#### ** **

#### **UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

#### **Washington, D.C. 20549**

#### ** **

### **FORM10-Q**

### ** **

| **ý**                                             | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934**  |
|--------------------------------------------------------|----------------------------------------------------------------------------------------------------|
|                                                   |                                                                                               |
| **For the quarterly period ended March 31, 2004** |
| **Or**                                                 |                                                                                               |
|                                                   |                                                                                               |
| **o**                                                  | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934** |

 

**For thetransition period from                to                **

 

**CommissionFile Number:           000-30617**

 

**GlobalSCAPE, Inc.**

(Exact name of registrant as specified in its charter)

 
| **Delaware**                                                    |   | **74-2785449**                         |
|-----------------------------------------------------------------|--------|----------------------------------------|
| (State  or other jurisdiction of incorporation or organization) |   | (I.R.S.  Employer Identification  No.) |
|                                                            |   |                                   |
| **6000 Northwest Parkway, Suite 100**                           |   | **78249**                              |
| (Address  of principal executive offices)                       |   | (Zip  Code)                            |
|                                                            |   |                                   |
| **(210)  308-8267**                                             |
| (Registrant’s  telephone number, including area code)      |

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.   **ý**  Yes      o No

 

Indicate by check markwhether the registrant is an accelerated filer (as defined in Rule 12b-2 of theExchange Act).  **o**  Yes    ý  No

 

## **The number of shares outstanding ofthe registrant’s common stock at May 13, 2004 was 13,738,619.**

 

 

----

 

## **GlobalSCAPE Inc.**

## ** **

## **Quarterly Reporton Form 10-Q**

## **For the Quarterended March 31, 2004**

## ** **

## **Index**

 
| **Part I.**                    | **Financial Information**                                                                      |   |
|--------------------------------|------------------------------------------------------------------------------------------------|--------|
|                           |                                                                                           |   |
| Item 1.                        | Interim Consolidated Financial Statements (Unaudited)                                          |   |
|                           | Consolidated Balance Sheets as of December 31, 2003 and  March 31, 2004              |   |
|                           | Consolidated Statements of Operations for  the three months ended March 31, 2003 and 2004 |   |
|                           | Consolidated Statements of Cash Flows for  the three months ended March 31, 2003 and 2004 |   |
|                           | Notes to Consolidated Financial Statements                                                     |   |
|                           |                                                                                           |   |
| Item 2.                        | Management’s Discussion and Analysis of  Financial Condition and Results of Operations    |   |
|                           |                                                                                           |   |
| Item 3.                        | Quantitative and Qualitative Disclosures  About Market Risk                                    |   |
|                           |                                                                                           |   |
| Item 4.                        | Controls and Procedures                                                                        |   |
|                           |                                                                                           |   |
| **Part II.**                   | **Other Information**                                                                          |   |
|                           |                                                                                           |   |
| Item 1.                        | Legal Proceedings                                                                              |   |
|                           |                                                                                           |   |
| Item 2.                        | Changes in Securities and Use of Proceeds                                                      |   |
|                           |                                                                                           |   |
| Item 3.                        | Defaults Upon Senior Securities                                                                |   |
|                           |                                                                                           |   |
| Item 4.                        | Submission of Matters to a Vote of Security  Holders                                           |   |
|                           |                                                                                           |   |
| Item 5.                        | Other Information                                                                              |   |
|                           |                                                                                           |   |
| Item 6.                        | Exhibits and Reports on Form 8-K                                                               |   |
|                           |                                                                                           |   |
| Signatures  and Certifications |                                                                                           |

 

GlobalSCAPE®, PureCMS®, CuteFTP Pro®, CuteFTP®, CuteZIP®, CuteHTML®,CuteMAP® and CuteSITE Builder® are registered trademarks of GlobalSCAPE Texas,LP.  GlobalSCAPE Secure FTP Server,WebSurvey, and GlobalSCAPE Transfer Engine are trademarks of GlobalSCAPE Texas,LP.  Other trademarks and tradenames inthis quarterly report are the property of their respective owners.

 

ii

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**GlobalSCAPE, Inc.**

** **

**Consolidated Balance Sheets**

** **
|                                                                                                                                                        |   | **December 31,  2003** |    | **March 31,  2004** |       |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|---------|--------------------------|------------|
|                                                                                                                                                        |   |                        |    | **(unaudited)**          | ** ** |
| Assets                                                                                                                                                      |   |                        |    |                     |       |
| Current assets:                                                                                                                                             |   |                        |    |                     |       |
| Cash                                                                                                                                                        |   | $                           | 342,433 |                     | $          | 162,444 |   |
| Accounts receivable (net of allowance for  doubtful accounts of $43,581 and $27,215   at December 31, 2003 and March 31, 2004, respectively) |   | 240,615                     |    | 223,121                  |       |
| Prepaid expenses                                                                                                                                            |   | 46,428                      |    | 32,552                   |       |
| Total current assets                                                                                                                                        |   | 629,476                     |    | 418,117                  |       |
|                                                                                                                                                        |   |                        |    |                     |       |
| Property and equipment:                                                                                                                                     |   |                        |    |                     |       |
| Furniture and fixtures                                                                                                                                      |   | 332,920                     |    | 332,920                  |       |
| Software                                                                                                                                                    |   | 235,436                     |    | 236,513                  |       |
| Equipment                                                                                                                                                   |   | 590,019                     |    | 597,263                  |       |
| Leasehold improvements                                                                                                                                      |   | 154,376                     |    | 154,376                  |       |
|                                                                                                                                                        |   | 1,312,751                   |    | 1,321,072                |       |
| Accumulated depreciation and amortization                                                                                                                   |   | 1,035,830                   |    | 1,091,624                |       |
| Net property and equipment                                                                                                                                  |   | 276,921                     |    | 229,448                  |       |
|                                                                                                                                                        |   |                        |    |                     |       |
| Other assets:                                                                                                                                               |   |                        |    |                     |       |
| Other                                                                                                                                                       |   | 11,881                      |    | 11,881                   |       |
|                                                                                                                                                        |   |                        |    |                     |       |
| Total assets                                                                                                                                                |   | $                           | 918,278 |                     | $          | 659,446 |   |

 

