GLOBALSCAPE INC - FORM 8-K - EX-99.1 - August 7, 2017

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Exhibit 99.1
 
GlobalSCAPE, Inc. Announces Internal Investigation and Financial Restatement

SAN ANTONIO – August 7, 2017 – GlobalSCAPE, Inc. (NYSE MKT: GSB), a worldwide leader in the secure movement and integration of data, today announced that the Audit Committee of the Board of Directors, comprised entirely of independent directors, has been conducting an investigation into certain transactions in the fourth quarter of 2016 involving improper arrangements with customers that circumvented the Company’s internal controls and their potential effect on previously reported revenue.  The Audit Committee is being advised by outside counsel and assisted by forensic accounting advisors.

Based on the results of the investigation to date, the improper arrangements with customers that circumvented the Company’s internal controls have the effect of overstating the reported amounts of accounts receivable as of December 31, 2016, and license revenue for the three months and year ended December 31, 2016, by approximately $403,000 and $396,000, respectively. GlobalSCAPE’s revenue for fiscal 2016 as previously reported and before the effects of this matter was $33.3 million. The effects of the improper arrangements with customers that circumvented the Company’s internal controls on the Company’s consolidated financial statements for the year ended and as of December 31, 2016 and the three months ended and as of March 31, 2017 are presented in the tables immediately following this press release.

As a result of these developments, the Company has taken and is taking steps to remediate the issues that were raised in the investigation.

The Company also announced that it intends to effect a restatement of its previously issued financial statements through filing an amended Annual Report on Form 10-K for the year ended December 31, 2016 and an amended Quarterly Report on Form 10-Q for the quarter ended March 31, 2017. The Company is working diligently and as expeditiously as possible to prepare and file these amended reports.

As further disclosed in a contemporaneous 8-K filed with the Securities and Exchange Commission, the Company announced the retention of Weaver and Tidwell as its independent registered public accounting firm to audit the Company’s financial statements.

GlobalSCAPE will provide updates concerning these matters as developments warrant.

Safe Harbor Statement
This news release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended, including, without limitation, GlobalSCAPE’s expectations as to the timing and outcome of its investigation and statements regarding preparation and filing of restated financial statements and amended periodic reports, possible additional transactions, assessment of control deficiencies and consideration of measures to address the accounting issues described above.
The statements are based on management’s current expectations, estimates and projections, are not guarantees of future outcomes or performance, and are subject to certain risks, uncertainties and other factors, some of which are beyond the Company’s control and are difficult to predict including, but not limited to, the discovery of additional information relevant to the internal review; the conclusions of the Audit Committee (and the timing of the conclusions) concerning matters relating to the internal review; the timing of the review by, and the conclusions of, the Audit Committee, the Board and the Company’s independent public accounting firm regarding the internal review and GlobalSCAPE’s financial statements; the determination of additional adjustments for the periods to be restated; and the risk that the completion and filing of the amended reports will take longer than expected.


The forward-looking statements contained in this news release are also subject to other risks and uncertainties, including those described in the Company’s Annual Report on Form 10-K for the period ended December 31, 2016, the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, and from time to time other filings with the SEC, which are available on the SEC’s Website (http://www.sec.gov).
Stockholders of the Company are cautioned not to place undue reliance on the Company’s forward-looking statements, which speak only as of the date such statements are made.  The Company does not undertake any obligation to publicly update any forward-looking statements to reflect events, circumstances or new information after the date of this disclosure, or to reflect the occurrence of unanticipated events.

Globalscape Press Contact
Jonathan Morgan
 Perry Street Communications
Phone: 214-965-9955 or 212-333-5525
Email: jmorgan@perryst.com

Investor Relations Contact
Contact: Matt Glover or Najim Mostamand
Phone Number: (210) 801-8489
Email: IR@globalscape.com


 
GlobalSCAPE, Inc.
Consolidated Balance Sheet
December 31, 2016
(in thousands except per share amounts)

This schedule illustrates the current and preliminary estimate by GlobalSCAPE, Inc. of adjustments relating to errors discovered to date with respect to arrangements with customers that have been the subject of the investigation being conducted by the Audit Committee as described in the attached press release.
 
