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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: DECEMBER 31, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____ TO ____
COMMISSION FILE NUMBER 0-25779
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THESTREET.COM, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 06-1515824
(State or other jurisdiction (I.R.S. employer identification no.)
of incorporation or organization)
14 WALL STREET, 14TH FLOOR NEW YORK, NEW YORK 10005
(Address of principal executive offices) (Zip code)
(212) 321-5000
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None.
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NAME OF EACH EXCHANGE ON WHICH
TITLE OF EACH CLASS THE SECURITIES ARE REGISTERED
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Common Stock, par value $0.01 per share Nasdaq National Market
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Indicate by a check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
The aggregate market value of the Registrant's common stock held by
non-affiliates of the Registrant on March 30, 2001 was approximately
$56.2 million. On such date, the last sale price of the Registrant's common
stock was $3.125 per share. Solely for purposes of this calculation, shares
beneficially owned by directors and officers of the Registrant and persons
owning 5% or more of the Registrant's common stock have been excluded, in that
such persons may be deemed to be affiliates of the Registrant. Such exclusion
should not be deemed a determination or admission by the Registrant that such
individuals or entities are, in fact, affiliates of the Registrant.
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.
NUMBER OF SHARES OUTSTANDING
TITLE OF EACH CLASS AT MARCH 30, 2001
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Common Stock, $0.01 par value 28,169,733
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THESTREET.COM, INC.
2000 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I PAGE
----
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 11
Item 3. Legal Proceedings........................................... 11
Item 4. Submission Of Matters To A Vote Of Security Holders......... 12
PART II
Item 5. Market For Registrant's Common Equity And Related
Stockholder Matters......................................... 12
Item 6. Selected Financial Data..................................... 13
Item 7. Management's Discussion And Analysis Of Financial Condition
And Results Of Operations................................... 14
Item 7A. Quantitative And Qualitative Disclosure About Market Risk... 20
Item 8. Financial Statements And Supplementary Data................. 30
Item 9. Changes In And Disagreements With Accountants On Accounting
And Financial Disclosure.................................... 30
PART III
Item 10. Directors And Executive Officers Of The Registrant.......... 31
Item 11. Executive Compensation...................................... 31
Item 12. Security Ownership Of Certain Beneficial Owners And
Management.................................................. 31
Item 13. Certain Relationships And Related Transactions.............. 31
PART IV
Item 14. Exhibits, Financial Statements, Schedules And Reports On
Form 8-K.................................................... 32
Signatures.......................................................................... 33
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THESTREET.COM, INC.
2000 ANNUAL REPORT ON FORM 10-K
PART I
ITEM 1. BUSINESS
OVERVIEW
TheStreet.com is a leading multimedia provider of original, timely,
insightful and trustworthy financial commentary, analysis and news. Our content
is available across diverse product offerings, including the Internet, print
media, books and conferences.
As part of our strategy to diversify our sources of revenue, since
January 2000 we have expanded our offerings by:
- relaunching our formerly subscription-based THESTREET.COM web site as a
completely free, advertising-supported web site;
- launching a new subscription-based site called REALMONEY.COM;
- acquiring an email newsletter publisher and a conference company;
- introducing our first investing book, THESTREET.COM GUIDE TO SMART
INVESTING IN THE INTERNET ERA, published by the Doubleday division of
Random House Inc.; and
- introducing a daily institutional fax product.
We have developed a loyal audience of investors at various experience levels
who turn to our product offerings for all their financial and investing
information needs. In addition, we have important strategic relationships with
leading companies in the media, technology and financial services sectors that
also help us create brand awareness and increase subscription and advertising
revenues. Our goal is to monetize and leverage our financial content across a
variety of platforms.
INDUSTRY BACKGROUND
Increasingly, a growing group of self-directed investors is seeking sources
that can help them make informed investing decisions. These individuals have
been taking greater control of their investments by directly researching
information on investments, tracking their portfolios, purchasing no-load mutual
funds and playing a more proactive role in their relationships with financial
advisors. The Internet has facilitated these behavioral shifts by providing
investors with easy access to information that was once generally available only
to investment professionals, such as timely market news, intra-day and
historical quotes, charts, SEC filings and analysts' earnings estimates. Many
existing financial news and information sources, however, have failed to meet
their needs. We believe that this "democratization" of Wall Street represents a
significant opportunity for a financial information source that provides
trustworthy independent reporting together with original, timely and insightful
commentary and analysis.
THESTREET.COM PRODUCT OFFERINGS
WEB-BASED PROPERTIES
In December 2000, our web sites, THESTREET.COM and REALMONEY.COM, together
attracted more than 3.3 million unique visitors and generated over 49 million
page views. A unique visitor is a person who visits one of our web sites from a
particular personal computer. A person who makes multiple visits from the same
computer in a given time period is only counted once. A page view means one
person's download of one page of one of our web sites.
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REALMONEY.COM, OUR SUBSCRIPTION-BASED WEB SITE
In June 2000, we launched a new subscription-based web site called
REALMONEY.COM, comprised of certain premium commentary from our formerly
subscription-based THESTREET.COM web site, together with new offerings, aimed
towards active market participants willing to pay for value-added content
online. On REALMONEY.COM, we offer timely, insightful, in-depth commentary and
analytical coverage of market-moving trends and events from experienced
contributors and writers, including James J. Cramer, Herb Greenberg, Adam
Lashinsky and Gary B. Smith. We also offer personal finance data, special
reports, online "chats' with our editorial staff, and research tools, including
real-time stock quotes. As of December 31, 2000, REALMONEY.COM had a subscriber
base of approximately 75,000 subscribers.
The following is a detailed description of the features and tools we offer on
REALMONEY.COM:
COLUMNIST CONVERSATION
The "Columnist Conversation" is a message board containing lively discussion
among several of our more than two dozen writers and contributors, covering
topics of the day, market moves and recent events. The Columnist Conversation
permits readers to "listen in" on the conversations of these experts in real
time as they post their analyses of the day's action.
TRADING TRACK
"Trading Track" is a continuously updated journal of the thoughts and plays
of several actual active professional traders, who post their markets commentary
in real time throughout the trading day.
TODD HARRISON'S TRADING DIARY
Through his "Trading Diary," Todd Harrison, president and head trader at
Cramer, Berkowitz & Co., a New York-based hedge fund formerly managed by James
J. Cramer, gives REALMONEY.COM subscribers an intimate, real-time view into the
actions of a professional hedge-fund trader. Mr. Harrison, who updates his
Trading Diary more than a dozen times throughout the day, provides commentary on
macro events as well as short-term trading movements in the market.
INVESTMENT TOOLS
We feature a variety of interactive investment tools that enable users to
conduct their own financial research. Among the investment tools we offer are:
- real-time stock quotes;
- intraday and historical stock charts with adjustable parameters;
- mutual fund quotes and scoreboards;
- summary company profiles;
- analysts' buy/sell ratings;
- news wire service feeds;
- Securities and Exchange Commission filings; and
- insider buying information.
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ONLINE CHATS
Subscribers can participate in online "chats" with REALMONEY.COM columnists,
including James J. Cramer, Herb Greenberg, Adam Lashinsky and Gary B. Smith.
These chats, which are offered exclusively to REALMONEY.COM subscribers, cover
topics relating to current market news and personal finance.
THESTREET.COM, OUR FREE, ADVERTISING-SUPPORTED WEB SITE
We relaunched our formerly subscription-based THESTREET.COM web site as a
completely free, advertising-supported web site focused on providing financial
coverage for individual investors of all experience levels, who are searching
for free financial commentary, analysis and news on the web. We did this as part
of our strategy to diversify our sources of revenue and in order to complement
our subscription revenue with an entirely advertising-supported site. As a
result, we also have been able to build relationships with more advertisers and
syndication partners. THESTREET.COM is a "one-stop-shop" for those seeking
timely headlines, updates and coverage of technology stocks, bond markets,
global financial markets, individual stocks, mutual funds, options, personal
finance (including tax and retirement planning), analysts, IPOs and online
brokers.
The following is a detailed description of the features we offer on
THESTREET.COM:
MARKETS
The Markets section, which features continuously updated market news stories
from about 6 a.m. until 10 p.m. Eastern time each business day, covers the
latest movements of the major indices, the most active stocks, news from foreign
markets, earnings news, merger and acquisitions news and other major market
events.
Easy-to-read tables within the stories give readers a summary of index
performance and earnings news, including corporate earnings surprises. We have
expanded our "Before the Bell" and after-hours coverage of the U.S. markets and
have extensive options market coverage in the markets section.
HEADLINES
Throughout the day we produce headlines and brief news stories that cover
the various corporate announcements and news throughout the day.
PERSONAL FINANCE
To assist our many readers who leave part or all of their stock selection to
professional money managers, we have an area providing daily personal finance
news and features. Each day we answer an individual reader's fund question, with
the Friday question dedicated to bonds.
Our tax and 401(k) coverage is also located here.
BASICS
This section caters to readers who are first gaining familiarity with the
markets and investing. It features basic guides on stocks, bonds, mutual funds,
options, taxes and personal financial planning.
COMMENTARY
Our Commentary section includes staffers and a network of outside
contributors who write about topics such as money management, technical
analysis, currency issues, industry analysis, macroeconomics, fundamental
analysis, financial planning, mutual funds, initial public offerings,
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technology and international investing. Selected articles written by
REALMONEY.COM columnists appear on THESTREET.COM site on a delayed basis at
least 24 hours after their publication on REALMONEY.COM.
TECH STOCKS
The Tech Stocks section covers technology stocks. Our tech reporters, many
of whom are located in San Francisco, cover areas such as hardware, software,
networking, semiconductors, telecommunications and the Internet. We also publish
a separate technology stock update several times daily detailing the major news
in the sector.
STOCK NEWS
The Stock News section includes coverage of companies outside of the
technology sector, such as retail, media/entertainment, biotechnology, energy,
banking and financial services, and both traditional Wall Street brokerage firms
and online brokers.
COMMUNITY FEATURES
We offer several interactive features that help create a community
atmosphere among our readers. We believe that developing a sense of community
among our readers increases our brand awareness, increases the frequency and
duration of reader visits and fosters loyalty to our site and our writers.
Current community features include email between our readers and our staff;
polls that invite readers to vote on issues related to the latest financial and
investing news; regular chats featuring our top-name contributors and expert
staffers hosted both on our sites and on Yahoo!, America Online, and other
services; streaming audio programs; and delayed stock quotes.
NON WEB-BASED PROPERTIES
EMAIL NEWSLETTERS
In December 2000, we acquired SmartPortfolio.com, Inc., a privately-held and
profitable email newsletter publisher. SmartPortfolio.com publishes a variety of
financial newsletter products targeted to a broad investor audience. As of
December 31, 2000, we had approximately 10,000 paid subscriptions to
SmartPortfolio.com's four weekly and one daily premium newsletters and more than
250,000 subscribers to SmartPortfolio.com's two free daily newsletters.
Subscribers can choose either a monthly or an annual subscription. As we
continue to integrate the Smartportfolio.com product line into our offerings, we
expect to expand the number of newsletter products we offer and to grow our
collective subscriber base.
BOOKS
In April 2000, we reached an agreement with the Doubleday division of Random
House Inc. to publish our first investing book entitled THESTREET.COM GUIDE TO
SMART INVESTING IN THE INTERNET ERA. Under the agreement, we own the copyright
in the book and receive royalties on editions published by Doubleday, including
hardcover and trade paperback. The book, which is currently in its third
printing, was published in January 2001 and in February 2001 appeared on The New
York Times's list of business best-sellers, and reached as high as #1 on
Amazon.com's list of its best-selling non-fiction books. Authored by
Editor-in-Chief Dave Kansas together with TheStreet.com writers, and containing
an introduction by James Cramer, the book is intended to help investors seek
clarity and insight in the tumultuous investing marketplace of the 21st century.
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CONFERENCES
In May 2000, we acquired a privately-held conference and event production
firm that creates investment conferences under the REALMONEY.COM brand name and
showcases many of our top writers covering a wide range of investment and
personal finance topics. In this past year, we have produced conferences in New
York and San Francisco that featured columnists James J. Cramer, Herb Greenberg,
Gary B. Smith and Adam Lashinsky. REALMONEY.COM subscribers receive discounts to
our conferences.
INSTITUTIONAL PRODUCTS
Early in 2001, we introduced a high-end institutional product called the
Hedge Fund Hotline. This product is aimed at providing exclusive financial and
investment information to a limited number of professional investors and is
offered on a subscription basis only through a broker in the professional market
space. It is part of our strategy to leverage our content in professional as
well as consumer markets. This product marks the first step toward what we
anticipate being a suite of other institutional products.
OUR EDITORIAL STAFF AND OUTSIDE CONTRIBUTORS
We believe that our original, timely, insightful and trustworthy content is
a competitive advantage. Our diverse media platforms enable us to monetize the
content produced by our editorial staff and outside contributors. Our editorial
staff consists of more than 70 professional reporters and editors who, together
with approximately 30 outside contributors, produce more than 100 original news,
analysis and commentary pieces each business day that are aimed at helping
readers make informed investment decisions. We also publish additional features
and news updates on weekends. Our editorial staff and outside contributors have
broken numerous important stories, many of which have been cited by other
publications such as THE WALL STREET JOURNAL and THE NEW YORK TIMES.
In 2000, we were finalists for two Online Journalism Awards: General
Excellence and Enterprise Journalism. During 1999, we were named as a finalist
for the General Excellence in New Media category of the 1999 National Magazine
Awards. The purpose of this category is "to honor an interactive publication
that most effectively serves its intended audience and reflects an outstanding
level of interactivity, journalistic integrity and service." We were also a
winner of the 1999 Front Page Award in Internet Breaking Business News, given
each year by the Newswomen's Club of New York. Our 1998 story package "Looking
Out for the Shareholder" was a 1999 winner of the Excellence in Financial
Journalism Award sponsored by the New York State Society of Certified Public
Accountants.
Before joining TheStreet.com, many members of our editorial staff worked at
other leading news organizations, including THE WALL STREET JOURNAL, THE NEW
YORK TIMES, CNBC, DOW JONES NEWS SERVICE, SMARTMONEY, BLOOMBERG, REUTERS and USA
TODAY. Among our site's notable writers are:
JAMES J. CRAMER. Mr. Cramer, recently retired from the hedge fund of
Cramer, Berkowitz & Co., presently serves as markets commentator and advisor to
our chief executive officer. Mr. Cramer is also a founder and director of
TheStreet.com. He writes multiple columns each business day. In addition, in his
capacity as markets commentator for CNBC, Mr. Cramer appears regularly on CNBC's
"Squawk Box" and "Business Center" programs. Mr. Cramer writes a weekly column
for NEW YORK magazine.
HERB GREENBERG. Mr. Greenberg, formerly of the SAN FRANCISCO CHRONICLE, is
a senior columnist. Mr. Greenberg also writes a regular column for FORTUNE
magazine.
DAVE KANSAS. Mr. Kansas, our editor-in-chief and executive vice
president/chief strategic officer, writes a column about market trends. Prior to
coming to TheStreet.com in 1996, Mr. Kansas worked at THE WALL STREET JOURNAL
for five years, most recently as a financial markets reporter. Mr. Kansas has
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provided commentary for several television networks, including ABC, CBS, NBC,
CNBC and CNN. His writing has appeared in THE NEW REPUBLIC, RED HERRING, UPSIDE,
THE INDUSTRY STANDARD, SLATE and the NEW YORK OBSERVER.
ADAM LASHINSKY. Mr. Lashinsky, our Silicon Valley commentator, came to us
from the SAN JOSE MERCURY NEWS, where he was that paper's high-tech stocks
columnist. Prior to that, he covered a variety of beats as a reporter for
CRAIN'S CHICAGO BUSINESS, where he ultimately was an assistant managing editor.
In addition, he writes "The Wired Investor," a column on tech stocks in FORTUNE
magazine, and contributes regularly to MARKETPLACE, a nationally broadcast radio
business-news magazine.
JIM SEYMOUR. Mr. Seymour, a longtime commentator for PC MAGAZINE and the
founding editor-in-chief of PC/COMPUTING magazine, writes about America's
leading technology stocks as an outside contributor.
GARY B. SMITH. Mr. Smith, an individual investor who manages his own money
using technical analysis, is an outside contributor who writes five times each
week about technical analysis and at-home trading.
HELENE MEISLER. Ms. Meisler is a contributor who writes a popular column
called "The Chartist." Prior to TheStreet.com, she spent more than a decade on
the sell side as a market technician covering institutional accounts at various
investment banks in New York City, including Cowen & Co. and Goldman Sachs.
To ensure impartiality and prevent any conflict-of-interest or appearance of
conflict, our editorial staff and outside contributors are required to abide by
our strict investment policy. According to this policy, our editorial staffers
are not permitted to individually own individual stocks (though they may, and
most do, own equity in TheStreet.com). Outside contributors are permitted to own
individual stocks, but are required to disclose their current positions in any
of the stocks they write about.
INTERNATIONAL PRESENCE
In November 2000, we closed down THESTREET.CO.UK, our international joint
venture with a group of U.K. investors. The Company's only current international
initiative is THEMARKER.COM, a joint venture with Ha'aretz Group, an Israeli
newspaper publisher. THEMARKER.COM is an Israeli-based web site that provides
high-tech and investment information in both Hebrew and English. Under the terms
of the joint venture, THESTREET.COM publishes selected news and headlines on
Israeli technology companies listed on U.S. exchanges from THEMARKER.COM site
and THEMARKER.COM publishes selected news and headlines from THESTREET.COM.
SUBSCRIPTION SALES
As of December 31, 2000, we had approximately 75,000 subscribers to
REALMONEY.COM. Readers can choose either a monthly or an annual subscription.
See "Risk Factors--We May Have Difficulty Retaining Current Subscribers."
As part of our efforts to increase our REALMONEY.COM subscriber base, we
have entered into subscription distribution agreements with online financial
services firms. For example, in December 2000 we renewed and expanded an
agreement with CSFBDIRECT, a subsidiary of Credit Suisse First Boston
Corporation, under which CSFBDIRECT provides some of our content to select
customers on its web site.
