GSB Globalscape Inc

GlobalSCAPE, Inc. (NYSE Amex: GSB), a leading developer of secure information exchange solutions, today announced financial results for its third quarter of fiscal year 2010, ended September 30, 2010.

Revenue was $4.8 million for the third quarter of fiscal year 2010, an increase of 11 percent when compared with revenue of $4.3 million in the same quarter last year. Revenue for the first nine months of 2010 was $13.6 million, up from $12.3 million. “We have increased our revenue in each of the last three quarters, in line with our previously stated emphasis on increasing top-line performance during 2010,” said Jim Morris, GlobalSCAPE president and CEO. “To put our third quarter revenue in perspective, we achieved the second highest revenue quarter in GlobalSCAPE’s history, exceeded only by the second quarter of 2007 which included a large order for almost three million dollars. I couldn’t be more proud of the sustained execution of our team as we look forward to a record year for sales.”

GlobalSCAPE net income for the third quarter decreased to $233,000 or $0.01 per diluted share, compared with net income of $576,000, or $0.03 per diluted share, in the same quarter last year as the company continued to make strategic investments in accordance with previously announced plans. Cash and short term investments grew to $10.1 million, representing a seven percent increase from the second quarter. Cash flow from operating activities for the nine months ended September 30, 2010 was $1.9 million compared with $4.2 million for the same period in 2009, a decrease of 56 percent. This decrease is largely due to the deferred revenue of $1.9 million from the 2009 U.S. Army order of which half has been recognized into revenue. Adjusted EBITDA for the third quarter of 2010 was $744,000, a 43 percent decrease compared with the same quarter last year. The Adjusted EBITDA margin for the third quarter of 2010 was 15.6 percent, compared with 30.2 percent in the third quarter of 2009. This decrease is largely attributable to the decrease in GAAP net income.

Morris expects that GlobalSCAPE’s investments in key personnel, revenue-enabling infrastructure, and new technologies will allow the company to reach new heights in future periods. “We made a conscious business decision to increase our operating expenses during 2010 as necessary to fund our organic growth initiatives, and increase long-term shareholder value, while still generating cash and remaining profitable,” Morris continued. “We have assembled a world-class team, made substantial infrastructure investments, and obtained access to innovative technologies since I joined GlobalSCAPE a little over two years ago. We are just beginning to monetize some of these investments and I believe 2011 will be a strong growth year for GlobalSCAPE sales and net income.”

Quarterly Highlights

During the third quarter, GlobalSCAPE launched new solutions, established additional partner relationships, and continued to enhance its leadership team.

In July, GlobalSCAPE announced the availability of GlobalSCAPE Managed Information Xchange™. This hosted, managed service is the initial solution available as part of the new GlobalSCAPE Managed Solutions™ line of business announced in the second quarter. Through this unique offering, GlobalSCAPE delivers a hosted managed file transfer (MFT) solution that enables cost effective, secure exchange of business-to-business data, including large files and sensitive data. The tiered service allows customers to outsource all or part of their complex and demanding information exchange needs to reduce costs, improve operational efficiencies, track and audit transactions, and provide a greater level of security. As Managed Information Xchange sales grow in future periods, GlobalSCAPE may notably increase recurring revenue, which already represents more than 40 percent of total revenue.

In August, the company released a major upgrade to its Mail Express™ solution. Mail Express enables Microsoft Outlook email users to send and receive large files on demand – removing a widely recognized email infrastructure constraint. Users can simply and transparently send sensitive and large files, up to 25GB, without resorting to unapproved and potentially non-secure methods such as private email accounts, social media sites, CDs, and USB drives. Mail Express provides increased benefits for the IT organization as well, offering greater visibility into email-based file movement across the enterprise, including robust tracking and auditing. It allows for centralized policy management so that IT can enforce policies on each user’s email account. In addition, Mail Express reduces costs by offloading expensive email attachments to less expensive storage.

In September, GlobalSCAPE expanded its global channel sales network by partnering with Lifeboat Distribution, an international specialty software distributor for technically sophisticated products. GlobalSCAPE is working closely with Lifeboat Distribution to recruit, build, and power a network of solution providers for GlobalSCAPE’s award-winning products to drive incremental sales revenues that complement GlobalSCAPE’s existing sales channels. Lifeboat Distribution serves leading corporate resellers, large account resellers (LAR), value added resellers (VAR), and solution providers across North America and throughout Latin America and the Caribbean. By partnering with Lifeboat Distribution, GlobalSCAPE increases its channel network growth potential by recruiting and training resellers from the existing Lifeboat Distribution network.

