Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
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
TheStreet.com, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 06-1515824
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
14 Wall Street
New York, New York 10005
(Address of principal executive offices, including zip code)
(212) 321-5000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed, since last report.)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. YES X . NO .
Indicate the number of shares outstanding of each of the issuer's
classes of common stock outstanding as of the latest practicable date.
(Number of Shares Outstanding
(Title of Class) as of August 9, 2002)
---------------- ---------------------
Common Stock, par value $0.01 per share 23,556,089
TheStreet.com, Inc.
Form 10-Q
For the Three Months Ended June 30, 2002
Part I - FINANCIAL INFORMATION (UNAUDITED)........................................................................................1
Item 1. Condensed Consolidated Financial Statements......................................................................1
Condensed Consolidated Balance Sheets............................................................................1
Condensed Consolidated Statements of Operations..................................................................2
Condensed Consolidated Statements of Cash Flows..................................................................3
Notes to Condensed Consolidated Financial Statements.............................................................4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................................................................8
Item 3. Quantitative and Qualitative Disclosures About Market Risk......................................................16
PART II - OTHER INFORMATION............................................ .........................................................26
Item 1. Legal Proceedings.............................................................................................26
Item 2. Changes in Securities and Use of Proceeds.....................................................................26
Item 3. Defaults Upon Senior Securities...............................................................................26
Item 4. Submission of Matters to a Vote of Security Holders...........................................................26
Item 5. Other Information.............................................................................................26
Item 6. Exhibits and Reports on Form 8-K..............................................................................27
SIGNATURES.......................................................................................................................28
Part I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
THESTREET.COM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2002 December 31, 2001
------------------------- -------------------------
(unaudited) (Note 1)
ASSETS
Current Assets:
Cash and cash equivalents $ 14,370,394 $ 26,740,508
Restricted cash 1,967,886 1,450,000
Short-term investments 4,175,139 5,548,499
Investment in marketable security 10,009,154 -
Accounts receivable, net of
allowance for doubtful accounts of
$367,247 as of June 30, 2002 and
$490,263 as of December 31, 2001 1,145,555 1,003,927
Other receivables 335,514 114,374
Receivable from related parties 103,702 101,994
Prepaid expenses and other current assets 1,319,311 1,085,332
Net current assets of discontinued operations 46,040 45,480
------------------------ ------------------------
Total current assets 33,472,695 36,090,114
Property and equipment, net of accumulated depreciation
and amortization of $8,017,721 as of June 30, 2002
and $6,280,703 as of December 31, 2001 4,408,347 5,948,863
Other assets 1,252,710 1,426,051
Goodwill 2,210,652 1,559,426
Intangibles, net 1,508,333 1,863,333
------------------------ -------------------------
Total assets $ 42,852,737 $ 46,887,787
======================== ========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 837,778 $ 1,104,498
Accrued expenses 3,979,894 3,938,856
Restructuring reserve 62,937 1,366,775
Deferred revenue 5,722,911 3,165,276
Note payable - current portion 71,987 78,510
Other current liabilities 68,725 27,239
------------------------ ------------------------
Total current liabilities 10,744,232 9,681,154
Note payable 363,106 395,174
------------------------ ------------------------
Total liabilities 11,107,338 10,076,328
------------------------ ------------------------
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; 28,930,587 shares issued and 23,526,687
shares outstanding at June 30, 2002, and 28,331,883 shares
issued and 23,506,927 shares outstanding at December 31, 2001 289,306 283,319
Additional paid-in capital 183,816,256 183,022,780
Deferred compensation (634,233) (1,060,315)
Accumulated deficit (144,547,830) (138,868,593)
Treasury stock at cost; 5,403,900 shares at June 30, 2002 and
4,824,956 shares at December 31, 2001 (7,178,100) (6,565,732)
------------------------ ------------------------
Total stockholders' equity 31,745,399 36,811,459
------------------------ ------------------------
Total liabilities and stockholders' equity $ 42,852,737 $ 46,887,787
======================== ========================
The accompanying notes to condensed consolidated financial statements are
an integral part of these condensed consolidated statements
1
THESTREET.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------------------------------- ---------------------------------
2002 2001 2002 2001
---- ---- ---- ----
(Unaudited) (Unaudited)
Net revenues:
Advertising & e-commerce revenues $ 1,236,198 $ 1,117,073 $ 1,946,268 $ 3,060,538
Subscription revenues 3,652,171 2,099,089 6,653,171 4,137,378
Other revenues 598,693 354,820 960,643 764,098
------------ ------------ ------------ ------------
Total net revenues 5,487,062 3,570,982 9,560,082 7,962,014
Cost of revenues 1,821,767 2,117,426 3,629,127 5,096,430
------------ ------------ ------------ ------------
Gross profit 3,665,295 1,453,556 5,930,955 2,865,584
------------ ------------ ------------ ------------
Operating expenses:
Product development expenses 1,695,814 2,666,419 3,938,731 5,384,252
Sales and marketing expenses 1,698,702 2,963,327 3,353,871 6,476,981
General and administrative expenses 2,158,728 3,094,999 4,436,642 6,160,813
Noncash compensation expense 236,337 218,672 479,625 448,154
Restructuring expenses 50,000 (375,000) 18,558 (899,124)
Severance expense - 419,728 - 971,668
------------ ------------ ------------ ------------
Total operating expenses 5,839,581 8,988,145 12,227,427 18,542,744
------------ ------------ ------------ ------------
Loss from continuing operations (2,174,286) (7,534,589) (6,296,472) (15,677,160)
Interest income 191,676 603,147 419,521 1,543,151
------------ ------------ ------------ ------------
Net loss from continuing operations (1,982,610) (6,931,442) (5,876,951) (14,134,009)
Gain on disposal of discontinued operations 4,785 - 197,714 -
------------ ------------ ------------ ------------
Net loss $ 1,977,825) $ (6,931,442) $ (5,679,237) $(14,134,009)
============ ============ ============ ============
Net (loss) income per share - basic and diluted:
Continuing operations $ (0.08) $ (0.25) $ (0.25) $ (0.51)
Discontinued operations - - 0.01 -
------------ ------------ ------------ ------------
Net loss $ (0.08) $ (0.25) $ (0.24) $ (0.51)
============ ============ ============ ============
Weighted average basic and diluted shares outstanding 23,581,017 27,603,900 23,554,360 27,727,801
============ ============ ============ ============
The accompanying notes to condensed consolidated financial statements are
an integral part of these condensed consolidated statements
2
THESTREET.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30,
----------------------------------------------
2002 2001
----------------------------------------------
(unaudited) (unaudited)
Cash Flows from Operating Activities:
Net loss $ (5,679,237) $ (14,134,009)
Adjustments to reconcile net loss to cash used in
operating activities, net of acquired businesses:
Noncash compensation expense 479,625 448,154
Noncash advertising expense 71,442 -
Gain on sale of investments (166,596) (211,437)
Gain on sale of fixed assets (375) -
Provision for doubtful accounts 16,444 263,841
Depreciation and amortization 2,257,598 2,573,895
Non-current assets of discontinued operations - 426,218
Net current assets of discontinued operations (560) 1,797,957
Changes in operating assets and liabilities:
Accounts receivable (158,072) 2,348,742
Other receivables (221,140) (57,475)
Receivable from related party (1,708) (132,754)
Prepaid expenses and other current assets 283,907 (1,151,727)
Other assets 16,317 (156,207)
Accounts payable and accrued expenses (743,568) (2,228,957)
Restructuring reserve (1,375,280) (1,525,260)
Deferred revenue 2,557,635 223,138
Other current liabilities 41,486 (933,443)
---------------------------------------------------------
Net cash used in operating activities (2,622,082) (12,449,324)
---------------------------------------------------------
Cash Flows from Investing Activities:
Purchase of short-term investments (4,106,825) (3,500,000)
Sale of short-term investments 5,549,278 24,500,000
Purchase of marketable security (9,911,651) (2,023,044)
Loans to Business Net Online Ltd. - (629,354)
Capital expenditures (212,683) (767,445)
Sale of fixed assets 8,000 -
Purchase of minority interest in discontinued operations - (5,400,000)
---------------------------------------------------------
Net cash (used in) provided by investing activities (8,673,881) 12,180,157
---------------------------------------------------------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock 94,694 4,474
Note payable (38,591) -
Restricted cash (517,886) -
Purchase of treasury stock (612,368) (2,433,057)
---------------------------------------------------------
Net cash used in financing activities (1,074,151) (2,428,583)
---------------------------------------------------------
Net decrease in cash (12,370,114) (2,697,750)
Cash and cash equivalents, beginning of period 26,740,508 46,339,561
---------------------------------------------------------
Cash and cash equivalents, end of period $ 14,370,394 $ 43,641,811
=========================================================
Supplemental disclosures of cash flow information:
During 2002, the Company issued 489,644 shares of common stock in connection
with its purchase of SmartPortfolio.com, Inc. The shares were valued at
$651,226.
