THESTREET, INC. - FORM 10-Q

Attached files

file	filename
EX-32.2 - EXHIBIT 32-2 - THESTREET, INC.	s103757_ex32-2.htm
EX-32.1 - EXHIBIT 32-1 - THESTREET, INC.	s103757_ex32-1.htm
EX-31.2 - EXHIBIT 31-2 - THESTREET, INC.	s103757_ex31-2.htm
EX-31.1 - EXHIBIT 31-1 - THESTREET, INC.	s103757_ex31-1.htm
EX-10.3 - EXHIBIT 10-3 - THESTREET, INC.	s103757_ex10-3.htm
EX-10.2 - EXHIBIT 10-2 - THESTREET, INC.	s103757_ex10-2.htm
EX-10.1 - EXHIBIT 10-1 - THESTREET, INC.	s103757_ex10-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2016

Commission File Number 000-25779

THESTREET, 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)

Indicate by a check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

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

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

Large accelerated filer ¨

Accelerated filer x

Non-accelerated filer ¨

Smaller reporting company ¨

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

		Number of Shares Outstanding
Title of Class		as of August 1, 2016
Common Stock, par value $0.01 per share		35,253,240

TheStreet, Inc.

Form 10-Q

As of and for the Three Months Ended June 30, 2016

Part I - FINANCIAL INFORMATION		1
Item 1.	Interim Condensed Consolidated Financial Statements	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Comprehensive Loss	3
	Condensed Consolidated Statements of Cash Flows	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	24

PART II - OTHER INFORMATION		25
Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3.	Defaults Upon Senior Securities	25
Item 4.	Mine Safety Disclosures	25
Item 5.	Other Information	25
Item 6.	Exhibits	26
SIGNATURES		27

Part I – FINANCIAL INFORMATION

Item 1.

Interim Condensed Consolidated Financial Statements.

THESTREET, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30, 2016			December 31, 2015
	(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	27,165,222		$	28,445,416
Accounts receivable, net of allowance for doubtful accounts of $275,153 as of June 30, 2016 and $357,417 as of December 31, 2015		4,499,233			5,102,464
Other receivables, net		465,149			790,148
Prepaid expenses and other current assets		1,684,216			1,205,708
Restricted cash		161,250			161,250
Total current assets		33,975,070			35,704,986

Property and equipment, net of accumulated depreciation and amortization of $5,212,087 as of June 30, 2016 and $4,804,411 as of December 31, 2015		3,287,981			2,773,737
Marketable securities		1,470,000			1,590,000
Other assets		313,134			329,885
Goodwill		41,857,125			43,318,670
Other intangibles, net of accumulated amortization of $16,976,742 as of June 30, 2016 and $15,674,328 as of December 31, 2015		17,673,230			18,674,376
Restricted cash		500,000			500,000
Total assets	$	99,076,540		$	102,891,654

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	2,562,152		$	2,494,341
Accrued expenses		5,578,247			5,161,981
Deferred revenue		25,643,442			24,738,780
Other current liabilities		1,349,348			1,235,551
Total current liabilities		35,133,189			33,630,653
Deferred tax liability		2,467,746			1,906,295
Other liabilities		5,616,339			5,360,467
Total liabilities		43,217,274			40,897,415

Stockholders’ Equity
Preferred stock; $0.01 par value; 10,000,000 shares authorized; 5,500 issued and outstanding as of June 30, 2016 and December 31, 2015; the aggregate liquidation preference totals $55,000,000 as of June 30, 2016 and December 31, 2015		55			55
Common stock; $0.01 par value; 100,000,000 shares authorized; 42,591,932 shares issued and 35,252,383 shares outstanding as of June 30, 2016, and 42,458,779 shares issued and 35,123,132 shares outstanding as of December 31, 2015		425,919			424,588
Additional paid-in capital		270,372,809			269,524,415
Accumulated other comprehensive loss		(4,324,132	)		(1,999,026	)
Treasury stock at cost; 7,339,549 shares as of June 30, 2016 and 7,335,647 shares as of December 31, 2015		(13,061,325	)		(13,056,541	)
Accumulated deficit		(197,554,060	)		(192,899,252	)
Total stockholders’ equity		55,859,266			61,994,239
Total liabilities and stockholders’ equity	$	99,076,540		$	102,891,654

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements

THESTREET, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2016			2015			2016			2015
Net revenue:
Business to business	$	7,531,159		$	7,267,562		$	14,663,959		$	14,401,187
Business to consumer		8,761,368			9,869,357			17,698,000			19,625,781
Total net revenue		16,292,527			17,136,919			32,361,959			34,026,968

Operating expense:
Cost of services (exclusive of depreciation and amortization shown separately below)		8,144,877			8,585,978			16,031,433			16,909,669
Sales and marketing		4,013,161			4,113,677			7,897,587			8,624,766
General and administrative		3,879,391			3,683,619			8,993,297			7,471,490
Depreciation and amortization		972,314			1,137,442			1,915,470			2,115,678
Restructuring and other charges		162,958			-			1,543,010			-
Total operating expense		17,172,701			17,520,716			36,380,797			35,121,603
Operating loss		(880,174	)		(383,797	)		(4,018,838	)		(1,094,635	)
Net interest expense		(11,599	)		(32,872	)		(12,094	)		(66,405	)
Net loss before income taxes		(891,773	)		(416,669	)		(4,030,932	)		(1,161,040	)
Provision for income taxes		318,748			254,591			623,876			487,032
Net loss		(1,210,521	)		(671,260	)		(4,654,808	)		(1,648,072	)
Preferred stock cash dividends		-			96,424			-			192,848
Net loss attributable to common stockholders	$	(1,210,521	)	$	(767,684	)	$	(4,654,808	)	$	(1,840,920	)

Basic and diluted net loss per share
Net loss attributable to common stockholders	$	(0.03	)	$	(0.02	)	$	(0.13	)	$	(0.05	)
Cash dividends declared and paid per common share	$	-		$	0.025		$	-		$	0.05

Weighted average basic and diluted shares outstanding		35,234,429			34,848,571			35,216,192			34,814,060

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements

THESTREET, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(unaudited)

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2016			2015			2016			2015
Net loss	$	(1,210,521	)	$	(671,260	)	$	(4,654,808	)	$	(1,648,072	)
Foreign currency translation (loss) gain		(1,549,565	)		1,017,492			(2,205,106	)		(481,107	)
Unrealized loss on marketable securities		(20,000	)		(39,194	)		(120,000	)		(62,950	)
Comprehensive (loss) income	$	(2,780,086	)	$	307,038		$	(6,979,914	)	$	(2,192,129	)

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements

THESTREET, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	For the Six Months Ended June 30,
	2016			2015
Cash Flows from Operating Activities:
Net loss	$	(4,654,808	)	$	(1,648,072	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Stock-based compensation expense		744,612			741,145
(Recovery of) provision for doubtful accounts		(33,487	)		95,546
Depreciation and amortization		1,915,470			2,115,678
Deferred taxes		561,451			360,882
Restructuring and other charges		105,113			-
Deferred rent		59,960			(163,899	)
Changes in operating assets and liabilities:
Accounts receivable		565,073			695,408
Other receivables		320,457			53,501
Prepaid expenses and other current assets		(493,501	)		(217,295	)
Other assets		2,868			(81,259	)
Accounts payable		76,692			45,008
Accrued expenses		485,575			(2,103,315	)
Deferred revenue		1,241,539			1,299,920
Other current liabilities		(254,993	)		(396,373	)
Other liabilities		66,317			(39,585	)
Net cash provided by operating activities		708,338			757,290

