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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2000
------------------------------------------------
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:
--------------------------------------------------------
Stamps.com Inc.
-------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 77-0454966
-------------------------------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
3420 Ocean Park Boulevard, Suite 1040, Santa Monica, California 90405
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(310) 581-7200
-------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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. [X] Yes [_] No
The number of shares of the registrant's common stock, $0.001 par value,
issued and outstanding as of August 7, 2000 was 49,109,664
-------------------------------------------------------------------------------
1
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
STAMPS.COM INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---------------------------------
(unaudited)
(In thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and short-term investments................................... $ 333,633 $374,746
Accounts receivable............................................... 1,387 134
Prepaid expenses.................................................. 17,160 23,883
--------- --------
Total current assets................................................ 352,180 398,763
Property and equipment, net......................................... 34,346 9,702
Goodwill and other intangible assets, net........................... 202,243 --
Other assets........................................................ 3,273 1,977
--------- --------
Total assets........................................................ $ 592,042 $410,442
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit................................................... $ 1,533 $ 1,000
Accounts payable................................................. 2,424 2,707
Accrued expenses................................................. 7,353 4,004
Deferred revenue................................................. 3,329 182
Current portion of long-term debt and capital leases............. 2,445 513
--------- --------
Total current liabilities........................................... 17,084 8,406
Long-term debt and capital leases, less current portion............. 202 438
Commitments and contingencies
Minority interest in consolidated subsidiary..................... 34,784 --
Stockholders' equity:
Common stock..................................................... 48 42
Additional paid-in capital....................................... 718,089 472,714
Notes receivable from stock sales................................ (101) (101)
Deferred compensation............................................ (28,198) (9,435)
Accumulated deficit.............................................. (149,866) (60,683)
Treasury stock at cost........................................... -- (939)
--------- --------
Total stockholders' equity.......................................... 539,972 401,598
--------- --------
Total liabilities and stockholders' equity.......................... $ 592,042 $410,442
========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
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STAMPS.COM INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
2000 1999 2000 1999
-------- ------- -------- -------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues...................................................... $ 3,674 $ -- $ 5,710 $ --
Cost of revenues.............................................. 5,719 -- 9,453 --
-------- ------- -------- -------
Gross profit........................................ (2,045) -- (3,743) --
Operating expenses:
Sales and marketing........................................ 20,498 -- 42,998 --
Research and development................................... 8,025 1,519 11,420 2,678
General and administrative................................. 8,541 3,500 14,381 5,619
Amortization of goodwill and other intangibles............. 13,778 -- 18,403 --
Acquired in-process research and development............... -- -- 2,000 --
Deferred compensation amortization......................... 4,146 1,050 5,899 1,460
-------- ------- -------- -------
Total operating expenses............................ 54,988 6,069 95,101 9,757
-------- ------- -------- -------
Loss from operations.......................................... (57,033) (6,069) (98,844) (9,757)
Other income (expense):
Interest expense........................................... (118) (49) (164) (82)
Interest income............................................ 4,857 399 9,825 434
-------- ------- -------- -------
Net loss...................................................... $(52,294) $(5,719) $(89,183) $(9,405)
======== ======= ======== =======
Basic and diluted net loss per share.......................... $ (1.09) $ (0.66) $ (1.96) $ (1.19)
======== ======= ======== =======
Weighted average shares outstanding used in basic and diluted
per-share calculation........................................ 47,956 8,692 45,488 7,889
======== ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
STAMPS.COM INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------
2000 1999
-------- -------
(In thousands)
<S> <C> <C>
Operating activities:
Net loss............................................................. $(89,183) $(9,405)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ................................ 21,267 186
Amortization of deferred compensation......................... 5,899 1,460
Charge for acquired in-process research and development....... 2,000 --
Changes in operating assets and liabilities, net of effects
of acquisition:
Accounts receivable....................................... (1,246) --
Prepaid expenses.......................................... 7,199 (1,322)
Accounts payable.......................................... (2,662) 937
Accrued expenses.......................................... 3,101 1,171
Deferred revenue.......................................... 3,146 --
-------- -------
Net cash used in operating activities................................. (50,479) (6,973)
Investing activities:
Purchase of short-term investments, net............................ (40,316) (4,508)
Acquisition of property and equipment.............................. (20,018) (1,926)
Acquisition of iShip.com, net of cash acquired..................... (2,111) --
Other.............................................................. (2,471) (438)
-------- -------
Net cash used in investing activities................................. (64,916) (6,872)
Financing activities:
Repayment of long-term debt and capital leases..................... (1,054) (99)
Repayment of line of credit........................................ (1,333) --
Issuance of redeemable preferred stock of subsidiary, net.......... 34,784 --
Issuance of redeemable preferred stock, net........................ -- 28,299
Issuance of common stock........................................... 630 50,265
Repurchase of common stock......................................... 939 (939)
Proceeds from exercise of stock options............................ -- 3
-------- -------
Net cash provided by financing activities............................. 33,966 77,529
Net (decrease) increase in cash and cash equivalents.................. (81,429) 63,684
Cash and cash equivalents at beginning of period...................... 326,820 1,966
-------- -------
Cash and cash equivalents at end of period............................ 245,391 65,650
Short-term investments................................................ 88,242 6,012
-------- -------
Cash and short-term investments....................................... $333,633 $71,662
======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
STAMPS.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL INFORMATION WITH RESPECT TO JUNE 30, 2000 AND 1999 IS UNAUDITED)
1. Summary of Significant Accounting Policies
Basis of Presentation
The financial statements are unaudited, other than the balance sheet at
December 31, 1999, and, in the opinion of management, reflect all adjustments
that are necessary for a fair presentation of the results for the periods shown.
The results of operations for such periods are not necessarily indicative of the
results expected for the full fiscal year or for any future period. These
financial statements should be read in conjunction with the financial statements
as of December 31, 1999 and related notes included in the Company's Annual
Report on Form 10-K/A filed with the Securities and Exchange Commission (the
"SEC") on April 28, 2000. The Company formerly reported as a development stage
company.
Principles of Consolidation
The consolidated financial statements include the accounts of Stamps.com Inc.
and its majority-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles 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.
Cash and Short-term 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 short-term investments are comprised of U.S. government
obligations and public corporate debt securities with maturities of less than
one year at the date of purchase. All short-term 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.
Reclassifications
Certain prior period balances have been reclassified to conform to current
period presentation.
5
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2. Acquisition of iShip.com
On March 7, 2000, Stamps.com (the Company) completed the acquisition of
iShip.com, Inc. (iShip), 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 stock. An additional 1.6 million shares of Stamps.com common
stock have been reserved for issuance upon exercise of options and warrants
assumed in the transaction. Finally, 800,000 shares of Stamps.com common stock
have been deposited into an escrow account. The escrow amount is intended to
compensate the Company for any inaccuracy or breach of any representation,
warranty, covenant or agreement of iShip as contained in the merger agreement.
