Stamps.com 2002 Annual Report Download

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Table of Contents
2003. EDGAR Online, Inc.

Table of contents

  • Page 1
    Table of Contents 2003. EDGAR Online, Inc.

  • Page 2
    ...of Principal Executive Offices) (Zip Code) 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...

  • Page 3
    ... III of this Form 10-K or any amendment to this Form10-K. Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes No As of March 21, 2003, the approximate aggregate market value of voting common stock held by non-affiliates of the registrant...

  • Page 4
    ... QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT EXECUTIVE COMPENSATION SECURITY OWNERSHIP OF CERTAIN...

  • Page 5
    ... service is designed to allow individual consumers, home offices or small businesses to print US postage or shipping labels using any PC, any ordinary inkjet or laser printer, and an Internet connection. Recent Developments During 2002, Stamps.com entered a new phase in the Company' s history...

  • Page 6
    ... print a shipping label on a plain piece of 8 by 11 printer paper. This eliminates the need to use special 3-part labels and reduces the risk of misprinted postage. Using Stamps.com' s new Plain Paper Shipping Label allows customers to receive free electronic delivery confirmation with Priority Mail...

  • Page 7
    ... address and do not have an expiration date. The second feature, Plain Paper Shipping Labels, allows customers to print a shipping label on plain 8 by 11 printer paper, eliminating the need for special forms. In addition, customers can add electronic delivery confirmation, to priority mail packages...

  • Page 8
    ...-month beta field test. Additionally, on November 29, 2002, we launched our Plain Paper Shipping feature after significant development efforts. Our Marketing of Internet Postage Our Internet Postage service is currently targeted primarily at small businesses, home offices and individuals. We market...

  • Page 9
    ... stopped using our service. We utilize both e-mails and physical mail pieces to communicate the new features of our products to our former customers. NetStamps Promotional Paper. We recently designed a marketing device we call NetStamps promotional paper that contains 10 sample NetStamps labels...

  • Page 10
    ...to track and control postage expenditures in a small office using cost codes. Additionally, the monthly service fees we charge are less than a traditional small business postage meter. Finally, customers using our service to ship packages with electronic delivery or signature confirmation save $0.40...

  • Page 11
    ... cases, and permitting the court to set new trial dates in both actions. The Scheduling Order proposed a hearing on dispositive motions and claim construction to be conducted on June 3-5, 2003. The court has not yet executed that Scheduling Order or set new trial dates. 7 2003. EDGAR Online, Inc.

  • Page 12
    ... by Pitney Bowes in its suits against us alleging patent infringement could prevent us from offering our Internet Postage services and severely harm our business or cause it to fail" and "Legal Proceedings." On December 13, 2000, Cybershop (a British Columbia, Canada partnership) and its general...

  • Page 13
    ... of service and price competition; (h) our operating expenses; (i) US Postal Service regulation and policies relating to Internet Postage; and (j) general economic factors. Our cost of revenues includes costs for systems operations, customer service, data connectivity fees and security services; all...

  • Page 14
    ... Internet Postage service, 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. However, as a result of our limited marketing...

  • Page 15
    ...the Pitney I and Pitney III cases, and permitting the court to set new trial dates in both actions. The Scheduling Order proposed a hearing on dispositive motions and claim construction to be conducted on June 3-5, 2003. The court has not yet executed that Scheduling Order or set new trial dates. 11...

  • Page 16
    ... Stamps.com patents. In connection with our counterclaim, we also seek treble damages, an injunction against further alleged infringement, attorneys' fees and other damages and relief. A trial date has not yet been set in this matter. The outcome of all our litigation with Pitney Bowes is uncertain...

  • Page 17
    ... could suspend, terminate or offer services which compete against Internet Postage, any of which could stop or negatively impact the commercial adoption of our Internet Postage services. Any changes in requirements or specifications for Internet Postage could adversely affect our pricing, cost of...

  • Page 18
    ... as Pitney Bowes who enter the online postage markets, our revenues and operating results will suffer. The market for Internet Postage products and services is new and is intensely competitive. At present, Pitney Bowes has a software-based product commercially available. If any of our competitors...

  • Page 19
    ... by customers of the Internet as a means for purchasing postage services. Our success depends in large part on widespread acceptance and use of the Internet as a way to purchase postage services. This practice is at an early stage of development, and market acceptance of Internet Postage service is...

  • Page 20
    ... a merger or other takeover of our company. Our competitors may also seek to have the US Postal Service block the acquisition by a foreign person of our common stock or our company in order to prevent the combined company from becoming a more effective competitor in the market for Internet Postage...

