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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
——————————
FORM 10-K
(Mark One)
: ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
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.)
12959 Coral Tree Place
Los Angeles, California 90066
(Address of Principal Executive Offices)
Registrant’ s Telephone Number, Including Area Code: (310) 482-5800
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 : 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.
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).
Yes : No
As of June 30, 2004, the approximate aggregate market value of voting common stock held by non-
affiliates of the Registrant was $229,990,012 (based upon the closing price for shares of the Registrant’ s Common
Stock as reported by The Nasdaq National Market System on that date). As of June 30, 2004, there were
approximately 22,570,168 shares of the Registrant’ s Common Stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’ s Proxy Statement for the Annual Meeting of Stockholders currently expected to
be held on May 25, 2005, to be filed with the Securities and Exchange Commission, are incorporated by reference in
Part III of this Form 10-K.

Table of contents

  • Page 1
    ... Los Angeles, California 90066 (Address of Principal Executive Offices) Registrant' s Telephone Number, Including Area Code: (310) 482-5800 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 Common Stock...

  • Page 2
    ....COM INC. FORM 10-K ANNUAL REPORT FOR THE YEAR ENDED December 31, 2004 TABLE OF CONTENTS Page PART I...1 ITEM 1. ITEM 2. ITEM 3. ITEM 4. PART II. BUSINESS ...1 PROPERTIES ...13 LEGAL PROCEEDINGS...14 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...14 ...15 ITEM 5. MARKET FOR THE REGISTRANT...

  • Page 3
    ... executive offices are located at 12959 Coral Tree Place, Los Angeles, California, 90066, and the telephone number is (310) 482-5800. Mission and Business Strategy Stamps.com was founded with the mission to allow anyone to print valid U.S. postage using just a personal computer, an ordinary printer...

  • Page 4
    ...and any mail class on NetStamps labels. NetStamps can be used just like regular stamps. Second, shipping labels allow customers to print postage for packages on plain 8.5" x 11" paper and add electronic Delivery Confirmation at discounted prices. Third, Stamps.com' s original online postage solution...

  • Page 5
    ... in a small office using cost codes. Fourth, customers using our service to ship packages with electronic Delivery or Signature Confirmation save approximately $0.40 - $0.50 per package compared to using comparable services at a retail post office. Finally, Stamps.com' s service fees are up...

  • Page 6
    ... as mail merge or envelope printing; Stamps.com supports more address books than any other PC Postage service. Based on data available in late 2004, we believe that more than 85% of all PC Postage subscription customers are Stamps.com customers. We also compete with traditional postage meters, such...

  • Page 7
    ...hours work or telecommuting numbered 23 million. In addition to the small office, home office and small businesses, consumers and corporations are also currently customers of Stamps.com' s service. Traditional Postage Industry and the Emergence of PC Postage According to the US Postal Service Annual...

  • Page 8
    ... ability to send shipment notifications emails with a tracking link, the ability to print shipping labels for Express Mail® and Bound Printed Matter, and support for additional USPS services such as Collect on Delivery (COD). Additionally, we enhanced the integration with Microsoft® Office System...

  • Page 9
    ...use of software and intellectual property owned by Stamps.com. In July 2004, we received authorization from the USPS to proceed with a limited market test of a new form of postage called PhotoStampsâ„¢ that couple the technology of PC Postage with the simplicity of a web-based image upload and order...

  • Page 10
    ... introduced by us and by our competitors; Our ability to develop, market and introduce new and enhanced services on a timely basis; The level of service and price competition; Our operating expenses; US Postal Service regulation and policies relating to PC Postage; and General economic factors. We...

  • Page 11
    ... order to acquire customers and achieve widespread distribution and use of our services, we must develop and execute cost-effective marketing campaigns and sales programs. We currently rely on a combination of marketing techniques to attract new customers including direct mail, online marketing and...

  • Page 12
    ... flood, power loss, telecommunications failure, break-ins, earthquakes and similar events. Our Internet host provider does not guarantee that our Internet access will be uninterrupted, error-free or secure. Our servers are also vulnerable to computer viruses, physical, electrical or electronic break...

