Stamps.com 2001 Annual Report Download

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to
Commission file number 000-26427
Stamps.com Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 77-0454966
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification
No.)
Address
3420 Ocean Park Boulevard, Suite 1040
Santa Monica, California 90405
Registrant's Telephone Number, Including Area Code: (310) 581-7200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class Name of each exchange
Common Stock, $.001 par value The Nasdaq National Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by a check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [_]
2002. EDGAR Online, Inc.

Table of contents

  • Page 1
    ...: Title of each class Name of each exchange Common Stock, $.001 par value The Nasdaq National Market Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such...

  • Page 2
    ... classes of Common Stock. As of March 21, 2002 the approximate aggregate market value of voting stock held by non-affiliates of the registrant was $204,000,000 (based upon the closing price for shares of the Registrant's Common Stock as reported by The Nasdaq National Market System on that date...

  • Page 3
    ... DISCLOSURES ABOUT MARKET RISK...ITEM 8. ITEM 9. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE...PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...ITEM 11. EXECUTIVE COMPENSATION...ITEM 12...

  • Page 4
    ... printer, and an Internet connection. Our enterprise shipping service, which we divested in May of 2001, allowed customers to print shipping labels, schedule a pick-up, track a package and apply enterprise-wide business rules to manage and account for mailing and shipping costs. Recent Developments...

  • Page 5
    ... Board Opinion (APB) No. 16. Under the purchase method of accounting, the purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. On March 2, 2001, United Parcel Service and Mail Boxes Etc. USA, Inc. (MBE) jointly...

  • Page 6
    ... onto envelopes or labels using ordinary laser or inkjet printers. Our service requires no additional hardware--the user's existing PC, printer and Internet setup are sufficient. Our free software can be downloaded from the Internet or installed from a CD-ROM. After installing the software and...

  • Page 7
    ... businesses and home offices. Traditional Postage Industry and the Emergence of Internet Postage According to the US Postal Service Annual Report, the total postage market was $62.8 billion in 1999, of which $40.4 billion was represented by first class, priority and express mail with the remainder...

  • Page 8
    ... location. We have partnerships with companies who sell office supplies and computer equipment at retail. For example, we currently have partnerships with Office Depot and CompUSA. We are also running a pilot program with the US Postal Service to increase our presence at retail post offices. Office...

  • Page 9
    ...and allows a user to download postage to the device from the Internet. This specialty metering device is not regulated by the open system Information Based Indicia Program because it does not allow for the printing of postage from standard inkjet or laser printers. Envelope Manager. Envelope Manager...

  • Page 10
    ... on mail class, mail form, weight and destination address. Third, the software provides the ability to track and control postage expenditures in a small office using cost codes. Finally, the monthly service fees we charge are less than a traditional small business postage meter. Our service fees are...

  • Page 11
    ... with respect to three other patents. On July 28, 2000 the court entered Pitney Bowes' amended complaint. On June 18, 2001, E-Stamp Corporation and Pitney Bowes agreed to settle their litigation. In September 2000, Pitney Bowes filed another patent infringement lawsuit against us in the United...

  • Page 12
    ... by both us and our competitors; (g) our ability to develop, market and introduce new and enhanced services on a timely basis; (h) the level of service and price competition; (i) the increases in our operating expenses; (j) US Postal Service regulation and policies; (k) the success of implementing...

  • Page 13
    ...us or help us achieve profitability. Failure to execute our plan to significantly reduce expenses or to attract new customers in high margin lines of business in significant numbers will adversely effect our financial condition and results of operations. In addition, our 10 2002. EDGAR Online, Inc...

  • Page 14
    ...our target customers will choose the Internet as a means of purchasing postage, or if customers will be willing to pay a fee to use our service, or if potential users will select our system over our competitors' systems or over alternative methods such as online invoicing, bill payment and financial...

  • Page 15
    ...our Internet postage service, we may never achieve profitability and our business will be substantially harmed and could fail. In order to acquire customers and achieve wide distribution and use of our services, we must develop and execute cost-effective marketing campaigns and sales programs. Given...

