#### ** **

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

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

#### ** **

### **FORM 10-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, 2005** |
| ** **                                              |
| **Or**                                                  |       |                                                                                                    |
|                                                    |       |                                                                                                    |
| **o**                                                   | ** ** | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**For the transition period from              to                  **

** **

**Commission FileNumber:               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  San Antonio, TX**     |   | **78249**                              |
| (Address of principal  executive offices)                        |   | (Zip Code)                             |

 

**(210) 308-8267**(Registrant’s telephone number, including area code)

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.  **ý**  Yes    o  No

 

Indicateby check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2of the Exchange Act).   o  Yes    ý  No

 

## **Thenumber of shares outstanding of the registrant’s common stock at May 6,2005 was 13,773,219.**

 

 

----

 

## **GlobalSCAPEInc.**

## ** **

## **QuarterlyReport on Form 10-Q**

## **Forthe Quarter ended March 31, 2005**

## ** **

## **Index**

 
| **Part I.**               | **Financial Information**                                                                       |       |
|--------------------------------|-------------------------------------------------------------------------------------------------|------------|
|                           |                                                                                            |       |
| Item 1.                        | Interim Consolidated  Financial Statements (Unaudited)                                          |       |
|                           | Consolidated Balance Sheets  as of December 31, 2004 and March 31, 2005               |       |
|                           | Consolidated  Statements of Operations for the three months ended March 31, 2004 and  2005 |       |
|                           | Consolidated  Statements of Cash Flows for the three months ended March 31, 2004 and  2005 |       |
|                           | 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®, CuteFTP®, CuteSITE Builder®, PureCMS®,CuteZIP®, CuteHTML® and CuteMAP® and are registered trademarks of GlobalSCAPETexas, LP.  GlobalSCAPE Secure FTPServer, GlobalSCAPE Transfer Engine, PublishXML and SnapEdit are trademarks ofGlobalSCAPE Texas, LP.  Other trademarksand tradenames in this quarterly report are the property of their respectiveowners.

 

ii

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**GlobalSCAPE, Inc.**

 

**Consolidated Balance Sheets**

 
| ** **                                                                                                                                           | ** ** | **December 31,** | ** ** | **March 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|--------------------|------------|
| ** **                                                                                                                                           | ** ** | **2004**              | ** ** | **2005**           | ** ** |
| ** **                                                                                                                                           | ** ** | ** **            | ** ** | **(unaudited)**    | ** ** |
| Assets                                                                                                                                               |       |                  |       |               |       |
| Current assets:                                                                                                                                      |       |                  |       |               |       |
| Cash                                                                                                                                                 |       | $                     | 572,959    |               | $          | 716,983 |   |
| Accounts  receivable (net of allowance for doubtful accounts of $10,195 and $9,410 at  December 31, 2004 and March 31, 2005, respectively) |       | 148,534               |       | 296,627            |       |
| Prepaid expenses                                                                                                                                     |       | 91,144                |       | 48,032             |       |
| Total current  assets                                                                                                                                |       | 812,637               |       | 1,061,642          |       |
|                                                                                                                                                 |       |                  |       |               |       |
| Property and  equipment:                                                                                                                             |       |                  |       |               |       |
| Furniture and  fixtures                                                                                                                              |       | 332,920               |       | 332,920            |       |
| Software                                                                                                                                             |       | 245,601               |       | 256,708            |       |
| Equipment                                                                                                                                            |       | 608,718               |       | 601,026            |       |
| Leasehold  improvements                                                                                                                              |       | 167,762               |       | 167,762            |       |
|                                                                                                                                                 |       | 1,355,001             |       | 1,358,416          |       |
| Accumulated  depreciation and amortization                                                                                                           |       | 1,207,663             |       | 1,205,269          |       |
| Net property and  equipment                                                                                                                          |       | 147,338               |       | 153,147            |       |
|                                                                                                                                                 |       |                  |       |               |       |
| Other assets:                                                                                                                                        |       |                  |       |               |       |
| Other                                                                                                                                                |       | 11,882                |       | 11,881             |       |
|                                                                                                                                                 |       |                  |       |               |       |
| Total assets                                                                                                                                         |       | $                     | 971,857    |               | $          | 1,226,670 |   |

 

1

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**GlobalSCAPE, Inc.**

 

**Consolidated Balance Sheets**

 
| ** **                                                                                                                                                           | ** ** | **December 31,** | ** ** | **March 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|--------------------|------------|
| ** **                                                                                                                                                           | ** ** | **2004**              | ** ** | **2005**           | ** ** |
| ** **                                                                                                                                                           | ** ** | ** **            | ** ** | **(unaudited)**    | ** ** |
| Liabilities and  Stockholders’ Equity                                                                                                                           |       |                  |       |               |       |
| Current  liabilities:                                                                                                                                                |       |                  |       |               |       |
| Accounts payable                                                                                                                                                     |       | $                     | 122,117    |               | $          | 116,194 |   |
| Accrued expenses                                                                                                                                                     |       | 170,654               |       | 254,296            |       |
| Deferred revenue                                                                                                                                                     |       | 178,117               |       | 199,445            |       |
| Total current liabilities                                                                                                                                            |       | 470,888               |       | 569,935            |       |
|                                                                                                                                                                 |       |                  |       |               |       |
| Long-term  liabilities:                                                                                                                                              |       |                  |       |               |       |
| Other long-term  liabilities                                                                                                                                         |       | 28,038                |       | 25,234             |       |
| Total long-term  liabilities                                                                                                                                         |       | 28,038                |       | 25,234             |       |
|                                                                                                                                                                 |       |                  |       |               |       |
| Total  liabilities                                                                                                                                                   |       | 498,926               |       | 595,169            |       |
|                                                                                                                                                                 |       |                  |       |               |       |
| 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, 13,773,219 shares  issued and outstanding at December 31, 2004 and March 31, 2005 |       | 13,773                |       | 13,773             |       |
| Additional  paid-in capital                                                                                                                                          |       | 675,365               |       | 675,365            |       |
|                                                                                                                                                                 |       |                  |       |               |       |
| Retained  earnings (deficit)                                                                                                                                         |       | (216,207              | )          | (57,637            | )          |
|                                                                                                                                                                 |       |                  |       |               |       |
| Total  stockholders’ equity                                                                                                                                     |       | 472,931               |       | 631,501            |       |
| Total  liabilities and stockholders’ equity                                                                                                                     |       | $                     | 971,857    |               | $          | 1,226,670 |   |

 

See accompanying notes.

