**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM 10-Q**
| **x**                                             | ** ** | **QUARTERLY REPORT  PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|---------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|
| ** **                                        | ** ** | ** **                                                                                    |
| **For the  Quarterly Period ended June 30, 2007** |
| ** **                                        | ** ** | ** **                                                                                    |
| **OR**                                            |
| ** **                                        | ** ** | ** **                                                                                    |
| **o**                                             | ** ** | **TRANSITION REPORT  PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**For thetransition period from          to          .**

**CommissionFile No.****001-33601**

**GlobalSCAPE,Inc.**

(Exact name ofregistrant as specified in its charter)

| **Delaware**                           |   | **74-2785449**       |
|----------------------------------------|--------|----------------------|
| (State or other  jurisdiction of       |   | (I.R.S. Employer     |
| incorporation or  organization)        |   | Identification  No.) |
|                                   |   |                 |
| **6000  Northwest Parkway, Suite 100** |   | ** **           |
| **San  Antonio, Texas**                |   | **78249**            |
| (Address of  Principal                 |   | (Zip Code)           |
| Executive  Office)                     |   |                 |

 

**(210) 308-8267**

(Registrant’sTelephone 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 the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.

x Yes    o No

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act (check one):

LargeAccelerated filer o    Accelerated filer o    Non-Accelerated filer x

Indicate by check mark if theregistrant is a shell company (as defined in Rule 12b-2 of the Act).

o Yes    x No

As of August 10, 2007, there were 17,242,126 shares of common stockoutstanding.

 

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**GlobalSCAPEInc.**

**Quarterly Report on Form 10-Q**

**For theQuarter ended June 30, 2007**

**Index**
| **Part I.**  | ** ** | **Financial  Information**                                                                  | ** ** | ** ** |
|--------------|------------|---------------------------------------------------------------------------------------------|------------|------------|
|         |       |                                                                                        |       |       |
| Item 1.      |       | Financial Statements                                                                        |       |       |
|         |       | Consolidated  Balance Sheets                                                                |       |       |
|         |       | Consolidated  Statements of Operations                                                      |       |       |
|         |       | Consolidated  Statements of Cash Flows                                                      |       |       |
|         |       | 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                                                                           |       |       |
|         |       |                                                                                        |       |       |
| Item1A       |       | Risk Factors                                                                                |       |       |
|         |       |                                                                                        |       |       |
| Item 2.      |       | Unregistered  Sales of Equity Securities and Use of Proceeds                                |       |       |
|         |       |                                                                                        |       |       |
| Item 4.      |       | Submission  of Matters to a Vote of Security Holders                                        |       |       |
|         |       |                                                                                        |       |       |
| Item  6.     |       | Exhibits                                                                                    |       |       |
|         |       |                                                                                        |       |       |
| Signatures   |       |                                                                                        |       |       |

 

GlobalSCAPE®,CuteFTP Pro®, CuteZIP® and CuteMAP® are registered trademarks of GlobalSCAPETexas, LP.  CuteFTP, CuteHTML,GlobalSCAPE Secure FTP Server, GlobalSCAPE Transfer Engine, ContentXML, andEnhanced File Transfer Server are trademarks of GlobalSCAPE Texas, LP.  Other trademarks and tradenames in thisquarterly report are the property of their respective owners.

----

**Part I.****              FinancialInformation**

**Item1.Financial Statements**

**GlobalSCAPE,Inc.**

**Consolidated Balance Sheets**
| ** **                                                                                                                                 | ** ** | **December 31,** | ** ** | **June 30,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-------------------|------------|
| ** **                                                                                                                                 | ** ** | **2006**              | ** ** | **2007**          | ** ** |
| ** **                                                                                                                                 | ** ** | ** **            | ** ** | **(unaudited)**   | ** ** |
| Assets                                                                                                                                     |       |                  |       |              |       |
| Current assets:                                                                                                                            |       |                  |       |              |       |
| Cash and cash  equivalents                                                                                                                 |       | $                     | 4,632,666  |              | $          | 4,497,836 |   |
| Accounts  receivable (net of allowance for doubtful accounts of $59,458 and $48,243 at  December 31, 2006 and June 30, 2007, respectively) |       | 1,592,846             |       | 1,871,304         |       |
| Federal income  tax receivable                                                                                                             |       | 73,525                |       | 17,371            |       |
| Prepaid expenses                                                                                                                           |       | 115,754               |       | 74,943            |       |
| Total current assets                                                                                                                       |       | 6,414,791             |       | 6,461,454         |       |
|                                                                                                                                       |       |                  |       |              |       |
| Property and equipment:                                                                                                                    |       |                  |       |              |       |
| Furniture and  fixtures                                                                                                                    |       | 343,702               |       | 343,702           |       |
| Software                                                                                                                                   |       | 323,161               |       | 363,908           |       |
| Equipment                                                                                                                                  |       | 720,107               |       | 780,932           |       |
| Leasehold  improvements                                                                                                                    |       | 191,090               |       | 191,090           |       |
|                                                                                                                                       |       | 1,578,060             |       | 1,679,632         |       |
| Accumulated depreciation  and amortization                                                                                                 |       | 1,345,881             |       | 1,412,309         |       |
| Net property and  equipment                                                                                                                |       | 232,179               |       | 267,323           |       |
|                                                                                                                                       |       |                  |       |              |       |
| Other assets:                                                                                                                              |       |                  |       |              |       |
| Goodwill                                                                                                                                   |       | 9,653,059             |       | 9,753,059         |       |
| Deferred tax  asset                                                                                                                        |       | 8,724                 |       | 186,831           |       |
| Other                                                                                                                                      |       | 58,996                |       | 22,648            |       |
| Total other assets                                                                                                                         |       | 9,720,779             |       | 9,962,538         |       |
|                                                                                                                                       |       |                  |       |              |       |
| Total assets                                                                                                                               |       | $                     | 16,367,749 |              | $          | 16,691,315 |   |

 

1

----

 
| ** **                                                                                                                                                                                                                | ** ** | **December 31,** | ** ** | **June 30,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-------------------|------------|
| ** **                                                                                                                                                                                                                | ** ** | **2006**              | ** ** | **2007**          | ** ** |
| ** **                                                                                                                                                                                                                | ** ** | ** **            | ** ** | **(unaudited)**   | ** ** |
| Liabilities and  Stockholders’ Equity                                                                                                                                                                                |       |                  |       |              |       |
| Current  liabilities:                                                                                                                                                                                                     |       |                  |       |              |       |
| Accounts payable                                                                                                                                                                                                          |       | $                     | 371,093    |              | $          | 307,572 |   |
| Accrued expenses                                                                                                                                                                                                          |       | 377,940               |       | 985,415           |       |
| Federal income tax payable                                                                                                                                                                                                |       | —                |       | 830,812           |       |
| Long-term debt, current portion                                                                                                                                                                                           |       | 1,539,455             |       | —            |       |
| Deferred revenue                                                                                                                                                                                                          |       | 1,377,037             |       | 1,941,632         |       |
| Total current  liabilities                                                                                                                                                                                                |       | 3,665,525             |       | 4,065,431         |       |
|                                                                                                                                                                                                                      |       |                  |       |              |       |
| Long-term  liabilities:                                                                                                                                                                                                   |       |                  |       |              |       |
| Deferred compensation                                                                                                                                                                                                     |       | 52,487                |       | 78,924            |       |
| Long-term debt, non-current portion                                                                                                                                                                                       |       | 3,070,757             |       | —            |       |
| Other long-term liabilities                                                                                                                                                                                               |       | 5,941                 |       | —            |       |
| Total long-term  liabilities                                                                                                                                                                                              |       | 3,129,185             |       | 78,924            |       |
|                                                                                                                                                                                                                      |       |                  |       |              |       |
| Total  Liabilities                                                                                                                                                                                                        |       | 6,794,710             |       | 4,144,355         |       |
|                                                                                                                                                                                                                      |       |                  |       |              |       |
| 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, 16,490,146 shares issued and outstanding at December 31,  2006, and 17,232,526 shares issued and 17,112,373 shares outstanding at June  30, 2007 |       | 16,490                |       | 17,233            |       |
| Treasury stock, at cost, 120,153 shares at June 30,  2007                                                                                                                                                                 |       | —                |       | (379,733          | )          |
| Additional paid-in capital                                                                                                                                                                                                |       | 6,363,520             |       | 7,128,337         |       |
| Retained earnings                                                                                                                                                                                                         |       | 3,193,029             |       | 5,781,123         |       |
| Total  stockholders’ equity                                                                                                                                                                                          |       | 9,573,039             |       | 12,546,960        |       |
|                                                                                                                                                                                                                      |       |                  | ** ** | ** **        | ** ** |
| Total  liabilities and stockholders’ equity                                                                                                                                                                          |       | $                     | 16,367,749 |              | $          | 16,691,315 |   |

 

See accompanying notes.