The shares must remain in the escrow fund for a period of one year from the
close of the acquisition. The parties are currently not aware of any inaccuracy
or breach of any representation, warranty, covenant or agreement of iShip as
contained in the merger agreement.
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. The Company recorded intangible assets of $220.3 million
and deferred compensation of $24.7 million, which will be amortized over periods
ranging from three to four years. Results of operations for iShip have been
included with those of the Company for periods subsequent to the acquisition
date.
The purchase price was allocated as follows (in thousands):
<TABLE>
<S> <C>
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
========
</TABLE>
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):
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- ------------------------------
2000 1999 2000 1999
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $ 3,674 $ -- $ 5,710 $ --
Net loss $(52,294) $(5,719) $(102,194) $(15,596)
Basic and diluted net loss per share $ (1.09) $ (0.66) $ (2.15) $ (1.17)
Shares used in per share calculation 47,956 8,692 47,509 13,373
- basic and diluted
</TABLE>
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.
3. Change in Subsidiary Ownership
During the first half of this year, the Company sold approximately 42% of
EncrypTix, Inc., until then a wholly owned subsidiary, in a private financing of
approximately $36 million. The financing was completed in April 2000.
6
<PAGE>
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
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" in the second quarter of fiscal year 2000.
SFAS 131 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.
As of the beginning of the second quarter, the Company operates in three
specialized strategic business units (SBUs) focused on the enterprise, e-
commerce and small business market segments of mailing and shipping services.
The Small Business SBU provides small businesses and consumers with Internet
Postage and shipping services. The Enterprise SBU will offer companies with
more than 100 employees an Internet-based, multi-carrier mailing and shipping
service. The E-commerce SBU addresses the shipping needs of e-tailers and other
online businesses, including auctioneers.
There are no intersegment revenues between the three reportable segments.
Shared support service functions such as human resources, facilities management
and other infrastructure support groups are consolidated in general &
administrative and allocated to the three operating segments based on usage or
headcount, where practical. The information available to the chief operating
decision makers of the Company does not include allocations of assets and
liabilities to the Company's segments. As of June 30, 2000, revenues and
operating losses by reportable segment were as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended June 30, 2000 Six Months Ended June 30, 2000
--------------------------------------------------------------------------------------
Small Small
----- -----
Business Enterprise E-Commerce Business Enterprise E-Commerce
-------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 2,174 $ 1,500 $ -- $ 3,710 $ 2,000 $ --
Operating losses (32,929) (5,954) (951) (64,462) (8,917) (1,388)
</TABLE>
A reconciliation of combined operating losses for the reportable segments to
consolidated net loss is as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
-----------------------------------------------------------------------------
2000 1999 2000 1999
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Operating Revenues $ 3,674 $ -- $ 5,710 $ --
Total operating losses for reportable segments (39,834) $(5,019) (74,767) $(8,297)
Other losses/1/ (20,873) (1,050) (29,787) (1,460)
-------- ------- -------- -------
Operating loss $(57,033) $(6,069) $(98,844) $(9,757)
======== ======= ======== =======
</TABLE>
1. For the three months ended June 30, 2000, Other Losses include
EncrypTix operating losses of $2.9 million, deferred compensation of
$4.1 million and amortization of goodwill of $13.8 million. For the
six months ended June 30, 2000, Other Losses include EncrypTix
operating losses of $3.5 million, deferred compensation amortization
of $5.9 million, amortization of goodwill of $18.4 million and in-
process research and development charges of $2 million. Other Losses
also includes $1.1 million and $1.5 million of deferred compensation
for the three and six month periods ended June 30, 1999, respectively.
7
<PAGE>
5. Legal Proceedings
Please refer to "Part II--Other Information--Item 1" of this report for a
discussion of legal proceedings.
6. Computation Of Historical Net Loss Per Share
Basic earnings per share is computed by dividing the net earnings available
to common stockholders for the period by the weighted average number of common
shares outstanding during the period. Diluted earnings per share is computed by
dividing the net earnings for the period by the weighted average number of
common and common equivalent shares outstanding during the period.
Common equivalent shares, consisting of unvested restricted common stock and
incremental common shares issuable upon the exercise of stock options and
warrants and upon conversion of convertible preferred stock, are excluded from
the diluted earnings per share calculation if their effect is anti-dilutive.
7. Related Party Transactions
In February 2000, Mr. Payne (Chairman of the Board and Chief Executive
Officer) purchased 187,000 shares of the Company's common stock on the open
market for an aggregate purchase price of approximately $6.0 million. The
shares were purchased on margin by Mr. Payne and the margin account is secured
by a pledge of 1,467,500 shares of the Company's common stock held by Mr. Payne,
of which approximately 719,000 shares are subject to repurchase by the Company.
As of August 4, 2000, Mr. Payne's total indebtedness under the margin account
was $7.0 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.
In April 2000, the Company agreed to guarantee Mr. Payne's margin account in
the event the value of the shares pledged by Mr. Payne is insufficient
collateral to secure the indebtedness outstanding under the margin account. The
guarantee is in the form of a single-purpose line of credit extended to Mr.
Payne which will 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 is secured by all of Mr. Payne's
assets.
In addition, the Company has entered into a loan repayment agreement with Mr.
Payne and the brokerage firm where he maintains his margin account. Under the
terms of that agreement, the Company agrees to guarantee Mr. Payne's margin
account. The agreement further provides that, without previous notice to or
consent from Mr. Payne, the Company may require the sale of any or all shares of
Stamps.com stock held by Mr. Payne in order to satisfy any balances due under
the terms of Mr. Payne's margin account. More specifically, the Company may
require such sales in the event the closing price of Stamps.com on Nasdaq is
below $6 per share for three consecutive trading days or if the closing price of
Stamps.com on Nasdaq is greater than $30 per share on any trading day. The loan
repayment agreement also provides that the brokerage firm may not extend Mr.
Payne any additional credit, except to allow for the accrual of interest against
the outstanding balance of the margin account.
Finally, Mr. Payne has 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.
Please also refer to "Part II--Other Information--Item 5" of this report for
a discussion of this transaction with Mr. Payne.
