expense
for stock options as the excess, if any, of the estimated fair market value of the
Companys stock at the date of grant over the exercise price. The following table
details the effect on net loss and earnings per share for the years ended December 31,
2004 and 2005, had compensation expense for the stock plans been recorded based on
the fair value method under SFAS No. 123.

|                                      | 2005 | 2004
|------------------------------------- | ---- | ----
|Net loss, as reported                 |      |     
|Add: Total stock-based employee       |      |     
|compensation expense determined under |      |     
|fair value based method for awards    |      |     
|granted, modified, or settled, net of |      |     
|related tax effects                   |      |     
|Pro forma net loss                    |      |     
|Loss per share:                       |      |     
|Basic and diluted - as reported       |      |     
|Basic and diluted - pro forma         |      |     

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

F-16

---

For purposes of determining the
effect of these options, the fair value of each option is estimated on the date of grant
based on the Black-Scholes single-option pricing model assuming the following for the
years ended December 31, 2006, 2005 and 2004:

|                        | 2006         | 2005 | 2004        
|----------------------- | ------------ | ---- | ------------
|Dividend yield          | --           | --   | --          
|Risk-free interest rate | 4.77 - 4.83% | 4.2% | 2.70 - 4.13%
|Volatility factor       | 57%          | 80%  | 156%        
|Expected life in years  | 4            | 4    | 5           

The amount of compensation expense
recognized under SFAS 123(R) during the year ended December 31, 2006 under our plans was
comprised of the following:

|                                                                         
|-------------------------------------------------------------------------
|
|General and administrative expense                                       
|                                                                         
|Share-based compensation before taxes                                    
|                                                                         
|Related income tax benefits                                              
|                                                                         
|Share-based compensation expense                                         
|                                                                         
|Net share-based compensation expenses per basic and diluted common shares
|                                                                         

Since we have cumulative operating
losses as of December 31, 2006 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 year ended December 31, 2006, 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.  Share-based compensation expense was not
recognized during the year ended December 31, 2005 and 2004.

A summary of the option activity
under our plans during the years ended December 31, 2006, 2005, and 2004, respectively, is
presented below:

F-17

---

|                                       | # of Shares | Weighted average
Grant date fair value
per share
|-------------------------------------- | ----------- | ------------------------------------------------
|NON -VESTED                            |             |                                                 
|Non-vested at January 1, 2004          |             |                                                 
|Granted                                |             |                                                 
|Vested                                 |             |                                                 
|Forfeited                              |             |                                                 
|Non-vested at January 1, 2005          |             |                                                 
|Granted                                |             |                                                 
|Vested                                 |             |                                                 
|Forfeited                              |             |                                                 
|Non-vested at January 1, 2006          |             |                                                 
|Granted                                |             |                                                 
|Vested                                 |             |                                                 
|Forfeited                              |             |                                                 
|Non-vested at December 31, 2006        |             |                                                 
|OUTSTANDING AND EXERCISABLE            |             |                                                 
|Total outstanding at January 1, 2004   |             |                                                 
|Issued                                 |             |                                                 
|Cancelled                              |             |                                                 
|Exercised                              |             |                                                 
|Total outstanding at January 1, 2005   |             |                                                 
|Issued                                 |             |                                                 
|Cancelled                              |             |                                                 
|Exercised                              |             |                                                 
|Total outstanding at January 1, 2006   |             |                                                 
|Issued                                 |             |                                                 
|Cancelled                              |             |                                                 
|Exercised                              |             |                                                 
|Total outstanding at December 31, 2006 |             |                                                 
|Total exercisable at December 31, 2006 |             |                                                 

F-18

---

The aggregate remaining contractual
lives in years for the options outstanding and exercisable on December 31, 2005 and 2006
was 4.34 and 3.86 respectively.

Aggregate intrinsic value represents
total pretax intrinsic value (the difference between WidePoints closing stock price
on December 31, 2006 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, 2006. This amount changes based on the fair market
value of WidePoints stock. The total intrinsic value of options outstanding as of
December 31, 2006 was $13,310,592. The total intrinsic value of options exercisable on
December 31, 2006 was $12,239,348. The total intrinsic value of options exercised during
the year ended December 31, 2006 was $1,498,962. The Company issues new shares of common
stock upon the exercise of stock options.

At December 31, 2006, 6,246,138
shares were available for future grants under the Companys 1997 Stock Compensation
Plans. This include options for 770,600 shares previously exercised under the
Companys 1997 Stock Compensation Plans. This does not include warrants to purchase
3,999,999 shares granted and vested to members of the senior management team that were not
issued under the Companys 1997 Stock Compensation Plans.

