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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

  (Mark One)

Commission file number 000-26427

Stamps.com Inc.

Address of Principal Executive Offices:
3420 Ocean Park Boulevard, Suite 1040
Santa Monica, California 90405
Registrant’s Telephone Number, Including Area Code: (310) 581-7200
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report: N/A

     Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

     The registrant does not have different classes of common stock. As of April 21, 2003, there were approximately 44,608,586 shares of the registrant’s common stock issued and outstanding.

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STAMPS.COM INC.

FORM 10-Q QUARTERLY REPORT FOR THE QUARTER ENDED MARCH 31, 2003

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PART I.
FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

STAMPS.COM INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

See accompanying notes.

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STAMPS.COM INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

The accompanying notes are an integral part of these financial statements.

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STAMPS.COM INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

The accompanying notes are an integral part of these financial statements.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(ALL INFORMATION WITH RESPECT TO MARCH 31, 2003 AND 2002 IS UNAUDITED)

1.

Summary of Significant Accounting Policies

Basis of Presentation

The condensed consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s latest annual report on Form 10-K.

In the opinion of the Company, these unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly the financial position of Stamps.com Inc. as of March 31, 2003, and the results of their operations and their cash flows for the three months then ended.

Use of Estimates and Risk Management

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

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

Reclassifications

Certain prior period balances have been reclassified in order to conform to current period presentation.

2.

Restructuring

In October 2000, the Company’s management approved and implemented a restructuring plan as part of a move to streamline operations, reduce infrastructure and overhead and eliminate excess and duplicative facilities. As a result, the Company went through three rounds of workforce reductions which reduced its total number of employees by approximately 400 from locations and departments across the Company.

In addition to the reduction of employees, the Company’s restructuring plan includes costs associated with the termination of fixed-cost marketing deals and the redeployment of sales and marketing expenditures to programs that have a higher return on investment, losses on the disposition and discontinuation of certain fixed assets, the estimated rent and expenses for unoccupied facilities between the reduction in force date and the estimated date of occupancy by a sublet tenant and the write-off of an investment in EncrypTix.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(ALL INFORMATION WITH RESPECT TO MARCH 31, 2003 AND 2002 IS UNAUDITED)

The remaining unutilized provision as of December 31, 2002 was $288,000 and was comprised of the remaining estimated rent and expenses for unoccupied facilities between the reduction in force date and the estimated date of occupancy by a sublet tenant.

During the three months ended March 31, 2003, the Company utilized $125,000 of this provision for an ending balance of $163,000 at March 31, 2003. The remaining provision of $163,000 is included in accounts payable accrued expenses in the accompanying condensed consolidated balance sheet.

3.

Legal Proceedings

Please refer to “Part II—Other Information—Item 1—Legal Proceedings” of this report for a discussion of legal proceedings.

4.

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 as their effect is anti-dilutive.

5.

Intangible Assets

Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142 (“SFAS 142”), “Goodwill and Other Intangible Assets.” The Company’s intangible assets, which consist primarily of patents with a gross carrying amount of $8.9 million and accumulated amortization of $2.2 million at March 31, 2003, continue to be amortized over their expected useful lives ranging from 4 to 17 years.

Aggregate amortization expense on intangible assets was approximately $277,000 and $278,000 for the quarter ended March 31, 2003 and 2002, respectively. Amortization expense is expected to be approximately $1.1 million in each of the next five fiscal years.

6.

Comprehensive Income (Loss)

The following table provides the data required to calculate comprehensive income (in thousands):

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(ALL INFORMATION WITH RESPECT TO MARCH 31, 2003 AND 2002 IS UNAUDITED)

7.

Stock-Based Employee Compensation

The Company has adopted the disclosure-only provision of Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for stock-Based Compensation, (“Statement 123”) as amended by SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure-an amendment of FASB Statement No. 123 (“Statement 148”). Statement 148 requires prominent disclosures in annual and interim financial statements regarding the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company measures compensation expense for its stock option awards under the intrinsic value method in accordance with the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, (“APB 25”) and related interpretations. APB 25 requires compensation expense to be recognized based on the excess, if any, of the quoted market price of the stock at the date of the grant and the amount an employee must pay to acquire the stock. Options awarded under the Company’s stock option plans are granted with an exercise price equal to the fair market value on the date of the grant.

The following table presents the effect on net loss and basic and diluted net loss per common share had the Company adopted the fair value method of accounting for stock-based compensation under Statement 123 (in thousands, except per share data):

The weighted-average fair value of each stock option included in the preceding pro forma amounts was estimated using the Black-Scholes option-pricing model and is amortized over the vesting period of the underlying options. Because additional options are expected to be granted each year, the above pro forma disclosures may not be representative of pro forma effects on reported results for future periods.

8.