As of December 31, 2000, we had approximately 10,000 paid subscriptions to
SmartPortfolio.com's four weekly and one daily premium newsletters and more than
250,000 subscribers to SmartPortfolio.com's two free daily newsletters.
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ADVERTISING SALES
We currently derive a significant portion of our revenues from advertising
sales. We have established a desirable reader demographic that has enabled us to
build a growing advertising business and charge rates that are, to our
knowledge, among the highest of financial web sites. We have been able to
attract advertisers from both within and beyond the financial services industry.
Our advertising and e-commerce revenues grew from approximately
$7.9 million in 1999 to $13.2 million in 2000. In 2000, advertising revenues
represented approximately 57% of our total revenue. See "Risk Factors--We May
Have Difficulty Selling Our Advertising Inventory, A Significant Portion Of
Which Is Concentrated Among Our Top Advertisers" and "Risk Factors--A General
Decline In Online Advertising Could Harm Our Business."
DEMOGRAPHICS
We believe our audience presents a desirable reader demographic for
advertisers in the financial services, technology and luxury goods industries.
According to a Winter 2001 study by @plan, a third-party marketing research firm
whose survey research is conducted by The Gallup Organization, our readers are
three times more likely than the average Internet users to have portfolios
valued over $1,000,000. Also, according to the same study, 86% of our readers
own securities. In addition, compared to the average Internet user surveyed by
@plan, our readers are more than five times more likely to trade stocks online.
See "Risk Factors--We May Have Difficulty Selling Our Advertising Inventory, A
Significant Portion Of Which Is Concentrated Among Our Top Advertisers" and
"Risk Factors--Difficulties In Developing New And Enhanced Products and Services
Could Harm Our Business."
OTHER FACTORS ATTRACTIVE TO ADVERTISERS
In addition to our desirable reader demographics, advertisers seek a
presence on our sites for a number of other reasons, including:
- OUR EDITORIAL CONTENT. Many advertisers like to associate their products
and services with the high quality of our editorial content.
- LONG DURATION AND HIGH FREQUENCY OF VISITS. In the fourth quarter of 2000,
our subscribers and free-trial members spent an average of 45 minutes per
visit to our sites. We believe this duration compares favorably to the
time spent by readers on other financial sites.
OUR ADVERTISERS
During the year ended December 31, 2000, more than 230 advertisers
advertised on our web sites. For the year ended December 31, 2000, our top
advertiser accounted for approximately 10% of our advertising revenue, and our
top five advertisers accounted for approximately 26% of our advertising
revenues, compared with approximately 36% for the year ended December 31, 1999.
In 2000, we continued to add well-known non-financial services industry
companies to the roster of advertisers on our site, including Microsoft
Corporation's MSN, Agora Publishing, Nortel, IBM, Jaguar and Alcatel. In
addition, we added several new finance services advertisers, including Merrill
Lynch and Fidelity.
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The following is a list of our top ten brokerage and non-brokerage
advertisers in 2000:
TOP 10 BROKERAGE ADVERTISERS
Ameritrade NetstockDirect
Datek On-Site Trading
DLJdirect Instinet
Scottrade Morgan Stanley Dean Witter
Merrill Lynch Fidelity
TOP 10 NON-BROKERAGE ADVERTISERS
Compaq LowestFare.com
MSN Dell
First USA Phillips Publishing
Agora Publishing NextCard
X10.com Worden Brothers
In addition, we believe that investor relations professionals increasingly
are recognizing that both the sophisticated individual investor and the
professional investor are turning to the web for timely information. As a
leading online financial news and information site, we believe we will benefit
from this trend. Some companies that have run investor relations advertising on
our site include EMC, Alcatel and Claris.
CONTENT DISTRIBUTION AND SYNDICATION RELATIONSHIPS
During 2000, we continued to leverage our content through distribution and
syndication relationships. Under subscription distribution relationships with
online brokerages and other firms, we have signed up thousands of subscribers
without incurring typical consumer marketing costs. For example, under
subscription distribution agreements with CSFBDIRECT, the online broker
purchases discounted subscriptions in bulk to distribute as a premium service to
certain of its customers.
By syndicating our content to other leading sites, we continue to expose our
brand name and quality writing to millions of potential users and drive
additional traffic to our site. In 2000, we continued our content syndication
relationships with Yahoo!, America Online, MSN MoneyCentral and other leading
companies, under which we provide selected stories each day, at times on a
delayed basis, for co-branded publication with a link to our site. These content
syndication relationships capitalize on the cost efficiencies of online delivery
by creating additional value from stories already produced for our own sites.
See "Risk Factors--A Failure to Establish And Maintain Strategic Relationships
With Other Companies Could Decrease Our Subscriber And Reader Base, Which May
Harm Our Business."
Key partners with whom we have content syndication and promotion agreements
include:
- AMERICA ONLINE. Under our expanded agreement with America Online, which
was fully implemented in early 2000, we became an anchor tenant in several
departments of AOL's Personal Finance channel, including AOL Market Day.
Under this agreement, AOL promotes our content throughout the AOL personal
finance channel, which drives traffic to the co-branded AOL/TheStreet.com
web site. In addition, our headlines are "indexed" in the AOL "Snapshot"
service, which allows users to access our content by conducting a ticker
search for companies of interest. We also provide content and receive
promotion in CompuServe's Personal Finance area, on AOL.com, and in
Netscape Netcenter. As part of the agreement, AOL users receive a discount
when they purchase a new subscription to REALMONEY.COM.
- YAHOO! In March, 2001, we renewed our partnership with Yahoo! Under this
agreement we provide selected stories for co-branded publication on Yahoo!
Finance. In addition, our stories
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are "indexed" on Yahoo! Finance. We will also host approximately 20 chats
on Yahoo!, which will be promoted by Yahoo!.
- AVANTGO. In 2000, we renewed our agreement with AvantGo. Under this
agreement, a selection of our content is available to users of wireless
devices.
- MICROSOFT MSN MONEYCENTRAL. Under our agreement with Microsoft, MSN
MoneyCentral publishes on its web site a selection of our feature columns.
In addition, we publish selected feature columns from MSN MoneyCentral
writers.
- INTUIT. In March 2001, we continued our relationship with Intuit. Under
the new agreement, our headlines will be "indexed" throughout the
Quicken.com network of sites. When a user clicks on these headlines, they
are taken directly to the full story, which resides on our site.
MARKETING
We pursue a variety of marketing initiatives designed to build brand
awareness of our product offerings. These initiatives include advertising in a
wide variety of media types, establishing strategic distribution relationships
with leading companies, maintaining a well-trained team of in-house customer
service representatives, developing brand extensions and engaging in an ongoing
media-relations campaign. See "Risk Factors--Difficulties Associated With Our
Brand Development May Harm Our Ability To Attract Subscribers And Readers."
ADVERTISING CAMPAIGN
Advertisements for TheStreet.com have appeared in a variety of online and
offline media, including:
- cable and network television, including CNBC, local network news, FOX News
Channel, and network sports programming;
- local radio stations, including WCBS, WFAN, WINS and WQXR;
- newspapers, including THE NEW REPUBLIC, THE WALL STREET JOURNAL, THE NEW
YORK TIMES and THE NEW YORK OBSERVER;
- outdoor locations, including phone kiosks and train platforms;
- in-flight advertising, including flights on United Airlines, Northwest
Airlines and US Airways; and
- online sites, including SmartMoney.com, Yahoo! Finance, Bloomberg.com and
CBSMarketWatch.
MEDIA RELATIONS
Last year, we engaged in a comprehensive advertising and media-relations
campaign on television, print, radio and online media to raise visibility and
cultivate our brand identity. We continue to build the visibility of our
individual writers. Our writers and their work have been featured or mentioned
in publications such as THE WALL STREET JOURNAL, THE NEW YORK TIMES, FORTUNE,
THE ECONOMIST, THE NEW YORK OBSERVER and WIRED. A column written by James J.
Cramer, markets commentator for TheStreet.com and CNBC, is carried by NEW YORK
magazine, a weekly magazine with a reader base of over 440,000. In 2000, our
writers and our stories were mentioned or featured in more than 3,000 reports by
more than 100 news outlets, including THE WALL STREET JOURNAL, THE NEW YORK
TIMES, USA TODAY, THE FINANCIAL TIMES, CNBC and US NEWS & WORLD REPORT. In
addition, some of our writers appear frequently on television and radio,
including CNBC, CNN, ZDTV, Bloomberg, CNET and WABC.
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CUSTOMER SERVICE
Customer service is a critical element of our marketing strategy. Because a
large amount of our content is published online, we can interact with our
readers much more easily than traditional print publications or broadcast media
companies. In December 2000, for example, we had approximately 32,000 reader
contacts, from a base of approximately 75,000 subscribers and additional readers
in their 30-day free trials.
COMPETITION
A number of financial news and information sources compete for consumers'
and advertisers' attention and spending. We compete for advertisers, readers,
staff and outside contributors with many types of companies, including:
- online services or web sites focused on business, finance and investing,
such as CNBC.com, CNNfn.com, The Wall Street Journal Interactive Edition,
DowJones.com, Forbes.com, SmartMoney.com, Microsoft MSN MoneyCentral, The
Motley Fool and CBS.MarketWatch.com;
- publishers and distributors of traditional media, including print, radio
and television, such as THE WALL STREET JOURNAL, FORTUNE, Bloomberg
Business Radio and CNBC;
- providers of terminal-based financial news and data, such as Bloomberg
Business News, Reuters News Service, Dow Jones Markets and Bridge News
Service;
- web "portal" companies, such as Yahoo! and America Online; and
- online brokerage firms, many of which provide financial and investment
news and information, such as Charles Schwab, E*TRADE and Merrill Lynch.
Our ability to compete depends on many factors, including the originality,
timeliness, insightfulness and trustworthiness of our content and that of
competitors, the ease of use of services developed either by us or our
competitors and the effectiveness of our sales and marketing efforts. See "Risk
Factors--Intense Competition Could Reduce Our Market Share And Harm Our
Financial Performance."
THESTREET.COM INTERNET SECTOR INDEX
In conjunction with the Philadelphia Stock Exchange and the Susquehanna
Investment Group, we created TheStreet.com Internet Sector Index, an index of 24
Internet companies. TheStreet.com Internet Sector Index has been mentioned or
featured on prominent news outlets including THE NEW YORK TIMES, THE WALL STREET
JOURNAL, THE LOS ANGELES TIMES and CNBC.
INFRASTRUCTURE, OPERATIONS & TECHNOLOGY
TheStreet.com's technological infrastructure is built and maintained for
reliability, security and flexibility. This infrastructure is hosted primarily
at an Exodus Communications facility in Jersey City, New Jersey, which is
equipped with a power supply that is intended to be uninterruptible.
Our content-management system allows our stories to be prepared for
publication in a number of output formats. This feature enables us to distribute
our stories to multiple destinations economically. Our in-house subscription
management system is based on technology provided by Art Technology Group and
Clear Commerce and hosted at the Exodus facility. This system has allowed us to
communicate automatically with readers during their free-trial periods and to
make a wide variety of customized subscription offers available to potential
subscribers.
Our operations are dependent on our ability and that of Exodus to protect
our systems against damage from fire, earthquakes, power loss,
telecommunications failure, break-ins, computer viruses,
10
hacker attacks and other events beyond our control. See "Risk Factors--We Face A
Risk Of System Failure That May Result In Reduced Traffic, Reduced Revenue And
Harm To Our Reputation."
INTELLECTUAL PROPERTY
To protect our rights to intellectual property, we rely on a combination of
trademark, copyright law, trade secret protection, confidentiality agreements
and other contractual arrangements with our employees, affiliates, clients,
strategic partners and others. We have registered certain of our trademarks in
the United States and we have pending U.S. applications for other trademarks.
Although we believe that our proprietary rights do not infringe on the
intellectual property rights of others, other parties may assert infringement
claims against us or claims that we have violated a patent or infringed a
copyright, trademark or other proprietary right belonging to them. We
incorporate certain licensed third-party technology in some of our services. In
these license agreements, the licensors have generally agreed to defend,
indemnify and hold us harmless with respect to any claim by a third party that
the licensed software infringes any patent or other proprietary right. We cannot
assure you that these provisions will be adequate to protect us from
infringement claims. Any infringement claims, even if not meritorious, could
result in the expenditure of significant financial and managerial resources on
our part, which could materially adversely affect our business, results of
operations and financial condition. See "Risk Factors--Failure to Protect Our
Intellectual Property Rights Could Harm Our Brand-Building Efforts and Ability
to Compete Effectively."
EMPLOYEES
As of December 31, 2000, we had 188 employees, of whom 77 worked in
editorial, 49 in sales/ marketing, 44 in product development, and 18 in
finance/administration. We have never had a work stoppage and none of our
personnel are represented under collective bargaining agreements. We consider
our relations with our employees to be good.
GOVERNMENT REGULATION
We are subject to governmental regulation in connection with securities laws
and regulations applicable to all publicly owned companies, as well as laws and
regulations applicable to businesses generally. In addition, we are increasingly
subject to government regulation and legislation specifically targeting Internet
companies, such as privacy regulations adopted at the local, state, national and
international levels and taxes levied on the state level. Due to the increasing
popularity and use of the Internet, enforcement of existing laws--such as
consumer protection regulations--in connection with web-based activities has
become more aggressive, and it is expected that new laws and regulations will
continue to be enacted at the local, state, national and international levels.
Such new legislation, alone or combined with increasingly aggressive enforcement
of existing laws, could inhibit the growth in use of the Internet and decrease
the acceptance of the Internet as a communications and commercial medium, which
could in turn decrease the demand for our services or otherwise have a material
adverse effect on our future operating performance and business. See "Risk
Factors-Government Regulation and Legal Uncertainties Relating to the Web Could
Increase Our Costs of Transmitting Data and Increase Our Legal and Regulatory
Expenditures and Could Decrease Our Readership."
ITEM 2. PROPERTIES
Our principal administrative, sales, marketing, technology and editorial
facilities currently reside in a facility encompassing approximately 70,000
square feet of office space on two floors in an office building on Wall Street
in New York City, New York. Our West Coast bureau is located in approximately
3,200 square feet of office space in San Francisco, California. Our
communications and network infrastructure is hosted at Exodus Communications in
Jersey City, New Jersey.
11
ITEM 3. LEGAL PROCEEDINGS
TheStreet.com is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following matters were submitted to a vote at the annual meeting of
stockholders of the Company, held on July 12, 2000:
(i) the election of James J. Cramer, Michael Golden and Martin Peretz, as
Class I directors of the Company, to serve until the annual meeting in
2003; (FOR: 20,443,663; AGAINST: 92,939; ABSTAINED: 0)
(ii) the approval of an amendment to the Company's Amended and Restated 1998
Stock Incentive Plan (the "Plan") to increase the number of shares of
common stock available for grant pursuant to awards under the Plan from
4,400,000 to 6,900,000 shares; (FOR: 12,428,527; AGAINST: 343,902;
ABSTAINED: 24,771)
(iii) the ratification of the appointment of Arthur Andersen LLP as our
independent certified public accountants for the fiscal year ending
December 31, 2000; (FOR: 20,471,239; AGAINST: 55,879; ABSTAINED: 9,484)
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock has been quoted on the Nasdaq National Market under the
symbol TSCM since our initial public offering on May 11, 1999. The following
table sets forth, for the periods indicated, the high and low closing sales
prices per share of the common stock as reported on the Nasdaq National Market.
Such over-the-counter market quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not necessarily represent actual
transactions.
1999 LOW HIGH
- ---- -------- --------
Second quarter (from May 11, 1999).......................... 25.0625 71.2500
Third quarter............................................... 15.1875 37.8750
Fourth quarter.............................................. 14.0000 22.1875
2000
First quarter............................................... 9.3125 19.9375
Second quarter.............................................. 5.7500 8.2500
Third quarter............................................... 4.4688 8.8750
Fourth quarter.............................................. 1.6875 4.6250
On March 30, 2001, the last reported sale price for our Common Stock was
$3.125 per share.
HOLDERS
The number of holders of record of our Common Stock on March 30, 2001 was
268, which does not include beneficial owners of our Common Stock whose shares
are held in the names of various dealers, clearing agencies, banks, brokers and
other fiduciaries.
DIVIDENDS
There were no dividends or other distributions made by us during the fiscal
year ended December 31, 2000. It is anticipated that cash dividends will not be
paid to the holders of our Common Stock in the foreseeable future.
12
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data is qualified by reference to, and
should be read in conjunction with, our financial statements and the notes to
those statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" appearing elsewhere herein. The selected
statement of operations data presented below for the years ended December 31,
1998, 1999 and 2000, and the balance sheet data as of December 31, 1999 and
2000, are derived from our financial statements that have been audited by Arthur
Andersen LLP, independent public accountants, and are included elsewhere herein.
The balance sheet data as of December 31, 1996, 1997 and 1998 and the selected
statement of operations data for the period from June 18, 1996 (inception)
through December 31, 1996 and for the year ended December 31, 1997 has been
derived from our audited financial statements which are not included herein.