2

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**GlobalSCAPE,Inc.**

**ConsolidatedStatements of Operations**

**(Unaudited)**
| ** **                                                                            | ** ** | **Three months ended June 30,** | ** ** | **Six months ended June 30,** | ** ** |
|---------------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                            | ** ** | **2006**                                            | ** ** | **2007**                                          | ** ** | **2006** | ** ** | **2007** | ** ** |
| Operating  revenues:                                                                  |       |                                                |       |                                              |       |   |   |   |   |
| Software product revenues                                                             |       | $                                                   | 2,133,525  |                                              | $          | 5,557,388 |   | $ | 4,327,840 |   | $ | 8,504,210 |   |
| Maintenance and support (net of deferred revenues)                                    |       | 311,802                                             |       | 860,637                                           |       | 532,409 |   | 1,536,962 |   |
| Total revenues                                                                        |       | 2,445,327                                           |       | 6,418,025                                         |       | 4,860,249 |   | 10,041,172 |   |
|                                                                                  | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Operating  expenses:                                                                  |       |                                                |       |                                              |       |   |   |   |   |
| Cost of revenues (exclusive of depreciation and  amortization shown separately below) |       | 85,507                                              |       | 60,230                                            |       | 226,918 |   | 119,170 |   |
| Selling, general and administrative expenses                                          |       | 1,346,972                                           |       | 2,587,435                                         |       | 2,560,509 |   | 4,921,719 |   |
| Research and development expenses                                                     |       | 267,474                                             |       | 551,211                                           |       | 496,804 |   | 988,961 |   |
| Depreciation and amortization                                                         |       | 23,442                                              |       | 34,843                                            |       | 44,679 |   | 66,429 |   |
| Total operating expense                                                               |       | 1,723,395                                           |       | 3,233,719                                         |       | 3,328,910 |   | 6,096,279 |   |
| Income from  operations                                                               |       | 721,932                                             |       | 3,184,306                                         |       | 1,531,339 |   | 3,944,893 |   |
|                                                                                  |       |                                                |       |                                              | ** ** | ** ** |   |   |   |
| Other income  (expense):                                                              |       |                                                |       |                                              |       |   |   |   |   |
| Interest expense                                                                      |       | —                                              |       | (1,222                                            | )          | — |   | (31,151 | ) |
| Interest income                                                                       |       | 23,005                                              |       | 10,965                                            |       | 36,930 |   | 12,712 |   |
| Gain on sale of assets                                                                |       | 191                                                 |       | —                                            |       | 619 |   | — |   |
| Other expense                                                                         |       | (294                                                | )          | —                                            |       | (294 | ) | 1,624 |   |
| Total other income (expense)                                                          |       | 22,902                                              |       | 9,743                                             |       | 37,255 |   | (16,815 | ) |
| Income before  income taxes                                                           |       | 744,834                                             |       | 3,194,049                                         |       | 1,568,594 |   | 3,928,078 |   |
|                                                                                  |       |                                                | ** ** | ** **                                        | ** ** | ** ** |   |   |   |
| Income tax  expense:                                                                  |       |                                                |       |                                              |       |   |   |   |   |
| Federal                                                                               |       | 244,778                                             |       | 1,037,742                                         |       | 519,606 |   | 1,273,858 |   |
| State                                                                                 |       | —                                              |       | 41,431                                            |       | — |   | 66,128 |   |
| Total income tax  provision                                                           |       | 244,778                                             |       | 1,079,173                                         |       | 519,606 |   | 1,339,986 |   |
|                                                                                  |       |                                                |       |                                              |       |   |   |   |   |
| Net income                                                                            |       | $                                                   | 500,056    |                                              | $          | 2,114,876 |   | $ | 1,048,988 |   | $ | 2,588,092 |   |
|                                                                                  | ** ** | ** **                                          | ** ** | ** **                                        | ** ** | ** ** |   |   |   |
| Net income per  common share- basic                                                   |       | $                                                   | 0.03       |                                              | $          | 0.12 |   | $ | 0.07 |   | $ | 0.15 |   |
| Net income per  common share- assuming dilution                                       |       | $                                                   | 0.03       |                                              | $          | 0.12 |   | $ | 0.07 |   | $ | 0.14 |   |
|                                                                                  |       |                                                |       |                                              |       |   |   |   |   |
| Average shares  outstanding:                                                          |       |                                                |       |                                              |       |   |   |   |   |
|                                                                                  |       |                                                |       |                                              |       |   |   |   |   |
| Basic                                                                                 |       | 14,379,061                                          |       | 17,226,066                                        |       | 14,379,061 |   | 17,204,922 |   |
| Diluted                                                                               |       | 15,081,666                                          |       | 18,061,782                                        |       | 15,065,152 |   | 18,036,354 |   |

 

See accompanying notes.

3

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**GlobalSCAPE, Inc.**

**Consolidated Statements of Cash Flows**

**(Unaudited)**
| ** **                                                                         | ** ** | **Six months ended June 30,** | ** ** |
|------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                         | ** ** | **2006**                                          | ** ** | **2007** | ** ** |
| Operating  Activities:                                                             |       |                                              |       |   |   |
|                                                                               |       |                                              |       |   |   |
| Net Income                                                                         |       | $                                                 | 1,048,988  |   | $ | 2,588,092 |   |
|                                                                               |       |                                              |       |   |   |
| Adjustments to reconcile net income to net cash  provided by operating activities: |       |                                              |       |   |   |
| Bad debt expense (recovery)                                                        |       | (4,290                                            | )          | (11,215 | ) |
| Depreciation and amortization                                                      |       | 44,679                                            |       | 66,429 |   |
| Amortization of deferred loan costs                                                |       | —                                            |       | 36,345 |   |
| (Gain) loss on disposition of assets                                               |       | (619                                              | )          | — |   |
| Stock-based compensation                                                           |       | 120,538                                           |       | 435,858 |   |
| Deferred taxes                                                                     |       | 824                                               |       | (178,107 | ) |
|                                                                               |       |                                              |       |   |   |
| Changes in operating assets and liabilities:                                       |       |                                              |       |   |   |
| Accounts receivable                                                                |       | (219,551                                          | )          | (367,243 | ) |
| Prepaid expenses                                                                   |       | (36,616                                           | )          | 40,811 |   |
| Accounts payable                                                                   |       | (26,746                                           | )          | (63,521 | ) |
| Accrued expenses                                                                   |       | 76,633                                            |       | 607,475 |   |
| Federal income tax payable                                                         |       | 153,492                                           |       | 886,966 |   |
| Deferred revenues                                                                  |       | 286,211                                           |       | 564,595 |   |
| Deferred compensation                                                              |       | 13,006                                            |       | 26,437 |   |
| Other long-term liabilities                                                        |       | (6,228                                            | )          | (5,937 | ) |
| Net cash  provided by operating activities                                         |       | 1,450,321                                         |       | 4,626,985 |   |
|                                                                               |       |                                              |       |   |   |
| Investing  Activities:                                                             |       |                                              |       |   |   |
| Proceeds from sale of property and equipment                                       |       | 619                                               |       | — |   |
| Purchase of property and equipment                                                 |       | (73,849                                           | )          | (101,572 | ) |
| Net cash used in  investing activities                                             |       | (73,230                                           | )          | (101,572 | ) |
|                                                                               |       |                                              |       |   |   |
| Financing  Activities:                                                             |       |                                              |       |   |   |
| Issuance of common stock                                                           |       | 28,968                                            |       | 329,702 |   |
| Treasury stock                                                                     |       | —                                            |       | (379,733 | ) |
| Repayment of long-term debt                                                        |       | —                                            |       | (4,610,212 | ) |
| Net cash  provided by financing activities                                         |       | 28,968                                            |       | (4,660,243 | ) |
|                                                                               |       |                                              |       |   |   |
| Net increase  (decrease) in cash                                                   |       | 1,406,059                                         |       | (134,830 | ) |
|                                                                               |       |                                              |       |   |   |
| Cash at  beginning of period                                                       |       | 2,029,473                                         |       | 4,632,666 |   |
|                                                                               |       |                                              |       |   |   |
| Cash at end of period                                                              |       | $                                                 | 3,435,532  |   | $ | 4,497,836 |   |

 

See accompanying notes.

Supplemental disclosures:
| Interest paid      |   | $      | —  |   | $      | 31,151  |   |
|--------------------|--------|--------|---------|--------|--------|---------|--------|
|               |   |   |    |   |   |
| Income taxes  paid |   | $      | 421,920 |   | $      | 565,000 |   |

 

4

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**GlobalSCAPE,Inc.**

**Notes to Consolidated Financial Statements**

# **Nature of Business**

GlobalSCAPE, Inc.(GlobalSCAPE), founded in April 1996, develops and distributes secure filemanagement software that enables users to safely send data over the internetand Wide-Area Files Systems (“WAFS”) collaboration and Continuous DataProtection (“CDP”) software. Our software is used worldwide across a wide rangeof industries. Through the end of 2006, we had sold approximately 1.6 millionsoftware licenses and support agreements and our customer base includesindividual consumers, small to medium-sized businesses, as well as some of thelargest corporations in the world.

Our file transferproducts provide privacy for critical information such as medical records,financial data, customer files and other similar documents. In addition, theseproducts provide for compliance with government regulations relating to theprotection of information while allowing users to reduce IT costs, increaseefficiency, track and audit transactions and automate processes.  Our WAFS and CDP productsprovide datareplication, acceleration of file transfer, sharing/collaboration andcontinuous data backup and recovery to our customers.  We believe that we are uniquely positioned toprovide secure transfer, sharing, and replication of files that need to betransmitted inside the user’s firewall to distributed offices, or outside theuser’s firewall to business and trading partners.