During September, GlobalSCAPE also extended its partner relationship with Network Automation. GlobalSCAPE began its original OEM partnership with Network Automation in July of 2008, embedding Network Automation's AutoMate product as an Advanced Workflow Engine (AWE) module to its Enhanced File Transfer (EFT) Server™ solution. During the third quarter, GlobalSCAPE expanded its partner agreement to become a worldwide reseller of Network Automation's software solutions, AutoMate 7 and AutoMate Business Process Automation (BPA) Server 7.

In late September, GlobalSCAPE announced that it is a subcontractor on the McLane Advanced Technologies (MAT) industry team that won a $52.3 million re-compete contract for the U.S. Army Standard Army Maintenance System (SAMS-E). Work on this contract will begin in late 2010 for a period of three years. Under the new contract, GlobalSCAPE will provide professional and technical services to support the SAMS-E program, including Secure FTP Server™ and CuteFTP®, secure information exchange solutions integrated into the SAMS-E environment. The company may also deliver enhanced software solutions for SAMS-E under the new contract. As a maintenance systems modernization initiative, SAMS-E is a bridge between current system functionality and the U.S. Army's future Global Combat Support System (GCSS-Army). GlobalSCAPE has been helping the U.S. Army ensure secure delivery of mission-critical data around the world since 2005. GlobalSCAPE has received several substantial product license and maintenance and support orders from the U.S. Army, including a $2.7 million order in April 2009 and other substantial orders in May 2007 and September 2005.

Also in the third quarter, GlobalSCAPE hired Mark Perry as Vice President of Managed Solutions. Mr. Perry is an industry executive with over 25 years of technical and management experience with world-class technology, information security, and professional services companies. Prior to joining GlobalSCAPE, Mr. Perry was Senior Vice President of Enterprise Business Solutions with Fujitsu, a global IT services, hardware and software provider, where he was responsible for the U.S. professional services division with more than $365 million in annual revenues. Prior to Fujitsu, Mr. Perry was Vice President of Global Consulting Services at Symantec Corporation where he developed the key business standards and practices necessary for the successful delivery of products and services by Symantec's consulting services division. Mr. Perry previously was a partner in KPMG, LLP, where he directed the delivery of risk and advisory services to a broad range of public sector and commercial clients.

Conference Call November 10, 2010 At 4:30 p.m. ET

GlobalSCAPE management will hold a conference call Wednesday, November 10 to discuss the third quarter 2010 financial results and other corporate matters at 4:30 p.m. Eastern Time/3:30 p.m. Central Time. Those wishing to join should dial 1-800-380-1061 and use Conference ID #19779974. A live webcast of the conference call will also be available in the investor relations page of the company's website at www.globalscape.com. A webcast replay of the conference call will be available on the Company’s website through December 10, 2010.

About GlobalSCAPE

GlobalSCAPE, Inc. (NYSE Amex: GSB), headquartered in San Antonio, TX, is a global provider of managed file transfer (MFT) and wide area file services (WAFS) solutions for securely exchanging critical information over the Internet, within an enterprise, and with business partners. Since the release of Cute FTP in 1996, GlobalSCAPE's solutions have continued to evolve to meet the business and technology needs of an increasingly interconnected global marketplace. For more information about GlobalSCAPE's products, visit www.globalscape.com or the Company’s Secure Info Exchange blog.

Safe Harbor Statement

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The words "would," "exceed," "should," "anticipates," believe," "possibly," "steady," "dramatic," and variations of such words and similar expressions identify forward-looking statements, but their absence does not mean that a statement is not a forward-looking statement. These forward-looking statements are based upon the Company's current expectations and are subject to a number of risks, uncertainties, and assumptions. The Company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. Among the important factors that could cause actual results to differ significantly from those expressed or implied by such forward-looking statements are risks that are detailed in the Company's Annual Report on Form 10-K for the 2009 calendar year, filed with the Securities and Exchange Commission on March 30, 2010.

                Summary Financial Data   GlobalSCAPE, Inc. Statements of Operations (Unaudited)   (in thousands, except per share amounts)   Three months ended September 30, Nine months ended September 30, 2010 2009 2010 2009   Operating Revenues: Licenses $ 2,652 $ 2,633 $ 7,652 $ 7,798 Maintenance and support 2,005 1,581 5,642 4,356 All others   112   82   353   128   Total Revenues 4,769 4,296 13,647 12,282 Operating Expenses: Cost of revenues 142 102 389 230 Selling, general and administrative expenses 3,326 2,396 9,449 7,825 Research and development expenses 832 729 2,203 2,094 Depreciation and amortization   201   187   599   537   Total operating expenses   4,501   3,414   12,640   10,686   Income from operations 268 882 1,007 1,596 Other income (expense)   -   3   6   (38 ) Income before income taxes 268 885 1,013 1,558 Provision for income taxes   35   309   282   283   Net Income $ 233 $ 576 $ 731 $ 1,275     Net income per common share - basic $ 0.01 $ 0.03 $ 0.04 $ 0.07 Net income per common share - diluted $ 0.01 $ 0.03 $ 0.04 $ 0.07 Average shares outstanding: Basic 17,652 17,254 17,430 17,238 Diluted 18,610 18,243 18,174 17,800             GlobalSCAPE, Inc. Balance Sheets   (in thousands except share amounts)  

