| Significant Accounting Policies [Text Block] | 3. Principles of Consolidation The accompanying consolidated financial statements of GlobalSCAPE, Inc. and its wholly-owned subsidiary (collectively referred to as the “Company” or “we”) are prepared in conformity with GAAP. All intercompany accounts and transactions have been eliminated. Revenue Recognition We develop, market and sell software products. We recognize revenue from a sale transaction when the following conditions are met: · Persuasive evidence of an arrangement exists. · Delivery has occurred or services have been rendered. · The amount of the sale is fixed or determinable. · Collection of the sale amount is reasonably assured. For a sale transaction not meeting any one of these four criteria, we defer recognition of revenue related to that transaction until all the criteria are met. We earn the majority of our software license revenue from software products sold under perpetual software license agreements. At the time our customers purchase these products, they typically also purchase a product maintenance and support, or M&S, agreement. These transactions are multiple element software sales for which we assess the presence of vendor specific objective evidence (“VSOE”) of the fair value of the undelivered elements to determine the portion of these sales to recognize as revenue upon delivery of the software product and the portion of these sales to record as deferred revenue at the time the product is delivered. We amortize the deferred revenue component to revenue in future periods as we deliver the related future services to the customer. For transactions, if any, for which we cannot establish VSOE of the fair value of the undelivered elements, we initially record the entire transaction as deferred revenue and amortize that amount to revenue in future periods as we deliver the related future services to the customer. Our deferred revenue consists primarily of revenue to be earned in the future as we deliver services under M&S agreements. We bill our customers in advance for M&S services and record accounts receivable and deferred revenue in the same amount at the time we issue an invoice. We commence recognition of the deferred revenue as revenue only after the M&S period begins. For our products licensed and delivered under a software-as-a-service transaction on a monthly or other periodic subscription basis, we recognize subscription revenue, including initial setup fees, on a monthly basis over the contractual term of the customer contract as we deliver our products and services. Amounts invoiced or paid prior to this revenue recognition are presented as deferred revenue until earned. We provide professional services to our customers consisting primarily of software installation support, operations support and training. We recognize revenue from these services as they are completed and accepted by our customers. We collect sales tax on many of our sales. We do not include sales tax collected in our revenue. We record it as a liability payable to taxing authorities. Reclassification of Expenses In preparing our financial statements for the year ended December 31, 2015, we revised the manner in which we present cost of revenues and other elements of our statement of operations in response to the changing nature of our business and the resulting differences in the scope and nature of certain expenses we incur. Cost of Revenue Cost of revenue was expanded from one line to three lines to correspond with the associated revenue classifications. Amortization of capitalized software development costs was moved from depreciation and amortization and included in the cost of license revenue. Other costs included in cost of license revenue are royalties we pay to use technology in our products that is developed by others and fees paid to third party service providers who support our cloud based and SaaS solutions. Cost of M&S revenue and cost of professional services revenue consist primarily of salaries and related personnel costs of our employees who deliver the related service to our clients. These costs were previously included in the general and administrative classification. Also included in the cost of professional services revenue are the fees of third party service providers. Selling, General and Administrative We separated selling, general and administrative expenses into two line items – sales and marketing and general and administrative. Depreciation and Amortization After reclassifying amortization of capitalized software development costs to cost of license revenue, the remaining depreciation and amortization costs were included in general and administrative expense and the depreciation and amortization line on our statement of operations was removed. Effect of the reclassifications The reclassifications were between cost of revenues and operating expenses and had no effect on revenue, income from operations, net income or earnings per share. The following tables illustrate the effects of these reclassifications on previously reported amounts for the quarter and the six months ended June 30, 2015 ($ in thousands):
Quarter Ended June 30, 2015
Reclassification of Previously Reported Amounts
As
Cost
Capitalized
Personnel
Depreciation
Selling,
As
Operating Revenues:
Software licenses
$
3,280
$
3,280
Maintenance and support
4,093
4,093
Professional services
490
490
Total revenues
7,863
7,863
Cost of Revenues:
Software licenses
324
327
651
Maintenance and support
391
391
Professional services
36
299
335
Total cost of revenues
-
1,377
Gross profit
-
6,486
Operating Expenses
Sales and marketing
-
2,476
2,476
General and administrative
-
1,457
1,457
Cost of Revenues
360
(360
)
-
Selling, general and administrative
4,556
(690
)
67
(3,933
)
-
Research and development
657
657
Depreciation and amortization
394
(327
)
(67
)
-
Total operating expenses
5,967
4,590
Income from operations
1,896
1,896
Other income (expense), net
23
23
Income before income taxes
1,919
1,919
Income tax expense
594
594
Net income
$
1,325
$
1,325
Comprehensive income
$
1,325
$
1,325
Net income per common share -
Basic
$
0.06
$
0.06
Diluted
$
0.06
$
0.06
Six Months Ended June 30, 2015
Reclassification of Previously Reported Amounts
As
Cost
Capitalized