1

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**GlobalSCAPE, Inc.**

** **

**Consolidated Balance Sheets**

** **
|                                                                                                                                                                                              |   | **December 31,  2003** |    | **March 31,  2004** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|---------|--------------------------|--------|
|                                                                                                                                                                                              |   |                        |    | **(unaudited)**          |   |
| Liabilities and Stockholders’ Equity                                                                                                                                                         |   |                        |    |                     |   |
| Current liabilities:                                                                                                                                                                              |   |                        |    |                     |   |
| Accounts payable                                                                                                                                                                                  |   | $                           | 180,555 |                     | $      | 175,772 |   |
| Accrued expenses                                                                                                                                                                                  |   | 173,935                     |    | 237,474                  |   |
| Deferred revenue                                                                                                                                                                                  |   | 140,489                     |    | 146,599                  |   |
| Notes payable                                                                                                                                                                                     |   | 100,000                     |    | —                   |   |
| Current portion of capital lease obligation                                                                                                                                                       |   | 15,294                      |    | —                   |   |
| Total current liabilities                                                                                                                                                                         |   | 610,273                     |    | 559,845                  |   |
|                                                                                                                                                                                              |   |                        |    |                     |   |
| Long-term liabilities:                                                                                                                                                                            |   |                        |    |                     |   |
| Other long-term liabilities                                                                                                                                                                       |   | 39,253                      |    | 36,449                   |   |
| Total long-term liabilities                                                                                                                                                                       |   | 39,253                      |    | 36,449                   |   |
|                                                                                                                                                                                              |   |                        |    |                     |   |
| 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 shares authorized, 13,488,619 and 13,488,619 shares issued and  outstanding at December 31, 2003 and March 31, 2004, respectively |   | 13,489                      |    | 13,489                   |   |
| Additional paid-in capital                                                                                                                                                                        |   | 671,893                     |    | 671,893                  |   |
| Retained earnings (deficit)                                                                                                                                                                       |   | (416,630                    | )       | (622,230                 | )      |
| Total stockholders’ equity                                                                                                                                                                   |   | 268,752                     |    | 63,152                   |   |
| Total liabilities and stockholders’ equity                                                                                                                                                   |   | $                           | 918,278 |                     | $      | 659,446 |   |

 

See accompanying notes.

 

2

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**GlobalSCAPE, Inc.**

** **

**ConsolidatedStatements of Operations**

** **

**(Unaudited)**

** **
|                                                                                  |   | **Three  months ended  March 31,** |      |
|---------------------------------------------------------------------------------------|--------|-----------------------------------------|-----------|
|                                                                                  |   | **2003**                                |      | **2004** |   |
| Operating revenues:                                                                   |   |                                    |      |   |   |
| Software product revenues                                                             |   | $                                       | 1,120,186 |   | $ | 1,172,137 |   |
|                                                                                  |   |                                    |      |   |   |
| Operating expenses:                                                                   |   |                                    |      |   |   |
| Cost of revenues (exclusive of depreciation  and amortization shown separately below) |   | 141,990                                 |      | 98,678 |   |
| Selling, general and administrative  expenses                                         |   | 1,251,720                               |      | 976,914 |   |
| Research and development expenses                                                     |   | 217,218                                 |      | 245,631 |   |
| Depreciation and amortization                                                         |   | 117,040                                 |      | 55,794 |   |
| Total operating expense                                                               |   | 1,727,968                               |      | 1,377,017 |   |
| Loss from operations                                                                  |   | (607,782                                | )         | (204,880 | ) |
|                                                                                  |   |                                    |      |   |   |
| Other income (expense):                                                               |   |                                    |      |   |   |
| Interest expense                                                                      |   | (1,148                                  | )         | (720 | ) |
| Loss on disposition of assets                                                         |   | (1,486                                  | )         | — |   |
| Total other income (expense)                                                          |   | (2,634                                  | )         | (720 | ) |
| Loss before income taxes                                                              |   | (610,416                                | )         | (205,600 | ) |
|                                                                                  |   |                                    |      |   |   |
| Income tax expense (benefit):                                                         |   |                                    |      |   |   |
| Current:                                                                              |   |                                    |      |   |   |
| Federal                                                                               |   | —                                  |      | — |   |
| State                                                                                 |   | —                                  |      | — |   |
| Deferred:                                                                             |   |                                    |      |   |   |
| Federal                                                                               |   | —                                  |      | — |   |
| State                                                                                 |   | —                                  |      | — |   |
| Total income tax provision (benefit)                                                  |   | —                                  |      | — |   |
|                                                                                  |   |                                    |      |   |   |
| Net loss                                                                              |   | $                                       | (610,416  | ) | $ | (205,600 | ) |
|                                                                                  |   |                                    |      |   |   |
| Net loss per common share- basic                                                      |   | $                                       | (0.05     | ) | $ | (0.02 | ) |
| Net loss per common share- assuming  dilution                                         |   | $                                       | (0.05     | ) | $ | (0.02 | ) |
| Average shares outstanding:                                                           |   |                                    |      |   |   |
| Basic                                                                                 |   | 13,358,619                              |      | 13,488,619 |   |
| Diluted                                                                               |   | 13,358,619                              |      | 13,488,619 |   |

 

See accompanying notes.

 

3

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**GlobalSCAPE, Inc.**

** **

**ConsolidatedStatements of Cash Flows**

** **

**(Unaudited)**

** **
|                                                                                      |   | **Three  months ended  March 31,** |     |
|-------------------------------------------------------------------------------------------|--------|-----------------------------------------|----------|
|                                                                                      |   | **2003**                                |     | **2004** |   |
| Operating Activities:                                                                     |   |                                    |     |   |   |
| Net loss                                                                                  |   | $                                       | (610,416 | ) | $ | (205,600 | ) |
| Adjustments to reconcile net income (loss)  to net cash provided by operating activities: |   |                                    |     |   |   |
| Bad debt expense                                                                          |   | 789                                     |     | (7,258 | ) |
| Depreciation and amortization                                                             |   | 117,040                                 |     | 55,794 |   |
| Loss on sale of assets                                                                    |   | 1,486                                   |     | — |   |
| Changes in operating assets and  liabilities:                                             |   |                                    |     |   |   |
| Accounts receivable                                                                       |   | 30,732                                  |     | 24,752 |   |
| Prepaid expenses                                                                          |   | 45,690                                  |     | 13,876 |   |
| Accounts payable                                                                          |   | 171,454                                 |     | (4,783 | ) |
| Accrued expenses                                                                          |   | 35,993                                  |     | 63,539 |   |
| Deferred revenues                                                                         |   | 76,296                                  |     | 6,110 |   |
| Other long-term liabilities                                                               |   | (2,803                                  | )        | (2,804 | ) |
| Net cash used by operating activities                                                     |   | (133,739                                | )        | (56,374 | ) |
| Investing Activities:                                                                     |   |                                    |     |   |   |
| Purchase of property and equipment                                                        |   | (6,809                                  | )        | (8,321 | ) |
| Net cash used in investing activities                                                     |   | (6,809                                  | )        | (8,321 | ) |
| Financing Activities:                                                                     |   |                                    |     |   |   |
| Principal payments on notes payable                                                       |   | —                                  |     | (100,000 | ) |
| Principal payments on capital lease  obligations                                          |   | (14,963                                 | )        | (15,294 | ) |
| Net cash used in financing activities                                                     |   | (14,963                                 | )        | (115,294 | ) |
| Net decrease in cash                                                                      |   | (155,511                                | )        | (179,989 | ) |
| Cash at beginning of period                                                               |   | 480,609                                 |     | 342,433 |   |
| Cash at end of period                                                                     |   | $                                       | 325,098  |   | $ | 162,444 |   |

