Stamps.com 2005 Annual Report Download - page 10

Service’s certification process. On August 9, 1999, we became the first software-only PC Postage solution approved for commercial release by
the US Postal Service.
Approval of follow-on technology also requires US Postal Service approval. On July 17, 2002, we successfully launched NetStamps and
became the first provider of this technology. Approval for NetStamps followed years of development efforts, including a six-month beta field
test. On November 29, 2002, we launched our shipping label capability after significant development efforts. In 2003, we improved our
shipping features by adding Hidden Postage™, Stamps.com package insurance, the ability to send shipment notification e-
mails with a tracking
link, the ability to print shipping labels for Express Mail
®
and Bound Printed Matter, and support for additional USPS services such as COD.
Additionally, we enhanced the integration with Microsoft
®
Office System 2003.
In July 2004, we received authorization from the USPS to proceed with an initial, limited market test of a new form of postage called
PhotoStamps that coupled the technology of PC Postage with the simplicity of a web-
based image upload and order process to allow consumers
and businesses to order fully customized postage. In September 2004, the USPS asked us to conclude our market test effective on October 1,
2004, to allow the USPS to conduct a review of the limited market test results. We concluded the first market test with more than 138,000 total
sheets, or approximately 2.8 million individual PhotoStamps, ordered.
In May 2005, we launched our second market test of PhotoStamps after receiving authorization from the USPS. As of December 31, 2005,
during the second market test we have shipped more than 500,000 total sheets, or more than 10 million individual PhotoStamps. The second
market test will conclude on May 17, 2006, and we are hopeful that the US Postal Service will ultimately approve the continuation of the
PhotoStamps offering. There are, however, many risks related to this offering.
Our Technology
Our servers are located in a high-security data center and operate with proprietary security software. These servers create the data used to
generate information-based indicia. These servers also process postage purchases using secure technology that meets US Postal Service
security requirements. Our service currently uses a Windows-based client application, which supports a variety of label and envelope options
and a wide range of printers. In addition, our application employs an internally-developed user authentication mechanism for additional
security.
Our transaction processing servers are a combination of secure, commercially available and internally-developed technologies that are
designed to provide secure and reliable transactions. Our system implements hardware to meet government standards for security and data
integrity. The performance and scalability of our PC Postage system is designed to allow many users to simultaneously process postage
transactions through our system. Our database servers are designed and built with industry-leading database technologies and are scalable as
needed.
Our current technology plan is to spend the majority of our near term technology development effort building out and unifying our
software platform for continued and future growth in all parts of our business. We plan to build a single web presentation and e-commerce
system for all Stamps.com products and services by migrating our current homegrown technology onto commercial software. We also plan to
implement a highly flexible billing and unified payment processing system and then integrate that system with our new e-commerce platform.
We also plan to add the capability of letting multiple users access a single account balance in a single geographic location. We also plan to
continue to add on to our current enterprise reporting systems with enhanced features such as centralized administration and control.
Section 382 Update
Under Internal Revenue Code Section 382 rules, a change in ownership can occur whenever there is a shift in ownership by more than 50
percentage points by one or more five-percent shareholders within a three-year period. When a change of ownership is triggered, the NOLs
may be impaired. We estimate that, as of February 28, 2006 we are approximately at 30% compared with the 50% level that would trigger
impairment of our NOL asset. As part of our ongoing program to preserve future use of our NOL assets, Stamps.com requests that all of our
investors contact us prior to allowing their ownership interest to reach a five-percent level.
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