 

2

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**GlobalSCAPE, Inc.**

 

**Consolidated Statements of Operations**

 

**(Unaudited)**

** **
| ** **                                                                            | ** ** | **Three months ended March 31,** | ** ** |
|---------------------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                            | ** ** | **2004**                              | ** ** | **2005** | ** ** |
| Operating  revenues:                                                                  |       |                                  |       |   |   |
| Software product  revenues                                                            |       | $                                     | 1,127,219  |   | $ | 1,298,674 |   |
| Maintenance,  support and other revenues (net of deferred revenues)                   |       | $                                     | 44,918     |   | $ | 123,707 |   |
| Total operating  revenues                                                             |       | $                                     | 1,172,137  |   | $ | 1,422,381 |   |
|                                                                                  |       |                                  |       |   |   |
| Operating  expenses:                                                                  |       |                                  |       |   |   |
| Cost of revenues  (exclusive of depreciation and amortization shown separately below) |       | 98,678                                |       | 81,558 |   |
| Selling, general  and administrative expenses                                         |       | 976,914                               |       | 972,995 |   |
| Research and  development expenses                                                    |       | 245,631                               |       | 178,765 |   |
| Depreciation and  amortization                                                        |       | 55,794                                |       | 29,100 |   |
| Total operating  expense                                                              |       | 1,377,017                             |       | 1,262,418 |   |
| Income (loss)  from operations                                                        |       | (204,880                              | )          | 159,963 |   |
|                                                                                  |       |                                  |       |   |   |
| Other income  (expense):                                                              |       |                                  |       |   |   |
| Interest expense                                                                      |       | (720                                  | )          | (328 | ) |
| Total other  income (expense)                                                         |       | (720                                  | )          | (328 | ) |
| Income (loss)  before income taxes                                                    |       | (205,600                              | )          | 159,635 |   |
|                                                                                  |       |                                  |       |   |   |
| Income tax  expense (benefit):                                                        |       |                                  |       |   |   |
| Current:                                                                              |       |                                  |       |   |   |
| Federal                                                                               |       | —                                |       | — |   |
| State                                                                                 |       | —                                |       | 1,065 |   |
| Deferred:                                                                             |       |                                  |       |   |   |
| Federal                                                                               |       | —                                |       | — |   |
| State                                                                                 |       | —                                |       | — |   |
| Total income tax  provision (benefit)                                                 |       | —                                |       | 1,065 |   |
|                                                                                  |       |                                  |       |   |   |
| Net income (loss)                                                                     |       | $                                     | (205,600   | ) | $ | 158,570 |   |
|                                                                                  |       |                                  |       |   |   |
| Net income  (loss) per common share-basic                                             |       | $                                     | (0.02      | ) | $ | 0.01 |   |
| Net income  (loss) per common share-assuming dilution                                 |       | $                                     | (0.02      | ) | $ | 0.01 |   |
|                                                                                  |       |                                  |       |   |   |   |   |
| Average shares  outstanding:                                                          |       |                                  |       |   |   |
| Basic                                                                                 |       | 13,488,619                            |       | 13,773,219 |   |
| Diluted                                                                               |       | 13,488,619                            |       | 14,366,506 |   |

 

Seeaccompanying notes.

 

3

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**GlobalSCAPE, Inc.**

 

**Consolidated Statements of Cash Flows**

 

**(Unaudited)**

 
| ** **                                                                                           | ** ** | **Three months ended March 31,** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                                           | ** ** | **2004**                              | ** ** | **2005** | ** ** |
| Operating  Activities:                                                                               |       |                                  |       |   |   |
| Net Income  (loss)                                                                                   |       | $                                     | (205,600   | ) | $ | 158,570 |   |
| Adjustments to  reconcile net income (loss) to net cash (used in) provided by operating  activities: |       |                                  |       |   |   |
| Bad debt expense                                                                                     |       | (7,258                                | )          | (299 | ) |
| Depreciation and  amortization                                                                       |       | 55,794                                |       | 29,100 |   |
| Changes in operating  assets and liabilities:                                                        |       |                                  |       |   |   |
| Accounts  receivable                                                                                 |       | 24,752                                |       | (147,794 | ) |
| Prepaid expenses                                                                                     |       | 13,876                                |       | 43,112 |   |
| Accounts payable                                                                                     |       | (4,783                                | )          | (5,923 | ) |
| Accrued expenses                                                                                     |       | 63,539                                |       | 83,642 |   |
| Deferred  revenues                                                                                   |       | 6,110                                 |       | 21,328 |   |
| Other long-term  liabilities                                                                         |       | (2,804                                | )          | (2,804 | ) |
| Net cash (used  in) provided by operating activities                                                 |       | (56,374                               | )          | 178,932 |   |
| Investing  Activities:                                                                               |       |                                  |       |   |   |
| Purchase of  property and equipment                                                                  |       | (8,321                                | )          | (34,908 | ) |
| Net cash used in  investing activities                                                               |       | (8,321                                | )          | (34,908 | ) |
| Financing Activities:                                                                                |       |                                  |       |   |   |
| Principal  payments on notes payable                                                                 |       | (100,000                              | )          | — |   |
| Principal  payments on capital lease obligations                                                     |       | (15,294                               | )          | — |   |
| Net cash used in  financing activities                                                               |       | (115,294                              | )          | — |   |
| Net increase  (decrease) in cash                                                                     |       | (179,989                              | )          | 144,024 |   |
| Cash at beginning  of period                                                                         |       | 342,433                               |       | 572,959 |   |
| Cash at end of  period                                                                               |       | $                                     | 162,444    |   | $ | 716,983 |   |

 

See accompanying notes.

