Stamps.com 2005 Annual Report Download - page 50

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STAMPS.COM INC.
NOTES TO FINANCIAL STATEMENTS (continued)
Licensing revenue for the use of our software and intellectual property is recognized 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 collectibility is reasonably assured.
Cost of Revenue
Cost of revenue principally consists of the cost of customer service, certain promotional expenses, system operating costs, credit card
processing fees, the cost of postage for PhotoStamps, printing and fulfillment costs for PhotoStamps, parcel insurance offering costs, customer
misprints and products sold through our Supplies Store and the related costs of shipping and handling.
Research and Development Costs
Research and development costs are expensed as incurred. These costs primarily consist of compensation for personnel involved in the
development of our services and expenditures for consulting services and third party software.
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 as incurred, and expense the costs of communicating and placing the
advertising in the period in which the advertising space or airtime is used.
Internet Advertising
The Company recognizes internet advertising expenses based on specifics of the individual agreements. Under partner and affiliate
agreements, third parties refer prospects to our web site and we pay the third parties when the customer completes the customer registration
process, completes the first purchase, or in some cases, upon the first successful billing of a customer. The Company records these expenses on
a monthly basis as prospects are successfully converted to customers.
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.
F-9