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SMTP > SEC Filings for SMTP > Form 10-Q on 14-May-2014All Recent SEC Filings

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Form 10-Q for SMTP, INC.


14-May-2014

Quarterly Report

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

The following discussion and analysis should be read in conjunction with our financial statements, included herewith. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management. 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, 2013, filed with the Securities and Exchange Commission on March 31, 2014.

Overview

SMTP, Inc. (the "Company") provides 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. We currently operate in 130 countries worldwide, with approximately half of our revenues coming from the United States and half of our revenues being derived overseas. Our Company employs a subscription-based revenue model. Our customers pay us a monthly fee for a specific quota of emails, which we will relay on their behalf. We also earn revenues from additional usage charges that may come into effect when a customer exceeds its quota, as well as fees earned for related products and services. Additional products and services that we offer include a hosted email campaign management product and PreviewMyEmail, which allows customers to see how their emails will be delivered on a variety of desktop and mobile client devices. Unless the context otherwise requires, all references to "SMTP," "our Company," "we," "our" or "us" and other similar terms means SMTP, Inc., a Delaware corporation.

Results of Operations


                                                                  Change from       Percent Change
        Net Revenues               2014             2013          Prior Year        from Prior Year

Three Months Ended March 31,   $  1,490,054     $  1,369,438     $     120,616                   8.8 %

Revenues increased for the three months ended March 31, 2014 as compared to the three months ended March 31, 2013, due to increased sales of our email service products to consumers. Revenue growth is attributable primarily to an increase in the number of higher volume accounts, providing for a higher price per customer.

                                                                  Change from       Percent Change
      Cost of Service              2014             2013          Prior Year        from Prior Year

Three Months Ended March 31,   $    288,370     $    274,558     $      13,812                   5.0 %

Cost of services increased for the three months ended March 31, 2014 as compared to the three months ended March 31, 2013 primarily due to increased revenues.
As a percentage of revenues, cost of services decreased to 19% from 20% of net revenues for the three months ended March 31, 2014 and 2013, respectively, due to operational leverage gained from our increase in revenues.

                                                                   Change from      Percent Change
    Sales and Marketing            2014             2013           Prior Year       from Prior Year

Three Months Ended March 31,   $    148,672     $    202,767     $     (54,095 )               (26.7 )%

Sales and marketing expenses decreased for the three months ended March 31, 2014 as compared to the three months ended March 31, 2013. The decrease primarily relates to a decrease in marketing subcontractor expenses due to bringing marketing in-house.


                                                            Change from       Percent Change
 General and Administrative      2014          2013         Prior Year       from Prior Year

Three Months Ended March 31,   $ 583,764     $ 466,293     $     117,471                 25.2 %

General and administrative expenses increased for the three months ended March 31, 2014 as compared to the three months ended March 31, 2013 based on the following:

An increase in stock compensation expense of approximately $115,000 related to additional stock options issued;

An increase in depreciation and amortization of approximately $13,000;

An increase in other general and administrative expense of approximately $32,000;

An increase in payroll and benefits of approximately $92,000 related to recent executive hires;

A decrease in professional fees of approximately $132,000; primarily related to a reduction in consulting expenses.

A decrease in board of director fees of $2,500.

                                                            Change from      Percent Change
    Research and Development       2014         2013         Prior Year     from Prior Year

  Three Months Ended March 31,   $ 77,111     $ 52,532     $     24,579                 46.8 %

Research and development expenses increased for the three months ended March 31, 2014 as compared to the three months ended March 31, 2013 due to hiring a VP of Innovation in order to focus on expanding our service offerings and improving the functionality of our products.

                                                                   Change from      Percent Change
Income Tax Benefit (Expense)       2014             2013           Prior Year      from Prior Year

Three Months Ended March 31,   $   (168,765 )   $   (147,718 )   $     (21,047 )               14.2 %

Changes in our income tax expense related primarily to a increase in pretax income during the three months ended March 31, 2014 as compared to the three months ended March 31, 2013.

                                                            Change from      Percent Change
         Net Income              2014          2013          Prior Year     from Prior Year

Three Months Ended March 31,   $ 223,372     $ 225,570     $     (2,198 )               (1.0 )%

Net income decreased for the three months ended March 31, 2014 as compared to the three months ended March 31, 2013, 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

Net cash provided by operating activities decreased by $321,895 or 76%, to $100,853 for the three months ended March 31, 2014, compared to $422,748 for the three months ended March 31, 2013. The decrease in cash provided by operating activities was attributable primarily to a reduction in net income, partially offset by changes in net working capital and other adjustments. The change in working capital was offset by a decrease in net income of approximately $2,198.

Net cash used in investing activities was $0 and $241,948 during the three months ended March 31, 2014, and 2013, respectively, consisting of investments in computers, servers, other equipment and licensed software related to an asset purchase agreement.

Net cash provided by (used in) financing activities was $9,978,554 and $(262,378) during the three months ended March 31, 2014 and 2013, respectively.
During the three months ended March 31, 2014, we distributed $601,766 in cash to our shareholders in the form of a regular quarterly dividend which was offset by proceeds of $10,507,427 received from the issuance of common stock and excess tax benefits from share-based payment arrangements of $72,893. 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 $11,845,810 and $1,467,903 as of March 31, 2014 and December 31, 2013, respectively. Our increase in net working capital as of March 31, 2014 was primarily attributable to proceeds of $10,507,427 received from the issuance of our common stock in the first quarter of 2014 offset by a distribution of $601,766 in cash to our shareholders in the form of regular quarterly dividends.

Contractual Obligations


We rent our facilities on a month-to-month or quarter-to-quarter basis. Most of
our service contracts are also on a month-to-month basis. However, we entered
into several non-cancelable service contracts during 2013.  Future minimum
payments under non-cancelable service contracts are as follows as of March 31:


                               2014           4,248
                               2015               -
                               2016               -
                               2017               -
                               2018               -
                               Thereafter         -
                                            $ 4,248

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, 2013 contains a discussion of these significant accounting policies. There have been no significant changes in our significant accounting policies since December 31, 2013. See our Note 1 in our unaudited financial statements for the three months ended March 31, 2014 as set forth herein.

Off-balance sheet arrangements

We did not have any off-balance sheet arrangements at March 31, 2014.

Item 3.

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