10-Q/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

Amendment No. 2

(Mark One)

☒          QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2017

or

☐          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from          to            

Commission file number          001-33601 

GlobalSCAPE, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware	74-2785449
State or Other Jurisdiction of Incorporation or Organization	I.R.S. Employer Identification No.
4500 Lockhill-Selma, Suite 150 San Antonio, Texas	78249
Address of Principal Executive Offices	Zip Code

Registrant’s Telephone Number, Including Area Code

210-308-8267

Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☐ No ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ☐	Accelerated filer  ☐
Non-accelerated filer  ☐(Do not check if a smaller reporting company)	Smaller reporting company ☒
Emerging growth company  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.  Yes ☐ No ☐

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.  As of April 30, 2017 there were 21,571,831 shares of common stock outstanding.

GlobalSCAPE, Inc.

Quarterly Report on Form 10-Q

For the Quarter ended March 31, 2017

Index

		Page
Part I.	Financial Information
Item 1.	Financial Statements	7
	Condensed Consolidated Balance Sheets	7
	Condensed Consolidated Statements of Operations and Comprehensive Income	8
	Condensed Consolidated Statements of Cash Flows	9
	Notes to Condensed Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	46
Item 4.	Controls and Procedures	47
Part II.	Other Information
Item 1.	Legal Proceedings	49
Item 1A.	Risk Factors	49
Item 6.	Exhibits	49
Signatures		50

GlobalSCAPE®, CuteFTP®, CuteFTP Pro®, DMZ Gateway®, EFT Cloud Services®, GlobalSCAPE Securely Connected®, and Mail Express® are registered trademarks of GlobalSCAPE, Inc. 

Secure FTP Server™, Wide Area File Services™, WAFS™, CDP™, Advanced Workflow Engine™, AWE™, EFT Server™, EFT Workspaces™, EFT Insight™, Enhanced File Transfer™, Enhanced File Transfer Server™, Secure Ad Hoc Transfer™, SAT™, EFT Server Enterprise™, Enhanced File Transfer Server Enterprise™, Desktop Transfer Client™, DTC™, Mobile Transfer Client™, MTC™, Web Transfer Client™, Workspaces™, Accelerate™, WTC™, Content Integrity Control™, Advanced Authentication™, AAM™ and scConnect™ are trademarks of GlobalSCAPE, Inc. 

TappIn® and design are registered trademarks of TappIn, Inc., our wholly-owned subsidiary. 

TappIn Secure Share™, Social Share™, Now Playing™, and Enhanced A La Carte Playlist™, are trademarks of TappIn, Inc., our wholly-owned subsidiary.

Other trademarks and trade names in this Quarterly Report are the property of their respective owners.

EXPLANATORY NOTE

GlobalSCAPE, Inc. (together with its wholly owned subsidiary, “GlobalSCAPE” the “Company” or “we”) is filing this Amendment No. 2 on Form 10-Q/A (this “Amendment” or “Form 10-Q/A”) to its Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2017, which was originally filed May 12, 2017 and amended by Amendment No. 1 on Form 10-Q/A filed May 26, 2017 (as amended, the “Original Filing”). This Amendment amends and restates (the “Restatement”) the following indicated parts of the Original Filing:

· Part I, Item 1 – Our condensed consolidated balance sheet as of March 31, 2017, and the related condensed consolidated statement of operations and comprehensive income and the condensed consolidated statement of cash flows for the quarterly period then ended;

· Part I, Item 2 - Management’s discussion and analysis of our financial condition and results of operations as of March 31, 2017, and for the quarterly period then ended;

· Part I, Item 4 – Controls and Procedures

· Part II, Item 1 – Legal Proceedings; and

· Part II, Item 6 – Exhibits.

The Restatement results from our determination subsequent to the filing date of the Original Filing that we incorrectly recognized revenue during the fiscal year ended December 31, 2016 and the three months ended March 31, 2017 in connection with the sales transactions described below.

As a result of the Restatement, no reliance should be placed on financial information we have previously furnished or filed on Forms 10-K, 10-Q (including 10-Q/A) or 8-K, along with all related earnings press releases and similar communications issued by us, subsequent to November 10, 2016. Such items include, but are not limited to:

· Form 8-K announcing our financial results for the fourth quarter of 2016 and for the fiscal year ended December 31, 2016, furnished on January 26, 2017.

· Form 10-K for the fiscal year ended December 31, 2016, filed on March 27, 2017.

· Form 8-K announcing our financial results for the first quarter of 2017, furnished on April 27, 2017.

· Form 10-Q for the quarterly period ended March 31, 2017, filed on May 12, 2017, as amended by Amendment No. 1 on Form 10-Q/A, filed on May 26, 2017.

In the event there are discrepancies between this Amendment and previous reports, press releases and similar communications, the information in this Amendment shall control.

Background of the Restatement

On August 7, 2017, we announced that the Audit Committee (the “Audit Committee”) of our Board of Directors, assisted by outside legal counsel and independent forensic accountants, had been conducting an investigation into certain transactions in the fourth quarter of 2016. We publicly disclosed updates regarding the investigation on November 15, 2017 and March 16, 2018. That investigation, which is now complete, identified  transactions which were recorded inconsistently with the Company’s stated revenue recognition policies and criteria as described in our discussion of our significant accounting policies in Note 3 to our consolidated financial statements in Part I, Item 1 below.

On August 7, 2017, we filed a Current Report on Form 8-K (the “August 8-K”) announcing that:

· The Audit Committee had been conducting an investigation into certain transactions in the fourth quarter of 2016 involving improper arrangements with customers that circumvented the Company’s internal controls and their potential effect on previously reported revenue.

· Based on the results of the investigation as of August 7, 2017, the improper arrangements with customers that circumvented the Company’s internal controls had the effect of overstating the reported amounts of accounts receivable at December 31, 2016, and license revenue for the three months ended December 31, 2016, and for the year ended December 31, 2016, by approximately $403,000 and $396,000, respectively.

3

· As a result of issues identified through August 1, 2017 in the investigation, the Audit Committee, in consultation with management, concluded that previously issued financial statements, covering one or more years or interim periods for which GlobalSCAPE is required to provide financial statements under Regulation S-X should no longer be relied upon because of an error in such financial statements as addressed in FASB ASC Topic 250, Accounting Changes and Error Corrections.  We stated that the financial statements that should no longer be relied upon were (i) the Company’s consolidated financial statements for the quarter ended March 31, 2017 included in the Company’s Quarterly Report on Form 10-Q as amended by Amendment No. 1 on Form 10-Q/A and (ii) the Company’s consolidated financial statements for the year ended December 31, 2016 included in the Company’s Annual Report on Form 10-K (including the interim periods within that year).

The preliminary findings of the Audit Committee’s investigation at the time of the filing of the August 8-K involved a total of four transactions, which occurred in December 2016. The first three related to invoices whereby all conditions necessary to recognize revenue from the sales at December 31, 2016 were not met. Specifically, as of December 31, 2016, and subsequent thereto, the amounts of these sales were not fixed or determinable and collection of all or any portion of these amounts could not be reasonably assured. Accordingly, these sales did not meet all of the necessary criteria for revenue recognition during the three months ended December 31, 2016. In addition, in December 2016, we issued one invoice to a customer whereby certain of our operating personnel had been informed by the customer that its employee who placed the order was not authorized to do so and that the customer was not committing to complete the purchase in the absence of an approved authorization. As a result, as of December 31, 2016, and subsequent thereto, the collection of all or any portion of this sale amount could not be reasonably assured. Accordingly, this sale also did not meet all of the necessary criteria for it to be recognized as revenue during the three months ended December 31, 2016.

As a result of these four transactions (the “Initial Transactions”) which were reported in the August 8-K, our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2016, originally filed March 27, 2017 (the “Original 10-K Filing”), were misstated as follows:

· Revenue for fiscal 2016 and for the three months ended December 31, 2016 was overstated by $396,000;

· Accounts receivable as of December 31, 2016 were overstated by $403,000;

· Sales commissions and royalties expenses for fiscal 2016 and for the three months ended December 31, 2016, and the liabilities associated with those expenses as of December 31, 2016, were overstated by $42,000 and $26,000, respectively; and

· Income tax expense for fiscal 2016, and for the three months ended December 31, 2016, and federal income tax receivable as of December 31, 2016, were overstated by $111,000.

Additional Findings Related to Revenue Recognition

Subsequent to the filing of the August 8-K, the Audit Committee and management identified additional transactions which occurred during 2016 in which revenue was recorded inconsistently with the Company’s stated revenue recognition policies and criteria, including:

· Transactions in which license activation keys did not appear to have been delivered to the customer in the period in which the sale was recorded;

· Transactions appearing to contain side deal terms negotiated with customers but not reflected in the underlying sales documentation;

· Transactions in which a sale was recorded although the customer had not yet responded to the Company’s request to provide a commitment to purchase;

· Transactions in which a sale was made to a reseller whereby collection was not reasonably assured due to payment or other nonstandard terms not consistent with the Company’s revenue recognition policy;

· Transactions in which there was either no purchase order or a purchase order dated after the date of the end of the period for which revenue had been previously recognized; and

· One transaction which included incorrect vendor specific objective evidence allocation.

4

As a result of these additional transactions identified by the Audit Committee and management, in addition to the effects on our consolidated financial statements from the Initial Transactions, our consolidated financial statements in the Original 10-K Filing were misstated as follows:

· Revenue for fiscal 2016 and for the three months ended December 31, 2016 was overstated by $345,000;

· Accounts receivable as of December 31, 2016 were overstated by $273,000;

· Sales commissions and royalties expenses for fiscal 2016 and for the three months ended December 31, 2016, and the liabilities associated with those expenses as of December 31, 2016, were overstated by $25,000 and $17,000, respectively; and

· Income tax expense for fiscal 2016, and for the three months ended December 31, 2016, and federal income tax receivable as of December 31, 2016, were overstated by $114,000.

In addition to the items above, management has also adjusted our consolidated financial statements as of and for the years ended December 31, 2016 and 2015 to account for immaterial misstatements identified in those consolidated financial statements included in the Original Filing and the Original 10-K Filing. These additional adjustments resulted in an overall decrease in expense before tax of $32,000 in 2016. In addition, the following adjustments were made to our consolidated financial statements as of and for the year ended December 31, 2015 from the amounts included in the Original 10-K Filing:

· General and Administrative expense before tax was understated by $2,000;

· Accounts receivable as of December 31, 2015 was understated by $63,000;

· Additional Paid-in capital as of December 31, 2015 was understated by $65,000; and

· Retained earnings as of December 31, 2015 was overstated by $2,000.

These changes in our consolidated financial statements as of and for the year ended December 31, 2015 are in addition to the changes previously disclosed in the Original 10-K Filing as a result of changes in accounting methods and in the classification and presentation of our business activities in our consolidated financial statements. See Note 3 to our consolidated financial statements included in this 10-Q/A in Part I, Item 1.

As a result of all of the transactions identified  by the Audit Committee and management and adjustments related to immaterial items identified during the review of our condensed consolidated financial statements for the three-month period ended March 31, 2017, it was determined that our revenue was understated for the three-month period ended March 31, 2017 by $114,000. This amount included $216,000 of revenue initially recognized in the fourth quarter of 2016 which should have been recognized in the first quarter of 2017, which was partially offset by a reduction of $102,000 of revenue initially recognized in the first quarter of 2017 that related to a transaction in which a reseller was subsequently given a refund after the customer previously identified by the reseller did not purchase any products or services from the Company. In addition to the amount of revenue which was misstated in the first quarter of 2017, our condensed consolidated financial statements in the Original Filing were misstated as follows:

· Accounts receivable as of March 31, 2017 were overstated by $554,000;

· Cost of revenues was understated by $10,000;

· Operating expenses for the three months ended March 31, 2017 were overstated by $65,000;

· Income tax expense for the three months ended March 31, 2017 was understated by $89,000;

· Deferred tax asset as of March 31, 2017, net was overstated by $117,000;

· Total current liabilities as of March 31, 2017 were overstated by $508,000;

· Other long term liabilities as of March 31, 2017 were understated by $6,000;

· Additional paid-in capital as of March 31, 2017 was understated by $119,000; and

· Retained earnings as of March 31, 2017 was overstated by $288,000.

See Note 15 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this 10-Q/A for the impact of all of the adjustments to our consolidated financial statements in our Original Filing to correct those consolidated financial statements for the effects of the misstatements described above.

5

Internal Control Deficiencies and Remedial Actions

As further discussed in Part I, Item 4 of this Form 10-Q/A under the caption “Controls and Procedures,” during the course of its investigation, the Audit Committee determined that internal control deficiencies existed with respect to our revenue recognition process. The Audit Committee concluded that these internal control deficiencies constituted material weaknesses in our internal control over financial reporting. As a result, we have concluded that:

· Our disclosure controls and procedures were not effective as of March 31, 2017; and

· Our internal control over financial reporting was not effective to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with United States generally accepted accounting principles, or GAAP, as of March 31, 2017.

The foregoing has been approved by our management, including our Chief Executive Officer and Interim Chief Financial Officer, who have been involved with the reassessment and analysis of our internal controls over financial reporting.

As a result of its investigation, the Audit Committee has made recommendations to the Board of Directors and management as to the manner in which it believes our disclosure controls and procedures and our internal controls over financial reporting should be improved. The Board of Directors has approved these recommendations and instructed management to implement them. These recommendations include:

· Clearly defining and communicating the management-approved, standard terms and conditions that may be offered to customers during the sales process and requiring appropriate management approval of requested deviations from these standard terms and conditions before a sale is consummated with a customer and a sales invoice is created.

· Creating and implementing a policy clearly stating that all terms and conditions of agreements with customers are to be recorded in writing, communicated to finance and accounting personnel, and recorded in our permanent records prior to the creation of a sales invoice.

· Conducting periodic training sessions and briefings with personnel to communicate our policies and procedures regarding the standard terms and conditions that we offer to customers and how we document and communicate approved deviations from those standard terms and conditions.

· Enhancing the breadth and depth of the review by finance and accounting personnel of sales invoices and underlying supporting documentation to ensure that unusual items are identified and considered when determining the appropriate revenue recognition.

· Establishing a total invoice dollar amount threshold over which finance and accounting personnel must examine all actual invoices and supporting documentation to confirm the purchase by the customer and to confirm that all the appropriate revenue recognition criteria have been met prior to recognition.

· Publishing guidelines that personnel can reference which set forth the requirements to be met for revenue to be recognized from a sale transaction and conducting periodic meetings with personnel to educate and remind them of these guidelines.

Management has provided the Audit Committee with a formal remediation plan based on the foregoing that the Audit Committee has approved and management is currently implementing.

For convenience of the reader, this Form 10-Q/A sets forth the Original Filing in its entirety, as amended by, and to reflect, the Restatement. Other than with respect to matters related to the Restatement and related matters (including legal proceedings, government investigations and subsequent events), the Company’s late filings with the United States Securities and Exchange Commission and the consequences therefrom and to correct other immaterial errors, we have not modified or updated disclosures presented in the Original Filing. Accordingly, this Form 10-Q/A does not reflect events occurring after the Original Filing and does not modify or update those disclosures affected by subsequent events, except as specifically referenced herein. Information not affected by the Restatement is unchanged and reflects the disclosures made at the time of the Original Filing on May 12, 2017. References to the quarterly report on Form 10-Q herein shall refer to the quarterly report on Form 10-Q originally filed on May 12, 2017, as amended by Amendment No. 1 on Form 10-Q/A, originally filed on May 26, 2017.

6

Part I. Financial Information

Item 1. Financial Statements

GlobalSCAPE, Inc.

Condensed Consolidated Balance Sheets

(in thousands except share amounts)

	March 31,			December 31,
	2017 (unaudited)			2016
Assets
Current assets:
Cash and cash equivalents	$	10,400		$	8,895
Short term certificates of deposit		2,759			2,754
Accounts receivable, net		4,945			6,288
Federal income tax receivable		-			292
Prepaid and other expenses		492			531
Total current assets		18,596			18,760
Long term certificates of deposit		12,837			12,779
Capitalized software development costs, net		3,731			3,743
Goodwill		12,712			12,712
Deferred tax asset, net		1,073			1,050
Property and equipment, net		577			456
Other assets		64			245
Total assets	$	49,590		$	49,745
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	640		$	930
Accrued expenses		1,696			1,603
Income tax payable		215			-
Deferred revenue		12,704			13,655
Total current liabilities		15,255			16,188
Deferred revenue, non-current portion		3,618			3,790
Other long term liabilities		169			152
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 authorized, 21,970,412 and 21,920,912 shares issued at March 31, 2017, and December 31, 2016, respectively		22			22
Additional paid-in capital		22,183			21,756
Treasury stock, 403,581 shares, at cost, at March 31, 2017 and December 31, 2016		(1,452	)		(1,452	)
Retained earnings		9,795			9,289
Total stockholders’ equity		30,548			29,615
Total liabilities and stockholders’ equity	$	49,590		$	49,745

The accompanying notes are an integral part of these condensed consolidated financial statements.

7

GlobalSCAPE, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Income

(In thousands, except per share amounts)

(Unaudited)

	Three months ended March 31,
	2017		2016
Operating Revenues:
Software licenses	$	2,578	$	2,263
Maintenance and support		5,121		4,446
Professional services		733		642
Total Revenues		8,432		7,351
Cost of revenues
Software licenses		758		626
Maintenance and support		413		394
Professional services		364		423
Total cost of revenues		1,535		1,443
Gross profit		6,897		5,908
Operating expenses
Sales and marketing		3,289		3,005
General and administrative		1,714		1,687
Research and development		722		646
Total operating expenses		5,725		5,338
Income from operations		1,172		570
Interest income (expense), net		70		33
Income before income taxes		1,242		603
Income tax expense		411		220
Net income	$	831	$	383
Comprehensive income	$	831	$	383
Net income per common share -
Basic	$	0.04	$	0.02
Diluted	$	0.04	$	0.02
Weighted average shares outstanding:
Basic		21,544		21,033
Diluted		22,023		21,652
Cash dividends declared per share	$	0.015	$	0.015

The accompanying notes are an integral part of these condensed consolidated financial statements. 

8

GlobalSCAPE, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

	For the Three Months Ended March 31,
	2017			2016
Operating Activities:
Net income	$	831		$	383
Items not involving cash at the time they are recorded in the statement of operations:
Provision for sales returns and doubtful accounts receivable		11			12
Depreciation and amortization		541			501
Share-based compensation		337			239
Deferred taxes		(23	)		(19	)
Excess tax benefit from share-based compensation		-			(3	)
Subtotal before changes in operating assets and liabilities		1,697			1,113
Changes in operating assets and liabilities:
Accounts receivable		1,332			951
Prepaid expenses		39			34
Deferred revenue		(1,123	)		(416	)
Accounts payable		(290	)		(355	)
Accrued expenses		93			(327	)
Other assets		181			22
Accrued interest receivable		(63	)		(16	)
Other long-term liabilities		17			3
Income tax receivable and payable		507			198
Net cash provided by operating activities		2,390			1,207
Investing Activities:
Software development costs capitalized		(462	)		(488	)
Purchase of property and equipment		(188	)		(90	)
Net cash (used in) investing activities		(650	)		(578	)
Financing Activities:
Proceeds from exercise of stock options		90			122
Excess tax benefit from share-based compensation		-			3
Dividends paid		(325	)		(315	)
Net cash (used in) financing activities		(235	)		(190	)
Net increase in cash		1,505			439
Cash at beginning of period		8,895			15,885
Cash at end of period	$	10,400		$	16,324
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	-		$	-
Income taxes	$	15		$	22

The accompanying notes are an integral part of these condensed consolidated financial statements.

9

GlobalSCAPE, Inc.

Notes to Condensed Consolidated Financial Statements

As of March 31, 2017 and For the Three

Months Then Ended

(Unaudited)

1.           Nature of Business

We provide secure information exchange capabilities for enterprises and consumers through the development and distribution of software, delivery of managed and hosted solutions, and provisioning of associated services. Our solution portfolio facilitates transmission of critical information such as financial data, medical records, customer files, vendor files, personnel files, transaction activity, and other similar documents between diverse and geographically separated network infrastructures while supporting a range of information protection approaches to meet privacy and other security requirements. In addition to enabling secure, flexible transmission of critical information using servers, desktop and notebook computers, and a wide range of network-enabled mobile devices, our products also provide customers with the ability to monitor and audit file transfer activities.  Our primary product is Enhanced File Transfer, or EFT. We have other products that complement our EFT product.

Throughout these notes unless otherwise noted, our references to the 2017 quarter and the 2016 quarter refer to the three months ended March 31, 2017 and 2016, respectively.

2.           Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with Rule 10-01 of Regulation S-X, “Interim Financial Statements,” as prescribed by the United States Securities and Exchange Commission, or SEC. Accordingly, they do not include all information and footnotes required under GAAP for complete financial statements. In the opinion of management, all accounting entries necessary for a fair presentation of our financial position and results of operations have been made. The results of operations for any interim period are not necessarily indicative of the results to be expected for the full year. The information included in this Form 10-Q/A should be read in conjunction with the consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2016, filed with the SEC on June 14, 2018 which we refer to as the 2016 Form 10-K/A, as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations also included in our 2016 Form 10-K/A and in this report.

We follow accounting standards set by the Financial Accounting Standards Board. This board sets GAAP, which we follow in preparing financial statements that report our financial position, results of operations, and sources and uses of cash. We also follow the reporting regulations of the SEC.

The preparation of financial statements in accordance with GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and the reported amounts of revenues and expenses during the reporting period. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of our consolidated financial statements. It is possible the actual results could differ from these estimates and assumptions and could have a material effect on the reported amounts of our financial position and results of operations.

3.           Significant Accounting Policies

Principles of Consolidation

The accompanying condensed consolidated financial statements of GlobalSCAPE, Inc. and its wholly-owned subsidiary (collectively referred to as “GlobalSCAPE”, the “Company” or “we”) are prepared in conformity with GAAP.  All intercompany accounts and transactions have been eliminated.

10

Changes in Accounting Methods, Reclassifications and Revisions

As part of our ongoing enhancement and refinement of our financial reporting to fairly present our results of operations and financial position, we may make changes from time-to-time in accounting methods and in the classification and presentation of our business activities in our financial statements. To ensure comparability between periods, we revise previous period financial statements presented to conform them to the method of presentation in our current period financial statements. If the changes increase or decrease previously reported amounts of revenue or expenses, we adjust retained earnings as of the beginning of the earliest period presented for the cumulative effect, if any, on that balance.  If these changes affect our financial statements for previously reported interim periods not presented herein, we present revised financial statements for those periods when they are reported in the future.

Method of Amortization of Deferred Revenue Related to M&S Contracts

In previously issued financial statements, for the fiscal years prior to 2016 and for the first three quarters of 2016, we amortized deferred revenue related to maintenance and support, or M&S, contracts by recording a full month of amortization in the first month of a contract. We used that method based on our intent to match revenue from our M&S contracts to the expense we incur when delivering M&S services. We acknowledge that the more common and widespread practice is to amortize deferred revenue based upon the specific number of days the M&S contract is in place during that month. Both methods result in the recognition of the same amount of revenue over the term of the M&S contract but yield differing amounts of revenue being recognized in the first month and last month of an M&S contract.

Commencing with the issuance of our consolidated financial statements as of December 31, 2016, and for the year then ended, we changed our method of amortizing deferred revenue related to M&S contracts such that our consolidated statements of operations and balance sheets included herein are now prepared using the specific number of days method. This change decreased M&S revenue and net income for the three months ended March 31, 2016 as reported herein by immaterial amounts relative to amounts previously reported for that period. This change increased deferred revenue as of March 31, 2016 by an immaterial amount relative to the amount previously reported as of that date. This change has no effect on the total amount of revenue we will realize from our M&S contracts.

Method of Recording M&S Billings

We may invoice a customer for M&S to be provided commencing on a date in a month subsequent to the month in which we invoice the customer. We typically receive a purchase order from our customers for M&S prior to invoicing them, and it is not uncommon for a customer to pay us in advance of that M&S commencement date either on their own or when we request such payment. Accordingly, in our consolidated balance sheets issued prior to 2016 and for the first three quarters of 2016, we recorded an account receivable and deferred revenue for these invoices as of the date of the invoice. Commencing with the preparation and issuance of our financial statements as of December 31, 2016, we determined that a reasonable, alternate and more conservative method would be to wait until the commencement date of the M&S contract had arrived to record the account receivable and deferred revenue for any such invoices for which we have not been paid as of the balance sheet date. Accordingly, our condensed consolidated balance sheet as of March 31, 2016, included herein is now prepared and presented using that method. This change had the effect of decreasing our reported amounts of accounts receivable and deferred revenue relative to the method we previously used but does not affect any of our reported amounts of revenue or net income.

Reclassification of Sales Engineer Expenses

We employ sales engineers who assist our sales staff in addressing technical considerations by our customers prior to their purchasing our product. Our use of sales engineers has expanded in recent quarters. Prior to 2016and for the first three quarters of 2016, we classified the expense of sales engineers as part of costs of revenue – professional services. Commencing with the preparation and issuance of our financial statements as of December 31, 2016, we began classifying these expenses as part of sales and marketing expense to more appropriately present the current nature of the activities of our sales engineers. This change has the effect of decreasing cost of revenue – professional services and increasing sales and marketing expense. It does not affect any of our reported amounts of revenue or net income.

Reclassification of Reserve for Uncertain Tax Position

As described in Note 9, we maintain a reserve for uncertain tax positions. Prior to 2016 and for the first three quarters of 2016, we classified that reserve as a current liability since it was not material to our financial statements taken as a whole. Commencing with the preparation of our financial statements as of December 31, 2016, we determined it appropriate to classify it as a component of other long term liabilities. This change has the effect of decreasing current income taxes payable and increasing other long term liabilities.

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Reclassification of Professional Services Revenue

In preparing our condensed consolidated statement of operations and comprehensive income for the 2017 quarter, we changed the classification of certain revenue from M&S to professional services to better reflect the nature of that revenue. We have made the same reclassification in our condensed consolidated statement of operations and comprehensive income for the 2016 quarter presented herein.

See Note 15 in the Notes to our Consolidated Financial Statements included in Part I, Item 1 of this 10-Q/A for the impact of all of the adjustments to our consolidated financial statements in our Original Filing to correct those consolidated financial statements for the effects of the adjustments described above.

Revenue Recognition

We develop, market and sell software products. We recognize revenue from a sale transaction when the following conditions are met:

·          Persuasive evidence of an arrangement exists.

·          Delivery has occurred or services have been rendered.

·          The amount of the sale is fixed or determinable.

·          Collection of the sale amount is reasonably assured.

For a sale transaction not meeting any one of these four criteria, we defer recognition of revenue related to that transaction until all the criteria are met.

We earn the majority of our software license revenue from software products sold under perpetual software license agreements. At the time our customers purchase these products, they typically also purchase an M&S contract. These transactions are multiple element software sales for which we assess the presence of vendor specific objective evidence (“VSOE”) of the fair value of the undelivered elements to determine the portion of these sales to recognize as revenue upon delivery of the software product and the portion of these sales to record as deferred revenue at the time the product is delivered. We amortize the deferred revenue component to revenue in future periods on a straight-line method as we deliver the related future services to the customer. For transactions, if any, for which we cannot establish VSOE of the fair value of the undelivered elements, we initially record the entire transaction as deferred revenue and amortize that amount to revenue in future periods as we deliver the related future services to the customer.

We provide services under M&S contracts with terms generally ranging from one to three years. We require up-front payment of our M&S fee in an amount that covers the entire term of the agreement.  We record deferred revenue at the commencement date of the contract or when we receive payment, whichever occurs first.  We amortize the related deferred revenue over the term of the contract, based upon the specific number of days method. Deferred revenue related to services we will deliver within one year is presented as a current liability while deferred revenue related to services that we will deliver more than one year into the future is presented as a non-current liability. We reduce deferred revenue and recognize revenue ratably in future periods on a straight-line method as we deliver the M&S service.

For our products licensed and delivered under a software-as-a-service, or SaaS, transaction on a monthly or other periodic subscription basis, we recognize subscription revenue, including initial setup fees, on a monthly basis ratably over the contractual term of the customer contract as we deliver our products and services. Amounts paid prior to this revenue recognition are presented as deferred revenue until earned.

We provide professional services to our customers consisting primarily of software installation support, operations support and training. We recognize revenue from these services as they are completed and accepted by our customers.

We collect sales tax on many of our sales. We do not include sales tax collected in our revenue. We record it as a liability payable to taxing authorities.

Cash and cash equivalents

Cash and cash equivalents includes all cash and highly liquid investments with original maturities of three months or less.

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Property and Equipment

Property and equipment is comprised of furniture and fixtures, software, computer equipment and leasehold improvements which are recorded at cost and depreciated using the straight-line method over their estimated useful lives. Furniture, fixtures and equipment have a useful life of five to seven years, computer equipment and software have a useful life of three years and leasehold improvements have a useful life that is the shorter of the term of the lease under which the improvements were made or the estimated useful life of the asset.

Expenditures for maintenance and repairs are expensed as incurred.

Goodwill

Goodwill is not amortized. On at least an annual basis, we test goodwill for impairment at the reporting unit level using December 31 as the measurement date. We operate as a single reporting unit.

When testing goodwill, we first assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of our reporting unit is less than its carrying amount, including goodwill. In performing this qualitative assessment, we assess events and circumstances relevant to us including, but not limited to:

• Macroeconomic conditions.

• Industry and market considerations.

• Cost factors and trends for labor and other expenses of operating our business.

• Our overall financial performance and outlook for the future.

• Trends in the quoted market value and trading of our common stock.

In considering these and other factors, we consider the extent to which any adverse events and circumstances identified could affect the comparison of our reporting unit’s fair value with its carrying amount. We place more weight on events and circumstances that most affect our reporting unit’s fair value or the carrying amount of our net assets. We consider positive and mitigating events and circumstances that may affect our determination of whether it is more likely than not that the fair value of our reporting unit is less than its carrying amount. We evaluate, on the basis of the weight of the evidence, the significance of all identified events and circumstances in the context of determining whether it is more likely than not that the fair value of our reporting unit is less than its carrying amount.

If, after assessing the totality of these qualitative events and circumstances, we determine it is not more likely than not that the fair value of our reporting unit is less than its carrying amount, we conclude there is no impairment of goodwill and perform no further testing, in accordance with GAAP. If we conclude otherwise, we proceed with performing the first step, and if necessary, the second step, of the two-step goodwill impairment test prescribed by GAAP.

As of December 31, 2016, after assessing the totality of the relevant events and circumstances, we determined it not more likely than not that the fair value of our reporting unit was less than its carrying amount. Accordingly, we concluded there was no impairment of goodwill as of that date. There have been no material events or changes in circumstances since that time indicating that the carrying amount of goodwill may exceed its fair market value and that interim testing needed to be performed.