  • Page 16
    ..., Pitney Bowes issued a press release stating that it holds dozens of US patents related to computer-based postage metering and that it intends to engage in discussions with other marketers of computer-based postal products to license Pitney Bowes technology. Prior to Pitney Bowes filing a lawsuit...

  • Page 17
    ... stamps.com domain name would require us to use a different domain name as the primary Internet address and web page for our company, and we may need to change the name of our company itself from Stamps.com Inc. as well. Changing the name of our company, and using a new Internet domain name, could...

  • Page 18
    ... that our Internet access will be uninterrupted, error-free or secure. After we complete the transfer of our web servers from its current outsourced location to its new location inside our corporate headquarters, our web site will no longer have the same connectivity infrastructure as available...

  • Page 19
    ... to those of our common stock. Risks Related to Our Industry US Postal Service regulations and fee assessments may cause disruptions or discontinuance of our business, may increase the cost of our service and may affect the adoption of Internet postage as a new method of mailing. We are subject to...

  • Page 20
    ...enhance our existing services; develop new services or features and technology that address the increasingly sophisticated and varied needs of our current and prospective users; and respond to technological advances and emerging industry and regulatory standards and practices in a cost-effective and...

  • Page 21
    ...profits, if any, substantially depend upon the acceptance and use of the Internet and other online services as an effective medium of commerce by our target users. The Internet may not become a viable long-term commercial marketplace due to potentially inadequate development of the necessary network...

  • Page 22
    ...to export our products and services. Regulations and standards of the Universal Postal Union and other international bodies may also limit our ability to provide international mail services. If we enter the international market, our business activities will be subject to a variety of potential risks...

  • Page 23
    ... infringement with respect to three other patents. On July 28, 2000 the court entered Pitney Bowes' amended complaint. On June 18, 2001, E-Stamp and Pitney Bowes agreed to settle their litigation. On September 18, 2000 Pitney Bowes filed another patent infringement lawsuit against us in the United...

  • Page 24
    ... conditioned upon the parties successfully reducing the settlement to a signed writing. On February 28, 2001, Metro Fulfillment, Inc. filed a lawsuit against us stemming from services allegedly performed by Metro Fulfillment, Inc. under a Fulfillment Services Agreement. The complaint alleges claims...

  • Page 25
    ... to indemnification, pursuant to our agreements with the underwriters. We have also provided notice to our directors and officers insurers, and believe that we have insurance applicable to the lawsuits. We also believe that the claims against us and our officers and directors are without merit, and...

  • Page 26
    ... on The Nasdaq National Market under the symbol "STMP" since June 25, 1999. Prior to that time, there was no public market for our common stock. The following table sets forth the range of high and low closing sales prices reported on The Nasdaq National Market for our common stock for the periods...

  • Page 27
    ...,181 shares of our common stock issued and outstanding. Dividend Policy We have never declared nor paid cash dividends on our capital stock. We currently intend to retain all available funds for use in the operation and expansion of our business and do not anticipate paying any cash dividends in the...

  • Page 28
    ...358 Cost of sales...7,954 23,691 2,430 Research and development...12,578 33,051 7,363 Sales and marketing...9,684 72,966 35,208 General and administrative...33,036 102,191 14,333 Impairment of goodwill...163,634 --Provision for loss on loan with former officer...-3,346 -Restructuring charges(2)...25...

  • Page 29
    ...laser printer, and an internet connection. Our enterprise shipping service, which we divested in May of 2001, allowed customers to print shipping labels, schedule a pick-up, track a package and apply enterprise-wide business rules to manage and account for mailing and shipping costs. During 2001, we...

  • Page 30
    ...an Internet postage service targeted at consumers, home offices and small businesses. Service fee revenues for our Internet postage service are generated from a monthly convenience fee that we charge our customers, under two different pricing plans. Under the Simple Plan, a user purchases postage at...

  • Page 31
    ... consist 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 goodwill and deferred compensation. General and administrative...

  • Page 32
    ... development of the Internet Postage and enterprise shipping services. General and Administrative. General and administrative expenses principally consist of compensation and related costs for executive and administrative personnel, facility costs, fees for legal and other professional services...

