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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

OR

Commission file number 000-26427

3420 Ocean Park Boulevard, Suite 1040
Santa Monica, California 90405
(Address of Principal Executive Offices) (Zip Code)
Registrant’s Telephone Number, Including Area Code: (310) 581-7200

     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

     Indicate by a check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

     Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

     As of February 13, 2004, the approximate aggregate market value of voting common stock held by non-affiliates of the Registrant was $277,930,821 (based upon the closing price for shares of the Registrant’s Common Stock as reported by The Nasdaq National Market System on that date). As of February 13, 2004, there were approximately 44,397,514 shares of the Registrant’s Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Registrant’s Proxy Statement for the Annual Meeting of Stockholders currently expected to be held on April 23, 2004, to be filed with the Securities and Exchange Commission, are incorporated by reference in Part III of this Form 10-K.

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STAMPS.COM INC.

FORM 10-K ANNUAL REPORT FOR THE YEAR ENDED DECEMBER 31, 2003

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PART I.

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

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

ITEM 1. BUSINESS

Company Overview

     Stamps.com is the leading provider of Internet-based postage solutions. Stamps.com’s service allows customers to buy and print United States Postal Service (USPS) approved postage using a PC, an ordinary inkjet or laser printer and an Internet connection. Customers use our service to mail and ship a variety of mail pieces including postcards, envelopes, flats and packages using a wide range of mail classes. Our customers include home businesses, small businesses, corporations, shippers and individuals.

     Stamps.com was founded in September 1996 to investigate the feasibility of entering into the US Postal Service’s Information Based Indicia Program and initiate the process of becoming a USPS approved PC Postage vendor. In January 1998, we were incorporated in Delaware as StampMaster, Inc. and changed our name to Stamps.com Inc. in December 1998. Stamps.com was approved by the USPS as a licensed vendor to offer PC Postage in August, 1999 and launched our service in October, 1999. We completed our initial public offering in June 1999 and our common stock is listed on The Nasdaq National Market under the symbol “STMP.”

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

Service Overview

     Our USPS-approved service enables users to print information-based indicia, or electronic stamps, directly onto envelopes or labels using ordinary laser or inkjet printers. Our service can be used for a variety of mail classes including First-Class Mail®, Priority Mail®, Express Mail®, Parcel Post™, Media Mail™ and Bound Printed Matter. Customers can also add USPS Special Services such as Delivery Confirmation™, Signature Confirmation™, Registered Mail, Certified Mail, Insured Mail, Return Receipt, Collect on Delivery (COD), and Restricted Delivery to their mail pieces. Our service requires no additional hardware—a user’s existing PC, printer and Internet connection are sufficient. Our software can be downloaded from the Internet or installed from a CD-ROM. Becoming a registered customer of our service currently involves completing a registration process, providing a payment method which is validated by Stamps.com, and receiving a meter license that is issued by the USPS. Customers can then purchase and print postage 24 hours a day, seven days a week from their PCs using the Stamps.com software. When customers purchase postage through our service, they pay face value, and the postage funds are transferred directly from the customer to the US Postal Service; thus, postage funds are not a part of our financial statements. Customers maintain a pre-paid postage balance which is reduced as they print postage for their mail pieces. We charge customers a monthly service fee ranging from $4.49 to $19.95 depending upon their usage and on the promotional offer.

     The following are three components to our service offering:

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Stamps.com PC Postage Service. We offer our customers three different ways to print postage, delivering a flexible solution designed to meet a variety of mailing and shipping needs:

	1.		Traditional Internet Postage – Our original PC Postage feature, Internet Postage enables customers to print the postage and delivery address in one step for a professional look. The postage is tied to the destination address and has a mail date. It is most commonly printed directly on envelopes.
	2.		NetStamps™ — Customers print NetStamps on blank label stock containing 25 labels per page. NetStamps can be printed for any amount and used with any mail piece. NetStamps do not have a mailing date and do not contain a destination address and thus can be used just like regular postage stamps. We believe that NetStamps, added in July of 2002, increased the value of our service by meeting more of our customers mailing and shipping needs.
	3.		Shipping Labels – Allows customers to print postage for packages on plain 8.5” x 11” paper, or on adhesive labels, and to add electronic Delivery or Signature Confirmation at discounted prices. Customers can also choose an option called Hidden Postage™, which allows customers to hide the actual postage amount on the shipping label.

			In addition to providing the ability to buy and print postage, our software has many additional features designed to improve the mailing and shipping process for our customers.
	•		Stamps.com Store. We sell consumables and peripherals related to our service. These products are sold through our online store within the Stamps.com software. We currently sell labels, scales and dedicated postage printers. The labels we sell are used in conjunction with our NetStamps, Shipping Label and Traditional Internet Postage features. Currently, only existing Stamps.com customers can purchase from our store.
	•		Stamps.com Insurance. We offer our customers the ability to purchase online package insurance directly from us as an alternative to USPS package insurance. Our insurance offering allows customers to insure packages without going to the Post Office and without the need to complete any physical forms. Our insurance is provided in partnership with Parcel Insurance Plan and underwritten by Fireman’s Fund.

Benefits of Service

     The main benefit of our service is convenience. First, customers can mail and ship items without leaving their home or office, saving the time required to make a trip to the post office. Second, customers can buy and print postage any time, 24 hours a day, 7 days a week, 365 days a year, allowing customers the flexibility to prepare their mail and packages when it’s most convenient for them. Finally, customers can save time by printing the return address, destination address and postage together in a convenient, one-step process.

     Our service also helps customers save money. First, customers avoid wasted postage by calculating the exact amount of postage that is needed depending on mail class, mail form, weight and destination address. Second, customers can reduce the cost of returned or undeliverable mail with our address correction and verification feature. Third, customers using our service to ship packages with electronic Delivery or Signature confirmation save approximately $0.40 to $0.50 per package compared to using non-electronic confirmation services at the post office. Fourth, customers can better track and control their postage expenditures using cost codes. Additionally, we believe the total cost of our solution is significantly less than the total cost of a traditional meter solution. Typically, users of traditional postage meters have to pay monthly rental fees, pay for postage purchase surcharges, pay for meter repairs and maintenance, buy expensive ink cartridges, and must agree to long-term commitments.

     Our service also contains features designed to enhance our customer’s overall mailing and shipping process and efficiency. First, customers can print professional looking mail. Second, customers can customize their envelopes by adding a company logo or graphic. Third, customers can print postage for letters, contacts and mail merges from directly within Microsoft Office. Fourth, customers can directly access their contacts from Microsoft Outlook, ACT, Lotus Notes and other popular contact management software packages. Finally, customers can track their mailing and shipping history and spending through our reporting capability.

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     Additionally, our service provides significant features and capabilities for shipping-focused users. First, customers can send shipment notification e-mails to their package recipients letting them know that a package is on the way. Second, customers can track delivery status of their packages with a single click from our software. Third, customers can add electronic Delivery or Signature confirmation without any physical forms at a discounted rate. Fourth, customers can use Stamps.com insurance to insure packages without having to go the post office and without having to complete any physical forms. Finally, customers can hide the postage amount on the shipping label using our Hidden Postage capability. This feature allows customers such as auction sellers and online merchants more flexibility in what they charge their customers for shipping and handling to ensure that they are covering all their related costs.