  • Page 21
    ... dates in both actions. The Scheduling Order proposed a hearing on dispositive motions and claim construction to be conducted on June 3-5, 2003. The court has not yet executed that Scheduling Order or set new trial dates. On December 4, 2002, Pitney Bowes filed a further patent infringement lawsuit...

  • Page 22
    ... interest, costs and expenses (including attorneys' fees), and rescissionary damages. In April 2002, plaintiffs filed a consolidated amended class action complaint against us and certain of our current and former board members and/or officers. The consolidated amended class action complaint includes...

  • Page 23
    ... 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 24
    and (ii) March 21, 2003. ClosingPrice December 31, 2002 March 21, 2003 $ $ 4.67 4.20 Holders As of March 21, 2003, there were approximately 1,372 stockholders of record and approximately 44,605,773 shares of our common stock issued and outstanding. 19 2003. EDGAR Online, Inc.

  • Page 25
    ...the operation and expansion of our business and we do not currently anticipate paying any cash dividends in the foreseeable future. Recent Sales of Unregistered Securities We did not have any unregistered sales of common stock during the quarter ended December 31, 2002. 20 2003. EDGAR Online, Inc.

  • Page 26
    ...elsewhere in this report. Year Ended December 31, Period from January 9, 1998 (Inception) to December31, 1998 2002 2001 2000 1999 (in thousands, except per share data) Statement of Operations Data: Revenues Cost of sales Research and development Sales and marketing General and administrative...

  • Page 27
    21 2003. EDGAR Online, Inc.

  • Page 28
    ...part labels and reduces the risk of misprinted postage. Using our new Plain Paper Shipping Label allows customers to receive free electronic delivery confirmation with Priority Mail. Prior to this technology, the United States Postal Service(USPS) required separate confirmation labels that added an...

  • Page 29
    ... We offer 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...

  • Page 30
    ...: (1)service fees charged to customers for the ability to print postage directly from their printer, (2)professional contract revenue, received from Mail BoxesEtc. USA, Inc., for shipping tools used by Mail BoxesEtc. USA, Inc. franchise locations and (3)on-line store revenue, comprised of fees paid...

  • Page 31
    ... return on investment. General and Administrative. General and administrative expenses principally 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...

  • Page 32
    ... of our current business plan, we anticipate that our current working capital will be sufficient to fund our operations through 2002 and beyond. Recent Accounting Pronouncements In June 2001, the the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS...

  • Page 33
    ... of SFAS No.123 to require prominent disclosure in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company adopted this statement in December 2002 and its adoption did not...

  • Page 34
    ...connection with our restructuring programs. These reserves include estimates pertaining to employee separation costs and the settlements of contractual obligations resulting from our actions. Although we do not anticipate significant changes, the actual costs may differ from these estimates. Patents...

  • Page 35
    ...reported within the time periods specified in the SEC' s rules and forms and that such information is accumulated and communicated to the Company' s management, including the Company' s Chief Executive Officer and Chief Accounting Officer, as appropriate, to allow timely decisions regarding required...

  • Page 36
    29 2003. EDGAR Online, Inc.

  • Page 37
    ... 20, 1998.(1) 1998 Stock Plan and Forms of Notice of Grant and Stock Option Agreement.(1) 1999 Stock Incentive Plan.(1) 1999 Employee Stock Purchase Plan.(1) Form of Indemnification Agreement between the Company and its directors and officers.(1) Lease Agreement, dated August 27, 1998, between...

  • Page 38
    ... by and between the Company and John M. Payne.* 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 31, 2002 by and between the Company and Office Depot, Inc.(10) Subsidiaries of the...

  • Page 39
    ... Exhibit Number Description 99.11 99.12 99.13 99.14++ 99.15 99.16 Form of Stock Purchase Agreement for Employee Stock Purchase Plan.(3) iShip.com, Inc. Amended and Restated 1997 Stock Plan.(4) Form of Option Assumption Agreement (iShip.com, Inc. Option Shares).(4) Mutual General Release, dated...

  • Page 40
    ... on Form 8-K: On June 27, 2002, Stamps.com filed a report on Form 8-K, which reported under Item 4 the appointment of Ernst & Young LLP as Stamps.com' s independent public accountants, replacing Arthur Andersen LLP. The Company dismissed Arthur Andersen LLP on the same date. 32 2003. EDGAR Online...

  • Page 41
    ...of Contents On October 3, 2002, Stamps.com filed a report on Form 8-K, which reported under Item 5 that the Court in Cybershop' s domain name lawsuit against Stamps.com changed part of its summary judgment order. The Court had previously ordered that all twelve of Cybershop' s claims, and all three...

