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SMTP, Inc. – ‘424B4’ on 1/31/14

On:  Friday, 1/31/14, at 5:18pm ET   ·   Accession #:  1553350-14-111   ·   File #:  333-193099

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 1/31/14  SMTP, Inc.                        424B4                  1:5.3M                                   Edgar Filing LLC/FA

Document/Exhibit                   Description                      Pages   Size 

 1: 424B4       Prospectus                                          HTML    909K 

Filed pursuant to Rule 424(b)(4)

Registration Statement No. 333-193099

1,600,000 Shares

Common Stock

This is a firm commitment offering of 1,600,000 shares of common stock of SMTP, Inc.

Our common stock has been quoted on the OTCQB under the symbol “SMTP”. At present, there is a very limited market for our common stock. We have received approval to list our common stock on The NASDAQ Capital Market under the symbol “SMTP”. On January 30, 2014, the last reported sale price for our common stock on the OTCQB was $9.99 per share. We completed a 1-for-5 reverse stock split of our outstanding common stock on December 26, 2013.

Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 8 of this prospectus for a discussion of information that should be considered in connection with an investment in our common stock.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

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Does not include a non-accountable expense allowance equal to 1% of the gross proceeds of this offering payable to Aegis Capital Corp., the representative of the underwriters. See “Underwriting” beginning on page 58 of this prospectus for a description of compensation payable to the underwriters.

We have granted a 45-day option to the representative of the underwriters to purchase up to an additional 240,000 shares of common stock solely to cover over-allotments, if any.

The underwriters expect to deliver our shares to purchasers in the offering on or about February 5, 2014.

Aegis Capital Corp

January 30, 2014

TABLE OF CONTENTS

You should rely only on the information contained in this prospectus or in any free writing prospectus that we may specifically authorize to be delivered or made available to you. We have not, and the underwriters have not, authorized anyone to provide you with any information other than that contained in this prospectus or in any free writing prospectus we may authorize to be delivered or made available to you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus may only be used where it is legal to offer and sell shares of our common stock. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of shares of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date. We are not, and the underwriters are not, making an offer of these securities in any jurisdiction where the offer is not permitted.

For investors outside the United States: We have not and the underwriters have not done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of common stock and the distribution of this prospectus outside the United States. 

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RISK FACTORS

An investment in the securities offered involves a high degree of risk and represents a highly speculative investment. In addition to the other information contained in this prospectus, prospective investors should carefully consider the following risks before investing in our common stock. If any of the following risks actually occur, our business, operating results and financial condition could be materially adversely affected. As a result, the trading price of our common stock could decline, and you may lose all or part of your investment in our common stock. The risks discussed below also include forward-looking statements, and our actual results may differ substantially from those discussed in these forward-looking statements. See “Cautionary Note Regarding Forward Looking Statements” in this prospectus.

Risks Related To Our Business

The majority of our services are sold pursuant to short-term subscription agreements, and if our customers elect not to renew these agreements, our revenues may decrease.

Typically, our services are sold pursuant to short-term subscription agreements, which are generally one month to one year in length, with no obligation to renew these agreements. Our renewal rates may decline due to a variety of factors, including the services and prices offered by our competitors, new technologies offered by others, consolidation in our customer base or if some of our customers cease their operations. If our renewal rates are low or decline for any reason, or if customers renew on less favorable terms, our revenues may decrease, which could adversely affect our stock price.

If we fail to enhance our existing services or develop new services, our services may become obsolete or less competitive and we could lose customers.

If we are unable to enhance our existing services or develop new services that keep pace with rapid technological developments and meet our customers’ needs, our business will be harmed. Creating and designing such enhancements and new products entail significant technical and business risks and require substantial expenditures and lead-time, and there is no guarantee that such enhancements and new products will be completed in a timely fashion. Nor is there any guarantee that any new service offerings will gain acceptance among our email marketing customers or by the broader market. For example, our existing email marketing customers may not view any new service as complementary to our email service offerings and therefore decide not to purchase such service. If we cannot enhance our existing services or develop new products or if we are not successful in selling such enhancements and new products to our customers, we could lose customers or have difficulty attracting new customers, which would adversely impact our financial performance.

If we are unable to attract new customers and retain existing customers on a cost-effective basis, our business and results of operations will be adversely affected.

To succeed, we must continue to attract and retain a large number of customers on a cost-effective basis, many of whom have not previously used an email service like ours. We rely on a variety of methods to attract new customers, such as paying providers of online services, search engines, directories and other websites to provide content, advertising banners and other links that direct customers to our website, direct sales and partner sales. If we are unable to use any of our current marketing initiatives or the cost of such initiatives were to significantly increase or such initiatives or our efforts to satisfy our existing customers are not successful, we may not be able to attract new customers or retain existing customers on a cost-effective basis and, as a result, our revenue and results of operations would be adversely affected.

If we fail to develop our brands cost-effectively, our business may be adversely affected.

Successful promotion of our brands will depend largely on the effectiveness of our marketing efforts and on our ability to provide reliable and useful services at competitive prices. Brand promotion activities may not yield increased revenue, and even if they do, any increased revenue may not offset the expenses we incur in building our brands. If we fail to successfully promote and maintain our brands, or incur substantial expenses in an unsuccessful attempt to promote and maintain our brands, we may fail to attract enough new customers or retain our existing customers to the extent necessary to realize a sufficient return on our brand-building efforts, and our business and results of operations could suffer.

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Our relationships with our channel partners may be terminated or may not continue to be beneficial in generating new email marketing customers, which could adversely affect our ability to increase our customer base.

We maintain a network of active channel partners, as well as business service providers such as web developers and marketing agencies, on whom we depend to refer customers to us through links on their websites and outbound promotion to their customers. If we are unable to maintain our contractual relationships with existing channel partners or establish new contractual relationships with potential channel partners, we may experience delays and increased costs in adding customers, which could have a material adverse effect on us. The number of customers we are able to add through these marketing relationships is dependent on the marketing efforts of our partners over which we exercise very little control, and a significant decrease in the number of gross customer additions generated through these relationships could adversely affect the size of our customer base and revenue.

If the delivery of our customers’ emails is limited or blocked, the fees we may be able to charge for our email marketing product may not be accepted by the market and customers may cancel their accounts.

Internet Service Providers (ISP) can block emails from reaching their users. Recent releases of ISP software and the implementation of stringent new policies by ISPs make it more difficult to deliver our customers’ emails. We continually improve our own technology and work closely with ISPs to maintain our deliverability rates. If ISPs materially limit or halt the delivery of our customers’ emails, or if we fail to deliver our customers’ emails in a manner compatible with ISPs’ email handling or authentication technologies, then the fees we charge for our email marketing product may not be accepted by the market, and customers may cancel their accounts.

Our inability to successfully acquire and integrate other businesses, assets, products or technologies could harm our operating results.

We are actively evaluating acquisitions and strategic investments in businesses, products or technologies that we believe could complement or expand our existing solutions, expand our client base and operations worldwide, enhance our technical capabilities or otherwise offer growth or cost-saving opportunities. From time to time, we may enter into letters of intent with companies with which we are negotiating potential acquisitions or investments or as to which we are conducting due diligence. Although we are currently not a party to any binding definitive agreement with respect to potential investments in, or acquisitions of, complementary businesses, products or technologies, we may enter into these types of arrangements in the future, which could materially decrease the amount of our available cash or require us to seek additional equity or debt financing. We have limited experience in successfully acquiring and integrating businesses, products and technologies. We may not be successful in negotiating the terms of any potential acquisition, conducting thorough due diligence, financing the acquisition or effectively integrating the acquired business, product or technology into our existing business and operations. Our due diligence may fail to identify all of the problems, liabilities or other shortcomings or challenges of an acquired business, product or technology, including issues related to intellectual property, product quality or product architecture, regulatory compliance practices, revenue recognition or other accounting practices, or employee or customer issues.

Additionally, in connection with any acquisitions we complete, we may not achieve the synergies or other benefits we expected to achieve, and we may incur write-downs, impairment charges or unforeseen liabilities that could negatively affect our operating results or financial position or could otherwise harm our business. If we finance acquisitions using existing cash, the reduction of our available cash could cause us to face liquidity issues or cause other unanticipated problems in the future. If we finance acquisitions by issuing convertible debt or equity securities, the ownership interest of our existing stockholders may be diluted, which could adversely affect the market price of our stock. Further, contemplating or completing an acquisition and integrating an acquired business, product or technology could divert management and employee time and resources from other matters.

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Our international operations subject us to additional risks and uncertainties.

Our international operations present unique challenges and risks to our Company. Compliance with complex foreign and U.S. laws and regulations that apply to our international operations increases our cost of doing business in international jurisdictions and could interfere with our ability to offer our products and services to one or more countries or expose us or our employees to fines and penalties. These laws and regulations include, but are not limited to, tax laws, data privacy and filtering requirements, U.S. laws such as the Foreign Corrupt Practices Act, and local laws prohibiting corrupt payments to governmental officials. Violations of these laws and regulations could result in monetary damages, criminal sanctions against us, our officers, or our employees, and prohibitions on the conduct of our business. Our international operations also subject us to additional foreign currency exchange rate risks and will require additional management attention and resources. Our international operations subject us to other inherent risks, including, but not limited to:

Our failure to address these risks adequately could materially and adversely affect our business, revenue, results of operations, cash flows and financial condition.

We could be adversely affected by the devaluation of the U.S. Dollar against the Euro and could be adversely affected by the rate of inflation in the European Union.

All of our revenues are currently generated in U.S. Dollars, and inflation in the European Union and/or the devaluation of the U.S. dollar in relation to the Euro may have the effect of increasing the cost in U.S. dollars of financing expenses. As a result, our U.S. dollar-measured results of operations may be adversely affected. Because exchange rates between the Euro and the U.S. dollar fluctuate continuously, exchange rate fluctuations will have an impact on our profitability and period-to-period comparisons of our results of operations once we begin generating more significant revenues outside the U.S.

We face significant threats from new entrants to our business, which could cause us to suffer a decline in revenues and profitability.

Barriers to entry in Internet service markets are low. Privately-backed and public companies could choose to enter our space and compete directly with us, or indirectly by offering substitute solutions. The result could be decreased demand or pricing for our services, longer sales cycles, or a requirement to make significant incremental investments in research and development to match these entrants’ new technologies. If any of these happens, it could cause us to suffer a decline in revenues and profitability.

The market in which we participate is competitive and, if we do not compete effectively, our operating results could be harmed.

The market for our services is competitive and rapidly changing, and the barriers to entry are relatively low. With the introduction of new technologies and the influx of new entrants to the market, we expect competition to persist and intensify in the future, which could harm our ability to increase sales, limit customer attrition and maintain our prices.

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Our principal competitors include providers of email management services for small to medium size businesses such as AuthSmtp.com, SMTP2Go.com, SendGrid.com, JangoMail.com/JangoSMTP.com, SocketLabs.com, StrongMail.com, ExactTarget.com, CheetahMail.com, ConstantContact.com, iContact.com, MailChimp.com/Mandrill.com and Bronto.com, larger companies such as Amazon.com, as well as the in-house information technology capabilities of prospective customers. Competition could result in reduced sales, reduced margins or the failure of our email marketing product to achieve or maintain more widespread market acceptance, any of which could harm our business. While we do not compete currently with vendors serving larger customers, we may face future competition from these providers if they determine that our target market presents an opportunity for them. We may also experience competition from Internet Service Providers, or ISPs, advertising and direct marketing agencies and other large established businesses, such as Microsoft Corporation, Google Inc. or Yahoo! Inc., possessing large, existing customer bases, substantial financial resources and established distribution channels. If these companies decide to develop, market or resell competitive email marketing products, acquire one of our existing competitors or form a strategic alliance with one of our competitors, our ability to compete effectively could be significantly compromised and our operating results could be harmed. In addition, one or more of these ISPs or other businesses could decide to offer a competitive email marketing product at no cost or low cost in order to generate revenue as part of a larger product offering.

Our current and potential competitors may have significantly more financial, technical, marketing and other resources than we do and may be able to devote greater resources to the development, promotion, sale and support of their products. Our current and potential competitors may have more extensive customer bases and broader customer relationships than we have. In addition, these companies may have longer operating histories and greater name recognition than we have and may be able to bundle an email marketing product with other products that have gained widespread market acceptance. These competitors may be better able to respond quickly to new technologies and to undertake more extensive marketing campaigns. If we are unable to compete with such companies, the demand for our products could substantially decline.

Our business is substantially dependent on continued demand for email marketing and any decrease in demand could cause us to suffer a decline in revenues and profitability.

We derive, and expect to continue to derive, substantially all of our revenue from organizations, including small and medium size businesses, associations and non-profits. As a result, widespread acceptance of communicating by email among small and medium size organizations is critical to our future growth and success. The overall market for email and related services is relatively new and still evolving, and small organizations have generally been slower than larger organizations to adopt email marketing as part of their marketing mix. There is no certainty regarding how or whether this market will develop, or whether it will experience any significant contractions. Our ability to attract and retain customers will depend in part on our ability to make email communications convenient, effective and affordable. If small and medium size organizations determine that email marketing and communication does not sufficiently benefit them, existing customers may cancel their accounts and potential customers may decide not to utilize our email services. In addition, many small and medium size organizations currently lack the technical expertise to effectively send large quantities of email. As technology advances, however, small and medium size organizations may establish the capability to manage their own email transmissions and therefore have no need for our email services. If the market for email services fails to grow or grows more slowly than we currently anticipate, demand for our services may decline and our revenue would suffer.