Industry Overview

     According to the US Postal Service Annual Report, the total 2003 U.S. postage market was 202 billion pieces, or approximately $66 billion, of which approximately $20 billion was represented by mail classes our software does not currently support (such as standard mail and periodicals). Stamps.com customers printed approximately $100M of postage during 2003 which represents less than 0.2% of the total U.S. postage market, and thus we believe that our market is in its very early stages of penetration into the overall USPS postage market. We believe that we have a large opportunity to continue to convert users of traditional postage solutions such as postage stamps or postage meters to our solution.

     Our mailing and shipping service is targeted primarily to small offices, home offices and small businesses in the United States. The small office, home office and small business markets represent a large and growing customer segment. According to a 2003 International Data Corporation report, there were a combined 43.3 million small businesses and home offices in the United States in 2002. For 2002, International Data Corporation reported that small businesses with less than 100 employees numbered 7.9 million, of which 77% had fewer than 10 employees. In addition, income generating home offices numbered 13.1 million and home offices used for corporate after-hours work or telecommuting numbered 22.3 million. As of Dec 31, 2003, we had approximately 294,000 registered customers which represented less than 1% of the total SOHO market as defined by IDC. Thus, we believe there is still a large potential universe of small office, home office customers that are not currently using a PC Postage service.

USPS Certification Process

     All U.S. PC Postage products are currently required to complete extensive USPS testing and evaluation in the areas of operational reliability, financial integrity and security to become certified for commercial distribution. Each additional implementation of a particular product or function requires additional evaluation and approval by the USPS prior to commercial delivery.

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

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

Competition

     We compete with mailing and shipping solutions available in the market today. These solutions include traditional postage meters and other PC Postage services. We also compete with postage stamps and other forms of potage evidencing which are available at retail post offices, non-post office retail locations (e.g. supermarkets), ATMs / Kiosks, and from other online sources such as USPS.com.

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     The PC Postage industry currently contains two other USPS approved vendors. Based on available data, we believe that as of the end of 2003 we had approximately 85% of the total number of PC Postage customers.

     The following is a summary of our current PC Postage competitors:

	•		Envelope Manager. Envelope Manager is a small, private US based company that launched a software-based PC Postage service in 2000.
	•		Pitney Bowes, Inc. Pitney Bowes is the current market leader in the traditional postage meter business and had approximately $4.5 billion in revenues in 2003. Pitney Bowes launched a software-based PC Postage service in 2000.

     We believe there is a regulatory barrier for new vendors entering the PC Postage market as a result of the USPS certification process which took us approximately two and a half years to complete. We also believe we have competitive advantages in the PC Postage space which include the wide range of features available in our service, our technology, our customer base and our broad intellectual property portfolio.

Our Strategy

     We have gone through several shifts in strategy since our inception. From 1996 to 1999, our focus was on developing the technology for our PC Postage service and receiving approval from the USPS to launch our service. Having successfully launched our service in October 1999 and having raised significant capital during 1999, the focus shifted to growth and entering new markets. From October 1999 to October 2000, we embarked on an ambitious growth plan that included entry into the multi-carrier shipping market via the acquisition of iShip.com and entry into the secure ticketing market via the creation and financing of a separate subsidiary, EncrypTix. Due to this aggressive expansion and lower-than-expected revenue growth, financial losses increased dramatically. In October 2000, incumbent top management departed and we shifted our focus to reducing losses, our cash burn rate, and on improving the economics of our core PC Postage service. During 2001, we sold our iShip business to UPS, stopped pursuing International markets, and shut down our EncrypTix subsidiary. By the end of 2001, we stabilized our business and significantly reduced our financial losses and monthly operating expenses. During 2002, our focus shifted to improving the software for our core PC Postage service offering. We scaled back our marketing expenses and concentrated on adding new features to our software, including the Netstamps and the Shipping Label features. By the end of 2002, our service more effectively met the needs of our customers and provided significantly greater value. During the first half of 2003, we went through a process of testing all our marketing initiatives under the new product economics. During the second half of 2003, we began increasing our marketing activity under our most effective programs.

     Our current strategy is focused on growing our PC Postage business in our target small office, home office market. First, we plan to cost-effectively growing our customer base with a focus on the more profitable $15.99 per month power plan customers. Second, we plan to optimize our pricing and promotional offers for new customers. Third, we plan to continue to invest in, and optimize the performance of, our current marketing channels. Fourth, we plan to add new features to our software. Finally, we plan to add new consumables and peripherals for sale in our online store.

Our Marketing

     While our service attracts a broad range of customers, our current marketing efforts are primarily focused on attracting small and home-based businesses. We market our service in several ways, including the following:

	•		Online Partnerships. We work with strategic partners to leverage their website traffic, customer base or other distribution in order to acquire customers for our service. These partnerships provide prospective customers the opportunity to either download our software from the partner’s website or to click-through to our website where they can sign-up for the Stamps.com service.
	•		Software- or Hardware-based Partnerships. We may include a copy of our free software on a partner’s CD-ROM that gets distributed to their existing or prospective customers, or we may include our software

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			bundled along with a partner’s hardware device. We have partnerships with companies who offer small business productivity software, financial software, printers and Internet services.
	•		Retail Partnerships We may make a copy of our free software or a marketing brochure available at a partners’ retail location. Current retail locations include office supplies and computer equipment stores.
	•		Online Advertising. In this channel, we partner with key players in the online marketing industry to acquire customers using a variety of online mediums including banner ads, pop-up ads, search keywords, and permission-based email campaigns.
	•		Affiliate Program. In this channel, we utilize the traffic and customers of smaller web sites and other businesses or individuals that are too small to qualify for a partnership directly with our Company. Our affiliate channel is currently managed by a third party. We offer financial incentives for our affiliates to drive traffic to our web site.
	•		Direct Mail. In this channel, we send direct mail pieces to prospective customers. We purchase targeted prospect lists from third parties or obtain prospect lists form our partners. We then execute a direct mail campaign to the target list.
	•		Remarketing. We remarket our service to former customers. Our remarketing efforts are generally focused on the new features which may relate to the reasons former customers stopped using our service.
	•		USPS. We work with the USPS on a variety of different marketing initiatives. Examples of these marketing initiatives include the distribution of marketing collateral in retail post offices, a presence on USPS.com and working with USPS representatives to target prospects.

     Through our marketing programs, we seek to acquire our target customers in a cost effective manner. We execute a diverse range of programs that meet our return on investment targets. We project customer lifetime value in our various channels, and we compare lifetime value to the cost to acquire each customer in order to determine the economic return on our marketing programs.

Our Technology

Our technology is comprised of the following key components:

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

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

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

     Research and Development. Our research and development expenditures were $12.6 million in 2001 and $4.8 million in 2002 and 2003.

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Our Intellectual Property

     We rely on a combination of patent, trade secret, copyright and trademark laws and contractual restrictions, such as confidentiality agreements and licenses, to establish and protect our rights in our products, services, know-how and information. We have 45 issued US patent applications, 72 pending US patent applications, 12 issued international patent applications and 19 pending international patent applications. We also have a number of registered and unregistered trademarks. We plan to apply for more patents in the future.