During 2001, the Company issued 77,984 shares of common stock in connection with
its purchase of SmartPortfolio.com, Inc. The shares were valued at $155,968.
During 2002, the Company financed its directors and officers insurance and has
recorded a prepaid expense and accrued expense amounting to $517,886 as of June
30, 2002.
The accompanying notes to condensed consolidated financial statements are
an integral part of these consolidated statements
3
TheStreet.com, Inc.
Notes to Condensed Consolidated Financial Statements
1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
Business
TheStreet.com, Inc. (the "Company" or "TheStreet.com") is a leading
multimedia provider of proprietary, timely, independent and insightful financial
commentary, analysis, research and news. The Company's content is available
across diverse media platforms, including the internet, print, radio and
conferences, giving it more opportunities to generate revenue from the content
it produces. The Company's strategic relationships with leading companies in the
media, technology and financial services sectors help it create brand awareness
and increase its subscription and advertising revenues.
Since its inception in 1996, the Company has developed a loyal
audience of individual investors at various experience levels who turn to its
content for their financial and investing information needs. In the past year,
the Company has successfully created new subscription products to meet the
specialized needs of different segments of the broader investing community,
including, with the introduction of the Company's most recent products, the
institutional market, a segment historically oriented to paying for content.
This growing audience of professional investors uses the Company's products to
help them make better investing and trading decisions for themselves and their
clients.
The Company believes that its ability to produce proprietary, timely,
independent and insightful content, and to distribute it by utilizing the
internet and other real-time delivery systems, gives it a competitive advantage.
TheStreet.com's editorial staff consists of more than 46 professional
journalists who, together with approximately 70 professional analysts, traders
and money managers who contribute to its products from outside the Company,
produce more than 63 original commentary, analysis, research and news pieces
(plus numerous market diary entries) each business day for the Company's
internet web sites. TheStreet.com's editorial staff and outside contributors
have broken numerous important stories, many of which have been cited by other
news outlets such as the CNBC television network and The Los Angeles Times. The
Company also produces several other subscription products for use by individual
investors and market enthusiasts, each designed to help a specific segment of
the investing public make better-informed investing and trading decisions. And
the Company's growing roster of professional products helps brokers, financial
planners and money managers make better decisions for themselves and their
clients.
To ensure impartiality and prevent any conflict-of-interest or
appearance of conflict, the Company's editorial staff and outside contributors
are required to abide by its strict investment policy. According to this policy,
TheStreet.com editorial staffers are not permitted to own individual stocks
(though they may, and many do, own equity in TheStreet.com, Inc.). Outside
contributors are permitted to own individual stocks, but must disclose their
current positions in any of the stocks they write about.
Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements of TheStreet.com have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three month and six month periods ended June 30, 2002 are not necessarily
indicative of the results that may be expected for the year ended December 31,
2002.
4
The balance sheet at December 31, 2001 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on Form
10-K for the year ended December 31, 2001, filed with the Securities and
Exchange Commission on April 1, 2002.
The consolidated financial statements include the accounts of
TheStreet.com, Inc. and its subsidiary TheStreet.com (UK) Limited, whose
operations were discontinued in November 2000. All intercompany balances and
transactions have been eliminated in consolidation.
Certain prior period amounts have been reclassified to conform to
current period presentation.
2. NET LOSS PER SHARE OF COMMON STOCK
The Company computes net loss per share in accordance with Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No.
128"). 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. Diluted net loss per
share is identical to basic net loss per share since all outstanding stock
options and warrants were excluded from the calculation, as their effect is
antidilutive.
3. INVESTMENT IN MARKETABLE SECURITY
As of June 30, 2002, the Company owned a U.S. Treasury Note (the
"Treasury Note") that bore interest at the rate of 3% per annum and had a
maturity date of February 29, 2004. Management's intention was to hold the
Treasury Note until maturity. However, due to changes in the equity market
conditions, the Company revised its plan and sold the Treasury Note in mid-July
2002, realizing a gain on the sale of approximately $185,000. Accordingly, the
Treasury Note has been classified as a current asset as of June 30, 2002.
4. TREASURY STOCK
In December 2000, the Company's Board of Directors authorized the
repurchase of up to $10 million worth of the Company's common stock, in private
purchases or in the open market. Under this program, the Company purchased
89,300 shares of common stock at an aggregate cost of $181,481 during the three
months ended June 30, 2002. During the six months ended June 30, 2002, the
Company purchased 578,944 shares of common stock at an aggregate cost of
$612,368. Since the inception of this program, the Company has purchased
5,403,900 shares of common stock at an aggregate cost of $7,178,100 as of June
30, 2002.
5. RESTRUCTURING
During the year ended December 31, 2000, the Company recorded
restructuring expenses of $17,575,522. These restructuring charges were taken to
align the 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, or
about 40 full-time employees, throughout the organization.
The following table displays the activity and balances of the
restructuring reserve account from December 31, 2001 to June 30, 2002:
5
Initial Balance 1 Qtr 2002 Activity Balance 2 Qtr 2002 Activity Balance
------------------- -------------------
Charge 12/31/01 Deductions Adjustments 03/31/02 Deductions Adjustments 06/30/02
--------------------------------------------------------------------------------------------------------------
Headcount reductions $ 478,278 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Consolidation
of facilities
and reduction
in non-performing
assets 3,695,648 10,000 41,341 (31,442) 19,899 (6,962) 50,000 62,937
Extinguishment
of marketing
and technology
related contracts 13,401,596 1,356,775 (1,356,775) 0 0 0 0 0
----------------------------------------------------------------------------------------------------------------
$17,575,522 $1,366,775 $(1,315,434) $(31,442) $19,899 $(6,962) $50,000 $62,937
================================================================================================================
The above deductions from the reserve primarily represent cash
payments. The above adjustments primarily represent revisions to the Company's
original estimates.
6. DISCONTINUED OPERATIONS
In November 2000, the Company's Board of Directors decided to
discontinue the Company's U.K. operations 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,
the operation's assets and liabilities have been substantially liquidated. In
accordance with British law, the operation went into Members Voluntary
Liquidation in May 2001. On April 30, 2002, the final meeting of the members was
held to bring the liquidation to a close. A final return in the liquidation will
be prepared and filed in order to formally dissolve the U.K. operations, which
should be effective during the third quarter of 2002.
As of June 30, 2002, the fair market value of the remaining assets
was $46,040, consisting of a VAT tax refund receivable.
7. NONCASH COMPENSATION EXPENSE
In January 2002, the Company issued options to purchase a total of
50,000 shares of common stock to a non-employee in connection with his outside
contributor agreement with the Company. The options vested immediately and have
an exercise period of the lesser of five years, or 90 days after the termination
of his services. The value of the options was approximately $72,000, which is
being amortized over the two year period of his service to the Company. The
Company recorded noncash compensation expense of approximately $9,000 during the
three months ended June 30, 2002 and approximately $18,000 during the six months
ended June 30, 2002.
In January 2002, the Company issued options to purchase a total of
100,000 shares of common stock to a non-employee in connection with his outside
contributor agreement with the Company. One-half of the options vested
immediately and the other half will vest in January 2003. The options have an
exercise period of the lesser of five years, or 90 days after the termination of
his services. The value of the options was approximately $142,000 at June 30,
2002. The Company recorded noncash compensation expense of approximately $14,000
during the three months ended June 30, 2002 and approximately $35,000 during the
six months ended June 30, 2002. Due to the variable accounting methodology, it
is difficult to predict the amount of additional noncash compensation expense
the Company will occur in connection with these options. The Company will
continue to remeasure the fair value of these options on an ongoing basis.
8. ACQUISITION
On December 20, 2000, the Company acquired substantially all the
assets and certain liabilities of SmartPortfolio.com, Inc. The Company paid
initial consideration in January 2001 of $5,400,000 cash and 77,984 shares of
the Company's common stock, having a value on the payment date of approximately
$156,000. In January 2002, in connection with the purchase agreement, the
Company paid additional consideration of 489,644 shares of the Company's common
stock to the former owners of SmartPortfolio.com, Inc., which was valued at
approximately $651,000. This represents the final consideration to be paid in
connection with the acquisition.
6
9. GOODWILL AND INTANGIBLE ASSETS
In July 2001, the FASB issued Statements of Financial Accounting
Standards ("Statement") No. 141, "Business Combinations" and No. 142, "Goodwill
and Other Intangible Assets" ("FAS 142"). These standards change the accounting
for business combinations by, among other things, prohibiting the prospective
use of pooling-of-interests accounting and requiring companies to stop
amortizing goodwill and certain intangible assets with an indefinite useful
life. Instead, goodwill and intangible assets deemed to have an indefinite
useful life will be subject to an annual review for impairment.