During the six months endedJune 30, 2007, approximately 82% of our revenues were generated from customerswithin the United States, with the remaining 18% concentrated mostly in WesternEurope, Canada and Australia. Virtually all of our 2007 revenues were derivedfrom sales of software licenses and support agreements. The combined sales ofCuteFTP Home and CuteFTP Pro accounted for 34% of our revenues for the firstsix months of 2006 and 18% of our revenues for the same period of 2007.  The combined sales of our SecureFTP Serverand Enhanced File Transfer products represented 62% and 69% ofour revenues for the six months ended June 30, 2006 and 2007,respectively.  Sales of the WAFS and CDPproducts represented 7% of our 2006 annual revenue and 15% of our revenues forthe six months ended June 30, 2007.  

***CorporateStructure***

Prior to September22, 2006, all of the Company’s operations were 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. 

On September 22,2006, GlobalSCAPE acquired one hundred percent (100%) of the issued andoutstanding capital stock of Availl, Inc., a privately held corporation (“Availl”),pursuant to an Agreement and Plan of Merger with Availl and itsstockholders.  The purchase price was$9.65 million of which $7.65 million was paid in cash and $2.0 million was paidin shares of GlobalSCAPE common stock. 

Availl operates asa wholly-owned subsidiary of GlobalSCAPE, Inc. based in Andover,Massachusetts.  GlobalSCAPE, Inc. is aholding company and conducts no operations; however, references to “GlobalSCAPE”or the “Company” refer collectively to GlobalSCAPE Texas, LP, its partners andAvaill unless otherwise indicated. 

On July 19, 2007the common stock of GlobalSCAPE, Inc. began trading on the American StockExchange (AMEX) under the symbol GSB.

5

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# **Basis of Presentation**

The accompanying unaudited consolidatedfinancial statements have been prepared in accordance with Rule 10-01 ofRegulation S-X, “Interim Financial Statements.” Accordingly, they do not include all information and footnotes requiredunder generally accepted accounting principles for complete consolidatedfinancial statements.  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 consolidated balance sheet at December 31, 2006 has been derivedfrom the audited consolidated financial statements at that date but does notinclude all the information and footnotes required by generally acceptedaccounting principles for complete consolidated financial statements.  For further information, refer to theconsolidated financial statements and footnotes included in GlobalSCAPE’sAnnual Report on Form 10-K for the year ended December 31, 2006.

# **Principles of Consolidation**

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

# **Liquidity**

The use of capital resources is drivenprincipally by the need to enhance existing products and to develop or acquirenew products.  The amount of suchexpenditures has a direct impact on the ability to offer enhanced and newproducts to customers.  The Company’sprincipal source of funds is cash flow from operations which, in turn, ishighly dependent on sales revenue. During the six months ended June 30, 2007, the Company generated $4.6 millionof cash from operations, $1.4 million of which was used along with other fundsto repay a term loan incurred in connection with the Availl acquisition.  We continue to generate cash inexcess of our operational needs. As of June 30, 2007, the Company had cash and cashequivalents of $4.5 million and had net working capital of $2.4 million.  Management believes this level of workingcapital, together with availability under the Company’s revolving creditfacility with Silicon Valley Bank and the excess cash generated by theprofitable operation of the business, is adequate to finance the Company’scurrent level of operations. 

The Company entered into a loan agreementwith Silicon Valley Bank on September 22, 2006 which involved a $5,000,000 termloan agreement which we used to finance part of the cash portion of thepurchase price for Availl.  The term loanwas fully repaid in the first quarter of 2007. The loan agreement alsoestablished a $750,000 revolving line of credit for two years at an interestrate of prime plus 1.00%.  At June 30,2007, the entire amount of this line of credit was available.

On May 21, 2007, the Board of Directorsapproved a plan to repurchase up to $3.0 million of GlobalSCAPE common stock.The repurchase plan is designed to increase shareholders’ value and reduce thedilutive effect of GlobalSCAPE’s stock option plans. As of June 30, 2007, thecompany had repurchased a total of 120,153 shares at an average cost of $3.16per share for a total of $379,733.  Webase our level of stock repurchases on internal cash management decisions andthis level may fluctuate from quarter to quarter. At June 30, 2007,approximately $2.6 million remained available for repurchase under the existingrepurchase authorization.

***Reclassifications***

***Certain prior period amounts have been reclassified to conform to thecurrent year presentation. These reclassifications had no impact on operatingincome as previously reported.***

6

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***Sale /Disposal of Assets***

***During***the first six months of 2006, the Companydisposed of equipment with an original purchase price of $15,362 andaccumulated depreciation of $15,362. GlobalSCAPE recognized a gain of $619related to the disposal of these assets. The Company had no asset disposals in the six months ending June 30,2007.

**Goodwill**

As of June 30,2007, GlobalSCAPE had goodwill in the amount of $9.8 million associated with theacquisition of Availl.  This acquisitionwas accounted for using the purchase method of accounting. See Acquisitionsnote for a descriptionof the acquisition. In accordance with SFAS No. 142 *Goodwill andOther Intangible Assets*, the Company will assess the impairment ofgoodwill annually in the fourth quarter, or more frequently if other indicatorsof potential impairment arise. 

No allocation has been made to intangible assets as ofJune 30, 2007.  Management will determinethe proper value of intangible assets acquired from Availl, Inc. and allocate aportion of the goodwill to intangible assets within the next six months. 

**Acquisitions**

On September 22, 2006, the Company completed theacquisition of all of the issued and outstanding shares of Availl, a privatelyheld provider of Wide Area Files Systems (WAFS) and Continuous Data Protection(CDP) software, for $7.65 million in cash and $2.0 million in the form of716,846 shares of GlobalSCAPE common stock. The Company incurred directacquisition costs of approximately $127,000. In connection with theacquisition, $850,000 of the cash consideration was placed into an escrowaccount for purposes of settling indemnification claims for the eighteen-monthperiod following the closing. In accordance with EITF Issue No. 99-12, *Determination of the Measurement Date for the MarketPrice of Acquirer Securities Issued in a Purchase Business Combination*,the Company has used $2.79 as the per share amount to value the common stockconsideration paid to Availl shareholders (representing the average of theclosing prices of GlobalSCAPE’s common stock for the thirty days before thedate of the closing of the merger, September 22, 2006). Pursuant to the termsof the acquisition, the Company granted stock options to the former Availlstockholders who were also employees under the GlobalSCAPE, Inc. 2000 StockOption Plan. Exercising the options under this plan is contingent upon theindividual’s continued employment with the Company and will be vested overthree years in three annual installments. 

The Availl acquisition was accounted for using thepurchase method of accounting. The purchase price was paid on theSeptember 22, 2006 closing date. The value of assets and liabilities was estimated based on purchaseprice and future intended use.  In thequarter ended June 30, 2007, the Company adjusted the net fair value of assetsacquired lower by $100,000 resulting in an increase in goodwill acquired of$100,000.

Goodwill represents the excess of the purchase priceover the fair value of the net identifiable assets acquired. This premium paidfor the acquisitions is based on management’s belief that the acquiredtechnologies, businesses and engineering talent were of strategic importance inthe Company’s growth strategy. Operating results from the acquired business isincluded in the condensed consolidated statements of operations from the dateof acquisition. 

A summary of the purchase price allocation is asfollows:
| Purchase price -                                           |   |      |      |
|------------------------------------------------------------|--------|-----------|-----------|
| Cash paid                                                  |   | $         | 7,650,000 |   |
| Stock issued                                               |   | 2,000,000 |      |
| Legal and other acquisition costs                          |   | 126,931   |      |
|                                                       |   |      |      |
| Acquisition  costs                                         |   | 9,776,931 |      |
| Net fair value  of assets acquired and liabilities assumed |   | (23,872   | )         |
|                                                       |   |      |      |
| Goodwill  acquired                                         |   | $         | 9,753,059 |   |

 

7

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The net fair value ofassets acquired and liabilities assumed of Availl at the acquisition date wereas follows:
| Cash                                                       |   | $        | 191,276 |   |
|------------------------------------------------------------|--------|----------|---------|--------|
| Accounts  receivable, net                                  |   | 453,798  |    |
| Fixed assets                                               |   | 26,411   |    |
| Other assets                                               |   | 13,555   |    |
| Accounts payable  and accrued expenses                     |   | (226,719 | )       |
| Deferred tax  liability                                    |   | (71,693  | )       |
| Deferred revenue                                           |   | (362,756 | )       |
|                                                       |   |     |    |
| Net fair value of  assets acquired and liabilities assumed |   | $        | 23,872  |   |

 

# **Stock-Based Compensation**

GlobalSCAPE hasstock-based compensation plans available to grant incentive stock options,non-qualified stock options and restricted stock to employees and non-employeemembers of the Board of Directors. 

Under the GlobalSCAPE,Inc. 2000 Stock Option Plan (the Employees Plan), which was approved by theBoard of Directors and became effective on May 17, 2001, a maximum of 3,660,000shares of GlobalSCAPE common stock may be awarded. During the six months endedJune 30, 2007, 295,000 stock options were granted.  The exercise price, term and otherconditions applicable to each stock option granted under the Employees Plan aredetermined by the Board of Directors. The exercise price of stock options isset on the grant date and may not be less than the fair market value per shareof our stock on that date. The Employees Plan options generally becomeexercisable over a three-year period and expire after ten years.

