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, 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.
PreviouslyReported
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.
PreviouslyReported
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.
PreviouslyReported
Adjustment
As Restated(Unaudited)
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 $ 3,951 Adjustment (217 ) Net income for the year
ended December 31, 2016, as restated (unaudited) $ 3,734
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.
PreviouslyReported
Adjustment 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.
PreviouslyReported
Adjustment 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.
PreviouslyReported
Adjustment 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
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170807006013/en/
GlobalscapePress ContactPerry Street
CommunicationsJonathan Morgan, 214-965-9955 or
212-333-5525jmorgan@perryst.comorInvestor Relations
ContactMatt Glover or Najim Mostamand,
210-801-8489IR@globalscape.com
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