JUNE 18, 1996
(INCEPTION)
THROUGH YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1998 1999 2000
------------- ------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net revenues from continuing
operations: (see note a)
Advertising & E-Commerce........ $ -- $ 118 $ 2,544 $ 7,897 $ 13,180
Subscription.................... -- 321 1,686 4,550 8,334
Other........................... -- 150 393 1,869 1,794
------- ------- -------- -------- --------
Total net revenues............ -- 589 4,623 14,316 23,308
Cost of revenues.................. 298 1,147 3,955 9,378 13,070
------- ------- -------- -------- --------
Gross profit (loss) from
continuing operations....... (298) (558) 668 4,938 10,238
------- ------- -------- -------- --------
Operating expenses:
Product development............. 469 402 2,346 5,837 12,115
Sales and marketing............. 397 2,189 9,205 15,955 22,457
General and administrative...... 548 2,210 5,158 14,369 13,062
Noncash compensation expense.... -- -- 90 4,532 1,371
Restructuring expense........... -- -- -- -- 17,576
------- ------- -------- -------- --------
Total operating expenses.......... 1,414 4,801 16,799 40,693 66,581
------- ------- -------- -------- --------
Loss from continuing operations... (1,712) (5,359) (16,131) (35,755) (56,343)
Interest expense (Income), net.... 21 405 227 (4,188) (5,595)
------- ------- -------- -------- --------
Loss from continuing operations
before provision for income
taxes........................... (1,733) (5,764) (16,358) (31,567) (50,748)
Provision for income taxes........ -- -- -- 95 --
------- ------- -------- -------- --------
Net loss from continuing
operations...................... (1,733) (5,764) (16,358) (31,662) (50,748)
Loss from discontinued
operations...................... -- -- -- (1,971) (10,200)
Loss on disposal of discontinued
operations...................... -- -- -- -- (1,003)
------- ------- -------- -------- --------
Net loss.......................... $(1,733) $(5,764) $(16,358) $(33,633) $(61,951)
======= ======= ======== ======== ========
Net loss per share--basic and
diluted......................... $ (0.29) $ (0.95) $ (2.13) $ (1.73) $ (2.37)
======= ======= ======== ======== ========
Weighted average basic and diluted
shares outstanding.............. 6,061 6,061 8,575 21,053 26,106
======= ======= ======== ======== ========
13
DECEMBER 31,
----------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash, cash equivalents and short term
investments.................................... $ 18 $ 157 $24,612 $119,415 $72,160
Working capital (deficit)...................... (253) (1,343) 22,918 114,544 54,728
Total assets................................... 305 911 27,581 143,550 100,408
Long-term debt, less current maturities........ 1,357 6,335 -- -- --
Redeemable convertible preferred stock......... -- -- 21,107 -- --
Total stockholders' equity (deficit)........... (1,433) (7,157) 2,417 111,414 71,380
- ------------------------
(a) In November 2000, our Board of Directors decided to discontinue our U.K.
operations. As a result, the operating results relating to the U.K.
operations have been segregated from continuing operations. Prior years'
amounts have been restated to conform to the current year presentation.
QUARTERLY FINANCIAL DATA:
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------------ ------------ ----------- ------------
Fiscal 2000
Net revenue........................... $ 5,391,317 $ 6,333,075 $ 5,313,895 $ 6,269,732
Gross profit.......................... 2,015,170 2,882,872 1,897,814 3,442,059
Net loss from continuing operations... (10,346,005) (10,813,313) (7,301,294) (22,286,557)
Loss from discontinued operations..... (3,536,793) (3,009,862) (2,329,343) (2,327,527)
Net loss.............................. (13,882,798) (13,823,175) (9,630,637) (24,614,084)
Net loss per share--basic and diluted
Continuing operations............... $ (0.41) $ (0.42) $ (0.28) $ (0.81)
Discontinued operations............. (0.14) (0.12) (0.09) (0.09)
------------ ------------ ----------- ------------
$ (0.55) $ (0.54) $ (0.37) $ (0.90)
============ ============ =========== ============
Fiscal 1999
Net revenue........................... $ 1,990,823 $ 3,260,411 $ 3,948,042 $ 5,116,923
Gross profit.......................... 386,566 1,183,745 1,389,965 1,977,303
Net loss from continuing operations... (7,176,548) (6,828,807) (7,415,195) (10,241,691)
Loss from discontinued operations..... -- -- (406,484) (1,564,712)
Net loss.............................. (7,176,548) (6,828,807) (7,821,679) (11,806,403)
Net loss per share--basic and diluted
Continuing operations............... $ (0.64) $ (0.38) $ (0.30) $ (0.41)
Discontinued operations............. 0.00 0.00 (0.02) (0.06)
------------ ------------ ----------- ------------
$ (0.64) $ (0.38) $ (0.32) $ (0.47)
============ ============ =========== ============
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion contains forward-looking statements within the
meaning of Section 27(a) of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21(E) of the Securities Exchange Act of 1934, as
amended, including, without limitation, statements regarding our expectations,
beliefs, intentions or future strategies that are signified by the words
"expects", "anticipates", "intends", "believes", or similar language. All
forward-looking statements included in this annual report on Form 10-K are based
on information available to us on the date hereof, and we
14
assume no obligation to update any such forward-looking statements. These
forward-looking statements are subject to risks and uncertainties which could
cause actual results to differ.
The following discussion and analysis should be read in conjunction with the
audited consolidated financial statements and notes thereto.
OVERVIEW
TheStreet.com was organized as a limited liability company in June 1996. In
May 1998, we converted to a C corporation, incorporated in Delaware, and in May
1999, we completed our initial public offering. We are a leading multimedia
provider of original, timely, insightful and trustworthy financial commentary,
analysis and news. Our content is available across diverse product offerings,
including the Internet, print media, books and conferences.
As part of our strategy to diversify our sources of revenue, since
January 2000 we have expanded our offerings by:
- relaunching our formerly subscription-based THESTREET.COM web site as a
completely free, advertising-supported web site;
- launching a new subscription-based site called REALMONEY.COM;
- acquiring an email newsletter publisher and a conference company;
- introducing our first investing book, THESTREET.COM GUIDE TO SMART
INVESTING IN THE INTERNET ERA, published by the Doubleday division of
Random House Inc.; and
- introducing a daily institutional fax product.
We have developed a loyal audience of investors at various experience levels
who turn to our product offerings for all their financial and investing
information needs. In addition, we have important strategic relationships with
leading companies in the media, technology and financial services sectors that
also help us create brand awareness and increase subscription and advertising
revenues. Our goal is to monetize and leverage our financial content across a
variety of platforms.
RESULTS OF OPERATIONS
In November 2000, our Board of Directors decided to discontinue our U.K.
operations. As a result, the assets and liabilities of such discontinued
operations are being liquidated as promptly as possible. The following
information has been presented on a basis consistent with discontinued
operations treatment. Accordingly, the operating results relating to the U.K.
operations have been segregated from continuing operations and reported as a
separate line item on the statement of operations.
COMPARISON OF FISCAL YEARS ENDED DECEMBER 31, 2000 AND 1999
NET REVENUES
ADVERTISING & E-COMMERCE REVENUES. Advertising and e-commerce revenues
increased to $13,179,530 for the twelve months ended December 31, 2000, as
compared to $7,897,044 for the twelve months ended December 31, 1999. This
increase is primarily due to a 156% increase in page views, to 512.3 million, as
compared to 200.3 million, resulting in higher sales of Internet sponsorship,
banner and e-mail advertisements, partially offset by a 35% reduction in the
revenue per 1,000 page views. For the twelve months ended December 31, 2000, 56%
of our advertising and e-commerce revenues were derived from sponsorship
contracts, as compared to 75% for the twelve months ended December 31, 1999. The
number of our advertisers for the twelve months ended December 31, 2000 was 237,
as compared to 173 for the twelve months ended December 31, 1999. For the twelve
months ended
15
December 31, 2000, our top five advertisers accounted for approximately 26% of
our total advertising and e-commerce revenues, as compared to approximately 36%
for the twelve months ended December 31, 1999.
SUBSCRIPTION REVENUES. Subscription revenues increased to $8,333,666 for
the twelve months ended December 31, 2000, as compared to $4,549,924 for the
twelve months ended December 31, 1999. On June 16, 2000, we relaunched our
formerly subscription-based THESTREET.COM web site as a completely free,
advertising-supported web site. In addition, we launched a new
subscription-based site, REALMONEY.COM. Subscribers to THESTREET.COM were
automatically converted to REALMONEY.COM subscriptions. The increase in
subscription revenues is primarily the result of the growth in our subscriber
base, as well as an increase in our subscription price. For the twelve months
ended December 31, 2000, approximately 80% of our net subscription revenue was
derived from annual subscriptions, as compared to 75% for the twelve months
ended December 31, 1999. We calculate net subscription revenues by deducting
from gross revenues cancellation chargebacks and any refunds. During the twelve
months ended December 31, 2000, cancellation chargebacks and refunds accounted
for approximately 8% of total subscription revenues, as compared to
approximately 4% for the twelve months ended December 31, 1999.
OTHER REVENUES. Other revenues decreased to $1,794,823 for the twelve
months ended December 31, 2000, as compared to $1,869,231 for the twelve months
ended December 31, 1999. This decrease is primarily the result of the absence of
a one-time consulting services arrangement in April 1999 related to content
syndication, and lower revenues from TheStreet.com television show, partially
offset by BiGFiSH conference related revenue, and increased barter arrangements
with online and print media companies.
COST OF REVENUES
Cost of revenues increased to $13,070,104 for the twelve months ended
December 31, 2000, as compared to $9,378,620 for the twelve months ended
December 31, 1999. This increase is primarily the result of additional salaries
and related expenses incurred as a result of the growth of our editorial staff
prior to our work force reduction in November 2000, the number of research tools
made available to our subscribers, and higher rates paid to outside
contributors.
PRODUCT DEVELOPMENT EXPENSES
Product development expenses increased to $12,114,848 for the twelve months
ended December 31, 2000, as compared to $5,837,169 for the twelve months ended
December 31, 1999. This increase is primarily the result of costs related to the
expansion of our capacity to handle the increase in traffic following the
conversion of our subscription-based THESTREET.COM to a completely free,
advertising-supported web site, accompanied by a new, subscription-based site,
as well as higher salaries and related expenses as a result of a growth in our
technology and product development departments, which includes technology staff
for ipoPros.com, Inc.
SALES AND MARKETING EXPENSES
Sales and marketing expenses increased to $22,457,462 for the twelve months
ended December 31, 2000, as compared to $15,954,750 for the twelve months ended
December 30, 1999. This increase is primarily the result of costs associated
with an advertising campaign designed to drive traffic to our free,
advertising-supported site, increased costs associated with content distribution
deals, additional salaries and related expenses incurred within our sales and
marketing departments.
16
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative costs decreased to $13,061,589 for the twelve
months ended December 31, 2000, as compared to $14,369,583 for the twelve months
ended December 31, 1999. This decrease is primarily the result of costs
associated with employee benefits and computer services being allocated to
operating departments, the absence of moving costs that were incurred in 1999 as
a result of moving our offices, reduced professional fees, equipment rental, and
recruiting fees, partially offset by additional costs to support the growth of
our business, such as occupancy costs and administrative salaries and related
expenses. General and administrative expenses for the twelve months ended
December 31, 2000 include goodwill amortization of $759,453 related to the
acquisition of ipoPros.com, Inc. in December 1999 and BiGFiSH Management, Inc.
in May 2000.
NONCASH COMPENSATION EXPENSE
In 1998, and the first three months of 1999, we granted options to purchase
shares of our common stock at exercise prices that were less than the fair
market value of the underlying shares of common stock on the date of grant. This
resulted in noncash compensation expense incurred over the period that these
specific options vest. The noncash compensation expense was $1,370,689 for the
twelve months ended December 31, 2000. The remaining noncash compensation
expense beyond the year 2000 is currently estimated to be $2.1 million.
RESTRUCTURING EXPENSES
During the year ended December 31, 2000, we recorded restructuring expenses
of $17,575,522, consisting of approximately $0.5 million for headcount
reductions, approximately $3.7 million for consolidation of facilities and
reduction in non-performing assets, and approximately $13.4 million for the
extinguishments of certain marketing and technology related contracts. These
restructuring and other related charges were taken to align our cost structure
with changing market conditions and decreased dependence on the advertising
market to create a more flexible and efficient organization. The plan resulted
in approximately a 20% headcount reduction throughout the organization.
Total cash outlay for the restructuring will be approximately $5.6 million.
The remaining $12 million of restructuring related costs consists of non-cash
charges including the write off of certain assets. As of the end of fiscal 2000,
approximately $0.5 million of cash was used for restructuring. The remaining
cash outlay primarily relates to consolidation and extinguishments of certain
contracts, and is expected to occur over the next 12 months.
INTEREST INCOME
For the twelve months ended December 31, 2000, interest income was
$5,595,026, as compared to $4,188,301 for the twelve months ended December 31,
1999. This increase is primarily the result of interest earned on the net
proceeds from the IPO for the entire year of 2000 as compared to a partial
period in 1999.
DISCONTINUED OPERATIONS
In November 2000, our Board of Directors decided to discontinue our U.K.
operations. As a result, the assets and liabilities of the discontinued
operations are being liquidated as promptly as possible. Accordingly, the
operating results relating to the U.K. operations have been segregated from
continuing operations and reported as a separate line item on the statement of
operations.
For the twelve months ended December 31, 2000, loss from discontinued
operations was $10,199,945, as compared to $1,971,196 for the twelve months
ended December 31, 1999. For the twelve months ended December 31, 2000, loss on
disposal of discontinued operations was $1,003,580.
17
The loss on disposal of discontinued operations includes actual losses from the
date the Board of Directors resolved to discontinue the operations, plus a
provision for additional future costs to be incurred to complete the liquidation
process.
As of December 31, 2000, the book value of the remaining current assets of
the discontinued operations was $1,841,980, and the book value of the remaining
non-current assets was $426,218.
COMPARISON OF FISCAL YEARS ENDED DECEMBER 31, 1999 AND 1998
NET REVENUES
ADVERTISING AND E-COMMERCE REVENUES. Advertising and e-commerce revenues
increased to $7,897,044 for the twelve months ended December 31, 1999, as
compared to $2,544,409 for the twelve months ended December 31, 1998. This
increase is primarily due to an increase in our sales of sponsorship, banner,
and email advertisements. For the twelve months ended December 31, 1999 and
1998, the majority of our advertising and e-commerce revenues were derived from
sponsorship contracts. For the twelve months ended December 31, 1999, the top
five advertisers accounted for approximately 36% of our advertising and
e-commerce revenue, compared with approximately 65% for the twelve months ended
December 31, 1998.
SUBSCRIPTION REVENUES. Net subscription revenues increased to $4,549,924
for the twelve months ended December 31, 1999, as compared to $1,685,446 for the
twelve months ended December 31, 1998. This increase is primarily the result of
the growth in our subscriber base. For the twelve months ended December 31,
1999, approximately 75% of our net subscription revenue was derived from annual
subscriptions, while cancellation chargebacks and refunds accounted for
approximately 4% of total subscription revenues.
OTHER REVENUES. Other revenues increased to $1,869,231 for the twelve
months ended December 31, 1999, as compared to $393,511 for the twelve months
ended December 31, 1998. For the twelve months ended December 31, 1999, other
revenues consisted primarily of hosting and new syndication arrangements with
online and print media companies, barter revenues, revenues from TheStreet.com
television show, and revenues from one-time consulting services related to
content syndication. For the twelve months ended December 31, 1998, other
revenues were mainly derived from a syndication and hosting partnership with
ABCNEWS.com and Starwave (an affiliate of ABCNEWS.com). As part of this
arrangement, we agreed to syndicate a portion of our news content to ABCNEWS.com
in return for technology and hosting services from Starwave. This arrangement
ceased after our internal subscription management system became operational in
late May 1999. Barter revenue recognized during 1999 and 1998 was $893,000 and
$31,000, respectively. Barter transactions are recognized at the fair value as
determined by the comparable advertising market rates at the time of the
placement.
COST OF REVENUES
Cost of revenues increased to $9,378,620 for the twelve months ended
December 31, 1999, as compared to $3,955,270 for the twelve months ended
December 31, 1998. This increase is primarily due to the growth of our editorial
staff to 102 as of December 31, 1999, as compared to 53 as of December 31, 1998.
In addition, we have experienced an increase in the number of outside
contributors, data service fees for editorial research, and the number of new
research tools made available to our subscribers.
PRODUCT DEVELOPMENT EXPENSES
Product development expenses increased to $5,837,169 for the twelve months
ended December 31, 1999, as compared to $2,346,354 for the twelve months ended
December 31, 1998. This increase is
18
primarily due to new product development initiatives, increased expenses for
contract programmers and developers, and an increase in the headcount to 45
employees as of December 31, 1999 from 13 as of December 31, 1998.
SALES AND MARKETING EXPENSES
Sales and marketing expenses increased to $15,954,750 for the twelve months
ended December 31, 1999, as compared to $9,204,711 for the twelve months ended
December 31, 1998. This increase is primarily due to an increase in headcount to
59 as of December 31, 1999 from 27 as of December 31, 1998, an increase in print
advertising, and increased content distribution fees.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative costs increased to $14,369,583 for the twelve
months ended December 31, 1999, as compared to $5,158,158 for the twelve months
ended December 31, 1998. This increase is primarily the result of an increase in
headcount to 19 as of December 31, 1999 from 7 as of December 31, 1998, as well
as additional costs to support the growth of our business such as occupancy
costs, moving expenses, professional service fees, insurance costs and equipment
depreciation.
NONCASH COMPENSATION EXPENSE
During 1998 and the first six months of 1999, we granted options to purchase
shares of common stock at exercise prices that were less than the fair market
value of the underlying shares of common stock on the date of grant. This
resulted in noncash compensation expense over the period that these specific
options vest. For the twelve months ended December 31, 1999, we recorded
$4,531,869 in noncash compensation expense related to these options, as compared
to $90,000 for the twelve months ended December 31, 1998. The 1999 expense
includes noncash compensation recognized in connection with Kevin English's
departure from the Company on November 5, 1999.
INTEREST INCOME (EXPENSE) NET
For the twelve months ended December 31, 1999, interest income was
$4,188,301, primarily due to interest earned on both the cash proceeds from our
initial public offering and funds contributed by private equity investors in
TheStreet.co.uk. For the twelve months ended December 31, 1998, interest expense
on loans from founders of the TheStreet.com, L.L.C. was $388,747. In May 1998,
the loans and remaining accrued interest were converted into equity when
TheStreet.com, L.L.C. converted into TheStreet.com, Inc. For the twelve months
ended December 31, 1998, interest income was $161,423, primarily due to interest
earned on the cash proceeds from a private placement in May 1998.
INCOME TAXES
For the twelve months ended December 31, 1999, income taxes were $95,000,
primarily due to state and local income tax assessments. No benefit for Federal
and state income taxes is reported in the financial statements, as we had
elected to be taxed as a partnership prior to May 7, 1998, at which time we
converted to a C corporation. Subsequent to our conversion to a C corporation,
we have accounted for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Had we
applied the provisions of SFAS 109 for the period from inception, the deferred
tax asset generated, primarily from net operating loss carryforwards, would have
been offset by a full valuation allowance.