  • Page 42
    ...operations. Those auditors expressed an unqualified opinion on those statements in their report dated February7, 2002. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable...

  • Page 43
    ... with auditing standards generally 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...

  • Page 44
    ...-term investments Trade accounts receivable Other accounts receivable Note receivable from former officer, net of allowance of $3,346 in 2001 Other current assets Total current assets Property and equipment, net Trademarks and patents, net of accumulated amortization of $1,917 in 2002 and $807 in...

  • Page 45
    ... Year Ended December 31, 2002 2001 (in thousands, except per share data) 2000 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 of goodwill...

  • Page 46
    ... under the ESPP Retirement of treasury stock Issuance of common stock in conjunction with iShip acquisition, net of expense Deferred compensation arising from purchase of iShip Amortization of deferred compensation Deferred compensation related to terminated employees Balance at December 31, 2000 40...

  • Page 47
    Deferred compensation related to terminated employees Repayment on note receivable Repurchase of common stock Retirement of treasury stock - - (233 ) - 233 - - - - 101 - (7,089 ) (7 ) (26,382 ) - - - - (3,282 ) (23,107 ) 26,389 - - - - (3,181 ) (23,107 ) - Balance at December 31, 2002 ...

  • Page 48
    ... Ended December 31, 2002 Operating Activities Net Loss Adjustments to reconcile net loss to net cash used in operating activities Provision for doubtful accounts Depreciation and amortization Write-down of goodwill and other intangibles Amortization of deferred compensation Charge for acquired in...

  • Page 49
    ...Non-cash investing and financing activity: Equipment acquired under capital lease, net of acquisition of iShip Stock transfer in repayment of loan to former officer Retirement of treasury stock Reduction in deferred compensation related to terminated employees... notes. F-6 2003. EDGAR Online, Inc.

  • Page 50
    .... Our core mailing and shipping service is designed to allow individual consumers, home offices or small businesses to print US postage or shipping labels using any PC, any ordinary inkjet or laser printer, and an Internet connection. The Company launched its Internet Postage service on a national...

  • Page 51
    ... assets' useful lives and charges ordinary maintenance and repairs to operations as incurred. When property or equipment is disposed of, the cost and related accumulated depreciation and amortization are removed from the accounts and any gain or loss is included in operations. Trademarks and Patents...

  • Page 52
    .... 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 The Company accounts for its employee stock plan under the...

  • Page 53
    ... fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions: 2002 2001 2000 Expected dividend yield Risk-free interest rate Expected volatility Expected life (in years) - - - 2.61 % 5.00 % 5.50...

  • Page 54
    ... of SFAS No. 123 to require prominent disclosure in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company adopted this statement in December 2002 and its adoption did not...

  • Page 55
    ...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. The Company recorded intangible assets of $222.4 million and deferred compensation of $24.7 million, which...

  • Page 56
    ... 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 57
    ...and 2001 (in thousands): 2002 2001 Cash and equivalents: Cash Commercial paper Money market Municipal Bonds Corporate notes Certificates of deposit Cash and equivalents Restricted cash: Certificates of deposit U.S. Government and agency securities Money market Restricted cash Short-term investments...

  • Page 58
    ... 2002 2001 Accrued expenses: Payroll and related accrual Restructuring accrual Legal and related accrual Deferred rent accrual Marketing and related accrual Other accrual Accrued expenses $ 806 $ 288 399 152 408 562 2,615 $ 494 2,617 400 316 661 741 5,229 $ 8.Allowance for Doubtful Accounts...

  • Page 59
    ... loss will begin to expire in 2006. The federal credits begin to expire in 2018 and the state 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...

  • Page 60
    Effect of tax credits Effect of permanent differences Change in valuation allowance $ - 199 2528 2 $ - 61,159 22,327 4 $ - 26,107 58,721 1 F-16 2003. EDGAR Online, Inc.

  • Page 61
    ... 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 62
    ... 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 approximately $6.0 million. Mr. Payne purchased the shares on margin and the margin account was...

  • Page 63
    F-18 2003. EDGAR Online, Inc.

  • Page 64
    ...411,000 shares of the Company' s common stock from Mr.Payne as payment in full of the promissory note executed in November 2000. The shares were recorded at cost as treasury stock in the quarter ended June30, 2002 for the full value of notes receivable from Mr.Payne, net of reserve in the amount of...