 

See accompanying notes.

 

4

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**GlobalSCAPE, Inc.**

** **

**Notesto Consolidated Financial Statemen**ts 

** **

# **Nature of Business**

# ** **

GlobalSCAPE, founded in April 1996, develops, distributes andsupports Internet related software including content management, filemanagement and Web development solutions. The Company is best known for its popular file transfer program, CuteFTP.  The Company derives its revenues primarilyfrom sales of licenses to use its software products.  Sales of CuteFTP and CuteFTP Pro accounted for approximately 75%and 71% of total revenues in 2003 and the first three months of 2004,respectively.  The Company is organizedand operates as one segment and markets its products through the Internet, aninternal sales force and through resellers. 

 

***Corporate Structure***

*** ***

All of the Company’s operations are conducted by GlobalSCAPE Texas, LP,a Texas limited partnership.  Thepartners of GlobalSCAPE Texas, LP are two Nevada limited liability companies,which are both wholly-owned subsidiaries of GlobalSCAPE, Inc., a Delawarecorporation.  GlobalSCAPE, Inc. isapproximately 70% owned by the Brown and Mann-GlobalSCAPE Joint Venture, withthe remainder held publicly. GlobalSCAPE, Inc. is a holding company and conducts no operations,however, the stock of GlobalSCAPE, Inc. is quoted on the OTC Bulletin Board.  References to “GlobalSCAPE” or the “Company”refer collectively to all of these entities unless otherwise indicated. 

 

# **Basis ofPresentation**

# ** **

The accompanying unaudited financial statements have been prepared inaccordance with Rule 10-01 of Regulation S-X, “Interim FinancialStatements.”  Accordingly, they do notinclude all information and footnotes required under generally acceptedaccounting principles for complete financial statements.  In the opinion of management, alladjustments (consisting of normally recurring accruals) considered necessaryfor a fair presentation have been made. The results of operations for any interim period are not necessarilyindicative of the results to be expected for the full year. 

 

The Balance Sheet at December 31, 2003 has been derived from theaudited financial statements at that date but does not include all theinformation and footnotes required by generally accepted accounting principlesfor complete financial statements.  Forfurther information, refer to the financial statements and footnotes includedin GlobalSCAPE’s Annual Report on Form 10-K for the year endedDecember 31, 2003.  

 

# **Principles ofConsolidation**

# ** **

The consolidated financial statements include all subsidiaries.  All inter-company transactions and balanceshave been eliminated.

 

# **Liquidity**

# ** **

The Company incurred significant operating losses during the last threeyears and in the first quarter of 2004. In February 2004 GlobalSCAPE reduced its workforce by 20%, layingoff 9 of the 45 people then employed by the Company.  This workforce reduction was a necessary step in improving theoverall financial health of the organization. The Company had anticipated stronger revenue performance in the firstquarter of 2004 after poorer than expected sales in the fourth quarter of 2003and had maintained staffing levels with this objective.  These higher revenue targets were not met,further reducing the Company’s liquidity position.

 

5

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The Company is highly dependent on the sale of two software products,CuteFTP and CuteFTP Pro, which are subject to technological and competitiveobsolescence.  Sales of these twoproducts, which represented 71% of the Company’s revenues in the first quarterof 2004, declined approximately 13% from the same quarter in the previous year. This decline in combined sales was dueto a 27% decline in sales of CuteFTP. Sales of CuteFTP Pro increased approximately 15% from the first quarterof 2003 to the first quarter of 2004. The combined sales of CuteFTP and CuteFTP Pro increased approximately 6%from the fourth quarter of 2003 to the first quarter of 2004.  Individually, sales of CuteFTP fell 5%between these periods and sales of CuteFTP Pro increased approximately 25%.  Sales of Secure Server, the companionproduct to CuteFTP Pro, increased approximately 7.5% from the fourth quarter of2003 to the first quarter of 2004 and 63% from the first quarter of 2003 to thefirst quarter of 2004.  Sales of SecureServer accounted for approximately 9% of total revenues in the first quarter of2004.

 

Substantially all software products ultimately reach a point in theirlifecycle in which sales can be expected to plateau or decline.  While it cannot be determined withcertainty, these products may have reached such a point their lifecycles.  Management believes that the market forstand-alone FTP clients for home consumers may be declining.  However, we have not seen the same declinein the market for secure FTP clients and servers such as CuteFTP Pro and SecureServer which we believe better target the needs of businesses.

 

The Company’s liquidity could be further reduced in 2004 if sales ofCuteFTP continue to decline and the Company is unable to successfully introducenew products or increase sales of existing products.

 

If sales decline or the Company’s liquidity position otherwiserequires, management has the intent and ability to substantially reducepersonnel and personnel-related costs, reduce or substantially eliminatecapital expenditures and/or reduce or substantially eliminate research and developmentexpenditures.

 

In addition, the Company could draw on its $250,000 line of credit, ifnecessary.  This line of credit, whichoriginally matured in March 2004, has been extended throughJune 2004.  The interest rate issubject to change and is indexed to the bank’s prime rate.  In connection with the line of credit,GlobalSCAPE entered into a commercial security agreement with the bank wherebyGlobalSCAPE granted a security interest in all its accounts and equipment.  The Company borrowed $100,000 on September 11,2003 under this agreement.  This amountwas repaid in February 2004.  Thecredit facility is available to the Company at any point during its term.  

