Stamps.com 2013 Annual Report Download - page 40

We believe our available cash and marketable securities, together with the cash flow from operations, will be sufficient to fund our business for
at least the next twelve months.
Section 382 Update
We currently have federal and state NOL carry-forwards of approximately $200 million and $95 million, respectively. Under Internal Revenue
Code Section 382 rules, if a “change of ownership” is triggered, our NOL asset may be impaired. 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. We estimate that
as of December 31, 2013 we were at approximately a 19% level compared with the 50% level that would trigger impairment of our NOL asset.
Under our certificate of incorporation, any person or entity, including any company and investment firm, that wishes to become a “5%
shareholder” (as defined in our certificate of incorporation) must first obtain a waiver from our Board of Directors. In addition, any person,
including any company and investment firm, that is already a “5% shareholder” of ours cannot make any additional purchases of our stock
without a waiver from our Board of Directors. The NOL Protective Measures contained in our certificate of incorporation are more specifically
described in our Definitive Proxy Statement filed with the SEC on April 2, 2008.
On July 22, 2010, our Board of Directors suspended the NOL Protective Measures by approving a waiver from the NOL Protective Measures to
all persons and entities, including companies and investment firms. As a result, our stockholders are now allowed to become “5% shareholders”
and existing “5% shareholders” are allowed to make additional purchases of our stock each without having to comply with the restrictions
contained in the NOL Protective Measures. This waiver may be revoked by our Board of Directors at any time if the Board deems the revocation
necessary to protect against a Section 382 “change of ownership” that would limit our ability to utilize future NOLs. For complete details about
this waiver from the NOL Protective Measures, please see our Form 8-K filed on July 28, 2010.
As of February 28, 2014, we had 16,246,601 shares outstanding, and therefore ownership of approximately 812,000 shares or more would
currently constitute a “5% shareholder”. We strongly urge that any stockholder contemplating becoming a 5% or more shareholder
contact us before doing so.
Critical Accounting Policies and Judgments
General
The discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared
in accordance with U.S. generally accepted accounting principles. 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 on-going basis, we evaluate our estimates, including those related to patents, contingencies and litigation. We base our
estimates on historical experience and on various other assumptions that we believe are 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. Actual
results may differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial
statements.
Revenue Recognition
We recognize revenue from product sales or services rendered, as well as commissions from advertising or sale of products by third party
vendors to our customer base when the following four revenue recognition criteria are met: persuasive evidence of an arrangement exists,
delivery has occurred or services have been rendered, the selling price is fixed or determinable, and collectability is reasonably assured.
Service revenue is primarily derived from subscription, transaction and other fees that are recognized in the period that services are provided.
Product sales, net of return allowances, are recorded when the products are shipped and title passes to customers. Sales of items, including
PhotoStamps, sold to customers are made pursuant to a sales contract that provides for transfer of both title and risk of loss upon our delivery to
the carrier. Return allowances for expected product returns, which reduce product revenue, are estimated using historical experience.
Commissions from the advertising or sale of products by a third party vendor to our customer base are recognized when the revenue is earned
and collection is deemed probable.
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