We depend on search engines to attract a significant percentage of our customers, and if those search engines change their listings or our relationship with them deteriorates or terminates, we may be unable to attract new customers, which would adversely affect our business and results of operations.

Many of our customers located our website by clicking through on search results displayed by search engines such as Google and Yahoo!. Search engines typically provide two types of search results, algorithmic and purchased listings. Algorithmic listings cannot be purchased, and instead are determined and displayed solely by a set of formulas designed by the search engine. Purchased listings can be purchased by advertisers in order to attract users to their websites. We rely on both algorithmic and purchased listings to attract a significant percentage of the customers we serve to our website. Search engines revise their algorithms from time to time in an attempt to optimize their search result listings. If search engines on which we rely for algorithmic listings modify their algorithms, this could result in fewer customers clicking through to our website, requiring us to resort to other costly resources to replace this traffic, which, in turn, could reduce our revenue and negatively impact our operating results, harming our business. If one or more search engines on which we rely for purchased listings modifies or terminates its relationship with us, our expenses could rise, or our revenue could decline and our business may suffer. The cost of purchased search listing advertising fluctuates and may increase as demand for these channels grows, and any such increases could have negative effects on our financial results.

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Risks Related To Our Management

If we fail to retain our key personnel, we may not be able to achieve our anticipated level of growth and our business could suffer.

Our future depends, in part, on our ability to attract and retain key personnel. Our future also depends on the continued efforts and abilities of our executive officers, including our Chief Executive Officer, our Chairman and other key personnel, each of whom would be difficult to replace. In particular, Jonathan M. Strimling, our Chief Executive Officer, and Semyon Dukach, our Chairman, are critical to the development of our strategic direction. The loss of the services of Messrs. Strimling and Dukach, or other key personnel, and the process to replace any of our key personnel, would involve significant time and expense and may significantly delay or prevent the achievement of our business objectives. We currently do not have a written employment agreement with Mr. Dukach, and we currently do not maintain key person life insurance on either Mr. Strimling or Mr. Dukach. Accordingly, the loss of the services of any of these persons would adversely affect our business.

Our anticipated growth in our operations could place a significant strain on our management team and our administrative, operational and financial reporting infrastructure.

Our success will depend in part on the ability of our management team to effectively manage our growth in our operations. To do so, we believe we will need to continue to hire, train and manage new employees as needed. If our new hires perform poorly, or if we are unsuccessful in hiring, training, managing and integrating these new employees, or if we are not successful in retaining our existing employees, our business may be harmed. To manage the expected growth of our operations and personnel, we will need to continue to improve our operational and financial controls and update our reporting procedures and systems. The expected addition of new employees and the capital investments that we anticipate will be necessary to manage our anticipated growth will increase our cost base, which will make it more difficult for us to offset any future revenue shortfalls by reducing expenses in the short term. If we fail to successfully manage our anticipated growth, our business operations could be adversely affected.

Our officers and directors own a controlling interest in our voting stock and investors will not have any voice in our management, which could result in decisions adverse to our general stockholders.

Our officers and directors, in the aggregate, beneficially own approximately or have the right to vote approximately 85.37% of our outstanding common shares on a fully diluted basis. As a result, these stockholders, acting together, have the ability to control substantially all matters submitted to our stockholders for approval including:

As a result of their ownership and positions, our officers and directors collectively are able to influence all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. The interests of our officers may differ from the interests of the other stockholders, and they may influence decisions with which the other stockholders may not agree. Such decisions may be detrimental to our business plan and/or operations and they may cause our business to fail in which case you may lose your entire investment.

If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or to prevent fraud.

The United States Securities and Exchange Commission, as required by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules requiring every public company to include a management report on such company's internal controls over financial reporting in its annual report, which contains management’s assessment of the effectiveness of our internal controls over financial reporting. If we fail to achieve and maintain the adequacy of our internal controls, we may not be able to conclude that we have effective internal controls, on an ongoing basis, over financial reporting in accordance with the Sarbanes-Oxley Act. Moreover, effective internal controls are necessary for our Company to produce reliable financial reports and are important to help prevent fraud. As a result, our failure to achieve and maintain effective internal controls over financial reporting could result in the loss of investor confidence in the reliability of our financial statements, which in turn could harm our business and negatively impact the trading price of our shares of common stock.

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A material weakness in internal controls may remain undetected for a longer period because of our Company's exemption from the auditor attestation requirements under Section 404(b) of Sarbanes-Oxley.

Our annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s attestation in its annual report. As a result, a material weakness in our internal controls may remain undetected for a longer period.

Risks Related To Our Systems

Various private spam blacklists have in the past interfered with, and may in the future interfere with, the effectiveness of our products and our ability to conduct business.

We depend on email to market to and communicate with our customers, and our customers rely on email to communicate with their constituents. Various private entities attempt to regulate the use of email for commercial solicitation. These entities often advocate standards of conduct or practice that significantly exceed current legal requirements and classify certain email solicitations that comply with current legal requirements as spam. Some of these entities maintain “blacklists” of companies and individuals, and the websites, ISPs and Internet protocol addresses associated with those entities or individuals that do not adhere to those standards of conduct or practices for commercial email solicitations that the blacklisting entity believes are appropriate. If a company’s Internet protocol addresses are listed by a blacklisting entity, emails sent from those addresses may be blocked if they are sent to any Internet domain or Internet address that subscribes to the blacklisting entity’s service or purchases its blacklist.

Some of our Internet protocol addresses currently are listed with one or more blacklisting entities and, in the future, our other Internet protocol addresses may also be listed with these and other blacklisting entities. There can be no guarantee that we will not continue to be blacklisted or that we will be able to successfully remove ourselves from those lists. Blacklisting of this type could interfere with our ability to market our products and services and communicate with our customers and could undermine the effectiveness of our customers’ email marketing campaigns, all of which could have a material negative impact on our business and results of operations.

Our customers’ use of our products to transmit negative messages or website links to harmful applications could damage our reputation, and we may face liability for unauthorized, inaccurate or fraudulent information distributed via our services.

Our customers could use our email servers to transmit negative messages or website links to harmful applications, reproduce and distribute copyrighted material without permission, or report inaccurate or fraudulent data or information. Any such use of our products could damage our reputation and we could face claims for damages, copyright or trademark infringement, defamation, negligence or fraud. Moreover, our customers’ promotion of their products and services through our email marketing product may not comply with federal, state and foreign laws. We cannot predict whether our role in facilitating these activities would expose us to liability under these laws.

Even if claims asserted against us do not result in liability, we may incur substantial costs in investigating and defending such claims. If we are found liable for our customers’ activities, we could be required to pay fines or penalties, redesign business methods or otherwise expend resources to remedy any damages caused by such actions and to avoid future liability.

We do not currently have any general liability insurance to protect us in case of customer or other claims.

We do not have any general liability insurance to cover any potential claims to which we are exposed. Any imposition of liability would increase our operating losses and reduce our net worth and working capital.

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Our facilities and systems are vulnerable to natural disasters and other unexpected events and any of these events could result in an interruption of our ability to execute clients’ email campaigns.

We depend on the efficient and uninterrupted operations of our third-party data centers and hardware systems. The data centers and hardware systems are vulnerable to damage from earthquakes, tornados, hurricanes, fire, floods, power loss, telecommunications failures and similar events. If any of these events results in damage to our third-party data centers or systems, we may be unable to execute clients’ hosted online direct marketing campaigns until the damage is repaired, and may accordingly lose clients and revenues. In addition, subject to applicable insurance coverage, we may incur substantial costs in repairing any damage.

System failures could reduce the attractiveness of our service offerings, which could cause us to suffer a decline in revenues and profitability.

We provide email delivery services to our clients and end-users through our proprietary technology and client management systems. The satisfactory performance, reliability and availability of the technology and the underlying network infrastructure are critical to our operations, level of client service, reputation and ability to attract and retain clients. We have experienced periodic interruptions, affecting all or a portion of our systems, which we believe will continue to occur from time to time. We are not aware of any loss of customers due to material service interruptions. However any systems damage or interruption that impairs our ability to accept and fill client orders could result in an immediate loss of revenue to us, and could cause some clients to purchase services offered by our competitors. In addition, frequent systems failures could harm our reputation. Some factors that could lead to interruptions in customer service include: operator negligence; improper operation by, or supervision of, employees; physical and electronic break-ins; misappropriation; computer viruses and similar events; power loss; computer systems failures; and Internet and telecommunications failures. We do not carry sufficient business interruption insurance to fully compensate us for losses that may occur.

A rapid expansion of our network and systems could cause our network or systems to fail or cause our network to lose data.

In the future, we may need to expand our network and systems at a more rapid pace than we have in the past. We may suddenly require additional bandwidth for which we have not adequately planned. We may secure an extremely large customer, group of customers, or experience demands for growth by an existing customer or set of customers that would require significant system resources. Our network or systems may not be capable of meeting the demand for increased capacity, or we may incur additional unanticipated expenses to accommodate such capacity constraints. In addition, we may lose valuable data or our network may temporarily shut down if we fail to expand our network to meet future requirements. Any disruption in our network processing or loss of data may damage our reputation and result in the loss of customers.

Any significant disruption in service on our website or in our computer systems, or in our customer support services, could reduce the attractiveness of our products and result in a loss of customers.

The satisfactory performance, reliability and availability of our technology and our underlying network infrastructure are critical to our operations, level of customer service, reputation and ability to attract new customers and retain existing customers. Our production system hardware and the disaster recovery operations for our production system hardware are co-located in third-party hosting facilities. None of the companies who host our systems guarantee that our customers’ access to our products will be uninterrupted, error-free or secure. Our operations depend on their ability to protect their and our systems in their facilities against damage or interruption from natural disasters, power or telecommunications failures, air quality, temperature, humidity and other environmental concerns, computer viruses or other attempts to harm our systems, criminal acts and similar events. In the event that our arrangements with third-party data centers are terminated, or there is a lapse of service or damage to their facilities, we could experience interruptions in our service as well as delays and additional expense in arranging new facilities. Any interruptions or delays in access to our services, whether as a result of a third-party error, our own error, natural disasters or security breaches, whether accidental or willful, could harm our relationships with customers and our reputation. Also, in the event of damage or interruption, our insurance policies may not adequately compensate us for any losses that we may incur. These factors could damage our brand and reputation, divert our employees’ attention, reduce our revenue, subject us to liability and cause customers to cancel their accounts, any of which could adversely affect our business, financial condition and results of operations.

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We do not have a disaster recovery system, which could lead to service interruptions and result in a loss of customers.

We do not have any disaster recovery systems. In the event of a disaster in which our software or hardware are irreparably damaged or destroyed, we would experience interruptions in access to our services. Any or all of these events could cause our customers to lose access to our products.

We rely on third-party computer hardware and software that may be difficult to replace or that could cause errors or failures of our service, which could cause us to suffer a decline in revenues and profitability.

We rely on computer hardware purchased and software licensed from third parties in order to offer our products, including hardware from such large vendors as International Business Machines Corporation, Dell Computer Corporation, Sun Microsystems, Inc. and EMC Corporation. This hardware and software may not continue to be available on commercially reasonable terms, or at all. If we lose the right to use any of this hardware or software or such hardware or software malfunctions, our customers could experience delays or be unable to access our services until we can obtain and integrate equivalent technology or repair the cause of the malfunctioning hardware or software. Any delays or failures associated with our services could upset our customers and harm our business.

If we are unable to protect the confidentiality of our unpatented proprietary information, processes and know-how and our trade secrets, the value of our technology and services could be adversely affected.

We rely upon unpatented proprietary technology, processes and know-how and trade secrets. Although we try to protect this information in part by executing confidentiality agreements with our employees, consultants and third parties, such agreements may offer only limited protection and may be breached. Any unauthorized disclosure or dissemination of our proprietary technology, processes and know-how or our trade secrets, whether by breach of a confidentiality agreement or otherwise, may cause irreparable harm to our business, and we may not have adequate remedies for any such breach. In addition, our trade secrets may otherwise be independently developed by our competitors or other third parties. If we are unable to protect the confidentiality of our proprietary information, processes and know-how or our trade secrets are disclosed, the value of our technology and services could be adversely affected, which could negatively impact our business, financial condition and results of operations.

Our use of open source software could impose limitations on our ability to commercialize our products, which could cause us to suffer a decline in revenues and profitability.

Customizations to open source software code generally require developers to make their work available at no cost. Since we have created our software by developing extensions which plug into open source software without modifying the open source code, we do not believe there is a risk we could be required to offer our products or make our source code available. Although we monitor our use of open source software closely, the terms of many open source licenses to which we are subject have not been interpreted by United States or foreign courts, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to commercialize our products. In such event, we could be required to seek licenses from third parties in order to continue offering our products, to re-engineer our products or to discontinue sales of our products, or to release our software code under the terms of an open source license, any of which could materially adversely affect our business.