Capitalized Software Development Costs

When we complete research and development for a software product and have in place a program plan and a detail program design or a working model of that software product, we capitalize production costs incurred for that software product from that point forward until it is ready for general release to the public. Thereafter, we amortize capitalized software production costs to expense using the straight-line method over the estimated useful life of that product, which is generally three years. We periodically assess the carrying value of capitalized software development costs and our method of amortizing them relative to our estimates of realizability through sales of products in the marketplace.

Research and Development

We expense research and development costs as incurred.

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Advertising Expense

We expense advertising costs as incurred as a component of our sales and marketing expenses.  Advertising expense was $419,561 and $408,136 in the 2017 quarter and the 2016 quarter, respectively.

Share-Based Compensation

We measure the cost of share-based payment transactions at the grant date based on the calculated fair value of the award. We recognize this cost as an expense ratably over the recipient’s requisite service period during which that award vests or becomes unrestricted.

For stock option awards, we estimate their fair value at the grant date using the Black-Scholes option-pricing model considering the following factors:

• We estimate expected volatility based on historical volatility of our common stock.

• We use primarily the simplified method to derive an expected term which represents an estimate of the time options are expected to remain outstanding. We use this method because our options are plain-vanilla options, and we believe our historical option exercise experience is not adequately indicative of our future expectations.

• We base the risk-free rate for periods within the contractual life of the option on the U.S. treasury yield curve in effect at the time of grant.

• We estimate a dividend yield based on our historical and expected future dividend payments.

For restricted stock awards, we use the quoted price of our common stock on the grant date as the fair value of the award.

Income Taxes

We account for income taxes using the asset and liability method.  We record deferred tax assets and liabilities based on the difference between the tax bases of assets and liabilities and their carrying amount for financial reporting purposes, as measured by the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets and liabilities are carried on the balance sheet with the presumption that they will be realizable in future periods in which we generate taxable income.

We assess the likelihood that deferred tax assets will be realized from future taxable income. Based on this assessment, we provide any necessary valuation allowance on our balance sheet with a corresponding increase in the tax provision on our statement of operations.   Any valuation allowances we establish are determined based upon a number of assumptions, judgments, and estimates, including forecasted earnings, future taxable income, and the relative proportions of revenue and income before taxes in the various domestic jurisdictions in which we operate.

We account for uncertainty in income taxes using a two-step process to determine the amount of tax benefit to be recognized. First, we evaluate the tax position to determine the likelihood that it will be sustained upon external examination. If the tax position is deemed “more-likely-than-not” to be sustained, we assess the tax position to determine the amount of benefit to recognize in the consolidated financial statements. The amount of the benefit we recognize is the largest amount that we believe has a greater than 50 percent likelihood of being realized upon ultimate settlement. Unrecognized tax benefits represent tax positions for which reserves have been established.

Earnings Per Share

We compute basic earnings per share using the weighted-average number of common shares outstanding during the periods.  We compute diluted earnings per share using the weighted-average number of common shares outstanding plus the number of common shares that would be issued assuming conversion of all potentially dilutive common shares outstanding.

Awards of non-vested restricted stock and options are considered potentially dilutive common shares for the purpose of computing earnings per common share.  We apply the treasury stock method to non-vested options under which the assumed proceeds include the amount the employee must pay to exercise the option plus the amount of unrecognized cost attributable to future periods less any expected tax benefits.

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Recent accounting pronouncements

ASU 2017-04, Intangibles – Goodwill and Other (issued January 2017) - To simplify the subsequent measurement of goodwill, Step 2 was eliminated from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in this update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. Any loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. This update also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. Therefore, the same impairment assessment applies to all reporting units. An entity is required to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. A public business entity that is a SEC filer is required to adopt the amendments in this update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. We expect that the application of the provisions of this update will not have a material effect on our consolidated financial statements.

ASU 2016-15, Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments (issued June 2016) - This pronouncement provides guidance as to the treatment of transactions in a statement of cash flows with respect to eight specific cash flow issues. During 2017 and 2016, we had no transactions of the type cited in the statement and do not anticipate having any such transactions in the foreseeable future. Accordingly we do not expect this pronouncement to have a material effect on how we present items in our statement of cash flows.

ASU 2016-13, Financial Instruments – Credit Losses (issued June 2016) - Among the provisions of this ASU is a requirement that assets measured at amortized cost, which includes trade accounts receivable, be presented at the net amount expected to be collected. This pronouncement requires that an entity reflect all of its expected credit losses based on current estimates which will replace the current standard requiring that an entity need consider only past events and current conditions in measuring an incurred loss. We are subject to this guidance effective with financial statements we issue for the year ending December 31, 2020, and the quarterly periods during that year. We do not expect the amounts we report as accounts receivable in those future periods under this guidance to be materially affected relative to current guidance.

ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (issued March 2016) – This standard discontinued the recording in equity of tax benefits or tax deficiencies that arise from differences between share-based payment compensation expense recorded for financial statement purposes and that expense deductible for tax purposes. This new standard requires that the tax effect of all such differences be recorded and reported in the statement of operations. This standard also requires that tax-related cash flows resulting from share-based payments be reported as operating activities in the statement of cash flows which is a change from the current requirement to present such tax-related items as an inflow from financing activities and an outflow from operating activities. As prescribed by this standard, we adopted it beginning January 1, 2017, and followed it in the preparation of our consolidated financial statements as of March 31, 2017, and for the three months then ended.

This standard also permits an accounting policy election for the impact of forfeitures on the recognition of expense for share-based payment awards. Forfeitures may be either estimated (as has been the requirement in the past) or recognized when they occur. We elected to continue estimating forfeitures consistent with our existing practices thereby resulting in no change to our application of GAAP for this aspect of computing share-based compensation.

ASU 2016-02, Leases (issued February 2016) - The main difference between existing GAAP and this ASU 2016-02 is the presentation by lessees on their financial statements of lease assets and lease liabilities arising from operating leases. Since this new standard retains the distinction between finance and operating leases, the effect of leases in the statement of operations and the statement of cash flows will be largely unchanged from existing GAAP. Our only lease of significance is our operating lease for our corporate office space for which we will present a right-to-use asset and a lease liability on our consolidated balance sheet when we implement this standard. We are in the process of determining those amounts. In accordance with this standard, we will implement it beginning with our interim and annual financial statements for 2019. The extent of the effect of this standard on our consolidated financial statements for 2019 and later will depend upon the leases, if any, that we have in effect at that date.

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ASU 2015-17, Income Tax: Balance Sheet Classification of Deferred Taxes (issued November 2015) - This pronouncement requires that all deferred tax assets and liabilities for a tax jurisdiction, along with any related valuation allowance, be classified as noncurrent on the balance sheet. We have implemented this ASU in the accompanying consolidated financial statements in the manner described in Note 9 below.

ASU 2014-09, Revenue from Contracts with Customers (issued May 2014) - The core principle of this guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects consideration to which the entity expects to be entitled in exchange for those goods or services. We will implement these new principles effective with consolidated financial statements we issue for the year ending December 31, 2018, and the quarterly periods during that year.

We have assessed the effect of ASU 2014-09 on the amount and timing of revenue we expect to recognize from our business activities in 2018 and later. We do not expect there to be material differences in the amount and timing of revenue we recognize from similar business activities in future periods determined by applying ASU 2014-09 as compared to revenue we would have otherwise recognized by applying GAAP as it existed prior to 2018.

We have determined that the application of ASU 2014-09 will have a material effect on the timing of our recording of expenses resulting from the incremental costs we incur to obtain a contract with a customer to deliver goods and services. These incremental costs consist primarily of sales commissions paid to our sales people and royalties on certain of our products paid to third parties. For years ended December 31, 2017 and earlier, we recorded the full amount of the sales commission and royalties paid on the full value of an M&S or SaaS contract as an expense on the inception date of the M&S contract. Under ASU 2014-09, we will account for such costs we incur in 2018 and later as follows:

· If these costs are associated with products and services for which we recognize revenue at a point in time (primarily sales of perpetual software licenses and professional services), we will expense these costs in full at the time we recognize that revenue.

· If these costs are associated with services for which we recognize revenue over time (primarily sales of M&S and SaaS subscriptions) for which we believe it is likely that the contract for those services will be renewed for additional terms in the future, provided we deem these costs to be recoverable, we will record these costs as deferred expense asset and amortize that cost to expense as follows:

o For the portion of the cost that we determine benefits us primarily only over the term of the specific underlying contract currently in force (such as the term of an M&S contract), we will recognize expense ratably each month over that term.

o For the portion of the cost that we determine benefits us over an overall customer relationship that is likely to span period of time that is longer than an initial contract term (for example, an M&S contract renewed for multiple terms in the future), we will recognize expense ratably monthly over the estimated life of the customer relationship.

Our application of ASU 2014-09 to incremental costs we incur to obtain a contract with a customer will result in us recording, as an asset as of January 1, 2018, a deferred expense of $1.2 million applicable to contracts with customers in effect as of that date. We previously reported this amount as an expense in our financial statements for periods ending on and before December 31, 2017. We estimate that we will amortize this amount to expense at the rate of approximately $186,000 per quarter beginning in 2018. The incremental costs we incur to obtain contracts with customers during 2018 and later years, and the amount of such costs we record as a deferred expense and amortize to expense in subsequent periods, will depend upon the nature and scope of our future business activities, the nature and mix of the products and services we sell, the compensation plans we have in place for our sales people, and the royalty arrangements we enter into with third parties.

4.           Certificates of Deposit

Our certificates of deposit are held at a bank and mature at various dates through December 2021. Certificates of deposit with contractual maturity dates less than one year from the balance sheet date are presented as current assets.  Certificates of deposit with contractual maturity dates beyond one year from the balance sheet date are presented as non-current assets.

We have the ability to hold these certificates of deposit until their maturity dates and as of the date of this report intend to do so. We measure these investments on a recurring basis using Level 1 of the fair value hierarchy prescribed by GAAP which results in them being presented at original cost plus accrued interest earned. There is no amortization of original cost associated with our certificates of deposit.

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5.           Accounts Receivable, Net

We bill our customers and issue them an invoice when we have delivered our goods or services to them. In addition, when our customers agree to purchase or renew M&S services, we bill and invoice our customers at that time, which could be before the date we begin delivering those services. In that event, we exclude from accounts receivable (and from the related deferred revenue, see Note 3) the invoices we have issued for which the M&S services commencement date is in the future and which have not been paid by the customer as of the date of our consolidated financial statements. Accordingly, we determine our accounts receivable, net, as follows ($ in thousands):

	March 31, 2017			December 31, 2016
Total invoices issued and unpaid	$	5,633		$	6,932
Less: Unpaid invoices relating to M&S contracts with a start date subsequent to the balance sheet date		(410	)		(381	)
Gross accounts receivable		5,223			6,551
Allowance for sales returns and doubtful accounts		(278	)		(263	)
Accounts receivable, net	$	4,945		$	6,288

6.  Capitalized Software Development Costs, Net

Our capitalized software development costs balances and activities were as follows: ($ in thousands):

	March 31,			December 31,
	2017			2016
Gross capitalized cost	$	7,714		$	7,252
Accumulated amortization		(3,983	)		(3,509	)
Capitalized software development costs, net	$	3,731		$	3,743

	Three Months Ended March 31,
	2017			2016
Amount capitalized	$	462		$	488
Amortization expense		(474	)		(430	)

	Released			Unreleased
	Products			Products
Gross capitalized amount at March 31, 2017	$	6,171		$	1,543
Accumulated Amortization		(3,983	)		-
Net	$	2,188		$	1,543

Future amortization expense:
Nine months ending December 31, 2017		1,116
Year ending December 31,
2018		856
2019		216
2020		-
Total	$	2,188

The future amortization expense of the gross capitalized software development costs related to unreleased products will be determinable at a future date when those products are ready for general release to the public.

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7.          Deferred Revenue

As described in Note 5 regarding accounts receivable, when our customers agree to purchase or renew M&S services, we bill and invoice our customers at that time which could be before the date we begin delivering those services. In that event, we exclude from deferred revenue (and from the related accounts receivable) the invoices we have issued for which the M&S services commencement date is in the future and which have not been paid by the customer as of the date of our consolidated financial statements. Accordingly, we determine our deferred revenue as follows ($ in thousands):

	March 31, 2017			December 31, 2016
Total invoiced for M&S contracts for which revenue will be recognized in future periods	$	16,732		$	17,826
Less: Unpaid invoices relating to M&S contracts with a start date subsequent to the balance sheet date		(410	)		(381	)
Total deferred revenue	$	16,322		$	17,445
Deferred revenue, current portion	$	12,704		$	13,655
Deferred revenue, non-current portion		3,618			3,790
Total deferred revenue	$	16,322		$	17,445

8.           Stock Options, Restricted Stock and Share-Based Compensation

We have stock-based compensation plans under which we have granted, and may grant in the future, incentive stock options, non-qualified stock options, and restricted stock to employees and non-employee members of the Board of Directors. Our share-based compensation expense was as follows ($ in thousands):

	Three Months Ended March 31,
	2017		2016
Share-based compensation expense	$	337	$	239

Stock Options

We have granted stock options to our officers and employees under long-term equity incentive plans that originated in 2000, 2010 and 2016. During the 2017 quarter, we granted stock options only under the 2016 plan.

Provisions and characteristics of the options granted to our officers and employees under our long-term equity incentive plans include the following:

· The exercise price, term and other conditions applicable to each stock option or stock award granted are determined by the Compensation Committee of the Board of Directors.

· The exercise price of stock options is set on the grant date and may not be less than the fair market value per share of our stock at market close on that date.

· Stock options we issue generally become exercisable ratably over a three-year period, expire ten years from the date of grant, and are exercisable for a period of ninety days after the end of employment.

· Upon exercise of a stock option, we issue new shares from the shares of common stock we are authorized to issue.

We currently issue stock-based awards to our officers and employees only under the 2016 plan which authorizes the issuance of up to 5,000,000 shares of common stock for stock-based incentives including stock options and restricted stock awards. As of March 31, 2017, stock-based incentives for up to 4,329,500 shares remained available for issuance in the future under this plan.

We have not previously issued any restricted stock under any of these plans.

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Our stock option activity has been as follows:

				Weighted
				Average		Weighted Average		Aggregate
				Exercise		Remaining		Intrinsic
	Number of			Price		Contractual		Value
	Shares			Per Share		Term in Years		(000’s)
Outstanding at December 31, 2016		2,407,005		$	3.00		7.19	$	2,574
Granted		660,000		$	3.76
Forfeited		(86,080	)	$	3.87
Exercised		(49,500	)	$	1.82
Outstanding at March 31, 2017		2,931,425		$	3.17		6.93	$	2,238
Exercisable at March 31, 2017		1,245,214		$	2.59		3.89	$	1,681

Additional information about our stock options is as follows:

	Three Months Ended March 31,
	2017		2016
Weighted average fair value of options granted	$	1.57	$	1.67
Intrinsic value of options exercised	$	100,386	$	71,745
Cash received from stock options exercised	$	90,114	$	121,671
Number of options that vested		295,124		193,866
Fair value of options that vested	$	479,742	$	289,463
Unrecognized compensation expense related to non-vested options at end of period	$	2,383,732	$	1,769,538
Weighted average years over which non-vested option expense will be recognized		2.34		2.43

As of March 31, 2017
				Options Outstanding				Options Exercisable
				Weighted
				Average		Weighted				Weighted
		Underlying		Remaining		Average		Number of		Average
Range of		Shares		Contractual		Exercise		Underlying		Exercise
Exercise Prices		Outstanding		Life		Price		Shares		Price
$	0.85 - $1.43		87,100		2.47	$	1.07		87,100	$	1.07
$	1.47 - $2.32		459,745		2.67	$	1.83		458,385	$	1.83
$	2.34 - $3.52		1,144,680		7.29	$	3.22		525,179	$	3.02
$	3.53 - $4.25		1,239,900		8.50	$	3.76		174,550	$	4.05
Total options			2,931,425						1,245,214

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We used the following assumptions to determine compensation expense for our stock options using the Black-Scholes option-pricing model:

	Three Months Ended March 31,
	2017			2016
Expected volatility		49	%		56	%
Expected annual dividend yield		1.50	%		1.50	%
Risk free rate of return		1.94	%		1.53	%
Expected option term (years)		6.00			6.00

Restricted Stock Awards

Our 2015 Non-Employee Directors Long-Term Equity Incentive Plan (“2015 Directors Plan”) provides for the issuance of either stock options or restricted stock awards for up to 500,000 shares of our common stock. Provisions and characteristics of this plan include the following:

· The exercise price, term and other conditions applicable to each stock option or stock award granted are determined by the Compensation Committee of the Board of Directors.

· Restricted stock awards are initially issued as restricted shares with a legend restricting transferability of the shares until the recipient satisfies the vesting provision of the award, which is generally continuing service for one year subsequent to the date of the award, after which time the restrictive legend is removed from the shares.

· Restricted shares participate in dividend payments and may be voted.

· As of March 31, 2017, stock based incentives for up to 340,000 shares remained available for issuance in the future under this plan.

Our restricted stock awards activity has been as follows:

					Total
			Grant Date		Fair Value of
	Number of		Fair Value		Shares That
	Shares		Per Share		Vested
Restricted shares outstanding at December 31, 2016		80,000	$	3.31
Shares granted with restrictions		-	$	-
Shares vested and restrictions removed		-	$	-	$	-
Restricted shares outstanding at March 31, 2017		80,000	$	3.31
Unrecognized compensation expense for non-vested shares as of March 31, 2017
Expense to be recognized in future periods	$	25,322
Weighted average number of months over which expense is expected to be recognized		1.2

9.           Income Taxes

The components of our income tax expense (benefit) are as follows ($ in thousands):

	Three months ended March 31,
	2017							2016
	Current		Deferred			Total		Current		Deferred			Total
Federal	$	390	$	(22	)	$	368	$	218	$	(7	)	$	211
State		44		(1	)		43		21		(12	)		9
Total	$	434	$	(23	)	$	411	$	239	$	(19	)	$	220

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Deferred income taxes on our consolidated balance sheet reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.  Significant components of our deferred tax assets and liabilities are as follows ($ in thousands):

	March 31,			December 31,
	2017			2016
Deferred tax assets:
Deferred revenue	$	1,280		$	1,229
Capital loss carryforward		1,099			1,099
Share-based compensation		623			578
Compensation and benefits		229			278
Texas franchise tax R&D credit		156			153
Allowance for doubtful accounts		94			114
Net operating loss carryforward		76			91
Other		57			56
Less Valuation Allowances:
Capital loss carryforward		(1,099	)		(1,099	)
Texas franchise tax R&D credit		(156	)		(153	)
Total deferred tax assets		2,359			2,346
Deferred tax liabilities:
Intangible assets		1,285			1,289
Depreciation		1			7
Total gross deferred tax liabilities		1,286			1,296
Net deferred tax assets	$	1,073		$	1,050

In assessing the realizability of deferred tax assets, we consider whether it is more-likely-than-not that a deferred tax asset will not be realized.  Our assessment of the likelihood of having sufficient taxable income in the future to support deduction or utilization of the items giving rise to our deferred tax assets indicates it is more-likely-than-not that we will realize the deferred tax assets listed in the table above.

As of March 31, 2017, we had federal income tax net operating loss carryforwards of $225,000 available to offset future federal taxable income, if any. These carryforwards became available through our acquisition of TappIn, Inc. in 2011.  These carryforwards expire in 2030 and 2031.

As of March 31, 2017, we had federal income tax capital loss carryforwards of $3,231,000 which resulted from the reduction of our investments in and notes receivable from CoreTrace Corporation in 2012.  We can realize capital loss carryforwards to the extent we have capital gains in future periods against which this capital loss can be deducted.  We believe it uncertain that we will have sufficient capital gains in the future to support this deduction and accordingly have provided a valuation allowance for the full amount of this carryforward. This carryforward expires in 2017.

As of March 31, 2017, we had Texas R&D tax credit carryforwards of $156,000.  We can realize Texas R&D tax credit carryforwards to the extent we have sufficient Texas Franchise Tax in future years.  We believe it uncertain that we will have sufficient Texas Franchise Tax in the future to support utilization of these credits and, accordingly, have provided a valuation allowance for the full amount of this carryforward.  These carryforwards expire in 2034 through 2036.

We claim research and experimentation tax credits, or R&D tax credits, on certain of our tax returns and have included the effect of those credits in our provision for income taxes. A routine examination of our 2008, 2009 and 2010 federal income tax returns conducted and completed by the Internal Revenue Service resulted in the amount of the R&D tax credits allowed for those years being less than the amounts we claimed on those federal income tax returns. If the Internal Revenue Service examines our federal income tax returns for 2011 and later years, we believe they may apply their same criteria to the R&D tax credits we claimed on those tax returns. Accordingly, we believed it more-likely-than-not that the R&D tax credit allowed for those years may be less than the amounts we have claimed.  As a result, we maintain a reserve for an uncertain tax position for this matter in the amount of $141,000 as of March 31, 2017.

21

The aggregate changes in the balance of our gross unrecognized tax benefits were as follows ($ in thousands):

	Three Months Ended March 31,
	2017		2016
Balance at beginning of period	$	121	$	90
Increases for tax positions related to the current year		15		6
Increases for tax positions related to prior years		6		-
Balance at end of period	$	142	$	96

We believe it reasonably possible that we will not recognize any of our unrecognized tax benefits at least through March 31, 2017. If we realized and recognized any of our gross unrecognized tax benefits, such benefits would reduce our effective tax rate in the year of recognition.

We are subject to taxation in the United States and in multiple state jurisdictions. Our federal income tax returns for 2015, 2014 and 2013 are subject to examination by the Internal Revenue Service.  Our amended federal income tax returns for 2012 and 2011 are subject to examination with the amount of any claim for payment of additional taxes limited to the amount by which the tax due on those amended returns was less than the tax due on the returns for those years as originally filed.  Our state tax returns are subject to examination for varying periods of time by numerous state taxing authorities. Currently, none of our federal or state income tax returns are under examination.

To the extent they arise, we record interest and penalty expenses related to income taxes as components of other expense in our statement of operations.  We incurred no such expenses in the 2017 quarter or the 2016 quarter.

We file state tax returns in various states.  The taxes resulting from these filings are included in income tax expense.

Our income tax expense reconciles to an income tax expense resulting from applying an assumed statutory federal income rate of 34% to income before income taxes as follows ($ in thousands):

	Three months ended March 31,
	2017			2016
Income tax expense at federal statutory rate	$	422		$	205
Increase (decrease) in taxes resulting from:
State taxes, net of federal benefit		28			10
Stock based compensation		60			16
Other		7			35
R&D tax credit uncertain tax position (net)		(65	)		(32	)
Research and development credit		(30	)		6
Domestic production activities deduction		(11	)		(20	)
Income tax expense per the statements of operations	$	411		$	220

10.          Earnings per Common Share

Earnings per share for the periods indicated were as follows ($ in thousands, except per share amounts):

	Three Months Ended
	March 31,
	2017		2016
Numerators
Numerator for basic and diluted earnings per share:
Net income	$	831	$	383
Denominators
Denominators for basic and diluted earnings per share:
Weighted average shares outstanding - basic		21,544		21,033
Dilutive potential common shares
Stock options and awards		479		619
Denominator for diluted earnings per share		22,023		21,652
Net income per common share - basic	$	0.04	$	0.02
Net income per common share – diluted	$	0.04	$	0.02

22

As a result of our implementation of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (issued March 2016), the estimated proceeds resulting from equity compensation deductible for federal income tax purposes being greater than the associated share-based compensation expense are no longer considered as part of the treasury stock method used in computing diluted earnings per share. This change had no material effect on our earnings per share computations.

11.          Dividends

We paid dividends as follows:

	Three Months Ended March 31,
	2017		2016
Dividend per share of common stock	$	0.015	$	0.015
Dividend record date	February 23, 2017		February 23, 2016
Dividend payment date	March 8, 2017		March 8, 2016

12.          Commitments and Contingencies

Severance Payments

We have agreements with key personnel that provide for severance payments to them in the event of a change in control of the Company, as defined in those agreements, and their employment is terminated in connection with that change in control. In such event, our aggregate severance payments to those employees would be $1.9 million.

Legal and Regulatory Matters

GlobalSCAPE had been named as one of a number of defendants in a patent infringement suit filed by Digital Reg of Texas, LLC in the United States District Court for the Eastern District of Texas, Tyler Division. The complaint alleged that we infringed on a patent that regulates access to digital content. In February 2017, we settled this matter for an amount that was immaterial to our financial position and results of operations.

As previously disclosed in the Company’s Current Report on Form 8-K filed on November 15, 2017, on August 9, 2017, a securities class action complaint, Anthony Giovagnoli v. GlobalSCAPE, Inc., et. al., Case No. 5:17-cv-00753, was filed against the Company in the United States District Court for the Western District of Texas. The complaint names as defendants the Company, Matthew Goulet, and James Albrecht for allegedly making materially false and misleading statements regarding, inter alia, the Company’s previously reported financial statements. The complaint alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 10b-5 promulgated thereunder. The complaint seeks unspecified damages, costs, attorneys’ fees, and equitable relief. On November 6, 2017, the Court appointed a lead plaintiff, who has agreed to file an amended complaint following the completion of the Restatement. Management intends to vigorously defend against this action. At this time, the Company cannot predict how the courts will rule on the merits of the claims and/or the scope of the potential loss in the event of an adverse outcome. Should the Company ultimately be found liable, the resulting damages could have a material adverse effect on its financial position, liquidity, or results of operations.

On October 20, 2017, the Company received a demand letter from a stockholder seeking the inspection of books and records of the Company pursuant to Section 220 of the Delaware General Corporation Law (the “Section 220 Demand”). This stockholder’s stated purpose for the demand is, inter alia, to investigate whether the Company’s Board of Directors and officers engaged in an illegal scheme to misrepresent the Company’s performance by falsely reporting accounts receivable, license revenue, total current assets and total assets, total stockholders’ equity, and total liabilities for the year ended December 31, 2016, as well as the Board’s independence to consider a stockholder derivative demand. The Company intends to fully respond to the Section 220 Demand to the extent required under Delaware law.

23

The Board has established a special litigation committee (“Special Litigation Committee”) consisting of Dr. Thomas Hicks and Frank Morgan to analyze and investigate claims that could potentially be asserted in stockholder derivative litigation related to facts connected to the claims and allegations asserted in the litigation related to the Restatement and the Section 220 Demand (the “Potential Derivative Litigation”). The Special Litigation Committee will determine what actions are appropriate and in the best interests of the Company, and decide whether it is in the best interests of the Company to pursue, dismiss, or consensually resolve any claims that may be asserted in the Potential Derivative Litigation. The Board determined that each member of the Special Litigation Committee is disinterested and independent with respect to the Potential Derivative Litigation. Among other things, the Special Litigation Committee has the power to retain counsel and advisors, as appropriate, to assist it in the investigation, to gather and review relevant documents relating to the claims, to interview persons who may have knowledge of the relevant information, to prepare a report setting forth its conclusions and recommended course of action with respect to the Potential Derivative Litigation, and to take any actions, including, without limitation, directing the filing and prosecution of litigation on behalf of the Company, as the Special Litigation Committee in its sole discretion deems to be in the best interests of the Company in connection with the Potential Derivative Litigation. The Special Litigation Committee’s findings and determinations shall be final and not subject to review by the Board and in all respects shall be binding upon the Company.

As disclosed in a Current Report on Form 8-K filed on March 16, 2018, the Fort Worth, Texas Regional Office of the SEC has opened a formal investigation of issues relating to the Restatement, with which the Company is cooperating fully.  At this time, the Company is unable to predict the duration, scope, result or related costs associated with the SEC’s investigation.  The Company is also unable to predict what, if any, action may be taken by the SEC, or what penalties or remedial actions the SEC may seek.  Any determination by the SEC that the Company’s activities were not in compliance with existing laws or regulations, however, could result in the imposition of fines, penalties, disgorgement, equitable relief, or other losses, which could have a material adverse effect on the Company’s financial position, liquidity, or results of operations.

On May 31, 2018, the Company was served with a subpoena issued by a grand jury sitting in the United States District Court for the Western District of Texas (the “Grand Jury Subpoena”). The Grand Jury Subpoena requests all documents and emails relating to the Company’s investigation of the potential improper recognition of software license revenue.  The Company intends to fully cooperate with the Grand Jury Subpoena and related investigation being conducted by the United States Attorney’s Office for the Western District of Texas (the “U.S. Attorney’s Investigation”).  At this time, the Company is unable to predict the duration, scope, result or related costs of the U.S. Attorney’s Investigation.  The Company is also unable to predict what, if any, further action may be taken in connection with the Grand Jury Subpoena and the U.S. Attorney’s Investigation, or what, if any, penalties, sanctions or remedial actions may be sought.  Any determination by the U.S. Attorney’s office that the Company’s activities were not in compliance with existing laws or regulations, however, could result in the imposition of fines, penalties, disgorgement, equitable relief, or other losses, which could have a material adverse effect on the Company’s consolidated financial position, liquidity, or results of operations.

13.          Concentration of Business Volume and Credit Risk

In order to leverage the resources of third parties, we make our products available for purchase by end users through third-party, channel distributors even though those end users can also purchase those products directly from us. In both the 2017 quarter and 2016 quarter, we earned approximately 14% of our revenue from such sales through our largest, third party, channel distributor. As of March 31, 2017, approximately 16% of our accounts receivable were due from this channel distributor with payment for substantially all such amounts having been received subsequent to that date.

14.          Segment and Geographic Disclosures

In accordance with FASB ASC Topic 280, Segment Reporting, we view our operations and manage our business as principally one segment. As a result, the financial information disclosed herein represents all of the material financial information related to our principal operating segment.

Revenues derived from customers and partners located in the United States accounted for approximately 78% and 73% of our total revenues in the 2017 and 2016 quarters, respectively.  The remaining revenues were from customers and partners located in foreign countries with each individual foreign country accounting for less than 10% of total revenues in all periods.  We attribute revenues to countries based on the country in which the customer or partner is located. None of our property and equipment was located in a foreign country as of March 31, 2017.

15.          Restatement

The Company has concluded that its previously issued consolidated financial statements for the three months ended March 31, 2017 should be restated due to misstatements related to certain revenue transactions incorrectly recognized during the year ended December 31, 2016 as well as other transactions identified during the Audit Committee’s  investigation and management’s analysis and for certain changes in the Company’s accounting methods, reclassifications and revisions as discussed in Note 3 to these condensed consolidated financial statements.

The three months ended March 31, 2016 have been revised due to immaterial adjustments related to the Audit Committee’s investigation and management’s analysis and for certain changes in the Company’s accounting methods, reclassifications and revisions as discussed in Note 3 to these condensed consolidated financial statements.