8
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Cautionary Statement
This report on Form 10-Q contains forward-looking statements based on our
current expectations, estimates and projections about our industry, management's
beliefs and certain assumptions made by us. Words such as "anticipates,"
"expects," "intends," "plans," "believes," "may," "will" or similar expressions
are intended to identify forward-looking statements. In addition, any statements
that refer to expectations, projections or other characterizations of future
events or circumstances, including any underlying assumptions, are forward-
looking statements. Such statements include, but are not limited to, statements
concerning the uncertainty of the Internet mailing and shipping markets; our
ability to make our services widely available and the uncertainty of the
commercial adoption of our services; our ability to achieve profitability;
pending litigation regarding intellectual property infringement allegations;
regulation of our business; projected operating losses; strategic relationships,
direct sales and distribution arrangements; the security of our mailing and
shipping services; competition; the need for additional capital; and the
commercial acceptance of our services. Such statements are not guarantees of
future performance and are subject to certain risks, uncertainties and
assumptions that are difficult to predict. Therefore, our actual results could
differ materially and adversely from those expressed in any forward-looking
statements as a result of various factors. The section entitled "Risk Factors"
set forth in this Form 10-Q and similar discussions in our Annual Report on Form
10-K/A filed with the Securities and Exchange Commission ("SEC") on April 28,
2000, discuss some of the important risk factors that may affect our business,
results of operations and financial condition. You should carefully consider
those risks, in addition to the other information in this report and in our
other filings with the SEC, before deciding to invest in our company or to
maintain or increase your investment. We undertake no obligation to revise or
update publicly any forward-looking statements for any reason. The information
contained in this Form 10-Q is not a complete description of our business or the
risks associated with an investment in our common stock. We urge you to
carefully review and consider the various disclosures made by us in this report
and in our other reports filed with the SEC, including our 10-K/A filed with the
SEC on April 28, 2000, that discuss our business in greater detail and advise
interested parties of certain risks, uncertainties and other factors that may
affect our business, results of operations or financial condition.
Overview
Stamps.com provides easy, convenient and cost-effective Internet-based
services for mailing or shipping letters, packages or parcels anywhere and at
anytime. Our three distinct business units--Small Business, Enterprise and E-
Commerce--offer customers the ability to more effectively manage mailing,
shipping and returns transactions and operations. With our core mailing and
shipping services, individual consumers or employees of small businesses or
larger enterprises can use our services to select a carrier, print US postage or
shipping labels from multiple carriers, schedule a pick-up, track a package and
apply enterprise-wide business rules to manage and account for mailing and
shipping costs. Through our e-commerce services, e-tailers and auctioneers can
enhance their offerings by offering our more convenient and useful shipping and
returns services to their customers. With all of our 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.
Our majority-owned subsidiary, EncrypTix, Inc., will leverage many of the
proprietary, Internet-based technologies developed by Stamps.com in the events,
travel and financial services industries. EncrypTix will enable sellers and
distributors of tickets and financial instruments to deliver value-bearing
instruments such as tickets, vouchers, boarding passes and gift certificates
over the Internet.
Small Business Services: Our small business services include our traditional
business of serving small businesses and consumers with our easy, convenient and
cost-effective Internet Postage service as well as offering multi-carrier
document and package shipping to companies with less than 100 employees.
9
<PAGE>
The revenues from our small business services consist primarily of fees for
our Internet Postage Service and commission fees from our online store operated
by a third-party. Service fee revenues are generated from the two service plans
that we are currently offering to our users: Simple Plan and Power Plan. Under
the Simple Plan, a user purchases postage at cost and is charged a monthly
convenience fee of 10% of the value of postage printed during a month. There is
a monthly minimum fee of $1.99 and a monthly maximum fee of $19.99. 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. Under the Power Plan, a
user purchases postage at cost and pays $15.99 per month for unlimited use of
our service. For the second quarter of 2000, approximately 34% of our service
fee revenues was generated from Power Plan customers while the remaining 66% was
from Simple Plan customers. Service fees are calculated and charged at the end
of a monthly billing cycle.
The revenues from our Internet-based shipping services are primarily
generated from recurring, transaction-based service fees. Also, we generate
revenues from advertising and revenue share arrangements. We expect revenues to
increase in 2000 as we continue to grow our customer base in the Internet
Postage service and as we fully rollout our Internet-based shipping services.
Enterprise Services: We offer companies with more than 100 employees an
Internet-based, multi-carrier mailing and shipping service. The enterprise
service will allow corporations to centrally manage and control costs from
mailing and shipping activities across multiple carriers and can be distributed
to thousands of corporate desktops using only a Web browser. The largest
customer to date of the enterprise service is Mail Boxes Etc., a retail
business, communication and postal services franchiser. Revenues from our
enterprise service will be generated from recurring, transaction-based service
fees as well as fixed monthly service fees.
E-commerce Services: Our E-commerce services strategic business unit
addresses the growing shipping needs of e-tailers and other online businesses,
including auctioneers. Through partnerships with auction Web sites, we will
provide mailing and shipping services available at the conclusion of any
transaction on the Internet. These services will be embedded in auction Web
sites, e-tailer "shopping carts" and other points-of-purchase on various Web
sites, enabling buyers and sellers to select precise pricing and delivery terms
from among a variety of carrier choices. Revenues from our E-commerce services
will be primarily generated from recurring, transaction-based service fees.
The markets for Internet postage and shipping addressed by each of our
business units are new, and their development is subject to substantial
uncertainty. Our success and financial results are highly contingent upon the
ability of our three business units--Small Business, Enterprise and E-Commerce--
to address and develop these markets. We cannot assure you that these markets
will fully develop, if at all. If a significant market for any of our services
fails to develop or develops slower than we expect, our business will fail.
Additionally, if we do not effectively manage, market and sell our Internet
mailing and shipping services, we may never achieve profitability and our
business will be substantially harmed and could fail More specifically, 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 would be adversely impacted.
See "Risk Factors--The Internet postage and shipping markets are new and
uncertain and our business may not develop" and "-If we do not effectively
manage, market and sell our Internet mailing and shipping services or if we fail
to make our services widely available, we may never achieve profitability and
our business will be substantially harmed and could fail."
From time to time, we may offer special promotions to attract new customers
to our mailing and shipping services. Currently, these promotions involve
waiving or discounting convenience fees, discounts on supplies offered through
our online store, or free postage or services. We cannot predict the impact of
any promotion or pricing plan changes and our ability to generate revenues or
achieve profitability could be adversely affected by special promotions or
changes to the pricing plans. Furthermore, given the lack of an established or
proven commercial market for our services, we are unable to quantify the total
impact of
10
<PAGE>
these promotions on revenue and profitability. See "Risk Factors--We have a
history of losses and expect to incur losses in the future, and we may never
achieve profitability."
Results of Operations
Revenues
Small Business. Revenues from small business were approximately $2.2 million
and $3.7 million for the three-month and six-month periods ended June 30, 2000,
respectively. There were no revenues during the three-month or six-month
periods ended June 30, 1999 as we launched our first service, Internet Postage,
on October 22, 1999. The increase for both periods was due primarily to the
acquisition of new customers and recurring revenue from existing customers. The
increase in the current quarter was due also to the introduction of the Power
Plan, which generates eight times the monthly revenue of a Simple Plan customer
that incurs the minimum Simple Plan monthly fee, and the introduction of several
direct-selling programs, which involve third-party salespeople selling
Stamps.com service to businesses nationwide. We expect revenues to increase as
we continue to add new customers from both service plans.