LIQUIDITY AND CAPITAL RESOURCES
We currently invest in money market funds and other short-term, investment
grade instruments that are highly liquid, of high-quality, and have maturities
of less than one year, with the intent that
19
such funds easily be made available for operating purposes. As of December 31,
2000, our cash, cash equivalents, and short-term investments amounted to
$72,160,325, representing 72% of our total assets.
Cash used in operating activities of $44,237,280 for the twelve months ended
December 31, 2000 was primarily due to a net loss of $61,950,694, offset by
noncash charges and increases in restructuring reserve, deferred revenue, other
current liabilities, and decreases in other receivables, partially offset by
increases in accounts receivable, prepaid expenses and other current assets,
other assets, and a decrease in accounts payable and accrued expenses.
Cash used in investing activities of $24,533,093 for the twelve months ended
December 31, 2000 consisted primarily of the net purchases of short-term and
long-term investments, capital expenditures, and the purchase of a minority
interest in TheStreet.com (Europe) Ltd. Capital expenditures have generally
consisted of purchases of computer hardware related to increasing our capacity
and enhancing our web sites.
Cash provided by financing activities of $6,849,505 for the twelve months
ended December 31, 2000 was the result of proceeds from the issuance of common
stock.
We believe that our current cash and cash equivalents and short-term
investments will be sufficient to meet our anticipated cash needs for at least
the next 12 months. Thereafter, if cash generated from operations is
insufficient to satisfy our liquidity requirements, we may need to raise
additional funds through public or private financings, strategic relationships
or other arrangements. There can be no assurance that additional funding, if
needed, will be available on terms attractive to us, or at all. Strategic
relationships, if necessary to raise additional funds, may require us to provide
rights to certain of our content. The failure to raise capital when needed could
materially adversely affect our business, results of operations and financial
condition. If additional funds are raised through the issuance of equity
securities, the percentage ownership of our then-current stockholders would be
reduced. Furthermore, these equity securities might have rights, preferences or
privileges senior to those of our common stock.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We believe that our market risk exposures are immaterial as we do not have
instruments for trading purposes, and reasonable possible near-term changes in
market rates or prices will not result in material near-term losses in earnings,
material changes in fair values or cash flows for all instruments.
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS BEFORE MAKING AN
INVESTMENT DECISION. THE RISKS DESCRIBED BELOW ARE ALL THE MATERIAL RISKS FACING
THESTREET.COM. WE MAY ALSO FACE SOME NON-MATERIAL RISKS WHICH WE HAVE NOT
DISCUSSED IN THE FOLLOWING DESCRIPTION OF OUR RISK FACTORS. IF ANY OF THE
FOLLOWING RISKS OCCUR, OUR BUSINESS, RESULTS OF OPERATIONS OR FINANCIAL
CONDITION COULD BE MATERIALLY ADVERSELY AFFECTED.
WE HAVE A HISTORY OF LOSSES, AND ALTHOUGH WE HAVE DIVERSIFIED OUR SOURCES OF
REVENUE, POTENTIAL FLUCTUATIONS IN OUR QUARTERLY FINANCIAL RESULTS MAKE
FINANCIAL FORECASTING DIFFICULT
As of December 31, 2000, we had an accumulated deficit of $109.6 million. We
have not achieved profitability and expect to continue to incur net losses in
2001. We expect to continue to incur significant operating expenses and, as a
result, will need to generate significant revenues to achieve profitability,
which may not occur. Even if we do achieve profitability, we may be unable to
sustain or increase profitability on a quarterly or annual basis in the future.
20
As part of our strategy to diversify our sources of revenue, since
January 2000 we have expanded our offerings by:
- relaunching our formerly subscription-based THESTREET.COM web site as a
completely free, advertising-supported web site;
- launching a new subscription-based site called REALMONEY.COM;
- acquiring an email newsletter publisher and a conference company;
- introducing our first investing book, THESTREET.COM GUIDE TO SMART
INVESTING IN THE INTERNET ERA, published by the Doubleday division of
Random House Inc.; and
- introducing a daily institutional fax product.
We have developed a loyal audience of investors at various experience levels
who turn to our product offerings for all their financial and investing
information needs. In addition, we have important strategic relationships with
leading companies in the media, technology and financial services sectors that
also help us create brand awareness and increase subscription and advertising
revenues. Our goal is to monetize and leverage our financial content across a
variety of platforms. However, we cannot assure you that these and other
initiatives will result in increases in revenues sufficient to enable us to
achieve profitability. In such an event, the price of our common stock is likely
to decrease.
We recently announced our goal of becoming EBITDA-positive by the end of
2001. However, we cannot assure you that we will be able to achieve this goal.
EBITDA, defined as operating income before depreciation and amortization is one
of the primary measures we use to evaluate performance. We believe that EBITDA
is an appropriate measure of evaluating our operations. However, EBITDA should
be considered in addition to, not as a substitute for or superior to, operating
income, net earnings, cash flows, and other measures of financial performance
prepared in accordance with generally accepted accounting principles ("GAAP").
As EBITDA is not a measure of performance calculated in accordance with GAAP,
this measure may not be comparable to similarly titled measures employed by
other companies.
Our quarterly operating results may fluctuate significantly in the future as
a result of a variety of factors, many of which are outside our control. We
believe that advertising sales in traditional media, such as television and
radio, generally are lower in the first and third calendar quarters of each
year. Similar seasonal patterns are developing in our industry. We believe that
quarter-to-quarter comparisons of our operating results may not be a good
indication of our future performance, nor would our operating results for any
particular quarter be indicative of future operating results. In some future
quarters our operating results may be below the expectations of public market
analysts and investors. In such an event, the price of our common stock is
likely to decrease.
WE MAY HAVE DIFFICULTY SELLING OUR ADVERTISING INVENTORY, A SIGNIFICANT PORTION
OF WHICH IS CONCENTRATED AMONG OUR TOP ADVERTISERS
The market for online advertising sales has significantly softened in the
last few months. Both traditional and new media advertisers are scaling back
their online media budgets. In addition, seasonal fluctuations in the markets
for consumer products cause advertisers to generally place fewer advertisements
during the first and third calendar quarters of each year. As a result, many
advertising supported web sites are experiencing difficulty selling their
available inventories and maintaining their rate structures. Although we believe
that our network of sites and corresponding demographic profiles will continue
to enable us to maintain our high sell-through, we expect that our overall
advertising rates will decrease as a result of increased inventory.
Additionally, we have entered into headline indexing and content distribution
agreements with a variety of Internet portals and content providers to
distribute our news and headlines to their users, thus driving potential readers
to our web sites. We
21
believe that these arrangements will continue to provide a cost-effective way to
increase our unique visitors and page view inventory. However, our actual
traffic is subject to a variety of factors, including seasonal fluctuations in
financial news consumption and overall online usage that generally cause
weakness in the first and third calendar quarters of each year, technical
difficulties associated with the implementation and ongoing delivery of the news
distribution arrangements, and editorial policy changes by our partners. If we
are unable to attract significantly increased traffic and advertising revenues
under this strategy, our business, results of operations and financial condition
could be materially adversely affected.
In the fourth quarter of 2000, our top five advertisers accounted for
approximately 35% of our total advertising revenues. Our business, results of
operations and financial condition could be materially adversely affected by the
loss of a number of our top advertisers, and such a loss could be concentrated
in a single quarter. Further, if we do not continue to increase our revenue from
financial-services advertisers or attract advertisers from non-financial
industries, our business, results of operations and financial condition could be
materially adversely affected. As is typical in the advertising industry, our
advertising contracts have cancellation provisions.
WE MAY HAVE DIFFICULTY RETAINING CURRENT SUBSCRIBERS
We continue to seek to retain our current subscribers and to attract new
subscribers. As of December 31, 2000, we had approximately 75,000 paid
subscribers, including both retail and corporate, down from approximately
109,000 when we launched our free site. We believe we have significantly
enhanced our subscription offerings to differentiate them from the free
financial news web sites that are widely available on the web, including on our
own free site. However, given the availability of such free financial
information, we may not be able to retain our current subscribers and attract
additional subscribers in a cost-effective manner. If our subscription base
declines more than we anticipate or our cost of subscriber acquisition
increases, our business, results of operations and financial condition could be
materially adversely affected.
DIFFICULTIES IN DEVELOPING NEW AND ENHANCED PRODUCTS AND SERVICES COULD HARM OUR
BUSINESS
We intend to introduce additional and enhanced products and services in
order to retain our current readers and attract new readers. If we introduce a
product or service that is not favorably received, our current readers may
choose a competitive service over ours. We may also experience difficulties that
could delay or prevent us from introducing new products and services, or the new
products or services we introduce could contain errors that are discovered after
they are introduced. In some cases, we are dependent on third parties, including
software companies, application service providers and technology consulting
firms, to help us develop and implement new products and services. If these
third parties are not able to fulfill their responsibilities to us on schedule
or if the technology developed by them for our use does not function as
anticipated, implementation may be delayed and the cost of implementation may be
higher than anticipated. Such developments could materially adversely affect our
business, results of operations and financial condition.
UNFORESEEN DEVELOPMENT DIFFICULTIES MAY HINDER OUR EFFORTS
We have significantly enhanced our design and our technological
infrastructure to further improve our sites and to accommodate the expected
increase in traffic, and intend to continue such development activities.
However, unforeseen development difficulties could prevent us from implementing
such improvements or cause the costs to implement such improvements, including
design, technology and related costs, to be higher than anticipated.
In the past, we have experienced significant spikes in traffic on our web
sites when there have been important financial news events. In addition, the
number of our readers has continued to increase
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over time and we expect our reader base to increase over time since our main
site has been converted to a totally free site. Accordingly, our web sites must
accommodate a high volume of traffic, often at unexpected times. Although we
have upgraded and continue to upgrade our systems, our web sites have in the
past, and may in the future, experience publishing problems, slower response
times than usual or other problems for a variety of reasons. These occurrences
could cause our readers to perceive our web sites as not functioning properly
and, therefore, cause them to use other methods to obtain their financial news
and information. In such a case, our business, results of operations and
financial condition could be materially adversely affected.
WE FACE A RISK OF SYSTEM FAILURE THAT MAY RESULT IN REDUCED TRAFFIC, REDUCED
REVENUE AND HARM TO OUR REPUTATION
Our ability to provide timely information and continuous news updates
depends on the efficient and uninterrupted operation of our computer and
communications hardware and software systems. Similarly, our ability to track,
measure and report the delivery of advertisements on our site depends on the
efficient and uninterrupted operation of a third-party system. In
February 2000, our Internet-hosting agreement with Exodus Communications, Inc.
was renewed, and we currently continue to maintain all of our production servers
at Exodus's New Jersey data center. Our operations depend on the ability of
Exodus to protect its own systems and our systems in its data center against
damage from fire, power loss, water damage, telecommunications failure,
vandalism and similar unexpected adverse events. Although Exodus provides
comprehensive facilities management services, including human and technical
monitoring of all production servers 24 hours per day, seven days per week,
Exodus does not guarantee that our Internet access will be uninterrupted,
error-free or secure. Any disruption in the Internet access to our web sites
provided by Exodus could materially adversely affect our business, results of
operations and financial condition. Our own internal systems and operations, as
well as those of Exodus, may be subject to damage or interruption from human
error, natural disasters, fire, water damage, power loss, telecommunication
failures, break-ins, sabotage, computer viruses, intentional acts of vandalism
and similar events. Any system failure, including network, software or hardware
failure, that causes an interruption in our service or a decrease in
responsiveness of our web sites could result in reduced traffic, reduced revenue
and harm to our reputation, brand and our relations with our advertisers and
e-commerce partners.
Like most web sites, we may be vulnerable to computer viruses, physical or
electronic break-ins and other deliberate attempts to disrupt our technological
operations, which could lead to interruptions, delays or loss of data. In
addition, unauthorized persons may improperly access our data. Our insurance
policies may not adequately compensate us for any losses that we may incur
because of any failures in our system or interruptions in our delivery of
content. Our business, results of operations and financial condition could be
materially adversely affected by any event, damage or failure that interrupts or
delays our operations.
OUR FUTURE SUCCESS DEPENDS ON OUR ABILITY TO ATTRACT AND RETAIN KEY PERSONNEL
Our future success depends upon our ability to attract and retain key
personnel, including executives, editors, writers, and technology personnel.
Only a few of our key employees are bound by employment or non-competition
agreements. The loss of one or more of our key personnel, or our inability to
attract replacements with appropriate expertise, could materially adversely
affect our business, results of operations and financial condition.
23
INTENSE COMPETITION COULD REDUCE OUR MARKET SHARE AND HARM OUR FINANCIAL
PERFORMANCE
A number of financial news and information sources compete for consumers'
and advertisers' attention and spending. We compete for advertisers, readers,
staff and outside contributors with many types of companies, including:
- online services or web sites focused on business, finance and investing,
such as CBS.MarketWatch.com, CNBC.com, CNNfn.com, The Wall Street Journal
Interactive Edition, The New York Times on the Web, DowJones.com,
SmartMoney.com, Microsoft MSN MoneyCentral and The Motley Fool;
- publishers and distributors of traditional media, including print, radio
and television, such as The Wall Street Journal, Fortune, Bloomberg
Business Radio and CNBC;
- providers of terminal-based financial news and data, such as Bloomberg
Business News, Reuters News Service, Dow Jones Markets and Bridge News
Service;
- web "portal" companies, such as Yahoo! and America Online; and
- online brokerage firms, many of which provide financial and investment
news and information, such as Charles Schwab, E*TRADE and Merrill Lynch.
Our ability to compete depends on many factors, including the originality,
timeliness, insightfulness and trustworthiness of our content and that of our
competitors, the ease of use of services developed either by us or our
competitors and the effectiveness of our sales and marketing efforts.
Many of our existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater name recognition, larger
customer bases and significantly greater financial, technical and marketing
resources than we do. This may allow them to devote greater resources than we
can to the development and promotion of their services. These competitors may
also engage in more extensive research and development, undertake more
far-reaching marketing campaigns, adopt more aggressive pricing policies
(including offering more of their financial news and commentary for free) and
make more attractive offers to existing and potential employees, outside
contributors, strategic partners and advertisers. Our competitors may develop
content that is equal or superior to ours or that achieves greater market
acceptance than ours. It is also possible that new competitors may emerge and
rapidly acquire significant market share. We may not be able to compete
successfully for advertisers, readers, staff or outside contributors, which
could materially adversely affect our business, results of operations and
financial condition. Increased competition could result in price reductions,
reduced margins or loss of market share, any of which could materially adversely
affect our business, results of operations and financial condition.
We also compete with other web sites, television, radio and print media for
a share of advertisers' total advertising budgets. If advertisers perceive the
Internet or our web sites to be a limited or an ineffective advertising medium,
they may be reluctant to devote a portion of their advertising budget to
Internet advertising or to advertising on our web sites.
A FAILURE TO ESTABLISH AND MAINTAIN STRATEGIC RELATIONSHIPS WITH OTHER COMPANIES
COULD DECREASE OUR SUBSCRIBER AND READER BASE, WHICH MAY HARM OUR BUSINESS
We depend on establishing and maintaining content syndication and headline
indexing relationships with high-traffic web sites for a significant portion of
our current subscriber and reader base. There is intense competition for
relationships with these firms and placement on these sites, and we may have to
pay significant fees to establish additional content syndication and headline
indexing relationships or maintain existing relationships in the future. We may
be unable to enter into or successfully renew relationships with these firms or
sites on commercially reasonable terms or at all. These relationships may not
attract significant numbers of subscribers or readers.
24
Many companies that we may approach for a strategic relationship or who
already have strategic relationships with us also provide financial news and
information from other sources. As a result, these companies may be reluctant to
enter into or maintain strategic relationships with us. Our business, results of
operations and financial condition could be materially adversely affected if we
do not establish additional, and maintain existing, strategic relationships on
commercially reasonable terms or if any of our strategic relationships do not
result in an increase in the number of subscribers or readers of our web sites.
WE MAY BE UNABLE TO GROW THROUGH ACQUISITIONS AND INTEGRATE FUTURE ACQUISITIONS
INTO OUR BUSINESS
We intend to pursue a growth strategy that may involve acquisitions of other
companies. However, we may be unable to successfully pursue and complete
acquisitions in a timely and cost-effective manner. Further, the pursuit and
integration of acquisitions will require substantial attention from our senior
management, which will limit the amount of time these individuals will have
available to devote to our existing operations. There can be no assurance that
we can successfully integrate these acquisitions into our business or implement
our plans without delay or substantial cost. In addition, future acquisitions by
us could result in the incurrence of debt and contingent liabilities, which
could have a material adverse effect upon our financial condition and results of
operations. Any failure or any inability to effectively manage and integrate
growth may have a material adverse effect on our financial condition and results
of operations.
ANY FAILURE OF OUR INTERNAL SECURITY MEASURES OR BREACH OF OUR PRIVACY
PROTECTIONS COULD CAUSE US TO LOSE USERS AND SUBJECT US TO LIABILITY
Users who subscribe to one of our subscription-based web sites are required
to furnish certain personal information (including name, email address and
credit card information), which we use to administer our services. Although we
no longer need credit-card information to process subscription payments for our
main site now that it has converted to a free site, we continue to gather credit
card information for the subscription-based sites in our network. Additionally,
we recently implemented a registration system that will collect certain
information (although not payment information) from users of our free main site
who wish to gain access to certain features of our site. If the security
measures that we use to protect personal information are ineffective, we may
lose users and our business may be harmed. Additionally, we rely on security and
authentication technology licensed from third parties to perform real-time
credit card authorization and verification. We cannot predict whether
technological developments or human error could allow these security measures to
be circumvented. We may need to use significant resources to prevent security
breaches or to alleviate problems caused by any security breaches. If we are not
able to prevent all security breaches, our business, results of operations and
financial condition could be materially adversely affected.
Our users depend on us to keep their personal information private and to not
disclose it to third parties. We therefore maintain a privacy policy, under
which, with certain limited exceptions, we will not disclose to any third
parties any personal information about our subscribers or other users. We have
retained the ability to modify the privacy policy at any time. If our users
perceive that we are not protecting their privacy, our business, results of
operations and financial condition could be materially adversely affected.