Under the GlobalSCAPE,Inc. 2006 Non-Employee DirectorsLong-term Equity Incentive Plan (the Directors Plan), which was approvedby the stockholders and became effective on June 1, 2007, a maximum of 500,000shares of GlobalSCAPE common stock may be awarded. During the six months endedJune 30, 2007, 80,000 stock options were granted.  The exercise price, term and other conditionsapplicable to each stock option granted under the Directors Plan are determinedby the Compensation Committee of the Board of Directors. The exercise price ofstock options is set on the grant date and may not be less than the fair marketvalue per share of our stock on that date. The most recently awarded DirectorsPlan options become exercisable over a one-year period and expire after tenyears.

Effective January 1,2006, we adopted the provisions of Statement of Financial Accounting StandardsNo. 123 (revised 2004), “Share-Based Payment” (SFAS No. 123R) requiring thatcompensation cost relating to share-based payment transactions be recognized inthe financial statements. The cost is measured at the grant date, based on thecalculated fair value of the award, and is recognized as an expense over theemployee’s requisite service period (generally the vesting period of the equityaward). Prior to January 1, 2006, we accounted for share-based compensation toemployees in accordance with Accounting Principles Board Opinion No. 25, “Accountingfor Stock Issued to Employees” (APB No. 25), and related interpretations. Wealso followed the disclosure requirements of Statement of Financial AccountingStandards No. 123, “Accounting for Stock-Based Compensation”, as amended byStatement of Financial Accounting Standards No. 148, “Accounting forStock-Based Compensation-Transition and Disclosure”. We adopted SFAS No. 123Rusing the modified prospective method and, accordingly, financial statementamounts for prior periods presented in this Form 10-Q have not been restated toreflect the fair value method of recognizing compensation cost relating tonon-qualified stock options.

8

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Therewas $121,000 and $436,000 of compensation cost related to incentive stockoptions recognized in operating results in the six months ended June 30, 2006and 2007, respectively. 

The fair value of eachoption award is estimated on the date of grant using the Black-Scholesoption-pricing model. Expected volatility is based on historical volatility ofGlobalSCAPE stock. We used the simplified method to derive an expected term.The expected term represents an estimate of the time options are expected toremain outstanding. The risk-free rate for periods within the contractual lifeof the option is based on the U.S. treasury yield curve in effect at the timeof grant. The following table sets forth the assumptions used to determinecompensation cost for our non-qualified stock options consistent with therequirements of SFAS No. 123R.
|                                 | ** ** | **Three Months Ended  June 30, 2007** | ** ** |
|---------------------------------|------------|-----------------------------------------------------------|------------|
|                            |       |                                                      |       |
| Expected  volatility            |       | 96.0                                                      | %          |
| Expected annual  dividend yield |       | 0.0                                                       | %          |
| Risk free rate  of return       |       | 4.79                                                      | %          |
| Expected option term  (years)   |       | 6.0                                                       |       |

 

The following table summarizes information about stockoption activity for the six months ended June 30, 2007: 
|                                   | ** ** | **Number  of  Options** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Weighted  Average  Remaining  Contractual  Term (years)** | ** ** | **Aggregate  Intrinsic  Value ($M)** | ** ** |
|-----------------------------------|------------|-------------------------|------------|----------------------------------------|------------|------------------------------------------------------------------|------------|-------------------------------------------|------------|
| Outstanding at  December 31, 2006 |       | 2,480,640               |       | $                                      | 1.16       |                                                             | 7.25       |                                      | $          | 4.3 |   |
|                              |       |                    |       |                                   |       |                                                             |       |                                      |       |
| Granted                           |       | 295,000                 |       | 3.03                                   |       |                                                             |       |                                      |       |
| Exercised                         |       | (742,380                | )          | .44                                    |       |                                                             |       |                                      |       |
| Lapsed or canceled                |       | (100,000                | )          | 3.14                                   |       |                                                             |       |                                      |       |
|                              |       |                    |       |                                   |       |                                                             |       |                                      |       |
| Outstanding at  June 30, 2007     |       | 1,933,260               |       | $                                      | 1.62       |                                                             | 7.81       |                                      | $          | 4.0 |   |
|                              |       |                    |       |                                   |       |                                                             |       |                                      |       |
| Exercisable at June 30,  2007     |       | 884,892                 |       | $                                      | .75        |                                                             | 6.94       |                                      | $          | 2.6 |   |

 

The weighted average fairvalue of options granted during the three months ended June 30, 2007 was $2.41.The total intrinsic value of options (which is the amount by which the stockprice exceeded the exercise price of the options on the date of exercise)exercised during the six months ended June 30, 2007 was approximately $2.0million.  During the six months endedJune 30, 2007, the amount of cash received from the exercise of stock optionswas $329,707 with no associated tax benefit.  

The following tablesummarizes information about nonvested stock option awards as of June 30, 2007and changes for the six months ended June 30, 2007.
|                                  | ** ** | **Number  Of  Options** | ** ** | **Weighted Average  Grant Date  Fair Value** | ** ** |
|----------------------------------|------------|-------------------------|------------|-------------------------------------------------------------|------------|
| Non-vested at  December 31, 2006 |       | 1,180,580               |       | $                                                           | 1.52       |   |
| Granted                          |       | 295,000                 |       | 2.41                                                        |       |
| Vested                           |       | (327,212                | )          | .93                                                         |       |
| Forfeited                        |       | (100,000                | )          | 2.66                                                        |       |
|                             |       |                    |       |                                                        |       |
| Non-vested at June 30,  2007     |       | 1,048,368               |       | $                                                           | 1.41       |   |

 

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At June 30, 2007, therewas $1.7 million of total unrecognized compensation cost related to non-vestedstock option awards which is expected to be recognized over a weighted-averageperiod of three years. There were 327,212 options that became vested during thesix months ended June 30, 2007.

**CommonStock and Warrants**

On November 13, 2006,GlobalSCAPE entered into a securities purchase agreement with accreditedinvestors, who paid it an aggregate of $3.4 million in gross proceeds inconsideration for 1,352,000 shares of GlobalSCAPE common stock at a price of$2.50 per share.  The Company alsogranted warrants to purchase 1,352,000 shares of its common stock to theinvestors with an exercise price of $3.15 per share, subject to certainadjustments. The exercise price will not, in any event, be adjusted to a priceof less than $2.81 per share except in the event of stock dividends, stocksplits or similar events.  The warrantshave a 5-year term and are currently exercisable.  As part of this transaction, GlobalSCAPEfiled a registration statement to register the resale of these shares by theinvestors.  The registration statementwas declared effective by the SEC on April 16, 2007.

**Earnings per Common 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 June 30,** | ** ** | **Six months ended June 30,** | ** ** |
|---------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                              | ** ** | **2006**                                            | ** ** | **2007**                                          | ** ** | **2006** | ** ** | **2007** | ** ** |
| **Numerators**                                          |       |                                                |       |                                              |       |   |   |   |   |
| Numerators for  basic and diluted earnings per share:   |       |                                                |       |                                              |       |   |   |   |   |
| Net income                                              |       | $                                                   | 500,056    |                                              | $          | 2,114,876 |   | $ | 1,048,988 |   | $ | 2,588,092 |   |
|                                                    |       |                                                |       |                                              |       |   |   |   |   |
| **Denominators**                                        |       |                                                |       |                                              |       |   |   |   |   |
| Denominators for  basic and diluted earnings per share: |       |                                                |       |                                              |       |   |   |   |   |
| Weighted average shares outstanding – basic        |       | 14,379,061                                          |       | 17,226,066                                        |       | 14,379,061 |   | 17,204,922 |   |
|                                                    |       |                                                |       |                                              |       |   |   |   |   |
| **Dilutive  potential common shares**                   |       |                                                |       |                                              |       |   |   |   |   |
| Stock options  (1)                                      |       | 702,605                                             |       | 835,716                                           |       | 686,091 |   | 831,432 |   |
| Common stock  warrants (2)                              |       |                                                |       | —                                            | ** ** | ** ** |   | — |   |
| Denominator for  dilutive earnings per share            |       | 15,081,666                                          |       | 18,061,782                                        |       | 15,065,152 |   | 18,036,354 |   |
| Net income per  common share                            |       | $                                                   | 0.03       |                                              | $          | 0.12 |   | $ | 0.07 |   | $ | 0.15 |   |
| Net income per common  share – assuming dilution   |       | $                                                   | 0.03       |                                              | $          | 0.12 |   | $ | 0.07 |   | $ | 0.14 |   |

 

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(1)                  For the threeand six months ended June 30, 2006, 225,000 options have not been included indilutive shares, as the effect would be anti-dilutive.  For the three and six months ended June 30,2007, 445,000 options have not been included in dilutive shares, as the effectwould be anti-dilutive.  

(2)                  For the threeand six months ended June 30, 2007, all warrants have not been included indilutive shares, as the effect would be anti-dilutive.

