Stamps.com 2014 Annual Report Download - page 69

STAMPS.COM INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Research and Development Costs
Research and development expense principally consist of compensation for personnel involved in the development of our services, depreciation
of equipment and software and expenditures for consulting services and third party software.
Sales and Marketing
Sales and marketing expense principally consists of spending to acquire new customers and compensation and related expenses for personnel
engaged in sales, marketing, and business development activities. Ongoing marketing programs include the following: traditional advertising,
partnerships, customer referral programs, customer re-marketing efforts, telemarketing, direct sales, direct mail, and online advertising.
Advertising Costs
We expense the costs of producing advertisements as incurred, and expense the costs of communicating and placing the advertising in the period
in which the advertising space or airtime is used. For the years ended December 31, 2014, 2013 and 2012
, advertising and tradeshow costs were
$9.7 million, $10.3 million and $8.7 million, respectively.
Internet Advertising
We recognize Internet advertising expense based on the specifics of the individual agreements. Under partner and affiliate agreements, third
parties refer prospects to our web site, and we pay the third parties when the customer completes the customer registration process, or in some
cases, upon the first successful billing of a customer. We record these expenses on a monthly basis as prospects are successfully converted to
customers. Under Internet search advertising, we record expenses based on actual “click activity” on our displayed advertisements following
targeted key word searches.
General and Administrative
General and administrative expense principally consists of compensation and related costs for executive and administrative personnel, fees for
legal and other professional services, depreciation of equipment and software used for general corporate purposes and amortization of intangible
assets.
Income Taxes
We account for income taxes in accordance with Financial Accounting Standards Board (“FASB”) ASC Topic No. 740, Income Taxes (“ASC
740”),
which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between
the book and tax basis of recorded assets and liabilities. ASC 740 also requires that deferred tax assets be reduced by a valuation allowance if it
is more likely than not that some or all of the net deferred tax assets will not be realized. We record a valuation allowance to reduce our gross
deferred tax assets, which are primarily comprised of U.S. Federal and State tax loss carry-
forwards, to the amount that is more likely than not (a
likelihood of more than 50 percent) to be realized. In order for us to realize our deferred tax assets, we must be able to generate sufficient
taxable income. We evaluate the appropriateness of our deferred tax assets and related valuation allowance in accordance with ASC 740 based
on all available positive and negative evidence. As of December 31, 2014 we do not have any valuation allowance recorded to reduce our gross
deferred tax assets as we believe we have met the more likely than not threshold we will realize our tax loss carry-forwards in the foreseeable
future.
F-12
Table of Contents