Stamps.com 2004 Annual Report Download - page 44

F-9
STAMPS.COM INC.
NOTES TO FINANCIAL STATEMENTS (continued)
Research and Development Costs
Research and development costs are expensed as incurred. These costs primarily consist of salaries,
development materials, supplies and applicable overhead expenses of personnel directly involved in the research and
development of new technology and service offerings.
Sales and Marketing
Sales and marketing expense principally consists of costs associated with strategic partnership
relationships, advertising, and compensation and related expenses for personnel engaged in marketing and business
development activities.
Advertising Costs
The Company expenses the costs of producing advertisements when the advertising first runs, and expenses
the costs of communicating and placing the advertising in the period in which the advertising space or airtime is
used.
Internet advertising expenses are recognized based on specifics of the individual agreements. Under partner
and affiliate agreements, third parties electronically refer prospects to the Stamps.com web site and Stamps.com
pays the third parties when the customer completes the Stamps.com registration process, or in some cases, upon the
first successful billing of a customer. The Company records relating expenses on a monthly basis as prospects are
successfully converted to customers or in some cases, upon the first successful bill of a customer.
General and Administrative
General and administrative expenses principally consist of compensation and related costs for executive
and administrative personnel, fees for legal and other professional services, depreciation of equipment and software
used for general corporate purposes and amortization of intangible assets and deferred compensation.
Earnings (loss) per Share
Basic earnings (loss) per share is computed by dividing the net income (loss) available to common
stockholders for the period by the weighted average number of common shares outstanding during the period.
Diluted earnings (loss) per share is computed by dividing the net income (loss) for the period by the weighted
average number of common and common equivalent shares outstanding during the period.
Options to purchase approximately 3,208,121, 2,285,551 and 2,163,373 shares were not included in the
computation of fiscal years 2004, 2003, and 2002 diluted net income per share because such options were
considered anti-dilutive.
Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards
(SFAS) No. 109, “Accounting for Income Taxes”. Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statements and the tax basis of assets and liabilities using
the enacted tax rate in effect for the years in which the differences are expected to reverse. Valuation allowances are
recorded to reduce deferred tax assets when it is more likely than not a tax benefit will not be realized.
Stock-Based Compensation
The Company accounts for its employee stock plan under the intrinsic value method prescribed by
Accounting Principles Board Opinion (APB) No. 25, “Accounting for Stock Issued to Employees”, and related
interpretations, and has adopted the disclosure-only provisions of SFAS No. 123, “Accounting for Stock-Based
Compensation” and as amended by SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and
Disclosure, an amendment of FASB Statement No. 123”.