  • Page 33
    ... in net cash used in operating activities resulted primarily from cost-cutting activities, including the reduction in employees and significant reduction and redeployment of our sales and marketing expenses to those programs that have demonstrated higher returns on investment. Net cash provided...

  • Page 34
    ... accounting policies upon which our financial status depends. We determined the critical principles by considering accounting policies that involve the most complex or objective decisions or assessments. We identified our most critical accounting policies to be related to risk management, use...

  • Page 35
    ... Act. We incorporate by reference the information under the caption "Section 16(a) Beneficial Ownership Reporting Compliance," appearing in our proxy statement for our 2002 annual meeting of stockholders. ITEM 11. EXECUTIVE COMPENSATION We incorporate by reference the information under the caption...

  • Page 36
    ....(1) 10.2 Assignment and License Agreement between the Company and Mohan P. Ananda, dated January 20, 1998.(1) 10.3 1998 Stock Plan and Forms of Notice of Grant and Stock Option Agreement.(1) 10.4 1999 Stock Incentive Plan.(1) 10.5 1999 Employee Stock Purchase Plan.(1) 2002. EDGAR Online, Inc.

  • Page 37
    ..., L.P.(1) Distributor Agreement, dated January 15, 1999, between the Company and Office Depot, Inc.(1) Distributor Agreement, dated March 11, 1999, between the Company Dymo-Costar Corporation.(1) License Agreement, dated May 13, 1999, between the Company and Ananda.(1) 32 2002. EDGAR Online, Inc.

  • Page 38
    2002. EDGAR Online, Inc.

  • Page 39
    ... M. Payne.* 10.23+ 10.24+ 31, 21.1 23.1 24.1 24.2 24.3 24.4 99.1 99.2 99.3 99.4 99.5 Asset Purchase Agreement dated April 27, 2001 by and between the Company and E-Stamp Corporation.(9) Amendment to the Online Store Outsourcing Agreement dated January 2002 by and between the Company and Office Depot...

  • Page 40
    Exhibit Number Description 99.11 Form of Stock Purchase Agreement for Employee Stock Purchase Plan.(3) 99.12 iShip.com, Inc. Amended and Restated 1997 Stock Plan.(4) 99.13 Form of Option Assumption Agreement (iShip.com, Inc. Option Shares).(4) 99.14++ Mutual General Release, dated March 7, 2001, ...

  • Page 41
    None. 34 2002. EDGAR Online, Inc.

  • Page 42
    ... accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the...

  • Page 43
    ...former officer, net of allowance of $3,346 in 2001 and 2000. 3,181 Prepaid advertising...-Other current assets...541 --------Total current assets...191,113 Property and equipment, net...11,076 Goodwill and patents, net of accumulated amortization of $807 in 2001 and $42,738 in 2000...6,950 Long-term...

  • Page 44
    ... ended December 31 2001 2000 1999 in thousands, except per share data Revenues: Service revenue...$ Professional contract revenue...Other revenue...Total revenue...Cost of revenues...Gross profit...Expenses: Research and development...Sales and marketing...General and administrative...Impairment...

  • Page 45
    ... 31, 2001...50,731 ====== Comprehensive income...Exercise of stock options...Shares purchased under the ESPP...Deferred compensation arising from the issuance of warrants Amortization of deferred compensation...Deferred compensation related to terminated employees...Deferred compensation related to...

  • Page 46
    ...arising from the issuance of warrants --Amortization of deferred compensation...-2,521 Deferred compensation related to terminated employees...--Deferred compensation related to the sale of iShip Balance at December 31, 2001...$374 $(217,259 See accompanying notes. F-4 2002. EDGAR Online, Inc.

  • Page 47
    ... exercise of stock options...Net cash (used in) provided by financing activities...Net increase (decrease) in cash and equivalents...Cash and cash equivalents at beginning of period...Cash and cash equivalents at end of period...Short term investments...Restricted cash...Long term investments...Cash...

  • Page 48
    ... labels, schedule a pick-up, track a package and apply enterprise-wide business rules to manage and account for mailing and shipping costs. With all of the Company's services, no additional hardware is required; a customer can access our services through an existing Internet connection and print...