  • Page 13
    ... other forms of postage, including traditional postage meters, provided by companies such as Pitney Bowes, postage stamps and permit mail. We may not be able to establish or maintain a competitive position against current or future competitors as they enter the market. Many of our competitors have...

  • Page 14
    ..., or the application of existing laws and regulations to the Internet and other online services could also harm our business. We have employees and offer our services in multiple states, and we may in the future expand internationally. These jurisdictions may claim that we are required to qualify to...

  • Page 15
    ...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 PC Postage. Our stock price is volatile The price at which our common stock has traded since...

  • Page 16
    ... compensation, including prejudgment and post-judgment interest, costs and expenses (including attorneys' fees), and rescissory 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...

  • Page 17
    ... ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Market Information Our common stock is traded on The Nasdaq National Market under the symbol "STMP". The following table sets forth the range of high and low closing sales prices reported on The Nasdaq National Market...

  • Page 18
    ...thousands, except per share data) 2000 Statement of Operations Data: Revenues...$ Cost of sales...Research and development ...Sales and marketing...General and administrative ...Impairment of goodwill ...Provision for loss on loan with former officer ...Restructuring charges ...Loss from operations...

  • Page 19
    ...online postage technology with Microsoft' s widely-used Office System 2003 software. For example, Stamps.com customers who print envelopes using Microsoft Word 2003 are offered the option of checking a box to add electronic postage. When they do so, they will be able to print the address and postage...

  • Page 20
    ...from the US Postal Service to proceed with a limited market test of a new form of postage called PhotoStampsâ„¢ that couple the technology of PC Postage with the simplicity of a webbased image up load and order process to allow consumers and businesses to order fully customized postage. In September...

  • Page 21
    ...and any mail class on NetStamps labels. NetStamps can be used just like regular stamps. Second, shipping labels allow customers to print postage for packages on plain 8.5" x 11" paper and add electronic Delivery Confirmation at discounted prices. Third, Stamps.com' s original online postage solution...

  • Page 22
    ... during our market test included the price of postage and was made pursuant to a sales contract that provides for transfer of both title and risk of loss upon our delivery to the carrier. On a limited basis, we allow third parties to offer products and promotions to the Stamps.com customer base...

  • Page 23
    ..., during the third quarter of fiscal 2004 we concluded a market test of our new form of postage called PhotoStamps. We continued to see positive trends on usage of our service during the year. Total postage printed using our service during the fiscal year 2004 was up 53% compared to fiscal...

  • Page 24
    ... the US Postal Service to proceed with a limited market test of a new form of postage called PhotoStampsâ„¢ that coupled the technology of PC Postage with the simplicity of a web-based image up load and order process to allow consumers and businesses to order fully customized postage. In September...

  • Page 25
    .... Ongoing marketing programs include the following: web partnerships; software and hardwarebased partnerships; retail partnerships; customer referral programs; customer remarketing efforts; telemarketing; direct mail; and online advertising. During the third and fourth quarter of fiscal 2004, we...

  • Page 26
    ...% 9% 100% 31% 2% 33% 67% 15% 29% 95% 139% (72)% 30% (42)% Revenue. 2002 and 2003 revenue was derived primarily from two sources: (1) service fees charged to customers for the ability to buy and print postage and (2) product sales and other revenue, consisting of online store revenue from the direct...

  • Page 27
    ...31, 2003, including specialty NetStamps labels, shipping labels, Internet Postage labels, dedicated postage printers, and digital scales, and other items. In addition, in November 2003, we introduced our parcel insurance offering provided in partnership with Parcel Insurance Plan and underwritten by...

  • Page 28
    ... long term money market funds, commercial paper, corporate notes and municipal securities and do not engage in hedging or speculative activities. In November 2003, we entered into a facility lease agreement commencing on March 2004 for our new corporate headquarters with aggregate lease payments of...

  • Page 29
    .... 2. We plan to adopt Statement 123(R) using the modified-prospective method. As permitted by Statement 123, we currently account for share-based payments to employees using Opinion 25' s intrinsic value method and, as such, generally recognize no compensation cost for employee stock options...

