UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549







FORM
10-Q





(Mark
One)




þ
            QUARTERLY REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934.




For the quarterly period ended June
30, 2009




OR




o
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For
the transition period from ____________ to ____________





Commission
file number: 000-26427





Stamps.com
Inc.


(Exact
name of registrant as specified in its charter)





Delaware
            77-0454966(State
      or other jurisdiction of
            (I.R.S.
      Employerincorporation
      or organization)
            Identification
      No.)





12959
Coral Tree Place


Los
Angeles, California 90066


(Address
of principal executive offices, including zip code)





(310)
482-5800


(Registrant’s telephone
number, including area code)




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 þ   No
 ̈




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files).    Yes  ̈   No
 ̈




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):




Large
      accelerated filer  o
            Accelerated
      filer  þNon-accelerated
      filer  o (Do not check if
      a smaller reporting company)
            Smaller
      reporting company  o




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes  ̈   No
þ




As of
July 31, 2009, there were approximately 16,139,000 shares of the Registrant’s
Common Stock issued and outstanding.













STAMPS.COM
INC.




FORM
10-Q QUARTERLY REPORT FOR THE QUARTER ENDED JUNE 30, 2009




TABLE
OF CONTENTS




PagePART
      I - FINANCIAL INFORMATION
            
            
            2ITEM
      1.
            FINANCIAL
      STATEMENTS
            
            
            2ITEM
      2.
            MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
            
            
            13ITEM
      3.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
            
            
            21ITEM
      4.
            CONTROLS
      AND PROCEDURES
            
            
            21PART
      II – OTHER INFORMATION
            
            
            22ITEM
      1.
            LEGAL
      PROCEEDINGS
            
            
            22ITEM
      1A.
            RISK
      FACTORS
            
            
            22ITEM
      2.
            UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
            
            
            22ITEM
      3.
            DEFAULTS
      UPON SENIOR SECURITIES
            
            
            23ITEM
      4.
            SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS
            
            
            23ITEM
      5.
            OTHER
      INFORMATION
            
            
            24ITEM
      6.
            EXHIBITS
            
            
            24




1




PART I - FINANCIAL
INFORMATION




ITEM 1.
            FINANCIAL
      STATEMENTS




STAMPS.COM
INC.


BALANCE
SHEETS


(In
thousands, except per share data)




June
      30,
            
            
            December
      31,2009
            
            
            2008(unaudited)AssetsCurrent
      assets:Cash
      and cash equivalents
            
            $
            44,112
            
            
            $
            52,576Restricted
      cash
            
            
            554
            
            
            
            554Short-term
      investments
            
            
            940
            
            
            
            16,235Trade
      accounts receivable, net
            
            
            2,936
            
            
            
            2,962Other
      accounts receivable
            
            
            494
            
            
            
            1,201Other
      current assets
            
            
            3,791
            
            
            
            4,426Total
      current assets
            
            
            52,827
            
            
            
            77,954Property
      and equipment, net
            
            
            2,608
            
            
            
            3,086Intangible
      assets, net
            
            
            500
            
            
            
            505Long-term
      investments
            
            
            24,636
            
            
            
            4,694Deferred
      income taxes.
            
            
            3,671
            
            
            
            3,671Other
      assets
            
            
            3,028
            
            
            
            3,348Total
      assets
            
            $
            87,270
            
            
            $
            93,258Liabilities
      and Stockholders’ EquityCurrent
      liabilities:Accounts
      payable and accrued expenses
            
            $
            9,195
            
            
            $
            11,174Deferred
      revenue
            
            
            3,422
            
            
            
            3,743Total
      current liabilities
            
            
            12,617
            
            
            
            14,917Commitments
      and contingenciesStockholders’
      equity:Common
      stock, $.001 par valueAuthorized
      shares: 47,500 in 2009 and 2008Issued
      shares: 24,399in 2009 and 24,368 in
      2008Outstanding
      shares: 16,233 in 2009 and 17,242 in 2008
            
            
            47
            
            
            
            47Additional
      paid-in capital
            
            
            628,647
            
            
            
            626,810Accumulated
      deficit
            
            
            (454,117
            )
            
            
            (456,391
            )Treasury
      stock, at cost, 8,166 shares in 2009 and 7,126 shares in
    2008
            
            
            (99,238
            )
            
            
            (90,613
            )Accumulated
      other comprehensive loss
            
            
            (686
            )
            
            
            (1,512
            )Total
      stockholders’ equity
            
            
            74,653
            
            
            
            78,341Total
      liabilities and stockholders’ equity
            
            $
            87,270
            
            
            $
            93,258




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





2




STAMPS.COM
INC.


STATEMENTS
OF INCOME


(In
thousands, except per share data)


(Unaudited)




Three
      Months Ended
              June
      30,
            
            
            Six
      Months Ended
              June
      30,2009
            
            
            2008
            
            
            2009
            
            
            2008Revenues:Service
            
            $
            15,207
            
            
            $
            15,577
            
            
            $
            30,521
            
            
            $
            30,774Product
            
            
            2,580
            
            
            
            2,583
            
            
            
            5,197
            
            
            
            5,066Insurance
            
            
            395
            
            
            
            377
            
            
            
            799
            
            
            
            765PhotoStamps
            
            
            1,995
            
            
            
            2,873
            
            
            
            3,708
            
            
            
            5,877Other
            
            
            5
            
            
            
            —
            
            
            
            5
            
            
            
            —Total
      revenues
            
            
            20,182
            
            
            
            21,410
            
            
            
            40,230
            
            
            
            42,482Cost
      of revenues:Service
            
            
            2,872
            
            
            
            2,262
            
            
            
            5,880
            
            
            
            5,004Product
            
            
            1,030
            
            
            
            948
            
            
            
            1,975
            
            
            
            1,828Insurance
            
            
            123
            
            
            
            119
            
            
            
            248
            
            
            
            239PhotoStamps
            
            
            1,521
            
            
            
            2,092
            
            
            
            2,821
            
            
            
            4,219Total
      cost of revenues
            
            
            5,546
            
            
            
            5,421
            
            
            
            10,924
            
            
            
            11,290Gross
      profit
            
            
            14,636
            
            
            
            15,989
            
            
            
            29,306
            
            
            
            31,192Operating
      expenses:Sales
      and marketing
            
            
            8,227
            
            
            
            8,780
            
            
            
            16,291
            
            
            
            17,403Research
      and development
            
            
            2,199
            
            
            
            2,102
            
            
            
            4,426
            
            
            
            4,045General
      and administrative
            
            
            3,306
            
            
            
            4,457
            
            
            
            6,570
            
            
            
            8,400Total
      operating expenses
            
            
            13,732
            
            
            
            15,339
            
            
            
            27,287
            
            
            
            29,848Income
      from operations
            
            
            904
            
            
            
            650
            
            
            
            2,019
            
            
            
            1,344Other
      income:Interest
      income
            
            
            232
            
            
            
            736
            
            
            
            589
            
            
            
            1,653Other
      income
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            21Total
      other income
            
            
            232
            
            
            
            736
            
            
            
            589
            
            
            
            1,674Income
      before income taxes
            
            
            1,136
            
            
            
            1,386
            
            
            
            2,608
            
            
            
            3,018Provision
      (benefit) for income taxes
            
            
            84
            
            
            
            80
            
            
            
            334
            
            
            
            (3,486
            )Net
      income
            
            $
            1,052
            
            
            $
            1,306
            
            
            $
            2,274
            
            
            $
            6,504Net
      income per shareBasic
            
            $
            0.06
            
            
            $
            0.07
            
            
            $
            0.14
            
            
            $
            0.33Diluted
            
            $
            0.06
            
            
            $
            0.07
            
            
            $
            0.14
            
            
            $
            0.33Weighted
      average shares outstandingBasic
            
            
            16,301
            
            
            
            19,382
            
            
            
            16,581
            
            
            
            19,553Diluted
            
            
            16,427
            
            
            
            19,712
            
            
            
            16,709
            
            
            
            19,831





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




3




STAMPS.COM
INC.