Recent Developments

     During 2003, we focused on growing our revenue, expanding our customer base, improving our store offerings, adding new features to our software and testing new marketing programs and channels. We also settled all outstanding lawsuits with Pitney Bowes.

     In January of 2003, we announced the launch of our first specialty NetStamps^TM labels called “Love NetStamps”. Specialty NetStamps labels contain new images and improved designs compared with our original NetStamps labels. Specialty NetStamps were further expanded with the launch of “Liberty NetStamps” and “Holiday NetStamps” in June and November of 2003, respectively.

     In January of 2003, we successfully implemented a new process called Instant Access that enables new customers to immediately begin printing postage after registration for the service, a dramatic improvement over the previous process that required two to 24 hours of wait time.

     In April of 2003, we added a new product feature called Hidden Postage^TM which allows customers to hide the postage amount on their shipping label. The new feature enhances the Stamps.com service, resulting in a more powerful shipping solution for businesses, e-commerce sites and online auctioneers. Hidden Postage allows our customers to print a shipping label without printing the actual value of the postage on the label. By hiding the postage amount of the shipment, businesses can more easily cover their full shipping and handling costs without causing customer complaints.

     In June of 2003, we filed a lawsuit against PayPal, Inc and eBay, Inc for breach of contract and fair dealing, and interference with contract, among other claims, with respect to the license agreement signed between Stamps.com and PayPal in June 2002. By the terms of the agreement, Stamps.com and PayPal agreed that Stamps.com technology would be made available to allow PayPal users to buy and print postage online from their PayPal accounts. The parties contemplated that the service would be made available to PayPal users by the holiday season of 2002. We believe that PayPal did not live up to its contractual obligations in the agreement. Specifically, we believe PayPal did not work to launch the Stamps.com functionality in any reasonable time frame, made misrepresentations to us and acted in bad faith. We are also alleging that eBay improperly interfered in the Stamps.com and PayPal relationship. We seek to recover damages to compensate for our lost value in the agreement as well as additional damages due to PayPal and eBay bad faith and interference. Our complaint was filed Tuesday, June 24, 2003, in Superior Court of the State of California in Los Angeles County.

     In October of 2003, we launched Stamps.com Version 3.5 which provided enhanced integration with Microsoft® Office System 2003, broader support for shipping, Stamps.com package insurance and an expanded online store platform. We worked in collaboration with Microsoft to improve integration with Microsoft Word and Outlook®. The enhanced integration allows users to add postage to an envelope or a mail merge without leaving the familiar Microsoft Office environment. The latest version of Stamps.com also delivered new features that are designed to improve the shipping process. The Stamps.com Insurance offering allows users to insure their packages in a fully integrated, online process that eliminates any trips to the post office or the need to complete any forms. Further, customers on select plans currently receive a 10% discount over US Postal Service insurance rates. Other shipping improvements include the ability to send shipment notifications emails with a tracking link, the ability to print shipping labels for Express Mail® and Bound Printed Matter, and support for additional USPS services such as Collect on Delivery (COD). Finally, we expanded and redesigned our online store in order to support a larger selection of items. We also made available for sale labels for use with our Internet Postage and Shipping Label features.

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     In October of 2003, we completed a study to understand the status of our net operation losses (NOL or NOLs). Based on that study, we believe that we have not undergone an Internal Revenue Code (IRC) Section 382 change of control that would trigger an impairment of the use of our NOLs since our secondary public equity offering in December 1999. Under the complicated IRC Section 382 rules, a change in ownership can occur whenever there is a shift in ownership by more than 50 percentage points by one or more five-percent shareholders within a three-year period. When a change of ownership is triggered, the NOLs may be impaired. As of October 2003, we estimate that we were approximately 12% below the 50% level that would trigger impairment of our NOL asset. Therefore, we request that all of our investors contact us prior to allowing their ownership interest to reach a five-percent level.

     In December of 2003, we reached a settlement in all patent infringement litigation with Pitney Bowes. The settlement included a five-year patent cross-licensing agreement. In addition, there will be no material financial payment between the companies. For further discussion, please refer to the “Legal Proceedings” section.

     In January of 2004, our Board of Directors declared a one-time return of capital cash dividend of $1.75 per share, to shareholders of record as of the close of business on February 9, 2004, which amount was paid on February 23, 2004. Based on the number of common shares outstanding on February 9, 2004, the total amount of the dividend was approximately $78 million. In addition, our Board of Directors has authorized a reverse stock split of our common stock, subject to shareholder approval. Shareholders of Stamps.com, at the annual meeting of shareholders to be held on April 23, 2004, shareholders of Stamps.com will be asked to grant the Board of Directors the authority to select the exact exchange ratio of either one-for-two (1:2), one-for-three (1:3) or one-for-four (1:4), with the exact ratio to be determined by the Board of Directors at the time it elects to effect a split. The par value of our common stock would remain unchanged at $0.001 per share, and the number of authorized shares of common stock and preferred stock would be reduced proportionately, by the reverse split ratio, from 95,000,000 and 5,000,000, respectively.

     In July of 2003, Kevin Douglas joined our board of directors. In January of 2004, Kyle Huebner was appointed Chief Financial Officer. In January of 2004, James Bortnak was appointed Vice President, Sales and Marketing.

Employees

     As of December 31, 2003 we had 108 employees not including temporary or contract workers. Our employees work in various departments including customer support, research and development, sales and marketing, information technology and general administration. None of our employees are represented by a labor union. We believe that our relationship with our employees is good.

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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. 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 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 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 demand for our service; (c) our ability to develop and maintain strategic distribution relationships; (d) the number, timing and significance of new products or services introduced by us and by our competitors; (e) our ability to develop, market and introduce new and enhanced services on a timely basis; (f) the level of service and price competition; (g) our operating expenses; (h) US Postal Service regulation and policies relating to PC Postage; and (i) general economic factors.

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.

You should consider our business and prospects in light of the risks, expenses and difficulties encountered by companies in their early stage of development. We have experienced significant net losses since our inception and we may experience net losses in the future. We cannot assure you that we will be able to achieve profitability. If we do achieve profitability, we cannot be certain that we will be able to sustain or increase such profitability. We incurred net losses of $9.3 million in 2003.

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 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

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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 services.

We must minimize the rate of loss of existing customers while adding new customers. Customers cancel their subscription to our service for many reasons, including a perception that they do not use the service sufficiently, the costs for service are too high and customer service issues are not satisfactorily resolved. We must continually add new customers both to replace customers who cancel and to continue to grow our business beyond our current customer base. If too many of our customers cancel our service, or if we are unable to attract new customers in numbers sufficient to grow our business, our operating results will be adversely affected. Further, if excessive numbers of customers cancel our service, we may be required to incur significantly higher marketing expenditures than we currently anticipate to replace these customers with new customers.

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

In order to acquire customers and achieve widespread distribution and use of our services, we must develop and execute cost-effective marketing campaigns and sales programs. We currently rely on a combination of marketing techniques to attract new customers including direct mail, online marketing and business partnerships. If new legal restrictions limit our ability to continue marketing programs we currently have or plan to implement, our ability to attract new customers may be limited. In addition, we may be unable to continue marketing our services in a cost-effective manner. If we fail 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 services must meet the commercial demands of our customers, which include home businesses, small businesses, corporations, shippers and individuals. 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.

