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8-K/A - AMENDMENT NO. 1 TO FORM 8-K - GLOBALSCAPE INCd300924d8ka.htm
EX-99.1 - AUDITED FINANCIAL STATEMENTS OF TAPPIN, INC - GLOBALSCAPE INCd300924dex991.htm
EX-23.1 - CONSENT OF GRANT THORNTON, LLP - GLOBALSCAPE INCd300924dex231.htm

Exhibit 99.2

Unaudited Pro Forma Condensed Combined Financial Statements of GlobalSCAPE, Inc.

On December 2, 2011, GlobalSCAPE, Inc. completed the acquisition of all of the issued and outstanding shares of the capital stock of HomePipe Networks, Inc., by means of a merger of GlobalSCAPE’s wholly owned subsidiary, Plumber Acquisition Corporation, with and into HomePipe. The initial purchase price was $9.0 million in cash. The former HomePipe stockholders are also entitled to receive up to an additional $8 million in cash or, at the election of GlobalSCAPE and the former stockholders of HomePipe, GlobalSCAPE common stock depending upon the achievement of certain product and revenue targets for HomePipe for 2012, 2013 and 2014. At the effective time of the merger, HomePipe’s name was changed to TappIn, Inc.

The pro forma adjustments reflecting the consummation of the TappIn Acquisition are based upon the acquisition method of accounting in accordance with accounting principles generally accepted in the United States of America and upon the assumptions set forth in the Notes included in this section. The Unaudited Pro Forma Condensed financial statements have been prepared on available information, using estimates and assumptions that our management believes are reasonable. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial information and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions are preliminary and have been made solely for purposes of developing this Unaudited Pro Forma Condensed Combined financial information. The required Unaudited Pro Forma Condensed Combined financial information is provided for informational purposes and does not purport to represent our actual results of operations that would have occurred if the TappIn Acquisition had taken place on the dates specified, nor are they necessarily indicative of the results of operations that may be achieved in the future.

The assumptions used and adjustments made in preparing the Unaudited Pro Forma Condensed Combined financial statements are described in the Notes, which should be read in conjunction with the Unaudited Pro Forma Condensed Combined financial statements. The Unaudited Pro Forma Condensed Combined financial statements and related Notes contained herein should be read in conjunction with the Consolidated Financial Statements and related Notes included in our Annual Report on 10-K for the year ended December 31, 2010 and our Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 as well as the audited Financial Statements of TappIn, including the Balance Sheets as of December 31, 2010 and October 31, 2011 and the related Statements of Operation, Stockholders’ Equity and Cash Flows for the year end December 31, 2010 and the ten-month period ended October 31, 2011 and notes thereto included in Exhibit 99.1


GlobalSCAPE, Inc.

(Unaudited) Pro Forma Condensed Combined Balance Sheet

September 30, 2011

 

     GlobalSCAPE,
Inc.
    TappIn,
Inc.
    Pro Forma
Adjustments
    Pro Forma
Combined
 

Assets

        

Current assets:

        

Cash and cash equivalents

   $ 13,404      $ 34      $ (2,096 ) (3a)    $ 11,342   

Accounts receivable

     3,194        149        —          3,343   

CoreTrace receivable

     671        —          —          671   

Federal income tax receivable

     122        —          —          122   

Current deferred tax asset

     864        —          —          864   

Prepaid expenses

     270        27        —          297   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     18,525        210        (2,096     16,639   

Fixed assets, net

     1,065        24        —          1,089   

Investment—CoreTrace

     2,278        —          —          2,278   

Intangible assets, net

     305        —          4,792  (3d)      5,097   

Goodwill

     619        —          11,185  (3c)      11,804   

Deferred tax asset

     137        —          —          137   

Other assets

     38        —          —          38   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 22,967      $ 234      $ 13,881      $ 37,082   
  

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities and Stockholders’ Equity

        

Current liabilities:

        

Accounts payable

   $ 362      $ 93      $ —        $ 455   

Accrued expenses

     1,066        21        —          1,087   

Tappin earn out, current portion

     —          —          3,303  (3e)      3,303   

Note payable, current portion

     —          —          1,278  (3f)      1,278   

Deferred revenue

     5,884        4        —          5,888   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

