Globalscape reports preliminary profit loss in second, third quarters
San Antonio-based software development company Globalscape is struggling to come back from an internal investigation that has cost the company more than $1 million in fees, forced an accounting restatement and put its stock at risk of delisting from the New York Stock Exchange.
The company’s former auditor, RSM, notified the company in September that it was withdrawing its opinion of Globalscape’s 2016 financial statement after the company admitted it overstated earnings and revenue that year. Globalscape, which is in the process of restating last year’s annual earnings and the first three months of this year, told investors last week that the cost of the probe will likely cut into profit for the second and third quarters.
The company is yet to file its second- or third-quarter earnings statements. It spent about $190,000 on the internal probe during the second quarter and $873,000 during the third quarter, the company said last week. Globalscape estimated in August that its net income for 2016 was about $3.7 million, not the $3.9 million it previously reported.
Globalscape said its total cash, cash equivalents and certificates of deposits, as of Sept. 30, totaled around $27 million.
The company disclosed Aug. 7 that an internal forensic audit found “improper arrangements with customers” in the fourth quarter overstated its earnings and revenue.
Globalscape’s audit committee discovered that certain transactions in the fourth quarter of last year “circumvented the company’s internal controls and their potential effect on previously reported revenue,” the company said at the time. It reissued preliminary financial results for year-end and the first quarter of this year.
The internal investigation is still ongoing, Globalscape said last week, but the company did say it “currently believes that the conduct leading to these improper arrangements with customers was limited to individuals no longer with the Company.”
In other bad news, Globalscape also disclosed that a contract to provide services for the U.S. Army that brought them $1.8 million in annual revenue concluded at the end of the third quarter.
The Army no longer needed the services because of its data center consolidation directive, which impacted the program Globalscape was supporting. The Army has a goal of getting from more than 1,000 data centers to ten, according to the release.
Across the U.S. government agencies have been working through a multi-year effort to reduce the number of federal data centers by eliminating ones that are potentially redundant or underperforming, and considering other options for infrastructure like the cloud.
Moving to a cloud computing solution can sometimes be cheaper, and a way for the government to more easily keep pace with changing technologies and advances in hardware. Data centers also use a large amount of energy, meaning government could potentially save on their utility bills with cloud.
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