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# **Item 2. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations**

This Quarterly Report on Form 10-Q contains “forward-lookingstatements” within the meaning of Section 27A of the Securities Act of 1933, asamended, and Section 21E of the Securities and Exchange Act of 1934, asamended.  “Forward looking statements”are those statements that describe management’s beliefs and expectations aboutthe future.  We have identifiedforward-looking statements by using words such as “anticipate,” “believe,” “could,”“estimate,” “may,” “expect,” and “intend.” Although we believe these expectations are reasonable, our operationsinvolve a number of risks and uncertainties, including those described in the “RiskFactors” section of our Annual Report on Form 10-K and other documents filedwith the Securities and Exchange Commission. GlobalSCAPE’s actual results could differ materially from thosediscussed in any forward-looking statements included in this Quarterly Report.

**Overview**

We develop and distribute secure filemanagement software for individuals and business users to safely send data overthe internet and Wide-Area File System (WAFS) collaboration and Continuous DataProtection (CDP) products.  Our filemanagement products guarantee the privacy of critical information such asfinancial data, medical records, customer files and other similar documents.  In addition, these products ensure compliancewith government regulations relating to the protection of information whileallowing users to reduce IT costs, increase efficiency, track and audittransactions and automate processes.  OurWAFS and CDP products provide data replication, acceleration of file transfer,sharing/collaboration and continuous data backup and recovery to ourcustomers.  We believe that we areuniquely positioned to provide secure transfer, sharing, and replication offiles that need to be transmitted inside the user’s firewall to distributedoffices, or outside the user’s firewall to business and trading partners.

The following is a brief description of our products: 

·                  File Management Products — Our FileManagement products are best known for the “CuteFTP” product line. Theyprimarily consist of products that help users securely move and copy files onthe internet. A substantial portion of our revenues are derived from licensingour File Management products. Some of our products encrypt the transfers forsecurity using technology similar to a Web browser. The products consist ofthree product categories: client, server and compression transfer. Our FileManagement product line includes CuteFTP Home, Cute FTP Professional, SecureFTPServer, and Enhanced File Transfer.

·                  Wide-Area File System (WAFS) Products— Our WAFS products provide a file sharing and collaboration solution overmultiple sites.  By keeping all dataupdated on each location’s file server, each site has instant access to thevery latest version.  Our WAFS productshelp ensure that no one can ever open an old file version without userconflicts. Changes made to data on any server are mirrored on all otherservers.

·                  Continuous Data Protection (CDP)Products — Our CDP products consolidate remote backup for file servers.  As files change, the servers backup in realtime to the customer’s backup site which can be at the same or a remotelocation.   The backup server can keepany number of past versions of each file (and deleted files) which gives thecustomer instant restore, as well as the ability to perform point-in-timesnapshots.

Our strategy is to continue enhancing ourfile transfer products to meet the demands of both individual and enterpriseusers, while improving the security features of our current product line, andto expand into growing markets through the acquisition of compatible companiesand products.  We acquired Availl, aleading provider of Wide-Area File System (WAFS) collaboration and Continuous DataProtection (CDP) products, as part of this strategy.  This acquisition expanded our technology baseinto data replication, acceleration of file transfer, sharing/collaboration andcontinuous data backup and recovery.  Webelieve that these new products give us entry into two large and rapidlygrowing markets.

We believe that our continued growth will come not only through thefurther development of our SecureFTP Server and Enhanced File Transfer productsand the growing demand for file security when

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transferring information across the internet,but also through the aggressive exploitation of the data replication andprotection markets.  Based upon estimatesby Gartner, Inc., and other consulting groups in our markets, we believe thatthe WAN optimization/WAFS market is currently $300 million annually and growingat 20% - 30% per year, and the CDP market is of similar size but in the earlystages of adoption and growing rapidly. In addition, we believe that the WAFS and CDP products are highlycomplementary to our traditional Secure File Transfer products facilitatingcross sales and new customer penetration. 

##### **Liquidityand Capital Resources**

Our capital requirements principally relateto our need to enhance our existing products and to develop or acquire newproducts.  The amount of our capitalexpenditures has a direct impact on our ability to offer enhanced and newproducts to our customers.  We relyheavily on cash flows from operations to fund our capital expenditures andprior to 2006, these cash flows were significantly dependent upon sales ofCuteFTP Home and CuteFTP Professional, which accounted for 50% and 30% of ourrevenues in the years ended December 31, 2005 and 2006, respectively, and 34%and 18% for the six months end June 30, 2006 and 2007, respectively.  Much of the percentage decline of revenuesfrom the sale of these two products was caused by continued significantincreases in the sales of our other products in 2006, particularly, SecureFTPServer and Enhanced File Transfer, which collectively accounted for 61% of ourrevenues in the year ended December 31, 2006, and 62 % and 69 % for the sixmonths ended June 30, 2006 and 2007, respectively.  Revenues in total increased 107% whencomparing the six months ended June 30, 2006 and 2007.

Our principal sources of capital are cash onhand, cash flow from operations and availability under our revolving line ofcredit.  At June 30, 2007, we had cash onhand of $4.5 million and we continue to generate cash in excess of ouroperational needs.  To the extent thatsales decline, our cash flow from operations will also decline.  If sales decline or our liquidity otherwiserequires, management may substantially reduce personnel and personnel-relatedcosts, reduce or substantially eliminate capital expenditures and/or reduce orsubstantially eliminate research and development expenditures. We may also sellequity securities or enter into other credit arrangements in order to financefuture acquisitions or licensing activities.

At June 30, 2007, we had $750,000 of availability under our revolvingline of credit.  Borrowings under ourrevolving credit facility bear interest at 1.00% above the Bank’s prime rateand mature on September 22, 2008. Interest payments are due on the first day of each calendar month.

The revolving credit facility is secured by substantially all of theassets of GlobalSCAPE and its subsidiaries including Availl.  The loan agreement contains customarycovenants including covenants relating to maintaining legal existence and goodstanding, complying with applicable laws, delivery of financial statements,maintenance of inventory, payment of taxes, maintaining insurance, andprotection of intellectual property rights. GlobalSCAPE and its subsidiaries are also prohibited from selling any oftheir assets other than in the ordinary course of business, acquiring any otherentities, changing the types of business they are engaged in, incurringindebtedness other than that permitted by the loan agreement, incurring anyliens on their assets other than those permitted by the loan agreement, makingcertain investments or paying any dividends on, or acquiring, any shares oftheir capital stock.  The loan agreementcontains two financial covenants. GlobalSCAPE and its subsidiaries must maintain:

·                  aratio of (A) EBITDA less the sum of (i) cash taxes paid and (ii) non-financedcapital expenditures (excluding non-cash stock options and taxes alreadyaccrued), to (B) the sum of (i) principal plus (ii) interest paid to Bank, ofat least 1.5 to 1.00; and

·                  aratio of total funded debt to EBITDA of not more than 2.00 to 1.00.

At June 30, 2007, we were in compliance with these covenants.

The loan agreement also contains customary events of default includingthe failure to make payments of principal and interest, the breach of anycovenants, the occurrence of a material adverse

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change, certain bankruptcy and insolvencyevents, the breach of other agreements creating indebtedness of $50,000 or moreand the entry of a judgment of $50,000 or more against GlobalSCAPE or any ofits subsidiaries.

Net cash provided by operating activities was$4.6 million for the six months ended June 30, 2007 as compared to $1.5 millionin the six months ended June 30, 2006. Cash provided by operations for the six months ended June 30, 2007 wasprimarily the result of net income, plus an increase in stock-basedcompensation, accrued expenses, federal income tax payable and deferredrevenue, offset by an increase in deferred tax assets and accounts receivable.

Net cash used in investing activities for thesix months ended June 30, 2006 and 2007 was ($73,000) and ($102,000),respectively.  In both periods, the cashused in investing activity was primarily for the purchase of computer equipmentand software. 

Net cash provided by (used in) financingactivities during the six months ended June 30, 2006 and 2007 were $29,000 and($4.7 million)******respectively.  In 2006, the increase in cash provided fromfinancing activities was from the issuance of stock from exercisedoptions.  In 2007, the decrease in cashfrom financing activities was the result of the repayment of the term loan withSilicon Valley Bank and the repurchase of treasury stock.

As of June 30, 2007, we had $4.5 million in cash and cash equivalents,total current assets of $6.5 million and current liabilities of $4.1 million,resulting in working capital of $2.4 million. The primary component of current liabilities at June 30, 2007 was $1.9million of deferred revenues which will be recognized over the remaining term(generally one to twelve months) of the maintenance and support contracts.  At June 30, 2007, our principal commitmentsconsisted of obligations outstanding under operating leases as well as accruedexpenses, federal income tax 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 facilities that we currently occupy are expected to be sufficientfor the remainder of 2007.  Consequently,we do not anticipate significant expenditures for leasehold improvements orfurniture for our current facility in 2007. Our lease on the current facility will expire in mid-2008. We areinvestigating options for a new facility to accommodate the increased officespace needs that we anticipate for 2008 and beyond.  Such relocation could require someexpenditure for leasehold improvements, furniture and equipment beginning inlate 2007 or early 2008.