Upon the adoption of FAS 142 in the first quarter of 2002, the
Company stopped the amortization of goodwill and certain intangible assets with
an indefinite life, and completed the required transitional fair value
impairment test on its goodwill which had no impact on the Company's financial
statements.
As of June 30, 2002 and December 31, 2001, the Company's goodwill and
intangible assets and related accumulated amortization consisted of the
following:
June 30, December 31,
2002 2001
-------------------- ----------------------
Intangible assets subject to amortization:
SmartPortfolio.com, Inc. customer list................................ $1,250,000 $1,250,000
SmartPortfolio.com, Inc. technology................................... 730,000 730,000
ipoPros.com, Inc. non-compete agreement............................... 150,000 150,000
-------------------- ----------------------
2,130,000 2,130,000
Less accumulated amortization............................................ (1,115,000) (760,000)
-------------------- ----------------------
1,015,000 1,370,000
-------------------- ----------------------
Goodwill and intangible assets not subject to amortization:
SmartPortfolio.com, Inc. goodwill..................................... 2,210,652 1,559,426
SmartPortfolio.com, Inc. trade name................................... 493,333 493,333
-------------------- ----------------------
2,703,985 2,052,759
-------------------- ----------------------
Total goodwill and intangible assets $3,718,985 $3,422,759
==================== ======================
The Company recorded amortization expense of $177,500 during the
three months ended June 30, 2002, and $355,000 during the six months ended June
30, 2002. Based on the current amount of intangible assets subject to
amortization, the remaining value would be expensed as $355,000 during the
remaining six months of 2002, and $660,000 would be expensed in the year 2003.
Should acquisitions or dispositions occur in the future, these amounts may vary.
The 2001 historical results do not reflect the provisions of FAS 142.
Had the Company adopted FAS 142 on January 1, 2001, the historical net loss and
basic and diluted net loss per common share for the three months and six months
ended June 30, 2001 would have been changed to the adjusted amounts indicated
below:
3 Months 6 Months
-------- --------
Net loss as reported - historical basis $ (6,931,442) $ (14,134,009)
Add: Goodwill amortization 195,656 389,856
Add: Intangible amortization 61,667 123,333
----------------------------------------
Adjusted net loss $ (6,674,119) $ (13,620,820)
========================================
Proforma net loss per share $ (0.24) $ (0.49)
========================================
7
10. LEGAL PROCEEDINGS
On December 5, 2001, a class action complaint alleging violations of
the federal securities laws was filed in the United States District Court for
the Southern District of New York naming as defendants TheStreet.com, Inc.,
certain of its former officers and directors and a current director, and certain
underwriters of the company's initial public offering (The Goldman Sachs Group,
Inc., Chase H&Q, Thomas Weisel Partners LLC, FleetBoston Robertson Stephens, and
Merrill Lynch Pierce Fenner & Smith, Inc.). The complaint alleges, among other
things, that the underwriters of TheStreet.com's initial public offering
violated the securities laws by failing to disclose certain alleged compensation
arrangements (such as undisclosed commissions or stock stabilization practices)
in the offering's registration statement. TheStreet.com and certain of its
former officers and directors and a current director are named in the complaint
pursuant to Section 11 of the Securities Act of 1933, and Section 10(b) of the
Securities Exchange Act of 1934. The plaintiffs seek damages and statutory
compensation against each defendant in an amount to be determined at trial, plus
pre-judgment interest thereon, together with costs and expenses, including
attorneys' fees. Similar complaints have been filed against over 300 other
issuers that have had initial public offerings since 1998 and all such actions
have been included in a single coordinated proceeding. TheStreet.com intends to
defend these actions vigorously. However, due to the inherent uncertainties of
litigation, the Company cannot accurately predict the ultimate outcome of the
litigation. Any unfavorable outcome of this litigation could have an adverse
impact on the Company's business, financial condition and results of operations.
11. SIGNIFICANT CUSTOMERS
For the three months ended June 30, 2002, the Company's top five
advertisers accounted for approximately 49% of its total advertising and
e-commerce revenues, as compared to approximately 45% for the three months ended
June 30, 2001.
Item 2. 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 the Company's
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 quarterly report on Form 10-Q are
based on information available to the Company on the date hereof, and the
Company assumes no obligation to update any such forward-looking statements.
These forward-looking statements are subject to risks and uncertainties that
could cause actual results to differ.
The following discussion and analysis should be read in conjunction
with the unaudited condensed consolidated financial statements and notes
thereto.
Overview
TheStreet.com was organized as a limited liability company in June
1996. In May 1998, the Company converted to a C corporation, incorporated in
Delaware, and in May 1999, TheStreet.com completed its initial public offering.
The Company is a leading multimedia provider of proprietary, timely, independent
and insightful financial commentary, analysis, research and news. The Company's
content is available across diverse media platforms, including the internet,
print, radio and conferences, giving it more opportunities to generate revenue
from the content it produces. The Company's strategic relationships with leading
companies in the media, technology and financial services sectors help it create
brand awareness and increase subscription and advertising revenues.
Since its inception in 1996, TheStreet.com has developed a loyal
audience of individual investors at various experience levels who turn to its
content for their financial and investing information needs. In the past year,
the Company has successfully created new subscription products to meet the
specialized needs of different segments of the broader investing community,
including, with the introduction of the Company's most recent products, the
institutional market - a segment historically oriented to paying for content.
This growing audience of professional investors uses the Company's products to
help them make better investing and trading decisions for their clients.
8
Recent Developments
On April 29, 2002, the Company announced the launch of The Turnaround
Report, a subscription email service that contains exclusive access to
turnaround stocks that have depreciated and are poised to rebound, written by
RealMoney columnist Arne Alsin, an investment advisor specializing in turnaround
opportunities.
On June 10, 2002, the Company announced the creation of the
Professional Markets Group, a new division focused on providing trading/research
products exclusively to market participants whose careers depend on the
performance of the market, notably hedge fund managers, brokers, financial
planners, traders, and money managers.
On July 10, 2002, the Company announced the introduction of RealMoney
Pro Advisor, a subscription based website that provides real-time equity
research, financial analysis and news to investment professionals throughout the
trading day, written by professional hedge fund managers, equity analysts and
portfolio managers. RealMoney Pro Advisor, located at
http://www.realmoneyproadvisor.com, is designed exclusively for financial
professionals who make investment decisions for the retail investing public,
notably stockbrokers, financial planners, and financial consultants.
Results Of Operations
Three Months Ended June 30, 2002 And June 30, 2001
Net Revenues
Advertising & E-Commerce Revenues. Advertising and e-commerce
revenues are derived from internet sponsorship arrangements and from the
delivery of banner and e-mail advertisements, as well as from conference
sponsorships. Advertising and e-commerce revenues increased to $1,236,198 for
the three months ended June 30, 2002, as compared to $1,117,073 for the three
months ended June 30, 2001. This increase is primarily due to sponsorship
revenue from a two-day conference called "Advanced Disciplines & Strategies for
Running Hedge Funds," that was held during the quarter ended June 30, 2002.
Additionally, even though page views declined to 103 million during
the quarter ended June 30, 2002, as compared to 152 million during the quarter
ended June 30, 2001, revenue derived per 1,000 page views, excluding conference
sponsorships, increased from $7.33 to $11.10, respectively.
For the three months ended June 30, 2002, 57% of the Company's
advertising and e-commerce revenues, excluding conference sponsorships, were
derived from sponsorship contracts, as compared to 30% for the three months
ended June 30, 2001. As a result of improvements in our advertising sales
infrastructure and selling techniques, the Company has been able to increase the
revenue it receives per advertiser during the quarter, on an average basis. The
number of the Company's advertisers, excluding conference sponsorships, for the
three months ended June 30, 2002 was 51, as compared to 61 for the three months
ended June 30, 2001.
For the three months ended June 30, 2002, the Company's top five
advertisers accounted for approximately 49% of its advertising and e-commerce
revenues, excluding conference sponsorships, as compared to approximately 45%
for the three months ended June 30, 2001.
9
Subscription Revenues. Subscription revenues are derived from annual,
semi-annual, quarterly and monthly subscriptions. Subscription revenues totaled
$3,652,171 for the three months ended June 30, 2002, as compared to $2,099,089
for the three months ended June 30, 2001. This increase is primarily the result
of revenues from several new subscription-based products, such as The Chartman's
Top Stocks, RealMoney Pro, The Daily Swing Trade, and the Turnaround Report,
launched subsequent to the quarter ended June 30, 2001, as well as increased
revenue associated with Action Alerts PLUS and TheStreet(TM)View for Hedge
Funds, which launched during the six months ended June 30, 2001. For the three
months ended June 30, 2002, approximately 52% of the Company's net subscription
revenue was derived from annual subscriptions, as compared to approximately 76%
for the three months ended June 30, 2001. Because the Company was entering a new
market for subscription products fulfilled via email, and had not established
the requisite technological infrastructure, it chose to outsource such
fulfillment to a third party until such infrastructure could be developed
internally. The decrease in the percent of annual subscriptions is partially due
to the third party lacking the technological capability to provide annual
subscriptions. The Company migrated these products to its own commerce system in
March 2002, has begun to offer annual subscriptions and is attempting to convert
these monthly subscribers into annual subscribers.
