UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) | |
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: September 30, 2013 | |
Or | |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number:0-54309 | |
| |
SMTP, Inc. | |
(Exact name of registrant as specified in its charter) | |
| |
Delaware | 05-0502529 |
(State or other jurisdiction of incorporation | (I.R.S. Employer Identification No.) |
|
|
1810 E. Sahara Ave. Suite 111 Las Vegas, NV | 89104 |
(Address of principal executive offices) | (Zip Code) |
|
|
877-705-9362 Ext. 205 | |
(Registrant’s telephone number, including area code) | |
| |
(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 þ No¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Date 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 þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer | ¨ | Accelerated filer | ¨ |
Non-accelerated filer | ¨ | Smaller reporting company | þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ¨ No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 15,331,638 shares of common stock as of November 1, 2013.
SMTP, INC.
Table of Contents
| Page |
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PART I – FINANCIAL INFORMATION | 1 |
Item 1. Financial Statements:. | 2 |
Condensed Balance Sheets—September 30, 2013 (unaudited) and December 31, 2012 | 2 |
Condensed Statements of Operations--- September 30, 2013 and September 30, 2012 (unaudited) | 3 |
Condensed Statements of Cash Flows--- September 30, 2013 and September 30, 2012 (unaudited) | 4 |
Notes to Financial Statements (unaudited) | 5 |
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | 12 |
Item 3. Quantitative and Qualitative Disclosure About Market Risk | 16 |
Item 4. Controls and Procedures | 16 |
PART II – OTHER INFORMATION | 17 |
Item 1. Legal Proceedings. | 17 |
Item 1A. Risk Factors. | 17 |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 17 |
Item 3. Defaults Upon Senior Securities | 17 |
Item 4. Mine Safety Disclosures | 17 |
Item 5. Other Information. | 17 |
Item 6. Exhibits | 18 |
SIGNATURES | 19 |
i
PART I – FINANCIAL INFORMATION
Forward-Looking Information
This report on Form 10-Q contains forward-looking statements. Forward-looking statements involve risks and uncertainties, such as statements about our plans, objectives, expectations, assumptions or future events. In some cases, you can identify forward-looking statements by terminology such as “anticipate,�� “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “we believe,” “we intend,” “may,” “should,” “will,” “could” and similar expressions denoting uncertainty or an action that may, will or is expected to occur in the future. These statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from any future results, performances or achievements expressed or implied by the forward-looking statements.
Examples of forward-looking statements include:
·
the timing of the development of future products;
·
projections of costs, revenue, earnings, capital structure and other financial items;
·
statements of our plans and objectives;
·
statements regarding the capabilities of our business operations;
·
statements of expected future economic performance;
·
statements regarding competition in our market; and
·
assumptions underlying statements regarding us or our business.
Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following:
·
general economic and business conditions
·
competition from third parties
·
regulatory constraints
·
changes in methods of marketing
·
changes in customer demand
·
changes in product mix
·
strategic actions, including acquisitions and dispositions and our success in integrating acquired businesses.
·
other risks to which our Company is subject
·
other factors beyond the Company's control
The ultimate correctness of these forward-looking statements depends upon a number of known and unknown risks and events. We discuss our known material risks under Item 1.A “Risk Factors contained in the Company’s Annual Report” on Form 10-K for the year ended December 31, 2012. Many factors could cause our actual results to differ materially from the forward-looking statements. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
We caution you that actual outcomes and results may differ materially from what is expressed, implied, or forecast by our forward-looking statements. The forward-looking statements speak only as of the date on which they are made, and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.
1
PART I – FINANCIAL INFORMATION
Item 1.
Financial Statements.
SMTP, INC.
CONDENSED BALANCE SHEETS
|
| September 30, |
|
| December 31, |
| ||
|
| 2013 |
|
| 2012 |
| ||
|
| (unaudited) |
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| ||
Assets |
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| ||
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|
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Cash and cash equivalents |
| $ | 1,266,679 |
|
| $ | 784,001 |
|
Accounts receivable |
|
| 47,098 |
|
|
| 38,152 |
|
Deferred income taxes |
|
| 207,915 |
|
|
| 196,097 |
|
Other current assets |
|
| 94,610 |
|
|
| 66,093 |
|
Total current assets |
|
| 1,616,302 |
|
|
| 1,084,343 |
|
|
|
|
|
|
|
|
|
|
Property and equipment, net of accumulated depreciation of $99,156 and $43,180 |
|
| 348,713 |
|
|
| 141,948 |
|
Intangibles, net of accumulated amortization of $9,000 and $8,768 |
|
| - |
|
|
| 232 |
|
Deferred income taxes |
|
| 34,476 |
|
|
| 14,536 |
|
Deposits |
|
| 29,995 |
|
|
| 29,995 |
|
Total assets |
| $ | 2,029,486 |
|
| $ | 1,271,054 |
|
|
|
|
|
|
|
|
|
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Liabilities and Shareholders' Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Deferred revenue |
| $ | 320,388 |
|
| $ | 351,059 |
|
Income taxes payable |
|
| 45,024 |
|
|
| 42,590 |
|
Allowance for refunds and chargebacks |
|
| 2,632 |
|
|
| 9,036 |
|
Accrued expenses and other current liabilities |
|
| 83,207 |
|
|
| 128,989 |
|
Total current liabilities |
|
| 451,251 |
|
|
| 531,674 |
|
|
|
|
|
|
|
|
|
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Shareholders' equity: |
|
|
|
|
|
|
|
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Preferred stock, $0.001 par value, 5,000,000 shares authorized, no shares issued or outstanding at September 30, 2013 and December 31, 2012 |
|
| - |
|
|
| - |
|
Common stock, $0.001 par value, 50,000,000 shares authorized, 15,293,736 and 14,767,250 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively |
|
| 15,294 |
|
|
| 14,768 |
|
Additional paid in capital |
|
| 1,899,681 |
|
|
| 1,111,175 |
|
Accumulated deficit |
|
| (336,740 | ) |
|
| (386,563 | ) |
Total shareholders' equity |
|
| 1,578,235 |
|
|
| 739,380 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders' equity |
| $ | 2,029,486 |
|
| $ | 1,271,054 |
|
See accompanying notes to the financial statements
2
SMTP, INC.