On May 21, 2007,the Board of Directors approved a plan to repurchase up to $3.0 million ofGlobalSCAPE common stock. The repurchase plan is designed to increaseshareholders’ value and reduce the dilutive effect of GlobalSCAPE’s stockoption plans. As of June 30, 2007, the company had repurchased a total of120,153 shares at an average cost of $3.16 per share for a total of$379,733.  We base our level of stockrepurchases on internal cash management decisions and this level may fluctuatefrom quarter to quarter. At June 30, 2007, approximately$2.6 million remainedavailable for repurchase under the existing repurchase authorization.

**Contractual Obligations**

The following table sets forth the futureminimum payments required under contractual commitments at June 30, 2007**:**
| ** **                       | ** ** | **Payments Due by Fiscal Year** | ** ** |
|----------------------------------|------------|-----------------------------------------------------|------------|
| **Contractual Obligations** | ** ** | **2007 (1)**                                   | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **Thereafter** | ** ** | **Total** | ** ** |
| Operating Lease                  |       | $                                                   | 141,063    |   | $ | 190,063 |   | $ | 81,667 |   | — |   | — |   | $ | 412,793 |   |
| Equipment Leases                 |       | 2,280                                               |       | 4,560 |   | 4,560 |   | 4,560 |   | 6,460 |   | 22,420 |   |
| Total Cash Obligations           |       | $                                                   | 143,343    |   | $ | 194,623 |   | $ | 86,227 |   | $ | 4,560 |   | $ | 6,460 |   | $ | 435,213 |   |
|                                  |            |                                                     |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

13

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(1)          Amounts for 2007 reflect the future minimum payments for the remaining six months of the fiscal year.

##### **CriticalAccounting Policies**

# **Uncertain Tax Issues**

Effectiveat the beginning of the first quarter of 2007, the Company adopted theprovision of FIN 48, “Accounting for Uncertainty in Income Taxes - aninterpretation of FASB Statement No. 109.” FIN 48 contains a two-step approach to recognizing and measuringuncertain tax positions accounted for in accordance with SFAS No. 109, “Accountingfor Income Taxes.”  The first step is toevaluate the tax position for recognition by determining if the weight ofavailable evidence indicates that it is more likely than not that the positionwill be sustained on audit, including resolution of related appeals orlitigation processes, if any.  The secondstep is to measure the tax benefit as the largest amount that is more than 50%likely of being realized upon ultimate settlement.

As aresult of the implementation of FIN 48, the Company has not changed any of itstax accrual estimates.  The Company filesU.S. federal and U.S. state tax returns.

There were no other changes in our criticalaccounting policies from those set forth in our Annual Report on Form 10-K forthe year ended December 31, 2006 during the six months ended June 30, 2007.

# **Inflation**

Increases in inflation generally result inhigher interest rates and operating costs. Our greatest exposure is to the cost of salaries and general andadministrative expenses. To date we believe that inflation has not had asignificant impact on our operations.

# **Seasonality**

Historically, our internetsales have been subject to seasonal variations. We experience significantlyless sales volume during national holidays and weekends when compared to normalbusiness days.  In the fourth quarter of2005, our sales revenues decreased approximately 5% over the priorquarter.  However, this trend did notexist in 2006 as internet sales increased in the fourth quarter by 7% over thethird quarter of the same year.  Over thepast two calendar years the total dollar value of internet sales has remainedrelatively flat while sales of our file transfer server products have increasedby 130% growing to become 61% of total sales. As a result of this change in mix of products and the apparent lessoningof the internet sales seasonality in 2006, we do not expect seasonality to havea significant impact on sales in 2007. In the six months ended June 30, 2007, seasonality had no materialeffect on internet sales volume.

# **Comparison of the Three Monthsended June 30, 2006 and 2007**

| ** **                                    | ** ** | **2006**  | ** ** | **2007**  | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
|-----------------------------------------------|------------|-----------|------------|-----------|------------|-------------------|------------|-------------------|------------|
| Software product  revenues                    |       | $         | 2,445,327  |      | $          | 6,418,025         |       | $                 | 3,972,698  |   | 162 | % |
| Cost of revenues                              |       | 85,507    |       | 60,230    |       | (25,277           | )          | (30               | )%         |
| Selling, general  and administrative expenses |       | 1,346,972 |       | 2,587,435 |       | 1,240,463         |       | 92                | %          |
| Research and  development expenses            |       | 267,474   |       | 551,211   |       | 283,737           |       | 106               | %          |
| Depreciation and  amortization                |       | 23,442    |       | 34,843    |       | 11,401            |       | 49                | %          |
| Total operating  expense                      |       | 1,723,395 |       | 3,233,719 |       | 1,510,324         |       | 88                | %          |
| Income from  operations                       |       | 721,932   |       | 3,184,306 |       | 2,462,374         |       | 341               | %          |
| Other Income                                  |       | 22,902    |       | 9,743     |       | (13,159           | )          | (57               | )%         |
| Income tax  expense                           |       | 244,778   |       | 1,079,173 |       | 834,395           |       | 341               | %          |
| Net income                                    |       | $         | 500,056    |      | $          | 2,114,876         |       | $                 | 1,614,820  |   | 323 | % |

 

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***Revenue.***We derive revenues primarily from software sales.  Revenues are comprised of the gross sellingprice of software, including shipping charges and the earned portion of supportand maintenance agreements. For the three months ended June 30, 2006 and 2007,total revenues increased by $4.0 million or approximately 162% from $2.4million to $6.4 million largely due to a $2.8 million order from the US Armyand to a lesser degree, an increase in revenues from sales of our Wide-AreaFile Systems, SecureFTP Server and Enhanced File Transfer products. Unit volumeincreased with approximately 59,000 licenses and support agreements sold in thethree months ended June 30, 2006 versus 126,000 sold in the same period in2007.  The 114% increase in unit volumesresulted from the large number of individual licenses and support agreementsassociated with the US Army order. 

The following table reflects revenue byproduct including the related maintenance and support for each product:
| ** **                                                                                               | ** ** | **Revenue for**                       | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                               | ** ** | **Quarter ending June 30,** | ** ** |
| **Product**                                                                                              | ** ** | **2006**                                   | ** ** | **2007** | ** ** |
| CuteFTP  Professional                                                                                    |       | $                                          | 565,694    |   | 23.1 | % | $ | 666,591 |   | 10.4 | % |
| CuteFTP Home                                                                                             |       | 246,169                                    |       | 10.1 | % | 282,508 |   | 4.4 | % |
| Enhanced File  Transfer                                                                                  |       | 944,072                                    |       | 38.6 | % | 1,501,613 |   | 23.4 | % |
| SecureFTP Server                                                                                         |       | 592,235                                    |       | 24.2 | % | 3,467,655 |   | 54.0 | % |
| Wide-Area File  Systems                                                                                  |       | —                                     |       | 0.0 | % | 702,693 |   | 11.0 | % |
| Continuous Data  Protection                                                                              |       | —                                     |       | 0.0 | % | 33,893 |   | 0.5 | % |
| All Others                                                                                               |       | 225,668                                    |       | 9.2 | % | 162,477 |   | 2.5 | % |
| Deferred Revenue  adjustment                                                                             |       | (128,511                                   | )          | (5.3 | )% | (399,405 | ) | (6.2 | )% |
| Total Operating Revenues                                                                                 |       | $                                          | 2,445,327  |   | 100.0 | % | $ | 6,418,025 |   | 100.0 | % |
| Gross maintenance and  support included above before recognition of the net adjustment to defer  revenue |       | $                                          | 440,313    |   | 18.0 | % | $ | 1,260,042 |   | 19.6 | % |

 

Our Wide-Area File Systems and Continuous Data Protection products,which we began selling after completing the Availl acquisition in September2006, accounted for approximately 11.5% of total revenue for the second quarterof 2007 and were virtually flat compared to the prior quarter. The WAFS/CDPrevenues have not increased as originally anticipated due to management’sdecision to delay the aggressive marketing of those products to our existingcustomer base and to the market in general as we had initially planned.  The amount of time required to makeimprovements to our WAFS and CDP products that we believe are necessary hasbeen greater than we had expected.  Webelieve that good progress is currently being made on the product improvementsand we anticipate a more aggressive sales effort for these products in thelatter half of this year.

Sales of our SecureFTP Server and Enhanced File Transfer products grewby 223% in the three months ended June 30, 2007, to $5.0 million from $1.5million in the same period in 2006 and represented approximately 77% of ourtotal revenues in the first six months of 2007 as compared to 63% in the sameperiod in 2006.  Approximately two-thirdsof the increase in revenues from these products was attributable to the US Armyorder which included a large amount of the SecureFTP Server product.   Revenues from CuteFTP Home and CuteFTPProfessional increased by 17% as compared to the quarter ended June 30, 2006and accounted for approximately 33% and 15% of total revenues for the threemonths ended June 30, 2006 and 2007, respectively.

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We believe that our reliance on the CuteFTP products will continue todecline as we emphasize sales of our more complex enterprise products.  In addition, because of the more complexnature of SecureFTP Server, Enhanced File Transfer, WAFS and CDP, purchasersrequire increased maintenance and support. As a result, our maintenance and support revenues increased by 176% fromthe second quarter of 2006 to the same period in 2007 from $312,000 in 2006 to$861,000 in 2007, net of deferred revenue. Maintenance and support pricing is reflective of the license cost of theproducts and the additional support it takes to maintain and support theproducts and customers. With higher maintenance and support revenues, we willrecognize additional deferred revenue as we earn the revenue over the life ofthe maintenance and support agreement.