At December 31, 2006, the Company had
approximately $376,538 of total unamortized compensation expense, net of estimated
forfeitures, related to stock option plans that will be recognized over the weighted
average period of 4.3 years.

Non-employee based compensation:

The Company accounts for stock-based
non-employee compensation arrangements using the fair value recognition provisions of FASB
Statement 123, Accounting for Stock-Based 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.

New accounting
pronouncements

In December 2004, the FASB issued
SFAS No. 153, Exchanges of Nonmonetary Assets (SFAS 153). This
Statement addresses the measurement of exchanges of nonmonetary assets and is effective
for nonmonetary asset exchanges occurring in fiscal years beginning after June 15, 2005.
The adoption of SFAS 153 has not had a material effect on the Companys financial
position or results of operations.

F-19

---

In December 2004, FASB issued SFAS
No. 123(R), Share-Based Payment (SFAS 123(R)). SFAS 123(R) revises
FASB Statement No. 123, Accounting for Stock-Based Compensation, and
supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS
123(R) focuses primarily on accounting for transactions in which an entity obtains
employee services in share-based payment transactions. SFAS 123(R) requires companies to
recognize in the statement of operations the cost of employee services received in
exchange for awards of equity instruments based on the grant-date fair value of such
awards (with limited exceptions). SFAS 123(R) is effective as of the first reporting
period beginning after June 15, 2005.  Accordingly, the Company adopted SFAS 123(R)
in first quarter of 2006 with approximately $403,000 in compensation expense recognized
under SFAS 123(R) during the year ended December 31, 2006. (see analysis above).

In March 2006, the FASB issued FASB
Statement No. 156, Accounting for Servicing of Financial Assetsan amendment of
FASB Statement No. 140 (FASB Statement No. 156). FASB No. 156 amends
FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, with respect to the accounting for separately
recognized servicing assets and servicing liabilities. FASB No. 156 is effective for years
beginning after September 15, 2006. The Company does not believe FASB No. 156 will have a
material effect on the Companys financial statements.

In June 2006, the FASB issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes  an
interpretation of FASB Statement No. 109 (FIN 48), which clarifies the
accounting for uncertainty in income taxes recognized in an enterprises financial
statements in accordance with SFAS No. 109, Accounting for Income Taxes. FIN
48 prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be taken in a
tax return. FIN 48, which is effective for fiscal years beginning after December 15, 2006,
also provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. The Company plans on reviewing
in detail its tax situation to determine whether there are any uncertain tax positions but
does not presently believe that there are any material such matters.

In September 2006, the FASB issued
Statement No. 157, Fair Value Measurements (FASB No. 157). FASB
No. 157 defines fair value, establishes a framework for measuring fair value in generally
accepted accounting principles (GAAP), and expands disclosures about fair value
measurements. FASB No. 157 applies under other accounting pronouncements that require or
permit fair value measurements, the FASB having previously concluded in those accounting
pronouncements that fair value is the relevant measurement attribute. Accordingly, this
Statement does not require any new fair value measurements.

In September 2006, the Securities and
Exchange Commission issued Staff Accounting Bulletin No. 108, Considering the
Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year
Financial Statements(SAB 108). SAB 108 provides guidance on
consideration of the effects of prior year misstatements in quantifying current year
misstatements for the purpose of a materiality assessment. SAB 108 is effective for
fiscal years ending after November 15, 2006. The adoption of SAB 108 did not
have an impact on our consolidated financial statements.

F-20

---

In December 2006, the FASB issued
FASB Staff Position EITF 00-19-2, Accounting for Registration Payment Arrangements(FSP EITF 00-19-2). FSP EITF 00-19-2 specifies that the contingent
obligation to make future payments or otherwise transfer consideration under a
registration payment arrangement, whether issued as a separate agreement or included as a
provision of a financial instrument or other agreement, should be separately recognized
and measured in accordance with FASB Statement No. 5, Accounting for
Contingencies. A registration payment arrangement is defined in FSP EITF 00-19-2 as an
arrangement with both of the following characteristics: (1) the arrangement specifies
that the issuer will endeavor (a) to file a registration statement for the resale of
specified financial instruments and/or for the resale of equity shares that are issuable
upon exercise or conversion of specified financial instruments and for that registration
statement to be declared effective by the US SEC within a specified grace period, and/or
(b) to maintain the effectiveness of the registration statement for a specified
period of time (or in perpetuity); and (2) the arrangement requires the issuer to
transfer consideration to the counterparty if the registration statement for the resale of
the financial instrument or instruments subject to the arrangement is not declared
effective or if effectiveness of the registration statement is not maintained. FSP EITF
00-19-2 is effective for registration payment arrangements and the financial instruments
subject to those arrangements that are entered into or modified subsequent to
December 21, 2006. For registration payment arrangements and financial instruments
subject to those arrangements that were entered into prior to the issuance of FSP EITF
00-19-2, this guidance is effective for financial statements issued for fiscal years
beginning after December 15, 2006, and interim periods within those fiscal years. We
do not expect the adoption of FSP EITF 00-19-2 to have a material impact on our
consolidated financial statements.

