SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
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.
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(Exact name of Registrant as specified in its charter)
Delaware 06-1515824
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2 Rector Street, 14th Floor
New York, New York 10006
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(Address of principal executive offices)
(212) 602-0400
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(Registrant's telephone number, including area code)
Not applicable.
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(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 June 30, 1999:
Common Stock, par value $0.01 per share 24,509,910
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(Class) (Number of Shares)
THESTREET.COM, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1999
Part I -- FINANCIAL INFORMATION
Item 1. Condensed Financial Statements.................................1
Condensed Balance Sheets as of December 31, 1998
and June 30, 1999..............................................1
Condensed Statements of Operations for the Three and Six Months
Ended June 30, 1998 and 1999...................................2
Condensed Statements of Cash Flows for the Six Months
Ended June 30, 1998 and 1999...................................3
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................6
Item 3. Quantitative and Qualitative Disclosures About Market Risk....22
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.............................................23
Item 2. Changes in Securities and Use of Proceeds.....................23
Item 3. Defaults Upon Senior Securities...............................23
Item 4. Submission of Matters to Vote of Security Holders.............23
Item 5. Other Information.............................................23
Item 6. Exhibits and Reports on Form 8-K..............................24
SIGNATURES ..............................................................25
PART I -- FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
THESTREET.COM, INC.
CONDENSED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND JUNE 30, 1999
DECEMBER 31, JUNE 30,1999
1998
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 24,611,958 $ 127,100,996
Accounts receivable, net of allowance for
doubtful accounts of $40,000 and
$80,000 as of December 31, 1998 and June 30,
1999, respectively 811,419 1,020,469
Other receivables and unbilled revenue 663,137 73,044
Prepaid expenses and other current assets 687,639 721,779
--------------- --------------
Total current assets 26,774,153 128,916,288
Property and equipment, net of accumulated
depreciation and amortization of
$78,110 and $233,885 as of December 31, 1998
and June 30, 1999, respectively. 599,937 1,487,680
Other assets 207,329 268,089
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Total Assets $ 27,581,419 $ 130,672,057
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ 3,333 $ -
Accounts payable 1,972,065 1,895,467
Accrued expenses 1,250,577 2,862,976
Deferred revenue 675,513 1,575,964
Other current liabilities - 200,636
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Total current liabilities 3,856,488 6,535,043
Other long-term liabilities 200,636 -
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Total liabilities 4,057,124 6,535,043
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Redeemable convertible Series B preferred
stock; $0.01 par value; 9 1/2%
cumulative; 345,366 and 0 shares issued
and outstanding as of December 31,
1998 and June 30, 1999, respectively 21,106,898
STOCKHOLDERS' EQUITY
Common Stock; $0.01 par value;
100,000,000 shares authorized, 13,763,838
and 24,509,910 shares issued and
outstanding at December 31, 1998 and June
30, 1999, respectively. 137,638 245,099
Convertible Preferred Stock -
Series A; $0.01 par value; 9 1/2%
cumulative; 118,441 and 0 shares issued
and outstanding as of December 31, 1998
and June 30, 1999, respectively. 1,184 -
Series C; $0.01 par value; 1,500 and 0
shares issued and outstanding as of
December 31, 1998 and June 30, 1999,
respectively. 15 -
Additional paid-in capital 16,349,199 173,048,770
Deferred compensation (1,578,000) (9,086,032)
Advertising receivable - (12,000,000)
Accumulated deficit (12,492,639) (28,070,823)
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Total stockholders' equity 2,417,397 124,137,014
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Total liabilities and stockholders' equity $ 27,581,419 $ 130,672,057
=============== ==============
The accompanying notes are an integral part of these balance sheets.