Given the nature of open source software, there is also a risk that third parties may assert copyright and other intellectual property infringement claims against us based on our use of certain open source software programs. The risks associated with intellectual property infringement claims are discussed immediately below.

Because we have not filed for patent protection of our technologies, we face the risk of our technologies not being adequately protected.

We have not applied for patent protection of our licensed technologies or processes with the US Patent and Trademark Office; if we fail to do so, we may be unable to adequately protect our intellectual property, especially if the designs and materials used in our products are replicated by our competitors. Further, even if we file for patent protection, there is no assurance that it will be approved by the US Patent and Trademark Office.

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If a third party asserts that we are infringing its intellectual property, whether successful or not, it could subject us to costly and time-consuming litigation or require us to obtain expensive licenses, and our business may be adversely affected.

The software and Internet industries are characterized by the existence of a large number of patents, trademarks and copyrights and by frequent litigation based on allegations of infringement or other violations of intellectual property rights. Third parties may assert patent and other intellectual property infringement claims against us in the form of lawsuits, letters or other forms of communication. These claims, whether or not successful, could:

As a result, any third-party intellectual property claims against us could increase our expenses and adversely affect our business. In addition, many of our agreements with our channel partners require us to indemnify them for third-party intellectual property infringement claims, which would increase the cost to us resulting from an adverse ruling on any such claim. Even if we have not infringed any third parties’ intellectual property rights, we cannot be sure our legal defenses will be successful, and even if we are successful in defending against such claims, our legal defense could require significant financial resources and management time. Finally, if a third party successfully asserts a claim that our products infringe its proprietary rights, royalty or licensing agreements might not be available on terms we find acceptable or at all and we may be required to pay significant monetary damages to such third party.

If the security of our customers’ confidential information stored in our systems is breached or otherwise subjected to unauthorized access, our reputation may be severely harmed, we may be exposed to liability and we may lose the ability to offer our customers a credit card payment option.

Our system stores our customers’ proprietary email distribution lists, credit card information and other critical data. Any accidental or willful security breaches or other unauthorized access could expose us to liability for the loss of such information, adverse regulatory action by federal and state governments, time-consuming and expensive litigation and other possible liabilities as well as negative publicity, which could severely damage our reputation. If security measures are breached because of third-party action, employee error, malfeasance or otherwise, or if design flaws in our software are exposed and exploited, and, as a result, a third party obtains unauthorized access to any of our customers’ data, our relationships with our customers will be severely damaged, and we could incur significant liability. Because techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until they are launched against a target, we and our third-party hosting facilities may be unable to anticipate these techniques or to implement adequate preventative measures. In addition, many states, including Massachusetts, have enacted laws requiring companies to notify individuals of data security breaches involving their personal data. These mandatory disclosures regarding a security breach often lead to widespread negative publicity, which may cause our customers to lose confidence in the effectiveness of our data security measures. Any security breach, whether actual or perceived, would harm our reputation, and we could lose customers and fail to acquire new customers.

If we fail to maintain our compliance with the data protection policy documentation standards adopted by the major credit card issuers, we could lose our ability to offer our customers a credit card payment option. Any loss of our ability to offer our customers a credit card payment option would make our products less attractive to many small organizations by negatively impacting our customer experience and significantly increasing our administrative costs related to customer payment processing.

We do not have any general liability insurance to cover any potential claims to which we are exposed. Any imposition of liability would increase our operating losses and reduce our net worth and working capital.

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Risks Related To Our Industry

The growth of the email marketing market depends on the continued growth and effectiveness of anti-spam products, which may be insufficient to enable us to offer our services at a profit.

Adoption of email as a communications medium depends on the ability to prevent junk mail, or “spam,” from overwhelming a subscriber’s electronic mailbox. In recent years, many companies have evolved to address this issue and filter unwanted messages before they reach customers’ mailboxes. In response, spammers have become more sophisticated and have also begun using junk messages as a means for fraud. Email protection companies in turn have evolved to address this new threat. However, if their products fail to be effective against spam, adoption of email as a communications tool will decline, which would adversely affect the market for our services.

Current economic conditions may negatively affect the business sector, which may cause our customers to terminate existing accounts with us or cause potential customers to fail to purchase our products, resulting in a decrease in our revenue and impairing our ability to operate profitably.

Our email services are designed specifically for small and medium size organizations, including small and medium size businesses, associations and non-profits that frequently have limited budgets and may be more likely to be significantly affected by economic downturns than their larger, more established counterparts. Small organizations may choose to spend the limited funds that they have on items other than our products and may experience higher failure rates. Moreover, if small organizations experience economic hardship, they may be unwilling or unable to expend resources on marketing, including email marketing, which would negatively affect the overall demand for our products, increase customer attrition and could cause our revenue to decline. In addition, we have limited experience operating our business during an economic downturn. Accordingly, we do not know if our current business model will continue to operate effectively during the current economic downturn. Furthermore, we are unable to predict the likely duration and severity of the current adverse economic conditions in the U.S. and other countries, but the longer the duration the greater risks we face in operating our business. There can be no assurance, therefore, that current economic conditions or worsening economic conditions, or a prolonged or recurring recession, will not have a significant adverse impact on our operating and financial results.

U.S. federal legislation entitled Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003 imposes certain obligations on the senders of commercial emails, which could minimize the effectiveness of our email marketing product, and establishes financial penalties for non-compliance, which could increase the costs of our business.

The Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003, or CAN-SPAM Act, establishes certain requirements for commercial email messages and specifies penalties for the transmission of commercial email messages that are intended to deceive the recipient as to source or content. The CAN-SPAM Act, among other things, obligates the sender of commercial emails to provide recipients with the ability to opt out of receiving future emails from the sender. In addition, some states have passed laws regulating commercial email practices that are significantly more punitive and difficult to comply with than the CAN-SPAM Act, particularly Utah and Michigan, which have enacted do-not-email registries listing minors who do not wish to receive unsolicited commercial email that markets certain covered content, such as adult or other harmful products. Some portions of these state laws may not be preempted by the CAN-SPAM Act. The ability of our customers’ constituents to opt out of receiving commercial emails may minimize the effectiveness of our email marketing product. Moreover, non-compliance with the CAN-SPAM Act carries significant financial penalties. If we were found to be in violation of the CAN-SPAM Act, applicable state laws not preempted by the CAN-SPAM Act, or foreign laws regulating the distribution of commercial email, whether as a result of violations by our customers or if we were deemed to be directly subject to and in violation of these requirements, we could be required to pay penalties, which would adversely affect our financial performance and significantly harm our business. We also may be required to change one or more aspects of the way we operate our business, which could impair our ability to attract and retain customers or increase our operating costs.

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Evolving regulations concerning data privacy may restrict our customers’ ability to solicit, collect, process and use data necessary to conduct email campaigns or to analyze the results or may increase their costs, which could harm our business.

Federal, state and foreign governments have enacted, and may in the future enact, laws and regulations concerning the solicitation, collection, processing or use of consumers’ personal information. Such laws and regulations may require companies to implement privacy and security policies, permit users to access, correct and delete personal information stored or maintained by such companies, inform individuals of security breaches that affect their personal information, and, in some cases, obtain individuals’ consent to use personal information for certain purposes. Other proposed legislation could, if enacted, prohibit the use of certain technologies that track individuals’ activities on web pages or that record when individuals click through to an Internet address contained in an email message. Such laws and regulations could restrict our customers’ ability to collect and use email addresses, page viewing data, and personal information, which may reduce demand for our products. They may also negatively impact our ability to effectively market our products.

As Internet commerce develops, federal, state and foreign governments may adopt new laws to regulate Internet commerce, which may negatively affect our business.

As Internet commerce continues to evolve, increasing regulation by federal, state or foreign governments becomes more likely. Our business could be negatively impacted by the application of existing laws and regulations or the enactment of new laws applicable to email communications. The cost to comply with such laws or regulations could be significant and would increase our operating expenses, and we may be unable to pass along those costs to our customers in the form of increased subscription fees. In addition, federal, state and foreign governmental or regulatory agencies may decide to impose taxes on services provided over the Internet or via email. Such taxes could discourage the use of the Internet and email as a means of commercial marketing and communications, which would adversely affect the viability of our services.

Risks Related To This Offering And Ownership Of Our Securities

The sale or availability for sale of substantial amounts of our common stock could adversely affect the market price of our common stock.

Our common stock has been traded on the OTCQB and, despite certain increases of trading volume from time to time, there have been periods when it could be considered “thinly-traded,” meaning that the number of persons interested in purchasing our common stock at or near bid prices at any given time may be relatively small or non-existent. Finance transactions resulting in a large amount of newly issued shares that become readily tradable, or other events that cause current stockholders to sell shares, could place downward pressure on the trading price of our stock. In addition, the lack of a robust resale market may require a stockholder who desires to sell a large number of shares of common stock to sell the shares in increments over time to mitigate any adverse impact of the sales on the market price of our stock.

Sales of substantial amounts of shares of our common stock after the completion of the offering, or the perception that these sales could occur, could adversely affect the market price of our common stock and could impair our future ability to raise capital through common stock offerings. As of January 30, 2014, we had 3,127,603 shares of common stock issued and outstanding, of which 2,744,535 shares were designated by our transfer agent as restricted securities pursuant to Rule 144 promulgated by the SEC. The sale of these shares into the open market may adversely affect the market price of our common stock.

In connection with this offering, we, our directors and officers, and each other 5% or greater holder of outstanding shares of our common stock on a fully-diluted basis, have agreed, subject to certain limited exceptions, not to offer, sell, contract to sell or otherwise dispose of, or enter into, any transaction that is designed to, or could be expected to, result in the disposition of any shares of our common stock or other securities convertible into or exchangeable or exercisable for shares of our common stock for 90 days after the date of this prospectus without the written consent of the representative of the underwriters, subject to potential extension. As of the date of this prospectus, approximately 2,775,078 shares of our common stock will be subject to the contractual lock-up with the underwriter. However, the representative of the underwriters may release these securities from these restrictions at any time without notice. See “Underwriting” for a more detailed description of the restrictions on selling our securities after this offering.

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The offering price for shares of our common stock is substantially higher than the net tangible book value per share, so purchasers in this offering will experience immediate and substantial dilution in the book value of their investment.

If you purchase common stock in this offering, you will pay more for your common stock than the amount paid by existing stockholders for their common stock. As a result, you will experience immediate and substantial dilution of approximately $3.95 per share of common stock, assuming no exercise of outstanding options and warrants to acquire common stock, representing the difference between our net tangible book value per share of common stock of $0.52 at September 30, 2013, after giving effect to this offering at the offering price per share of common stock of $6.25. In addition, you may experience further dilution to the extent that our common stock is issued upon the exercise of our outstanding options and warrants. Approximately 749,979 of the shares of common stock issuable upon the exercise of currently outstanding options and warrants will be issued at a purchase price that is less than the offering price per share in this offering. See “Dilution” on page 26 for a more complete description of how the value of your investment in our common stock will be diluted upon the completion of this offering.

We will have broad discretion and flexibility in how the net proceeds from this offering are used, we may use the net proceeds in ways in which you disagree.

We currently intend to use the net proceeds from this offering to fund our research and development activities and for working capital, other general corporate purposes and possibly acquisitions of other companies, services or technologies. Presently, we have no agreements with any potential acquisition candidates. See “Use of Proceeds” on page 24 of this prospectus. We have not allocated specific amounts of the net proceeds from this offering for any of the foregoing purposes. Accordingly, our management will have significant discretion and flexibility in applying the net proceeds of this offering. You will be relying on the judgment of our management with regard to the use of these net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the net proceeds are being used appropriately. It is possible that the net proceeds will be invested in a way that does not yield a favorable, or any, return for us. The failure of our management to use such funds effectively could have a material adverse effect on our business, financial condition, operating results and cash flow.

We may need additional capital in the future, which may not be available to us on favorable terms, or at all, and may dilute your ownership of our common stock.

We have historically relied on outside financing and cash from operations to fund our operations, capital expenditures and expansion. We may require additional capital from equity or debt financing in the future to:

We may not be able to secure timely additional financing on favorable terms, or at all. The terms of any additional financing may place limits on our financial and operating flexibility. If we raise additional funds through issuances of equity, convertible debt securities or other securities convertible into equity, our existing stockholders could suffer significant dilution in their percentage ownership of our Company, and any new securities we issue could have rights, preferences and privileges senior to those of our common stock. If we are unable to obtain adequate financing or financing on terms satisfactory to us, if and when we require it, our ability to grow or support our business and to respond to business challenges could be significantly limited.

We may expand through acquisitions of, or investments in, other companies or through business relationships, all of which may result in additional dilution to our stockholders and consumption of resources that are necessary to sustain our business.

One of our business strategies is to acquire competing or complementary services, technologies or businesses. We also may enter into relationships with other businesses in order to expand our service offerings, which could involve preferred or exclusive licenses, additional channels of distribution or discount pricing or investments in other companies.