Enterprise. Revenues from the enterprise segment were $1.5 million and
$2.0 million for the three-month and six-month periods ended June 30, 2000,
respectively. There were no revenues during the three-month or six-month
periods ended June 30, 1999 as we did not have any shipping service offerings
until March 2000. Enterprise revenues were generated from Mail Boxes, Etc., our
largest customer to date of the enterprise service. The service is currently
deployed at other customer sites on a free trial basis. We expect revenues to
increase as we acquire new customers.
E-commerce. There were no revenues from the E-commerce segment for the three-
month or six-month periods ended June 30, 2000 or 1999. We expect to recognize
revenues after our iReturnTM Merchant Services become commercially available
later in 2000 and are subsequently adopted by e-tailers and other online
businesses.
Cost of Revenues. Cost of revenues primarily consist of costs related to
customer service activities and network operations and, to a lesser extent, bank
processing charges for customer fees paid by credit card, Internet connection
charges, depreciation of server and network equipment and allocation of
overhead. Costs of revenues were $5.7 million and $9.5 million for the three-
month and six-month periods ended June 30, 2000, respectively. As of June 30,
1999, there were no costs of revenues because we had not recognized any revenues
to date. We expect costs of revenues to increase as we continue to add new
customers and expand our service offerings in the enterprise and e-commerce
business units.
Sales and Marketing Expenses. Sales and marketing expenses include costs to
acquire and retain customers, including costs associated with strategic
relationships, advertising and promotions and compensation and related expenses
for personnel engaged in marketing and business development activities. Sales
and marketing expenses were $20.5 million and $43.0 million for the three-month
and six-month periods ended June 30, 2000, respectively. We incurred no sales
and marketing expenses during the three-month or six-month periods ended June
30, 1999. The increase in sales and marketing is principally due to our
marketing campaigns and advertising of our Internet-based services. We expect
sales and marketing expenses to increase slightly as we continue to promote our
brand and hire sales personnel in our enterprise and e-commerce business units
to sell our mailing and shipping service offerings to their respective target
markets.
Research and Development Expenses. Research and development expenses
principally consist of compensation for personnel involved in the development of
our Internet mailing and shipping services and expenditures for consulting
services and third-party software. Research and development expenses for the
three-month and six-month periods ended June 30, 2000 were $8.0 million and
$11.4 million, respectively, compared to $1.5 million and $2.7 million for the
corresponding periods in 1999. The increase is due to higher personnel and
consulting costs associated with the ongoing development of our Internet-based
mailing and shipping services. We believe that significant investments in
research and development are
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required to remain competitive and expect to continue incurring significant
research and development expenses.
General and Administrative Expenses. General and administrative expenses
primarily consist of compensation and related costs for executive and
administrative personnel, facility costs, and fees for legal and other
professional services. General and administrative expenses for the three-month
and six-month periods ended June 30, 2000 were $8.5 million and $14.4 million,
respectively, compared to $3.5 million and $5.6 million for the corresponding
periods in 1999. The increase is principally due to increased headcount and the
expansion of our facilities related to the growth of our business, as well as
legal fees related to the Pitney Bowes patent infringement claim. We expect
general and administrative expenses to increase as we grow our business and
incur additional costs related to the Pitney Bowes infringement claim.
Amortization of Goodwill and Other Intangibles. Amortization of goodwill
and other intangibles is principally due to the goodwill resulting from the
acquisition of iShip.com in March 2000. Amortization expense is expected to
increase significantly as the goodwill and other intangibles resulting from our
acquisition are amortized over useful lives ranging from three to four years.
Acquired In-Process Research and Development. We incurred a charge of $2.0
million in acquired in-process research and development in March 2000 related to
our acquisition of iShip.com.
Deferred Compensation. During 1998 and 1999, we granted stock options with
exercise prices that were less than the estimated fair value of the underlying
shares of common stock for accounting purposes on the date of grant. This will
result in amortization expenses of deferred compensation over the period that
these options vest, which ranges from three to four years from the date of
grant.
Interest Income (Expense), Net. Interest income (expense), net consists of
income from our cash and cash equivalents net of interest expense related to
financing our obligations. Interest income (expense), net for the three-month
and six-month periods ended June 30, 2000 was $4.7 million and $9.7 million,
respectively, compared to $350,000 and $352,000 for the three-month and six-
month periods ended June 30, 1999, respectively. The increase is due to earnings
on a higher average cash equivalent balance that resulted from our initial
public offering in June 1999 and our follow-on public offering in December 1999.
Liquidity and Capital Resources
As of June 30, 2000, the Company had approximately $333.6 million in cash and
short-term investments. In June 1999, we completed our initial public offering,
which resulted in net proceeds of $58.8 million. In December 1999, we completed
a follow-on public offering, which resulted in net proceeds of $355.5 million.
We regularly invest excess funds in short-term money market funds and commercial
paper and do not engage in hedging or speculative activities.
Through April 2000, our majority-owned subsidiary, EncrypTix, raised
approximately $36.0 million in private financing from a group of financial and
strategic investors. The proceeds of this financing will be used by EncrypTix
for research and development, sales and marketing and general working capital
purposes.
Net cash used in operating activities was $50.5 million and $7.0 million for
the six months ended June 30, 2000 and 1999, respectively. The increase in net
cash used in operating activities resulted primarily from increases in net loss,
principally due to higher sales and marketing expenses.
Net cash used in investing activities was $64.9 million for the six months
ended June 30, 2000 compared to $6.9 million for the corresponding period in
1999. The increase in net cash used in investing activities resulted primarily
from net purchases of short-term investments and increased capital expenditures
for computer equipment, purchased software and office equipment.
Net cash provided by financing activities was $34.0 million and $77.5 million
for the six months ended June 30, 2000 and 1999, respectively. The difference
is net cash provided by financing activities is
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primarily attributed to our receipt of cash proceeds of approximately $58.8
million from our initial public offering in June 1999.
We anticipate that our current cash balances will be sufficient to fund our
operations through fiscal year 2001. 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. See "Risk Factors--Our growth and operating
results could be impaired if we are unable to meet our future capital
requirements."
Quantitative and Qualitative Disclosure about Market Risk
We are exposed to interest rate risk from the short-term investments and line
of credit. At June 30, 2000, the short-term investments, which consist
principally of corporate debt and commercial paper, approximated $113.2 million
and had a related weighted average interest rate of 6.7%. At June 30, 2000, the
line of credit balance totaled $1.5 million and the related interest rate was
10.5% (the bank's prime rate plus 1%).
If market interest rates continue to rise, the value of the short-term
investments will continue to decrease. We currently hold no derivative
instruments and do not earn foreign-source income. We expect to invest only in
short-term, investment grade, and interest-bearing instruments.