  • Page 30
    ...effective as of December 31, 2004. Our management' s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2004 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included below. 28

  • Page 31
    ...' s assessment and an opinion on the effectiveness of the company' s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and...

  • Page 32
    ... and all of our officers and employees, can be found on our web site, which is located at www.stamps.com. We intend to make all required disclosures concerning any amendments to, or waivers from, our code of ethics on our web site. ITEM 11. EXECUTIVE COMPENSATION We incorporate by reference...

  • Page 33
    ... in a separate section of this Annual Report on Form 10-K commencing on the pages referenced below: Stamps.com Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm ...Consolidated Balance Sheets at December 31, 2004 and 2003...Consolidated Statements of...

  • Page 34
    ... by and between the Company and Office Depot, Inc.(10) Patent License and Settlement Agreement dated December 19, 2003 by and between Stamps.com Inc. and Pitney Bowes Inc. (11) Agreement dated July 14, 2004 by and between Stamps.com Inc., eBay Inc. and PayPal, Inc. (12) Subsidiaries of the Company...

  • Page 35
    ... herein by reference to the Company' s Form 8-K filed with the Securities and Exchange Commission on July 16, 2004 (File No. 000-26427). (13) Filed with the Securities and Exchange Commission with this Annual Report on Form 10-K. * Previously filed. + Confidential treatment requested and received as...

  • Page 36
    ...with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Stamps.com Inc.' s internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring...

  • Page 37
    ...except per share data) December 31, 2004 2003 Assets Current assets: Cash and cash equivalents ...Restricted cash ...Short-term investments ...Trade accounts receivable, net...Other accounts receivable ...Other current assets...Total current assets...Property and equipment, net ...Intangible assets...

  • Page 38
    ...share data) 2004 Year Ended December 31, 2003 2002 Revenues: Service ...PhotoStamps ...Product and other ...Total revenues...Cost of revenues: Service ...PhotoStamps ...Product and other ...Total cost of revenues ...Gross profit ...Operating expenses: Sales and marketing ...Research and development...

  • Page 39
    ... gain/(loss) on investments ...Comprehensive income (loss) ...Exercise of stock options ...Shares purchased under the ESPP ...Return of capital dividend ...Return of capital make-up payment to employees...Balance at December 31, 2004 ... 25,366 $ 50 $ 700,455 $ (101) $ (314) $ - $ (483,205...

  • Page 40
    ... charge relating to the return of capital dividend...Amortization of deferred compensation...Changes in operating assets and liabilities: Trade accounts receivable ...Other accounts receivable ...Other assets ...Prepaid expenses ...Accounts payable and accrued expenses ...Net cash provided by (used...

  • Page 41
    ... of Internet-based postage solutions. Stamps.com' s service allows customers to buy and print USPS approved postage using a PC, an ordinary inkjet or LaserJet printer and an Internet connection. Customers use our service to mail and ship a variety of mail pieces including postcards, envelopes, flats...

  • Page 42
    ... and government agencies, and corporations, thereby reducing credit risk and credit risk concentrations. From time to time, the Company' s investments held with its financial institutions may exceed Federal Deposit Insurance Corporation insurance limits. Interest rate fluctuations impact the...

  • Page 43
    ... service, certain promotional expenses, system operating costs, credit card processing fees, the cost of consumables, the cost of postage for PhotoStamps, printing and fulfillment costs for PhotoStamps, parcel insurance offering costs, customer misprints and products sold through our online store...

  • Page 44
    ... successful bill of a customer. 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...

  • Page 45
    ...thousands, except per share data): 2004 2003 2002 Net loss-as reported ...Add: Stock price based employee expense included in net loss...Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards...Net loss-pro forma ...Basic and diluted net loss...

  • Page 46
    ..., this Statement amends the disclosure requirement 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...

  • Page 47
    ... plans to adopt Statement 123(R) using the modified-prospective method. As permitted by Statement 123, the Company currently accounts for share-based payments to employees using Opinion 25' s intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options...