 

On March 30, 2004, the Company obtained a $200,000 line of creditwith the Brown and Mann-GlobalSCAPE Joint Venture.  The line of credit is available after June 21, 2004 if theCompany fails to extend a line of credit with a bank and matures onDecember 31, 2004.  The interestrate is subject to change and is indexed to the prime rate published in theWall Street Journal.  In connection withthe line of credit, GlobalSCAPE entered into a Commercial Security Agreementwith the Brown and Mann-GlobalSCAPE Joint Venture whereby GlobalSCAPE granted asecurity interest in all its accounts and equipment.  

 

The Company’s flexibility in reacting to changes in the operatingenvironment and to changing economic conditions may be limited by the Company’scurrent liquidity position.  However,management believes that, if required, it will be able to effect some or all ofthe components of the plan set forth above, which are sufficient in theaggregate to enable the Company to continue as a going concern through at leastDecember 31, 2004.  Accordingly,the financial statements of the Company do not include any adjustments toreflect the possible future effects or the recoverability and classification ofassets or the amounts and classification of liabilities that may result if theCompany cannot improve its working capital position.  

 

***Accrued Expenses***

*** ***

Accrued expenses increased approximately $64,000 from December 31,2003 to March 31, 2004.  Thisincrease is due primarily to increased accruals for salaries, commissions andbonuses.

 

6

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# **Stock-BasedCompensation**

# ** **

Statement of Financial Accounting Standards 123, *Accounting for Stock-Based Compensation*(SFAS 123), encourages, but does not require, companies to record compensationcost for stock-based employee compensation plans based on the fair market valueof options granted. The Company chose to account for stock based compensationusing the intrinsic value method prescribed in APB Opinion No. 25, *Accounting for Stock Issued to Employees*,and related interpretations. Accordingly, compensation expense is recorded tothe extent that the current market price of the underlying stock exceeds theexercise price.  In December 2002,the Financial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standard 148, *Accounting forStock Based Compensation - Transition and Disclosure* (SFAS 148),which amends SFAS 123.  SFAS 148requires more prominent and frequent disclosures about the effects ofstock-based compensation. The Company will continue to account for itsstock-based compensation according to the provisions of APB Opinion No.25.  

 

Pro forma information regarding net income and earnings per share isrequired by Statement 148, which also requires that the information bedetermined as if the Company had accounted for its stock options granted subsequentto December 31, 1994 under the fair value method of that Statement.  The fair value of these options wasestimated at the date of grant using a Black-Scholes option-pricing model.

 

For purposes of pro forma disclosures, the estimated fair value of theoptions is amortized to expense over the options’ vesting period.  The Company’s pro forma information for thethree months ended March 31, 2003 and 2004 follows:

 
|                                                                                                                                                                                              |   | **Three  months ended  March 31,** |     |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|----------|
|                                                                                                                                                                                              |   | **2003**                                |     | **2004** |   |
| Net loss, as reported                                                                                                                                                                             |   | $                                       | (610,416 | ) | $ | (205,600 | ) |
| Stock-based compensation expense that would  have been included in the determination of net income (loss) had the fair  value based method been applied to all awards, net of related tax effects |   | (22,296                                 | )        | (8,886 | ) |
| Pro forma net loss                                                                                                                                                                                |   | $                                       | (632,712 | ) | $ | (214,486 | ) |
|                                                                                                                                                                                              |   |                                    |     |   |   |
| Loss per share:                                                                                                                                                                                   |   |                                    |     |   |   |
| Basic- as reported                                                                                                                                                                                |   | $                                       | (0.05    | ) | $ | (0.02 | ) |
| Basic- pro forma                                                                                                                                                                                  |   | $                                       | (0.05    | ) | $ | (0.02 | ) |
|                                                                                                                                                                                              |   |                                    |     |   |   |
| Diluted- as reported                                                                                                                                                                              |   | $                                       | (0.05    | ) | $ | (0.02 | ) |
| Diluted- pro forma                                                                                                                                                                                |   | $                                       | (0.05    | ) | $ | (0.02 | ) |

# ** **

During the first quarter of 2004, no options were granted, none wereforfeited and none expired.

 

7

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# **Earnings perCommon Share**

# ** **

Basic and diluted net income per common share is presented inconformity with Statement of Financial Accounting Standards No. 128, “EarningsPer Share” (SFAS 128) for all periods presented. Basic earnings per share isbased on the weighted effect of all common shares issued and outstanding, andis calculated by dividing net income (loss) available to common stockholders bythe weighted average shares outstanding during the period. Diluted earnings pershare is calculated by dividing net income (loss) available to commonstockholders by the weighted average number of common shares used in the basicearnings per share calculation plus the number of common shares that would beissued assuming conversion of all potentially dilutive common sharesoutstanding.  Below is a reconciliationof the numerators and denominators of basic and diluted earnings per share foreach of the periods presented:

 
|                                                    |   | **Three  months ended March 31,** |     |
|---------------------------------------------------------|--------|----------------------------------------|----------|
|                                                    |   | **2003**                               |     | **2004** |   |
| **Numerators**                                          |   |                                   |     |   |   |
| Numerators for basic and diluted earnings  per share:   |   |                                   |     |   |   |
| Net loss                                                |   | $                                      | (610,416 | ) | $ | (205,600 | ) |
|                                                    |   |                                   |     |   |   |
| **Denominators**                                        |   |                                   |     |   |   |
| Denominators for basic and diluted earnings  per share: |   |                                   |     |   |   |
| Weighted average shares outstanding – basic        |   | 13,358,619                             |     | 13,488,619 |   |
|                                                    |   |                                   |     |   |   |
| **Dilutive potential  common shares**                   |   |                                   |     |   |   |
| Stock options (1)                                       |   | —                                 |     | — |   |
| Denominator for dilutive earnings per share             |   | 13,358,619                             |     | 13,488,619 |   |
|                                                    |   |                                   |     |   |   |
| Net loss per common share                               |   | $                                      | (0.05    | ) | $ | (0.02 | ) |
| Net loss per common share - assuming  dilution          |   | $                                      | (0.05    | ) | $ | (0.02 | ) |

 

----

(1)          For the three months ended March 31,2003, 1,965,671 options have not been included in dilutive shares, as theeffect would be anti-dilutive.  For thethree months ended March 31, 2004, 1,856,171 options have not beenincluded in dilutive shares, as the effect would be anti-dilutive. 