  • Page 65
    ... under the 1999 Plan generally vest 25% per year, and the Board of Directors has the discretion with respect to vesting periods applicable to a particular grant. Each option granted has a 10 year contractual life. During 2002, 2001 and 2000, the Company issued options to purchase 1,730,500, 1,557...

  • Page 66
    The weighted-average fair value of stock grants for the years ended December31, 2002, 2001 and 2000 were approximately $1.38, $1.86 and $9.91, respectively. Fair value is calculated using the Black-Scholes valuation method. F-20 2003. EDGAR Online, Inc.

  • Page 67
    ... any annual increase exceed 521,571shares. Total shares of common stock issued during 2002, 2001 and 2000 were 33,744, 132,295 and 137,772, respectively. Savings Plan During 1999, the Company implemented a savings plan for all eligible employees, which qualifies under Section 401(k) of the Internal...

  • Page 68
    application systems and electronic indicia. The F-21 2003. EDGAR Online, Inc.

  • Page 69
    ... dates in both actions. The Scheduling Order proposed a hearing on dispositive motions and claim construction to be conducted on June3-5, 2003. The court has not yet executed that Scheduling Order or set new trial dates. On December 4, 2002, Pitney Bowes filed a further patent infringement lawsuit...

  • Page 70
    ...costs and expenses (including attorneys' fees), and rescissionary damages. In April 2002, plaintiffs filed a consolidated amended class action complaint against the Company and certain of the Company' s current and former board members and/or officers. The consolidated amended class action complaint...

  • Page 71
    ...share data) Fiscal Year 2002: Revenues Loss from operations Net loss Basic and diluted net loss per share Weighted average shares outstanding used in basic and diluted per-share calculation Fiscal ... (55,289 ) (1.15 ) $ 48,259 5,323 (72,877 ) (68,425 ) (1.41 ) 48,441 F-24 2003. EDGAR Online, Inc.

  • Page 72
    ... dates indicated: Signature Title Date /s/K ENNETH M C B RIDE Chief Executive Officer and Director (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer) Chief Accounting Officer and Controller Director Director Director March28,2003 Kenneth McBride /s/J AMES...

  • Page 73
    Table of Contents FORM OF CERTIFICATION REQUIRED BY RULES 13a-14 AND 15d-14 UNDER THE SECURITIES EXCHANGE ACT OF 1934 I, Ken McBride, certify that: 1I have reviewed this annual report on Form 10-K of Stamps.com Inc.; . 2Based on my knowledge, this annual report does not contain any untrue ...

  • Page 74
    ... could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date:March28,2003 /s/K EN M C B RIDE Ken McBride Chief Executive Officer 2003. EDGAR Online, Inc.

  • Page 75
    Table of Contents FORM OF CERTIFICATION REQUIRED BY RULES 13a-14 AND 15d-14 UNDER THE SECURITIES EXCHANGE ACT OF 1934 I, James A. Harper, certify that: 1I have reviewed this annual report on Form 10-K of Stamps.com Inc.; . 2Based on my knowledge, this annual report does not contain any untrue ...

  • Page 76
    ... other certifying officers and I have indicated in this annual report whether or not there were significant changes in . internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with...

  • Page 77
    ... 1997 Stock Plan (No. 333-33648) and the 1999 Stock Incentive Plan (No. 333-42764) of Stamps.com Inc. of our report dated February 6, 2003, with respect to the consolidated financial statements of Stamps.com Inc. included in the Annual Report (Form 10-K) for the year ended December 31, 2002. ERNST...

  • Page 78
    ...which is used in connection with the registration statement, with respect to the statement in such registration statement, report or valuation which purports to have been prepared or certified by the accountant. As previously disclosed in the Stamps.com Inc.'s form 8-K filed on June 27, 2002, Stamps...

  • Page 79
    ... and appoints Kenneth McBride, his true and lawful attorney-in-fact 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, 2002, of Stamps...

  • Page 80
    ... and appoints Kenneth McBride, his true and lawful attorney-in-fact 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, 2002, of Stamps...

  • Page 81
    ... and appoints Kenneth McBride, his true and lawful attorney-in-fact 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, 2002, of Stamps...

  • Page 82
    ... ACT OF 2002 In connection with the Annual Report of Stamps.com Inc. (the "Company") on Form 10-K for the period ending December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Ken McBride, Chief Executive Officer and Chief Financial Officer of the...

  • Page 83
    ... ACT OF 2002 In connection with the Annual Report of Stamps.com Inc. (the "Company") on Form 10-K for the period ending December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, James A. Harper, Chief Accounting of the Company, certify, pursuant to...

  • Page 84
    End of Filing 2003. EDGAR Online, Inc.