10-K

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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. [_]

   The Registrant does not have different 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). As of March 21, 2002, there were approximately
50,902,181 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 June 26, 2002, as filed with the
Securities Exchange Act of 1934, as amended, are incorporated by reference in
Part III of this Report.

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                                STAMPS.COM INC.

         FORM 10-K ANNUAL REPORT FOR THE YEAR ENDED DECEMBER 31, 2001

                               TABLE OF CONTENTS



                                                                           Page
                                                                           ----
                                                                     
                                       PART I                                1

 ITEM 1.  BUSINESS........................................................   1

 ITEM 2.  PROPERTIES......................................................  20

 ITEM 3.  LEGAL PROCEEDINGS...............................................  20

 ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............  22

                                      PART II                               23

 ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
          STOCKHOLDER MATTERS.............................................  23

 ITEM 6.  SELECTED FINANCIAL DATA.........................................  24

 ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS...........................................  25

 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK......  30

 ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.....................  30

 ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE............................................  30

                                      PART III                              31

 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..............  31

 ITEM 11. EXECUTIVE COMPENSATION..........................................  31

 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..  31

 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................  31

                                      PART IV                               32

 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K  32


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                                    PART I.

   This Annual Report on Form 10-K, including information incorporated herein
by reference, contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These statements relate to expectations concerning
matters that are not historical facts. Words such as "projects," "believes,"
"anticipates," "estimates," "plans," "expects," "intends," and similar words
and expressions are intended to identify forward-looking statements. We cannot
assure you that the expectations of future events will prove to be correct.
Some of the factors that could cause actual results to differ materially from
those expectations are disclosed in this document including, without
limitation, in the "Risk Factors" beginning on page 9. All forward-looking
statements attributable to Stamps.com are expressly qualified in their entirety
by this cautionary statement and you should not place undue reliance on any
forward-looking statement. Stamps.com does not undertake any obligation to
update any forward-looking statements. You are also urged to carefully review
and consider the various disclosures we have made which describe factors which
affect our business, including the "Risk Factors".

   Stamps.com, Stamps.com Internet Postage(TM) and the Stamps.com logo are our
trademarks. This Report also includes trademarks of entities other than
Stamps.com.

ITEM 1.  BUSINESS

Overview

   Stamps.com(TM) provides easy, convenient and cost-effective Internet-based
services for mailing or shipping letters, packages or parcels anywhere in the
United States and at anytime. 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 ordinary PC, any ordinary inkjet or 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.

Recent Developments

   During 2001, we have continued to implement the business strategy that we
began in October 2000 to decrease our operating losses and enhance our ability
to achieve profitability. This strategy involved an initial restructuring in
October 2000 to focus on our core business of Internet postage and shipping
that reduced our total number of employees by approximately 40% to
approximately 315 employees, which included full time, part time and contract
employees. We also implemented other cost-cutting programs, including a
significant reduction and redeployment of our sales and marketing expenses to
those programs that demonstrated the best return on investment. In October
2000, we also combined our Enterprise and E-Commerce Business Units to reduce
duplication of costs and effort. Additionally, we exited some of our
longer-term fixed-price marketing deals in favor of variable cost marketing
deals, and we restructured our customer support operations. We took a one-time
charge in the fourth quarter of 2000 of $11.5 million that consisted primarily
of employee severance, reserves established for exiting contractual
arrangements and fixed asset write-offs.

   In February 2001, we continued with our strategy to decrease our operating
losses and enhance our ability to achieve profitability. We reduced the total
number of employees by approximately 50% to 150 employees, including full time,
part time and contract employees and we continued cost cutting efforts,
including the termination of fixed-cost marketing deals and the redeployment of
sales and marketing expenditures to programs that had a higher return on
investment. We took a one-time charge of $11.0 million in the first quarter of
2001 consisting of $7.7 million related to restructuring, employee severance
and fixed asset write-offs, $2.3 million related to exiting contractual
arrangements and $1.0 million related to the write-off of an investment in
EncrypTix, a venture which had intended to develop our technology for on-line
ticketing.

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   In May 2001, we sold the iShip multi-carrier shipping service assets to
United Parcel Service for $2.8 million. In addition, in May 2001, we terminated
our marketing relationship with a direct selling organization called Cydcor
Limited as a result of low return on investment from that marketing channel.

   In August 2001, we continued to execute our business strategy to decrease
our operating losses and enhance our ability to achieve profitability by
reducing our headcount by approximately 25% to under 70 employees, contractors
and temporary employees. Due to this reduction, we took an additional charge in
the quarter ended September 30, 2001, of approximately $200,000 consisting of
employee severance.

   During 2001, we experienced significant change in the personnel at the
senior management and board level. In February 2001, our Senior Vice President
and General Manager of the Enterprise Business Unit, David N. Duckwitz, our
Vice President, Sales of the Enterprise Business Unit, Blake Karpe, and our
Senior Vice President and General Manager of the Small Business Unit, Douglas
Walner resigned. In March 2001, David Bohnett resigned from our board of
directors. In May 2001, following the divestiture of our iShip assets, John A.
Duffy and Stephen M. Teglovic, who served on our board of directors as a result
of the iShip acquisition, resigned from our board of directors. In June 2001,
Carolyn M. Ticknor and Thomas N. Clancy also resigned from our board of
directors.

   In August 2001, Kathy Brush, our Vice President of Marketing, left
Stamps.com, Marvin Runyon resigned from our board of directors and Ken McBride
was appointed President and Chief Executive Officer. Mr. McBride, who has also
served as our Chief Financial Officer since October 2000, replaced Bruce
Coleman who held the position of Chief Executive Officer on an interim basis.
In November 2001, our Vice President of Strategy, Kyle Huebner, filled the open
Vice President of Marketing position. We may continue to experience changes in
personnel at the senior management and board level.

   On November 16, 1999, we announced the formation of a subsidiary, EncrypTix,
Inc., to develop secure printing opportunities in the events, travel and
financial services industries. In February 2000, we invested $1.0 million and
granted EncrypTix a license to our technology. EncrypTix raised approximately
$35.0 million in private financing. On March 12, 2001, EncrypTix ceased
operations and effected a general assignment of its assets for the benefit of
its creditors. EncrypTix took this action because it was not able to secure
additional funding. We do not expect to be impacted by any of EncrypTix's
resulting liabilities. Additionally, we terminated our license agreement with
EncrypTix and have received limited licenses to some of EncrypTix's
intellectual property. Due to this cessation in business, we wrote off the
invested $1.0 million and took a one-time gain to eliminate the cumulative loss
from EncrypTix in the amount of $23.2 million in the first quarter of 2001.

   On March 7, 2000, we completed the acquisition of iShip.com, Inc. (iShip), a
development stage enterprise that developed Internet-based shipping technology.
The acquisition was accounted for as a purchase in accordance with the
provisions of Accounting Principles 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 announced that United Parcel Service would acquire MBE. MBE represented
a significant future source of revenue and market leverage for the enterprise
shipping service that we acquired in the iShip acquisition. United Parcel
Service also informed us at that time that it would be unlikely to continue to
use our enterprise shipping services at MBE in the future. As a result of the
March 2001 events, we reduced goodwill and other intangibles associated with
the purchase of iShip to reflect the present value of future cash flows, net of
estimated transaction costs. This resulted in a non-cash charge of $163.6
million in the first quarter of 2001.

   On May 18, 2001, we completed the sale of our iShip multi-carrier shipping
service assets to United Parcel Service for $2.8 million. The difference
between the sale price of iShip and the value we attributed to the iShip

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assets resulted in non-cash charge of $9.1 million in the second quarter of
2001. Additional legal costs associated with the sale of iShip of approximately
$300,000 were charged in the third quarter of 2001 resulting in a total charge
of $9.4 million.

   In October 2001, we received preliminary approval from the United States
Postal Service to begin beta testing a technology that allows customers to
print sheets of generic postage on ordinary inkjet or laser printers that are
not tied to a destination address and have no expiration date. We launched a
beta test for this technology in January 2002. If commercially approved, this
product could have a positive effect on future customer acquisition and
customer retention, as the technology removes two major inconveniences of our
current service, the fact that the postage must be tied to the destination
address, and the fact that the postage expires in 24 hours time. We believe
that the generic postage technology is important to our ability to grow our
future revenue.

Corporate Information

   Stamps.com was founded in September 1996 to investigate the feasibility of
entering into the US Postal Service's Information Based Indicia Program and
initiate the certification process for our Internet Postage service. In January
1998, we were incorporated in Delaware as StampMaster, Inc. and changed our
name to Stamps.com Inc. in December 1998. We completed our initial public
offering in June 1999 and our common stock is listed on the Nasdaq National
Market under the symbol "STMP."

   Our principal executive offices are located at 3420 Ocean Park Boulevard,
Suite 1040, Santa Monica, California 90405, and our telephone number is (310)
581-7200.

Stamps.com Internet Mailing and Shipping Services

   Stamps.com Internet Postage(TM) Service.  Our Internet Postage service is
approved by the US Postal Service and enables users to print information-based
indicia, or electronic stamps, directly 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 completing a registration process, customers can
purchase and print postage 24 hours a day, seven days a week from their PCs.
When a customer purchases postage for use through our service, they pay face
value, and the funds are transferred directly from the customer to the US
Postal Service. Beyond the cost of the postage, we charge the customers a
monthly convenience fee for use of the service. We have two separate pricing
plans to address the needs of different customers. The Simple Plan targets
lower usage customers with a monthly convenience fee of 10% of the value of
postage printed, with a monthly minimum fee of $4.49. The Power Plan targets
higher usage customers with a fixed monthly convenience fee that ranges between
$15.99 and $18.99, regardless of volume of postage printed with our service.

   Our technology meets strict US government security standards, and our
service incorporates address verification technology that validates each
addresses of the mail sent using our service against a database of all know
addresses from the US Postal Service. In addition, our Internet Postage service
is designed to integrate well into common small business and productivity
software applications such as word processing, contact and address management,
and accounting and financial applications.

   On October 22, 1999, we commercially launched our Internet Postage service.
As of March 21, 2002, our customer base consists of approximately 280,000
customers who have downloaded our software and registered for one of our
service plans.

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Overview of Our Industry

  Growth of Internet Commerce

   The small office/home office and small business markets represent a large
and growing customer segment. According to International Data Corporation,
there were a combined 41.8 million small businesses and home offices in the
United States in 1999. For 1999, International Data Corporation reported that
small businesses with less than 100 employees numbered 7.5 million, of which
77% had fewer than 10 employees. In addition, home offices numbered 34.3
million, of which 18.8 million were income-producing home offices, and the
remainder were home offices used for corporate after-hours work or
telecommuting.

   We believe that small businesses increasingly will rely on the functionality
and pervasiveness of the Internet to reach and serve a large and global group
of end users. The reduced cost of selling and marketing on the Internet, the
ability to build and serve a large base of customers electronically, and the
potential for personalized low-cost customer interaction can provide
significant economic advantages. These benefits have led to adoption of the
Internet by small 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 consisting of other classes
of mail including periodicals, bulk and international. The US Postal Service
processed over 201 billion pieces of mail in 1999. The US Postal Service has
experienced continued public demand for more convenient access to US Postal
Service products and services, and strong competition from overnight delivery
services and online transaction services. The US Postal Service also continues
to experience loss revenue due to fraud committed using older technology
traditional postal meters.

   In response to these challenges, in 1995 the US Postal Service announced the
Information Based Indicia program, its first new form of postage since the
approval of the postage meter in 1920. Information based indicia are a new type
of US Postal Service postage mark that contains an information rich two
dimensional bar code. Further, each bar code contains a 1028-bit digital
signature to guarantee that each indicium is unique and essentially fraud proof.

   The goals of the Information Based Indicia Program were to enhance user
convenience with a new access channel for postage that was available 24 hours a
day, seven days a week, while also enhancing the inherent security of the
postage to reduce the fraud committed using other forms of postage. All
Internet postage products, including any subsequent enhancements or additional
implementation of a product, must complete US Postal Service testing and
evaluation to ensure operational reliability, financial integrity and security
before becoming certified for commercial distribution. The Information Based
Indicia Program also aims to produce mail that is processed more smoothly in
order to reduce US Postal Service costs.

   We believe that the Information Based Indicia Program has created an
attractive alternative channel for the sale of postage, particularly to small
offices, home offices and small businesses. We believe that our current
customers have chosen our service over other forms of postage such as postage
stamps or postage meters primarily to save time and to save costs.

The US Postal Service Information Based Indicia Program Certification Process

   All US Internet postage products must complete extensive US Postal Service
testing and evaluation in the areas of operational reliability, financial
integrity and security to become certified for commercial distribution. Each
additional implementation of a particular product or function requires
additional evaluation and approval by the US Postal Service prior to commercial
delivery.

                                      4



   The US Postal Service certification process for Internet postage is a
standardized, ten-stage process. Each stage requires US Postal Service review
and authorization to proceed to the next stage of the certification process.
The US Postal Service has no published timeline or estimated time to complete
each of the ten stages of the program. The most significant stage is the ninth
stage, which requires a vendor to complete three phases of beta testing.

   The entire approval process for Stamps.com took approximately two and one
half years. In March 1997, we submitted our letter of intent to join the
Information Based Indicia Program. From March 1997 through August 1998, we
progressed through the first eight stages of the US Postal Service
certification process. On August 24, 1998, the US Postal Service announced that
we were approved for beta testing and our Internet Postage service became the
first software-only postage solution approved by the US Postal Service for
market testing. Between August 24, 1998 and August 9, 1999, we successfully
completed the three-phase beta testing required by the US Postal Service's
certification process. On August 9, 1999, we became the first software-only
Internet postage solution approved for commercial release by the US Postal
Service.

Our Marketing of Internet Postage

   Our Internet Postage service is currently targeted primarily at small
businesses, home offices, and individuals. We market our Internet Postage
service in several ways, including the following:

   Web Partner Channel.  In this channel, we work with strategic partners in
order to leverage their Web site traffic, Web customer bases or other
distribution in order to distribute our Internet Postage software. These
partnerships provide our potential customers the opportunity to download our
software and access our Internet Postage service from several different places
on the Web. For example, we have a partnership with Microsoft that makes our
software available for download from the Office Update section of their
website, a site that many small businesses visit in order to update their
Microsoft Office products.

   Software Partner Channel.  In this channel, we make a copy of our free
software available on a partner's CD-ROM that gets distributed to their
existing or prospective customers. We have partnerships with companies who
offer small business productivity software, financial software, or Internet
services. For example, we currently have partnerships with Elibrium, Peachtree,
and Earthlink.

   Hardware Partner Channel.  In this channel, we make a copy of our free
software available along with a partner's hardware device. We have partnerships
with companies who offer PCs, printers that are used by small businesses, and
label makers that can print Internet postage. For example, we currently have
partnerships with Hewlett Packard, IBM and Dymo.

   Retail Partner Channel.  In this channel, we make a copy of our free
software or a marketing brochure available at a partners' retail 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 Supplies Partner Channel.  In this channel, we make a copy of our
free software or a marketing brochure available along with a partners' office
supply product. We have partnerships with companies who offer envelopes,
labels, checks and other small business forms. For example, we currently have a
partnership with NCR.

   Affiliate Channel.  In this channel, we utilize the traffic and customers of
smaller web sites and other businesses or individuals that are too small to
qualify for a partnership directly with Stamps.com. Our affiliate channel is
currently managed by Be Free, Inc. We offer financial incentives for these
small businesses and individuals to drive traffic to our Web site. We currently
have approximately 35,000 affiliates in our program.

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   Telemarketing.  We market our service using representatives who contact
prospective customers over the telephone.

   Third-Party Direct Sales.  During 2001, we marketed our service using
independent third party sales forces. These sales representatives called on
small businesses primarily in commercialized areas of urban markets. Although
we believe this channel could potentially be an effective one in the future, we
have not utilized it since June of 2001.

   Customer Usage and Retention Programs.  We utilize marketing programs that
are designed to increase usage of our service by our current customers, and are
designed to reduce the rate at which customers quit our service.

   For all of our partner and affiliate channels, and generally all of our
marketing programs, we minimize our financial risk and maximize our return on
investment by only utilizing payment structures where we compensate a partner
using a bounty or a revenue share only if that partner has provided a customer
to us. During 2001, as part of our restructuring programs, we exited all of our
partnerships that required payments that were not dependent on the number of
customers that were delivered to us, such as a fixed up-front payment, and we
do not expect to enter any new partnerships with that structure.

Our Competition

   We compete with traditional methods of creating postage, such as postage
stamps or postage meters, and we also compete with other Internet Postage
providers, including Neopost Industrie, Pitney Bowes, and Envelope Manager.
Based on current information available from the US Postal Service, we believe
that we have over 80% of total Internet Postage customers.

   The following is a summary of our current competitors in the PC Postage, or
Information Based Indicia Program:

   Neopost Industrie.  Neopost is a large French postage company with a US
presence in the traditional postage meter industry. Neopost has a commercially
available specialty metering device that can be attached to a user's PC 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 is a small private US based company that
launched a software-based Internet postage service commercially in 2000.

   Pitney Bowes, Inc.  Pitney Bowes is the current market leader in the
traditional postage meter business and had approximately $4.1 billion in
revenues in 2001. Pitney Bowes launched a software-based Internet postage
product in April 2000.

   In addition to competing with Internet postage vendors for market share of
Internet postage sales, we also compete with traditional postage methods
including postage stamps and postage meters. We believe that customer choose
our service over other postage methods primarily to save time and to save costs.

   Our service saves customers time in a number of ways. First, our service
allows a customer to apply postage to letters or packages at home or at the
office, thus avoiding the time that would ordinarily be spent traveling to, or
waiting at, the post office. Second, our service has the ability to generate
mass mailings quickly and easily, in a quick single step process. Finally, our
service saves customers time because of its ability to integrate quickly and
easily with most small business productivity applications such as word
processors, financial applications, and address books.

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   Our service saves customers cost in many ways. First, it cleanses all
addresses for mailings sent using our service so postage is not wasted on
undeliverable mail. Second, it avoids wasted postage by calculating the exact
amount of postage that is needed depending 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 80% or more less expensive than the most
popular small business postage meter.

   Overall, we may not be able to maintain a competitive position against
current or future competitors as they enter the markets in which we compete.
This is particularly true with respect to competitors with greater financial,
marketing, service, support, technical, intellectual property and other
resources than us. Failure to maintain a competitive position within the market
could seriously harm our business, financial condition and results of
operations. For further discussion of the competitive risks, see "Risk
Factors--If we are unable to compete successfully, particularly against large,
traditional providers of postage products like Pitney Bowes, our revenues and
operating results will suffer."

Our Internet Postage Service Technology

   Our Internet Postage service technology is comprised of the following key
components:

   System Architecture.  Our servers are located in a high-security, data
center and operate with internally developed security software. We intend to
internally support our web page by the end of the second quarter of 2002. These
servers create the data used to generate information-based indicia. These
servers also process postage purchases using secure technology that meets US
Postal Service security requirements. Our service currently uses a
Windows-based client application, which supports a variety of label and
envelope options and a wide range of printers. In addition, our application
employs an internally-developed user authentication mechanism for additional
security.

   Transaction Processing.  Our transaction processing servers are a
combination of secure, commercially available and internally-developed
technologies that are designed to provide secure and reliable transactions. Our
system implements hardware to meet government standards for security and data
integrity. The performance and scalability of our Internet Postage system is
designed to allow many users to process postage transactions through our Web
site.

   Database Processing.  Our database servers are designed and built with
industry-leading database technologies and can be scaled easily as needed.

   Research and Development.  Our research and development expenditures were
$7.4 million, $33.1 million and $12.6 million in 1999, 2000 and 2001,
respectively.