 

8

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# **Item 2.  Management’s Discussion and Analysisof Financial Condition and Results of Operations**

# ** **

**Overview**

 

GlobalSCAPE develops and distributes Internet related softwareincluding file management, content management and Web development tools.  We distribute our software primarily viadownload from our Internet website. During 2003 and the first three months of 2004, approximately 65% and63% of our revenues, respectively, were generated from customers within theUnited States, with the remaining 35% and 37% concentrated mostly in WesternEurope, Canada and Australia. 

 

CuteFTP and CuteFTP Pro accounted for approximately 75% and 71% oftotal revenues in 2003 and in the first quarter of 2004, respectively.  Sales of these products declinedapproximately 13% when comparing the first quarter of 2003 to the first quarterof 2004.  This decline in combined saleswas due to a 27% decline in sales of CuteFTP. However, sales of CuteFTP Proincreased approximately 15% over the same periods.  Total revenues increased almost 5% from the first quarter of 2003to the first quarter of 2004 due to stronger sales of PureCMS and Secure Serverand the introduction of Web Survey, CuteHTML Pro, and a Mac version ofCuteFTP.  

 

The combined sales of CuteFTP and CuteFTP Pro increased approximately6% from the fourth quarter of 2003 to the first quarter of 2004.  Individually, sales of CuteFTP fell 5%during these periods and sales of CuteFTP Pro increased approximately 25%.  Sales of Secure Server, the companionproduct to CuteFTP Pro, increased approximately 7.5% from the fourth quarter of2003 to the first quarter of 2004 and 63% from the first quarter of 2003 to thefirst quarter of 2004.  Sales of SecureServer accounted for approximately 9% of total revenues in the first quarter of2004.

 

Substantially all software products ultimately reach a point in theirlifecycle in which sales can be expected to plateau or decline.  While it cannot be determined withcertainty, CuteFTP and CuteFTP Pro may have reached such a point theirlifecycles.  Management believes thatthe market for stand-alone FTP clients for home consumers may bedeclining.  However, we have not seenthe same decline in the market for secure FTP clients and servers such asCuteFTP Pro and Secure Server which we believe better target the needs ofbusinesses.  

 

Our strategy is to continue to introduce new products while enhancingthe features of our current product line. We dedicated considerable resources in the fourth quarter of 2002 and in2003 to the development and market launch of PureCMS, our content managementproduct.  To date, we have not been assuccessful in selling this product as we had anticipated.  We laid out a plan in our 2002 Annual Reportto address the liquidity issues caused by the expense of the PureCMS marketlaunch and disappointing revenue figures in the first quarter of 2003.  We successfully executed the plan andproduced positive net income in both the second and third quarters.  We fell short of our revenue expectations inthe fourth quarter of 2003 and again addressed the liquidity issues caused bythis shortfall.  We laid off 9 of 45employees on February 12, 2004 in order to bring our expenses in line withour current operating performance.  Wehave the ability to make further cuts in external development, capitalexpenditures and, if necessary, in employees in order to manage the financialhealth of GlobalSCAPE.

 

Our success in 2004 is, to a great extent, dependent on our ability tomarket and sell our content management products effectively as well as ourability to maintain the revenues generated by CuteFTP.  We also believe that we have an opportunityto increase sales of CuteFTP Pro and Secure Server.  In general, our success depends on our ability to introduce newproducts and the market’s acceptance of these products.  We released new versions of CuteFTP, CuteFTPPro and Secure Server early in 2004 and we believe we can slow the decline insales of CuteFTP and improve sales of CuteFTP Pro and Secure Server.  

 

Our current products include:

 

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•                  PureCMS,a content management product targeting companies with small to medium-size Website development teams.  Contentmanagement solutions permit contributors from various disciplines within acompany to directly control designated content on the company’s Web site, moreefficiently manage resources and reduce maintenance costs;

 

•                  PublishXML, an enterprisecontent management (ECM) solution designed around XML. PublishXML enablesdistributed content creation and publication, while streamlining the process ofrepurposing content to multiple formats;

 

•                  GlobalSCAPESecure FTP Server, a secure file server solution for technology professionals,complementing the CuteFTP Pro client application;

 

•                  CuteFTP Home, aneasy-to-use file transfer application that allows users to quickly transferfiles between computers, available for both Windows and Macintosh operatingsystems;

 

•                  CuteFTPProfessional, a business class secure file transfer application forsecurity-conscious professionals.  TheGlobalSCAPE transfer engine technology used in the product is also available asa software developers kit (SDK) allowing developers to incorporate thetechnology in their own applications;

 

•                  CuteZIP, aneasy-to-use compression utility that allows users to shrink and encrypt filesfor secure transfer and storage;

 

•                  CuteSITEBuilder, an easy-to-use WYSIWIG (What You See Is What You Get) Web sitebuilding tool targeting the novice user; 

 

•                  CuteHTML Pro,CuteHTML and CuteMAP, productivity enhancing tools for Web site development;

 

•                  Web Survey, aneasy way to create, manage and analyze Web site surveys;

 

##### **Liquidity andCapital Resources**

##### ** **

The Company incurred significant operating losses during the last threeyears and in the first quarter of 2004. In February 2004 GlobalSCAPE reduced its workforce by 20%, layingoff 9 of the 45 people then employed by the Company.  This workforce reduction was a necessary step in improving theoverall financial health of the organization. The Company had anticipated stronger revenue performance in the firstquarter of 2004 after poorer than expected sales in the fourth quarter of 2003and had maintained staffing levels with this objective.  These higher revenue targets were not met,further reducing the Company’s liquidity position.

 

The Company is highly dependent on the sale of two software products,CuteFTP and CuteFTP Pro, which are subject to technological and competitiveobsolescence.  Sales of these twoproducts, which represented 71% of the Company’s revenues in the first quarterof 2004, declined approximately 13% from the same quarter in the previous yearand the combined sales of these products have declined each of the last severalyears.  

 

The Company’s liquidity could be further reduced in 2004 if sales ofCuteFTP continue to decline and the Company is unable to successfully introducenew products or increase sales of existing products.

 

If sales continue to decline or the Company’s liquidity positionotherwise requires, management has the intent and ability to substantiallyreduce personnel and personnel-related costs, reduce or substantially eliminatecapital expenditures and/or reduce or substantially eliminate research anddevelopment expenditures.