A failure to further develop and upgrade our service could adversely affect our business.

Any delays or failures in developing our service, including upgrades of current services, may have a harmful impact on our results of operations. The need to extend our core technologies into new features and services and to anticipate or respond to technological changes could affect our ability to develop these services and features. Delays in features or upgrade introductions could cause a decline in our revenue, earnings or stock price. We cannot determine the ultimate effect these delays or the introduction of new features or upgrades will have on our revenue or results of operations.

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

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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, such as confidentiality agreements and licenses, to establish and protect our rights in our products, services, know-how and information. We have 43 issued US patents, 68 pending US patent applications, 12 international patents and 20 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.

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.

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Our relationship with subscribers and credit card companies could be harmed if our billing software fails.

We have in the past experienced problems with our billing software, causing us to ineffectively bill our customer base. If our billing software fails and we fail to effectively bill customers, our cash flow and results of operations will be affected adversely.

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 PC Postage as a new method of mailing and shipping.

We are subject to continued US Postal Service scrutiny and other government regulations. The continued availability of our 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 PC Postage or revoke the approval of our service at any time. If at any time our 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 or terminate our approval or offer services which compete against us, any of which could stop or negatively impact the commercial adoption of our service. Any changes in requirements or specifications for PC Postage could adversely affect our pricing, cost of revenues, operating results and margins by increasing the cost of providing our service.

The US Postal Service could also decide that PC 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 services to any new requirements or specifications or if the US Postal Service were to discontinue PC Postage as an approved postage method. Alternatively, the US Postal Service could introduce competitive programs or amend PC 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.

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 PC Postage products and services is new and is 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.

If PC 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 PC 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

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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. 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 PC 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.

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.

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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 PC Postage.

Our stock price is volatile

The price at which our common stock has traded since our initial public offering in June of 1999 has fluctuated significantly. The price may continue to be volatile due to a number of factors, including the following, some of which are beyond our control: variations in our operating results, variations between our actual operating results and the expectations of securities analysts, investors and the financial community, announcements of developments affecting our business, systems or expansion plans by us or others, and market volatility in general.

As a result of these and other factors, investors in our common stock may not be able to resell their shares at or above their original purchase price. In the past, securities class action litigation often has been instituted against companies following periods of volatility in the market price of their securities. This type of litigation, if directed at us, could result in substantial costs and a diversion of management’s attention and resources.

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 2. PROPERTIES

     Our corporate headquarters are located in a 26,000 square foot facility in Santa Monica, California under a lease expiring on May 31, 2004. We also have several properties under lease that are no longer occupied by Stamps.com, and which are being sublet or are unoccupied. We have approximately 1,500 square feet of unoccupied office space in Irvine, California under a lease expiring in March 2004. We also have approximately 43,000 square feet of facilities in Santa Monica, California under leases which expire in May 2004, and the majority of unoccupied space has been sublet. We have incorporated the costs related to excess facilities that are not occupied by Stamps.com into our restructuring charges incurred in prior periods. In November 2003, we entered into a facility lease agreement for 36,000 square feet beginning in March 2004 and expiring in March 2010, for our new corporate headquarters in Playa Vista, California.

ITEM 3. LEGAL PROCEEDINGS

     On June 16, 1999, Pitney Bowes sued us for alleged patent infringement in the United States District Court for the District of Delaware (“Pitney I”). The suit originally alleged that we were infringing two patents held by Pitney Bowes related to postage application systems and electronic indicia. The suit sought treble damages, a

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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 were 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 were 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 infringed four patents we own. The suit sought 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.

     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. During the week of June 2, 2003, following receipt of briefing from the parties, the Special Master held hearings regarding claim construction as well as various motions, including dispositive motions, that had been brought by the parties. On September 16, 2003 the Special Master sent reports and associated proposed orders to the court containing recommendations of the Special Master regarding claim construction and motions that had been brought by the parties.

     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 sought 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 sought treble damages, an injunction against further alleged infringement, attorneys’ fees and other damages and relief.

     On December 19, 2003, we reached a settlement with Pitney Bowes in all of our respective litigation. The settlement agreement resolves all litigation between the companies with no need for material payments. The deal includes a cross-licensing agreement for the life of all patents that have been asserted in the litigation, with each side agreeing not to sue the other for patent infringement during the next five years. In addition, the agreement grants each company future worldwide licenses in the form of “Picks” to a limited but equal number of the other’s patents. The licenses are limited to fields of use that cover each company’s current respective businesses. The agreement also contains provisions relating to “change of control” scenarios that could limit future access to these Intellectual Property picks. In particular, an acquiring party that is on a restricted list will lose any unused picks if it makes its acquisition before the end of a “Sunset Period.” The Sunset Period is shorter than the five year term of the agreement.

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

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lawsuit. Pursuant to the settlement, we will keep the domain name www.stamps.com and pay 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 2003, the court denied our motion to dismiss the consolidated amended class action complaint. In June 2003, we approved a proposed Memorandum of Understanding among the plaintiffs, issuers and insurers as to terms for a settlement of the litigation against us. The proposed settlement terms would not require Stamps.com to make any payments. The proposed settlement is subject to approval by the court.

     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 Securities and Exchange Commission 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters were submitted to a vote of security holders during the quarter ended December 31, 2003.

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PART II.

Market Information

     Our common stock is traded on The Nasdaq National Market under the symbol “STMP”. The following table sets forth the range of high and low closing sales prices reported on The Nasdaq National Market for our common stock for the periods indicated:

Recent Share Prices

     The following table sets forth the closing sales prices per share of our common stock on The Nasdaq National Market on (i) December 31, 2003 and (ii) February 13, 2004.

Holders

     As of February 13, 2004, there were approximately 1,350 stockholders of record and approximately 44,397,514 shares of our common stock outstanding.

Dividend Policy

     On January 28, 2004 our Board of Directors declared a one-time return of capital cash dividend of $1.75 per share, to shareholders of record as of the close of business on February 9, 2004, which dividend was paid on February 23, 2004. Future declaration and payment of dividends will be in the discretion of our Board of Directors and will be dependent upon our future earnings, financial condition and capital requirements though the Board of Directors does not presently contemplate the payment of additional dividends in the near future.

Recent Sales of Unregistered Securities

     We did not have any unregistered sales of common stock during the quarter ended December 31, 2003.

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     The following data should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements, including the notes thereto, included elsewhere in this Report.

	1)		See the acquisition, investment in and sale of subsidiary footnote beginning on page F- 12.
	2)		See restructuring footnote beginning on page F-18.
	3)		See change in ownership and shutdown of subsidiary footnote beginning on page F-13.

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

Overview

     Stamps.com is the leading provider of Internet-based postage solutions. Stamps.com’s service allows customers to buy and print USPS approved postage using a PC, an ordinary inkjet or laser printer and an Internet connection. Customers use our service to mail and ship a variety of mail pieces including postcards, envelopes, flats and packages using a wide range of mail classes. Our customers include home businesses, small businesses, corporations, shippers and individuals. Stamps.com was approved by the USPS as a licensed vendor to offer PC Postage in August 1999 and launched our service in October 1999.