In February 2007, the FASB issued
SFAS No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities(SFAS 159), which permits entities to choose to measure
many financial instruments and certain other items at fair value that are not currently
required to be measured at fair value. SFAS 159 will be effective for us on
January 1, 2008. We are currently evaluating the impact of adopting SFAS 159 on
our financial position, cash flows, and results of operations.

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

As of December 31, 2005 and 2006,
respectively, the Company maintained no outstanding balances under our senior lending
agreement with RBC-Centura Bank, which expired on June 1, 2006. The senior lending
agreement was executed on October 25, 2004 and had a maturity date of October 25, 2005,
which was extended until June 1, 2006 at which time it expired. The Agreement provided for
a $2.5 million revolving credit facility. Borrowings under the Agreement were
collateralized by the Companys eligible contract receivables, inventory, all of its
stock in certain of our subsidiaries and certain property and equipment, and bore interest
at the prime rate.

F-21

---

WidePoints credit facility
required that the Company maintain specified financial covenants relating to fixed charge
coverage, interest coverage, and debt coverage, and maintain a certain level of
consolidated net worth. As of and during the year ended December 31, 2006 and during the
year ended December 31, 2005, respectively, WidePoint was either in compliance with each
of these financial covenants, received waivers, or was allowed to continue to utilize the
credit facility. The weighted average borrowings under the revolving portion of the
facility during the year ended December 31, 2006 and December 31, 2005, were $0 and $0.8
million, respectively.

The total amount of interest fees
paid was approximately $0, $83,000, and $34,000, respectively, for the years ended December
31, 2006, 2005, and 2004, respectively.

|4. | Goodwill
and Intangible Assets:
|-- | -------------------------------

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

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

F-22

---

|                                                            | As of December 31, 2006
|----------------------------------------------------------- | -----------------------
|
|Amortized intangible assets                                 |                        
|(1) ORC Intangible (Includes customer relationships and PKI |                        
|business opportunity purchase accounting valuations)        |                        
|(2) PKI-I Intangible (Related to internally generated       |                        
|software)                                                   |                        
|(3) PKI-II Intangible                                       |                        
|                                                            |                        
|Total                                                       |                        
|                                                            |                        
|Aggregate Amortization Expense:                             |                        
|For year ended 12/31/04                                     |                        
|For year ended 12/31/05                                     |                        
|For year ended 12/31/06                                     |                        
|Estimated Amortization Expense:                             |                        
|For year ended 12/31/07                                     |                        
|For year ended 12/31/08                                     |                        
|For year ended 12/31/09                                     |                        
|For year ended 12/31/10                                     |                        

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

|(2) | The
PKI-I intangible is related to internally generated software that was
               associated with ORCs PKI-I development of its phase 1 software
offerings.                ORC commenced sales of its PKI-I service in August of 2004. It
has a weighted                average life of 4.0 years and is based upon the contractual
life assigned to the                authority to issue PKI certificates by the federal
government.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-23

---

|(3) | The
PKI-II intangible is related to a secondary PKI software development effort
               by ORC. ORC commenced sales of its PKI-II service in August of 2005. It
has a                weighted average life of 4.5 years and is based upon the contractual
life                assigned to the authority to issue PKI certificates by the federal
government.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

There were no amounts of research and
development assets acquired in 2006 or 2005, nor any written off in the period. The
changes in the carrying amount of goodwill for the year ended December 31, 2006 and 2005
are as follows:

|                                | Total
|------------------------------- | -----
|Balance as of January 1, 2005   |      
|Goodwill adjusted               |      
|Balance as of December 31, 2005 |      
|Balance as of January 1, 2006   |      
|Goodwill adjusted               |      
|Balance as of December 31, 2006 |      