The impact of all of the misstatements described above on the condensed consolidated financial statements as of and for the three months ended March 31, 2017 and 2016 are as follows:

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GlobalSCAPE, Inc.

Condensed Consolidated Balance Sheet

March 31, 2017

(in thousands except share amounts)

(Unaudited)

	Previously Reported			Adjustments			As Revised
Assets
Current assets:
Cash and cash equivalents	$	10,400			-		$	10,400
Short term certificates of deposit		2,759			-			2,759
Accounts receivable, net		5,499			(554	)		4,945
Federal income tax receivable		-			-			-
Prepaid and other expenses		492						492
Total current assets		19,150			(554	)		18,596
Long term certificates of deposit		12,837			-			12,837
Capitalized software development costs, net		3,731			-			3,731
Goodwill		12,712			-			12,712
Deferred tax asset, net		1,190			(117	)		1,073
Property and equipment, net		577			-			577
Other assets		64						64
Total assets	$	50,261		$	(671	)	$	49,590
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	657			(17	)	$	640
Accrued expenses		1,928			(232	)		1,696
Income tax payable		474			(259	)		215
Deferred revenue		12,704			-			12,704
Total current liabilities		15,763			(508	)		15,255
Deferred revenue, non-current portion		3,618			-			3,618
Other long term liabilities		163			6			169
Commitments and contingencies
Stockholders’ equity:
Preferred stock, par value $0.001 per share, 10,000,000 shares authorized, no shares issued or outstanding		-			-			-
Common stock, par value $0.001 per share, 40,000,000 shares authorized, 21,970,412 shares issued		22			-			22
Additional paid-in capital		22,064			119			22,183
Treasury stock, 403,581 shares, at cost		(1,452	)					(1,452	)
Retained earnings		10,083			(288	)		9,795
Total stockholders’ equity		30,717			(169	)		30,548
Total liabilities and stockholders’ equity	$	50,261		$	(671	)	$	49,590

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GlobalSCAPE, Inc.

Condensed Consolidated Statement of Operations and Comprehensive Income

For the Three Months Ended March 31, 2017

(In thousands, except per share amounts)

(Unaudited)

	Previously Reported		Adjustment			As Revised
Operating Revenues:
Software licenses	$	2,464	$	114			2,578
Maintenance and support		5,121		-			5,121
Professional services		733		-			733
Total Revenues		8,318		114			8,432
Cost of revenues
Software licenses		736		22			758
Maintenance and support		412		1			413
Professional services		377		(13	)		364
Total cost of revenues		1,525		10			1,535
Gross profit		6,793		104			6,897
Operating expenses
Sales and marketing		3,330		(41	)		3,289
General and administrative		1,721		(7	)		1,714
Research and development		739		(17	)		722
Total operating expenses		5,790		(65	)		5,725
Income from operations		1,003		169			1,172
Other income		70		-			70
Income before income taxes		1,073		169			1,242
Income tax expense		322		89			411
Net income	$	751	$	80		$	831
Comprehensive income	$	751	$	80		$	831
Net income per common share:
Basic	$	0.03	$	-		$	0.04
Diluted	$	0.03	$	-		$	0.04
Weighted average shares outstanding:
Basic		21,544					21,544
Diluted		22,023					22,023
Cash dividends declared per share	$	0.015				$	0.015

26

GlobalSCAPE, Inc.

Condensed Consolidated Statement of Cash Flows

For the Three Months Ended March 31, 2017

(in thousands)

(Unaudited)

	Previously Reported			Adjustment			As Revised
Operating Activities:
Net income	$	751		$	80		$	831
Items not involving cash at the time they are recorded in the statement of operations:
Provision for sales returns and doubtful accounts receivable		11			-			11
Depreciation and amortization		541			-			541
Share-based compensation		324			13			337
Deferred taxes		(248	)		225			(23	)
Excess tax benefit from share-based compensation		-			-			-
Subtotal before changes in operating assets and liabilities		1,379			318			1,697
Changes in operating assets and liabilities:
Accounts receivable		1,454			(122	)		1,332
Prepaid expenses		29			10			39
Deferred revenue		(1,123	)		-			(1,123	)
Accounts payable		(219	)		(71	)		(290	)
Accrued expenses		92			1			93
Other assets		181			-			181
Accrued interest receivable		(63	)		-			(63	)
Other long-term liabilities		16			1			17
Income tax receivable and payable		643			(136	)		507
Net cash provided by operating activities		2,389			1			2,390
Investing Activities:
Software development costs capitalized		(462	)		-			(462	)
Purchase of property and equipment		(188	)		-			(188	)
Net cash (used in) investing activities		(650	)		-			(650	)
Financing Activities:
Proceeds from exercise of stock options		90			-			90
Excess tax benefit from share-based compensation		-			-			-
Dividends paid		(324	)		(1	)		(325	)
Net cash (used in) financing activities		(234	)		(1	)		(235	)
Net increase in cash		1,505			-			1,505
Cash at beginning of period		8,895			-			8,895
Cash at end of period	$	10,400		$	-		$	10,400
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	-		$	-		$	-
Income taxes	$	15		$	-		$	15

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Condensed Consolidated Balance Sheet

(in thousands)

As of March 31, 2016

	As Previously Reported			Adjustments			As Revised
Assets
Current assets:
Cash and cash equivalents	$	16,324					$	16,324
Short term investments		3,270						3,270
Accounts receivable, net		5,340			(365	)		4,975
Federal income tax receivable		35			315			350
Prepaid and other expenses		477						477
Total current assets		25,446			(50	)		25,396
Long term investments
Property and equipment, net		517						517
Capitalized software development costs, net		4,040						4,040
Goodwill		12,712						12,712
Deferred tax asset, net		959						959
Other assets		38						38
Total assets	$	43,712		$	(50	)	$	43,662
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		489			(5	)		484
Accrued expenses		1,621			(55	)		1,566
Deferred revenue		11,672			318			11,990
Income taxes payable		34			(34	)		-
Total current liabilities		13,816			224			14,040
Deferred revenue, non-current portion		3,718			144			3,862
Other long term liabilities		41			96			137
								-
Stockholders’ Equity:								-
Preferred stock		-						-
Common stock		21						21
Additional paid-in capital		19,930			81			20,011
Treasury stock		(1,452	)					(1,452	)
Retained earnings		7,638			(595	)		7,043
Total stockholders’ equity		26,137			(514	)		25,623
Total liabilities and stockholders’ equity	$	43,712		$	(50	)	$	43,662

28

Condensed Consolidated Statement of Operations and Comprehensive Income

(in thousands, except per share amounts)

For the Three Months Ended March 31, 2016

	As Previously Reported		Adjustments			As Revised
Operating revenues:
Software licenses	$	2,299	$	(36	)	$	2,263
Maintenance and support		4,497		(51	)		4,446
Professional services		614		28			642
Total revenues		7,410		(59	)		7,351
Costs of revenues
Software licenses		630		(4	)		626
Maintenance and support		394		-			394
Professional services		569		(146	)		423
Total costs of revenues		1,593		(150	)		1,443
Gross Profit		5,817		91			5,908
Operating expenses
Sales and marketing		2,901		104			3,005
General and administrative		1,733		(46	)		1,687
Research and development		627		19			646
Total operating expenses		5,261		77			5,338
Income from operations		556		14			570
Other income (expense), net		33					33
Income before income taxes		589		14			603
Income tax expense		182		38			220
Net income	$	407	$	(24	)	$	383
Comprehensive income	$	407	$	(24	)	$	383
Net income per common share - basic	$	0.02	$	-		$	0.02
Net income per common share - diluted	$	0.02	$	-		$	0.02

29

Condensed Consolidated Statement of Cash Flows

(in thousands)

For the Three Months Ended March 31, 2016

	As Previously Reported			Adjustments			As Revised
Operating Activities:
Net income	$	407			(24	)	$	383
Adjustments to reconcile net income to net cash provided by operating activities:
Bad debt expense		43			(31	)		12
Depreciation and amortization		501						501
Stock-based compensation		222			17			239
Deferred taxes		(19	)					(19	)
Excess tax deficiency from exercise of share based compensation		(3	)					(3	)
Subtotal before changes in operating assets and liabilities		1,151			(38	)		1,113
Changes in operating assets and liabilities:
Accounts receivable		698			253			951
Prepaid expenses		34						34
Deferred revenues		(222	)		(194	)		(416	)
Accounts payable		(350	)		(5	)		(355	)
Accrued expenses		(272	)		(55	)		(327	)
Other assets		22						22
Accrued interest receivable		(16	)					(16	)
Other long-term liabilities		(3	)		6			3
Income tax receivable and payable		165			33			198
Net cash provided by (used in) operating activities		1,207			-			1,207
Investing Activities:
Software development costs		(488	)					(488	)
Purchase of property and equipment		(90	)					(90	)
Net cash provided by (used in) investing activities		(578	)		-			(578	)
Financing Activities:
Proceeds from exercise of stock options		122						122
Tax deficiency (benefit) from stock-based compensation		3						3
Dividends paid		(315	)					(315	)
Net cash provided by (used in)  financing activities		(190	)		-			(190	)
Net increase (decrease) in cash		439						439
Cash at beginning of period		15,885			-			15,885
Cash at end of period	$	16,324		$	-		$	16,324
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	-		$	-		$	-
Income taxes	$	22		$	-		$	22

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q/A and any documents incorporated by reference herein contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act.  “Forward-looking statements” are those statements that are not of historical fact but describe management’s beliefs and expectations.  We have identified many of the forward-looking statements in this Quarterly Report by using words such as “anticipate,” “believe,” “could,” “estimate,” “may,” “expect,” “potentially” and “intend.”  Although we believe these expectations are reasonable, our operations involve a number of risks and uncertainties, including those described in the “Risk Factors” section of our 2016 Form 10-K/A and other documents filed with the SEC.  Therefore, GlobalSCAPE’s actual results of operations and financial condition in the future could differ materially from those discussed in this Form 10-Q/A.

In the following discussion, our references to the 2017 quarter and the 2016 quarter refer to the three months ended March 31, 2017 and 2016, respectively.

Overview

We develop and sell computer software that provides secure information exchange, data transfer and sharing capabilities for enterprises and consumers. We have been in business for over twenty years and have sold our products to thousands of enterprises and more than one million individual consumers throughout the world.

Our primary business is selling and supporting managed file transfer, or MFT, software for enterprises. The brand name of our MFT product platform is Enhanced File Transfer, or EFT.

We earn most of our revenue from the sale of EFT and products that are part of our EFT platform. We earn revenue from the sale of perpetual software licenses, providing products under software-as-a-service, or SaaS, subscriptions, providing maintenance and support services, or M&S, and offering professional services for product implementation, integration and training.

We also sell other products that are synergistic to EFT including Mail Express, WAFS, and CuteFTP. Collectively, these products constitute less than 10% of our total revenue.

We focus on selling our EFT platform products in a business-to-business environment. The majority of the resources we will expend in the future for product research, development, marketing and sales will focus on our EFT platform products. We believe our products and business capabilities are well-positioned to compete effectively in the market for MFT products.  For a more comprehensive discussion of the products we sell and the services we offer, see Software Products and Services below.

As a corporation, we have won multiple awards for performance and reputation, including:

· In 2017:

- Recognized for three Info Security Products Guide 2017 Global Excellence Awards for distinguished achievements in product innovation in categories that included:

- Innovation in Compliance (Gold Winner) – Enhanced File Transfer.

- Cloud/SaaS Solutions (Gold Winner) – EFT Cloud Services.

- BYOD Security (Bronze Winner) – EFT Workspaces.

- Received a 5-Star rating in The Channel Company’s CRN 2017 Partner Program Guide for the third year in a row.

- Honored with the 2017 Total Rewards & Benefits Excellence Award by the HRO Today Services and Technology Association.

- Selected as a finalist in the 2017 Cybersecurity Product Awards Secure File Transfer: EFT Enterprise.

· In 2016:

- Recognized as a 2016 Top Workplace by San Antonio Express-News, marking our sixth recognition as a Top Workplace in San Antonio.

- Named as Leader in Secure Information Exchange Services 2016 – Texas by the Corp America 2016 Small Cap Awards.

31

- Earned awards from Info Security Guide in several categories, including:

- EFT Workspaces – Gold Winner in BYOD Security.

- Enhanced File Transfer – Silver Winner in Compliance.

- EFT Cloud Services – Bronze Winner in Cloud Security.

- Mail Express – Bronze Winner in Email Security and Management.

- Received a 5-Star rating in The Channel Company’s CRN 2016 Partner Program Guide for the second year in a row.

- Named by Texas Monthly magazine as one of the best companies to work for in Texas for the sixth year in a row with a ranking of #16 in the medium size category.

- Honored as the HR Employer of the Year and Excellence in Engagement Strategy in North America by the HRO Today Services and Technology Association.

- Recognized by the San Antonio Business Journal as a 2016 Best Place to Work, making this the fifth time GlobalSCAPE has received this honor.

- Named by Computerworld as one of the best companies to work for in IT for the third consecutive year with a ranking of #3 in the small company category.

Key Business Metrics

We review a number of key business metrics on an ongoing basis to help us monitor our performance and to identify material trends which may affect our business. The significant metrics we review are described below.

Revenue Growth

We believe annual revenue growth is a key metric for monitoring our continued success in developing our business in future periods. Given our diverse solution portfolio, we regularly review our revenue mix and changes in revenue across all solutions to identify emerging trends. We believe our revenue growth is primarily dependent upon executing our business strategies which include:

· Ongoing innovation of our EFT platform to address the expanding needs of our existing customers and enhancing our products’ appeal to new customers.

· Licensing, developing and/or acquiring technologies with features and functions that are complementary to and synergistic with our EFT platform so as to expand the breadth of our products offerings.

· Enhancing our sales and marketing programs to improve identification of potential demand for our products and to increase the rate at which we are successful in selling our products.

To support product innovation, we continue to enhance our software engineering group and our focus on optimizing the manner in which we assess the development of new technologies, our approach to managing those projects, and the timelines over which we do that work.

We remain alert for attractive opportunities to collaborate with others or perhaps combine other revenue-producing technologies with ours to expand our product offerings and reach. To that end, we continually assess products and services offered by others that might be synergistic with our existing products. We may elect to take advantage of those opportunities through cooperative marketing agreements or licensing arrangements or by acquiring an ownership position in the enterprise offering the opportunity.

In continuing to develop our demand generation activities, we have made and continue to make ongoing changes in sales and marketing including:

· Increasing sales staff capacity as needed to address our markets.

· Aligning our sales group to enhance its industry and geographic focus.

· Implementing new sales and marketing campaigns.

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· Using third party digital marketing experts with search engine optimization expertise to enhance our efforts in this area.

· Evolving our lead generation programs to increase our sales staff’s exposure to potential purchasers.

· Enhancing our support of channel partners and engaging them to sell our products through training, orientation and marketing programs.

As part of growing revenue in total, we are focused on increasing license revenue both in terms of absolute dollars and as a percent of total revenue. When we sell our licensed products, we also typically create a recurring revenue stream from M&S since almost all purchasers of our licensed enterprise products also purchase an M&S contract. Most of our M&S contracts are for one year although we also sell multi-year contracts. The customer pays us the M&S fee for the entire term of the agreement at the time the contract begins. We recognize that amount as revenue ratably in future periods over the term of the contract.

We typically experience a high renewal rate for M&S services for our enterprise products so long as a customer continues using the licensed product they purchased from us. As a result, growing license revenue not only contributes to increasing revenue growth at the time the license is sold but also provides a foundation for future recurring revenue as the purchasers of our licensed products renew M&S contracts to support their ongoing product support needs. This pattern of activity can create a cumulative effect for M&S renewals as a result of the cumulative number of licensed software installations sold over multiple years that create M&S renewals in any single year predictably (and in line with our expectations) exceeding the number of new software licenses we sell in a single year. We expect this cumulative effect to continue to grow if we continue to increase enterprise software license revenue in future periods. For these reasons, we expect M&S revenue will remain a substantial part of our total revenue.

See Comparison of the Statement of Operations for the Three Months Ended March 31, 2017 and 2016 for a discussion of trends in our revenue growth that we monitor using this metric.

In the past, we reported bookings and potential future revenue as key business metrics. With the refinement of our revenue growth key business metric discussed above, we no longer rely on bookings or potential future revenue as key business metrics since we have determined that our revenue growth metric is the primary metric upon which we rely to measure the success of sales and marketing programs and our outlook for revenue in the future.

Adjusted EBITDA (Non-GAAP Measurement)

We utilize Adjusted EBITDA (Earnings Before Interest, Taxes, Total Other Income/Expense, Depreciation, Amortization, other than amortization of capitalized software development costs, and Share-Based Compensation Expense) to provide us a view of income and expenses from our operations that is supplemental and secondary to our primary assessment of net income as presented in our condensed consolidated statement of operations and comprehensive income. We use Adjusted EBITDA to provide another perspective for measuring profitability that does not include the effects of the following items:

· Expenses that typically do not require us to pay them in cash in the current period (such as depreciation, amortization and share-based compensation);

· The cost of financing our business; and

· The effects of income taxes

We monitor Adjusted EBITDA to assess our performance relative to our intended strategies, expected patterns of actions, and budgets. We use the results of that assessment to adjust our future activities to the extent we deem necessary.

Adjusted EBITDA is not a measure of financial performance under GAAP. It should not be considered as a substitute for net income presented on our condensed consolidated statement of operations and comprehensive income. Adjusted EBITDA has limitations as an analytical tool and when assessing our operating performance. Adjusted EBITDA should not be considered in isolation or without a simultaneous reading and consideration of our consolidated financial statements prepared in accordance with GAAP.

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We compute Adjusted EBITDA as follows ($ in thousands):

	Three Months Ended
	March 31,
	2017			2016
Net Income	$	831		$	383
Add (subtract) items to determine adjusted EBITDA:
Income tax expense		411			220
Interest (income) expense, net		(70	)		(33	)
Depreciation and amortization:
Total depreciation and amortization		541			501
Amortization of capitalized software development costs		(474	)		(430	)
Stock-based compensation expense		337			239
Adjusted EBITDA	$	1,576		$	880

See Comparison of the Statement of Operations for the Three Months Ended March 31, 2017 and 2016 for discussion of the variances between periods in the components comprising Adjusted EBITDA. 

Software Products and Services

We develop and sell computer software that provides secure information exchange, file transfer and file sharing capabilities for enterprises and consumers. We have been in business for over twenty years and have sold our products to thousands of enterprises and more than one million individual consumers throughout the world.

Our primary business is selling and supporting MFT software for enterprises. MFT software facilitates the transfer of data from one location to another across a computer network within a single enterprise or between multiple computer networks in multiple enterprises. These transfers may be ongoing, repetitive activities executed by automated software routines that occur without human intervention, or they may be transfers that people create and complete in the absence of automated routines or as a result of ad-hoc, special situations that arise from time-to-time. Examples of enterprise-level activities that rely on MFT software include:

· Transfer of transactional information within an enterprise on a repetitive basis from one geographic location to another, such as a transfer of deposit and withdrawal information throughout the day from a branch of a bank to a central data processing center at another location.

· Movement of accumulated information within an enterprise from one data processing application to another on a periodic basis, such as a transfer of bi-weekly payroll information from a payroll system that is used to pay employees to a job cost system that is used to manage the cost of a project.

· Exchange of information between enterprises to facilitate the completion of one or more business transactions, such as a retailer transmitting inventory purchasing requirements produced by its material requirements planning system to an order entry system at a supplying vendor.

We have multiple revenue streams from the EFT Platform products that include:

· Perpetual software licenses under which customers pay us a one-time fee for the right to install our products in their information systems environment on computers they manage and either own or otherwise procure from a cloud services provider, including deploying our products at a cloud services provider in a BYOL (Bring your own license) environment.

· Cloud-based, SaaS solutions that we sell on an ongoing subscription basis resulting in our earning a recurring, monthly subscription fee to access the service.

· M&S.

· Professional services for product installation, integration and training.

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We also sell products that can be synergistic to our EFT platform. These products have capabilities that:

· Support information sharing and exchange capabilities using traditional email systems.

· Enable enterprise file synchronization and sharing.

· Enhance the ability to replicate, share and backup files within a wide area network or local area network, thereby allowing users to access their data at higher speeds than possible with most alternate approaches.

· Support file transfers by individuals and small businesses.

We earn most of our revenue from the sale of our EFT Platform that support business-to-business activities and are strategically focused on selling products in that environment. We intend to expend the majority of our resources in the future for product research and development, marketing, and sales in a manner that concentrates on the business-to-business market. We believe our products and business capabilities are well-positioned to compete effectively in that market.

Some of our products support consumer-oriented file transfers and file sharing. Even though these products are profitable on an overall basis, we anticipate the future resources we will expend related to products sold to consumers and the associated revenue we earn from those products will continue to be a minor part of our business.

The following discussion presents a summary description of our specific products and solutions.

Managed File Transfer – Enhanced File Transfer Platform

Enhanced File Transfer, or EFT, is the brand name of our core MFT product platform. Our EFT platform products received multiple industry awards in compliance categories in 2016 including the 2016 Golden Bridge awards, the Network Product Guide’s 2016 IT World Awards, and the 2016 Info Security Products Guide Global Excellence Awards.

The EFT platform provides users the ability to securely transmit data from one location to another using any number of files of any size or configuration. It facilitates management, monitoring, and reporting on file transfers and delivers advanced data transfer workflow capabilities to move data and information into, out of, and throughout an enterprise. Notable features and capabilities of the EFT platform include:

· State-of-the-art, enterprise-level security when transferring information within or between computer networks as well as for collaboration with business partners, customers, and employees. EFT provides automation that supports effective integration of back-end systems. It has built-in regulatory compliance, governance, and visibility controls to provide a means of safely maintaining information. EFT offers a high level of performance and scalability to support operational efficiency and maintain business continuity. Administrative tools are provided at various levels of granularity to allow for complete control and monitoring of file transfer activities.

· Transmission of critical information such as financial data, medical records, customer files, vendor files, personnel files, transaction activity, and other similar documents between diverse and geographically separated network infrastructures while supporting a range of information protection approaches to meet privacy and other security requirements. In addition to enabling the secure, flexible transmission of critical information using servers, desktop, and notebook computers and a wide range of network-enabled mobile devices, our products also provide customers with the ability to monitor and audit file transfer activities.

· Compliance with government regulations and industry standards relating to the protection of information while allowing users to reduce information systems and technologies costs, increase efficiency, track and audit transactions, and automate processes. Our solutions also provide data replication, acceleration of file transfer, sharing/collaboration, and continuous data backup and recovery to our customers.

The EFT platform provides a common, scalable MFT environment that accommodates a broad family of accompanying modules to provide enterprises with increased security, automation, and performance when compared to traditional FTP-based and e-mail delivery systems. Various optional modules allow users to select the solution configuration most applicable to their requirements for auditing and reporting, encryption, ad hoc and web-based file transfers, operability in or through a DMZ network, and integration with back-end business processes, including workflow automation capabilities.

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Since 2015, we have released new versions of our EFT platform and new modules which added several enhancements and capabilities including:

· Advanced Authentication Module (AAM) that increases the interoperability of EFT with multiple authentication methods. AAM provides a single source of authentication across a customer’s infrastructure.

· Workspaces, which is a file-sharing module that allows employees to create their own groups and assign permissions for those groups, much like a virtual data room, to provide access to files for which they themselves have access on the EFT server.  This functionality is accomplished without compromising the security, control, and governance of those files.

· A Workspaces Outlook plugin that provides secure ad hoc file transfers via email, providing customers with the reporting features in EFT and combining them with the simplicity and security of sending files with Mail Express. The integration of these two products takes the best features in Mail Express and incorporates them into EFT.

· Accelerate, which is an accelerated file transfer module that boosts the speed and efficiency of secure data transfers and allows for the fast transfer of large files over disparate geographic distances.

· Enhanced compatibility of web transfer client file transfers through HTML5 support in addition to the existing Java Runtime Environment.

· Increased scalability and business continuity with more flexible, uninterrupted file transfer service.

· Improved facilitation of PCI DSS version 3.0 compliance with updates to security components, such as PGP and AS2.

· Enhanced and expanded event rule functionality which improves the ability to integrate our products with client business processes and backend systems.

· Support for active-active high availability in Amazon Web Services.

· Enhanced security features supporting improved compliance with Health Insurance Portability and Accountability Act of 1996 (or HIPAA) guidelines.

We expect to continue to enhance the EFT platform with capabilities that improve its speed and responsiveness of performance, provide additional administration flexibility supporting cross-platform implementation with our DMZ Gateway solution, offer business activity monitoring, and provide additional language support.

Most EFT customers choose to purchase a perpetual software license for a one-time fee paid at the time of purchase and under which they install the software on equipment they own and/or manage. In almost all cases, they also purchase ongoing M&S for which they pay us a recurring, annual amount that typically is 20% to 30% of the price of the software license.

If a customer prefers to use the capabilities of EFT in a SaaS fashion, we offer EFT Cloud Services for a monthly subscription fee. The EFT platform delivered in this manner has the same features and functionality as our EFT platform installed at a customer site. EFT Cloud Services allows users to reduce their upfront cost and achieve other recognized benefits of cloud-based managed file transfer SaaS subscription solutions, including strong service level agreements for information technologies infrastructure reliability and performance.  EFT can also be deployed for customers, on a BYOL basis, in their infrastructures running through Amazon Web Services or Microsoft Azure. We have also initiated offering EFT Enterprise direct to buyers on a pre-deployed basis in the Amazon Web Services and Microsoft Azure Marketplaces.

EFT Cloud Services provides a flexible continuum of features and functions that gives the user the ability to pick and choose the extent to which they want to own or outsource the capabilities of our EFT platform. EFT Cloud Services gives organizations the flexibility of deploying on-premises, in the cloud or in a hybrid cloud environment with all of the security, compliance, scalability, and visibility features of an on-premises managed file transfer solution. Users of EFT Cloud Services have the option to work with a variety of top hosting providers that best fit their needs. We offer flexible subscription pricing under one, two, and three-year contracts that can help our customers minimize or eliminate upfront capital expenditures and possibly reduce their ongoing operating costs. Subscription revenue from EFT Cloud Services is increasing but is not yet a material portion of the total revenue from our EFT platform.

Secure Information Sharing and Exchange Solution – Mail Express

Mail Express is a solution that provides secure information sharing and exchange capabilities leveraging traditional email workflow. It is a stand-alone product installed in a client-server environment that allows users to send and receive secure, encrypted e-mail and attachments of virtually unlimited size. Mail Express was a Bronze Winner in Email Security and Management by Network Products Guide’s 2016 IT World Awards.

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To broaden the appeal and capabilities of Mail Express, we are developing functionality that integrates the features of Mail Express into the EFT platform. This integration will take the superior control, visibility and monitoring capabilities of the EFT platform and make them available to administrators and users in an email environment.  This integrated product will improve operational efficiency by providing a coordinated user interface through which data movement activities using both our EFT and Mail Express products can be managed.

Wide Area File Services Solution - WAFS

Our WAFS software product uses data synchronization to further enhance the ability to replicate, share and backup files within a wide area network or local area network, thereby allowing users to access their data at higher speeds than possible with most alternate approaches. The software uses byte-level differencing technology to update changes to files with minimal impact on network bandwidth while also ensuring that files are never overwritten, even if opened by other remote users. Other key features of WAFS include native file locking, replication to multiple locations simultaneously, adherence to access control list file permissions, and full UTF-8 support.

We will continue to offer WAFS as a stand-alone product and provide M&S services to customers who purchased WAFS in the past and who purchase it in the future. We do not expect to expend significant resources in the future expanding the features and capabilities of WAFS.

File Transfer Solution for Consumers - CuteFTP 

CuteFTP is our original product introduced in 1996. It is a file transfer program generally used by individuals and small businesses. It remains popular today and generates incremental revenue for us at a relatively low cost.

CuteFTP continues to have significant brand recognition in the market.  Our current CuteFTP Version 9 introduced several notable new features including:

· Support for Unicode (UTF-8) characters that allows greater international use.

· Web Distributed Authoring and Versioning (WebDAV) support to facilitate collaboration between users in editing and managing documents and files stored on World Wide Web servers.

Version 9 simplified our CuteFTP product line by consolidating all the features of our previous multi-product CuteFTP product line for Windows operating systems into this single version. We continue to offer CuteFTP Version 3.1 software for Mac platforms. We believe current versions of CuteFTP appeal to users wanting features more robust than offered in free alternatives such that it will be a product competitive in the marketplace for the foreseeable future.

We will continue selling CuteFTP as a stand-alone product and providing M&S services to customers who purchased CuteFTP in the past and who purchase it in the future. We do not expect to expend significant resources in the future expanding the features and capabilities of CuteFTP.

Professional Services

We offer a range of professional services to complement our on-premises and SaaS solutions. These professional services include system integration, solution “quickstart” implementations, business process and workflow, policy development, education and training, and solution health checks. In addition, we may provide longer-term engineering services, including supporting multi-year contracts, if necessary, to support certain solution implementations and integrations. 

Maintenance and Support

We offer M&S contracts to licensees of all of our software products. These M&S contracts entitle the licensee to software upgrades and technical support services in accordance with the terms of our M&S contract.  Standard technical support services are provided via email and telephone during our regular business hours.  For certain of our products, we offer a Platinum M&S contract which provides access to emergency technical assistance 24 hours per day, 7 days a week.

Most of our M&S contracts are for one year although we also sell multi-year contracts. M&S is purchased by substantially all buyers of our EFT platform as well as by many customers who purchase our other products. Customers with M&S pay us a recurring, annual amount that is typically 20% to 30% of the software license price. A majority of our customers with M&S contracts renew them each year.

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Employees

Our number of employees is as follows:

	March 31,
Department	2017		2016
Sales and Marketing		52		46
Engineering		36		29
Professional Services		8		14
Customer Support		21		20
Management and Administration		19		19
Total		136		128

Solution Perspective and Trends

The components of our revenue are as follows ($ in thousands):

	Three Months Ended March 31,
	2017					2016
			Percent of					Percent of
	Amount		Total			Amount		Total
Revenue By Type
License	$	2,578		30.6	%	$	2,263		30.8	%
M&S		5,121		60.7	%		4,446		60.5	%
Professional Services		733		8.7	%		642		8.7	%
Total Revenue	$	8,432		100.0	%	$	7,351		100.0	%
Revenue by Product Line
License
EFT Platform	$	2,397		93.0	%	$	1,959		86.6	%
Other		181		7.0	%		304		13.4	%
Total License Revenue		2,578		100.0	%		2,263		100.0	%
M&S
EFT Platform		4,841		94.5	%		4,125		92.8	%
Other		280		5.5	%		321		7.2	%
Total M&S Revenue		5,121		100.0	%		4,446		100.0	%
Professional Services (all EFT Platform)		733		100.0	%		642		100.0	%
Total Revenue
EFT Platform		7,971		94.5	%		6,726		91.5	%
Other		461		5.5	%		625		8.5	%
Total Revenue	$	8,432		100.0	%	$	7,351		100.0	%

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Our total revenue increased 15% in the 2017 quarter compared to the 2016 quarter. Revenue from our EFT platform products and services increased 19% which consisted of EFT platform license revenue increasing 22%, EFT platform M&S revenue increasing 17%, and professional services revenue increasing 14%. Revenue from our other product lines decreased which is consistent with our expectations as discussed below. For a more complete discussion of these revenue trends, see Comparison of the Statement of Operations for the Three Months Ended March 31, 2017 and 2016.