THESTREET.COM, INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1999
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
------------------------------- -----------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1999 1998 1999
--------------- --------------- ------------- ---------------
(unaudited) (unaudited)
Net revenues:
Advertising revenues $ 585,551 $ 1,740,440 $ 1,159,965 $ 2,864,208
Subscription revenues 447,764 934,219 706,556 1,646,979
Other revenues 82,720 585,752 167,966 740,047
--------------- --------------- ------------- ---------------
Total net revenues 1,116,035 3,260,411 2,034,487 5,251,234
Cost of revenues 783,943 2,076,666 1,490,481 3,680,923
--------------- --------------- ------------- ---------------
Gross profit 332,092 1,183,745 544,006 1,570,311
--------------- --------------- ------------- ---------------
Operating expenses:
Product development expenses 201,529 1,425,928 341,317 2,826,254
Sales and marketing expenses 3,691,739 3,357,033 6,419,117 5,510,843
General and administrative expenses 1,021,121 3,448,816 1,787,730 6,434,927
Noncash compensation expense 14,000 632,427 14,000 1,830,175
--------------- --------------- ------------- ---------------
Total operating expenses 4,928,389 8,864,204 8,562,164 16,602,199
--------------- --------------- ------------- ---------------
Loss from operations (4,596,297) (7,680,459) (8,018,158) (15,031,888)
Interest expense (125,315) - (383,043) -
Interest income 47,996 870,477 47,996 1,121,289
--------------- --------------- ------------- ---------------
Loss before provision for income taxes (4,673,616) (6,809,982) (8,353,205) (13,910,599)
Provision for income taxes - 18,825 - 94,750
--------------- --------------- ------------- ---------------
Net loss $ (4,673,616)$ (6,828,807) $ (8,353,205)$ (14,005,349)
=============== =============== ============= ===============
Net loss per share - basic and diluted $ (0.61) $ (0.38) $ (1.21) $ (0.97)
=============== =============== ============= ===============
Weighted average basic and diluted shares outstanding 8,291,404 20,459,328 7,246,019 17,418,182
=============== =============== ============= ===============
The accompanying notes are an integral part of these financial statements.
THESTREET.COM, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999
FOR THE SIX FOR THE SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, JUNE 30,
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1998 1999
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(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (8,353,205) $(14,005,349)
Adjustments to reconcile net loss to net cash
used in operating activities:
Noncash compensation expense 14,000 1,830,175
Allowance for doubtful accounts - 40,000
Depreciation and amortization 111,885 134,408
(Increase) decrease in accounts receivable (607,173) (249,050)
(Increase) decrease in other receivables and
unbilled revenue - 590,094
(Increase) decrease in prepaid expenses and (162,597) (34,140)
other current assets
(Increase) decrease in other assets (9,022) (60,761)
Increase (decrease) in accounts payable and (588,628) 1,580,802
accrued expenses
Increase (decrease) in deferred revenue 253,567 900,451
Increase (decrease) in other long-term
liabilities 100,620 -
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Net cash used in operating activities (9,240,553) (9,273,370)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (311,800) 1,022,152
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Net cash used in investing activities (311,800) (1,022,152)
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CASH FLOWS FROM FINANCIAL ACTIVITIES:
Proceeds from issuance of common stock - 112,787,893
Net borrowings (repayments) under line of credit - (3,333)
Proceeds from notes payable 5,733,955 -
Net proceeds from private placements 10,016,270 -
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Net cash provided by financing activities 15,750,225 112,784,560
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Net increase in cash and cash equivalents 6,197,872 102,489,038
Cash and cash equivalents, beginning of period 156,692 24,611,958
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Cash and cash equivalents, end of period $ 6,354,564 $127,100,996
============ ============
Supplemental Disclosure of Cash Flow Information:
Cash paid during period for:
Interest $ - -
============ ============
Income Taxes $ - $ 94,750
============ ============
The accompanying notes are an integral part of these financial statements.
THESTREET.COM, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
BUSINESS
TheStreet.com, Inc. ("TheStreet.com") is an on-line publisher of
financial news, commentary and information. TheStreet.com combines the
most important qualities of traditional print journalism -- accuracy,
intelligence, fairness and wit -- with the web's advantages as a financial
news medium -- timeliness, interactivity and global distribution. Our
content is generated by a staff of over 60 professional reporters and
editors, in addition to more than 30 outside contributors. We update our
site with approximately 40 original stories throughout each business day
and with many additional features on the weekends. We offer our readership
additional tools and features such as real-time quotes, portfolio trackers,
public company earnings information and charts and analysis. We provide our
service to the investment community of professionals and individuals to
help them make informed investment decisions. We aim to further develop a
community of loyal readers to build our subscription base and attract
advertisers.