The Company calculates net subscription revenues by deducting refunds
from gross revenues. Refunds issued during the three months ended June 30, 2002,
totaled approximately 3% of gross subscription revenues for the period.
The Company's subscriber base was approximately 78,000 paid annual and
monthly subscribers as of June 30, 2002 (not including free trials, but
including an estimate of subscribers paid for as part of certain bulk deals), as
compared to approximately 76,800 as of June 30, 2001. This increase is primarily
the result of the launch of several new subscription-based products, partially
offset by a decrease in RealMoney.com subscribers attributed to the increase in
the subscription price in June 2000.
Other Revenues. Other revenues are derived primarily from conference
attendees, James J. Cramer's daily radio program, RealMoney with Jim Cramer,
syndication revenues, reprint revenues and barter advertising arrangements.
Other revenues increased to $598,693 for the three months ended June 30, 2002,
as compared to $354,820 for the three months ended June 30, 2001. This increase
is primarily the result of revenue from Mr. Cramer's radio program, as well as
conference attendee revenue from a two-day conference called "Advanced
Disciplines & Strategies for Running Hedge Funds," that was held during the
quarter ended June 30, 2002, partially offset by the elimination of revenue
associated with barter advertising arrangements, which totaled $100,000 during
the three months ended June 30, 2001. Barter advertising transactions in 2001
were recognized at the fair value as determined by the comparable advertising
market rates at the time of placement. The Company anticipates that it will
record no revenue associated with barter advertising arrangements in 2002.
Cost Of Revenues
Cost of revenues includes compensation and benefits for editorial and
content support staff, fees paid to outside contributors and content licensing
fees payable to content providers. Cost of revenues decreased to $1,821,767 for
the three months ended June 30, 2002, as compared to $2,117,426 for the three
months ended June 30, 2001. This decrease is primarily the result of reductions
within the Company's editorial and content support staff to 49 employees as of
June 30, 2002, as compared to 56 as of June 30, 2001, as well as decreased costs
associated with content licensing fees, partially offset by an increase in the
cost of outside contributors.
Product Development Expenses
Product development expenses include compensation and benefits for
software developers and graphic designers, expenses for contract programmers and
developers, communication lines and other technology costs. Product development
expenses decreased to $1,695,814 for the three months ended June 30, 2002, as
compared to $2,666,419 for the three months ended June 30, 2001. This decrease
is primarily the result of lower consulting fees that had been expended in 2001
as the Company developed its commerce system, reduced hosting fees as a result
of renegotiated and/or terminated hosting agreements, reductions within the
Company's technology and product development staff to 30 employees as of June
30, 2002, as compared to 37 employees as of June 30, 2001, as well as lower
maintenance and internet access fees.
10
Sales And Marketing Expenses
Sales and marketing expenses consist primarily of advertising and
promotion, advertising agency fees, promotional materials, content distribution
fees, and compensation expenses for the Company's direct sales force and
customer service department. Sales and marketing expenses decreased to
$1,698,702 for the three months ended June 30, 2002, as compared to $2,963,327
for the three months ended June 30, 2001. This decrease is primarily the result
of lower distribution and advertisement-serving expenses due to renegotiated and
expired agreements, reduced advertising and promotion expenses, a reduction in
the Company's customer service, sales and marketing staff to 32 employees as of
June 30, 2002, as compared to 35 as of June 30, 2001. Additionally, this
decrease is due to the elimination of expense associated with barter advertising
arrangements with online and print media companies, which totaled $100,000
during the three months ended June 30, 2001, and is partially offset by
increased commission expense due to the build up of the Company's direct sales
force.
General And Administrative Expenses
General and administrative expenses consist primarily of compensation
for general management, finance and administrative personnel, occupancy costs,
professional fees, equipment rental and other office expenses. General and
administrative costs decreased to $2,158,728 for the three months ended June 30,
2002, as compared to $3,094,999 for the three months ended June 30, 2001. This
decrease is primarily the result of the elimination of goodwill amortization in
accordance with the Company's adoption of the Financial Accounting Standards
Board Statement of Financial Accounting Standards No. 142 "Goodwill and Other
Intangible Assets", together with reductions in professional fees, equipment
lease expense, bad debt expense, and occupancy costs, which is partially offset
by increased compensation and related expenses.
Noncash Compensation Expense
In 1998 and the first three months of 1999, the Company granted
options to purchase shares of its common stock at exercise prices that were less
than the fair market value of the underlying shares of common stock on the dates
of grant. This resulted in noncash compensation expense incurred over the period
that these specific options vest.
In January 2002, the Company issued options to purchase a total of
50,000 shares of common stock to a non-employee in connection with his outside
contributor agreement with the Company. The options vested immediately and have
an exercise period of the lesser of five years, or 90 days after the termination
of his services. The value of the options was approximately $72,000, which is
being amortized over the service period of two years. During the three months
ended June 30, 2002, the Company recorded noncash compensation expense of
approximately $9,000.
11
In January 2002, the Company issued options to purchase a total of
100,000 shares of common stock to a non-employee in connection with his outside
contributor agreement with the Company. One-half of the options vested
immediately and the other half will vest in January 2003. The options have an
exercise period of the lesser of five years, or 90 days after the termination of
his services. The value of the options was approximately $142,000 at June 30,
2002. During the three months ended June 30, 2002, the Company recorded noncash
compensation expense of approximately $14,000. Due to the variable accounting
methodology, it is difficult to predict the amount of additional noncash
compensation expense the Company will occur in connection with these options.
The Company will continue to remeasure the fair value of these options on an
ongoing basis.
Noncash compensation expense increased to $236,337 for the three
months ended June 30, 2002, as compared to $218,672 for the three months ended
June 30, 2001. This increase was primarily the result of the additional charges
related to the stock options issued to a non-employee, totaling $23,296. As a
portion of the options require variable expense accounting, the associated
expense will differ in future periods. This increase was partially offset by
lower noncash compensation expense due to the departure of certain employees
from the Company during the past year. The remaining noncash compensation
expense for 2002 is currently estimated to be approximately $480,000.
Restructuring Expenses
During the year ended December 31, 2000, the Company recorded
restructuring expenses to align its cost structure with changing market
conditions and decreased dependence on the advertising market, to create a more
flexible and efficient organization. The restructuring expense of $50,000 for
the three months ended June 30, 2002 primarily represents adjustments to the
Company's original estimates related to the consolidation of facilities and
reduction in non-performing assets.
Interest Income
For the three months ended June 30, 2002, interest income was
$191,676, as compared to $603,147 for the three months ended June 30, 2001. This
decrease is the result of lower interest rates and reduced cash balances.
Gain on Disposal of Discontinued Operations
In November 2000, the Company's Board of Directors decided to
discontinue the Company's U.K. operations. As a result, the assets and
liabilities of the discontinued operations are in liquidation. On April 30,
2002, the final meeting of the members was held to bring the liquidation to a
close. A final return in the liquidation will be prepared and filed in order to
formally dissolve the U.K. operations, which should be effective during the
third quarter of 2002.
For the three months ended June 30, 2002, the Company recorded a gain
on disposal of discontinued operations of $4,785. No gain was recorded for the
three months ended June 30, 2001.
As of June 30, 2002, the book value of the remaining current assets
of the discontinued operations was $46,040, consisting of a VAT tax receivable.
There were no remaining non-current assets.
Six Months Ended June 30, 2002 And June 30, 2001
Net Revenues
Advertising & E-Commerce Revenues. Advertising and e-commerce
revenues decreased to $1,946,268 for the six months ended June 30, 2002, as
compared to $3,060,538 for the six months ended June 30, 2001. This decrease is
primarily due to the significant slowdown in the overall online advertising
market experienced during the first quarter of 2002, as compared to the first
quarter of 2001, resulting in reduced sales of internet sponsorship, banner and
e-mail advertisements.
For the six months ended June 30, 2002, advertising and e-commerce
revenue, excluding conference sponsorships, per 1,000 page views decreased by 9%
when compared to the six months ended June 30, 2001 due to the significant
slowdown in the overall online advertising market experienced during the first
quarter of 2002.
For the six months ended June 30, 2002, 59% of the Company's
advertising and e-commerce revenues, excluding conference sponsorships, were
derived from sponsorship contracts, as compared to 32% for the six months ended
June 30, 2001. The number of the Company's advertisers, excluding conference
sponsorships, for the six months ended June 30, 2002 was 64, as compared to 96
for the six months ended June 30, 2001 due to the significant slowdown in the
overall online advertising market experienced during the first quarter of 2002.