We earn revenue primarily from the following activities:

• License revenue from sales of our EFT platform products that we deliver as either perpetually-licensed software installed at the customer’s premises, for which we earn the full amount of the license revenue at the time the license is delivered, or as a cloud-based service under our EFT Cloud Services brand delivered using a SaaS model, for which we earn monthly subscription revenue as these services are delivered.

• License revenue from sales of our Mail Express, WAFS and CuteFTP products that are installed at the customer’s premises under a perpetual license for which we earn the full amount of the license revenue at the time the license is delivered.

• M&S revenue under contracts to provide ongoing product support and software updates to our customers who have purchased license software which we recognize ratably over the contractual period, which is typically one year, but can be up to three years.

• Professional services revenue from a variety of implementation, and integration services, as well as delivery of education and training associated with our solutions, which we recognize as the services are performed and accepted by the client.

We earn most of our revenue from the sale of our EFT platform products and the associated M&S and professional services related to those products. With our core competency being in products that address the MFT market, we believe our EFT platform products provide the best opportunity for our future growth. Accordingly, expansion of the capabilities of the EFT platform will be our primary focus in the future. While we will continue to sell and support our other products for the foreseeable future, they will not be an area of emphasis for us going forward.

We believe that continuing to offer licensed products installed on-premises for which we recognize revenue up-front and that carry with them a recurring M&S revenue stream is important to our future success. At the same time, we recognize that a migration of capabilities to a SaaS platform is attractive to a growing number of customers. We have, and have had for quite some time, the capabilities in place to deliver our EFT platform in that manner through our EFT Cloud products. While our SaaS revenue is not yet a material component of our total revenue, a migration by our customers to our EFT Cloud products could create some near-term decreases in the growth rate of license revenue, and may result in similar decreases in future periods, because it typically takes approximately 24 to 36 months of SaaS revenue to yield total revenue equivalent to that realized up-front from the sale of a license for an on-premise installation.

In mid-2016, we reviewed the allocation of our product research and development resources across all of our products. As a result of that review, we decided to adjust that allocation to focus most of our engineering resources involved in product research and development on our EFT platform products in order to expand their capabilities and to remain positioned to be responsive to the evolving needs of our customers.

Over the past few years, we have developed and offered individual product lines that include EFT, Mail Express, WAFS, and CuteFTP. Each of these product lines addresses distinct needs in the marketplace. While some customers purchase products from more than one of these product lines, for the most part, customers in a particular market or vertical have needs that are addressed by only one of these products and, therefore, purchase only that product. With respect to Mail Express, while we will continue to offer them as stand-alone products for the time being, the engineering resources we allocate to these technologies will focus on migrating them to becoming an integrated component of our EFT platform. We do not expect to expend significant resources in the future on expanding the features and capabilities of WAFS and CuteFTP although we will continue to sell those products and support them.

To support product innovation, we continue to enhance our software engineering group and our focus on optimizing the manner in which we assess the development of new technologies, our approach to managing those projects, and the timelines over which we do that work. In continuing to develop our demand generation activities, we have made and continue to make ongoing changes in sales and marketing including:

· Increasing sales staffing and capabilities as needed to address our markets.

· Aligning our sales group to enhance its industry and geographic focus.

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· Implementing new sales and marketing campaigns.

· Evolving our lead generation programs to increase our sales staff’s exposure to potential purchasers.

· Enhancing our support of channel partners and engaging them to sell our products through training, orientation and marketing programs.

Liquidity and Capital Resources

Our total cash, cash equivalents, certificates of deposit and working capital positions were as follows ($ in thousands):

	March 31, 2017			December 31, 2016
Cash and cash equivalents	$	10,400		$	8,895
Short term certificates of deposit		2,759			2,754
Long term certificates of deposit		12,837			12,779
Total cash, cash equivalents and certificates of deposit	$	25,996		$	24,428
Current assets	$	18,596		$	18,760
Current liabilities		(15,255	)		(16,188	)
Working capital	$	3,341		$	2,572

At March 31, 2017, our certificates of deposit in current assets mature on various dates through October 2017. Our long term certificates of deposit mature after March 31, 2018, on various dates through December 2021.

When assessing our liquidity and capital resources, we consider the following factors:

· We may access and monetize our certificates of deposit at any time without risk of loss of the original amounts invested. If we were to redeem these certificates of deposit prior to their maturity, we may incur a penalty and forfeit certain amounts of accrued interest, but we view such amounts as not material.

· Deferred revenue, unlike the other liability components of our working capital, is an obligation we will satisfy by providing services in the future to our customers as part of our ongoing operating activities from which we have historically generated cash flow. Our deferred revenue does not involve a disbursement of cash as a direct payment of that liability although we will incur operating expenses in the future as we deliver those M&S services.

Our capital requirements principally relate to our need to fund our ongoing operating expenditures, which are primarily related to employee salaries and benefits. We make these expenditures to enhance our existing products, develop new products, sell those products in the marketplace and support our customers after the sale.

We rely on cash and cash equivalents on hand and cash flows from operations to fund our operating activities and believe those items will be our principal sources of capital for the foreseeable future. If our revenue declines and/or our expenses increase, our cash flow from operations and cash on hand could decline.  We plan to expend significant resources in the future for research and development of our products and expansion and enhancement of our sales and marketing activities. If sales decline or if our liquidity is otherwise under duress, we could substantially reduce personnel and personnel-related costs, reduce or substantially eliminate capital expenditures and/or reduce or substantially eliminate certain research and development and sales and marketing expenditures. We may also sell equity or debt securities or enter into credit arrangements in order to finance future acquisitions or licensing activities, to the extent available.

Cash provided or used by our various activities consisted of the following ($ in thousands):

	Cash Provided (Used) During the Three Months Ended March 31,
	2017			2016
Operating activities	$	2,390		$	1,207
Investing activities		(650	)		(578	)
Financing activities		(235	)		(190	)

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Our cash provided by operating activities increased during the 2017 quarter compared to the 2016 quarter primarily due to the following factors:

· Net income after considering items not involving cash at the time they are recorded in the statement of operations, as set forth on our Condensed Consolidated Statements of Cash Flow, increased $583,000. See the section below under Comparison of the Statement of Operations for the Three Months Ended March 31, 2017 and 2016 for a discussion of the changes in the components of these amounts.

· Cash flow from payments by customers resulted in accounts receivable decreasing $1.3 million in the 2017 quarter compared to $951,000 in the 2016 quarter. This increased cash flow was primarily due to the increase in our revenue during the three months ended December 31, 2016, compared to the three months ended December 31, 2015, which in turn resulted in increased cash collections during the 2017 quarter when the accounts receivable from those sales were due.

· Payments to our vendors and service providers resulted in accounts payable decreasing $290,000 during the 2017 quarter compared to decreasing $355,000 during the 2016 quarter. The change in the amount of the decrease was primarily due to:

· The payment during the 2016 quarter of invoices for certain marketing expenses incurred in 2015 for initial expansion of certain sales and marketing programs which were expenses that did not have to be repeated in the 2016 quarter and paid in the 2017 quarter; and

· Normal variations in the timing of payments to our vendors.

· Income tax receivable and payable decreased $507,000 in the 2017 quarter compared to decreasing $198,000 in the 2016 quarter primarily due to:

· Receiving from the Internal Revenue Service during the 2017 quarter a refund of taxes paid in previous years as a result of favorable adjustments to our research and development tax credits previously claimed; and

· Normal variations in the timing of our tax payments.

· Accrued expenses increased $93,000 in the 2017 quarter compared to decreasing $327,000 in the 2016 quarter primarily due to normal variations in the timing of our payroll payment dates relative to the date of the balance sheet presented as a part of our financial statements.

Offset by:

· Deferred revenue decreasing $1.1 million in the 2017 quarter compared to decreasing $416,000 in the 2016 quarter primarily as a result of our new emphasis on selling one year M&S contracts instead of multi-year agreements as discussed above.

The amount of cash we used for investing activities during the 2017 quarter increased compared to the 2016 quarter due primarily to:

· An increase in the purchase of property and equipment as a result of remodeling of our sales and engineering office spaces to improve the efficiency of these work environments; and

· A decrease in our software development costs capitalized due to it taking longer than expected to fill open engineering positions with the skillsets needed to support new product development as a result of competition in the marketplace for software engineers.

Our financing activities used more cash in the 2017 quarter than the 2016 quarter due to an increase in the amount of dividends paid as a result of an increase in our outstanding shares of common stock offset by a decrease in proceeds from stock option exercises as a result of fewer option holders electing to exercise their options.

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Contractual Obligations and Commitments

As of March 31, 2017, our contractual obligations and commitments consisted primarily of the following items:

· An obligation to deliver services in the future to satisfy our right to earn our deferred revenue of $16.3 million. Those future services primarily relate to our obligations under M&S contracts. We will recognize this deferred revenue as revenue over the remaining life of those contracts which generally ranges from one to three years. Deferred revenue, unlike the other liability components of our working capital, is an obligation we will satisfy by providing services in the future to our customers as part of our ongoing operating activities from which we have historically generated cash flow. Our deferred revenue does not involve a disbursement of cash as a direct payment of that liability although we will incur operating expenses in the future as we deliver those M&S services.

· Trade accounts payable and accrued liabilities which include our contractual obligations to pay software royalties to third parties that vary in amount based on our sales volume of products upon which royalties are payable.

· Operating lease for our office space.

· Federal and state taxes.

Our non-cancellable, contractual obligations at March 31, 2017, consisted primarily of the lease for our office space with amounts due as follows ($ in thousands):

	Amounts Due for the Period
	Nine Months Ending December 31,		Fiscal Years
	2017		2018 - 2019		2019 - 2020		Thereafter		Total
Operating leases	$	270	$	480	$	-	$	-	$	750

As of March 31, 2017, we had no interest-bearing obligations in the form of loans, notes payable or similar debt instruments.

We plan to continue to expend significant resources in the future on product development, sales and marketing which may require that we enter into additional contractual arrangements and use our cash to acquire or license technology, intellectual property, products, services or businesses related to our current business strategy.

Comparison of the Statement of Operations for the Three Months Ended March 31, 2017 and 2016

	Three Months Ended March 31,
	2017		2016		$ Change
	$ in thousands
Total revenues	$	8,432	$	7,351	$	1,081
Total cost of revenues		1,535		1,443		92
Gross profit		6,897		5,908		989
Operating expenses
Sales and marketing		3,289		3,005		284
General and administrative		1,714		1,687		27
Research and development		722		646		76
Total operating expenses		5,725		5,338		387
Income from operations		1,172		570		602
Other income		70		33		37
Income before income taxes		1,242		603		639
Income tax expense		411		220		191
Net income	$	831	$	383	$	448

In the discussion below, we refer to the three months ended March 31, 2017, as the “2017 quarter” and the three months ended March 31, 2016, as the “2016 quarter.” The percentage changes cited in our discussions are based on the 2017 quarter amounts compared to the 2016 quarter amounts.

42

Revenue. The components of our revenues were as follows ($ in thousands):

	Three Months Ended March 31,
	2017					2016
			Percent of					Percent of
	Amount		Total			Amount		Total
Revenue By Type
License	$	2,578		30.6	%	$	2,263		30.8	%
M&S		5,121		60.7	%		4,446		60.5	%
Professional Services		733		8.7	%		642		8.7	%
Total Revenue	$	8,432		100.0	%	$	7,351		100.0	%
Revenue by Product Line
License
EFT Platform	$	2,397		93.0	%	$	1,959		86.6	%
Other		181		7.0	%		304		13.4	%
		2,578		100.0	%		2,263		100.0	%
M&S
EFT Platform		4,841		94.5	%		4,125		92.8	%
Other		280		5.5	%		321		7.2	%
		5,121		100.0	%		4,446		100.0	%
Professional Services (all EFT Platform)		733		100.0	%		642		100.0	%
Total Revenue
EFT Platform		7,971		94.5	%		6,726		91.5	%
Other		461		5.5	%		625		8.5	%
	$	8,432		100.0	%	$	7,351		100.0	%

Our total revenue increased 15%. This increase consisted of growth in total revenue from our EFT platform products and services of $1.2 million, or 19%, offset by a decrease in revenue from our other products that constitute less than 10% of our total revenue. These trends are in line with our expectations in light of our announcement in mid-2016 that our focus would be on our EFT platform products. At the same time, we announced that while we would continue selling our other products consisting of Mail Express, WAFS, CuteFTP, and TappIn, we would de-emphasize those products in the future, not expend future significant product development and engineering resources to enhance those products, and not dedicate significant future sales and marketing activities to them. We intend to maintain our focus on our EFT platform for the foreseeable future such that we expect to see a continuing decline in revenue from our products other than those that are part of the EFT platform.

EFT Platform Products

License, M&S and professional services revenue from our EFT platform products increased 22%, 17% and 14% respectively. The increases across these products and services were primarily due to continued enhancement in our product development and software engineering groups which allowed us to refine our process for identifying new product opportunities, to better focus our resources on products that would yield larger and more immediate revenue opportunities, and to optimize our project management and software engineering processes to reduce the time necessary to produce new or improved products.

43

To improve our ability to successfully sell existing EFT platform products as well as new products produced by our software engineering team, we continued to make ongoing changes in sales and marketing personnel and activities including:

· Increasing sales staffing and capabilities as needed to address our markets.

· Aligning our sales group to enhance its industry and geographic focus.

· Implementing new sales and marketing campaigns.

· Evolving our lead generation programs to increase our sales staff’s exposure to potential purchasers.

· Enhancing our support of channel partners and engaging them to sell our products through training, orientation and marketing programs.

The 22% increase in license revenue from our EFT platform products was primarily due to:

· The introduction of new products or new versions of products as described above under Business-Software Products and Services.

· Our focus on leveraging the changes to our sales and marketing activities described above toward new customers who may not have previously used our products. While sales to existing customers often consist primarily of new modules added to existing software licenses, new customers present the potential for higher license sales since they typically need to purchase a license for our core products in addition to licenses for additional modules.

The 17% increase in M&S revenue from our EFT platform products was also due to:

· Ongoing and increased license sales since a majority of license sales are accompanied by an M&S contract. The change in M&S revenue typically lags behind the related change in license revenue because license sales are recognized as revenue in full in the period the license is delivered while the related M&S revenue is recognized in future periods as those services are delivered.

· Sustaining high renewal rates of M&S contracts by customers who initially purchased these services in earlier periods. We believe these renewals result from our programs designed to provide high-quality and responsive M&S services to our customers.

The 14% increase in professional services revenue was primarily related to the increased license revenue from our EFT platform since the demand for our professional services is closely related to purchases of licenses for our EFT platform products. The remaining increase was due to an enhanced focus on managing our queue of professional services projects to be delivered which resulted in a reduction in our backlog of professional services related to earlier EFT platform license sales.

When we sell our licensed products, we also typically create a recurring revenue stream from M&S since almost all purchasers of our licensed products also purchase an M&S contract. In general, and depending upon the level of M&S a customer purchases, this recurring revenue stream is 20% to 30% per year of the price of the underlying software license to which the M&S relates.

Our M&S contracts are typically for one year, with some customers buying two or three year contracts. The customer pays us the M&S fee for the entire term of the agreement at the time the contract begins. We recognize that amount as revenue ratably in future periods over the term of the contract.

We typically experience a high renewal rate for M&S services for our enterprise products so long as a customer continues using the licensed product they purchased from us. As a result, growing license revenue not only contributes to increasing revenue growth at the time the license is sold but also provides a foundation for future recurring revenue as the purchasers of our licensed products continually renew M&S contracts to support their ongoing product support needs. This pattern of activity can create a cumulative effect for M&S renewals as a result of the cumulative number of licensed software installations sold over multiple years that create M&S renewals in any single year predictably (and in line with our expectations) exceeding the number of new software licenses we sell in a single year. We expect this cumulative effect to continue to grow if we continue to increase enterprise software license revenue in future periods.

Other Products

In mid-2016, we announced that our focus would be on our EFT platform products. At the same time, we announced that while we would continue selling our Mail Express, WAFS, CuteFTP, and TappIn products that collectively constitute less than 10% of our total revenue, in the future we would de-emphasize these stand-alone products that are not part of our EFT platform. Accordingly, during the second half of 2016, we curtailed our product development and engineering resources for these products and significantly reduced our sales and marketing activities supporting them. As a result, our license and M&S revenue from those products collectively declined 26%. Our future focus will be on our EFT platform such that we expect to see a continuing decline in revenue from these other products although we do expect them to continue to produce a modest contribution margin that contributes to our future profitability.

44

Cost of Revenues.  These expenses are associated with the production, delivery and support of our products and services. We believe it is most meaningful to view cost of revenues as a percent of the revenues to which those costs relate since many of those costs are variable relative to revenue.

Cost of license revenue consists primarily of:

· Amortization of capitalized software development costs we incur when producing our software products. This amortization begins when a product is ready for general release to the public and generally is an expense that is not directly variable relative to revenue.

· Royalties we pay to use software developed by others for certain features of our products that is generally an expense that is variable relative to revenue.

· Fees we pay to third parties who provide services supporting our SaaS and cloud-based subscription solutions that generally have components that are both variable and not variable relative to revenue.

Cost of M&S revenue and cost of professional services revenue consist primarily of salaries and related costs of our employees and third parties we use to deliver these services.

Cost of software license revenue increased 21% and as a percent of software license revenue was 29% in the 2017 quarter compared to 28% in the 2016 quarter. These increases were primarily due to:

· An increase in expense from the amortization of capitalized software development costs as a result of our release of new software products and new versions of existing products in periods subsequent to the 2016 quarter.

· An increase in our royalties expense as a result of an increase in sales volume of products that contain components on which we pay royalties.

Cost of M&S revenue as a percent of M&S revenue was substantially unchanged. Cost of revenue for M&S in absolute dollars increased by 5% due to an increase in M&S revenue. The cost of delivering M&S can vary slightly up or down from period-to-period, but we believe such changes are typically not indicative of long term trends or permanent changes in our cost of delivering M&S. Our gross margin on these services generally remains greater than 90% as a result of a consistent application of our customer support delivery protocols and practices.

Cost of professional services revenue as a percent of that revenue was 51% in the 2017 quarter as compared to 66% in the 2016 quarter. This variation resulted from the varying scope and mix of the professional services we deliver that can change from period-to-period in response to the circumstances of the customer environments in which we are working. In addition, during the second half of 2016, we undertook a refinement of our professional services organization and the manner in which we manage and deliver these services which resulted in more efficient processes from which we began to realize the cost benefit in 2017. Cost of revenue for professional services in absolute dollars decreased 11% for the reasons discussed above.

Sales and Marketing.  We believe it most meaningful to view cost of sales and marketing as a percent of revenues since many of those costs, particularly sales commissions, are variable relative to revenue. These expenses were 39% of total revenue for the 2017 quarter compared to 41% of total revenue for the 2016 quarter. In absolute dollars these expenses increased 9%. These variations were primarily due to:

· Increasing the size of our sales, marketing and product strategy teams and increased compensation rates due to competitive demands in the marketplace.

· Increasing marketing activities related to competitive intelligence and channel development.

· An increase in revenue which resulted in a higher absolute dollar amount of sales commissions paid to employees although the commission rate as a percent of sales did not change materially.

General and Administrative.  These expenses were substantially unchanged between periods. This consistent outcome was a result of our ongoing programs to manage these expenses.

Research and Development.  The overall profile of our research and development activities was as follows ($ in thousands):

	Three Months Ended March 31,
	2017		2016
R&D expenditures expensed	$	722	$	646
R&D expenditures capitalized		462		488
Total R&D expenditures (non-GAAP measurement)	$	1,184	$	1,134

45

Total R&D expenditures increased 5% primarily due to a planned increase in our software engineering headcount offset by a decrease in the cost of third-party software developers as a result of our efforts during 2016 to reduce our reliance on those outsourced services. Our R&D expense increased 12% as we continued our enhanced focus on our EFT platform and its installed customer base to ensure the products those customers are using remain optimized to meet their needs. Our R&D capitalized decreased 5% primarily due to those amounts in the 2016 quarter including higher cost, outsourced engineering work on products other than those that are part of our EFT platform which is work that did not occur in the 2017 quarter as a result of our focus on the development of our EFT platform primarily using our in-house personnel.

Total resources expended for R&D set forth above as total R&D expenditures serves to illustrate our total corporate efforts to improve our existing products and to develop new products regardless of whether or not our expenditures for those efforts were expensed or capitalized. Total resources expended for R&D is not a measure of financial performance under GAAP and should not be considered a substitute for R&D expense (set forth above as R&D expenditures expensed) and capitalized software development costs (set forth above as R&D expenditures capitalized) individually. While we believe the non-GAAP, total resources expended for R&D amount provides useful supplemental information regarding our overall corporate product improvement and new product creation activities, there are limitations associated with the use of this non-GAAP measurement. Total resources expended for R&D is a non-GAAP measure not prepared in accordance with GAAP and may not be comparable to similarly titled measures of other companies since there is no standard for preparing this non-GAAP measure. As a result, this non-GAAP measure of total resources expended for R&D has limitations and should not be considered in isolation from, or as a substitute for, R&D expense and capitalized software development cost individually.

Interest income (expense), net.  Interest income (expense), net consists primarily of interest income earned on certificates of deposit. The increase in this amount was due primarily to enhanced investment of our cash to earn a higher rate of interest.

Income Taxes.  Our effective tax rate was 33% for the 2017 quarter and 36% for the 2016 quarter. These rates differed from a federal statutory tax rate of 34% primarily due to:

· The domestic production activities deduction and the research and development credit that are tax credit incentives that serve to reduce the rate at which we pay federal income taxes in exchange for us conducting certain aspects of our business in a manner promoted by the Internal Revenue Code.

Offset by:

· Certain expenses in our consolidated financial statements, such as a portion of meals and entertainment expenses, that are not deductible on our federal income tax return.

· State income taxes included in income tax expense in our consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We have not utilized derivative financial instruments or derivative commodity instruments. We do not expect to employ these or other strategies to hedge market risk in the foreseeable future. We may invest our cash in money market funds which are subject to minimal credit and market risk. We believe that the interest rate risk and other relevant market risks associated with these financial instruments are immaterial.

During the 2017 quarter and 2016 quarter, we earned approximately 14% of our revenue from a single third party channel distributor who purchases products from us and resells them to their customers. Approximately 16% of our accounts receivable as of March 31, 2017 were due from this distributor. We have since received payment for substantially all of these accounts receivable.

We earned approximately 22% and 27% of our revenue from customers outside the United States during the 2017 quarter and the 2016 quarter, respectively. We receive all revenue in U.S. dollars, so we have no material exchange rate risk with regard to our sales. We charge Value Added Taxes to our non-business customers in the European Union. We remit these taxes periodically in pound sterling. The impact of this currency translation has not been material to our business.

46

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our President and Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

No system of controls, no matter how well designed and operated, can provide absolute assurance that the objectives of the system of controls are met. No evaluation of controls can provide absolute assurance that the system of controls has operated effectively in all cases.  Our disclosure controls and procedures are designed to provide reasonable assurance that the objectives of disclosure controls and procedures are met.

At the time of the Original Filing, our management, including our President and Chief Executive Officer and our Chief Financial Officer, concluded that our disclosure controls and procedures were effective as of March 31, 2017. In connection with the internal investigation described in the Explanatory Note to this Form 10-Q/A and the filing of this Form 10-Q/A, under the supervision and with the participation of our management, we re-evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2017. Further, our management, including our President and Chief Executive Officer and our interim Chief Financial Officer, re-evaluated the conclusions regarding our disclosure controls and procedures and concluded that our disclosure controls and procedures were not effective as of March 31, 2017 to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.

Material Weaknesses

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. In connection with our management’s assessment of our internal control over financial reporting, our management has identified the following deficiencies that constituted individually, or in the aggregate, material weaknesses in our internal control over financial reporting as of March 31, 2017.

We had material weaknesses in our control environment and monitoring:

· We did not implement effective oversight of our finance and accounting processes (including organizational structure and reporting hierarchy), which impacted our ability to make appropriate decisions regarding revenue recognition.

· We did not effectively design and implement appropriate oversight controls over our period-end financial closing and reporting processes, and our review controls were not sufficient to ensure that errors regarding revenue recognition would be detected.

· We did not effectively monitor (review, evaluate and assess) the risks associated with key internal control activities that provide the revenue information contained in our financial statements.

We had material weaknesses related to internal control monitoring and activities to support the financial reporting process:

· We did not maintain effective controls over the invoicing process to ensure that proper supporting documentation was received prior to preparing invoices.

· We did not maintain effective controls over the revenue recognition process to ensure revenue was only recognized when all four criteria of our revenue recognition policy were met.

47

Changes in Internal Control Over Financial Reporting

With the exception of the remediation efforts described below, there has been no change in our internal control over financial reporting that occurred during the quarterly period covered by this report and during the subsequent time period through the filing of this Form 10-Q/A that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

We designed a remediation plan to strengthen our internal control over financial reporting and haven taken, and will continue to take, remediation steps to address the material weaknesses described above.  We also continue to take meaningful steps to enhance our disclosure controls and procedures and our internal controls over financial reporting.

Our remediation plan includes the following:

· Clearly defining and communicating the management-approved, standard terms and conditions that may be offered to customers during the sales process and requiring appropriate management approval of requested deviations from these standard terms and conditions before a sale is consummated with a customer and a sales invoice is created.

· Creating and implementing a policy clearly stating that all terms and conditions of agreements with customers are to be recorded in writing, communicated to finance and accounting personnel, and recorded in our permanent records prior to the creation of a sales invoice.

· Conducting periodic training sessions and briefings to communicate our policies and procedures regarding our standard terms and conditions that we offer to customers and how we document and communicate approved deviations from those standard terms and conditions.

· Enhancing the breadth and depth of the review by finance and accounting personnel of sales invoices and underlying supporting documentation to ensure that unusual items are identified and considered when determining revenue recognition.

· Establishing a total invoice dollar amount threshold over which finance and accounting personnel must examine all actual invoices and supporting documentation to confirm the purchase by the customer and the appropriate revenue recognition profile.

· Publishing guidelines that personnel can reference which set forth the requirements to be met for revenue to be recognized from a sale transaction and conducting periodic meetings with personnel to educate and remind them of these guidelines.

Our management is implementing and monitoring the effectiveness of these and other processes, procedures and controls and will make any further changes deemed appropriate. Our management believes the foregoing remedial efforts will effectively remediate the material weaknesses.  As the Company continues to evaluate and work to improve its internal control over financial reporting, our management may determine to take additional measures to address control deficiencies or determine to modify the remediation plan described above. If not remediated, these control deficiencies could result in further material misstatements to the Company’s consolidated financial statements.

48

Part II. Other Information

Item 1. Legal Proceedings

The information set forth under “Note 12 – Commitments and Contingencies – Legal and Regulatory Matters” to the condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q/A is incorporated herein by reference.

Item 1A. Risk Factors.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our 2016 Form 10-K/A filed with the SEC on June 14, 2018. These risk factors could materially affect our business, financial condition or future results, but they are not the only risks facing GlobalSCAPE. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and/or operating results.

Item 6. Exhibits

(a) Exhibits

31.1	Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	Interactive Data File.

49

Signatures

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

		GLOBALSCAPE, INC.
June 14, 2018	By:	/s/ Karen J. Young
Date		Karen J. Young
		Interim Chief Financial Officer

50

EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, Matthew C. Goulet, certify that:

1. I have reviewed this quarterly report on Form 10-Q/A Number 2 of GlobalSCAPE, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: June 14, 2018

/s/ Matthew C. Goulet

Matthew C. Goulet

President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS

I, Karen J. Young, certify that:

1. I have reviewed this quarterly report on Form 10-Q/A Number 2 of GlobalSCAPE, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: June 14, 2018

/s/ Karen J. Young

Karen J. Young

Interim Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATE PURSUANT TO 18 U.S.C. SECTION 1350,

 AS ADOPTED PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of GlobalSCAPE, Inc. on Form 10-Q/A Number 2 for the period ending March 31, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Matthew C.  Goulet, Chief Executive Officer and Karen J. Young, Interim Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of GlobalSCAPE, Inc.