 

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In addition, the Company could draw on its $250,000 line of credit, ifnecessary.  This line of credit, whichoriginally matured in March 2004, has been extended throughJune 2004.  The interest rate issubject to change and is indexed to the bank’s prime rate.  In connection with the line of credit,GlobalSCAPE entered into a commercial security agreement with the bank wherebyGlobalSCAPE granted a security interest in all its accounts and equipment.  The Company borrowed $100,000 on September 11,2003 under this agreement.  This amountwas repaid in February 2004.  Thecredit facility is available to the Company at any point during its term.  

 

On March 30, 2004, the Company obtained a $200,000 line of creditwith the Brown and Mann-GlobalSCAPE Joint Venture.  The line of credit is available after June 21, 2004 if theCompany fails to extend a line of credit with a bank and matures onDecember 31, 2004.  The interestrate is subject to change and is indexed to the prime rate published in theWall Street Journal.  In connection withthe line of credit, GlobalSCAPE entered into a Commercial Security Agreementwith the Brown and Mann-GlobalSCAPE Joint Venture whereby GlobalSCAPE granted asecurity interest in all its accounts and equipment.  

 

The Company’s flexibility in reacting to changes in the operatingenvironment and to changing economic conditions may be limited by the Company’scurrent liquidity position.  However,management believes that, if required, it will be able to effect some or all ofthe components of the plan set forth above, which are sufficient in theaggregate to enable the Company to continue as a going concern through at leastDecember 31, 2004.  Accordingly,the financial statements of the Company do not include any adjustments toreflect the possible future effects or the recoverability and classification ofassets or the amounts and classification of liabilities that may result if theCompany cannot improve its working capital position.  

 

Net cash used by operating activities was $133,739 and $56,374 in threemonths ended March 31, 2003 and 2004, respectively.  For the three months ended March 31,2003, negative operating cash flow was the result of the net loss for theperiod offset somewhat by adjustments related to depreciation and amortizationas well as increases in accounts payable and deferred revenues.  Net cash used by operating activities in thethree months ended March 31, 2004 was primarily due to the net loss forthe period offset by adjustments related to depreciation and an increase inaccrued expenses for the period.  

 

Net cash used in investing activities for the three months endedMarch 31, 2003 and 2004 was $6,809 and $8,321, respectively.  In both periods, the cash used in investingactivity was primarily for the purchase of computers and software. 

 

Net cash used in financing activities during the three months endedMarch 31, 2003 and 2004 was $14,963 and $115,294, respectively.  We made principal payments of $14,963 and$15,294 on capital lease obligations during the three months endedMarch 31, 2003 and 2004, respectively. In addition, we made a principal payment of $100,000 on our line ofcredit in February of 2004, eliminating the balance. 

 

As of March 31, 2004, we had $162,444 in cash, current assets of$418,117 and current liabilities of $559,845, resulting in a working capitaldeficit of $141,728.  Our principalcommitments consisted of obligations outstanding under operating leases as wellas royalty agreements with third parties. The commitments related to royalty agreements are not fixed, rather theyare contingent on sales.  We expect thatoperating expenses will continue to be a material use of our cash resources andwill manage the business based on the immediately foreseeable operating cash flows.  The facility that we currently occupy isexpected to be sufficient for the next twelve months.  Consequently, we do not anticipate significant expenditures forleasehold improvements or furniture for 2004.

 

##### **CriticalAccounting Policies**

##### ** **

# ***Use of Estimates***

# ** **

Management’s Discussion and Analysis of Financial Condition and Resultsof Operations are based upon the Company’s financial statements, which havebeen prepared in accordance with accounting principles generally accepted inthe Unites States.  The preparation ofthese financial statements requires

 

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management to make estimates and assumptionsthat affect the reported amount of assets and liabilities.  On an ongoing basis, management evaluatesits estimates and judgments, including those related to revenue recognition,allowance for doubtful accounts receivable, long-lived and intangible assets,income taxes and contingencies. Management bases its estimates on historical experience, observable trends,and various other assumptions that are believed to be reasonable under thecircumstances.  Management uses thisinformation to make judgments about the carrying values of assets andliabilities that are not readily apparent form other sources.  Actual results may differ from the estimatesunder different assumptions or conditions. 

 

Management believes the following critical accounting policies affectits more significant judgments and estimates used in the preparation of itsfinancial statements. 

 

***Revenue Recognition***

* *

Ourrevenue is generated primarily by licensing our software products and providingsupport for those products.  Revenuesare comprised of the gross selling price of the software, including shippingcharges and the earned portion of support and maintenance agreements.  The Company recognizes revenue in accordancewith the American Institute of Certified Public Accountants Statement ofPosition (“SOP”) 97-2, *Software RevenueRecognition*, as modified by SOP 98-9, *Modification of SOP 97-2, Software Revenue Recognition, With Respect toCertain Transactions*. 

 

Revenues from the sale of software products are recognized andcompletely earned upon shipment or electronic delivery of the product providedthat persuasive evidence of an arrangement exists, collection is probable,payment terms are fixed and determinable and no significant obligationsremain.  The majority of our sales aredelivered electronically via email. 

 

We also sell technical support and maintenance agreements (postcontract customer support “PCS”), which are sometimes bundled with thesoftware.  When vendor specificobjective evidence (“VSOE”) of fair value exists for all elements in a multipleelement arrangement, revenue is allocated to each element based on the relativefair value of each of the elements. VSOE of fair value is established by theprice charged when the same element is sold separately.  In a multiple element arrangement wherebyVSOE of fair value of all undelivered elements exists but VSOE of fair valuedoes not exist for one or more delivered elements, revenue is recognized usingthe residual method. Under the residual method, the fair value of theundelivered elements is deferred and the remaining portion of the arrangementfee is recognized as revenue, assuming collection is probable.  Revenue allocated to PCS is recognizedratably over the contractual term, typically one year.  We sometimes sell installation and trainingservices with our PureCMS product. Revenue for installation and training is recognized when performed.