12
For the six months ended June 30, 2002, the Company's top five
advertisers accounted for approximately 42% of its advertising and e-commerce
revenues, excluding conference sponsorships, as compared to approximately 38%
for the six months ended June 30, 2001.
Subscription Revenues. Subscription revenues increased to $6,653,171
for the six months ended June 30, 2002, as compared to $4,137,378 for the six
months ended June 30, 2001. This increase is primarily the result of revenues
from several new subscription-based products, such as The Chartman's Top Stocks,
RealMoney Pro, The Daily Swing Trade, and the Turnaround Report, launched
subsequent to the six months ended June 30, 2001, as well as increased revenue
associated with Action Alerts PLUS and TheStreet(TM)View for Hedge Funds, which
had launched during the six months ended June 30, 2001. For the six months ended
June 30, 2002, approximately 53% of the Company's net subscription revenue was
derived from annual subscriptions, as compared to approximately 77% for the six
months ended June 30, 2001. Because the Company was entering a new market for
subscription products fulfilled via email, and had not established the requisite
technological infrastructure, it chose to outsource such fulfillment to a third
party until such infrastructure could be developed internally. The decrease in
the percent of annual subscriptions is partially due to the third party lacking
the technological capability to provide annual subscriptions. The Company
migrated these products to its own commerce system in March 2002, has begun to
offer annual subscriptions and is attempting to convert these monthly
subscribers into annual subscribers.
The Company calculates net subscription revenues by deducting refunds
from gross revenues. Refunds issued during the six months ended June 30, 2002,
totaled approximately 4% of gross subscription revenues for the period.
Other Revenues. Other revenues increased to $960,643 for the six
months ended June 30, 2002, as compared to $764,098 for the six months ended
June 30, 2001. This increase is primarily the result of revenue from James J.
Cramer's daily radio program, RealMoney with Jim Cramer, higher conference
attendee revenue, and $150,000 that the Company received from the WTC Recovery
Grant Program as compensation for revenue lost as a result of the September 11th
attacks. Such increase was partially offset by the elimination of revenue
associated with barter advertising arrangements, which totaled $200,000 during
the six months ended June 30, 2001, as well as the absence of royalties due to
low sales of the Company's investing book. Barter advertising transactions in
2001 were recognized at the fair value as determined by the comparable
advertising market rates at the time of placement. The Company anticipates that
it will record no revenue associated with barter advertising arrangements in
2002.
Cost Of Revenues
Cost of revenues decreased to $3,629,127 for the six months ended June
30, 2002, as compared to $5,096,430 for the six months ended June 30, 2001. This
decrease is primarily the result of reductions within the Company's editorial
and content support staff to 49 employees as of June 30, 2002, as compared to 56
as of June 30, 2001, as well as decreased costs associated with content
licensing fees.
Product Development Expenses
Product development expenses decreased to $3,938,731 for the six
months ended June 30, 2002, as compared to $5,384,252 for the six months ended
June 30, 2001. This decrease is primarily the result of lower consulting fees
that had been expended in 2001 as the Company developed its commerce system,
reductions within the Company's technology and product development staff to 30
employees as of June 30, 2002, as compared to 37 employees as of June 30, 2001,
reduced hosting fees as a result of renegotiated and/or terminated hosting
agreements, as well as lower maintenance and internet access fees. Such decrease
was partially offset by higher depreciation and amortization expenses related to
equipment purchased.
13
Sales And Marketing Expenses
Sales and marketing expenses decreased to $3,353,871 for the six
months ended June 30, 2002, as compared to $6,476,981 for the six months ended
June 30, 2001. This decrease is primarily the result of lower distribution and
advertisement-serving expenses due to renegotiated agreements, reduced
advertising and promotion expenses, a reduction in the Company's customer
service, sales and marketing staff to 32 employees as of June 30, 2002, as
compared to 35 as of June 30, 2001, as well as the elimination of expense
associated with barter advertising arrangements with online and print media
companies, which totaled $200,000 during the six months ended June 30, 2001.
Such decrease was partially offset by increased commission expense due to the
build up of the Company's direct sales force, as well as higher consulting fees
and credit card processing costs.
General And Administrative Expenses
General and administrative costs decreased to $4,436,642 for the six
months ended June 30, 2002, as compared to $6,160,813 for the six months ended
June 30, 2001. This decrease is primarily the result of the elimination of
goodwill amortization in accordance with the Company's adoption of the Financial
Accounting Standards Board Statement of Financial Accounting Standards No. 142
"Goodwill and Other Intangible Assets", together with reductions in equipment
lease expense, professional fees, occupancy costs, bad debt expense, and tax
expense. Such decrease was partially offset by increased compensation and
insurance expenses.
Noncash Compensation Expense
In 1998 and the first three months of 1999, the Company granted
options to purchase shares of its common stock at exercise prices that were less
than the fair market value of the underlying shares of common stock on the dates
of grant. This resulted in noncash compensation expense incurred over the period
that these specific options vest.
In January 2002, the Company issued options to purchase a total of
50,000 shares of common stock to a non-employee in connection with his outside
contributor agreement with the Company. The options vested immediately and have
an exercise period of the lesser of five years or 90 days after the termination
of his services. The value of the options was approximately $72,000, which is
being amortized over the two-year period of his service to the Company. During
the six months ended June 30, 2002, the Company recorded noncash compensation
expense of approximately $18,000.
In January 2002, the Company issued options to purchase a total of
100,000 shares of common stock to a non-employee in connection with his outside
contributor agreement with the Company. One-half of the options vested
immediately and the other half will vest in January 2003. The options have an
exercise period of the lesser of five years, or 90 days after the termination of
his services. The value of the options was approximately $142,000 at June 30,
2002. During the six months ended June 30, 2002, the Company recorded noncash
compensation expense of approximately $35,000. Due to the variable accounting
methodology, it is difficult to predict the amount of additional noncash
compensation expense the Company will occur in connection with these options.
The Company will continue to remeasure the fair value of these options on an
ongoing basis.
14
Noncash compensation expense increased to $479,625 for the six months
ended June 30, 2002, as compared to $448,154 for the six months ended June 30,
2001. This increase was primarily the result of the additional charges related
to the stock options issued to a non-employee totaling $53,543. As a portion of
the options require variable expense accounting, the associated expense will
differ in future periods. This increase was partially offset by lower noncash
compensation expense due to the departure of certain employees from the Company
during the past year. The remaining noncash compensation expense beyond the year
2002 is currently estimated to be approximately $315,000.
Restructuring Expenses
Restructuring expense of $18,558 for the six months ended June 30,
2002 primarily represents adjustments to the Company's original estimates
related to the consolidation of facilities and reduction in non-performing
assets.
Interest Income
For the six months ended June 30, 2002, interest income was $419,521,
as compared to $1,543,151 for the six months ended June 30, 2001. This decrease
is the result of lower interest rates and reduced cash balances.
Gain on Disposal of Discontinued Operations
For the six months ended June 30, 2002, the Company recorded a gain
on disposal of discontinued operations of $197,714. No gain was recorded for the
six months ended June 30, 2001. The gain primarily represents an adjustment to
the Company's original estimate related to costs to be incurred in completing
the liquidation process.
As of June 30, 2002, the book value of the remaining current assets
of the discontinued operations was $46,040, consisting of a VAT tax receivable.
There were no remaining non-current assets.
Liquidity and Capital Resources
The Company currently invests in money market funds and other
short-term, investment grade instruments that are highly liquid, of
high-quality, and have maturities of up to two years, with the intent that such
funds easily be made available for operating purposes. As of June 30, 2002, the
Company's cash and cash equivalents, restricted cash, short-term investments and
investment in marketable security amounted to $30,522,573, representing 71% of
total assets. Subsequent to June 30, 2002 the Company sold the security for
$10,211,005.
Net cash used in operating activities of $2,622,082 for the six
months ended June 30, 2002 was primarily due to a net loss of $5,679,237,
decreases in restructuring reserve, accounts payable and accrued expenses, and
prepaid expenses and other current assets, partially offset by noncash charges,
and an increase in deferred revenue, other receivables and accounts receivable.
Net cash used in investing activities of $8,673,881 for the six
months ended June 30, 2002 consisted of the purchase of an investment in
marketable security, and net purchases of capital expenditures, partially offset
by net sales of short-term investments. Capital expenditures generally consisted
of purchases of computer software and hardware.
Net cash used in financing activities of $1,074,151 for the six
months ended June 30, 2002 consisted primarily of the purchase of treasury stock
and an increase in restricted cash.