The goodwill acquired is associated
with the acquisition of ORC in October of 2004. The goodwill adjusted was the result of
various adjustments which included the discovery of a working capital threshold deficit
that was not met as a condition of the purchase price paid for ORC. Upon completion of our
audit and the realization of the shortfall, the original shareholders agreed to correct
the deficit through a combination of cash and notes, which subsequently reduced the amount
of goodwill associated with our purchase of ORC. Management believes that as of December
31, 2006 the carrying value of the goodwill of ORC was not impaired.

|5. | Promissory
Notes:
|-- | -----------------

Related Party Notes

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

F-24

---

|6. | Income
Taxes:
|-- | -------------

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

|                             | 2006 | 2005 | 2004
|---------------------------- | ---- | ---- | ----
|Current provision/(benefit)  |      |      | $   
|Deferred provision/(benefit) |      |      |     
|                             |      |      |     
|                             |      |      | $   
|                             |      |      |     

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

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

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

During the year ended December 31,
2006, the Company determined that it incurred a tax benefit of $1,675,000 related to the
exercise of employee stock options. This amount represents the tax expense of amounts included in employee
compensation for exercised options less the amount that represents the original pro-forma
fair value that will be credited to additional paid-in capital when the benefit is
realized. There has not been any expense recognized for these
options. As the amount of this tax expense has not been realized because the Company has
deferred tax assets related to net operating loss carryforwards, there has been no credit
to additional paid in capital until the associated benefit is realized. During the year
ended December 31, 2006, the Company recognized $403,000 in expense for book purposes for
stock based expenses.  For tax purposes, the Company recognized an expense of $1,882,292
for stock option related compensation expense in the year ended December 31, 2006.

F-25

---

The deferred tax assets
(liabilities) consisted of the following as of December 31, 2006 and 2005:

|                                 | December 31,
|-------------------------------- | ------------
|
|Deferred tax assets:             |             
|Net operating loss carryforwards |             
|AMT credit                       |             
|Stock based compensation         |             
|Other assets                     |             
|                                 |             
|Total deferred tax assets        |             
|                                 |             
|Deferred tax liabilities:        |             
|Section 481(a) adjustment        |             
|Intangible assets                |             
|Capitalized software costs       |             
|                                 |             
|Total deferred tax liabilities   |             
|Net deferred tax asset           |             
|Less- Valuation allowance        |             
|                                 |             
|                                 |             
|                                 |             

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

As of December 31, 2006, the
Company had net operating loss carry forwards of approximately $21,018,349to
offset future taxable income. These carry forwards expire between 2010 and 2026. 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 could be subject to such limitations and may not be available to
offset future income for tax purposes. There were no capital losses in excess of capital
gains that expired in 2006. In 2005 capital losses in excess of capital gains in the
amount of $696,215 expired.

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

F-26

---

|                    | 2006 | 2005 | 2004
|------------------- | ---- | ---- | ----
|Opening balance     |      |      | $   
|Current year change |      |      |     
|                    |      |      |     
|Ending balance      |      |      | $   

|7. | Temporary
Preferred Equity
|-- | --------------------------

Temporary Preferred Stock

Our certificate of incorporation
authorizes the Company to issue up to 10,000,000 shares of preferred stock, $0.001 par
value per share, of which 195,214 and 1,195,714 shares were outstanding at December 31,
2006 and 2005, respectively.

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

Each share of Series A Convertible
Preferred Stock has a conversion rate equal to $0.175 per share, or 10 shares of common
stock per one share of preferred stock and is convertible at the option of the holder into
ten shares of common stock.

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

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

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

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

F-27

---

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

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

As a result of the issuance of a
registration rights agreement that contained a liquidated damages clause, the Company was
required to follow the Emerging Issues Task Force EITF 00-19, Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a Companys
Own Stock by the Company. In light of the required accounting treatment under EITF 00-19,
the entire proceeds of the issuance, other than a nominal amount equal to par value, were
allocated to warrants and as such no proceeds had been allocated to the preferred stock
issuance at December 31, 2005. As a result of the effectiveness of the registration
statement registering the underlying shares of common stock on February 9, 2006, the
temporary preferred equity has been reclassified to preferred equity for preferred stock
held as of December 31, 2006.