   
Previously Reported
    
Adjustment
    
Restated (Unaudited)
  
Assets
                  
Current assets:
                  
Cash and cash equivalents
  
$
8,895
      
-
    
$
8,895
  
Short term investments
    
2,754
      
-
      
2,754
  
Accounts receivable, net
    
6,964
      
(403
)
    
6,561
  
Federal income tax receivable
    
169
      
111
      
280
  
Prepaid and other expenses
    
521
      
-
      
521
  
Total current assets
    
19,303
      
(292
)
    
19,011
  
                         
Long term investments
    
12,779
      
-
      
12,779
  
Property and equipment, net
    
456
      
-
      
456
  
Capitalized software development costs, net
    
3,743
      
-
      
3,743
  
Goodwill
    
12,712
      
-
      
12,712
  
Deferred tax asset, net
    
942
      
-
      
942
  
Other assets
    
245
      
-
      
245
  
Total assets
  
$
50,180
    
$
(292
)
  
$
49,888
  
                         
Liabilities and Stockholders’ Equity
                        
Current liabilities:
                        
Accounts payable
  
$
876
    
$
(42
)
  
$
834
  
Accrued expenses
    
1,836
      
(33
)
    
1,803
  
Deferred revenue
    
13,655
      
-
      
13,655
  
Income taxes payable
    
-
      
-
      
-
  
Total current liabilities
    
16,367
      
(75
)
    
16,292
  
                         
Deferred revenue, non-current portion
    
3,790
      
-
      
3,790
  
Other long term liabilities
    
147
      
-
      
147
  
                         
Stockholders' Equity:
                        
Preferred stock, par value $0.001 per share, 10,000,000
shares authorized, no shares issued or outstanding
    
-
      
-
      
-
  
Common stock, par value $0.001 per share, 40,000,000
shares authorized, 21,920,912 shares issued
    
22
      
-
      
22
  
Additional paid-in capital
    
21,650
      
-
      
21,650
  
Treasury stock, 403,581 shares, at cost
    
(1,452
)
    
-
      
(1,452
)
Retained earnings
    
9,656
      
(217
)
    
9,439
  
Total stockholders’ equity
  
$
29,876
    
$
(217
)
  
$
29,659
  
Total liabilities and stockholders’ equity
  
$
50,180
    
$
(292
)
  
$
49,888
  

GlobalSCAPE, Inc.
Consolidated Statement of Operations and Comprehensive Income
For the Year Ended December 31, 2016
(in thousands, except per share amounts)

This schedule illustrates the current and preliminary estimate by GlobalSCAPE, Inc. of adjustments relating to errors discovered to date with respect to arrangements with customers that have been the subject of the investigation being conducted by the Audit Committee as described in the attached press release.
 
   
Previously Reported
    
Adjustment
    
Restated (Unaudited)
  
                   
Operating revenues:
                  
Software licenses
  
$
11,984
    
$
(396
)
  
$
11,588
  
Maintenance and support
    
18,668
      
-
      
18,668
  
Professional services
    
2,684
      
-
      
2,684
  
Total revenues
    
33,336
      
(396
)
    
32,940
  
Costs of revenues
                        
Software licenses
    
3,110
      
(42
)
    
3,068
  
Maintenance and support
    
1,541
      
-
      
1,541
  
Professional services
    
1,671
      
-
      
1,671
  
Total costs of revenues
    
6,322
      
(42
)
    
6,280
  
Gross profit
    
27,014
      
(354
)
    
26,660
  
Operating expenses
                        
Sales and marketing
    
11,682
      
(26
)
    
11,656
  
General and administrative
    
6,975
      
-
      
6,975
  
Research and development
    
2,539
      
-
      
2,539
  
Total operating expenses
    
21,196
      
(26
)
    
21,170
  
Income from operations
    
5,818
      
(328
)
    
5,490
  
Other income
    
159
      
-
      
159
  
Income before income taxes
    
5,977
      
(328
)
    
5,649
  
Income tax expense
    
2,026
      
(111
)
    
1,915
  
Net income
  
$
3,951
    
$
(217
)
  
$
3,734
  
Comprehensive income
  
$
3,951
    
$
(217
)
  
$
3,734
  
                         
Net income per common share:
                        
Basic
  
$
0.19
    
$
(0.01
)
  
$
0.18
  
Diluted
  
$
0.18
    
$
(0.01
)
  
$
0.17
  
                         
Weighted average shares outstanding:
                        
Basic
    
21,126
      
21,126
      
21,126
  
Diluted
    
21,677
      
21,677
      
21,677
  
                         
Cash dividends declared per share
  
$
0.06
    
$
-
    
$
0.06
  
 
 
GlobalSCAPE, Inc.
Consolidated Statement of Cash Flows
For the Year Ended December 31, 2016
(in thousands)

This schedule illustrates the current and preliminary estimate by GlobalSCAPE, Inc. of adjustments relating to errors discovered to date with respect to arrangements with customers that have been the subject of the investigation being conducted by the Audit Committee as described in the attached press release.
 
