GlobalSCAPE, Inc. (NYSE American: GSB), a worldwide leader in
the secure movement and integration of data, today announced an
update to the Company’s previous announcement that the Audit
Committee of the Board of Directors has been conducting an internal
investigation. The Company also provided certain preliminary,
unaudited financial information for the three months ended June 30,
2017 and September 30, 2017.
Investigation Update
As previously reported, the internal investigation pertains to
certain transactions in the fourth quarter of 2016 involving
improper arrangements with customers that circumvented the
Company’s internal controls and their effect on previously reported
revenue. While the investigation remains ongoing, Globalscape
currently believes that the conduct leading to these improper
arrangements with customers was limited to individuals no longer
with the Company. Additional remedial steps include enhanced
investments in processes and compliance in the areas that gave rise
to the internal investigation itself.
Financial Information
As previously noted, Globalscape is in the process of effecting
a restatement of its previously issued financial statements for the
year ended December 31, 2016 and the three months ended March 31,
2017. While the Company continues to work as expeditiously as
possible to prepare and file these amended reports, it is able to
report certain unaudited, preliminary financial information. This
information, which is subject to change, includes:
- Net income for each of the three months
ended June 30, 2017 and September 30, 2017 is expected to be lower
than the comparable periods in 2016 primarily due to professional
fees and related expenses associated with the internal
investigation. These expenses totaled approximately $190,000 and
$873,000 for the three months ended June 30, 2017 and September 30,
2017, respectively.
- Total cash, cash equivalents and
certificates of deposit were approximately $27 million as of
September 30, 2017.
The financial information presented above is preliminary, based
upon the Company’s internal estimates and subject to the Company’s
ongoing assessment of revenue recognition, the Audit Committee’s
independent review of this matter, and completion of the Company’s
financial closing procedures and issuance of its financial
statements as of and for the three month periods ended
June 30, 2017 and September 30, 2017. The Company’s final
financial results and other financial data could differ materially
from this preliminary financial information. The Company’s final
financial results will be set forth in the Company’s
Form 10-Q as of and for each of the three month periods
ended June 30, 2017 and September 30, 2017.
Globalscape also reported that after several years of providing
maintenance and support services to the United States Army’s
Standard Army Maintenance System-Enhanced (SAMS-E) logistics
program, the Army’s need for those services concluded at the end of
the third quarter of 2017. This development reflects the Army’s
data center consolidation directive, an initiative that requires
the organization to move from more than 1,000 data centers to 10.
The program Globalscape had been supporting was impacted by this
directive. Globalscape had earned annual revenue of approximately
$1.8 million in providing these services.
Declaration of Dividend
Globalscape also today announced that its Board of Directors has
declared a quarterly cash dividend of $0.015 per share of common
stock. The dividend is payable on December 18, 2017, to
stockholders of record at the close of business at 5:00 p.m.
Eastern Time on November 30, 2017.
Litigation Update
On August 9, 2017, a securities class action complaint, Anthony
Giovagnoli v. GlobalScape, Inc., et. al., Case No. 5:17-cv-00753,
was filed against the Company in the United States District Court
for the Western District of Texas. The complaint names as
defendants the Company, Matthew Goulet, and James Albrecht for
allegedly making materially false and misleading statements
regarding, inter alia, the Company’s previously reported financial
statements. The complaint alleges violations of Sections 10(b) and
20(a) of the Securities Exchange Act of 1934 and 10b-5 promulgated
thereunder. The complaint seeks unspecified damages, costs,
attorneys’ fees, and equitable relief. On November 6, 2017,
the Court appointed a lead plaintiff, who has agreed to file an
amended complaint following the completion of the Company’s
accounting restatement. Management intends to vigorously
defend against this action. At this time, the Company cannot
predict how the Courts will rule on the merits of the claims and/or
the scope of the potential loss in the event of an adverse
outcome. Should the Company ultimately be found liable, the
resulting damages could have a material adverse effect on its
financial position, liquidity, or results of our operations.