June 14, 2018

/s/ Matthew C.  Goulet

Matthew C.  Goulet

President and Chief Executive Officer

/s/ Karen J. Young

Karen J. Young

Interim Chief Financial Officer

XML

Document And Entity Information - shares	3 Months Ended
	Mar. 31, 2017	Apr. 30, 2017
Document and Entity Information [Abstract]
Entity Registrant Name	GLOBALSCAPE INC
Document Type	10-Q
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		21,571,831
Amendment Flag	true
Amendment Description	GlobalSCAPE, Inc. (together with its wholly owned subsidiary, "GlobalSCAPE" the "Company" or "we") is filing this Amendment No. 2 on Form 10-Q/A (this "Amendment" or "Form 10-Q/A") to its Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2017, which was originally filed May 12, 2017 and amended by Amendment No. 1 on Form 10-Q/A filed May 26, 2017 (as amended, the "Original Filing"). This Amendment amends and restates (the "Restatement") the following indicated parts of the Original Filing:Part I, Item 1 - Our condensed consolidated balance sheet as of March 31, 2017, and the related condensed consolidated statement of operations and comprehensive income and the condensed consolidated statement of cash flows for the quarterly period then ended;Part I, Item 2 - Management's discussion and analysis of our financial condition and results of operations as of March 31, 2017, and for the quarterly period then ended;Part I, Item 4 - Controls and ProceduresPart II, Item 1 - Legal Proceedings; andPart II, Item 6 - Exhibits.The Restatement results from our determination subsequent to the filing date of the Original Filing that we incorrectly recognized revenue during the fiscal year ended December 31, 2016 and the three months ended March 31, 2017 in connection with the sales transactions described below.As a result of the Restatement, no reliance should be placed on financial information we have previously furnished or filed on Forms 10-K, 10-Q (including 10-Q/A) or 8-K, along with all related earnings press releases and similar communications issued by us, subsequent to November 10, 2016. Such items include, but are not limited to:Form 8-K announcing our financial results for the fourth quarter of 2016 and for the fiscal year ended December 31, 2016, furnished on January 26, 2017.Form 10-K for the fiscal year ended December 31, 2016, filed on March 27, 2017.Form 8-K announcing our financial results for the first quarter of 2017, furnished on April 27, 2017.Form 10-Q for the quarterly period ended March 31, 2017, filed on May 12, 2017, as amended by Amendment No. 1 on Form 10-Q/A, filed on May 26, 2017.In the event there are discrepancies between this Amendment and previous reports, press releases and similar communications, the information in this Amendment shall control.
Entity Central Index Key	0001112920
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Smaller Reporting Company
Entity Well-known Seasoned Issuer	No
Document Period End Date	Mar. 31, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q1

XML

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Current assets:
Cash and cash equivalents	$ 10,400	$ 8,895
Short term certificates of deposit	2,759	2,754
Accounts receivable, net	4,945	6,288
Federal income tax receivable	0	292
Prepaid and other expenses	492	531
Total current assets	18,596	18,760
Long term certificates of deposit	12,837	12,779
Capitalized software development costs, net	3,731	3,743
Goodwill	12,712	12,712
Deferred tax asset, net	1,073	1,050
Property and equipment, net	577	456
Other assets	64	245
Total assets	49,590	49,745
Current liabilities:
Accounts payable	640	930
Accrued expenses	1,696	1,603
Income tax payable	215	0
Deferred revenue	12,704	13,655
Total current liabilities	15,255	16,188
Deferred revenue, non-current portion	3,618	3,790
Other long term liabilities	169	152
Commitments and contingencies
Stockholders’ equity:
Preferred stock, par value $0.001 per share, 10,000,000 authorized, no shares issued or outstanding	0	0
Common stock, par value $0.001 per share, 40,000,000 authorized, 21,970,412 and 21,920,912 shares issued at March 31, 2017, and December 31, 2016, respectively	22	22
Additional paid-in capital	22,183	21,756
Treasury stock, 403,581 shares, at cost, at March 31, 2017 and December 31, 2016	(1,452)	(1,452)
Retained earnings	9,795	9,289
Total stockholders’ equity	30,548	29,615
Total liabilities and stockholders’ equity	$ 49,590	$ 49,745

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Condensed Consolidated Balance Sheets (Parentheticals) - $ / shares	Mar. 31, 2017	Dec. 31, 2016
Preferred stock par value (in Dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in Dollars per share)	$ 0.001	$ 0.001
Common stock, authorized	40,000,000	40,000,000
Common stock, issued	21,970,412	21,920,912
Treasury stock, shares	403,581	403,581

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Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Operating Revenues:
Software licenses	$ 2,578	$ 2,263
Maintenance and support	5,121	4,446
Professional services	733	642
Total Revenues	8,432	7,351
Cost of revenues
Software licenses	758	626
Maintenance and support	413	394
Professional services	364	423
Total cost of revenues	1,535	1,443
Gross profit	6,897	5,908
Operating expenses
Sales and marketing	3,289	3,005
General and administrative	1,714	1,687
Research and development	722	646
Total operating expenses	5,725	5,338
Income from operations	1,172	570
Interest income (expense), net	70	33
Income before income taxes	1,242	603
Income tax expense	411	220
Net income	831	383
Comprehensive income	$ 831	$ 383
Net income per common share -
Basic (in Dollars per share)	$ 0.04	$ 0.02
Diluted (in Dollars per share)	$ 0.04	$ 0.02
Weighted average shares outstanding:
Basic (in Shares)	21,544	21,033
Diluted (in Shares)	22,023	21,652
Cash dividends declared per share (in Dollars per share)	$ 0.015	$ 0.015

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Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Operating Activities:
Net income	$ 831	$ 383
Items not involving cash at the time they are recorded in the statement of operations:
Provision for sales returns and doubtful accounts receivable	11	12
Depreciation and amortization	541	501
Share-based compensation	337	239
Deferred taxes	(23)	(19)
Excess tax benefit from share-based compensation	0	(3)
Subtotal before changes in operating assets and liabilities	1,697	1,113
Changes in operating assets and liabilities:
Accounts receivable	1,332	951
Prepaid expenses	39	34
Deferred revenue	(1,123)	(416)
Accounts payable	(290)	(355)
Accrued expenses	93	(327)
Other assets	181	22
Accrued interest receivable	(63)	(16)
Other long-term liabilities	17	3
Income tax receivable and payable	507	198
Net cash provided by operating activities	2,390	1,207
Investing Activities:
Software development costs capitalized	(462)	(488)
Purchase of property and equipment	(188)	(90)
Net cash (used in) investing activities	(650)	(578)
Financing Activities:
Proceeds from exercise of stock options	90	122
Excess tax benefit from share-based compensation	0	3
Dividends paid	(325)	(315)
Net cash (used in) financing activities	(235)	(190)
Net increase in cash	1,505	439
Cash at beginning of period	8,895	15,885
Cash at end of period	10,400	16,324
Cash paid during the period for:
Interest	0	0
Income taxes	$ 15	$ 22

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1. Nature of Business

3 Months Ended

Mar. 31, 2017

Disclosure Text Block [Abstract]

Nature of Operations [Text Block]

1.           Nature of Business

We provide secure information exchange capabilities for enterprises and consumers through the development and distribution of software, delivery of managed and hosted solutions, and provisioning of associated services. Our solution portfolio facilitates transmission of critical information such as financial data, medical records, customer files, vendor files, personnel files, transaction activity, and other similar documents between diverse and geographically separated network infrastructures while supporting a range of information protection approaches to meet privacy and other security requirements. In addition to enabling secure, flexible transmission of critical information using servers, desktop and notebook computers, and a wide range of network-enabled mobile devices, our products also provide customers with the ability to monitor and audit file transfer activities.  Our primary product is Enhanced File Transfer, or EFT. We have other products that complement our EFT product.

Throughout these notes unless otherwise noted, our references to the 2017 quarter and the 2016 quarter refer to the three months ended March 31, 2017 and 2016, respectively.

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2. Basis of Presentation

3 Months Ended

Mar. 31, 2017

Disclosure Text Block [Abstract]

Basis of Accounting [Text Block]

2.           Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with Rule 10-01 of Regulation S-X, “Interim Financial Statements,” as prescribed by the United States Securities and Exchange Commission, or SEC. Accordingly, they do not include all information and footnotes required under GAAP for complete financial statements. In the opinion of management, all accounting entries necessary for a fair presentation of our financial position and results of operations have been made. The results of operations for any interim period are not necessarily indicative of the results to be expected for the full year. The information included in this Form 10-Q/A should be read in conjunction with the consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2016, filed with the SEC on June 14, 2018 which we refer to as the 2016 Form 10-K/A, as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations also included in our 2016 Form 10-K/A and in this report.

We follow accounting standards set by the Financial Accounting Standards Board. This board sets GAAP, which we follow in preparing financial statements that report our financial position, results of operations, and sources and uses of cash. We also follow the reporting regulations of the SEC.

The preparation of financial statements in accordance with GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and the reported amounts of revenues and expenses during the reporting period. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of our consolidated financial statements. It is possible the actual results could differ from these estimates and assumptions and could have a material effect on the reported amounts of our financial position and results of operations.

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3. Significant Accounting Policies

3 Months Ended

Mar. 31, 2017

Accounting Policies [Abstract]

Significant Accounting Policies [Text Block]

3.           Significant Accounting Policies

Principles of Consolidation

The accompanying condensed consolidated financial statements of GlobalSCAPE, Inc. and its wholly-owned subsidiary (collectively referred to as “GlobalSCAPE”, the “Company” or “we”) are prepared in conformity with GAAP.  All intercompany accounts and transactions have been eliminated.

Changes in Accounting Methods, Reclassifications and Revisions

As part of our ongoing enhancement and refinement of our financial reporting to fairly present our results of operations and financial position, we may make changes from time-to-time in accounting methods and in the classification and presentation of our business activities in our financial statements. To ensure comparability between periods, we revise previous period financial statements presented to conform them to the method of presentation in our current period financial statements. If the changes increase or decrease previously reported amounts of revenue or expenses, we adjust retained earnings as of the beginning of the earliest period presented for the cumulative effect, if any, on that balance.  If these changes affect our financial statements for previously reported interim periods not presented herein, we present revised financial statements for those periods when they are reported in the future.

Method of Amortization of Deferred Revenue Related to M&S Contracts

In previously issued financial statements, for the fiscal years prior to 2016 and for the first three quarters of 2016, we amortized deferred revenue related to maintenance and support, or M&S, contracts by recording a full month of amortization in the first month of a contract. We used that method based on our intent to match revenue from our M&S contracts to the expense we incur when delivering M&S services. We acknowledge that the more common and widespread practice is to amortize deferred revenue based upon the specific number of days the M&S contract is in place during that month. Both methods result in the recognition of the same amount of revenue over the term of the M&S contract but yield differing amounts of revenue being recognized in the first month and last month of an M&S contract.

Commencing with the issuance of our consolidated financial statements as of December 31, 2016, and for the year then ended, we changed our method of amortizing deferred revenue related to M&S contracts such that our consolidated statements of operations and balance sheets included herein are now prepared using the specific number of days method. This change decreased M&S revenue and net income for the three months ended March 31, 2016 as reported herein by immaterial amounts relative to amounts previously reported for that period. This change increased deferred revenue as of March 31, 2016 by an immaterial amount relative to the amount previously reported as of that date. This change has no effect on the total amount of revenue we will realize from our M&S contracts.

Method of Recording M&S Billings

We may invoice a customer for M&S to be provided commencing on a date in a month subsequent to the month in which we invoice the customer. We typically receive a purchase order from our customers for M&S prior to invoicing them, and it is not uncommon for a customer to pay us in advance of that M&S commencement date either on their own or when we request such payment. Accordingly, in our consolidated balance sheets issued prior to 2016 and for the first three quarters of 2016, we recorded an account receivable and deferred revenue for these invoices as of the date of the invoice. Commencing with the preparation and issuance of our financial statements as of December 31, 2016, we determined that a reasonable, alternate and more conservative method would be to wait until the commencement date of the M&S contract had arrived to record the account receivable and deferred revenue for any such invoices for which we have not been paid as of the balance sheet date. Accordingly, our condensed consolidated balance sheet as of March 31, 2016, included herein is now prepared and presented using that method. This change had the effect of decreasing our reported amounts of accounts receivable and deferred revenue relative to the method we previously used but does not affect any of our reported amounts of revenue or net income.

Reclassification of Sales Engineer Expenses

We employ sales engineers who assist our sales staff in addressing technical considerations by our customers prior to their purchasing our product. Our use of sales engineers has expanded in recent quarters. Prior to 2016and for the first three quarters of 2016, we classified the expense of sales engineers as part of costs of revenue – professional services. Commencing with the preparation and issuance of our financial statements as of December 31, 2016, we began classifying these expenses as part of sales and marketing expense to more appropriately present the current nature of the activities of our sales engineers. This change has the effect of decreasing cost of revenue – professional services and increasing sales and marketing expense. It does not affect any of our reported amounts of revenue or net income.

Reclassification of Reserve for Uncertain Tax Position

As described in Note 9, we maintain a reserve for uncertain tax positions. Prior to 2016 and for the first three quarters of 2016, we classified that reserve as a current liability since it was not material to our financial statements taken as a whole. Commencing with the preparation of our financial statements as of December 31, 2016, we determined it appropriate to classify it as a component of other long term liabilities. This change has the effect of decreasing current income taxes payable and increasing other long term liabilities.

Reclassification of Professional Services Revenue

In preparing our condensed consolidated statement of operations and comprehensive income for the 2017 quarter, we changed the classification of certain revenue from M&S to professional services to better reflect the nature of that revenue. We have made the same reclassification in our condensed consolidated statement of operations and comprehensive income for the 2016 quarter presented herein.

See Note 15 in the Notes to our Consolidated Financial Statements included in Part I, Item 1 of this 10-Q/A for the impact of all of the adjustments to our consolidated financial statements in our Original Filing to correct those consolidated financial statements for the effects of the adjustments described above.

Revenue Recognition

We develop, market and sell software products. We recognize revenue from a sale transaction when the following conditions are met:

·          Persuasive evidence of an arrangement exists.

·          Delivery has occurred or services have been rendered.

·          The amount of the sale is fixed or determinable.

·          Collection of the sale amount is reasonably assured.

For a sale transaction not meeting any one of these four criteria, we defer recognition of revenue related to that transaction until all the criteria are met.

We earn the majority of our software license revenue from software products sold under perpetual software license agreements. At the time our customers purchase these products, they typically also purchase an M&S contract. These transactions are multiple element software sales for which we assess the presence of vendor specific objective evidence (“VSOE”) of the fair value of the undelivered elements to determine the portion of these sales to recognize as revenue upon delivery of the software product and the portion of these sales to record as deferred revenue at the time the product is delivered. We amortize the deferred revenue component to revenue in future periods on a straight-line method as we deliver the related future services to the customer. For transactions, if any, for which we cannot establish VSOE of the fair value of the undelivered elements, we initially record the entire transaction as deferred revenue and amortize that amount to revenue in future periods as we deliver the related future services to the customer.

We provide services under M&S contracts with terms generally ranging from one to three years. We require up-front payment of our M&S fee in an amount that covers the entire term of the agreement.  We record deferred revenue at the commencement date of the contract or when we receive payment, whichever occurs first.  We amortize the related deferred revenue over the term of the contract, based upon the specific number of days method. Deferred revenue related to services we will deliver within one year is presented as a current liability while deferred revenue related to services that we will deliver more than one year into the future is presented as a non-current liability. We reduce deferred revenue and recognize revenue ratably in future periods on a straight-line method as we deliver the M&S service.

For our products licensed and delivered under a software-as-a-service, or SaaS, transaction on a monthly or other periodic subscription basis, we recognize subscription revenue, including initial setup fees, on a monthly basis ratably over the contractual term of the customer contract as we deliver our products and services. Amounts paid prior to this revenue recognition are presented as deferred revenue until earned.

We provide professional services to our customers consisting primarily of software installation support, operations support and training. We recognize revenue from these services as they are completed and accepted by our customers.

We collect sales tax on many of our sales. We do not include sales tax collected in our revenue. We record it as a liability payable to taxing authorities.

Cash and cash equivalents

Cash and cash equivalents includes all cash and highly liquid investments with original maturities of three months or less.

Property and Equipment

Property and equipment is comprised of furniture and fixtures, software, computer equipment and leasehold improvements which are recorded at cost and depreciated using the straight-line method over their estimated useful lives. Furniture, fixtures and equipment have a useful life of five to seven years, computer equipment and software have a useful life of three years and leasehold improvements have a useful life that is the shorter of the term of the lease under which the improvements were made or the estimated useful life of the asset.

Expenditures for maintenance and repairs are expensed as incurred.

Goodwill

Goodwill is not amortized. On at least an annual basis, we test goodwill for impairment at the reporting unit level using December 31 as the measurement date. We operate as a single reporting unit.

When testing goodwill, we first assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of our reporting unit is less than its carrying amount, including goodwill. In performing this qualitative assessment, we assess events and circumstances relevant to us including, but not limited to:

• Macroeconomic conditions.

• Industry and market considerations.

• Cost factors and trends for labor and other expenses of operating our business.

• Our overall financial performance and outlook for the future.

• Trends in the quoted market value and trading of our common stock.

In considering these and other factors, we consider the extent to which any adverse events and circumstances identified could affect the comparison of our reporting unit’s fair value with its carrying amount. We place more weight on events and circumstances that most affect our reporting unit’s fair value or the carrying amount of our net assets. We consider positive and mitigating events and circumstances that may affect our determination of whether it is more likely than not that the fair value of our reporting unit is less than its carrying amount. We evaluate, on the basis of the weight of the evidence, the significance of all identified events and circumstances in the context of determining whether it is more likely than not that the fair value of our reporting unit is less than its carrying amount.

If, after assessing the totality of these qualitative events and circumstances, we determine it is not more likely than not that the fair value of our reporting unit is less than its carrying amount, we conclude there is no impairment of goodwill and perform no further testing, in accordance with GAAP. If we conclude otherwise, we proceed with performing the first step, and if necessary, the second step, of the two-step goodwill impairment test prescribed by GAAP.

As of December 31, 2016, after assessing the totality of the relevant events and circumstances, we determined it not more likely than not that the fair value of our reporting unit was less than its carrying amount. Accordingly, we concluded there was no impairment of goodwill as of that date. There have been no material events or changes in circumstances since that time indicating that the carrying amount of goodwill may exceed its fair market value and that interim testing needed to be performed.

Capitalized Software Development Costs

When we complete research and development for a software product and have in place a program plan and a detail program design or a working model of that software product, we capitalize production costs incurred for that software product from that point forward until it is ready for general release to the public. Thereafter, we amortize capitalized software production costs to expense using the straight-line method over the estimated useful life of that product, which is generally three years. We periodically assess the carrying value of capitalized software development costs and our method of amortizing them relative to our estimates of realizability through sales of products in the marketplace.

Research and Development

We expense research and development costs as incurred.

Advertising Expense

We expense advertising costs as incurred as a component of our sales and marketing expenses.  Advertising expense was $419,561 and $408,136 in the 2017 quarter and the 2016 quarter, respectively.

Share-Based Compensation

We measure the cost of share-based payment transactions at the grant date based on the calculated fair value of the award. We recognize this cost as an expense ratably over the recipient’s requisite service period during which that award vests or becomes unrestricted.

For stock option awards, we estimate their fair value at the grant date using the Black-Scholes option-pricing model considering the following factors:

• We estimate expected volatility based on historical volatility of our common stock.

• We use primarily the simplified method to derive an expected term which represents an estimate of the time options are expected to remain outstanding. We use this method because our options are plain-vanilla options, and we believe our historical option exercise experience is not adequately indicative of our future expectations.

• We base the risk-free rate for periods within the contractual life of the option on the U.S. treasury yield curve in effect at the time of grant.

• We estimate a dividend yield based on our historical and expected future dividend payments.

For restricted stock awards, we use the quoted price of our common stock on the grant date as the fair value of the award.

Income Taxes

We account for income taxes using the asset and liability method.  We record deferred tax assets and liabilities based on the difference between the tax bases of assets and liabilities and their carrying amount for financial reporting purposes, as measured by the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets and liabilities are carried on the balance sheet with the presumption that they will be realizable in future periods in which we generate taxable income.

We assess the likelihood that deferred tax assets will be realized from future taxable income. Based on this assessment, we provide any necessary valuation allowance on our balance sheet with a corresponding increase in the tax provision on our statement of operations.   Any valuation allowances we establish are determined based upon a number of assumptions, judgments, and estimates, including forecasted earnings, future taxable income, and the relative proportions of revenue and income before taxes in the various domestic jurisdictions in which we operate.

We account for uncertainty in income taxes using a two-step process to determine the amount of tax benefit to be recognized. First, we evaluate the tax position to determine the likelihood that it will be sustained upon external examination. If the tax position is deemed “more-likely-than-not” to be sustained, we assess the tax position to determine the amount of benefit to recognize in the consolidated financial statements. The amount of the benefit we recognize is the largest amount that we believe has a greater than 50 percent likelihood of being realized upon ultimate settlement. Unrecognized tax benefits represent tax positions for which reserves have been established.

Earnings Per Share

We compute basic earnings per share using the weighted-average number of common shares outstanding during the periods.  We compute diluted earnings per share using the weighted-average number of common shares outstanding plus the number of common shares that would be issued assuming conversion of all potentially dilutive common shares outstanding.

Awards of non-vested restricted stock and options are considered potentially dilutive common shares for the purpose of computing earnings per common share.  We apply the treasury stock method to non-vested options under which the assumed proceeds include the amount the employee must pay to exercise the option plus the amount of unrecognized cost attributable to future periods less any expected tax benefits.

Recent accounting pronouncements

ASU 2017-04, Intangibles – Goodwill and Other (issued January 2017) - To simplify the subsequent measurement of goodwill, Step 2 was eliminated from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in this update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. Any loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. This update also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. Therefore, the same impairment assessment applies to all reporting units. An entity is required to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. A public business entity that is a SEC filer is required to adopt the amendments in this update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. We expect that the application of the provisions of this update will not have a material effect on our consolidated financial statements.

ASU 2016-15, Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments (issued June 2016) - This pronouncement provides guidance as to the treatment of transactions in a statement of cash flows with respect to eight specific cash flow issues. During 2017 and 2016, we had no transactions of the type cited in the statement and do not anticipate having any such transactions in the foreseeable future. Accordingly we do not expect this pronouncement to have a material effect on how we present items in our statement of cash flows.

ASU 2016-13, Financial Instruments – Credit Losses (issued June 2016) - Among the provisions of this ASU is a requirement that assets measured at amortized cost, which includes trade accounts receivable, be presented at the net amount expected to be collected. This pronouncement requires that an entity reflect all of its expected credit losses based on current estimates which will replace the current standard requiring that an entity need consider only past events and current conditions in measuring an incurred loss. We are subject to this guidance effective with financial statements we issue for the year ending December 31, 2020, and the quarterly periods during that year. We do not expect the amounts we report as accounts receivable in those future periods under this guidance to be materially affected relative to current guidance.

ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (issued March 2016) – This standard discontinued the recording in equity of tax benefits or tax deficiencies that arise from differences between share-based payment compensation expense recorded for financial statement purposes and that expense deductible for tax purposes. This new standard requires that the tax effect of all such differences be recorded and reported in the statement of operations. This standard also requires that tax-related cash flows resulting from share-based payments be reported as operating activities in the statement of cash flows which is a change from the current requirement to present such tax-related items as an inflow from financing activities and an outflow from operating activities. As prescribed by this standard, we adopted it beginning January 1, 2017, and followed it in the preparation of our consolidated financial statements as of March 31, 2017, and for the three months then ended.

This standard also permits an accounting policy election for the impact of forfeitures on the recognition of expense for share-based payment awards. Forfeitures may be either estimated (as has been the requirement in the past) or recognized when they occur. We elected to continue estimating forfeitures consistent with our existing practices thereby resulting in no change to our application of GAAP for this aspect of computing share-based compensation.

ASU 2016-02, Leases (issued February 2016) - The main difference between existing GAAP and this ASU 2016-02 is the presentation by lessees on their financial statements of lease assets and lease liabilities arising from operating leases. Since this new standard retains the distinction between finance and operating leases, the effect of leases in the statement of operations and the statement of cash flows will be largely unchanged from existing GAAP. Our only lease of significance is our operating lease for our corporate office space for which we will present a right-to-use asset and a lease liability on our consolidated balance sheet when we implement this standard. We are in the process of determining those amounts. In accordance with this standard, we will implement it beginning with our interim and annual financial statements for 2019. The extent of the effect of this standard on our consolidated financial statements for 2019 and later will depend upon the leases, if any, that we have in effect at that date.

ASU 2015-17, Income Tax: Balance Sheet Classification of Deferred Taxes (issued November 2015) - This pronouncement requires that all deferred tax assets and liabilities for a tax jurisdiction, along with any related valuation allowance, be classified as noncurrent on the balance sheet. We have implemented this ASU in the accompanying consolidated financial statements in the manner described in Note 9 below.

ASU 2014-09, Revenue from Contracts with Customers (issued May 2014) - The core principle of this guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects consideration to which the entity expects to be entitled in exchange for those goods or services. We will implement these new principles effective with consolidated financial statements we issue for the year ending December 31, 2018, and the quarterly periods during that year.

We have assessed the effect of ASU 2014-09 on the amount and timing of revenue we expect to recognize from our business activities in 2018 and later. We do not expect there to be material differences in the amount and timing of revenue we recognize from similar business activities in future periods determined by applying ASU 2014-09 as compared to revenue we would have otherwise recognized by applying GAAP as it existed prior to 2018.

We have determined that the application of ASU 2014-09 will have a material effect on the timing of our recording of expenses resulting from the incremental costs we incur to obtain a contract with a customer to deliver goods and services. These incremental costs consist primarily of sales commissions paid to our sales people and royalties on certain of our products paid to third parties. For years ended December 31, 2017 and earlier, we recorded the full amount of the sales commission and royalties paid on the full value of an M&S or SaaS contract as an expense on the inception date of the M&S contract. Under ASU 2014-09, we will account for such costs we incur in 2018 and later as follows:

· If these costs are associated with products and services for which we recognize revenue at a point in time (primarily sales of perpetual software licenses and professional services), we will expense these costs in full at the time we recognize that revenue.

· If these costs are associated with services for which we recognize revenue over time (primarily sales of M&S and SaaS subscriptions) for which we believe it is likely that the contract for those services will be renewed for additional terms in the future, provided we deem these costs to be recoverable, we will record these costs as deferred expense asset and amortize that cost to expense as follows:

o For the portion of the cost that we determine benefits us primarily only over the term of the specific underlying contract currently in force (such as the term of an M&S contract), we will recognize expense ratably each month over that term.

o For the portion of the cost that we determine benefits us over an overall customer relationship that is likely to span period of time that is longer than an initial contract term (for example, an M&S contract renewed for multiple terms in the future), we will recognize expense ratably monthly over the estimated life of the customer relationship.

Our application of ASU 2014-09 to incremental costs we incur to obtain a contract with a customer will result in us recording, as an asset as of January 1, 2018, a deferred expense of $1.2 million applicable to contracts with customers in effect as of that date. We previously reported this amount as an expense in our financial statements for periods ending on and before December 31, 2017. We estimate that we will amortize this amount to expense at the rate of approximately $186,000 per quarter beginning in 2018. The incremental costs we incur to obtain contracts with customers during 2018 and later years, and the amount of such costs we record as a deferred expense and amortize to expense in subsequent periods, will depend upon the nature and scope of our future business activities, the nature and mix of the products and services we sell, the compensation plans we have in place for our sales people, and the royalty arrangements we enter into with third parties.

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4. Certificates of Deposit

3 Months Ended

Mar. 31, 2017

Cash and Cash Equivalents [Abstract]

Cash and Cash Equivalents Disclosure [Text Block]

4.           Certificates of Deposit

Our certificates of deposit are held at a bank and mature at various dates through December 2021. Certificates of deposit with contractual maturity dates less than one year from the balance sheet date are presented as current assets.  Certificates of deposit with contractual maturity dates beyond one year from the balance sheet date are presented as non-current assets.

We have the ability to hold these certificates of deposit until their maturity dates and as of the date of this report intend to do so. We measure these investments on a recurring basis using Level 1 of the fair value hierarchy prescribed by GAAP which results in them being presented at original cost plus accrued interest earned. There is no amortization of original cost associated with our certificates of deposit.

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5. Accounts Receivable, Net

3 Months Ended

Mar. 31, 2017

Receivables [Abstract]

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

5.           Accounts Receivable, Net

We bill our customers and issue them an invoice when we have delivered our goods or services to them. In addition, when our customers agree to purchase or renew M&S services, we bill and invoice our customers at that time, which could be before the date we begin delivering those services. In that event, we exclude from accounts receivable (and from the related deferred revenue, see Note 3) the invoices we have issued for which the M&S services commencement date is in the future and which have not been paid by the customer as of the date of our consolidated financial statements. Accordingly, we determine our accounts receivable, net, as follows ($ in thousands):

	March 31, 2017			December 31, 2016
Total invoices issued and unpaid	$	5,633		$	6,932
Less: Unpaid invoices relating to M&S contracts with a start date subsequent to the balance sheet date		(410	)		(381	)
Gross accounts receivable		5,223			6,551
Allowance for sales returns and doubtful accounts		(278	)		(263	)
Accounts receivable, net	$	4,945		$	6,288

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6. Capitalized Software Development Costs, Net

3 Months Ended

Mar. 31, 2017

Disclosure Text Block [Abstract]

Intangible Assets Disclosure [Text Block]

6.  Capitalized Software Development Costs, Net

Our capitalized software development costs balances and activities were as follows: ($ in thousands):

	March 31,			December 31,
	2017			2016
Gross capitalized cost	$	7,714		$	7,252
Accumulated amortization		(3,983	)		(3,509	)
Capitalized software development costs, net	$	3,731		$	3,743

	Three Months Ended March 31,
	2017			2016
Amount capitalized	$	462		$	488
Amortization expense		(474	)		(430	)

	Released			Unreleased
	Products			Products
Gross capitalized amount at March 31, 2017	$	6,171		$	1,543
Accumulated Amortization		(3,983	)		-
Net	$	2,188		$	1,543

Future amortization expense:
Nine months ending December 31, 2017		1,116
Year ending December 31,
2018		856
2019		216
2020		-
Total	$	2,188

The future amortization expense of the gross capitalized software development costs related to unreleased products will be determinable at a future date when those products are ready for general release to the public.

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7. Deferred Revenue

3 Months Ended

Mar. 31, 2017

Deferred Revenue Disclosure [Abstract]

Deferred Revenue Disclosure [Text Block]

7.          Deferred Revenue

As described in Note 5 regarding accounts receivable, when our customers agree to purchase or renew M&S services, we bill and invoice our customers at that time which could be before the date we begin delivering those services. In that event, we exclude from deferred revenue (and from the related accounts receivable) the invoices we have issued for which the M&S services commencement date is in the future and which have not been paid by the customer as of the date of our consolidated financial statements. Accordingly, we determine our deferred revenue as follows ($ in thousands):

	March 31, 2017			December 31, 2016
Total invoiced for M&S contracts for which revenue will be recognized in future periods	$	16,732		$	17,826
Less: Unpaid invoices relating to M&S contracts with a start date subsequent to the balance sheet date		(410	)		(381	)
Total deferred revenue	$	16,322		$	17,445
Deferred revenue, current portion	$	12,704		$	13,655
Deferred revenue, non-current portion		3,618			3,790
Total deferred revenue	$	16,322		$	17,445

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8. Stock Options, Restricted Stock and Share-Based Compensation

3 Months Ended

Mar. 31, 2017

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

8.           Stock Options, Restricted Stock and Share-Based Compensation

We have stock-based compensation plans under which we have granted, and may grant in the future, incentive stock options, non-qualified stock options, and restricted stock to employees and non-employee members of the Board of Directors. Our share-based compensation expense was as follows ($ in thousands):

	Three Months Ended March 31,
	2017		2016
Share-based compensation expense	$	337	$	239

Stock Options

We have granted stock options to our officers and employees under long-term equity incentive plans that originated in 2000, 2010 and 2016. During the 2017 quarter, we granted stock options only under the 2016 plan.

Provisions and characteristics of the options granted to our officers and employees under our long-term equity incentive plans include the following:

· The exercise price, term and other conditions applicable to each stock option or stock award granted are determined by the Compensation Committee of the Board of Directors.

· The exercise price of stock options is set on the grant date and may not be less than the fair market value per share of our stock at market close on that date.

· Stock options we issue generally become exercisable ratably over a three-year period, expire ten years from the date of grant, and are exercisable for a period of ninety days after the end of employment.

· Upon exercise of a stock option, we issue new shares from the shares of common stock we are authorized to issue.