 

4

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**GlobalSCAPE, Inc.**

** **

**Notes to Consolidated Financial Statements**

** **

# **Natureof Business**

# ** **

GlobalSCAPE, Inc. (collectively referredto as “GlobalSCAPE” or “the Company”), founded in April 1996, develops anddistributes and supports Internet related software. The Company is best knownfor its popular file transfer program, CuteFTP. The Company derives its revenues primarily from sales of licenses to useits software products.  Sales of CuteFTPand CuteFTP Pro accounted for approximately 69% and 63% of total revenues in2004 and the first three months of 2005, respectively.  The Company is organized and operates as onesegment and markets its products through the Internet, an internal sales forceand through resellers.

 

***Corporate Structure***

*** ***

All of the Company’s operations are conductedby GlobalSCAPE Texas, LP, a Texas limited partnership.  The partners of GlobalSCAPE Texas, LP are twoNevada limited liability companies, which are both wholly-owned subsidiaries ofGlobalSCAPE, Inc., a Delaware corporation. GlobalSCAPE Inc. is approximately 71% owned by Thomas Brown and David Mann,individually, with the remainder held publicly. GlobalSCAPE, Inc. is a holding company and conducts no operations,however, the stock of GlobalSCAPE, Inc. is quoted on the OTC BulletinBoard.  References to “GlobalSCAPE” orthe “Company” refer collectively to all of these entities unless otherwiseindicated.

 

# **Basisof Presentation**

# ** **

The accompanying unaudited financialstatements have been prepared in accordance with Rule 10-01 of RegulationS-X, “Interim Financial Statements.” Accordingly, they do not include all information and footnotes requiredunder generally accepted accounting principles for complete financialstatements.  In the opinion ofmanagement, all adjustments (consisting of normally recurring accruals)considered necessary for a fair presentation have been made.  The results of operations for any interimperiod are not necessarily indicative of the results to be expected for thefull year.

 

The Balance Sheet at December 31, 2004has been derived from the audited financial statements at that date but doesnot include all the information and footnotes required by generally acceptedaccounting principles for complete financial statements.  For further information, refer to thefinancial statements and footnotes included in GlobalSCAPE’s Annual Report on Form 10-Kfor the year ended December 31, 2004.

 

# **Principlesof Consolidation**

# ** **

The consolidated financial statements includeall subsidiaries.  All inter-companytransactions and balances have been eliminated.

 

# **Liquidity**

# ** **

The Company hasimproved its positive working capital position through a combination of revenuegrowth, expense control and net income over the last 4 quarters, including thequarter ended March 31, 2005. The Company incurred significant operatinglosses during the year ended December 31, 2003 and the quarter ended March 31,2004. 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 stepin improving the overall financial health of the organization.  The Company is meeting its higher revenuetargets, further improving the Company’s liquidity position.

 

5

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The Company is highly dependent on the saleof two software products, CuteFTP and CuteFTP Pro, which are subject totechnological and competitive obsolescence. Sales of these two products, which represented 63% of the Company’srevenues in the first quarter of 2005, declined approximately 8% as apercentage of revenue from the same quarter in the previous year, althoughrevenue for these two products increased approximately 8%.  The increase in combined sales was due to a 39%decline in sales of CuteFTP and a sales increase of CuteFTP Pro ofapproximately 66% from the first quarter of 2004 to the first quarter of 2005.Sales of Secure Server, the companion product to CuteFTP Pro, increasedapproximately 16% from the fourth quarter of 2004 to the first quarter of 2005and 94% from the first quarter of 2004 to the first quarter of 2005.  Sales of Secure Server accounted forapproximately 15% and 9% of total revenues in the first quarter of 2005 and2004, respectively. Total revenues increased approximately 21% when comparingthe first 3 months of 2004 to 2005.

 

The Company reneweda $250,000 revolving line of credit agreement in December 2004, which isdue on demand, but if no demand is made, then on March 31, 2006. Theinterest rate is subject to change and is indexed to the bank’s prime rate. Theinitial rate is 7.25%. In connection with the line of credit, GlobalSCAPEentered into a commercial security agreement with the bank whereby GlobalSCAPEgranted a security interest in all its accounts and equipment.  The Company has not borrowed under thisagreement in 2005. The credit facility is available to the Company at any pointduring its term.

 

***Reclassifications***

*** ***

***Certain prior period amounts havebeen reclassified to conform to the current year presentation. Thesereclassifications had no impact on operating income as previously reported.***

*** ***

***Sale / Disposal of Assets***

*** ***

***During the first quarter of 2004,the company did not sell or dispose of any fixed assets.  The Company did write-off $31,494 in fullydepreciated assets during the first quarter of 2005.***

*** ***

# **Stock-BasedCompensation**

# ** **

Statement ofFinancial Accounting Standards 123, *Accountingfor Stock-Based Compensation* (SFAS 123), encourages, but does not require, companies to recordcompensation cost for stock-based employee compensation plans based on the fairmarket value of options granted. The Company chose to account for stock basedcompensation using 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 148 requiresmore prominent and frequent disclosures about the effects of stock-basedcompensation. The Company will continue to account for its stock-basedcompensation according to the provisions of APB Opinion No. 25.