DIFFICULTIES ASSOCIATED WITH OUR BRAND DEVELOPMENT MAY HARM OUR ABILITY TO
ATTRACT SUBSCRIBERS AND READERS
We believe that maintaining and growing awareness about the THESTREET.COM
brand is an important aspect of our efforts to continue to attract users. The
importance of brand recognition will increase in the future because of the
growing number of web sites providing financial news and information. The
25
new site that we have introduced, REALMONEY.COM, and those that we have
acquired, do not have widely recognized brands, and we will need to increase
awareness of these brands among potential users. Although our efforts to build
brand awareness have been successful to date, they may not be cost effective or
successful in the future in reaching potential users, and some potential users
may not be receptive to our advertising campaign or other efforts. Accordingly,
we cannot assure you that such efforts will be successful in raising awareness
of THESTREET.COM brand or in persuading potential users to visit our sites.
FAILURE TO MAINTAIN OUR REPUTATION FOR TRUSTWORTHINESS MAY REDUCE THE NUMBER OF
OUR READERS, WHICH MAY HARM OUR BUSINESS
It is very important that we maintain our reputation as a trustworthy news
organization. The occurrence of events, including our misreporting a news story
or the non-disclosure of a stock ownership position by one or more of our
writers in breach of our compliance policy, could harm our reputation for
trustworthiness. These events could result in a significant reduction in the
number of our readers, which could materially adversely affect our business,
results of operations and financial condition.
POTENTIAL LIABILITY FOR INFORMATION DISPLAYED ON OUR WEB SITES MAY REQUIRE US TO
DEFEND AGAINST LEGAL CLAIMS, WHICH MAY CAUSE SIGNIFICANT OPERATIONAL
EXPENDITURES
We may be subject to claims for defamation, libel, copyright or trademark
infringement or based on other theories relating to the information we publish
on our web sites. These types of claims have been brought, sometimes
successfully, against online services as well as other print publications in the
past. We could also be subject to claims based upon the content that is
accessible from our web sites through links to other web sites. We have stock
ticker-based message boards that allow users to post comments about individual
stocks. We undertake no obligation to moderate these message boards, and
potential liability for providers of message board services has not yet been
well established. We may choose to allow our editorial staffers or outside
contributors to post on our boards, thus increasing our potential liability. Our
insurance may not adequately protect us against these claims.
FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS COULD HARM OUR
BRAND-BUILDING EFFORTS AND ABILITY TO COMPETE EFFECTIVELY
To protect our rights to our intellectual property, we rely on a combination
of trademark and copyright law, trade secret protection, confidentiality
agreements and other contractual arrangements with our employees, affiliates,
clients, strategic partners and others. The protective steps we have taken may
be inadequate to deter misappropriation of our proprietary information. We may
be unable to detect the unauthorized use of, or take appropriate steps to
enforce, our intellectual property rights. We have registered our trademarks in
the United States and we have pending U.S. and foreign applications for other
trademarks. Effective trademark, copyright and trade secret protection may not
be available in every country in which we offer or intend to offer our services.
Failure to adequately protect our intellectual property could harm our brand,
devalue our proprietary content and affect our ability to compete effectively.
Further, defending our intellectual property rights could result in the
expenditure of significant financial and managerial resources, which could
materially adversely affect our business, results of operations and financial
condition.
WE MAY HAVE TO DEFEND AGAINST INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS, WHICH
MAY CAUSE SIGNIFICANT OPERATIONAL EXPENDITURES
Although we believe that our proprietary rights do not infringe on the
intellectual property rights of others, other parties may assert infringement
claims against us or claims that we have violated a patent or infringed a
copyright, trademark or other proprietary right belonging to them. We
incorporate
26
licensed third-party technology in some of our services. In these license
agreements, the licensors have generally agreed to defend, indemnify and hold us
harmless with respect to any claim by a third party that the licensed software
infringes any patent or other proprietary right. We cannot assure you that these
provisions will be adequate to protect us from infringement claims. Any
infringement claims, even if not meritorious, could result in the expenditure of
significant financial and managerial resources on our part, which could
materially adversely affect our business, results of operations and financial
condition.
OUR ABILITY TO MAINTAIN AND INCREASE OUR READERSHIP DEPENDS ON THE CONTINUED
GROWTH IN USE AND EFFICIENT OPERATION OF THE WEB
The web-based information market is new and rapidly evolving. Our business
would be materially adversely affected if web usage does not continue to grow or
grows slowly. Web usage may be inhibited for a number of reasons, such as:
- inadequate network infrastructure;
- security and privacy concerns;
- inconsistent quality of service; and
- unavailability of cost-effective, high-speed access to the Internet.
Our readers depend on Internet service providers, online service providers
and other web site operators for access to our web sites. Many of these services
have experienced significant service outages in the past and could experience
service outages, delays and other difficulties due to system failures unrelated
to our systems. These occurrences could cause our readers to perceive the web in
general or our web sites in particular as an unreliable medium and, therefore,
cause them to use other media to obtain their financial news and information. We
also depend on a number of information providers to deliver information and data
feeds to us on a timely basis. Our web sites could experience disruptions or
interruptions in service due to the failure or delay in the transmission or
receipt of this information, which could materially adversely affect our
business, results of operations and financial condition.
A GENERAL DECLINE IN ONLINE ADVERTISING COULD HARM OUR BUSINESS
Our future success is highly dependent on an increase in the use of the
Internet as an advertising medium. The Internet advertising industry is new and
rapidly evolving, and it cannot yet be compared with traditional advertising
media to gauge its effectiveness. As a result, demand and market acceptance for
Internet advertising solutions is uncertain and its growth in recent months has
slowed significantly. Most of our current or potential advertising customers
have little or no experience using the Internet for advertising purposes and
they have allocated only a limited portion of their advertising budgets to
Internet advertising. The adoption of Internet advertising, particularly by
those entities that have historically relied upon traditional media for
advertising, requires the acceptance of a new way of conducting business,
exchanging information and advertising products and services. These customers
may find Internet advertising to be less effective for promoting their products
and services relative to traditional advertising media. In addition, most of our
current and potential web publisher customers have little experience in
generating revenue from the sale of advertising space on their web sites. We
cannot assure you that current or potential advertising customers will continue
to allocate a portion of their advertising budget to Internet advertising or
that the demand for Internet advertising will continue to develop to
sufficiently support Internet advertising as a significant advertising medium.
If the demand for Internet advertising develops more slowly than we expect, then
our business, results of operations and financial condition could be materially
and adversely affected.
27
No standards have been widely accepted to measure the effectiveness of web
advertising. If standards do not develop, existing advertisers may not continue
or increase their levels of web advertising. If standards develop and we are
unable to meet these standards, advertisers may not continue advertising on our
site. Furthermore, advertisers that have traditionally relied upon other
advertising media may be reluctant to advertise on the web. Our business,
results of operations and financial condition could be materially adversely
affected if the market for web advertising declines or develops more slowly than
expected.
Different pricing models are used to sell advertising on the web. It is
difficult to predict which, if any, will emerge as the industry standard. This
uncertainty makes it difficult to project our future advertising rates and
revenues. We cannot assure you that we will be successful under alternative
pricing models that may emerge. Moreover, "filter" software programs that limit
or prevent advertising from being delivered to a web user's computer are
available. Widespread adoption of this software could materially adversely
affect the commercial viability of web advertising, which could materially
adversely affect our advertising revenues. In addition, some Internet
commentators, privacy advocates and federal and state officials have recently
suggested that legislation may be needed to better safeguard online privacy, by
the limitation or elimination of the use of cookies or by other methods. If such
legislation is passed, it is likely to restrict the ability of online
advertisers to target their ads, which may result in a decrease in online
advertising rates or online advertising spending generally. Such a decrease
could materially adversely affect our advertising revenues.
We also derive advertising revenues from email services, which exposes us to
potential liabilities or claims resulting from unsolicited email, lost or
misdirected messages, illegal or fraudulent use of email, privacy violations or
interruptions or delays in email service. Any allegation of impropriety or any
successful claim could materially adversely affect our business, results of
operations and financial condition.
We compete with other web sites, television, radio and print media for a
share of advertisers' total advertising budgets. If advertisers perceive the web
in general or our web sites in particular to be a limited or an ineffective
advertising medium, they may be reluctant to devote a portion of their
advertising budget to online advertising or to advertising on our web sites.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES RELATING TO THE WEB COULD INCREASE
OUR COSTS OF TRANSMITTING DATA AND INCREASE OUR LEGAL AND REGULATORY
EXPENDITURES AND COULD DECREASE OUR READERSHIP
Existing domestic and international laws or regulations and private industry
guidelines specifically regulate communications or commerce on the web. Further,
laws and regulations that address issues such as user privacy, pricing, online
content regulation, taxation of e-commerce transactions and the characteristics
and quality of online products and services are under consideration by federal,
state, local and foreign governments and agencies and by private industry
groups. Several telecommunications companies have petitioned the Federal
Communications Commission to regulate Internet service providers and online
services providers in a manner similar to the regulation of long distance
telephone carriers and to impose access fees on such companies. The governments
of other states or foreign countries might attempt to regulate our transmissions
or levy sales or other taxes relating to our activities. These regulations, if
imposed, could increase the cost of transmitting data over the web.
28
In addition, the growth and development of the market for Internet commerce
may prompt calls for more stringent consumer protection laws, both in the United
States and abroad, that may impose additional burdens on companies conducting
business over the Internet. Our business, results of operations and financial
condition could be materially and adversely affected by the adoption or
modification of laws or regulations relating to the Internet.
The interpretation and application of existing securities laws to web-based
financial news providers, including laws governing investment advisors,
investment companies and broker/dealers, by the Securities and Exchange
Commission and state securities regulators, is a developing area. If, as this
area matures, our activity is interpreted as subjecting us to regulation, we
could be subject to liability, and our business, results of operations and
financial condition could be materially and adversely affected.
We are also subject to various federal and state regulations concerning the
collection and use of information regarding individuals. These laws include the
Children's Online Privacy Protection Act, and state laws which limit or preclude
the use of voter registration and drivers license information, as well as other
laws that govern the collection and use of consumer credit information. Although
our compliance with applicable federal and state laws, regulations and industry
guidelines has not had a material adverse effect on us, governments, trade
associations and industry self-regulatory groups may enact more burdensome laws,
regulations and guidelines, including antitrust and consumer privacy laws, for
us and our clients. The U.S. federal and various state governments have been
investigating certain Internet companies regarding their use of personal
information and have recently proposed limitations on the collection and use of
information regarding Internet users. The European Union has enacted its own
privacy regulations that may result in limits on the collection and use of
certain information from users in Europe. We could incur additional expenses if
any new regulations regarding the use of personal information are introduced or
if these agencies chose to investigate our privacy practices. Also, as a
consequence of governmental legislation or regulation or enforcement efforts or
evolving standards of fair information collection practices, we may be required
to make changes to our products or services in ways that could diminish the
effectiveness of the product or service or its attractiveness to potential
customers, which could materially and adversely affect our business, financial
condition or results of operations. Any new laws or regulations relating to the
web, or certain application or interpretation of existing laws, could decrease
the growth in the use of the web, decrease the demand for our web sites or
otherwise materially adversely affect our business.
Laws and regulations directly applicable to Internet communications,
commerce and advertising are becoming more prevalent, and new laws and
regulations are under consideration by the U.S. Congress and state legislatures.
Any legislation enacted or restrictions arising from current or future
government investigations or policy could dampen the growth in use of the
Internet generally and decrease the acceptance of the Internet as a
communications, commercial and advertising medium. The laws governing the
Internet remain largely unsettled, even in areas where there has been some
legislative action. Moreover, it may take years to determine the extent to which
existing laws relating to issues such as intellectual property ownership and
infringement, libel, obscenity and personal privacy apply to the Internet and
Internet advertising.
CONCERNS ABOUT WEB SECURITY COULD REDUCE OUR ADVERTISING REVENUES, DECREASE OUR
READER BASE AND INCREASE OUR WEB SECURITY EXPENDITURES
Concern about the transmission of confidential information over the Internet
has been a significant barrier to electronic commerce and communications over
the web. Any well-publicized compromise of security could deter more people from
using the web or from using it to conduct transactions that involve the
transmission of confidential information, such as signing up for a paid
subscription, executing stock trades or purchasing goods or services. Because
many of our advertisers seek to advertise on our web sites to encourage people
to use the web to purchase goods or services, our
29
business, results of operations and financial condition could be materially
adversely affected if Internet users significantly reduce their use of the web
because of security concerns. We may also incur significant costs to protect
ourselves against the threat of security breaches or to alleviate problems
caused by these breaches.
CONTROL BY PRINCIPAL STOCKHOLDERS, OFFICERS AND DIRECTORS COULD ADVERSELY AFFECT
OUR STOCKHOLDERS
Our officers, directors and greater-than-five-percent stockholders (and
their affiliates), acting together, have the ability to control substantially
all matters submitted to our stockholders for approval (including the election
and removal of directors and any merger, consolidation or sale of all or
substantially all of our assets) and to control our management and affairs.
Accordingly, this concentration of ownership may have the effect of delaying,
deferring or preventing a change in control of us, impeding a merger,
consolidation, takeover or other business combination involving us or
discouraging a potential acquirer from making a tender offer or otherwise
attempting to obtain control of us, which in turn could materially adversely
affect the market price of the common stock.
VOLATILITY OF OUR STOCK PRICE COULD ADVERSELY AFFECT OUR STOCKHOLDERS
The stock market has experienced significant price and volume fluctuations
and the market prices of securities of technology companies, particularly
Internet-related companies, have been highly volatile. The trading price of our
stock has been and may continue to be subject to wide fluctuations. From
January 1, 2000 through December 31, 2000, the closing sale price of our common
stock on the Nasdaq National Market ranged from $19.9375 to $1.6875. As of
March 30, 2001, the closing sale price was $3.125. Our stock price may fluctuate
in response to a number of events and factors, such as quarterly variations in
operating results, announcements of technological innovations or new products
and media properties by us or our competitors, changes in financial estimates
and recommendations by securities analysts, the operating and stock price
performance of other companies that investors may deem comparable, and news
reports relating to trends in our markets. In addition, the stock market in
general, and the market prices for Internet-related companies in particular,
have experienced extreme volatility that often has been unrelated to the
operating performance of such companies. These broad market and industry
fluctuations may adversely affect the price of our common stock, regardless of
our operating performance.
ANTI-TAKEOVER PROVISIONS COULD PREVENT OR DELAY A CHANGE OF CONTROL
Provisions of our amended and restated certificate of incorporation and
amended and restated bylaws and Delaware law could make it more difficult for a
third party to acquire us, even if doing so would be beneficial to our
stockholders.
WE DO NOT INTEND TO PAY DIVIDENDS
We have never declared or paid any cash dividends on our common stock. We
currently intend to retain any future earnings for funding growth and,
therefore, do not expect to pay any dividends in the foreseeable future.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Consolidated Financial Statements required by this item are
included in Item 14 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
30
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated by reference to the
Company's definitive Proxy Statement for its Annual Meeting of Stockholders to
be held in 2001, to be filed with the Securities and Exchange Commission within
120 days after the end of the fiscal year covered by this Report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
Company's definitive Proxy Statement for its Annual Meeting of Stockholders to
be held in 2001, to be filed with the Securities and Exchange Commission within
120 days after the end of the fiscal year covered by this Report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
Company's definitive Proxy Statement for its Annual Meeting of Stockholders to
be held in 2001, to be filed with the Securities and Exchange Commission within
120 days after the end of the fiscal year covered by this Report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
Company's definitive Proxy Statement for its Annual Meeting of Stockholders to
be held in 2001, to be filed with the Securities and Exchange Commission within
120 days after the end of the fiscal year covered by this Report.
31
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Consolidated Financial Statements:
See Index to Consolidated Financial Statements on page F-1.
2. Consolidated Financial Statement Schedules:
See Index to Consolidated Financial Statements on page F-1.
3. Exhibits:
The following exhibits are filed herewith or are incorporated by reference
to exhibits previously filed with the Commission:
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
*3.1 Amended and Restated Certificate of Incorporation
**3.2 Amended and Restated Bylaws
*4.1 Amended and Restated Registration Rights Agreement, dated as
of December 21, 1998, among TheStreet.com and the
stockholders named therein.
*4.2 TheStreet.com Rights Agreement
4.3 Amendment No. 1, dated as of August 7, 2000, to Rights
Agreement
**4.4 Amended and Restated 1998 Stock Incentive Plan
4.5 Amended and Restated 1998 Stock Incentive Plan, dated as of
July 12, 2000
+10.1 Securities Purchase Agreement, dated August 7, 2000
++10.2 Share Purchase Agreement, dated November 16, 2000
- ------------------------
* Incorporated by reference to Exhibits to the Company's Registration
Statement on Form S-1 dated February 23, 1999 (File No. 333-72799).
** Incorporated by reference to Exhibits to the Company's Annual Report on
Form 10-K dated March 30, 2000.
+ Incorporated by reference to Exhibits to the Company's Current Report on
Form 8-K, dated August 7, 2000.
++ Incorporated by reference to Exhibits to the Company's Current Report on
Form 8-K, dated November 16, 2000.
(b) Reports on Form 8-K
1. The Company filed a Current Report on Form 8-K, dated August 7, 2000,
reporting under Item 5 thereof the execution of a Securities Purchase
Agreement with Go2Net, Inc. ("Go2Net") and Vulcan Ventures Inc.
("Vulcan") pursuant to which, among other things, the Company sold to
each of Go2Net and Vulcan 670,167 shares of its common stock, par value
$.01 per share, at a purchase price of $5.56 per share. In addition, the
Company granted each of Go2Net and Vulcan an option to purchase up to an
additional 7.45% (for a total of 14.9%) of the Company's shares of common
stock outstanding immediately after the issuance of such stock, at a
purchase price of $13.50 per share. Each option is exercisable for six
months from the issuance date.
