Stamps.com 2007 Annual Report Download - page 11

In 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 May 2005, May 2006 and May 2007 we
launched our second, third and fourth market tests respectively of PhotoStamps after receiving authorization from the USPS.
Between May 2005 and December 31, 2007, we shipped more than 2.5 million total sheets (more than 50 million individual
PhotoStamps) to customers. We are currently in the fourth market test which goes through May 2008. We are hopeful that the
USPS will ultimately approve the continuation of the PhotoStamps offering. There are, however, many risks related to this
offering, as further discussed in the Risk Factors section below.
On January 5, 2006, President Bush signed a new law which clarified a longstanding law regarding advertising on US
currency, known as 18 US Code Section 475. The new law amends Section 475 to clarify that the earlier law does not apply to
products that are officially approved by the USPS. In compliance with the original law, the USPS restricted our ability to accept
business advertising for usage on PhotoStamps during the second market test. The new law in 2006 cleared the way for the
USPS, upon the start of our third market test on May 17, 2006, to remove the restriction as it relates to PhotoStamps,.
We continue to ask the USPS for new market tests or new PC Postage benefits such as discounts on the face value of postage
or commissions on postage. There are many factors that go into the evaluation of our requests and we have no guarantee that
USPS will grant any of our requests. Our customers currently receive a discounted rate relative to prices available at retail post
offices for international packages and for electronic confirmation services such as delivery confirmation. On March 12, 2008, the
USPS announced that all customers that use electronic postage, including PC Postage, will receive discounts for certain domestic
package mail classes. For Priority Mail, the discounts begin at 1% and average 3.5% across various weights and zones,
according to the USPS. For Express Mail, the discounts begin at 3% and may increase with higher volume usage of Express Mail
by the customer. These discounts are expected to be available starting May 12, 2008 and we plan to participate in any program
or requirement that will allow our customers to receive these discounted postal rates. We believe that the discounts will be
available using our shipping label feature but will not apply to packages sent using NetStamps as an electronic tracking barcode
will be required.
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. They also process postage purchases using secure technology that meets USPS
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.
During 2007, our technology development effort focused on building out and unifying our software platform for continued
and future growth in all parts of our business. We built a single web presentation and e-commerce system for all our products
and services by moving our current homegrown technology onto commercial software.
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During 2008, we plan to continue enhancing the capability for multiple users in a single geographic location to access a
single account balance in our PC Postage solution. We also plan to continue to add on to our current enterprise reporting systems
with enhanced features such as centralized administration and control. During 2008 and beyond, we also plan to implement a
highly flexible billing system and then integrate that system with our new e-commerce platform.
Section 382 Update
We currently have federal and state net operating loss carry-forwards. Under applicable law, those assets could be adversely
affected by the acquisition by any person of more than 5% of our outstanding stock. Under Internal Revenue Code Section 382, a
change in ownership can occur whenever there is a shift in ownership by more than 50 percentage points by one or more 5%
shareholders within a three-year period. When a change of ownership is triggered, our net operating loss (“NOL” or “NOLs”)