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In connection with one or more of those transactions, we may:

Presently, we have no agreements with any potential acquisition candidates.

Our amended certificate of incorporation and bylaws, and certain provisions of Delaware corporate law, as well as certain of our contracts, contain provisions that could delay or prevent a change in control even if the change in control would be beneficial to our stockholders.

Delaware law, as well as our amended certificate of incorporation and bylaws, contains anti-takeover provisions that could delay or prevent a change in control of our Company, even if the change in control would be beneficial to our stockholders.  These provisions could lower the price that future investors might be willing to pay for shares of our common stock.  These anti-takeover provisions:

Section 203 of the Delaware General Corporation Law, the terms of our employee stock option agreements and other contractual provisions may also discourage, delay or prevent a change in control of our Company.   Section 203 generally prohibits a Delaware corporation from engaging in a business combination with an interested stockholder for three years after the date the stockholder became an interested stockholder.  Our employee stock option agreements include change-in-control provisions that allow us to grant options or stock purchase rights that may become vested immediately upon a change in control. The terms of change of control provisions contained in certain of our senior executive employee agreements may also discourage a change in control of our Company. Our board of directors also has the power to adopt a stockholder rights plan that could delay or prevent a change in control of our Company even if the change in control is generally beneficial to our stockholders. These plans, sometimes called “poison pills,” are oftentimes criticized by institutional investors or their advisors and could affect our rating by such investors or advisors. If our board of directors adopts such a plan, it might have the effect of reducing the price that new investors are willing to pay for shares of our common stock.

Together, these charter, statutory and contractual provisions could make the removal of our management and directors more difficult and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our common stock. Furthermore, the existence of the foregoing provisions, as well as the significant common stock beneficially owned by our founder, executive officers, and members of our board of directors, could limit the price that investors might be willing to pay in the future for shares of our common stock. They could also deter potential acquirers of our Company, thereby reducing the likelihood that you could receive a premium for your common stock in an acquisition.

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Our quarterly results may fluctuate and if we fail to meet the expectations of analysts or investors, our stock price could decline substantially.

Our quarterly operating results may fluctuate, and if we fail to meet or exceed the expectations of securities analysts or investors, the trading price of our common stock could decline. Some of the important factors that could cause our revenue and operating results to fluctuate from quarter to quarter include:

Some of these factors are not within our control, and the occurrence of one or more of them may cause our operating results to vary widely. As such, we believe that quarter-to-quarter comparisons of our revenue and operating results may not be meaningful and should not be relied upon as an indication of future performance. In addition, trading in stock traded over the counter on the pink sheets is often thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do with a company's operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to our business or operating performance. Moreover, trading is often more sporadic than the trading of securities listed on a quotation system like NASDAQ or a stock exchange like the NYSE Amex. Accordingly, stockholders may have difficulty reselling any of their shares of common stock.

If our common stock is subject to the Securities and Exchange Commission’s penny stock rules, broker-dealers may experience difficulty in completing customer transactions and trading activity in our securities may be adversely affected.

Subject to certain exceptions, such as if our common stock has a market price per share of $5.00 or more (as calculated pursuant to SEC rules), transactions in our common stock will be subject to the SEC’s “penny stock” rules. If our common stock is subject to the “penny stock” rules promulgated under the Securities Exchange Act of 1934, as amended, or the Exchange Act, broker-dealers may find it difficult to effectuate customer transactions and trading activity in our securities may be adversely affected. Under these rules, broker-dealers who recommend such securities to persons other than institutional accredited investors must: make a special written suitability determination for the purchaser; receive the purchaser’s written agreement to the transaction prior to sale; provide the purchaser with risk disclosure documents which identify certain risks associated with investing in “penny stocks” and which describe the market for these “penny stocks” as well as a purchaser’s legal remedies; and obtain a signed and dated acknowledgment from the purchaser demonstrating that the purchaser has actually received the required risk disclosure document before a transaction in a “penny stock” can be completed. As a result, if our common stock is subject to the penny stock rules, the market price of our securities may be depressed, and you may find it more difficult to sell our securities.

You should be aware that, according to the SEC, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. These could affect low-priced stocks, such as ours, even if they do not qualify as “penny stocks” under the SEC rules. Such patterns include:

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An active trading market for our common stock may not develop and the market price for our common stock may decline below the offering price of our common stock in this offering.

Our common stock has been quoted on the OTCQB under the symbol “SMTP”. We have received approval to list our common stock on The NASDAQ Capital Market under the symbol “SMTP”. The OTCQB is an electronic quotation system that displays real-time quotes, last-sale prices, and volume information for many OTC securities that are not listed on a national securities exchange. Trading volume for our common stock has been limited and OTCQB quotations for our common stock price may not represent the true market value of our common stock. The historical trading prices of our common stock on the OTCQB may not be indicative of the price levels at which our common stock will trade following this offering or upon listing of our common stock on The NASDAQ Capital Market, and we cannot predict the extent to which the consummation of this offering, the commencement of the trading of our common stock on The NASDAQ Capital Market, or investor interest in us generally will lead to the development of an active public trading market for our common stock or how liquid that public market may become. The offering price for our common stock in this offering has been determined by negotiation between the representative of the underwriters and us based upon several factors, and may not be indicative of prices that will prevail in the open market after this offering. Consequently, you may be unable to sell your shares of our common stock at prices equal to or greater than the prices you paid for them, if at all.

If securities or industry analysts do not publish research or reports about our business, or if they change their recommendations regarding our stock adversely, our stock price and trading volume could decline.

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If no securities or industry analysts commence coverage of us, the trading price for our common stock would be negatively affected. In the event we obtain securities or industry analyst coverage, if one or more of the analysts who covers us downgrades our securities, the price of our securities would likely decline. If one or more of these analysts ceases to cover us or fails to publish regular reports on us, interest in the purchase of our securities could decrease, which could cause the price of our common stock and its trading volume to decline.

Risks Related To Our Reverse Stock Split

We completed a 1-for-5 reverse stock split of our outstanding common stock on December 26, 2013. However, we cannot assure you that we will be able to continue to comply with the minimum bid price requirement of The NASDAQ Capital Market.

We completed a reverse stock split to achieve the requisite increase in the market price of our common stock to be in compliance with the minimum bid price of The NASDAQ Capital Market. We cannot assure you that the market price of our common stock following the reverse stock split will remain at the level required for continuing compliance with that requirement. It is not uncommon for the market price of a company's common stock to decline in the period following a reverse stock split. If the market price of our common stock declines following the effectuation of a reverse stock split, the percentage decline may be greater than would occur in the absence of a reverse stock split. In any event, other factors unrelated to the number of shares of our common stock outstanding, such as negative financial or operational results, could adversely affect the market price of our common stock and jeopardize our ability to maintain The NASDAQ Capital Market's minimum bid price requirement. In addition to specific listing and maintenance standards, The NASDAQ Capital Market has broad discretionary authority over the initial and continued listing of securities, which it could exercise with respect to the listing of our common stock.

Even though the reverse stock split increased the market price of our common stock, there can be no assurance that we will be able to comply with other continued listing standards of The NASDAQ Capital Market.

Even though the market price of our common stock increased sufficiently so that we comply with the minimum bid price requirement, we cannot assure you that we will be able to comply with the other standards that we are required to meet in order to maintain a listing of our common stock on The NASDAQ Capital Market. Our failure to meet these requirements may result in our common stock being delisted from The NASDAQ Capital Market, irrespective of our compliance with the minimum bid price requirement.

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The reverse stock split may decrease the liquidity of the shares of our common stock.

The liquidity of the shares of our common stock may be affected adversely by the reverse stock split given the reduced number of shares that will be outstanding following the reverse stock split, especially if the market price of our common stock does not increase as a result of the reverse stock split. In addition, the reverse stock split may increase the number of stockholders who own odd lots (less than 100 shares) of our common stock, creating the potential for such stockholders to experience an increase in the cost of selling their shares and greater difficulty effecting such sales.

Following the reverse stock split, the resulting market price of our common stock may not attract new investors, including institutional investors, and may not satisfy the investing requirements of those investors. Consequently, the trading liquidity of our common stock may not improve.

Although we believe that a higher market price of our common stock may help generate greater or broader investor interest, we cannot assure you that the reverse stock split will result in a share price that will attract new investors, including institutional investors. In addition, there can be no assurance that the market price of our common stock will satisfy the investing requirements of those investors. As a result, the trading liquidity of our common stock may not necessarily improve.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

We have made statements in this Prospectus, including under “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and elsewhere that constitute 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 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 the heading “Risk Factors” above. 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.

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.

You should also assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.

USE OF PROCEEDS

We estimate that the net proceeds to us from the sale of the 1,600,000 shares of common stock we are offering will be approximately $9.3 million. If the representative of the underwriters fully exercises the over-allotment option, we estimate the net proceeds of the shares we sell will be approximately $10.695 million. “Net proceeds” is what we expect to receive after paying the underwriters fees and commissions, but excluding our estimated offering expenses in the amount of $158,563, which we expect to pay from our cash flow from operations.

We currently intend to use the net proceeds from this offering for working capital, other general corporate purposes, and possibly acquisitions of other companies, services or technologies. Presently, we have no agreements with any potential acquisition candidates. We have not yet determined the amount of net proceeds to be used specifically for any of the foregoing purposes. Accordingly, our management will have significant discretion and flexibility in applying the net proceeds from this offering. Pending any use as described above, we intend to invest the net proceeds in high-quality, short-term, interest-bearing securities. Additionally, we are conducting this offering to assist us in meeting the initial requirements for the listing of our common stock on The NASDAQ Capital Market.

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PRICE RANGE OF COMMON STOCK

Our common stock has been quoted on the OTCQB under the symbol “SMTP”. We have received approval to list our common stock on The NASDAQ Capital Market under the symbol “SMTP”. The following table set forth below lists the range of high and low bids for our common stock for our two most recent fiscal years. The prices in the table reflect inter-dealer prices, without retail markup, markdown or commission and may not represent actual transactions or a liquid trading market. These prices also give pro forma effect to the 1-for-5 reverse stock split of our outstanding shares of common stock that occurred on December 26, 2013.

Holders

As of January 30, 2014 we have a total of 3,127,603 shares of common stock outstanding (giving effect to the 1-for-5 reverse stock split), held of record by approximately 650 stockholders. We do not have any shares of preferred stock outstanding.

Penny Stock Regulations and Restrictions on Marketability

The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a market price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that: (a) contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; (b) contains a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to a violation of such duties or other requirements of the securities laws; (c) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; (d) contains a toll-free telephone number for inquiries on disciplinary actions; (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and (f) contains such other information and is in such form, including language, type size and format, as the SEC shall require by rule or regulation.

The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) a monthly account statement showing the market value of each penny stock held in the customer's account. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgment of the receipt of a risk disclosure statement, a written agreement as to transactions involving penny stocks, and a signed and dated copy of a written suitability statement.

These disclosure requirements may have the effect of reducing the trading activity for our common stock. Therefore, stockholders may have difficulty selling our securities.

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DIVIDEND POLICY

Our Company began paying cash dividends on its common stock during the year ended December 31, 2012. Our dividend history is as follows:

No restrictions limit our ability to pay cash dividends on our common stock. The payment of cash dividends in the future is contingent upon our Company's revenues and earnings, capital requirements and general financial condition. The payment of any dividends is within the discretion of our board of directors. Our board of director's present intention is to continue to pay comparable regular cash dividends in the future.

DILUTION

If you invest in our common stock in this offering, your interest will be diluted to the extent of the difference between the public offering price per share of our common stock and the pro forma net tangible book value per share of our common stock immediately after this offering.

The net tangible book value of our common stock as of September 30, 2013 was $1,578,235 or approximately $0.52 per share after giving pro forma effect to the 1-for-5 reverse stock split of our outstanding common stock. Net tangible book value per share represents our total tangible assets less our total tangible liabilities, divided by the number of shares of common stock. 

Net tangible book value dilution per share to new investors represents the difference between the amount per share paid by purchasers in this offering and the pro forma net tangible book value per share of our common stock immediately after the completion of this offering, after giving pro forma effect to the 1-for-5 reverse stock split of our outstanding common stock. After giving effect to our issuance and sale of 1,600,000 shares of common stock in this offering at the public offering price of $6.25 per share, and after deducting estimated underwriting discounts and commissions and estimated offering expenses, our pro forma net tangible book value as of September 30, 2013 would have been $2.30 per share after giving pro forma effect to the 1-for-5 reverse stock split of our outstanding common stock. This represents an immediate increase in net tangible book value of $1.78 per share to existing stockholders and an immediate dilution in net tangible book value of $3.95 per share to purchasers of common stock in this offering, as illustrated in the following table:

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CAPITALIZATION

The following table sets forth our cash and our capitalization as of September 30, 2013:

You should read this table together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited and unaudited financial statements and the related notes appearing elsewhere in this prospectus.