32
2. The Company filed a Current Report on Form 8-K, dated November 16, 2000,
reporting under Item 5 thereof the execution of a Share Purchase
Agreement with Chase Equity Associates L.P. ("Chase") and the other
shareholders (together with Chase, the "Investors") of TheStreet.com
(Europe) Limited ("TSC Europe"), the Company's U.K. subsidiary, pursuant
to which, among other things, the Company purchased the 2,550,000 shares
of TSC Europe held by the Investors for an aggregate consideration of
$3,000,000 in cash and 1,250,000 shares of the Company's common stock. In
connection with this transaction, the Investment Agreement, dated
September 11, 1999, among the Company and the Investors, was terminated.
The Investment Agreement contained, among other things, a provision
pursuant to which, in the event of a change of control of the Company,
the Investors had the right to require the Company to purchase their
shares in TSC Europe for an aggregate consideration of $34 million,
increasing to $42 million after September 11, 2001. This right, with
certain exceptions, would have remained in effect indefinitely.
3. The Company filed a Current Report on Form 8-K, dated December 20, 2000,
reporting under Item 5 thereof the acquisition of substantially all of
the assets and the assumption of certain liabilities of
SmartPortfolio.com, Inc.
33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
THESTREET.COM, INC.
Dated: March 30, 2001
By: /s/ THOMAS J. CLARKE, JR.
-----------------------------------------
Thomas J. Clarke, Jr.
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ THOMAS J. CLARKE, JR.
------------------------------------------- Chief Executive Officer and March 30, 2001
Thomas J. Clarke, Jr. Director
/s/ LISA A. MOGENSEN
------------------------------------------- Chief Financial Officer March 30, 2001
Lisa A. Mogensen
/s/ RICHARD BROITMAN
------------------------------------------- Controller March 30, 2001
Richard Broitman
/s/ FRED WILSON
------------------------------------------- Chairman of the Board March 30, 2001
Fred Wilson
/s/ JERRY COLONNA
------------------------------------------- Director March 30, 2001
Jerry Colonna
/s/ JAMES J. CRAMER
------------------------------------------- Director March 30, 2001
James J. Cramer
34
SIGNATURE TITLE DATE
--------- ----- ----
/s/ EDWARD F. GLASSMEYER
------------------------------------------- Director March 30, 2001
Edward F. Glassmeyer
/s/ DAVE KANSAS
------------------------------------------- Director March 30, 2001
Dave Kansas
/s/ DOUGLAS MCINTYRE
------------------------------------------- Director March 30, 2001
Douglas McIntyre
/s/ MARTIN PERETZ
------------------------------------------- Director March 30, 2001
Martin Peretz
35
THESTREET.COM, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
--------
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets as of December 31, 2000 and
1999...................................................... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 2000, 1999 and 1998.......................... F-4
Consolidated Statements of Stockholders' Equity (Deficit)
for the Years Ended December 31, 2000, 1999 and 1998...... F-5
Consolidated Statements of Cash Flow for the Years Ended
December 31, 2000, 1999 and 1998.......................... F-6
Notes to Consolidated Financial Statements.................. F-8
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To TheStreet.com, Inc.:
We have audited the accompanying consolidated balance sheets of
TheStreet.com, Inc. (a Delaware corporation) and subsidiary as of December 31,
1999 and 2000 and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for each of the three years in the
period ended December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of TheStreet.com, Inc. and
subsidiary as of December 31, 1999 and 2000, and the results of their operations
and their cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
consolidated financial statements is presented for the purpose of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements, and in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
New York, New York
February 2, 2001
F-2
THESTREET.COM, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2000 AND 1999
DECEMBER 31, 2000 DECEMBER 31, 1999
----------------- -----------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 46,339,561 $108,239,811
Short-term investments.................................... 25,820,764 11,175,322
Accounts receivable, net of allowance for doubtful
accounts of $749,159 and $300,000 as of December 31,
2000 and December 31, 1999, respectively................ 4,009,132 2,467,164
Other receivables......................................... 707,266 1,866,148
Receivable from related party............................. 160,000 100,000
Prepaid expenses and other current assets................. 2,881,815 2,220,735
Net current assets of discontinued operations............. 1,841,980 2,542,336
------------- ------------
Total current assets.................................... 81,760,518 128,611,516
Property and equipment, net of accumulated depreciation and
amortization of $3,165,598 and $581,603 as of December 31,
2000 and December 31, 1999, respectively.................. 10,278,567 7,412,742
Other assets................................................ 779,559 324,500
Goodwill and intangibles, net of accumulated amortization of
$50,000 and $0 as of December 31, 2000 and December 31,
1999, respectively........................................ 4,913,386 2,078,349
Long-term investment........................................ 2,250,000 2,250,000
Non-current assets of discontinued operations............... 426,218 2,873,128
------------- ------------
Total assets............................................ $ 100,408,248 $143,550,235
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 3,118,661 $ 4,290,538
Accrued expenses.......................................... 12,266,857 6,675,541
Restructuring reserve..................................... 6,485,125 --
Deferred revenue.......................................... 3,896,884 2,858,945
Other current liabilities................................. 1,264,607 242,456
------------- ------------
Total current liabilities............................... 27,032,134 14,067,480
Deferred rent............................................... 1,995,645 2,182,100
Minority interest........................................... -- 15,886,741
------------- ------------
Total liabilities........................................... 29,027,779 32,136,321
------------- ------------
STOCKHOLDERS' EQUITY:
Preferred stock; $0.01 par value; 10,000,000 shares
authorized; none issued and outstanding................. -- --
Common stock; $0.01 par value; 100,000,000 shares
authorized; 28,074,483 and 25,248,434 shares issued and
outstanding at December 31, 2000 and December 31, 1999,
respectively............................................ 280,745 252,484
Additional paid-in capital................................ 182,888,343 174,363,323
Deferred compensation..................................... (2,149,572) (5,450,860)
Advertising receivable.................................... -- (10,042,062)
Accumulated comprehensive income.......................... -- (20,618)
Accumulated deficit....................................... (109,639,047) (47,688,353)
------------- ------------
Total stockholders' equity.............................. 71,380,469 111,413,914
------------- ------------
Total liabilities and stockholders' equity.............. $ 100,408,248 $143,550,235
============= ============
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
F-3
THESTREET.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------
2000 1999 1998
------------ ------------ ------------
Net revenues:
Advertising & e-commerce revenues................. $ 13,179,530 $ 7,897,044 $ 2,544,409
Subscription revenues............................. 8,333,666 4,549,924 1,685,446
Other revenues.................................... 1,794,823 1,869,231 393,511
------------ ------------ ------------
Total net revenues.............................. 23,308,019 14,316,199 4,623,366
Cost of revenues.................................... 13,070,104 9,378,620 3,955,270
------------ ------------ ------------
Gross profit.................................... 10,237,915 4,937,579 668,096
------------ ------------ ------------
Operating expenses:
Product development expenses...................... 12,114,848 5,837,169 2,346,354
Sales and marketing expenses...................... 22,457,462 15,954,750 9,204,711
General and administrative expenses............... 13,061,589 14,369,583 5,158,158
Noncash compensation expense...................... 1,370,689 4,531,869 90,000
Restructuring expenses............................ 17,575,522 -- --
------------ ------------ ------------
Total operating expenses........................ 66,580,110 40,693,371 16,799,223
------------ ------------ ------------
Loss from continuing operations................. (56,342,195) (35,755,792) (16,131,127)
Interest expense.................................... -- -- (388,747)
Interest income..................................... 5,595,026 4,188,301 161,423
------------ ------------ ------------
Loss from continuing operations before provision
for income taxes.............................. (50,747,169) (31,567,491) (16,358,451)
Provision for income taxes.......................... -- 94,750 --
------------ ------------ ------------
Net loss from continuing operations............. (50,747,169) (31,662,241) (16,358,451)
Discontinued operations:
Loss from discontinued operations................. (10,199,945) (1,971,196) --
Loss on disposal of discontinued operations....... (1,003,580) -- --
------------ ------------ ------------
Net loss........................................ $(61,950,694) $(33,633,437) $(16,358,451)
============ ============ ============
Net loss per share--basic and diluted:
Continuing operations............................. $ (1.94) $ (1.64) $ (2.13)
Discontinued operations........................... (0.39) (0.09) --
Disposal of discontinued operations............... (0.04) -- --
------------ ------------ ------------
Net loss............................................ $ (2.37) $ (1.73) $ (2.13)
============ ============ ============
Weighted average basic and diluted shares
outstanding....................................... 26,105,610 21,052,614 8,575,128
============ ============ ============
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements
F-4
THESTREET.COM
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999, AND 2000
COMMON STOCK SERIES A SERIES C
--------------------- ------------------- -------------------
PAR PAR PAR
SHARES VALUE SHARES VALUE SHARES VALUE
---------- -------- -------- -------- -------- --------
Balance at December 31, 1997............................. 6,060,606 $ 60,606 1,500 $ 15 1,500 $15
Issuance of common stock................................. 181,818 1,818 -- -- -- --
Capital contribution..................................... -- -- -- -- -- --
Net loss from January 1, 1998 through May 7, 1998........ -- -- -- -- -- --
Termination of LLC....................................... -- -- -- -- -- --
Conversion of debt to equity............................. -- -- 116,941 1,169 -- --
Net proceeds from private placement in May 1998.......... 3,418,333 34,183 -- -- -- --
Net Proceeds from Private Placement in December 1998..... 4,072,778 40,728 -- -- -- --
Recognition of deferred compensation..................... -- -- -- -- -- --
Noncash compensation expense............................. -- -- -- -- -- --
Accretion of redeemable convertible series B preferred
stock to redemption value.............................. -- -- -- -- -- --
Exercise of options...................................... 30,303 303 -- -- -- --
Preferred stock dividends................................ -- -- -- -- -- --
Net loss from May 8, 1998 through December 31, 1998...... -- -- -- -- -- --
---------- -------- -------- ------ ------ ---
Balance at December 31, 1998............................. 13,763,838 137,638 118,441 1,184 1,500 15
Issuance of common stock from initial public offering and
conversion of Series A, B and C preferred stock........ 6,325,000 63,250 (118,441) (1,184) (1,500) (15)
Issuance of common stock for acquisition................. 97,403 974 -- -- -- --
Issuance of common stock for advertising receivables and
cash................................................... 1,320,901 13,209 -- -- -- --
Accretion of redeemable convertible series B preferred
stock to redemption value.............................. 2,746,088 27,461 -- -- -- --
Recognition of deferred compensation..................... -- -- -- -- -- --
Exercise of options...................................... 995,204 9,952 -- -- -- --
Preferred stock dividends................................ -- -- -- -- -- --
Noncash advertising expense.............................. -- -- -- -- -- --
Noncash compensation expense............................. -- -- -- -- -- --
Other comprehensive (loss) -- foreign currency
translation............................................ -- -- -- -- -- --
Net loss................................................. -- -- -- -- -- --
---------- -------- -------- ------ ------ ---
Balance at December 31, 1999............................. 25,248,434 252,484 -- 0 -- 0
Issuance of common stock for acquisition................. 42,107 422 -- -- -- --
Issuance of common stock and warrants for cash........... 1,340,334 13,403 -- -- -- --
Issuance of common stock related to discontinued
operations............................................. 1,250,000 12,500 -- -- -- --
Exercise of options...................................... 193,608 1,936 -- -- -- --
Noncash advertising expense.............................. -- -- -- -- -- --
Restructuring expense.................................... -- -- -- -- -- --
Noncash compensation expense:
Compensation expense................................... -- -- -- -- -- --
Decrease due to resignations........................... -- -- -- -- -- --
UK compensation expense................................ -- -- -- -- -- --
Other comprehensive income -- foreign currency
translation............................................ -- -- -- -- -- --
Net loss................................................. -- -- -- -- -- --
---------- -------- -------- ------ ------ ---
Balance at December 31, 2000............................. 28,074,483 $280,745 -- $ 0 -- $ 0
========== ======== ======== ====== ====== ===
ADDITIONAL
PAID IN ACCUMULATED ACCUMULATED OTHER DEFERRED
CAPITAL DEFICIT COMPREHENSIVE LOSS COMPENSATION
------------ ------------- ------------------- ------------
Balance at December 31, 1997............................. $ 280,364 $ (7,497,843) $ 0 $ 0
Issuance of common stock................................. 3,637 -- -- --
Capital contribution..................................... 375,000 -- -- --
Net loss from January 1, 1998 through May 7, 1998........ -- (5,317,171) -- --
Termination of LLC....................................... (12,815,014) 12,815,014 -- --
Conversion of debt to equity............................. 11,692,786 -- -- --
Net proceeds from private placement in May 1998.......... 2,700,483 -- -- --
Net Proceeds from Private Placement in December 1998..... 12,177,606 -- -- --
Recognition of deferred compensation..................... 1,668,000 -- -- (1,668,000)
Noncash compensation expense............................. -- -- -- 90,000
Accretion of redeemable convertible series B preferred
stock to redemption value.............................. (481,270) -- -- --
Exercise of options...................................... 606 -- -- --
Preferred stock dividends................................ 747,001 (1,451,359) -- --
Net loss from May 8, 1998 through December 31, 1998...... -- (11,041,280) -- --
------------ ------------- ------------------ ------------
Balance at December 31, 1998............................. 16,349,199 (12,492,639) -- (1,578,000)
Issuance of common stock from initial public offering and
conversion of Series A, B and C preferred stock........ 133,892,447 -- -- --
Issuance of common stock for acquisition................. 1,557,474 -- -- --
Issuance of common stock for advertising receivables and
cash................................................... 13,459,981 -- -- --
Accretion of redeemable convertible series B preferred
stock to redemption value.............................. -- -- -- --
Recognition of deferred compensation..................... 8,409,733 -- -- (8,409,733)
Exercise of options...................................... 694,489 -- -- --
Preferred stock dividends................................ -- (1,562,277) -- --
Noncash advertising expense.............................. -- -- -- --
Noncash compensation expense............................. -- -- -- 4,536,873
Other comprehensive (loss) -- foreign currency
translation............................................ -- -- (20,618) --
Net loss................................................. -- (33,633,437) -- --
------------ ------------- ------------------ ------------
Balance at December 31, 1999............................. 174,363,323 (47,688,353) (20,618) (5,450,860)
Issuance of common stock for acquisition................. 274,578 -- -- --
Issuance of common stock and warrants for cash........... 6,465,113 -- -- --
Issuance of common stock related to discontinued
operations............................................. 3,346,875 -- -- --
Exercise of options...................................... 369,053 -- -- --
Noncash advertising expense.............................. -- -- -- --
Restructuring expense.................................... -- -- -- --
Noncash compensation expense:
Compensation expense................................... -- 1,270,689 -- 1,270,689
Decrease due to resignations........................... (1,930,599) -- -- 1,930,599
UK compensation expense................................ -- -- -- 100,000
Other comprehensive income -- foreign currency
translation............................................ -- -- 20,618 --
Net loss................................................. -- (61,950,694) -- --
------------ ------------- ------------------ ------------
Balance at December 31, 2000............................. $182,888,343 $(109,639,047) $ 0 $(2,149,572)
============ ============= ================== ============
TOTAL
ADVERTISING STOCKHOLDERS'
RECEIVABLE EQUITY (DEFICIT)
----------- ----------------
Balance at December 31, 1997............................. $ 0 $ (7,156,843)
Issuance of common stock................................. -- 5,455
Capital contribution..................................... -- 375,000
Net loss from January 1, 1998 through May 7, 1998........ -- (5,317,171)
Termination of LLC....................................... -- --
Conversion of debt to equity............................. -- 11,693,955
Net proceeds from private placement in May 1998.......... -- 2,734,666
Net Proceeds from Private Placement in December 1998..... -- 12,218,334
Recognition of deferred compensation..................... -- --
Noncash compensation expense............................. -- 90,000
Accretion of redeemable convertible series B preferred
stock to redemption value.............................. -- (481,270)
Exercise of options...................................... -- 909
Preferred stock dividends................................ -- (704,358)
Net loss from May 8, 1998 through December 31, 1998...... -- (11,041,280)
----------- ------------
Balance at December 31, 1998............................. -- 2,417,397
Issuance of common stock from initial public offering and
conversion of Series A, B and C preferred stock........ -- 133,954,498
Issuance of common stock for acquisition................. -- 1,558,448
Issuance of common stock for advertising receivables and
cash................................................... (12,000,000) 1,473,190
Accretion of redeemable convertible series B preferred
stock to redemption value.............................. -- 27,461
Recognition of deferred compensation..................... -- --
Exercise of options...................................... -- 704,441
Preferred stock dividends................................ -- (1,562,277)
Noncash advertising expense.............................. 1,957,938 1,957,938
Noncash compensation expense............................. -- 4,536,873
Other comprehensive (loss) -- foreign currency
translation............................................ -- (20,618)
Net loss................................................. -- (33,633,437)
----------- ------------
Balance at December 31, 1999............................. (10,042,062) 111,413,914
Issuance of common stock for acquisition................. -- 275,000
Issuance of common stock and warrants for cash........... -- 6,478,516
Issuance of common stock related to discontinued
operations............................................. -- 3,359,375
Exercise of options...................................... -- 370,989
Noncash advertising expense.............................. 1,083,839 1,083,839
Restructuring expense.................................... 8,958,223 8,958,223
Noncash compensation expense:
Compensation expense................................... -- --
Decrease due to resignations........................... -- --
UK compensation expense................................ -- 100,000
Other comprehensive income -- foreign currency
translation............................................ -- 20,618
Net loss................................................. -- (61,950,694)
----------- ------------
Balance at December 31, 2000............................. $ 0 $ 71,380,469
=========== ============
The accompanying notes to consolidated financial statements are an integral part
of these statements
F-5
THESTREET.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------
2000 1999 1998
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................ $(61,950,694) $(33,633,437) $(16,358,451)
Adjustments to reconcile net loss to cash used in
operating activities, net of acquired businesses:
Noncash compensation expense........................ 1,370,689 4,531,869 90,000
Noncash advertising expense......................... 1,083,839 1,957,938 --
Provision for doubtful accounts..................... 913,187 260,000 40,000
Minority interest................................... (4,940,446) (807,687) --
Gain on purchase of minority interest............... (4,536,920) -- --
Depreciation and amortization....................... 3,259,600 818,475 244,505
Asset writeoff to restructuring expense............. 10,652,119 -- --
Increase in accounts receivable..................... (2,179,403) (1,907,728) (720,720)
Decrease (increase) in other receivables............ 1,722,688 (1,842,874) (663,137)
Increase in receivable from related party........... (60,000) (100,000) --
Increase in prepaid expenses and other current
assets............................................ (648,615) (3,434,418) (660,184)
Decrease in net current assets of discontinued
operations........................................ 700,356 -- --
Increase in other assets............................ (577,076) (202,301) (122,035)
Decrease in net non-current assets of discontinued
operations........................................ 2,446,910 -- --
Increase (decrease) in accounts payable and accrued
expenses.......................................... (101,729) 6,653,443 1,695,955
Increase in restructuring reserve................... 6,485,125 -- --
Increase in deferred revenue........................ 1,037,939 2,147,903 499,388
Increase in other current liabilities............... 1,022,151 -- --
Increase in deferred rent........................... 63,000 2,223,920 125,810
------------ ------------ ------------
Net cash used in operating activities......... (44,237,280) (23,334,897) (15,828,869)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments.................. (64,035,442) (11,175,322) --
Sale of short-term investments...................... 49,390,000 -- --
Purchase of long-term investments................... (1,125,000) (1,125,000) --
Loan to BusinessNet Online Ltd...................... (550,000) -- --
Capital expenditures................................ (5,157,664) (10,435,845) (333,787)
Purchase of minority interest in discontinued
operations........................................ (3,050,000) -- --
Acquisition of businesses, net of cash acquired..... (4,987) (477,472) --
------------ ------------ ------------
Net cash used in investing activities......... (24,533,093) (23,213,639) (333,787)
------------ ------------ ------------
F-6
THESTREET.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------
2000 1999 1998
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock.............. 6,849,505 113,485,294 6,364
Proceeds from sale of minority interest............. -- 16,694,428 --
Proceeds from notes payable......................... -- -- 5,733,955
Net proceeds from private placements................ -- -- 34,874,270
Net borrowings (repayments) under line of credit.... -- (3,333) 3,333
------------ ------------ ------------
Net cash provided by financing activities..... 6,849,505 130,176,389 40,617,922
------------ ------------ ------------
Effect of exchange rate on changes in cash.......... 20,618 -- --
------------ ------------ ------------
Net (decrease) increase in cash............... (61,900,250) 83,627,853 24,455,266
Cash and cash equivalents, beginning of period...... 108,239,811 24,611,958 156,692
------------ ------------ ------------
Cash and cash equivalents, end of period............ $ 46,339,561 $108,239,811 $ 24,611,958
============ ============ ============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Income taxes........................................ $ -- $ 94,750 $ --
Noncash investing and financing activities:......... $ -- $ -- $ 3,098
Equipment acquired under capital leases............. $ 2,388,239 $ -- $ --
Issuance of common stock -- acquisition of
businesses........................................ $ 3,634,375 $ 1,558,448 $ --
Supplemental Disclosure of Noncash Investing
Activities:
During 2000, the Company issued 1,250,000 shares of common stock in
connection with its purchase of the minority interest in TheStreet.com (Europe)
Ltd. The shares were valued at $3,359,375.