Our Intellectual Property

   We rely on a combination of patent, trade secret, copyright and trademark
laws and contractual restrictions to establish and to protect our intellectual
property rights in products, services, know-how and information. We have 39
issued US patents, 68 pending US patent applications, 11 international patents
and 28 pending international patent applications. We also have a number of
registered and unregistered trademarks. We plan to apply for more patents in
the future.

   Despite efforts to protect our intellectual property rights, we face
substantial uncertainty regarding the impact that other parties' intellectual
property positions will have on our business. In particular, Pitney Bowes has
sent formal comments to the US Postal Service asserting that intellectual
property of Pitney Bowes related to postage metering and systems would be
infringed by products meeting the requirements of the Information Based Indicia
Program's specifications. Furthermore, in June 1999, Pitney Bowes filed two
separate lawsuits in the

                                      7



United States District Court for the District of Delaware against both us and
E-Stamp Corporation alleging infringement of Pitney Bowes patents. On April 13,
2000, Pitney Bowes asked the court for permission to amend its complaint 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 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 States District Court for the Eastern District of
Texas, alleging that we are infringing four patents owned by Pitney Bowes
related to shipping. The suit seeks unspecified damages and a permanent
injunction from further alleged infringement. We answered the complaint on
December 1, 2000, denying the allegations of patent infringement and asserting
a number of affirmative defenses. United Parcel Service acquired our iShip
multi-carrier shipping service assets on May 18, 2001. On September 4, 2001,
the court granted our motion to transfer the lawsuit to the United States
District Court for the District of Delaware.

   On June 14, 2001, we filed a patent infringement lawsuit against Pitney
Bowes in the United States District Court for the Central District of
California, alleging that Pitney Bowes infringes four patents we own. On
January 7, 2002, the court granted Pitney Bowes' motion to transfer the lawsuit
to the United States District Court for the District of Delaware. Each of the
patent lawsuits between us and Pitney Bowes is in the discovery phase and is
scheduled for trial in January, 2003.

   On December 13, 2000, Cybershop (a British Columbia, Canada partnership) and
its general partners filed suit against us in the U.S. District Court for the
Southern District of Texas, alleging that in 1998 a third party fraudulently
transferred ownership of the Internet domain name "stamps.com" away from
Cybershop and subsequently transferred it to us. The third party is also a
named defendant in the suit. The complaint seeks legal resolution and
recognition of Cybershop's ownership of the "stamps.com" domain name and seeks
unspecified monetary damages against the third party. On January 9, 2001, we
filed a motion to dismiss the suit. On February 16, 2001, Cybershop filed an
amended complaint, alleging new causes of action, including conversion,
invasion of privacy, trespass, and private nuisance, and seeking declaratory
judgment for return of the domain name registration to Cybershop. Cybershop
later filed third and fourth amended complaints. On February 13, 2002, the
court granted our summary judgment motion and dismissed all of Cybershop's
pending claims against us with prejudice. Cybershop has filed a motion asking
the court to reconsider its decision.

   For a discussion of claims by Pitney Bowes and Cybershop and risks
associated with intellectual property, please refer to "Risk Factors--Success
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," "Risk Factors--Success by Cybershop in its suit
against us seeking damages and recognition of its ownership of the domain name
"stamps.com" could prevent us from using the domain name "stamps.com" and could
require a change of name of the Company, severely harming our business or
causing it to fail" and "Legal Proceedings."

Employees

   As part of our restructuring in October 2000, we reduced our total number of
employees by approximately 40% to 315 employees, which included full time, part
time and contract employees. In February 2001, we further reduced our total
number of employees by approximately 50% to 150 employees, which included full
time, part time and contract employees. In May 2001, approximately 55 employees
left Stamps.com to join UPS as part of the acquisition of the iShip business by
UPS. And in August 2001 we further reduced our headcount by approximately 25%
to less than 70 employees and full time equivalents. As of March 21, 2002, we
have approximately 65 employees. None of our employees are represented by a
labor union.

                                      8



                                 RISK FACTORS

   You should carefully consider the following risks and the other information
in this report and our other filings with the SEC before you decide to invest
in our company or to maintain or increase your investment. The risks and
uncertainties described below are not the only ones facing Stamps.com.
Additional risks and uncertainties may also adversely impact and impair our
business. If any of the following risks actually occur, our business, results
of operations or financial condition would likely suffer. In that case, the
trading price of our common stock could decline, and you may lose all or part
of your investment.

   This report contains forward-looking statements based on the current
expectations, assumptions, estimates and projections about Stamps.com and the
Internet industry. These forward-looking statements involve risks and
uncertainties. Our actual results could differ materially from those discussed
in these forward-looking statements as a result of many factors, including
those described in this section and elsewhere in this report. Stamps.com does
not undertake to update publicly any forward-looking statements for any reason,
even if new information becomes available or other events occur in the future.

                         Risks Related to Our Business

Because we have a limited operating history, there is limited information upon
which you can evaluate our business.

   We are still in the early stages of our development, and our limited
operating history makes it difficult to evaluate our business and prospects.
Our Internet Postage service has only been available since October 22, 1999.
Due to our limited operating history, it is difficult to predict future results
of operations, including operating expenses and revenues. Moreover, due to our
limited operating history, any evaluation of our business and prospects must be
made in light of the risks and uncertainties often encountered by early-stage
companies in new and evolving markets, like the Internet. Many of these risks
are discussed in the subheadings below, and include our (a) ability to meet and
maintain government specifications for our Internet Postage service,
specifically US Postal Service requirements; (b) complete dependence on
Internet Postage that currently do not have substantial market acceptance;; (c)
ability to establish and promote our brand name; (d) ability to expand our
operations to meet the commercial demand for our services, when it arises; (e)
development of and reliance on strategic and distribution relationships; (f)
ability to prevent and respond quickly to service interruptions; (g) ability to
minimize fraud and other security risks; and (h) ability to compete with
companies with greater capital resources and brand awareness.

   If we are unsuccessful in addressing these risks or in executing our new
business strategy, our business, results of operations and financial condition
would be materially and adversely affected.

Our revenues and operating results may fluctuate in future periods and we may
fail to meet expectations, which may cause the price of our common stock to
decline.

   Our revenues and operating results may fluctuate significantly from
period-to-period particularly because our Internet Postage and shipping
services are new and our prospects uncertain. If revenues or operating results
fall below the expectations of investors or public market analysts, the price
of our common stock could decline substantially. Factors that might cause our
revenues, margins and operating results to fluctuate include the factors
described in the subheadings below as well as: (a) the success of our Internet
Postage and shipping services; (b) the costs of defending ourselves in
litigation; (c) the costs of our marketing programs to establish and promote
the Stamps.com brand name; (d) the demand for our Internet Postage and shipping
services; (e) our ability to develop and maintain strategic distribution
relationships; (f) the number, timing and significance of new products or
services introduced 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
our new business strategy and of reducing expenses; and (l) general economic
factors.

                                      9



   Our cost of revenues includes costs for systems operations, customer
service, Internet connection and security services; all of these costs will
fluctuate depending upon the demand for our services. In addition, a
substantial portion of our operating expenses is related to personnel costs,
marketing programs and overhead, which cannot be adjusted quickly and are
therefore relatively fixed in the short term. Our operating expense levels are
based, in significant part, on our expectations of future revenues. If our
expenses precede increased revenues, both gross margins and results of
operations would be materially and adversely affected. Moreover, our new
business strategy of reducing expenses may directly and correspondingly cause
our revenues to substantially decline.

   Due to the foregoing factors and the other risks discussed in this annual
report, you should not rely on period-to-period comparisons of our operating
results as an indication of future performance.

We have a history of losses, expect to incur losses in the future and may never
achieve profitability, which may reduce the trading price of our common stock.

   Since we began operations in 1998, we have incurred substantial operating
losses in every period. As a result of accumulated operating losses, we had an
accumulated deficit of $483.2 million as of December 31, 2001. We expect to
continue to incur significant sales and marketing, research and development,
and administrative expenses and therefore could continue to experience net
losses and negative cash flows for several years, and perhaps for the duration
of our corporate existence. For the year ended December 31, 2001, we generated
$19.4 million in revenues. There are no guarantees that we will reach or be
able to maintain profitability in the future.

   Overall, we will need to generate significant revenues and successfully
implement our new business strategy to achieve and maintain profitability.

We implemented pricing plans that may adversely affect our future revenues and
profitability.

   Our ability to generate gross margins depends upon the ability to generate
significant revenues from a large base of active customers. In November 2000,
we changed our pricing plans for our Internet postage services. In order to
attract customers in the future, we may run special promotions and offer
discounts on fees, postage and supplies. We cannot be sure that customers will
be receptive to this fee structure for our Internet postage services or to
future fee structures that we may implement. Even if we are able to establish a
sizeable base of users, we still may not generate sufficient gross margins to
become profitable. In addition, our ability to generate revenues or achieve
profitability could be adversely affected by special promotions or additional
changes to our pricing plans.

If our business strategy is not successfully implemented, our financial
condition and results of operations will be adversely affected.

   For the year ended December 31, 2001, we have continued to implement our
business strategy begun in October 2000 to enhance our ability to achieve
profitability by focusing on our core business of Internet postage services. We
have continued our cost cutting efforts, including a reduction in headcount in
August 2001 by 25%, the termination of fixed-cost marketing arrangements, and
the redeployment of sales and marketing expenditures to programs that have a
higher return on investment.

   Our business strategy entails risks relating to our ability to attract our
targeted customers to offset potential customer losses in other areas and the
ability of our new management team to implement this strategy. There is no
guarantee our new management team will be able to effectively or efficiently
implement our business strategy or that, if effectively implemented, our
strategy will benefit 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



business strategy could result in a substantial loss of customers which would
have an adverse impact on our financial condition and results of operations.

Recent personnel changes may interfere with our operations.

   For the year ended December 31, 2001, we experienced significant changes at
the senior management level. In August, 2001, Ken McBride was appointed as our
new President and Chief Executive Officer. Mr. McBride served as our Chief
Financial Officer since April 1999, and replaced interim President and CEO
Bruce Coleman. In August 2001, Marvin Runyon resigned from our board of
directors and Vice President of Marketing Kathy Brush left Stamps.com. In
September, 2001, Seth Weisberg was appointed as our new Secretary. In the
quarter ended June 30, 2001, we experienced significant changes at the board of
directors level. Following the sale of our iShip assets in May 2001, John A
Duffy and Stephen M. Teglovic, who served on our board of directors after the
acquisition of iShip, resigned from our board of directors. In June, 2001,
Carolyn M. Ticknor and Thomas N. Clancy resigned from our board of directors.
If we fail to attract members to, or retain members on, our board of directors,
our business, financial condition and results of operations will be adversely
affected.

If we do not successfully attract and retain skilled personnel for permanent
management and other key personnel positions, we may not be able to effectively
implement our business plan.

   Our success depends largely on the skills, experience and performance of the
members of our senior management and other key personnel. Any of the
individuals can terminate his or her employment with us at any time. If we lose
additional key employees and are unable to replace them with qualified
individuals, our business and operating results could be seriously harmed. In
addition, our future success will depend largely on our ability to continue
attracting and retaining highly skilled personnel. As a result, we may be
unable to successfully attract, assimilate or retain qualified personnel.
Further, we may be unable to retain the employees we currently employ or
attract additional personnel. The failure to attract and retain the necessary
personnel could seriously harm our business, financial condition and results of
operations.

We cannot predict the value of our acquisition of certain intellectual property
assets of E-Stamp Corporation.

   We acquired intellectual property assets relating to Internet-based postage
printing and management from E-Stamp Corporation, one of our former
competitors. There can be no assurance that the intellectual property assets we
acquired will provide value or will help us to achieve profitability as
currently planned, if at all. In addition, a portion of the intellectual
property rights we acquired from E-Stamp Corporation are the subject of a
lawsuit brought by Pitney Bowes and could be determined by a court to be
invalid or unenforceable. An invalidity or unenforceability determination could
make the intellectual property rights we acquired worthless. See "Legal
Proceedings".

The success of our business will depend upon acceptance by customers of our
Internet postage services.

   We expect that our Internet postage services will generate a significant
portion of our future revenues. Accordingly, we depend heavily on the
commercial acceptance of our Internet postage services. If we fail to
successfully gain commercial acceptance of our Internet postage services, we
will be unable to generate significant revenues. To date, a substantial market
for Internet postage has not developed, and we cannot assure you that it will
develop. More specifically, we cannot predict if 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 transactions.

                                      11



The success of our business will depend upon our ability to make our Internet
postage services widely available, and to achieve widespread adoption of our
services.

   We face numerous risks in conjunction with the introduction, sale and
commercial availability of our services because of our limited experience with
the commercial rollout and use of our services. Specifically, our Internet
postage service was introduced on October 22, 1999. As a result, we cannot be
sure that our services will be widely available or adopted, that they will
successfully process large numbers of user transactions or that our services
will contain features that appeal to the broad range of customers that we
target. If we experience problems with the availability, adoption, scalability
or functionality of our services or if we are unable to offer attractive
service enhancements in a timely manner, our ability to attract and retain
customers and our results of operations will be adversely impacted.

If we fail to effectively market and sell 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 the limited amount of time that our services have been
commercially available, we have very limited experience conducting marketing
campaigns. In addition, we have recently increased our emphasis on direct
selling efforts and have only recently retained the resources necessary to
support a direct sales channel. However, we have very limited experience in
acquiring customers through a direct sales channel. In connection with our new
business strategy, we have significantly reduced our marketing budget. As a
result of these limited marketing and sales experiences, and our reduced
marketing budget, we cannot predict our ability to attract customers for our
services, and we may fail to generate significant interest in any of our
services. Furthermore, we may be unable to generate significant interest in our
services in a cost-effective manner. If we fail to generate interest in our
services or to acquire customers in a cost-effective manner, our results of
operations will be adversely affected and we may never achieve profitability.

If we fail to meet the demands of our customers, our business will be
substantially harmed and could fail.

   Our Internet postage services must meet the commercial demands of our
customers, which range from individuals to small businesses. We cannot be sure
that our services will appeal to or be adopted by a wide range of customers.
Moreover, our ability to obtain and retain customers depends on our customer
service capabilities. As part of our new business strategy, we have
significantly reduced our support offerings. If we are unable at any time to
address customer service issues adequately or to provide a satisfactory
customer experience for current or potential customers, our business and
reputation may be harmed. If we experience extensive interest in our services,
we may fail to meet the expectations of customers due to limited experience in
operating our services and the strains this demand will place on our Web site,
customer service operations, professional services group, network
infrastructure or systems. If we fail to meet the demands of our customers or
if our customers implement and employ our services more slowly than we expect,
our business, results of operation and ability to achieve profitability will be
negatively affected.

Success 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.

   On June 16, 1999, Pitney Bowes sued us for alleged patent infringement in
the United States District Court for the District of Delaware. The suit
originally alleged that we are infringing two patents held by Pitney Bowes
related to postage application systems and electronic indicia. The suit seeks
treble damages, a preliminary and permanent injunction from further alleged
infringement, attorneys' fees and other unspecified damages. We answered the
complaint on August 6, 1999, denying the allegations of patent infringement and
asserting a number of affirmative defenses. Pitney Bowes filed a similar
complaint in early June 1999 against one of our competitors, E-Stamp
Corporation, alleging infringement of seven Pitney Bowes patents. On April 13,
2000, Pitney Bowes asked the court for permission to amend its complaint to
drop allegations of patent infringement

                                      12



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 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 States District Court for the Eastern District
of Texas, alleging that we are infringing four patents owned by Pitney Bowes
related to multi-carrier shipping. The suit seeks unspecified damages and a
permanent injunction from further alleged infringement. We answered the
complaint on December 1, 2000, denying the allegations of patent infringement
and asserting a number of affirmative defenses. United Parcel Service acquired
our iShip multi-carrier shipping service assets on May 18, 2001. On September
4, 2001, the court granted our motion to transfer the lawsuit to the United
States District Court for the District of Delaware.

   On June 14, 2001, we filed a patent infringement lawsuit against Pitney
Bowes in the United States District Court for the Central District of
California, alleging that Pitney Bowes infringes four patents we own. On
January 7, 2002, the court granted Pitney Bowes' motion to transfer the lawsuit
to the United States District Court for the District of Delaware. Each of our
patent lawsuits against Pitney Bowes is in the discovery phase and is scheduled
for trial in January, 2003.

   The outcome of our litigation against Pitney Bowes is uncertain. Therefore,
we can give no assurance that Pitney Bowes will not prevail. See "Legal
Proceedings" for a description of this litigation in which we are involved.

   If Pitney Bowes prevails in its suits against us, we may be prevented from
selling postage on the Internet. Alternatively, the Pitney Bowes suits could
result in limitations on how we implement our service, delays and costs
associated with redesigning our service and payments of license fees and other
payments. Thus, if Pitney Bowes prevails in its suits against us, our business
could be severely harmed or fail. In addition, the litigation could result in
significant expenses and diversion of management time and other resources.

   On August 17, 1998, 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 against us, we were in license discussions with Pitney Bowes.
We intend to continue these discussions; however, we cannot predict whether
these discussions will continue, the outcome of these discussions or the impact
of Pitney Bowes' intellectual property claims on our business or the Internet
postage market. If Pitney Bowes is able to prevail in its claims against us and
if we do not enter into a license relationship with Pitney Bowes, our business
could be impacted severely or fail. In addition, as described above, Pitney
Bowes could obtain monetary and injunctive relief against us.

Success by Cybershop in its suit against us seeking damages and recognition of
its ownership of the domain name stamps.com could prevent us from using the
domain name stamps.com and could require a change of name of the Company,
severely harming our business or causing it to fail.

   On December 13, 2000, Cybershop (a British Columbia, Canada partnership) and
its general partners filed suit against us in the U.S. District Court for the
Southern District of Texas, alleging that in 1998 a third party fraudulently
transferred ownership of the Internet domain name "stamps.com" away from
Cybershop and subsequently transferred it to us. The third party is also a
named defendant in the suit. The complaint seeks legal resolution and
recognition of Cybershop's ownership of the "stamps.com" domain name and seeks
unspecified monetary damages against the third party. On January 9, 2001, we
filed a motion to dismiss the suit. On February 16, 2001, Cybershop filed an
amended complaint, alleging new causes of action, including conversion,
invasion of privacy, trespass, and private nuisance, and seeking declaratory
judgment for return of the domain name registration to Cybershop. Cybershop
later filed third and fourth amended complaints. On February 13, 2002, the
court granted our summary judgment motion and dismissed all of Cybershop's
pending claims against us with prejudice. Cybershop has filed a motion asking
the court to reconsider its decision.

                                      13



   If Cybershop prevails in its claims against us, we may be liable for
monetary damages. Additionally, if Cybershop is successful in the lawsuit, we
may be required to relinquish the domain name stamps.com and transfer the
domain name registration to Cybershop. Relinquishing ownership of the
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
significantly and negatively affect our brand recognition and customer
acquisition and retention. Furthermore, a change in our company name or
Internet domain name could result in significant costs in seeking to build new
brand recognition. Thus, if Cybershop prevails in its suit against us, our
business could be severely harmed or even fail. See "Legal Proceedings" for a
description of litigation in which we are involved.

   Even if Cybershop's claim is unsuccessful, the Cybershop litigation could
result in significant expenses and diversion of management time and other
resources that could negatively affect our business.

Third party assertions of violations of their intellectual property rights
could adversely affect our business.