The above table:

·

is based on 3,127,603 shares of common stock issued and outstanding as of January 30, 2014

·

assumes no exercise by the underwriters of their option to purchase up to an additional 240,000 shares of common stock to cover over-allotments, if any

·

excludes 696,406 shares of our common stock issuable upon exercise of outstanding stock options under our stock incentive plans at a weighted average exercise price of $5.09 per share as of January 30, 2014

·

excludes 120,973 shares of our common stock issuable upon exercise of outstanding warrants at a weighted average exercise price of $4.90 per share as of January 30, 2014

·

excludes 80,000 shares of common stock underlying the warrants to be issued to the underwriters in connection with this offering.

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BUSINESS

This Business section, along with other sections of this prospectus, includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe that these industry publications and third-party research, surveys and studies are reliable, we have not independently verified such data and we do not make any representation as to the accuracy of the information.

Business Opportunity

SMTP, Inc. (the “Company”) is a provider of cloud-based email delivery services for companies in over 130 countries. Just as companies may turn to a courier to ensure a package reaches a physical destination, our customers turn to SMTP to ensure their emails reach the inbox of the intended recipients. Our customers use marketing email to drive revenues, and our improvements to their inbox deliverability translate into top-line growth for our customers.

SMTP has a history of profitable growth, while paying dividends. The business model is a subscription-based recurring revenue model, with approximately 8,000 customers, and with no single customer representing more than 2% of sales. Customers rely on SMTP for improved inbox delivery, to reduce the cost and complexity of managing commercial email, and for our 24x7 customer support. A critical factor in whether legitimate emails are able to successfully get through SPAM filters and reach their destination inbox is the reputation of the sender, and we work closely with our customers to build their sending reputations. Approximately 50% of SMTP’s revenues are derived in the United States, with the balance split between Europe, Asia and the rest of the world.

Our services provide customers with the ability to increase the deliverability of email with less time, cost and complexity than handling it themselves. Our trusted servers and our experienced team allow us to provide a cost-effective, high level of service to our customers, thus improving their email delivery. Improved delivery increases the effectiveness of our customers’ marketing efforts, which has led to both top and bottom-line growth for SMTP.

Our Company’s name, SMTP, stands for Simple Mail Transfer Protocol, which is the standard by which email is sent worldwide. Our website address is www.smtp.com. While our Company does not own the protocol, we believe the name SMTP earns our Company credibility with customers worldwide and is recognized by those in the email business globally. Companies may search directly for SMTP-related services online, regardless of their native tongue, which we believe often leads to successful hits for online searches of our services. We believe this brand is one of the reasons our Company has grown organically and profitably over the last decade, and has been able to attract customers in over 130 countries.

SMTP has benefitted from the growing global email market, which Forrester estimated at over a $1.8B market in 2013, and which Forrester projects to grow to nearly $2.5B by 2016. Email marketing is recognized as one of the highest ROI investments businesses can make in growing revenues. MarketingSherpa’s 2013 survey indicated that respondents on average realized an ROI of 119% on email marketing. The high returns of email marketing are driven by the fact that companies can use email campaigns to contact prospective and current customers to drive new sales cost-effectively.

Forrester projects that the email delivery segment, which is the segment we serve, will grow approximately 30% from $717M in 2013 to over $933M in 2016, which would make it the largest and fastest growing segment in the email market. The expanding need for our services and for email delivery services in general is being driven by the increasing complexity of successfully delivering commercial marketing emails.

Our delivery services are necessary due to the challenges legitimate commercial senders face in reaching consumer inboxes. A recent ReturnPath study found that during the first half of 2013, 22% of commercial marketing emails sent with subscribers’ permission never reached their targeted destination inbox. As the filters used by the Internet Service Providers (ISPs) have tightened to prevent SPAM from reaching consumer inboxes, it has become increasingly difficult for legitimate commercial senders to reach inboxes as well.

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ReturnPath Email Intelligence Report 1H 2013

As shown above, of the 22% of opt-in commercial email that never reaches the intended inbox, only 4% is delivered as spam to a junk-mail folder, and 18% is missing or blocked by the ISPs. Notably, the ReturnPath study found that the challenges for commercial senders are increasing, as the percentage of opt-in commercial email reaching inboxes fell versus the prior years’ reported data.

The sender’s reputation is one of the primary factors considered by an ISP in determining whether to permit an email to pass through its filters and to reach an inbox. Like a credit rating, a client’s sending reputation is derived from its sending history, including sending volume, the number of bounced emails, and the number of customer complaints. A ReturnPath study found the 77% of delivery problems were based on issues with sender reputation.

We actively manage sending reputation for our clients, and will build the sending reputation of clients on IP addresses that are owned by SMTP. If a client were to leave SMTP, it cannot take these IP addresses, so it would leave behind the positive reputation we have created and maintained for its brand. We believe this “retention of reputation” dynamic has allowed SMTP to maintain a steady base of subscription-derived revenues, while our brand has helped us to add new customers and to grow.

Notably, our profit margins on a Trailing Twelve Month (TTM) basis were 22%, and compare favorably with competitors. We believe that our profit margins are a function of both the compelling value we provide to our customers, and the disciplined and frugal management of our operations.

We believe SMTP has the opportunity for both significant organic growth and synergistic acquisitions. Our Company recently made significant moves to strengthen its senior management team, including adding a new Chief Executive Officer, a Vice President of Marketing, and a Vice President of Innovation. These new additions bring a track record of growing businesses rapidly by acquiring customers cost-effectively, and have successfully launched new products and services in related industries. In addition, SMTP continues to leverage its established technical team, which brings over a decade of experience in cloud-based email delivery.

Our Company’s strategy for driving organic growth includes adding operational rigor using quantitative sales and marketing efforts, international expansion, and new product introductions. We believe our Company’s globally recognized brand and its core delivery service can be enhanced to encompass a greater range of products and services, thus broadening its customer base. We believe its cost-effective operations can be further leveraged as it grows, and acquisitions may present additional opportunities to add complementary products, services and customers.

Background on Our Business

SMTP, Inc. has been providing cloud-based SMTP relay services for over a decade. SMTP currently operates in 130 countries worldwide, with approximately half of its revenues coming from the United States and half of its 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.

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A primary factor that ISPs consider in evaluating whether to transmit or quarantine email is the reputation of the sender. Each sending IP address will typically have a reputation with the ISPs, which is associated with factors such as typical sending volumes and the percentage of bounces and complaints that are sent from that IP address. SMTP maintains large pools of IP addresses, and proactively monitors email traffic through our system to maintain our sending reputation.

A single commercial sender of marketing emails may periodically send a large number of emails at once, such as in the distribution of a newsletter or marketing promotion at the end of a month. To an ISP, the rapid increase in volume associated with such sending may appear to be SPAM, and cause the ISP to bounce messages or to throttle back on the rate at which it will accept messages from that sending IP address. But by pooling a large number of quality senders, we maintain a consistent flow of traffic with sending statistics that are within the ranges expected and typically accepted by ISPs.

The illustration below summarizes how we can improve delivery for our clients by relaying their email:

We also manage dedicated IP addresses for many of our clients, whereby we will dedicate a specific IP address exclusively for a single customer’s use and then manage the customer’s sending reputation on an outsourced basis. We offer our larger clients the opportunity to have one or more dedicated IP addresses, and we can proactively manage the reputation of their IP addresses for them. Specifically, we will initially “warm up” the IP addresses for clients by slowly scaling up their volumes at a rate that may differ for different ISPs, while monitoring bounces, complaints and potential throttling by the ISPs. We will work with customers to improve the content of their emails and the quality of their lists, and to ensure that proper authentication is in place on their accounts. On an ongoing basis, we will monitor the IP’s reputation, as well as the customer’s sending statistics, providing continuous feedback to customers on how to effectively manage their sending practices.

The assignment of IP addresses is controlled globally by the Internet Assigned Number Authority (IANA) and five regional entities, including the American Registry of Internet Numbers (ARIN). IP addresses are not normally “portable”, and usually may not be re-assigned to another organization unless ARIN has expressly approved such a transfer. SMTP has 12,286 portable IPv4 addresses, which can be used on behalf of our clients for sending email. Of these, 8,190 portable IPv4 addresses were obtained from ARIN in 2012, nearly tripling our available IP resources.

In addition to providing enhanced deliverability of email, SMTP also reduces the complexity of managing email for our clients. Large volume senders who do not employ an outsourced email delivery provider would need to address the management of bounces, complaints, and whitelisting themselves. They are likely to be unfamiliar with how to navigate throttling issues, whereby an individual ISP may limit the volume of email it may accept from a particular sender during a period of time. A client may not know the appropriate authentication procedures that can improve email delivery. Failure to manage these various issues effectively with the ISPs could inadvertently result in blacklisting of a legitimate sender, further complicating its ability to effectively reach inboxes effectively.

We provide services to enable businesses of various scales to outsource the sending of outbound emails. Legitimate senders of email use our services to help maintain their online email reputation so that their email is not blocked and is delivered to the intended recipients.

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The services are differentiated based on the volume of emails sent by our customers:

Our team has over a decade of experience in managing the cloud-based delivery of email and we provide 24x7 support for customers globally. A typical high-volume customer may start with us by testing our services using a small fraction of its email volume. We may work with customers on initial configuration of our services, including setting up authentication services, and whitelisting them as a legitimate sender.  During their initial trials and as they scale, we would work interactively with them on improving the content of their emails, the quality of their distribution lists, and the management of their sending IP addresses. We would manage increases in the traffic on their IPs to gradually ramp the volumes in a manner that is acceptable to the individual ISPs, and at ramp-rates that may differ between Gmail and MSN, for example.

As they gain confidence in our services, clients may ask us to provide more than one IP address, and to manage sending across a pool of IP addresses. Over the course of sending large volumes of email, our customers may experience issues with bounces or complaints. We work with our senders and all of the ISPs to manage these issues proactively, and to head off any potential issues before they impact the ability of our senders to continue to market effectively. Over the course of sending email with us, our customers may need information on the status of their campaigns, and they have access both to our online portal for statistics and to our customer support team, if necessary.

We operate with both U.S. and overseas operations, with our Sales and Marketing department headquartered in the United States, and our Technical Development and Support groups located in the Ukraine. Our Ukrainian operations have been providing support in English and other languages for over a decade, with ongoing training in both technical and language skills. The U.S. Sales and Marketing presence is important in growing sales in our largest single market; the overseas Technical Development and Support groups provide the Company with a competitive advantage by offering a lower cost structure for these critical functions. The combination of our domestic and overseas operations has provided for profitable growth for over a decade, and has allowed our Company to pay a dividend, while still growing revenues and bottom-line results.

In summary, our services provide customers with the ability to increase the deliverability of email with less time, cost and complexity than handling it themselves. Our trusted servers and our experienced team allow us to provide a cost-effective, high level of service to our customers, thus improving their email delivery. Improved delivery increases the effectiveness of our customers’ marketing efforts, which, in turn, has led to both top- and bottom-line growth for SMTP.

In addition to providing email delivery services, SMTP provides a hosted solution for email campaign management. This cloud-based software allows a client to compose an email campaign, to manage a client list, and to send large volumes of emails quickly using our integrated email delivery platform. Following delivery, this software allows clients to track opens and clicks for their campaigns, in order to measure the efficacy of their email marketing efforts.

Additionally, on January 9, 2013, pursuant to an asset purchase agreement, we acquired certain tangible assets, including servers and devices, as well as intangible assets related to PreviewMyEmail.com (“PME”), along with customer and co-location contracts. PME provides email design testing for customers that allows our clients to view screen shots of emails as they would be viewed when received by 48 common desktop, web and mobile email applications. Previewing email on many different applications before sending can help ensure that email can be viewed as intended. PME also provides inbox analytics for clients to track email opens, clicks, and geo-location. These additional metrics can help senders maximize performance of future email campaigns.

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Sales and Marketing

Our website address is www.smtp.com. The SMTP.com website has been a cornerstone of our historic growth. We sell directly to prospective customers online, but also have a number of industry partners who refer clients to our Company. Approximately 80% of our customers reach us directly, while approximately 20% reach us through third parties.

Our direct sales are largely driven by leads generated via our SMTP.com website. As stated earlier, SMTP stands for Simple Mail Transfer Protocol, which is the protocol by which email is sent globally. Despite the fact that we do not own the protocol, our name provides us immediate name recognition and credibility worldwide. In addition, the services we provide may be searched for online as “SMTP”, “SMTP relay services”, “SMTP services”, “SMTP providers”, or using similar terms.

Our website may appear in search engine results for these and other queries in common search engines, such as Google, Yahoo, Bing, and others. In addition, SMTP purchases online search advertising and other forms of online advertising to drive additional traffic to our website. In the aggregate, approximately 374,000 unique visitors visited our website during the past twelve months.

Aside from online lead generation, a variety of referring partners provide us with leads. Referring partners are typically other service providers operating in the email ecosystem, who may provide related products and services that are non-competitive with our own. We pay these third parties between 15% and 30% of the revenue generated from their referrals.

We are not dependent on one or a few major customers. Our largest single customer represents less than 2% of our aggregate revenues, so the loss of any one customer would not represent a material loss of sales.