 

Pro formainformation regarding net income and earnings per share is required byStatement 148, which also requires that the information be determined as if theCompany had accounted for its stock options granted subsequent to December 31,1994 under the fair value method of that Statement.  The fair value of these options was estimatedat the date of grant using a Black-Scholes option-pricing model.

 

For purposesof pro forma disclosures, the estimated fair value of the options is amortizedto expense over the options’ vesting period. The Company’s pro forma information for the three months ended March 31,2004 and 2005 follows:

 

6

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| ** **                                                                                                                                                                                         | ** ** | **Three months ended  March 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                                                                                                                                         | ** ** | **2004**                               | ** ** | **2005** | ** ** |
| Net  income(loss), as reported                                                                                                                                                                     |       | $                                      | (205,600   | ) | $ | 158,570 |   |
| 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 |       | (8,886                                 | )          | (4,047 | ) |
| Pro forma net  loss                                                                                                                                                                                |       | $                                      | (214,486   | ) | $ | 154,523 |   |
|                                                                                                                                                                                               |       |                                   |       |   |   |
| Loss per share:                                                                                                                                                                                    |       |                                   |       |   |   |
| Basic- as  reported                                                                                                                                                                                |       | $                                      | (0.02      | ) | $ | 0.01 |   |
| Basic- pro forma                                                                                                                                                                                   |       | $                                      | (0.02      | ) | $ | 0.01 |   |
|                                                                                                                                                                                               |       |                                   |       |   |   |
| Diluted- as  reported                                                                                                                                                                              |       | $                                      | (0.02      | ) | $ | 0.01 |   |
| Diluted- pro  forma                                                                                                                                                                                |       | $                                      | (0.02      | ) | $ | 0.01 |   |

 

During the first quarter of 2005, no optionswere granted, 10,000 were forfeited and none expired.

 

# **Earningsper Common Share**

# ** **

Basic and diluted net income per common shareis presented in conformity with Statement of Financial Accounting Standards No. 128,“Earnings Per Share” (SFAS 128) for all periods presented. Basic earnings pershare is based on the weighted effect of all common shares issued andoutstanding, and is calculated by dividing net income (loss) available tocommon stockholders by the weighted average shares outstanding during theperiod. Diluted earnings per share is calculated by dividing net income (loss)available to common stockholders by the weighted average number of commonshares used in the basic earnings per share calculation plus the number ofcommon shares that would be issued assuming conversion of all potentiallydilutive common shares outstanding. Below is a reconciliation of the numerators and denominators of basicand diluted earnings per share for each of the periods presented:

 
| ** **                                                   | ** ** | **Three months ended March 31,** | ** ** |
|--------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                   | ** ** | **2004**                              | ** ** | **2005** | ** ** |
| **Numerators**                                               |       |                                  |       |   |   |
| Numerators for  basic and diluted earnings per share:        |       |                                  |       |   |   |
| Net income  (loss)                                           |       | $                                     | (205,600   | ) | $ | 158,570 |   |
|                                                         |       |                                  |       |   |   |
| **Denominators**                                             |       |                                  |       |   |   |
| Denominators for  basic and diluted earnings per share:      |       |                                  |       |   |   |
| Weighted average  shares outstanding – basic            |       | 13,488,619                            |       | 13,773,219 |   |
|                                                         |       |                                  |       |   |   |
| **Dilutive  potential common shares**                        |       |                                  |       |   |   |
| Stock options  (1)                                           |       | —                                |       | 593,287 |   |
| Denominator for  dilutive earnings per share                 |       | 13,488,619                            |       | 14,366,506 |   |
|                                                         |       |                                  |       |   |   |
| Net income  (loss) per common share                          |       | $                                     | (0.02      | ) | $ | 0.01 |   |
| Net income  (loss) per common share – assuming dilution |       | $                                     | (0.02      | ) | $ | 0.01 |   |

 

7

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----

(1)          For the three monthsended March 31, 2004 1,856,171 options have not been included in dilutive shares,as the effect would be anti-dilutive. For the three months ended March 31, 2005, 882,000 options have notbeen included in dilutive shares, as the effect would be anti-dilutive.

 

# **Item2.  Management’s Discussion and Analysis**of Financial Condition and Results of Operations

 

This Quarterly Report on Form 10-Qcontains “forward-looking statements” within the meaning of Section 27A ofthe Securities Act of 1933, as amended, and Section 21E of the Securitiesand Exchange Act of 1934, as amended.  “Forwardlooking statements” are those statements that describe management’s beliefs andexpectations about the future.  We haveidentified forward-looking statements by using words such as “anticipate,” “believe,”“could,” “estimate,” “may,” “expect,” and “intend.”  Although we believe these expectations arereasonable, our operations involve a number of risks and uncertainties,including those described in the “Risk Factors” section of our AnnualReport on Form 10-K and other documents filed with the Securities andExchange Commission.  GlobalSCAPE’sactual results could differ materially from those discussed in anyforward-looking statements included in this Quarterly Report.

 

**Overview**

 

GlobalSCAPEdevelops and distributes Internet related software including File Management, ContentManagement and Web development tools.  Wedistribute our software primarily via download from our Internet website.  During 2004 and the first three months of 2005,approximately 64% of our revenues, were generated from customers within theUnited States, with the remaining 36%****concentratedmostly in Western Europe, Canada and Australia.

 

•                  **Content Management Products**–****Our Content Management Products helpnon-technical business users update and manage Web Site content without excessivetraining. The product line includes PublishXML and PureCMS.

