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
Perry Street Communications
Phone: 214-965-9955 or 212-333-5525
Email: jmorgan@perryst.com
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 |