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2013 |
|
| 2012 |
|
| 2013 |
|
| 2012 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net revenue |
| $ | 1,468,962 |
|
| $ | 1,362,504 |
|
| $ | 4,233,547 |
|
| $ | 3,961,943 |
|
Cost of services |
|
| 311,392 |
|
|
| 302,746 |
|
|
| 939,585 |
|
|
| 940,941 |
|
Gross profit |
|
| 1,157,570 |
|
|
| 1,059,758 |
|
|
| 3,293,962 |
|
|
| 3,021,002 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Sales and marketing |
|
| 295,005 |
|
|
| 164,513 |
|
|
| 677,365 |
|
|
| 585,594 |
|
General and administrative |
|
| 302,491 |
|
|
| 275,416 |
|
|
| 1,002,750 |
|
|
| 846,846 |
|
Research and development |
|
| 81,226 |
|
|
| 93,598 |
|
|
| 186,196 |
|
|
| 316,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
| 678,722 |
|
|
| 533,527 |
|
|
| 1,866,311 |
|
|
| 1,748,503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Income before income taxes |
|
| 478,848 |
|
|
| 526,231 |
|
|
| 1,427,651 |
|
|
| 1,272,499 |
|
Provision for income tax |
|
| 159,261 |
|
|
| 212,377 |
|
|
| 497,058 |
|
|
| 513,589 |
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
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Net income |
| $ | 319,587 |
|
| $ | 313,854 |
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| $ | 930,593 |
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| $ | 758,910 |
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Net income per share: |
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|
|
|
|
|
|
|
|
|
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Basic |
| $ | 0.02 |
|
| $ | 0.02 |
|
| $ | 0.06 |
|
| $ | 0.05 |
|
Diluted |
| $ | 0.02 |
|
| $ | 0.02 |
|
| $ | 0.06 |
|
| $ | 0.05 |
|
|
|
|
|
|
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|
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|
|
|
|
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|
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Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Basic |
|
| 15,130,162 |
|
|
| 14,707,250 |
|
|
| 14,931,366 |
|
|
| 14,297,562 |
|
Diluted |
|
| 15,699,964 |
|
|
| 15,258,843 |
|
|
| 15,538,652 |
|
|
| 14,896,548 |
|
See accompanying notes to the financial statements
3
SMTP, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
|
| Nine Months Ended September 30, |
| |||||
|
| 2013 |
|
| 2012 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
| ||
Net income |
| $ | 930,593 |
|
| $ | 758,910 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 56,207 |
|
|
| 20,726 |
|
Excess tax benefits from share-based payment arrangements |
|
| (20,825 | ) |
|
| - |
|
Non-cash stock compensation |
|
| 490,258 |
|
|
| 116,584 |
|
Allowance for refunds and chargebacks |
|
| (6,404 | ) |
|
| 1,216 |
|
Deferred income taxes |
|
| (31,758 | ) |
|
| 15,378 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (8,946 | ) |
|
| (52,734 | ) |
Other assets |
|
| (28,517 | ) |
|
| (44,173 | ) |
Income taxes payable |
|
| 23,259 |
|
|
| (408,761 | ) |
Accrued expenses and other current liabilities |
|
| (45,782 | ) |
|
| (35,944 | ) |
Deferred revenue |
|
| (30,671 | ) |
|
| 29,175 |
|
Net cash provided by operating activities |
|
| 1,327,414 |
|
|
| 400,377 |
|
|
|
|
|
|
|
|
|
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Cash flows from investing activities |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
| (262,740 | ) |
|
| (12,956 | ) |
Net cash used in investing activities |
|
| (262,740 | ) |
|
| (12,956 | ) |
|
|
|
|
|
|
|
|
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Cash flows used in financing activities: |
|
|
|
|
|
|
|
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Dividends to shareholders |
|
| (880,770 | ) |
|
| (2,323,687 | ) |
Proceeds from issuance of common stock |
|
| 277,949 |
|
|
| 516,438 |
|
Excess tax benefits from share-based payment arrangements |
|
| 20,825 |
|
|
| - |
|
Net cash used in financing activities |
|
| (581,996 | ) |
|
| (1,807,249 | ) |
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents |
|
| 482,678 |
|
|
| (1,419,828 | ) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period |
|
| 784,001 |
|
|
| 1,978,809 |
|
|
|
|
|
|
|
|
|
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Cash and cash equivalents, end of period |
| $ | 1,266,679 |
|
| $ | 558,981 |
|
|
|
|
|
|
|
|
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Supplemental cash flow disclosures: |
|
|
|
|
|
|
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Cash paid for income taxes |
| $ | 545,000 |
|
| $ | 503,831 |
|
See accompanying notes to the financial statements
4
SMTP, INC.
Notes to the Financial Statements
(unaudited)
Note 1: Organizationand Basis of Presentation
Background
The Company was incorporated in Massachusetts on October 14, 1998 as EMUmail, Inc. and changed its name on April 1, 2010 to SMTP.com, Inc. The Company focuses on the execution of email delivery for marketing and enterprise application customers. The Company has customers for both corporate and personal email delivery. The Company’s services are marketed directly by the Company and through reseller partners.
On November 23, 2010, the Company formed a Delaware corporation, SMTP, Inc. for the purpose of changing the domicile of the Company from a Massachusetts corporation to a Delaware corporation and to increase the number of authorized shares outstanding. Also on November 23, 2010, the Company entered into a Merger agreement between SMTP, Inc. and SMTP.com, Inc. whereby the surviving corporation would be SMTP, Inc. (the “Surviving Corporation”), the newly formed Delaware corporation. The Surviving Corporation has an authorized capital structure of 50,000,000 shares of common stock, par value $0.001 per share and 5,000,000 shares of preferred stock, par value $0.001 per share. Under the terms of the Merger agreement, the Company’s existing 100 shares of ownership (which were held by a sole shareholder) were exchanged for 13,440,000 shares of common stock in the Surviving Corporation.
