Stamps.com 2005 Annual Report Download - page 47

STAMPS.COM INC.
NOTES TO FINANCIAL STATEMENTS
1. Description of Business
Stamps.com is the leading provider of Internet-based postage solutions. Stamps.com’s core service allows customers to buy and print
USPS approved postage using any PC, an ordinary inkjet or laser printer, and an internet connection. Customers use our service to mail and
ship a variety of mail pieces including postcards, envelopes, flats and packages, and using a wide range of USPS mail classes including First
Class Mail
®
, Priority Mail
®
, Express Mail
®
, Media Mail
®
, Parcel Post
®
, and others. Our customers include home businesses, small
businesses, corporations and individuals. Stamps.com was the first ever USPS-licensed vendor to offer PC Postage in a software-only business
model in 1999. On August 10, 2004, we publicly launched a market test of PhotoStamps
®
, a new form of postage that allows consumers to
turn digital photos, designs or images into valid US postage. Stamps.com completed the first market test on September 30, 2004 and launched a
second market test of PhotoStamps on May 17, 2005.
In April 2004, following stockholder approval, the Company’s Board of Directors authorized a reverse stock split of the Company's
common stock with a ratio of one-for-two (1:2), effective for all shares beginning on May 12, 2004. As a result, every 2 shares of the
Company's common stock were combined into one share. The Company paid cash in lieu of fractional shares.
2. Summary of Significant Accounting Policies
Use of Estimates and Risk Management
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes.
Actual results could differ from those estimates and such differences may be material to the financial statements. Examples include estimates of
loss contingencies, promotional coupon redemptions and estimates regarding the useful lives of patents and other amortizable intangibles.
The Company is involved in various litigation matters as a claimant and a defendant. The Company records any amounts recovered in
these matters when received. The Company records liabilities for claims against it when the loss is probable and estimatable. Amounts recorded
are based on reviews by outside counsel, in-house counsel and management. Actual results could differ from estimates.
Cash Equivalents and Investments
The Company considers all highly liquid investments with an original or remaining maturity of three months or less at the date of purchase
to be cash equivalents.
The Company’s cash equivalents and investments are comprised of money market, U.S. government obligations and public corporate debt
securities at December 31, 2005 and 2004. All investments are classified as available for sale and are recorded at market value using the
specific identification method. Realized gains and losses are reflected in other income and expense while unrealized gains and losses are
included as a separate component of stockholders’ equity.
Trade Accounts Receivable
The Company’s trade accounts receivable primarily relate to PC Postage Services and Branded Insurance provided to customers prior to
billing. Trade accounts receivable, net of allowances for uncollectible accounts of $8,713 and $6,305 as of the fiscal years ended December 31,
2005 and 2004, respectively, were approximately $2,131,000 and $1,534,000 as of December 31, 2005 and 2004, respectively.
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