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 March 31, 2001
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 incorporation
Identification Number) or organization)
14 Wall Street
New York, New York 10005
-------------------------
(Address of principal executive offices)
(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 .
- ------- -----
Number of shares of Common Stock outstanding at May 10, 2001:
Common Stock, par value $0.01 per share 27,792,399
- ----------------------------------------------- ----------
(Class) (Number of Shares)
TheStreet.com, Inc.
Form 10-Q
For the Quarter Ended March 31, 2001
Part I - FINANCIAL INFORMATION................................................1
Item 1. Condensed Consolidated Financial Statements.................1
Condensed Consolidated Balance Sheets as of March 31,
2001 and December 31, 2000..................................1
Condensed Consolidated Statements of Operations for the
Three Months Ended March 31, 2001 and 2000..................2
Condensed Consolidated Statements of Cash Flows for
the Three Months Ended March 31, 2001 and 2000..............3
Notes to Condensed Consolidated Financial Statements........4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................6
Item 3. Quantitative and Qualitative Disclosures About
Market Risk................................................11
PART II - OTHER INFORMATION..................................................22
Item 1. Legal Proceedings..........................................22
Item 2. Changes in Securities and Use of Proceeds..................22
Item 3. Defaults Upon Senior Securities............................22
Item 4. Submission of Matters to a Vote of Security Holders........23
Item 5. Other Information..........................................23
Item 6. Exhibits and Reports on Form 8-K...........................23
SIGNATURES...................................................................24
ii
Part I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
THESTREET.COM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2001 AND DECEMBER 31, 2000
March 31, 2001 December 31, 2000
-----------------------------------------------------
ASSETS (unaudited)
Current Assets:
Cash and cash equivalents $ 56,988,592 $ 46,339,561
Short-term investments 1,493,385 25,820,764
Accounts receivable, net of allowance for doubtful
accounts of $532,339 as of March 31, 2001 and
$749,159 as of December 31, 2000 1,969,928 4,009,132
Other receivables 1,291,765 707,266
Receivable from related party 100,000 160,000
Prepaid expenses and other current assets 3,518,193 2,881,815
Net current assets of discontinued operations 12,852 1,841,980
-----------------------------------------------------
Total current assets 65,374,715 81,760,518
Property and equipment, net of accumulated
depreciation and amortization of $3,998,993
as of March 31, 2001 and $3,165,598
as of December 31, 2000 9,893,842 10,278,567
Other assets 799,870 779,559
Goodwill and intangibles, net of accumulated
amortization of $483,367 and $50,000 as of
March 31, 2001 and December 31, 2000, respectively. 4,715,781 4,913,386
Long-term investment 2,250,000 2,250,000
Non-current assets of discontinued operations - 426,218
-----------------------------------------------------
Total assets $ 83,034,208 $ 100,408,248
=====================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,249,443 $ 3,118,661
Accrued expenses 5,170,382 12,266,857
Restructuring reserve 5,430,621 6,485,125
Deferred revenue 4,308,048 3,896,884
Other current liabilities 406,516 1,264,607
-----------------------------------------------------
Total current liabilities
17,565,010 27,032,134
Deferred rent 1,933,281 1,995,645
-----------------------------------------------------
Total liabilities 19,498,291 29,027,779
-----------------------------------------------------
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; 28,180,151 shares issued and 27,785,151
shares outstanding at March 31, 2001, and 28,074,483
shares issued and outstanding at December 31, 2000 281,802 280,745
Additional paid-in capital 182,787,998 182,888,343
Deferred compensation (1,655,394) (2,149,572)
Accumulated deficit (116,841,614) (109,639,047)
Treasury stock at cost; 395,000 shares (1,036,875) -
-----------------------------------------------------
Total stockholders' equity 63,535,917 71,380,469
-----------------------------------------------------
Total liabilities and stockholders' equity $ 83,034,208 $ 100,408,248
=====================================================
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 MARCH 31, 2001 AND 2000
For the Three Months Ended
March 31,
---------------------------------
2001 2000
---- ----
(Unaudited)
Net revenues:
Advertising & e-commerce revenues $ 1,943,465 $ 2,623,355
Subscription revenues 2,038,289 2,037,486
Other revenues 409,278 730,476
---------------------------------
Total net revenues 4,391,032 5,391,317
Cost of revenues 2,979,004 3,376,147
---------------------------------
Gross profit 1,412,028 2,015,170
---------------------------------
Operating expenses:
Product development expenses 2,717,833 3,971,954
Sales and marketing expenses 3,513,654 5,440,005
General and administrative expenses 3,065,814 3,940,827
Noncash compensation expense 229,482 544,729
Restructuring expenses (524,124) -
Severance expense 551,940 -
---------------------------------
Total operating expenses 9,554,599 13,897,515
---------------------------------
Loss from continuing operations (8,142,571) (11,882,345)
Interest income 940,004 1,536,340
---------------------------------
Net loss from continuing operations (7,202,567) (10,346,005)
Loss from discontinued operations - (3,536,793)
---------------------------------
Net loss $(7,202,567) $ (13,882,798)
=================================
Net loss per share - basic and diluted:
Continuing operations $ (0.26) $ (0.41)
Discontinued operations - (0.14)
---------------------------------
Net loss $ (0.26) $ (0.55)
=================================
Weighted average basic and diluted shares outstanding
27,856,293 25,291,042
=================================
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 Three Months Ended March 31,
----------------------------------------------
2001 2000
----------------------------------------------
Cash Flows from Operating Activities:
Net Loss $ (7,202,567) $ (13,882,798)
Adjustments to reconcile net loss to cash used in operating
activities, net of acquired businesses:
Noncash compensation expense 229,482 544,729
Noncash advertising expense - 183,308
Provision for doubtful accounts 71,602 220,000
Minority interest - (1,727,164)
Depreciation and amortization 1,262,467 619,079
Decrease (Increase) in accounts receivable 1,967,602 (542,019)
(Increase) decrease in other receivables (271,999) 1,830,193
Decrease in receivable from related party 60,000 -
Increase in prepaid expenses and other current assets (636,378) (66,631)
Decrease (increase) in net current assets of discontinued
operations 1,829,128 (939,657)
Increase in other assets (78,380) (30,430)
Decrease (increase) in net non-current assets of
discontinued operations 426,218 (1,427,518)
(Decrease) increase in accounts payable and accrued expenses (2,485,132) 1,015,880
Decrease in restructuring reserve (1,054,504) -
Increase in deferred revenue 250,809 884,116
(Decrease) increase in other current liabilities (858,091) 634,036
Increase in deferred rent - 70,000
----------------------------------------------
Net cash used in operating activities (6,489,743) (12,614,876)
----------------------------------------------
Cash Flows from Investing Activities:
Purchase of short-term investments (172,621) (18,788,450)
Sale of short-term investments 24,500,000 1,969,400
Loan to Business Net Online Ltd. (312,500) -
Capital expenditures (448,670) (1,432,080)
Acquisition of business (5,400,000) -
----------------------------------------------
Net cash provided by (used in) investing activities 18,166,209 (18,251,130)
----------------------------------------------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock 9,440 96,117
Purchase of treasury stock (1,036,875) -
Proceeds from sale / leaseback - 2,388,239
----------------------------------------------
Net cash (used in) provided by financing activities (1,027,435) 2,484,356
----------------------------------------------
Effect of exchange rate on changes in cash - (174,932)
----------------------------------------------
Net increase (decrease) in cash 10,649,031 (28,556,582)
Cash and cash equivalents, beginning of period 46,339,561 108,239,811
----------------------------------------------
Cash and cash equivalents, end of period $ 56,988,592 $ 79,683,229
==============================================
Supplemental disclosures of cash flow Information:
Cash paid during the period for:
Equipment acquired under capital leases $ - $ 2,388,239
Issuance of common stock - acquisition of business $ 155,968 $ -
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 is a leading multimedia provider of original,
timely, insightful and trustworthy financial commentary, analysis and news.