Basis of Presentation
In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments, consisting of only normal recurring accruals, necessary for a fair statement of financial position, results of operations, and cash flows. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the financial statements and the accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2012 filed with the SEC on March 29, 2013. The accounting policies are described in the “Notes to Financial Statements” in the 2012 Annual Report on Form 10-K and updated, as necessary, in this Form 10-Q. The year-end balance sheet data presented for comparative purposes was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States. The results of operations for the three and nine months ended September 30, 2013 are not necessarily indicative of the operating results for the full year or for any other subsequent interim period.
Certain reclassifications have been made to prior period reported amounts to conform to current year presentation.
Fair Value of Financial Instruments
U.S. GAAP establishes a fair value hierarchy which has three levels based on the reliability of the inputs to determine the fair value. These levels include: Level 1, defined as inputs such as unadjusted quoted prices in active markets for identical assets or liabilities; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for use when little or no market data exists, therefore requiring an entity to develop its own assumptions.
The Company’s financial instruments consist of cash, accounts receivable, deposits and accounts payable. The carrying amount of cash, accounts receivable and accounts payable approximates fair value because of the short-term nature of these items.
5
Income Taxes
Provision for income taxes are based on taxes payable or refundable for the current year and deferred taxes on temporary differences between the amount of taxable income and pretax financial income and between the tax bases of assets and liabilities and their reported amounts in the financial statements. Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled as prescribed in FASB ASC 740,Accounting for IncomeTaxes. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that a deferred tax asset will not be realized.
The Company applies the authoritative guidance in accounting for uncertainty in income taxes recognized in the financial statements. This guidance prescribes a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated 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, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. There are no uncertain tax positions taken by the Company on its tax returns. Tax years subsequent to 2010 remain open to examination by U.S. federal and state tax jurisdictions.
In determining the quarterly provision for income taxes, the Company uses an estimated annual effective tax rate, statutory tax rates and tax planning opportunities available to the Company in the jurisdictions in which it operates. This includes recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns to the extent pervasive evidence exists that they will be realized in future periods. The deferred tax balances are adjusted to reflect tax rates by tax jurisdiction, based on currently enacted tax laws, which are expected to be in effect in the years in which the temporary differences are expected to reverse. In accordance with the Company’s income tax policy, significant or unusual items are separately recognized in the quarter in which they occur.
Revenue Recognition
The Company recognizes revenue from its services when it is probable that the economic benefits associated with the transactions will flow to the Company and the amount of revenue can be measured reliably. This is normally demonstrated when: (i) persuasive evidence of an arrangement exists; (ii) the fee is fixed or determinable; (iii) performance of service has been delivered; and (iv) collection is reasonably assured.
The Company provides Internet-based services to facilitate email delivery. The Company’s services are offered over various contractual periods for a fixed fee that varies based on a maximum volume of transactions. Revenues are typically paid by clients via credit card, check or wire payments at the inception of the contractual period. Revenue is recognized on a straight-line basis over the contractual period.
The Company offers refunds on a pro-rata basis at any time during the contractual period. The Company also experiences credit card chargebacks relating to cardholder disputes that are commonly experienced by businesses that accept credit cards. The Company makes estimates for refunds and credit card chargebacks based on historical experience.
Deferred Revenue
The Company’s customers pay for services in advance on a monthly, quarterly, annual, bi-annually and quinquennially basis. Deferred revenue consists of payments received in advance of the Company’s providing the services. Deferred revenues are amortized on a straight-line basis in connection with the contractual period.
Net Income Per Share
Basic net income per share is computed using the weighted average number of common shares outstanding during the period. Diluted net income per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period.
6
Note 2: Commitments and Contingencies
Litigation
The Company may from time to time be involved in legal proceedings arising from the normal course of business. There are no pending or threatened legal proceedings as of September 30, 2013.
Consulting Services
On October 18, 2012, the Company entered into a professional services agreement. The agreement requires the Company to pay a monthly cash retainer of $12,500 to cover professional services provided by the service provider. Additionally, any service that exceeds the $12,500 retainer, are to be paid through issuances of the Company’s common stock with a vesting schedule of six months from delivery date. On March 4, 2013, the Company added an addendum to this agreement. This addendum amended the agreement so that each month is a fixed fee of $25,000 payable in $12,500 cash and $12,500 in restricted common stock. The addendum also waived all fees and other amounts exceeding $25,000 owed for November and December 2012 for services rendered. On March 8, 2013, the Company issued 18,868 shares of restricted common stock representing $25,000 worth of stock for services rendered during November and December of 2012. On March 8, 2013, the Company also issued 45,000 shares of restricted common stock representing payment for website construction in fiscal year 2013 valued at $55,800 based on the closing share price of $1.24 on March 8, 2013. On July 1, 2013, the Company terminated the consulting services agreement and issued 70,414 shares of common stock to pay the outstanding balance of approximately $75,000 due to the consultants.
On October 29, 2012, the Company entered into a professional services agreement. In connection with the agreement, the Company issued 454,863 warrants to purchase common stock at an exercise price of $0.98 per share with a term of 5 years in exchange for professional services. As of September 30, 2013, all warrants were exercisable. The agreement also calls for certain incentives that if achieved call for the disbursement of $500,000 or more depending on the size of transaction as well as fees to arrange funding. See Note 8 for discussion of warrants.
On May 29, 2013, the Company entered into a professional services agreement. The agreement requires the Company to pay $25,000 per month in exchange for marketing and advertising services. The agreement terminates on December 31, 2014 but is cancellable at any time.
On August 1, 2013, the Company entered into a professional services agreement. In connection with the agreement, the Company issued 150,000 warrants to purchase common stock at an exercise price of $1.00 per share with a term of 3 years in exchange for professional services. As of September 30, 2013, all warrants were exercisable. This agreement also requires the Company to pay $7,500 in cash per month for 12 months in exchange for sales and marketing services. The agreement terminates on July 31, 2014 but is cancellable after the first six months.