     During 2001, we continued to execute our restructuring strategy to decrease our operating losses and enhance our ability to achieve profitability by reducing the total number of employees by approximately 50% to 150 employees in February 2001 and by an additional 25% to approximately 70 employees in August 2001. We also sold the iShip multi-carrier shipping service assets to United Parcel Service for $2.8 million in May 2001.

     With the restructuring completed, we spent the majority of 2002 improving our service offering by adding two significant new product features. On July 17, 2002 we launched NetStamps. Customers print NetStamps on blank label stock containing 25 labels per page. NetStamps can be printed for any amount and used with any mail piece. NetStamps do not have a mailing date and do not contain a destination address and thus can be used like regular postage stamps. We believe NetStamps increased the value of our service by meeting more of our customers mailing and shipping needs.

     One of the more significant results of the NetStamps launch is the incremental revenue generated by the sale of the associated special label stock. Each NetStamps sheet contains 25 labels and is sold in packs of 5 and 250 sheets. We have experience strong NetStamps label sales since launch in July of 2002. In the third and fourth quarters of 2002, sales were approximately $495,000 and $440,000, respectively. During the four quarters ended December 31, 2003, sales of these labels were approximately $478,000, $692,000, $658,000 and $854,000, 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 label with electronic delivery confirmation. Customers are now able to print a shipping label on a plain piece of 81/2 by 11 printer paper. This eliminates the need to use 3-part labels and reduces the risk of misprinted postage. Using our new Plain Paper Shipping Label allows customers to receive free electronic delivery confirmation with Priority Mail. Prior to this technology, the USPS required separate confirmation labels that added an additional step to the process, and an additional cost of $.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 one-click status check, thus eliminating the need to key in a long tracking number.

     During 2003, we continued to focus on improving our core product software features and launched new products to generate incremental revenue from our customer base. On January 30, 2003, we announced the launch of our first specialty NetStamps^TM labels called “Love NetStamps.” Specialty NetStamps labels contain new images and improved designs compared with our original NetStamps labels. Specialty NetStamps were further expanded with the launch of “Liberty NetStamps” and “Holiday NetStamps” in June and November 2003, respectively. Also in January 2003, we successfully implemented a new process called Instant Access, which enables our new customers to immediately begin printing postage after registration for the service, a dramatic improvement over the previous process that required two to 24 hours of wait time.

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     On April 13, 2003, we launched the first of many new product features with the release of our new shipping capability called Hidden Postage™. This new feature enhances our service, resulting in a more powerful shipping solution for businesses, e-commerce sites and online auctioneers. Hidden Postage allows the customers to print a shipping label without printing the actual value of the postage on the label. By hiding the postage amount of the shipment, businesses can more easily cover their full shipping and handling costs without causing customer complaints.

     On October 28, 2003 we launched version 3.5 of our client software, which provided enhanced integration with Microsoft® Office System 2003, our Stamps.com package insurance, broader support for shipping and an expanded online store platform. We worked in collaboration with Microsoft to improve integration with Microsoft Word and Outlook®. The enhanced integration allows users to add postage to an envelope or a mail merge without leaving the familiar Microsoft Office environment. Our insurance offering allows users to insure their packages in a fully integrated, online process that eliminates any trips to the post office or the need to complete any forms. Further, customers on select plans currently receive a 10% discount over USPS insurance rates. Other shipping improvements include the ability to send shipment notification emails with a tracking link, the ability to print shipping labels for Express Mail® and Bound Printed Matter, and support for additional USPS services such as Collect on Delivery (COD). Finally, we expanded and redesigned our online store in order to support a larger selection of items. We made available for sale new labels for use with our Internet Postage and Shipping Labels features.

     In October 2003, we completed a study to understand the status of our net operation losses (NOL or NOLs). Based on that study, we believe that we have not undergone an Internal Revenue Code (IRC) Section 382 change of control that would trigger an impairment of the use of our NOLs since our secondary offering in December 1999. Under the complicated IRC Section 382 rules, a change in ownership can occur whenever there is a shift in ownership by more than 50 percentage points by one or more five-percent shareholders within a three-year period. When a change of ownership is triggered, the NOLs may be impaired. As of December 31, 2003 we estimate that we are currently 12% below the 50% level that would trigger impairment of our NOL asset. Therefore, we request that all of our investors contact us prior to allowing their respective ownership interest to reach a five-percent level.

     In December 2003, we reached a settlement in all patent infringement litigation with Pitney Bowes. The settlement included a five-year patent cross-licensing agreement. In addition, there will be no material financial payment between the companies. For further discussion, please refer to the “Legal Proceedings” section of this Report.

     On January 28, 2004 our Board of Directors declared a one-time return of capital cash dividend of $1.75 per share, to shareholders of record as of the close of business on February 9, 2004, which dividend was paid on February 23, 2004. Based on the number of common shares outstanding as of February 9, 2004, the total amount of the dividend was approximately $78 million. In addition, our Board of Directors also has authorized a reverse stock split of our common stock, subject to shareholder approval. At the annual meeting of shareholders to be held on April 23, 2004, shareholder of Stamps.com will be asked to grant the Board of Directors the authority to select the exact exchange ratio of either one-for-two (1:2), one-for-three (1:3) or one-for-four (1:4), with the exact ratio to be determined by our Board of Directors at the time it elects to effect a split. The par value of our common stock would remain unchanged at $0.001 per share, and the number of authorized shares of common stock and preferred stock would be reduced proportionately, by the reverse split ratio, from 95,000,000 and 5,000,000, respectively.

     On April 18, 2002 and July 18, 2003, Lloyd I. Miller and Kevin Douglas joined our board of directors, respectively. On January 7, 2004, Kyle Huebner was appointed Chief Financial Officer. On January 21, 2004, James Bortnak was appointed Vice President, Sales and Marketing.

Our Services

     Service fee revenues for our offerings are generated from a monthly fee that we charge our customers under various pricing plans. The two main pricing plans are the Simple Plan and Power Plan. 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. For some newer customers, we recently raised the Simple Plan monthly minimum to $4.99. Under the Power Plan, a customer may purchase and print unlimited postage at face value, for a flat monthly fee ranging from $15.99 to $19.95 depending on their promotional offer. We ended 2003 with

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approximately 294,000 registered customers. This is up from approximately 286,000 registered customers at the end of 2002. Each of our registered customers has a Stamps.com postal meter license which is issued by the US Postal Service. The increase in customers was primarily related to a continued increase in customer acquisition through our marketing channels.

     We continue to make technology improvements to our billing system, and we continue to refine our understanding of the credit card collection process in a recurring revenue model. We switched to a new payment processor during the third quarter of 2003 and we spent much of the fourth quarter sifting through the error codes and data on our uncollectible customers. Following this exercise, we identified approximately 38,000 customers who we deemed as hopelessly uncollectible based on the most recent credit card decline codes we were receiving from our new payment processor. At the end of the fourth quarter, we purged these customers from our system which required us to revoke their USPS meter licenses. Excluding the impact of the approximately 38,000 customer purge, registered customers would have increased from approximately 286,000 at the end of 2002 to approximately 332,000 at the end of 2003. During the fourth quarter of 2003, we successfully billed approximately 235,000 unique registered customers for our service fee, up from approximately 216,000 for the third quarter of 2003 and up from approximately 204,000 and for the fourth quarter of 2002.

