Stamps.com 2012 Annual Report Download - page 27

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The following discussion and analysis of our financial condition and results of operations should be read in conjunction with Item 6. “
Selected
Financial Data
”
of this Report and our financial statements and the related notes thereto included in this Report. This discussion contains
forward
-
looking statements that involve risks and uncertainties that could cause actual results to differ materially from historical results or
anticipated results including those set forth in Item 1A. “Risk Factors” of this Report. See the discussion of forward-
looking statements on page
1 of Part I of this Report.
Overview
Stamps.com is the leading provider of Internet-
based postage solutions. Our customers use our service to mail and ship a variety of mail
pieces, including postcards, envelopes, flats and packages, using a wide range of United States Postal Service (“USPS”)
mail classes, including
First Class Mail®, Priority Mail®, Express Mail®, Media Mail®, Parcel Post®,
and others. Our customers include individuals, small businesses,
home offices, medium-
size businesses and large enterprises, and within these segments we target both mailers and shippers. We were the first
ever USPS-licensed vendor to offer PC Postage® in a software-only business model in 1999.
Section 382 Update
We currently have federal and state 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 and 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,
including any company and 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. The NOL Protective Measures contained in our certificate of incorporation are more specifically
described in our Definitive Proxy Statement filed with the SEC 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.
As of February 28, 2013, we had 15,319,433 shares outstanding, and therefore ownership of approximately 766,000 shares or more would
currently constitute a “5% shareholder”.
We strongly urge that any stockholder contemplating becoming a 5% or more shareholder
contact us before doing so.
PC Postage Business References
When we refer to our “PC Postage”
business, we are referring to our PC Postage Service and Integrations, Mailing & Shipping Supplies Store
and Branded Insurance offering. We do not include our PhotoStamps business when we refer to our PC Postage business.
When we refer to our "Core PC Postage business", we are referring to the portion of our PC Postage business targeting our small business,
enterprise and high volume shipping customers. When we refer to our "Non-
Core PC Postage business", we are referring to the portion of our
PC Postage business that targets a more consumer oriented customer through the "enhanced promotion" marketing channel. In the "enhanced
promotion" channel, we work with various companies to advertise our service in a variety of sites on the Internet. These companies typically
offer an additional promotion (beyond what we typically offer) directly to the customer in order to get the customer to try our service and we
find that this channel attracts more consumer oriented customers.
Table of Contents
ITEM 7.
MANAGEMENT
’
S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
23