We currently issue stock-based awards to our officers and employees only under the 2016 plan which authorizes the issuance of up to 5,000,000 shares of common stock for stock-based incentives including stock options and restricted stock awards. As of March 31, 2017, stock-based incentives for up to 4,329,500 shares remained available for issuance in the future under this plan.

We have not previously issued any restricted stock under any of these plans.

Our stock option activity has been as follows:

				Weighted
				Average		Weighted Average		Aggregate
				Exercise		Remaining		Intrinsic
	Number of			Price		Contractual		Value
	Shares			Per Share		Term in Years		(000’s)
Outstanding at December 31, 2016		2,407,005		$	3.00		7.19	$	2,574
Granted		660,000		$	3.76
Forfeited		(86,080	)	$	3.87
Exercised		(49,500	)	$	1.82
Outstanding at March 31, 2017		2,931,425		$	3.17		6.93	$	2,238
Exercisable at March 31, 2017		1,245,214		$	2.59		3.89	$	1,681

Additional information about our stock options is as follows:

	Three Months Ended March 31,
	2017		2016
Weighted average fair value of options granted	$	1.57	$	1.67
Intrinsic value of options exercised	$	100,386	$	71,745
Cash received from stock options exercised	$	90,114	$	121,671
Number of options that vested		295,124		193,866
Fair value of options that vested	$	479,742	$	289,463
Unrecognized compensation expense related to non-vested options at end of period	$	2,383,732	$	1,769,538
Weighted average years over which non-vested option expense will be recognized		2.34		2.43

As of March 31, 2017
				Options Outstanding				Options Exercisable
				Weighted
				Average		Weighted				Weighted
		Underlying		Remaining		Average		Number of		Average
Range of		Shares		Contractual		Exercise		Underlying		Exercise
Exercise Prices		Outstanding		Life		Price		Shares		Price
$	0.85 - $1.43		87,100		2.47	$	1.07		87,100	$	1.07
$	1.47 - $2.32		459,745		2.67	$	1.83		458,385	$	1.83
$	2.34 - $3.52		1,144,680		7.29	$	3.22		525,179	$	3.02
$	3.53 - $4.25		1,239,900		8.50	$	3.76		174,550	$	4.05
Total options			2,931,425						1,245,214

We used the following assumptions to determine compensation expense for our stock options using the Black-Scholes option-pricing model:

	Three Months Ended March 31,
	2017			2016
Expected volatility		49	%		56	%
Expected annual dividend yield		1.50	%		1.50	%
Risk free rate of return		1.94	%		1.53	%
Expected option term (years)		6.00			6.00

Restricted Stock Awards

Our 2015 Non-Employee Directors Long-Term Equity Incentive Plan (“2015 Directors Plan”) provides for the issuance of either stock options or restricted stock awards for up to 500,000 shares of our common stock. Provisions and characteristics of this plan include the following:

· The exercise price, term and other conditions applicable to each stock option or stock award granted are determined by the Compensation Committee of the Board of Directors.

· Restricted stock awards are initially issued as restricted shares with a legend restricting transferability of the shares until the recipient satisfies the vesting provision of the award, which is generally continuing service for one year subsequent to the date of the award, after which time the restrictive legend is removed from the shares.

· Restricted shares participate in dividend payments and may be voted.

· As of March 31, 2017, stock based incentives for up to 340,000 shares remained available for issuance in the future under this plan.

Our restricted stock awards activity has been as follows:

					Total
			Grant Date		Fair Value of
	Number of		Fair Value		Shares That
	Shares		Per Share		Vested
Restricted shares outstanding at December 31, 2016		80,000	$	3.31
Shares granted with restrictions		-	$	-
Shares vested and restrictions removed		-	$	-	$	-
Restricted shares outstanding at March 31, 2017		80,000	$	3.31
Unrecognized compensation expense for non-vested shares as of March 31, 2017
Expense to be recognized in future periods	$	25,322
Weighted average number of months over which expense is expected to be recognized		1.2

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9. Income Taxes

3 Months Ended

Mar. 31, 2017

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

9.           Income Taxes

The components of our income tax expense (benefit) are as follows ($ in thousands):

	Three months ended March 31,
	2017							2016
	Current		Deferred			Total		Current		Deferred			Total
Federal	$	390	$	(22	)	$	368	$	218	$	(7	)	$	211
State		44		(1	)		43		21		(12	)		9
Total	$	434	$	(23	)	$	411	$	239	$	(19	)	$	220

Deferred income taxes on our consolidated balance sheet reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.  Significant components of our deferred tax assets and liabilities are as follows ($ in thousands):

	March 31,			December 31,
	2017			2016
Deferred tax assets:
Deferred revenue	$	1,280		$	1,229
Capital loss carryforward		1,099			1,099
Share-based compensation		623			578
Compensation and benefits		229			278
Texas franchise tax R&D credit		156			153
Allowance for doubtful accounts		94			114
Net operating loss carryforward		76			91
Other		57			56
Less Valuation Allowances:
Capital loss carryforward		(1,099	)		(1,099	)
Texas franchise tax R&D credit		(156	)		(153	)
Total deferred tax assets		2,359			2,346
Deferred tax liabilities:
Intangible assets		1,285			1,289
Depreciation		1			7
Total gross deferred tax liabilities		1,286			1,296
Net deferred tax assets	$	1,073		$	1,050

In assessing the realizability of deferred tax assets, we consider whether it is more-likely-than-not that a deferred tax asset will not be realized.  Our assessment of the likelihood of having sufficient taxable income in the future to support deduction or utilization of the items giving rise to our deferred tax assets indicates it is more-likely-than-not that we will realize the deferred tax assets listed in the table above.

As of March 31, 2017, we had federal income tax net operating loss carryforwards of $225,000 available to offset future federal taxable income, if any. These carryforwards became available through our acquisition of TappIn, Inc. in 2011.  These carryforwards expire in 2030 and 2031.

As of March 31, 2017, we had federal income tax capital loss carryforwards of $3,231,000 which resulted from the reduction of our investments in and notes receivable from CoreTrace Corporation in 2012.  We can realize capital loss carryforwards to the extent we have capital gains in future periods against which this capital loss can be deducted.  We believe it uncertain that we will have sufficient capital gains in the future to support this deduction and accordingly have provided a valuation allowance for the full amount of this carryforward. This carryforward expires in 2017.

As of March 31, 2017, we had Texas R&D tax credit carryforwards of $156,000.  We can realize Texas R&D tax credit carryforwards to the extent we have sufficient Texas Franchise Tax in future years.  We believe it uncertain that we will have sufficient Texas Franchise Tax in the future to support utilization of these credits and, accordingly, have provided a valuation allowance for the full amount of this carryforward.  These carryforwards expire in 2034 through 2036.

We claim research and experimentation tax credits, or R&D tax credits, on certain of our tax returns and have included the effect of those credits in our provision for income taxes. A routine examination of our 2008, 2009 and 2010 federal income tax returns conducted and completed by the Internal Revenue Service resulted in the amount of the R&D tax credits allowed for those years being less than the amounts we claimed on those federal income tax returns. If the Internal Revenue Service examines our federal income tax returns for 2011 and later years, we believe they may apply their same criteria to the R&D tax credits we claimed on those tax returns. Accordingly, we believed it more-likely-than-not that the R&D tax credit allowed for those years may be less than the amounts we have claimed.  As a result, we maintain a reserve for an uncertain tax position for this matter in the amount of $141,000 as of March 31, 2017.

The aggregate changes in the balance of our gross unrecognized tax benefits were as follows ($ in thousands):

	Three Months Ended March 31,
	2017		2016
Balance at beginning of period	$	121	$	90
Increases for tax positions related to the current year		15		6
Increases for tax positions related to prior years		6		-
Balance at end of period	$	142	$	96

We believe it reasonably possible that we will not recognize any of our unrecognized tax benefits at least through March 31, 2017. If we realized and recognized any of our gross unrecognized tax benefits, such benefits would reduce our effective tax rate in the year of recognition.

We are subject to taxation in the United States and in multiple state jurisdictions. Our federal income tax returns for 2015, 2014 and 2013 are subject to examination by the Internal Revenue Service.  Our amended federal income tax returns for 2012 and 2011 are subject to examination with the amount of any claim for payment of additional taxes limited to the amount by which the tax due on those amended returns was less than the tax due on the returns for those years as originally filed.  Our state tax returns are subject to examination for varying periods of time by numerous state taxing authorities. Currently, none of our federal or state income tax returns are under examination.

To the extent they arise, we record interest and penalty expenses related to income taxes as components of other expense in our statement of operations.  We incurred no such expenses in the 2017 quarter or the 2016 quarter.

We file state tax returns in various states.  The taxes resulting from these filings are included in income tax expense.

Our income tax expense reconciles to an income tax expense resulting from applying an assumed statutory federal income rate of 34% to income before income taxes as follows ($ in thousands):

	Three months ended March 31,
	2017			2016
Income tax expense at federal statutory rate	$	422		$	205
Increase (decrease) in taxes resulting from:
State taxes, net of federal benefit		28			10
Stock based compensation		60			16
Other		7			35
R&D tax credit uncertain tax position (net)		(65	)		(32	)
Research and development credit		(30	)		6
Domestic production activities deduction		(11	)		(20	)
Income tax expense per the statements of operations	$	411		$	220

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10. Earnings per Common Share

3 Months Ended

Mar. 31, 2017

Earnings Per Share [Abstract]

Earnings Per Share [Text Block]

10.          Earnings per Common Share

Earnings per share for the periods indicated were as follows ($ in thousands, except per share amounts):

	Three Months Ended
	March 31,
	2017		2016
Numerators
Numerator for basic and diluted earnings per share:
Net income	$	831	$	383
Denominators
Denominators for basic and diluted earnings per share:
Weighted average shares outstanding - basic		21,544		21,033
Dilutive potential common shares
Stock options and awards		479		619
Denominator for diluted earnings per share		22,023		21,652
Net income per common share - basic	$	0.04	$	0.02
Net income per common share – diluted	$	0.04	$	0.02

As a result of our implementation of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (issued March 2016), the estimated proceeds resulting from equity compensation deductible for federal income tax purposes being greater than the associated share-based compensation expense are no longer considered as part of the treasury stock method used in computing diluted earnings per share. This change had no material effect on our earnings per share computations.

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11. Dividends

3 Months Ended

Mar. 31, 2017

Dividends [Abstract]

Dividends [Text Block]

11.          Dividends

We paid dividends as follows:

	Three Months Ended March 31,
	2017		2016
Dividend per share of common stock	$	0.015	$	0.015
Dividend record date	February 23, 2017		February 23, 2016
Dividend payment date	March 8, 2017		March 8, 2016

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12. Commitments and Contingencies

3 Months Ended

Mar. 31, 2017

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies Disclosure [Text Block]

12.          Commitments and Contingencies

Severance Payments

We have agreements with key personnel that provide for severance payments to them in the event of a change in control of the Company, as defined in those agreements, and their employment is terminated in connection with that change in control. In such event, our aggregate severance payments to those employees would be $1.9 million.

Legal and Regulatory Matters

GlobalSCAPE had been named as one of a number of defendants in a patent infringement suit filed by Digital Reg of Texas, LLC in the United States District Court for the Eastern District of Texas, Tyler Division. The complaint alleged that we infringed on a patent that regulates access to digital content. In February 2017, we settled this matter for an amount that was immaterial to our financial position and results of operations.

As previously disclosed in the Company’s Current Report on Form 8-K filed on November 15, 2017, on August 9, 2017, a securities class action complaint, Anthony Giovagnoli v. GlobalSCAPE, Inc., et. al., Case No. 5:17-cv-00753, was filed against the Company in the United States District Court for the Western District of Texas. The complaint names as defendants the Company, Matthew Goulet, and James Albrecht for allegedly making materially false and misleading statements regarding, inter alia, the Company’s previously reported financial statements. The complaint alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 10b-5 promulgated thereunder. The complaint seeks unspecified damages, costs, attorneys’ fees, and equitable relief. On November 6, 2017, the Court appointed a lead plaintiff, who has agreed to file an amended complaint following the completion of the Restatement. Management intends to vigorously defend against this action. At this time, the Company cannot predict how the courts will rule on the merits of the claims and/or the scope of the potential loss in the event of an adverse outcome. Should the Company ultimately be found liable, the resulting damages could have a material adverse effect on its financial position, liquidity, or results of operations.

On October 20, 2017, the Company received a demand letter from a stockholder seeking the inspection of books and records of the Company pursuant to Section 220 of the Delaware General Corporation Law (the “Section 220 Demand”). This stockholder’s stated purpose for the demand is, inter alia, to investigate whether the Company’s Board of Directors and officers engaged in an illegal scheme to misrepresent the Company’s performance by falsely reporting accounts receivable, license revenue, total current assets and total assets, total stockholders’ equity, and total liabilities for the year ended December 31, 2016, as well as the Board’s independence to consider a stockholder derivative demand. The Company intends to fully respond to the Section 220 Demand to the extent required under Delaware law.

The Board has established a special litigation committee (“Special Litigation Committee”) consisting of Dr. Thomas Hicks and Frank Morgan to analyze and investigate claims that could potentially be asserted in stockholder derivative litigation related to facts connected to the claims and allegations asserted in the litigation related to the Restatement and the Section 220 Demand (the “Potential Derivative Litigation”). The Special Litigation Committee will determine what actions are appropriate and in the best interests of the Company, and decide whether it is in the best interests of the Company to pursue, dismiss, or consensually resolve any claims that may be asserted in the Potential Derivative Litigation. The Board determined that each member of the Special Litigation Committee is disinterested and independent with respect to the Potential Derivative Litigation. Among other things, the Special Litigation Committee has the power to retain counsel and advisors, as appropriate, to assist it in the investigation, to gather and review relevant documents relating to the claims, to interview persons who may have knowledge of the relevant information, to prepare a report setting forth its conclusions and recommended course of action with respect to the Potential Derivative Litigation, and to take any actions, including, without limitation, directing the filing and prosecution of litigation on behalf of the Company, as the Special Litigation Committee in its sole discretion deems to be in the best interests of the Company in connection with the Potential Derivative Litigation. The Special Litigation Committee’s findings and determinations shall be final and not subject to review by the Board and in all respects shall be binding upon the Company.

As disclosed in a Current Report on Form 8-K filed on March 16, 2018, the Fort Worth, Texas Regional Office of the SEC has opened a formal investigation of issues relating to the Restatement, with which the Company is cooperating fully.  At this time, the Company is unable to predict the duration, scope, result or related costs associated with the SEC’s investigation.  The Company is also unable to predict what, if any, action may be taken by the SEC, or what penalties or remedial actions the SEC may seek.  Any determination by the SEC that the Company’s activities were not in compliance with existing laws or regulations, however, could result in the imposition of fines, penalties, disgorgement, equitable relief, or other losses, which could have a material adverse effect on the Company’s financial position, liquidity, or results of operations.

On May 31, 2018, the Company was served with a subpoena issued by a grand jury sitting in the United States District Court for the Western District of Texas (the “Grand Jury Subpoena”). The Grand Jury Subpoena requests all documents and emails relating to the Company’s investigation of the potential improper recognition of software license revenue.  The Company intends to fully cooperate with the Grand Jury Subpoena and related investigation being conducted by the United States Attorney’s Office for the Western District of Texas (the “U.S. Attorney’s Investigation”).  At this time, the Company is unable to predict the duration, scope, result or related costs of the U.S. Attorney’s Investigation.  The Company is also unable to predict what, if any, further action may be taken in connection with the Grand Jury Subpoena and the U.S. Attorney’s Investigation, or what, if any, penalties, sanctions or remedial actions may be sought.  Any determination by the U.S. Attorney’s office that the Company’s activities were not in compliance with existing laws or regulations, however, could result in the imposition of fines, penalties, disgorgement, equitable relief, or other losses, which could have a material adverse effect on the Company’s consolidated financial position, liquidity, or results of operations.

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13. Concentration of Business Volume and Credit Risk

3 Months Ended

Mar. 31, 2017

Risks and Uncertainties [Abstract]

Concentration Risk Disclosure [Text Block]

13.          Concentration of Business Volume and Credit Risk

In order to leverage the resources of third parties, we make our products available for purchase by end users through third-party, channel distributors even though those end users can also purchase those products directly from us. In both the 2017 quarter and 2016 quarter, we earned approximately 14% of our revenue from such sales through our largest, third party, channel distributor. As of March 31, 2017, approximately 16% of our accounts receivable were due from this channel distributor with payment for substantially all such amounts having been received subsequent to that date.

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14. Segment and Geographic Disclosures

3 Months Ended

Mar. 31, 2017

Segment Reporting [Abstract]

Segment Reporting Disclosure [Text Block]

14.          Segment and Geographic Disclosures

In accordance with FASB ASC Topic 280, Segment Reporting, we view our operations and manage our business as principally one segment. As a result, the financial information disclosed herein represents all of the material financial information related to our principal operating segment.

Revenues derived from customers and partners located in the United States accounted for approximately 78% and 73% of our total revenues in the 2017 and 2016 quarters, respectively.  The remaining revenues were from customers and partners located in foreign countries with each individual foreign country accounting for less than 10% of total revenues in all periods.  We attribute revenues to countries based on the country in which the customer or partner is located. None of our property and equipment was located in a foreign country as of March 31, 2017.

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15. Restatement

3 Months Ended

Mar. 31, 2017

Accounting Changes and Error Corrections [Abstract]

Accounting Changes and Error Corrections [Text Block]

15.          Restatement

The Company has concluded that its previously issued consolidated financial statements for the three months ended March 31, 2017 should be restated due to misstatements related to certain revenue transactions incorrectly recognized during the year ended December 31, 2016 as well as other transactions identified during the Audit Committee’s  investigation and management’s analysis and for certain changes in the Company’s accounting methods, reclassifications and revisions as discussed in Note 3 to these condensed consolidated financial statements.

The three months ended March 31, 2016 have been revised due to immaterial adjustments related to the Audit Committee’s investigation and management’s analysis and for certain changes in the Company’s accounting methods, reclassifications and revisions as discussed in Note 3 to these condensed consolidated financial statements.

The impact of all of the misstatements described above on the condensed consolidated financial statements as of and for the three months ended March 31, 2017 and 2016 are as follows:

GlobalSCAPE, Inc.

Condensed Consolidated Balance Sheet

March 31, 2017

(in thousands except share amounts)

(Unaudited)

	Previously Reported			Adjustments			As Revised
Assets
Current assets:
Cash and cash equivalents	$	10,400			-		$	10,400
Short term certificates of deposit		2,759			-			2,759
Accounts receivable, net		5,499			(554	)		4,945
Federal income tax receivable		-			-			-
Prepaid and other expenses		492						492
Total current assets		19,150			(554	)		18,596
Long term certificates of deposit		12,837			-			12,837
Capitalized software development costs, net		3,731			-			3,731
Goodwill		12,712			-			12,712
Deferred tax asset, net		1,190			(117	)		1,073
Property and equipment, net		577			-			577
Other assets		64						64
Total assets	$	50,261		$	(671	)	$	49,590
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	657			(17	)	$	640
Accrued expenses		1,928			(232	)		1,696
Income tax payable		474			(259	)		215
Deferred revenue		12,704			-			12,704
Total current liabilities		15,763			(508	)		15,255
Deferred revenue, non-current portion		3,618			-			3,618
Other long term liabilities		163			6			169
Commitments and contingencies
Stockholders’ equity:
Preferred stock, par value $0.001 per share, 10,000,000 shares authorized, no shares issued or outstanding		-			-			-
Common stock, par value $0.001 per share, 40,000,000 shares authorized, 21,970,412 shares issued		22			-			22
Additional paid-in capital		22,064			119			22,183
Treasury stock, 403,581 shares, at cost		(1,452	)					(1,452	)
Retained earnings		10,083			(288	)		9,795
Total stockholders’ equity		30,717			(169	)		30,548
Total liabilities and stockholders’ equity	$	50,261		$	(671	)	$	49,590

GlobalSCAPE, Inc.

Condensed Consolidated Statement of Operations and Comprehensive Income

For the Three Months Ended March 31, 2017

(In thousands, except per share amounts)

(Unaudited)

	Previously Reported		Adjustment			As Revised
Operating Revenues:
Software licenses	$	2,464	$	114			2,578
Maintenance and support		5,121		-			5,121
Professional services		733		-			733
Total Revenues		8,318		114			8,432
Cost of revenues
Software licenses		736		22			758
Maintenance and support		412		1			413
Professional services		377		(13	)		364
Total cost of revenues		1,525		10			1,535
Gross profit		6,793		104			6,897
Operating expenses
Sales and marketing		3,330		(41	)		3,289
General and administrative		1,721		(7	)		1,714
Research and development		739		(17	)		722
Total operating expenses		5,790		(65	)		5,725
Income from operations		1,003		169			1,172
Other income		70		-			70
Income before income taxes		1,073		169			1,242
Income tax expense		322		89			411
Net income	$	751	$	80		$	831
Comprehensive income	$	751	$	80		$	831
Net income per common share:
Basic	$	0.03	$	-		$	0.04
Diluted	$	0.03	$	-		$	0.04
Weighted average shares outstanding:
Basic		21,544					21,544
Diluted		22,023					22,023
Cash dividends declared per share	$	0.015				$	0.015

GlobalSCAPE, Inc.

Condensed Consolidated Statement of Cash Flows

For the Three Months Ended March 31, 2017

(in thousands)

(Unaudited)

	Previously Reported			Adjustment			As Revised
Operating Activities:
Net income	$	751		$	80		$	831
Items not involving cash at the time they are recorded in the statement of operations:
Provision for sales returns and doubtful accounts receivable		11			-			11
Depreciation and amortization		541			-			541
Share-based compensation		324			13			337
Deferred taxes		(248	)		225			(23	)
Excess tax benefit from share-based compensation		-			-			-
Subtotal before changes in operating assets and liabilities		1,379			318			1,697
Changes in operating assets and liabilities:
Accounts receivable		1,454			(122	)		1,332
Prepaid expenses		29			10			39
Deferred revenue		(1,123	)		-			(1,123	)
Accounts payable		(219	)		(71	)		(290	)
Accrued expenses		92			1			93
Other assets		181			-			181
Accrued interest receivable		(63	)		-			(63	)
Other long-term liabilities		16			1			17
Income tax receivable and payable		643			(136	)		507
Net cash provided by operating activities		2,389			1			2,390
Investing Activities:
Software development costs capitalized		(462	)		-			(462	)
Purchase of property and equipment		(188	)		-			(188	)
Net cash (used in) investing activities		(650	)		-			(650	)
Financing Activities:
Proceeds from exercise of stock options		90			-			90
Excess tax benefit from share-based compensation		-			-			-
Dividends paid		(324	)		(1	)		(325	)
Net cash (used in) financing activities		(234	)		(1	)		(235	)
Net increase in cash		1,505			-			1,505
Cash at beginning of period		8,895			-			8,895
Cash at end of period	$	10,400		$	-		$	10,400
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	-		$	-		$	-
Income taxes	$	15		$	-		$	15

Condensed Consolidated Balance Sheet

(in thousands)

As of March 31, 2016

	As Previously Reported			Adjustments			As Revised
Assets
Current assets:
Cash and cash equivalents	$	16,324					$	16,324
Short term investments		3,270						3,270
Accounts receivable, net		5,340			(365	)		4,975
Federal income tax receivable		35			315			350
Prepaid and other expenses		477						477
Total current assets		25,446			(50	)		25,396
Long term investments
Property and equipment, net		517						517
Capitalized software development costs, net		4,040						4,040
Goodwill		12,712						12,712
Deferred tax asset, net		959						959
Other assets		38						38
Total assets	$	43,712		$	(50	)	$	43,662
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		489			(5	)		484
Accrued expenses		1,621			(55	)		1,566
Deferred revenue		11,672			318			11,990
Income taxes payable		34			(34	)		-
Total current liabilities		13,816			224			14,040
Deferred revenue, non-current portion		3,718			144			3,862
Other long term liabilities		41			96			137
								-
Stockholders’ Equity:								-
Preferred stock		-						-
Common stock		21						21
Additional paid-in capital		19,930			81			20,011
Treasury stock		(1,452	)					(1,452	)
Retained earnings		7,638			(595	)		7,043
Total stockholders’ equity		26,137			(514	)		25,623
Total liabilities and stockholders’ equity	$	43,712		$	(50	)	$	43,662

Condensed Consolidated Statement of Operations and Comprehensive Income

(in thousands, except per share amounts)

For the Three Months Ended March 31, 2016

	As Previously Reported		Adjustments			As Revised
Operating revenues:
Software licenses	$	2,299	$	(36	)	$	2,263
Maintenance and support		4,497		(51	)		4,446
Professional services		614		28			642
Total revenues		7,410		(59	)		7,351
Costs of revenues
Software licenses		630		(4	)		626
Maintenance and support		394		-			394
Professional services		569		(146	)		423
Total costs of revenues		1,593		(150	)		1,443
Gross Profit		5,817		91			5,908
Operating expenses
Sales and marketing		2,901		104			3,005
General and administrative		1,733		(46	)		1,687
Research and development		627		19			646
Total operating expenses		5,261		77			5,338
Income from operations		556		14			570
Other income (expense), net		33					33
Income before income taxes		589		14			603
Income tax expense		182		38			220
Net income	$	407	$	(24	)	$	383
Comprehensive income	$	407	$	(24	)	$	383
Net income per common share - basic	$	0.02	$	-		$	0.02
Net income per common share - diluted	$	0.02	$	-		$	0.02

Condensed Consolidated Statement of Cash Flows

(in thousands)

For the Three Months Ended March 31, 2016

	As Previously Reported			Adjustments			As Revised
Operating Activities:
Net income	$	407			(24	)	$	383
Adjustments to reconcile net income to net cash provided by operating activities:
Bad debt expense		43			(31	)		12
Depreciation and amortization		501						501
Stock-based compensation		222			17			239
Deferred taxes		(19	)					(19	)
Excess tax deficiency from exercise of share based compensation		(3	)					(3	)
Subtotal before changes in operating assets and liabilities		1,151			(38	)		1,113
Changes in operating assets and liabilities:
Accounts receivable		698			253			951
Prepaid expenses		34						34
Deferred revenues		(222	)		(194	)		(416	)
Accounts payable		(350	)		(5	)		(355	)
Accrued expenses		(272	)		(55	)		(327	)
Other assets		22						22
Accrued interest receivable		(16	)					(16	)
Other long-term liabilities		(3	)		6			3
Income tax receivable and payable		165			33			198
Net cash provided by (used in) operating activities		1,207			-			1,207
Investing Activities:
Software development costs		(488	)					(488	)
Purchase of property and equipment		(90	)					(90	)
Net cash provided by (used in) investing activities		(578	)		-			(578	)
Financing Activities:
Proceeds from exercise of stock options		122						122
Tax deficiency (benefit) from stock-based compensation		3						3
Dividends paid		(315	)					(315	)
Net cash provided by (used in)  financing activities		(190	)		-			(190	)
Net increase (decrease) in cash		439						439
Cash at beginning of period		15,885			-			15,885
Cash at end of period	$	16,324		$	-		$	16,324
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	-		$	-		$	-
Income taxes	$	22		$	-		$	22

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Accounting Policies, by Policy (Policies)

3 Months Ended

Mar. 31, 2017

Accounting Policies [Abstract]

Consolidation, Policy [Policy Text Block]

Principles of Consolidation

The accompanying condensed consolidated financial statements of GlobalSCAPE, Inc. and its wholly-owned subsidiary (collectively referred to as “GlobalSCAPE”, the “Company” or “we”) are prepared in conformity with GAAP.  All intercompany accounts and transactions have been eliminated.

Reclassification, Policy [Policy Text Block]

Changes in Accounting Methods, Reclassifications and Revisions

As part of our ongoing enhancement and refinement of our financial reporting to fairly present our results of operations and financial position, we may make changes from time-to-time in accounting methods and in the classification and presentation of our business activities in our financial statements. To ensure comparability between periods, we revise previous period financial statements presented to conform them to the method of presentation in our current period financial statements. If the changes increase or decrease previously reported amounts of revenue or expenses, we adjust retained earnings as of the beginning of the earliest period presented for the cumulative effect, if any, on that balance.  If these changes affect our financial statements for previously reported interim periods not presented herein, we present revised financial statements for those periods when they are reported in the future.

Method of Amortization of Deferred Revenue Related to M&S Contracts

In previously issued financial statements, for the fiscal years prior to 2016 and for the first three quarters of 2016, we amortized deferred revenue related to maintenance and support, or M&S, contracts by recording a full month of amortization in the first month of a contract. We used that method based on our intent to match revenue from our M&S contracts to the expense we incur when delivering M&S services. We acknowledge that the more common and widespread practice is to amortize deferred revenue based upon the specific number of days the M&S contract is in place during that month. Both methods result in the recognition of the same amount of revenue over the term of the M&S contract but yield differing amounts of revenue being recognized in the first month and last month of an M&S contract.

Commencing with the issuance of our consolidated financial statements as of December 31, 2016, and for the year then ended, we changed our method of amortizing deferred revenue related to M&S contracts such that our consolidated statements of operations and balance sheets included herein are now prepared using the specific number of days method. This change decreased M&S revenue and net income for the three months ended March 31, 2016 as reported herein by immaterial amounts relative to amounts previously reported for that period. This change increased deferred revenue as of March 31, 2016 by an immaterial amount relative to the amount previously reported as of that date. This change has no effect on the total amount of revenue we will realize from our M&S contracts.

Method of Recording M&S Billings

We may invoice a customer for M&S to be provided commencing on a date in a month subsequent to the month in which we invoice the customer. We typically receive a purchase order from our customers for M&S prior to invoicing them, and it is not uncommon for a customer to pay us in advance of that M&S commencement date either on their own or when we request such payment. Accordingly, in our consolidated balance sheets issued prior to 2016 and for the first three quarters of 2016, we recorded an account receivable and deferred revenue for these invoices as of the date of the invoice. Commencing with the preparation and issuance of our financial statements as of December 31, 2016, we determined that a reasonable, alternate and more conservative method would be to wait until the commencement date of the M&S contract had arrived to record the account receivable and deferred revenue for any such invoices for which we have not been paid as of the balance sheet date. Accordingly, our condensed consolidated balance sheet as of March 31, 2016, included herein is now prepared and presented using that method. This change had the effect of decreasing our reported amounts of accounts receivable and deferred revenue relative to the method we previously used but does not affect any of our reported amounts of revenue or net income.

Reclassification of Sales Engineer Expenses

We employ sales engineers who assist our sales staff in addressing technical considerations by our customers prior to their purchasing our product. Our use of sales engineers has expanded in recent quarters. Prior to 2016and for the first three quarters of 2016, we classified the expense of sales engineers as part of costs of revenue – professional services. Commencing with the preparation and issuance of our financial statements as of December 31, 2016, we began classifying these expenses as part of sales and marketing expense to more appropriately present the current nature of the activities of our sales engineers. This change has the effect of decreasing cost of revenue – professional services and increasing sales and marketing expense. It does not affect any of our reported amounts of revenue or net income.