Cash Flows from Investing Activities:
Sale and maturity of marketable securities		-			2,005,484
Adjustment to purchase of Management Diagnostics Limited		-			50,494
Capital expenditures		(1,612,899	)		(2,091,654	)
Net cash used in investing activities		(1,612,899	)		(35,676	)

Cash Flows from Financing Activities:
Cash dividends paid on common stock		(11,929	)		(1,780,956	)
Cash dividends paid on preferred stock		-			(192,848	)
Proceeds from the exercise of stock options		-			839
Restricted cash		-			139,750
Shares withheld on RSU vesting to pay for withholding taxes		(4,784	)		(10,977	)
Net cash used in financing activities		(16,713	)		(1,844,192	)

Effect of exchange rate changes on cash and cash equivalents		(358,920	)		4,992

Net decrease in cash and cash equivalents		(1,280,194	)		(1,117,586	)
Cash and cash equivalents, beginning of period		28,445,416			32,459,009
Cash and cash equivalents, end of period	$	27,165,222		$	31,341,423

The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these financial statements

TheStreet, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION

Business

TheStreet, Inc., together with its wholly owned subsidiaries (“TheStreet”, “we”, “us” or the “Company”), is a leading independent digital financial information services company focused on the financial and mergers and acquisitions environment. The Company’s collection of digital services provides users, subscribers and advertisers with a variety of content and tools through a range of online, social media, tablet and mobile channels. Our mission is to provide investors and advisors with actionable ideas from the world of investing, finance and business, and dealmakers with sophisticated analysis of the mergers and acquisitions environment, in order to break down information barriers, level the playing field and help all individuals and organizations grow their wealth. With a robust suite of digital services, TheStreet offers the tools and insights needed to make informed decisions about earning, investing, saving and spending money. The Deal, LLC (“The Deal”), our institutional services platform, provides dealmakers, advisers and institutional investors with director and officer profiles, relationship capital management services, and transactional information pertaining to mergers and acquisitions and other changes in the corporate control environment. Since its inception in 1996, TheStreet believes it has distinguished itself from other financial information services companies with its journalistic excellence, unbiased approach and interactive multimedia coverage of the financial markets, economy, industry trends, investment and financial planning.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and for quarterly reports on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP 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. The financial statements require the use of management estimates and include the accounts of the Company as required by GAAP. Operating results for the six month period ended June 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.

The consolidated balance sheet at December 31, 2015 has been derived from the audited financial statements at that date, but does not include all of the information and notes required by GAAP for complete financial statements.

For further information, refer to the consolidated financial statements and accompanying notes included in the Company’s annual report on Form 10-K for the year ended December 31, 2015, filed with the Securities and Exchange Commission (“SEC”) on March 9, 2016 (“2015 Form 10-K”).

The Company has evaluated subsequent events for recognition or disclosure.

Revenue Presentation on Condensed Consolidated Statements of Operations

During the three months ended March 31, 2016, the Company began to report revenue within Business to business and Business to consumer categories rather than Subscription services and Media. Prior period amounts have been reclassified to conform to current period presentation.

Business to business revenue is comprised of subscriptions, licenses and fees for access to director and officer profiles, relationship capital management services, and transactional information pertaining to the mergers and acquisitions environment, rate services, events and other miscellaneous revenue.

Business to consumer revenue is comprised of subscriptions, licenses and fees for access to securities investment information and stock market commentary, fees charged for the placement of advertising and sponsorships within TheStreet and its affiliated properties, and other miscellaneous revenue.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”), which supersedes nearly all existing revenue recognition guidance under GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP. On July 9, 2015, the FASB voted to defer the effective date by one year to December 15, 2017 for interim and annual reporting periods beginning after that date. Early adoption of ASU 2014-09 is permitted but not before the original effective date (annual periods beginning after December 15, 2016). When effective, ASU 2014-09 prescribes either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients; or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). We are currently evaluating the impact of our pending adoption of ASU 2014-09 on our consolidated financial statements and have not yet determined the method by which we will adopt the standard.

In February 2016, the FASB issued ASU No. 2016-02, Leases (ASU 2016-02”). ASU 2016-02 establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We are currently evaluating the impact of our pending adoption of the new standard on our consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting ("ASU No. 2016-09"). ASU 2016-09 simplifies various aspects related to how share-based payments are accounted for and presented in the consolidated financial statements. The amendments include income tax consequences, the accounting for forfeitures, classification of awards as either equity or liabilities and classification on the statement of cash flows. The guidance is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. We are currently evaluating the impact of our pending adoption of the new standard on our consolidated financial statements.

CASH AND CASH EQUIVALENTS, MARKETABLE SECURITIES AND RESTRICTED CASH

The Company’s cash, cash equivalents and restricted cash primarily consist of money market funds and checking accounts. As of June 30, 2016 and December 31, 2015, marketable securities consist of two municipal auction rate securities (“ARS”) issued by the District of Columbia with a cost basis of approximately $1.9 million and a fair value of approximately $1.5 million and $1.6 million, respectively. With the exception of the ARS, Company policy limits the maximum maturity for any investment to three years. The ARS mature in the year 2038. The Company accounts for its marketable securities in accordance with the provisions of ASC 320-10. The Company classifies these securities as available for sale and the securities are reported at fair value. Unrealized gains and losses are recorded as a component of accumulated other comprehensive loss and excluded from net loss as they are deemed temporary. Additionally, as of June 30, 2016 and December 31, 2015, the Company has a total of approximately $661 thousand of cash that serves as collateral for outstanding letters of credit, and which cash is therefore restricted. The letters of credit serve as security deposits for the Company’s office space in New York City.

	June 30, 2016		December 31, 2015
Cash and cash equivalents	$	27,165,222	$	28,445,416
Marketable securities		1,470,000		1,590,000
Current and noncurrent restricted cash		661,250		661,250
Total cash and cash equivalents, marketable securities and current and noncurrent restricted cash	$	29,296,472	$	30,696,666

FAIR VALUE MEASUREMENTS

The Company measures the fair value of its financial instruments in accordance with ASC 820-10, which refines the definition of fair value, provides a framework for measuring fair value and expands disclosures about fair value measurements. ASC 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The statement establishes consistency and comparability by providing a fair value hierarchy that prioritizes the inputs to valuation techniques into three broad levels, which are described below:

•

Level 1: Inputs are quoted market prices in active markets for identical assets or liabilities (these are observable market inputs).

•

Level 2: Inputs other than quoted market prices included within Level 1 that are observable for the asset or liability (includes quoted market prices for similar assets or identical or similar assets in markets in which there are few transactions, prices that are not current or vary substantially).

•

Level 3: Inputs are unobservable inputs that reflect the entity’s own assumptions in pricing the asset or liability (used when little or no market data is available).

