Stamps.com 2004 Annual Report Download - page 19

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion and analysis of our financial condition and results of operations should be read in
conjunction with the “Selected Financial Data” and our financial statements and the related notes thereto. This
discussion contains forward-looking statements that involve risks and uncertainties that could cause actual results
to differ materially from historical results or anticipated results including those set forth in the “Risk Factors”
section of this report.
Overview
Stamps.com Inc. (“Stamps.com”, “we”, “us” or “our”) is the leading provider of Internet-based postage
solutions. Our core service allows customers to buy and print United States Postal Service (“US Postal Service” or
“USPS”) approved postage using a 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 using a wide
range of mail classes. Our customers include home businesses, small businesses, corporations and individuals.
Stamps.com was approved by the USPS in 1999 as the first licensed vendor to offer PC Postage in a software-only
business model.
During 2003, we launched new products to generate incremental revenue from our customer base. On
January 30, 2003, we announced the launch of our first specialty NetStampsTM labels called “Love NetStamps.”
Specialty NetStamps labels contain new images and improved designs compared with our original NetStamps labels.
Specialty NetStamps were further expanded with the launch of “Liberty NetStamps” and “Holiday NetStamps” in
June and November 2003, respectively. Also in January 2003, we successfully implemented a new process called
Instant Access, which enables our new customers to immediately begin printing postage after registration for the
service, an improvement over the previous process that required two to 24 hours of wait time.
In April, 2003, we launched the first of many new product features with the release of our new shipping
capability called Hidden Postage™. This new feature enhances our service, resulting in a more powerful shipping
solution for businesses, e-commerce sites and online auctioneers. Hidden Postage allows the customers to print a
shipping label without printing the actual value of the postage on the label. By hiding the postage amount of the
shipment, businesses can more easily cover their full shipping and handling costs without causing customer
complaints.
We launched Stamps.com Version 3.5 in October 2003, offering improved integration of our online postage
technology with Microsoft’ s widely-used Office System 2003 software. For example, Stamps.com customers who
print envelopes using Microsoft Word 2003 are offered the option of checking a box to add electronic postage.
When they do so, they will be able to print the address and postage on the envelope in a seamless one step process
powered by Stamps.com, all without leaving the familiar Word interface. Users of Microsoft Office System 2003
also benefit from features provided by our service such as the ability to add graphics or company logos to a mail
piece for a personalized or professional look; keeping track of postage use through reports and accounting codes;
minimizing undeliverable mail through automatic address correction and verification; and automatic calculation of
postage rates based on mail class and weight of mail piece.
In October 2003, we also launched our Stamps.com Insurance offering as part of Stamps.com Version 3.5.
This feature allows users to insure their packages in a fully integrated online process. Stamps.com Insurance is
provided in partnership with Parcel Insurance Plan and underwritten by Fireman’ s Fund.
In October 2003, we completed a study to understand the status of our net operating losses (NOL or
NOLs). Based on that study, we believe that we have not undergone an Internal Revenue Code (IRC) Section 382
change of control that would trigger an impairment of the use of our NOLs since our secondary offering in
December 1999. Under the complicated IRC 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,
2005 we are approximately at 26% 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.
In December 2003, we reached a settlement in all patent infringement litigation with Pitney Bowes. The
settlement included a five-year patent cross-licensing agreement. In addition, there is not expected to be any material
financial payment between the companies.