Related Party Transactions

In February 2000, John M. Payne (former Chairman of the Board, Chief Executive Officer and director) purchased 187,000 shares of the Company’s common stock on the open market for an aggregate purchase price of approximately $6.0 million. Mr. Payne purchased the shares on margin and the margin account was secured by a pledge of 1,467,500 shares of the Company’s common stock held by Mr. Payne. As of October 31, 2000, Mr. Payne’s total indebtedness under the margin account was approximately $6.7 million. In April 2000, the Company agreed to guarantee Mr. Payne’s margin account in the event the value of the shares pledged was insufficient collateral to secure the indebtedness outstanding under the margin account. This line of credit was secured by all of Mr. Payne’s assets.

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(ALL INFORMATION WITH RESPECT TO MARCH 31, 2003 AND 2002 IS UNAUDITED)

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

In May 2002, the Company received 1,411,000 shares of the Company’s common stock from Mr. Payne as payment in full of the promissory note executed in November 2000. The shares were recorded at cost as treasury stock in the quarter ended June 30, 2002 for the full value of the note receivable from Mr. Payne, net of reserve in the amount of $3,282,000 ($2.33 per share) and subsequently retired in the quarter ended September 30, 2002.

9.

Recent Accounting Pronouncements

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”, effective for exit or disposal activities that are initiated after December 31, 2002. SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)” and requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred and not at the date of an entity’s commitment to an exit plan. The adoption of SFAS No. 146 did not have a material impact on its financial position or its results of operations.

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ITEM 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements relate to expectations concerning matters that are not historical facts. Words such as “projects,” “believes,” “anticipates,” “estimates,” “plans,” “expects,” “intends,” and similar words and expressions are intended to identify forward-looking statements. Although Stamps.com believes that such forward-looking statements are reasonable, we cannot assure you that such expectations will prove to be correct. Factors that could cause actual results to differ materially from such expectations are disclosed herein including, without limitation, in the “Risk Factors” beginning on page 13. All forward-looking statements attributable to Stamps.com are expressly qualified in their entirety by such language. Stamps.com does not undertake any obligation to update any forward-looking statements. You are also urged to carefully review and consider the various disclosures we have made which describe certain factors which affect our business, including the risk factors set forth at the end of Part I, Item 2 of this Report. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes thereto.

Stamps.com, NetStamps, Stamps.com Internet postage and the Stamps.com logo are our trademarks. This Report also includes trademarks of entities other than Stamps.com.

Overview

Stamps.com Inc. (the “Company” or “Stamps.com”) provides easy, convenient and cost-effective Internet-based services for mailing or shipping letters, packages or parcels anywhere in the United States and at anytime. Our core mailing and shipping service is designed to allow individual consumers, home offices or small businesses to print US postage or shipping labels using any ordinary PC, any ordinary inkjet or laser printer, and an Internet connection.

Internet Postage Services

We offer an Internet Postage service targeted at consumers, home offices and small businesses. Service fee revenues for our Internet Postage service are generated from a monthly convenience fee that we charge our customers, under two different pricing plans. Under the Simple Plan, a user purchases and prints postage at face value for a monthly convenience fee of 10% of the value of postage printed with a monthly minimum of $4.49. Under the Power Plan, a customer may purchase and use unlimited postage at face value, for a flat monthly fee of $15.99. Our ending Power Plan customers for the first quarter of 2003 were 57,900, up from 53,400 at the end of the fourth quarter of 2002 and up from 47,500 at the end of the first quarter 2002. We ended the first quarter of 2003 with approximately 291,400 active customers, up from approximately 285,500 at the end of the fourth quarter of 2003 and up from 279,100 customers at the end of the first quarter of 2002. The quarter over quarter and year over year increase in customers was primarily related to a continued reduction in trial and base churn attributable in large part to the introduction of our NetStamps feature.

Recent Developments

On July 17, 2002, we launched NetStamps. NetStamps allows a customer to print generic postage of any value on special label stock that has 25 labels per an 8½ by 11 sheet of paper. The customer can print any value of postage from $.01 to $.37 and up. The postage does not expire and is not tied to the destination address so it can be printed and stored for later use. Additionally, the postage can be used for any class of mail which allows us to expand beyond our previously supported classes of mail to include such mail classes as International, Book Rate, and Non-Profit.

One of the more significant results of the NetStamps launch is the incremental revenue generated by the sale of these special stock labels. Each NetStamps sheet contains 25 labels and is sold in packs of 5 or 250 sheets. In the third and fourth quarters of 2002 and the first quarter of 2003, we experienced strong NetStamps label sales of approximately $495,000, $440,000 and $478,000, respectively.