BASIS OF PRESENTATION
The information presented as of June 30, 1999 and 1998, 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 the TheStreet.com's financial position as of June 30, 1999,
the results of its operations for the three-month and six-month periods
ended June 30, 1999 and 1998 and its cash flows for the six-month period
ended June 30, 1999 and 1998. 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, 1998
included in TheStreet.com's Form S-1 as filed with the Securities and
Exchange Commission.
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 income per share of common stock in
accordance with Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS No. 128"). Under the provisions of SFAS No.
128 basic net income per share ("Basic EPS") is computed by dividing net
income by the weighted average number of shares of common stock
outstanding. The following table reconciles the numerator and denominator
for the calculation:
For the Three Months Ended For the Six Months Ended
6/30/1998 6/30/1999 6/30/1998 6/30/1999
------------------ ------------------ ------------------ ------------------
(unaudited) (unaudited)
------------------ ------------------
Numerator:
Net Loss $ (4,673,616) $ (6,828,807) $ (8,353,205) $ (14,005,349)
Preferred Stock Dividends $ (313,380) $ (454,143) $ (313,380) $ (1,572,836)
Accretion of Redeemable
Convertible Series B
Preferred Stock $ (80,622) $ (408,600) $ (80,622) $ (1,252,569)
------------------ ------------------ ------------------ ------------------
Net Loss Available to Common
Shareholders $ (5,067,618) $ (7,691,550) $ (8,747,207) $ (16,830,754)
Denominator:
Weighted Average Basic &
Diluted Shares Outstanding 8,291,404 20,459,328 7,246,019 17,418,182
------------------ ------------------ ------------------ ------------------
NET LOSS PER SHARE $ (0.61) $ (0.38) $ (1.21) $ (0.97)
================== ================== ================== ==================
3. INITIAL PUBLIC OFFERING
On May 14, 1999, TheStreet.com completed its initial public offering
(the "IPO") and sold an aggregate of 6,325,000 shares of TheStreet.com's
common stock to the public (including 741,667 shares from TheStreet.com and
83,333 shares from Kevin English, TheStreet.com's Chairman of the Board,
Chief Executive Officer and President, pursuant to the exercise of the
underwriters' overallotment option). Net proceeds to TheStreet.com were
$108,788,000, after deducting underwriting discounts and commissions and
expenses payable by TheStreet.com in connection with the IPO.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This report contains forward-looking statements within the meaning of
Section 27(a) of the Securities Act of 1933 as amended, Section 21(E) of
the Securities Exchange Act of 1934, as amended, including, without
limitations, 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 10Q 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 condensed financial statements and notes thereto.
OVERVIEW
TheStreet.com is a leading web-based provider of original, timely,
comprehensive and trustworthy financial news, commentary and information
aimed at helping readers make informed investment decisions. We combine the
most important qualities of traditional print journalism -- accuracy,
intelligence, fairness, and wit -- with the web's advantages as a financial
news medium -- timeliness, interactivity and global distribution. With a
staff of more than 60 professional reporters and editors, together with
over 30 outside contributors, we update our site with approximately 40
original stories throughout each business day and with many additional
features on weekends. As a result, we are able to provide our readers with
original content which provides for a loyal and increasing readership base.
We originally organized in June 1996 as a limited liability company
funded by our co-founders, Mr. James J. Cramer and Dr. Martin Peretz. In
May 1998, we were re-organized from a limited liability company into a C
corporation, and in May 1999, we completed our initial public offering. We
are based in New York City with bureaus in San Francisco and London.
We derive our revenues from retail and professional subscriptions,
advertising and other sources, including content syndication fees. Our two
principal sources of revenue are generated from advertisers and
subscribers.