Results of Operations

Years Ended December 31, 2002 and 2003

     Revenue. 2002 and 2003 revenue was derived primarily from two sources: (1) service fees charged to customers for the ability to buy and print postage and (2) product sales and other revenue, consisting of online store revenue from the direct sale of consumables and products, advertising revenue from controlled access advertising to our existing customer base and insurance revenue from our parcel insurance offering. Revenue increased from $16.4 million to $21.2 million, or 29.8%, for the years ended December 31, 2002 and 2003, respectively.

     Service fee revenue increased from $14.9 million to $17.6 million, or 18.1%, for the years ended December 31, 2002 and 2003, respectively. The increase in service fee revenue is primarily due to the increase in customer acquisition, which resulted largely due to an increase in our marketing spending. Furthermore, in 2003 we acquired a higher percentage of power plan customers which resulted in higher service fee revenues per customer.

     Product sales and other revenue increased from $1.5 million to $3.6 million, or 148.6%, for the years ended December 31, 2002 and 2003, respectively. The increase is primarily due to the increase in our consumable and product offering available to our customers. In 2003, we introduced our parcel insurance offering, specialty NetStamps labels, shipping labels, Internet Postage labels, dedicated postage printers, and scales, among other items available to our customers.

     Cost of Revenue. Cost of revenue principally consists of the cost of customer service, promotional expenses, system operating costs, credit card processing fees and the cost of consumables and products sold through our online store.

     Cost of service revenue increased from $5.0 million for the year ended December 31, 2002, to $7.2 million for the year ended December 31, 2003, an increase of 42.2%. The increase is primarily due to increased promotional expense as a result of increased customer acquisition. Typical promotional expense includes, among other items, free postage and a free scale for new customers. Such promotional expense was approximately $1.5 million and $3.0 million for the year ended December 31, 2002 and 2003, respectively.

     Cost of product sales and other revenue increased from $299,000 for the year ended December 31, 2002, to $1.1 million for the year ended December 31, 2003, an increase of 272.2%. The increase is primarily due to the cost of our expansion of the number of available products offered to our customers.

     Research and Development. Research and development expense principally consists of compensation for personnel involved in the development of our service and expenditures for consulting services and third-party software. Research and development expense was approximately $4.8 million for the years ended December 31, 2002 and 2003, respectively.

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     Sales and Marketing. Sales and marketing expense principally consists of costs associated with strategic partnership relationships, advertising, and compensation and related expenses for personnel engaged in marketing and business development activities. Sales and marketing expense increased from $2.5 million for the year ended December 31, 2002, to $6.3 million for the year ended December 31, 2003, an increase of 151.0%. In 2003, we began to scale up our marketing spending as we shifted from test-level spending in 2002. During the year we focused our acquisition efforts on existing programs as well as new marketing channels that have a proven positive return on investment. Existing programs that are working well and we plan to continue to invest in include, among other programs, web partnerships; software- and hardware-based partnerships; retail partnerships; our customer referral program; and our remarketing efforts. In addition, we continue to see positive return on investments in the direct mail and online advertising channels.

     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 intangible assets and deferred compensation. General and administrative expenses decreased from $15.5 million for the year ended December 31, 2002, to $14.5 million for the year ended December 31, 2003, a decrease of 6.5%. The decrease is primarily due to a reduction in depreciation of fixed assets.

     Interest Income (Expense), Net. Interest income (expense), net consists of income from cash equivalents and investments, net of interest expense related to financing obligations. Net interest income for the years ended December 31, 2002 and 2003 were $4.9 million and $3.3 million, respectively. This decrease is primarily due to lower invested balances in cash equivalents and investments as well as overall lower interest rates year over year.

Years Ended December 31, 2001 and 2002

     Revenue. 2001 and 2002 revenue was derived primarily from three sources: (1) service fees charged to customers for the ability to buy and print postage, (2) professional contract revenue, received from Mail Boxes Etc. USA, Inc., for shipping tools used by Mail Boxes Etc. USA, Inc. franchise locations and (3) other revenue, consisting of on-line store revenue, advertising revenue from controlled access advertising to our existing customer base, and revenue from the direct sale of consumables, such as NetStamps labels.

     Service fee revenue decreased from $16.3 million to $14.9 million, or 8.8%, for the years ended December 31, 2001 and 2002, respectively. The decrease in service fee revenue was primarily due to a decline in customers throughout most months of 2002. This can be attributed to minimal marketing spend prior to our new product releases in the third and fourth quarters of 2002.

     Product sales and other revenue decreased from $3.1 million to $1.5 million, or 53.2%, for the years ended December 31, 2001 and 2002, respectively. The decrease is primarily due to the Mail Boxes Etc. USA, Inc. agreement that was initiated in 2000 and terminated in January 2001. Further, there was a reduction of the bounty that we earned under our agreement with Office Depot, which was amended in January 2002.

     Cost of Revenues. Cost of revenues principally consists of the cost of customer service, promotional expenses, system operating costs and consumables and products sold through our online store.

     Cost of service revenue decreased from $6.9 million for the year ended December 31, 2001, to $5.0 million for the year ended December 31, 2002, a decrease of 26.9%. The decrease is primarily due to increased automation and reduced labor costs in our customer support operations. We also reduced promotional expenses by decreasing the amount of free postage given to each new customer.

     Cost of product sale and other revenue decreased from $1.1 million for the year ended December 31, 2001, to $299,000 for the year ended December 31, 2002, a decrease of 72.2%. The decrease is primarily due to the reduction of the online store activity during 2002.

     Research and Development. Research and development expenses principally consist of compensation for personnel involved in the development of our service and, in 2001, enterprise shipping service and expenditures for consulting services and third-party software. Research and development expenses for the year ended December 31, 2002 decreased to $4.8 million from $12.6 million for the year ended December 31, 2001, a decrease of 61.9%. The

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decrease in research and development expenses in 2002 is primarily due to increased cost control efforts and the reduction in headcount during 2001.

     Sales and Marketing. Sales and marketing expenses principally consist of costs associated with strategic relationships, advertising, and compensation and related expenses for personnel engaged in marketing and business development activities. Sales and marketing expenses decreased from $9.7 million for the year ended December 31, 2001, to $2.5 million for the year ended December 31, 2002, a decrease of 74.2%. The decrease in sales and marketing expenses in 2002 resulted from a reduction in sales and marketing personnel in February and August of 2001, the termination of fixed-cost marketing deals during 2001, as well as a smaller and more focused spend of discretionary marketing dollars on programs that provide a higher return on investment.

     General and Administrative. General and administrative expenses principally consist of compensation and related costs for executive and administrative personnel, fees for legal and other professional services, depreciation of equipment and software used for general corporate purposes and amortization of goodwill and deferred compensation. General and administrative expenses for the years ended December 31, 2002 and 2001 were $15.5 million and $196.7 million, respectively. The decrease in 2002 is due to cost control efforts and the reduction in headcount during 2001, and to a non-cash charge of $163.6 million in the first quarter of 2001 to reduce goodwill and other intangibles associated with the purchase of iShip in order to reflect the present value of future cash flows, net of estimated transaction costs.