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RISK FACTORS
BEFORE DECIDING TO INVEST IN OUR COMPANY OR TO MAINTAIN OR INCREASE YOUR
INVESTMENT, YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW, IN ADDITION
TO THE OTHER INFORMATION IN THIS REPORT AND OUR OTHER FILINGS WITH THE SEC. THE
RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY ONES FACING OUR
COMPANY. ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN TO US OR THAT WE
CURRENTLY DEEM IMMATERIAL MAY ALSO AFFECT OUR BUSINESS OPERATIONS. THE
OCCURRENCE OF ANY OF THE FOLLOWING RISKS COULD SERIOUSLY HARM OUR BUSINESS,
FINANCIAL CONDITION OR RESULTS OF OPERATIONS. IN SUCH CASE, THE MARKET PRICE FOR
OUR COMMON STOCK COULD DECLINE AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.
We face risks associated with our operations
The Internet postage and shipping markets are new and uncertain and our business
may not develop.
The markets for Internet postage and shipping are new, and their development
is subject to substantial uncertainty. Our success and financial results are
highly contingent upon the ability of our three business units--Small Business,
Enterprise and E-Commerce--to address and develop these markets. We cannot
assure you that these markets will fully develop, if at all.
We depend heavily on the commercial acceptance of our Internet Postage
service. 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 services over services
offered by our competitors. Our target customers often have alternatives to the
US Postal Service and shipping services, including online invoicing, bill
payment and financial transactions. The General Accounting Office, in a report
issued on October 21, 1999, stated that competition from these alternatives
could lead to substantial declines in the US Postal Service's First Class Mail
volume in the next decade. These trends could limit the market opportunity for
our Internet Postage service. In addition, the US Postal Service could suspend,
terminate or offer services that compete against Internet postage, any of which
could stop or negatively impact the commercial adoption of our Internet Postage
service.
While Internet postage is extremely important to our business, we also depend
heavily on the commercial acceptance of our enterprise and e-commerce Internet
mailing and shipping services. There can be no assurance that we will succeed in
these businesses. Similar to Internet postage, Internet mailing and shipping
services are at a very early stage and the market for these services has yet to
develop. We have
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not released our enterprise or e-commerce services on a commercial scale and we
cannot be sure that our services or that a substantial market for Internet
mailing and shipping services will develop, if at all.
If a significant market for any of our services fails to develop or develops
slower than we expect, our business will fail.
If we do not effectively manage, market and sell our Internet mailing and
shipping services or if we fail to make our services widely available, we may
never achieve profitability and our business will be substantially harmed and
could fail.
We face numerous risks coincident with the introduction, sale and commercial
availability of our services because of our very limited experience with the
commercial rollout and use of our services. Specifically, our Internet Postage
service was introduced less than a year ago (October 22, 1999), our enterprise
services have yet to be deployed on any significant commercial scale, and our
e-commerce services are not yet available for commercial use. 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 would be adversely impacted. On
the other hand, 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, network infrastructure or systems.
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 begun to hire or outsource the resources necessary to
support a direct sales channel. However, we have very limited experience
regarding our ability to acquire customers through a direct sales channel. As a
result of these limited marketing and sales experiences, 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.
The continued availability of our Internet Postage service is dependent upon
our service continuing to meet US Postal Service performance specifications and
regulations. 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 negatively impacted. Meanwhile, our Internet mailing
and shipping services must meet the commercial demands of our customers, which
are expected to range from small businesses to large enterprises. We cannot be
sure that our services will appeal to or be adopted by such a wide range of
customers. In addition, given our limited experience selling our services to
enterprise customers, we cannot predict the length of enterprise sales cycles or
implementation times for our services. If we fail to meet the demands of our
customers or if our customers implement our services slower than we expect, our
business, results of operation and ability to achieve profitability will be
negatively affected.
Finally, our ability to obtain and retain customers depends on our customer
service capabilities. 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.
Success by Pitney Bowes in its suit against us alleging patent infringement
could prevent us from offering our Internet Postage service and severely harm
our business or cause it to fail.
On June 16, 1999, Pitney Bowes filed a patent infringement lawsuit against us.
The suit originally alleged that we are infringing two patents held by Pitney
Bowes related to postage application systems and
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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 against us 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 granted Pitney Bowes
permission to amend its complaint as requested.
The outcome of the litigation that Pitney Bowes has brought against us is
uncertain. Therefore, we can give no assurance that Pitney Bowes will not
prevail in its suit against us.
If Pitney Bowes prevails in its suit against us, we may be prevented from
selling postage on the Internet. Alternatively, the Pitney Bowes suit could
result in limitations on how we implement our services, delays and costs
associated with redesigning our services and payments of license fees and other
payments. Thus, if Pitney Bowes prevails in its suit 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
intended 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.
We have a history of losses and expect to incur losses in the future, and we may
never achieve profitability.
As of June 30, 2000, we had an accumulated deficit of $149.9 million. For the
six months ended June 30, 2000, we only generated $5.7 million of revenue. This
minimal revenue amount can be attributed primarily to the fact that our Internet
Postage service has been available for less than a year (October 22, 1999) and
that our enterprise and e-commerce services have yet to be released on a
commercial scale. Due to the need to establish our brand and services, we expect
to incur increasing sales and marketing, research and development, and
administrative expenses and therefore could continue to incur net losses for
several years. As a result of the iShip.com acquisition in March 2000, our
losses have increased because of additional costs and expenses related to
amortization of goodwill, other intangibles and deferred compensation resulting
from this acquisition; to an increase in the number of employees; an increase in
sales and marketing activities; additional facilities and infrastructure; and
assimilation of operations and personnel. Overall, we will need to generate
significant revenues to achieve and maintain profitability.
In connection with the iShip.com acquisition that we completed in March 2000,
we will record a significant amount of intangibles, the amortization of which
will significantly and adversely affect our operating results. To the extent we
do not generate sufficient cash flow to recover the amount of the investment
recorded, the investment may be considered impaired and could be subject to an
immediate write-down of up to the full amount of the investment. In this event,
our net loss in any given period could be greater than anticipated and the
market price of our stock could decline.
Our ability to generate gross margins generally assumes that if a market for
our services develops, we must generate significant revenues from a large base
of active customers. We currently charge our customers a fee to use our Internet
Postage service. Similarly, we expect to charge transaction fees for our
enterprise and e-commerce services. In order to attract customers, we may run
special promotions and offer discounts on fees, postage and supplies. However,
given the lack of an established or proven commercial market for our services,
we cannot be sure that customers will be receptive to our fee structures. Even
if we
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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 changes to our pricing plans.
If we cannot effectively manage our growth, our ability to provide services will
suffer.
Our reputation and ability to attract, serve and retain our customers depend
upon the reliable performance of our Web site, network infrastructure and
systems. We have a limited basis upon which to evaluate the capability of our
systems to handle controlled or full commercial availability of our Internet
Postage service or our enterprise and e-commerce mailing and shipping services.