Personnel
Depreciation
Selling,
As
Operating Revenues:
Software licenses
$
5,738
$
5,738
Maintenance and support
8,127
8,127
Professional services
878
878
Total revenues
14,743
14,743
Cost of Revenues:
Software licenses
544
545
1,089
Maintenance and support
716
716
Professional services
64
588
652
Total cost of revenues
-
2,457
Gross profit
-
12,286
Operating Expenses
Sales and marketing
-
4,771
4,771
General and administrative
-
3,180
3,180
Cost of Revenues
608
(608
)
-
Selling, general and administrative
9,118
(1,304
)
137
(7,951
)
-
Research and development
1,186
1,186
Depreciation and amortization
682
(545
)
(137
)
-
Total operating expenses
11,594
9,137
Income from operations
3,149
3,149
Other income (expense), net
34
34
Income before income taxes
3,183
3,183
Income tax expense
1,043
1,043
Net income
$
2,140
$
2,140
Comprehensive income
$
2,140
$
2,140
Net income per common share -
Basic
$
0.10
$
0.10
Diluted
$
0.10
$
0.10 Cash and cash equivalents Cash and cash equivalents includes all cash and highly liquid investments with original maturities of three months or less. Short Term Investments Short-term investments consist of certificates of deposit held with financial institutions with contractual maturity dates less than one year from the balance sheet date. The Company has the intent and ability to hold these investments until their maturity dates and therefore accounts for them as held-to-maturity. These certificates of deposit are stated at amortized cost, which approximates the fair value of these investments. Property and Equipment Property and equipment is comprised of furniture and fixtures, software, computer equipment and leasehold improvements which are recorded at cost and depreciated using the straight-line method over their estimated useful lives. Furniture, fixtures and equipment have a useful life of five to seven years, computer equipment and software have a useful life of three years and leasehold improvements have a useful life that is the shorter of the term of the lease under which the improvements were made or the estimated useful life of the asset. Expenditures for maintenance and repairs are expensed as incurred. Goodwill Goodwill is not amortized. On at least an annual basis, we test goodwill for impairment at the reporting unit level. We operate as a single reporting unit. When testing goodwill, we first assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of our reporting unit is less than its carrying amount, including goodwill. In performing this qualitative assessment, we assess events and circumstances relevant to us including, but not limited to:
•
Macroeconomic conditions.
•
Industry and market considerations.
•
Cost factors and trends for labor and other expenses of operating our business.
•
Our overall financial performance and outlook for the future.
•
Trends in the quoted market value and trading of our common stock. In considering these and other factors, we consider the extent to which any adverse events and circumstances identified could affect the comparison of our reporting unit’s fair value with its carrying amount. We place more weight on events and circumstances that most affect our reporting unit’s fair value or the carrying amount of our net assets. We consider positive and mitigating events and circumstances that may affect our determination of whether it is more likely than not that the fair value of our reporting unit is less than its carrying amount. We evaluate, on the basis of the weight of the evidence, the significance of all identified events and circumstances in the context of determining whether it is more likely than not that the fair value of our reporting unit is less than its carrying amount. If, after assessing the totality of these qualitative events and circumstances, we determine it is not more likely than not that the fair value of our reporting unit is less than its carrying amount, we conclude there is no impairment of goodwill and perform no further testing in accordance with GAAP. If we conclude otherwise, we proceed with performing the first step, and if necessary, the second step, of the two-step goodwill impairment test prescribed by GAAP. As of December 31, 2015, after assessing the totality of the relevant events and circumstances, we determined it not more likely than not that the fair value of our reporting unit was less than its carrying amount. Accordingly, we concluded there was no impairment of goodwill as of that date. There have been no material events or changes in circumstances since that time indicating that the carrying amount of goodwill may exceed its fair market value and that interim testing needed to be performed. Capitalized Software Development Costs When we complete research and development for a software product and have in place a detail program design or a working model of that software product, we capitalize production costs incurred for that software product from that point forward until it is ready for general release to the public. Thereafter, we amortize capitalized software production costs to expense using the straight-line method over the estimated useful life of that product, which is generally three years. We periodically assess the carrying value of capitalized software development costs relative to our estimates of realizability through sales of products in the marketplace. Research and Development We expense research and development costs as incurred. Advertising Expense We expense advertising costs as incurred as a component of our sales and marketing expenses. Advertising expense was $559,322 and $406,215 in the 2016 quarter and the 2015 quarter, respectively, and $966,763 and $782,543 in the 2016 six months and 2015 six months, respectively. Share-Based Compensation We measure the cost of share-based payment transactions at the grant date based on the calculated fair value of the award. We recognize this cost as an expense ratably over the recipient’s requisite service period during which that award vests or becomes unrestricted. For stock option awards, we estimate their fair value at the grant date using the Black-Scholes option-pricing model considering the following factors:
•
We estimate expected volatility based on historical volatility of our common stock.