On November 29, 2002, we launched our Plain Paper Shipping feature within version 3.0 of our client software. This version of our software was designed to enhance shipping functionality, including the ability to print a shipping

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label with electronic delivery confirmation. Customers are now able to print a shipping label on a plain piece of 8½ by 11 printer paper. This eliminates the need to use special labels and reduces the risk of misprinted postage. Using our new Plain Paper Shipping Label allows customers to receive free electronic delivery confirmation with Priority Mail. Prior to this technology, the United States Postal Service (USPS) required separate confirmation labels that added an additional step to the process, and delivery confirmation cost an additional $.45 per package. Electronic signature confirmation and electronic delivery confirmation on other mail classes are also available at discounted rates with a $.40-$.50 savings per package. Customers may also track their packages within our software with an easy status check, thus eliminating the need to key in a long tracking number.

In October 2002, we signed an expanded three-year strategic relationship with Microsoft Corp. Together, we are working to forge improved integration of Stamps.com’s online postage technology with Microsoft’s widely-used Word software. The enhanced electronic postage printing functionality is currently being tested in the Beta 2 version of Microsoft Office 11. Users who print envelopes using Microsoft Word 11 will be offered the option of checking a box to add electronic postage. When they do so, they will be able to print the address and postage on the envelope in a seamless one step process powered by Stamps.com, all without leaving the familiar Word interface. Microsoft users will also benefit from features provided by our service such as adding graphics or company logos to a mail piece for a personalized or professional look; keeping track of postage use through reports and accounting codes; minimizing undeliverable mail through automatic address correction and verification; and automatic calculation of postage rates based on mail class and weight of mail piece.

On April 18, 2002, Lloyd I. Miller joined our board of directors, and on July 25, 2002, Jeffrey J. Brown resigned from our board of directors.

Critical Accounting Policies

General. The Company’s discussion and analysis of its financial condition and results of operations are based on the Company’s consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to patents, restructuring, contingencies and litigation. The Company bases its estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

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

Intangibles. The Company makes estimates of the estimated useful lives of its patents and other amortizable intangibles. These estimates are made using various assumptions that could change as economic and competitive conditions change. If events were to occur that would cause the Company’s assumptions to change, the amounts recorded as amortization would be adjusted.

Contingencies and Litigation. The Company is involved in various litigation matters as a claimant and as defendant. The Company records any amounts recovered in these matters when collection is certain. The Company records liabilities for claims against it when the losses are probable and estimatable. Any amounts recorded would be based on reviews by outside counsel, in-house counsel and management. Actual results may differ from estimates. See (Note 3) of Notes to Financial Statements.

Results of Operations

Revenue. Revenue is derived primarily from two sources: (1) service fees charged to customers for the ability to print postage directly from their printer and (2) other revenue, consisting of on-line store revenue, advertising

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revenue from controlled access advertising to our existing customer base, and revenue from the direct sale of consumables, such as NetStamps labels.

Revenue for the quarter ended March 31, 2003 was up 11% year over year to $4.6 million from $4.1 million in the first quarter ending March 31, 2002, and up 1% sequentially from $4.5 million in the fourth quarter ending December 31, 2002 primarily due to the continued reduction in trial and base churn and continued strong sales of NetStamps labels through our on-line store.

Cost of Revenues. Cost of revenues principally consists of customer service, promotional expenses and system operating costs. Cost of revenues was $1.7 million for the three months ended March 31, 2003 compared to $1.2 million for the three months ended March 31, 2002. The 44% increase in Cost of revenues during the first quarter of 2003 was primarily due to increased promotional expenses as a result of increased customer acquisition during the quarter.

Sales and Marketing. Sales and marketing expenses principally consist of costs associated with strategic partnership relationships and compensation and related expenses for personnel engaged in marketing and business development activities. Sales and marketing expenses increased by 95% to $988,000 for the three months ended March 31, 2003 from $507,000 for the three months ended March 31, 2002. The increase in sales and marketing expenses related primarily to increased customer acquisition efforts resulting in increased bounty payments and promotional expenses.

Research and Development. Research and development expenses principally consist of compensation for personnel involved in the development of the Internet Postage service, expenditures for consulting services and third-party software. Research and development expenses for the three months ended March 31, 2003 increased by 6% to $1.2 million compared to $1.1 million for the three months ended March 31, 2002. The increase is primarily due to a small increase in personnel involved in the development of the Internet postage and shipping.

General and Administrative. General and administrative expenses principally consist of compensation and related costs for executive and administrative personnel, fees for legal and other professional services, depreciation of equipment and software used for general corporate purposes and amortization of goodwill and deferred compensation. General and administrative expenses for the three months ended March 31, 2003 increased by 12% to $3.6 million from $3.3 million for the months ended March 31, 2002. The increase in general and administrative expenses is primarily due to increased fees for legal and other professional services related to our legal activities during the first quarter of 2003.