 

The Company began selling technical support and maintenance servicesfor some of its software products in 2001 and had deferred recognition ofapproximately $11,000 in revenue at the end of that year.  Deferred revenue grew to a balance of approximately$142,000 at December 31, 2002 and has remained relatively flat, with abalance of approximately $147,000 at March 31, 2004.  The rate of growth in deferred revenue in2002 was due primarily to the rapid growth in the sale of technical support andmaintenance agreements in the fourth quarter of 2002.  Sales of these agreements continued to grow into the firstquarter of 2003 but have flattened out since that time, resulting in relativelylittle change year over year in the amount of deferred revenue.  Growth in the sales of maintenance andsupport agreements may result in the deferred recognition of a significantamount of revenue in future periods.

 

***Allowance for DoubtfulAccounts***

*** ***

We provide credit, in the normal course of business, to a number ofcompanies and perform ongoing evaluations of our credit risk.  We require no collateral from our customersand we estimate the allowance for uncollectible accounts based on ourhistorical experience and current credit evaluations.  No single customer accounted for more than 2.5% of net revenuesin 2003 or the first three months of 2004.

 

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***Valuation of Long-Lived and Intangible Assets***

* *

The Company assesses the impairment of long-lived and intangible assetswhenever events or changes in circumstances indicate that the carrying valuemay not be recoverable.  Factorsconsidered important which could trigger an impairment review included thefollowing:  significant underperformancerelative to historical or projected future cash flows; significant changes inthe manner of use of the assets or the strategy for the overall business; andsignificant negative industry trends. When management determines that the carrying value of long-lived andintangible assets may not be recoverable, impairment is measured based on theexcess of the assets’ carrying value over the estimated fair value.  No impairment was recognized in 2003 or thefirst three months of 2004.

 

***Stock-Based Compensation***

* *

Statement of Financial Accounting Standards 123, *Accounting for Stock-Based Compensation*(SFAS 123), encourages, but does not require, companies to record compensationcost for stock-based employee compensation plans based on the fair market valueof options granted. The Company chose to account for stock based compensation usingthe intrinsic value method prescribed in APB Opinion No. 25, *Accounting for Stock Issued to Employees*,and related interpretations. Accordingly, compensation expense is recorded tothe extent that the current market price of the underlying stock exceeds theexercise price.  In December 2002,the Financial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standard 148, *Accounting forStock Based Compensation - Transition and Disclosure* (SFAS 148),which amends SFAS 123.  SFAS 148requires more prominent and frequent disclosures about the effects ofstock-based compensation. The Company will continue to account for itsstock-based compensation according to the provisions of APB Opinion No.25.  The pro forma disclosure requirementsprescribed by SFAS 123, as amended by SFAS 148 are included in the Notes to theFinancial Statements.

 

In the first quarter of 2004, no options were granted, none wereforfeited and none expired.

 

***Research and Development***

*** ***

Research and development expenses include all direct costs, primarilysalaries for personnel and expenditures with external development sources,related to the development of new products and significant enhancements toexisting products and are expensed as incurred until such time as technologicalfeasibility is achieved. For the three months ended March 31, 2003 and2004, we spent approximately $217,218 and $245,631, respectively, on researchand development.  No research anddevelopment expenses were capitalized in either period and all previouslycapitalized research and development expenses were fully amortized atDecember 31, 2002.

 

# ***Income Taxes***

# ** **

GlobalSCAPE accounts for income taxes using the liability method inaccordance with Statement of Financial Accounting Standards No. 109, *Accounting for Income Taxes*. The liabilitymethod provides that the deferred tax assets and liabilities are recorded basedon the difference between the tax bases of assets and liabilities and theircarrying amount for financial reporting purposes, as measured by the enactedtax rates and laws that will be in effect when the differences are expected toreverse.  Deferred tax assets arecarried on the balance sheet with the presumption that they will be realizablein future periods when pre-tax income is generated.  Predicting the ability to realize these assets in future periodsrequires a great deal of judgment by management.  

 

Statement of Financial Accounting Standards (SFAS) No. 109 requires avaluation allowance to reduce the deferred tax assets reported if, based on theweight of the evidence, it is more likely than not that some portion or all ofthe deferred tax assets will not be realized.  Based on these criteria,management has concluded that no income tax benefits are to be recorded relatedto the net loss for the three months ended March 31, 2004, because wecannot be certain of the future period recoverability of tax assets generatedfrom any available net operating losses.

 

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# **Comparison of theThree Months ended March 31, 2003 and 2004**

# ** **

***Revenue.***  For the three months ended March 31,2003 and 2004, total revenues increased $51,951 or approximately 5% from$1,120,186 to $1,172,137 due to an increase in sales of PureCMS and SecureServer and the introduction of CuteFTP Mac, Web Survey and CuteHTML Prosubsequent to the first quarter of 2003. Combined revenues from CuteFTP and CuteFTP Pro declined approximately13% over the comparable periods and accounted for approximately 71% of totalrevenues for the three months ended March 31, 2004.  Sales of CuteFTP fell approximately 27%between periods while sales of CuteFTP Pro increased approximately 15%.

 

***Cost of Revenues.***  Cost of revenues consists primarily ofproduction, packaging and shipping costs for boxed copies of software productsas well as a portion of our bandwidth costs, certain licensing expenses androyalties.  Cost of revenues decreased$43,312 or 31% between periods from $141,990 for the three months endedMarch 31, 2003 to $98,678 for the three months ended March 31,2004.  Royalties that the Company payson software products licensed from third parties, which it resells, areexpensed as a cost of sale when the software product is sold or earlier if therecoverability of any prepaid royalties is in doubt.  The Company has distribution agreements with Hannon Hill Corp.,Trellix Corp., Perseus Development Corp., Beehive Software, Inc., VisicomMedia, Inc., and Xnet Communications GmbH. The GlobalSCAPE software products associated with each of the companiesare PureCMS / Publish XML, CuteSITE Builder, Web Survey, Mac FTP, CuteHTML Pro,and Mac FTP Pro, respectively. GlobalSCAPE’s agreement with Hannon Hill Corp. required a minimumroyalty of $16,667 per month, as prepayment of royalties, for 12 monthsbeginning in December 2002.  Thesepayments were expensed as paid because the lower than expected sales of PureCMSraised doubt as to the realization of benefit from these prepayments.  The total amount expensed in 2003 relatingto these prepayments was $183,337.  As aresult, we expect the cost of revenues to decline both as a percentage of salesand in gross terms in 2004 when compared to 2003 as we recover benefit fromthese minimum royalties.

