Stamps.com 2012 Annual Report Download - page 17

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Our systems and operations are vulnerable to damage or interruption from a number of sources, including fire, flood, power loss,
telecommunications failure, break-
ins, earthquakes and similar events. Our Internet host provider does not guarantee that our Internet access will
be uninterrupted, error-free or secure. Our servers are also vulnerable to computer viruses, physical, electrical or electronic break-
ins and similar
disruptions. We have experienced minor system interruptions in the past and may experience them again in the future. In addition, we are
susceptible to system and operational disruptions caused by substantial changes to the demand for our services and surges in the use of our
service by customers. Any substantial system interruptions in the future, whatever the cause, could result in the loss of data and could completely
impair our ability to generate revenues from our service. Our servers also periodically experience directed attacks intended to cause a disruption
in service. Any attempts by hackers to disrupt our service or our internal systems, if successful, could harm our business, be expensive to remedy
and damage our reputation.
Our insurance may not be sufficient to cover expenses related to system and operational disruptions or attacks on our Web site, servers or
internal systems. We do not presently have a full disaster recovery plan in effect to cover the loss of all facilities and equipment. We do,
however, have a secondary location that mirrors our core system infrastructure to allow us to operate from a second location. We have business
interruption insurance; however, we cannot be certain that our coverage will be sufficient to compensate us for losses that may occur as a result
of business interruptions.
A significant barrier to electronic commerce and communications is the secure transmission of confidential information over public networks.
Anyone who is able to circumvent our security measures could misappropriate confidential information or cause interruptions in our operations.
We may be required to expend significant capital and other resources to protect against potential security breaches or to alleviate problems
caused by any breach. We rely on specialized technology from within our own infrastructure and from specialized third parties to provide the
security necessary for secure transmission of postage and other confidential information. Advances in computer capabilities, new discoveries in
security technology, or other events or developments may result in a compromise or breach of the algorithms we use to protect customer
transaction data. Should someone circumvent our security measures, our reputation, business, financial condition and results of operations could
be seriously harmed. Security breaches could also expose us to a risk of loss or litigation and possible liability for failing to secure confidential
customer information. As a result, we may be required to expend a significant amount of financial and other resources to protect against security
breaches or to alleviate any problems that they may cause.
We are exposed to various risks associated with the credit and capital markets.
Our cash equivalents and investments are comprised of money market, U.S. government obligations, asset-
backed securities and public corporate
debt securities. The current global economic crisis has had an unprecedented negative impact on the global credit and capital markets. We have
unrealized losses on certain securities in our investment portfolio. Further sustained declines in the fair value of these securities could lead to an
increased risk that an other than temporary impairment exists. Uncertainties in the credit and capital markets or credit rating downgrades on any
investments in our portfolio could cause impairment to our investment portfolio, which could negatively affect our financial condition, cash
flow, and reported earnings.
Our results are impacted by the macroeconomic environment, which has experienced a severe global economic downturn during the
past few years.
We believe the performance of our PC Postage and PhotoStamps businesses are influenced by macro-
economic trends. The United States
economy has been experiencing a financial downturn characterized by high unemployment, limited availability of credit, increased rates of
default and bankruptcy and lower levels of consumer and business spending. A continuation of this economic downturn, or a weak recovery
from the downturn, could negatively affect our business, operating results and financial condition in a number of ways. For example, customers
may leave our service, and efforts to attract new customers may also be adversely impacted. In addition, customers may delay or decrease
spending with us or may not pay us, or may delay paying us.
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