 

•                  **File Management Products** – Our FileManagement products are best known for the “CuteFTP” product line. Theyprimarily consist of products that help users move and copy files on theInternet. A substantial portion of our revenues are derived from licensing ourFile Management products. Some of our products encrypt the transfers forsecurity using technology similar to a Web browser. Our File Management productline includes CuteFTP Home, Cute FTP Professional, SecureFTP Server, EnhancedFile Transfer, Cute FTP Server and CuteZIP.

 

•                  **Web Development Products** – Our WebDevelopment Products help Web developers create Web sites. They provide a widerange of capabilities such as creating Web sites from a template, directediting of Web based computer code and creating Web surveys. Our WebDevelopment product line includes CuteSITE Builder, CuteHTML, CuteHTML Pro, CuteMAPand Web Survey.

 

CuteFTP and CuteFTP Pro accounted forapproximately 69%****and 63% of total revenues in 2004and in the first quarter of 2005, respectively.** **Sales of these products declinedapproximately 8% as a percentage of revenue when comparing the first quarter of2004 to the first quarter of 2005, although revenue for these productsincreased approximately 8%.** **The decline as a percentage ofrevenue was due to an increase in sales of other products such as SecureFTPServer and Enhanced File Transfer.

 

GlobalSCAPE’s goal is to continue to enhanceour SecureFTP Server and Enhanced File Transfer products to meet the needs ofour customers and the enterprise market.****Total revenuesincreased over 21%

 

8

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from the first quarter of 2004to the first quarter of 2005 due to stronger sales of CuteFTP Pro, SecureFTPServer and the introduction of PublishXML, Enhanced File Transfer and MacFTPPro.

 

Substantially all software productsultimately reach a point in their lifecycle in which sales can be expected toplateau or decline.  While it cannot bedetermined with certainty, CuteFTP may have reached such a point in itslifecycle.  Management believes that themarket for stand-alone FTP clients for home consumers may be declining.  However, we have not seen the same decline inthe market for secure FTP clients and servers such as CuteFTP Pro, SecureServer and Enhanced File Transfer, which we believe better target the needs ofbusinesses.

 

Our strategyis to continue enhancing our file transfer products across the board to meetthe demands of both individual and enterprise users, while improving ourcurrent product line. Our success in 2005 is, to a great extent, dependent onour ability to market and sell our Enhanced File Transfer to enterprise usersand continue to enhance our current products. We are continuing to addresssecurity issues for our customers for future releases. We plan on releasingadditional versions of our Enhanced File Transfer product this year.  In general, our success depends on ourability to introduce new products and the market’s acceptance of theseproducts.  We released new versions ofCuteFTP, CuteFTP Pro and Secure Server early in 2005.

 

##### **Liquidity and Capital Resources**

##### ** **

 The Company continues to improve its positiveworking capital position through a combination of revenue growth and expensereductions, that has resulted in net income over the last four quarters,including the quarter ended March 31, 2005. The Company incurredsignificant operating losses during the three years ending December 31,2003 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.

 

We relyheavily on cash flows from operations and these cash flows are directly linkedto CuteFTP Home and CuteFTP Professional, which accounted for 71%****and 63% of our revenues in the three months ended March 31,2004 and 2005 respectively.  Althoughthere was a decline in the percentage of revenue for these two products, therevenue from them increased approximately $66,000. Much of the decline inpercentage of revenues from the sale of these two products was offset by salesof other products in the first quarter of 2005, namely, SecureFTP Server,CuteHTML PRO, MacFTP Pro, Enhanced File Transfer and PublishXML.  Total revenues increased 21% when comparingthe first quarter of 2005 to the same period in 2004.

 

If salesdecline or the Company’s liquidity position otherwise requires, management hasthe intent and ability to substantially reduce personnel and personnel-related costs,reduce or substantially eliminate capital expenditures and/or reduce orsubstantially eliminate research and development expenditures.

 

In addition,the Company could draw on its $250,000 line of credit, if necessary.  This line of credit, which matured in December 2004,has been renewed through March 2006. The interest rate is subject to change and is indexed to the bank’sprime rate.  In connection with the lineof credit, GlobalSCAPE entered into a commercial security agreement with thebank whereby GlobalSCAPE granted a security interest in all its accounts andequipment.  The Company borrowed $100,000on September 11, 2003 under this agreement.  This amount was repaid in February 2004.  The credit facility is available to theCompany at any point during its term.

 

Net cashprovided by operating activities was $178,932 for the three months ended March 31,2005 as compared to $56,374 used in the three months ended March 31,2004.  Cash provided in operations forthe three months ended March 31, 2005, was primarily the result of netincome and depreciation and amortization, and to a lesser extent increases,accrued expenses, and deferred revenue offset by a increase in accountsreceivable and decrease in accounts payable. The increase in sales to businesses has resulted in an increase inaccounts receivable.

 

9

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Net cash usedin investing activities for the three months ended March 31, 2004 and 2005was  $8,321 and $34,908,respectively.  In both periods, the cashused in investing activity was primarily for the purchase of computers andsoftware.

 

Net cash usedin financing activities during the three months ended March 31, 2004  was $115,294. We made principal payments of $15,294 on capital lease obligations andwe made a principal payment of $100,000 on a bank line of credit during thethree months ended March 31, 2004. We had no cash provided by or used in investingactivities during the three months ended March 31, 2005.

 

As of March 31,2005, we had $716,983 in cash, current assets of $1,061,642 and currentliabilities of $569,935, resulting in working capital of $491,707.  Our principal commitments consisted ofobligations outstanding under operating leases, sales bonuses, royaltyagreements with third parties and trade accounts payable.  We plan to continue to expend significantresources on product development in future periods and may also use our cash toacquire or license technology, products or businesses related to our currentbusiness. The facility that we currently occupy is expected to be sufficientfor our growth over the next twelve months. Consequently, we do not anticipate significant expenditures forleasehold improvements or furniture for 2005.