   Substantial litigation regarding intellectual property rights exists in our
industry. Third parties may currently have, or may eventually be issued,
patents upon which our products or technology infringe. Any of these third
parties might make a claim of infringement against us. We may become
increasingly aware of, or we may increasingly receive correspondence claiming,
potential infringement of other parties' intellectual property rights. We could
incur significant costs and diversion of management time and resources to
defend claims against us regardless of their validity. We may not have adequate
resources to defend against these claims and any associated costs and
distractions could have a material adverse effect on our business, financial
condition and results of operations. In addition, litigation in which we are
accused of infringement might cause product development delays, require us to
develop non-infringing technology or require us to enter into royalty or
license agreements, which might not be available on acceptable terms, or at
all. If a successful claim of infringement were made against us and we could
not develop non-infringing technology or license the infringed or similar
technology on a timely and cost- effective basis, our business could be
significantly harmed or fail. Any loss resulting from intellectual property
litigation could severely limit our operations, cause us to pay license fees,
or prevent us from doing business. See "Legal Proceedings".

A failure to protect our own intellectual property could harm our competitive
position.

   We rely on a combination of patent, trade secret, copyright and trademark
laws and contractual restrictions, like confidentiality agreements and
licenses, to establish and protect our rights in our products, services,
know-how and information. We have 39 issued US patents, 68 pending US patent
applications, 11 international patents and 28 pending international patent
applications. We also have a number of registered and unregistered trademarks.
We plan to apply for more patents in the future. We may not receive patents for
any of our patent applications. Even if patents are issued to us, claims issued
in these patents may not protect our technology. In addition, a court might
hold any of our patents, trademarks or service marks invalid or unenforceable.
Even if our patents are upheld or are not challenged, third parties may develop
alternative technologies or products without infringing our patents. If our
patents fail to protect our technology or our trademarks and service marks are
successfully challenged, our competitive position could be harmed. We also
generally enter into confidentiality agreements with our employees, consultants
and other third parties to control and limit access and disclosure of our
confidential information. These contractual arrangements or other steps taken
to protect our intellectual property may not prove to be sufficient to prevent
misappropriation of technology or deter independent third party development of
similar technologies. Additionally, the laws of foreign countries may not
protect our services or intellectual property rights to the same extent as do
the laws of the United States.

                                      14



Exodus Communications' bankruptcy could harm our business and operations.

   We have entered into an Internet hosting agreement with Exodus
Communications, Inc. to maintain our web page servers at one of Exodus' data
centers in Southern California. Exodus has filed for reorganization under
Chapter 11 of the US Bankruptcy Code and Digital Island, Inc. has acquired our
hosting agreement out of bankruptcy. We have provided notice to Digital Island,
Inc. to terminate our hosting agreement and we intend to internally support our
web page servers by the end of the second quarter of 2002. We cannot be certain
that our transition to internally hosting our web site will not have unintended
negative consequences such as unexpected downtime of our web page or damage to
our web page servers in the move.

System and online security failures could harm our business and operating
results.

   Our services depend on the efficient and uninterrupted operation of our
computer and communications hardware systems. In addition, we must provide a
high level of security for the transactions we execute. We rely on
internally-developed and third-party technology to provide secure transmission
of postage and other confidential information. Any breach of these security
measures would severely impact our business and reputation and would likely
result in the loss of customers. Furthermore, if we are unable to provide
adequate security, the US Postal Service could prohibit us from selling postage
over the Internet.

   Our systems and operations are vulnerable to damage or interruption from a
number of sources, including fire, 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. 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
through Exodus. Our servers are also vulnerable to computer viruses, physical,
electrical or electronic break-ins and similar disruptions. We have experienced
minor system interruptions in the past and may experience them again in the
future. Any substantial interruptions in the future could result in the loss of
data and could completely impair our ability to generate revenues from our
service. We do not presently have a full disaster recovery plan in effect to
cover loss of facilities and equipment. In addition, we do not have a fail-over
site that mirrors our infrastructure to allow us to operate from a second
location. We have business interruption insurance; however, we cannot be
certain that our coverage will be sufficient to compensate us for losses that
may occur as a result of business interruptions.

   A significant barrier to electronic commerce and communications is the
secure transmission of confidential information over public networks. Anyone
who is able to circumvent our security measures could misappropriate
confidential information or cause interruptions in our operations. We may be
required to expend significant capital and other resources to protect against
potential security breaches or to alleviate problems caused by any breach. We
rely on specialized technology from within our own infrastructure to provide
the security necessary for secure transmission of postage and other
confidential information. Advances in computer capabilities, new discoveries in
security technology, or other events or developments may result in a compromise
or breach of the algorithms we use to protect customer transaction data. Should
someone circumvent our security measures, our reputation, business, financial
condition and results of operations could be seriously harmed. Security
breaches could also expose us to a risk of loss or litigation and possible
liability for failing to secure confidential customer information. As a result,
we may be required to expend a significant amount of financial and other
resources to protect against security breaches or to alleviate any problems
that they may cause.

The effects of expansion may adversely affect our financial condition, results
of operations and existing stockholders.

   We may establish subsidiaries, enter into joint ventures or pursue the
acquisition of new or complementary businesses, products or technologies in an
effort to enter into new business areas, diversify our sources of revenue and
expand our product and service offerings outside the Internet postage market.
Although we have no commitments or agreements and are not currently engaged in
discussions for any material acquisitions or

                                      15



investments, we continue to evaluate incremental revenue opportunities and
derivative applications of our technology and may pursue and develop those
opportunities with strategic partners and investors, both domestically and
internationally. To the extent we pursue new or complementary businesses, we
may not be able to expand our service offerings and related operations in a
cost-effective or timely manner. We may experience increased costs, delays and
diversions of management's attention when integrating any new businesses or
service. We may lose key personnel from our operations or those of any acquired
business. Furthermore, any new business or service we launch that is not
favorably received by users could damage our reputation and brand name in the
Internet postage or other markets that we enter. We also cannot be certain that
we will generate satisfactory revenues from any expanded services or products
to offset related costs. Any expansion of our operations would also require
significant additional expenses, and these efforts may strain our management,
financial and operational resources. Additionally, future acquisitions may also
result in potentially dilutive issuances of equity securities, the incurring of
additional debt, the assumption of known and unknown liabilities, and the
amortization of expenses related to goodwill and other intangible assets, all
of which could have a material adverse effect on our business, financial
condition and operating results. New issuances of securities may also have
rights, preferences and privileges senior 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 continued US Postal Service scrutiny and other government
regulations. The continued availability of our Internet postage services is
dependent upon our service continuing to meet US Postal Service performance
specifications and regulations. The US Postal Service could change its
certification requirements or specifications for Internet postage or revoke the
approval of our service at any time. If at any time our Internet postage
service fails to meet US Postal Service requirements, we may be prohibited from
offering this service and our business would be severely and negatively
impacted. In addition, the US Postal Service 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 revenues, operating results and margins by
increasing the cost of providing our Internet postage service.

   The US Postal Service could also decide that Internet postage should no
longer be an approved postage service due to security concerns or other issues.
Our business would suffer dramatically if we are unable to adapt our Internet
postage services to any new requirements or specifications or if the US Postal
Service were to discontinue Internet postage as an approved postage method.
Alternatively, the US Postal Service could introduce competitive programs or
amend Internet postage requirements to make certification easier to obtain,
which could lead to more competition from third parties or the US Postal
Service itself. See Risk Factors--If we are unable to compete successfully,
particularly against large, traditional providers of postage products like
Pitney Bowes who enter the online postage market, our revenues and operating
results will suffer.

   In addition, US Postal Service regulations may require that our personnel
with access to postal information or resources receive security clearance prior
to doing relevant work. We may experience delays or disruptions if our
personnel cannot receive necessary security clearances in a timely manner, if
at all. The regulations may limit our ability to hire qualified personnel. For
example, sensitive clearance may only be provided to US citizens or aliens who
are specifically approved to work on US Postal Service projects.

                                      16



If we are unable to compete successfully, particularly against large,
traditional providers of postage products such 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. Neopost Industrie has a hardware product commercially
available. If any of our competitors, including Pitney Bowes, provide the same
or similar service as we provide, our operations could be adversely impacted.
See Business--Competition.

   Internet postage may not be adopted by customers. These customers may
continue to use traditional means to purchase postage, including purchasing
postage from their local post office. If Internet postage becomes a viable
market, 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 longer operating histories, larger customer bases, greater
brand recognition, greater financial, marketing, service, support, technical,
intellectual property and other resources than us. As a result, our competitors
may be able to devote greater resources to marketing and promotional campaigns,
adopt more aggressive pricing policies and devote substantially more resources
to Web site and systems development than us. This increased competition may
result in reduced operating margins, loss of market share and a diminished
brand. We may from time to time make pricing, service or marketing decisions or
acquisitions as a strategic response to changes in the competitive environment.
These actions could result in reduced margins and seriously harm our business.

   If the market for Internet postage develops, we could face competitive
pressures from new technologies or the expansion of existing technologies
approved for use by the US Postal Service. We may also face competition from a
number of indirect competitors that specialize in electronic commerce and other
companies with substantial customer bases in the computer and other technical
fields. Additionally, companies that control access to transactions through a
network or Web browsers could also promote our competitors or charge us a
substantial fee for inclusion. Our competitors may also be acquired by, receive
investments from or enter into other commercial relationships with larger,
better-established and better-financed companies as use of the Internet and
other online services increases. In addition, changes in postal regulations
could adversely affect our service and significantly impact our competitive
position. We may be unable to compete successfully against current and future
competitors, and the competitive pressures we face could seriously harm our
business.

If we do not respond effectively to technological change, our services could
become obsolete and our business will suffer.

   The development of our services and other technology entails significant
technical and business risks. To remain competitive, we must continue to
enhance and improve the responsiveness, functionality and features of our
online operations. The Internet and the electronic commerce industry are
characterized by rapid technological change; changes in user and customer
requirements and preferences; frequent new product and service introductions
embodying new technologies; and the emergence of new industry standards and
practices.

   The evolving nature of the Internet or the Internet postage markets could
render our existing technology and systems obsolete. Our success will depend,
in part, on our ability to license or acquire leading technologies useful in
our business; 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 timely manner.

   Future advances in technology may not be beneficial to, or compatible with,
our business. Furthermore, we may not be successful in using new technologies
effectively or adapting our technology and systems to user requirements or
emerging industry standards on a timely basis. Our ability to remain
technologically competitive may require substantial expenditures and lead time.
If we are unable to adapt in a timely manner to changing market conditions or
user requirements, our business, financial condition and results of operations
could be seriously harmed.

                                      17



The success of our business will depend on the continued growth of the Internet
and the acceptance 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
uncertain. We cannot predict the extent to which customers will be willing to
shift their purchasing habits from traditional to online postage services. To
be successful, our customers must accept and utilize electronic commerce to
satisfy their product needs. Our future revenues and 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 infrastructure or
delayed development of enabling technologies and performance improvements. The
commercial acceptance and use of the Internet may not continue to develop at
rates sufficient to sustain or grow our business. Our business, financial
condition and results of operations would be seriously harmed if use of the
Internet and other online services does not continue to increase or increases
more slowly than expected; the infrastructure for the Internet and other online
services does not effectively support future expansion of electronic commerce
or our services; concerns over security and privacy inhibit the growth of the
Internet; or the Internet and other online services do not become a viable
commercial marketplace.

Our operating results could be impaired if we or the Internet become subject to
additional government regulation and legal uncertainties.

   With the exception of US Postal Service and Department of Commerce
regulations, we are not currently subject to direct regulation by any domestic
or foreign governmental agency, other than regulations applicable to businesses
generally, and laws or regulations directly applicable to electronic commerce.
However, due to the increasing popularity and use of the Internet, it is
possible that a number of laws and regulations may be adopted with respect to
the Internet, relating to user privacy; pricing; content; copyrights;
distribution; characteristics and quality of products and services; and export
controls.

   The adoption of any additional laws or regulations may hinder the expansion
of the Internet. A decline in the growth of the Internet could decrease demand
for our products and services and increase our cost of doing business.
Moreover, the applicability of existing laws to the Internet is uncertain with
regard to many issues, including property ownership, export of specialized
technology, sales tax, libel and personal privacy. Our business, financial
condition and results of operations could be seriously harmed by any new
legislation or regulation. The application of laws and regulations from
jurisdictions whose laws do not currently apply to our business, 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 do business as a foreign corporation in each state or
foreign country. Our failure to qualify as a foreign corporation in a
jurisdiction where we are required to do so could subject us to taxes and
penalties. Other states and foreign countries may also attempt to regulate our
services or prosecute us for violations of their laws. Further, we might
unintentionally violate the laws of foreign jurisdictions and those laws may be
modified and new laws may be enacted in the future.

If we market our services internationally, government regulation could disrupt
our operations.

   We may in the future begin to provide services in international markets. Our
ability to provide our Internet postage services in international markets would
likely be subject to rigorous governmental approval and certification
requirements similar to those imposed by the US Postal Service. For example,
our Internet postage services cannot currently be used for international mail
because foreign postal authorities do not currently

                                      18



recognize information-based indicia postage. If foreign postal authorities
accept postage generated by our service in the future, and if we obtain the
necessary foreign certification or approvals, we would be subject to ongoing
regulation by foreign governments and agencies. To date, efforts to create a
certification process in Europe and other foreign markets are in a preliminary
stage and these markets may not prove to be a viable opportunity for us. As a
result, we cannot predict when, or if, international markets will become a
viable source of revenues for a postage service similar to ours.

   Our ability to provide service in international markets may also be impacted
by the export control laws of the United States. Our software technology makes
us subject to stronger export controls, and may prevent us from being able 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, including the adoption of laws and
regulatory requirements, political and economic conditions, difficulties
protecting our intellectual property rights and actions by third parties that
would restrict or eliminate our ability to do business in these jurisdictions.
If we begin to transact business in foreign currencies, we will become subject
to the risks attendant to transacting in foreign currencies, including the
potential adverse effects of exchange rate fluctuations.

                          Risks Related to Our Stock

Our charter documents could deter a takeover effort, which could inhibit your
ability to receive an acquisition premium for your shares.

   The provisions of our certificate of incorporation, bylaws and Delaware law
could make it difficult for a third party to acquire us, even it would be
beneficial to our stockholders. In addition, we are subject to the provisions
of Section 203 of the Delaware General Corporation Law, which could prohibit or
delay a merger or other takeover of our company, and discourage attempts to
acquire us.

The US Postal Service may object to control of our common stock being held by a
foreign person

   The US Postal Service may raise national security or similar concerns to
prevent foreign persons from acquiring significant ownership of our common
stock or ownership of Stamps.com. These concerns may prohibit or delay 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.

Shares of our common stock held by existing stockholders may be sold into the
public market, which could cause the price of our common stock to decline.

   If our stockholders sell into the public market substantial amounts of our
common stock purchased in private financings prior to our initial public
offering, or purchased upon the exercise of stock options or warrants, or if
there is a perception that these sales could occur, the market price of our
common stock could decline. All of these shares are available for immediate
sale, subject to the volume and other restrictions under Rule 144 of the
Securities Act of 1933.

Our stock price may be highly volatile and could drop, particularly because our
business depends on the Internet.

   The trading price of our common stock has fluctuated widely in the past, and
is expected to continue to do so in the future, as a result of a number of
factors, many of which are outside our control. In addition, the stock market
has experienced extreme price and volume fluctuations that have affected the
market prices of many

                                      19



technology and Internet-related companies and that have often been unrelated or
disproportionate to the operating performance of these companies. These broad
market fluctuations and the perception of the valuation of the Internet company
sector could adversely affect the market price of our common stock.

ITEM 2.  PROPERTIES

   Our corporate headquarters are located in a 26,000 square foot facility in
Santa Monica, California under a lease expiring on May 31, 2004. We also have
several properties under lease that are no longer occupied by Stamps.com, and
which are either being sublet or marketed for sublet. We have an unoccupied
14,000 square foot office facility in Irvine, California under a lease expiring
in March 2004; this property is being actively marketed for sublet. We also
have an additional 14,500 square feet of space in Bellevue, Washington under a
lease that expires in April 2002; this property has been sublet. We also have
approximately 64,000 square feet of facilities in Santa Monica, California
under leases, the majority of which expire in May 2004, and the majority of
which have been sublet. We have incorporated the costs related to excess
facilities that are not occupied by Stamps.com into our restructuring charge.

ITEM 3.  LEGAL PROCEEDINGS

   On June 16, 1999, Pitney Bowes sued us for alleged patent infringement in
the United States District Court for the District of Delaware. The suit
originally alleged that we are infringing two patents held by Pitney Bowes
related to postage application systems and electronic indicia. The suit seeks
treble damages, a preliminary and permanent injunction from further alleged
infringement, attorneys' fees and other unspecified damages. We answered the
complaint on August 6, 1999, denying the allegations of patent infringement and
asserting a number of affirmative defenses. Pitney Bowes filed a similar
complaint in early June 1999 against E-Stamp Corporation, alleging infringement
of seven Pitney Bowes patents. On April 13, 2000, Pitney Bowes asked the court
for permission to amend its complaint 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 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 States District Court for the Eastern District of
Texas, alleging that we are infringing four patents owned by Pitney Bowes
related to multi-carrier shipping. The suit seeks unspecified damages and a
permanent injunction from further alleged infringement. We answered the
complaint on December 1, 2000, denying the allegations of patent infringement
and asserting a number of affirmative defenses. The United Parcel Service
acquired our iShip multi-carrier shipping service assets on May 18, 2001. On
September 4, 2001, the court granted our motion to transfer the lawsuit to the
United States District Court for the District of Delaware.

   On June 14, 2001, we filed a patent infringement lawsuit against Pitney
Bowes in the United States District Court for the Central District of
California, alleging that Pitney Bowes infringes four patents we own. On
January 7, 2002, the court granted Pitney Bowes' motion to transfer the lawsuit
to the United States District Court for the District of Delaware. Each of our
patent lawsuits against Pitney Bowes is in the discovery phase and is scheduled
for trial in January, 2003.

   The outcome of our litigation against Pitney Bowes is uncertain. Therefore,
we can give no assurance that Pitney Bowes will not prevail in its suits
against us. See Risk Factors-Success 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.

   On December 13, 2000, Cybershop (a British Columbia, Canada partnership) and
its general partners filed suit against us in the U.S. District Court for the
Southern District of Texas, alleging that in 1998 a third party fraudulently
transferred ownership of the Internet domain name "stamps.com" away from
Cybershop and

                                      20



subsequently transferred it to us. The third party is also a named defendant in
the suit. The complaint seeks legal resolution and recognition of Cybershop's
ownership of the "stamps.com" domain name and seeks unspecified monetary
damages against the third party. On January 9, 2001, we filed a motion to
dismiss the suit. On February 16, 2001, Cybershop filed an amended complaint,
alleging new causes of action, including conversion, invasion of privacy,
trespass, and private nuisance, and seeking declaratory judgment for return of
the domain name registration to Cybershop. Cybershop later filed third and
fourth amended complaints. On February 13, 2002, the court granted our summary
judgment motion and dismissed all of Cybershop's pending claims against us with
prejudice. Cybershop has filed a motion asking the court to reconsider its
decision.

   The final outcome of that litigation is uncertain, and we can give no
assurance that Cybershop and its general partners will not prevail. See Risk
Factors--Success by Cybershop in its suit against us seeking damages and
recognition of its ownership of the domain name stamps.com could prevent us
from using the domain name stamps.com and could require a change of name of the
Company, severely harming our business or causing it to fail.