Operating Leases and Service Contracts
The Company rents its facilities on a month-to-month or quarter-to-quarter basis. Most of its service contracts are also on a month-to-month basis. As of September 30, 2013, future minimum lease and non-cancelable services contract payments are as follows for the remainder of 2013 and thereafter:
2013 |
|
| 42,105 |
|
2014 |
|
| 14,405 |
|
2015 |
|
| - |
|
2016 |
|
| - |
|
2017 |
|
| - |
|
Thereafter |
|
| - |
|
|
| $ | 56,510 |
|
7
Change in Officers and Employment Agreements
On March 5, 2013 Maksym Ilin was appointed as President, Principal Executive Officer and Vice President-Operations and Customer Service. Pursuant to a non-written agreement, Mr. Ilin will receive a base salary of $38,400 per year along with performance based bonuses. Previously, Mr. Ilin served as the Company’s Director of Customer Service. On August 15, 2013, upon the appointment of Jonathan M. Strimling, as the Company’s Chief Executive Officer, the Company’s Board of Directors removed Mr. Ilin as the Company’s President and Principal Executive Officer. Mr. Illin continues to serve as the Company’s Vice President-Operations and Customer Service.
On March 5, 2013, Ruslan Bondariev was appointed as Chief Technology Officer and Vice President – Research. Pursuant to a non-written agreement, Mr. Bondariev will receive a base salary of $36,000 per year along with performance based bonuses. Previously, Mr. Bondarev served as the Company’s Director of Research and Development.
On March 5, 2013, Alena Chuprakova was appointed as Comptroller, Treasurer and Principal Financial Officer. Pursuant to a non-written agreement, Ms. Chuprakova will receive a base salary of $50,000 per year, along with performance based bonuses.
On April 1, 2013, Brad Harkavy and Mark S. Dailey resigned as members of the board of directors.
On August 15, 2013, Jonathan M. Strimling was appointed as Chief Executive Officer. Pursuant to a written agreement, Mr. Strimling will receive a base salary of $180,000 per year along with quarterly performance based bonus compensation, other event based bonus compensation, and an option to purchase up to 1,493,449 shares of the Company’s common stock at the strike price of $1.00 per share. The options vest monthly over a four year period in equal installments of 31,113 shares per month beginning August 15, 2013, except that during the final month of vesting 31,138 shares shall vest. All of the options expire on August 14, 2023. The option grant was made pursuant to the Company’s 2010 Employee Stock Plan.
On September 18, 2013, Yvonne Gaudette was appointed as Vice President of Marketing. As the Company’s Vice President of Marketing, pursuant to a written agreement, Ms. Gaudette will receive a base salary of $110,000 per year, along with quarterly performance based bonus compensation and an option to purchase up to 125,000 shares of the Company’s common stock at the strike price of $1.03 per share. The options vest over a period of four years with 25% of the option shares vesting on September 18, 2014 and the remaining 75% of the option shares vest on an equal monthly basis thereafter. All of the options expire on September 17, 2023. The option grant was made pursuant to the Company’s 2010 Employee Stock Plan.
On September 25, 2013, Paul Parisi was appointed as Vice President of Innovation. As the Company’s Vice President of Innovation, pursuant to a written agreement, Mr. Parisi will receive a base salary of $70,000 per year, along with quarterly performance based bonus compensation and an option to purchase up to 150,000 shares of the Company’s common stock at the strike price of $1.11 per share. The options vest in two tranches as follows: (i) 75,000 shares vest over a period of four years following the commencement of part-time employment (the “Initial Option shares”) whereby25% of the Initial Option Shares will vest on September 25, 2014 and the remaining 75% of the Initial Option Shares vest on a monthly basis thereafter; (ii) and 75,000 shares vest over the four years following the commencement of full time employment, if that event occurs(the "Second Option Shares"), whereby 25% of the Second Option Shares vest on the first anniversary of the date of the start of full time employment and the remaining 75% of the Second Option Shares vest on a monthly basis thereafter. All of the options expire on September 24, 2023. The option grant was made pursuant to the Company’s 2010 Employee Stock Plan.
Note 3: Asset Purchase Agreement
On January 9, 2013 the Company entered into an asset purchase agreement (“Asset Purchase Agreement”) with Oktet Bilişim Danışmanlık Organizayon Reklamcılık Limited Şirketi, a Turkish corporation (“Octeth”). Pursuant to the Asset Purchase Agreement, the Company acquired from Octeth certain tangible assets, including servers and devices, intangible assets related to PreviewMyEmail.com, along with customer and co-location contracts, in exchange for $160,000 cash. This asset purchase agreement did not constitute a business combination for which purchase accounting would apply and therefore the purchase price was allocated to the assets acquired based on their estimated fair value.
8
Note 4: Shareholders’ Equity
The Company began paying dividends during the year ended December 31, 2012. The Company distributed dividends of $2,589,011 in cash to its shareholders during the year ended December 31, 2012. For the three and nine months ending September 30, 2013, the Company paid dividends of $347,388 and $880,770 respectively.
On March 8, 2013, in connection with a consulting agreement, the Company issued 63,868 shares of common stock in exchange for services. See Note 2 for more discussion.
On April 8, 2013, the Company issued a total of 8,880 shares of the Company’s common stock to the directors.
On May 22, 2013 the Company entered into an investment agreement. Pursuant to the investment agreement, the Company may issue and sell to the investor, up to that number of shares of the Company’s common stock having an aggregate purchase price of $2.5 million, over a period of 36 months from the first trading day following the effectiveness of the registration statement registering the resale of shares. The purchase price shall be set at 92% of the lowest daily volume weighted average price of the Common Stock during the five consecutive trading day period beginning on the date of delivery of the applicable draw down notice.
On June 20, 2013, as part of the investment agreement, the Company filed with the Securities Exchange Commission a Form S-1 for the registration of its Common Stock, $0.001 par value. The amount of shares to be registered was 2.5 million. The S-1 became effective on June 27, 2013. During the quarter ended September 30, 2013, 283,868 shares were issued related to this agreement.