 

The followingtable sets forth the future minimum payments required under contractualcommitments at March 31, 2005:

 
| ** **                  | ** ** | **Payments Due by Fiscal Year** | ** ** |
|-----------------------------|------------|---------------------------------|------------|
| **Contractual Obligations** | ** ** | **2005 (1)**                    | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **Thereafter** | ** ** | **Total** | ** ** |
| Operating Lease             |       | $                               | 142,994    |   | $ | 190,659 |   | $ | 190,659 |   | $ | 95,330 |   | — |   | $ | 619,642 |   |
| Equipment Leases            |       | 4,693                           |       | 6,257 |   | 3,105 |   | — |   | — |   | 14,055 |   |
| Total Cash  Obligations     |       | $                               | 147,687    |   | $ | 196,916 |   | $ | 193,764 |   | $ | 95,330 |   | — |   | $ | 633,697 |   |

 

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(1)          Amounts for 2005 reflect the future minimum payments for the remaining nine months of the fiscal year.

 

##### **Critical Accounting Policies**

##### ** **

# ***Use ofEstimates***

# ** **

Management’s Discussion and Analysis ofFinancial Condition and Results of Operations are based upon the Company’sfinancial statements, which have been prepared in accordance with accountingprinciples generally accepted in the United States.  The preparation of these financial statementsrequires management to make estimates and assumptions that affect the reportedamount of assets and liabilities.  On anongoing basis, management evaluates its estimates and judgments, includingthose related to revenue recognition, allowance for doubtful accountsreceivable, long-lived and intangible assets, income taxes andcontingencies.  Management bases itsestimates on historical experience, observable trends, and various otherassumptions that are believed to be reasonable under the circumstances.  Management uses this information to makejudgments about the carrying values of assets and liabilities that are notreadily apparent form other sources. Actual results may differ from the estimates under different assumptionsor conditions.

 

Management believes the following criticalaccounting policies affect its more significant judgments and estimates used inthe preparation of its financial statements.

 

***RevenueRecognition***

* *

Our revenue is generatedprimarily by licensing our software products and providing support for thoseproducts.  Revenues are comprisedof the gross selling price of the software, including shipping charges and theearned portion of support and maintenance agreements.  The Company recognizes revenue

 

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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 fromthe sale of software products are recognized and completely earned uponshipment or electronic delivery of the product provided that persuasiveevidence of an arrangement exists, collection is probable, payment terms arefixed and determinable and no significant obligations remain.

 

We also selltechnical support and maintenance agreements (post contract customer support “PCS”),which are sometimes bundled with the software. When vendor specific objective evidence (“VSOE”) of fair valueexists for all elements in a multiple element arrangement, revenue is allocatedto each element based on the relative fair value of each of the elements. VSOEof fair value is established by the price charged when the same element is soldseparately.  In a multiple elementarrangement whereby VSOE of fair value of all undelivered elements exists butVSOE of fair value does not exist for one or more delivered elements, revenueis recognized using the residual method. Under the residual method, the fairvalue of the undelivered elements is deferred and the remaining portion of thearrangement fee is recognized as revenue, assuming collection is probable.  Revenue allocated to PCS is recognizedratably over the contractual term, typically one year

 

The Companybegan selling technical support and maintenance services for some of itssoftware products in 2001.  Deferredrevenue grew to a balance of approximately $140,000 and $178,000 at December 31,2003 and  2004, respectively. Sales ofthese agreements continued to grow into the first quarter of 2005 with moredeferrals that are due largely to the enterprise type software they aresupporting. If the level of sales of technical support and maintenanceagreements remains the same or declines, the balance of deferred revenues willstabilize or decline. However if sales grow, the balance will increase,resulting in the deferred recognition of a significant amount of revenue infuture periods.

 

***Allowancefor Doubtful Accounts***

*** ***

We providecredit, in the normal course of business, to a number of companies and performongoing evaluations of our credit risk. We require no collateral from our customers and we estimate theallowance for uncollectible accounts based on our historical experience andcurrent credit evaluations.  No singlecustomer accounted for more than 2% of net revenues in 2004 or the first threemonths of 2005.

 

***Valuationof Long-Lived and Intangible Assets***

* *

The Companyassesses the impairment of long-lived and intangible assets whenever events orchanges in circumstances indicate that the carrying value may not berecoverable.  Factors consideredimportant which could trigger an impairment review included the following:  significant underperformance relative tohistorical or projected future cash flows; significant changes in the manner ofuse of the assets or the strategy for the overall business; and significantnegative industry trends.  When managementdetermines that the carrying value of long-lived and intangible assets may notbe recoverable, impairment is measured based on the excess of the assets’carrying value over the estimated fair value. No impairment was recognized in 2004 or the first three months of 2005.

 

***Stock-BasedCompensation***

* *

The companyhas adopted Statement of Financial Accounting Standards 123, *Accounting for Stock-Based Compensation,*and elected to use the intrinsicvalue method in accounting for its stock option plan in accordance with AccountingPrinciples Board Opinion No. 25, *Accountingfor Stock Issued to Employees*, and related interpretations underwhich compensation expense is recorded to the extent that the current marketprice of the underlying stock exceeds the exercise price.

 

In the firstquarter of 2005, no options were granted, 10,000 options were forfeited andnone expired.