   
Previously Reported
    
Adjustment
  
Operating Activities:
                  
Net income
  
$
3,951
      
(217
)
  
$
3,734
  
Adjustments to reconcile net income to net cash provided by operating activities:
          
Bad debt expense
    
72
      
-
      
72
  
Depreciation and amortization
    
2,045
      
-
      
2,045
  
Stock-based compensation
    
973
      
-
      
973
  
Deferred taxes
    
(2
)
    
-
      
(2
)
Excess tax deficiency from exercise of share based compensation
    
24
      
-
      
24
  
Subtotal before changes in operating assets and liabilities
    
7,063
      
(217
)
    
6,846
  
Changes in operating assets and liabilities:
                        
Accounts receivable
    
(1,161
)
    
403
      
(758
)
Prepaid expenses
    
(10
)
    
-
      
(10
)
Federal income taxes
    
352
      
(111
)
    
241
  
Accrued interest receivable
    
(163
)
    
-
      
(163
)
Other assets
    
(185
)
    
-
      
(185
)
Accounts payable
    
37
      
(42
)
    
(5
)
Accrued expenses
    
(58
)
    
(33
)
    
(91
)
Deferred revenues
    
1,178
      
-
      
1,178
  
Other long-term liabilities
    
13
      
-
      
13
  
Net cash provided by (used in) operating activities
    
7,066
      
-
      
7,066
  
Investing Activities:
                        
Software development costs
    
(1,538
)
    
-
      
(1,538
)
Purchase of property and equipment
    
(226
)
    
-
      
(226
)
Purchase of certificates of deposit
    
(12,116
)
    
-
      
(12,116
)
Net cash provided by (used in) investing activities
    
(13,880
)
    
-
      
(13,880
)
Financing Activities:
                        
Proceeds from exercise of stock options
    
1,119
      
-
      
1,119
  
Tax deficiency (benefit) from stock-based compensation
    
(24
)
    
-
      
(24
)
Dividends paid
    
(1,271
)
    
-
      
(1,271
)
Net cash provided by (used in)  financing activities
    
(176
)
    
-
      
(176
)
Net increase (decrease) in cash
    
(6,990
)
    
-
      
(6,990
)
Cash at beginning of period
    
15,885
      
-
      
15,885
  
Cash at end of period
  
$
8,895
    
$
-
    
$
8,895
  
                         
Supplemental disclosure of cash flow information:
                        
Cash paid during the period for:
                        
Interest
  
$
-
    
$
-
    
$
-
  
Income taxes
  
$
1,638
    
$
-
    
$
1,638
  
 
 
 
GlobalSCAPE, Inc.
Consolidated Statements of Stockholders' Equity
(in thousands, except number of shares)

This schedule illustrates the current and preliminary estimate by GlobalSCAPE, Inc. of adjustments relating to errors discovered to date with respect to arrangements with customers that have been the subject of the investigation being conducted by the Audit Committee as described in the attached press release.
 
         
Additional
                    
   
Common Stock
    
Paid-in
    
Treasury
    
Retained
        
   
Shares
    
Amount
    
Capital
    
Stock
    
Earnings
    
Total
  
                                     
                                     
Balance at December 31, 2014
    
20,909,267
    
$
21
    
$
18,370
    
$
(1,452
)
  
$
3,389
      
20,328
  
                                                 
Shares issued upon exercise of stock options
    
314,200
      
-
      
508
      
-
      
-
      
508
  
                                                 
Tax (deficiency) from stock-based compensation
    
-
      
-
      
58
      
-
      
-
      
58
  
                                                 
Stock-based compensation expense
                                                
Stock options
    
-
      
-
      
400
      
-
      
-
      
400
  
Restricted stock
    
80,000
      
-
      
247
      
-
      
-
      
247
  
                                                 
Common stock cash dividends
    
-
      
-
      
-
      
-
      
(941
)
    
(941
)
                                                 
Net income
    
-
      
-
      
-
      
-
      
4,528
      
4,528
  
                                                 
Balance at December 31, 2015
    
21,303,467
    
$
21
    
$
19,583
    
$
(1,452
)
  