September 30,

December 31,   2010     2009   (Unaudited) Assets Current assets: Cash and cash equivalents $ 10,141 $ 7,026 Short term investments - 1,205 Accounts receivable (net of allowance for doubtful accounts of $59 and $217 on September 30, 2010 and December 31, 2009, respectively) 2,861 2,162 Federal income tax receivable 276 36 Current deferred tax assets 809 130 Prepaid expenses   293     132   Total current assets 14,380 10,691   Fixed assets, net 1,389 1,653 Investment - CoreTrace, at cost 2,278 2,278 Intangible assets, net 606 833 Goodwill 619 619 Deferred tax assets - 46 Other assets   43     53     Total assets $ 19,315   $ 16,173     Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 296 $ 316 Accrued expenses 1,183 764 Income tax payable - - Deferred revenue   4,992     4,071   Total current liabilities 6,471 5,151   Deferred tax liabilities 26 - Other long term liabilities 1,169 1,079   Commitments and contingencies - -   Stockholders’ equity: Preferred stock, par value $0.001 per share, 10,000,000 authorized, no shares issued or outstanding - - Common stock, par value $0.001 per share, 40,000,000

authorized, 17,881,682 and 17,686,252 issued September 30, 2010

and December 31, 2009 18 18 Additional paid-in capital 11,777 10,802

Treasury stock, 403,581 shares, at cost, at September 30, 2010

and December 31, 2009. (1,452 ) (1,452 ) Retained earnings   1,306     575   Total stockholders’ equity   11,649     9,943   Total liabilities and stockholders’ equity $ 19,315   $ 16,173               GlobalSCAPE, Inc. Statements of Cash Flows (Unaudited)   (in thousands) For the nine months ended September 30,   2010     2009   Operating Activities: Net income $ 731 $ 1,275 Adjustments to reconcile net income to net cash provided by operating activities: Bad debt recoveries (148 ) (164 ) Depreciation and amortization 599 537 Loss on disposition of assets 52 53 Stock-based compensation 756 769 Deferred taxes (607 ) (342 ) Excess tax benefits from exercise of stock-based compensation 66 - Changes in operating assets and liabilities: Accounts receivable (551 ) 190 Prepaid expenses (161 ) (50 ) Federal income tax (291 ) 319 Other assets 10 (7 ) Accounts payable (20 ) (210 ) Accrued expenses 419 76 Deferred revenues 921 1,981 Deferred compensation - (216 ) Other long-term liabilities   90     14   Net cash provided by operating activities   1,866     4,225   Investing Activities: Proceeds from sale of property and equipment - 1 Purchase of property and equipment (160 ) (519 ) Purchase of short-term investments (350 ) (1,405 ) Redemption of short-term investments   1,555     -   Net cash provided by (used in) investing activities 1,045 (1,923 ) Financing Activities: Proceeds from exercise of stock options 153 33 Tax benefit from stock-based compensation   51     -   Net cash provided by financing activities 204 33 Net increase in cash 3,115 2,335 Cash at beginning of period   7,026     6,319   Cash at end of period $ 10,141   $ 8,654     Cash paid during the period for: Income taxes $ 1,125   $ 311      

Non-GAAP Financial Measures

Adjusted EBITDA(In thousands)

We define Adjusted EBITDA as Net Income, plus Income Taxes, Total Other Income (Expense), Depreciation and Amortization, and non-cash charges for share-based compensation and asset impairments.

Adjusted EBITDA is a metric that is used in our industry by the investment community for comparative and valuation purposes. We disclose this metric in order to support and facilitate the dialogue with research analysts and investors.

Note that Adjusted EBITDA is not a measure of financial performance under accounting principles generally accepted in the United States (GAAP) and should not be considered a substitute for net income. Adjusted EBITDA has limitations as an analytical tool, and when assessing our operating performance, you should not consider Adjusted EBITDA in isolation, or as a substitute for net income or other income statement data prepared in accordance with GAAP. Other companies may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure. See our Adjusted EBITDA to net income reconciliations in the table below.

    Three Months Ended (Unaudited) September 30,       September 30, 2010 2009 Net Revenue $ 4,769 $ 4,296   Income from operations $ 268 $ 882   Net income: $ 233 $ 576 Plus: Income taxes 35 309 Plus: Total other (income) expense - (3 ) Plus: Depreciation and amortization 201 187 Plus: Share-based compensation expense   275     228   Adjusted EBITDA $ 744   $ 1,297     Operating income margin 5.6 % 20.5 %   Adjusted EBITDA margin 15.6 % 30.2 %