Financial assets and liabilities included in our financial statements and measured at fair value are classified based on the valuation technique level in the table below:

	As of June 30, 2016
Description:	Total		Level 1		Level 2		Level 3
Cash and cash equivalents (1)	$	27,165,222	$	27,165,222	$	—	$	—
Restricted cash (1)		661,250		661,250		—		—
Marketable securities (2)		1,470,000		—		—		1,470,000
Contingent earn-out (3)		2,656,655		—		—		2,656,655
Total at fair value	$	31,953,127	$	27,826,472	$	—	$	4,126,655

	As of December 31, 2015
Description:	Total		Level 1		Level 2		Level 3
Cash and cash equivalents (1)	$	28,445,416	$	28,445,416	$	—	$	—
Restricted cash (1)		661,250		661,250		—		—
Marketable securities (2)		1,590,000		—		—		1,590,000
Contingent earn-out (3)		2,590,339		—		—		2,590,339
Total at fair value	$	33,287,005	$	29,106,666	$	—	$	4,180,339

(1)

Cash, cash equivalents and restricted cash, totaling approximately $27.8 million and $29.1 million as of June 30, 2016 and December 31, 2015, respectively, consist primarily of money market funds and checking accounts for which we determine fair value through quoted market prices.

(2)

Marketable securities consist of two municipal ARS issued by the District of Columbia having a fair value totaling approximately $1.5 million and $1.6 million as of June 30, 2016 and December 31, 2015, respectively. Historically, the fair value of ARS investments approximated par value due to the frequent resets through the auction process. Due to events in credit markets, the auction events, which historically have provided liquidity for these securities, have been unsuccessful. The result of a failed auction is that these ARS holdings will continue to pay interest in accordance with their terms at each respective auction date; however, liquidity of the securities will be limited until there is a successful auction, the issuer redeems the securities, the securities mature or until such time as other markets for these ARS holdings develop. For each of our ARS, we evaluate the risks related to the structure, collateral and liquidity of the investment, and forecast the probability of issuer default, auction failure, a successful auction at par, or a redemption at par, for each future auction period. Temporary impairment charges are recorded in accumulated other comprehensive loss, whereas other-than-temporary impairment charges are recorded in our consolidated statement of operations. As of June 30, 2016, the Company determined that there was a decline in the fair value of its ARS investments of $380 thousand from its cost basis, which was deemed temporary and was included within accumulated other comprehensive loss. The Company used both a discounted cash flow and market approach model to determine the estimated fair value of its ARS investments. The assumptions used in preparing the discounted cash flow model include estimates for interest rate, timing and amount of cash flows and expected holding period of ARS.

(3)

Contingent earn-out represents additional purchase consideration payable to the former shareholders of Management Diagnostics Limited, which was acquired by the Company in October 2014, which earn-out payments are based upon the achievement of specific 2017 audited revenue benchmarks. The probability of achieving each benchmark is based on the Company’s assessment of the projected 2017 revenue. The present value of each probability weighted payment was calculated by discounting the probability weighted payment by the corresponding present value factor.

The following tables provide a reconciliation of the beginning and ending balance for the Company’s assets and liabilities measured at fair value using significant unobservable inputs (Level 3):

	Marketable Securities			Contingent Earn-Out
Balance December 31, 2015	$	1,590,000		$	2,590,339
Change in fair value		(120,000	)		66,316
Balance June 30, 2016	$	1,470,000		$	2,656,655

STOCK-BASED COMPENSATION

The Company estimates the fair value of stock option awards on the date of grant using the Black-Scholes option-pricing model. This determination is affected by the Company’s stock price as well as assumptions regarding expected volatility, risk-free interest rate, and expected dividend yields. Because option-pricing models require the use of subjective assumptions, changes in these assumptions can materially affect the fair value of the options. The assumptions in the table below represent the weighted-average value of the applicable assumptions used to value stock option awards at their grant date. The weighted-average grant date fair value per share of stock option awards granted during the six months ended June 30, 2016 and 2015 was $0.38 and $0.41, respectively.

	For the Six Months Ended June 30,
	2016			2015
Expected option lives		4.5 years			3.0 years
Expected volatility		34.49	%		35.66	%
Risk-free interest rate		1.23	%		0.99	%
Expected dividend yield		0.00	%		4.51	%

The value of each restricted stock unit awarded is equal to the closing price per share of the Company’s Common Stock on the date of grant. The weighted-average grant date fair value per share of restricted stock units granted during the six months ended June 30, 2016 and 2015 was $1.31 and $2.23, respectively.

For both option and restricted stock unit awards, the value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods.

As of June 30, 2016, there remained 959,340 shares available for future awards under the Company’s 2007 Performance Incentive Plan (the “2007 Plan”). In connection with awards under both the 2007 Plan and awards issued outside of the Plan as inducement grants to new hires, the Company recorded approximately $382 thousand and $850 thousand (inclusive of approximately $105 thousand included in restructuring and other charges) of noncash stock-based compensation for the three and six month periods ended June 30, 2016, respectively, as compared to approximately $368 thousand and $741 thousand of noncash stock-based compensation for the three and six month periods ended June 30, 2015, respectively. As of June 30, 2016, there was approximately $2.3 million of unrecognized stock-based compensation expense remaining to be recognized over a weighted-average period of 1.9 years.

A summary of the activity of the 2007 Plan, and awards issued outside of the Plan pertaining to stock option grants is as follows:

	Shares Underlying Awards			Weighted Average Exercise Price		Aggregate Intrinsic Value ($000)		Weighted Average Remaining Contractual Life (In Years)
Awards outstanding at December 31, 2015		3,391,607		$	1.87
Options granted		1,759,808		$	1.26
Options exercised		-		$	-
Options forfeited		(81,645	)	$	2.02
Options expired		(319,626	)	$	1.93
Awards outstanding at June 30, 2016		4,750,144		$	1.64	$	1		3.54
Awards vested and expected to vest at June 30, 2016		4,687,555		$	1.64	$	1		3.52
Awards exercisable at June 30, 2016		2,734,691		$	1.83	$	-		1.62

A summary of the activity of the 2007 Plan pertaining to grants of restricted stock units is as follows:

	Shares Underlying Awards			Aggregate Intrinsic Value ($000)		Weighted Average Remaining Contractual Life (In Years)
Awards outstanding at December 31, 2015		806,324
Restricted stock units granted		541,762
Restricted stock units settled by delivery of Common Stock upon vesting		(133,153	)
Restricted stock units forfeited		(34,870	)
Awards outstanding at June 30, 2016		1,180,063		$	1,333		1.67
Awards expected to vest at June 30, 2016		1,167,463		$	1,319		1.64

A summary of the status of the Company’s unvested share-based payment awards as of June 30, 2016 and changes in the six month period then ended, is as follows:

Unvested Awards	Number of Shares			Weighted Average Grant Date Fair Value
Shares underlying awards unvested at December 31, 2015		1,473,765		$	1.44
Shares underlying options granted		1,759,808		$	0.38
Shares underlying restricted stock units granted		541,762		$	1.31
Shares underlying options vested		(330,151	)	$	0.50
Shares underlying restricted stock units settled by delivery of Common Stock upon vesting		(133,153	)	$	2.06
Shares underlying options forfeited		(81,645	)	$	0.62
Shares underlying restricted stock units cancelled		(34,870	)	$	1.39
Shares underlying awards unvested at June 30, 2016		3,195,516		$	0.93

For the six months ended June 30, 2016 and 2015, the total fair value of share-based awards vested was approximately $356 thousand and $557 thousand, respectively. For the six months ended June 30, 2016 and 2015, the total intrinsic value of options exercised was $0 and $373, respectively (there were no options exercised during the six months ended June 30, 2016). For the six months ended June 30, 2016 and 2015, approximately 1.8 million and 38 thousand stock options, respectively, were granted, and 0 and approximately 1 thousand stock options, respectively, were exercised yielding $0 and approximately $1 thousand, respectively, of cash proceeds to the Company. Additionally, for the six months ended June 30, 2016 and 2015, approximately 542 thousand and 96 thousand restricted stock units, respectively, were granted, and approximately 133 thousand and 129 thousand shares, respectively, were issued under restricted stock unit grants.