$
6,976
    
$
25,128
  
                                                 
Shares issued upon exercise of stock options
    
537,445
      
1
      
1,118
      
-
      
-
      
1,119
  
                                                 
Tax benefit (deficiency) from stock-based compensation
    
-
      
-
      
(24
)
    
-
      
-
      
(24
)
                                                 
Stock-based compensation expense
                                                
       Stock options
    
-
      
-
      
700
      
-
      
-
      
700
  
       Restricted stock
    
80,000
      
-
      
273
      
-
      
-
      
273
  
                                                 
Common stock cash dividends
    
-
      
-
      
-
      
-
      
(1,271
)
    
(1,271
)
                                                 
Net income as restated (See Note) (unaudited)
    
-
      
-
      
-
      
-
      
3,734
      
3,734
  
                                                 
Balance at December 31, 2016 (retained earnings unaudited)
    
21,920,912
    
$
22
    
$
21,650
    
$
(1,452
)
  
$
9,439
    
$
29,659
  
 
Note:
Net income for the year ended December 31, 2016, as previously reported
Adjustment

Net income for the year ended December 31, 2016, as restated (unaudited)
 
GlobalSCAPE, Inc.
Condensed Consolidated Balance Sheet
March 31, 2017
(in thousands except share amounts)
(Unaudited)

This schedule illustrates the current and preliminary estimate by GlobalSCAPE, Inc. of adjustments relating to errors discovered to date with respect to arrangements with customers that have been the subject of the investigation being conducted by the Audit Committee as described in the attached press release.
 
   
Previously Reported
    
Restated
  
Assets
                  
Current assets:
                  
Cash and cash equivalents
  
$
10,400
      
-
    
$
10,400
  
Short term certificates of deposit
    
2,759
      
-
      
2,759
  
Accounts receivable, net
    
5,499
      
(396
)
    
5,103
  
Federal income tax receivable
    
-
      
-
      
-
  
Prepaid and other expenses
    
492
      
-
      
492
  
                         
Total current assets
    
19,150
      
(396
)
    
18,754
  
                         
Long term certificates of deposit
    
12,837
      
-
      
12,837
  
Capitalized software development costs, net
    
3,731
      
-
      
3,731
  
Goodwill
    
12,712
      
-
      
12,712
  
Deferred tax asset, net
    
1,190
      
-
      
1,190
  
Property and equipment, net
    
577
      
-
      
577
  
Other assets
    
64
      
-
      
64
  
                         
Total assets
  
$
50,261
    
$
(396
)
  
$
49,865
  
                         
Liabilities and Stockholders’ Equity
                        
Current liabilities:
                        
Accounts payable
  
$
657
      
(42
)
  
$
615
  
Accrued expenses
    
1,928
      
(26
)
    
1,902
  
Income tax payable
    
474
      
(111
)
    
363
  
Deferred revenue
    
12,704
      
-
      
12,704
  
                         
Total current liabilities
    
15,763
      
(179
)
    
15,584
  
                         
Deferred revenue, non-current portion
    
3,618
      
-
      
3,618
  
Other long term liabilities
    
163
      
-
      
163
  
                         
Commitments and contingencies
                        
                         
Stockholders’ equity:
                        
Preferred stock, par value $0.001 per share, 10,000,000
shares authorized, no shares issued or outstanding
    
-
      
-
      
-
  
Common stock, par value $0.001 per share, 40,000,000
shares authorized, 21,970,412 shares issued
    
22
      
-
      
22
  
Additional paid-in capital
    
22,064
      
-
      
22,064
  
Treasury stock, 403,581 shares, at cost
    
(1,452
)
            
(1,452
)
Retained earnings
    
10,083
      
(217
)
    
9,866
  
                         
Total stockholders’ equity
    
30,717
      
(217
)
    
30,500
  
Total liabilities and stockholders’ equity
  
$
50,261
    
$
(396
)
  
$
49,865
  
 
 
GlobalSCAPE, Inc.
Condensed Consolidated Statement of Operations and Comprehensive Income
For the Three Months Ended March 31, 2017
(In thousands, except per share amounts)
(Unaudited)

This schedule illustrates the current and preliminary estimate by GlobalSCAPE, Inc. of adjustments relating to errors discovered to date with respect to arrangements with customers that have been the subject of the investigation being conducted by the Audit Committee as described in the attached press release.
 