•
We use primarily the simplified method to derive an expected term which represents an estimate of the time options are expected to remain outstanding. We use this method because our options are plain-vanilla options, and we believe our historical option exercise experience is not adequately indicative of our future expectations.
•
We base the risk-free rate for periods within the contractual life of the option on the U.S. treasury yield curve in effect at the time of grant.
•
We estimate a dividend yield based on our historical and expected future dividend payments. For restricted stock awards, we use the quoted price of our common stock on the grant date as the fair value of the award. On the grant date, we record deferred compensation and the related common stock and paid-in-capital for the full amount of the fair value of the award. We recognize the deferred compensation as share-based compensation expense ratably over the vesting period of the restricted stock. Income Taxes We account for income taxes using the asset and liability method. We record deferred tax assets and liabilities based on the difference between the tax basis of assets and liabilities and their carrying amount for financial reporting purposes, as measured by the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets and liabilities are carried on the balance sheet with the presumption that they will be realizable in future periods in which we generate taxable income. We assess the likelihood that deferred tax assets will be realized from future taxable income. Based on this assessment, we provide any necessary valuation allowance on our balance sheet with a corresponding increase in the tax provision on our statement of operations. Any valuation allowances we establish are determined based upon a number of assumptions, judgments, and estimates, including forecasted earnings, future taxable income, and the relative proportions of revenue and income before taxes in the various domestic jurisdictions in which we operate. We account for uncertainty in income taxes using a two-step process to determine the amount of tax benefit to be recognized. First, we evaluate the tax position to determine the likelihood that it will be sustained upon external examination. If the tax position is deemed “more-likely-than-not” to be sustained, we assess the tax position to determine the amount of benefit to recognize in the financial statements. The amount of the benefit we recognize is the largest amount that we believe has a greater than 50% likelihood of being realized upon ultimate settlement. Unrecognized tax benefits represent tax positions for which reserves have been established. Earnings Per Share We compute basic earnings per share using the weighted-average number of common shares outstanding during the periods. We compute diluted earnings per share using the weighted-average number of common shares outstanding plus the number of common shares that would be issued assuming conversion of all potentially dilutive common shares outstanding. Awards of non-vested options are considered potentially dilutive common shares for the purpose of computing earnings per common share. We apply the treasury stock method to non-vested options under which the assumed proceeds include the amount the employee must pay to exercise the option plus the amount of unrecognized cost attributable to future periods less any expected tax benefits. Recent accounting pronouncements In March 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standard Update (ASU) 2016-09, Improvements to Employee Share-Based Payment Accounting In February 2016, the FASB issued ASU 2016-02, Leases In November 2015, the FASB, issued ASU No. 2015-17, Income Tax: Balance Sheet Classification of Deferred Taxes In May 2014, FASB issued ASU No. 2014-09 entitled Revenue from Contracts with Customers (Topic 606) Use of Estimates The preparation of consolidated financial statements in accordance with U.S. GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and the reported amounts of revenues and expenses during the reporting period. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of the Company’s financial statements. It is possible that the actual results could differ from these estimates and assumptions, which could have a material effect on the reported amounts of the Company’s financial position and results of operation. |
