Stamps.com 2001 Annual Report Download - page 18

Exodus Communications' bankruptcy could harm our business and operations.
We have entered into an Internet hosting agreement with Exodus Communications, Inc. to maintain our web page servers at one of Exodus' data
centers in Southern California. Exodus has filed for reorganization under Chapter 11 of the US Bankruptcy Code and Digital Island, Inc. has
acquired our hosting agreement out of bankruptcy. We have provided notice to Digital Island, Inc. to terminate our hosting agreement and we
intend to internally support our web page servers by the end of the second quarter of 2002. We cannot be certain that our transition to internally
hosting our web site will not have unintended negative consequences such as unexpected downtime of our web page or damage to our web page
servers in the move.
System and online security failures could harm our business and operating results.
Our services depend on the efficient and uninterrupted operation of our computer and communications hardware systems. In addition, we must
provide a high level of security for the transactions we execute. We rely on internally-developed and third-party technology to provide secure
transmission of postage and other confidential information. Any breach of these security measures would severely impact our business and
reputation and would likely result in the loss of customers. Furthermore, if we are unable to provide adequate security, the US Postal Service
could prohibit us from selling postage over the Internet.
Our systems and operations are vulnerable to damage or interruption from a number of sources, including fire, flood, power loss,
telecommunications failure, break-ins, earthquakes and similar events. Our Internet host provider does not guarantee that our Internet access
will be uninterrupted, error-free or secure. After we complete the transfer of our web servers from its current outsourced location to its new
location inside our corporate headquarters, our web site will no longer have the same connectivity infrastructure as available through Exodus.
Our servers are also vulnerable to computer viruses, physical, electrical or electronic break-ins and similar disruptions. We have experienced
minor system interruptions in the past and may experience them again in the future. Any substantial interruptions in the future could result in the
loss of data and could completely impair our ability to generate revenues from our service. We do not presently have a full disaster recovery
plan in effect to cover loss of facilities and equipment. In addition, we do not have a fail-over site that mirrors our infrastructure to allow us to
operate from a second location. We have business interruption insurance; however, we cannot be certain that our coverage will be sufficient to
compensate us for losses that may occur as a result of business interruptions.
A significant barrier to electronic commerce and communications is the secure transmission of confidential information over public networks.
Anyone who is able to circumvent our security measures could misappropriate confidential information or cause interruptions in our operations.
We may be required to expend significant capital and other resources to protect against potential security breaches or to alleviate problems
caused by any breach. We rely on specialized technology from within our own infrastructure to provide the security necessary for secure
transmission of postage and other confidential information. Advances in computer capabilities, new discoveries in security technology, or other
events or developments may result in a compromise or breach of the algorithms we use to protect customer transaction data. Should someone
circumvent our security measures, our reputation, business, financial condition and results of operations could be seriously harmed. Security
breaches could also expose us to a risk of loss or litigation and possible liability for failing to secure confidential customer information. As a
result, we may be required to expend a significant amount of financial and other resources to protect against security breaches or to alleviate
any problems that they may cause.
The effects of expansion may adversely affect our financial condition, results of operations and existing stockholders.
We may establish subsidiaries, enter into joint ventures or pursue the acquisition of new or complementary businesses, products or technologies
in an effort to enter into new business areas, diversify our sources of revenue and expand our product and service offerings outside the Internet
postage market. Although we have no commitments or agreements and are not currently engaged in discussions for any material acquisitions or
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2002. EDGAR Online, Inc.