STOCKHOLDERS’ EQUITY

Treasury Stock

In December 2000, the Company’s Board of Directors authorized the repurchase of up to $10 million of the Company’s Common Stock, from time to time, in private purchases or in the open market. In February 2004, the Company’s Board of Directors approved the resumption of the stock repurchase program (the “Program”) under new price and volume parameters, leaving unchanged the maximum amount available for repurchase under the Program. However, the affirmative vote of the holders of a majority of the outstanding shares of Series B Preferred Stock, voting separately as a single class, is necessary for the Company to repurchase its Common Stock (except for the purchase or redemption from employees, directors and consultants pursuant to agreements providing us with repurchase rights upon termination of their service with us), unless after such purchase we have unrestricted cash (net of all indebtedness for borrowed money, purchase money obligations, promissory notes or bonds) equal to at least two times the product obtained by multiplying the number of shares of Series B Preferred Stock outstanding at the time such dividend is paid by the liquidation preference. During the six-month periods ended June 30, 2016 and 2015, the Company did not purchase any shares of Common Stock under the Program. Since inception of the Program, the Company has purchased a total of 5,453,416 shares of Common Stock at an aggregate cost of approximately $7.3 million.

In addition, pursuant to the terms of the Company’s 2007 Plan, and certain procedures approved by the Compensation Committee of the Board of Directors, in connection with the exercise of stock options by certain of the Company’s employees, and the issuance of shares of Common Stock in settlement of vested restricted stock units, the Company may withhold shares in lieu of payment of the exercise price and/or the minimum amount of applicable withholding taxes then due. Through June 30, 2016, the Company had withheld an aggregate of 1,674,525 shares which have been recorded as treasury stock. In addition, the Company received an aggregate of 211,608 shares in treasury stock resulting from prior acquisitions.

Dividends

Beginning with the first quarter of 2016, the Company’s Board of Directors suspended the payment of a quarterly dividend and will continue to evaluate the uses of its cash in connection with planned investments in the business. During the three months ended June 30, 2015, the Company paid a quarterly cash dividend of $0.025 per share on its Common Stock and its Series B Preferred Stock on a converted common share basis. The dividend payment totaled approximately $968 thousand. When combined with the quarterly cash dividend paid during the three months ended March 31, 2015, year-to-date 2015 dividend payments totaled approximately $2.0 million.

LEGAL PROCEEDINGS

The Company is party to legal proceedings arising in the ordinary course of business or otherwise, none of which is deemed material.

NET LOSS PER SHARE OF COMMON STOCK

Basic net loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed using the weighted average number of common shares and potential common shares outstanding during the period, so long as the inclusion of potential common shares does not result in a lower net loss per share. Potential common shares consist of restricted stock units (using the treasury stock method), the incremental common shares issuable upon the exercise of stock options (using the treasury stock method), and the conversion of the Company’s convertible preferred stock (using the if-converted method). For the three months ended June 30, 2016 and 2015, approximately 1.2 million and 3.5 million unvested restricted stock units and vested and unvested options to purchase Common Stock, respectively, were excluded from the calculation, as their effect would result in a lower net loss per share. For the six months ended June 30, 2016 and 2015, approximately 1.0 million and 4.1 million unvested restricted stock units and vested and unvested options to purchase Common Stock, respectively, were excluded from the calculation, as their effect would result in a lower net loss per share.

The following table reconciles the numerator and denominator for the calculation.

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2016			2015			2016			2015
Basic and diluted net loss per share:
Numerator:
Net loss	$	(1,210,521	)	$	(671,260	)	$	(4,654,808	)	$	(1,648,072	)
Preferred stock cash dividends		-			96,424			-			192,848
Numerator for basic and diluted earnings per share
Net loss attributable to common stockholders	$	(1,210,521	)	$	(767,684	)	$	(4,654,808	)	$	(1,840,920	)
Denominator:
Weighted average basic and diluted shares outstanding		35,234,429			34,848,571			35,216,192			34,814,060

Basic and diluted net loss per share:
Net loss attributable to common stockholders	$	(0.03	)	$	(0.02	)	$	(0.13	)	$	(0.05	)

INCOME TAXES

Income tax expense for the three and six months ended June 30, 2016 was approximately $319 thousand and $624 thousand, respectively, and reflects an effective tax rate of –36% and –15%, respectively, as compared to approximately $255 thousand and $487 thousand, respectively, for the three and six months ended June 30, 2015, reflecting an effective tax rate of -61% and -42%, respectively. Income tax expense for the three and six months ended June 30, 2016 primarily relates to the recognition of $281 thousand and $562 thousand, respectively, of a deferred tax liability associated with goodwill that is tax deductible but constitutes an indefinite lived intangible asset for financial reporting purposes, as well as the recognition of $38 thousand and $62 thousand, respectively, of income tax expense in certain jurisdictions where there are no net operating losses available to offset taxable income. Income tax expense for the three and six months ended June 30, 2015 primarily relates to the recognition of $181 thousand and $361 thousand, respectively, of a deferred tax liability associated with goodwill that is tax deductible but constitutes an indefinite lived intangible asset for financial reporting purposes, as well as the recognition of $74 thousand and $126 thousand, respectively, of income tax expense in certain jurisdictions where there are no net operating losses available to offset taxable income.

The Company accounts for its income taxes in accordance with ASC 740-10, Income Taxes (“ASC 740-10”). Under ASC 740-10, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their tax bases. ASC 740-10 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax assets will not be realized based on all available positive and negative evidence. The Company had approximately $154 million of federal and state net operating loss carryforwards as of December 31, 2015, which results in deferred tax assets of approximately $69 million. As of June 30, 2016 and 2015, we maintain a full valuation allowance against our deferred tax assets due to our prior history of pre-tax losses and uncertainty about the timing of and ability to generate taxable income in the future and our assessment that the realization of the deferred tax assets did not meet the “more likely than not” criterion under ASC 740-10. We expect to continue to maintain a full valuation allowance until, or unless, we can sustain a level of profitability that demonstrates our ability to utilize these assets.

Subject to potential Section 382 limitations as discussed below, the federal losses are available to offset future taxable income through 2035 and expire from 2019 through 2035. Since the Company does business in various states and each state has its own rules with respect to the number of years losses may be carried forward, the state net operating loss carryforwards expire from 2016 through 2035. The net operating loss carryforward as of December 31, 2015 includes approximately $16 million related to windfall tax benefits for which a benefit would be recorded to additional paid in capital when realized. Based on operating results for the six months ended June 30, 2016 and six month projections, management expects to generate a tax loss in 2016 and no tax benefit has been recorded.

In accordance with Section 382 of the Internal Revenue Code, the ability to utilize the Company’s net operating loss carryforwards could be limited in the event of a change in ownership and as such a portion of the existing net operating loss carryforwards may be subject to limitation.

BUSINESS CONCENTRATIONS AND CREDIT RISK

Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents and restricted cash. The Company maintains all of its cash, cash equivalents and restricted cash in seven financial institutions, and performs periodic evaluations of the relative credit standing of these institutions. As of June 30, 2016, the Company’s cash, cash equivalents and restricted cash primarily consisted of money market funds and checking accounts.

For the three and six months ended June 30, 2016 and 2015, no individual client accounted for 10% or more of consolidated revenue. As of June 30, 2016 and December 31, 2015, no individual client accounted for more than 10% of our gross accounts receivable balance.

The Company’s customers are primarily concentrated in the United States and Europe, and we carry accounts receivable balances. The Company performs ongoing credit evaluations, generally does not require collateral, and establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of customers, historical trends and other information. To date, actual losses have been within management’s expectations.

10.

RESTRUCTURING AND OTHER CHARGES

During the three months ended March 31, 2016, the Company announced the resignation of the Company’s President and Chief Executive Officer, who was also a member of the Company’s Board of Directors. In connection with this resignation, the Company paid severance, will provide continuing medical coverage for 18 months, and incurred recruiting fees, resulting in restructuring and other charges of approximately $1.5 million.

The following table displays the activity of the restructuring reserve account during the six months ended June 30, 2016.

Total Charges	$	1,543,010
Payments To-Date		(1,507,542	)
Ending Balance	$	35,468

During the year ended December 31, 2012, the Company implemented a targeted reduction in force. Additionally, in assessing the ongoing needs of the organization, the Company elected to discontinue using certain software as a service, consulting and data providers, and elected to write-off certain previously capitalized software development projects. The actions were taken after a review of the Company’s cost structure with the goal of better aligning the cost structure with the Company’s revenue base. These restructuring efforts resulted in restructuring and other charges of approximately $3.4 million during the year ended December 31, 2012. Additionally, as a result of the Company’s acquisition of The Deal, LLC (“The Deal”) in September 2012, the Company discontinued the use of The Deal’s office space and implemented a reduction in force to eliminate redundant positions, resulting in restructuring and other charges of approximately $3.5 million during the year ended December 31, 2012. In August 2015, the Company received a one year notice of termination under which the landlord elected to terminate The Deal’s office space lease. As a result, the Company is no longer obligated to fulfill the original full lease term. As such, the Company recorded an adjustment to its restructuring reserve totaling approximately $1.2 million. Collectively, these activities are referred to as the “2012 Restructuring”.

The following table displays the activity of the 2012 Restructuring reserve account during the six months ended June 30, 2016 and 2015. The remaining balance as of June 30, 2016 relates to the lease for The Deal’s office space, which expires in August 2016.

	For the Six Months Ended June 30,
	2016			2015
Beginning balance	$	99,309		$	1,384,736
Adjustment to prior estimate		-			16,260
(Payments)/sublease income, net		(7,517	)		(74,240	)
Ending balance	$	91,792		$	1,326,756

11.

OTHER LIABILITIES

Other liabilities consist of the following:

	June 30, 2016		December 31, 2015
Acquisition contingent earn-out	$	2,656,655	$	2,590,339
Deferred rent		2,147,680		1,870,583
Deferred revenue		762,340		897,453
Other		49,664		2,092
Total other liabilities	$	5,616,339	$	5,360,467

12.

STATE AND MUNICIPAL SALES TAX

In accordance with generally accepted accounting principles, we make a provision for a liability for taxes when it is both probable that a liability has been incurred and the amount of the liability can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case. For a period of time, we did not collect or remit state or municipal sales tax on the charges to our customers for our services in certain states which may be required, except that we historically complied with New York sales tax. As such, we are currently conducting a review of these matters, and we have a reserve of $1.4 million included within accrued expenses as of June 30, 2016 as our best estimate of the potential tax exposure for any retroactive assessment.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Special Note Regarding Forward-Looking Statements – all statements contained in this quarterly report on Form 10-Q (the “Report”) that are not descriptions of historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are inherently subject to risks and uncertainties, and actual results could differ materially from those reflected in the forward-looking statements due to a number of factors, which include, but are not limited to, the factors set forth under the heading “Risk Factors” and elsewhere in this Report, and in other documents we file with the Securities and Exchange Commission from time to time, including, without limitation, the Company’s annual report on Form 10-K for the year ended December 31, 2015 (the “2015 Form 10-K”). Certain forward-looking statements may be identified by terms such as “may,” “will,” “should,” “could,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “forecasts,” “potential,” or “continue” or similar terms or the negative of these terms. All statements relating to our plans, strategies and objectives are deemed forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. The forward-looking statements speak only as of the date of the filing of this Report; we have no obligation to update these forward-looking statements, whether as a result of new information, future developments or otherwise.

The following discussion and analysis should be read in conjunction with the Company’s unaudited condensed consolidated financial statements and notes thereto.

Overview

We report revenue in two categories: business to business and business to consumer. Business to business revenue is comprised of subscriptions, licenses and fees for access to director and officer profiles, relationship capital management services, and transactional information pertaining to the mergers and acquisitions environment, rate services, events and other miscellaneous revenue. Business to consumer revenue is comprised of subscriptions, licenses and fees for access to securities investment information and stock market commentary, fees charged for the placement of advertising and sponsorships within TheStreet and its affiliated properties, and other miscellaneous revenue.

Critical Accounting Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the condensed consolidated financial statements in the period they are deemed to be necessary. Significant estimates made in the accompanying condensed consolidated financial statements include, but are not limited to, the following:

useful lives of intangible assets,

useful lives of fixed assets,

the carrying value of goodwill, intangible assets and marketable securities,

allowances for doubtful accounts and deferred tax assets,

accrued expense estimates,

reserves for estimated tax liabilities,

certain estimates and assumptions used in the calculation of the fair value of equity compensation issued to employees,

restructuring charges, and

the calculation of a contingent earn-out payment from the acquisition of Management Diagnostics Limited.

We perform annual impairment tests of goodwill and indefinite-lived intangible assets as of October 1 each year and between annual tests whenever circumstances arise that indicate a possible impairment might exist.

In conducting our 2015 annual goodwill impairment test with the assistance of our independent appraisal firm, we used the market approach for the valuation of our common stock and the income approach for our preferred shares. We also performed an income approach by using the discounted cash flow (“DCF”) method to confirm the reasonableness of the results of the common stock market approach. Based on these approaches, we determined the Company’s business enterprise value (common equity plus preferred equity) exceeded its book value. The fair value of our outstanding preferred shares requires significant judgments, including the estimation of the amount of time until a liquidation event occurs as well as an appropriate cash flow discount rate. Further, in assigning a fair value to our preferred stock, we also considered that the preferred shareholders are entitled to receive a $55 million liquidation preference upon liquidation or dissolution of the Company or upon any change of control event. Additionally, the holders of the preferred shares are entitled to receive dividends and to vote as a single class together with the holders of the common stock on an as-converted basis and, provided certain preferred share ownership levels are maintained, are entitled to representation on our board of directors and may unilaterally block issuance of certain classes of capital stock, the purchase or redemption of certain classes of capital stock, including common stock (with certain exceptions) and any increases in the per-share amount of dividends payable to the holders of the common stock.

In conducting our 2015 annual indefinite-lived intangible asset impairment test with the assistance of our independent appraisal firm, we determined its fair value using the relief-from-royalty method. This analysis calculated the fair value as the present value of the future expenses avoided by owning the indefinite-lived trade name rather than having to license its use. We selected an appropriate royalty rate by reviewing licensing transactions for similar assets between service businesses, with a focus on companies that operate in industries similar to ours. Based upon the analysis, we concluded that the book value of the indefinite-lived trade name was not impaired as of the October 1, 2015 valuation date.

A decrease in the price of our common stock, or changes in the estimated value of our preferred shares, could materially affect the determination of the fair value and could result in an impairment charge to reduce the carrying value of goodwill, which could be material to our financial position and results of operations.

A summary of our critical accounting policies and estimates can be found in our 2015 Form 10-K.

Contingencies

Accounting for contingencies, including those matters described in the Commitments and Contingencies section of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company’s 2015 Form 10-K, is highly subjective and requires the use of judgments and estimates in assessing their magnitude and likely outcome. In many cases, the outcomes of such matters will be determined by third parties, including governmental or judicial bodies. The provisions made in the consolidated financial statements, as well as the related disclosures, represent management’s best estimate of the then current status of such matters and their potential outcome based on a review of the facts and in consultation with outside legal counsel where deemed appropriate. The Company would record a material loss contingency in its consolidated financial statements if the loss is both probable of occurring and reasonably estimated. The Company regularly reviews contingencies and as new information becomes available may, in the future, adjust its associated liabilities.

Results of Operations

Comparison of Three Months Ended June 30, 2016 and June 30, 2015

Net Revenue

	For the Three Months Ended June 30,
Net revenue:	2016		Percent of Total Revenue			2015		Percent of Total Revenue			Percent Change
Business to business	$	7,531,159		46	%	$	7,267,562		42	%		4	%
Business to consumer		8,761,368		54	%		9,869,357		58	%		-11	%
Total net revenue	$	16,292,527		100	%	$	17,136,919		100	%		-5	%

Business to business. Business to business revenue is comprised of subscriptions, licenses and fees for access to director and officer profiles, relationship capital management services, and transactional information pertaining to the mergers and acquisitions environment, rate services, events and other miscellaneous revenue.

Business to business revenue increased by $264 thousand, or 4%, over the periods. The increase was the result of an event held by The Deal that resulted in revenue totaling approximately $332 thousand. There were no events held during the same period last year. In addition, we experienced a 3% increase in revenue from our BoardEx product, resulting from a 9% increase in the weighted-average number of subscriptions partially offset by a 6% decrease in the average revenue recognized per subscription. These increases were partially offset by a 5% decrease in revenue from our RateWatch subsidiary resulting from a 5% decrease in the weighted-average number of subscriptions, and a de minimis decrease in revenue from our The Deal product. Revenue from our BoardEx product was also negatively impacted by the strengthening of the U.S. Dollar in relation to the British Pound.

Business to consumer. Business to consumer revenue is comprised of subscriptions, licenses and fees for access to securities investment information and stock market commentary, fees charged for the placement of advertising and sponsorships within TheStreet and its affiliated properties, and other miscellaneous revenue.

Business to consumer revenue decreased by approximately $1.1 million, or 11%, over the periods. The decrease was primarily related to a 17% decline in revenue related to TheStreet newsletter products resulting from a 14% decrease in the weighted-average number of subscriptions combined with a 3% decrease in the average revenue recognized per subscription.

Operating Expense

	For the Three Months Ended June 30,
Operating expense:	2016		Percent of Total Revenue			2015		Percent of Total Revenue			Percent Change
Cost of services	$	8,144,877		50	%	$	8,585,978		50	%		-5	%
Sales and marketing		4,013,161		25	%		4,113,677		24	%		-2	%
General and administrative		3,879,391		24	%		3,683,619		21	%		5	%
Depreciation and amortization		972,314		6	%		1,137,442		7	%		-15	%
Restructuring and other charges		162,958		1	%		-		-			N/A
Total operating expense	$	17,172,701				$	17,520,716					-2	%

Cost of services. Cost of services expense consists primarily of compensation, benefits, outside contributor costs related to the creation of our content, licensed data and the technology required to publish our content.

Cost of services expense decreased by approximately $441 thousand, or 5%, over the periods. The decrease was primarily the result of reduced consulting, data, recruiting, hosting and internet access costs, the aggregate of which decreased by approximately $568 thousand. These cost decreases were partially offset by costs resulting from an event held by The Deal totaling approximately $147 thousand. There were no events held during the same period last year.

Sales and marketing. Sales and marketing expense consists primarily of compensation expense for the direct sales force, marketing services, and customer service departments, advertising and promotion expenses and credit card processing fees.

Sales and marketing expense decreased by approximately $101 thousand, or 2%, over the periods. The decrease was primarily the result of reduced advertising serving costs, credit card fees, and travel and entertainment expenses, the aggregate of which decreased by approximately $202 thousand. These cost savings were partially offset by higher public relations costs which increased by approximately $77 thousand.

General and administrative. General and administrative expense consists primarily of compensation for general management, finance, technology, legal and administrative personnel, occupancy costs, professional fees, insurance and other office expenses.

General and administrative expense increased by approximately $196 thousand, or 5%, over the periods. The increase was primarily the result of higher professional and consulting fees, which increased by approximately $397 thousand resulting from increased reliance on outside counsel during a period of turnover in our internal General Counsel position, accounting fees related to the ongoing sales tax review and the transition period subsequent to the resignation in February of the Company’s CEO. This increase was partially offset by decreased compensation and related fees, which decreased by approximately $188 thousand resulting from the absence of the Company’s CEO and General Counsel.

Depreciation and amortization. Depreciation and amortization expense decreased by approximately $165 thousand, or 15%, over the periods. The decrease was the result of increased expense in the prior year period resulting from accelerating and fully depreciating the remaining book value of fixed assets acquired from The Deal.

Restructuring and other charges. During the three months ended March 31, 2016, the Company announced the resignation of the Company’s President and Chief Executive Officer, who was also a member of the Company’s Board of Directors. In connection with this resignation, the Company incurred recruiting fees, resulting in restructuring and other charges of approximately $163 thousand during the three months ended June 30, 2016.

Net Interest Expense

	For the Three Months Ended June 30,				Percent
	2016		2015		Change
Net interest expense	$	11,599	$	32,872		-65	%

Net interest expense decreased by approximately $21 thousand, or 65%, over the periods. The change was the result of higher interest income resulting from increased interest rates combined with reduced interest expense related to the accretion of a contingent earn-out that was recorded in connection with the acquisition of Management Diagnostics Limited.

Provision for Income Taxes

	For the Three Months Ended June 30,				Percent
	2016		2015		Change
Provision for income taxes	$	318,748	$	254,591		25	%

Income tax expense for the three months ended June 30, 2016 was $319 thousand, as compared to $255 thousand for the three months ended June 30, 2015, and reflects an effective tax rate of -36% and -61%, respectively. Income tax expense for the three months ended June 30, 2016 and 2015 primarily relates to the recognition of $281 thousand and $181 thousand, respectively, of a deferred tax liability associated with goodwill that is tax deductible but constitutes an indefinite lived intangible asset for financial reporting purposes, as well as the recognition of $38 thousand and $74 thousand, respectively, of income tax expense in certain jurisdictions where there are no net operating losses available to offset taxable income.

Net Loss Attributable to Common Stockholders

Net loss attributable to common stockholders for the three months ended June 30, 2016 totaled approximately $1.2 million, or $0.03 per basic and diluted share, compared to net loss attributable to common stockholders totaling approximately $768 thousand, or $0.02 per basic and diluted share, for the three months ended June 30, 2015.

Comparison of Six Months Ended June 30, 2016 and June 30, 2015

Net Revenue

	For the Six Months Ended June 30,
Net revenue:	2016		Percent of Total Revenue			2015		Percent of Total Revenue			Percent Change
Business to business	$	14,663,959		45	%	$	14,401,187		42	%		2	%
Business to consumer		17,698,000		55	%		19,625,781		58	%		-10	%
Total net revenue	$	32,361,959		100	%	$	34,026,968		100	%		-5	%

Business to Business. Business to business revenue increased by $263 thousand, or 2%, over the periods. The increase was the result of an event held by The Deal that resulted in revenue totaling approximately $332 thousand. There were no events held during the same period last year. In addition, we experienced a de minimis increase in revenue from our BoardEx product. These increases were partially offset by a 2% decrease in revenue from our RateWatch subsidiary resulting from a 6% decrease in the weighted-average number of subscriptions which was partially offset by a 4% increase in the average revenue recognized per subscription, and a de minimis decrease from our The Deal product. Revenue from our BoardEx product was also negatively impacted by the strengthening of the U.S. Dollar in relation to the British Pound.

Business to Consumer. Business to consumer revenue decreased by approximately $1.9 million, or 10%, over the periods. The decrease was primarily related to a 15% decline in revenue related to TheStreet newsletter products resulting from a 12% decrease in the weighted-average number of subscriptions combined with a 3% decrease in the average revenue recognized per subscription. This decrease was partially offset by a 6% increase in advertising revenue resulting from increased demand from both non-repeat and repeat advertisers.

Operating Expense

	For the Six Months Ended June 30,
Operating expense:	2016		Percent of Total Revenue			2015		Percent of Total Revenue			Percent Change
Cost of services	$	16,031,433		50	%	$	16,909,669		50	%		-5	%
Sales and marketing		7,897,587		24	%		8,624,766		25	%		-8	%
General and administrative		8,993,297		28	%		7,471,490		22	%		20	%
Depreciation and amortization		1,915,470		6	%		2,115,678		6	%		-9	%
Restructuring and other charges		1,543,010		5	%		-		-			N/A
Total operating expense	$	36,380,797				$	35,121,603					4	%

Cost of services. Cost of services expense decreased by approximately $878 thousand, or 5%, over the periods. The decrease was primarily the result of reduced consulting, fees paid to outside contributors, data, recruiting, travel and entertainment, hosting, internet and compensation costs, the aggregate of which decreased by approximately $1.2 million. These cost decreases were partially offset by costs resulting from an event held by The Deal totaling approximately $147 thousand. There were no events held during the same period last year. Additionally, revenue share payments made to certain distribution partners increased by approximately $122 thousand.

Sales and marketing. Sales and marketing expense decreased by approximately $727 thousand, or 8%, over the periods. The decrease was primarily the result of reduced compensation and related costs primarily related to commission and bonus payments, advertising and promotion, advertising serving, credit card processing and travel and entertainment costs, the aggregate of which decreased by approximately $829 thousand. These cost savings were partially offset by higher public relations costs which increased by approximately $131 thousand.

General and administrative. General and administrative expense increased by approximately $1.5 million, or 20%, over the periods. The increase was primarily the result of a $1.4 million provision recorded as an estimate for state and municipal sales tax not collected on sales to our customers or remitted to various states and municipalities. Additional cost increases included higher professional, consulting and recruiting fees, the aggregate of which increased by approximately $924 thousand. These cost increases were partially offset by a reduction in compensation and related costs primarily resulting from the resignation in February of the Company’s CEO, lower expenses resulting from more favorable exchange rates due to the strengthening US Dollar, and reduced bad debt expense, the aggregate of which decreased by approximately $706 thousand.

Depreciation and amortization. Depreciation and amortization expense decreased by approximately $200 thousand, or 9%, over the periods. The decrease was the result of increased expense in the prior year period resulting from accelerating and fully depreciating the remaining book value of fixed assets acquired from The Deal.

Restructuring and other charges. During the three months ended March 31, 2016, the Company announced the resignation of the Company’s President and Chief Executive Officer, who was also a member of the Company’s Board of Directors. In connection with this resignation, the Company paid severance, will provide continuing medical coverage for 18 months, and incurred recruiting fees, resulting in restructuring and other charges of approximately $1.5 million during the six months ended June 30, 2016.

Net Interest Expense

	For the Six Months Ended June 30,				Percent
	2016		2015		Change
Net interest expense	$	12,094	$	66,405		-82	%

Net interest expense decreased by approximately $54 thousand, or 82%, over the periods. The change was the result of higher interest income resulting from increased interest rates combined with reduced interest expense related to the accretion of a contingent earn-out that was recorded in connection with the acquisition of Management Diagnostics Limited.

Provision for Income Taxes

	For the Six Months Ended June 30,				Percent
	2016		2015		Change
Provision for income taxes	$	623,876	$	487,032		28	%

Income tax expense for the six months ended June 30, 2016 was $624 thousand, as compared to $487 thousand for the six months ended June 30, 2015, and reflects an effective tax rate of -15% and -42%, respectively. Income tax expense for the six months ended June 30, 2016 and 2015 primarily relates to the recognition of $562 thousand and $361 thousand, respectively, of a deferred tax liability associated with goodwill that is tax deductible but constitutes an indefinite lived intangible asset for financial reporting purposes, as well as the recognition of $62 thousand and $126 thousand, respectively, of income tax expense in certain jurisdictions where there are no net operating losses available to offset taxable income.

Net Loss Attributable to Common Stockholders

Net loss attributable to common stockholders for the six months ended June 30, 2016 totaled approximately $4.7 million, or $0.13 per basic and diluted share, compared to net loss attributable to common stockholders totaling approximately $1.8 million, or $0.05 per basic and diluted share, for the six months ended June 30, 2015.

Liquidity and Capital Resources

Our current assets as of June 30, 2016 totaled approximately $34.0 million and consisted primarily of cash and cash equivalents and accounts receivable. Our current liabilities as of June 30, 2016 totaled approximately $35.1 million and consisted primarily of deferred revenue, accrued expenses and accounts payable. With respect to many of our annual newsletter subscription products, we offer the ability to receive a refund during the first 30 days, but none thereafter. We do not as a general matter offer refunds for advertising that has run.

We generally have invested in money market funds and other short-term, investment grade instruments that are highly liquid and of high quality, with the intent that such funds are available for sale for acquisition and operating purposes. As of June 30, 2016, our cash, cash equivalents, marketable securities and restricted cash totaled approximately $29.3 million, representing 30% of total assets. Our cash, cash equivalents and restricted cash primarily consisted of money market funds and checking accounts. Our marketable securities consisted of two municipal auction rate securities issued by the District of Columbia with a par value of approximately $1.9 million and a fair value of approximately $1.5 million that mature in the year 2038. Our total cash-related position is as follows:

	June 30, 2016		December 31, 2015
Cash and cash equivalents	$	27,165,222	$	28,445,416
Marketable securities		1,470,000		1,590,000
Current and noncurrent restricted cash		661,250		661,250
Total cash and cash equivalents, marketable securities and current and noncurrent restricted cash	$	29,296,472	$	30,696,666

Financial instruments that subject us to concentrations of credit risk consist primarily of cash, cash equivalents and restricted cash. We maintain all of our cash, cash equivalents and restricted cash in seven financial institutions, and we perform periodic evaluations of the relative credit standing of these institutions.

Net cash provided by operating activities for the six-month period ended June 30, 2016 totaled approximately $708 thousand, as compared to net cash provided by operating activities totaling approximately $757 thousand for the six-month period ended June 30, 2015. The decrease in net cash provided by operating activities was primarily the result of the increased net loss partially offset by the change in the balance of accrued expenses over the periods.