On July 1, 2013, the Company terminated a consulting services agreement and issued 70,414 shares of common stock to pay the outstanding balance of approximately $75,000 due to the consultants. See Note 2.
On August 15, 2013, the Company issued a total of 4,956 shares of the Company’s common stock to the directors.
Note 5:Net Income Per Share
Computation of net income per share is as follows:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2013 |
|
| 2012 |
|
| 2013 |
|
| 2012 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income attributable to SMTP.com |
| $ | 319,587 |
|
| $ | 313,854 |
|
| $ | 930,593 |
|
| $ | 758,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding |
|
| 15,130,162 |
|
|
| 14,707,250 |
|
|
| 14,931,366 |
|
|
| 14,297,562 |
|
Add incremental shares for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants |
|
| 26,450 |
|
|
| - |
|
|
| 53,228 |
|
|
| - |
|
Stock options |
|
| 543,352 |
|
|
| 551,593 |
|
|
| 554,058 |
|
|
| 598,986 |
|
Diluted weighted average common shares outstanding |
|
| 15,699,964 |
|
|
| 15,258,843 |
|
|
| 15,538,652 |
|
|
| 14,896,548 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.02 |
|
| $ | 0.02 |
|
| $ | 0.06 |
|
| $ | 0.05 |
|
Diluted |
| $ | 0.02 |
|
| $ | 0.02 |
|
| $ | 0.06 |
|
| $ | 0.05 |
|
9
Note 6: Stock-Based Compensation
The Company has historically granted stock options to certain vendors and employees.
In November 2010, the board of directors authorized the 2010 Stock Incentive Plan ("the Plan") which provides us with the ability to issue options on up to 1,360,000 common shares.
In April 2011, the Company increased the number of shares of the Company’s common stock available for issuance under the Plan from 1,360,000 to 2,500,000.
In August 2013, the Company increased the number of shares of the Company’s common stock available for issuance under the Plan from 2,500,000 to 5,000,000. The Company’s stockholders approved this increase on October 22, 2013 pursuant to a written consent of stockholders owning a majority of the shares of outstanding common stock.
Stock option awards are expensed on a straight-line basis over the requisite service period. During the three and nine months ended September 30, 2013, the Company recognized expense of $71,237 and $131,381, respectively, associated with stock option awards. During the three and nine months ended September 30, 2012, the Company recognized expense of $50,314 and $116,584, respectively, associated with stock option awards. At September 30, 2013, future stock compensation expense (net of estimated forfeitures) not yet recognized was $1,331,541 and will be recognized over a weighted average remaining vesting period of 3.89 years. The following summarizes stock option activity for the nine months ended September 30, 2013:
|
|
|
|
|
|
|
|
|
|
| Weighted |
| ||||
|
|
|
|
| Weighted |
|
| Weighted |
|
| Average |
| ||||
|
|
|
|
| Average |
|
| Average |
|
| Remaining |
| ||||
|
| Number of |
|
| Exercise |
|
| Fair |
|
| Contractual |
| ||||
|
| Shares |
|
| Price |
|
| Value |
|
| Life |
| ||||
Outstanding at December 31, 2012 |
|
| 2,184,583 |
|
| $ | 0.89 |
|
| $ | 0.48 |
|
|
|
| |
Granted at market price |
|
| 1,768,449 |
|
|
| 1.01 |
|
|
|
|
|
|
|
| |
Exercised |
|
| (94,500 | ) |
| $ | 0.25 |
|
|
|
|
|
|
|
| |
Forfeited |
|
| (474,000 | ) |
| $ | 1.26 |
|
|
|
|
|
|
|
| |
Outstanding at September 30, 2013 |
|
| 3,384,532 |
|
|
| 0.92 |
|
|
| 0.23 |
|
|
| 9.1 |
|
Exercisable at September 30, 2013 |
|
| 619,446 |
|
| $ | 0.51 |
|
| $ | 0.29 |
|
|
| 7.2 |
|
The outstanding shares at December 31, 2012 were adjusted to reflect options that were issued but not included in the prior periods tables. This does not impact stock compensation expense.
The following table summarizes information about the Company’s stock options at September 30, 2013:
|
| Exercisable |
|
| Unexercisable |
|
| Total |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
| Weighted |
|
|
|
|
| Weighted |
|
|
|
|
| Weighted |
| ||||||
|
| Number |
|
| Average |
|
| Number |
|
| Average |
|
| Number |
|
| Average |
| ||||||
Range of Exercise Prices |
| Outstanding |
|
| Exercise Price |
|
| Outstanding |
|
| Exercise Price |
|
| Outstanding |
|
| Exercise Price |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
$.25 per share |
|
| 487,333 |
|
| $ | 0.25 |
|
|
| 102,250 |
|
|
| 0.25 |
|
|
| 589,583 |
|
| $ | 0.25 |
|
$0.99 per share |
|
| - |
|
|
| - |
|
|
| 765,000 |
|
|
| 0.99 |
|
|
| 765,000 |
|
| $ | 0.99 |
|
$1.00 per share |
|
| 31,113 |
|
|
| 1.00 |
|
|
| 1,462,336 |
|
|
| 1.00 |
|
|
| 1,493,449 |
|
| $ | 1.00 |
|
$1.03 per share |
|
| - |
|
| $ | - |
|
|
| 125,000 |
|
|
| 1.03 |
|
|
| 125,000 |
|
| $ | 1.03 |
|
$1.11 per share |
|
| - |
|
| $ | - |
|
|
| 150,000 |
|
|
| 1.11 |
|
|
| 150,000 |
|
| $ | 1.11 |
|
$1.59 per share |
|
| 101,000 |
|
| $ | 1.59 |
|
|
| 160,500 |
|
|
| 1.59 |
|
|
| 261,500 |
|
| $ | 1.59 |
|
10
Note 7:Income Taxes
During the quarter ended September 30, 2013, the Company recorded an income tax provision of $159,261, which was comprised of a current provision of $155,214 and a deferred provision of $4,047.