     7,312        118        4,581        12,011   

Tappin earn out, less current portion

     —          —          3,694  (3e)      3,694   

Note payable, less current portion

     —          —          5,722  (3f)      5,722   

Other long term liabilities

     1,394        —          —          1,394   

Commitments and contingencies

     —          —          —          —     

Stockholders’ equity:

     —          —          —          —     

Common stock

     19        8        (8 ) (3b)      19   

Series A Preferred Stock

     —          2,001        (2,001 ) (3b)      —     

Additional paid-in capital

     13,098        97        (97 ) (3b)      13,098   

Treasury stock

     (1,452     —          —          (1,452

Retained earnings

     2,596        (1,990     1,990  (3b)      2,596   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

     14,261        116        (116     14,261   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 22,967      $ 234      $ 13,881      $ 37,082   
  

 

 

   

 

 

   

 

 

   

 

 

 

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


GlobalSCAPE, Inc.

(Unaudited) Pro Forma Condensed Combined Statement of Operations

Nine Months Ended September 30, 2011

(in thousands, except per share amounts)

 

     GlobalSCAPE,
Inc.
     TappIn,
Inc.
    Pro Forma
Adjustments
    Pro Forma
Combined
 

Operating Revenues:

         

Software licenses

   $ 8,493       $ —        $ —        $ 8,493   

Maintenance and support

     5,567         —          —          5,567   

Professional Services

     1,366         —          —          1,366   

Other

     345         153        —          498   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total Revenues

     15,771         153        —          15,924   

Operating Expenses:

         

Cost of revenues

     1,349         1        —          1,350   

Selling, general and administrative expenses

     10,156         946        —          11,102   

Research and development expenses

     2,359         383        —          2,742   

Depreciation and amortization

     570         7        454  (3g)      1,031   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total operating expenses

     14,434         1,337        454        16,225   
  

 

 

    

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     1,337         (1,184     (454     (301

Other (expense) income:

         

Interest expense

     —           (15     (179 ) (3h)      (194

Interest income

     23         —          —          23   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total other (expense) income

     23         (15     (179     (171
  

 

 

    

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     1,360         (1,199     (633     (472

Provision (benefit) for income taxes

     220         —          (216 ) (3j)      4   
  

 

 

    

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 1,140       $ (1,199   $ (417   $ (476
  

 

 

    

 

 

   

 

 

   

 

 

 

Net income (loss) per common share—basic

   $ 0.06           $ (0.03
  

 

 

    

 

 

   

 

 

   

 

 

 

Net income (loss) per common share—diluted

   $ 0.06           $ (0.03
  

 

 

    

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding:

         

Basic

     18,020             18,020   
  

 

 

    

 

 

   

 

 

   

 

 

 

Diluted

     18,724             18,020   
  

 

 

    

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements


GlobalSCAPE, Inc.

(Unaudited) Pro Forma Condensed Combined Statement of Operations

Year Ended December 31, 2010

(in thousands, except per share amounts)

 

     GlobalSCAPE,
Inc.
     TappIn,
Inc.
    Pro Forma
Adjustments
    Pro Forma
Combined
 

Operating Revenues:

         

Software licenses

   $ 10,158       $ —        $ —        $ 10,158   

Maintenance and support

     7,762         —          —          7,762   

Professional services

     438         —          —          438   

Other

     207         4        —          211   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total Revenues

     18,565         4        —          18,569   

Operating Expenses:

         

Cost of revenues

     601         —          —          601   

Selling, general and administrative expenses

     12,815         553        540  (3i)      13,908   

Research and development expenses

     3,016         109        —          3,125   

Depreciation and amortization

     852         1        604  (3g)      1,457   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total operating expenses

     17,284         663        1,144        19,091   
  

 

 

    

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     1,281         (659     (1,144     (522

Other (expense) income:

         

Interest expense

     —           (105     (288 ) (3h)      (393

Interest income

     10         —          —          10   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total other (expense) income