Interest Income (Expense), Net. Interest income (expense), net consists of income from cash equivalents and short-term investments and interest expense related to payments of capital leases, net of interest expense related to financing obligations. Other income (expense) for the three months ended March 31, 2003 and 2002 was $1.0 million and $1.3 million, respectively. The 26% decrease is due to lower interest income in the first quarter of 2003 as compared to the first quarter of 2002, as a result of a lower invested balance and lower interest rates.

Liquidity and Capital Resources

As of March 31, 2003, we had approximately $168.1 million cash and equivalents, restricted cash, short-term and long-term investments. We invest available funds in short and long term money market funds, commercial paper, corporate notes and municipal securities and do not engage in hedging or speculative activities.

In May 1999, we entered into a facility lease agreement for the corporate headquarters with aggregate lease payments of approximately $4.8 million through May 2004. In March 2000 we entered into a facility lease agreement for a Bellevue, Washington facility with aggregate lease payments of approximately $17.0 million. In January 2002, we exited the Bellevue, Washington facility lease with exit payments of approximately $555,000 in December 2001 and $647,000 in January 2002. The Company continues to sublet building spaces vacated as a result of the reduction in workforce and is currently marketing vacated space.

In April 2002, the Board of Directors authorized the repurchase of up to $20.0 million of our common stock over the following six months, and we repurchased 1.3 million shares of common stock for $5.6 million under that program. In October 2002, the Board authorized a second stock repurchase program for up to $30 million of our common stock for an additional six month period. Subsequently, during the fourth quarter, we repurchased approximately 4.4

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million shares for $17.5 million. In April 2003, the Board authorized a third stock repurchase program for up to $20 million of our common stock for an additional six month period. During 2002 and 2003, we repurchased a total of 6.2 million shares, a reduction of over 12% of our shares outstanding from April 2002.

Net cash used in operating activities was $1.4 million and $310,000 for the three months ended March 31, 2003 and 2002, respectively. The increase to net cash used in operating activities resulted primarily from our increased fees for legal and other professional services related to our legal activities.

Net cash used in investing activities was $41.8 million and $55.9 for the three months ended March 31, 2003 and 2002, respectively. The decrease in net cash used in investing activities resulted primarily from reduced purchases of short-term and long-term investments during the first quarter of 2002 and 2003.

Net cash used in financing activities was $1.7 million for the three months ended March 31, 2003 as compared to net cash provided by financing activities of $224,000 for the three months ended March 31, 2002. The increase in cash used in financing activities resulted primarily from the repurchase of common stock during the first quarter of 2003.

In consideration of our current business plan, we anticipate that our current cash balances will be sufficient to fund our operations through 2003 and beyond.

RISK FACTORS

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

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

Risks Related to Our Business

We may not successfully implement strategies to increase the adoption of our Internet Postage service which would limit our growth, adversely affect our business and cause the price of our common stock to decline.

Our future profitability will depend on our ability to successfully implement our strategy of increasing the adoption of our Internet Postage service. Factors that might cause our revenues, margins and operating results to fluctuate include the factors described in the subheadings below as well as: (a) the costs of our marketing programs to establish and promote the Stamps.com brands; (b) the costs of defending ourselves in litigation; (c) the demand for our Internet Postage; (d) our ability to develop and maintain strategic distribution relationships; (e) the number, timing and significance of new products or services introduced by us and by our competitors; (f) our ability to develop, market and introduce new and enhanced services on a timely basis; (g) the level of service and price competition; (h) our operating expenses; (i) US Postal Service regulation and policies relating to Internet Postage; and (j) general economic factors.

Our cost of revenues includes costs for systems operations, customer service, data connectivity fees and security services; all 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.

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

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

Since we began operations in 1998, we have incurred substantial operating losses in every period. As a result of accumulated operating losses, we had an accumulated deficit of $492.1 million as of March 31, 2003. We expect to continue to incur significant sales and marketing, research and development, and administrative expenses and therefore could continue to experience net losses and negative cash flows for several years, and perhaps for the duration of our corporate existence. For the three months ended March 31, 2003, we generated $4.6 million in revenues which resulted in an operating loss of $2.1 million for that period. There are no guarantees that we will reach profitability in the future. Overall, we will need to generate significant revenues and successfully implement our business strategy to achieve and maintain profitability in the future.

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

Our ability to generate gross margins depends upon the ability to generate significant revenues from a large base of active customers. In order to attract customers in the future, we may run special promotions and offers such as discounts on fees, postage and supplies. We cannot be sure that customers will be receptive to future fee structures and special promotions that we may implement. Even though we have established 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 the special promotions or additional changes to our pricing plans.