Note 8:Warrants
On October 29, 2012, in connection with a consulting agreement, the Company issued 454,863 warrants to purchase common stock at an exercise price of $0.98 per share with a term of 5 years. The warrants vest according to the following schedule: 75,813 shares vest immediately and 75,810 shares vest at the end of every thirty day period thereafter until the warrant is 100% vested. For the three and nine months ending September 30, 2013, the Company recognized an expense of $0 and $130,298, respectively, associated with these awards. The warrants expire on October 29, 2017 and have a remaining contractual life of 4.1 years as of September 30, 2013.
On August 1, 2013, in connection with a consulting agreement, the Company issued 150,000 warrants to purchase common stock at an exercise price of $1.00 per share with a term of 3 years. As of September 30, 2013, all warrants were exercisable. For the three and nine months ending September 30, 2013, the Company recognized an expense of $57,779 associated with these awards. The warrants expire on August 1, 2016 and have a remaining contractual life of 2.84 years as of September 30, 2013.
The following table summarizes information about the Company’s warrants at September 30, 2013:
|
|
|
|
|
|
|
| Weighted |
|
|
|
| ||||
|
|
|
|
|
|
|
| Average |
|
|
|
| ||||
|
|
|
|
| Weighted |
|
| Remaining |
|
|
|
| ||||
|
| Number |
|
| Average |
|
| Contractual |
|
| Intrinsic |
| ||||
|
| of Units |
|
| Exercise Price |
|
| Term (in years) |
|
| Value |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Outstanding at December 31, 2012 |
|
| 454,863 |
|
| $ | 0.98 |
|
|
| 4.8 |
|
|
| 49,277 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
| 150,000 |
|
|
| 1.00 |
|
|
| 2.8 |
|
|
| 22,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2013 |
|
| 604,863 |
|
| $ | 0.98 |
|
|
| 4.3 |
|
|
| 99,827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2013 | �� |
| 604,863 |
|
| $ | 0.98 |
|
|
| 4.3 |
|
|
| 99,827 |
|
Note 9: Subsequent Events
On September 26, 2013, pursuant to its May 22, 2013 investment agreement, the Company put up to $100,000 worth of shares to the Investor for a five business day period. On October 3, 2013, pursuant to that put, the Company issued 21,415 shares of the Company’s common stock to the Investor in exchange for $21,165 received from the Investor.
On October 3, 2013, pursuant to its May 22, 2013 investment agreement, the Company put up to $100,000 worth of shares to the Investor for a five business day period. On October 11, 2013, pursuant to that put, the Company issued 6,000 shares of the Company’s common stock to the Investor in exchange for $5,750 received from the Investor.
On October 10, 2013, pursuant to its May 22, 2013 investment agreement, the Company put up to $100,000 worth of shares to the investor for a five business day period. On October 18, 2013, pursuant to that put, the Company issued 10,487 shares of the Company’s common stock to the investor in exchange for $10,027 received from the investor.
On October 22, 2013, stockholders holding an 86.97% majority of the shares of voting securities outstanding and entitled to vote unanimously adopted and approved an increase in the number of shares of common stock available for issuance under the 2010 Stock Incentive Plan from 2,500,000 to 5,000,000.
11
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations.
Except for the historical information contained in this report onForm 10-Q, the matters discussed herein are forward-looking statements.Words such as “anticipates,” “believes,” “expects,” “future,” and “intends,” andsimilar expressions are used to identify forward-looking statements. These and otherstatements regarding matters that are not historical are forward-looking statements.These matters involve risks and uncertainties that could cause actual results todiffer materially from those in the forward-looking statements. Factors that couldcause or contribute to such differences in results and outcomes include withoutlimitation those discussed below as well as those discussed elsewhere in this report.Readers are cautioned not to place undue reliance on these forward-lookingstatements, which reflect management’s analysis only as of the date hereof. We assumeno obligation to update these forward-looking statements to reflect actual resultsor 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 Revenues |
| 2013 |
|
| 2012 |
|
| Change from Prior Year |
|
| Percent Change from Prior Year |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Three Months Ended September 30, |
| $ | 1,468,962 |
|
| $ | 1,362,504 |
|
| $ | 106,458 |
|
|
| 7.8 | % |
Nine Months Ended September 30, |
| $ | 4,233,547 |
|
| $ | 3,961,943 |
|
| $ | 271,604 |
|
|
| 6.9 | % |
Revenues increased for the three and nine months ended September 30, 2013 as compared to the three and nine months ended September 30, 2012, due to increased sales of our email service products to consumers. Revenue growth is attributable primarily to upgrades made by subscribers of these products. Most of this growth is by organic growth in our customer base.
Cost of Service |
| 2013 |
|
| 2012 |
|
| Change from Prior Year |
|
| Percent Change from Prior Year |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
| $ | 311,392 |
|
| $ | 302,746 |
|
| $ | 8,646 |
|
|
| 2.9 | % |
Nine Months Ended September 30, |
| $ | 939,585 |
|
| $ | 940,941 |
|
| $ | (1,356 | ) |
|
| (0.1 | )% |
Cost of services increased for the three months ended September 30, 2013 as compared to the three months ended September 30, 2012 primarily due to increases in credit card fees due to revenue growth. Cost of services decreased for the nine months ended September 30, 2013 as compared to the nine months ended September 30, 2012 primarily due to a decrease in partner commission expenses. As a percentage of revenues, cost of services were 21% and 22% of net revenues for the three months ended September 30, 2013 and 2012, respectively. As a percentage of revenues, cost of services were 22% and 24% of net revenues for the nine months ended September 30, 2013 and 2012, respectively.
Sales and Marketing |
| 2013 |
|
| 2012 |
|
| Change from Prior Year |
| Percent Change from Prior Year |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
| $ | 295,005 |
|
| $ | 164,513 |
|
| $ | 130,492 |
|
|
| 79.3 | % |
Nine Months Ended September 30, |
| $ | 677,365 |
|
| $ | 585,594 |
|
| $ | 91,771 |
|
|
| 15.7 | % |
Sales and marketing expenses increased for the three and nine months ended September 30, 2013 as compared to the three and nine months ended September 30, 2012. The increase relates to additional investments made in sales and marketing to drive revenue growth.