 

11

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In December 2004,FASB issued Statement No. 123-R, *Share-BasedPayment,*which establishes accounting standards for transactions inwhich an entity receives employee services in exchange for (a) equityinstruments of the entity or (b) liabilities that are based on the fairvalue of the entity’s equity instruments or that may be settled by the issuanceof equity instruments*. *Effective in the third quarter of2005, SFAS 123-R will require us to recognize the grant-date fair value ofstock options and equity based compensation issued to employees in thestatement of operations.  The statement alsorequires that such transactions be accounted for using the fair –value-basedmethod, thereby eliminating use of the intrinsic value method of accounting inAPB No. 25, *Accounting for Stock Issuedto Employees,*which was permitted under Statement 123, as originallyissued.  This change in accounting willbe required in the third quarter of 2005 and will result in increasedcompensation expense for stock options over their vesting period.

 

***Researchand Development***

*** ***

Research anddevelopment expenses include all direct costs, primarily salaries for personneland expenditures with external development sources, related to the developmentof new products and significant enhancements to existing products and areexpensed as incurred until such time as technological feasibility is achieved.For the three months ended March 31, 2004 and 2005, we spent approximately$245,631 and $178,765, respectively, on research and development.  No research and development expenses werecapitalized in either period and all previously capitalized research anddevelopment expenses were fully amortized at December 31, 2002.

 

# ***IncomeTaxes***

# ** **

GlobalSCAPEaccounts for income taxes using the liability method in accordance withStatement 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 book and tax basis of assets and liabilities andtheir carrying amount for financial reporting purposes, as measured by theenacted tax rates and laws that will be in effect when the differences areexpected to reverse.  Deferred tax assetsare carried on the balance sheet with the presumption that they will berealizable in future periods when pre-tax income is generated.

 

Statement ofFinancial Accounting Standards (SFAS) No. 109 requires a valuationallowance to reduce the deferred tax assets reported if, based on the weight ofthe evidence, it is more likely than not that some portion or all of thedeferred tax assets will not be realized.  Based on these criteria,management has concluded that no deferred tax assets are to be recorded relatedto the net operating loss carryforwards at December 31, 2004 and March 31,2005, because we cannot be certain of the future period recoverability of taxassets generated from any available net operating loss carryforwards.

 

# **Comparisonof the Three Months ended March 31, 2004 and 2005**

 
| ** **                                    | ** ** | **2004**  | ** ** | **2005**  | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
|-----------------------------------------------|------------|-----------|------------|-----------|------------|-------------------|------------|--------------|------------|
| Software product  revenues                    |       | $         | 1,172,137  |      | $          | 1,422,381         |       | $            | 250,244    |   | 21 | % |
| Cost of revenues                              |       | 98,678    |       | 81,558    |       | (17,120           | )          | (17          | )%         |
| Selling, general  and administrative Expenses |       | 976,914   |       | 972,995   |       | (3,919            | )          | (0.4         | )%         |
| Research and  development expenses            |       | 245,631   |       | 178,765   |       | (66,866           | )          | (27          | )%         |
| Depreciation and  amortization                |       | 55,794    |       | 29,100    |       | (26,694           | )          | (48          | )%         |
| Total operating  expense                      |       | 1,377,017 |       | 1,262,418 |       | 114,599           |       | (8           | )%         |
| Income (loss)  from operations                |       | (204,880  | )          | 159,963   |       | 364,843           |       |         |       |
| Interest expense                              |       | 720       |       | 328       |       | (392              | )          | (54          | )%         |
| Income tax  expense                           |       | —    |       | 1,065     |       | 1,065             |       |         |       |
| Net income  (loss)                            |       | (205,600  | )          | 158,570   |       | 364,170           |       |         |       |
|                                               |            |           |            |           |            |                   |            |              |            |  |  |  |

 

12

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***Revenue.***  For the three months ended March 31, 2004and 2005, total revenues increased $250,244 or approximately 21% from $1,172,137to $1,422,381 due to an increase in sales of CuteFTP Pro, SecureFTP Server andthe introduction of MacFTP Pro, PublishXML and Enhanced File Transfer.Subsequent to the quarter ended March 31, 2004. Combined revenues fromCuteFTP and CuteFTP Pro increased approximately 8% over the comparable periodsand accounted for approximately 63% of total revenues for the three monthsended March 31, 2005.  Sales ofCuteFTP fell approximately 39% between periods while sales of CuteFTP Proincreased approximately 66%.

 

***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 $17,120or 17% between periods from $98,678 for the three months ended March 31,2004 to $81,558 for the three months ended March 31, 2005.  Royalties that the Company pays on softwareproducts licensed from third parties, which it resells, are expensed as a costof sale when the software product is sold or earlier if the recoverability ofany prepaid royalties is in doubt.  TheCompany has distribution agreements with Hannon Hill Corp., Trellix Corp.,Perseus Development Corp., Beehive Software, Inc., Visicom Media, Inc.,and Xnet Communications GmbH.  TheGlobalSCAPE software products associated with each of the companies are PureCMS/ Publish XML, CuteSITE Builder, Web Survey, Mac FTP, CuteHTML Pro, and Mac FTPPro, respectively.

 

 ***Selling, General and Administrative.***  Selling, general and administrative expensesconsist primarily of personnel and related expenses, marketing, customersupport, rents, bad debt and professional fees. For the three months ended March 31, 2004 and 2005, selling,general and administrative expenses were $976,914 and $972,995, respectively, adecrease of less than 1%.

 

***Research and Development.***  Research and development expenses decreased $66,866or 27% between periods, from $245,631 to $178,765. The decrease was due to decreasedexpenditures for external development resources and reduced internal staffingcosts.

 

***Depreciation and Amortization.***  Depreciation and amortization expenseconsists of depreciation expense related to our fixed assets, amortization ofthe trademark associated with our purchase of CuteFTP and in prior periods,amortization of capitalized development costs. Depreciation and amortizationexpense decreased from $55,794  to $29,100,a decline of approximately 48%.  Thisdecrease was due primarily to a reduction in depreciation expense as fixedassets come to the end of their depreciable life as well as a slowdown inadditions to fixed assets in current periods relative to prior periods.