  • Page 48
    ...Cash and cash equivalents : Cash ...Money market...Cash and cash equivalents...Restricted cash: Certificates of deposit...Corporate notes and bonds ...Money market...Restricted cash...Short term investments: Corporate notes and bonds ...U.S. Government and agency securities ...Short term investments...

  • Page 49
    ...-offs against the allowance for doubtful accounts totaled $0 for the years ended December 31, 2004 and 2003. 7. Property and Equipment Property and equipment are stated at cost. Depreciation and amortization are computed principally on a straight-line method over the estimated useful life of the...

  • Page 50
    ... losses 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 51
    ...ratio of exercise price to market price per share was not reduced. In addition, the Company recognized approximately $3 million of compensation expense during the first quarter of 2004 related to the return of capital dividend and its impact on the Company' s employee stock options. This expense was...

  • Page 52
    ...the related litigation expenses related to the eBay matter that was contingent upon the outcome of the settlement in the amount of $1.4 million as a component of general and administrative expenses. Furthermore, eBay agreed to a three year licensing agreement for the use of software and intellectual...

  • Page 53
    ... The weighted-average fair value of stock grants for the years ended December 31, 2004, 2003 and 2002 using the Black-Scholes valuation method are as follows: 2004 2003 2002 Weighted-average fair value of stock options with an exercise price equal to the market price on the grant date...$ Weighted...

  • Page 54
    ... pursuant to the ESPP during 2004, 2003 and 2002 were 32,449, 26,867 and 16,872, respectively. Savings Plan During 1999, the Company implemented a savings plan for all eligible employees, which qualifies under Section 401(k) of the Internal Revenue Code. Participating employees may contribute up to...

  • Page 55
    ... prejudgment and post-judgment interest, costs and expenses (including attorneys' fees), and rescissory 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...

  • Page 56
    ...data) December Fiscal Year 2004: Revenues...Gross profit...Income (loss) from operations ...Net income (loss)...Net income (loss) per share: ...Basic Diluted Weighted average shares outstanding:...Basic... excluded from the diluted earnings per share calculation as their effect is antidilutive. F-21

  • Page 57
    ... this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on the 11 day of March 2005. STAMPS.COM INC. By: /s/ KENNETH MCBRIDE Kenneth McBride Chief Executive Officer Pursuant to the requirements of...

  • Page 58
    ...' s assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of Stamps.com Inc., included in this Annual Report (Form 10-K) for the year ended December 31, 2004. /s/ Ernst & Young LLP Los Angeles, California...

  • Page 59
    ... Form of Certification Required by Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended I, Ken McBride, Chief Executive Officer of Stamps.com Inc., certify that: 1. I have reviewed this Annual Report on Form 10-K of Stamps.com Inc.; 2. Based on my knowledge, this report does...

  • Page 60
    ... Form of Certification Required by Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended I, Kyle Huebner, Chief Financial Officer of Stamps.com Inc. certify that: 1. I have reviewed this Annual Report on Form 10-K of Stamps.com Inc.; 2. Based on my knowledge, this report does...

  • Page 61
    ... Form of Certification Required by Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended I, James A. Harper, Chief Accounting Officer of Stamps.com Inc., certify that: 1. I have reviewed this Annual Report on Form 10-K of Stamps.com Inc.; 2. Based on my knowledge, this report...

  • Page 62
    ...OF 2002 In connection with the Annual Report of Stamps.com Inc. (the "Company") on Form 10-K for the period ending December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Ken McBride, Chief Executive Officer of the Company, certify, pursuant to 18...

  • Page 63
    ... OF 2002 In connection with the Annual Report of Stamps.com Inc. (the "Company") on Form 10-K for the period ending December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Kyle Huebner, Chief Financial Officer of the Company, certify, pursuant to...

  • Page 64
    ... 2002 In connection with the Annual Report of Stamps.com Inc. (the "Company") on Form 10-K for the period ending December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, James A. Harper, Chief Accounting Officer of the Company, certify, pursuant to...