   On or about April 6, 2000, Metro Fulfillment, Inc. filed a lawsuit against
Weigh-Tronix, Inc. for breach of contract, fraud, negligent misrepresentation,
intentional inference with contract, negligent interference, breach of implied
warranty and breach of express warranty. Metro Fulfillment, Inc. alleges that
pursuant to 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 our Web site. Metro Fulfillment,
Inc. further alleged that Weigh-Tronix, Inc. breached the agreement by seeking
payment before the scales were actually sold to customers in breach of the
agreement. Weigh-Tronix, Inc. in turn filed a third party complaint against us
and Metro Fulfillment, Inc. for breach of contract and several common counts.
The third party complaint seeks approximately $700,000 in compensatory damages,
plus interest and attorney's fees. We have filed an answer to the third party
complaint denying the allegations of the lawsuit. The parties reached a
tentative settlement agreement, pursuant to which we would pay Weigh-Tronix,
Inc. $200,000 and Metrofulfillment, Inc. would pay Weigh-Tronix, Inc. $25,000,
in return for Weigh-Tronix, Inc. and Metrofulfillment, Inc. dismissing all of
their claims in this lawsuit. In addition, we would receive all of the postage
scales that Metrofulfillment, Inc. still has in its inventory, the amount of
which are unknown at this time. This settlement agreement is 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 for breach of
contract, common counts and negligent misrepresentation. The complaint seeks
damages of approximately $1.3 million. We have filed an answer to the complaint
denying the allegations in the lawsuit. Metro Fulfillment, Inc. filed for
Bankruptcy protection on December 18, 2001. Attempts to mediate this case have
been unsuccessful as of this date. It is not possible at this time to predict
the final outcome of this matter.

   In May and June, 2001, we were named, together with certain of our current
or former board members and/or officers, as a defendant in eleven purported
class-action lawsuits, filed in the United States District Court for the
Southern District of New York. The lawsuits allege violations of the Securities
Act of 1933 and the Securities Exchange Act of 1934 in connection with our
initial public offering and secondary offering of our common stock. The
lawsuits also name as defendants the principal underwriters in connection with
our initial and secondary public offerings, including Goldman, Sachs & Co. (in
some of the lawsuits sued as The Goldman Sachs Group Inc.) and BancBoston
Robertson Stephens, Inc. The lawsuits allege that the underwriters engaged in
allegedly improper commission practices and stock price manipulations in
connection with the sale of our common stock. The lawsuits also allege that we
and/or certain of our officers or directors knew of or recklessly disregarded
these practices by the underwriter defendants, and failed to disclose them in
our public filings. Plaintiffs seek damages and statutory compensation,
including prejudgment and post-judgment interest, costs and expenses (including
attorneys' fees), and rescissionary damages. In addition to the class action
lawsuits against us, over 1,000 similar lawsuits have also been brought against
over 250 companies which issued stock to the public in 1998, 1999, and 2000,
and their underwriters. These lawsuits (including those naming the Company)

                                      21



followed publicized reports that the SEC was investigating the practice of
certain underwriters in connection with initial public offerings. All of these
lawsuits have been consolidated for pretrial purposes before Judge Scheindlin
of the Southern District of New York. We have placed our underwriters on notice
of the Company's rights 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 intend to defend the lawsuits vigorously.

   We are not currently involved in any other material legal proceedings, nor
have we been involved in any such proceeding that has had or may have a
significant effect on our company. We are not aware of any other material legal
proceedings pending against us.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

   No matters were submitted to a vote of security holders during the quarter
ended December 31, 2001.

                                      22



                                   PART II.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
        MATTERS

Market Information

   Our common stock has traded 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 indicated.



                                                                High   Low
                                                               ------ ------
                                                                
   Fiscal 1999
   Second Quarter (June 25, 1999 through June 30, 1999)....... $17.50 $13.25
   Third Quarter.............................................. $48.00 $22.25
   Fourth Quarter............................................. $88.25 $30.69

   Fiscal 2000
   First Quarter.............................................. $47.50 $19.31
   Second Quarter............................................. $16.75 $ 7.31
   Third Quarter.............................................. $ 7.94 $ 3.56
   Fourth Quarter............................................. $ 3.94 $ 2.25

   Fiscal 2001
   First Quarter.............................................. $ 3.91 $ 2.28
   Second Quarter............................................. $ 3.75 $ 2.70
   Third Quarter.............................................. $ 3.49 $ 2.15
   Fourth Quarter............................................. $ 3.87 $ 2.23

   Fiscal 2002
   First Quarter (through March 21, 2002)..................... $ 4.40 $ 3.57


Recent Share Prices

   The following table sets forth the closing sales prices per share of our
common stock on The Nasdaq National Market on (i) December 31, 2001 and (ii)
March 21, 2002.



                                                 Closing
                                                  Price
                                                 -------
                                              
                        December 31, 2001.......  $3.58
                        March 21, 2002..........  $4.01


Holders

   As of March 21, 2002, there were approximately 1,410 stockholders of record
and approximately 50,902,181 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 foreseeable future.

Recent Sales of Unregistered Securities

   We did not have any unregistered sales of common stock during the quarter
ended December 31, 2001.

                                      23



ITEM 6.  SELECTED FINANCIAL DATA

   The following selected statement of operations data for the three years in
the period ended December 31, 2001 and the balance sheet data as of December
31, 2001 and 2000 are derived from our consolidated financial statements and
notes thereto, included elsewhere herein, and are audited by Arthur Andersen
LLP, independent public accountants, as set forth in their report included
later in this report. The selected statement of operations data for the period
ended December 31, 1998 and the balance sheet data as of December 31, 1998 and
1999 were derived from our audited financial statements, which are not included
in this report. The following data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements, including the notes
thereto, included elsewhere in this report.



                                                                                               Period from
                                                                                                January 9,
                                                                                                   1998
                                                                  Year ended December 31,     (inception) to
                                                              ------------------------------   December 31,
                                                                2001       2000       1999         1998
                                                              ---------  ---------  --------  --------------
                                                                  (in thousands, except per share data)
                                                                                  
Statement of Operations Data:
Revenues..................................................... $  19,427  $  15,234  $    358     $    --
Cost of sales................................................     7,954     23,691     2,430          --
Research and development.....................................    12,578     33,051     7,363       1,532
Sales and marketing..........................................     9,684     72,966    35,208         632
General and administrative...................................    33,036    102,191    14,333       2,016
Impairment of goodwill.......................................   163,634         --        --          --
Provision for loss on loan with former officer...............        --      3,346        --          --
Restructuring charges(2).....................................    25,974     11,475        --          --
Loss from sale of iShip(1)...................................     9,397         --        --          --
Loss from operations(1)......................................  (242,830)  (231,486)  (58,976)     (4,180)
Interest income (expense), net...............................    10,062     18,436     2,489         (16)
Gain from shut down of EncrypTix(3)..........................    23,195         --        --          --
Net loss..................................................... $(209,573) $(212,949) $(56,487)    $(4,196)
Basic and diluted net loss per share......................... $   (4.14) $   (4.54) $  (2.59)    $  (.85)
Weighted average shares outstanding used in basic and diluted
  per-share calculation......................................    50,645     46,888    21,824       4,956




                                                                      As of December 31,
                                                              ----------------------------------
                                                                2001     2000     1999    1998
                                                              -------- -------- -------- -------
                                                                        (in thousands)
                                                                             
Balance Sheet Data:
Cash and investments......................................... $192,924 $247,939 $374,746 $ 3,470
Working capital..............................................  185,786  234,645  390,357   1,385
Total assets.................................................  222,586  486,938  410,442   4,425
Line of credit, capital lease obligations and other long-term
  liabilities................................................       98    9,114    1,951   1,473
Total stockholders' equity (deficit).........................  217,259  422,681  401,598  (3,951)

- --------
(1) See the acquisition, investment in and sale of subsidiary footnote
    beginning on page F-9.
(2) See restructuring footnote beginning on page F-15.
(3) See change in ownership and shutdown of subsidiary footnote beginning on
    page F-10.

                                      24



ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS.

   The following discussion and analysis of our financial condition and results
of operations should be read in conjunction with the "Selected Financial Data"
and our financial statements and the related notes thereto. This discussion
contains forward-looking statements that involve risks and uncertainties that
could cause actual results to differ materially from historical results or
anticipated results including those set forth in "Risk Factors" beginning on
page 9 of this report.

Overview

   Stamps.com(TM) provides easy, convenient and cost-effective Internet-based
services for mailing letters, or shipping packages or parcels anywhere in the
United States and at anytime. 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 ordinary PC, any ordinary inkjet or 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 have continued to implement the business strategy that we
began in October 2000 to decrease our operating losses and enhance our ability
to achieve profitability. This strategy involved an initial restructuring in
October 2000 to focus on our core business of Internet postage and shipping
that reduced our total number of employees by approximately 40% to
approximately 315 employees, which included full time, part time and contract
employees. We also implemented other cost-cutting programs, including a
significant reduction and redeployment of our sales and marketing expenses to
those programs that demonstrated the best return on investment. In October
2000, we also combined our Enterprise and E-Commerce Business Units to reduce
duplication of costs and effort. Additionally, we exited some of our
longer-term fixed-price marketing deals in favor of variable cost marketing
deals, and we restructured our customer support operations. We took a one-time
charge in the fourth quarter of 2000 of $11.5 million that consisted primarily
of employee severance, reserves established for exiting contractual
arrangements and fixed asset write-offs.

   In February 2001, we continued with our strategy to decrease our operating
losses and enhance our ability to achieve profitability. We reduced the total
number of employees by approximately 50% to 150 employees, including full time,
part time and contract employees and we continued cost cutting efforts,
including the termination of fixed-cost marketing deals and the redeployment of
sales and marketing expenditures to programs that had a higher return on
investment. We took a one-time charge of $11.0 million in the first quarter of
2001 consisting of $7.7 million related to restructuring, employee severance
and fixed asset write-offs, $2.3 million related to exiting contractual
arrangements and $1.0 million related to the write-off of an investment in
EncrypTix, a venture which had intended to develop our technology for on-line
ticketing.

   In May 2001, we sold the iShip multi-carrier shipping service assets to
United Parcel Service for $2.8 million. In addition, in May 2001, we terminated
our marketing relationship with a direct selling organization called Cydcor
Limited as a result of low return on investment from that marketing channel.

   In August 2001, we continued to execute our business strategy to decrease
our operating losses and enhance our ability to achieve profitability by
reducing our headcount by approximately 25% to under 70 employees, contractors
and temporary employees. Due to this reduction, we took an additional charge in
the quarter ended September 30, 2001, of approximately $200,000 consisting of
employee severance.

   On November 16, 1999, we announced the formation of a subsidiary, EncrypTix,
Inc., to develop secure printing opportunities in the events, travel and
financial services industries. In February 2000, we invested $1.0 million and
granted EncrypTix a license to our technology. EncrypTix raised approximately
$35.0 million in private financing. On March 12, 2001, EncrypTix ceased
operations and effected a general assignment of its

                                      25



assets for the benefit of its creditors. EncrypTix took this action because it
was not able to secure additional funding. We do not expect to be impacted by
any of EncrypTix's resulting liabilities. Additionally, we terminated our
license agreement with EncrypTix and have received limited licenses to some of
EncrypTix's intellectual property. Due to this cessation in business, we wrote
off the invested $1.0 million and took a one-time gain to eliminate the
cumulative loss from EncrypTix in the amount of $23.2 million in the first
quarter of 2001.

   On March 7, 2000, we completed the acquisition of iShip.com, Inc. (iShip), a
development stage enterprise that developed Internet-based shipping technology.
The acquisition was accounted for as a purchase in accordance with the
provisions of Accounting Principles 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 announced that United Parcel Service would acquire MBE. MBE represented
a significant future source of revenue and market leverage for the enterprise
shipping service that we acquired in the iShip acquisition. United Parcel
Service also informed us at that time that it would be unlikely to continue to
use our enterprise shipping services at MBE in the future. As a result of the
March 2001 events, we reduced goodwill and other intangibles associated with
the purchase of iShip to reflect the present value of future cash flows, net of
estimated transaction costs. This resulted in a non-cash charge of $163.6
million in the first quarter of 2001.

   On May 18, 2001, we completed the sale of our iShip multi-carrier shipping
service assets to United Parcel Service for $2.8 million. The difference
between the sale price of iShip and the value we attributed to the iShip assets
resulted in non-cash charge of $9.1 million in the second quarter of 2001.
Additional legal costs associated with the sale of iShip of approximately
$300,000 were charged in the third quarter of 2001 resulting in a total charge
of $9.4 million.

   In October 2001, we received preliminary approval from the United States
Postal Service to begin beta testing a technology that allows customers to
print sheets of generic postage on ordinary inkjet or laser printers that are
not tied to a destination address and have no expiration date. We launched a
beta test for this technology in January 2002. If commercially approved, this
product could have a positive effect on future customer acquisition and
customer retention, as the technology removes two major inconveniences of our
current service, the fact that the postage must be tied to the destination
address, and the fact that the postage expires in 24 hours time. We believe
that the generic postage technology is important to our ability to grow our
future revenue.

   Internet Postage Services.  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 postage at face value for a monthly convenience fee of 10% of
the value of postage printed. Prior to November 2000, there was a monthly
minimum fee of $1.99 and a monthly maximum fee of $19.99 under the Simple Plan.
Beginning in November 2000, the monthly minimum fee was increased to $4.49 for
new customers and the monthly maximum fee was discontinued. Beginning in June
of 2001, all $1.99 customers who existed at the time of the price increase were
converted to the $4.49 minimum price plan. The Power Plan was introduced at the
beginning of our second quarter of 2000 in response to customer requests for a
fixed monthly pricing plan with unlimited usage. Under the Power Plan, a
customer may purchase and use unlimited postage at face value, for a flat
monthly fee that ranges from $15.99 to $18.99. During 2001, approximately 50%
of our service fee revenue was generated from Power Plan customers. Revenues
are also generated from controlled access advertising to our existing customer
base, and revenue share and bounty arrangements. We ended 2001 with
approximately 280 thousand active customers, down from 315 thousand customers
at the end of 2000. This decline in customers was an expected result of the
increased Simple Plan monthly minimum fee in June of 2001.

                                      26



Results of Operations

  Years Ended December 31, 2001 and 2000

   Revenue.  Revenue was derived primarily from three sources: (1) service fees
charged to customers for the ability to print postage directly from their
printer, (2) professional contract revenue, received from Mail Boxes Etc. USA,
Inc., for shipping tools used by Mail Boxes Etc. USA, Inc. franchise locations
and (3) on-line store revenue, comprised of fees paid for customer referrals,
revenue share on sales to referred customers and slotting fees.

   Total revenue increased from $15.2 million to $19.4 million for the years
ended December 31, 2000 and 2001, respectively. The increase in revenue is
primarily due to service fee price increases which began in November of 2000.
The professional contract revenue in 2000 and 2001 relates to the Mail Boxes
Etc. USA, Inc. agreement that was initiated in 2000 and terminated in January
2001. Other revenue consists primarily of bounties and commissions on sales of
products to our customers by third parties. The bounty and commission
agreements were also initiated in 2000 and continued through 2001.

   Cost of Revenues.  Cost of revenues principally consists of customer
service, promotional expenses, and system operating costs. Cost of revenues
decreased from $23.7 million for the year ended December 31, 2000, to $8.0
million for the year ended December 31, 2001. The decrease is primarily due to
automation and reduced labor costs in our customer support operations. We also
reduced promotional expenses by decreasing the amount of free postage given to
each customer. In addition, we implemented an expiration feature for free
postage so that any unused portion of a free postage offer expires after the
first 30 days, resulting in less postage used by each individual customer.

   Sales and Marketing.  Sales and marketing expenses principally consist of
costs associated with strategic relationships, advertising and promotional
expenditures, and compensation and related expenses for personnel engaged in
marketing and business development activities. Sales and marketing expenses
decreased from $73.0 million for the year ended December 31, 2000, to $9.7
million for the year ended December 31, 2001. The decrease in sales and
marketing expenses resulted from a reduction in sales and marketing personnel,
the termination of fixed-cost marketing deals as well as a more focused spend
of discretionary marketing dollars on programs that provide a higher return on
investment.

   Research and Development.  Research and development expenses principally
consist of compensation for personnel involved in the development of the
Internet Postage and enterprise shipping service and expenditures for
consulting services and third-party software. Research and development expenses
for the year ended December 31, 2000 decreased from $33.1 million to $12.6
million for the year ended December 31, 2001. The decrease in research and
development expenses is primarily due to increased cost control efforts and the
reduction in headcount.

   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 purposes and amortization of
goodwill and deferred compensation. General and administrative expenses for the
years ended December 31, 2001 and 2000 were $196.7 million and $102.2 million,
respectively. The increase is due to a non-cash charge of $163.6 million in the
first quarter of 2001 to reduce goodwill and other intangibles associated with
the purchase of iShip to reflect the present value of future cash flows, net of
estimated transaction costs.

   Restructuring Charge.  In October 2000, we began our restructuring to more
effectively focus on core business opportunities in the postage and shipping
industries. As a part of that restructuring, we eliminated approximately 88% of
the workforce through 3 rounds of layoffs, terminated our fixed-cost marketing
agreements and disposed of excess assets. The resulting restructuring charge
for the years ended December 31, 2001 and 2000 were $26.0 million and $11.5
million respectively. These charges consist primarily of employee

                                      27



severance, reserves established for exiting contractual arrangements and
leases, and property and equipment write-offs.

   Interest Income (Expense), Net.  Interest income (expense), net consists of
income from cash equivalents and investments, net of interest expense related
to financing obligations. Net interest income for the years ended December 31,
2001 and 2000 were $10.1 million and $18.4 million, respectively. This decrease
is due to declining interest rates in 2001 and a reduction in the cash invested.

  Years Ended December 31, 2000 and 1999

   Revenue.  Revenue is derived primarily from two sources: (1) service fees
charged to customers for the ability to print postage directly from their
printer, and (2) professional contract revenue, received from Mail Boxes Etc.
USA, Inc., for shipping tools used by Mail Boxes Etc. USA, Inc. franchise
locations. Total revenue increased from $358,400 to $15.2 million for the years
ended December 31, 1999 and 2000, respectively. The increase in service revenue
is primarily due to a growth in the customer base from approximately 187,000 to
307,000, at December 31, 1999 and 2000, respectively, and recognizing a full
year's worth of revenue in 2000, as opposed to two months in 1999 (the postage
service product was launched on October 22, 1999). The professional contract
revenue in 2000 relates to the Mail Boxes Etc. USA, Inc. agreement that was
initiated in 2000. Other revenue consists primarily of bounties and commissions
on sales of products to our customers by third parties. The bounty and
commission agreements were also initiated in 2000.

   Cost of Sales.  Cost of sales principally consists of customer service, free
postage and system operating costs. Cost of sales was $23.7 million for the
year ended December 31, 2000, compared to $2.4 million for the year ended
December 31, 1999. The increase is primarily attributable to conducting
operations for twelve months in 2000 as opposed to two months in 1999. During
2000 we significantly increased customer service capacity and initiated
promotional programs that included a free postage offering, both of which are
recognized as cost of sales.

   Sales and Marketing.  Sales and marketing expenses principally consist of
costs associated with strategic relationships, advertising and promotional
expenditures, and compensation and related expenses for personnel engaged in
marketing and business development activities. Sales and marketing expenses
were approximately $73.0 million compared to $35.2 million for the years ended
December 31, 2000 and 1999, respectively. The increase in sales and marketing
expenses is principally due to the marketing campaign and advertising
subsequent to the launch of the Internet Postage solution in October 1999.

   Research and Development.  Research and development expenses principally
consist of compensation for personnel involved in the development of the
Internet Postage and enterprise shipping service and expenditures for
consulting services and third-party software. Research and development expenses
for the year ended December 31, 2000 were $33.1 million compared to $7.4
million for the year ended December 31, 1999. The increase is due to higher
personnel and consulting costs and other expenses associated with the ongoing
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, and
amortization of deferred compensation. General and administrative expenses for
the years ended December 31, 2000 and 1999 were $102.2 million and $14.3
million, respectively. The increase is principally due to the increased number
of employees, the expansion of facilities related to the growth of the
business, legal fees and, most significantly, the amortization of goodwill
related to the iShip.com, Inc. acquisition and the amortization of deferred
compensation.