Registration Rights
Agreement

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

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

F-28

---

|8. | Stockholders
Equity:
|-- | --------------------

The Company is authorized to issue
50,000,000 shares of common stock, $.001 par value per share. At the annual meeting of
stockholders that was held on January 27, 2005, stockholders approved a proposal to
increase the authorized shares of common stock from 50,000,000 to 110,000,000. During the
year ended December 31, 2006, 10,005,000 shares of common stock were issued as the result
of the conversion of 1,000,500 preferred shares by Barron, 400,000 shares of common stock
were issued as the result of the exercise of 400,000 warrants by Westcap Securities, and
770,600 shares of common stock were issued as the result of the exercise of 770,600
employee stock options. As of December 31, 2006 there were 50,494,759 shares of common
stock outstanding. The rights, preferences and privileges of holders of common stock are
subject to, and may be adversely affected by the rights of the holders of shares of Series
A Convertible Preferred Stock and of any additional series of preferred stock that may be
designated and issued in the future.

Preferred Stock

Our certificate of incorporation
authorizes the Company to issue up to 10,000,000 shares of preferred stock, $0.001 par
value per share, of which 195,214 and 0 shares were outstanding at December 31, 2006 and
2005, respectively. As a result of the effectiveness of the registration statement
registering the underlying shares of common stock on February 9, 2006, the temporary
preferred equity has been reclassified to preferred equity for preferred stock held as of
December 31, 2006. Preferred stock of 1,000,500 shares were converted during the year
ended 2006 into 10,005,000 shares of Common Stock.

Common Stock

On October 25, 2004, WidePoint
completed the acquisition of Operational Research Consultants, Inc., or ORC, a privately
held IT and engineering firm providing mission-critical sensitive and strategic
information security solutions to the United States Government. Pursuant to the terms of a
Purchase Agreement entered into on October 25, 2004, between the Company and the ORC
shareholders, the Company issued 5,555,556 common shares of the Companys stock and
placed it into an escrow to be released to the ORC shareholders in the event they attain
certain performance parameters in 2004 and 2005. As of December 31, 2005, no common shares
were earned and the 5,555,556 shares were returned to the Company and cancelled during the
second quarter of 2006.

F-29

---

On April 30, 2004, the Company closed
upon the acquisition of all the issued and outstanding shares of Chesapeake Government
Technologies, Inc. (Chesapeake), pursuant to the terms of an Agreement and
Plan of Merger, dated as of March 24, 2004. This transaction was accounted for as a
consulting arrangement because Chesapeake did not meet the definition of a business under
FAS 141. WidePoint issued 4,082,980 shares of its common stock to stockholders of
Chesapeake in consideration for all of the issued and outstanding shares of Chesapeake
owned by them. In conjunction with this closing, the Chesapeake stockholders also entered
into an escrow agreement and deposited 3,266,384 shares of the 4,082,980 newly issued
shares of WidePoint common stock into escrow. The 3,266,384 shares of common stock placed
into escrow were not recorded in equity at the time of the acquisition and were only to be
released to the Chesapeake shareholders in the event of the satisfaction of certain
conditions set forth in the merger agreement, which provided that during the period
commencing after the closing of the merger and ending on December 31, 2005, the
3,266,384 shares of common stock would be released to the Chesapeake shareholders in a
ratio based on the amount of revenues actually received by the Company from the business
acquired as a result of activities originated and consummated by Chesapeake. The December
31, 2005 escrow expiration date could have been extended for one additional year in the
event that it was determined that Chesapeake had achieved certain performance levels in
the latter part of 2005, which did not occur. All shares earned were charged to expense
through December 31, 2006. Of the 3,266,384 shares of common stock held in escrow, 816,596
and 1,905,390 were released in 2005 and 2006, respectively with the 544,398 remaining
shares cancelled in 2006.

Common stock issuable

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

On December 31, 2004, the original
shareholders of Chesapeake earned 544,398 shares, which were released from escrow after
the filing of the Companys Form 10-K for the period ending December 31, 2004, per an
escrow agreement between the Company and the original Chesapeake shareholders. As such,
the shares were recorded as common stock issuable as of December 31, 2004. Upon the filing
of the Companys Form 10-K for the period ending December 31, 2004, the shares were
released from escrow and at that time reclassified as issued common stock. The remaining
unearned shares of WidePoint common stock held in escrow that had not met certain
performance measures as of December 31, 2005 were cancelled during the second quarter of
2006 and the shares earned were released from escrow during the second quarter of 2006 and
reclassified from common stock issuable to issued common stock as of June 30, 2006.