  • Page 49
    ... revenue is based on monthly convenience fees and the amount of postage used by the customer. Service revenue is recognized in the period that services are provided. Deferred revenue consisted primarily of pre-payments received for customer referrals under a partnership marketing arrangement in 2000...

  • Page 50
    ... Costs Research and development costs are expensed as incurred. These costs primarily consist of salaries, development materials, supplies and applicable overhead expenses of personnel directly involved in the research and development of new technology and service offerings. Stock-Based Compensation...

  • Page 51
    ...--(Continued) Website Development Costs The Company develops and maintains its website. Costs associated with the website consist primarily of software purchased from third parties. The Company capitalizes costs of computer software obtained for internal use in web design and network operations...

  • Page 52
    ... multi-carrier shipping service assets to United Parcel Service for $2.8 million. The difference between the sale price of iShip and the assets value attributed to iShip by the Company resulted in non-cash charge of $9.1 million in the second quarter of 2001. Additional legal costs associated with...

  • Page 53
    F-10 2002. EDGAR Online, Inc.

  • Page 54
    ... about Segments of an Enterprise and Related Information" establishes standards of reporting information regarding operating segments in annual financial statements and requires selected information for those segments to be presented in interim financial reports issued to stockholders. The Company...

  • Page 55
    ... cash: Certificates of deposit...2,089 U.S. Government and agency securities...1,872 Money market...2,806 -------Restricted cash...6,767 Short-term investments: Corporate notes and bonds...29,496 Commercial paper...19,250 U.S. Government and agency securities...27,021 Certificates of deposit...1,154...

  • Page 56
    ... million, $10.7 million and $1.3 million respectively. 8. Line of Credit The Company had a credit line agreement with a financial institution with an initial borrowing base of $300,000, which was increased to $1 million based on the Company's net equity balance, as defined. Borrowings bear interest...

  • Page 57
    The Company has a net operating loss carryforward of $251,442,610 and $231,531,362 for federal and state income tax purposes at December 31, 2001, respectively, and $192,908,870 and $175,238,953 for federal and state income tax purposes at December 31, 2000, respectively, which can be carried ...

  • Page 58
    ...credits will begin to expire in 2006. The Federal Tax Reform Act of 1986 and similar state tax laws contain provisions which may limit the net operating losses carryforwards to be used in any given year upon the occurrence of certain events, including a significant change in ownership interests. The...

  • Page 59
    2001 2000 Computer equipment...$1,135 $ 7,072 Accumulated amortization...(972) (1,501 163 $ 5,571 F-14 2002. EDGAR Online, Inc.

  • Page 60
    ... from locations and departments across the Company. In addition to the reduction of employees, the Company's restructuring plan includes costs associated with the termination of fixed-cost marketing deals and the redeployment of sales and marketing expenditures to programs that have a higher return...

  • Page 61
    ... shares of common stock at an exercise price of $11.00 per share. During 1999, a compensation element of approximately $240,000 was calculated using the Black-Scholes valuation method for the options earned during the period. This agreement expired on October 1, 1999. F-16 2002. EDGAR Online, Inc.

  • Page 62
    ... for the new measurement date is being recognized over the remaining vesting period. In February 2000, John M. Payne (former Chairman of the Board, Chief Executive Officer and director) purchased 187,000 shares of the Company's common stock on the open market for an aggregate purchase price of...

  • Page 63
    ...the terms and conditions of the existing option agreements for those grants, unless the Company's compensation committee decides to extend one or more features of the 1999 Plan to those options. In October 1999 and April 2000, the Company's Board of Directors and stockholders approved an increase of...

  • Page 64
    ... In no event will this annual increase exceed 1,564,715 shares. In addition, no participant in the 1999 Plan may be granted stock options or direct stock issuances for more than 1,125,000 shares of common stock in total in any calendar year. Options granted under the 1999 Plan generally vest 25% per...

  • Page 65
    ... per common share-as reported...$ (4.14) $ (4.54) $ (2.59) Basic and diluted net income per common share-pro forma...$ (4.40) $ (4.59) $ (2.68) Under SFAS No. 123, the fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following...

  • Page 66
    ... 9 4 The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price...