On October 20, 2017, the Company received a demand letter from a
stockholder seeking the inspection of books and records of the
Company pursuant to Section 220 of the Delaware General Corporation
Law. This stockholder’s stated purpose for the demand is,
inter alia, to investigate whether the Company’s Board of Directors
and officers engaged in an illegal scheme to misrepresent the
Company’s performance by falsely reporting accounts receivable,
license revenue, total current assets and total assets, total
stockholders’ equity, and total liabilities for the year ending
December 31, 2016, as well as the Board’s independence to consider
a stockholder derivative demand. The Company intends to fully
respond to the demand to the extent required under Delaware Law. On
November 7, 2017, Harwood Feffer LLP announced that it was
investigating potential claims against the Board of Directors
concerning whether the Board has breached its fiduciary duties to
stockholders in connection with the restatement.
The Board has established a special litigation committee
(“Special Litigation Committee”) consisting of Thomas Hicks and
Frank Morgan to analyze and investigate claims that could
potentially be asserted in stockholder derivative litigation
related to facts connected to the claims and allegations asserted
in the Litigation and the Section 220 Demand (the “Potential
Derivative Litigation”). The Special Litigation Committee will
determine what actions are appropriate and in the best interests of
the Company, and decide whether it is in the best interests of the
Company to pursue, dismiss, or consensually resolve any claims that
may be asserted in the Potential Derivative Litigation. The Board
determined that each member of the Special Litigation Committee is
disinterested and independent with respect to the Potential
Derivative Litigation. Among other things, the Special Litigation
Committee has the power to retain counsel and advisors, as
appropriate, to assist it in the investigation, gather and review
relevant documents relating to the claims, interview persons who
may have knowledge of the relevant information, prepare a report
setting forth its conclusions and recommended course of action with
respect to the Potential Derivative Litigation, and to take any
actions, including, without limitation, directing the filing and
prosecution of litigation on behalf of the Company, as the Special
Litigation Committee in its sole discretion deems to be in the best
interests of the Company in connection with the Potential
Derivative Litigation. The Special Litigation Committee’s findings
and determinations shall be final and not subject to review by the
Board and in all respects shall be binding upon the Company.
Globalscape will provide updates concerning these matters as
developments warrant.
Management Commentary from Matt Goulet, President and CEO of
Globalscape
“While we are working to reach a prompt and complete resolution
to the internal investigation, I’m pleased to report that we
continue to make notable operational strides, including
strengthening our organization with the appointment of two senior
leaders to head our Sales and Operations teams. We also promoted
our Vice President of Product Strategy and Technology Alliances to
the role of Chief Technology Officer. Collectively, these changes
have helped fortify Globalscape with the kind of leadership and
expertise needed to help us expand on our leading position in the
MFT marketplace, while also making solid inroads in the integration
platform as a service, or iPaaS, space.
“Looking ahead, we remain focused on executing the long-term
growth strategy of our business. By concentrating on our three
growth initiatives—strengthening our core platform, driving
innovation in the overall shift to the cloud, and expanding our
footprint in adjacent markets—we believe we’re well positioned for
future success.”
About Globalscape
GlobalSCAPE, Inc. (NYSE American: GSB) is a worldwide leader in
the secure movement and integration of data. Through Globalscape’s
powerful yet intuitive technology, organizations can accelerate
their digital transformation and maximize their potential by
unleashing the power of data. For more information, visit
www.globalscape.com or follow the blog and Twitter updates.
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," "steady,"
"dramatic," “expect,” 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 2016 fiscal year, filed with the Securities and
Exchange Commission on March 27, 2017; the discovery of additional
information relevant to the internal investigation; the conclusions
of the Company’s Audit Committee (and the timing of the
conclusions) concerning matters relating to the internal
investigation; the timing of the review by, and the conclusions of,
GlobalSCAPE’s independent registered public accounting firm
regarding the internal investigation and GlobalSCAPE’s financial
statements; the possibility that additional errors may be
identified; the risk that the completion and filing of the Reports
will take longer than expected; pending litigation and the
possibility of further legal proceedings adverse to GlobalSCAPE
resulting from the restatement or related matters; and the costs
associated with the restatement.
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version on businesswire.com: http://www.businesswire.com/news/home/20171115006361/en/
Globalscape Press ContactCiri Haugh,
210-308-8267PR@globalscape.comorInvestor Relations
ContactMatt Glover or Najim Mostamand, CFA,
210-801-8489IR@globalscape.com
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