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SMTP > SEC Filings for SMTP > Form 10-Q on 14-May-2013All Recent SEC Filings

Show all filings for SMTP, INC.

Form 10-Q for SMTP, INC.


14-May-2013

Quarterly Report

Management's Discussion and Analysis of Financial Condition and Results of Operations.

Except for the historical information contained in this report on Form 10-Q, the matters discussed herein are forward-looking statements. Words such as "anticipates," "believes," "expects," "future," and "intends," and similar expressions are used to identify forward-looking statements. These and other statements regarding matters that are not historical are forward-looking statements. These matters involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include without limitation those discussed below as well as those discussed elsewhere in this report. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date hereof. We assume no obligation to update these forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements. This information should also be read in conjunction with our audited historical financial statements which are included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, filed with the Securities and Exchange Commission on March 29, 2013.

Background Overview

We provide Internet-based services to facilitate email delivery. Our services provide customers with the ability to increase the deliverability of email with less time, cost and complexity than handling it themselves. We believe our growth since inception has been driven by the compelling value proposition for our services.

Results of Operations


  Net                                                    Change from         Percent Change
Revenues          2013                 2012              Prior Year          from Prior Year

 Three
 Months
 Ended
 March
  31,       $      1,369,438     $      1,247,414     $         122,024                   9.8 %

Revenues increased for the three months ended March 31, 2013 as compared to the three months ended March 31, 2012, due to increased sales of our email service products to consumers. Revenue growth is attributable primarily to an increase in our number of subscribers of these products. Most of this growth is by organic growth in our customer base.

Cost of                                                 Change from         Percent Change
Service           2013                 2012              Prior Year         from Prior Year

 Three
 Months
 Ended
 March
  31,       $        324,673     $        306,347     $         18,326                   6.0 %

Cost of services increased for the three months ended March 31, 2013 as compared to the three months ended March 31, 2012 primarily due to increased revenues.
As a percentage of revenues, cost of services were 24% and 25% of net revenues for the three months ended March 31, 2013 and 2012, respectively. Cost of services increased due to growth of the technical support personnel connected with increased number of customers and our focus on quality.

Sales and                                                 Change from          Percent Change
Marketing          2013                 2012              Prior Year          from Prior Year

  Three
 Months
  Ended
March 31,    $        202,767     $        226,775     $         (24,008 )                (10.6 )%

Sales and marketing expenses decreased for the three months ended March 31, 2013 as compared to the three months ended March 31, 2012. The decrease relates to less public relations fees paid in 2013 compared to 2012.

 General and                                                   Change from         Percent Change
Administrative          2013                 2012              Prior Year          from Prior Year

 Three Months
 Ended March
     31,          $        416,178     $        278,657     $         137,521                  49.4 %


General and administrative expenses increased for the three months ended March 31, 2013 as compared to the three months ended March 31, 2012 based on the following:

An increase in consulting fees of approximately $142,000; primarily related to warrants issued for services and an increase in accounting fees.

An increase in stock compensation expense of approximately $6,000 related to additional stock options issued in October 2012;

An increase in depreciation and amortization of approximately $15,000;

An increase in other general and administrative expense of approximately $7,000;

A decrease in payroll and benefits of approximately $33,000 related to the previous CEO's resignation.

 Research
    and                                                    Change from          Percent Change
Development         2013                 2012              Prior Year          from Prior Year

   Three
  Months
Ended March
    31,        $        52,532     $        113,598     $         (61,066 )                (53.8 )%

Research and development expenses decreased for the three months ended March 31, 2013 as compared to the three months ended March 31, 2012 as we have decided to outsource our development rather than having it in-house. However, our research and development efforts are still focused around expanding our service offerings and improving the functionality of our products.