During 2000, the Company issued 42,107 shares of common stock in connection
with its purchase of BiGFiSH Management, Inc. The shares were valued at
$275,000.
During 1999, the Company purchased a 19.9% interest in Business Net Online
for $2,250,000. Payment terms required $1,125,000 to be paid in 1999. As of
December 31, 1999, the remaining balance of $1,125,000 was reflected in accrued
expenses, and was paid in 2000.
During 1999, the Company issued 97,403 shares of common stock in connection
with its purchase of ipoPros.com.
During 1998, the holder of a note payable by the Company contributed
$375,000 of principal to the Company as an equity contribution.
During 1998, the holders of certain notes payable by the Company converted
$11,693,955 of outstanding principal and interest, into 116,941 shares of Series
A 9 1/2% Cumulative Convertible Preferred Stock.
During 1998, the Company entered into a sale-leaseback transaction for
certain of its computers and furniture and fixtures. The transaction resulted in
a deferred loss of $197,429.
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
F-7
THESTREET.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION, NATURE OF BUSINESS AND SUMMARY OF OPERATIONS AND SIGNIFICANT
ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF BUSINESS
TheStreet.com is a leading multimedia provider of original, timely,
insightful and trustworthy financial commentary, analysis and news. Our content
is available across diverse product offerings, including the Internet, print
media, books and conferences.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions, specifically for allowance for doubtful accounts for accounts
receivable and the useful lives of fixed assets, that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
CONSOLIDATION
The consolidated financial statements include the accounts of
TheStreet.com, Inc. and its former subsidiary The Street.co.uk (See Note 14).
All intercompany balances and transactions have been eliminated in
consolidation.
REVENUE RECOGNITION
The Company generates its revenues primarily from advertising and
subscriptions.
Advertising revenue, derived from the sale of sponsorship, banner and email
advertisements on the Company's web site, is recognized ratably in the period
the advertising is displayed, provided that no significant Company obligations
remain and collection of the resulting receivable is probable. Company
obligations typically include guarantees of a minimum number of "impressions" or
times that an advertisement is viewed by users of the Company's web site. Such
amounts are recognized as revenue in the month earned.
Subscription revenues represent customer subscriptions that provide
subscribers access to financial news, commentary and information. Subscriptions
are generally charged to customers' credit cards or are charged directly to
companies that subscribe to the service. These are generally billed in advance
on a monthly, quarterly or annual basis. Revenue from subscriptions is
recognized ratably over the subscription period. Deferred revenue relates to
subscription fees for which amounts have been collected but for which revenue
has not been recognized.
Other revenues consist primarily of barter transactions, revenues from
TheStreet.com television show, conference related revenue, and content
syndication fees. Revenues from barter transactions are recognized in accordance
with the provisions of Emerging Issues Task Force No. 99-17 (EITF 99-17) during
the period in which the advertisements are displayed on the Company's web site.
Under the provisions of EITF 99-17, barter transactions are recorded at the fair
value of the advertising surrendered. Barter revenue recognized during 2000,
1999, and 1998 was $1,081,900, $893,493 and $30,945 respectively. Barter
transactions are recognized at fair value as determined by the comparable
advertising market rates at the time of placement.
F-8
THESTREET.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CASH, CASH EQUIVALENTS, AND SHORT-TERM INVESTMENTS
The Company considers all short-term marketable equity securities with a
maturity of three months or less to be cash equivalents. Short-term investments
consist primarily of commercial paper and a certificate of deposit with
maturities of less than one-year. A certificate of deposit in the amount of
$1,450,000 serves as collateral for an outstanding letter of credit, and is
therefore restricted.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of accumulated depreciation
and amortization. Property and equipment are depreciated on a straight-line
basis over the estimated useful lives of the assets (three years for computer
equipment and five years for furniture and fixtures). Leasehold improvements are
amortized using the straight-line method over the shorter of the respective
lease term or the estimated useful life of the asset.
ACCOUNTING FOR LONG-LIVED ASSETS
The Company accounts for long-lived assets under the provisions of Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS
No. 121"). SFAS No. 121 establishes financial accounting and reporting standards
for the impairment of long-lived assets, certain identifiable intangibles, and
goodwill related to those assets to be held and used, and for long-lived assets
and certain identifiable intangibles to be disposed of. Due to changing market
conditions, management performed a discounted cash flow analysis of all
long-lived assets and determined that the carrying amount of goodwill associated
with prior business acquisitions had been impaired. The impairment charge
approximating $1.7 million has been included in the restructuring expenses on
the December 31, 2000 Consolidated Statement of Operations. (See Note 4)
INCOME TAXES
The Company was organized on June 18, 1996 as a limited liability company
("LLC") for Federal and state income tax purposes. Accordingly, the Company was
treated as a partnership and the net losses of the Company were included in the
individual tax returns of the members. On May 7, 1998, the Company converted
from an LLC to a C corporation. At the time of the conversion, the Company
adopted Statement of Financial Accounting Standards No. 109 "Accounting for
Income Taxes" ("SFAS No. 109"). Under SFAS No. 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets or liabilities of a change in tax
rates is recognized in the period that the tax change occurs.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts and other
receivables, and accounts payable and accrued expenses approximate fair value
due to the short-term maturity of these instruments.
F-9
THESTREET.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOREIGN CURRENCY EXCHANGE
The financial statements of all foreign subsidiaries were prepared in their
local currencies and translated into U.S. dollars based on the current exchange
rate at the end of the period for the balance sheet and an average rate for the
statement of operations. Translation adjustments are reflected in accumulated
comprehensive loss. The effects of applying Statement of Financial Accounting
Standards No. 130 "Reporting Comprehensive Income" had no material impact on the
consolidated financial statements.
BUSINESS CONCENTRATIONS AND CREDIT RISK
Financial instruments which subject the Company to concentrations of credit
risk consist primarily of cash and accounts receivable. The Company maintains
cash with various financial institutions. The Company performs periodic
evaluations of the relative credit standing of these institutions. The Company's
clients are primarily concentrated in the United States. The Company performs
ongoing credit evaluations, generally does not require collateral, and
establishes an allowance for doubtful accounts based upon factors surrounding
the credit risk of customers, historical trends and other information. To date,
such losses have been within management's expectations.
NET LOSS PER SHARE
The Company computes net loss per share in accordance with SFAS No. 128,
"Earnings Per Share." Under the provisions of SFAS No. 128, basic net loss per
common share ("Basic EPS") is computed by dividing net loss by the weighted
average number of common shares outstanding. Diluted net loss per common share
("Diluted EPS") is computed by dividing net loss by the weighted average number
of common shares and dilutive common share equivalents then outstanding.
ADVERTISING COSTS
Advertising costs are expensed as incurred. For the years ended
December 31, 2000, 1999, and 1998, advertising costs were $9,561,480,
$7,980,202, and $7,334,438, respectively.
STOCK-BASED COMPENSATION
The Company has adopted the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"), and elected to
continue the accounting set forth in Accounting Principles Board No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25"). The Company has
provided the necessary pro forma disclosures as if the fair value method had
been applied (See Note 9).
NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB
101"), "Revenue Recognition in Financial Statements." SAB 101 provides guidance
on the recognition, presentation, and disclosure of revenue in financial
statements filed with the SEC. SAB 101 does not supersede any existing
authoritative literature. The Company has adopted the principles of SAB 101
during 2000, the effect of which was not material to the Company's results of
operations or financial position.
In March 2000, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions Involving
Stock Compensation, an Interpretation of APB No. 25." FIN 44 provides guidance
on certain aspects of applying APB No. 25. FIN 44 is effective
F-10
THESTREET.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
July 1, 2000, but is also effective for certain events that have occurred after
December 15, 1998 or January 12, 2000. The Company has adopted the principles of
FIN 44 during 2000, the effect of which was not material to the Company's
results of operations or financial position.
In March 2000, the Emerging Issues Task Force of the FASB reached a
consensus on Issue No. 00-2, "Accounting for Web Site Development Costs" ("EITF
00-2") which provides guidance on when to capitalize versus expense costs
incurred to develop a web site. The consensus is effective for web site
development costs in quarters beginning after June 30, 2000. The Company has
adopted the principles of EITF 00-2 during 2000, the effect of which was not
material to the Company's results of operations or financial position.
(2) ACQUISITIONS
On May 11, 2000, the Company acquired all of the outstanding common stock of
BiGFiSH Management, Inc., a conference and event production firm, for $250,000
cash and 42,107 shares of our common stock, having a value on the closing date
of $275,000. As the acquired company had only nominal assets, the entire
purchase price of $525,000 was recorded as goodwill. The acquisition did not
have a material effect on the results of operations of the Company for the
year-ended December 31, 2000.
On December 20, 2000, the Company acquired substantially all of the assets
and certain liabilities of SmartPortfolio.com, Inc. The Company paid total
consideration of $5,400,000 cash and 77,984 shares of our common stock, having a
value on the closing date of approximately $156,000, plus up to an additional
489,644 shares of common stock at future dates subject to continued employment
conditions being met. Additionally, the Company accrued for legal fees in
connection with the acquisition, totaling $90,2000. The acquisition has been
accounted for under the purchase method of accounting and, accordingly, the
purchase price has been allocated to the tangible and intangible net assets
acquired and liabilities assumed on the basis of their respective fair values on
the acquisition date. As a result of this acquisition, the Company has recorded
goodwill of approximately $2,093,000, which is the excess of net assets acquired
and is being amortized using the straight line method over a useful life of
three years. The acquisition did not have a material effect on the results of
operations of the Company for the year-ended December 31, 2000. As of
December 31, 2000, the total consideration of approximately $5,556,000 in cash
and common stock was reflected in accrued expenses, and was paid in
January 2001. A preliminary allocation of the purchase price is as follows:
Cash and cash equivalents................................... $ 245,013
Accounts receivable, net of allowance for doubtful
accounts.................................................. 289,558
Other current assets........................................ 12,465
Fixed assets, net of depreciation and amortization.......... 285,746
Intangible assets........................................... 2,720,000
Goodwill.................................................... 2,093,386
----------
Total purchase price........................................ $5,646,168
==========
The intangible assets are being amortized using the straight line method
over a useful life of 3 years.
F-11
THESTREET.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following unaudited information presents the pro forma results of
operations for the Company for the years ending December 31, 2000 and 1999 as if
the acquisition of SmartPortfolio.com, Inc. had occurred on the first day of the
earliest year presented:
DECEMBER 31, 2000 DECEMBER 31, 1999
----------------- -----------------
Net revenue......................................... $ 25,593,586 $ 14,517,352
Net loss from continuing operations................. $(51,516,479) $(33,303,203)
Loss from discontinued operations................... $(11,203,525) $ (1,971,196)
Net loss............................................ $(62,720,004) $(35,274,399)
Net loss per share -- basic and diluted:
Continuing operations............................... $ (1.97) $ (1.71)
Discontinued operations............................. $ (0.43) $ (0.09)
------------ ------------
Net loss............................................ $ (2.40) $ (1.80)
============ ============
Weighted average basic and diluted shares
outstanding....................................... 26,183,594 21,130,598
In December 1999, the Company acquired all of the outstanding stock of
ipoPros.com, Inc. The Company paid total consideration of approximately
$2,040,000 in cash and common stock. The acquisition has been accounted for
under the purchase method of accounting and, accordingly, the purchase price has
been allocated to the tangible and intangible net assets acquired and
liabilities assumed on the basis of their respective fair values on the
acquisition date. As a result of this acquisition, the Company has recorded
goodwill of approximately $1,928,000, which is the excess of net assets acquired
and is being amortized over a useful life of 3 years. In connection with the
acquisition, the founder and majority shareholder of ipoPros agreed not to
engage in activities on behalf of any U.S. organization.
The acquisition did not have a material effect on the results of operations
of the Company for the year-ended December 31, 1999. Costs in excess of net
assets acquired were recorded as intangible assets as follows:
Accounts receivable......................................... $ 2,942
Fixed assets................................................ 33,657
Other assets................................................ 17,579
Intangible assets........................................... 2,078,349
Current liabilities......................................... (92,292)
----------
Total purchase price...................................... $2,040,235
==========
(3) DISCONTINUED OPERATIONS
In November 2000, the Company's Board of Directors decided to discontinue
our U.K. operations. As a result, the operation's assets and liabilities are
being liquidated. In accordance with British law, we expect that the operation
will go into Members Voluntary Liquidation by the end of April, at which time
there will be immaterial assets and liabilities remaining. Accordingly, the
operating results relating to the U.K. operations have been segregated from
continuing operations and reported as a separate line item on the consolidated
statements of operations. The Company has restated its consolidated financial
statements for prior years to conform to the current year presentation.
F-12
For the twelve months ended December 31, 2000, the U.K. operations
advertising and e-commerce revenues were $2,401,094 and the net loss was
$10,199,945, as compared to none and $1,971,196, respectively, for the twelve
months ended December 31, 1999. For the twelve months ended December 31, 2000,
loss on disposal of discontinued operations was $1,003,580. Under generally
accepted accounting principles, loss on disposal of discontinued operations
includes actual losses from the date the Company's Board of Directors resolved
to discontinue the operations, plus a provision for additional future costs to
be incurred to complete the liquidation process. The Company believes that any
remaining costs associated with these discontinued operations have been
adequately provided for by this provision.
As of December 31, 2000, the fair market value of the remaining current
assets was $1,841,980, consisting primarily of a VAT tax refund receivable, a
premium receivable from the landlord for leasehold improvements, and trade
accounts receivable. The fair market value of the remaining non-current assets
was $426,218 consisting of fixed assets.
(4) RESTRUCTURING EXPENSES
In December 2000, the Company recorded restructuring expenses of
$17,575,522, consisting of approximately $0.5 million for headcount reductions,
approximately $3.7 million for consolidation of facilities and reduction in
non-performing assets, and approximately $13.4 million for the extinguishments
of certain marketing and technology related contracts. These restructuring and
other related charges were taken to align the Company's cost structure with
changing market conditions and a decreased dependence on the advertising market
to create a more flexible and efficient organization. The plan resulted in
approximately a 20% headcount reduction affecting all areas of the Company.
Total cash outlay for the restructuring will be approximately $5.6 million.
The remaining $12 million of restructuring related costs consists of noncash
charges including the write off of certain assets. As of the end of fiscal 2000,
approximately $0.5 million of cash was used for restructuring. The remaining
cash outlay primarily relates to consolidation and extinguishments of certain
contracts, and is expected to occur during 2001.
(5) NET LOSS PER SHARE
As discussed in Note 1, net loss per share is calculated in accordance with
SFAS No. 128. The following table reconciles the numerator and denominator for
the calculation.
2000 1999 1998
------------ ------------ ------------
Numerator:
Net loss from continuing operations............... $(50,747,169) $(31,662,241) $(16,358,451)
Preferred stock dividends......................... -- (1,562,277) (1,451,359)
Accretion of Redeemable Convertible Series B
Preferred Stock................................. -- (1,252,569) (481,270)
------------ ------------ ------------
(50,747,169) (34,477,087) (18,291,080)
Loss from discontinued operations................. (11,203,525) (1,971,196) --
------------ ------------ ------------
Net loss available to common shareholders......... $(61,950,694) $(36,448,283) $(18,291,080)
============ ============ ============
Denominator:
Weighted average basic and diluted shares
outstanding..................................... 26,105,610 21,052,614 8,575,128
============ ============ ============
Net loss per share-basic and diluted
Continuing operations............................. $ (1.94) $ (1.64) $ (2.13)
Discontinued operations........................... (0.43) (0.09) --
------------ ------------ ------------
Net loss.......................................... $ (2.37) $ (1.73) $ (2.13)
============ ============ ============
F-13
Outstanding options of 3,276,326, 2,688,980 and 1,497,286 for the periods
ended December 31, 2000, 1999 and 1998, respectively, have been excluded from
the above calculations as they were antidilutive.