   Interest Income (Expense), Net.  Interest income (expense), net consists of
income from cash equivalents and short term investments, net of interest
expense related to financing obligations. Net interest income for the

                                      28



years ended December 31, 2000 and 1999 were $18.4 million and $2.5 million,
respectively. This increase is due to earnings on a higher average cash
equivalent balance as a result of our initial public offering in June 1999 and
our follow-on public offering in December 1999.

Liquidity and Capital Resources

   As of December 31, 2001 and 2000, we had approximately $192.9 million and
$247.9 million cash, restricted cash and short-term and long-term investments,
respectively. In June 1999, we completed our initial public offering in which
the underwriters sold to the public 5,750,000 shares of common stock at $11.00
per share. The net proceeds from the offering were $10.23 per share, or $58.8
million in the aggregate. In December 1999, we completed a follow-on public
offering in which the underwriters sold to the public 5,750,000 shares of
common stock at $65.00 per share. Our net proceeds from the offering were
$61.83 per share, or $355.5 million in the aggregate. We regularly invest
excess funds in short-term money market funds and commercial paper and do not
engage in hedging or speculative activities.

   In the first quarter of 2000, our majority-owned subsidiary, EncrypTix,
raised approximately $34.8 million in private financing from a group of
financial and strategic investors. The proceeds of this financing were used by
EncrypTix for research and development, sales and marketing and general working
capital purposes. On March 12, 2001, EncrypTix ceased operations and effected a
general assignment of its assets for the benefit of its creditors. EncrypTix
took this action due to its inability to secure additional funding. We do not
expect to be impacted by any of EncrypTix's resulting liabilities.
Additionally, we terminated our license agreement with EncrypTix and maintain
limited licenses to various EncrypTix intellectual property.

   In May 1999, we entered into a facility lease agreement for the corporate
headquarters with aggregate lease payments of approximately $4.8 million
through May 2004. In March 2000 we entered into a facility lease agreement for
a Bellevue, Washington facility with aggregate lease payments of approximately
$17.0 million. In January 2002, we exited the Bellevue, Washington facility
lease with exit payments of approximately $555,000 in December 2001 and
$647,000 in January 2002. We are continuing to actively market all remaining
excess space that resulted from our restructuring in 2000 and 2001.

   Net cash used in operating activities was $38.8 million and $123.3 million
for the years ended December 31, 2001 and 2000, respectively. The decrease 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 by investing activities was $78.7 million for the years
ended December 31, 2001 as compared to net cash used by investing activities of
$163.3 million for the years ended December 31, 2000. The increase in net cash
provided by investing activities resulted primarily from the sale of short-term
investments and decreased capital expenditures in 2001.

   Net cash used in financing activities was $7.8 million for the years ended
December 31, 2001 as compared to net cash provided by financing activities of
$29.3 million for the years ended December 31, 2000. The increase in net cash
used in financing activities resulted primarily from the issuance of redeemable
preferred stock of a subsidiary during the first quarter of 2000.

   We anticipate that our current cash balances will be sufficient to fund our
operations through 2002. However, we may require substantial working capital to
fund our business and may need to raise additional capital. We cannot be
certain that additional funds will be available on satisfactory terms when
needed, if at all.

                                      29



Recent Accounting Pronouncements

   In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS
No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires business
combinations initiated after June 30, 2001 to be accounted for using the
purchase method of accounting, and broadens the criteria for recording
intangible assets separate from goodwill. SFAS No. 142 requires the use of a
non-amortization approach to account for purchased goodwill and certain
intangibles. Under a non-amortization approach, goodwill and certain
intangibles will not be amortized into results of operations, but instead would
be reviewed for impairment and written down and charged to results of
operations only in the periods in which the recorded value of goodwill and
certain intangibles is more than its fair value. We expect that the adoption of
SFAS No. 141 and SFAS No. 142 will not have a material impact on our financial
position or the results of our operations.

   The FASB also recently issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets", applicable to financial statements issued
for fiscal years beginning after December 15, 2001. The FASB's new rules on
asset impairment supersede SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", and portions of
Accounting Principles Bulletin Opinion 30, "Reporting the Results of
Operations". This Standard provides a single accounting model for long-lived
assets to be disposed of and significantly changes the criteria that would have
to be met to classify an asset as held-for-sale. Classification as
held-for-sale is an important distinction since such assets are not depreciated
and are stated at the lower of fair value and carrying amount. This Standard
also requires expected future operating losses from discontinued operations to
be displayed in the period(s) in which the losses are incurred, rather than as
of the measurement date as presently required. The provisions of this Standard
are not expected to have a material impact on our financial position or our
operating results.

Critical Accounting Policies

   In response to the SEC's Release No. 33-8040, "Cautionary Advice Regarding
Disclosure About Critical Accounting Policy," we identified the most critical
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 of estimates and
revenue recognition. We state these accounting policies in the notes to the
consolidated financials statements and at relevant sections in this
management's discussion and analysis.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

   Our exposure to market rate risk for changes in interest rates relates
primarily to our investment portfolio. We have not used derivative financial
instruments in our investment portfolio. Our cash equivalents and investments
are comprised of Money Market, U.S. government obligations and public corporate
debt securities with weighted average maturities of less than 90 days at
December 31, 2001. Our cash equivalents and investments, net of restricted
cash, approximated $186.2 million and had a related weighted average interest
rate of 3.2%. Interest rate fluctuations impact the carrying value of the
portfolio. We do not believe that the future market risks related to the above
securities will have material adverse impact on our financial position, results
of operations or liquidity.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

   Our financial statements, schedules and supplementary data, as listed under
Item 14, appear in a separate section of this Report beginning on page F-1.

 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE.

   None.

                                      30



                                   PART III.

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

   (a) Identification of Directors.  We incorporate by reference the
information under the caption "Proposal One: Election of Directors," appearing
in the our proxy statement for our 2002 annual meeting of stockholders.

   (b) Identification of Key Executive Officers.  We incorporate by reference
the information under the caption "Management," appearing in our proxy
statement for our 2002 annual meeting of stockholders.

   (c) Compliance with Section 16(a) of the Exchange 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 "Executive
Compensation and Related Information," appearing in our proxy statement for our
2002 annual meeting of stockholders.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

   We incorporate by reference the information under the caption "Beneficial
Ownership of Securities," appearing in our proxy statement for our 2002 annual
meeting of stockholders.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

   We incorporate by reference the information under the heading "Certain
Relationships and Related Transactions," appearing in our proxy statement for
our 2002 annual meeting of stockholders.

                                      31



                                   PART IV.

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

   (a) Documents filed as part of this report.

      1. Financial Statements.  The following financial statements of
   Stamps.com are included 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 Public Accountants........................................................... F-1
Consolidated Balance Sheets at December 31, 2001 and 2000.......................................... F-2
Consolidated Statements of Operations for the years ended December 31, 2001, December 31, 2000 and
  December 31, 1999................................................................................ F-3
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2001, December 31,
  2000 and December 31, 1999....................................................................... F-4
Consolidated Statements of Cash Flows for the years ended December 31, 2000, December 31, 2000 and
  December 31, 1999................................................................................ F-5
Notes to Consolidated Financial Statements......................................................... F-6


      2. Financial Statement Schedules.  All financial statement schedules of
   Stamps.com have been omitted because they are not applicable, not required,
   or the information is included in the consolidated financial statements or
   notes thereto.

      3. Exhibits.  The following Exhibits are incorporated herein by reference
   or are filed with this report as indicated below:

Exhibit
Number                               Description
- ------                               -----------

   3.1  Amended and Restated Certificate of Incorporation of the Company.(1)

   3.2  Bylaws of the Company.(1)

   4.1  Specimen common stock certificate.(1)

  10.1  Patent Assignment from Mohan P. Ananda to the Company, dated January
          20, 1998.(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)

  10.6  Form of Indemnification Agreement between the Company and its
          directors and officers.(1)

  10.7  Lease Agreement, dated August 27, 1998, between the Company and
          Spieker Properties, L.P. and Amendment No. One, dated January 8,
          1999.(1)

  10.8  Master Lease Agreement between the Company and FirstCorp, dated June
          5, 1998.(1)

  10.9  Lease, dated April 12, 1999, between the Company and Spieker
          Properties, L.P.(1)

10.10+  Distributor Agreement, dated January 15, 1999, between the Company
          and Office Depot, Inc.(1)

10.11+  Distributor Agreement, dated March 11, 1999, between the Company and
          Dymo-Costar Corporation.(1)

 10.12  License Agreement, dated May 13, 1999, between the Company and Mohan
          Ananda.(1)

                                      32



Exhibit
Number                               Description
- ------                               -----------

 10.13  Lease Agreement dated as of May 7, 2000 between Sterling Realty
          Organization Co. and iShip.com, Inc.(5)

 10.14  Amended and Restated Loan Repayment Agreement dated as of August 10,
          2000 by and among the Company, Salomon Smith Barney Inc. and John
          M. Payne.(6)

 10.15  Revolving Note Secured by Stock Pledge Agreement dated as of April
          12, 2000 between the Company and John M. Payne.(6)

 10.16  Stock Pledge Agreement dated as of April 12, 2000 between the Company
          and John M. Payne.(6)

 10.17  Separation Letter Agreement dated as of December 20, 2000 by and
          between the Company and John M. Payne.(7)

 10.18  Consulting Services Agreement dated as of December 20, 2000 by and
          between the Company and John M. Payne.(7)

 10.19  Confidential Information and Invention Assignment Agreement dated as
          of December 20, 2000 by and between the Company and John M.
          Payne.(7)

 10.20  Security Agreement dated as of November 30, 2000 by and between the
          Company and John M. Payne.(7)

 10.21  Note Secured by Security Agreement dated as of November 30, 2000 by
          and between the Company and John M. Payne.(7)

 10.22  Amendment dated February 13, 2001 to the December 20, 2000 Separation
          Letter Agreement by and between the Company and John M. Payne.*

10.23+  Asset Purchase Agreement dated April 27, 2001 by and between the
          Company and E-Stamp Corporation.(9)

10.24+  Amendment to the Online Store Outsourcing Agreement dated January 31,
          2002 by and between the Company and Office Depot, Inc.(10)

  21.1  Subsidiaries of the Company.(3)

  23.1  Consent of Arthur Andersen LLP.(10)

  24.1  Power of Attorney by G. Bradford Jones.(10)

  24.2  Power of Attorney by Mohan Ananda.(10)

  24.3  Power of Attorney by Jeffrey Brown.(10)

  24.4  Power of Attorney by Loren Smith.(10)

  99.1  Form of Notice of Grant of Stock Option.(3)

  99.2  Form of Stock Option Agreement.(3)

  99.3  Form of Addendum to Stock Option Agreement--Involuntary Termination
          Following Corporate Transaction/Change in Control.(3)

  99.4  Form of Addendum to Stock Option Agreement--Limited Stock
          Appreciation Right.(3)

  99.5  Form of Stock Issuance Agreement.(3)

  99.6  Form of Addendum to Stock Issuance Agreement--Involuntary Termination
          Following Corporate Transaction/Change in Control.(3)

  99.7  Form Automatic Stock Option Agreement.(3)

  99.8  Form Notice of Grant of Non-Employee Director--Automatic Stock Option
          (Initial).(3)

  99.9  Form Notice of Grant of Non-Employee Director--Automatic Stock Option
          (Annual).(3)

 99.10  Form of Enrollment/Change Form for Employee Stock Purchase Plan.(3)

                                      33



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, by and between the
          Company and DraftWorldwide, Inc., and Joint Stipulation of
          Dismissal.*

  99.15 Receipt of Auditor Representation.(10)
- --------
 (1) Incorporated herein by reference to the Company's Registration Statement
     on Form S-1, originally filed with the Securities and Exchange Commission
     on April 26, 1999, as subsequently amended (File No. 333-77025).

 (2) Incorporated herein by reference to the Company's Registration Statement
     on Form S-1, originally filed with the Securities and Exchange Commission
     on November 2, 1999, as subsequently amended (File No. 333-90115).

 (3) Incorporated herein by reference to the Company's Registration Statement
     on Form S-8 filed with the Securities and Exchange Commission on June 28,
     1999 (File No. 333-        ).

 (4) Incorporated herein by reference to the Company's Registration Statement
     on Form S-8 filed with the Securities and Exchange Commission on March 30,
     2000 (File No. 333-        ).

 (5) Incorporated herein by reference to the Company's Form 10-Q filed with the
     Securities and Exchange Commission on May 15, 2000 (File No. 000-26427).

 (6) Incorporated herein by reference to the Company's Form 10-Q filed with the
     Securities and Exchange Commission on August 14, 2000 (File No. 000-26427).

 (7) Incorporated herein by reference to the Company's Form 8-K filed with the
     Securities and Exchange Commission on December 29, 2000 (File No.
     000-26427).

 (8) Incorporated herein by reference to the Company's Annual Report on Form
     10-K/A, originally filed with the Securities and Exchange Commission on
     April 27, 2001 (File No. 000-26427).

 (9) Incorporated herein by reference to the Company's Form 10-Q filed with the
     Securities and Exchange Commission on May 15, 2001 (File No. 000-26427).

(10) Filed with the Securities and Exchange Commission with this Annual Report
     on Form 10-K.

  * Previously filed.

  + Confidential treatment requested and received as to certain portions.

  ++ Confidential treatment has been requested for certain confidential
     portions of this exhibit pursuant to Rule 24b-2 under the Securities
     Exchange Act of 1934, as amended. In accordance with Rule 24b-2, these
     confidential portions have been omitted from this exhibit and filed
     separately with the Securities and Exchange Commission.

   (b) Reports on Form 8-K:

   None.

                                      34



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of Stamps.com Inc.:

We have audited the accompanying consolidated balance sheets of Stamps.com Inc.
(a Delaware corporation) and subsidiaries as of December 31, 2001 and 2000, and
the related consolidated statements of operations, stockholders' equity and
comprehensive income and cash flows for each of the three years in the period
ended December 31, 2001. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance 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 amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Stamps.com Inc., and
subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001 in conformity with accounting principles generally accepted
in the United States.

/s/  ARTHUR ANDERSEN LLP

Los Angeles, California
February 7, 2002

                                      F-1



                       STAMPS.COM INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS



                                                                                          December31,
                                                                                     --------------------
                                                                                       2001       2000
                                                                                     ---------  ---------
                                                                                     (in thousands, except
                                                                                          par value)
                                                                                          
                                       ASSETS
Current assets:
   Cash and cash equivalents........................................................ $ 101,703  $  69,536
   Short-term investments...........................................................    76,921    174,393
   Restricted cash..................................................................     6,767      4,010
   Accounts receivable, net of allowance of $0 in 2001 and $619 in 2000.............     2,000      2,546
   Note receivable from former officer, net of allowance of $3,346 in 2001 and 2000.     3,181      3,181
   Prepaid advertising..............................................................       --       2,965
   Other current assets.............................................................       541      2,220
                                                                                     ---------  ---------
       Total current assets.........................................................   191,113    258,851
Property and equipment, net.........................................................    11,076     45,585
Goodwill and patents, net of accumulated amortization of $807 in 2001 and $42,738 in
  2000..............................................................................     6,950    166,450
Long-term investments...............................................................     7,533        --
Other assets........................................................................     5,914     16,052
                                                                                     ---------  ---------
       Total assets................................................................. $ 222,586  $ 486,938
                                                                                     =========  =========

                        LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Current portion of capital lease obligations..................................... $      98  $   3,828
   Accounts payable.................................................................        64      3,656
   Accrued expenses.................................................................     4,671      9,702
   Accrued payroll and related......................................................       494      5,211
   Deferred revenue.................................................................       --       1,809
                                                                                     ---------  ---------
       Total current liabilities....................................................     5,327     24,206
Capital lease obligations, less current portion.....................................       --       5,286
Minority interest...................................................................       --      34,765

Commitments and contingencies (See Notes 10 and 15)

Stockholders' equity:
   Common stock, $.001 par value....................................................
   Authorized shares 95,000 in 2001 and 2000........................................
   Issued and outstanding shares of 50,731 in 2001 and 49,654 in 2000...............        50         49
   Additional paid-in capital.......................................................   700,455    708,007
   Note receivable from stock sales.................................................      (101)      (101)
   Deferred compensation............................................................      (314)   (11,642)
   Accumulated deficit..............................................................  (483,205)  (273,632)
   Other comprehensive income.......................................................       374        --
                                                                                     ---------  ---------
       Total stockholders' equity...................................................   217,259    422,681
                                                                                     ---------  ---------
       Total liabilities and stockholders' equity................................... $ 222,586  $ 486,938
                                                                                     =========  =========


                            See accompanying notes.

                                      F-2



                       STAMPS.COM INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS



                                                                                 Year ended December 31,
                                                                          ------------------------------------
                                                                             2001          2000        1999
                                                                           ---------     ---------   --------
                                                                          (in thousands, except per share data
                                                                                           
Revenues:
   Service revenue....................................................... $  16,306     $   8,682   $    358
   Professional contract revenue.........................................       500         3,085         --
   Other revenue.........................................................     2,621         3,467         --
                                                                           ---------     ---------   --------
       Total revenue.....................................................    19,427        15,234        358
                                                                           ---------     ---------   --------
Cost of revenues.........................................................     7,954        23,691      2,430
                                                                           ---------     ---------   --------
Gross profit.............................................................    11,473        (8,457)    (2,072)
Expenses:
   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 to former officer..........................        --         3,346         --
   Restructuring and writedown charges...................................    25,974        11,475         --
                                                                           ---------     ---------   --------
       Total expenses....................................................   244,906       223,029     56,904
                                                                           ---------     ---------   --------
Loss from operations.....................................................  (233,433)     (231,486)   (58,976)
Other income (expense):
   Interest expense......................................................       (39)         (766)      (173)
   Interest income.......................................................    10,101        19,202      2,662
   Gain from shut down of EncrypTix......................................    23,195            --         --
   Loss from sale of iShip...............................................    (9,397)           --         --
   Other income..........................................................        --           101         --
                                                                           ---------     ---------   --------
       Net loss.......................................................... $(209,573)    $(212,949)  $(56,487)
                                                                           =========     =========   ========
       Basic and diluted net loss per share.............................. $   (4.14)    $   (4.54)  $  (2.59)
                                                                           =========     =========   ========
       Weighted average shares outstanding used in basic and diluted
         per-share calculation...........................................    50,645        46,888     21,824
                                                                           =========     =========   ========



                            See accompanying notes.