     Restructuring Charge. In October 2000, we began our restructuring to more effectively focus on core business opportunities in the postage and shipping industries. As a part of that restructuring, we eliminated approximately 85% of the workforce through 3 rounds of layoffs, terminated our fixed-cost marketing agreements and disposed of excess assets. The resulting restructuring charge for the year ended December 31, 2001 was $26.0 million. This charge consists primarily of employee severance, reserves established for exiting contractual arrangements and leases, and property and equipment write-offs.

     Interest Income (Expense), Net. Interest income (expense), net consists of income from cash equivalents and investments, net of interest expense related to financing obligations. Net interest income for the years ended December 31, 2002 and 2001 were $4.9 million and $10.1 million, respectively. This decrease is due to the continued decline of interest rates in 2002 and a reduction of invested capital as a result of share repurchases during 2002.

Liquidity and Capital Resources

     As of December 31, 2003 and 2002, we had approximately $162.8 million and $172.7 million in cash, restricted cash and short-term and long-term investments, respectively. We regularly invest available capital in short and long term government and corporate securities as well as money market funds and commercial paper and do not engage in hedging or speculative activities.

     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 of 2002, we repurchased approximately 4.4 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. In October 2003, the Board authorized a fourth stock repurchase program for up to $20 million of our common stock over the following 12 months. As of December 31, 2003, we had repurchased approximately 648,000 shares for $2.7 million under our stock repurchase programs during 2003. In total during 2002 and 2003, we repurchased 6.3 million shares, approximately 12% of our shares outstanding balance on March 31, 2002, before we began the various repurchase programs.

     Net cash used in operating activities was $5.5 million for the year ended December 31, 2003 as compared to net cash provided by operating activities of $1.4 million for the year ended December 31, 2002. The increase in net cash used in operating activities resulted primarily from increased expenditures in sales and marketing due to increased customer acquisition.

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     Net cash used in investing activities was $32.8 million and $16.9 million for the years ended December 31, 2003 and 2002, respectively. The increase in net cash used in investing activities resulted primarily from the purchase of short and long-term investments in 2003.

     Net cash used in financing activities was $1.9 million and $21.4 million for the years ended December 31, 2003 and 2002, respectively. The decrease in net cash used in financing activities resulted primarily from the decreased level of our stock repurchase during 2003.

     In May 1999, we entered into a facility lease agreement for the corporate headquarters with aggregate lease payments of approximately $4.8 million through May 2004. In March 2000 we entered into a facility lease agreement for a Bellevue, Washington facility with aggregate lease payments of approximately $17.0 million. In January 2002, we exited the Bellevue, Washington facility lease with exit payments of approximately $555,000 in December 2001 and $647,000 in January 2002. We continue to sublet building spaces vacated as a result of the reduction in workforce, and we recently exited a lease of approximately 12,000 square feet of unoccupied space with the payment of a $112,000 termination fee. In November 2003, we entered into a facility lease agreement commencing on March 2004 for our new corporate headquarters with aggregate lease payments of approximately $4.0 million through February 2009.

     The following table is a schedule of our contractual obligations and commercial commitments which is comprised of the future minimum lease payments under operating leases at December 31, 2003 (in thousands):

     On January 28, 2004 the Board of Directors declared a one-time return of capital cash dividend of $1.75 per share to shareholders of record as of the close of business on February 9, 2004, paid on February 23, 2004. Based on 45,045,514 common shares outstanding, less treasury stock of approximately 648,000 on the date of record, February 9, 2004, the total cash dividend was approximately $78 million and our cash, restricted cash, and short and longterm investments aggregated approximately $83 million following the payment of this dividend.

     In consideration of our current business plan, we anticipate that our current working capital will be sufficient to fund our operations through 2004 and beyond.

Recent Accounting Pronouncements

     In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 141, “Business Combinations” and SFAS No. 142, “Goodwill and Other Intangible Assets”. SFAS No. 141 requires business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting, and broadens the criteria for recording intangible assets separate from goodwill. SFAS No. 142 requires the use of a non-amortization approach to account for purchased goodwill and certain intangibles. Under a non-amortization approach, goodwill and certain intangibles will not be amortized into results of operations, but instead would be reviewed for impairment and written down and charged to results of operations only in the periods in which the recorded value of goodwill and certain intangibles is more than its fair value. The adoption of SFAS No. 141 and SFAS No. 142 on January 1, 2002 did not have a material impact on our financial position or results of operations.

     The FASB also recently issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets", applicable to financial statements issued for fiscal years beginning after December 15, 2001. The FASB’s

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new rules on asset impairment supersede SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", and portions of Accounting Principles Bulletin Opinion 30, “Reporting the Results of Operations”. This Standard provides a single accounting model for long-lived assets to be disposed of and significantly changes the criteria that would have to be met to classify an asset as held-for-sale. Classification as held-for-sale is an important distinction since such assets are not depreciated and are stated at the lower of fair value and carrying amount. This Standard also requires expected future operating losses from discontinued operations to be displayed in the period(s) in which the losses are incurred, rather than as of the measurement date as presently required. The adoption of the provision of this Standard on January 1, 2002 did not have a material impact on our financial position or results of operations.

     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 our financial position or results of operations.

     In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure, an Amendment of FASB Statement No. 123”. This statement amends SFAS No. 123, “Accounting for Stock-Based Compensation”, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirement of SFAS No. 123 to require prominent disclosure in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. We adopted this statement in December 2002 and its adoption did not have a material impact on our financial position or results of operations.

     In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity,” effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective as of July 1, 2003. The adoption of SFAS No. 150 did not have a material impact on our financial position or results of operations.

     In January 2003, the FASB issued FASB Interpretation No. (“FIN”) 46, “Consolidation of Variable Interest Entities,” which was originally effective on July 1, 2003. In December 2003, the FASB deferred the effective date for applying the provisions of FIN 46 to March 31, 2004 for interests held by public companies in variable interest entities or potential variable interest entities created before February 1, 2003. We have completed our evaluation of the provisions of FIN 46 and we do not have any significant interests in variable interest entities. Accordingly, the adoption of FIN 46 did not have a material impact on our financial position or results of operations.

Critical Accounting Policies

     General. Our discussion and analysis of our financial condition and results of operations are based on our 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 us 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, we evaluate our estimates, including those related to patents, restructuring, contingencies and litigation. We base our 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.

     Patents and Intangibles. We make estimates of the estimated useful lives of our patents and other amortizable intangibles. These estimates are made using various assumptions that could change as economic and

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competitive conditions change. If events were to occur that would cause our assumptions to change, the amounts recorded as amortization would be adjusted.

     Contingencies and Litigation. We are involved in various litigation matters as a claimant and as defendant and we record any amount recovered in these matters when collection is certain. We record liabilities for claims against us 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 15) of Notes to Financial Statements.

     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, US government obligations and public corporate debt securities with weighted average maturities of less than 250 days at December 31, 2003. Our cash equivalents and investments, net of restricted cash, approximated $159.1 million and had a related weighted average interest rate of 1.90%. 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.

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

     None.