Net cash used in investing activities for the six-month period ended June 30, 2016 totaled approximately $1.6 million, as compared to net cash used in investing activities totaling approximately $36 thousand for the six-month period ended June 30, 2015. The reduction in cash flows from investing activities was primarily the result of the maturity of a marketable security during the three months ended March 31, 2015 partially offset by decreased capital expenditures.

Net cash used in financing activities for the six-month period ended June 30, 2016 totaled approximately $17 thousand, as compared to net cash used in financing activities totaling approximately $1.8 million for the six-month period ended June 30, 2015. The decrease in net cash used in financing activities was primarily the result of the suspension of cash dividend payments during the six months ended June 30, 2016.

We have a total of approximately $661 thousand of cash that serves as collateral for outstanding letters of credit, which cash is classified as restricted. The letters of credit serve as security deposits for office space in New York City.

We believe that our current cash and cash equivalents will be sufficient to meet our anticipated cash needs for at least the next 12 months. We are committed to cash expenditures in an aggregate amount of approximately $5.3 million through June 30, 2017, primarily related to operating leases and minimum payments due under an employment agreement.

As of December 31, 2015, we had approximately $154 million of federal and state net operating loss carryforwards, which results in deferred tax assets of approximately $69 million. Based on operating results for the six months ended June 30, 2016 and six month projections, management expects to generate a tax loss in 2016 and no tax benefit has been recorded. We maintain a full valuation allowance against our deferred tax assets as management concluded that it is more likely than not that we will not realize the benefit of our deferred tax assets by generating sufficient taxable income in future years. We expect to continue to maintain a full valuation allowance until, or unless, we can sustain a level of profitability that demonstrates our ability to utilize these assets.

In accordance with Section 382 of the Internal Revenue Code, the ability to utilize our net operating loss carryforwards could be limited in the event of a change in ownership and as such a portion of the existing net operating loss carryforwards may be subject to limitation.

Treasury Stock

Pursuant to the terms of the Company’s 2007 Performance Incentive Plan, and certain procedures adopted by the Compensation Committee of our Board of Directors, in connection with the exercise of stock options by certain of our employees, and the issuance of shares of Common Stock in settlement of vested restricted stock units, we may withhold shares in lieu of payment of the exercise price and/or the minimum amount of applicable withholding taxes then due. Through June 30, 2016, we have withheld an aggregate of 1,674,525 shares which have been recorded as treasury stock. In addition, we received an aggregate of 211,608 shares in treasury stock resulting from prior acquisitions.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

We believe that our market risk exposures are immaterial as we do not have instruments for trading purposes, and reasonable possible near-term changes in market rates or prices will not result in material near-term losses in earnings, material changes in fair values or cash flows for all instruments.

We maintain all of our cash, cash equivalents and restricted cash in seven financial institutions, and we perform periodic evaluations of the relative credit standing of these institutions. However, no assurances can be given that the third party institutions will retain acceptable credit ratings or investment practices.

Following our acquisition of MDL, we have greater exposure to fluctuations in foreign currency exchange rates, in particular with respect to the British Pound. Accordingly, our results of operations and cash flows are subject to fluctuations due to changes in exchange rates. Fluctuations in currency exchange rates could result in translation gains and losses when we consolidate our results and harm our business. Because we conduct a growing portion of our business outside the U.S. but report our results in U.S. Dollars, we face exposure to adverse movements in currency exchange rates, which may cause our revenue and operating results to differ materially from expectations. For example, if the U.S. Dollar strengthens relative to the British Pound, our non-U.S. revenue and operating results would be adversely affected when translated into U.S. Dollars. Conversely, a decline in the U.S. Dollar relative to the British Pound would increase our non-U.S. revenue and operating results when translated into U.S. Dollars. We do not engage in currency hedging or have any positions in derivative instruments to hedge our currency risk.

The effect of a 10% adverse change in exchange rates would have resulted in an approximate $487 thousand reduction to revenue for the six months ended June 30, 2016, with an offsetting reduction to operating expenses of approximately $407 thousand, and a decrease in the value of the Company’s assets and liabilities as of June 30, 2016 of approximately $2.7 million and $517 thousand, respectively.

Item 4.

Controls and Procedures.

Evaluation of Disclosure Controls and Procedures: The Company carried out an evaluation, as required by Rule 13a-15(b) under the Exchange Act, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act, as of the end of the period covered by this report (the “Evaluation Date”). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting: The Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, has determined that during the period covered by this report, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, these internal controls over financial reporting.

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings.

The Company is party to legal proceedings arising in the ordinary course of business or otherwise, none of which is deemed material.

Item 1A.

Risk Factors.

In addition to the other information set forth in this report, you should carefully consider the information set forth in Part I, Item 1A. “Risk Factors” in our Form 10-K for the year ended December 31, 2015, which we filed with the Securities and Exchange Commission on March 9, 2016.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

Not applicable.

Item 3.

Defaults Upon Senior Securities.

Not applicable.

Item 4.

Mine Safety Disclosures.

Not applicable.

Item 5.

Other Information.

Not applicable.

Item 6.

Exhibits.

The following exhibits are filed herewith or are incorporated by reference to exhibits previously filed with the Securities and Exchange Commission:

Exhibit		Incorporated by Reference
Number	Description	Form	File No.	Exhibit	Filing Date
3.1	Amended and Restated Bylaws of the Company	8-K	000-25779	3.1	June 28, 2016
10.1+	Employment Offer Letter dated as of June 9, 2016 between the Company David Callaway
10.2+	Severance Agreement dated as of July 6, 2016 between the Company and David Callaway
10.3+	Agreement for Grant of Non-Qualified Stock Option dated as of July 6, 2016 between the Company and David Callaway
31.1	Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certifications of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certifications of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Extension Calculation Document
101.DEF*	XBRL Taxonomy Extension Definitions Document
101.LAB*	XBRL Taxonomy Extension Labels Document
101.PRE*	XBRL Taxonomy Extension Presentation Document

Indicates management contract or compensatory plan or arrangement.

Pursuant to Rule 406T of Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

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, INC.

Date: August 3, 2016	By:	/s/ David Callaway
		Name:	David Callaway
		Title:	President & Chief Executive Officer
			(principal executive officer)

Date: August 3, 2016	By:	/s/ Eric F. Lundberg
		Name:	Eric F. Lundberg
		Title:	Chief Financial Officer (principal financial officer)

EXHIBIT INDEX

The following exhibits are filed herewith or are incorporated by reference to exhibits previously filed with the Securities and Exchange Commission:

Exhibit		Incorporated by Reference
Number	Description	Form	File No.	Exhibit	Filing Date
3.1	Amended and Restated Bylaws of the Company	8-K	000-25779	3.1	June 28, 2016
10.1+	Employment Offer Letter dated as of June 6, 2016 between the Company David Callaway
10.2+	Severance Agreement dated as of July 6, 2016 between the Company and David Callaway
10.3+	Agreement for Grant of Non-Qualified Stock Option dated as of July 6, 2016 between the Company and David Callaway
31.1	Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certifications of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certifications of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Extension Calculation Document
101.DEF*	XBRL Taxonomy Extension Definitions Document
101.LAB*	XBRL Taxonomy Extension Labels Document
101.PRE*	XBRL Taxonomy Extension Presentation Document

	+	Indicates management contract or compensatory plan or arrangement

	*	Pursuant to Rule 406T of Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

THESTREET, INC. - FORM 10-Q - August 3, 2016

Attached files

THESTREET, INC. Reports