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

Our current business strategy is focused on enhancing our core business of Internet Postage services. This business strategy entails risks relating to our ability to attract our targeted customers to offset potential customer losses in other areas as a result of our reduction of fixed-cost marketing arrangements and the reduction of our marketing spending generally. There is no guarantee we will be able to effectively or efficiently implement our business strategy or that, if effectively implemented, our strategy will help us achieve profitability. Failure to execute our plan to attract new customers in high margin lines of business in significant numbers will adversely effect our financial condition and results of operations.

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

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

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

We expect that our Internet Postage services will generate virtually all of our future revenues. Accordingly, we depend heavily on the commercial acceptance of our Internet Postage services. To date, a substantial market for Internet Postage has not developed, and we cannot assure you that it will develop. More specifically, we cannot predict if our target customers will choose the Internet as a means of purchasing postage, or if customers will be willing to pay a fee to use our service, or if potential users will select our system over our competitors’ systems or over alternative methods such as online invoicing, bill payment and financial transactions.

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If we fail to effectively market and sell our Internet Postage service, our business will be substantially harmed and could fail.

In order to acquire customers and achieve wide distribution and use of our services, we must develop and execute cost-effective marketing campaigns and sales programs. However, as a result of our limited marketing and sales activities, 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.

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

Our Internet Postage services must meet the commercial demands of our customers, which range from individuals to small businesses. We cannot be sure that our services will appeal to or be adopted by a wide range of customers. Moreover, our ability to obtain and retain customers depends, in part, 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. If we fail to meet the demands of our customers our results of operations will be adversely affected.

Success by Pitney Bowes in its suits against us alleging patent infringement could prevent us from offering our Internet Postage services and severely harm our business or cause it to fail.

On June 16, 1999, Pitney Bowes sued us for alleged patent infringement in the United States District Court for the District of Delaware (“Pitney I”). The suit originally alleged that we are infringing two patents held by Pitney Bowes related to postage application systems and electronic indicia. The suit seeks treble damages, a preliminary and permanent injunction from further alleged infringement, attorneys’ fees and other unspecified damages. We answered the complaint on August 6, 1999, denying the allegations of patent infringement and asserting a number of affirmative defenses. Pitney Bowes filed a similar complaint in early June 1999 against E-Stamp Corporation, alleging infringement of seven Pitney Bowes patents. On April 13, 2000, Pitney Bowes asked the court for permission to amend its complaint to drop allegations of patent infringement with respect to one patent and to add allegations of patent infringement with respect to three other patents. On July 28, 2000 the court entered Pitney Bowes’ amended complaint. On June 18, 2001, E-Stamp and Pitney Bowes agreed to settle their litigation.

On September 18, 2000, Pitney Bowes filed another patent infringement lawsuit against us in the United States District Court for the Eastern District of Texas, alleging that we are infringing four patents owned by Pitney Bowes related to multi-carrier shipping (“Pitney II”). The suit sought unspecified damages and a permanent injunction from further alleged infringement. We answered the complaint on December 1, 2000, denying the allegations of patent infringement and asserting a number of affirmative defenses. The United Parcel Service acquired our iShip multi-carrier shipping service assets on May 18, 2001. On September 4, 2001, the court granted our motion to transfer the lawsuit to the United States District Court for the District of Delaware. On April 18, 2002, the claim that we are infringing one of the patents was dismissed with prejudice. On June 20, 2002, all remaining claims in the Pitney II lawsuit were dismissed without prejudice.

On June 14, 2001, we filed a patent infringement lawsuit against Pitney Bowes in the United States District Court for the Central District of California (“Pitney III”), alleging that Pitney Bowes infringes four patents we own. The suit seeks treble damages, an injunction against further alleged infringement, attorneys’ fees and other unspecified damages. On January 7, 2002, the court granted Pitney Bowes’ motion to transfer the lawsuit to the United States District Court for the District of Delaware. We presently allege that Pitney Bowes’ ClickStamp Online service and at least five of Pitney Bowes’ DM Series Mailing Systems infringe the patents at issue in this suit.

On September 30, 2002 the court stayed all activity in the Pitney I and Pitney III cases pending the appointment of a Special Master. On October 15, 2002 the court appointed a Special Master and lifted the stay imposed on September 30, 2002. On December 13, 2002 the Special Master submitted a Scheduling Order to the court containing proposed dates for various remaining pretrial events in both the Pitney I and Pitney III cases, and permitting the court to set new trial dates in both actions. The Scheduling Order proposed a hearing on dispositive motions and claim construction to be conducted on June 3-5, 2003. The court has not yet executed that Scheduling Order or set new trial dates.