     We maintain disclosure controls and procedures (as defined in Rule 13a-14 of the Exchange Act) that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to the Company’s management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and management necessarily was required to apply our judgment in evaluating the cost-benefit relationship of possible controls and procedures.

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

     There have been no significant changes in our internal controls or in other factors that could significantly affect the internal controls subsequent to the date we completed our evaluation.

     Our chief executive officer (principal executive officer) and chief financial office (principal financial officer) have concluded that the design and operation of our disclosure controls and procedures are effective as of December 31, 2003. This conclusion is based upon an evaluation conducted under the supervision and with the participation of our company’s management. Disclosure controls and procedures are those controls and procedures which ensure that information required to be disclosed in this Report is accumulated and communicated to

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management and is recorded, processed, summarized and reported in a timely manner and in accordance with Securities and Exchange Commission rules and regulations.

     During the quarter ended December 31, 2003, there were no changes in our internal control over financial reporting that material affected, or are reasonably likely to affect, our internal control over financial reporting.

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PART III.

     (a)  Identification of Directors. We incorporate by reference the information under the caption “Proposal One: Election of Directors”, appearing in our proxy statement for our 2004 annual meeting of stockholders.

     (b)  Identification of Key Executive Officers. We incorporate by reference the information under the caption “Management”, appearing in our proxy statement for our 2004 annual meeting of stockholders.

     (c)  Compliance with Section 16(a) of the Exchange Act. We incorporate by reference the information under the caption “Section 16(a) Beneficial Ownership Reporting Compliance”, appearing in our proxy statement for our 2004 annual meeting of stockholders.

     We incorporate by reference the information under the caption “Executive Compensation and Related Information”, appearing in our proxy statement for our 2004 annual meeting of stockholders.

     We incorporate by reference the information under the caption “Beneficial Ownership of Securities”, appearing in our proxy statement for our 2004 annual meeting of stockholders.

     We incorporate by reference the information under the heading “Certain Relationships and Related Transactions”, appearing in our proxy statement for our 2004 annual meeting of stockholders.

     We incorporate by reference the information under the heading “Principal Accounting Fees and Services”, appearing in our proxy statement for our 2004 annual meeting of stockholders.

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PART IV.

     (a)  Documents filed as part of this report.

	1. Financial Statements. The following financial statements of Stamps.com are included in a separate section of this Annual Report on Form 10-K commencing on the pages referenced below:

Stamps.com Consolidated Financial Statements

	2. Financial Statement Schedules. All financial statement schedules of Stamps.com have been omitted because they are not applicable, not required, or the information is included in the consolidated financial statements or notes thereto.
	3. Exhibits. The following Exhibits are incorporated herein by reference or are filed with this report as indicated below:

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(4)		Incorporated herein by reference to the Company’s Registration Statement on Form S-8 filed with the Securities and Exchange Commission on March 30, 2000 (File No. 333-     ).
(5)		Incorporated herein by reference to the Company’s Form 10-Q filed with the Securities and Exchange Commission on May 15, 2000 (File No. 000-26427).
(6)		Incorporated herein by reference to the Company’s Form 10-Q filed with the Securities and Exchange Commission on August 14, 2000 (File No. 000-26427).
(7)		Incorporated herein by reference to the Company’s Form 8-K filed with the Securities and Exchange Commission on December 29, 2000 (File No. 000-26427).
(8)		Incorporated herein by reference to the Company’s Annual Report on Form 10-K/A, originally filed with the Securities and Exchange Commission on April 27, 2001 (File No. 000-26427).
(9)		Incorporated herein by reference to the Company’s Form 10-Q filed with the Securities and Exchange Commission on May 15, 2001 (File No. 000-26427).
(10)		Incorporated herein by reference to the Company’s Annual Report on Form 10-K, originally filed with the Securities and Exchange Commission on March 29, 2002 (File No. 000-26427).
(11)		Filed with the Securities and Exchange Commission with this Annual Report on Form 10-K.
*		Previously filed.
+		Confidential treatment requested and received as to certain portions.
++		Confidential treatment has been requested for certain confidential portions of this exhibit pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. In accordance with Rule 24b-2, these confidential portions have been omitted from this exhibit and filed separately with the Securities and Exchange Commission.

(b)

Reports on Form 8-K:

     On December 22, 2003, Stamps.com filed a report on Form 8-K, which reported under Item 5 that Stamps.com reached a settlement with Pitney Bowes in all of their respective litigation.

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REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

To the Stockholders of Stamps.com Inc.:

We have audited the accompanying balance sheets of Stamps.com Inc. (a Delaware corporation) and subsidiaries as of December 31, 2003 and 2002 and the related consolidated statements of operations, stockholders’ equity and comprehensive income (loss) and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. The consolidated financial statements of Stamps.com Inc., for the fiscal year ended December 31, 2001, were audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion on those statements in their report dated February 7, 2002.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Stamps.com Inc. and subsidiaries as of December 31, 2003 and 2002, and the consolidated results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States.

As discussed in Note 3 to the consolidated financial statements, Stamps.com Inc. changed its method of accounting for purchased goodwill and other intangible assets in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142 during the first quarter of fiscal 2002. As discussed above, the financial statements of Stamps.com Inc. as of December 31, 2001, and for the year then ended were audited by other auditors who have ceased operations. As described in Note 3, these financial statements have been updated to include the transitional disclosures required by SFAS No. 142, “Goodwill and Other Intangible Assets,” which was adopted by the Company as of January 1, 2002. Our audit procedures with respect to the disclosures in Note 3 for fiscal 2001 included (i) agreeing the previously reported net loss to the previously issued financial statements and the adjustments to reported net loss representing amortization expense (including any related tax effects) recognized in those periods related to goodwill that are no longer being amortized to the Company’s underlying records obtained from management, and (ii) testing the mathematical accuracy of the reconciliation of adjusted net loss to reported net loss, and the related net loss-per-share amounts. Our audit procedures with respect to the disclosures in Note 3 for fiscal 2001 included (i) agreeing the goodwill and amortization amounts and the gross intangible assets and accumulated amortization amounts to the Company’s underlying records obtained from management, and (ii) testing the mathematical accuracy of the tables. In our opinion, the disclosures for fiscal 2001 in Note 3 related to the transitional disclosures of SFAS No. 142 are appropriate. However, we were not engaged to audit, review, or apply any procedures to the Company’s financial statements for fiscal 2001 other than with respect to such disclosures and, accordingly, we do not express an opinion or any other form of assurance on the Company’s fiscal 2001 financial statements taken as a whole.

/s/ ERNST & YOUNG LLP

Los Angeles, California
January 27, 2004

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This is a copy of the audit report previously issued by Arthur Andersen LLP in connection with Stamps.com Inc. filing on Form 10-K for the year ended December 31, 2001. This audit report has not been reissued by Arthur Andersen LLP in connection with this filing on Form 10-K. See Exhibit 23.2 for further discussion.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of Stamps.com Inc.:

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

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

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

/s/ ARTHUR ANDERSEN LLP

Los Angeles, California
February 7, 2002

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STAMPS.COM INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

See accompanying notes.

F-3

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STAMPS.COM INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying notes.

F-4

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STAMPS.COM INC. AND SUBSIDIARIES

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