We have recently expanded our operations significantly, and further expansion
likely will be required to address the anticipated growth in our user base and
market opportunities. To manage the expected growth of operations and personnel,
we will need to improve existing and implement new systems, procedures and
controls. In addition, we will need to expand, train and manage an increasing
employee base. We may also need to expand our finance, administrative and
operations staff.
We may not be able to manage our growth effectively. Our current expansion has
and will continue to place a significant strain on our managerial, operational
and financial resources. Our current and planned personnel, systems, procedures
and controls may be inadequate to support our future operations. If we are
unable to manage our growth effectively or experience disruptions during our
expansion, our business will suffer and our financial condition and results of
operations will be seriously affected.
If we are unable to maintain and develop our strategic relationships and
distribution arrangements, our services may not achieve commercial acceptance.
We have established strategic relationships with a number of third parties. To
date, our strategic relationships generally involve the promotion and
distribution of our services through our partners' products, services and Web
sites. Recently, we have increased our focus on the direct sales channel and
have entered into arrangements to have a third party direct sales force offer
our services. In return for promoting or selling our services, our partners may
receive revenue-sharing opportunities or per customer bounties. In order to
achieve wide distribution of our services, we believe we must establish
additional strategic relationships to market our services effectively. If one or
more of our partners terminates or limits its relationship with us, our business
could be severely harmed or fail. We have limited experience in establishing and
maintaining strategic relationships and we may fail in our efforts to establish
and maintain these relationships.
Our current strategic relationships have not yet resulted in significant
revenues, primarily because we have only recently commercially released our
Internet Postage service and our enterprise and e-commerce services have yet to
be released on a commercial scale. As a result, our strategic partners may not
view their relationships with us as significant or vital to their businesses and
consequently, may not perform according to our expectations. We have little
ability to control the efforts of our strategic partners and, even if we are
successful in establishing strategic relationships, these relationships may not
be successful.
We face risks typical of early stage companies and of new and rapidly changing
markets.
You should consider our prospects in light of the risks and difficulties
frequently encountered by early stage companies and those in new and rapidly
evolving markets. These risks include, among other things, our (a) ability to
meet and maintain government specifications for our Internet Postage service,
specifically US Postal Service requirements; (b) complete dependence on Internet
mailing and shipping services that currently do not have broad market
acceptance; (c) need to expand our sales and support organizations; (d) ability
to establish and promote our brand name; (e) ability to expand our operations to
meet the commercial demand for our services; (f) development of and reliance on
strategic and distribution relationships; (g) ability to prevent and respond
quickly to service interruptions; (h) ability to minimize fraud and other
security risks; and (i) ability to compete with companies with greater capital
resources and brand awareness.
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If we do not achieve the brand recognition necessary to succeed in the Internet
mailing and shipping markets, our business will suffer.
We must quickly build our brands for our mailing and shipping service in order
to gain market acceptance for our services. We believe it is imperative to our
long-term success that we obtain significant market share for our services
before other competitors enter the Internet postage and shipping markets. We
must make substantial expenditures on product development, strategic
relationships and marketing and sales initiatives in an effort to establish our
brand awareness. In addition, we must devote significant resources to ensure
that our users are provided with a high quality service experience supported by
a high level of customer service. We cannot be certain that we will have
sufficient resources to build our brands and realize commercial acceptance of
our services. If we fail to gain market acceptance for our services, our
business will suffer dramatically or may fail.
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 and our
enterprise and e-commerce customers could discontinue use of our mailing and
shipping services.
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. We have entered into an
Internet hosting agreement with Exodus Communications, Inc. to maintain our
Internet postage servers at Exodus' data centers in Southern California. Our
operations depend on Exodus' ability to protect its and our systems in its data
center against damage or interruption. Exodus does not guarantee that our
Internet access will be uninterrupted, error-free or secure. Our servers are
also vulnerable to computer viruses, physical, electrical or electronic break-
ins and similar disruptions. We have obtained insurance for some of these
disruptions; however, we cannot be certain that our coverage will be sufficient
to compensate us for losses that may occur due to these types of disruptions.
We have experienced unplanned system interruptions in the past and may
experience them again in the future. Unplanned interruptions that we have had in
the past have resulted in instances where current customers could not access
their accounts or purchase postage or supplies from our online store and
potential customers could not register for our services. Some of these past
interruptions have lasted several hours. Any substantial interruptions in the
future could result in the loss of data and could completely impair our ability
to process transactions, register new customers and generate revenues from our
services and our online store. We do have a business interruption plan that we
continue to refine and update; however, 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, both within our own infrastructure and that provided by
Exodus, 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
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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.
If we do not expand our product and service offerings, our business may not
grow.
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. We have no commitments or agreements
and are not currently engaged in discussions for any material acquisitions or
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 and shipping 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 incurrence 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.
Fluctuations in our operating results could cause our stock price to fall.
Given our limited operating history, we have not generated any significant
revenues from our operations. In addition, the market for Internet mailing and
shipping services is very new and uncertain. Accordingly, we have a limited
basis upon which to predict future operating results. We expect that our
revenues, margins and operating results will fluctuate significantly due to a
variety of factors, many of which are outside of our control. These factors
include: (a) the success of the commercial release of services; (b) the costs of
defending ourselves in the Pitney Bowes litigation or against other intellectual
property claims; (c) the costs of our marketing and sales programs to establish,
promote and distribute our brand names and services; (d) the demand for our
services; (e) our ability to develop and maintain strategic distribution
relationships and a direct sales channel; (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 as we expand operations; (j) US Postal
Service regulation and policies and (k) general economic factors.
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.
Due to the foregoing factors and the other risks discussed in this report, you
should not rely on period-to-period comparisons of our results of operations as
an indication of future performance. It is possible that in some future periods
our results of operations will be below the expectations of public market
analysts and investors. In this event, the market price of our common stock is
likely to decline.
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Third party assertions of violations of their intellectual property rights could
adversely affect our business.
In addition to the Pitney Bowes claim described above, as is customary with
technology companies, we may receive or become aware of 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. As an alternative to litigation, we may
seek licenses for other parties' intellectual property rights. We may not be
successful in obtaining all of the necessary licenses on commercially reasonable
terms, if at all. Any loss resulting from intellectual property litigation could
severely limit our operations, cause us to pay license fees, or prevent us from
doing business.
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 to establish and protect our rights in our
products, services, know-how and information. We have three issued US patents
and have filed 41 patent applications in the United States, and two
international patent applications. We have also applied to register a number of
trademarks and service marks. We plan to apply for other patents, trademarks and
service marks 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. If our patents
fail to protect our technology or our trademarks and service marks are
successfully challenged, our competitive position could be harmed. Even if our
patents are upheld or are not challenged, third parties may develop alternative
technologies or products without infringing our patents.