                                      F-3



                       STAMPS.COM INC. AND SUBSIDIARIES

   CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
                                (In thousands)



                                                                                       Notes
                                                               Common                Receivable
                                                                Stock     Additional    from                 Treasury
                                                            ------------   Paid-in     Stock      Deferred   Stock at Accumulated
                                                            Shares  Stock  Capital     Sales    Compensation   Cost     Deficit
                                                            ------  ----- ---------- ---------- ------------ -------- -----------
                                                                                                 
Balance at December 31, 1998...............................  6,901   $ 7   $  1,438    $(117)     $ (1,083)   $  --    $  (4,196)
Comprehensive Income:
   Net loss................................................     --    --         --       --            --       --      (56,487)
Exercise of stock options..................................     91    --          9       --            --       --           --
Repurchase of common stock.................................   (705)   --         --        7            --     (939)          --
Conversion of redeemable preferred stock................... 22,870    23     34,255       --            --       --           --
Issuance of common stock................................... 11,827    12    422,952       --            --       --           --
Repayment on note receivable...............................     --    --         --        9            --       --           --
Deferred compensation arising from issuance of options.....     --    --     11,995       --       (11,995)      --           --
Deferred compensation arising from issuance of warrants....     --    --      2,065       --        (2,065)      --           --
Amortization of deferred compensation......................     --    --         --       --         5,708       --           --
                                                            ------   ---   --------    -----      --------    -----    ---------
Balance at December 31, 1999............................... 40,984    42    472,714     (101)       (9,435)    (939)     (60,683)
Comprehensive Income:
   Net loss................................................     --    --         --       --            --       --     (212,949)
Exercise of stock options..................................  2,255     2      1,543       --            --       --           --
Shares purchased under the ESPP............................    138    --        920       --            --       --           --
Retirement of treasury stock...............................    705    (1)      (938)      --            --      939           --
Issuance of common stock in conjunction with iShip
 acquisition, net of expense...............................  5,572     6    193,602       --            --       --           --
Deferred compensation arising from purchase of iShip.......     --    --     51,789       --       (24,662)      --           --
Amortization of deferred compensation......................     --    --         --       --        10,832       --           --
Deferred compensation related to terminated employees......     --    --    (11,623)      --        11,623       --           --
                                                            ------   ---   --------    -----      --------    -----    ---------
Balance at December 31, 2000............................... 49,654    49    708,007     (101)      (11,642)      --     (273,632)
Comprehensive income:
   Net loss................................................     --    --         --       --            --       --     (209,573)
   Unrealized gain/(loss) on investments...................     --    --         --       --            --       --           --

Comprehensive income.......................................
Exercise of stock options..................................    945     1        847       --            --       --           --
Shares purchased under the ESPP............................    132    --        408       --            --       --           --
Deferred compensation arising from the issuance of warrants     --    --        130       --          (130)      --           --
Amortization of deferred compensation......................     --    --         --       --         2,521       --           --
Deferred compensation related to terminated employees......     --    --     (1,091)      --         1,091       --           --
Deferred compensation related to the sale of iShip.........     --    --     (7,846)      --         7,846       --           --
                                                            ------   ---   --------    -----      --------    -----    ---------
Balance at December 31, 2001............................... 50,731   $50   $700,455    $(101)     $   (314)   $  --    $(483,205)
                                                            ======   ===   ========    =====      ========    =====    =========





                                                                Other
                                                            Comprehensive
                                                               Income       Total
                                                            ------------- ---------
                                                                    
Balance at December 31, 1998...............................     $ --      $  (3,951)
Comprehensive Income:
   Net loss................................................       --        (56,487)
Exercise of stock options..................................       --              9
Repurchase of common stock.................................       --           (932)
Conversion of redeemable preferred stock...................       --         34,278
Issuance of common stock...................................       --        422,964
Repayment on note receivable...............................       --              9
Deferred compensation arising from issuance of options.....       --             --
Deferred compensation arising from issuance of warrants....       --             --
Amortization of deferred compensation......................       --          5,708
                                                                ----      ---------
Balance at December 31, 1999...............................                 401,598
Comprehensive Income:
   Net loss................................................       --       (212,949)
Exercise of stock options..................................       --          1,545
Shares purchased under the ESPP............................       --            920
Retirement of treasury stock...............................       --             --
Issuance of common stock in conjunction with iShip
 acquisition, net of expense...............................       --        193,608
Deferred compensation arising from purchase of iShip.......       --         27,127
Amortization of deferred compensation......................       --         10,832
Deferred compensation related to terminated employees......       --             --
                                                                ----      ---------
Balance at December 31, 2000...............................       --        422,681
Comprehensive income:
   Net loss................................................       --       (209,573)
   Unrealized gain/(loss) on investments...................      374            374
                                                                          ---------
Comprehensive income.......................................                (209,199)
Exercise of stock options..................................       --            848
Shares purchased under the ESPP............................       --            408
Deferred compensation 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



                       STAMPS.COM INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS



                                                                                  Year ended December 31,
                                                                              ------------------------------
                                                                                2001       2000       1999
                                                                              ---------  ---------  --------
                                                                                      (in thousands)
                                                                                           
Operating Activities
Net Loss..................................................................... $(209,573) $(212,949) $(56,487)
Adjustments to reconcile net loss to net cash used in operating activities
   Provision for doubtful accounts...........................................       613      4,029        --
   Depreciation and amortization.............................................    17,708     54,938     1,285
   Write-down of goodwill and other intangibles..............................   163,634         --        --
   Amortization of deferred compensation.....................................     2,521     10,832     5,708
   Charge for acquired in-process research and development...................        --      2,000        --
   Loss on disposal and writedown of assets..................................    25,974      2,756        --
   Loss on sale of iShip.....................................................     9,397         --        --
   Net gain on shut down of EncrypTix........................................   (23,195)        --        --
   Changes in operating assets and liabilities, net of acquisition of iShip..
      Accounts receivable....................................................       (67)    (3,095)     (134)
      Note receivable from former officer....................................        --     (6,527)       --
      Prepaid expenses.......................................................     4,421     18,698   (23,835)
      Other assets...........................................................     1,054     (4,762)       --
      Accounts payable.......................................................    (3,592)    (1,435)    2,315
      Minority interest......................................................   (11,570)        --        --
      Accrued expenses.......................................................   (14,313)    10,601     3,471
      Deferred revenue.......................................................    (1,809)     1,627       182
                                                                              ---------  ---------  --------
         Net cash used in operating activities...............................   (38,797)  (123,287)  (67,495)

Investing activities
Sale (purchase) of short term investments, net...............................    97,846   (126,467)  (46,422)
Proceeds from sale of iShip..................................................     2,800         --        --
Purchase of long term investments, net.......................................    (7,533)        --        --
Purchase of restricted cash investments......................................    (2,757)    (4,010)       --
Purchase of intellectual property............................................    (7,500)        --        --
Capital expenditures.........................................................    (4,132)   (30,701)   (9,557)
Acquisition of iShip.com, net of cash acquired...............................        --     (2,111)       --
Other........................................................................        --         --    (1,742)
                                                                              ---------  ---------  --------
         Net cash provided by (used in) investing activities.................    78,724   (163,289)  (57,721)

Financing activities
Repayment of capital lease obligations.......................................    (9,016)    (7,938)     (264)
Issuance of preferred stock by subsidiary, net...............................        --     34,765    28,300
Issuance of common stock under ESPP..........................................       408        920   422,964
Repurchase of common stock...................................................        --         --      (939)
Proceeds from exercise of stock options......................................       848      1,545         9
                                                                              ---------  ---------  --------
         Net cash (used in) provided by financing activities.................    (7,760)    29,292   450,070
Net increase (decrease) in cash and equivalents..............................    32,167   (257,284)  324,854
Cash and cash equivalents at beginning of period.............................    69,536    326,820     1,966
                                                                              ---------  ---------  --------
Cash and cash equivalents at end of period...................................   101,703     69,536   326,820
Short term investments.......................................................    76,921    174,393    47,926
Restricted cash..............................................................     6,767      4,010        --
Long term investments........................................................     7,533         --        --
                                                                              ---------  ---------  --------
         Cash, short term and long term investments.......................... $ 192,924  $ 247,939  $374,746
                                                                              =========  =========  ========
Cash paid for:
   Interest.................................................................. $      39  $     576  $    173
Non-cash investing and financing activity:
   Equipment acquired under capital lease, net of acquisition of iShip....... $      --  $  10,481  $    742
   Retirement of treasury stock.............................................. $      --  $    (939) $     --
   Reduction in deferred compensation related to terminated employees........ $  (8,937) $ (11,623) $     --


                            See accompanying notes

                                      F-5



                       STAMPS.COM INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  Description of Business

   Stamps.com Inc. ("Stamps.com Inc." or the "Company"), incorporated in
Delaware on January 9, 1998, provides easy, convenient and cost-effective
Internet-based services for mailing letters or shipping packages or parcels
anywhere in the United States and at anytime. Our core mailing and shipping
services are designed to allow individual consumers or employees of small
businesses or larger enterprises to print US postage or shipping 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 postage or shipping
labels with ordinary laser or inkjet printers. The Company launched its
Internet Postage service on a national basis on October 22, 1999. Prior to the
first quarter of 2000, the Company reported as a development stage enterprise.

2.  Summary of Significant Accounting Policies

  Principles of Consolidation

   The consolidated financial statements include the accounts of Stamps.com
Inc. and its subsidiaries, which include iShip.com, Inc. and EncrypTix, Inc.
During 2001, the Company sold its iShip subsidiary and EncrypTix ceased
operations and effected a general assignment of its assets for the benefit of
its creditors. The Company held approximately a 66  2/3% equity interest and a
greater than 90% voting interest in EncrypTix, Inc. at December 31, 2000.
Because of the voting control and liquidation preferences held by the company,
the Company has consolidated 100% of the losses of EncrypTix, Inc. in the
accompanying consolidated financial statements and experienced a one time gain
in 2001 to eliminate the cumulative suspended loss allocated to the minority
shareholders from EncrypTix. All significant intercompany accounts and
transactions have been eliminated.

  Use of Estimates and Risk Management

   The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and the accompanying notes. Actual results could differ from those
estimates and such differences may be material to the financial statements.

   The Company is involved in various litigation matters as a claimant and a
defendant. The Company records any amounts recovered in these matters when
received. The company records liabilities for claims against it when the loss
is probable and estimatable. Amounts recorded are based on reviews by outside
counsel, in-house counsel and management. Actual results could differ from
estimates.

  Cash Equivalents and Investments

   The Company considers all highly liquid investments with an original or
remaining maturity of three months or less at the date of purchase to be cash
equivalents.

   The Company's cash equivalents and investments are comprised of money
market, U.S. government obligations and public corporate debt securities at
December 31, 2001. All investments are classified as available for sale and are
recorded at market using the specific identification method. Realized gains and
losses are reflected in other income and expense while unrealized gains and
losses, which to date have not been material, are included as a separate
component of stockholders' equity.

                                      F-6



                       STAMPS.COM INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


  Fair Value of Financial Instruments

   Carrying amounts of certain of the Company's financial instruments,
including cash, cash equivalents, restricted cash, short-term investments,
accounts receivable, notes receivable, accrued payroll, and other accrued
liabilities, approximate fair value due to their short maturities. The fair
values of investments are determined using quoted market prices for those
securities or similar financial instruments.

  Concentration of Risk

   The Company's cash and cash equivalents, restricted cash and investment
portfolio is diversified and consists primarily of investment grade securities.
Investments are held with high-quality financial institutions, government and
government agencies, and corporations, thereby reducing 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 carrying value of the
portfolio. The Company recognized revenue from one customer that represented
approximately 12% of revenues for the year ended December 31, 2001 and from two
customers that represented approximately 20% and 17% for the year ended
December 31, 2000.

  Reclassifications

   Certain reclassifications have been made to prior periods to conform to
current period presentations.

  Property and Equipment

   Property and equipment are stated at cost. Depreciation and amortization are
computed principally on a straight-line method over the shorter of the
estimated useful life of the asset or the lease term, ranging from three to
five years. Assets acquired under capitalized lease arrangements are recorded
at the present value of the minimum lease payments. The Company has a policy of
capitalizing expenditures that materially increase 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.

  Goodwill and Patents

   Patents, trademarks and other intangibles are included in goodwill and
patents in the accompanying consolidated balance sheets and are carried at cost
less accumulated amortization. During 2001, the Company acquired intellectual
property assets relating to Internet-based postage printing and management from
E-Stamp Corporation for approximately $7.5 million, with an estimated useful
life of 7 years.

   Amortization is calculated on a straight-line basis over the estimated
useful lives of the assets, ranging from 4 to 17 years. During 2001, 2000 and
1999, amortization expense including the amortization of goodwill and patents,
was approximately $9,618,000, $45,108,000 and $18,000 respectively.

  Revenue Recognition

   Service 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. Commissions


                                      F-7



                       STAMPS.COM INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

from the sale of products by a third party vendor to the Company's customer
base are recognized as revenue when earned and collection is deemed probable.

  Computation of Net Loss per Share

   Basic loss per share is computed by dividing the net loss available to
common stockholders for the period by the weighted average number of common
shares outstanding during the period. Diluted losses per share is computed by
dividing the net losses for the period by the weighted average number of common
and common equivalent shares outstanding during the period.

   Common equivalent shares, representing incremental common shares issuable
upon the exercise of stock options and warrants are excluded from the diluted
earnings per share calculation as their effect is anti-dilutive due to the net
losses in each year.

  Advertising Costs

   The Company expenses the costs of producing advertisements when the
advertising first runs, and expenses the costs of communicating and placing the
advertising in the period in which the advertising space or airtime is used.

   Internet advertising expenses are recognized based on specifics of the
individual agreements. Under partner or affiliate agreements, advertising
expense is recognized as identified customers are generated from partner or
affiliate promotions.

  Income Taxes

   The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
Under this method, deferred tax liabilities and assets are determined based on
the difference between the financial statements and the tax basis of assets and
liabilities using the enacted tax rate in effect for the years in which the
differences are expected to reverse. Valuation allowances are recorded to
reduce deferred tax assets when it is more likely than not a tax benefit will
not be realized.

  Research and Development 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

   The Company has adopted the provisions of SFAS No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation." In accordance with the provisions of
SFAS 123, the Company has elected the disclosure of only provisions related to
employee stock options and follows the provisions of Accounting Principals
Board Opinion (APB) No. 25 in accounting for stock options issued to employees.
Under APB No. 25, compensation expense, if any, is recognized as the difference
between the exercise price and the fair value of the common stock on the
measurement date, which is typically the date of grant, and is recognized over
the service period, which is typically the vesting period.

                                      F-8



                       STAMPS.COM INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(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. These capitalized costs are amortized based on their
estimated useful life. Payroll and related costs are not capitalized, as the
amounts are immaterial and principally relate to maintenance. Internal costs
related to the development of website content are expensed as incurred.

  Recent Accounting Pronouncements

   In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS
No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires business
combinations initiated after June 30, 2001 to be accounted for using the
purchase method of accounting, and broadens the criteria for recording
intangible assets separate from goodwill. SFAS No. 142 requires the use of a
non-amortization approach to account for purchased goodwill and certain
intangibles. Under a non-amortization approach, goodwill and certain
intangibles will not be amortized into results of operations, but instead would
be reviewed for impairment and written down and charged to results of
operations only in the periods in which the recorded value of goodwill and
certain intangibles is more than its fair value. The Company expects that the
adoption of SFAS No. 141 and SFAS No. 142 will not have a material impact on
its financial position or its results of operations.

   The FASB also recently issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets", applicable to financial statements issued
for fiscal years beginning after December 15, 2001. The FASB's new rules on
asset impairment supersede SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", and portions of
Accounting Principles Bulletin Opinion 30, "Reporting the Results of
Operations". This Standard provides a single accounting model for long-lived
assets to be disposed of and significantly changes the criteria that would have
to be met to classify an asset as held-for-sale. Classification as
held-for-sale is an important distinction since such assets are not depreciated
and are stated at the lower of fair value and carrying amount. This Standard
also requires expected future operating losses from discontinued operations to
be displayed in the period(s) in which the losses are incurred, rather than as
of the measurement date as presently required. The provisions of this Standard
are not expected to have a material impact on the Company's financial position
or operating results.

3.  The Acquisition, Investment in and Sale of Subsidiary

   On March 7, 2000, the Company completed the acquisition of iShip.com, Inc.,
a development stage enterprise developing Internet-based shipping technology.
In connection with the acquisition, approximately 5.6 million shares of
Stamps.com common stock were issued in exchange for all outstanding iShip.com,
Inc. stock. An additional 1.6 million shares of Stamps.com common stock were
reserved for issuance upon exercise of options and warrants assumed in the
transaction. 800,000 shares of Stamps.com common stock had been deposited into
an escrow account to compensate the Company for any inaccuracy or breach of any
representation, warranty, covenant or agreement of iShip.com, Inc. as contained
in the merger agreement. The escrowed shares have been released pursuant to the
terms of the merger agreement.

   The acquisition was accounted for as a purchase in accordance with the
provisions of 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. The Company recorded
intangible assets of $222.4 million and deferred compensation of $24.7 million,
which was to be amortized over periods ranging from three to four years, except
for in-process research and development which was written off immediately after
the acquisition, which is included in research and development expense in the
accompanying statements of

                                      F-9



                       STAMPS.COM INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

operations. Results of operations for iShip.com, Inc. have been included with
those of the Company for periods subsequent to the acquisition date.

   The purchase price was allocated as follows (in thousands):

                                     
               Goodwill............................... $209,188
               Deferred compensation..................   24,662
               Purchased technology...................   11,200
               In-process research and development....    2,000
               Tangible assets acquired...............    8,931
               Liabilities assumed....................   (7,232)
                                                       --------
                  Purchase price...................... $248,749
                                                       ========

               

   Presented below is unaudited selected pro forma financial information,
presenting the results of operations of the Company as if the acquisition had
taken place on January 1 (in thousands, except per share amounts):



                                                                     Years Ended
                                                                     December 31,
                                                                 -------------------
                                                                   2000       1999
                                                                 ---------  --------
                                                                     (unaudited)
                                                                      
Proforma revenues............................................... $  15,234  $    358
Proforma net loss............................................... $(215,326) $(64,728)
Proforma basic and diluted net loss per share................... $   (3.93) $  (2.18)
Proforma weighted average shares used in per share calculation--
  basic and diluted.............................................    54,802    29,738


   The unaudited pro forma information is not necessarily indicative of the
actual results of operations had the acquisition occurred at the beginning of
the periods indicated, nor should it be indicative of operations for any future
date or period.

   On March 2, 2001, United Parcel Service and Mail Boxes Etc. USA, Inc. (MBE)
jointly announced that United Parcel Service would acquire MBE. MBE represented
a significant future source of revenue and market leverage for the Company's
enterprise shipping services that were acquired in the iShip acquisition.
United Parcel Service also informed the Company that it is unlikely to have MBE
continue to use the Company's enterprise shipping services in the future. As a
result of the March 2001 events, the Company reduced goodwill and other
intangibles associated with the purchase of iShip to estimated net realizable
value. This resulted in a non-cash charge of $163.6 million in the first
quarter of 2001.

   On May 18, 2001, the Company completed the sale of its iShip 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 the sale of iShip in
the amount of $0.3 million were charged in the third quarter of 2001 resulting
in a total charge of $9.4 million in 2001.

  Change in Ownership and Shut-down of Subsidiary

   On November 16, 1999, the Company announced the formation of a subsidiary,
EncrypTix, Inc., to develop secure printing opportunities in the events, travel
and financial services industries. In February 2000, the

                                     F-10



                       STAMPS.COM INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Company invested $1.0 million and granted EncrypTix a license to its technology
in those three specific fields of use. During the first half of 2000, the
Company sold approximately 42% of EncrypTix, Inc., until then a wholly owned
subsidiary, in a private financing of approximately $34.8 million. The
financing was completed in April 2000.

   On March 12, 2001, EncrypTix ceased operations and effected a general
assignment of its assets for the benefit of its creditors. EncrypTix took this
action due to the inability to secure additional funding. The Company does not
expect to be impacted by any of EncrypTix's resulting liabilities.
Additionally, the Company terminated its license agreement with EncrypTix and
maintains limited licenses to various EncrypTix intellectual property. Due to
this cessation in business, the Company wrote off the invested $1.0 million and
took a one-time gain to eliminate the cumulative loss from EncrypTix in the
amount of $23.2 million in the first quarter of 2001.