We believe our Company’s history of profitable growth has been driven by the strength of the SMTP.com brand, and with very limited internal oversight of marketing efforts. Our Company has had two inside sales professionals based in the United States, and has had no other U.S.-based or overseas sales and marketing support until the fourth quarter of 2013. Until that point, SMTP had utilized external marketing resources for the management of marketing efforts, and the marketing strategy has been focused upon the online acquisition of customers via organic website traffic driven by the SMTP.com website, and via externally managed Pay-Per-Click (PPC) campaigns, such as Google Adwords.

We have historically had three primary types of marketing expenses: online advertising, fees paid to affiliates for referrals, and outside marketing consulting fees. Our Company has paid and continues to pay affiliates 15-30% commissions for the referral of business to SMTP. SMTP’s strategy for improving the efficiency of online advertising will be described below as part of the growth strategy.

In September 2013, we hired a Vice President of Marketing, Yvonne Gaudette, who has updated our website and marketing strategy. Ms. Gaudette brings extensive experience in both online and offline marketing, improving cost effective customer acquisition, optimizing websites, improving customer communications, and building affiliate and partner programs. She also has direct experience in driving international marketing efforts.

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The Email Services Market

The email services market is estimated by Forrester Research at $1.9B in 2013, and is growing at over 10% annually. The email market has several functional segments, which include creative, integration, analytics, and delivery. SMTP’s current business is focused on delivery, which is the largest and fastest growing segment of the market.

The market is highly fragmented, with numerous players providing a variety of different services and functions. Our Company has historically been focused in the area of delivery, with a market share of approximately 1% of the email delivery market, so a 1-2% increase in delivery share would represent approximately a doubling or tripling of our current revenues.

The email market is a large market, which can be segmented in a variety of ways. While there is significant overlap in services, our competitors are typically focused in one of three areas: marketing email creation, marketing email delivery or transactional email delivery.

Companies like Constant Contact and MailChimp are well-known brands best known for their tools for marketing email creation. They have a large following in the small business markets, where customers are focused on quickly and easily creating email campaigns, such as newsletters and promotions. The integrated services offered by these firms allow for campaign creation, management, analysis and delivery all in one platform. But typically, the companies spend heavily on sales and marketing to effectively reach large numbers of small business customers.

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Our customers are focused on marketing email delivery. Our customers may have in-house design teams, and internal analytics capabilities, and they typically send significantly higher volumes of email. Because the risks of being inadvertently labeled as a spammer increase as volume increases, many of our customers are much more concerned with marketing email delivery than with the creation of email. Our customers may turn to us because of our expertise and focus in the area of delivery, but also because for comparable sending volumes, SMTP is typically significantly lower in cost than sending via these integrated packages. We believe our customers often remain with us because of the improvements we are able to demonstrate in their inbox delivery, the fact that they cannot transfer the sending reputations we create and maintain for them, and because of the 24x7 deep technical support we provide for any issues with deliverability issues.

There is a third major category of providers in the email market, those that largely focus on transactional email delivery, and an example of one such provider is SendGrid. A transactional email is an email sent in immediate response to a user action on a website, such as an order confirmation or a password reset request. Transactional email providers typically face few issues with SPAM filters. This is because the emails are directed to an email address that was just provided and is therefore unlikely to bounce, because they are not typically sent in large batches, and because SPAM filters do not normally target order confirmations or other typical transactional emails. Transactional email companies typically focus on creating an easy to use interface, or API, for developers. These companies make it easy to easily manage transactional emails, they typically sell to a technical contact, rather than a marketing professional, and they face and manage far fewer issues with message deliverability.

SMTP does provide transactional email services as part of its service offering, but the majority of SMTP’s traffic is related to marketing email messages. SMTP does see opportunities for growth in transactional email markets, but does not believe the margins or the growth opportunities in transactional email to be as significant as in the marketing email delivery market.

Our Growth Strategy

We believe that the following factors have provided and will continue to provide us a differentiated competitive advantage, allowing us to drive further growth:

·

Our SMTP.com brand is a unique asset that is globally recognized, which we intend to continue to use to attract customers seeking SMTP-based email delivery services.

·

Our team blends over a decade of cloud-based email delivery experience with new executives bringing a strong track-record of driving cost-effective growth.

·

The sending reputation of our trusted servers took over a decade to establish, and requires significant expertise to maintain.

·

Our cost-effective balance of U.S. and overseas operations has allowed us to maintain above-average margins in the industry, while growing profitably and while paying a dividend.

·

Our public-entity status positions us well to secure further capital, and to pursue acquisitions opportunistically.

Our strategy for utilizing these competitive advantages to drive further growth is multi-pronged. We will strengthen the sales of existing email delivery products using targeted strategies for online growth, both domestically and internationally. We plan to launch complementary products and services, and may consider opportunistic acquisitions. We believe that offering complementary services will both strengthen our ability to attract customers to our email delivery business, and will allow us to expand to capture new customers now purchasing integrated solutions from competitors, which are typically substantially higher in cost.

We also believe that our growth will be enhanced by the projected growth of the email delivery market overall, which is projected by Forrester to grow approximately 30% between 2013 and 2016.

Our Online Marketing Strategy

Our online marketing strategy is focused on building awareness of the SMTP brand, and improving the conversion of visitors to our website. Because SMTP is the protocol by which email is sent globally, we believe the brand gets us immediate name recognition, but there are opportunities to drive improved awareness of our brand. The SMTP website was updated in the fourth quarter of 2013 to clarify the value of the products and services we offer to customers. The website will continue to be optimized to raise its visibility with search engines, and also to iteratively improve its conversion rates.

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SMTP continues to work to develop partnerships with other players in the email marketing industry. Companies that refer business to SMTP include providers of related services in the industry. SMTP typically offers these referring partners a commission on any sales they may refer, which may range from 15-30%, and we see opportunities to expand these programs.

While our Company has historically driven online marketing using outsourced marketing agencies and Pay-Per-Click (PPC) advertising, our new team has brought marketing in-house in an effort to acquire customers more cost-effectively. The marketing plan includes both more targeted PPC advertising and outreach via a variety of other channels, as described in both our domestic and international sales strategies below.

Our Domestic Sales & Marketing

In addition to the new executive level hires for the roles of Chief Executive Officer, Vice President of Marketing and Vice President of Innovation, our Company plans on driving domestic revenue growth by further strengthening its U.S.-based sales & marketing team. While technical support in the Ukraine has been highly effective in meeting customer needs on a 24x7 basis, our belief is that a stronger U.S. presence will help us close sales faster and more effectively. Our Company recently hired a Customer Care Coordinator charged with improving user experiences and better qualifying leads. We also intend to hire additional U.S.-based sales and marketing personnel.

Our Company upgraded its practices for tracking and pursuing its sales pipeline during the fourth quarter of 2013 in order to continue to sharpen the focus of our sales and marketing efforts as we move forward. In addition to online lead generation, we expect to use other channels, such as industry partnerships, public relations efforts, social media, and targeted industry media buys.  Our new Vice President of Marketing is working to clarify and streamline all communication processes with customers, from initial outreach through onboarding and ongoing support, first for domestic sales, and then to support growth internationally.

Our International Growth

We believe there are significant opportunities for SMTP to drive substantial international growth. We believe our name is globally recognized and remains a key asset in international expansion.

While the SMTP website has been redesigned and updated during the fourth quarter of 2013, it has not yet been localized for the non-English speaking countries we serve. We believe that by localizing content on our web pages, and tailoring messages to particular nationalities and languages, we can increase international online lead generation.

We also believe that with a focused and quantitative approach to evaluating international expansion opportunities, we can drive additional growth. These opportunities will include both targeted online and offline opportunities.  Online, we believe that localized online advertising can be utilized to drive online visitors to landing pages that are customized to the targeted geography. We also believe we can identify partners who can be helpful in providing international referrals, and we have been successful in increasing the rate of international referrals from partners during the fourth quarter of 2013.

Our Complementary Products and Services

SMTP is investing in the development of additional functionality to complement our core strength in the delivery of email. Our Company recently hired Mr. Paul Parisi as Vice President of Innovation, who brings experience rapidly developing and launching new products and services, and will also leverage the talents and experience of our Chief Technology Officer, who brings over a decade of experience in related technology.

Competing email service providers currently provide fully integrated tools for email composition, campaign management, and analytics, and may offer a wide variety of templates to users of their services. Customers and prospective customers ask us about our abilities to provide these services, and yet our offerings in these related areas have historically provided somewhat limited functionality. So we are moving forward to offer a broader set of solutions. By broadening our product set, we expect to be able to sell additional products to current customers, as well as to be able to attract customers who require broader solutions than our current email delivery service.

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As one example, our intent is to integrate the PreviewMyEmail technology into the proprietary SMTP service offering, providing clients the opportunity to preview their emails on a host of desktop and mobile applications. We envision that PME would also continue to be available at PreviewMyEmail.com, where paid plans are currently priced from $49 to $199 per month. Other examples of areas where we could cost-effectively provide customers with improved functionality include the areas of campaign creation, management, analytics and optimization. These are relatively straightforward technical developments, which are highly complementary to our existing offering, that we believe our customers would be willing to purchase.

Our Acquisition Strategy

Growth may also be accelerated via acquisitions. We believe that SMTP is well positioned for acquisitions of related players in the space because of its strength in email delivery, its profitability, and the fact that it is a public company. Criteria for acquisitions include (1) a strategic fit with regard to technology or channel acquisition, (2) revenue potential in both the newly acquired business and by making our existing services more attractive, and (3) a comprehensive understanding of the acquisition risks.

The new additions to the senior executive team and board of directors bring significant experience with acquisition and integration of technology companies. Should we choose to pursue acquisitions, we expect to fund acquisitions through the issuance of debt or equity securities, the payment of cash, the exchange of services, or any combination thereof. Presently, we have no agreements with any potential acquisition candidates, and we cannot assure you that we will be able to consummate any acquisition upon terms acceptable to us or at all.

Competition

Our competitors include providers of email management services for small to medium size businesses such as Sendgrid.com, AuthSmtp.com, SMTP2Go.com, JangoSMTP/JangoMail.com, SocketLabs.com, StrongMail.com, Dyn, MailChimp.com/Mandrill.com, ConstantContact.com, CheetahMail.com, iContact.com, Bronto.com, and Amazon.com, as well as the in-house information technology capabilities of prospective customers.

The market for our services is competitive and rapidly changing, and we do not have patents or unique regulatory barriers that could prevent competitors from entering our market. Privately-backed and public companies could choose to enter our space and compete directly with us, or indirectly by offering substitute solutions. The result could be decreased demand or pricing for our services, longer sales cycles, or a requirement to make significant incremental investments in research and development to match these entrants’ new technologies. With the introduction of new technologies and the influx of new entrants to the market, we believe competition could persist and intensify in the future, which could harm our ability to increase sales, limit customer attrition and maintain our prices. If any of these happens, it could cause us to suffer a decline in revenues and profitability.

Competition could result in reduced sales, reduced margins or the failure of our email marketing product to achieve or maintain more widespread market acceptance, any of which could harm our business. While we do not compete currently with vendors focused on enterprise-scale customers, we may face future competition from these providers if they determine that our target market presents an opportunity for them. Finally, in the future, we may experience competition from Internet Service Providers, or ISPs, advertising and direct marketing agencies and other large established businesses, such as Microsoft Corporation, Google Inc. or Yahoo! Inc., possessing large, existing customer bases, substantial financial resources and established distribution channels. If these companies decide to develop, market or resell competitive email marketing products, acquire one of our existing competitors or form a strategic alliance with one of our competitors, our ability to compete effectively could be significantly compromised and our operating results could be harmed. In addition, one or more of these ISPs or other businesses could decide to offer a competitive email marketing product at no cost or low cost in order to generate revenue as part of a larger product offering.

Our current and potential competitors may have significantly more financial, technical, marketing and other resources than we do and may be able to devote greater resources to the development, promotion, sale and support of their products. Our current and potential competitors may have more extensive customer bases and broader customer relationships than we have. In addition, these companies may have longer operating histories and greater name recognition than we have and may be able to bundle an email marketing product with other products that have gained widespread market acceptance. These competitors may be better able to respond quickly to new technologies and to undertake more extensive marketing campaigns. If we are unable to compete with such companies, the demand for our products could substantially decline.

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We cannot assure you that we will be able to respond quickly, cost-effectively or sufficiently to these potential market conditions. Our business, financial condition and operating results may be adversely affected if we are unable to anticipate or respond quickly and economically to any developments.

Our ability to compete will also depend on the strength of our brand, our ability to attract and retain key talent and other personnel, the efficiency of development and marketing. All these activities require significant financial resources. We may not be able to sustain competition. Our inability to compete effectively would have an adverse impact on our business.

Intellectual Property

We do not own any patents, trademarks, licenses, franchises or concessions, although we believe our ownership of SMTP.com provides value to our Company due to website traffic and the strength of the brand.

Our trade secrets include our competencies in managing the transmission of high volumes of email messages to various Internet Service Providers, as is described more fully below in the Technology section. The technology of both hardware and SPAM filters is constantly changing, and our team is constantly uncovering new issues and implementing new methodologies to improve the quality of our service.