F-30

---

Stock Warrants

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

On October 27, 2004 and November 22,
2004, the Company issued two warrants to purchase 30,612 shares and 5,556 shares,
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 has been reflected as part
of stock warrants in the stockholders equity section of the consolidated balance
sheet.

|9. | Stock
Options and Stock-Based Compensation:
|-- | -------------------------------------------

1997 Stock Incentive Plan

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

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

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

1997 Directors Formula
Stock Option Plan

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

F-31

---

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

F-32

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|10. | Commitments
and Contingencies:
|--- | ------------------------------

The Company has entered into a number
of leases for its office locations as describe above in Note 1. The Companys
commitments and contingencies are as follows for its operating leases, which include those
leases, and other operating leases. The terms of the operating leases run through 2010 and
the total commitments per year are as follows:

|Year Ended
December 31, | Leases
|----------------------- | ------
|2007                    |       
|2008                    |       
|2009                    |       
|2010                    |       
|Beyond 2010             |       
|                        |       
|Total                   |       

Capital Leases

The Company has leased certain
equipment under capital lease arrangements. Future minimum payments required under the
leases are as follows:

F-33

---

|                                   | Year | 
|---------------------------------- | ---- | 
|                                   |      | 
|                                   |      | 
|                                   |      | 
|                                   |      | 
|                                   |      | 
|Less portion representing interest |      | 
|                                   |      | 
|Net minimum lease payments         |      | 
|under capital leases               |      | 
|Current portion                    |      | 
|                                   |      | 
|Long-term portion                  |      | 
|                                   |      | 

The capital leases entered into in
the year ended December 31, 2006 are for periods of one to three years. Total carrying
value of assets under capital leases at December 31, 2006 was $110,731. Depreciation for
the year ended December 31, 2006 and accumulated depreciation at December 31, 2006 was
$25,247.

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.

|11. | Segment
reporting:
|--- | ------------------

Segments are defined by SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information, 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.

During 1998, the Company adopted SFAS
No. 131 and until December 31, 2005 the Company was comprised of a single segment, which
was comprised of our consulting services segment within our Commercial and Federal
Government Marketplaces. As of January 1, 2006, the Company added a second segment, which
consists of PKI credentialing and managed services. The PKI credentialing and managed
services segment provides PKI credentialing and managed services to United States federal
agencies and federal contractors as a result of regulatory compliance requirements. For
the year ended December 31, 2004 no material revenues or assets were recognized within
the PKI credentialing and managed services segment.

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.

F-34

---

The following table presents
information about reported segments along with the items necessary to reconcile the
segment information to the totals reported in the accompanying consolidated financial
statements:

|                                      
|--------------------------------------
|
|Consulting services                   
|                                      
|Revenues                              
|                                      
|Operating income                      
|                                      
|Total assets                          
|                                      
|PKI Credentialing and Managed Services
|                                      
|Revenues                              
|                                      
|Operating income/(loss)               
|                                      
|Total assets                          
|                                      
|Credentials sold                      
|                                      
|Total Company                         
|                                      
|Revenues                              
|                                      
|Operating loss                        
|                                      
|Depreciation expense                  
|                                      
|Interest income (expense), net        
|                                      
|Loss from financial instruments       
|                                      
|Other income                          
|                                      
|Income tax benefit                    
|                                      
|Net loss                              
|                                      
|Total Corporate assets                
|                                      
|Total assets                          
|                                      

F-35

---

(1)     Includes
$221,078 in amortization expense in cost of sales associated with the purchase of ORC,
which is not allocated among the segments and includes $1,122,379 in unallocated corporate
costs in sales, general and administrative expense.

(2)     Includes
$1,878,171 in compensation expense in cost of sales associated with the Chesapeake
acquisition, which is not allocated among the segments, includes $221,078 in amortization
expense in cost of sales associated with the purchase of ORC, which is not allocated among
the segments and includes $798,922 in unallocated corporate costs in general and
administrative expense.

|12. | Selected
Quarterly Financial Data (Unaudited):
|--- | ----------------------------------------------

A summary of selected quarterly
information for 2006 and 2005 is as follows:

|                      | 2006 Quarter Ended
(in thousands of U.S. dollars except per share amounts)
|--------------------- | --------------------------------------------------------------------------
|
|Net Sales             |                                                                           
|Gross Profit          |                                                                           
|Net (Loss)/Gain       |                                                                           
|Gain/(Loss) per Share |                                                                           

|                      | 2005 Quarter Ended
(in thousands of U.S. dollars except per share amounts)
|--------------------- | --------------------------------------------------------------------------
|
|Net Sales             |                                                                           
|Gross Profit          |                                                                           
|Net Gain/(Loss)       |                                                                           
|Gain/(Loss) per Share |                                                                           

F-36