     10         (105     (288     (383
  

 

 

    

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     1,291         (764     (1,432     (905

Provision (benefit) for income taxes

     410         —          (303 ) (3j)      107   
  

 

 

    

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 881       $ (764   $ (1,129   $ (1,012
  

 

 

    

 

 

   

 

 

   

 

 

 

Net income (loss) per common share—basic

   $ 0.05           $ (0.06
  

 

 

    

 

 

   

 

 

   

 

 

 

Net income (loss) per common share—diluted

   $ 0.05           $ (0.06
  

 

 

    

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding:

         

Basic

     17,540             17,540   
  

 

 

    

 

 

   

 

 

   

 

 

 

Diluted

     18,260             17,540   
  

 

 

    

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements


Notes to Unaudited Pro Forma Condensed Combined Financial Statements

Note 1: Basis of Pro Forma Presentation:

The preceding Unaudited Pro Forma Condensed Combined financial information is presented to illustrate the estimated effects of the acquisition of TappIn, Inc. (“TappIn”). On December 2, 2011, GlobalSCAPE and its wholly-owned subsidiary, Plumber Acquisition Corporation, entered into an Agreement and Plan of Merger (the “Agreement”) with TappIn. Consideration for the merger included an upfront cash payment of $9,000,000, and potential future earn-out payments to the former stockholders of TappIn totaling $8,000,000, aggregating to a $17,000,000 total purchase price upon achieving maximum earn-out payments. The upfront cash payment was funded through cash on hand of $2,000,000 and borrowing under a new five-year term loan with The Bank of San Antonio for $7,000,000. Earn out payments are scheduled to be paid in 2012, 2013 and 2014, subject to performance milestones as defined in the Agreement. These milestones include delivery of a new edition of the acquired technology in 2012, achieving greater than or equal to $3,000,000 in recognized revenue for the acquired technology in 2012, achieving two consecutive quarters with quarterly revenue greater than $1,000,000 and achieving trailing twelve month revenue greater than or equal to $10,000,000 by 2014. The pro forma adjustments included herein have been made solely for the purposes of providing unaudited pro forma condensed combined financial statements.

The Unaudited Pro Forma Condensed Combined Balance Sheet combines our Condensed Balance Sheet with the Condensed Balance Sheet of TappIn as of September 30, 2011, and includes pro forma adjustments as if the TappIn Acquisition had occurred on September 30, 2011.

The unaudited Pro Forma Condensed Combined Statement of Operations for the nine months ended September 30, 2011 combines the nine months ended September 30, 2011 for GlobalSCAPE with the nine months ended September 30, 2011 for TappIn. The Unaudited Pro Forma Condensed Combined Statement of Operations for the year ended December 31, 2010, combines the year ended December 31, 2010 for GlobalSCAPE with the year ended December 31, 2010 for TappIn. Both the nine months ended September 30, 2011 and the year ended December 31, 2010 include pro forma adjustments as if the TappIn Acquisition had occurred on January 1, 2010.

The historical consolidated financial information has been adjusted in the Unaudited Pro Forma Condensed Combined financial statements to give effect to pro forma events that are (1) directly attributable to the TappIn acquisition and borrowings, (2) factually supportable and (3) with respect to the Unaudited Pro Forma Condensed Combined Statements of Operations, expected to have a continuing impact on our combined financial results. The Unaudited Pro Forma Condensed Combined financial information should be read in conjunction with the accompanying notes to the Unaudited Pro Forma Condensed Combined financial statements.