   The Company includes EncrypTix's balances and results in its consolidated
financial statements. The minority interest reflected in the attached
consolidated balance sheet represents the investment received in the private
financing.

4.  Segment Information

   SFAS No. 131, "Disclosures 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 operates in a single segment and therefore no
additional disclosure is required.

                                     F-11



                       STAMPS.COM INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


5.  Cash, Cash Equivalents and Investments

   The following table summarizes the Company's cash, restricted cash and
investments as of December 31, 2001 and 2000 (in thousands):



                                                                         2001     2000
                                                                       -------- --------
                                                                          
Cash and equivalents:
   Cash............................................................... $  5,553 $  3,230
   Commercial paper...................................................   19,679   50,857
   Money market.......................................................   75,803    7,303
   Corporate notes....................................................      668    6,320
   Certificates of deposit............................................       --    1,826
                                                                       -------- --------
       Cash and equivalents...........................................  101,703   69,536
Restricted cash:
   Certificates of deposit............................................    2,089    2,089
   U.S. Government and agency securities..............................    1,872    1,921
   Money market.......................................................    2,806       --
                                                                       -------- --------
       Restricted cash................................................    6,767    4,010
Short-term investments:
   Corporate notes and bonds..........................................   29,496   92,209
   Commercial paper...................................................   19,250   62,967
   U.S. Government and agency securities..............................   27,021   18,987
   Certificates of deposit............................................    1,154      230
                                                                       -------- --------
       Short-term investments.........................................   76,921  174,393
Long-term investments:
   Corporate notes and bonds..........................................    7,533       --
                                                                       -------- --------
   Long-term investments..............................................    7,533       --
                                                                       -------- --------
       Cash and equivalents, restricted cash, short-term and long
         term investments............................................. $192,294 $247,939
                                                                       ======== ========


   Total restricted cash as of December 31, 2001 and 2000 is $6.8 million and
$4.0 million, respectively. As of December 31, 2001 and 2000 the total
restricted cash includes $4.0 million related to letters of credit for facility
leases.

6.  Allowance for Doubtful Accounts

   Increases to the allowance for doubtful accounts totaled $0, $619,000 and $0
for the years ended December 31, 2001, 2000 and 1999, respectively. Write-offs
against the allowance for doubtful accounts totaled $1,232,000, $0 and $0 for
the years ended December 31, 2001, 2000 and 1999, respectively.

                                     F-12



                       STAMPS.COM INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


7.  Property and Equipment

   Property and equipment is summarized as follows (in thousands):



                                                       2001      2000
                                                     --------  --------
                                                         
        Furniture and equipment..................... $  1,697  $  4,508
        Computers and software......................   19,702    49,570
        Leasehold improvements......................    1,732     3,544
                                                     --------  --------
                                                       23,131    57,622
        Accumulated depreciation and amortization...  (12,055)  (12,037)
                                                     --------  --------
                                                     $ 11,076  $ 45,585
                                                     ========  ========


   During 2001, 2000 and 1999, depreciation expense including the amortization
on equipment under capital leases, was approximately $8.1 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 at the
lender's prime rate plus 1% and are collateralized by certain of the Company's
assets. The credit line agreement matured and was paid off on January 31, 2000.

9.  Income Taxes

   The provision for income taxes consists solely of minimum state taxes. The
Company's effective tax rate differs from the statutory federal income tax rate
primarily as a result of the establishment of a valuation allowance for the
future benefits to be received from the net operating loss carryforwards and
research tax credit carryforwards. The tax effect of temporary differences that
give rise to a significant portion of the deferred tax assets and liabilities
at December 31, 2001 and 2000 are presented below (in thousands).


                                                   2001       2000
                                                 ---------  --------
                                                      
           Deferred tax assets (liabilities):
              Net operating loss carryforwards.. $  98,999  $ 73,924
              Research credits..................       748       748
              Depreciation......................       160      (368)
              Capitalized start-up costs........     1,995     2,766
              Accruals..........................     1,661     4,166
                                                 ---------  --------
                  Total deferred tax assets.....   103,563    81,236
           Valuation allowance..................  (103,563)  (81,236)
                                                 ---------  --------
                  Net deferred tax assets....... $      --  $     --
                                                 =========  ========


   Because the Company is uncertain as to when and if it may realize its
deferred tax assets, the Company has placed a valuation allowance against its
otherwise recognizable deferred tax assets.

   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 forward
to offset future

                                     F-13



                       STAMPS.COM INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

taxable income. The Company also has available a tax credit carryforward at
December 31, 2001 of $748,000, which can be carried forward to offset future
taxable liabilities. The Company's federal net operating loss will begin to
expire in 2018, state net operating 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 upon the occurrence of certain events, including a
significant change in ownership interests. The provision for income taxes is
comprised of (in thousands):



                                                    2001 2000 1999
                                                    ---- ---- ----
                                                     
             Current
                Federal............................ $ -- $ -- $ --
                State..............................    4    1    1
                                                    ---- ---- ----
                                                       4    1    1
             Deferred..............................   --   --   --
                                                    ---- ---- ----
                    Provision for income taxes..... $  4 $  1 $  1
                                                    ==== ==== ====


   Differences between the provision for income taxes and income taxes at the
statutory federal income tax rate are as follows (in thousands):



                                                    2001      2000      1999
                                                  --------  --------  --------
                                                             
Income tax at statutory federal rate............. $(71,255) $(72,403) $(19,205)
State income taxes, net of federal benefit.......  (12,227)  (12,424)   (2,954)
Effect of tax credits............................       --        --      (377)
Effect of permanent differences..................   61,159    26,107     2,144
Change in valuation allowance....................   22,327    58,721    20,393
                                                  --------  --------  --------
                                                  $      4  $      1  $      1
                                                  ========  ========  ========


10.  Commitments and Contingencies

  Capital and Operating Leases

   The Company leases certain equipment under capital lease arrangements
expiring on various dates through 2002 (per schedule below). Included in
property and equipment are the following assets held under capital lease at
December 31 (in thousands):



                                                2001    2000
                                               ------  -------
                                                 
                 Computer equipment........... $1,135  $ 7,072
                 Accumulated amortization.....   (972)  (1,501)
                                               ------  -------
                                               $  163  $ 5,571
                                               ======  =======


                                     F-14



                       STAMPS.COM INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   Following is a schedule of future minimum lease payments under capital and
operating leases at December 31, 2001 (in thousands):



                                                                     Capital Operating
                                                                     ------- ---------
                                                                       
Years ending December 31:
   2002.............................................................  $107    $2,924
   2003.............................................................    --     2,804
   2004.............................................................    --     1,072
                                                                      ----    ------
                                                                       107    $6,800
                                                                              ======
Less amount representing interest...................................    (9)
                                                                      ----
       Present value of net minimum capital lease payments ($98
         payable currently).........................................  $ 98
                                                                      ====


   Total rent expense from continuing operations for the years ended December
31, 2001, 2000 and 1999 were $1,128,000, $3,577,000 and $751,000, respectively.

   The Company continues to sublet building spaces vacated as a result of the
reduction in workforce and is currently marketing vacated space. Management
believes that tenants will be secured for unoccupied facilities that will
reduce operating lease expenses by $1,523,000, $1,707,000 and $663,000 for
years 2002, 2003 and 2004, respectively.

11.  Restructuring

   In October 2000, the Company's management approved and implemented a
restructuring plan as part of a move to streamline operations, reduce
infrastructure and overhead and eliminate excess and duplicative facilities. As
a result, the Company went through three rounds of workforce reductions which
reduced its total number of employees by approximately 400 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 on investment, losses on the disposition and discontinuation of
certain fixed assets, the estimated rent and expenses for unoccupied facilities
between the reduction in force date and the estimated date of occupancy by a
sublet tenant and the write-off of an investment in EncrypTix.

                                     F-15



                       STAMPS.COM INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The total amount of restructuring charges for the years ended December 31,
2001 and 2000 were approximately $26.0 million and $11.5 million respectively.
A summary of the restructuring and cost cutting efforts for the years ended
December 31, 2001 and 2000 is set forth below (in thousands):



                                          2000                        Remaining
                                        Provision Utilized Adjustment Provison
                                        --------- -------- ---------- ---------
                                                          
December 31, 2000
Employee severance costs...............  $ 3,093  $ 3,093   $    --    $   --
Contract exit fees.....................    6,154    6,154        --        --
Fixed asset disposals..................    1,233    1,233        --        --
Facility lease expenses................      923      923        --        --
Other..................................       72       72        --        --
                                         -------  -------   -------    ------
   Total...............................  $11,475  $11,475   $    --    $   --
                                         =======  =======   =======    ======

December 31, 2001
Employee severance costs...............  $ 4,623  $ 4,650   $   (27)   $   --
Contract exit fees.....................    4,247    5,975    (1,728)       --
Fixed asset disposals..................    7,783    7,783        --        --
Facility lease expenses................    8,261    5,644        --     2,617
Write-off of investment in EncrypTix...    1,000    1,000        --        --
Other..................................       60       60        --        --
                                         -------  -------   -------    ------
   Total...............................  $25,974  $25,112   $(1,755)   $2,617
                                         =======  =======   =======    ======


   The calculation of the restructuring costs only includes those costs for
which the Company will be unable to recognize any future benefit. In addition,
the calculation of the restructuring costs requires management to make
estimates and assumptions that affect the amounts reported in the consolidated
financial statements. Actual results could differ from management's assumptions
and those differences may be material to the consolidated financial statements.

12.  Related Party Transactions

   In October 1999, a director entered into a three-year consulting agreement
with the Company to provide strategic planning services. In exchange for his
consulting services, the director received an option to purchase 36,000 shares
of common stock at $35.625 per share. A compensation element of approximately
$985,000 was calculated using the Black-Scholes valuation method for the
options earned during the period. The resulting compensation expense for the
three years ending December 31, 2001, 2000 and 1999 was approximately $328,000,
$328,000 and $55,000 respectively.

   In November 1999, this agreement was amended to provide that the director
will receive consulting fees of $2,000 per day for any special projects on
which the Company requires his services. Amounts paid related to the amended
agreement for the years ended December 31, 2001, 2000 and 1999 were
approximately $ 8,400, $6,400 and $0 respectively.

   In June 1999, the Company entered into a consulting services agreement with
a director to provide the Company with strategic planning and business
development advice, and other consulting services that the Company may request.
In exchange for these services, the Company granted the director an option to
purchase 10,000 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



                       STAMPS.COM INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   In February 1999, a director entered into a three-year consulting agreement
with the Company to provide marketing and strategic planning services. In
exchange for his consulting services, the director will receive consulting fees
of $120,000 per annum and an option to purchase 135,000 shares of common stock
at $0.33 per share. During 1999, a compensation element of approximately $1.4
million was calculated using the Black-Scholes valuation model for the options
earned during the period. This agreement was terminated in October 1999 upon
the director's appointment as an officer of the Company. This change in status
will result in a new measurement date for the remaining unvested options. The
compensation expense resulting 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
approximately $6.0 million. Mr. Payne purchased the shares on margin and the
margin account was secured by a pledge of 1,467,500 shares of the Company's
common stock held by Mr. Payne, of which approximately 593,750 shares are
subject to repurchase by the Company. As of October 31, 2000, Mr. Payne's total
indebtedness under the margin account was approximately $6.7 million, which
amount consists of the purchase price of the 187,000 shares, accrued interest
on the purchase price and other fees and indebtedness incurred by Mr. Payne,
less the proceeds from his sale of the Company's common stock during the third
quarter of 2000.

   In April 2000, the Company agreed to guarantee Mr. Payne's margin account in
the event the value of the shares pledged was insufficient collateral to secure
the indebtedness outstanding under the margin account. The guarantee was in the
form of a single-purpose line of credit extended to Mr. Payne which would have
a balance due to the Company to the extent the value of the pledged shares is
insufficient collateral to secure indebtedness outstanding under the margin
account. This line of credit was secured by all of Mr. Payne's assets.

   Mr. Payne agreed to sell a minimum of 100,000 shares of common stock during
each fiscal quarter (beginning the third fiscal quarter of 2000) in order to
pay down the indebtedness outstanding under the margin account. Pursuant to
this agreement, Mr. Payne sold 7,500 shares at a price of $4.50 per share and
95,500 shares at a price of $4.3125 per share on August 29, 2000. Mr. Payne
also sold 15,000 shares at a price of $2.94 per share on November 15, 2000 and
85,000 shares at a price of $3.02 per share on November 17, 2000. The sale of
these 200,000 shares during the third and fourth fiscal quarters resulted in
aggregate repayment of indebtedness in the amount of approximately $730,000.

   In November 2000, Mr. Payne executed a promissory note in favor of the
Company in the amount of $6.6 million. The payment of the note was secured by a
pledge of all shares of the Company's common stock and all shares of EncrypTix,
Inc. held by Mr. Payne. The entire principal balance and all accrued and unpaid
interest was due and payable on June 30, 2001. Mr. Payne is currently in
default. The Company and Mr. Payne are currently in negotiations to agree on
payment terms for the amount due the Company.

   The Company has established a reserve of $3,346,000 related to the note
receivable from Mr. Payne. The reserve is calculated as the difference between
the note's carrying value, $6,527,000, and the underlying value of the stock on
December 31, 2000, $3,181,000 (2.78 per share).

                                     F-17



                       STAMPS.COM INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


13.  Stockholders' Equity

  Restricted Stock

   During 1998, the Company issued restricted stock to an employee and a
director totaling 1,988,475 shares. Part of the purchase price included a full
recourse note payable to the Company for $99,000. These shares vested
one-fourth on May 30, 1999 and the remaining shares vest monthly over the
subsequent thirty-six months. The Company issued these shares at prices which
included approximately $650,000 of a compensation element. The $650,000 is
being recognized as expense over the vesting periods and has been presented as
a reduction of stockholders' equity in the accompanying balance sheets.

  Redeemable Preferred Stock

   In February 1998, the Company issued 3,762,500 shares of its Series A
Redeemable Preferred Stock at $0.40 per share and warrants to acquire 6,020,000
shares of the Company's Series B Redeemable Preferred Stock at $0.75 per share.
In August and October 1998, 6,020,000 shares of Series B Redeemable Preferred
Stock were issued under these warrants.

   In February 1999, the Board of Directors approved the sale of Series C
Redeemable Preferred Stock and the Company issued 5,464,486 shares of its
Series C Redeemable Preferred Stock at $5.49 per share.

   In connection with the Company's Initial Public Offering in June 1999, all
shares of Series A, B, and C Preferred Stock converted into 22,870,479 shares
of Common Stock.

  Notes Receivable

   In connection with the issuance of Common Stock during 1999, the Company
exchanged shares with a fair value of $117,000 for full recourse notes
receivable of the same amount. These notes receivable bear interest at 9% per
annum and are payable in February 2003. The unpaid balance of these notes
receivable for the years ended December 31, 2001 and 2000 is $101,000.

14.  Employee Stock Plans

  Stock Incentive Plans

   The 1999 Stock Incentive Plan (the "1999 Plan") serves as the successor to
the 1998 Stock Plan (the "Predecessor Plan"). The 1999 Plan became effective in
June 1999. At that time, all outstanding options under the Predecessor Plan
were transferred to the 1999 Plan, and no further option grants can be made
under the Predecessor Plan. All outstanding options under the Predecessor Plan
continue to be governed by 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 2,500,000 and 2,000,000 shares
respectively, to the number of shares eligible to be granted under the
1999 Plan from the initial authorization of 7,290,000 shares of the common
stock. In March 2000, the number options available for grant were increased by
approximately 9,240,000 due to the acquisition of i-Ship.

   The total number of shares currently authorized for issuance under the 1999
Plan is approximately 18,373,000, which amount includes an automatic annual
increase to the share reserve of 3% of the Company's outstanding common shares
on the last trading day in December. The automatic increase on January 1, 2000
was

                                     F-18



                       STAMPS.COM INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

1,229,551 shares based on 40,985,054 shares outstanding on the last day of
December 1999. The automatic increase on January 1, 2001 was 1,489,627 based
upon 49,654,227 shares outstanding on the last day of 2000.

   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 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 2001, 2000 and 1999, the Company issued options to purchase
1,557,434, 9,839,198 and 5,290,800 shares of common stock, respectively, at
prices which included approximately $96,100, $24,662,000 and $11,995,000 of a
compensation element in 2001, 2000 and 1999, respectively. The total of
deferred compensation is being recognized as expense over the vesting periods
of the related options and has been presented as a reduction of stockholders'
equity in the accompanying balance sheets. The current year amortization of
deferred compensation expense of $2,521,000 is included as a general and
administrative expense.

   A summary of stock option activity is as follows (in thousands, except per
share amounts, amounts reflect the  3/2 split from June 1999):



                                                         Options
                                                       Outstanding Weighted
                                                       ----------- Average
                                                        Number of  Exercise
                                                         Options    Price
                                                       ----------- --------
                                                             
     Beginning Balance at January 1, 1999.............    1,937     $  .07
     Granted..........................................    5,291      10.74
     Forfeited........................................      (49)      2.65
     Exercised........................................      (91)       .15
     Increase in available options....................       --         --
                                                         ------
     Balance at December 31, 1999.....................    7,088       8.17
     Granted..........................................    8,854      10.23
     Forfeited........................................   (4,450)     13.40
     Exercised........................................   (2,255)      0.59
     Increase in available options....................       --         --
     Issued in iShip transaction......................      985       4.98
                                                         ------
     Balance at December 31, 2000.....................   10,222       8.81
     Granted..........................................    1,557       2.42
     Forfeited........................................   (7,682)      8.92
     Exercised........................................     (945)      0.90
     Increase in available options....................       --         --
                                                         ------
     Balance at December 31, 2001.....................    3,152     $ 7.76
                                                         ======


   The weighted-average fair value of stock grants for the years ended December
31, 2001, 2000 and 1999 were approximately $1.86, $9.91 and $9.35,
respectively. Fair value is calculated using the Black-Scholes valuation method.

                                     F-19



                       STAMPS.COM INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


   The following tables summarize information concerning outstanding and
exercisable options at December 31, 2001 (in thousands, except number of years
and per share amounts):



                                  Options Outstanding              Options Exercisable
                         -------------------------------------- --------------------------
                                      Weighted
                                       Average
                                      Remaining     Weighted                   Weighted
                                     Contractual    Average                    Average
                           Number       Life     Exercise Price   Number    Exercise Price
Range of Exercise Prices Outstanding (in Years)    per Share    Exercisable   per Share
- ------------------------ ----------- ----------- -------------- ----------- --------------
                                                             
     $0.05-$2.99........    1,651        8.0         $ 2.10        1,031        $ 1.90
     $3.00-$5.60........      515        7.6         $ 3.82          497        $ 3.79
     $5.61-$39.50.......      937        7.5         $17.62          610        $20.33
     $39.51-$81.00......       49        5.7         $52.05           49        $51.96
                            -----        ---         ------        -----        ------
     $0.05-$81.00.......    3,152        7.8         $ 7.76        2,187        $ 8.59
                            =====        ===         ======        =====        ======


  Stock-Based Compensation

   The Company has adopted the provisions of SFAS No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation." In accordance with the provisions of
SFAS No. 123, the Company has elected the disclosure of only provisions related
to employee stock options and follows the provisions of Accounting Principals
Board Opinion (APB) No. 25 in accounting for stock options issued to employees.
Under APB No. 25, compensation expense, if any, is recognized as the difference
between the exercise price and the fair value of the common stock on the
measurement date, which is typically the date of grant, and is recognized over
the service period, which is typically the vesting period.