Technology

SMTP leverages Message Transfer Agent (MTA) technology provided by Message Systems for its small business customers. This software is utilized to handle manage large volumes of email and provides extensive features for managing email delivery issues, such as throttling by the ISP’s, using such technologies as adaptive delivery. Facebook, LinkedIn, and other very large email senders typically utilize this sophisticated software, but our typical customers are too small and individually spend too little on email to be able to afford this type of sophisticated system. Our solution to provide our customers with access to these systems has been to pool a large number of customers into our proprietary scalable system that can handle billions of emails annually for our customers in a cost-effective manner.

We customized various aspects of the software to optimize the speed at which email is delivered, and to manage the process of maximizing inbox delivery. Our proprietary systems manage how emails are sent, and which IP addresses or pools of IP addresses are utilized for sending. We control the throttling of how quickly emails are released to various ISPs, and may, for example, allow sending to Gmail addresses to ramp more quickly than to MSN addresses, depending upon our interactions with the various ISPs.

Our systems provide for the reporting of key statistics to our customers. These statistics are available to our customers via our proprietary customer portal, or via an external API, which we have developed. In addition, our proprietary systems also provide for enhanced internal reporting. These internal reporting capabilities allow us to proactively manage customers’ sending reputations, and to provide them alerts if we notice any issues.

A key part of our technological assets are our 12,286 portable IPv4 addresses. We can allow our customers to utilize our IP addresses to improve the inbox delivery of their email campaigns. We have over a decade of experience building the reputation of IP addresses, and the reputation of our IP addresses is a key technological asset of the Company.

We currently rent Internet servers from providers such as Rackspace, Softlayer, Hetzner and Sadecehosting. Each of these companies has servers in multiple cities in the United States, in Europe, or in Canada. These companies offer us servers located in multiple physical locations, providing redundancy in the event of a natural disaster.

We utilize Postfix software that is open source and can be used by anyone without cost. We customized various aspects of the software to optimize the speed at which email is delivered, and to manage the process of maximizing inbox delivery. Customizations to open source software code generally require developers to make their work available at no cost. Since we have created our software by developing extensions which plug into open source software without modifying the open source code, we do not believe there is a risk we could be required to offer our products or make our source code available. Generally, we spend less than 10% of our sales on research and development activities.

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Regulation of our business

We must comply with U.S. federal legislation entitled Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003, or CAN-SPAM Act, which imposes certain obligations on the senders of commercial emails and specifies penalties for the transmission of commercial email messages that are intended to deceive the recipient as to source or content.

The CAN-SPAM Act’s main provisions include:

In addition, some states have passed laws regulating commercial email practices that are significantly more punitive and difficult to comply with than the CAN-SPAM Act, particularly Utah and Michigan, which have enacted do-not-email registries listing minors who do not wish to receive unsolicited commercial email that markets certain covered content, such as adult or other harmful products. Some portions of these state laws may not be preempted by the CAN-SPAM Act. Additionally, some foreign jurisdictions, such as Australia, Canada and the European Union, have also enacted laws that regulate sending email, some of which are more restrictive than the CAN-SPAM Act. For example, some foreign laws prohibit sending unsolicited email unless the recipient has provided the sender advance consent to receipt of such email, or in other words has “opted-in” to receiving it.

The ability of our customers’ constituents to opt out of receiving commercial emails may minimize the effectiveness of our email marketing product. Moreover, non-compliance with the CAN-SPAM Act carries significant financial penalties. If we were found to be in violation of the CAN-SPAM Act, applicable state laws not preempted by the CAN-SPAM Act, or foreign laws regulating the distribution of commercial email, whether as a result of violations by our customers or if we were deemed to be directly subject to and in violation of these requirements, we could be required to pay penalties, which would adversely affect our financial performance and significantly harm our business. We also may be required to change one or more aspects of the way we operate our business, which could impair our ability to attract and retain customers or increase our operating costs.

As Internet commerce continues to evolve, increasing regulation by federal, state or foreign governments becomes more likely. Our business could be negatively impacted by the application of existing laws and regulations or the enactment of new laws applicable to email communications. The cost to comply with such laws or regulations could be significant and would increase our operating expenses, and we may be unable to pass along those costs to our customers in the form of increased subscription fees. In addition, federal, state and foreign governmental or regulatory agencies may decide to impose taxes on services provided over the Internet or via email. Such taxes could discourage the use of the Internet and email as a means of commercial marketing and communications, which would adversely affect the viability of our services.

Employees

As of the date of this prospectus, we have five full-time employees, two part-time employees and one contractor in the U.S., consisting of our Chief Executive Officer, Chief Financial Officer, Vice President of Marketing, Vice President of Innovation, three sales professionals and our controller. We also have 26 independent contractors in the Ukraine, consisting of 13 technical support personnel, 6 systems engineers, 5 research development engineers, 1 accountant, and 1 project manager, and 3 full-time employees consisting of the representative office head, administrative assistant and service manager.

We believe that our future success will depend in part on our continued ability to attract, hire or acquire and retain qualified employees and independent contractors. There can be no assurance that we will be able to attract and retain such individuals or companies. If we are unsuccessful in managing the timely delivery of these services our business could be adversely affected. We believe we have good relations with our employees and independent contractors.

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Properties

Our corporate headquarters are located in Nashua, NH and we have support and technology offices in Cambridge, MA, Las Vegas, NV, Kiev, Ukraine and Odessa, Ukraine. We rent these five offices for approximately $8,100 per month total, for terms of 3 months or shorter. We believe that additional space may be required as our business expands and believe that we can obtain suitable space as needed.

Legal Proceedings

We are not a party to any litigation of a material nature. We recently received a notification from RPost Holdings, Inc. whereby RPost Holdings, Inc. claims that we are infringing on their patent rights with certain of our products and services. Although we remain in the investigative stages of the merit to this claim, we believe that our Company and other companies were practicing the technology that RPost claims its patents cover before the first priority date of RPost’s patents. On that basis, we believe that the patents cannot cover our technology and remain valid. To our knowledge, we have not been named in any proceeding with respect to this matter.  

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read together with the consolidated financial statements and related notes that are included elsewhere in this prospectus. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” or in other parts of this prospectus.

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

Three and Nine Months Ended September 30, 2013 Compared to Three and Nine Months Ended September 30, 2012

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 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 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.

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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 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 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.

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.

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Fiscal Year December 31, 2012 Compared To the Fiscal Year Ended December 31, 2011

Revenues increased for the year ended December 31, 2012 as compared to the year ended December 31, 2011, due to increased sales of our email service products to consumers. Revenue growth is attributable primarily to an increase in our number of subscribers (approximately 9000) of these products and an increase in the average monthly fee to $70. Most of this growth is by organic growth in our customer base.

Cost of services increased for the year ended December 31, 2012 as compared to the year ended December 31, 2011 primarily due to increased revenues. As a percentage of revenues, cost of services were 24% and 19% of net revenues for the years ended December 31, 2012 and 2011, respectively. This increase in cost of services as a percentage of revenues is due to increase in costs of infrastructure to support a growing client base and higher cost of server storage as we move to more secure datacenters that house our servers.

Sales and marketing expenses increased for the year ended December 31, 2012 as compared to the year ended December 31, 2011 primarily attributable to a general growth in our business. We spent more on advertising and marketing to fuel additional growth, but there is no direct correlation between revenues and marketing expenses. In October 2012 we signed an agreement with a digital marketing agency which increased sales and marketing expense by $55,000. We also increased our online advertising budget during 2012, which included online ads running in 10 different languages.

General and administrative expenses increased for the year ended December 31, 2012 as compared to the year ended December 31, 2011 based on the following:

Research and development expenses increased for the year ended December 31, 2012 as compared to the year ended December 31, 2011 as we utilized more subcontractors devoted to research and development. Our research and development efforts are focused around expanding our service offerings and improving the functionality of our products.

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Changes in our income tax expense related primarily to differences in pretax income during the years ended December 31, 2012 and 2011, respectively, and the effects of certain balancing to our tax returns that vary from year to year.

Net income increased for the year ended December 31, 2012 as compared to the year ended December 31, 2011 increased 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

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 could issue and sell to Dutchess, and Dutchess was required to purchase from our Company, up to that number of shares of our Company’s common stock having an aggregate purchase price of $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 on a Form S-1 registration statement on June 20, 2013. The registration statement became effective on June 27, 2013. During the quarter ended September 30, 2013, 283,868 shares were issued pursuant to the Investment Agreement for total net proceeds of $260,986. On December 5, 2013 we terminated the Investment Agreement and filed with the Securities Exchange Commission Post-Effective Amendment No. 1 to the registration statement to deregister the 2,076,645 shares of common stock not sold under the Investment Agreement and as previously registered in the registration statement. From June 28, 2013 through December 5, 2013, the Company sold 423,355 shares of its common stock pursuant to the Investment Agreement for total net proceeds of $397,678. The proceeds from the sale of our shares of common stock to Dutchess under the Investment Agreement were used for working capital purposes.

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.

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.

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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 stockholders 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 stockholders 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 stockholders in the form of regular quarterly dividends.

Years Ended December 31, 2012 and 2011

Net cash provided by operating activities decreased approximately $590,000, or 41%, to $851,770 for the year ended December 31, 2012, compared to $1,441,279 for the year ended December 31, 2011. The decrease of cash provided by operating activities was primarily attributable to the payment of 2011 taxes in 2012 which were accrued in 2011. This change totaled approximately $739,000 and was partially offset by an increase in net income of approximately $164,000.

Net cash used in investing activities was $24,206 and $150,349 during the year ended December 31, 2012, and 2011, respectively, consisting of the purchase of software licenses and investments in servers and computers for employees.

Net cash provided by (used in) financing activities was ($2,022,372) and $96,816 during the years ended December 31, 2012 and 2011, respectively. During the year ended December 31, 2012, financing activities consisted primarily of dividends paid of $2,589,011, offset partly from proceeds from the issuance of common stock of $531,438. During the year ended December 31, 2011, financing activities consisted of proceeds from the issuance of common stock.

We had net working capital of $552,669 as of December 31, 2012 and $1,240,515 as of December 31, 2011. The decrease in net working capital as of December 31, 2012 was primarily attributable to our decreased cash, which decreased to $784,001 at December 31, 2012 compared to $1,978,809 at December 31, 2011.

Contractual Obligations

On October 18, 2012, we entered into a professional services agreement with a consulting firm to aid in increasing our 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 our common stock with a vesting schedule of six months from delivery date. On July 1, 2013, we 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.

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. As of September 30, 2013, future minimum lease and non-cancelable services contract payments are as follows for the remainder of 2013 and thereafter:

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.

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We do not believe that our operations to date have involved uncertainty of accounting treatment, subjective judgment, or estimates, to any significant degree.  Our audited financial statements 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.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Inflation and Seasonality

We do not believe that our operations are significantly impacted by inflation. Our business is not seasonal in nature.

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MANAGEMENT

Board of Directors and Executive Officers

The following are our directors and executive officers and their respective ages and positions as of January 30, 2014:

Directors and Executive Officers

Semyon Dukach. Semyon Dukach has been chair of the board of directors since October 2002. Mr. Dukach was our chief executive officer from October 2002 until June 13, 2012 and our principal executive officer, principal accounting officer and secretary from October 2002 to March 5, 2013. Mr. Dukach is also a board member of Global Cycle Solutions, Inc. and Terrafugia, Inc. Previously, Mr. Dukach founded GottaFlirt, Inc., Vert, Inc. and Fast Engines, Inc. He was a Senior Vice President at Adero, Inc. after it acquired Fast Engines, Inc. from him in 2000 and he was also a Senior Vice President at North American Media Engines from 1995 to 1997. Mr. Dukach received his undergraduate degree from Columbia University in Computer Science and his Masters degree from MIT, where he authored the Simple Network Payment Protocol, which was one of the earliest ways to transfer money on the Internet. While at MIT, Mr. Dukach published early research on electronic commerce in 1992 and on virtual worlds in 1989. While attending MIT, Mr. Dukach was a member of the MIT Blackjack Team which successfully used card counting techniques to beat casinos at blackjack. Mr. Dukachs’ qualifications to serve on our board of directors include his knowledge of our Company and the email services industry and his years of leadership at our company.

Jonathan M. Strimling. Jonathan M. Strimling has served as our Chief Executive Officer since August 2013 and as a director since January 2014. Mr. Strimling has 20 years of experience as an executive and entrepreneur, largely focused on the commercialization of innovative products and services. From 2006 to 2011, Mr. Strimling served as the President and CEO of online retailer American Biomass Corp., along with its wholly owned subsidiaries WoodPellets.com, LLC, American Biomass Distribution, LLC, and American Biomass Transportation, LLC. Also, from 2012 to present, Mr. Strimling served as the President and CEO of US Dynamics, LLC, a consulting company, UltraCell Insulation, LLC, a manufacturing company, and Secure Neighborhoods, LLC, a security company, all of which are located in Manchester, NH. Also, Mr., Strimling was a governor's appointee to the Economic Strategy Commission for the State of New Hampshire. Mr. Strimling received his Bachelor of Science degree in Mechanical Engineering from Northeastern University and his Masters of Science degrees in Mechanical Engineering and Management from MIT. Mr. Strimling’s qualifications to serve on our board of directors include his knowledge of our Company and his 20 years of experience as an executive and entrepreneur, largely focused on the commercialization of innovative products and services.