Reclassification of Reserve for Uncertain Tax Position

As described in Note 9, we maintain a reserve for uncertain tax positions. Prior to 2016 and for the first three quarters of 2016, we classified that reserve as a current liability since it was not material to our financial statements taken as a whole. Commencing with the preparation of our financial statements as of December 31, 2016, we determined it appropriate to classify it as a component of other long term liabilities. This change has the effect of decreasing current income taxes payable and increasing other long term liabilities.

Reclassification of Professional Services Revenue

In preparing our condensed consolidated statement of operations and comprehensive income for the 2017 quarter, we changed the classification of certain revenue from M&S to professional services to better reflect the nature of that revenue. We have made the same reclassification in our condensed consolidated statement of operations and comprehensive income for the 2016 quarter presented herein.

See Note 15 in the Notes to our Consolidated Financial Statements included in Part I, Item 1 of this 10-Q/A for the impact of all of the adjustments to our consolidated financial statements in our Original Filing to correct those consolidated financial statements for the effects of the adjustments described above.

Revenue Recognition, Policy [Policy Text Block]

Revenue Recognition

We develop, market and sell software products. We recognize revenue from a sale transaction when the following conditions are met:

·          Persuasive evidence of an arrangement exists.

·          Delivery has occurred or services have been rendered.

·          The amount of the sale is fixed or determinable.

·          Collection of the sale amount is reasonably assured.

For a sale transaction not meeting any one of these four criteria, we defer recognition of revenue related to that transaction until all the criteria are met.

We earn the majority of our software license revenue from software products sold under perpetual software license agreements. At the time our customers purchase these products, they typically also purchase an M&S contract. These transactions are multiple element software sales for which we assess the presence of vendor specific objective evidence (“VSOE”) of the fair value of the undelivered elements to determine the portion of these sales to recognize as revenue upon delivery of the software product and the portion of these sales to record as deferred revenue at the time the product is delivered. We amortize the deferred revenue component to revenue in future periods on a straight-line method as we deliver the related future services to the customer. For transactions, if any, for which we cannot establish VSOE of the fair value of the undelivered elements, we initially record the entire transaction as deferred revenue and amortize that amount to revenue in future periods as we deliver the related future services to the customer.

We provide services under M&S contracts with terms generally ranging from one to three years. We require up-front payment of our M&S fee in an amount that covers the entire term of the agreement.  We record deferred revenue at the commencement date of the contract or when we receive payment, whichever occurs first.  We amortize the related deferred revenue over the term of the contract, based upon the specific number of days method. Deferred revenue related to services we will deliver within one year is presented as a current liability while deferred revenue related to services that we will deliver more than one year into the future is presented as a non-current liability. We reduce deferred revenue and recognize revenue ratably in future periods on a straight-line method as we deliver the M&S service.

For our products licensed and delivered under a software-as-a-service, or SaaS, transaction on a monthly or other periodic subscription basis, we recognize subscription revenue, including initial setup fees, on a monthly basis ratably over the contractual term of the customer contract as we deliver our products and services. Amounts paid prior to this revenue recognition are presented as deferred revenue until earned.

We provide professional services to our customers consisting primarily of software installation support, operations support and training. We recognize revenue from these services as they are completed and accepted by our customers.

We collect sales tax on many of our sales. We do not include sales tax collected in our revenue. We record it as a liability payable to taxing authorities.

Cash and Cash Equivalents, Policy [Policy Text Block]

Cash and cash equivalents

Cash and cash equivalents includes all cash and highly liquid investments with original maturities of three months or less.

Property, Plant and Equipment, Policy [Policy Text Block]

Property and Equipment

Property and equipment is comprised of furniture and fixtures, software, computer equipment and leasehold improvements which are recorded at cost and depreciated using the straight-line method over their estimated useful lives. Furniture, fixtures and equipment have a useful life of five to seven years, computer equipment and software have a useful life of three years and leasehold improvements have a useful life that is the shorter of the term of the lease under which the improvements were made or the estimated useful life of the asset.

Expenditures for maintenance and repairs are expensed as incurred.

Goodwill and Intangible Assets, Goodwill, Policy [Policy Text Block]

Goodwill

Goodwill is not amortized. On at least an annual basis, we test goodwill for impairment at the reporting unit level using December 31 as the measurement date. We operate as a single reporting unit.

When testing goodwill, we first assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of our reporting unit is less than its carrying amount, including goodwill. In performing this qualitative assessment, we assess events and circumstances relevant to us including, but not limited to:

• Macroeconomic conditions.

• Industry and market considerations.

• Cost factors and trends for labor and other expenses of operating our business.

• Our overall financial performance and outlook for the future.

• Trends in the quoted market value and trading of our common stock.

In considering these and other factors, we consider the extent to which any adverse events and circumstances identified could affect the comparison of our reporting unit’s fair value with its carrying amount. We place more weight on events and circumstances that most affect our reporting unit’s fair value or the carrying amount of our net assets. We consider positive and mitigating events and circumstances that may affect our determination of whether it is more likely than not that the fair value of our reporting unit is less than its carrying amount. We evaluate, on the basis of the weight of the evidence, the significance of all identified events and circumstances in the context of determining whether it is more likely than not that the fair value of our reporting unit is less than its carrying amount.

If, after assessing the totality of these qualitative events and circumstances, we determine it is not more likely than not that the fair value of our reporting unit is less than its carrying amount, we conclude there is no impairment of goodwill and perform no further testing, in accordance with GAAP. If we conclude otherwise, we proceed with performing the first step, and if necessary, the second step, of the two-step goodwill impairment test prescribed by GAAP.

As of December 31, 2016, after assessing the totality of the relevant events and circumstances, we determined it not more likely than not that the fair value of our reporting unit was less than its carrying amount. Accordingly, we concluded there was no impairment of goodwill as of that date. There have been no material events or changes in circumstances since that time indicating that the carrying amount of goodwill may exceed its fair market value and that interim testing needed to be performed.

Research, Development, and Computer Software, Policy [Policy Text Block]

Capitalized Software Development Costs

When we complete research and development for a software product and have in place a program plan and a detail program design or a working model of that software product, we capitalize production costs incurred for that software product from that point forward until it is ready for general release to the public. Thereafter, we amortize capitalized software production costs to expense using the straight-line method over the estimated useful life of that product, which is generally three years. We periodically assess the carrying value of capitalized software development costs and our method of amortizing them relative to our estimates of realizability through sales of products in the marketplace.

Research and Development Expense, Policy [Policy Text Block]

Research and Development

We expense research and development costs as incurred.

Advertising Costs, Policy [Policy Text Block]

Advertising Expense

We expense advertising costs as incurred as a component of our sales and marketing expenses.  Advertising expense was $419,561 and $408,136 in the 2017 quarter and the 2016 quarter, respectively.

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

Share-Based Compensation

We measure the cost of share-based payment transactions at the grant date based on the calculated fair value of the award. We recognize this cost as an expense ratably over the recipient’s requisite service period during which that award vests or becomes unrestricted.

For stock option awards, we estimate their fair value at the grant date using the Black-Scholes option-pricing model considering the following factors:

• We estimate expected volatility based on historical volatility of our common stock.

• We use primarily the simplified method to derive an expected term which represents an estimate of the time options are expected to remain outstanding. We use this method because our options are plain-vanilla options, and we believe our historical option exercise experience is not adequately indicative of our future expectations.

• We base the risk-free rate for periods within the contractual life of the option on the U.S. treasury yield curve in effect at the time of grant.

• We estimate a dividend yield based on our historical and expected future dividend payments.

For restricted stock awards, we use the quoted price of our common stock on the grant date as the fair value of the award.

Income Tax, Policy [Policy Text Block]

Income Taxes

We account for income taxes using the asset and liability method.  We record deferred tax assets and liabilities based on the difference between the tax bases of assets and liabilities and their carrying amount for financial reporting purposes, as measured by the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets and liabilities are carried on the balance sheet with the presumption that they will be realizable in future periods in which we generate taxable income.

We assess the likelihood that deferred tax assets will be realized from future taxable income. Based on this assessment, we provide any necessary valuation allowance on our balance sheet with a corresponding increase in the tax provision on our statement of operations.   Any valuation allowances we establish are determined based upon a number of assumptions, judgments, and estimates, including forecasted earnings, future taxable income, and the relative proportions of revenue and income before taxes in the various domestic jurisdictions in which we operate.

We account for uncertainty in income taxes using a two-step process to determine the amount of tax benefit to be recognized. First, we evaluate the tax position to determine the likelihood that it will be sustained upon external examination. If the tax position is deemed “more-likely-than-not” to be sustained, we assess the tax position to determine the amount of benefit to recognize in the consolidated financial statements. The amount of the benefit we recognize is the largest amount that we believe has a greater than 50 percent likelihood of being realized upon ultimate settlement. Unrecognized tax benefits represent tax positions for which reserves have been established.

Earnings Per Share, Policy [Policy Text Block]

Earnings Per Share

We compute basic earnings per share using the weighted-average number of common shares outstanding during the periods.  We compute diluted earnings per share using the weighted-average number of common shares outstanding plus the number of common shares that would be issued assuming conversion of all potentially dilutive common shares outstanding.

Awards of non-vested restricted stock and options are considered potentially dilutive common shares for the purpose of computing earnings per common share.  We apply the treasury stock method to non-vested options under which the assumed proceeds include the amount the employee must pay to exercise the option plus the amount of unrecognized cost attributable to future periods less any expected tax benefits.

New Accounting Pronouncements, Policy [Policy Text Block]

Recent accounting pronouncements

ASU 2017-04, Intangibles – Goodwill and Other (issued January 2017) - To simplify the subsequent measurement of goodwill, Step 2 was eliminated from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in this update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. Any loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. This update also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. Therefore, the same impairment assessment applies to all reporting units. An entity is required to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. A public business entity that is a SEC filer is required to adopt the amendments in this update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. We expect that the application of the provisions of this update will not have a material effect on our consolidated financial statements.

ASU 2016-15, Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments (issued June 2016) - This pronouncement provides guidance as to the treatment of transactions in a statement of cash flows with respect to eight specific cash flow issues. During 2017 and 2016, we had no transactions of the type cited in the statement and do not anticipate having any such transactions in the foreseeable future. Accordingly we do not expect this pronouncement to have a material effect on how we present items in our statement of cash flows.

ASU 2016-13, Financial Instruments – Credit Losses (issued June 2016) - Among the provisions of this ASU is a requirement that assets measured at amortized cost, which includes trade accounts receivable, be presented at the net amount expected to be collected. This pronouncement requires that an entity reflect all of its expected credit losses based on current estimates which will replace the current standard requiring that an entity need consider only past events and current conditions in measuring an incurred loss. We are subject to this guidance effective with financial statements we issue for the year ending December 31, 2020, and the quarterly periods during that year. We do not expect the amounts we report as accounts receivable in those future periods under this guidance to be materially affected relative to current guidance.

ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (issued March 2016) – This standard discontinued the recording in equity of tax benefits or tax deficiencies that arise from differences between share-based payment compensation expense recorded for financial statement purposes and that expense deductible for tax purposes. This new standard requires that the tax effect of all such differences be recorded and reported in the statement of operations. This standard also requires that tax-related cash flows resulting from share-based payments be reported as operating activities in the statement of cash flows which is a change from the current requirement to present such tax-related items as an inflow from financing activities and an outflow from operating activities. As prescribed by this standard, we adopted it beginning January 1, 2017, and followed it in the preparation of our consolidated financial statements as of March 31, 2017, and for the three months then ended.

This standard also permits an accounting policy election for the impact of forfeitures on the recognition of expense for share-based payment awards. Forfeitures may be either estimated (as has been the requirement in the past) or recognized when they occur. We elected to continue estimating forfeitures consistent with our existing practices thereby resulting in no change to our application of GAAP for this aspect of computing share-based compensation.

ASU 2016-02, Leases (issued February 2016) - The main difference between existing GAAP and this ASU 2016-02 is the presentation by lessees on their financial statements of lease assets and lease liabilities arising from operating leases. Since this new standard retains the distinction between finance and operating leases, the effect of leases in the statement of operations and the statement of cash flows will be largely unchanged from existing GAAP. Our only lease of significance is our operating lease for our corporate office space for which we will present a right-to-use asset and a lease liability on our consolidated balance sheet when we implement this standard. We are in the process of determining those amounts. In accordance with this standard, we will implement it beginning with our interim and annual financial statements for 2019. The extent of the effect of this standard on our consolidated financial statements for 2019 and later will depend upon the leases, if any, that we have in effect at that date.

ASU 2015-17, Income Tax: Balance Sheet Classification of Deferred Taxes (issued November 2015) - This pronouncement requires that all deferred tax assets and liabilities for a tax jurisdiction, along with any related valuation allowance, be classified as noncurrent on the balance sheet. We have implemented this ASU in the accompanying consolidated financial statements in the manner described in Note 9 below.

ASU 2014-09, Revenue from Contracts with Customers (issued May 2014) - The core principle of this guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects consideration to which the entity expects to be entitled in exchange for those goods or services. We will implement these new principles effective with consolidated financial statements we issue for the year ending December 31, 2018, and the quarterly periods during that year.

We have assessed the effect of ASU 2014-09 on the amount and timing of revenue we expect to recognize from our business activities in 2018 and later. We do not expect there to be material differences in the amount and timing of revenue we recognize from similar business activities in future periods determined by applying ASU 2014-09 as compared to revenue we would have otherwise recognized by applying GAAP as it existed prior to 2018.

We have determined that the application of ASU 2014-09 will have a material effect on the timing of our recording of expenses resulting from the incremental costs we incur to obtain a contract with a customer to deliver goods and services. These incremental costs consist primarily of sales commissions paid to our sales people and royalties on certain of our products paid to third parties. For years ended December 31, 2017 and earlier, we recorded the full amount of the sales commission and royalties paid on the full value of an M&S or SaaS contract as an expense on the inception date of the M&S contract. Under ASU 2014-09, we will account for such costs we incur in 2018 and later as follows:

· If these costs are associated with products and services for which we recognize revenue at a point in time (primarily sales of perpetual software licenses and professional services), we will expense these costs in full at the time we recognize that revenue.

· If these costs are associated with services for which we recognize revenue over time (primarily sales of M&S and SaaS subscriptions) for which we believe it is likely that the contract for those services will be renewed for additional terms in the future, provided we deem these costs to be recoverable, we will record these costs as deferred expense asset and amortize that cost to expense as follows:

o For the portion of the cost that we determine benefits us primarily only over the term of the specific underlying contract currently in force (such as the term of an M&S contract), we will recognize expense ratably each month over that term.

o For the portion of the cost that we determine benefits us over an overall customer relationship that is likely to span period of time that is longer than an initial contract term (for example, an M&S contract renewed for multiple terms in the future), we will recognize expense ratably monthly over the estimated life of the customer relationship.

Our application of ASU 2014-09 to incremental costs we incur to obtain a contract with a customer will result in us recording, as an asset as of January 1, 2018, a deferred expense of $1.2 million applicable to contracts with customers in effect as of that date. We previously reported this amount as an expense in our financial statements for periods ending on and before December 31, 2017. We estimate that we will amortize this amount to expense at the rate of approximately $186,000 per quarter beginning in 2018. The incremental costs we incur to obtain contracts with customers during 2018 and later years, and the amount of such costs we record as a deferred expense and amortize to expense in subsequent periods, will depend upon the nature and scope of our future business activities, the nature and mix of the products and services we sell, the compensation plans we have in place for our sales people, and the royalty arrangements we enter into with third parties.

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5. Accounts Receivable, Net (Tables)

3 Months Ended

Mar. 31, 2017

Receivables [Abstract]

Schedule of Accounts, Notes, Loans and Financing Receivable [Table Text Block]

Accordingly, we determine our accounts receivable, net, as follows ($ in thousands):

	March 31, 2017			December 31, 2016
Total invoices issued and unpaid	$	5,633		$	6,932
Less: Unpaid invoices relating to M&S contracts with a start date subsequent to the balance sheet date		(410	)		(381	)
Gross accounts receivable		5,223			6,551
Allowance for sales returns and doubtful accounts		(278	)		(263	)
Accounts receivable, net	$	4,945		$	6,288

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6. Capitalized Software Development Costs, Net (Tables)

3 Months Ended

Mar. 31, 2017

Disclosure Text Block [Abstract]

Schedule of Finite-Lived Intangible Assets [Table Text Block]

Our capitalized software development costs balances and activities were as follows: ($ in thousands):

	March 31,			December 31,
	2017			2016
Gross capitalized cost	$	7,714		$	7,252
Accumulated amortization		(3,983	)		(3,509	)
Capitalized software development costs, net	$	3,731		$	3,743

Finite-lived Intangible Assets Amortization Expense [Table Text Block]

	Three Months Ended March 31,
	2017			2016
Amount capitalized	$	462		$	488
Amortization expense		(474	)		(430	)

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Table Text Block]

	Released			Unreleased
	Products			Products
Gross capitalized amount at March 31, 2017	$	6,171		$	1,543
Accumulated Amortization		(3,983	)		-
Net	$	2,188		$	1,543

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block]

Future amortization expense:
Nine months ending December 31, 2017		1,116
Year ending December 31,
2018		856
2019		216
2020		-
Total	$	2,188

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7. Deferred Revenue (Tables)

3 Months Ended

Mar. 31, 2017

Deferred Revenue Disclosure [Abstract]

Deferred Revenue, by Arrangement, Disclosure [Table Text Block]

Accordingly, we determine our deferred revenue as follows ($ in thousands):

	March 31, 2017			December 31, 2016
Total invoiced for M&S contracts for which revenue will be recognized in future periods	$	16,732		$	17,826
Less: Unpaid invoices relating to M&S contracts with a start date subsequent to the balance sheet date		(410	)		(381	)
Total deferred revenue	$	16,322		$	17,445
Deferred revenue, current portion	$	12,704		$	13,655
Deferred revenue, non-current portion		3,618			3,790
Total deferred revenue	$	16,322		$	17,445

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8. Stock Options, Restricted Stock and Share-Based Compensation (Tables)

3 Months Ended

Mar. 31, 2017

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of Compensation Cost for Share-based Payment Arrangements, Allocation of Share-based Compensation Costs by Plan [Table Text Block]

Our share-based compensation expense was as follows ($ in thousands):

	Three Months Ended March 31,
	2017		2016
Share-based compensation expense	$	337	$	239

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

Our stock option activity has been as follows:

				Weighted
				Average		Weighted Average		Aggregate
				Exercise		Remaining		Intrinsic
	Number of			Price		Contractual		Value
	Shares			Per Share		Term in Years		(000’s)
Outstanding at December 31, 2016		2,407,005		$	3.00		7.19	$	2,574
Granted		660,000		$	3.76
Forfeited		(86,080	)	$	3.87
Exercised		(49,500	)	$	1.82
Outstanding at March 31, 2017		2,931,425		$	3.17		6.93	$	2,238
Exercisable at March 31, 2017		1,245,214		$	2.59		3.89	$	1,681

Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Outstanding and Exercisable [Table Text Block]

Additional information about our stock options is as follows:

	Three Months Ended March 31,
	2017		2016
Weighted average fair value of options granted	$	1.57	$	1.67
Intrinsic value of options exercised	$	100,386	$	71,745
Cash received from stock options exercised	$	90,114	$	121,671
Number of options that vested		295,124		193,866
Fair value of options that vested	$	479,742	$	289,463
Unrecognized compensation expense related to non-vested options at end of period	$	2,383,732	$	1,769,538
Weighted average years over which non-vested option expense will be recognized		2.34		2.43

Schedule of Share-based Compensation, Shares Authorized under Stock Option Plans, by Exercise Price Range [Table Text Block]

As of March 31, 2017
				Options Outstanding				Options Exercisable
				Weighted
				Average		Weighted				Weighted
		Underlying		Remaining		Average		Number of		Average
Range of		Shares		Contractual		Exercise		Underlying		Exercise
Exercise Prices		Outstanding		Life		Price		Shares		Price
$	0.85 - $1.43		87,100		2.47	$	1.07		87,100	$	1.07
$	1.47 - $2.32		459,745		2.67	$	1.83		458,385	$	1.83
$	2.34 - $3.52		1,144,680		7.29	$	3.22		525,179	$	3.02
$	3.53 - $4.25		1,239,900		8.50	$	3.76		174,550	$	4.05
Total options			2,931,425						1,245,214

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

We used the following assumptions to determine compensation expense for our stock options using the Black-Scholes option-pricing model:

	Three Months Ended March 31,
	2017			2016
Expected volatility		49	%		56	%
Expected annual dividend yield		1.50	%		1.50	%
Risk free rate of return		1.94	%		1.53	%
Expected option term (years)		6.00			6.00

Nonvested Restricted Stock Shares Activity [Table Text Block]

Our restricted stock awards activity has been as follows:

					Total
			Grant Date		Fair Value of
	Number of		Fair Value		Shares That
	Shares		Per Share		Vested
Restricted shares outstanding at December 31, 2016		80,000	$	3.31
Shares granted with restrictions		-	$	-
Shares vested and restrictions removed		-	$	-	$	-
Restricted shares outstanding at March 31, 2017		80,000	$	3.31
Unrecognized compensation expense for non-vested shares as of March 31, 2017
Expense to be recognized in future periods	$	25,322
Weighted average number of months over which expense is expected to be recognized		1.2

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9. Income Taxes (Tables)

3 Months Ended

Mar. 31, 2017

Income Tax Disclosure [Abstract]

Schedule of Components of Income Tax Expense (Benefit) [Table Text Block]

The components of our income tax expense (benefit) are as follows ($ in thousands):

	Three months ended March 31,
	2017							2016
	Current		Deferred			Total		Current		Deferred			Total
Federal	$	390	$	(22	)	$	368	$	218	$	(7	)	$	211
State		44		(1	)		43		21		(12	)		9
Total	$	434	$	(23	)	$	411	$	239	$	(19	)	$	220

Schedule of Deferred Tax Assets and Liabilities [Table Text Block]

Significant components of our deferred tax assets and liabilities are as follows ($ in thousands):

	March 31,			December 31,
	2017			2016
Deferred tax assets:
Deferred revenue	$	1,280		$	1,229
Capital loss carryforward		1,099			1,099
Share-based compensation		623			578
Compensation and benefits		229			278
Texas franchise tax R&D credit		156			153
Allowance for doubtful accounts		94			114
Net operating loss carryforward		76			91
Other		57			56
Less Valuation Allowances:
Capital loss carryforward		(1,099	)		(1,099	)
Texas franchise tax R&D credit		(156	)		(153	)
Total deferred tax assets		2,359			2,346
Deferred tax liabilities:
Intangible assets		1,285			1,289
Depreciation		1			7
Total gross deferred tax liabilities		1,286			1,296
Net deferred tax assets	$	1,073		$	1,050

Schedule of Unrecognized Tax Benefits Roll Forward [Table Text Block]

The aggregate changes in the balance of our gross unrecognized tax benefits were as follows ($ in thousands):

	Three Months Ended March 31,
	2017		2016
Balance at beginning of period	$	121	$	90
Increases for tax positions related to the current year		15		6
Increases for tax positions related to prior years		6		-
Balance at end of period	$	142	$	96

Schedule of Effective Income Tax Rate Reconciliation [Table Text Block]

Our income tax expense reconciles to an income tax expense resulting from applying an assumed statutory federal income rate of 34% to income before income taxes as follows ($ in thousands):

	Three months ended March 31,
	2017			2016
Income tax expense at federal statutory rate	$	422		$	205
Increase (decrease) in taxes resulting from:
State taxes, net of federal benefit		28			10
Stock based compensation		60			16
Other		7			35
R&D tax credit uncertain tax position (net)		(65	)		(32	)
Research and development credit		(30	)		6
Domestic production activities deduction		(11	)		(20	)
Income tax expense per the statements of operations	$	411		$	220

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10. Earnings per Common Share (Tables)

3 Months Ended

Mar. 31, 2017

Earnings Per Share [Abstract]

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

Earnings per share for the periods indicated were as follows ($ in thousands, except per share amounts):

	Three Months Ended
	March 31,
	2017		2016
Numerators
Numerator for basic and diluted earnings per share:
Net income	$	831	$	383
Denominators
Denominators for basic and diluted earnings per share:
Weighted average shares outstanding - basic		21,544		21,033
Dilutive potential common shares
Stock options and awards		479		619
Denominator for diluted earnings per share		22,023		21,652
Net income per common share - basic	$	0.04	$	0.02
Net income per common share – diluted	$	0.04	$	0.02

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11. Dividends (Tables)

3 Months Ended

Mar. 31, 2017

Dividends [Abstract]

Schedule of Dividends Payable [Table Text Block]

We paid dividends as follows:

	Three Months Ended March 31,
	2017		2016
Dividend per share of common stock	$	0.015	$	0.015
Dividend record date	February 23, 2017		February 23, 2016
Dividend payment date	March 8, 2017		March 8, 2016

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15. Restatement (Tables)

3 Months Ended

Mar. 31, 2017

Accounting Changes and Error Corrections [Abstract]

Schedule of Reclassification Adjustments [Table Text Block]

The impact of all of the misstatements described above on the condensed consolidated financial statements as of and for the three months ended March 31, 2017 and 2016 are as follows:

	Previously Reported			Adjustments			As Revised
Assets
Current assets:
Cash and cash equivalents	$	10,400			-		$	10,400
Short term certificates of deposit		2,759			-			2,759
Accounts receivable, net		5,499			(554	)		4,945
Federal income tax receivable		-			-			-
Prepaid and other expenses		492						492
Total current assets		19,150			(554	)		18,596
Long term certificates of deposit		12,837			-			12,837
Capitalized software development costs, net		3,731			-			3,731
Goodwill		12,712			-			12,712
Deferred tax asset, net		1,190			(117	)		1,073
Property and equipment, net		577			-			577
Other assets		64						64
Total assets	$	50,261		$	(671	)	$	49,590
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	657			(17	)	$	640
Accrued expenses		1,928			(232	)		1,696
Income tax payable		474			(259	)		215
Deferred revenue		12,704			-			12,704
Total current liabilities		15,763			(508	)		15,255
Deferred revenue, non-current portion		3,618			-			3,618
Other long term liabilities		163			6			169
Commitments and contingencies
Stockholders’ equity:
Preferred stock, par value $0.001 per share, 10,000,000 shares authorized, no shares issued or outstanding		-			-			-
Common stock, par value $0.001 per share, 40,000,000 shares authorized, 21,970,412 shares issued		22			-			22
Additional paid-in capital		22,064			119			22,183
Treasury stock, 403,581 shares, at cost		(1,452	)					(1,452	)
Retained earnings		10,083			(288	)		9,795
Total stockholders’ equity		30,717			(169	)		30,548
Total liabilities and stockholders’ equity	$	50,261		$	(671	)	$	49,590

	Previously Reported		Adjustment			As Revised
Operating Revenues:
Software licenses	$	2,464	$	114			2,578
Maintenance and support		5,121		-			5,121
Professional services		733		-			733
Total Revenues		8,318		114			8,432
Cost of revenues
Software licenses		736		22			758
Maintenance and support		412		1			413
Professional services		377		(13	)		364
Total cost of revenues		1,525		10			1,535
Gross profit		6,793		104			6,897
Operating expenses
Sales and marketing		3,330		(41	)		3,289
General and administrative		1,721		(7	)		1,714
Research and development		739		(17	)		722
Total operating expenses		5,790		(65	)		5,725
Income from operations		1,003		169			1,172
Other income		70		-			70
Income before income taxes		1,073		169			1,242
Income tax expense		322		89			411
Net income	$	751	$	80		$	831
Comprehensive income	$	751	$	80		$	831
Net income per common share:
Basic	$	0.03	$	-		$	0.04
Diluted	$	0.03	$	-		$	0.04
Weighted average shares outstanding:
Basic		21,544					21,544
Diluted		22,023					22,023
Cash dividends declared per share	$	0.015				$	0.015

	Previously Reported			Adjustment			As Revised
Operating Activities:
Net income	$	751		$	80		$	831
Items not involving cash at the time they are recorded in the statement of operations:
Provision for sales returns and doubtful accounts receivable		11			-			11
Depreciation and amortization		541			-			541
Share-based compensation		324			13			337
Deferred taxes		(248	)		225			(23	)
Excess tax benefit from share-based compensation		-			-			-
Subtotal before changes in operating assets and liabilities		1,379			318			1,697
Changes in operating assets and liabilities:
Accounts receivable		1,454			(122	)		1,332
Prepaid expenses		29			10			39
Deferred revenue		(1,123	)		-			(1,123	)
Accounts payable		(219	)		(71	)		(290	)
Accrued expenses		92			1			93
Other assets		181			-			181
Accrued interest receivable		(63	)		-			(63	)
Other long-term liabilities		16			1			17
Income tax receivable and payable		643			(136	)		507
Net cash provided by operating activities		2,389			1			2,390
Investing Activities:
Software development costs capitalized		(462	)		-			(462	)
Purchase of property and equipment		(188	)		-			(188	)
Net cash (used in) investing activities		(650	)		-			(650	)
Financing Activities:
Proceeds from exercise of stock options		90			-			90
Excess tax benefit from share-based compensation		-			-			-
Dividends paid		(324	)		(1	)		(325	)
Net cash (used in) financing activities		(234	)		(1	)		(235	)
Net increase in cash		1,505			-			1,505
Cash at beginning of period		8,895			-			8,895
Cash at end of period	$	10,400		$	-		$	10,400
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	-		$	-		$	-
Income taxes	$	15		$	-		$	15

	As Previously Reported			Adjustments			As Revised
Assets
Current assets:
Cash and cash equivalents	$	16,324					$	16,324
Short term investments		3,270						3,270
Accounts receivable, net		5,340			(365	)		4,975
Federal income tax receivable		35			315			350
Prepaid and other expenses		477						477
Total current assets		25,446			(50	)		25,396
Long term investments
Property and equipment, net		517						517
Capitalized software development costs, net		4,040						4,040
Goodwill		12,712						12,712
Deferred tax asset, net		959						959
Other assets		38						38
Total assets	$	43,712		$	(50	)	$	43,662
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		489			(5	)		484
Accrued expenses		1,621			(55	)		1,566
Deferred revenue		11,672			318			11,990
Income taxes payable		34			(34	)		-
Total current liabilities		13,816			224			14,040
Deferred revenue, non-current portion		3,718			144			3,862
Other long term liabilities		41			96			137
								-
Stockholders’ Equity:								-
Preferred stock		-						-
Common stock		21						21
Additional paid-in capital		19,930			81			20,011
Treasury stock		(1,452	)					(1,452	)
Retained earnings		7,638			(595	)		7,043
Total stockholders’ equity		26,137			(514	)		25,623
Total liabilities and stockholders’ equity	$	43,712		$	(50	)	$	43,662

	As Previously Reported		Adjustments			As Revised
Operating revenues:
Software licenses	$	2,299	$	(36	)	$	2,263
Maintenance and support		4,497		(51	)		4,446
Professional services		614		28			642
Total revenues		7,410		(59	)		7,351
Costs of revenues
Software licenses		630		(4	)		626
Maintenance and support		394		-			394
Professional services		569		(146	)		423
Total costs of revenues		1,593		(150	)		1,443
Gross Profit		5,817		91			5,908
Operating expenses
Sales and marketing		2,901		104			3,005
General and administrative		1,733		(46	)		1,687
Research and development		627		19			646
Total operating expenses		5,261		77			5,338
Income from operations		556		14			570
Other income (expense), net		33					33
Income before income taxes		589		14			603
Income tax expense		182		38			220
Net income	$	407	$	(24	)	$	383
Comprehensive income	$	407	$	(24	)	$	383
Net income per common share - basic	$	0.02	$	-		$	0.02
Net income per common share - diluted	$	0.02	$	-		$	0.02

	As Previously Reported			Adjustments			As Revised
Operating Activities:
Net income	$	407			(24	)	$	383
Adjustments to reconcile net income to net cash provided by operating activities:
Bad debt expense		43			(31	)		12
Depreciation and amortization		501						501
Stock-based compensation		222			17			239
Deferred taxes		(19	)					(19	)
Excess tax deficiency from exercise of share based compensation		(3	)					(3	)
Subtotal before changes in operating assets and liabilities		1,151			(38	)		1,113
Changes in operating assets and liabilities:
Accounts receivable		698			253			951
Prepaid expenses		34						34
Deferred revenues		(222	)		(194	)		(416	)
Accounts payable		(350	)		(5	)		(355	)
Accrued expenses		(272	)		(55	)		(327	)
Other assets		22						22
Accrued interest receivable		(16	)					(16	)
Other long-term liabilities		(3	)		6			3
Income tax receivable and payable		165			33			198
Net cash provided by (used in) operating activities		1,207			-			1,207
Investing Activities:
Software development costs		(488	)					(488	)
Purchase of property and equipment		(90	)					(90	)
Net cash provided by (used in) investing activities		(578	)		-			(578	)
Financing Activities:
Proceeds from exercise of stock options		122						122
Tax deficiency (benefit) from stock-based compensation		3						3
Dividends paid		(315	)					(315	)
Net cash provided by (used in)  financing activities		(190	)		-			(190	)
Net increase (decrease) in cash		439						439
Cash at beginning of period		15,885			-			15,885
Cash at end of period	$	16,324		$	-		$	16,324
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	-		$	-		$	-
Income taxes	$	22		$	-		$	22

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3. Significant Accounting Policies (Details) - USD ($)		3 Months Ended		12 Months Ended
	Jan. 01, 2018	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016
3. Significant Accounting Policies (Details) [Line Items]
Goodwill, Impairment Loss				$ 0
Advertising Expense		$ 419,561	$ 408,136
Probability of occurrence of event		50.00%
Subsequent Event [Member]
3. Significant Accounting Policies (Details) [Line Items]
Contract with Customer, Deferred Expense	$ 1,200,000
Contract with Customer, Amortization Expense	$ 186,000
Computer Equipment [Member]
3. Significant Accounting Policies (Details) [Line Items]
Property, Plant and Equipment, Useful Life		3 years
Software and Software Development Costs [Member]
3. Significant Accounting Policies (Details) [Line Items]
Finite-Lived Intangible Asset, Useful Life		3 years
Minimum [Member] | Furniture and Fixtures [Member]
3. Significant Accounting Policies (Details) [Line Items]
Property, Plant and Equipment, Useful Life		5 years
Maximum [Member] | Furniture and Fixtures [Member]
3. Significant Accounting Policies (Details) [Line Items]
Property, Plant and Equipment, Useful Life		7 years

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5. Accounts Receivable, Net (Details) - Schedule of Accounts, Notes, Loans and Financing Receivable - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016	Mar. 31, 2016
Schedule of Accounts, Notes, Loans and Financing Receivable [Abstract]
Total invoices issued and unpaid	$ 5,633	$ 6,932
Less: Unpaid invoices relating to M&S contracts with a start date subsequent to the balance sheet date	(410)	(381)
Gross accounts receivable	5,223	6,551
Allowance for sales returns and doubtful accounts	(278)	(263)
Accounts receivable, net	$ 4,945	$ 6,288	$ 4,975

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6. Capitalized Software Development Costs, Net (Details) - Schedule of Finite-Lived Intangible Assets - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
Schedule of Finite-Lived Intangible Assets [Abstract]
Gross capitalized cost	$ 7,714	$ 7,252
Accumulated amortization	(3,983)	(3,509)
Capitalized software development costs, net	$ 3,731	$ 3,743

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6. Capitalized Software Development Costs, Net (Details) - Finite-lived Intangible Assets Amortization Expense - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Finite-lived Intangible Assets Amortization Expense [Abstract]
Amount capitalized	$ 462	$ 488
Amortization expense	$ (474)	$ (430)

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6. Capitalized Software Development Costs, Net (Details) - Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
6. Capitalized Software Development Costs, Net (Details) - Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Line Items]
Gross capitalized amount at March 31, 2017	$ 7,714	$ 7,252
Accumulated Amortization	(3,983)	(3,509)
Net	3,731	$ 3,743
Computer Software, Intangible Asset [Member] | Released Products [Member]
6. Capitalized Software Development Costs, Net (Details) - Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Line Items]
Gross capitalized amount at March 31, 2017	6,171
Accumulated Amortization	(3,983)
Net	2,188
Computer Software, Intangible Asset [Member] | Unreleased Products [Member]
6. Capitalized Software Development Costs, Net (Details) - Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Line Items]
Gross capitalized amount at March 31, 2017	1,543
Accumulated Amortization	0
Net	$ 1,543

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6. Capitalized Software Development Costs, Net (Details) - Schedule of Finite-Lived Intangible Assets, Future Amortization Expense $ in Thousands	Mar. 31, 2017 USD ($)
Future amortization expense:
Nine months ending December 31, 2017	$ 1,116
Year ending December 31,
2018	856
2019	216
2020	0
Total	$ 2,188

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7. Deferred Revenue (Details) - Schedule of Deferred Revenue, by Arrangement, Disclosure - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016	Mar. 31, 2016
Schedule of Deferred Revenue, by Arrangement, Disclosure [Abstract]
Total invoiced for M&S contracts for which revenue will be recognized in future periods	$ 16,732	$ 17,826
Less: Unpaid invoices relating to M&S agreements with a start date subsequent to the balance sheet date	(410)	(381)
Total deferred revenue	16,322	17,445
Deferred revenue, current portion	12,704	13,655	$ 11,990
Deferred revenue, non-current portion	$ 3,618	$ 3,790	$ 3,862

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8. Stock Options, Restricted Stock and Share-Based Compensation (Details)	3 Months Ended
	Mar. 31, 2017 shares
2015 Directors Plan [Member]
8. Stock Options, Restricted Stock and Share-Based Compensation (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Award Requisite Service Period	1 year
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized	500,000
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant	340,000
Employee Stock Option [Member] | Long-Term Equity Incentive Plans [Member]
8. Stock Options, Restricted Stock and Share-Based Compensation (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	3 years
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period	10 years
Share-based Compensation Arrangement by Share-based Payment Award, Award Requisite Service Period	90 days
Stock-Based Awards [Member]
8. Stock Options, Restricted Stock and Share-Based Compensation (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized	5,000,000
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant	4,329,500

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8. Stock Options, Restricted Stock and Share-Based Compensation (Details) - Schedule of Compensation Cost for Share-based Payment Arrangements, Allocation of Share-based Compensation Costs by Plan - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Schedule of Compensation Cost for Share-based Payment Arrangements, Allocation of Share-based Compensation Costs by Plan [Abstract]
Share-based compensation expense	$ 337	$ 239

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8. Stock Options, Restricted Stock and Share-Based Compensation (Details) - Schedule of Share-based Compensation, Stock Options, Activity - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2017	Dec. 31, 2016
Schedule of Share-based Compensation, Stock Options, Activity [Abstract]
Number of Shares, Outstanding		2,407,005
Weighted Average Exercise Price, Outstanding		$ 3.00
Weighted Average Remaining Contractual Term, Outstanding	6 years 339 days	7 years 69 days
Aggregate Intrinsic Value, Outstanding		$ 2,574
Number of Shares, Exercisable	1,245,214
Weighted Average Exercise Price, Exercisable	$ 2.59
Weighted Average Remaining Contractual Term, Exercisable	3 years 324 days
Aggregate Intrinsic Value, Exercisable	$ 1,681
Number of Shares, Granted	660,000
Weighted Average Exercise Price, Granted	$ 3.76
Number of Shares, Forfeitures	(86,080)
Weighted Average Exercise Price, Forfeitures	$ 3.87
Number of Shares, Exercised	(49,500)
Weighted Average Exercise Price, Exercised	$ 1.82
Number of Shares, Outstanding	2,931,425
Weighted Average Exercise Price, Outstanding	$ 3.17
Aggregate Intrinsic Value, Outstanding	$ 2,238

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8. Stock Options, Restricted Stock and Share-Based Compensation (Details) - Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Outstanding and Exercisable - USD ($)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Outstanding and Exercisable [Abstract]
Weighted average fair value of options granted (in Dollars per share)	$ 1.57	$ 1.67
Intrinsic value of options exercised	$ 100,386	$ 71,745
Cash received from stock options exercised	$ 90,114	$ 121,671
Number of options that vested (in Shares)	295,124	193,866
Fair value of options that vested	$ 479,742	$ 289,463
Unrecognized compensation expense related to non-vested options at end of period	$ 2,383,732	$ 1,769,538
Weighted average years over which non-vested option expense will be recognized	2 years 124 days	2 years 156 days

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8. Stock Options, Restricted Stock and Share-Based Compensation (Details) - Schedule of Share-based Compensation, Shares Authorized under Stock Option Plans, by Exercise Price Range	3 Months Ended
	Mar. 31, 2017 $ / shares shares
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Options Outstanding, Underlying Shares Outstanding (in Shares) | shares	2,931,425
Options Exercisable, Underlying Shares Outstanding (in Shares) | shares	1,245,214
$0.85 - $1.43 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Range of Exercise Prices, Lower Limit	$ 0.85
Range of Exercise Prices, Upper Limit	$ 1.43
Options Outstanding, Underlying Shares Outstanding (in Shares) | shares	87,100
Options Outstanding, Weighted Average Remaining Contractual Life	2 years 171 days
Options Outstanding, Weighted Average Exercise Price	$ 1.07
Options Exercisable, Underlying Shares Outstanding (in Shares) | shares	87,100
Options Exercisable, Weighted Average Exercise Price	$ 1.07
$1.47 - $2.32 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Range of Exercise Prices, Lower Limit	1.47
Range of Exercise Prices, Upper Limit	$ 2.32
Options Outstanding, Underlying Shares Outstanding (in Shares) | shares	459,745
Options Outstanding, Weighted Average Remaining Contractual Life	2 years 244 days
Options Outstanding, Weighted Average Exercise Price	$ 1.83
Options Exercisable, Underlying Shares Outstanding (in Shares) | shares	458,385
Options Exercisable, Weighted Average Exercise Price	$ 1.83
$2.34 - $3.52 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Range of Exercise Prices, Lower Limit	2.34
Range of Exercise Prices, Upper Limit	$ 3.52
Options Outstanding, Underlying Shares Outstanding (in Shares) | shares	1,144,680
Options Outstanding, Weighted Average Remaining Contractual Life	7 years 105 days
Options Outstanding, Weighted Average Exercise Price	$ 3.22
Options Exercisable, Underlying Shares Outstanding (in Shares) | shares	525,179
Options Exercisable, Weighted Average Exercise Price	$ 3.02
$3.53 - $4.25 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Range of Exercise Prices, Lower Limit	3.53
Range of Exercise Prices, Upper Limit	$ 4.25
Options Outstanding, Underlying Shares Outstanding (in Shares) | shares	1,239,900
Options Outstanding, Weighted Average Remaining Contractual Life	8 years 6 months
Options Outstanding, Weighted Average Exercise Price	$ 3.76
Options Exercisable, Underlying Shares Outstanding (in Shares) | shares	174,550
Options Exercisable, Weighted Average Exercise Price	$ 4.05

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8. Stock Options, Restricted Stock and Share-Based Compensation (Details) - Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Abstract]
Expected volatility	49.00%	56.00%
Expected annual dividend yield	1.50%	1.50%
Risk free rate of return	1.94%	1.53%
Expected option term (years)	6 years	6 years

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8. Stock Options, Restricted Stock and Share-Based Compensation (Details) - Nonvested Restricted Stock Shares Activity - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
8. Stock Options, Restricted Stock and Share-Based Compensation (Details) - Nonvested Restricted Stock Shares Activity [Line Items]
Weighted average number of months over which expense is expected to be recognized	2 years 124 days	2 years 156 days
Restricted Stock [Member]
8. Stock Options, Restricted Stock and Share-Based Compensation (Details) - Nonvested Restricted Stock Shares Activity [Line Items]
Number of shares, restricted shares outstanding	80,000
Grant date fair value per share, restricted shares outstanding	$ 3.31
Expense to be recognized in future periods	$ 25,322
Weighted average number of months over which expense is expected to be recognized	1 year 73 days
Number of shares, restricted shares outstanding	80,000
Grant date fair value per share, restricted shares outstanding	$ 3.31

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9. Income Taxes (Details) - USD ($)	3 Months Ended
	Mar. 31, 2017	Dec. 31, 2016
9. Income Taxes (Details) [Line Items]
Deferred Tax Assets, Capital Loss Carryforwards	$ 1,099,000	$ 1,099,000
Income Tax Examination, Estimate of Possible Loss	$ 141,000
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent	34.00%
Research Tax Credit Carryforward [Member]
9. Income Taxes (Details) [Line Items]
Tax Credit Carryforward, Amount	$ 156,000
Minimum [Member] | Research Tax Credit Carryforward [Member]
9. Income Taxes (Details) [Line Items]
Franchise Tax Credit Carryforwards Expiration Date	2034
Maximum [Member] | Research Tax Credit Carryforward [Member]
9. Income Taxes (Details) [Line Items]
Franchise Tax Credit Carryforwards Expiration Date	2036
Domestic Tax Authority [Member]
9. Income Taxes (Details) [Line Items]
Operating Loss Carryforwards	$ 225,000
Deferred Tax Assets, Capital Loss Carryforwards	$ 3,231,000
Domestic Tax Authority [Member] | Minimum [Member]
9. Income Taxes (Details) [Line Items]
Federal Net Operating Loss Carryforwards Expiration Year	2030
Domestic Tax Authority [Member] | Maximum [Member]
9. Income Taxes (Details) [Line Items]
Federal Net Operating Loss Carryforwards Expiration Year	2031

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9. Income Taxes (Details) - Schedule of Components of Income Tax Expense (Benefit) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Schedule of Components of Income Tax Expense (Benefit) [Abstract]
Federal	$ 390	$ 218
Federal	(22)	(7)
Federal	368	211
State	44	21
State	(1)	(12)
State	43	9
Total	434	239
Total	(23)	(19)
Total	$ 411	$ 220

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9. Income Taxes (Details) - Schedule of Deferred Tax Assets and Liabilities - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2017	Dec. 31, 2016
Deferred tax assets:
Deferred revenue	$ 1,280	$ 1,229
Capital loss carryforward	1,099	1,099
Share-based compensation	623	578
Compensation and benefits	229	278
Texas franchise tax R&D credit	156	153
Allowance for doubtful accounts	94	114
Net operating loss carryforward	76	91
Other	57	56
Less Valuation Allowances:
Capital loss carryforward	(1,099)	(1,099)
Texas franchise tax R&D credit	(156)	(153)
Total deferred tax assets	2,359	2,346
Deferred tax liabilities:
Intangible assets	1,285	1,289
Depreciation	1	7
Total gross deferred tax liabilities	1,286	1,296
Net deferred tax assets	$ 1,073	$ 1,050

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9. Income Taxes (Details) - Schedule of Unrecognized Tax Benefits Roll Forward - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Schedule of Unrecognized Tax Benefits Roll Forward [Abstract]
Balance at beginning of period	$ 121	$ 90
Balance at end of period	142	96
Increases for tax positions related to the current year	15	6
Increases for tax positions related to prior years	$ 6	$ 0

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9. Income Taxes (Details) - Schedule of Effective Income Tax Rate Reconciliation - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Schedule of Effective Income Tax Rate Reconciliation [Abstract]
Income tax expense at federal statutory rate	$ 422	$ 205
Increase (decrease) in taxes resulting from:
State taxes, net of federal benefit	28	10
Stock based compensation	60	16
Other	7	35
R&D tax credit uncertain tax position (net)	(65)	(32)
Research and development credit	(30)	6
Domestic production activities deduction	(11)	(20)
Income tax expense per the statements of operations	$ 411	$ 220

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10. Earnings per Common Share (Details) - Schedule of Earnings Per Share, Basic and Diluted - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Numerator for basic and diluted earnings per share:
Net income (in Dollars)	$ 831	$ 383
Denominators for basic and diluted earnings per share:
Weighted average shares outstanding - basic	21,544	21,033
Dilutive potential common shares
Stock options and awards	479	619
Denominator for diluted earnings per share	22,023	21,652
Net income per common share - basic (in Dollars per share)	$ 0.04	$ 0.02
Net income per common share – diluted (in Dollars per share)	$ 0.04	$ 0.02

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11. Dividends (Details) - Schedule of Dividends Payable - $ / shares	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Schedule of Dividends Payable [Abstract]
Dividend per share of common stock	$ 0.015	$ 0.015
Dividend record date	Feb. 23, 2017	Feb. 23, 2016
Dividend payment date	Mar. 08, 2017	Mar. 08, 2016

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12. Commitments and Contingencies (Details) $ in Millions	Mar. 31, 2017 USD ($)
Commitments and Contingencies Disclosure [Abstract]
Other Commitment	$ 1.9

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13. Concentration of Business Volume and Credit Risk (Details) - Customer Concentration Risk [Member]	3 Months Ended
	Mar. 31, 2017
Sales Revenue, Net [Member]
13. Concentration of Business Volume and Credit Risk (Details) [Line Items]
Concentration Risk, Percentage	14.00%
Accounts Receivable [Member]
13. Concentration of Business Volume and Credit Risk (Details) [Line Items]
Concentration Risk, Percentage	16.00%

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14. Segment and Geographic Disclosures (Details)	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
14. Segment and Geographic Disclosures (Details) [Line Items]
Number of Operating Segments	1
Sales Revenue, Net [Member] | Customer Concentration Risk [Member]
14. Segment and Geographic Disclosures (Details) [Line Items]
Concentration Risk, Percentage	14.00%
Sales Revenue, Net [Member] | Customer Concentration Risk [Member] | UNITED STATES
14. Segment and Geographic Disclosures (Details) [Line Items]
Concentration Risk, Percentage	78.00%	73.00%

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15. Restatement (Details) - Schedule of Reclassification Adjustments - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Mar. 31, 2017	Dec. 31, 2016	Mar. 31, 2016
Current assets:
Cash and cash equivalents	$ 10,400	$ 15,885	$ 10,400	$ 8,895	$ 16,324
Short term investments			2,759	2,754	3,270
Accounts receivable, net			4,945	6,288	4,975
Federal income tax receivable			0	292	350
Prepaid and other expenses			492	531	477
Total current assets			18,596	18,760	25,396
Long term certificates of deposit			12,837	12,779
Capitalized software development costs, net			3,731	3,743	4,040
Goodwill			12,712	12,712	12,712
Deferred tax asset, net			1,073		959
Property and equipment, net			577	456	517
Other assets			64	245	38
Total assets			49,590	49,745	43,662
Current liabilities:
Accounts payable			640	930	484
Accrued expenses			1,696	1,603	1,566
Income tax payable			215	0	0
Deferred revenue			12,704	13,655	11,990
Total current liabilities			15,255	16,188	14,040
Deferred revenue, non-current portion			3,618	3,790	3,862
Other long term liabilities			169	152	137
Preferred stock			0	0	0
Common stock			22	22	21
Additional paid-in capital			22,183	21,756	20,011
Treasury stock			(1,452)	(1,452)	(1,452)
Retained earnings			9,795	9,289	7,043
Total stockholders’ equity			30,548	29,615	25,623
Total liabilities and stockholders’ equity			49,590	49,745	43,662
Operating Revenues:
Software licenses	2,578	2,263
Maintenance and support	5,121	4,446
Professional services	733	642
Total Revenues	8,432	7,351
Cost of revenues
Software licenses	758	626
Maintenance and support	413	394
Professional services	364	423
Total cost of revenues	1,535	1,443
Gross profit	6,897	5,908
Operating expenses
Sales and marketing	3,289	3,005
General and administrative	1,714	1,687
Research and development	722	646
Total operating expenses	5,725	5,338
Income from operations	1,172	570
Other income	70	33
Income before income taxes	1,242	603
Income tax expense	411	220
Net income	831	383
Adjustments to reconcile net income to net cash provided by operating activities:
Excess tax deficiency from exercise of share based compensation	0	(3)
Subtotal before changes in operating assets and liabilities	1,697	1,113
Items not involving cash at the time they are recorded in the statement of operations:
Provision for sales returns and doubtful accounts receivable	11	12
Depreciation and amortization	541	501
Share-based compensation	337	239
Deferred taxes	(23)	(19)
Excess tax benefit from share-based compensation	0	3
Changes in operating assets and liabilities:
Accounts receivable	1,332	951
Prepaid expenses	39	34
Deferred revenue	(1,123)	(416)
Accounts payable	(290)	(355)
Accrued expenses	93	(327)
Other assets	181	22
Accrued interest receivable	(63)	(16)
Other long-term liabilities	17	3
Income tax receivable and payable	507	198
Net cash provided by operating activities	2,390	1,207
Comprehensive income	$ 831	$ 383
Net income per common share:
Basic (in Dollars per share)	$ 0.04	$ 0.02
Diluted (in Dollars per share)	$ 0.04	$ 0.02
Weighted average shares outstanding:
Basic (in Shares)	21,544	21,033
Diluted (in Shares)	22,023	21,652
Cash dividends declared per share (in Dollars per share)	$ 0.015	$ 0.015
Net income	$ 831	$ 383
Investing Activities:
Software development costs	(462)	(488)
Purchase of property and equipment	(188)	(90)
Net cash (used in) investing activities	(650)	(578)
Financing Activities:
Proceeds from exercise of stock options	90	122
Excess tax benefit from share-based compensation	0	3
Dividends paid	(325)	(315)
Net cash (used in) financing activities	(235)	(190)
Net increase in cash	1,505	439
Cash at beginning of period	8,895	15,885
Cash at end of period	10,400	16,324
Cash paid during the period for:
Interest	0	0
Income taxes	15	22
Scenario, Previously Reported [Member]
Current assets:
Cash and cash equivalents	10,400	16,324	10,400	8,895	16,324
Short term investments			2,759		3,270
Accounts receivable, net			5,499		5,340
Federal income tax receivable			0		35
Prepaid and other expenses			492		477
Total current assets			19,150		25,446
Long term certificates of deposit			12,837
Capitalized software development costs, net			3,731		4,040
Goodwill			12,712		12,712
Deferred tax asset, net			1,190		959
Property and equipment, net			577		517
Other assets			64		38
Total assets			50,261		43,712
Current liabilities:
Accounts payable			657		489
Accrued expenses			1,928		1,621
Income tax payable			474		34
Deferred revenue			12,704		11,672
Total current liabilities			15,763		13,816
Deferred revenue, non-current portion			3,618		3,718
Other long term liabilities			163		41
Preferred stock			0		0
Common stock			22		21
Additional paid-in capital			22,064		19,930
Treasury stock			(1,452)		(1,452)
Retained earnings			10,083		7,638
Total stockholders’ equity			30,717		26,137
Total liabilities and stockholders’ equity			50,261		43,712
Operating Revenues:
Software licenses	2,464	2,299
Maintenance and support	5,121	4,497
Professional services	733	614
Total Revenues	8,318	7,410
Cost of revenues
Software licenses	736	630
Maintenance and support	412	394
Professional services	377	569
Total cost of revenues	1,525	1,593
Gross profit	6,793	5,817
Operating expenses
Sales and marketing	3,330	2,901
General and administrative	1,721	1,733
Research and development	739	627
Total operating expenses	5,790	5,261
Income from operations	1,003	556
Other income	70	33
Income before income taxes	1,073	589
Income tax expense	322	182
Net income	751	407
Adjustments to reconcile net income to net cash provided by operating activities:
Excess tax deficiency from exercise of share based compensation	0	(3)
Subtotal before changes in operating assets and liabilities	1,379	1,151
Items not involving cash at the time they are recorded in the statement of operations:
Provision for sales returns and doubtful accounts receivable	11	43
Depreciation and amortization	541	501
Share-based compensation	324	222
Deferred taxes	(248)	(19)
Excess tax benefit from share-based compensation	0	3
Changes in operating assets and liabilities:
Accounts receivable	1,454	698
Prepaid expenses	29	34
Deferred revenue	(1,123)	(222)
Accounts payable	(219)	(350)
Accrued expenses	92	(272)
Other assets	181	22
Accrued interest receivable	(63)	(16)
Other long-term liabilities	16	(3)
Income tax receivable and payable	643	165
Net cash provided by operating activities	2,389	1,207
Comprehensive income	$ 751	$ 407
Net income per common share:
Basic (in Dollars per share)	$ 0.03	$ 0.02
Diluted (in Dollars per share)	$ 0.03	$ 0.02
Weighted average shares outstanding:
Basic (in Shares)	21,544
Diluted (in Shares)	22,023
Cash dividends declared per share (in Dollars per share)	$ 0.015
Net income	$ 751	$ 407
Investing Activities:
Software development costs	(462)	(488)
Purchase of property and equipment	(188)	(90)
Net cash (used in) investing activities	(650)	(578)
Financing Activities:
Proceeds from exercise of stock options	90	122
Excess tax benefit from share-based compensation	0	3
Dividends paid	(324)	(315)
Net cash (used in) financing activities	(234)	(190)
Net increase in cash	1,505	439
Cash at beginning of period	8,895	15,885
Cash at end of period	10,400	16,324
Cash paid during the period for:
Interest	0	0
Income taxes	15	22
Restatement Adjustment [Member]
Current assets:
Cash and cash equivalents	0	0	0	$ 0	0
Short term investments			0
Accounts receivable, net			(554)		(365)
Federal income tax receivable			0		315
Total current assets			(554)		(50)
Long term certificates of deposit			0
Capitalized software development costs, net			0
Goodwill			0
Deferred tax asset, net			(117)
Property and equipment, net			0
Total assets			(671)		(50)
Current liabilities:
Accounts payable			(17)		(5)
Accrued expenses			(232)		(55)
Income tax payable			(259)		(34)
Deferred revenue			0		318
Total current liabilities			(508)		224
Deferred revenue, non-current portion			0		144
Other long term liabilities			6		96
Preferred stock			0		0
Common stock			0
Additional paid-in capital			119		81
Retained earnings			(288)		(595)
Total stockholders’ equity			(169)		(514)
Total liabilities and stockholders’ equity			$ (671)		$ (50)
Operating Revenues:
Software licenses	114	(36)
Maintenance and support	0	(51)
Professional services	0	28
Total Revenues	114	(59)
Cost of revenues
Software licenses	22	(4)
Maintenance and support	1	0
Professional services	(13)	(146)
Total cost of revenues	10	(150)
Gross profit	104	91
Operating expenses
Sales and marketing	(41)	104
General and administrative	(7)	(46)
Research and development	(17)	19
Total operating expenses	(65)	77
Income from operations	169	14
Other income	0
Income before income taxes	169	14
Income tax expense	89	38
Net income	80	(24)
Adjustments to reconcile net income to net cash provided by operating activities:
Excess tax deficiency from exercise of share based compensation	0
Subtotal before changes in operating assets and liabilities	318	(38)
Items not involving cash at the time they are recorded in the statement of operations:
Provision for sales returns and doubtful accounts receivable	0	(31)
Depreciation and amortization	0
Share-based compensation	13	17
Deferred taxes	225
Excess tax benefit from share-based compensation	0
Changes in operating assets and liabilities:
Accounts receivable	(122)	253
Prepaid expenses	10
Deferred revenue	0	(194)
Accounts payable	(71)	(5)
Accrued expenses	1	(55)
Other assets	0
Accrued interest receivable	0
Other long-term liabilities	1	6
Income tax receivable and payable	(136)	33
Net cash provided by operating activities	1	0
Comprehensive income	$ 80	$ (24)
Net income per common share:
Basic (in Dollars per share)	$ 0	$ 0
Diluted (in Dollars per share)	$ 0	$ 0
Weighted average shares outstanding:
Net income	$ 80	$ (24)
Investing Activities:
Software development costs	0
Purchase of property and equipment	0
Net cash (used in) investing activities	0	0
Financing Activities:
Proceeds from exercise of stock options	0
Excess tax benefit from share-based compensation	0
Dividends paid	(1)
Net cash (used in) financing activities	(1)	0
Net increase in cash	0
Cash at beginning of period	0	0
Cash at end of period	0	0
Cash paid during the period for:
Interest	0	0
Income taxes	$ 0	$ 0

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15. Restatement (Details) - Schedule of Reclassification Adjustments (Parentheticals) - $ / shares	Mar. 31, 2017	Dec. 31, 2016
15. Restatement (Details) - Schedule of Reclassification Adjustments (Parentheticals) [Line Items]
Preferred stock, par value (in Dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in Dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized	40,000,000	40,000,000
Common stock, shares issued	21,970,412	21,920,912
Scenario, Previously Reported [Member]
15. Restatement (Details) - Schedule of Reclassification Adjustments (Parentheticals) [Line Items]
Preferred stock, par value (in Dollars per share)	$ 0.001
Preferred stock, shares authorized	10,000,000
Preferred stock, shares issued	0
Preferred stock, shares outstanding	0
Common stock, par value (in Dollars per share)	$ 0.001
Common stock, shares authorized	40,000,000
Common stock, shares issued	21,970,412
Restatement Adjustment [Member]
15. Restatement (Details) - Schedule of Reclassification Adjustments (Parentheticals) [Line Items]
Preferred stock, par value (in Dollars per share)	$ 0.001
Preferred stock, shares authorized	10,000,000
Preferred stock, shares issued	0
Preferred stock, shares outstanding	0
Common stock, par value (in Dollars per share)	$ 0.001
Common stock, shares authorized	40,000,000
Common stock, shares issued	21,970,412