 

***Selling, General andAdministrative.*** Selling, general and administrative expenses consist primarily ofpersonnel and related expenses, marketing, customer support, rents, credit cardtransaction fees, bad debt and professional fees.  For the three months ended March 31, 2003 and 2004, selling,general and administrative expenses were $1,251,720 and $976,914, respectively,a decrease of $274,806 or 22%. In the first quarter of 2003, we incurredapproximately $460,000 in product launch expenses related to PureCMS. We spentconsiderably less on advertising and promotional activity in the first quarterof 2004 but these savings were offset somewhat by increased salaries andrelated costs such as bonuses, payroll taxes and healthcare costs.  The number of persons employed onMarch 31, 2003 and 2004 declined slightly over the comparable periods from38 to 35, respectively.  

 

***Research andDevelopment.*** Research and development expenses increased $28,413 or 13% betweenperiods, from $217,218 to $245,631.  Theincrease was due to greater expenditures for external development resources aspart of the development of new versions of CuteFTP, CuteFTP Pro and SecureServer.  These increased externaldevelopment expenses were offset somewhat by lower costs for internal staff. 

 

***Depreciation andAmortization.*** Depreciation and amortization expense consists of depreciation expenserelated to our fixed assets and amortization of the trademark associated withour purchase of CuteFTP.  Depreciationand amortization expense decreased from $117,040 to $55,794, a decline of approximately52%.  This decrease was due primarily toa reduction in amortization expense. The purchase of CuteFTP was fully amortized as of September 30,2003.  In addition, depreciation expensehas declined due to a slowdown in additions to fixed assets in current periodsrelative to prior periods.

 

***Other Income,Expense.*** For the three months ended March 31, 2003 and 2004, interestexpense decreased from $1,148 to $720, respectively.  The majority of interest expense incurred during these periodswas related to capital leases.  Duringthe three months ended March 31, 2003, we incurred charges of $1,486related to the disposition of certain fixed assets.

 

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***Income Taxes.***  We recognized no benefit related to the netloss in the first three months ended March 31, 2003 and 2004 because wecannot be certain of the future period recoverability of tax assets generatedfrom available net operating losses.

 

***Net Loss.***  GlobalSCAPE incurred a net loss of $610,416in the first quarter of 2003 and a net loss of $205,600 in the first quarter of2004.  The improvement in operatingperformance over the respective periods was due to an approximate 5% increasein revenues and an approximate 20% improvement in overall operating expenses. 

 

##### **Inflation**

##### ** **

Increases in inflation generally result in higher interest rates andoperating costs.  Our greatest exposureis to the cost of salaries and general and administrative expenses. To date webelieve that inflation has not had a significant impact on our operations.

 

##### **Seasonality**

##### ** **

We believe our sales are subject to seasonal variations.  We experience significantly less salesvolume during national holidays and weekends when compared to normal businessdays.  We expect that in future periodswe will see weakness in the fourth quarter when compared to the third quarterdue to the holiday season.  

 

# **Item 3.  Quantitative and QualitativeDisclosures About Market Risk**

# ** **

To date, we have not utilized derivative financial instruments orderivative commodity instruments.  We donot expect to employ these or other strategies to hedge market risk in theforeseeable future.  We may invest ourcash in money market funds, which are subject to minimal credit and marketrisk.  We believe that the interest raterisk and other relevant market risks associated with these financialinstruments are immaterial.

 

In the three months ended March 31, 2004, approximately 37% of ourrevenues came from customers outside the United States.  All revenues are received in U.S. dollars sowe have no exchange rate risk with regard to the sale.  However, in July 2003, the EuropeanUnion (EU) enacted Value Added Taxes (VAT) on electronic purchases.  These taxes are charged to our non-businesscustomers in the EU and, in our case, are remitted quarterly in poundsterling.  We expect that the impact ofthis currency translation will not be material to our business.

 

# **Item 4.  Controlsand Procedures**

# ** **

a)              Evaluationof disclosure controls and procedures. Within the 90 days prior to the filing date of this report, ourPresident and Vice President of Finance and Operations carried out anevaluation of GlobalSCAPE’s disclosure controls and procedures (as defined SECRules 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as amended,(the “Exchange Act”)) and concluded that the controls and procedures areeffective in recording, processing, summarizing and reporting the informationrequired to be disclosed by GlobalSCAPE in the reports it files with the SECunder the Exchange Act within the time periods specified in the SEC’s rules andforms.

 

b)             Changesin internal controls.  There were nomaterial changes in GlobalSCAPE’s internal controls subsequent to theevaluation described above.

 

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## **Part II.  OtherInformation**

## ** **

# **Item 1.**    LegalProceedings

 

We are not currently involved in any material legal proceedings.

 

# **Item 2.**    Changes in Securities and Use ofProceeds

# ** **

None in the first quarterof 2004.

 

# **Item 3.**    Defaults Upon Senior Securities

# ** **

Not applicable.

 

# **Item 4.**    Submission of Matters to a Vote ofSecurity Holders

# ** **

None in the first quarter of 2004.

 

# **Item 5.**    OtherInformation

# ** **

None in the first quarter of 2004.

 

# **Item 6.**    Exhibits and Reports on Form 8-K

 

**(a)**           Exhibits

 

31.1 Certificate pursuant toSection 302 of the Sarbanes-Oxley Act of 2002.

 

31.2 Certificate pursuant toSection 302 of the Sarbanes-Oxley Act of 2002.

 

32.1 Certificate pursuant toSection 906 of the Sarbanes-Oxley Act of 2002.

 

**(b)**           Reports on Form 8-K

 

1.         Form 8-Kdated February 13, 2004 announcing the resignation of SandraPoole-Christal from her position as President and Chief Operating Officer aswell as her position on the Board of Directors and the election of Charles R.Poole to the open Director position and his appointment as President and ChiefOperating Officer.  In addition, aworkforce reduction of approximately 20% was announced.

 

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**Signatures**

** **

Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 

 
|         |   | GLOBALSCAPE, INC.                               |
|--------------|--------|-------------------------------------------------|
|         |   |                                            |
|         |   |                                            |
| May 17, 2004 |   | By:                                             | /s/ Charles R.  Poole |   |
| Date         |   |                                            | Charles R. Poole |
|         |   | President and Chief Operating Officer           |
|         |   |                                            |
| May 17, 2004 |   | By:                                             | /s/ Daniel McRedmond |   |
| Date         |   |                                            | Daniel McRedmond |
|         |   | Vice President of Finance & Operations      |
|         |   | (Principal Accounting & Financial  Officer) |

 

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