The Company believes that its current cash and cash equivalents and
short-term investments will be sufficient to meet the Company's anticipated cash
needs for at least the next 12 months. Thereafter, if cash generated from
operations is insufficient to satisfy the Company's liquidity requirements, the
Company 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 the
Company, or at all. Strategic relationships, if necessary to raise additional
funds, may require the Company to provide rights to certain of its content. The
failure to raise capital when needed could materially adversely affect the
Company's business, results of operations and financial condition. If additional
funds are raised through the issuance of equity securities, the percentage
ownership of the Company's then-current stockholders would be reduced.
Furthermore, these equity securities might have rights, preferences or
privileges senior to those of the Company's common stock.
15
Commitments And Contingencies
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 $370,871 and $838,610 for the three months
ended June 30, 2002 and 2001, respectively. Rent and equipment rental expenses
were $850,656 and $1,794,215 for the six months ended June 30, 2002 and 2001,
respectively. Minimum payments have not been reduced by minimum sublease rentals
of $41,990 due in the future under non-cancelable subleases. Additionally, the
Company has employment agreements with certain of its employees and outside
contributors. Future minimum payments under these obligations are as follows:
Payments Due by Period
------------------------------------------------------------------------------------------
Less than After
Contractual obligations: Total 1 year 1 - 3 years 4 - 5 years 5 years
------------------------------------------------------------------------------------------
Operating leases $ 9,224,351 $1,461,485 $2,805,167 $2,704,134 $2,253,565
Employment agreements 1,798,705 1,395,549 403,156 0 0
Outside contributor agreements 626,409 405,992 220,417 0 0
------------------------------------------------------------------------------------------
Total contractual cash obligations $11,649,465 $3,263,026 $3,428,740 $2,704,134 $2,253,565
==========================================================================================
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company believes that its market risk exposures are immaterial as
the Company does 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. The Company may also face some non-material risks which the
Company has not discussed in the following description of its risk factors. If
any of the following risks occur, the Company's business, results of operations
or financial condition could be materially adversely affected.
The Company Has a History of Losses, and Although The Company Has Diversified
Its Sources of Revenue, Potential Fluctuations In The Company's Quarterly
Financial Results Make Financial Forecasting Difficult
As of June 30, 2002, the Company had an accumulated deficit of $144.5
million. The Company has not achieved profitability and expects to continue to
incur net losses in 2002. The Company expects 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 the Company does achieve
profitability, the Company may be unable to sustain or increase profitability on
a quarterly or annual basis in the future.
TheStreet.com has developed a loyal audience of individual investors
at various experience levels who turn to its product offerings for all their
financial and investing information needs. The Company has a growing audience of
professional investors who use its products to help them make better investing
and trading decisions for their clients. In addition, the Company has important
strategic relationships with leading companies in the media, technology and
financial services sectors that also help it create brand awareness and increase
subscription and advertising revenues. The Company's goal is to monetize and
leverage its financial content across a variety of platforms. However, the
Company cannot assure you that its initiatives will result in increases in
revenues sufficient to enable the Company to achieve profitability. In such an
event, the price of the Company's common stock is likely to decrease.
16
The Company's quarterly operating results may fluctuate significantly
in the future as a result of a variety of factors, many of which are outside the
Company's control. The Company believes 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 the
Company's industry. The Company believes that quarter-to-quarter comparisons of
its operating results may not be a good indication of its future performance,
nor would its operating results for any particular quarter be indicative of
future operating results. In some future quarters the Company's operating
results may be below the expectations of public market analysts and investors.
In such an event, the price of the Company's common stock is likely to decrease.
The Company May Have Difficulty Selling Its Advertising Inventory, A Significant
Portion Of Which Is Concentrated Among The Company's Top Advertisers
The market for online advertising sales has not recovered from its
severe decline. Both traditional and new media advertisers continue to scale
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 continue to experience difficulty
selling their available inventories and maintaining their rate structures.
Although the Company believes that its network of sites and corresponding
demographic profiles will continue to enable it to maintain its high
sell-through, the Company expects that its overall advertising rates will
decrease as a result of increased inventory and the continued decline in the
online advertising market. Additionally, the Company has reduced the cost of
several of its headline indexing and content distribution agreements with
certain internet portals and content providers to distribute its news and
headlines to their users, thus driving potential readers to the Company's web
sites at lower cost. The Company believes that these arrangements will continue
to provide a cost-effective way to increase its unique visitors and page view
inventory. However, the Company's 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 the Company's partners. If the Company is unable to
attract significantly increased traffic, or if despite increased traffic,
advertising revenues continue to decrease due to continued softness in the
online advertising market, the Company's business, results of operations and
financial condition could be materially adversely affected.
For the six months ended June 30, 2002, the Company's top five
advertisers accounted for approximately 42% of its total advertising and
e-commerce revenues, excluding conference sponsorships, as compared to
approximately 38% for the six months ended June 30, 2001. The Company's
business, results of operations and financial condition could be materially
adversely affected by the loss of a number of its top advertisers, and such a
loss could be concentrated in a single quarter. Further, if the Company does not
continue to increase its revenue from financial-services advertisers or attract
advertisers from non-financial industries, its business, results of operations
and financial condition could be materially adversely affected. As is typical in
the advertising industry, the Company's advertising contracts have cancellation
provisions.
The Company May Have Difficulty Adding Subscribers and Retaining Current
Subscribers
The Company continues to seek to retain its current subscribers and to
attract new subscribers. As of June 30, 2002, the Company had approximately
78,000 paid annual and monthly subscribers (not including free trials, but
including an estimate of subscribers paid for as part of certain bulk deals) to
12 subscription products, as compared to approximately 76,800 as of June 30,
2001. The Company believes it has
17
significantly enhanced its subscription offerings to differentiate them from the
free financial and investing information that is widely available on the web,
including on TheStreet.com site. However, given the availability of such free
financial information, the Company may not be able to retain its current
subscribers and attract additional subscribers in a cost-effective manner. If
the Company's subscription base declines more than anticipated or the cost of
subscriber acquisition increases, the Company's business, results of operations
and financial condition could be materially adversely affected.
Difficulties In Developing New And Enhanced Products and Services Could Harm The
Company's Business
The Company has introduced additional and enhanced products and
services in the first half of 2002 in order to retain its current subscribers
and attract new subscribers, and intends to introduce still more in the
remaining six months of 2002. If the Company introduces a product or service
that is not favorably received, its current readers may choose a competitive
service over the Company's. The Company may also experience difficulties that
could delay or prevent it from introducing new products and services, or the new
products or services the Company introduces could contain errors that are
discovered after they are introduced. In some cases, the Company is dependent on
third parties, including software companies, application service providers and
technology consulting firms, to help the Company develop and implement new
products and services. If these third parties are not able to fulfill their
responsibilities to the Company on schedule or if the technology developed by
them for the Company's 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 the Company's business, results
of operations and financial condition.
Unforeseen Development Difficulties May Hinder The Company's Efforts
The Company has significantly enhanced its design and its
technological infrastructure to further improve its sites and to accommodate
increased traffic, and intends to continue such development activities. However,
unforeseen development difficulties could prevent the Company 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, the Company has experienced significant spikes in
traffic on its web sites when there have been important financial news events.
Accordingly, the Company's web sites must accommodate a high volume of traffic,
often at unexpected times. Although the Company has upgraded and continues to
improve its systems, the Company's 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 the
Company's readers to perceive its 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, the Company's business, results of operations and
financial condition could be materially adversely affected.
The Company Faces A Risk Of System Failure That May Result In Reduced Traffic,
Reduced Revenue And Harm To Its Reputation
The Company's ability to provide timely information and continuous
news updates depends on the efficient and uninterrupted operation of its
computer and communications hardware and software systems. Similarly, the
Company's ability to track, measure and report the delivery of advertisements on
its site depends on the efficient and uninterrupted operation of a third-party
system. In February 2002, in connection with the acquisition of the assets of
Exodus Communications, Inc. by Cable & Wireless plc, a global telecommunications
company headquartered in Great Britain, the Company's June 2001 internet-hosting
agreement with Exodus was assumed by Cable & Wireless. The Company's operations
depend on the ability of Cable & Wireless to protect its own systems and the
Company's systems in its data center against damage from fire, power loss, water
damage, telecommunications failure, vandalism and similar unexpected adverse
events. Although Cable & Wireless provides comprehensive facilities management
services, including human and technical monitoring of all production servers 24
hours per day, seven days per week, Cable & Wireless does not guarantee that the
Company's internet access will be uninterrupted, error-free or secure. Any
18
disruption in the internet access to the Company's web sites provided by Cable &
Wireless could materially adversely affect the Company's business, results of
operations and financial condition. The Company's own internal systems and
operations, as well as those of Cable & Wireless, 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 the
Company's service or a decrease in responsiveness of its web sites could result
in reduced traffic, reduced revenue and harm to the Company's reputation, brand
and the Company's relations with its advertisers and e-commerce partners.