***Cost of Revenues.***  Cost of revenues consists primarily ofroyalties and production, packaging and shipping costs for boxed copies ofsoftware products.  Cost of revenues decreasedby approximately $25,000 or 30% between periods from $85,000 for the threemonths ended June 30, 2006 to $60,000 for the three months ended June 30,2007.  Royalties that we pay on softwareproducts licensed from third parties, which we resell, are expensed as a costof sale when the software product is sold or earlier if the recoverability ofany prepaid royalties is in doubt.  Costof revenues as a percent of total revenues was 3% for the three months endedJune 30, 2006 as compared to 1% for the same period in 2007.

***Selling, General andAdministrative.*** Selling, general and administrative expenses consist primarily ofpersonnel and related expenses, marketing, customer support, rents, bad debtand professional fees.  For the threemonths ended June 30, 2006 and 2007, selling, general and administrativeexpenses were $1.3 million and $2.6 million, respectively, an increase of $1.2million.  Of this increase, 39% or$486,000 was attributable to Availl.  Ofthe non-Availl expenses, salaries and fringe benefit costs increased by 38% aswe have hired new employees in order to support current and projectedgrowth.  Commissions and bonusesincreased by 98% as a result of the increase in revenues and income beforetaxes.  In the three months ended June 30,2006 and 2007 we expensed $73,000 and $213,000 respectively, for stock basedcompensation related to the granting of stock options to employees anddirectors as required by FAS123R.

***Research andDevelopment.*** Research and development expenses increased by $284,000 or 106% betweenperiods, from $267,000 to $551,000.  Theincrease was due largely to Availl’s R&D cost in 2007 which were notincluded in the same period of 2006, plus additional expenditures for externaldevelopment resources and hiring of additional personnel needed to support theAvaill products.

***Depreciation andAmortization.*** Depreciation and amortization expense consists of depreciation expenserelated to our fixed assets and amortization of capitalized development costs.Depreciation and amortization expense increased from $23,000 to $35,000, anincrease of approximately 49%.  Thisincrease was due primarily to the addition of the assets from the Availlacquisition and the capitalization of $102,000 of equipment and software duringthe first half of 2007.

***Other Income,Expense.***  Weearned $23,000 and $11,000 in interest during the first quarter of 2006 and2007 respectively from investing our excess cash which was reducedsignificantly in 2007 by the use of cash in the early payoff of the termloan.  For the three months ended June30, 2006 and 2007, interest expense increased from $0 to $1,000,respectively.  The interest expenseincurred during 2007 was paid on deferred income per an employment agreementbetween GlobalSCAPE and one of its key executives. 

***Income Taxes.***  The provision for federal income taxes forthe quarter ended June 30, 2006 and 2007 respectively was $245,000 and $1.1million. The increase in federal income taxes versus last year is the result ofincreased income upon which tax is due. ** **Beginning January 1, 2007, thestate of Texas has imposed a new margin tax equal to 1% of the Company’srevenue less compensation expense (based on Texas source income).  In the three months ended June 30, 2007, thistax plus the Massachusetts state tax for Availl equaled approximately $41,000**.**

***Net Income.***  GlobalSCAPE recorded net income of $500,000and $2.1 million for the three months ended June 30, 2006 and 2007,respectively.  The $1.6 million increasein net income was attained even though the Company incurred substantialincreases in SG&A and R&D expenses related to Availl

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plus had an additional $140,000 incompensation expense as required by FAS 123R for grants of employee anddirector stock options.

# **Comparison of the Six Months endedJune 30, 2006 and 2007**

| ** **                                    | ** ** | **2006**  | ** ** | **2007**  | ** ** | **$ Change** | ** ** | **% Change** | ** ** |
|-----------------------------------------------|------------|-----------|------------|-----------|------------|-------------------|------------|-------------------|------------|
| Software product  revenues                    |       | $         | 4,860,249  |      | $          | 10,041,172        |       | $                 | 5,180,923  |   | 107 | % |
| Cost of revenues                              |       | 226,918   |       | 119,170   |       | (107,748          | )          | (47               | )%         |
| Selling, general  and administrative Expenses |       | 2,560,509 |       | 4,921,719 |       | 2,361,210         |       | 92                | %          |
| Research and  development expenses            |       | 496,804   |       | 988,961   |       | 492,157           |       | 99                | %          |
| Depreciation and  amortization                |       | 44,679    |       | 66,429    |       | 21,750            |       | 49                | %          |
| Total operating  expense                      |       | 3,328,910 |       | 6,096,279 |       | 2,767,369         |       | 83                | %          |
| Income from  operations                       |       | 1,531,339 |       | 3,944,893 |       | 2,413,554         |       | 158               | %          |
| Other Income  (expense)                       |       | 37,255    |       | (16,815   | )          | (54,070           | )          | (145              | )%         |
| Income tax  expense                           |       | 519,606   |       | 1,339,986 |       | 820,380           |       | 158               | %          |
| Net income                                    |       | $         | 1,048,988  |      | $          | 2,588,092         |       | $                 | 1,539,104  |   | 147 | % |

 

***Revenue.***We derive revenues primarily from software sales.  Revenues are comprised of the gross sellingprice of software, including shipping charges and the earned portion of supportand maintenance agreements. For the six months ended June 30, 2006 and 2007,total revenues increased by $5.2 million or approximately 107% from $4.9million to $10.0 million due to the increase in revenues from sales of ourWide-Area File Systems, SecureFTP Server and Enhanced File Transfer products, amajor portion of which was a $2.8 million order from the US Army. Unit volumeincreased with approximately 137,000 licenses and support agreements sold inthe six months ended June 30, 2006 versus 208,000 sold in the same period in2007.  The 52% increase in unit volumesresulted from the large number of individual licenses and support agreementsassociated with the US Army order. 

The following table reflects revenue byproduct including the related maintenance and support for each product
| ** **                                                                                               | ** ** | **Revenue for**                               | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                                                               | ** ** | **Six months ending June 30,** | ** ** |
| **Product**                                                                                              | ** ** | **2006**                                           | ** ** | **2007** | ** ** |
| CuteFTP  Professional                                                                                    |       | $                                                  | 1,156,375  |   | 23.8 | % | $ | 1,229,468 |   | 12.2 | % |
| CuteFTP Home                                                                                             |       | 511,891                                            |       | 10.5 | % | 597,881 |   | 6.0 | % |
| Enhanced File  Transfer                                                                                  |       | 1,838,176                                          |       | 37.8 | % | 2,745,726 |   | 27.3 | % |
| SecureFTP Server                                                                                         |       | 1,161,776                                          |       | 23.9 | % | 4,209,544 |   | 41.9 | % |
| Wide-Area File  Systems                                                                                  |       | —                                             |       | 0.0 | % | 1,473,617 |   | 14.7 | % |
| Continuous Data  Protection                                                                              |       | —                                             |       | 0.0 | % | 59,342 |   | 0.6 | % |
| All Others                                                                                               |       | 478,242                                            |       | 9.8 | % | 290,189 |   | 2.9 | % |
| Deferred Revenue  adjustment                                                                             |       | (286,211                                           | )          | (5.9 | )% | (564,595 | ) | (5.6 | )% |
| Total Operating Revenues                                                                                 |       | $                                                  | 4,860,249  |   | 100.0 | % | $ | 10,041,172 |   | 100.0 | % |
| Gross maintenance and  support included above before recognition of the net adjustment to defer  revenue |       | $                                                  | 818,619    |   | 16.8 | % | $ | 2,101,557 |   | 20.9 | % |

 

Sales of our SecureFTP Server and Enhanced File Transfer products grewby 132% in the six months ended June 30, 2007, to $7.0 million from $3.0million in the same period in 2006 and represented approximately 69% of ourtotal revenues in the first six months of 2007 as compared to 62% in the sameperiod in 2006.  The increase in revenuesfrom these products was the result of increased emphasis of our internal salesgroup on the enterprise level software needs of businesses and the US Armyorder which was heavily weighted in the SecureFTP Server product.   

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Our Wide-Area File Systems and Continuous Data Protection products,which we began selling after completing the Availl acquisition in September2006, accounted for approximately 15% of total revenue for the six months endedJune 30, 2007.  The WAFS/CDP revenueshave not increased as originally anticipated due to management’s decision todelay the aggressive marketing of those products to our existing customer baseand to the market in general as we had initially planned.  The amount of time required to makeimprovements to our WAFS and CDP products that we believe are necessary hasbeen greater than we had expected.  Webelieve that good progress is currently being made on the product improvementsand we anticipate a more aggressive sales effort for these products in thelatter half of this year. 

Revenues from CuteFTP Home and CuteFTP Professional increased by 10% ascompared to the six months ended June 30, 2006 and accounted for approximately34% and 18% of total revenues for the six months ended June 30, 2006 and 2007,respectively.  We believe that ourreliance on the CuteFTP products will continue to decline as we emphasize salesof our more complex enterprise products. 