(6) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
2000 1999
----------- ----------
Computer equipment.......................................... $ 7,606,544 $2,711,704
Furniture and fixtures...................................... 729,041 360,629
Leasehold improvements...................................... 5,108,580 4,922,012
----------- ----------
13,444,165 7,994,345
Less--accumulated depreciation and amortization............. 3,165,598 581,603
----------- ----------
Property and equipment, net................................. $10,278,567 $7,412,742
=========== ==========
Depreciation and amortization expense aggregated $2,577,585, $567,104, and
$229,547 for the years ending December 31, 2000, 1999, and 1998, respectively.
(7) ACCRUED EXPENSES
Accrued expenses consist of the following:
DECEMBER 31,
------------------------
2000 1999
----------- ----------
Accrued SmartPortfolio acquisition costs.................... $ 5,555,968 $ 0
Accrued other............................................... 4,378,996 3,250,447
Accrued bonuses............................................. 1,419,059 1,276,178
Accrued professional fees................................... 602,850 315,403
Accrued consulting fees..................................... 309,984 708,513
Accrued long term investment................................ 0 1,125,000
----------- ----------
Total accrued expenses.................................... $12,266,857 $6,675,541
=========== ==========
(8) INCOME TAXES
On May 7, 1998, the Company converted from an LLC to a C corporation for
Federal and state income tax purposes. For the period from May 7, 1998 to
December 31, 2000, the Company incurred approximately $91 million of net
operating loss carryforwards available to offset future taxable income through
2014.
In accordance with SFAS No. 109, the Company recognized a deferred tax asset
of $36.4 million primarily resulting from the above mentioned net operating loss
carryforward. A full valuation allowance has been recorded related to the
deferred tax asset as a result of management's uncertainty as to the realization
of such asset. Accordingly, no provision has been recorded. There are no other
significant temporary differences.
The provision for income taxes for the year ended December 31, 1999
primarily represents various state income tax payments.
F-14
(9) STOCKHOLDERS' EQUITY
The total number of shares of all classes of stock which the Corporation is
authorized to issue is 110,000,000, consisting of 10,000,000 shares of preferred
stock, par value of $0.01 per share and 100,000,000 shares of common stock, par
value of $0.01 per share.
STOCK SPLIT
All share amounts have been retroactively adjusted to reflect the
one-for-three reverse common stock split, which was approved by the Company's
Board of Directors on February 16, 1999.
INITIAL PUBLIC OFFERING
On May 14, 1999, the Company completed its initial public offering (the
"IPO") and sold an aggregate of 6,325,000 shares of common stock to the public
(including 741,667 shares from the Company and 83,333 shares from Kevin English,
the Company's former Chairman of the Board, Chief Executive Officer and
President, pursuant to the exercise of the underwriters' overallotment option).
Net proceeds to the Company were $108,788,000, after deducting underwriting
discounts, commissions and expenses payable in connection with the IPO. In
connection with the IPO, all of the Company's redeemable and convertible
preferred stock, plus accumulated dividends, were converted into common stock.
EQUITY INVESTMENTS
On August 7, 2000, we entered into a Securities Purchase Agreement with
Go2Net, Inc. ("Go2Net") and Vulcan Ventures Inc. ("Vulcan"), pursuant to which,
among other things, each of Go2Net and Vulcan purchased 670,167 shares of our
common stock, par value $.01 per share, at a purchase price of $5.56 per share.
In addition, we granted each of Go2Net and Vulcan an option to purchase up to an
additional 7.45% (for a total of 14.9%) of our common stock outstanding
immediately after the issuance of such stock, at a purchase price of $13.50 per
share. Each option is exercisable at any time during the six months after its
grant. We also entered into a Co-Branding and Marketing Agreement with Go2Net,
pursuant to which, among other things, we will license Go2Net's proprietary
message board technology platform for the three-year period beginning on
August 4, 2000. Under the terms of the original agreement, the Company is
obligated to pay a total of $7.5 million over the three-year license period. As
of December 31, 2000, $2.0 million has been paid, and is included on the
Consolidated Balance Sheets within prepaid expenses and other current assets,
together with the fair market value of the stock options issued, net of a price
fluctuation in the value of the shares of common stock issued.
On February 22, 1999, the Company sold 37,728 shares of Series B Preferred
Stock and 1,320,901 shares of common stock to The New York Times ("NYT") in
exchange for $3 million in cash and $12 million of advertising services. Under
the agreement, NYT and its affiliates will provide $12 million of advertising
services over a four-year period in return for its ownership position The
$12 million was reflected in equity as an advertising receivable. The Company
has recorded advertising expense during 1999 and 2000 based upon the best
available advertising contract rates being charged by NYT to advertisers
spending comparable amounts with a corresponding credit to the advertising
receivable. As part of the restructuring discussed in Note 4, the Company has
removed the remaining advertising receivable balance from stockholders' equity
as of December 31, 2000.
In February 1999 the Company sold 83,333 shares of common stock for
$1 million.
F-15
1998 PRIVATE PLACEMENTS
In May 1998, the Company raised approximately $10 million of gross proceeds
by completing a private placement of 101,475 shares of Redeemable Convertible
Series B 9 1/2% Cumulative Preferred Stock ("Series B Preferred Stock") and
3,418,333 shares of common stock to a group of investors. In connection with the
transaction, the Company granted the purchasers of such stock certain
registration rights.
At such time, the Company also entered into a Stockholders' Agreement with
such stockholders which, by its terms, terminated upon the consummation of the
Company's initial public offering in May 1999. Subject to certain conditions,
the shares of each series of the Convertible Preferred Stock and dividends
carried the following rights and automatically converted into common stock as
follows:
The Series A and B Preferred Stock accumulated dividends annually at $9.50
per share. These shares were senior to common stock and Series C Convertible
Preferred Stock ("Series C Preferred Stock") and were PARI PASSU to one another.
The shares had no voting rights and had a liquidation preference of $100 per
share plus accumulated dividends. The shares plus any accrued and unpaid
dividends mandatorily converted to common stock upon the Company's initial
public offering ("IPO") at the liquidation preference payment divided by the IPO
price. The Series B Preferred Stock also had a redemption feature whereby, at
the option of the holder, the Series B Preferred Stock could have been redeemed
at the liquidation value of $100 per share plus accumulated dividends. The
shares would have been redeemable one-third per year beginning in June 2003
through June 2005. During 1998 and 1999, the Company recorded approximately
$481,000 and $1,253,000, respectively, as a charge to additional paid in capital
to accrete the Series B Preferred Stock to its redemption value. In addition,
the Series B Preferred Stock had been increased by accumulated dividends which
were payable under the redemption feature.
The Series C Convertible Preferred Stock was senior only to the common
stock. These shares had no voting rights and had a liquidation preference of
$100 per share. The shares were mandatorily converted to common stock upon the
IPO at the liquidation preference payment divided by the IPO price.
In December 1998, the Company raised approximately $25 million of gross
proceeds by completing a private placement of 243,891 shares of Series B
Preferred Stock and 4,072,778 shares of common stock to a group consisting of
certain existing stockholders and other investors. In connection with this
transaction the Company amended and restated the Registration Rights Agreement
and the Stockholders' Agreement in each case to include, among other things, the
new purchasers.
STOCK OPTIONS
Under the terms of the Company's 1998 Stock Option and Incentive Plan (the
"Stock Option Plan"), 4,400,000 shares of common stock of the Company had been
reserved for incentive stock options, nonqualified stock options (incentive and
nonqualified stock options are collectively referred to as "Options"),
restricted stock, or any combination thereof. In July 2000, the shareholders
approved an amendment to the Stock Option Plan to increase the number of shares
of common stock available for grant by 2,500,000, to a total of 6,900,000.
Awards may be granted to such directors, employees and consultants of the
Company as the Compensation Committee of the Board of Directors shall in its
discretion select. Only employees of the Company are eligible to receive grants
of incentive stock options.
F-16
Had compensation for the Stock Option Plan been determined consistent with
the provisions of SFAS No. 123, the effect on the Company's net loss and basic
and diluted net loss per share would have been changed to the following pro
forma amounts:
YEAR ENDED YEAR ENDED
DECEMBER 31, 2000 DECEMBER 31, 1999
----------------- -----------------
Net loss, as reported............................... $(61,950,694) $(33,633,437)
============ ============
Net loss, pro forma................................. $(64,886,859) $(34,967,812)
============ ============
Basic and diluted net loss per share, as reported... $ (2.37) $ (1.73)
============ ============
Basic and diluted net loss per share, pro forma..... $ (2.49) $ (1.80)
============ ============
A summary of the activity of the Stock Option Plan is as follows:
WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
---------- ----------------
Options outstanding, January 1, 1998...................... 0 $ 0
Options granted........................................... 1,663,953 0.12
Options exercised......................................... (30,303) 0.03
Options cancelled......................................... (136,364) 0.03
----------
Options outstanding, December 31, 1998.................... 1,497,286 0.12
Options granted........................................... 2,673,875 11.39
Options exercised......................................... (995,204) 0.93
Options cancelled......................................... (486,977) 2.59
----------
Options outstanding, December 31, 1999.................... 2,688,980 10.60
Options granted........................................... 2,038,266 6.01
Options exercised......................................... (192,274) 1.94
Options cancelled......................................... (1,258,646) 10.77
----------
Options outstanding, December 31, 2000.................... 3,276,326 $ 8.20
==========
During 1998, the Company entered into an agreement with one of its
stockholders whereby the stockholder agreed to provide the shares of common
stock due the option holder upon the option holder's exercise. During 1998 and
1999, the stockholder delivered 136,364 and 60,606 shares respectively upon
exercise of the options which are reflected as cancellations in the above table.
There were no options granted prior to January 1, 1998. Options exercisable
as of December 31, 2000, 1999, and 1998 were 836,021, 103,514, and 50,167,
respectively. The above options vest up to a four-year period and have terms not
to exceed 10 years. Generally, options are granted with exercise prices equal to
the fair market value of the underlying common stock on the date of the grant.
For options granted at less than fair market value, a compensation charge is
recognized for the difference between the exercise price and fair market value
over the vesting period.
The fair value of each option grant has been estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions:
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 1999 1998
------------ ------------ ------------
Expected option lives........................... 4 years 4 years 4 years
Risk-free interest rates........................ 6.15 % 6.0 % 6.0 %
Expected volatility............................. 101 % 25 % 0 %
Dividend yield.................................. 0 % 0 % 0 %
F-17
The results may not be representative of future periods. The following table
summarizes information about options outstanding at December 31, 2000:
OPTIONS OUTSTANDING
WEIGHTED AVERAGE
RANGE OF EXERCISE REMAINING WEIGHTED AVERAGE
PRICE OPTIONS OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE
- ---------------------- ------------------- ------------------- ----------------
$ 0.00 -- $ 3.00 1,549,388 4.1 $ 2.26
$ 3.01 -- $ 6.19 270,700 4.4 $ 5.74
$ 6.20 -- $ 9.00 385,299 4.3 $ 7.26
$ 9.01 -- $15.00 315,966 4.0 $14.20
$ 15.01 -- $35.50 754,973 3.6 $19.23
---------
3,276,326 4.0 $ 8.20
=========
DEFERRED COMPENSATION
During 1998 and the first quarter 1999, the Company granted stock options
with exercise prices which were less than fair market value of the underlying
shares of common stock on the date of grant. As a result, the Company had
recorded deferred compensation of approximately $1,668,000 and $8,409,733 during
December 31, 1998 and 1999 respectively. The remaining balance related to
deferred compensation is $2,149,572 as of December 31, 2000. This amount will be
recognized as noncash compensation expense over the remaining vesting period of
the options, in the amount of $1,020,967, $1,003,855, and $124,750 for the years
ending December 31, 2001, 2002, and 2003, respectively.
(10) COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company is committed under operating leases, principally for office
space, furniture and fixtures, and equipment. Certain leases are subject to rent
reviews and require payment of expenses under escalation clauses. Rent and
equipment rental expenses were $3,921,666, $2,857,707, and $700,073 for the
three years ended December 31, 2000, 1999, and 1998, respectively. Future
minimum base rents under terms of non-cancelable operating leases are as follows
for the years ending December 31,
2001.................................................... $3,526,605
2002.................................................... $2,766,521
2003.................................................... $2,698,996
2004.................................................... $2,628,522
2005.................................................... $2,699,152
Thereafter.............................................. $9,237,549
F-18
THESTREET.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Minimum payments have not been reduced by minimum sublease rentals of
$1,455,658 due in the future under non-cancelable subleases.
In connection with the Co-Branding and Marketing Agreement with Go2Net
discussed in Note 9, the Company is committed to license payments totaling
$5.5 million through August 2002.
LITIGATION
The Company, from time to time, becomes involved in various routine legal
proceedings in the ordinary course of its business. The Company believes that
the outcome of all pending legal proceedings and unasserted claims in the
aggregate will not have a material adverse effect on its results of operations,
financial position or liquidity.
CONTENT AND DISTRIBUTION AGREEMENTS
The Company has various content and distribution agreements with vendors.
The agreements require the Company to provide certain content and subscriptions
to the vendors in exchange for various services. The agreements expire at
various dates through 2002.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with certain of its officers. The
agreements provide for payments of approximately $1,785,792, $1,169,627, and
$304,583 during the years ended December 31, 2001, 2002, and 2003, respectively,
and expire at various dates through December 2003.
LETTERS OF CREDIT
A company controlled by a shareholder had previously guaranteed obligations
under the operating lease for the Company's office space. During 1999, the
Company released the shareholder of this obligation after providing a letter of
credit in the amount of $1,450,000 to the landlord.
(11) EMPLOYEE BENEFIT PLAN
Effective January 1, 1997, the Company adopted a noncontributory savings
plan with a salary reduction arrangement in accordance with Section 401(k) of
the Internal Revenue Code. The 401(k) plan covers all eligible employees and is
funded solely by employee contributions.
(12) MAJOR CUSTOMERS
Revenue from one customer accounted for approximately $1,007,250 (22%) of
total revenue for the year ending December 31, 1998 and had $102,333 of accounts
receivable outstanding at December 31, 1998.
No single customer accounted for more than 10% of revenues in 2000 or 1999.
(13) LONG-TERM INVESTMENTS, AT COST
In December 1999, the Company purchased a 19.99% interest for $2,250,000 in
Business Net Online Ltd., which launched an online business publication serving
the Israeli market. As of December 31, 1999, approximately $1,125,000 of this
investment was unpaid and was reflected in accrued expenses, which was
subsequently paid in 2000. The investment is being accounted for on a cost
basis. In July 2000, the Company agreed to provide to Business Net Online Ltd.,
pursuant to a
F-19
THESTREET.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Convertible Bridge Loan Agreement, a loan in the amount of $550,000 which was
funded in the second half of 2000. Under the terms of the agreement, the loan
will convert to equity upon the earlier of 12 months from the date of
disbursement or the occurrence of an investment transaction in which Business
Net Online receives a certain level of proceeds. The loan is included within
other receivables in the accompanying December 31, 2000 balance sheet.
(14) INVESTMENT IN THESTREET.COM (EUROPE) LIMITED
In September 1999, TheStreet.com, Inc. and a syndicate of investors (the
"Syndicate") invested a total of $17 million in TheStreet.com (Europe) Limited.
Members of the Syndicate include Chase Capital Partners, Barclays Private
Equity, ETF Group, 3i, Intel Corporation and others. The terms of the investment
included the following:
(1) a preferred dividend of $5 million (plus interest) payable to the
Syndicate which will convert into shares upon a public offering of shares or
a sale of TheStreet.com (Europe) Limited;
(2) the license of certain intellectual property of TheStreet.com, Inc.
(including, without limitation, use of the name "TheStreet.com") to
TheStreet.com (Europe) Limited for $1 million;
(3) the transfer of certain software from TheStreet.com, Inc. to
TheStreet.com (Europe) Limited for $9 million; and
(4) the subscription by TheStreet.com, Inc. for a $10 million loan note,
the principal of and interest upon which will accrue and convert into shares
on a public offering or sale of TheStreet.com (Europe) Limited.
In November 2000, the Company's Board of Directors decided to discontinue
TheStreet.co.uk, and entered into an agreement with the other shareholders in
TheStreet.com (Europe) Limited pursuant to which the Company purchased the
minority interest for an aggregate consideration of $3 million in cash and
1,250,000 shares of the Company's common stock. As a result, TheStreet.com
(Europe) Limited's assets and liabilities are being liquidated as promptly as
possible. Accordingly, the related operating results have been segregated from
continuing operations and reported as a separate line item on the consolidated
statements of operations. The Company has restated its consolidated financial
statements for prior years to conform to the current year presentation.
(15) SEGMENT INFORMATION
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 131, "Disclosures About Segments of an Enterprise and Related Information."
This statement establishes standards for the way public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. This statement is
effective for financial statements for periods beginning after December 15, 1997
and need not be applied to interim periods in the initial year of application.
Comparative information for earlier years presented is to be restated. The
Company does not believe it operates in more than one segment. The chief
operating decision maker allocates resources and assesses the performance
associated with advertising, subscription or other activities on a
single-segment basis.
F-20
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
PROVISIONS
BALANCE AT CHARGED
BEGINNING TO BALANCE AT
OF PERIOD EXPENSE WRITE-OFFS END OF PERIOD
---------- ---------- ---------- -------------
For the year ended December 31, 2000.............. $300,000 $913,187 $464,028 $749,159
For the year ended December 31, 1999.............. $ 40,000 $260,000 $ 0 $300,000
For the year ended December 31, 1998.............. $ 0 $ 40,000 $ 0 $ 40,000
S-1