Like most web sites, the Company may be vulnerable to computer
viruses, physical or electronic break-ins and other deliberate attempts to
disrupt its technological operations, which could lead to interruptions, delays
or loss of data. In addition, unauthorized persons may improperly access the
Company's data. The Company's insurance policies may not adequately compensate
the Company for any losses that the Company may incur because of any failures in
its system or interruptions in its delivery of content. The Company's business,
results of operations and financial condition could be materially adversely
affected by any event, damage or failure that interrupts or delays the Company's
operations.
The Company's Future Success Depends On Its Ability To Attract And Retain Key
Personnel
The Company's future success depends upon its ability to attract and
retain key personnel, including executives, editors, writers, and technology
personnel. Certain of the Company's key employees are bound by employment or
non-competition agreements. The loss of one or more of the Company's key
personnel, or the Company's inability to attract replacements with appropriate
expertise, could materially adversely affect the Company's business, results of
operations and financial condition.
Intense Competition Could Reduce The Company's Market Share And Harm Its
Financial Performance
A number of financial news and information sources compete for
consumers' and advertisers' attention and spending. The Company competes for
advertisers, readers, staff and outside contributors with many types of
companies, including:
o online services or web sites focused on business, finance
and investing, such as CBS.MarketWatch.com, CNBC on MSN
Money, CNNfn.com, The Wall Street Journal Interactive
Edition, The New York Times on the Web, DowJones.com,
SmartMoney.com, and The Motley Fool;
o publishers and distributors of traditional media, including
print, radio and television, such as The Wall Street
Journal, Fortune, Bloomberg Business Radio and CNBC;
o providers of terminal-based financial news and data, such
as Bloomberg Business News, Reuters News Service and Dow
Jones Markets;
o web "portal" companies, such as Yahoo! and America Online;
and
o online brokerage firms, many of which provide financial and
investment news and information, such as Charles Schwab,
E*TRADE and Merrill Lynch.
The Company's ability to compete depends on many factors, including
the originality, timeliness, insightfulness and trustworthiness of its content
and that of the Company's competitors, the ease of use of services developed
either by the Company or its competitors and the effectiveness of the Company's
sales and marketing efforts.
19
Many of the Company's 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 the Company does. This may allow them to
devote greater resources than the Company 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. The
Company's competitors may develop content that is equal or superior to the
Company's or that achieves greater market acceptance than the Company's. It is
also possible that new competitors may emerge and rapidly acquire significant
market share. The Company may not be able to compete successfully for
advertisers, readers, staff or outside contributors, which could materially
adversely affect the Company's 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
the Company's business, results of operations and financial condition.
The Company also competes with other web sites, television, radio and
print media for a share of advertisers' total advertising budgets. If
advertisers perceive the internet or the Company's 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 the
Company's web sites.
A Failure To Establish And Maintain Strategic Relationships With Other Companies
Could Decrease The Company's Subscriber And Reader Base, Which May Harm The
Company's Business
The Company depends on establishing and maintaining content
syndication and headline indexing relationships with high-traffic web sites for
a significant portion of its current subscriber and reader base. There is
intense competition for relationships with these firms and placement on these
sites, and the Company may have to pay significant fees to establish additional
content syndication and headline indexing relationships or maintain existing
relationships in the future. The Company 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.
Many companies that the Company may approach for a strategic
relationship or who already have strategic relationships with the Company 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 the Company. The Company's business, results of operations and financial
condition could be materially adversely affected if the Company does not
establish additional, and maintain existing, strategic relationships on
commercially reasonable terms or if any of the Company's strategic relationships
do not result in an increase in the number of subscribers or readers of its web
sites.
The Company May Be Unable To Grow Through Acquisitions And Integrate Future
Acquisitions Into Its Business
The Company intends to pursue a growth strategy that may involve
acquisitions of other companies. However, the Company 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 the Company's senior management, which will limit the
amount of time these individuals will have available to devote to the Company's
existing operations. There can be no assurance that the Company would be able to
successfully integrate these acquisitions into its business or implement its
plans without delay or substantial cost. In addition, future acquisitions by the
Company could result in the incurrence of debt and contingent liabilities, which
could have a material adverse effect upon the Company's financial condition and
results of operations. Any failure or any inability to effectively manage and
integrate growth may have a material adverse effect on the Company's financial
condition and results of operations.
20
Any Failure Of The Company's Internal Security Measures Or Breach Of Its Privacy
Protections Could Cause The Company To Lose Users And Subject It To Liability
Users who subscribe to one of the Company's subscription-based
products are required to furnish certain personal information (including name,
mailing address, phone number, email address and credit card information), which
the Company uses to administer its services. Additionally, the Company recently
implemented a registration system that will collect certain information
(although not payment information) from users of its free flagship site who wish
to gain access to certain features of the Company's site. If the security
measures that the Company uses to protect personal information are ineffective,
the Company may lose users and the Company's business may be harmed.
Additionally, the Company relies on security and authentication technology
licensed from third parties to perform real-time credit card authorization and
verification. The Company cannot predict whether technological developments or
human error could allow these security measures to be circumvented. The Company
may need to use significant resources to prevent security breaches or to
alleviate problems caused by any security breaches. If the Company is not able
to prevent all security breaches, its business, results of operations and
financial condition could be materially adversely affected.
The Company's users depend on the Company to keep their personal
information private and to not disclose it to third parties. The Company
therefore maintains a privacy policy, under which, with certain limited
exceptions, it will not disclose to any third parties any personal information
about its subscribers or other users. The Company has retained the ability to
modify the privacy policy at any time. If the Company's users perceive that the
Company is not protecting their privacy, its business, results of operations and
financial condition could be materially adversely affected.
Difficulties Associated With The Company's Brand Development May Harm Its
Ability To Attract Subscribers And Readers
The Company believes that maintaining and growing awareness about the
TheStreet.com and RealMoney brands is an important aspect of its efforts to
continue to attract users. The Company's new products do not have widely
recognized brands, and the Company will need to increase awareness of these
brands among potential users. Although the Company's 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 the Company's advertising campaign or other efforts.
Accordingly, the Company cannot assure you that such efforts will be successful
in raising awareness of TheStreet.com or RealMoney brands or in persuading
potential users to subscribe to the Company's products or visit the Company's
sites.
Failure To Maintain The Company's Reputation For Trustworthiness May Reduce The
Number Of Its Readers, Which May Harm Its Business
It is very important that the Company maintains its reputation as a
trustworthy news organization. The occurrence of events, including the Company's
misreporting a news story or the non-disclosure of a stock ownership position by
one or more of the Company's writers, or other breach of the Company's
compliance policies, could harm the Company's reputation for trustworthiness.
These events could result in a significant reduction in the number of the
Company's readers, which could materially adversely affect its business, results
of operations and financial condition.
Potential Liability For Information Displayed On The Company's Web Sites May
Require It To Defend Against Legal Claims, Which May Cause Significant
Operational Expenditures
The Company may be subject to claims for defamation, libel, copyright
or trademark infringement or based on other theories relating to the information
the Company publishes on its web sites or in other media. These types of claims
have been brought, sometimes successfully, against online services as well as
other print publications in the past. The Company could also be subject to
claims based upon the content that is accessible from its web sites through
links to other web sites. The Company's insurance may not adequately protect it
against these claims.
21
Failure To Protect The Company's Intellectual Property Rights Could Harm Its
Brand-Building Efforts And Ability To Compete Effectively
To protect the Company's rights to its intellectual property, the
Company relies on a combination of trademark and copyright law, trade secret
protection, confidentiality agreements and other contractual arrangements with
its employees, affiliates, customers, strategic partners and others. The
protective steps the Company has taken may be inadequate to deter
misappropriation of its proprietary information. The Company may be unable to
detect the unauthorized use of, or take appropriate steps to enforce, its
intellectual property rights. The Company has registered several trademarks in
the United States and also has pending U.S. applications for other trademarks.
Effective trademark, copyright and trade secret protection may not be available
in every country in which the Company offers or intends to offer its services.
Failure to adequately protect the Company's intellectual property could harm its
brand, devalue its proprietary content and affect its ability to compete
effectively. Further, defending the Company's intellectual property rights could
result in the expenditure of significant financial and managerial resources,
which could materially adversely affect the Company's business, results of
operations and financial condition.
The Company May Have To Defend Against Intellectual Property Infringement
Claims, Which May Cause Significant Operational Expenditures
Although the Company believes that its proprietary rights do not
infringe on the intellectual property rights of others, other parties may assert
infringement claims against the Company or claims that the Company has violated
a patent or infringed a copyright, trademark or other proprietary right
belonging to them. The Company incorporates licensed third-party technology in
some of its services. In these license agreements, the licensors have generally
agreed to defend, indemnify and hold the Company harmless with respect to any
claim by a third party that the licensed software infringes any patent or other
proprietary right. The Company cannot assure you that these provisions will be
adequate to protect it from infringement claims. Any infringement claims, even
if not meritorious, could result in the expenditure of significant financial and
managerial resources on the Company's part, which could materially adversely
affect the Company's business, results of operations and financial condition.