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On December 4, 2002, Pitney Bowes filed a further patent infringement lawsuit against us in the United States District Court for the District of Delaware, alleging that our NetStamps postage product infringes four patents owned by Pitney Bowes. The suit seeks treble damages, an injunction against further alleged infringement, attorneys’ fees and other damages and relief. On January 23, 2003, we answered Pitney’s complaint, denying the allegations of patent infringement and asserting a number of affirmative defenses as well as a counterclaim alleging that Pitney Bowes’ DM Series Mailing Systems infringe three Stamps.com patents. In connection with our counterclaim, we also seek treble damages, an injunction against further alleged infringement, attorneys’ fees and other damages and relief. A trial date has not yet been set in this matter.

The outcome of all our litigation with Pitney Bowes is uncertain. Therefore, we can give no assurance that Pitney Bowes will not prevail in its suits against us. Success by Pitney Bowes in its suits against us alleging patent infringement could prevent us from offering our Internet Postage services and severely harm our business or cause it to fail.

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

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

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

We rely on a combination of patent, trade secret, copyright and trademark laws and contractual restrictions, like confidentiality agreements and licenses, to establish and protect our rights in our products, services, know-how and information. We have 43 issued US patents, 59 pending US patent applications, 12 international patents and 23 pending international patent applications. We also have a number of registered and unregistered trademarks. We plan to apply for more patents in the future. We may not receive patents for any of our patent applications. Even if patents are issued to us, claims issued in these patents may not protect our technology. In addition, a court might hold any of our patents, trademarks or service marks invalid or unenforceable. Even if our patents are upheld or are not challenged, third parties may develop alternative technologies or products without infringing our patents. If our patents fail to protect our technology or our trademarks and service marks are successfully challenged, our competitive position could be harmed. We also generally enter into confidentiality agreements with our employees, consultants and other third parties to control and limit access and disclosure of our confidential information. These contractual arrangements or other steps taken to protect our intellectual property may not prove to be sufficient to prevent misappropriation of technology or deter independent third party development of similar technologies. Additionally, the laws of foreign countries may not protect our services or intellectual property rights to the same extent as do the laws of the United States.

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.

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

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

Risks Related to Our Industry

US Postal Service regulations and fee assessments may cause disruptions or discontinuance of our business, may increase the cost of our service and may affect the adoption of Internet Postage as a new method of mailing.

We are subject to continued US Postal Service scrutiny and other government regulations. The continued availability of our Internet Postage services is dependent upon our service continuing to meet US Postal Service performance specifications and regulations. The US Postal Service could change its certification requirements or specifications for Internet Postage or revoke the approval of our service at any time. If at any time our Internet Postage service fails to meet US Postal Service requirements, we may be prohibited from offering this service and our business would be severely and negatively impacted. In addition, the US Postal Service could suspend, terminate or offer services which compete against Internet Postage, any of which could stop or negatively impact the commercial adoption of our Internet Postage services. Any changes in requirements or specifications for Internet Postage could adversely affect our pricing, cost of revenues, operating results and margins by increasing the cost of providing our Internet Postage service.

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

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

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If we are unable to compete successfully, particularly against large, traditional providers of postage products such as Pitney Bowes who enter the online postage markets, our revenues and operating results will suffer.

The market for Internet Postage products and services is new and is intensely competitive. At present, Pitney Bowes has a software-based product commercially available. If any of our competitors provide the same or similar service as we provide, our operations could be adversely impacted.

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

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

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

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

The evolving nature of the Internet or the Internet Postage markets could render our existing technology and systems obsolete. Our success will depend, in part, on our ability to license or acquire leading technologies useful in our business; enhance our existing services; develop new services or features and technology that address the increasingly sophisticated and varied needs of our current and prospective users; and respond to technological advances and emerging industry and regulatory standards and practices in a cost-effective and timely manner.

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

The success of our business will depend on the acceptance by customers of the Internet as a means for purchasing postage services.

Our success depends in large part on widespread acceptance and use of the Internet as a way to purchase postage services. This practice is at an early stage of development, and market acceptance of Internet Postage service is uncertain. We cannot predict the extent to which customers will be willing to shift their purchasing habits from traditional to online postage services. To be successful, our customers must accept and utilize electronic commerce

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to satisfy their product needs. Our future revenues and profits, if any, substantially depend upon the acceptance and use of the Internet and other online services as an effective medium of commerce by our target users.

The Internet may not become a viable long-term commercial marketplace due to potentially inadequate development of the necessary network infrastructure or delayed development of enabling technologies and performance improvements. The commercial acceptance and use of the Internet may not continue to develop at rates sufficient to sustain or grow our business. Our business, financial condition and results of operations would be seriously harmed if use of the Internet and other online services does not continue to increase or increases more slowly than expected; the infrastructure for the Internet and other online services does not effectively support future expansion of electronic commerce or our services; concerns over security and privacy inhibit the growth of the Internet; or the Internet and other online services do not become a viable commercial marketplace.