 Income
   Tax
 Benefit                                                  Change from         Percent Change
(Expense)          2013                 2012              Prior Year          from Prior Year

  Three
 Months
  Ended
March 31,    $       (147,718 )   $       (117,212 )   $         (30,506 )                26.0 %

Changes in our income tax expense related primarily to an increase in pretax income during the three months ended March 31, 2013 as compared to the three months ended March 31, 2012, and we accrued a provision at a slightly higher rate in the first quarter of fiscal 2013 than the first quarter of fiscal 2012.

  Net                                                   Change from         Percent Change
 Income           2013                 2012              Prior Year         from Prior Year

 Three
 Months
 Ended
 March
  31,       $        225,570     $        204,825     $         20,745                  10.1 %

Net income increased for the three months ended March 31, 2013 as compared to the three months ended March 31, 2012 primarily due to revenue growth partially offset by increases in cost of services and operating expenses related to the growth in our business, each of which is described above.

Liquidity and Capital Resources

Sources and Uses of Cash

Our primary source of cash inflows are net remittances from customers for email services. Such payments are typically received in advance of providing the services, yielding a deferred revenue liability on our balance sheet.

Our primary sources of cash outflows include payroll, dividends, income tax payments and payments to vendors and third party service providers. With the exception of income taxes, which occur on a periodic basis, cash outflows typically occur in close proximity of expense recognition.


Analysis of Cash Flows

Three Months Ended March 31, 2013 and 2012

Net cash generated by operating activities increased by $538,606 or 465%, to $422,748 for the three months ended March 31, 2013, compared to ($115,858) for the three months ended March 31, 2012. The increase in cash generated by operating activities was primarily attributable to changes in working capital and other adjustments, the most significant of which was the decrease in 2012 in income taxes payable of approximately $216,132 meaning that cash spent was more than the expense recognition by those amounts. The change in working capital was offset by a decrease in net income of approximately $20,745.

Net cash used in investing activities was $(241,948) and $0 during the three months ended March 31, 2013, and 2012, respectively, consisting of investments in computers, servers, other equipment and licensed software related to an asset purchase agreement

Net cash used in financing activities was ($262,378) and $0 during the three months ended March 31, 2013 and 2012, respectively. During the three months ended March 31, 2013 we distributed $266,002, in cash to our shareholders in the form of a regular quarterly dividend which was offset by proceeds of $3,624 received from the issuance of our common stock.

We had net working capital of $534,876 and $552,669 as of March 31, 2013 and December 31, 2012, respectively. Our decrease in net working capital as of March 31, 2013 was primarily attributable to a distribution of $266,002 in cash to our shareholders in the form of regular quarterly dividends offset by proceeds of $3,624 received from the issuance of our common stock in the first quarter of 2013.

Contractual Obligations

On October 18, 2012, the Company entered into a professional services agreement with a consulting firm to aid in increasing SMTP's online presence, brand awareness and sales. The agreement requires the Company to pay a monthly cash retainer of $25,000 of which $12,500 is to be paid in cash and $12,500 to be paid through issuances of the Company's common stock with a vesting schedule of six months from delivery date. This agreement expires in October 2013.

Future minimum payments under non-cancelable service contracts are as follows as of March 31:

                                                      Payments Due by Fiscal Year
                               Remainder of
                  Total            2013            2014          2015           2016           2017         Thereafter
Operating
lease
commitments     $  20,720     $       13,815     $  6,905     $        -     $        -     $        -     $           -
Noncancelable
service
agreements      $ 175,000     $      175,000     $      -     $        -     $        -     $        -     $           -
                $ 195,720     $      188,815     $  6,905     $        -     $        -     $        -     $           -

Significant Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates based upon historical experience and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ materially from these estimates.


We do not believe that our operations to date have involved uncertainty of accounting treatment, subjective judgment, or estimates, to any significant degree. Our Annual Report on Form 10-K for the year ended December 31, 2012 contains a discussion of these significant accounting policies. There have been no significant changes in our significant accounting policies since December 31, 2012. See our Note 1 in our unaudited financial statements for the three months ended March 31, 2013, as set forth herein.

Off-balance sheet arrangements

We did not have any off-balance sheet arrangements at March 31, 2013.

Item 3.

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