12
General and Administrative |
| 2013 |
|
| 2012 |
|
| Change from Prior Year |
|
| Percent Change from Prior Year |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
| $ | 302,491 |
|
| $ | 275,416 |
|
| $ | 27,075 |
|
|
| 9.8 | % |
Nine Months Ended September 30, |
| $ | 1,002,750 |
|
| $ | 846,846 |
|
| $ | 155,904 |
|
|
| 18.4 | % |
General and administrative expenses increased for the three months ended September 30, 2013 as compared to the three months ended September 30, 2012 based on the following:
·
An increase in stock compensation expense of approximately $21,000 related to new options issued;
·
An increase in professional fees of approximately $9,000;
·
An increase in depreciation and amortization of approximately $10,000;
·
A decrease in board of director fees of $5,000;
·
A decrease in other general and administrative expense of approximately $8,000
General and administrative expenses increased for the nine months ended September 30, 2013 as compared to the nine months ended September 30, 2012 based on the following:
·
An increase in professional fees of approximately $183,000; primarily related to warrants issued for services and an increase in accounting and legal fees;
·
An increase in depreciation and amortization of approximately $40,000;
·
An increase in stock compensation expense of approximately $15,000
·
An increase in other general and administrative expense of approximately $3,000;
·
A decrease in payroll and benefits of approximately $75,000 related to the previous CEO’s resignation;
·
A decrease in board of director fees of $10,000
Research and Development |
| 2013 |
|
| 2012 |
|
| Change from Prior Year |
| Percent Change from Prior Year |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
| $ | 81,226 |
|
| $ | 93,598 |
|
| $ | (12,372 | ) |
|
| (13.2 | )% |
Nine Months Ended September 30, |
| $ | 186,196 |
|
| $ | 316,063 |
|
| $ | (129,867 | ) |
|
| (41.1 | )% |
Research and development expenses decreased for the three and nine months ended September 30, 2013 as compared to the three and nine months ended September 30, 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 (Expense) |
| 2013 |
|
| 2012 |
|
| Change from Prior Year |
| Percent Change from Prior Year |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
| $ | (159,261 | ) |
| $ | (212,377 | ) |
| $ | 53,116 |
|
|
| (25.0 | )% |
Nine Months Ended September 30, |
| $ | (497,058 | ) |
| $ | (513,589 | ) |
| $ | 16,531 |
|
|
| (3.2 | )% |
Income tax expense decreased for the three and nine months ended September 30, 2013 as compared to the three and nine months ended September 30, 2012, as we moved our principal executive offices to Nevada and are no longer accruing a provision for state tax.
13
Net Income |
| 2013 |
|
| 2012 |
|
| Change from Prior Year |
| Percent Change from Prior Year |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
| $ | 319,587 |
|
| $ | 313,854 |
|
| $ | 5,733 |
|
|
| 1.8 | % |
Nine Months Ended September 30, |
| $ | 930,593 |
|
| $ | 758,910 |
|
| $ | 171,683 |
|
|
| 22.6 | % |
Net income increased for the nine months ended September 30, 2013 as compared to the nine months ended September 30, 2012 primarily due to revenue growth partially offset by 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.
In May 2013 we signed an investment agreement (“Investment Agreement”) with Dutchess Opportunity Fund, II, LP, a Delaware limited partnership (the “Dutchess”) whereby subject to certain restrictions and conditions, at our sole discretion, we may issue and sell to Dutchess, and Dutchess shall purchase from our Company, up to that number of shares of our Company’s common stock having an aggregate purchase price of two million five hundred thousand dollars ($2,500,000), over a period of 36 months commencing on June 28, 2013. We registered for resale by Dutchess 2,500,000 shares of our common stock in June 2013. Dutchess is obligated to make purchases as the Company directs in accordance with the Investment Agreement, which may be terminated by the Company at any time, without cost or penalty. Sales of shares will be made in specified amounts and at prices that are based upon the market prices of our Company's common stock immediately preceding the sales to Dutchess. We anticipate the proceeds from the sale of our shares of common stock to Dutchess under the Investment Agreement will be used for working capital purposes and acquisitions of assets, businesses or operations, if such acquisition opportunities arise. We also anticipate that the sale of our shares of common stock to Dutchess under the Investment Agreement will enable us to increase the size of our public float. We cannot assure you that we will meet the conditions of the Investment Agreement with Dutchess in order to obligate Dutchess to purchase our shares of common stock. In the event we fail to do so, we will not have access to this funding resource; however, we do not believe that our operations will suffer adversely if we are not able to access the Dutchess funding source. We will control the timing and amount of any sales of our common stock to Dutchess. Dutchess has no right to require any sales by us, but is obligated to make purchases from us as we direct in accordance with the Investment Agreement. There are no limitations on use of proceeds, restrictions on future funding, rights of first refusal or participation rights in the Investment Agreement. We may terminate the Investment Agreement at any time, at our discretion, without any penalty or cost to us. Dutchess may not assign or transfer its rights and obligations under the Investment Agreement.
On June 20, 2013, as part of this investment agreement, the Company filed with the Securities Exchange Commission Form S-1 for the registration of its Common Stock, $0.001 par value. The amount of shares to be registered was 2.5 million. The S-1 became effective on June 27, 2013. During the quarter ended September 30, 2013, 283,868 shares were issued related to this agreement.
Analysis of Cash Flows
Nine Months Ended September 30, 2013 and 2012
Net cash provided by operating activities increased by $927,037 or 232%, to $1,327,414 for the nine months ended September 30, 2013, compared to $400,377 for the nine months ended September 30, 2012. The increase in cash provided by operating activities was primarily attributable to changes in working capital and other adjustments, the most significant of which was the decrease in the 2012 income taxes payable of $432,020. The change in working capital was offset by an increase in net income of approximately $171,683.