Because of the more complex nature of SecureFTP Server, Enhanced FileTransfer, WAFS and CDP, purchasers require increased maintenance andsupport.  As a result, our maintenanceand support sales increased by 189% from the first six months of 2006 to thesame period in 2007 from $532,000 in 2006 to $1.5 million in 2007, net of thedeferred revenue adjustment.  Maintenanceand support pricing is reflective of the license cost of the products and theadditional support it takes to maintain and support the products and customers.With higher maintenance and support revenues, we will recognize additionaldeferred revenue as we earn the revenue over the life of the maintenance andsupport agreement.

***Cost of Revenues.***  Cost of revenues consists primarily ofroyalties and production, packaging and shipping costs for boxed copies ofsoftware products.  Cost of revenuesdecreased $108,000 or 47% between periods from $227,000 for the six monthsended June 30, 2006 to $119,000 for the six months ended June 30, 2007.  Royalties that we pay on software productslicensed from third parties, which we resell, are expensed as a cost of salewhen the software product is sold or earlier if the recoverability of anyprepaid royalties is in doubt.  Cost ofrevenues as a percent of total revenues was 5% for the six months ended June30, 2006 as compared to 1% for the same period in 2007.

***Selling, General andAdministrative.*** Selling, general and administrative expenses consist primarily ofpersonnel and related expenses, marketing, customer support, rents, bad debtand professional fees.  For the sixmonths ended June 30, 2006 and 2007, selling, general and administrativeexpenses were $2.6 million and $5.0 million, respectively, an increase of $2.4million.  Of this increase, 57% or $1.1million was attributable to Availl.  Ofthe non-Availl expenses, salaries and fringe benefit costs increased 29% as wehave hired new employees in order to support current and projected growth.  Commissions and bonuses increased 70% as aresult of the increase in revenues and income before taxes.  In the six months ended June 30, 2006 and2007 we expensed $121,000 and $436,000 respectively, for stock basedcompensation related to the granting of stock options to employees anddirectors as required by FAS123R.

***Research andDevelopment.*** Research and development expenses increased $492,000 or 99% betweenperiods, from $497,000 to $989,000.  Theincrease was due largely to Availl’s R&D cost in 2007 which were notincluded in the same period of 2006, plus additional expenditures for externaldevelopment resources and hiring of additional personnel needed to support theAvaill products.

***Depreciation andAmortization.*** Depreciation and amortization expense consists of depreciation expenserelated to our fixed assets and amortization of capitalized development costs.Depreciation and amortization expense increased from $45,000 to $66,000, anincrease of approximately 49%.  Thisincrease was due primarily to the addition of the assets from the Availlacquisition and the capitalization of $102,000 of equipment and software duringthe first six months of 2007.

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***Other Income,Expense.*** For the six months ended June 30, 2006 and 2007, interest expenseincreased from $0 to $31,000, respectively. The interest expense incurred during 2007 was paid on the term loanrelated to the acquisition of Availl. We earned $37,000 and $13,000 in interestduring the first half of 2006 and 2007 respectively from investing our excesscash which was reduced significantly in 2007 by the use of cash in the earlypayoff of the term loan.

***Income Taxes.***  The provision for federal income taxes forthe six months ended June 30, 2006 and 2007 respectively was $520,000 and $1.3million. The increase in federal income taxes versus last year is the result ofincreased income upon which tax is due. ** **Beginning January 1, 2007, thestate of Texas has imposed a new margin tax equal to 1% of the Company’srevenue less compensation expense (based on Texas source income).  In the six months ended June 30, 2007, thistax plus the Massachusetts state tax for Availl equaled approximately $66,000**.**

***Net Income.***  GlobalSCAPE recorded net income of $1.0million and $2.6 million for the six months ended June 30, 2006 and 2007,respectively.  The $1.5 million increasein net income was attained even though the Company incurred substantialincreases in SG&A and R&D expenses related to Availl plus had anadditional $315,000 in compensation expense as required by FAS 123R for grantsof employee and directors stock options. 

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# **Item 3. Quantitative and Qualitative Disclosures 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 the foreseeablefuture.  We may invest our cash in moneymarket 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 six months ended June 30, 2007, approximately 18% 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 European Union (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 pound sterling.   We expect that the impact of this currencytranslation will not be material to our business.

# **Item 4. Controls and Procedures**

Asof the end of the period covered by this report, our Chief Executive Officerand Chief Financial Officer carried out an evaluation of the effectiveness ofGlobalSCAPE’s “disclosure controls and procedures” (as defined in theSecurities Exchange Act of 1934 Rules 13a-15(e)and 15d-15(e)) and concludedthat the disclosure controls and procedures were effective. 

Therewere no changes in our internal controls over financial reporting during theperiod covered by this report that have materially affected, or are reasonablylikely to materially affect, our financial reporting.

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## **Part II. Other Information**

# **Item 1.****    LegalProceedings**

We are notcurrently involved in any material legal proceedings.

**Item 1A.**     RiskFactors.

In addition to theother information set forth in this report, you should carefully consider thefactors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report onForm 10-K for the year ended December 31, 2006, which could materially affectour business, financial condition or future results.  The risks described in our Annual Report onForm 10-K are not the only risks facing GlobalSCAPE.  Additional risks and uncertainties notcurrently known to us or that we currently deem to be immaterial also maymaterially adversely affect our business, financial condition and/or operatingresults.

#### **Item 2.****   ****Unregistered Sales of Equity Securities and Use of Proceeds.**

| ** **               | ** ** | **Issuer Purchases of Equity Securities** | ** ** |
|--------------------------|------------|---------------------------------------------------------------|------------|
| **Period**               | ** ** | **Total Number of  Shares Purchased**          | ** ** | **Average Price  Paid Per Share** | ** ** | **Total Number of  Shares Purchased  as Part of a Publicly  Announced Plan (1)** | ** ** | **Maximum Number  (or Approximated  Dollar Value) of  Shares that may yet  be Purchased Under  the Plan  or Program (2)** | ** ** |
| April 1 – 30,  2007 |       | —                                                        |       | — |   | — |   | — |   |
| May 1 – 31, 2007    |       | 18,000                                                        |       | 3.13 |   | 18,000 |   | 2,933,580 |   |
| June 1 – 30,  2007  |       | 101,653                                                       |       | 3.21 |   | 101,653 |   | 2,620,267 |   |
| Total                    |       | 120,153                                                       |       | $ | 3.16 |   | 120,153 |   | $ | 2,620,267 |   |
|                          |            |                                                               |            |  |  |  |  |  |  |  |  |

 

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(1)    On May 21, 2007, we announced a plan to purchase up to $3.0 million ofour common stock.  This plan is scheduledto terminate on May 20, 2008.

(2)    At June 30, 2007, there were 710,100 shares yet to be purchased basedon the price of $3.69 per share on that date.

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

TheAnnual Meeting of Stockholders of the Company was held in San Antonio, Texas onJune 1, 2007 for the purpose of (1) electing two Directors for the three-yearterm, (2) approving the GlobalSCAPE, Inc. 2006 Non-Employee Directors Long-TermEquity Incentive Plan and (3) ratifying the appointment of independentregistered public accountants for 2007. Proxies for the meeting were solicited pursuant to Regulation 14 of theSecurities Exchange Act of 1934 and there was no solicitation in opposition tomanagement’s solicitation.  Results ofthe stockholder voting were as follows: 
| ** **                                                                                             | ** ** | **Number of Shares** | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                                             | ** ** | **For**                        | ** ** | **Against** | ** ** | **Abstaining/  Withheld** | ** ** | **Broker  Non-  Votes** | ** ** |
| (1)    Election  of Directors  Frank M. Morgan  Phillip M. Renfro                       |       | 14,153,656                     |       | — |   | 24,525 |   | 3,047,045 |   |
| (2)    Approve  the GlobalSCAPE, Inc. 2006 Non-Employee Directors Long-Term Equity Plan |       | 9,932,300                      |       | 79,072 |   | 12,284 |   | 7,201,570 |   |
| (3)    Ratify  the appointment of independent registered public accountants for 2007    |       | 14,156,338                     |       | 10,217 |   | 11,628 |   | 3,047,043 |   |

 

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# **Item 6.****    Exhibits**

**(a)**           Exhibits

31.1 Certificate pursuant to Section 302 ofthe Sarbanes-Oxley Act of 2002.

31.2 Certificate pursuant to Section 302 ofthe Sarbanes-Oxley Act of 2002.

32.1 Certificate pursuant to Section 906 ofthe Sarbanes-Oxley Act of 2002.

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**Signatures**

Pursuant to the requirementsof the Securities Exchange Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned thereunto duly authorized.
|                 |   | GLOBALSCAPE,  INC. |                                   |
|-----------------|--------|--------------------|----------------------------------------|
|            |   |               |
|            |   |               |
| August 13, 2007 |   |               | By:                                    | /s/ Charles R. Poole |   |
| Date            |   |               |                                   | Charles R. Poole |
|            |   |               | President and Chief  Executive Officer |
|            |   |               |                                   |
| August 13, 2007 |   |               | By:                                    | /s/ Bernard N.  Schneider |   |
| Date            |   |               |                                   | Bernard N. Schneider |
|            |   |               | Chief Financial Officer                |
|                 |        |                    |                                        |  |  |  |  |

 

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