   
Previously Reported
    
Restated
  
                   
Operating Revenues:
                  
Software licenses
  
$
2,464
    
$
-
    
$
2,464
  
Maintenance and support
    
5,121
      
-
      
5,121
  
Professional services
    
733
      
-
      
733
  
Total Revenues
    
8,318
      
-
      
8,318
  
Cost of revenues
                        
Software licenses
    
736
      
-
      
736
  
Maintenance and support
    
412
      
-
      
412
  
Professional services
    
377
      
-
      
377
  
Total cost of revenues
    
1,525
      
-
      
1,525
  
Gross profit
    
6,793
              
6,793
  
Operating expenses
                        
Sales and marketing
    
3,330
      
-
      
3,330
  
General and administrative
    
1,721
      
-
      
1,721
  
Research and development
    
739
      
-
      
739
  
Total operating expenses
    
5,790
      
-
      
5,790
  
Income from operations
    
1,003
      
-
      
1,003
  
Other income
    
70
      
-
      
70
  
Income before income taxes
    
1,073
      
-
      
1,073
  
Income tax expense
    
322
      
-
      
322
  
Net income
  
$
751
    
$
-
    
$
751
  
Comprehensive income
  
$
751
    
$
-
    
$
751
  
                         
Net income per common share:
                        
Basic
  
$
0.03
    
$
-
    
$
0.03
  
Diluted
  
$
0.03
    
$
-
    
$
0.03
  
                         
Weighted average shares outstanding:
                        
Basic
    
21,544
              
21,544
  
Diluted
    
22,023
              
22,023
  
                         
Cash dividends declared per share
  
$
0.015
            
$
0.015
  
 
 
GlobalSCAPE, Inc.
Condensed Consolidated Statement of Cash Flows
For the Three Months Ended March 31, 2017
(in thousands)
(Unaudited)

This schedule illustrates the current and preliminary estimate by GlobalSCAPE, Inc. of adjustments relating to errors discovered to date with respect to arrangements with customers that have been the subject of the investigation being conducted by the Audit Committee as described in the attached press release.
 
   
Previously Reported
    
Restated
  
Operating Activities:
                  
Net income
  
$
751
    
$
-
    
$
751
  
Items not involving cash at the time they are recorded in the statement of operations:
  
Provision for sales returns and doubtful accounts receivable
    
11
      
-
      
11
  
Depreciation and amortization
    
541
      
-
      
541
  
Share-based compensation
    
324
      
-
      
324
  
Deferred taxes
    
(248
)
    
-
      
(248
)
Excess tax benefit from share-based compensation
    
-
      
-
      
-
  
Subtotal before changes in operating assets and liabilities
    
1,379
      
-
      
1,379
  
Changes in operating assets and liabilities:
                        
Accounts receivable
    
1,454
      
(7
)
    
1,447
  
Prepaid expenses
    
29
      
-
      
29
  
Deferred revenue
    
(1,123
)
    
-
      
(1,123
)
Accounts payable
    
(219
)
    
-
      
(219
)
Accrued expenses
    
92
      
7
      
99
  
Other assets
    
181
      
-
      
181
  
Accrued interest receivable
    
(63
)
    
-
      
(63
)
Other long-term liabilities
    
16
      
-
      
16
  
Income tax receivable and payable
    
643
      
-
      
643
  
Net cash provided by operating activities
    
2,389
      
-
      
2,389
  
Investing Activities:
                        
Software development costs capitalized
    
(462
)
    
-
      
(462
)
Purchase of property and equipment
    
(188
)
    
-
      
(188
)
Net cash (used in) investing activities
    
(650
)
    
-
      
(650
)
Financing Activities:
                        
Proceeds from exercise of stock options
    
90
      
-
      
90
  
Excess tax benefit from share-based compensation
    
-
      
-
      
-
  
Dividends paid
    
(324
)
    
-
      
(324
)
Net cash (used in) financing activities
    
(234
)
    
-
      
(234
)
                         
Net increase in cash
    
1,505
      
-
      
1,505
  
Cash at beginning of period
    
8,895
      
-
      
8,895
  
Cash at end of period
  
$
10,400
    
$
-
    
$
10,400
  
                         
Supplemental disclosure of cash flow information:
                        
Cash paid during the period for:
                        
Interest
  
$
-
    
$
-
    
$
-
  
Income taxes
  
$
15
    
$
-
    
$
15
  

GLOBALSCAPE INC Reports