14
Net cash used in investing activities was $262,740 and $12,956 during the nine months ended September 30, 2013, and 2012, respectively. During the nine months ended September 30, 2013, investing activities consisted of $160,000 of investments in computers equipment and licensed software related to an asset purchase agreement discussed in Note 3. The remaining cash used in investing activities was related to leasehold improvements, purchases of furniture and fixtures and construction in progress related to website construction discussed in Note 2. During the nine months ended September 30, 2012, cash used in investing activities was for purchases of computer equipment.
Net cash used in financing activities was $581,996 and $1,807,249 during the nine months ended September 30, 2013 and 2012, respectively. During the nine months ended September 30, 2013 we distributed $880,770 in cash to our shareholders in the form of a regular quarterly dividend which was offset by proceeds of $277,949 received from the issuance of our common stock and excess tax benefits of share-based payment arrangements of $20,825. During the nine months ended September 30, 2012 we distributed $2,323,687 in cash to our shareholders in the form of dividends which was offset by proceeds of $516,438 received from the issuance of our common stock.
We had net working capital of $1,165,051 and $552,669 as of September 30, 2013 and December 31, 2012, respectively. Our increase in net working capital as of September 30, 2013 was primarily attributable to cash provided by operating activities of $1,327,414 offset by a distribution of $880,770 in cash to our shareholders in the form of regular quarterly dividends.
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 On July 1, 2013, the Company terminated the consulting services agreement and issued 70,414 shares of common stock to pay the outstanding balance of approximately $75,000 due to the consultants.
The Company rents its facilities on a month-to-month or quarter-to-quarter basis. Most of its service contracts are also on a month-to-month basis. As of September 30, 2013, future minimum lease and non-cancelable services contract payments are as follows for the remainder of 2013 and thereafter:
2013 |
|
| 42,105 |
|
2014 |
|
| 14,405 |
|
2015 |
|
| - |
|
2016 |
|
| - |
|
2017 |
|
| - |
|
Thereafter |
|
| - |
|
|
| $ | 56,510 |
|
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 nine months ended September 30, 2013, as set forth herein.
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Off-balance sheet arrangements
We did not have any off-balance sheet arrangements at September 30, 2013.
Item 3.
Quantitative and Qualitative Disclosure About Market Risk
Not applicable.
Item 4.
Controls and Procedures.
Evaluation of Disclosure Controls and Procedures. The Company’s management, with the participation of the Company’s Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of September 30, 2013. Based on this evaluation, the Company’s Principal Executive Officer and Principal Financial Officer concluded that, as of September 30, 2013 the Company’s disclosure controls and procedures were effective, in that they provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and is accumulated and communicated to the Company’s management, including the Company’s Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Controls Over Financial Reporting. There were no changes in our internal control over financial reporting during the quarter ended September 30, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1.
Legal Proceedings.
Not applicable.
Item 1A.
Risk Factors.
Not Applicable.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
Securities issued for services
Date |
| Security/Value |
|
|
|
July 2013 |
| Common stock – 70,414 shares of common stock for consulting services. The common stock was valued at $75,000. |
|
|
|
August 2013 |
| Warrants - right to buy 150,000 shares of common stock at an exercise price of $1.00 per share for professional services. |
|
|
|
August 2013 |
| Common stock – 4,956 shares of common stock for director services. The common stock was valued at $5,000. |
|
|
|
August 2013 |
| Stock options – 1,493,449 shares of common stock at $1.03 per share. The options were valued at $934,750 using the Black-Scholes Option Pricing Formula. |
|
|
|
September 2013 |
| Stock options – 125,000 shares of common stock at $1.03 per share. The options were valued at $80,185 using the Black-Scholes Option Pricing Formula. |
|
|
|
September 2013 |
| Stock options – 150,000 shares of common stock at $1.11 per share. The options were valued at $108,420 using the Black-Scholes Option Pricing Formula. |
No underwriters were utilized and no commissions or fees were paid with respect to any of the above transactions.We relied on Section 4(2) of the Securities Act of 1933, as amended, since the transactions did not involve any public offering.
Item 3.
Defaults Upon Senior Securities.
Not Applicable.
Item 4.
Mine Safety Disclosures.
Not Applicable.
Item 5.
Other Information.
.
Not Applicable.
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Item 6.
Exhibits.
INDEX TO EXHIBITS
SEC Reference |
| Title of Document |
| Location |
|
|
|
|
|
10.1 |
| Professional Services Agreement – inSegment |
| Incorporated by reference to our Form 8-K filed on October 23, 2012 |
10.2 |
| Addendum to Professional Services Agreement - inSegment |
| Incorporated by reference to our Form 10-Q filed on May 14, 2013 |
10.3 |
| Asset Purchase Agreement - Octeth |
| Incorporated by reference to our Form 8-K filed on January 10, 2013 |
10.4 |
| Investment Agreement - Dutchess Opportunity Fund, II, LP |
| Incorporated by reference to our Form 8-K filed on May 24, 2013 |
10.5 |
| Registration Rights Agreement - Dutchess Opportunity Fund, II, LP |
| Incorporated by reference to our Form 8-K filed on May 24, 2013 |
10.6 |
| Marketing Agreement - Greenway |
| Incorporated by reference to our Form 8-K filed on May 31, 2013 |
31.1 |
| Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| Filed herewith |
31.2 |
| Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| Filed herewith |
32.1 |
| Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| Filed herewith |
32.2 |
| Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| Filed herewith |
101 |
| XBRL |
| Filed herewith |
All other Exhibits called for by Rule 601 of Regulation S-K are not applicable to this filing. Information pertaining to our common stock is contained in our Certificate of Incorporation and By-Laws.
18
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.
SMTP, INC. | |
|
|
By: | /s/Jonathan M. Strimling |
| Jonathan M. Strimling |
| Chief Executive Officer (Principal Executive Officer) Date: November 4, 2013 |
SMTP, INC. | |
|
|
By: | /s/ Alena Chuprakova |
| Alena Chuprakova Comptroller |
| (Principal Financial Officer) Date: November 4, 2013 |
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