The TappIn acquisition was accounted for as a business purchase combination using the acquisition method of accounting under the provisions of Accounting Standards Codification (“ASC”) No. 805, “Business Combinations”, (“ASC 805”), and applying the pro forma assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial information. The acquisition method of accounting uses the fair value concepts defined in ASC 820, “Fair Value Measurements and Disclosures.” ASC 805 requires, among other things, that most assets acquired and liabilities assumed in a business purchase combination be recognized at their fair values as of the TappIn acquisition date. The process for estimating the fair value of identifiable intangible assets, Customer Relationship and Developed Technology, and certain tangible assets requires the use of significant estimates and assumptions, including estimating future cash flows and developing appropriate discount rates. Under ASC 805, transaction costs are not included as a component of consideration transferred and will be expensed as incurred. The excess of the purchase price (consideration transferred) over the estimated amounts of identifiable assets and liabilities of TappIn as of the effective date of the acquisition was allocated to goodwill in accordance with ASC 805. The purchase price allocation in the Unaudited Pro Forma Condensed Combined financial statements is preliminary and will be subject to adjustment upon completion of the final valuation. These adjustments could be material. The final valuation is expected to be completed as soon as practicable but no later than one year from the consummation of the acquisition on December 2, 2011. The establishment of the fair value of the consideration for the acquisition, and the allocation to identifiable tangible and intangible assets and liabilities requires the extensive use of accounting estimates and management judgment. We believe the fair values preliminarily assigned to the assets acquired and liabilities assumed are based on reasonable estimates and assumptions based on data currently available.


The unaudited pro forma condensed combined financial information is presented for illustrative purposes only and does not indicate the financial results of the combined companies had the companies actually been combined as of the periods presented. This financial information has been derived from and should be read together with the historical consolidated financial statements and the related notes of GlobalSCAPE, reflected in its quarterly and annual SEC filings, and of the TappIn financial information appearing elsewhere is this document.

Note 2: Consideration Transferred and Fair Value Estimate of Assets Acquired and Liabilities Assumed:

Consideration Transferred

The acquisition-date fair value of the consideration transferred totaled $16 million and consisted of the following items:

 

     Amount  
     (In thousands)  

Cash paid for equity

   $ 8,980   

Cash paid for net working capital

     116   

Future earn outs expected to be paid

     6,997   
  

 

 

 

Total consideration

   $ 16,093   

Fair Value Estimate of Assets Acquired and Liabilities Assumed

Assuming an acquisition date of September 30, 2011, the purchase price of TappIn would have been allocated to the following assets and liabilities:

 

     As of  
     September 30, 2011  
     (in thousands)  

Cash and cash equivalents

   $ 34   

Accounts receivable

     149   

Prepaid expenses

     27   

Fixed assets, net

     24   

Intangible assets, net

     4,792   
  

 

 

 

Total identifiable assets

     5,026   
  

 

 

 

Accounts payable

     93   

Accrued expenses

     21   

Deferred revenue

     4   
  

 

 

 

Total liabilities assumed

     118   
  

 

 

 

Net identifiable assets acquired

     4,908   

Goodwill

     11,185   
  

 

 

 

Net assets acquired

   $ 16,093   
  

 

 

 


The above estimated fair values of assets acquired and liabilities assumed are provisional and are based on the information that was available to estimate fair value of assets and liabilities assumed. We believe that this information provides a reasonable basis for estimating the fair value. The provisional measurements of fair value reflected are subject to change. Such changes could be significant. We expect to finalize our purchase price allocation as soon as possible but no later than one year from the closing date of the TappIn acquisition.

Note 3: Pro forma adjustments:

 

a. The adjustment to the Cash and cash equivalents balance reflects the following:

 

     Amount  
     (In thousands)  

Proceeds from Bank of San Antonio (1)

   $ 7,000   

Total estimated purchase price (2)

     (16,093

Future earn outs expected to be paid (3)

     6,997   
  

 

 

 

Total net change

   $ (2,096

 

(1) See Note 1, Basis of Pro Forma Presentation
(2) See Note 2, Consideration Transferred and Fair Value Estimate of Assets Acquired and Liabilities Assumed
(3) See Note 1, Basis of Pro Forma Presentation. The future earn out has been adjusted to fair value.
(4) Pro forma adjustment to show principle and interest as if the notes payable began on January 1, 2010

 

b. Reflects the elimination of TappIn’s historical stockholders’ equity.

 

c. Represents the net adjustment to goodwill resulting from the TappIn Acquisition. The purchase price allocation is subject to completion of our analysis of the fair value of the assets and liabilities of TappIn as of the effective date of TappIn Acquisition. Accordingly, the purchase price allocation is preliminary and will be adjusted upon completion of the final valuation. These adjustments could be material.