The Company's Ability To Maintain And Increase Its Readership Depends On The
Continued Growth In Use And Efficient Operation Of The Web
The web-based information market is new and rapidly evolving. The
Company's 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:
o inadequate network infrastructure;
o security and privacy concerns;
o inconsistent quality of service; and
o unavailability of cost-effective, high-speed access to the
internet.
22
The Company's readers depend on internet service providers, online
service providers and other web site operators for access to its web sites. Many
of these companies providing such services have filed for bankruptcy. Many have
experienced significant service outages in the past and could experience service
outages, delays and other difficulties due to system failures unrelated to the
Company's systems. These occurrences could cause the Company's readers to
perceive the web in general or the Company's web sites in particular as an
unreliable medium and, therefore, cause them to use other media to obtain their
financial news and information. The Company also depends on a number of
information providers to deliver information and data feeds to it on a timely
basis. The Company's 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 the Company's business,
results of operations and financial condition.
A General Decline In Online Advertising Could Harm The Company's Business
The Company's future success is dependent in part on the use of the
internet as an advertising medium. The internet advertising industry is still
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 in recent months its growth has slowed
significantly. Many of the Company's 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 the
Company's current and potential web publisher customers have little experience
in generating revenue from the sale of advertising space on their web sites. The
Company 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 the
Company expects, then its business, results of operations and financial
condition could be materially and adversely affected.
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
the Company is unable to meet these standards, advertisers may not continue
advertising on the Company's site. Furthermore, advertisers that have
traditionally relied upon other advertising media may be reluctant to advertise
on the web. The Company's 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 the Company's future advertising
rates and revenues. The Company cannot assure you that it 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 the Company's 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 the Company's advertising
revenues.
The Company also derives advertising revenues from email advertising
and other email services, which exposes it 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 the Company's business, results of operations and financial
condition.
23
The Company competes 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 the Company's 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 the Company's web sites.
Government Regulation And Legal Uncertainties Relating To The Web Could Increase
The Company's Costs Of Transmitting Data And Increase Its Legal And Regulatory
Expenditures And Could Decrease Its 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 the Company's
transmissions or levy sales or other taxes relating to the Company's activities.
These regulations, if imposed, could increase the cost of transmitting data over
the web.
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. The Company's 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 information 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, the Company's activity is interpreted as subjecting it to
regulation, the Company could be subject to liability, and its business, results
of operations and financial condition could be materially and adversely
affected.
The Company is 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 that
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 and
financial information, including the Gramm-Leach-Bliley Act. Although the
Company's compliance with applicable federal and state laws, regulations and
industry guidelines has not had a material adverse effect on it, governments,
trade associations and industry self-regulatory groups may enact more burdensome
laws, regulations and guidelines, including antitrust and consumer privacy laws,
affecting the Company and its customers. 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 has resulted in limits on the
collection and use of certain information from users in Europe. Other
jurisdictions may follow. The Company could incur additional expenses if any new
regulations regarding the use of personal information are introduced or if these
agencies chose to investigate the Company's privacy practices. Also, as a
consequence of governmental legislation or regulation or enforcement efforts or
evolving standards of fair information collection practices, the Company may be
required to make changes to its 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 the Company's business,
financial condition or results of operations. Any new laws or regulations
relating to the delivery of the Company's products and services, or certain
application or interpretation of existing laws, could decrease the growth in the
use of the internet, decrease the demand for the Company's products and
services, or otherwise materially adversely affect its business.
24
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,
internet publishing and internet advertising.
Concerns About Web Security Could Reduce The Company's Advertising Revenues,
Decrease Its Reader Base And Increase Its 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 the Company's advertisers seek to advertise on its web sites to
encourage people to use the web to purchase goods or services, the Company's
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. The Company may also incur significant costs to
protect it against the threat of security breaches or to alleviate problems
caused by these breaches.
Control By Principal Stockholders, Officers And Directors Could Adversely Affect
The Company's Stockholders
The Company's officers, directors and greater-than-five-percent
stockholders (and their affiliates), acting together, have the ability to
control substantially all matters submitted to its stockholders for approval
(including the election and removal of directors and any merger, consolidation
or sale of all or substantially all of the Company's assets) and to control its
management and affairs. Accordingly, this concentration of ownership may have
the effect of delaying, deferring or preventing a change in control of the
Company, impeding a merger, consolidation, takeover or other business
combination involving the Company or discouraging a potential acquirer from
making a tender offer or otherwise attempting to obtain control of the Company,
which in turn could materially adversely affect the market price of the common
stock.
Volatility Of The Company's Stock Price Could Adversely Affect The Company's
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 the Company's stock has been and may continue to be subject to wide
fluctuations. From April 1 through June 30, 2002, the closing sale price of the
Company's common stock on the Nasdaq National Market ranged from $3.59 to $2.00.
As of August 9, 2002, the closing sale price was $2.35. The Company's 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 the Company or its
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 the
Company's 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 the Company's common stock, regardless of its operating performance.
Anti-Takeover Provisions Could Prevent Or Delay A Change Of Control
Provisions of the Company's 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 the Company, even if doing so would
be beneficial to the Company's stockholders.
The Company Does Not Intend To Pay Dividends
The Company has never declared or paid any cash dividends on its
common stock. The Company currently intends to retain any future earnings for
funding growth and, therefore, does not expect to pay any dividends in the
foreseeable future.
25
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On December 5, 2001, a class action complaint alleging violations of
the federal securities laws was filed in the United States District Court for
the Southern District of New York naming as defendants TheStreet.com, Inc.,
certain of its former officers and directors and a current director, and certain
underwriters of the company's initial public offering (The Goldman Sachs Group,
Inc., Chase H&Q, Thomas Weisel Partners LLC, FleetBoston Robertson Stephens, and
Merrill Lynch Pierce Fenner & Smith, Inc.). The complaint alleges, among other
things, that the underwriters of TheStreet.com's initial public offering
violated the securities laws by failing to disclose certain alleged compensation
arrangements (such as undisclosed commissions or stock stabilization practices)
in the offering's registration statement. TheStreet.com and certain of its
former officers and directors and a current director are named in the complaint
pursuant to Section 11 of the Securities Act of 1933, and Section 10(b) of the
Securities Exchange Act of 1934. The plaintiffs seek damages and statutory
compensation against each defendant in an amount to be determined at trial, plus
pre-judgment interest thereon, together with costs and expenses, including
attorneys' fees. Similar complaints have been filed against over 300 other
issuers that have had initial public offerings since 1998 and all such actions
have been included in a single coordinated proceeding. TheStreet.com intends to
defend these actions vigorously. However, due to the inherent uncertainties of
litigation, the Company cannot accurately predict the ultimate outcome of the
litigation. Any unfavorable outcome of this litigation could have an adverse
impact on the Company's business, financial condition and results of operations.
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to Vote of Security Holders
The following matters were submitted to a vote at the annual meeting
of stockholders of the Company, held on May 29, 2002:
(i) the election of Thomas J. Clarke, Jr. (votes for:
20,732,550; withheld: 1,526,173), Fred Wilson (votes for: 20,711,400; withheld:
1,547,323) and Douglas A. McIntyre (votes for: 20,732,600; withheld: 1,526,123)
as Class III directors of the Company, to serve until the annual meeting in
2005;
(ii) a proposal to approve the Company's 1998 Stock Incentive
Plan, as amended and restated (the "Plan"), to reserve an additional 2,000,000
shares of Common Stock for issuance under the Plan, and to make certain other
changes in the terms of the Plan (votes for: 11,309,228; votes against:
1,962,980; abstained: 99,809); and
(iii) the ratification of the appointment of Ernst & Young LLP as
the Company's independent certified public accountants for the fiscal year
ending December 31, 2002 (votes for: 22,219,807; votes against: 33,293;
abstained: 5,623).
Item 5. Other Information.
Not applicable.
26
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
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, dated as of May
29, 2002
99.1 Certification of CEO and CFO
* 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 Annual
Report on Form 10-K dated April 2, 2001.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K
during the quarter ended June 30, 2002.
27
SIGNATURES
Pursuant to the requirements 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.
(Registrant)
Date: August 14, 2002 By: /s/ Thomas J. Clarke, Jr.
-------------------------
Thomas J. Clarke, Jr.
Chairman of the Board and Chief Executive Officer
Date: August 14, 2002 By: /s/ Lisa A. Mogensen
--------------------
Lisa A. Mogensen
Chief Financial Officer
28
EXHIBIT INDEX
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, dated as of May
29, 2002
99.1 Certification of CEO and CFO
* 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 Annual Report
on Form 10-K dated April 2, 2001.
29