 

***Other Income, Expense.***  For the three months ended March 31, 2004and 2005, interest expense decreased from $720 to $328, respectively.  The majority of interest expense incurredduring these periods was related to financing of insurance premiums.

 

***Income Taxes.***  We recognized no benefit related to the netloss in the first three months of 2004 because we cannot be certain of thefuture period recoverability of tax assets generated from available netoperating losses. There was no provision for state income or federal incometaxes in 2004.

 

Although werecorded net income for the three months ended March 31, 2005, we did notrecognize a tax liability related to this net income. The amount of current taxexpense generated for the three months ending March 31, 2005 was offset bya reduction in the valuation allowance posted in prior periods against deferredtax assets.   As discussed inour Annual Report on Form 10K, we cannot be certain of the futureperiod recoverability of tax assets generated from available net operatinglosses.

 

***Net Income (Loss).***  GlobalSCAPE incurred a net loss of ($205,600)and net income of $158,570 for the three months ended March 31, 2004 and2005, respectively. This was a positive turnaround of $364,170 quarter overquarter in net income. The net loss in the three months ended March 31,2004 was the result of lower than expected revenues and expenses related withthe layoff of 9 employees in February

 

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2004. The netincome in the three months ended March 31, 2005 was largely due to theapproximate 21% increase in revenues, and an approximate 8% improvement inoverall operating expenses.

 

##### **Inflation**

##### ** **

Increases ininflation generally result in higher interest rates and operating costs.  Our greatest exposure is to the cost ofsalaries and general and administrative expenses. To date we believe thatinflation has not had a significant impact on our operations.

 

##### **Seasonality**

##### ** **

We believe oursales are subject to seasonal variations. We experience significantly less sales volume during national holidaysand weekends when compared to normal business days.  We expect that in future periods we will seeweakness in the fourth quarter when compared to the third quarter due to theholiday season.

 

# **Item3.  Quantitative and QualitativeDisclosures** About Market Risk

# ** **

To date, wehave not utilized derivative financial instruments or derivative commodityinstruments.  We do not expect to employthese or other strategies to hedge market risk in the foreseeable future.  We may invest our cash in money market funds,which are subject to minimal credit and market risk.  We believe that the interest rate risk andother relevant market risks associated with these financial instruments areimmaterial.

 

In the threemonths ended March 31, 2005, approximately 36% of our revenues came fromcustomers outside the United States.  Allrevenues are received in U.S. dollars so we have no exchange rate risk withregard to the sale.  However, in July 2003,the European Union (EU) enacted Value Added Taxes (VAT) on electronicpurchases.  These taxes are charged to ournon-business customers in the EU and, in our case, are remitted quarterly inpound sterling.   We expect that theimpact of this currency translation will not be material to our business.

 

# **Item 4.  Controls and Procedures**

# ** **

a)              Evaluation ofdisclosure controls and procedures. Within the 90 days prior to the filing date of this report, ourPresident and Chief Financial Officer carried out an evaluation of GlobalSCAPE’sdisclosure controls and procedures (as defined SEC Rules 13a-14 and 15d-14under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”))and concluded that the controls and procedures are effective in recording,processing, summarizing and reporting the information required to be disclosedby GlobalSCAPE in the reports it files with the SEC under the Exchange Actwithin the time periods specified in the SEC’s rules and forms.

 

b)             Changes in internalcontrols.  There were no material changesin GlobalSCAPE’s internal controls subsequent to the evaluation describedabove.

 

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## **Part II.  Other Information**

 
| **Item  1.** | **Legal  Proceedings**                                                            |
|--------------|-----------------------------------------------------------------------------------|
| ** **   | ** **                                                                        |
|         | We are not  currently involved in any material legal proceedings.                 |
|         |                                                                              |
| **Item  2.** | **Changes  in Securities and Use of Proceeds**                                    |
| ** **   | ** **                                                                        |
|         | None  in the first quarter of 2005.                                               |
|         |                                                                              |
| **Item  3.** | **Defaults  Upon Senior Securities**                                              |
| ** **   | ** **                                                                        |
|         | Not applicable.                                                                   |
|         |                                                                              |
| **Item  4.** | **Submission  of Matters to a Vote of Security Holders**                          |
| ** **   | ** **                                                                        |
|         | None in the  first quarter of 2005.                                               |
|         |                                                                              |
| **Item  5.** | **Other  Information**                                                            |
| ** **   | ** **                                                                        |
|         | None in the  first quarter of 2005.                                               |
|         |                                                                              |
| **Item  6.** | **Exhibits and  Reports on Form 8-K**                                        |
| ** **   | ** **                                                                        |
| **(a)**      | Exhibits                                                                          |
| ** **   |                                                                              |
| ** **   | 31.1 Certificate  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| ** **   |                                                                              |
| ** **   | 31.2 Certificate  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| ** **   |                                                                              |
| ** **   | 32.1 Certificate  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| ** **   |                                                                              |
| ** **   | 1.  **(b)   **None  filed in the first quarter of 2005.            |

 

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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 6,  2005 |   | By:                                    |      /s/  Charles R. Poole |   |
| Date                                                        |   |                                   | Charles  R. Poole |
|                                                        |   | President  and Chief Operating Officer |
|                                                        |   |
|        May 6,  2005 |   | By:                                    |      /s/  Thomas F. Farar |   |
| Date                                                        |   |                                   | Thomas F. Farar |
|                                                        |   | Chief Financial Officer                |
|                                                             |        |                                        |  |  |  |  |

 

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