Stamps.com 2014 Annual Report Download - page 46

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 27, 2015, we had 16,318,208 shares outstanding, and therefore ownership of approximately 815,000 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.
Critical Accounting Policies and Judgments
General
The discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared
in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, we evaluate our estimates, including those related to patents, contingencies, litigation and goodwill and
intangibles acquired relating to our acquisitions. We base our estimates on historical experience and on various other assumptions that we
believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or
conditions.
We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial
statements.
Revenue Recognition
We recognize revenue from product sales or services rendered, as well as commissions from advertising or sale of products by third party
vendors to our customer base 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 collectability is reasonably assured.
Service revenue is primarily derived from monthly subscription and transaction fees and is recognized in the period that services are provided.
Product sales, net of return allowances, are recorded when the products are shipped and title passes to customers. Sales of items, including
PhotoStamps, sold to customers are made pursuant to a sales contract that provides for transfer of both title and risk of loss upon our delivery to
the carrier. Return allowances for expected product returns, which reduce product revenue, are estimated using historical experience.
Commissions from the advertising or sale of products by a third party vendor to our customer base are recognized when the revenue is earned
and collection is deemed probable.
Customers typically pay face value for postage purchased for use through our mailing and shipping software, and the funds are transferred
directly from the customers to the United States Postal Service (“USPS”).
We do not recognize revenue for this postage, as it is purchased by our
customers directly from the USPS.
PhotoStamps revenue, which includes the face value of postage, from the sale of PhotoStamps sheets and rolls is made pursuant to a sales
contract that provides for transfer of both title and risk of loss upon our delivery to the carrier.
Sale of PhotoStamps retail boxes are initially recorded as deferred revenue. PhotoStamps revenue related to the sale of these PhotoStamps retail
boxes is subsequently recognized when either: 1) the PhotoStamps retail box is redeemed, or 2) the likelihood of the PhotoStamps retail box
being redeemed is deemed remote (“breakage”) and there is no legal obligation to remit the value of the unredeemed PhotoStamps retail boxes.
On a limited basis, we allow third parties to offer products and promotions to our customer base. These arrangements generally provide payment
in the form of a flat fee or revenue sharing arrangements where we receive payment upon customers accessing third party products and services.
Total revenue from such advertising arrangements was not significant during 2014 and 2013.
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