STATEMENTS
OF CASH FLOWS


(In
thousands)


(Unaudited)




Six
      Months Ended
                June
      30,2009
            
            
            2008Operating
      activities:Net
      income
            
            $
            2,274
            
            
            $
            6,504Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
            
            
            639
            
            
            
            1,208Stock-based
      compensation expense
            
            
            1,612
            
            
            
            1,682Deferred
      income tax
            
            
            —
            
            
            
            (3,671
            )Changes
      in operating assets and liabilities:Trade
      accounts receivable
            
            
            26
            
            
            
            (435
            )Other
      accounts receivable
            
            
            707
            
            
            
            708Other
      current assets
            
            
            635
            
            
            
            (562
            )Other
      assets
            
            
            320
            
            
            
            (806
            )Deferred
      revenue
            
            
            (321
            )
            
            
            (210
            )Accounts
      payable and accrued expenses
            
            
            (1,979
            )
            
            
            1,132Net
      cash provided by operating activities
            
            
            3,913
            
            
            
            5,550Investing
      activities:Sale
      of short-term investments
            
            
            15,329
            
            
            
            19,125Purchase
      of short-term investments
            
            
            —
            
            
            
            (21,536
            )Sale
      of long-term investments
            
            
            1,274
            
            
            
            19,541Purchase
      of long-term investments
            
            
            (20,424
            )
            
            
            (6,445
            )Purchase
      of property and equipment
            
            
            (156
            )
            
            
            (328
            )Net
      cash (used in) provided by investing activities
            
            
            (3,977
            )
            
            
            10,357Financing
      activities:Proceeds
      from exercise of stock options
            
            
            82
            
            
            
            171Issuance
      of common stock under ESPP
            
            
            143
            
            
            
            168Repurchase
      of common stock
            
            
            (8,625
            )
            
            
            (4,500
            )Net
      cash used in financing activities
            
            
            (8,400
            )
            
            
            (4,161
            )Net
      (decrease) increase in cash and cash equivalents
            
            
            (8,464
            )
            
            
            11,746Cash
      and cash equivalents at beginning of period
            
            
            52,576
            
            
            
            43,667Cash
      and cash equivalents at end of period
            
            $
            44,112
            
            
            $
            55,413





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




4
 
 STAMPS.COM
 NOTES
TO FINANCIAL STATEMENTS
 (ALL
INFORMATION WITH RESPECT TO JUNE 30, 2009 AND 2008 IS
UNAUDITED)


1.
            Summary
      of Significant Accounting Policies




Basis
of Presentation




We
prepared the financial statements included herein without audit pursuant to the
rules and regulations of the Securities and Exchange Commission (“SEC”). Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with United States (“US”) generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. We believe that the disclosures are adequate to make the
information presented not misleading. We recommend that these financial
statements be read in conjunction with the audited financial statements and the
notes thereto included in our latest annual report on Form 10-K.




In our
opinion, these unaudited financial statements contain all adjustments
(consisting of normal recurring adjustments) necessary to present fairly our
financial position as of June 30, 2009, the results of operations for the three
and six months ended June 30, 2009 and cash flows for the six months ended June
30, 2009.  The results of operations for the interim periods are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2009.




Use
of Estimates and Risk Management




The
preparation of financial statements in conformity with US generally accepted
accounting principles requires us to make estimates and assumptions that affect
the amounts reported in the financial statements and the accompanying
notes.  Actual results could differ from those estimates, and such
differences may be material to the financial statements. Examples include
estimates of loss contingencies, promotional coupon redemptions, deferred income
taxes and estimates regarding the useful lives of patents and other amortizable
intangibles.




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




Subsequent
Events




We have
evaluated subsequent events and transactions through August 7, 2009, which is
the date these financial statements were issued. No material subsequent events
or transactions have occurred that would require recognition in the financial
statements or disclosure in the notes to the financial statements.




Revenue
Recognition




We
recognize revenue from product sales or services rendered, as well as
commissions from the advertising or sale of products by third party vendors to
our customer base, when the following four revenue recognition criteria are met:
persuasive evidence of an arrangement exists, delivery has occurred or services
have been rendered, the selling price is fixed or determinable, and
collectability is reasonably assured.




Service
revenue is based on monthly convenience fees and is recognized in the period
that services are provided. Product sales, net of return allowances, are
recorded when the products are shipped and title passes to customers. Sales of
our products, including PhotoStamps, to customers are made pursuant to a sales
contract that provides for transfer of both title and risk of loss upon our
delivery to the carrier. Return allowances for expected product returns, which
reduce product revenue by our best estimate of expected product returns, are
estimated using historical experience.  Commissions from the
advertising or sale of products by third party vendors to our customer base are
recognized when the revenue is earned and collection is deemed
probable.




Customers
who purchase postage for use through our NetStamps, shipping label or mailing
features, pay face value, and the funds are transferred directly from the
customers to the United States Postal Service (“USPS”). We do not recognize
revenue for this postage as it is purchased by our customers directly from the
USPS.   PhotoStamps revenue includes the price of
postage.




5


STAMPS.COM
 NOTES
TO FINANCIAL STATEMENTS
 (ALL
INFORMATION WITH RESPECT TO JUNE 30, 2009 AND 2008 IS
UNAUDITED)




On a
limited basis, we allow third parties to offer products and promotions to the
Stamps.com customer base. These arrangements generally provide payment in the
form of a flat fee or revenue sharing arrangements where we receive payment upon
customers accessing third party products and services. Total revenue from such
advertising arrangements is currently immaterial.




We
provide our customers with the opportunity to purchase parcel insurance directly
through our software. Insurance revenue represents the gross amount charged to
the customer for purchasing insurance and the related cost represents the amount
paid to the insurance broker, Parcel Insurance Plan.  We recognize
revenue on insurance purchases upon the ship date of the insured
package.




Revenue
from gift cards, which is recognized at the time of redemption, is currently
immaterial to our financial statements. Because we do not yet have meaningful
historical data upon which to base estimates for gift cards that will never be
redeemed (“breakage”), we have not recorded any breakage income related to our
gift card program.




2.
            Legal
      Proceedings




Please
refer to "Part II - Other Information - Item 1 - Legal Proceedings" of this
report for a discussion of our current legal proceedings.




3.
            Net
      Income per Share




Net
income per share represents net income attributable to common stockholders
divided by the weighted average number of common shares outstanding during a
reported period. The diluted net income per share reflects the potential
dilution that could occur if securities or other contracts to issue common
stock, including convertible preferred stock and stock options and warrants
(commonly and hereafter referred to as “common stock equivalents”), were
exercised or converted into common stock. Diluted net income per share is
calculated by dividing net income during a reported period by the sum of the
weighted average number of common shares outstanding plus common stock
equivalents for the period.  The following table reconciles share
amounts utilized to calculate basic and diluted net income per share (in
thousands, except per share data):




Three
      Months Ended
              June
      30,
            
            
            Six
      Months Ended
              June
      30,2009
            
            
            2008
            
            
            2009
            
            
            2008Net
      income
            
            $
            1,052
            
            
            $
            1,306
            
            
            $
            2,274
            
            
            $
            6,504Basic
      - weighted average common shares
            
            
            16,301
            
            
            
            19,382
            
            
            
            16,581
            
            
            
            19,553Diluted
      effect of common stock equivalents
            
            
            126
            
            
            
            330
            
            
            
            128
            
            
            
            278Diluted
      - weighted average common shares
            
            
            16,427
            
            
            
            19,712
            
            
            
            16,709
            
            
            
            19,831Earnings
      per share:Basic
            
            $
            0.06
            
            
            $
            0.07
            
            
            $
            0.14
            
            
            $
            0.33Diluted
            
            $
            0.06
            
            
            $
            0.07
            
            
            $
            0.14
            
            
            $
            0.33




6


STAMPS.COM
 NOTES
TO FINANCIAL STATEMENTS
 (ALL
INFORMATION WITH RESPECT TO JUNE 30, 2009 AND 2008 IS UNAUDITED)


The
calculation of dilutive shares excludes the effect of the following options that
are considered anti-dilutive (in thousands):




Three
      Months Ended
              June
      30,
            
            
            Six
      Months Ended
              June
      30,2009
            
            
            2008
            
            
            2009
            
            
            2008Anti-dilutive
      stock option shares
            
            
            2,723
            
            
            
            2,200
            
            
            
            2,735
            
            
            
            2,226





4.
            Stock-Based
      Employee Compensation




We
account for stock-based awards to employees and directors pursuant to Statement
of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004),
“Share-Based Payment” (“SFAS 123R”), and related SEC rules included in Staff
Accounting Bulletin No. 107. SFAS 123R requires us to estimate the fair
value of share-based payment awards on the date of grant using an option-pricing
model and to recognize stock-based compensation expense during each period based
on the value of that portion of share-based payment awards that is ultimately
expected to vest during the period, reduced for estimated
forfeitures.  SFAS 123R requires forfeitures to be estimated at the
time of grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates. Compensation expense recognized for all
employee stock options granted is recognized using the straight-line single
method over their respective vesting periods of three to five
years.




The
following table sets forth the stock-based compensation expense that we
recognized under SFAS 123R for the periods indicated (in
thousands):




Three
      Months Ended
              June
      30,
            
            
            Six
      Months Ended
              June
      30,2009
            
            
            2008
            
            
            2009
            
            
            2008Stock-based
      compensation expense relating to:Employee
      and director stock options
            
            $
            819
            
            
            $
            903
            
            
            $
            1,587
            
            
            $
            1,652Employee
      stock purchases
            
            
            —
            
            
            
            —
            
            
            
            25
            
            
            
            30Total
      stock-based compensation expense
            
            $
            819
            
            
            $
            903
            
            
            $
            1,612
            
            
            $
            1,682Stock-based
      compensation expense relating to:Cost
      of revenues
            
            $
            69
            
            
            $
            69
            
            
            $
            140
            
            
            $
            144Sales
      and marketing
            
            
            198
            
            
            
            172
            
            
            
            389
            
            
            
            348Research
      and development
            
            
            164
            
            
            
            146
            
            
            
            328
            
            
            
            298General
      and administrative
            
            
            388
            
            
            
            516
            
            
            
            755
            
            
            
            892Total
      stock-based compensation expense
            
            $
            819
            
            
            $
            903
            
            
            $
            1,612
            
            
            $
            1,682





In our
SFAS 123R calculations, we use the Black-Scholes option valuation model, which
requires us to make a number of highly complex and subjective assumptions,
including stock price volatility, expected term, risk-free interest rates and
actual and projected employee stock option exercise behaviors.  In the
case of options we grant, our assumption of expected volatility was based on the
historical volatility of our stock price.  We base the risk-free
interest rate on U.S. Treasury zero-coupon issues with a remaining term equal to
the expected life assumed at the date of grant.  The estimated
expected life represents the weighted-average period the stock options are
expected to remain outstanding determined based on an analysis of historical
exercise behavior.




7


STAMPS.COM
 NOTES
TO FINANCIAL STATEMENTS
 (ALL
INFORMATION WITH RESPECT TO JUNE 30, 2009 AND 2008 IS
UNAUDITED)




The
following are the weighted average assumptions used in the Black-Scholes
valuation model for the periods indicated:




Three
      Months Ended
              June
      30,
            
            
            Six
      Months Ended
              June
      30,2009
            
            
            2008
            
            
            2009
            
            
            2008Expected
      dividend yield
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Risk-free
      interest rate
            
            
            2.20
            %
            
            
            3.06
            %
            
            
            1.99
            %
            
            
            2.93
            %Expected
      volatility
            
            
            53
            %
            
            
            51
            %
            
            
            53
            %
            
            
            51
            %Expected
      life (in years)
            
            
            4.5
            
            
            
            5
            
            
            
            4.5
            
            
            
            5Expected
      forfeiture rate
            
            
            20
            %
            
            
            16
            %
            
            
            20
            %
            
            
            16
            %





5.
            Intangible
      Assets




Our
intangible assets consist of patents, trademarks and other intellectual property
with a gross carrying value of approximately $8.3 million and accumulated
amortization of approximately $7.8 million as of each of June 30, 2009 and
December 31, 2008. The expected useful lives of our amortizable intangible
assets range from 4 to 17 years. During 2008, we assessed whether events or
changes in circumstances occurred that could potentially indicate that the
carrying amount of our intangible assets may not be recoverable. We concluded
that there were no such events or changes in circumstances during 2008 and
determined that the fair value of our intangible assets were in excess of their
carrying value as of December 31, 2008. Aggregate amortization expense on
patents and trademarks was approximately $2,000 and $5,000 for the three and six
months ended June 30, 2009, respectively, and $92,000 and $362,000 for the three
and six months ended June 30, 2008,
respectively.




6.
            Comprehensive
      Income




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




Three
      Months Ended
              June
      30,
            
            
            Six
      Months Ended
              June
      30,2009
            
            
            2008
            
            
            2009
            
            
            2008Net
      income
            
            $
            1,052
            
            
            $
            1,306
            
            
            $
            2,274
            
            
            $
            6,504Unrealized
      gain (loss) on investments
            
            
            989
            
            
            
            (187
            )
            
            
            826
            
            
            
            (505
            )Comprehensive
      income
            
            $
            2,041
            
            
            $
            1,119
            
            
            $
            3,100
            
            
            $
            5,999





7.
            Income
      Taxes




During
the three and six months ended June 30, 2009, our income tax expense consisted
of alternative minimum federal tax and state income tax. Our effective income
tax rate differs from the statutory income tax rate primarily as a result of our
use of federal net operating losses (“NOLs”) to offset current federal tax
expense. A valuation allowance was originally recorded against our deferred tax
assets as we determined the realization of these assets did not meet the more
likely than not criteria in accordance with SFAS No. 109, “Accounting for Income
Taxes.” During the first quarter of 2008, we determined that a full valuation
allowance against our deferred tax assets was not necessary and recorded a
partial reversal of the deferred tax valuation allowance of $3.7 million. During
the first quarter of 2009, we re-evaluated our future operating income
projections and determined that the realization of our net deferred tax asset
continue to be more likely than not.  In making such determination, we
considered all available positive and negative evidence, including our recent
earnings trend and expected continued future taxable income.  We
continue to maintain a valuation allowance for the remainder of our deferred tax
assets. In September 2008 the State of California passed legislation temporarily
suspending the use of NOLs to offset current state income tax expense. As a
result of not being able to use our state NOLs, we incurred approximately
$51,000 and $258,000 of additional California state income tax expense during
the three and six months ended June 30, 2009, respectively. During the three and
six months ended June 30, 2009, we recorded a current tax provision for
corporate alternative minimum federal taxes and state taxes of approximately
$84,000 and $334,000, respectively.




8


STAMPS.COM
 NOTES
TO FINANCIAL STATEMENTS
 (ALL
INFORMATION WITH RESPECT TO JUNE 30, 2009 AND 2008 IS
UNAUDITED)




Under
Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting
for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109”,
we are required to determine whether it is more likely than not that a tax
position will be sustained upon examination based on the technical merits of the
position.  A tax position that meets the more likely than not
recognition threshold is measured to determine the amount of benefit to
recognize in the financial statements. We have concluded that there are no
significant uncertain tax positions requiring recognition in our financial
statements. Our policy is to recognize interest and penalties expense, if any,
related to unrecognized tax benefits as a component of income tax expense.
 As of June 30, 2009, we have not recorded any interest and penalty
expense.




8.
            Fair
      Value Measurements




SFAS No.
157, “Fair Value Measurement” (“SFAS 157”) defines fair value, establishes a
framework for measuring fair value and expands disclosure for each major asset
and liability category measured at fair value on either a recurring or
nonrecurring basis. On January 1, 2009, we adopted FASB Financial Staff Position
(“FSP”) SFAS No. 157-2, "Effective Date of FASB Statement No. 157" (“FSP SFAS
157-2”), which deferred the application date of the provisions of SFAS No. 157
for all nonfinancial assets and liabilities to fiscal years beginning after
November 15, 2008 except for items that are recognized or disclosed at fair
value in the financial statements on a recurring basis. The adoption of FSP SFAS
157-2 did not have a material impact to our financial statements. The fair value
hierarchy for disclosure of fair value measurements under SFAS 157 is as
follows:




Level
      1  -
            Valuations
      based on unadjusted quoted prices for identical assets in an active
      market




Level
      2  -
            Valuations
      based on quoted prices in markets where trading occurs infrequently or
      whose values are based on quoted prices of instruments with similar
      attributes in active markets




Level
      3  -
            Valuations
      based on inputs that are unobservable and involve management judgment and
      our own assumptions about market participants and
  pricing




The
following table summarizes our financial assets measured at fair value on a
recurring basis in accordance with SFAS 157 (in thousands):




Fair
      Value Measurement at Reporting Date UsingDescription
            
            June
      30, 2009
            
            
            Quoted
      Prices in Active Markets for Identical Assets
                (Level
      1)
            
            
            Significant
      Other Observable Inputs
                (Level
      2)
            
            
            Significant
      Unobservable Inputs
                (Level
      3)Cash
      and cash equivalents
            
            $
            44,112
            
            
            $
            44,112
            
            
            $
            —
            
            
            $
            —Available-for-sale
      debt securities
            
            
            26,130
            
            
            
            —
            
            
            
            26,130
            
            
            
            —Total
            
            $
            70,242
            
            
            $
            44,112
            
            
            $
            26,130
            
            
            $
            —




The fair
value of our available-for-sale debt securities included in the Level 2 category
is based on the market values obtained from an independent pricing service that
were evaluated using pricing models that vary by asset class and may incorporate
available trade, bid and other market information and price quotes from well
established independent pricing vendors and broker-dealers.




9


STAMPS.COM
 NOTES
TO FINANCIAL STATEMENTS
 (ALL
INFORMATION WITH RESPECT TO JUNE 30, 2009 AND 2008 IS
UNAUDITED)




8.
            Cash,
      Cash Equivalents and Investments




Our cash
equivalents and investments consist of money market, U.S. government
obligations, asset-backed securities and public corporate debt securities at
June 30, 2009 and December 31, 2008.  On April 1, 2009, we adopted FSP
No. SFAS 107-1 and APB 28-1, “Interim Disclosure about Fair Value of Financial
Instruments” (“FSP SFAS 107-1 and APB 28-1”) and FSP No. SFAS 115-2 and SFAS
124-2, “Recognition and Presentation of Other-Than Temporary Impairments” (“FSP
SFAS 115-2 and SFAS 124-2”). FSP SFAS 107-1 and APB 28-1 amends the required
disclosure about fair value of financial instruments for interim reporting
periods of publicly traded companies as well as in annual financial statements
and the required disclosures in summarized financial information at interim
reporting periods. FSP SFAS 115-2 and SFAS 124-2 amend the other-than-temporary
impairment guidance for debt securities to make the guidance more operational
and to improve the presentation and disclosure of other-than-temporary
impairments on debt and equity securities in the financial
statements.




We
consider all highly liquid investments with an original or remaining maturity of
three months or less at the date of purchase to be cash equivalents. All
investments are classified as available for sale and are recorded at market
value using the specific identification method. Unrealized gains and losses are
included as a separate component of stockholders' equity. We have twelve
securities with a total fair value of approximately $6.9 million that has
unrealized loss of approximately $811,000 as of June 30, 2009. Realized gains
and losses are reflected in other income. The following table summarizes
realized gains and losses for the period indicated (in thousands):




Three
      Months Ended
              June
      30,
            
            
            Six
      Months Ended
              June
      30,2009
            
            
            2008
            
            
            2009
            
            
            2008Realized
      gain
            
            $
            0.5
            
            
            $
            1.5
            
            
            $
            36.0
            
            
            $
            6.4Realized
      loss
            
            
            (0.1
            )
            
            
            (0.2
            )
            
            
            (5.0
            )
            
            
            (20.3
            )Net
      realized gain (loss)
            
            $
            0.4
            
            
            $
            1.3
            
            
            $
            31.0
            
            
            $
            (13.9
            )







Other-than-temporary
impairment (“OTTI”) is recorded when the fair value of our available for sale
securities is less than historical cost, and it is probable that all contractual
cash flows will not be collected. We evaluate for OTTI on at least a quarterly
basis and as of the three and six months ended June 30, 2009, we did not incur
any OTTI. In conducting this assessment, we evaluated a number of factors
including, but not limited to:




·
            How
      much fair value has declined below amortized
  cost


·
            The
      financial condition of the issuers


·
            Significant
      rating agency changes on the issuer


·
            Our
      intent and ability to hold the security for a period of time sufficient to
      allow for any anticipated recovery in fair
value




10


STAMPS.COM
 NOTES
TO FINANCIAL STATEMENTS
 (ALL
INFORMATION WITH RESPECT TO JUNE 30, 2009 AND 2008 IS
UNAUDITED)




The
following table summarizes our cash, cash equivalents, restricted cash and
investments as of June 30, 2009 and December 31, 2008 (in
thousands):




June 30, 2009Cost
      or
            
            
            Gross
            
            
            GrossAmortized
            
            
            Unrealized
            
            
            Unrealized
            
            
            EstimatedCost
            
            
            Gains
            
            
            Losses
            
            
            Fair
      ValueCash
      and cash equivalents:Cash
            
            $
            4,456
            
            
            $
            -
            
            
            $
            -
            
            
            $
            4,456Money
      market
            
            
            39,656
            
            
            
            -
            
            
            
            -
            
            
            
            39,656Cash
      and cash equivalents
            
            
            44,112
            
            
            
            -
            
            
            
            -
            
            
            
            44,112Restricted
      cash:Corporate
      notes and bonds
            
            
            554
            
            
            
            -
            
            
            
            -
            
            
            
            554Restricted
      cash
            
            
            554
            
            
            
            -
            
            
            
            -
            
            
            
            554Short-term
      investments:Corporate
      notes and bonds
            
            
            958
            
            
            
            6
            
            
            
            (24
            )
            
            
            940Short-term
      investments
            
            
            958
            
            
            
            6
            
            
            
            (24
            )
            
            
            940Long-term
      investments:Corporate
      bonds and asset backed securities
            
            
            25,304
            
            
            
            119
            
            
            
            (787
            )
            
            
            24,636Long-term
      investments
            
            
            25,304
            
            
            
            119
            
            
            
            (787
            )
            
            
            24,636Cash
      and equivalents, restricted cash and investments
            
            $
            70,928
            
            
            
            125
            
            
            
            (811
            )
            
            $
            70,242




December 31, 2008Cost
      or
            
            
            Gross
            
            
            GrossAmortized
            
            
            Unrealized
            
            
            Unrealized
            
            
            EstimatedCost
            
            
            Gains
            
            
            Losses
            
            
            Fair
      ValueCash
      and cash equivalents:Cash
            
            $
            6,762
            
            
            $
            -
            
            
            $
            -
            
            
            $
            6,762Money
      market
            
            
            45,814
            
            
            
            -
            
            
            
            -
            
            
            
            45,814Cash
      and cash equivalents
            
            
            52,576
            
            
            
            -
            
            
            
            -
            
            
            
            52,576Restricted
      cash:Corporate
      notes and bonds
            
            
            554
            
            
            
            -
            
            
            
            -
            
            
            
            554Restricted
      cash
            
            
            554
            
            
            
            -
            
            
            
            -
            
            
            
            554Short-term
      investments:Corporate
      notes and bonds
            
            
            14,285
            
            
            
            -
            
            
            
            (48
            )
            
            
            14,237U.S.
      Government and agency securities
            
            
            2,002
            
            
            
            -
            
            
            
            (4
            )
            
            
            1,998Short-term
      investments
            
            
            16,287
            
            
            
            -
            
            
            
            (52
            )
            
            
            16,235Long-term
      investments:Corporate
      bonds and asset backed securities
            
            
            6,154
            
            
            
            -
            
            
            
            (1,460
            )
            
            
            4,694Long-term
      investments
            
            
            6,154
            
            
            
            -
            
            
            
            (1,460
            )
            
            
            4,694Cash
      and equivalents, restricted cash and investments
            
            $
            75,571
            
            
            
            -
            
            
            
            (1,512
            )
            
            $
            74,059





11


STAMPS.COM
 NOTES
TO FINANCIAL STATEMENTS
 (ALL
INFORMATION WITH RESPECT TO JUNE 30, 2009 AND 2008 IS
UNAUDITED)




The
following table summarizes contractual maturities of our marketable fixed-income
securities as of June 30, 2009 (in thousands):




Amortized
                Cost
            
            
            Estimated
                Fair
      ValueDue
      within one year
            
            $
            1,512
            
            
            $
            1,494Due
      after one year through five years
            
            
            23,293
            
            
            
            22,908Due
      after five years through ten years
            
            
            2,011
            
            
            
            1,728Total
            
            $
            26,816
            
            
            $
            26,130




Total
restricted cash of approximately $554,000 as of June 30, 2009 and December 31,
2008 is related to a letter of credit for a facility leased by us under a lease
that will expire in February 2010.




12




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




This
Quarterly Report on Form 10-Q contains "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
“Securities Act”),  and Section 21E of the Securities Exchange Act of
1934, as amended (the “Exchange Act”).  These statements relate to
expectations concerning matters that are not historical
facts.   You can find many (but not all) of these statements by
looking for words such as “approximates,” “believes,” “expects,” “anticipates,”
“estimates,” “intends,” “plans,” “would,” “may” or other similar expressions in
this report.  We claim the protection of the safe harbor contained in
the Private Securities Litigation Reform Act of 1995.  We caution
investors that any forward-looking statements presented in this report, or that
we may make orally or in writing from time to time, are based on beliefs and
assumptions made by, and information currently available to, us.  Such
statements are based on assumptions, and the actual outcome will be affected by
known and unknown risks, trends, uncertainties and factors that are beyond our
control or ability to predict. Although we believe that our assumptions are
reasonable, they are not guarantees of future performance, and some will
inevitably prove to be incorrect. As a result, our actual future results may
differ from our expectations, and those differences may be material. We are not
undertaking any obligation to update any forward-looking statements.
Accordingly, investors should use caution in relying on past forward-looking
statements, which are based on known results and trends at the time they are
made, to anticipate future results or trends.




Please
refer to the risk factors under “Item 1A. Risk Factors” of our Form 10-K for the
year ended December 31, 2008 as well as those described elsewhere in our public
filings.  The risks included are not exhaustive, and additional
factors could adversely affect our business and financial
performance.  We operate in a very competitive and rapidly changing
environment. New risk factors emerge from time to time, and it is not possible
for management to predict all such risk factors, nor can it assess the impact of
all such risk factors on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.





Stamps.com,
NetStamps, PhotoStamps, Hidden Postage, Stamps.com Internet postage and the
Stamps.com logo are our trademarks.  This report also references
trademarks of other entities.




SPECIAL
NOTICE REGARDING PURCHASES OF MORE THAN 5% OF OUR STOCK




We
currently have federal and state net operating loss (“NOL”) carry-forwards of
approximately $236 million and $150 million, respectively, with potential value
of up to $94 million in tax savings over the next 15 years. Under Internal
Revenue Code Section 382 rules, if a “change of ownership” is triggered, our NOL
asset may be impaired. A change in ownership can occur whenever there is a shift
in ownership by more than 50 percentage points by one or more “5% shareholders”
within a three-year period. We estimate that as of June 30, 2009 we were at
approximately a 28% level compared with the 50% level that would trigger
impairment of our NOL asset.




Under our
certificate of incorporation, any person, company or investment firm that wishes
to become a “5% shareholder” (as defined in our certificate of incorporation) of
Stamps.com must first obtain a waiver from our board of directors. In addition,
any person, company or investment firm that is already a “5% shareholder” of
Stamps.com cannot make any additional purchases of Stamps.com stock without a
waiver from our board of directors.  Full details of the NOL
Protective Measures are contained in our Definitive Proxy filed with the
Securities Exchange Commission on April 2, 2008.




As of
July 31, 2009, we had approximately 16,139,000 shares outstanding, and therefore
ownership of approximately 807,000 shares or more would currently constitute a
“5% shareholder”. We strongly
urge that any stockholder contemplating owning more than 650,000 shares contact
us before doing so.




Overview




Stamps.com®
is the leading provider of Internet-based postage solutions. Our customers use
our service to mail and ship a variety of mail pieces, including postcards,
envelopes, flats and packages, using a wide range of United States Postal
Service (“USPS”) mail classes including First Class Mail®, Priority Mail®,
Express Mail®, Media Mail®, Parcel Post®, and others. Our customers include home
businesses, small businesses, corporations and individuals. We were the first
ever USPS-licensed vendor to offer PC Postage® in a software-only business model
in 1999.




13





Our
Services and Products





We offer
the following products and services to our customers:




PC Postage
Service




Our
USPS-approved PC Postage service enables users to print “electronic stamps”
directly onto envelopes, plain paper, or labels using only a standard personal
computer, printer and Internet connection. Our service currently supports a
variety of USPS and international mail classes. Customers can also add USPS
Special Services such as Delivery ConfirmationTM,
Signature ConfirmationTM,
Registered Mail, Certified Mail, Insured Mail, Return Receipt, Collect on
Delivery and Restricted Delivery to their mail pieces. After installing our free
software and completing the registration process, customers can purchase and
print postage 24 hours a day, seven days a week. When a customer purchases
postage for use through our service, the customer pays face value, and the funds
are transferred directly from the customer’s account to the USPS’s account.
Currently the majority of new customers signing up for our service pay a monthly
convenience fee ranging from $15.99 to $34.99.




Our
customers can print postage (i) on NetStamps® labels, which can be used just
like regular stamps, (ii) directly on envelopes or on other types of mail or
labels, in a single-step process that saves time and provides a professional
look, (iii) on plain 8.5” x 11” paper or on special labels for packages, and
(iv) on integrated customs forms for international mail.  For added
convenience, our PC Postage services incorporate address verification technology
that verifies each destination address for mail sent using our service against a
database of all known addresses in the United States and can be integrated into
common small business and productivity software applications such as word
processing, contact and address management, and accounting and financial
applications. We also offer several different versions of NetStamps such as
Themed NetStamps and Photo NetStamps that allow customers to add stock or full
custom designs to their mail while still providing the same NetStamps
convenience of printing and using postage whenever it is needed.




PhotoStamps®




PhotoStamps
is a patented form of postage that allows consumers to turn digital photos,
designs or images into valid US postage. With this product, individuals or
businesses can now create customized US postage using pictures of their
children, pets, vacations, celebrations, business logos and more. PhotoStamps
can be used as regular postage to send letters, postcards or packages. The
product is available via our separately-marketed website at www.photostamps.com.
Customers upload a digital photograph or image file, customize the look and feel
by choosing a border color to complement the photo, select the value of postage,
and place the order online. Each sheet includes 20 individual PhotoStamps, and
orders arrive via US Mail in a few business days. In May 2009 our PhotoStamps
product successfully completed its market test and is no longer in market test
status. We do not include our PhotoStamps business when we refer to our PC
Postage business.




Mailing
& Shipping Supplies Store




Our
Mailing & Shipping Supplies Store (our “Supplies Store”) is available to our
customers from within our PC Postage software and sells NetStamps labels,
shipping labels, other mailing labels, dedicated postage printers, OEM and
private label inkjet and laser toner cartridges, scales, and other mailing and
shipping-focused office supplies. Our Supplies Store features a store catalog,
same day shipping capabilities, messaging of our free or discounted shipping
promotions, cross sell during checkout, product search capabilities, and
expedited and rush shipping options.




Branded
Insurance




We offer
Stamps.com branded insurance to our customers so that they may insure their mail
or packages in a fully integrated, online process that eliminates any trips to
the post office or the need to complete any special forms. Our branded insurance
is provided in partnership with Parcel Insurance Plan and is underwritten by
Fireman's Fund. We also offer official USPS insurance alongside our branded
insurance product.




14




Recent Accounting
Pronouncements




In April
2009, the FASB issued FSP No. SFAS 107-1 and APB 28-1, Interim Disclosure about
Fair Value of Financial Instruments (“FSP SFAS 107-1 and APB 28-1”). FSP SFAS
107-1 and APB 28-1 amends the required disclosure about fair value of financial
instruments for interim reporting periods of publicly traded companies as well
as in annual financial statements and the required disclosures in summarized
financial information at interim reporting periods.  FSP SFAS 107-1
and APB 28-1 is effective for interim and annual reporting periods ending after
June 15, 2009, with early adoption permitted for periods after March 15,
2009.  The adoption of FSP SFAS 107-1 and APB 28-1 did not have a
material impact on our financial statements.




In April
2009, the FASB issued FSP No. SFAS 115-2 and SFAS 124-2, Recognition and
Presentation of Other-Than Temporary Impairments (“FSP SFAS 115-2 and SFAS
124-2”).  FSP SFAS 115-2 and SFAS 124-2 amend the other-than-temporary
impairment guidance for debt securities to make the guidance more operational
and to improve the presentation and disclosure of other-than-temporary
impairments on debt and equity securities in the financial statements. FSP SFAS
115-2 and SFAS 124-2 is effective for interim and annual reporting periods
ending after June 15, 2009, with early adoption permitted for periods after
March 15, 2009.  The adoption of FSP SFAS 115-2 and SFAS 124-2 did not
have a material impact on our financial statements.




In April
2009, the FASB issued FSP No. SFAS 157-4, Determining Fair Value When the Volume
and Level of Activity for the Asset or Liability Have Significantly Decreased
and Identifying Transactions That Are Not Orderly (“FSP SFAS
157-4”).  FSP SFAS 157-4 provides guidelines for (1) estimating fair
value in accordance with SFAS No. 157, “Fair Value Measurement”, when the volume
and level of activity for an asset or liability have significantly decreased and
(2) identifying circumstances indicating that a transaction is not an orderly
one. FSP SFAS 157-4 is effective for interim and annual periods ending after
June 15, 2009, but entities may early adopt for the interim and annual periods
ending after March 15, 2009.  The adoption of FSP SFAS 157-4 did not
have a material impact on our financial statements.




In May
2009, the FASB issued SFAS No. 165, Subsequent Events (“SFAS No. 165”).
SFAS No. 165 establishes guidance for the accounting for and the disclosure
of events that happen after the date of the balance sheet but before the release
of the financial statements. We adopted SFAS No. 165 for the quarter ending
June 30, 2009 and its adoption did not have a material impact on our
financial statements.




In June
2009, the FASB issued SFAS No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles
(“SFAS No. 168). SFAS No. 168 replaces SFAS No. 162, The Hierarchy of
Generally Accepted Accounting Principles, and becomes the source of
authoritative US generally accepted accounting principles recognized by the FASB
to be applied by nongovernmental entities.  SFAS No. 168 is effective
for financial statements issued for interim and annual reports ending after
September 15, 2009. The adoption of SFAS No. 168 will not have a material impact
on our financial statements.




Results of
Operations




Total
revenue was $20.2 million during the second quarter of 2009, a decrease of 6%
from $21.4 million in the second quarter of 2008. Total revenue during the six
months ended June 30, 2009 was $40.2 million, a decrease of 5% from $42.5
million during the six months ended June 30, 2008. PC Postage subscriber related
revenue, including service revenue, product revenue and insurance revenue in the
second quarter of 2009 was $18.2 million, a decrease of 2% from $18.5 million in
the second quarter of 2008, and was $36.5 million in the six months ended June
30, 2009, a change of less than 1% from $36.6 million in the six months ended
June 30, 2008. PhotoStamps revenue in the second quarter of 2009 was $2.0
million, a decrease of 31% from $2.9 million in the second quarter of 2008, and
was $3.7 million in the six months ended June 30, 2009, a decrease of 37% from
$5.9 million in the six months ended June 30, 2008.




We use
several PC Postage marketing channels to acquire customers, including
partnerships, online advertising, affiliate channel, direct mail, traditional
media advertising, enhanced promotion online channel, and others. In the
enhanced promotion channel, we work with various companies to advertise our
service in a variety of sites on the Internet. These companies typically offer
an additional promotion (beyond what we typically offer) directly to the
customer in order to get the customer to try our service. Because our enhanced
promotion channel is characterized by higher customer attrition rates and lower
customer acquisition costs than our other channels, we decided in the first
quarter of 2008 to shift our marketing strategy and customer acquisition
spending to focus on our non-enhanced promotion channels.




15




Primarily
as a result of this decision, we estimate that while subscriber related revenue
for customers acquired through our non-enhanced promotion channels in the second
quarter of 2009 was $16.6 million, an increase of 3% from $16.1 million in the
second quarter of 2008, and was $33.2 million in the six months ended June 30,
2009, an increase of 5% from $31.7 million in the six months ended June 30,
2008, subscriber related revenue for customers acquired through our enhanced
promotion channel in the second quarter of 2009 was $1.5 million, a decrease of
36% from $2.4 million in the second quarter of 2008, and was $3.3 million in the
six months ended June 30, 2009, a decrease of 32% from $4.9 million in the six
months ended June 30, 2008.




We define
paid customers as ones from whom we successfully collected service fees at least
once during the quarter. Total number of paid customers originally acquired
through our non-enhanced promotion channels in the second quarter of 2009 was
317,000, an increase of 1% from 314,000 in the second quarter of
2008.




We
believe that the slight increase in paid customers in the second quarter of 2009
was attributable to our increased customer acquisition spending on our
non-enhanced promotional channels. For customers originally acquired through our
non-enhanced promotion channels, our average subscriber related monthly revenue
per paid customer in the second quarter of 2009 was $17.50, an increase of 2%
from $17.14 in the second quarter of 2008. This increase is primarily
attributable to more customers on higher priced subscription plans.




The
following table sets forth our results of operations as a percentage of total
revenue for the periods indicated:




Three
      Months Ended
              June
      30,
            
            
            Six
      Months Ended
              June
      30,2009
            
            
            2008
            
            
            2009
            
            
            2008Total
      RevenuesService
            
            
            75.3
            %
            
            
            72.8
            %
            
            
            75.9
            %
            
            
            72.5
            %Product
            
            
            12.8
            %
            
            
            12.0
            %
            
            
            12.9
            %
            
            
            11.9
            %Insurance
            
            
            2.0
            %
            
            
            1.8
            %
            
            
            2.0
            %
            
            
            1.8
            %PhotoStamps
            
            
            9.9
            %
            
            
            13.4
            %
            
            
            9.2
            %
            
            
            13.8
            %Other
            
            
            0.0
            %
            
            
            0.0
            %
            
            
            0.0
            %
            
            
            0.0
            %Total
      revenues
            
            
            100.0
            %
            
            
            100.0
            %
            
            
            100.0
            %
            
            
            100.0
            %Cost
      of revenuesService
            
            
            14.2
            %
            
            
            10.6
            %
            
            
            14.6
            %
            
            
            11.8
            %Product
            
            
            5.1
            %
            
            
            4.4
            %
            
            
            4.9
            %
            
            
            4.3
            %Insurance
            
            
            0.6
            %
            
            
            0.6
            %
            
            
            0.6
            %
            
            
            0.6
            %PhotoStamps
            
            
            7.5
            %
            
            
            9.8
            %
            
            
            7.0
            %
            
            
            9.9
            %Total
      cost of revenues
            
            
            27.4
            %
            
            
            25.4
            %
            
            
            27.1
            %
            
            
            26.6
            %Gross
      profit
            
            
            72.6
            %
            
            
            74.6
            %
            
            
            72.9
            %
            
            
            73.4
            %Operating
      expenses:Sales
      and marketing
            
            
            40.8
            %
            
            
            41.0
            %
            
            
            40.5
            %
            
            
            41.0
            %Research
      and development
            
            
            10.9
            %
            
            
            9.8
            %
            
            
            11.0
            %
            
            
            9.5
            %General
      and administrative
            
            
            16.4
            %
            
            
            20.8
            %
            
            
            16.3
            %
            
            
            19.8
            %Total
      operating expenses
            
            
            68.1
            %
            
            
            71.6
            %
            
            
            67.8
            %
            
            
            70.3
            %Income
      from operations
            
            
            4.5
            %
            
            
            3.0
            %
            
            
            5.1
            %
            
            
            3.1
            %Other
      income (expense), net
            
            
            1.1
            %
            
            
            3.4
            %
            
            
            1.5
            %
            
            
            3.9
            %Income
      before income taxes
            
            
            5.6
            %
            
            
            6.4
            %
            
            
            6.6
            %
            
            
            7.0
            %Income
      tax expense (benefit)
            
            
            0.4
            %
            
            
            0.4
            %
            
            
            0.8
            %
            
            
            (8.2
            %)Net
      income
            
            
            5.2
            %
            
            
            6.0
            %
            
            
            5.8
            %
            
            
            15.2
            %





16




Revenue




Our
revenue is derived primarily from five sources: (1) service fees charged to
customers for use of our PC Postage service; (2) product revenue from the direct
sale of consumables and supplies through our Supplies Store; (3) insurance
revenue from our branded insurance offering; (4) PhotoStamps revenue from our
PhotoStamps business; and (5) other revenue, consisting of advertising revenue
derived from advertising programs with our existing customers.




Service
revenue decreased 2% to $15.2 million in the second quarter of 2009 from
$15.6 million in the second quarter of 2008 and decreased 1% to $30.5
million in the six months ended June 30, 2009 from $30.8 million in the six
months ended June 30, 2008. These decreases in service revenue were primarily
due to a strategic reduction in marketing spending on our enhanced promotion
channel. As noted above, the decrease during the second quarter consisted of a
36% decrease in service fee revenue from customers acquired through our enhanced
promotional channels and a 4% increase in service fee revenue from customers
acquired through our non-enhanced promotional channels. As a percentage of total
revenue, service revenue increased two percentage points to 75% in the second
quarter of 2009 from 73% in the second quarter of 2008 and increased four
percentage points to 76% in the six months ended June 30, 2009 from 72% in the
six months ended June 30, 2008, primarily as a result of the decrease in revenue
from our PhotoStamps product.




Product
revenue was $2.6 million in both the second quarter of 2009 and 2008, and
increased 3% to $5.2 million in the six months ended June 30, 2009 from $5.1
million in the six months ended June 30, 2008. The increase was primarily
attributable to the following: (1) growth in our paid customer base; (2)
marketing our Supplies Store to our existing customer base; (3) the additional
SKUs we added to our Supplies Store; and (4) growth in postage printed, which
helps drive sales of consumable supplies such as labels. Total postage printed
by customers using our service during the second quarter of 2009 was $83
million, an 8% increase from the $77 million printed during the second quarter
of 2008. As a percentage of total revenue, product revenue increased one
percentage point to 13% both in the second quarter of 2009 and the six months
ended June 30, 2009 from 12% in the second quarter of 2008 and the six months
ended June 30, 2008.




Insurance
revenue increased 5% to $395,000 in the second quarter of 2009 from $377,000 in
the second quarter of 2008 and increased 4% to $799,000 in the six months ended
June 30, 2009 from $765,000 in the six months ended June 30, 2008, primarily as
a result of an increase in the average of the dollar value insured per
transaction. As a percentage of total revenue, insurance revenue remained at 2%
during each of the second quarter of 2009 and 2008 and the six months ended June
30, 2009 and 2008.




As
previously announced, we reduced our PhotoStamps sales and marketing spending in
the second quarter of 2009 compared with the second quarter of 2008 and plan to
continue to reduce our sales and marketing spending on PhotoStamps in future
periods to improve profitability in that business.  The reduction has
resulted in, and we expect that the reduction will continue to result in, lower
PhotoStamps revenue.  Accordingly, PhotoStamps revenue decreased 31%
to $2.0 million in the second quarter of 2009 from $2.9 million in the
second quarter of 2008 and decreased 37% to $3.7 million in the six months ended
June 30, 2009 from $5.9 million in the six months ended June 30, 2008. As a
percentage of total revenue, PhotoStamps revenue decreased three percentage
points to 10% in the second quarter of 2009 from 13% in the second quarter of
2008 and decreased five percentage points to 9% in the six months ended June 30,
2009 from 14% in the six months ended June 30, 2008. Total PhotoStamps sheets
shipped during the second quarter of 2009 was approximately 118,000, a 31%
decrease compared to 171,000 in the second quarter of 2008. Average revenue per
sheet shipped in the second quarter of 2009 was $16.92 compared to $16.83 in the
second quarter of 2008.




Other
revenue consisting of commissions from the advertising or sale of products by
third party vendors to our customer base was $5,000 both in the second quarter
of 2009 and the six months ended June 30, 2009 compared to $0 in the second
quarter of 2008 and the six months ended June 30, 2008. Commission revenue is
currently not material to our financial statements.




Cost
of Revenue




Cost of
revenue principally consists of the cost of customer service, certain
promotional expenses, system operating costs, credit card processing fees, the
cost of postage for PhotoStamps, image review, printing and fulfillment costs
for PhotoStamps, parcel insurance offering costs, customer misprints and
products sold through our Supplies Store and the related costs of shipping and
handling. Total cost of revenue increased 2% to $5.5 million in the second
quarter of 2009 from $5.4 million in the second quarter of 2008 and decreased 3%
to $10.9 million in the six months ended June 30, 2009 from $11.3 million in the
six months ended June 30, 2008. As a percentage of total revenue, total cost of
revenue increased two percentage points to 27% in the second quarter of 2009
from 25% in the second quarter of 2008 and was unchanged at 27% in the six
months ended June 30, 2009 and June 30, 2008.




17




Cost of
service revenue increased 27% to $2.9 million in the second quarter of 2009 from
$2.3 million in the second quarter 2008. The increase during the quarter is
primarily attributable to a change in our assumption of future coupon
redemptions relating to our promotional expense, which provided a one-time
benefit during the second quarter of 2008 of approximately $266,000 compared to
an expense of $363,000 in the second quarter of 2009. Cost of service revenue
increased 18% to $5.9 million in the six months ended June 30, 2009 from $5.0
million in the six months ended June 30, 2008. This increase is primarily
attributable to the promotion benefit discussed above and higher customer
support related expenses from expanding our support personnel and increased
costs related to our retention program aimed at retaining customers who call to
cancel their service. Promotional expense, which represents a material portion
of total cost of service revenue, is expensed in the period in which a customer
qualifies for the promotion, while the revenue associated with the acquired
customer is earned over the customer's lifetime. As a result, promotional
expense for newly acquired customers may exceed the revenue earned from those
customers in that period.  Promotional expense was $723,000 and
$199,000 in the six months ended June 30, 2009 and 2008, respectively. As a
percentage of total revenue, cost of service revenue increased three percentage
points to 14% in the second quarter of 2009 from 11% the second quarter of 2008
and increase three percentage points to 15% in the six months ended June 30,
2009 from 12% in the six months ended June 30, 2008.




Cost of
product revenue increased 9% to $1.0 million in the second quarter of 2009 from
$948,000 in the second quarter of 2008 and increased 8% to $2.0 million in the
six months ended June 30, 2009 from $1.8 million in the six months ended June
30, 2008. As a percentage of total revenue, cost of product revenue increased
one percentage point to 5% in the three and six months ended June 30, 2009 from
4% in the three and six months ended June 30, 2008. The increase, on an absolute
basis, is mainly attributable to the increase in fulfillment cost as we added
east coast fulfillment to reduce delivery times. See “Product Revenue” in
Results of Operation above for further discussion.




Cost of
insurance revenue increased 3% to $123,000 in the second quarter of 2009 from
$119,000 in the second quarter of 2008 and increased 4% to $248,000 in the six
months ended June 30, 2009 from $239,000 in the six months ended June 30, 2008.
The increase is mainly attributable to the increase in insurance sales as a
result of the increase in the average of the dollar value insured per
transaction. As a percentage of total revenue, cost of insurance revenue was
unchanged at 1% in the three and six months ended June 30, 2009 and
2008.




Cost of
PhotoStamps revenue decreased 27% to $1.5 million in the second quarter of
2009 from $2.1 million in the second quarter of 2008 and decreased 33% to $2.8
million in the six months ended June 30, 2009 from $4.2 million in the six
months ended June 30, 2008, corresponding to the decrease in PhotoStamps
revenue. Additionally, the gross margin from PhotoStamps is significantly lower
than that of our other sources of revenue because we include the stated value of
USPS postage as part of our cost of PhotoStamps revenue. As a percentage of
total revenue, cost of PhotoStamps revenue decreased two percentage points to 8%
in the second quarter of 2009 from 10% in second quarter of 2008 and decreased
three percentage points to 7% in the six months ended June 30, 2009 from 10% in
the six months ended June 30, 2008.




Sales
and Marketing




Sales and
marketing expense principally consists of spending to acquire new customers and
compensation and related expenses for personnel engaged in sales, marketing and
business development activities. Sales and marketing expense decreased 6% to
$8.2 million in the second quarter of 2009 from $8.8 million in the second
quarter 2008 and decreased 6% to $16.3 million in the six months ended June 30,
2009 from $17.4 million in the six months ended June 30, 2008. As a percentage
of total revenue, sales and marketing expenses was 41% in the second quarter of
2009 and the second quarter of 2008 and decreased one percentage point to 40% in
the six months ended June 30, 2009 from 41% in the six months ended June 30,
2008. The decrease, both on an absolute basis and as a percentage of total
revenue, is primarily due to our decision to decrease our enhanced promotion
marketing program expenditures and to decrease our marketing expenditures
related to PhotoStamps, partially offset by an increase in marketing program
expenditures relating to the acquisition of customers outside the enhanced
promotion channel for our PC Postage business. Ongoing marketing programs
include the following: traditional advertising, partnerships, customer referral
programs, customer re-marketing efforts, telemarketing, direct mail, and online
advertising.




18




Research
and Development




Research
and development expense principally consists of compensation for personnel
involved in the development of our services, depreciation of equipment and
software and expenditures for consulting services and third party software.
Research and development expense increased 5% to $2.2 million in the second
quarter of 2009 from $2.1 million in the second quarter of 2008 and increased 9%
to 4.4 million in the six months ended June 30, 2009 from $4.0 million in the
six months ended June 30, 2008. These increases are primarily due to higher
headcount related expenses as we continued to invest in the development and
enhancement of our PC postage solutions. As a percentage of total revenue,
research and development expense increased one percentage point to 11% in the
second quarter of 2009 and the six months ended June 30, 2009 from 10% in the
second quarter of 2008 and the six months ended June 30, 2008.




General and
Administrative




General
and administrative expense principally consists 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. General and
administrative expense decreased 26% to $3.3 million in the second quarter of
2009 from $4.5 million in the second quarter of 2008 and decreased 22% to $6.6
million in the six months ended June 30, 2009 from $8.4 million in the six
months ended June 30, 2008. As a percentage of total revenue, general and
administrative expense decreased five percentage points to 16% in the second
quarter of 2009 from 21% in the second quarter of 2008 and decreased four
percentage points to 16% in the six months ended June 30, 2009 from 20% in the
six months ended June 30, 2008. The decrease, both on an absolute basis and as a
percentage of total revenue, is primarily due to the decrease in legal expenses,
as we incurred the cost of going to trial in the second quarter of 2008 in the
Kara Technologies lawsuit. Additionally, we incurred a one-time litigation
charge of $710,000 during the second quarter of 2008 relating to a lawsuit by
Sterling Reality Organization Co. stemming from our iShip business which we
divested in 2001.




Other
Income, Net




Other
income, net primarily consists of interest income from cash equivalents,
short-term investments and long-term investments. Other income, net decreased
68% to $232,000 in the second quarter of 2009 from $736,000 in the second
quarter of 2008 and decreased 65% to $589,000 in the six months ended June 30,
2009 from $1.7 million in the six months ended June 30, 2008. As a percentage of
total revenue, other income, net decreased two percentage points to 1% in the
second quarter of 2009 from 3% in the second quarter of 2008 and decreased three
percentage points to approximately 1% in the six months ended June 30, 2009 from
4% in the six months ended June 30, 2008. The decrease, both on an absolute
basis and as a percentage of total revenue, is primarily due to lower rates and
lower investment balances, as we sold certain investments and used the cash to
repurchase shares of our common stock.




Liquidity
and Capital Resources




As of
June 30, 2009 and December 31, 2008 we had approximately $70 million and $74
million, respectively, in cash, restricted cash and short-term and long-term
investments. We invest available funds in short-term and long-term securities,
including money market funds, corporate bonds, asset backed securities, and
government and agency bonds, and do not engage in hedging or speculative
activities.




In
November 2003, we entered into a facility lease agreement commencing in March
2004 for our corporate headquarters with aggregate lease payments of
approximately $4 million through March 2010.




There
have been no material changes to our contractual obligations and commercial
commitments included in Item 7 “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” in our Annual Report on Form 10-K
for the year ended December 31, 2008.




Net cash
provided by operating activities was $3.9 million and $5.6million during the six
months ended June 30, 2009 and 2008, respectively.  The decrease in
net cash provided by operating activities is primarily attributable to the
decrease in PhotoStamps gross profit and lower interest income.




19




Net cash
used in investing activities was $4.0 million during the six months ended June
30, 2009.  Net cash provided by investing activities was $10.4 million
during the six months ended June 30, 2008. The increase in net cash used in
investing activities is primarily due to the purchase of long-term investment
securities.




Net cash
used in financing activities was $8.4million and $4.2 million
during the six months ended June 30, 2009 and 2008, respectively. The increase
is mainly due to cash used to fund our stock repurchase program.




We
believe our available cash and marketable securities, together with the cash
flow from operations, will be sufficient to fund our business for the
foreseeable future.




Critical
Accounting Policies




General




The
discussion and analysis of our financial condition and results of operations are
based on our financial statements, which have been prepared in accordance with
US generally accepted accounting principles. 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, 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 financial
statements.




Revenue
Recognition




We
recognize revenue from product sales or services rendered when the following
four revenue recognition criteria are met: persuasive evidence of an arrangement
exists, delivery has occurred or services have been rendered, the selling price
is fixed or determinable, and collectibility is reasonably assured.




Our
service revenue is based on monthly convenience fees and is recognized in the
period that services are provided. Product sales, net of return allowances, are
recorded when the products are shipped and title passes to customers. Sales of
items, including PhotoStamps, to customers are made pursuant to a sales contract
that provides for transfer of both title and risk of loss upon our delivery to
the carrier. Return allowances for expected product returns, which reduce
product revenue, are estimated using historical experience. Commissions from the
advertising or sale of products by a third party vendor to our customer base are
recognized when the revenue is earned and collection is deemed probable. We
recognize revenue on insurance purchases upon the ship date of the insured
package.




Intangibles




We make
an assessment of the estimated useful lives of our patents and other amortizable
intangibles. These estimates are made using various assumptions that are
subjective in nature and could change as economic and 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 a defendant. We
record any amounts recovered in these matters when collection is certain. We
record liabilities for claims against us when the losses are probable and
estimable. Any amounts recorded would be based on reviews by outside counsel,
in-house counsel and management. Actual results may differ from
estimates.




20




Promotional
Expense




New PC
Postage customers are typically offered promotional items that are redeemed
using coupons that are qualified for redemption after a customer is successfully
billed beyond an initial trial period. This includes free postage and a free
digital scale and is expensed in the period in which a customer qualifies using
estimated redemption rates based on historical data. Promotional expense, which
is included in cost of service, is incurred as customers qualify and thereby may
not correlate directly with changes in revenue, as the revenue associated with
the acquired customer is earned over the customer's lifetime.




ITEM 3.
            QUANTITATIVE AND QUALITATIVE
      DISCLOSURES ABOUT MARKET
RISK




Our
exposure to market rate risk for changes in interest rates relates primarily to
our investment portfolio. We have not used derivative financial instruments in
our investment portfolio. None of the instruments in our investment portfolio
are held for trading purposes. At June 30, 2009, our cash equivalents and
investments consist of money market, U.S. government obligations, asset-backed
securities and public corporate debt securities with duration of 286 days. At
June 30, 2009 our cash equivalents and investments, net of restricted cash,
approximated $69.7 million and had a related weighted average interest rate of
approximately 1.6%. Interest rate fluctuations impact the carrying value of the
portfolio. The fair value of our portfolio of marketable securities would not be
significantly affected by either a 10 % increase or decrease in the rates of
interest due primarily to the short duration nature of the portfolio. We do not
believe that the future market risks related to the above securities will have a
material adverse impact on our financial position, results of operations or
liquidity.




As
we do not have any operations outside of the United States, we are not exposed
to foreign currency risks.




ITEM 4.
            CONTROLS AND
      PROCEDURES




Evaluation
of Disclosure Controls and Procedures




We
maintain disclosure controls and procedures (as such term is defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934), designed to
ensure that information required to be disclosed by us in the reports that we
file or submit under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission’s rules and forms.




Our
management evaluated, with the participation of our Principal Executive Officer
and Principal Financial Officer, the effectiveness of our disclosure controls
and procedures as of the end of the period covered by this report. Based on that
evaluation, our Principal Executive Officer and Principal Financial Officer have
concluded, as of that time, that our disclosure controls and procedures were
effective in ensuring that information required to be disclosed by us in reports
filed or submitted under the Securities Exchange Act of 1934 (i) is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission’s rules and forms and (ii) is
accumulated and communicated to our management including our Principal Executive
Officer and our Principal Financial Officer, to allow timely decisions regarding
required disclosure.




Changes
in Internal Controls




During
the quarter ended June 30, 2009, there has been no change in our internal
control over financial reporting (as defined in Rule 13a-15(f) under the
Securities Exchange Act of 1934) that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.




21




PART II – OTHER
INFORMATION




ITEM 1.
            LEGAL PROCEEDINGS




On
October 22, 2004, Kara Technology Incorporated filed suit against us in the
United States District Court for the Southern District of New York, alleging,
among other claims, that we infringed certain Kara Technology patents and that
we misappropriated trade secrets owned by Kara Technology, most particularly
with respect to our NetStamps feature. Kara Technology seeks an injunction,
unspecified damages, and attorneys’ fees. The suit was transferred to the United
States District Court for the Central District of California. On August 23,
2006, the court granted our summary judgment motions on the trade secret and
other non-patent claims. On April 3, 2008, the court granted our summary
judgment motion that PhotoStamps does not infringe. On June 27, 2008, at the
conclusion of trial, the jury issued its verdict in our favor, finding that
NetStamps does not infringe. Kara Technology has filed an appeal of the judgment
in the United States Court of Appeals for the Federal Circuit.




On
November 22, 2006, we filed a lawsuit against Endicia, Inc. and PSI Systems,
Inc. in the United States District Court for the Central District of California
for infringement of eleven of our patents covering, among other things, Internet
postage technology. We seek an injunction, unspecified damages, and attorneys’
fees. On January 8, 2007, Endicia, Inc. and PSI Systems, Inc. filed
counterclaims asking for a declaratory judgment that all eleven patents are
invalid, unenforceable and not infringed. On November 10, 2008, we selected
fifteen claims from eight of the patents to be the subject of the claim
construction hearing and trial. The Court issued a claim construction order on
June 15, 2009 and trial is scheduled to begin February 2, 2010.




On August
8, 2008, PSI Systems, Inc. filed a lawsuit against us in the same court,
alleging that we infringed three PSI Systems patents related to Internet postage
technology. PSI Systems seeks an injunction, unspecified damages, and attorneys’
fees. On September 16, 2008, we filed counterclaims for infringement of four
more of our patents. In our counterclaim, we seek an injunction, unspecified
damages, and attorneys’ fees. This lawsuit is in the discovery stage. The Court
has not scheduled a trial commencement date.




In 2001,
we were named, together with certain of our current and former board members
and/or officers, as a defendant in several purported class-action lawsuits,
filed in the U.S. District Court for the Southern District of New York. The
lawsuits allege violations of the Securities Act and the Exchange Act in
connection with our initial public offering and a secondary offering of our
common stock.  Plaintiffs seek damages and statutory compensation,
including interest, costs and expenses (including attorneys'
fees).  In 2003, we reached a proposed settlement that would not have
required us to make any payments, which was ultimately terminated in 2007 after
the U.S. Court of Appeals for the Second Circuit determined that the class could
not be certified as defined.  Plaintiffs filed an amended complaint
and proposed an alternative class definition in related
litigation.  In 2009, we approved a new proposed settlement. The
proposed settlement, which would not require us to make any payments, was
preliminarily approved by the court in June 2009 and is currently scheduled to
be the subject of a fairness hearing in September 2009.




We are
subject to various other routine legal proceedings and claims incidental to our
business, or that involve primarily a claim for damages that does not exceed 10%
of our consolidated assets. We believe that the ultimate results from these
actions will not have a material adverse effect on our financial position,
results of operations or cash flows.




ITEM
      1A.
            RISK
  FACTORS




We are
not aware of any material changes to the risk factors included in Item 1A “Risk
Factors” in our Annual Report on Form 10-K for the year ended December 31,
2008.




ITEM 2.
            UNREGISTERED SALES OF EQUITY
      SECURITIES AND USE OF
PROCEEDS




We did
not have any unregistered sales of common stock during the quarter ended June
30, 2008.




22




Issuer
Purchases of Equity Securities




During
the second quarter of 2009, we purchased our common stock as described in the
following table:




Period
            Total
      Number of Shares Purchased
            Average
      Price Paid per Share
            Total
      Number of Shares Purchased as Part of Publicly Announced Plans or
      Programs
            Approximate
      Dollar Value of Shares That May Yet be Purchased Under the Plans or
      Programs (in 000’s)April
      1, 2009 –
              April
      30, 2009
            131,000
            $8.39
            131,000
            $14,000May
      1, 2009 –
              May
      31, 2009
            23,000
            $8.47
            23,000
            $14,000June
      1, 2009 –
              June
      30, 2009
            54,000
            $8.43
            54,000
            $14,000




On
February 5, 2009, our board of directors approved a six month share repurchase
program authorizing us to purchase up to 2,500,000 shares of our stock as market
and business conditions warrant. This plan expires in August 2009. On July 23,
2009, our board of directors approved a new six month share repurchase program,
authorizing us to purchase up to 2,500,000 shares of our stock effective upon
the expiration of the current plan.




Our
repurchase of any of our shares will be subject to limitations that may be
imposed on such repurchases by applicable securities laws and regulations and
the rules of The NASDAQ Stock Market. Repurchases may be made in the open
market, or in privately negotiated transactions from time to time at our
discretion. We will consider repurchasing stock under our current repurchase
program by evaluating such factors as the price of the stock, the daily trading
volume and the availability of large blocks of stock and any additional
constraints related to material inside information we may possess. We have no
commitment to make any repurchases.




ITEM 3.
            DEFAULTS UPON SENIOR
      SECURITIES




Not
applicable.




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




Our annual meeting of stockholders
was held on June 25, 2009.  At that meeting, the following two
proposals were submitted to a vote of our stockholders: (1) the election of
two Class 1 directors (G. Bradford Jones and Lloyd I. Miller) to serve for a
three-year term ending at our 2012 annual meeting of stockholders or until their
successors are duly elected and qualified; and (2) the ratification of the
appointment of Ernst & Young LLP as our independent auditors for the year
ending December 31, 2009.




The
following table sets forth the results of the voting:




Proposal
      1
            For
            WithheldElection
      of Directors:G.
      Bradford Jones
            12,530,472
            1,451,668Lloyd
      I. Miller
            12,559,002
            1,423,138





Proposal
      2
            For
            Against
            AbstainAppointment
      of Ernst & Young LLP (auditors)
            13,945,529
            33,172
            3,439




Each of
the proposals set forth above received more than the required number of votes
for approval and were therefore duly and validly approved by the
stockholders.




The terms
of office of the following directors continued after our annual meeting of
stockholders:




Mohan P.
Ananda and Kenneth McBride




23




ITEM 5.
            OTHER
      INFORMATION




None.




ITEM 6.
            EXHIBITS




31.1
            Certification
      Pursuant to Section 302 of the Sarbanes-Oxley Act of
  2002.




31.2
            Certification
      Pursuant to Section 302 of the Sarbanes-Oxley Act of
  2002.




32.1
            Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of
      the Sarbanes-Oxley Act of 2002.




32.2
            Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of
      the Sarbanes-Oxley Act of 2002.




24




SIGNATURES




Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.




STAMPS.COM
      INC.(Registrant)August
      7, 2009
            By:
            /s/ KEN MCBRIDEKen
      McBrideChief
      Executive OfficerAugust
      7, 2009
            By:
            /s/ KYLE HUEBNERKyle
      HuebnerChief
      Financial Officer




25