  • Page 67
    ... to drop allegations of patent infringement with respect to one patent and to add allegations of patent infringement with respect to three other patents. On July 28, 2000 the court entered Pitney Bowes' amended complaint. On September 18, 2000 Pitney Bowes filed another patent infringement lawsuit...

  • Page 68
    ... its agreement with Weigh-Tronix, Inc., Metro Fulfillment, Inc. was not required to pay for postal scales that were purchased from Weigh-Tronix, Inc. until Metro Fulfillment, Inc. had actually sold those scales to end users. These scales were supposed to be sold through the Company's Web site. Metro...

  • Page 69
    ... is conditioned upon the parties successfully reducing the settlement to a signed writing. On February 28, 2001, Metro Fulfillment, Inc. filed a lawsuit against the Company stemming from services allegedly performed by Metro Fulfillment, Inc. under a Fulfillment Services Agreement. The complaint...

  • Page 70
    ... share data) Fiscal Year 2001: Revenues...$ 5,259 $ 5,069 $ 4,564 $ 4,535 Loss from operations...(203,984) (33,113) (3,458) (2,275) Net loss...(176,732) (30,758) (1,096) (987) Basic and diluted net loss per share...$ (3.60) $ (0.62) $ (.02) $ (.02) Weighted average shares outstanding used in basic...

  • Page 71
    ... of Santa Monica, State of California, on the 29th day of March, 2002. STAMPS.COM INC. By: /s/ KENNETH MCBRIDE Kenneth McBride Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons in...

  • Page 72
    S-1 2002. EDGAR Online, Inc.

  • Page 73
    ....com shall pay Store Operator: (i) _____ for each New Customer who registers for Stamps.com's Simple Plan pricing plan through a direct traceable hypertext link from a promotion on the Store Operator's website located at http://www.OfficeDepot.com ("Store Operator Site") or electronic mail sent by...

  • Page 74
    ... Scale Coupons, any person who redeems a Postal Scale Coupon by telephone or any means other than online shall be deemed a Qualified Referral and shall be accounted for as such for purposes of payment by Store Operator pursuant to Section 6.2(1) as amended hereunder." 8. Section 8.1 shall be deleted...

  • Page 75
    ..., Stamps.com may establish its own online store solely for the sale of Stamps.com proprietary label, envelope, postal scale and printer products." Any capitalized terms used herein and not otherwise defined will have the meanings given to them in the Agreement. Except as provided in this Amendment...

  • Page 76
    IN WITNESS WHEREOF, the parties hereto have executed this Amendment. OFFICE DEPOT, INC. STAMPS.COM, INC. By:_____ By:_____ Name:_____ Name:_____ Title:_____ Title:_____ Date:_____ Date:_____ * Portions of this exhibit have been redacted for confidential information. 4 2002. EDGAR Online, Inc.

  • Page 77
    ... independent public accountants, we hereby consent to the incorporation of our reports included in this Form 10-K into the Company's previously filed Registration Statement File Numbers 333-81733, 333-33648 and 333-42764. /s/ Arthur Andersen LLP ARTHUR ANDERSEN LLP Los Angeles, California March 28...

  • Page 78
    ... and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all Annual Reports on Form 10-K, for the year ended December 31, 2001, of Stamps.com Inc., a Delaware corporation, under the Securities Exchange Act...

  • Page 79
    ... and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all Annual Reports on Form 10-K, for the year ended December 31, 2001, of Stamps.com Inc., a Delaware corporation, under the Securities Exchange Act...

  • Page 80
    ... and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all Annual Reports on Form 10-K, for the year ended December 31, 2001, of Stamps.com Inc., a Delaware corporation, under the Securities Exchange Act...

  • Page 81
    ... and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all Annual Reports on Form 10-K, for the year ended December 31, 2001, of Stamps.com Inc., a Delaware corporation, under the Securities Exchange Act...

  • Page 82
    ... standards, that there was appropriate continuity of Arthur Andersen personnel working on the audit and availability of national office consultation. Availability of personnel at foreign affiliates of Arthur Andersen is not relevant to this audit. Very truly yours, /s/ Ken McBride Ken McBride...

  • Page 83
    End of Filing 2002. EDGAR Online, Inc.