Stamps.com 2012 Annual Report Download - page 12

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.
Our Technology
Our servers are located in high-
security data centers 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 implementation of system hardware meets 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.
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 and
trademarks in the future. Our issued and pending patents have a range of expiration dates from 2014 until 2032. See Item 7. “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 net operating loss (“NOL”) carry-
forwards of approximately $210 million and $100 million, respectively,
which when combined with our other tax credits and tax assets have a potential value of up to $72 million in tax savings over the next 19 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, 2012 we were at approximately a 22% 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 or 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 or
entity, including any company or 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. These NOL protective measures contained in our certificate of incorporation (the “
NOL Protective
Measures”)
are more particularly discussed in our Definitive Proxy Statement filed with the Securities and Exchange Commission 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.
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