 

d. For the purpose of preparing the Unaudited Pro Forma Condensed Combined financial information, the total purchase price was allocated to TappIn net tangible and intangible assets acquired and liabilities assumed based on their estimated values as of September 30, 2011. The valuation of the intangible assets acquired and related amortization periods are as follows:

 

            Straight line  
            Amortization  
     Valuation      Period  
     (In thousands)      (In years)  

Customer Relationship

   $ 1,863         10   

Developed Technology

     2,929         7   
  

 

 

    

Total acquired intangible assets

   $ 4,792      

Amortization related to the value of intangible assets is reflected as pro forma adjustments to the Unaudited Pro Forma Condensed Combined Statements of Operations.


The fair value of the customer relationship was determined by utilizing a discounted cash flow method based on the identifiable future revenues projected to result from an initial three-year contract term, with additional revenue attributable to future subscription users attracted and potentially retained as a direct result of the customer relationship. Future revenues from these customers are projected beyond the potential, eventual, termination of the contract and have been estimated over a 10-year period based on projections of users acquired during the initial term.

The fair value of the developed technology intangible asset was estimated using a discounted cash flow method, with the fair value equal to the present value of the after-tax cash flows (excess earnings) attributable solely to the developed technology over its remaining useful life, after deducting contributory capital charges. The method utilized projected results over an estimated seven-year useful life of the developed technology, from 2012 through 2018, and included a terminal value to estimate potential follow-on earnings from this technology.

 

e. The fair value of the earn out provisions was estimated using a probability-weighted present value method for each of the four earn out provisions. The probability-weighted method identified the most likely timing of accomplishment for each earn out provision, along with the probability of each provision ultimately being accomplished. The expected timing of each accomplishment was discounted to a present value based on consideration of the Company’s borrowing or equity rates.

 

f. Reflects borrowing from the Bank of San Antonio to fund the acquisition. There were two notes payable. One note payable was for $4 million with a five year term and interest rate of 4.75%. The second note was for $3 million with a five year term and interest rate of 4.25%.

 

g. For the purposes of preparing the Unaudited Pro Forma Condensed Combined Statements of Operations, additional amortization expense is assumed based on TappIn’s intangible finite-lived assets as of January 1, 2010. Amortization related to the value of finite-lived intangible assets, is reflected as pro forma adjustments to the Unaudited Pro Forma Condensed Combined Statements of Operations as Amortization Expense. These provisional measurements of fair value reflected are subject to change. Such changes could be significant. The determinations of the useful lives were based upon future expected cash flows.

 

     Estimated Fair
Value
(In thousands)
     Straight line
Amortization
Period
(In  years)
     Nine Months  Ended
September 30, 2011
(In thousands)
     Year Ended
December 31, 2010
(In thousands)
 

Customer Relationship

   $ 1,863         10       $ 140       $ 186   

Developed Technology

     2,929         7       $ 314       $ 418   
  

 

 

       

 

 

    

 

 

 

Total acquired intangible assets

   $ 4,792          $ 454       $ 604   

 

h. For the purposes of preparing the Unaudited Pro Forma Condensed Combined Statements of Operations, additional interest expense is assumed as if the notes began on January 1, 2010.

 

            Amortization      Nine Months Ended      Year Ended  
     Note Payable      Term      September 30, 2011      December 31, 2010  
     (In thousands)      (In years)      (In thousands)      (In thousands)  

Note Payable 4.75%

   $ 4,000         5       $ 107       $ 173   

Note Payable 4.25%

     3,000         5       $ 72       $ 116   
  

 

 

       

 

 

    

 

 

 

Total notes payable

   $ 7,000          $ 179       $ 288   

 

i Acquisition expenses which were incurred with the purchase of TappIn, Inc. reflected as if the purchase occurred January 1, 2010.

 

j. Represents the pro forma tax adjustments resulting from the purchase of TappIn, Inc. as if the purchase occurred January 1, 2010.