Stamps.com 2009 Annual Report Download - page 12

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TABLE OF CONTENTS
The PC Postage Certification and Regulatory Approval Process
Our technology must meet strict U.S. government security standards. Our PC Postage products (including any follow-on
technology) must complete extensive USPS testing and evaluation in the areas of operational reliability, financial integrity and
security to become certified for commercial distribution, and each additional implementation of a particular product or function
requires additional evaluation and approval by the USPS prior to commercial distribution. The USPS certification process to
become an USPS approved PC Postage vendor is a standardized, ten-stage process that took the existing approved vendors years
to complete. Each stage requires USPS review and authorization to proceed to the next stage of the certification process. The
USPS has no published timeline or estimated time to complete each of the ten stages of the program. The most significant stage
requires a vendor to complete three phases of beta testing. In 1999 we were approved and launched the first software-only PC
Postage service. In May 2009 we successfully completed the market test of our PhotoStamps product.
We continue to ask the USPS for new PC Postage benefits such as additional 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 Priority Mail, Express Mail, Priority Mail International and Express Mail International and for electronic confirmation
services such as Delivery Confirmation or Signature Confirmation.
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 that 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.
We rely on a combination of patent, trade secret, copyright and trademark laws and contractual restrictions, such as
confidentiality agreements and licenses, to establish and protect our rights in our products, services, know-how and information.
We have a portfolio of issued and pending US and international patents. We also have a number of registered and unregistered
trademarks. We plan to apply for more patents in the future.
See Management’s Discussion and Analysis of Financial Condition and Results of Operations, Research and Development
for the amount spent during each of the last three fiscal years on company-sponsored research and development activities.
Section 382 Update
We currently have federal and state NOL carry-forwards of approximately $230 million and $150 million, respectively, with
potential value of up to $94 million in tax savings over the next 15 years. 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, 2009 we were at approximately a 26% level compared with the 50% level that would trigger impairment of
our NOL asset.
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