We 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.
Our growth and operating results could be impaired if we are unable to meet our
future capital requirements.
We believe that our current cash balances will allow us to fund our operations
through fiscal year 2001. However, we may require substantial working capital to
fund our business and we may need to raise additional capital. We cannot be
certain that additional funds will be available on satisfactory terms when
needed, if at all. Our future capital needs depend on many factors, including
market acceptance of our postage and shipping services; the level of promotion
and advertising of our postage and shipping services; the level of our
development efforts; rate of customer acquisition and retention of our Internet
mailing and shipping services; and changes in technology.
The various elements of our business and growth strategies, including our
plans to support fully the commercial release of our services, our introduction
of new products and services and our investments in infrastructure will require
additional capital. If we are unable to raise additional necessary capital in
the future or generate sufficient working capital, we may be required to curtail
our operations significantly or obtain funding through the relinquishment of
significant technology or markets. Also, raising additional equity capital would
have a dilutive effect on existing stockholders.
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We could be required to register as an investment company and become subject to
substantial regulation that would interfere with our ability to conduct our
business.
We invest in short-term instruments consistent with prudent cash management
and not primarily for the purpose of achieving investment returns. This could
result in our being treated as an investment company under the Investment
Company Act of 1940 and therefore being required to register as an investment
company under the Investment Company Act. The Investment Company Act requires
the registration of companies which are engaged primarily in the business of
investing, reinvesting or trading in securities or which are engaged in
investing, reinvesting, owning, holding or trading in securities and over 40% of
whose assets on an unconsolidated basis (other than government securities and
cash) consist of investment securities. While we do not believe that we are
engaged primarily in the business of investing, reinvesting or trading in
securities, we may invest our cash and cash equivalents in government securities
to the extent necessary to avoid having over 40% of our assets consist of
investment securities. Government securities are defined as securities issued by
the U.S. government and certain federal agencies. These securities generally
yield lower rates of income than other short-term instruments in which we have
invested to date. Accordingly, investing substantially all of our cash and cash
equivalents in government securities could result in lower levels of interest
income, which could cause our losses to increase.
If we were required to register as an investment company under the Investment
Company Act, we would become subject to substantial regulation with respect to
our capital structure, management, operations, transactions with affiliated
persons, if any, and other matters, incur substantial costs and experience a
disruption of our business. Application of the provisions of the Investment
Company Act to us would materially and adversely affect our business, prospects,
financial condition and results of operations.
If the software, hardware, computer technology and other systems and services we
use are not Year 2000 compliant, our operations could suffer and we could lose
customers.
Many existing computer systems and software products are coded to accept only
two digit entries in the date code field and cannot distinguish 21st century
dates from 20th century dates. If these systems have not been properly
corrected, there could be system failures or miscalculations causing disruptions
of operations, including, among other things, a temporary inability to process
transactions or engage in normal business activities. As a result, many
companies' software and computer systems may need to be upgraded or replaced to
become "Year 2000" compliant. In addition, despite the fact that many computer
systems are currently processing 21st century dates correctly, these companies,
including us, could experience latent Year 2000 problems.
We use and depend on third party equipment and software that may not be Year
2000 compliant. If Year 2000 issues prevent our customers from accessing the
Internet or our Web site, processing transactions or using their credit cards,
our business will suffer. Any failure of our third party equipment, software or
services to operate properly could require us to incur unanticipated expenses,
which could seriously harm our business and operating results.
We face risks associated with our markets
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 mailing and shipping
markets could render our existing technology and systems obsolete. Our success
will depend, in part, on our ability to license or
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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.
If we are unable to compete successfully, particularly against large,
traditional providers of postage products such as Pitney Bowes who enter the
online postage and shipping markets, our revenues and operating results will
suffer.
The market for Internet postage products and services is new and is intensely
competitive. At present, E-Stamp has a hardware-based product commercially
available and has announced that it begun testing a Web-based product through
the Information Based Indicia Program. Pitney Bowes has a software-based product
commercially available and has a hardware-based product in beta testing. Neopost
Industrie has hardware and software products in beta testing. If any of our
competitors, including Pitney Bowes, provide the same or similar service as we
provide, our operations could be adversely impacted.
Internet postage may not be widely 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.
As a result of the iShip.com acquisition in March 2000, we also compete with
companies that provide shipping solutions to businesses. Customers may continue
using the direct services of the US Postal Service, UPS, FedEx and other major
shippers, instead of adopting our multi-carrier, online service. Alternatively,
traditional and/or potential competitors with greater resources than us, like
Pitney Bowes, may develop more successful Internet solutions or deter acceptance
of our service offerings. In addition, companies including TanData Corporation,
GoShip.com, BITS, Inc./Intershipper.net, Kewill Systems, Accuship, PackageNet
and Virtan, Inc./SmartShip, Return.com and ClickReturns.com are competing in
shipping services. We also face a significant risk that large shipping companies
will collaborate in the
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development and operation of an online shipping system that could make our
Internet shipping services obsolete.
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 and shipping services.
Our success depends in part on widespread acceptance and use of the Internet
as a way to purchase postage and shipping services. This practice is at an early
stage of development, and market acceptance of Internet postage and shipping
services is uncertain. We cannot predict the extent to which customers will be
willing to shift their purchasing habits from traditional to online postage
and/or shipping 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
historical rates. 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.
US Postal Service regulation may cause disruptions or the discontinuance of our
business. Additionally, the US Postal Service could assess fees that would
increase the cost of our service and possibly 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 US Postal Service could change its certification requirements
or specifications for Internet postage or revoke the approval of our service at
any time. 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. For
example, the US Postal Service could decide to charge Internet postage vendors
fees for the enrollment of each unique customer of the Internet postage product,
which would be a cost that we would either absorb or pass through to customers.
The US Postal Service has in fact invoiced each Internet postage vendor $8 for
each digital certificate required for each consumer of Internet postage to
securely print postage. We are currently discussing the necessity of this charge
with the US Postal Service. If we are required to pay this per customer charge,
the cost of our service could increase and the adoption of Internet postage as a
new method of mailing could be adversely affected.
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 service 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 and shipping markets, 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.
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Our operating results could be impaired if our business 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 plan to expand
both domestically and 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.
One element of our strategy is to provide services in international markets.
Our ability to provide our Internet Postage service 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 service cannot currently be used for international mail
because foreign postal authorities do not currently 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.
Even though the US government has recently adopted more flexible export rules
for software, our ability to provide service in international markets may still
be impacted by the export control laws of the United States. Our software
technology may make us subject to stronger export controls in some instances,
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 achieve significant international acceptance of our services, 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.
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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 Amended and Restated 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.
Additional shares held by existing stockholders may be sold into the public
market, which could cause our stock price to decline.