Lewis W. Moorehead. Lewis W. Moorehead has served as our Chief Financial Officer since January 2014. Mr. Moorehead is a certified public accountant. From March 2010 to August 2013, Mr. Moorehead served as VP of Finance and Principal Accounting Officer at Limelight Networks, a NASDAQ-listed internet company. Previously, from June 2008 to March 2010, Mr. Moorehead served as VP and Chief Accounting Officer of eTelecare Global Solutions, a NASDAQ-listed global call-center operator. Previously, Mr. Moorehead worked at PricewaterhouseCoopers for nine years and then subsequently joined American Express as Vice President and Controller. Mr. Moorehead received a Bachelors of Business Administration in Accounting from the University of Wisconsin - Whitewater.

Ruslan Bondariev. Ruslan Bondariev has served as our Chief Technology Officer and Vice President-Research since March 2013. Prior to that time, since October 2010 Mr. Bondarev served as our Director of Research and Development. From September 2009 to September 2010, he served as our Lead Developer, and from January 2005 to September 2009, Mr. Bondariev served as our Director of Development.

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Alena Chuprakova. Alena Chuprakova has served as our Comptroller (Principal Financial Officer) and Treasurer since March 2013. Prior to that time, since March 2012 Ms. Chuprakova served as our controller in a non-executive officer capacity. From November 2009 to March 2012, Ms. Chuprakova served as the assistant to our then chief executive officer, Semyon Dukach. Prior to that time she was enrolled in a short term management program at COGNOS International GmbH, Hamburg, Germany. From September 2007 to September 2008, Ms. Chuprakova served as a Deputy Director at TDI Global, an advertising firm located in Belarus, where she performed management functions.

Maksym Ilin. Maksym Ilin has served as our Vice President-Operations and Customer Service since March 2013. Mr. Ilin also served as our president from March 2013 to September 2013. Prior to that time, since 2008 Mr. Ilin served as our Director of Customer Service. From 2007 to 2008, Mr. Ilin worked at Astratelecom LLC, an internet service provider located in the Ukraine where he served as the Head of the Technical Department and Support.

Yvonne Gaudette. Yvonne Gaudette has served as our Vice President-Marketing since September 2013. Ms. Gaudette is an accomplished marketing and communications leader who specializes in customer acquisition & category building for start-ups & emerging technologies. From September 2008 to October 2011, Ms. Gaudette served as the Director of Marketing/Social Media for RatePoint, Inc, a provider of online reputation management and marketing tools for small businesses. From October 2011 to December 2012, Ms. Gaudette served as the Senior Marketing Director of Vivox, Inc, a VoIP/Mobile VoIP provider. From January 2013 to August 2013, Ms. Gaudette served as a B2C marketing consultant for Spartan Race, Inc, a sports/obstacle racing company.

Paul Parisi. Paul Parisi has served as our Vice President-Innovation since September 2013. Mr. Parisi is technology entrepreneur with over 25 years experience serving in Chief Technology Officer/Chief Architect positions. From July 2010 to March 2013, Mr. Parisi served as the Chief Technology Officer of Cloud Industries Health, Inc., a social network for parents of chronically ill children and medical professionals. From January 2010 to October 2010, Mr. Parisi served as the Chief Technology Officer of LocalGinger, LLC, a Groupon like service with a geolocation and mobile platform. From August 2009 to September 2010, Mr. Parisi served as Chief Technology Officer of Slant7, LLC, a location-based business to consumer marketing message company. From August 2006 to August 2009, Mr. Parisi served as Chief Technology Officer of DNSstuff, LLC, a computer software company.

Vadim Yasinovsky. Vadim Yasinovsky has been a director since July 2010. Since January 2008 Mr. Yasinovsky has served as the CEO of PDFFiller.com. Previously, he served as the Chief Technology Officer at FurnitureFan.com, an owner at ClearWeb.com and President and CEO of Clear Software, Inc. which was sold to SPSS, Inc. Mr. Yasinovskys’ qualifications to serve on our board of directors include his knowledge of software design and development, strategic technology evaluation and technology innovation.

John L. Troost. John L. Troost has been a director since July 2010. Since April 2010 Mr. Troost has served a partner and Chief Executive Officer at Virtual Clarity, and from 2003 to February 2010, he was the Executive Director, Head of Platform Design and Core Technology Architecture at UBS, AG. Previously, he served as managing partner at Surgam Technology Partners, Chief Technology Officer at NAME, Inc., Manager of Systems and Network Engineering at Moore Capital Management and Senior Systems Administrator at Lehman Brothers. Mr. Troost is a contributor to the development of the original standards for email attachments (MIME standard RFC). Mr. Troost has a degree from Columbia University. Mr. Troosts’ qualifications to serve on our board of directors include his knowledge of email service technology, technology design and architecture and systems administration.

David A. Buckel. David A. Buckel has been a director since January 2014. Since November 2007 to present, Mr. Buckel has served as a Partner at Buckelous Ventures, which merged into TechCXO in 2012. TechCXO is a professional services firm that provides experienced, C-Suite professionals to deliver strategic and functional consulting services to both private and small public technology companies. Mr. Buckel has hands-on experience creating accounting and control systems and processes, financial statements, financial and operating metrics, dashboards, cash flow forecast, budget processes, trend analysis and dealing with auditors. Also, from 2011 to present, Mr. Buckel has served as a Mentor at the USF Student Innovation Incubator, which is administered by the USF Research Foundation, Inc. Mr. Buckel holds an M.B.A in Finance and Operations Management from Syracuse University and a B.S. in Accounting from Canisius College. Mr. Buckel’s qualifications to serve on our board of directors include a strong background and skill set in areas relating to board service, finance and management.

Each director of the Company holds such position until the next annual meeting of stockholders and until his successor is duly elected and qualified. The officers hold office until the first meeting of the board of directors following the annual meeting of stockholders and until their successors are chosen and qualified, subject to early removal by the board of directors.

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During the past ten years, none of our directors or executive officers have been involved in any of the proceedings described in Item 401(f) of Regulation S-K.

Corporate Governance

Code of Ethics and Business Conduct

Our Company has a Code of Ethics and Business Conduct that applies to all of the Company’s employees, including its principal executive officer, principal accounting officer, and our board of directors. A copy of this Code is available for review on the Investor page of the Company’s website www.smtp.com. Requests for a copy of the Code of Ethics and Business Conduct should be directed to the Corporate Secretary, c/o SMTP, Inc., 1 Tara Boulevard, Suite 200, Nashua, NH 03062. The Company intends to disclose any changes in or waivers from its Code of Ethics and Business Conduct by posting such information on its website or by filing a Form 8-K.

Director Independence

Applicable NASDAQ rules require a majority of a listed company’s board of directors to be comprised of independent directors within one year of listing. In addition, the NASDAQ rules require that, subject to specified exceptions, each member of a listed company’s audit, compensation and nominating and corporate governance committees be independent and that audit committee members also satisfy independence criteria set forth in Rule 10A-3 under the Exchange Act. Under applicable NASDAQ rules, a director will only qualify as an “independent director” if, in the opinion of the listed company’s board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In order to be considered independent for purposes of Rule 10A-3, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors, or any other board committee, accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries or otherwise be an affiliated person of the listed company or any of its subsidiaries.

In January 2014, our board of directors undertook a review of the composition of our board of directors and its committees and the independence of each director. Based upon information requested from and provided by each director concerning his background, employment and affiliations, including family relationships, our board of directors has determined that each of Vadim Yasinovsky, John L. Troost, and David A. Buckel are “independent directors” as defined under applicable NASDAQ rules. In making such determination, our board of directors considered the relationships that each such non-employee director has with our Company and all other facts and circumstances that our board of directors deemed relevant in determining his independence, including the beneficial ownership of our capital stock by each non-employee director. The two members of our board of directors who are not “independent” are Semyon Dukach and Jonathan M. Strimling.

There are no family relationships among any of our directors or executive officers.

Board Committees

Our board of directors has established the committees described below and may establish others from time to time. The charters for each of our committees are available on the Company’s website www.smtp.com.

Audit Committee

Our Audit Committee is comprised of Vadim Yasinovsky, John L. Troost, and David A. Buckel. Mr. Buckel is the chairperson of the committee. Our board of directors has determined that each member of the Audit Committee is “independent” for audit committee purposes as that term is defined in the applicable rules of the Securities and Exchange Commission and NASDAQ. Our board of directors has designated David A. Buckel as an “audit committee financial expert,” as defined under the applicable rules of the Securities and Exchange Commission. The Audit Committee’s purpose and power shall be, to the extent permitted by law, to (a) retain, oversee and terminate, as necessary, the auditors of the Company, (b) oversee the Company's accounting and financial reporting processes and the audit and preparation of the Company's financial statements, (c) exercise such other powers and authority as are set forth in the Charter of the Audit Committee of the board of directors, and (d) exercise such other powers and authority as shall from time to time be assigned thereto by resolution of the board of directors.

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The Audit Committee also has the power to investigate any matter brought to its attention within the scope of its duties. It also has the authority to retain counsel and advisors to fulfill its responsibilities and duties.

Compensation Committee

Our Compensation Committee is comprised of Vadim Yasinovsky, John L. Troost, and David A. Buckel. Mr. Yasinovsky is the chairperson of the committee. Our board of directors has determined that each member of the Compensation Committee is an independent director for compensation committee purposes as that term is defined in the applicable rules of NASDAQ, is a “non-employee director” within the meaning of Rule 16b-3(d)(3) promulgated under the Exchange Act and is an “outside director” within the meaning of Section 162(m) of the Internal Revenue Code, as amended. The Compensation Committee’s purpose and powers shall be, to the extent permitted by law, to (a) review and approve the compensation of the chief executive officer of the Company and such other employees of the Company as are assigned thereto by the board of directors and to make recommendations to the board of directors with respect to standards for setting compensation levels, (b) exercise such other powers and authority as are set forth in a charter of the Compensation Committee of the board of directors, and (c) exercise such other powers and authority as shall from time to time be assigned thereto by resolution of the board of directors.

The compensation committee also has the power to investigate any matter brought to its attention within the scope of its duties. It also has the authority to retain counsel and advisors to fulfill its responsibilities and duties.

Compensation Committee Interlocks and Insider Participation

Neither of Vadim Yasinovsky, John L. Troost or David A. Buckel is an officer or employee of our Company. None of our executive officers currently serves, or in the past year has served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our board of directors or compensation committee.

Nominating and Corporate Governance Committee

Our Nominating and Corporate Governance Committee is comprised of Vadim Yasinovsky, John L. Troost, and David A. Buckel. Mr. Troost is the chairperson of the committee. Our board of directors has determined that each of the committee members is an independent director for Nominating and Corporate Governance Committee purposes as that term is defined in the applicable rules of NASDAQ. The Nominating and Corporate Governance Committee’s purpose and powers shall be, to the extent permitted by law, to: (a) identify potential qualified nominees for director and recommend to the board of directors for nomination candidates for the board of directors, (b) develop the Company's corporate governance guidelines and additional corporate governance policies, (c) exercise such other powers and authority as are set forth in a charter of the Nominating and Corporate Governance Committee of the board of directors, and (d) exercise such other powers and authority as shall from time to time be assigned thereto by resolution of the board of directors.

The Nominating and Corporate Governance Committee also has the power to investigate any matter brought to its attention within the scope of its duties. It also has the authority to retain counsel and advisors to fulfill its responsibilities and duties.

Board Leadership Structure

Our bylaws provide the board of directors with flexibility to combine or separate the positions of Chair of the Board of Directors and Principal Executive Officer in accordance with its determination that utilizing one or the other structure is in the best interests of our Company. Our current structure is that of separate Principal Executive Officer and Chair of the Board of Directors. Jonathan M. Strimling serves as our Principal Executive Officer and is responsible for the day-to-day operation of our Company. Semyon Dukach serves as our Chair of the Board of Directors. Mr. Dukach is not an independent director. Mr. Dukach is responsible for performing a variety of functions related to our corporate leadership and governance, including steering the direction of the Company, coordinating board activities, setting relevant items on the agenda and ensuring adequate communication between the board of directors and management, which he does in conjunction with the independent directors. Our board of directors has determined that maintaining the independence of a majority of our directors helps maintain its independent oversight of management.

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Risk Oversight

The board of directors is actively involved in the oversight of risks, including strategic, operational and other risks, which could affect our business. The board of directors does not have a standing risk management committee, but administers this oversight function directly through the board of directors as a whole, which oversee risks relevant to their respective functions. The board of directors considers strategic risks and opportunities and administers its respective risk oversight function by evaluating management’s monitoring, assessment and management of risks, including steps taken to limit our exposure to known risks, through regular interaction with our senior management and in board and committee deliberations that are closed to members of management. The interaction with management occurs not only at formal board and committee meetings but also through periodic and other written and oral communications.

Executive Compensation

The table below summarizes all compensation awarded to, earned by, or paid to our named executive officers for the fiscal years ended December 31, 2013 and 2012, after giving pro forma effect to the 1-for-5 reverse stock split of our outstanding common stock: