Edgar Filing: STAMPS.COM INC

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

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. Employer
incorporation 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 þ
Non-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

		Page

PART I - FINANCIAL INFORMATION			2

ITEM 1.	FINANCIAL STATEMENTS		2

ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		13

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		21

ITEM 4.	CONTROLS AND PROCEDURES		21

PART II – OTHER INFORMATION			22

ITEM 1.	LEGAL PROCEEDINGS		22

ITEM 1A.	RISK FACTORS		22

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		22

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES		23

ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		23

ITEM 5.	OTHER INFORMATION		24

ITEM 6.	EXHIBITS		24

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)
Assets
Current assets:
Cash and cash equivalents	$	44,112		$	52,576
Restricted cash		554			554
Short-term investments		940			16,235
Trade accounts receivable, net		2,936			2,962
Other accounts receivable		494			1,201
Other current assets		3,791			4,426
Total current assets		52,827			77,954

Property and equipment, net		2,608			3,086
Intangible assets, net		500			505
Long-term investments		24,636			4,694
Deferred income taxes.		3,671			3,671
Other assets		3,028			3,348

Total assets	$	87,270		$	93,258

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses	$	9,195		$	11,174
Deferred revenue		3,422			3,743
Total current liabilities		12,617			14,917

Commitments and contingencies
Stockholders’ equity:
Common stock, $.001 par value
Authorized shares: 47,500 in 2009 and 2008
Issued shares: 24,399 in 2009 and 24,368 in 2008
Outstanding shares: 16,233 in 2009 and 17,242 in 2008		47			47
Additional paid-in capital		628,647			626,810
Accumulated 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			78,341
Total liabilities and stockholders’ equity	$	87,270		$	93,258

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

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

Net income per share
Basic	$	0.06	$	0.07	$	0.14	$	0.33
Diluted	$	0.06	$	0.07	$	0.14	$	0.33
Weighted average shares outstanding
Basic		16,301		19,382		16,581		19,553
Diluted		16,427		19,712		16,709		19,831

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

STAMPS.COM INC.

STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Six Months Ended June 30,
	2009			2008
Operating activities:
Net income	$	2,274		$	6,504
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		639			1,208
Stock-based compensation expense		1,612			1,682
Deferred income tax		—			(3,671	)
Changes in operating assets and liabilities:
Trade accounts receivable		26			(435	)
Other accounts receivable		707			708
Other current assets		635			(562	)
Other assets		320			(806	)
Deferred revenue		(321	)		(210	)
Accounts payable and accrued expenses		(1,979	)		1,132
Net cash provided by operating activities		3,913			5,550

Investing activities:
Sale of short-term investments		15,329			19,125
Purchase of short-term investments		—			(21,536	)
Sale of long-term investments		1,274			19,541
Purchase 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	)		10,357

Financing activities:
Proceeds from exercise of stock options		82			171
Issuance of common stock under ESPP		143			168
Repurchase 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	)		11,746
Cash and cash equivalents at beginning of period		52,576			43,667

Cash and cash equivalents at end of period	$	44,112		$	55,413

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

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.

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		2008
Net income	$	1,052	$	1,306	$	2,274	$	6,504

Basic - weighted average common shares		16,301		19,382		16,581		19,553
Diluted effect of common stock equivalents		126		330		128		278
Diluted - weighted average common shares		16,427		19,712		16,709		19,831

Earnings per share:
Basic	$	0.06	$	0.07	$	0.14	$	0.33
Diluted	$	0.06	$	0.07	$	0.14	$	0.33

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		2008
Anti-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		2008
Stock-based compensation expense relating to:
Employee and director stock options	$	819	$	903	$	1,587	$	1,652
Employee stock purchases		—		—		25		30
Total stock-based compensation expense	$	819	$	903	$	1,612	$	1,682


Stock-based compensation expense relating to:
Cost of revenues	$	69	$	69	$	140	$	144
Sales and marketing		198		172		389		348
Research and development		164		146		328		298
General and administrative		388		516		755		892
Total 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.

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			2008
Expected 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			5
Expected 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		2008
Net income	$	1,052	$	1,306		$	2,274	$	6,504
Unrealized 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.

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 Using
Description	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.

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			2008
Realized gain	$	0.5		$	1.5		$	36.0		$	6.4
Realized 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

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

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

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 Value
Due within one year	$	1,512	$	1,494
Due after one year through five years		23,293		22,908
Due after five years through ten years		2,011		1,728
Total	$	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.

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.

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.

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.

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			2008
Total Revenues
Service		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 revenues
Service		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	%

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.

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.

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.

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 $5.6 million 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.

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 $8.4 million 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.

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.

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.

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	$14,000
May 1, 2009 – May 31, 2009	23,000	$8.47	23,000	$14,000
June 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	Withheld
Election of Directors:
G. Bradford Jones	12,530,472	1,451,668
Lloyd I. Miller	12,559,002	1,423,138

Proposal 2	For	Against	Abstain
Appointment 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

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.

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 MCBRIDE
		Ken McBride
		Chief Executive Officer


August 7, 2009	By:	/s/ KYLE HUEBNER
		Kyle Huebner
		Chief Financial Officer