   SFAS No. 123 pro forma numbers are as follows for December 31 (in thousands,
except per share amounts):



                                                  2001       2000       1999
                                                ---------  ---------  --------
                                                             
Net income--as reported........................ $(209,573) $(212,949) $(56,487)
Net income--pro forma.......................... $(223,083) $(215,401) $(58,542)
Basic and diluted net income 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
weighted average assumptions:



                                              2001  2000  1999
                                              ----  ----  ----
                                                 
                Expected dividend yield......   --    --    --
                Risk-free interest rate...... 5.00% 5.50% 5.50%
                Expected volatility..........  100%  142%   50%
                Expected life (in years).....    5     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 volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimates, in
management's

                                     F-20



                       STAMPS.COM INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

opinion the existing models do not necessarily provide a reliable single
measure of the fair value of the Company's options.

  Employee Stock Purchase Plan

   In June 1999, the Company's Board of Directors adopted an Employee Stock
Purchase Plan ("ESPP" or "Purchase Plan") which allows eligible employees of
the Company and eligible employees of the Company's participating subsidiaries
to purchase shares of common stock, at semi-annual intervals, with their
accumulated payroll deductions.

   Eligible participants may contribute up to 15% of cash earnings through
payroll deductions, and the accumulated deductions will be applied to the
purchase of shares on each semi-annual purchase date. The purchase price per
share will be equal to 85% of the fair market value per share on the
participant's entry date into the offering period or, if lower, 85% of the fair
market value per share on the semi-annual purchase date.

   Upon adoption of the plan, 300,000 shares of common stock were reserved for
issuance. This reserve will automatically increase on the first trading day in
January each year, beginning in calendar year 2000, by an amount equal to 1% of
the total number of outstanding shares of the Company's common stock on the
last trading day in December in the prior year. The increase on January 1, 2000
was 409,851 shares based on 40,985,054 shares outstanding on December 31, 1999.
The increase on January 1, 2001 was 496,542 based upon 49,654,227 shares
outstanding on December 31, 2000. In no event will any annual increase exceed
521,571 shares.

   Total shares of common stock issued during 2001 and 2000 were 132,295 and
137,772, respectively. During 1999, no shares were issued under the ESPP.

  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 15% of their pretax salary, but
not more than statutory limits. The Company matches 50% of the first 4% a
participant contributes. The Company expensed $238,000, $200,000 and $67,000 in
2001, 2000 and 1999, respectively, related to this plan.

15.  Legal Proceedings

   On June 16, 1999, Pitney Bowes sued the Company for alleged patent
infringement in the United States District Court for the District of Delaware.
The suit originally alleged that the Company is infringing two patents held by
Pitney Bowes related to postage application systems and electronic indicia. The
suit seeks treble damages, a preliminary and permanent injunction from further
alleged infringement, attorneys' fees and other unspecified damages. The
Company answered the complaint on August 6, 1999, denying the allegations of
patent infringement and asserting a number of affirmative defenses. On April
13, 2000, Pitney Bowes asked the court for permission to amend its complaint 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
against the Company in the United States District Court for the Eastern
District of Texas, alleging that the Company is infringing four patents owned
by Pitney Bowes related to multi-carrier shipping. The suit seeks unspecified
damages and a permanent

                                     F-21



                       STAMPS.COM INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

injunction from further alleged infringement. The Company answered the
complaint on December 1, 2000, denying the allegations of patent infringement
and asserting a number of affirmative defenses. The United Parcel Service
acquired the Company's iShip multi-carrier shipping service assets on May 18,
2001. On September 4, 2001, the court granted the Company's motion to transfer
the lawsuit to the United States District Court for the District of Delaware.

   On June 14, 2001, the Company filed a patent infringement lawsuit against
Pitney Bowes in the United States District Court for the Central District of
California, alleging that Pitney Bowes infringes four patents owned by the
Company. On January 7, 2002, the court granted Pitney Bowes' motion to transfer
the lawsuit to the United States District Court for the District of Delaware.
Each of the Company's patent lawsuits with Pitney Bowes is in the discovery
phase and is scheduled for trial in January 2003.

   The outcome of the Company's litigation against Pitney Bowes is uncertain
and the Company cannot estimate a range of probable losses, if any. Therefore,
the Company can give no assurance that Pitney Bowes will not prevail in its
suits against Stamps.com. See Risk Factors-Success 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.

   On December 13, 2000, Cybershop (a British Columbia, Canada partnership) and
its general partners filed suit against the Company in the U.S. District Court
for the Southern District of Texas, alleging that in 1998 a third party
fraudulently transferred ownership of the Internet domain name "stamps.com"
away from Cybershop and subsequently transferred it to the Company. The third
party is also a named defendant in the suit. The complaint seeks legal
resolution and recognition of Cybershop's ownership of the "stamps.com" domain
name and seeks unspecified monetary damages against the third party. On January
9, 2001, the Company filed a motion to dismiss the suit. On February 16, 2001,
Cybershop filed an amended complaint, alleging new causes of action, including
conversion, invasion of privacy, trespass, and private nuisance, and seeking
declaratory judgment for return of the domain name registration to Cybershop.
Cybershop later filed third and fourth amended complaints. On February 13,
2002, the court granted our summary judgment motion and dismissed all of
Cybershop's pending claims against the Company with prejudice. Cybershop has
filed a motion asking the court to reconsider its decision.

   The final outcome of the litigation is uncertain, and the Company can give
no assurance that Cybershop and its general partners will not prevail. See Risk
Factors- Success by Cybershop in its suit against us seeking damages and
recognition of its ownership of the domain name stamps.com could prevent us
from using the domain name stamps.com and could require a change of name of the
Company, severely harming our business or causing it to fail.

   On or about April 6, 2000, Metro Fulfillment, Inc. filed a lawsuit against
Weigh-Tronix, Inc. for breach of contract, fraud, negligent misrepresentation,
intentional inference with contract, negligent interference, breach of implied
warranty and breach of express warranty. Metro Fulfillment, Inc. alleges that
pursuant to 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
Fulfillment, Inc. further alleged that Weigh-Tronix, Inc. breached the
agreement by seeking payment before the scales were actually sold to customers
in breach of the agreement. Weigh-Tronix, Inc. in turn filed a third party
complaint against the Company and Metro Fulfillment, Inc. for breach of
contract and several common counts. The third party complaint seeks
approximately $700,000 in compensatory damages, plus interest and attorney's
fees. The Company filed an answer to the third party complaint denying the
allegations of the lawsuit. The parties reached a tentative settlement
agreement, pursuant to which the Company would pay Weigh-Tronix, Inc. $200,000
and

                                     F-22



                       STAMPS.COM INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Metrofulfillment, Inc. would pay Weigh-Tronix, Inc. $25,000, in return for
Weigh-Tronix, Inc. and Metrofulfillment, Inc. dismissing all of their claims in
this lawsuit. In addition, the Company would receive all of the postage scales
that Metrofulfillment, Inc. still has in its inventory, the amount of which are
unknown at this time. This settlement agreement 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 alleges claims for breach of contract, common
counts and negligent misrepresentation. The complaint seeks damages of
approximately $1.3 million. The Company filed an answer to the complaint
denying the allegations in the lawsuit. Metrofulfillment, Inc. filed for
Bankruptcy protection on December 18, 2001. Attempts to mediate this case have
been unsuccessful as of this date. It is not possible at this time to predict
the final outcome of this matter.

   In May and June, 2001, the Company was named, together with certain of its
current or former board members and/or officers, as a defendant in eleven
purported class-action lawsuits, filed in the United States District Court for
the Southern District of New York. The lawsuits allege violations of the
Securities Act of 1933 and the Securities Exchange Act of 1934 in connection
with the initial public offering and secondary offering of the Company's common
stock. The lawsuits also name as defendants the principal underwriters in
connection with our initial and secondary public offerings, including Goldman,
Sachs & Co. (in some of the lawsuits sued as The Goldman Sachs Group Inc.) and
BancBoston Robertson Stephens, Inc. The lawsuits allege that the underwriters
engaged in allegedly improper commission practices and stock price
manipulations in connection with the sale of our common stock. The lawsuits
also allege that the Company and/or certain of its officers or directors knew
of or recklessly disregarded these practices by the underwriter defendants, and
failed to disclose them in our public filings. Plaintiffs seek damages and
statutory compensation, including prejudgment and post-judgment interest, costs
and expenses (including attorneys' fees), and rescissionary damages. In
addition to the class action lawsuits against the Company, over 1,000 similar
lawsuits have also been brought against over 250 companies which issued stock
to the public in 1998, 1999, and 2000, and their underwriters. These lawsuits
(including those naming the Company) followed publicized reports that the SEC
was investigating the practice of certain underwriters in connection with
initial public offerings. All of these lawsuits have been consolidated for
pretrial purposes before Judge Scheindlin of the Southern District of New York.
The Company placed its underwriters on notice of the Company's rights to
indemnification, pursuant to the Company's agreements with the underwriters.
The Company also provided notice to its directors and officers insurers, and
believes that the Company has insurance applicable to the lawsuits. The Company
also believes that the claims against it and its officers and directors are
without merit, and intends to defend the lawsuits vigorously. The Company
cannot estimate a range of probable losses, if any, related to this suit.

                                     F-23



                       STAMPS.COM INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


16.  Quarterly Information (unaudited)



                                                                           Quarter ended
                                                              ---------------------------------------
                                                                March      June    September December
                                                              ---------  --------  --------- --------
                                                               (in thousands, except per 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 and diluted
  per-share calculation......................................    49,117    49,354    49,533    50,316

Fiscal Year 2000:
Revenues..................................................... $   2,036  $  3,674  $  4,201  $  5,323
Loss from operations.........................................   (41,697)  (56,605)  (60,307)  (72,877)
Net loss.....................................................   (36,904)  (52,331)  (55,289)  (68,425)
Basic and diluted net loss per share......................... $   (0.86) $  (1.09) $  (1.15) $  (1.41)
Weighted average shares outstanding used in basic and diluted
  per-share calculation......................................    43,021    47,956    48,259    48,441

Fiscal Year 1999:
Revenues..................................................... $      --  $     --  $     --  $    358
Loss from operations.........................................    (3,688)   (6,069)  (14,424)  (34,796)
Net loss.....................................................    (3,686)   (5,719)  (13,698)  (33,384)
Basic and diluted net loss per share......................... $   (0.53) $  (0.66) $  (0.40) $  (0.91)
Weighted average shares outstanding used in basic and diluted
  per-share calculation......................................     6,901     8,692    34,102    36,611



                                     F-24



                                  SIGNATURES

   Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City 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 the
capacities and on the dates indicated:

                                          Title                  Date
          Signature                       -----                  ----

    /s/  KENNETH MCBRIDE      Chief Executive Officer and   March 29, 2002
- -----------------------------   Director (Principal
       Kenneth McBride          Executive Officer) and
                                Chief Financial Officer
                                (Principal Financial
                                Officer and Principal
                                Accounting Officer)

              *               Director                      March 29, 2002
- -----------------------------
       Mohan P. Ananda

              *               Director                      March 29, 2002
- -----------------------------
      Jeffrey J. Brown

              *               Director                      March 29, 2002
- -----------------------------
      G. Bradford Jones

              *               Director                      March 29, 2002
- -----------------------------
       Loren E. Smith

*By   /s/  KENNETH MCBRIDE
    -------------------------
         Kenneth McBride
      as Attorney-in-fact.


                                      S-1

EX-10.24

                                                                  EXHIBIT 10.24*

                               AMENDMENT TO THE
                      ONLINE STORE OUTSOURCING AGREEMENT

     This Amendment, dated January ____, 2002 ("Amendment") to the Online Store
Outsourcing Agreement dated June 9, 2000 ("Agreement") by and between
Stamps.com, Inc. ("Stamps.com") and Office Depot, Inc. ("Store Operator").

     WHEREAS, Stamps.com and Store Operator desire to amend certain portions of
the Agreement as described herein.

     NOW, THEREFORE, in consideration of the foregoing premises and mutual
covenants hereinafter set forth, Stamps.com and Store Operator agree as follows:

     1.   Section 6.1(1) is deleted in its entirety and Store Operator has no
          further monetary obligation nor liability to Stamps.com pursuant to
          this section, except as may be set forth in this Amendment.

     2.   Section 6.1(2) is deleted in its entirety and replaced with the
          following: "Bounty. Effective January 1, 2002 and during the remainder
          of the Term, Store Operator shall pay Stamps.com a _____________
          ("Store Operator Bounty") of _______ for each Qualified Referral who
          has not bought from the Store Operator Online Store in the twelve (12)
          months immediately preceding the date of this Amendment."

     3.   Section 6.1(3) is deleted and replaced in its entirety with the
          following: "Royalty. During the Term, Store Operator shall pay
          Stamps.com a royalty ("Store Operator Royalty") equal to _______
          percent (__%) of Gross Store Revenue from Qualified Referrals existing
          as of December 31, 2001, whether such Gross Store Revenue is received
          by Store Operator prior or subsequent to December 31, 2001."

     4.   Section 6.2 (1) is deleted and replaced in its entirety with the
          following: "Bounty. Effective January 1, 2002 and during the remainder
                      ------
          of the Term, Stamps.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 Store Operator; (ii) __________________ for each New Customer
          who registers for Stamps.com's Power Plan pricing through a direct
          traceable hypertext link from a promotion on the Store Operator Site;
          (iii) __________________ for each New Customer who registers for
          Stamps.com's Simple Plan pricing plan as a direct traceable result of
          a promotion in the Store Operator's retail stores; and (iv)
          __________________ for each New Customer who registers for
          Stamps.com's Power Plan pricing plan as a direct traceable result of a
          promotion in the Store Operator's retail stores ("Stamps.com Bounty").
          Stamps.com reserves the right to redesign or modify its pricing plans
          at any time. In the event such modifications

* Portions of this exhibit have been redacted for confidential information.



          materially affect the Stamps.com Bounty, Stamps.com and Store Operator
          agree to work together in good faith to create a mutually acceptable
          alternative bounty structure."

     5.   Section 6.2 (3) and the first sentence of section 6.5 of the Agreement
          are deleted in their entirety and Stamps.com has no further monetary
          obligation nor liability to Store Operator pursuant to those sections,
          except as may be set forth in this Amendment.

     6.   The second, third, fourth and fifth sentences of section 6.5 of the
          Agreement are deleted in their entirety and replaced with the
          following: "All Vouchers, except Vouchers for free promotional postal
          scales, purchased by Stamps.com after January 1, 2002 and during the
          Term shall be purchased at _____________. All Vouchers purchased by
          Stamps.com after January 1, 2002 shall be used by Stamps.com for
          promotional or other purposes, as shall be determined by mutual
          written agreement of the Parties."

     7.   The following provision shall be added to the Agreement: "Stamps.com
          shall supply, or cause third parties to supply, to Store Operator such
          quantities of promotional Stamps.com postal scales as may be
          reasonably requested by Store Operator in order to fulfill orders from
          Stamps.com customers who redeem Stamps.com coupons for such Stamps.com
          postal scales ("Postal Scale Coupon(s)"). Store Operator's purchase
          price for such Stamps.com promotional postal scales shall be _______
          per promotional postal scale, which amounts shall be payable to
          Stamps.com or the third party supplying the postal scale. Stamps.com
          shall pay to Store Operator _______ in Vouchers for each such
          promotional Stamps.com postal scale delivered to a person who redeems
          a Postal Scale Coupon. In the event of failure by Store Operator to
          process Postal 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 and replaced in its entirety with the
          following: "Term. This Agreement shall commence on the ----Effective
          Date and shall continue in full force and effect until June 9, 2004
          (the "Term"), unless earlier terminated pursuant to the terms hereof."

     9.   Section 8.2 shall be amended to add the following: "Either Party may
          terminate this Agreement without cause after June 9, 2002 by providing
          the other Party with ninety (90) days' prior written notice."

     10.  The last two sentences of Exhibit E. 1. are deleted and replaced with
          the following; "Store Operator shall use commercially reasonable
          efforts to comply with the distribution commitments set forth herein."

* Portions of this exhibit have been redacted for confidential information.

                                       2



     11.  The second paragraph of section 7 in Exhibit E shall be deleted and
          replaced with the following: "Store Operator agrees to use
          commercially reasonable efforts to update, or correct any inaccuracies
          in, information provided by Stamps.com to Store Operator for use on
          the Online Store, including without limitation pricing and product or
          service descriptions, within one week of notification by Stamps.com."

     12.  In full satisfaction of its respective payment obligations arising
          under the Agreement prior to the date of this Amendment, each Party
          shall, no later than the close of business on January __, 2002, pay to
          the other Party all of its outstanding accounts payable under the
          Agreement as of December 31, 2001. For purposes of this section 9, the
          Parties agree that the outstanding accounts payable as of December 31,
          2001 are as follows: Stamps.com shall pay Store Operator _______; and
          Store Operator shall pay Stamps.com _______, which amount includes
          compensation to Stamps.com for _______ Qualified Referrals lost due to
          various technical difficulties at the Store Operator Online Store
          between the Effective Date and the date of this Amendment.

     13.  The following provision shall be added to the Agreement: "Store
          Operator shall carry existing and future Stamps.com proprietary label,
          envelope, postal scale and printer products so long as sales volumes
          of such proprietary products exceed such minimum volumes as the
          Parties shall negotiate in good faith."

     14.  Section 3.2 shall be amended to add the following: "Notwithstanding
          the foregoing, 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,
all of the terms and conditions of the Agreement, as previously amended, will
remain in full force and effect. In the event of any conflict between the terms
of the Agreement and the terms and conditions of this Amendment, this Amendment
will govern.

* Portions of this exhibit have been redacted for confidential information.

                                       3



     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

EX-23.1

                                                                    EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As 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, 2002

EX-24.1

                                                                    EXHIBIT 24.1

                                POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS, the undersigned hereby constitutes 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, 2001, of Stamps.com Inc., a Delaware
corporation, under the Securities Exchange Act of 1934, as amended, and to file
the same, with exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agents, full power and authority to do and perform each and every act and
thing requisite or necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agents, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.


                                               /s/ G. Bradford Jones
                                               -----------------------
                                               G. Bradford Jones

EX-24.2

                                                                    EXHIBIT 24.2

                                POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS, the undersigned hereby constitutes 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, 2001, of Stamps.com Inc., a Delaware
corporation, under the Securities Exchange Act of 1934, as amended, and to file
the same, with exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agents, full power and authority to do and perform each and every act and
thing requisite or necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agents, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.


                                             /s/ Mohan Ananda
                                             -----------------------
                                             Mohan Ananda

EX-24.3

                                                                    EXHIBIT 24.3

                                POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS, the undersigned hereby constitutes 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, 2001, of Stamps.com Inc., a Delaware
corporation, under the Securities Exchange Act of 1934, as amended, and to file
the same, with exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agents, full power and authority to do and perform each and every act and
thing requisite or necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agents, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.


                                           /s/ Jeffrey Brown
                                           -----------------------
                                           Jeffrey Brown

EX-24.4

                                                                    EXHIBIT 24.4

                                POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS, the undersigned hereby constitutes 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, 2001, of Stamps.com Inc., a Delaware
corporation, under the Securities Exchange Act of 1934, as amended, and to file
the same, with exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agents, full power and authority to do and perform each and every act and
thing requisite or necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agents, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.



                                              /s/ Loren Smith
                                              -----------------------
                                              Loren Smith

EX-99.15

                                                                   EXHIBIT 99.15

                    Letter of Arthur Andersen Representation

To the Securities and Exchange Commission:

     We received a letter from Arthur Andersen LLP, dated March 28, 2002,
representing that the audit as of and for the year ended December 31, 2001, was
subject to their quality control system for the U.S. accounting and auditing
practice to provide reasonable assurance that the engagement was conducted in
compliance with professional 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
CEO & CFO
March 28, 2002