Our content is available across diverse product offerings, including the
Internet, print media, books and conferences. Our staff of more than 50
professional reporters and editors, together with approximately 36 outside
contributors, produce more than 100 original news, analysis and commentary
pieces each business day that are aimed at helping readers of our web sites
and other products make informed investment decisions.
We have developed a loyal audience of investors at various
experience levels who turn to our product offerings for all their financial
and investing information needs. In addition, we have important strategic
relationships with leading companies in the media, technology and financial
services sectors that also help us create brand awareness and increase
subscription and advertising revenues.
Basis of Presentation
The information presented as of March 31, 2001 and 2000, and for
the three month periods then ended, is unaudited, but in the opinion of
management of TheStreet.com, the accompanying unaudited financial
statements contain all adjustments (consisting only of normal recurring
adjustments) which TheStreet.com considers necessary for the fair
presentation of its financial position as of March 31, 2001, the results of
its operations for the three-month periods ended March 31, 2001 and 2000,
and its cash flows for the three-month periods ended March 31, 2001 and
2000. The financial statements included herein have been prepared in
accordance with generally accepted accounting principles and the
instructions to Form 10-Q. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted. These financial statements should be read in
conjunction with TheStreet.com's audited financial statements and
accompanying notes for the year ended December 31, 2000, included in
TheStreet.com's Annual Report on Form 10-K as filed with the Securities and
Exchange Commission.
The consolidated financial statements include the accounts of
TheStreet.com, Inc. and our subsidiary TheStreet.com (UK) Limited, whose
operations were discontinued in November 2000. All intercompany balances
and transactions have been eliminated in consolidation.
Results for the interim period are not necessarily indicative of
results that may be expected for the entire year.
2. NET LOSS PER SHARE OF COMMON STOCK
TheStreet.com computes net loss per share of common stock in
accordance with Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS No. 128"). Under the provisions
4
of SFAS No. 128 basic net loss per share ("Basic EPS") is computed by
dividing net loss by the weighted average number of shares of common stock
outstanding.
3. RESTRUCTURING
During the year ended December 31, 2000, we recorded restructuring
expenses of $17,575,522. These restructuring charges were taken to align
our cost structure with changing market conditions and decreased dependence
on the advertising market to create a more flexible and efficient
organization. The plan resulted in approximately a 20% headcount reduction
throughout the organization.
The restructuring charges consisted of the following:
Expense for year ended Payments and Accrual at
December 31, 2000 writeoffs to date March 31, 2001
---------------------------- ------------------- -------------------
Headcount reductions $ 478,278 $ 478,278 $ 0
Consolidation of facilities and reduction
in non-performing assets 3,695,648 1,644,800 2,050,848
Extinguishment of marketing and
technology related contracts 13,401,596 10,021,823 3,379,773
---------------------------- ------------------- -------------------
$ 17,575,522 $ 12,144,901 $ 5,430,621
============================ =================== ===================
4. DISCONTINUED OPERATIONS
In November 2000, the Company's Board of Directors decided to
discontinue our U.K. operations. As a result, the operation's assets and
liabilities have been substantially liquidated. In accordance with British
law, we expect that the operation will go into Members Voluntary
Liquidation shortly. Accordingly, the operating results relating to the
U.K. operations have been segregated from continuing operations and
reported as a separate line item on the consolidated statements of
operations. The Company has restated its consolidated financial statements
for prior years to conform to the current year presentation.
In December 2000, the Company recorded a provision to accrue for
additional future costs to be incurred to complete the liquidation process.
The Company believes that any remaining costs associated with these
discontinued operations have been adequately provided for by this
provision.
As of March 31, 2000, the fair market value of the remaining
assets was $12,852, consisting of a VAT tax refund receivable.
5. ACQUISITION
On December 20, 2000, the Company acquired substantially all of
the assets and certain liabilities of SmartPortfolio.com, Inc. The Company
paid total consideration of $5,400,000 cash and 77,984 shares of our common
stock, having a value on the closing date of approximately $156,000, plus
up to an additional 489,644 shares of common stock at future dates subject
to continued employment conditions being met. As of December 31, 2000, the
total consideration of approximately $5,556,000 in cash and common stock
was reflected in accrued expenses, and was paid in January 2001.
5
6. NEW ACCOUNTING PRONOUNCEMENTS
In July 1999, the FASB approved SFAS No. 137 "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective
date of FASB Statement No. 133". SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" establishes accounting and reporting
standards requiring that every derivative instrument, including certain
derivative instruments embedded in other contracts, be recorded in the
balance sheet as either an asset or liability measured at its fair value.
The statement also requires that changes in the derivative's fair value be
recognized in earnings unless specific hedge accounting criteria are met.
The adoption of SFAS No. 133 in 2001 did not have a material effect on the
Company's Condensed Consolidated Financial Statements.
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 our expectations, beliefs, intentions or future strategies that
are signified by the words "expects", "anticipates", "intends", "believes",
or similar language. All forward-looking statements included in this
quarterly report on Form 10-Q are based on information available to us on
the date hereof, and we assume no obligation to update any such
forward-looking statements. These forward-looking statements are subject to
risks and uncertainties which could cause actual results to differ.
The following discussion and analysis should be read in
conjunction with the unaudited condensed consolidated financial statements
and notes thereto.
Overview
TheStreet.com is a leading multimedia provider of original,
timely, insightful and trustworthy financial commentary, analysis and news.
Our content is available across diverse product offerings, including the
Internet, print media, books and conferences. We were originally organized
as a limited liability company in June 1996. In May 1998, we converted to a
C corporation, incorporated in Delaware, and in May 1999, we completed our
initial public offering.
We have developed a loyal audience of investors at various
experience levels who turn to our product offerings for all their financial
and investing information needs. In addition, we have important strategic
relationships with leading companies in the media, technology and financial
services sectors that also help us create brand awareness and increase
subscription and advertising revenues.
Results of Operations
In November 2000, our Board of Directors decided to discontinue
our U.K. operations. As a result, the operation's assets and liabilities
have been substantially liquidated. In accordance with British law, we
expect that the operation will go into Members Voluntary Liquidation
shortly. The following information has been presented on a basis consistent
with discontinued operations treatment. Accordingly, the operating results
relating to the U.K. operations have been segregated from continuing
operations and reported as a
6
separate line item on the statement of operations.
Recent Developments
On April 24, 2001, we announced an exclusive five-year radio deal
with Premiere Radio Networks, a subsidiary of Clear Channel Communications,
for James Cramer, a director and stockholder of the Company who we employ
as our Markets Commentator, to host a nationally syndicated financial show.
The program, which is expected to begin airing in July 2001, is scheduled
to air Monday through Friday. We will participate in the net revenues of
the program.
On April 23, 2001, we announced an agreement with Money.net Inc.
to launch a Streaming Real-time Portfolio Tracker that will be available on
our free and subscription-based sites for a nominal fee.
On April 4, 2001, we announced a 20% headcount reduction
throughout our organization. We also announced plans to sublease a portion
of our office space and cut discretionary spending. These changes are
expected to reduce our costs by approximately $15 million on an annualized
basis.
On March 29, 2001, we announced an exclusive one-year television
deal with CNBC for James Cramer to appear several times each week on the
financial news network's programs. Mr. Cramer will appear twice weekly as
co-host of the morning show, "Squawk Box" and contribute once each week to
the evening program, "Business Center."
During the first quarter of 2001, we launched a daily premium
institutional fax product, which is offered on a subscription basis only
through a broker in the professional market space.
During the first quarter of 2001, we launched a headline indexing
deal with Intuit, and renewed our long-standing relationship with Yahoo!,
which includes syndication of selected content from TheStreet.com on Yahoo!
Finance, indexing of TheStreet.com's headlines on Yahoo! Finance, and
participation by TheStreet.com personalities in Yahoo! Chats.
In late March 2001, we redesigned our free site to give readers
easier navigation to and more comprehensive coverage of markets, tech
stocks, personal money management, company news and related insight and
analysis.
Results Of Operations
Three Months Ended March 31, 2001 And March 31, 2000
Net Revenues
Advertising & E-Commerce Revenues. Advertising and e-commerce
revenues are derived from Internet sponsorship arrangements and from the
delivery of banner and email advertisements, as well as from conference
sponsorships. Advertising and e-commerce revenues decreased to $1,943,465
for the three months ended March 31, 2001, as compared to $2,623,355 for
the three months ended March 31, 2000. This decrease is primarily due to an
overall slowdown of the online advertising market, resulting in reduced
sales of Internet sponsorship, banner and e-mail advertisements. For the
three months ended
7
March 31, 2001, 33% of our advertising and e-commerce
revenues were derived from sponsorship contracts, as compared to 51% for
the three months ended March 31, 2000. The number of our advertisers for
the three months ended March 31, 2001 was 65, as compared to 81 for the
three months ended March 31, 2000. For the three months ended March 31,
2001, our top five advertisers accounted for approximately 41% of our total
advertising and e-commerce revenues, as compared to approximately 26% for
the three months ended March 31, 2000.
Subscription Revenues. Subscription revenues are derived from
annual and monthly subscriptions. Subscription revenues totaled $2,038,289
for the three months ended March 31, 2001, relatively unchanged from
$2,037,486 for the three months ended March 31, 2000. This is primarily the
result of a 53% increase in our revenue per subscriber, offset by a 38%
decrease in our subscriber base. For the three months ended March 31, 2001,
approximately 79% of our net subscription revenue was derived from annual
subscriptions, as compared to approximately 78% for the three months ended
March 31, 2000. We calculate net subscription revenues by deducting
cancellation chargebacks and refunds from gross revenues. During the three
months ended March 31, 2001, cancellation chargebacks and refunds
approximated 27% of gross subscription revenues.
Our subscriber base has decreased to approximately 71,400 annual
and monthly subscribers as of March 31, 2001 (not including free trials,
but including subscribers paid for as part of bulk subscription contracts),
as compared to approximately 116,000 as of March 31, 2000. We anticipate
this trend to continue until mid-2001 as a result of the expiration of annual
subscriptions that commenced in June 2000 in connection with the Company's
introduction of RealMoney.com, our new, subscription-based web site.
Other Revenues. Other revenues are primarily derived from
syndication revenues, barter arrangements, reprint revenues, royalties from
sales of our investing book, and conference attendees. Other revenues
decreased to $409,278 for the three months ended March 31, 2001, as
compared to $730,476 for the three months ended March 31, 2000. This
decrease is primarily the result of fewer barter arrangements with online
and print media companies, as well as the absence of revenues associated
with TheStreet.com television show, partially offset by increased
syndication revenue and royalties from our investing book. Barter
transactions are recognized at the fair value as determined by the
comparable advertising market rates at the time of placement.
Cost Of Revenues
Cost of revenues includes compensation and benefits for editorial
staff, fees paid to outside contributors and content licensing fees payable
to content providers. Cost of revenues decreased to $2,979,004 for the
three months ended March 31, 2001, as compared to $3,376,147 for the three
months ended March 31, 2000. This decrease is primarily the result of
reductions within our editorial staff to 78 employees as of March 31, 2001,
as compared to 97 as of March 31, 2000, partially offset by increased costs
associated with 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 $2,717,833 for the three months ended
8
March 31, 2001, as compared to $3,971,954 for the three months ended
March 31, 2000. This decrease is primarily the result of reduced consulting
fees that were incurred in 2000 as a result of the expansion of our
capacity to handle the increase in traffic related to the conversion of our
subscription-based TheStreet.com to a completely free,
advertising-supported web site, accompanied by RealMoney.com, a new
subscription-based site. Additionally, reductions within our technology and
product development staff to 41 employees as of March 31, 2001, as compared
to 55 as of March 31, 2000, resulted in reduced compensation and related
expenses. These savings were partially offset by increased depreciation and
amortization expenses related to equipment purchased to meet the demands of
the increased traffic and equipment from our acquisition of SmartPortfolio
in late December 2000.
Sales And Marketing Expenses
Sales and marketing expenses consist primarily of advertising and
promotion on television, radio, online and in print, advertising agency
fees, promotional materials, content distribution fees, and compensation
expenses for our direct sales force and customer service department. Sales
and marketing expenses decreased to $3,513,654 for the three months ended
March 31, 2001, as compared to $5,440,005 for the three months ended March
31, 2000. This decrease is primarily the result of reduced advertising and
promotion expenses resulting from our strategy of eliminating non-web based
advertising, as well as a reduction in our sales and marketing staff to 48
employees as of March 31, 2001, as compared to 60 as of March 31, 2000.
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 $3,065,814 for the
three months ended March 31, 2001, as compared to $3,940,827 for the three
months ended March 31, 2000. This decrease is primarily the result of
reduced salary and related expenses, as well as lower franchise taxes and
occupancy costs, partially offset by increased goodwill amortization
related to our acquisition of SmartPortfolio.com, Inc. in December 2000.
Noncash Compensation Expense
In 1998, and the first three months of 1999, we granted options to
purchase shares of our common stock at exercise prices that were less than
the fair market value of the underlying shares of common stock on the date
of grant. This resulted in noncash compensation expense incurred over the
period that these specific options vest. Noncash compensation expense
decreased to $229,482 for the three months ended March 31, 2001, as
compared to $544,729 for the three months ended March 31, 2000. The
remaining noncash compensation expense for 2001 is currently estimated to
be $663,249.
Restructuring Expenses
During the year ended December 31, 2000, we recorded restructuring
expenses to align our cost structure with changing market conditions and
decreased dependence on the advertising market to create a more flexible
and efficient organization. The restructuring expense of ($524,124) for the
three months ended March 31, 2001 represents a gain as a result of a
negotiated settlement for less than the
9
amount initially estimated.
Severance Expense
Severance expense totaling $551,940 for the three months ended
March 31, 2001 represents the costs associated with a headcount reduction
throughout the organization.
Interest Income
Interest income decreased to $940,004 for the three months ended
March 31, 2001, as compared to $1,536,340 three months ended March 31,
2000. This decrease is the result of reduced cash balances and lower
interest rates.
Discontinued Operations
In November 2000, our Board of Directors decided to discontinue
our U.K. operations. As a result, the assets and liabilities of the
discontinued operations are being liquidated as promptly as possible.
Accordingly, the operating results relating to the U.K. operations have
been segregated from continuing operations and reported as a separate line
item on the statement of operations.
For the three months ended March 31, 2001, there was no loss from
discontinued operations, as compared to the net effect of a loss of
$3,536,793 for the three months ended March 31, 2000, while the U.K.
company was in operation. No additional loss amounts were recorded for the
three months ended March 31, 2001 because we believe that any remaining net
operating losses and related costs associated with these discontinued
operations have been adequately provided for by a provision recorded in
December 2000.
As of March 31, 2001, the book value of the remaining current
assets of the discontinued operations was $12,852. There were no remaining
non-current assets.
Liquidity and Capital Resources
We currently invest in money market funds and other short-term,
investment grade instruments that are highly liquid, of high-quality, and
have maturities of up to two years, with the intent that such funds can
easily be made available for operating purposes. As of March 31, 2001, our
cash, cash equivalents, and short-term investments amounted to $58,481,977,
representing 70% of our total assets.
Net cash used in operating activities of $6,489,743 for the three
months ended March 31, 2001 was primarily due to a net loss of $7,202,567,
offset by noncash charges and decreases in accounts receivable, current
assets of discontinued operations, and non-current assets of discontinued
operations, and an increase in deferred revenue, partially offset by
increases in other receivables, and prepaid expenses, and decreases in
accounts payable and accrued expenses, restructuring reserve, and other
current liabilities.
Net cash provided by investing activities of $18,166,209 for the
three months ended March 31, 2001 consisted of net sales of short-term
investments, partially offset by a payment in January 2001 in connection
with the December 2000 acquisition of SmartPortfolio.com, Inc., capital
expenditures, and a
10
loan to Business Net Online Ltd. Capital expenditures
generally consisted of purchases of computer software and hardware.
Net cash used in financing activities of $1,027,435 for the three
months ended March 31, 2001 consisted of the purchase of treasury stock,
partially offset by proceeds from the issuance of common stock upon the
exercise of stock options.
We believe that our current cash and cash equivalents and
short-term investments will be sufficient to meet our anticipated cash
needs for at least the next 12 months. Thereafter, if cash generated from
operations is insufficient to satisfy our liquidity requirements, we may
need to raise additional funds through public or private financings,
strategic relationships or other arrangements. There can be no assurance
that additional funding, if needed, will be available on terms attractive
to us, or at all. Strategic relationships, if necessary to raise additional
funds, may require us to provide rights to certain of our content. The
failure to raise capital when needed could materially adversely affect our
business, results of operations and financial condition. If additional
funds are raised through the issuance of equity securities, the percentage
ownership of our then-current stockholders would be reduced. Furthermore,
these equity securities might have rights, preferences or privileges senior
to those of our common stock.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
We believe that our market risk exposures are immaterial as we do
not have instruments for trading purposes, and reasonable possible
near-term changes in market rates or prices will not result in material
near-term losses in earnings, material changes in fair values or cash flows
for all instruments.
Risk Factors
You should carefully consider the following risks before making an
investment decision. The risks described below are all the material risks
facing TheStreet.com. We may also face some non-material risks which we
have not discussed in the following description of our risk factors. If any
of the following risks occur, our business, results of operations or
financial condition could be materially adversely affected.
We Have a History of Losses, and Although We Have Diversified Our Sources of
Revenue, Potential Fluctuations In Our Quarterly Financial Results Make
Financial Forecasting Difficult
As of March 31, 2001, we had an accumulated deficit of $116.8
million. We have not achieved profitability and expect to continue to incur
net losses in 2001. We expect to continue to incur significant operating
expenses and, as a result, will need to generate significant revenues to
achieve profitability, which may not occur. Even if we do achieve
profitability, we may be unable to sustain or increase profitability on a
quarterly or annual basis in the future.
As part of our strategy to diversify our sources of revenue, since
January 2000 we have expanded our offerings by:
o relaunching our formerly subscription-based TheStreet.com
web site as a completely free,
11
advertising-supported web site;
o launching a new subscription-based site called
RealMoney.com;
o acquiring an email newsletter publisher and a conference
company;
o introducing our first investing book, TheStreet.com Guide
to Smart Investing in the Internet Era, published by the
Doubleday division of Random House Inc.; and
o introducing a daily institutional fax product.
We have developed a loyal audience of investors at various
experience levels who turn to our product offerings for all their financial
and investing information needs. In addition, we have important strategic
relationships with leading companies in the media, technology and financial
services sectors that also help us create brand awareness and increase
subscription and advertising revenues. Our goal is to monetize and leverage
our financial content across a variety of platforms. However, we cannot
assure you that these and other initiatives will result in increases in
revenues sufficient to enable us to achieve profitability. In such an
event, the price of our common stock is likely to decrease.
We recently announced our goal of becoming EBITDA-positive by the
end of 2001. However, we cannot assure you that we will be able to achieve
this goal. EBITDA, defined as operating income before depreciation and
amortization is one of the primary measures we use to evaluate performance.
We believe that EBITDA is an appropriate measure of evaluating our
operations. However, EBITDA should be considered in addition to, not as a
substitute for or superior to, operating income, net earnings, cash flows,
and other measures of financial performance prepared in accordance with
generally accepted accounting principles ("GAAP"). As EBITDA is not a
measure of performance calculated in accordance with GAAP, this measure may
not be comparable to similarly titled measures employed by other companies.
Our quarterly operating results may fluctuate significantly in the
future as a result of a variety of factors, many of which are outside our
control. We believe that advertising sales in traditional media, such as
television and radio, generally are lower in the first and third calendar
quarters of each year. Similar seasonal patterns are developing in our
industry. We believe that quarter-to-quarter comparisons of our operating
results may not be a good indication of our future performance, nor would
our operating results for any particular quarter be indicative of future
operating results. In some future quarters our operating results may be
below the expectations of public market analysts and investors. In such an
event, the price of our common stock is likely to decrease.
We May Have Difficulty Selling Our Advertising Inventory, A Significant
Portion Of Which Is Concentrated Among Our Top Advertisers
The market for online advertising sales has significantly softened
in the last few months. Both traditional and new media advertisers are
scaling back their online media budgets. In addition, seasonal fluctuations
in the markets for consumer products cause advertisers to generally place
fewer advertisements during the first and third calendar quarters of each
year. As a result, many advertising supported web sites are experiencing
difficulty selling their available inventories and maintaining their rate
structures. Although we believe that our network of sites and corresponding
demographic profiles will continue to enable us to
12
maintain our high sell-through, we expect that our overall advertising
rates will decrease as a result of increased inventory. Additionally, we
have entered into headline indexing and content distribution agreements
with a variety of Internet portals and content providers to distribute our
news and headlines to their users, thus driving potential readers to our
web sites. We believe that these arrangements will continue to provide a
cost-effective way to increase our unique visitors and page view inventory.
However, our actual traffic is subject to a variety of factors, including
seasonal fluctuations in financial news consumption and overall online
usage that generally cause weakness in the first and third calendar
quarters of each year, technical difficulties associated with the
implementation and ongoing delivery of the news distribution arrangements,
and editorial policy changes by our partners. If we are unable to attract
significantly increased traffic and advertising revenues under this
strategy, our business, results of operations and financial condition could
be materially adversely affected.
In the first quarter of 2001, our top five advertisers accounted
for approximately 41% of our total advertising revenues. Our business,
results of operations and financial condition could be materially adversely
affected by the loss of a number of our top advertisers, and such a loss
could be concentrated in a single quarter. Further, if we do not continue
to increase our revenue from financial-services advertisers or attract
advertisers from non-financial industries, our business, results of
operations and financial condition could be materially adversely affected.
As is typical in the advertising industry, our advertising contracts have
cancellation provisions.
We May Have Difficulty Retaining Current Subscribers
We continue to seek to retain our current subscribers and to
attract new subscribers. As of March 31, 2001, we had approximately 71,000
paid subscribers, including both retail and corporate, down from
approximately 109,000 when we launched our free site. We believe we have
significantly enhanced our subscription offerings to differentiate them
from the free financial news web sites that are widely available on the
web, including on our own free site. However, given the availability of
such free financial information, we may not be able to retain our current
subscribers and attract additional subscribers in a cost-effective manner.
If our subscription base declines more than we anticipate or our cost of
subscriber acquisition increases, our business, results of operations and
financial condition could be materially adversely affected.
Difficulties In Developing New And Enhanced Products and Services Could Harm
Our Business
We intend to introduce additional and enhanced products and
services in order to retain our current readers and attract new readers. If
we introduce a product or service that is not favorably received, our
current readers may choose a competitive service over ours. We may also
experience difficulties that could delay or prevent us from introducing new
products and services, or the new products or services we introduce could
contain errors that are discovered after they are introduced. In some
cases, we are dependent on third parties, including software companies,
application service providers and technology consulting firms, to help us
develop and implement new products and services. If these third parties are
not able to fulfill their responsibilities to us on schedule or if the
technology developed by them for our use does not function as anticipated,
implementation may be delayed and the cost of implementation may be higher
than anticipated. Such developments could materially adversely affect our
business, results of operations and financial condition.
13
Unforeseen Development Difficulties May Hinder Our Efforts
We have significantly enhanced our design and our technological
infrastructure to further improve our sites and to accommodate the expected
increase in traffic, and intend to continue such development activities.
However, unforeseen development difficulties could prevent us from
implementing such improvements or cause the costs to implement such
improvements, including design, technology and related costs, to be higher
than anticipated.
In the past, we have experienced significant spikes in traffic on
our web sites when there have been important financial news events. In
addition, the number of our readers has continued to increase over time and
we expect our reader base to increase over time since our main site has
been converted to a totally free site. Accordingly, our web sites must
accommodate a high volume of traffic, often at unexpected times. Although
we have upgraded and continue to upgrade our systems, our web sites have in
the past, and may in the future, experience publishing problems, slower
response times than usual or other problems for a variety of reasons. These
occurrences could cause our readers to perceive our web sites as not
functioning properly and, therefore, cause them to use other methods to
obtain their financial news and information. In such a case, our business,
results of operations and financial condition could be materially adversely
affected.
We Face A Risk Of System Failure That May Result In Reduced Traffic, Reduced
Revenue And Harm To Our Reputation
Our ability to provide timely information and continuous news
updates depends on the efficient and uninterrupted operation of our
computer and communications hardware and software systems. Similarly, our
ability to track, measure and report the delivery of advertisements on our
site depends on the efficient and uninterrupted operation of a third-party
system. In February 2000, our Internet-hosting agreement with Exodus
Communications, Inc. was renewed, and we currently continue to maintain all
of our production servers at Exodus's New Jersey data center. Our
operations depend on the ability of Exodus to protect its own systems and
our systems in its data center against damage from fire, power loss, water
damage, telecommunications failure, vandalism and similar unexpected
adverse events. Although Exodus provides comprehensive facilities
management services, including human and technical monitoring of all
production servers 24 hours per day, seven days per week, Exodus does not
guarantee that our Internet access will be uninterrupted, error-free or
secure. Any disruption in the Internet access to our web sites provided by
Exodus could materially adversely affect our business, results of
operations and financial condition. Our own internal systems and
operations, as well as those of Exodus, may be subject to damage or
interruption from human error, natural disasters, fire, water damage, power
loss, telecommunication failures, break-ins, sabotage, computer viruses,
intentional acts of vandalism and similar events. Any system failure,
including network, software or hardware failure, that causes an
interruption in our service or a decrease in responsiveness of our web
sites could result in reduced traffic, reduced revenue and harm to our
reputation, brand and our relations with our advertisers and e-commerce
partners.
Like most web sites, we may be vulnerable to computer viruses,
physical or electronic break-ins and other deliberate attempts to disrupt
our technological operations, which could lead to interruptions, delays or
loss of data. In addition, unauthorized persons may improperly access our
data. Our insurance policies may not adequately compensate us for any
losses that we may incur because of any failures in our system or
interruptions in our delivery of content. Our business, results of
operations and financial condition could be materially adversely affected
by any event, damage or failure that interrupts or delays our operations.
14
Our Future Success Depends On Our Ability To Attract And Retain Key Personnel
Our future success depends upon our ability to attract and retain
key personnel, including executives, editors, writers, and technology
personnel. Only a few of our key employees are bound by employment or
non-competition agreements. The loss of one or more of our key personnel,
or our inability to attract replacements with appropriate expertise, could
materially adversely affect our business, results of operations and
financial condition.
Intense Competition Could Reduce Our Market Share And Harm Our Financial
Performance
A number of financial news and information sources compete for
consumers' and advertisers' attention and spending. We compete for
advertisers, readers, staff and outside contributors with many types of
companies, including:
o online services or web sites focused on business, finance
and investing, such as CBS.MarketWatch.com, CNBC.com,
CNNfn.com, The Wall Street Journal Interactive Edition,
The New York Times on the Web, DowJones.com,
SmartMoney.com, Microsoft MSN MoneyCentral and The Motley
Fool;
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, Dow
Jones Markets and Bridge News Service;
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.
Our ability to compete depends on many factors, including the
originality, timeliness, insightfulness and trustworthiness of our content
and that of our competitors, the ease of use of services developed either
by us or our competitors and the effectiveness of our sales and marketing
efforts.
Many of our existing competitors, as well as a number of potential
new competitors, have longer operating histories, greater name recognition,
larger customer bases and significantly greater financial, technical and
marketing resources than we do. This may allow them to devote greater
resources than we can to the development and promotion of their services.
These competitors may also engage in more extensive research and
development, undertake more far-reaching marketing campaigns, adopt more
aggressive pricing policies (including offering more of their financial
news and commentary for free) and make more attractive offers to existing
and potential employees, outside contributors, strategic partners and
advertisers. Our competitors may develop content that is equal or superior
to ours or that achieves greater market acceptance than ours. It is also
possible that new competitors may emerge and rapidly acquire significant
market share. We may not be able to compete successfully for advertisers,
readers, staff or outside contributors, which could materially adversely
affect our business, results of operations and financial condition.
Increased
15
competition could result in price reductions, reduced margins or
loss of market share, any of which could materially adversely affect our
business, results of operations and financial condition.
We also compete with other web sites, television, radio and print
media for a share of advertisers' total advertising budgets. If advertisers
perceive the Internet or our web sites to be a limited or an ineffective
advertising medium, they may be reluctant to devote a portion of their
advertising budget to Internet advertising or to advertising on our web
sites.
A Failure To Establish And Maintain Strategic Relationships With Other
Companies Could Decrease Our Subscriber And Reader Base, Which May Harm Our
Business
We depend on establishing and maintaining content syndication and
headline indexing relationships with high-traffic web sites for a
significant portion of our current subscriber and reader base. There is
intense competition for relationships with these firms and placement on
these sites, and we may have to pay significant fees to establish
additional content syndication and headline indexing relationships or
maintain existing relationships in the future. We may be unable to enter
into or successfully renew relationships with these firms or sites on
commercially reasonable terms or at all. These relationships may not
attract significant numbers of subscribers or readers.
Many companies that we may approach for a strategic relationship
or who already have strategic relationships with us also provide financial
news and information from other sources. As a result, these companies may
be reluctant to enter into or maintain strategic relationships with us. Our
business, results of operations and financial condition could be materially
adversely affected if we do not establish additional, and maintain
existing, strategic relationships on commercially reasonable terms or if
any of our strategic relationships do not result in an increase in the
number of subscribers or readers of our web sites.
We May Be Unable To Grow Through Acquisitions And Integrate Future Acquisitions
Into Our Business
We intend to pursue a growth strategy that may involve
acquisitions of other companies. However, we may be unable to successfully
pursue and complete acquisitions in a timely and cost-effective manner.
Further, the pursuit and integration of acquisitions will require
substantial attention from our senior management, which will limit the
amount of time these individuals will have available to devote to our
existing operations. There can be no assurance that we can successfully
integrate these acquisitions into our business or implement our plans
without delay or substantial cost. In addition, future acquisitions by us
could result in the incurrence of debt and contingent liabilities, which
could have a material adverse effect upon our financial condition and
results of operations. Any failure or any inability to effectively manage
and integrate growth may have a material adverse effect on our financial
condition and results of operations.
Any Failure Of Our Internal Security Measures Or Breach Of Our Privacy
Protections Could Cause Us To Lose Users And Subject Us To Liability
Users who subscribe to one of our subscription-based web sites are
required to furnish certain personal information (including name, email
address and credit card information), which we use to administer our
services. Although we no longer need credit-card information to process
subscription payments for our main site now that it has converted to a free
site, we continue to gather credit card information for the
subscription-based sites in our network. Additionally, we recently
implemented a registration system that will collect certain information
(although not payment information) from users of our free main site who
wish to gain access to certain features of our site. If the security
measures that we use to
16
protect personal information are ineffective, we may lose users and our
business may be harmed. Additionally, we rely on security and
authentication technology licensed from third parties to perform real-time
credit card authorization and verification. We cannot predict whether
technological developments or human error could allow these security
measures to be circumvented. We may need to use significant resources to
prevent security breaches or to alleviate problems caused by any security
breaches. If we are not able to prevent all security breaches, our
business, results of operations and financial condition could be materially
adversely affected.
Our users depend on us to keep their personal information private
and to not disclose it to third parties. We therefore maintain a privacy
policy, under which, with certain limited exceptions, we will not disclose
to any third parties any personal information about our subscribers or
other users. We have retained the ability to modify the privacy policy at
any time. If our users perceive that we are not protecting their privacy,
our business, results of operations and financial condition could be
materially adversely affected.
Difficulties Associated With Our Brand Development May Harm Our Ability To
Attract Subscribers And Readers
We believe that maintaining and growing awareness about the
TheStreet.com brand is an important aspect of our efforts to continue to
attract users. The importance of brand recognition will increase in the
future because of the growing number of web sites providing financial news
and information. The new site that we have introduced, RealMoney.com, and
those that we have acquired, do not have widely recognized brands, and we
will need to increase awareness of these brands among potential users.
Although our efforts to build brand awareness have been successful to date,
they may not be cost effective or successful in the future in reaching
potential users, and some potential users may not be receptive to our
advertising campaign or other efforts. Accordingly, we cannot assure you
that such efforts will be successful in raising awareness of TheStreet.com
brand or in persuading potential users to visit our sites.
Failure To Maintain Our Reputation For Trustworthiness May Reduce The Number
Of Our Readers, Which May Harm Our Business
It is very important that we maintain our reputation as a
trustworthy news organization. The occurrence of events, including our
misreporting a news story or the non-disclosure of a stock ownership
position by one or more of our writers in breach of our compliance policy,
could harm our reputation for trustworthiness. These events could result in
a significant reduction in the number of our readers, which could
materially adversely affect our business, results of operations and
financial condition.
Potential Liability For Information Displayed On Our Web Sites May Require
Us To Defend Against Legal Claims, Which May Cause Significant Operational
Expenditures
We may be subject to claims for defamation, libel, copyright or
trademark infringement or based on other theories relating to the
information we publish on our web sites. These types of claims have been
brought, sometimes successfully, against online services as well as other
print publications in the past. We could also be subject to claims based
upon the content that is accessible from our web sites through links to
other web sites. We have stock ticker-based message boards that allow users
to post comments about individual stocks. We undertake no obligation to
moderate these message boards, and potential liability for providers of
message board services has not yet been well established. We may choose to
allow our editorial
17
staffers or outside contributors to post on our boards,
thus increasing our potential liability. Our insurance may not adequately
protect us against these claims.
Failure To Protect Our Intellectual Property Rights Could Harm Our
Brand-Building Efforts And Ability To Compete Effectively
To protect our rights to our intellectual property, we rely on a
combination of trademark and copyright law, trade secret protection,
confidentiality agreements and other contractual arrangements with our
employees, affiliates, clients, strategic partners and others. The
protective steps we have taken may be inadequate to deter misappropriation
of our proprietary information. We may be unable to detect the unauthorized
use of, or take appropriate steps to enforce, our intellectual property
rights. We have registered our trademarks in the United States and we have
pending U.S. and foreign applications for other trademarks. Effective
trademark, copyright and trade secret protection may not be available in
every country in which we offer or intend to offer our services. Failure to
adequately protect our intellectual property could harm our brand, devalue
our proprietary content and affect our ability to compete effectively.
Further, defending our intellectual property rights could result in the
expenditure of significant financial and managerial resources, which could
materially adversely affect our business, results of operations and
financial condition.
We May Have To Defend Against Intellectual Property Infringement Claims, Which
May Cause Significant Operational Expenditures
Although we believe that our proprietary rights do not infringe on
the intellectual property rights of others, other parties may assert
infringement claims against us or claims that we have violated a patent or
infringed a copyright, trademark or other proprietary right belonging to
them. We incorporate licensed third-party technology in some of our
services. In these license agreements, the licensors have generally agreed
to defend, indemnify and hold us harmless with respect to any claim by a
third party that the licensed software infringes any patent or other
proprietary right. We cannot assure you that these provisions will be
adequate to protect us from infringement claims. Any infringement claims,
even if not meritorious, could result in the expenditure of significant
financial and managerial resources on our part, which could materially
adversely affect our business, results of operations and financial
condition.
Our Ability To Maintain And Increase Our Readership Depends On The Continued
Growth In Use And Efficient Operation Of The Web
The web-based information market is new and rapidly evolving. Our
business would be materially adversely affected if web usage does not
continue to grow or grows slowly. Web usage may be inhibited for a number
of reasons, such as:
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.
18
Our readers depend on Internet service providers, online service
providers and other web site operators for access to our web sites. Many of
these services have experienced significant service outages in the past and
could experience service outages, delays and other difficulties due to
system failures unrelated to our systems. These occurrences could cause our
readers to perceive the web in general or our web sites in particular as an
unreliable medium and, therefore, cause them to use other media to obtain
their financial news and information. We also depend on a number of
information providers to deliver information and data feeds to us on a
timely basis. Our web sites could experience disruptions or interruptions
in service due to the failure or delay in the transmission or receipt of
this information, which could materially adversely affect our business,
results of operations and financial condition.
A General Decline In Online Advertising Could Harm Our Business
Our future success is highly dependent on an increase in the use
of the Internet as an advertising medium. The Internet advertising industry
is new and rapidly evolving, and it cannot yet be compared with traditional
advertising media to gauge its effectiveness. As a result, demand and
market acceptance for Internet advertising solutions is uncertain and its
growth in recent months has slowed significantly. Most of our current or
potential advertising customers have little or no experience using the
Internet for advertising purposes and they have allocated only a limited
portion of their advertising budgets to Internet advertising. The adoption
of Internet advertising, particularly by those entities that have
historically relied upon traditional media for advertising, requires the
acceptance of a new way of conducting business, exchanging information and
advertising products and services. These customers may find Internet
advertising to be less effective for promoting their products and services
relative to traditional advertising media. In addition, most of our current
and potential web publisher customers have little experience in generating
revenue from the sale of advertising space on their web sites. We cannot
assure you that current or potential advertising customers will continue to
allocate a portion of their advertising budget to Internet advertising or
that the demand for Internet advertising will continue to develop to
sufficiently support Internet advertising as a significant advertising
medium. If the demand for Internet advertising develops more slowly than we
expect, then our business, results of operations and financial condition
could be materially and adversely affected.
No standards have been widely accepted to measure the
effectiveness of web advertising. If standards do not develop, existing
advertisers may not continue or increase their levels of web advertising.
If standards develop and we are unable to meet these standards, advertisers
may not continue advertising on our site. Furthermore, advertisers that
have traditionally relied upon other advertising media may be reluctant to
advertise on the web. Our business, results of operations and financial
condition could be materially adversely affected if the market for web
advertising declines or develops more slowly than expected.
Different pricing models are used to sell advertising on the web.
It is difficult to predict which, if any, will emerge as the industry
standard. This uncertainty makes it difficult to project our future
advertising rates and revenues. We cannot assure you that we will be
successful under alternative pricing models that may emerge. Moreover,
"filter" software programs that limit or prevent advertising from being
delivered to a web user's computer are available. Widespread adoption of
this software could materially adversely affect the commercial viability of
web advertising, which could materially adversely affect our advertising
revenues. In addition, some Internet commentators, privacy advocates and
federal and state officials have recently suggested that legislation may be
needed to better safeguard online privacy, by the limitation or elimination
of the use of cookies or by other methods. If such legislation is passed,
it is likely to restrict the ability of online advertisers to target their
ads, which may result in a decrease in online advertising rates or
19
online advertising spending generally. Such a decrease could materially
adversely affect our advertising revenues.
We also derive advertising revenues from email services, which
exposes us to potential liabilities or claims resulting from unsolicited
email, lost or misdirected messages, illegal or fraudulent use of email,
privacy violations or interruptions or delays in email service. Any
allegation of impropriety or any successful claim could materially
adversely affect our business, results of operations and financial
condition.
We compete with other web sites, television, radio and print media
for a share of advertisers' total advertising budgets. If advertisers
perceive the web in general or our web sites in particular to be a limited
or an ineffective advertising medium, they may be reluctant to devote a
portion of their advertising budget to online advertising or to advertising
on our web sites.
Government Regulation And Legal Uncertainties Relating To The Web Could
Increase Our Costs Of Transmitting Data And Increase Our Legal And Regulatory
Expenditures And Could Decrease Our Readership
Existing domestic and international laws or regulations and
private industry guidelines specifically regulate communications or
commerce on the web. Further, laws and regulations that address issues such
as user privacy, pricing, online content regulation, taxation of e-commerce
transactions and the characteristics and quality of online products and
services are under consideration by federal, state, local and foreign
governments and agencies and by private industry groups. Several
telecommunications companies have petitioned the Federal Communications
Commission to regulate Internet service providers and online services
providers in a manner similar to the regulation of long distance telephone
carriers and to impose access fees on such companies. The governments of
other states or foreign countries might attempt to regulate our
transmissions or levy sales or other taxes relating to our activities.
These regulations, if imposed, could increase the cost of transmitting data
over the web.
In addition, the growth and development of the market for Internet
commerce may prompt calls for more stringent consumer protection laws, both
in the United States and abroad, that may impose additional burdens on
companies conducting business over the Internet. Our business, results of
operations and financial condition could be materially and adversely
affected by the adoption or modification of laws or regulations relating to
the Internet.
The interpretation and application of existing securities laws to
web-based financial news providers, including laws governing investment
advisors, investment companies and broker/dealers, by the Securities and
Exchange Commission and state securities regulators, is a developing area.
If, as this area matures, our activity is interpreted as subjecting us to
regulation, we could be subject to liability, and our business, results of
operations and financial condition could be materially and adversely
affected.
We are also subject to various federal and state regulations
concerning the collection and use of information regarding individuals.
These laws include the Children's Online Privacy Protection Act, and state
laws which limit or preclude the use of voter registration and drivers
license information, as well as other laws that govern the collection and
use of consumer credit information. Although our compliance with applicable
federal and state laws, regulations and industry guidelines has not had a
material adverse effect on us, governments, trade associations and industry
self-regulatory groups may enact more burdensome laws,
20
regulations and guidelines, including antitrust and consumer privacy laws,
for us and our clients. The U.S. federal and various state governments have
been investigating certain Internet companies regarding their use of
personal information and have recently proposed limitations on the
collection and use of information regarding Internet users. The European
Union has enacted its own privacy regulations that may result in limits on
the collection and use of certain information from users in Europe. We
could incur additional expenses if any new regulations regarding the use of
personal information are introduced or if these agencies chose to
investigate our privacy practices. Also, as a consequence of governmental
legislation or regulation or enforcement efforts or evolving standards of
fair information collection practices, we may be required to make changes
to our products or services in ways that could diminish the effectiveness
of the product or service or its attractiveness to potential customers,
which could materially and adversely affect our business, financial
condition or results of operations. Any new laws or regulations relating to
the web, or certain application or interpretation of existing laws, could
decrease the growth in the use of the web, decrease the demand for our web
sites or otherwise materially adversely affect our business.
Laws and regulations directly applicable to Internet
communications, commerce and advertising are becoming more prevalent, and
new laws and regulations are under consideration by the U.S. Congress and
state legislatures. Any legislation enacted or restrictions arising from
current or future government investigations or policy could dampen the
growth in use of the Internet generally and decrease the acceptance of the
Internet as a communications, commercial and advertising medium. The laws
governing the Internet remain largely unsettled, even in areas where there
has been some legislative action. Moreover, it may take years to determine
the extent to which existing laws relating to issues such as intellectual
property ownership and infringement, libel, obscenity and personal privacy
apply to the Internet and Internet advertising.
Concerns About Web Security Could Reduce Our Advertising Revenues, Decrease
Our Reader Base And Increase Our Web Security Expenditures
Concern about the transmission of confidential information over
the Internet has been a significant barrier to electronic commerce and
communications over the web. Any well-publicized compromise of security
could deter more people from using the web or from using it to conduct
transactions that involve the transmission of confidential information,
such as signing up for a paid subscription, executing stock trades or
purchasing goods or services. Because many of our advertisers seek to
advertise on our web sites to encourage people to use the web to purchase
goods or services, our business, results of operations and financial
condition could be materially adversely affected if Internet users
significantly reduce their use of the web because of security concerns. We
may also incur significant costs to protect ourselves against the threat of
security breaches or to alleviate problems caused by these breaches.
Control By Principal Stockholders, Officers And Directors Could Adversely
Affect Our Stockholders
Our officers, directors and greater-than-five-percent stockholders
(and their affiliates), acting together, have the ability to control
substantially all matters submitted to our stockholders for approval
(including the election and removal of directors and any merger,
consolidation or sale of all or substantially all of our assets) and to
control our management and affairs. Accordingly, this concentration of
ownership may have the effect of delaying, deferring or preventing a change
in control of us, impeding a merger, consolidation, takeover or other
business combination involving us or discouraging a potential acquirer from
making a tender offer or otherwise attempting to obtain control of us,
which in turn could materially adversely affect the market price of the
common stock.
21
Volatility Of Our Stock Price Could Adversely Affect Our Stockholders
The stock market has experienced significant price and volume
fluctuations and the market prices of securities of technology companies,
particularly Internet- related companies, have been highly volatile. The
trading price of our stock has been and may continue to be subject to wide
fluctuations. From January 1, 2001 through March 31, 2001, the closing sale
price of our common stock on the Nasdaq National Market ranged from $4.00
to $2.2812. As of May 10, 2001, the closing sale price was $1.90. Our stock
price may fluctuate in response to a number of events and factors, such as
quarterly variations in operating results, announcements of technological
innovations or new products and media properties by us or our competitors,
changes in financial estimates and recommendations by securities analysts,
the operating and stock price performance of other companies that investors
may deem comparable, and news reports relating to trends in our markets. In
addition, the stock market in general, and the market prices for
Internet-related companies in particular, have experienced extreme
volatility that often has been unrelated to the operating performance of
such companies. These broad market and industry fluctuations may adversely
affect the price of our common stock, regardless of our operating
performance.
Anti-Takeover Provisions Could Prevent Or Delay A Change Of Control
Provisions of our amended and restated certificate of
incorporation and amended and restated bylaws and Delaware law could make
it more difficult for a third party to acquire us, even if doing so would
be beneficial to our stockholders.
We Do Not Intend To Pay Dividends
We have never declared or paid any cash dividends on our common
stock. We currently intend to retain any future earnings for funding growth
and, therefore, do not expect to pay any dividends in the foreseeable
future.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
TheStreet.com is not a party to any material legal proceedings.
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
22
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
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 The Street.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
(b) Reports on Form 8-K
Not Applicable.
* Incorporated by reference to Exhibits to the Registrant's Registration
Statement on Form S-1 dated February 23, 1999 (File No. 333-72799).
** Incorporated by reference to Exhibits to the Registrant's Annual
Report on Form 10-K dated March 30, 2000 (File No. 0-25779).
+ Incorporated by reference to Exhibits to the Company's Annual Report
on Form 10-K dated March 30, 2001 (File No. 0-25779).
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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.
Date: May 15, 2001 TheStreet.com, Inc.
(Registrant)
By: /s/ Thomas J. Clarke, Jr.
-------------------------
Name: Thomas J. Clarke, Jr.
Title: Chief Executive Officer
By: /s/ Lisa A. Mogensen
-------------------------
Name: Lisa A. Mogensen
Title: Chief Financial Officer
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EXHIBIT INDEX
Exhibit No. 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 The Street.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
* Incorporated by reference to Exhibits to the Registrant's Registration
Statement on Form S-1 dated February 23, 1999 (File No. 333-72799).
** Incorporated by reference to Exhibits to the Registrant's Annual
Report on Form10-K dated March 30, 2000 (File No. 0-25779).
+ Incorporated by reference to Exhibits to the Company's Annual Report
on Form 10-K dated March 30, 2001 (File No. 0-25779).
25