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

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

The adoption of any additional laws or regulations may hinder the expansion of the Internet. A decline in the growth of the Internet could decrease demand for our products and services and increase our cost of doing business. Moreover, the applicability of existing laws to the Internet is uncertain with regard to many issues, including property ownership, export of specialized technology, sales tax, libel and personal privacy. Our business, financial condition and results of operations could be seriously harmed by any new legislation or regulation. The application of laws and regulations from jurisdictions whose laws do not currently apply to our business, or the application of existing laws and regulations to the Internet and other online services could also harm our business.

We have employees and offer our services in multiple states, and we may in the future expand internationally. These jurisdictions may claim that we are required to qualify to do business as a foreign corporation in each state or foreign country. Our failure to qualify as a foreign corporation in a jurisdiction where we are required to do so could subject us to taxes and penalties. Other states and foreign countries may also attempt to regulate our services or prosecute us for violations of their laws. Further, we might unintentionally violate the laws of foreign jurisdictions and those laws may be modified and new laws may be enacted in the future.

Risks Related to Our Stock

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

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

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

The US Postal Service may raise national security or similar concerns to prevent foreign persons from acquiring significant ownership of our common stock or ownership of Stamps.com. These concerns may prohibit or delay a merger or other takeover of our company. Our competitors may also seek to have the US Postal Service block the acquisition by a foreign person of our common stock or our company in order to prevent the combined company from becoming a more effective competitor in the market for Internet Postage.

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

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

ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Our exposure to market rate risk for changes in interest rates relates primarily to our investment portfolio. We have not used derivative financial instruments in our investment portfolio. Our cash equivalents and investments are comprised of Money Market, U.S. government obligations and public corporate debt securities with weighted average maturities of less than 271 days at March 31, 2003. Our cash equivalents and investments, net of restricted cash, approximated $165 million and had a related weighted average interest rate of 3.63%. Interest rate fluctuations impact the carrying value of the portfolio. We do not believe that the future market risks related to the above securities will have material adverse impact on our financial position, results of operations or liquidity.

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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 (“Pitney I”). The suit originally alleged that we are infringing two patents held by Pitney Bowes related to postage application systems and electronic indicia. The suit seeks treble damages, a preliminary and permanent injunction from further alleged infringement, attorneys’ fees and other unspecified damages. We answered the complaint on August 6, 1999, denying the allegations of patent infringement and asserting a number of affirmative defenses. Pitney Bowes filed a similar complaint in early June 1999 against E-Stamp Corporation, alleging infringement of seven Pitney Bowes patents. On April 13, 2000, Pitney Bowes asked the court for permission to amend its complaint to drop allegations of patent infringement with respect to one patent and to add allegations of patent infringement with respect to three other patents. On July 28, 2000 the court entered Pitney Bowes’ amended complaint. On June 18, 2001, E-Stamp and Pitney Bowes agreed to settle their litigation.

On September 18, 2000, Pitney Bowes filed another patent infringement lawsuit against us in the United States District Court for the Eastern District of Texas, alleging that we are infringing four patents owned by Pitney Bowes related to multi-carrier shipping (“Pitney II”). The suit sought unspecified damages and a permanent injunction from further alleged infringement. We answered the complaint on December 1, 2000, denying the allegations of patent infringement and asserting a number of affirmative defenses. The United Parcel Service acquired our iShip multi-carrier shipping service assets on May 18, 2001. On September 4, 2001, the court granted our motion to transfer the lawsuit to the United States District Court for the District of Delaware. On April 18, 2002, the claim that we are infringing one of the patents was dismissed with prejudice. On June 20, 2002, all remaining claims in the Pitney II lawsuit were dismissed without prejudice.

On June 14, 2001, we filed a patent infringement lawsuit against Pitney Bowes in the United States District Court for the Central District of California (“Pitney III”), alleging that Pitney Bowes infringes four patents we own. The suit seeks treble damages, an injunction against further alleged infringement, attorneys’ fees and other unspecified damages. On January 7, 2002, the court granted Pitney Bowes’ motion to transfer the lawsuit to the United States District Court for the District of Delaware. We presently allege that Pitney Bowes’ ClickStamp Online service and at least five of Pitney Bowes’ DM Series Mailing Systems infringe the patents at issue in this suit.

On September 30, 2002 the court stayed all activity in the Pitney I and Pitney III cases pending the appointment of a Special Master. On October 15, 2002 the court appointed a Special Master and lifted the stay imposed on September 30, 2002. On December 13, 2002 the Special Master submitted a Scheduling Order to the court containing proposed dates for various remaining pretrial events in both the Pitney I and Pitney III cases, and permitting the court to set new trial dates in both actions. The Scheduling Order proposed a hearing on dispositive motions and claim construction to be conducted on June 3-5, 2003. The court has not yet executed that Scheduling Order or set new trial dates.