Public sales of substantial amounts of common stock purchased in private
financings prior to our initial public offering or upon the exercise of stock
options or warrants could adversely affect the prevailing market price of our
common stock. 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.
Sales of substantial amounts of common stock in the public market, or the
perception that these sales could occur, could adversely affect the prevailing
market price for our common stock and could impair our ability to raise capital
through a public offering of equity securities.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to interest rate risk from the short-term investments and line
of credit. At June 30, 2000, the short-term investments, which consist
principally of corporate debt and commercial paper, approximated $113.2 million
and had a related weighted average interest rate of 6.7%. At June 30, 2000, the
line of credit balance totaled $1.5 million and the related interest rate was
10.5% (the bank's prime rate plus 1%).
If market interest rates continue to rise, the value of the short-term
investments will continue to decrease. We currently hold no derivative
instruments and do not earn foreign-source income. We expect to invest only in
short-term, investment grade and interest-bearing instruments.
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PART II
OTHER INFORMATION
Item 1. 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 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 with respect to one patent and to add
allegations of patent infringement with respect to three other patents. On July
28, 2000 the court granted Pitney Bowes permission to amend its complaint as
requested.
The outcome of the litigation that Pitney Bowes has brought against us is
uncertain. Therefore, we can give no assurance that Pitney Bowes will not
prevail in its suit against us. See "Risk Factors--Success by Pitney Bowes in
its suit against us alleging patent infringement could prevent us from offering
our Internet Postage service and severely harm our business or cause it to
fail."
On December 29, 1999, three individual plaintiffs filed a suit against us for
alleged breach of oral contract, quantum meruit, fraud and negligent
representation in the California Superior Court for the County of Los Angeles.
The complaint was amended on January 28, 2000 to add Mohan Ananda, one of our
directors, as a defendant and to remove one of the plaintiffs from the suit. The
suit alleges that the plaintiffs were due cash consideration for securing a
board member and investors for Stamps.com. The complaint seeks $13.3 million
plus other unspecified compensatory damages, punitive and exemplary damages and
attorneys' fees and costs incurred. We answered the complaint on March 8, 2000,
denying the allegations and asserting a number of affirmative defenses. The
outcome of this litigation is uncertain and we can give no assurance that the
plaintiffs will not prevail.
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 2. Changes in Securities and Use of Proceeds.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The 2000 Annual Meeting of the stockholders of Stamps.com was held on
June 13, 2000 in Santa Monica, California.
(b) The directors elected at the 2000 Annual Meeting were: David C.
Bohnett, Thomas H. Bruggere, G. Bradford Jones and Stephen M. Teglovic. Each of
Messrs. Bohnett, Bruggere, Jones and Teglovic serve as Class I Directors whose
terms will expire at the 2003 annual meeting of stockholders. Each of Mohan
Ananda, Thomas Clancy, John Duffy and Marvin Runyon currently serve as Class II
directors whose terms expire at the 2001 annual meeting of stockholders.
Finally, each of Jeffrey Brown, John Payne, Loren Smith and Carolyn Ticknor
serve as Class III directors whose terms will expire at the 2002 annual meeting
of stockholders.
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(c) At the annual meeting, the stockholders:
(1) Voted to elect four Class I directors named above, with the
following vote:
For 37,038,107
Abstain 43,173
(2) Voted to approve an amendment to the Stamps.com 1999 Stock
Incentive Plan to increase by 2.0 million the number of shares
of Stamps.com common stock issuable under the plan, with the
following vote:
For 35,027,374
Against 2,034,173
Abstain 19,733; and
(3) Voted to ratify the appointment of Arthur Andersen LLP as the
Company's independent auditors for the fiscal year ending
December 31, 2000, with the following vote:
For 37,028,902
Against 17,119
Abstain 35,259.
(d) Not applicable.
Item 5. Other Information.
Transaction with John M. Payne
In February 2000, Mr. Payne, our Chairman and Chief Executive Officer,
purchased 187,000 shares of our 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 is secured by a pledge of 1,467,500 shares of our
common stock held by Mr. Payne, of which approximately 719,000 shares are
subject to a right of repurchase in favor of Stamps.com. As of August 4, 2000,
Mr. Payne's total indebtedness under the margin account was $7.0 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.
In April 2000, we agreed to guarantee Mr. Payne's margin account in the event
the value of the shares pledged by Mr. Payne is insufficient collateral to
secure the indebtedness outstanding under the margin account. Our guarantee is
in the form of a single-purpose line of credit extended to Mr. Payne which will
have a balance due to us to the extent the value of the pledged shares is
insufficient collateral to secure indebtedness outstanding under the margin
account. This line of credit is secured by all of Mr. Payne's assets.
In addition, the Company has entered into a loan repayment agreement with Mr.
Payne and the brokerage firm where he maintains his margin account. Under the
terms of that agreement, the Company agrees to guarantee Mr. Payne's margin
account. The agreement further provides that, without previous notice to or
consent from Mr. Payne, the Company may require the sale of any or all shares of
Stamps.com stock held by Mr. Payne in order to satisfy any balances due under
the terms of Mr. Payne's margin account. More specifically, the Company may
require such sales in the event the closing price of Stamps.com on Nasdaq is
below $6 per share for three consecutive trading days or if the closing price of
Stamps.com on Nasdaq is greater than $30 per share on any trading day. The loan
repayment agreement also provides that the brokerage firm may not extend Mr.
Payne any additional credit, except to allow for the accrual of interest against
the outstanding balance of the margin account.
Finally, Mr. Payne has 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.
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The relevant agreements for this transaction are attached as Exhibits 10.44,
10.45 and 10.46 to this quarterly report.
Amendment to Employee Stock Purchase Plan
On June 14, 2000, our Board of Directors approved an amendment to our 1999
Employee Stock Purchase Plan. The Amendment increases the aggregate amount of
shares available for purchase by all participants at each semi-annual purchase
date from 75,000 to 150,000. Semi-annual purchase dates occur on the last
business day of January and July of each year.
Addition of Chief Marketing Officer
On July 8, 2000, David B. Shoenfeld was named an Executive Vice President and
our Chief Marketing Officer. Mr. Shoenfeld was formerly Senior Vice President
of Worldwide Marketing and Communications for FedEx.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
10.44 Amended and Restated Loan Repayment Agreement.
10.45 Revolving Note Secured by Stock Pledge Agreement dated April 12,
2000.
10.46 Stock Pledge Agreement dated April 12, 2000.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K.
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Stamps.com Inc.
-------------------------------
(Registrant)
August 14, 2000 /s/ John W. LaValle
------------------- --------------------------
Date John W. LaValle
Executive Vice President and Chief
Financial Officer
(Principal Financial Officer)
August 14, 2000 /s/ Candelario J. Andalon
------------------- -----------------------------
Date Candelario J. Andalon
Corporate Controller
(Principal Accounting Officer)
29