On December 4, 2002, Pitney Bowes filed a further patent infringement lawsuit against us in the United States District Court for the District of Delaware, alleging that our NetStamps postage product infringes four patents owned by Pitney Bowes. The suit seeks treble damages, an injunction against further alleged infringement, attorneys’ fees and other damages and relief. On January 23, 2003, we answered Pitney’s complaint, denying the allegations of patent infringement and asserting a number of affirmative defenses as well as a counterclaim alleging that Pitney Bowes’ DM Series Mailing Systems infringe three additional Stamps.com patents. In connection with our counterclaim, we also seek treble damages, an injunction against further alleged infringement, attorneys’ fees and other damages and relief. A trial date has not yet been set in this matter.

The outcome of all our litigation against Pitney Bowes is uncertain. Therefore, we can give no assurance that Pitney Bowes will not prevail in its suits against us. Success by Pitney Bowes in its suits against us alleging patent infringement could prevent us from offering our Internet Postage services and severely harm our business or cause it to fail.

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

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subsequently transferred it to us. The complaint sought legal resolution and recognition of Cybershop’s ownership of the “stamps.com” domain name. On January 17, 2003, we agreed to terms to settle the Cybershop domain name lawsuit. Pursuant to the settlement, we will keep the domain name www.stamps.com and have paid the plaintiffs an immaterial amount of cash.

In May and June, 2001, we were named, together with certain of our current or former board members and/or officers, as a defendant in eleven purported class-action lawsuits, filed in the United States District Court for the Southern District of New York. The lawsuits allege violations of the Securities Act of 1933 and the Securities Exchange Act of 1934 in connection with our initial public offering and secondary offering of our common stock. The lawsuits also name as defendants the principal underwriters in connection with our initial and secondary public offerings, including Goldman, Sachs & Co. (in some of the lawsuits sued as The Goldman Sachs Group Inc.) and BancBoston Robertson Stephens, Inc. The lawsuits allege that the underwriters engaged in improper commission practices and stock price manipulations in connection with the sale of our common stock. The lawsuits also allege that we and/or certain of our officers or directors knew of or recklessly disregarded these practices by the underwriter defendants, and failed to disclose them in our public filings. Plaintiffs seek damages and statutory compensation, including prejudgment and post-judgment interest, costs and expenses (including attorneys’ fees), and rescissionary damages. In April 2002, plaintiffs filed a consolidated amended class action complaint against us and certain of our current and former board members and/or officers. The consolidated amended class action complaint includes similar allegations to those described above and seeks similar relief. In July 2002, we moved to dismiss the consolidated amended class action complaint. In October 2002, pursuant to a stipulation and tolling agreement with plaintiffs, our current and former board members and/or officers were dismissed without prejudice. In February of 2003, the court denied our motion to dismiss the consolidated amended class action complaint.

In addition to the class action lawsuits against us, over 1,000 similar lawsuits have also been brought against over 250 companies which issued stock to the public in 1998, 1999, and 2000, and their underwriters. These lawsuits (including those naming us) followed publicized reports that the SEC was investigating the practice of certain underwriters in connection with initial public offerings. All of these lawsuits have been consolidated for pretrial purposes before United States District Court Judge Shira Scheindlin of the Southern District of New York. We have placed our underwriters on notice of our rights to indemnification, pursuant to our agreements with the underwriters. We have also provided notice to our directors and officers insurers, and believe that we have insurance applicable to the lawsuits. We also believe that the claims against us and our officers and directors are without merit, and intend to defend the lawsuits vigorously.

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

ITEM 2.      CHANGES IN SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.      DEFAULTS UPON SENIOR SECURITIES

Not applicable.

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

None.

ITEM 5.      CONTROLS AND PROCEDURES

(a)

Within 90 days prior to the filing date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Accounting Officer, of the effectiveness of the design and operation of the Company disclosure controls and procedures. Based on the foregoing, the Company’s Chief Executive Officer and Chief Accounting Officer concluded that the Company’s disclosure controls and procedures were effective.

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(b)

There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.

ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K

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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.

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Form of Certification Required
by Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934

I, Ken McBride, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Stamps.com Inc.;

2.     Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.     Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.     The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as such term is defined in paragraph (c) of Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

		a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
		b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of March 31, 2003 (the “Evaluation Date”); and
		c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date.

5.     The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors:

		a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
		b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls.

6.     The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

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Form of Certification Required
by Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934

I, James A. Harper, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of Stamps.com Inc.;

2.     Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.     Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.     The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as such term is defined in paragraph (c) of Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

		a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
		b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of March 31, 2003 (the “Evaluation Date”); and
		c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date.

5.     The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors:

		a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
		b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls.

6.     The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.