We have a number of strategic relationships that continue to help
create brand awareness and increase subscription and advertising revenues.
We have subscription distribution agreements with third parties such as
E*Trade and DLJ Direct, content distribution agreements with Yahoo!,
America Online and Intuit, and joint ventures with media companies such as
The New York Times Co. and Fox News Network.
In addition to providing financial news and commentary, we have
developed indices listed on major stock exchanges to monitor the collective
performance of companies in various sectors. In conjunction with the
Philadelphia Stock Exchange and the Susquehanna Investment Group, we
created TheStreet.com Internet Sector, an index of 20 Internet stocks.
Options based on the index began trading in December 1998. In February
1999, we created TheStreet.com E-Commerce Index, an index of 15 electronic
commerce stocks. In June 1999, we created a third stock index,
TheStreet.com E-Finance index, an index of 11 electronic finance stocks.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1999
NET REVENUES
Advertising Revenues. Advertising revenues are derived from
sponsorship arrangements and from the delivery of banner and email
advertisements. Advertising revenues increased from $586,000 for the three
months ended June 30, 1998 to $1,740,000 for the three months ended June
30, 1999 primarily as a result of agreements with new advertisers. For the
three months ended June 30, 1999 approximately 75% of our advertising
revenues was derived from sponsorship contracts.
The number of advertisers increased from 17 for the three months ended
June 30, 1998 to 83 for the three months ended June 30, 1999. Our top five
advertisers contributed 46% of advertising revenues for the three months
ended June 30, 1999, compared to 77% for the three months ended June 30,
1998.
Subscription Revenues. Net subscription revenues are derived from
annual and monthly subscriptions. We calculate net subscription revenues
by deducting from gross revenues, cancellation chargebacks and any refunds.
During the three months ended June 30, 1999, these cancellation chargebacks
and refunds accounted for approximately 4% of total subscriptions revenues.
Net subscription revenues increased from $448,000 for the three months
ended June 30, 1998 to $934,000 for the three months ended June 30, 1999
primarily as a result of the growth in our subscriber base. For the three
months ended June 30, 1999, approximately 77% of our net subscription
revenues was derived from annual subscriptions.
We continue to attract new subscribers to our site, as our subscriber
base has grown to approximately 66,000 subscribers, including subscribers
paid for as part of the bulk subscription contracts, as of June 30, 1999.
During the three months ended June 30, 1999, we averaged one million unique
visitors per month and 15 million page views per month. During this same
period, registered users including subscribers and free trial members spent
an average of 23 minutes per visit on our site.
Other Revenues. Other revenues increased from $83,000 for the three
months ended June 30, 1998 to $586,000 for the three months ended June 30,
1999 primarily as a result of hosting and new syndication arrangements with
online and print media companies, and one-time consulting services related
to content syndication.
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 increased from $784,000 for the
three months ended June 30, 1998 to $2,077,000 for the three months ended
June 30, 1999 primarily as a result of the growth of our editorial staff
from 35 as of June 30, 1998 to 66 as of June 30, 1999, an increase in the
number of outside contributors, an increase in data service fees for
editorial research, and an increase in content licensing fees.
PRODUCT DEVELOPMENT EXPENSES
Product development expenses include compensation and benefits for
software developers, expenses for contract programmers and developers,
communication lines, and other technology costs. Product development
expenses increased from $202,000 for the three months ended June 30, 1998
to $1,426,000 for the three months ended June 30, 1999 primarily as a
result of the commencement of new product development projects and an
increase of our technology headcount from 6 people as of June 30, 1998 to
24 as of June 30, 1999. We introduced our own subscription management
system in late May 1999 and made additional enhancements to our web site.
All product development costs are expensed as incurred.
SALES AND MARKETING EXPENSES
Sales and marketing expenses consist primarily of advertising and
promotion on television, online and in print, advertising commissions,
promotional materials, and compensation, benefits and sales commissions to
our direct sales force. Sales and marketing expenses decreased from
$3,692,000 for the three months ended June 30, 1998 to $3,357,000 for the
three months ended June 30, 1999 primarily due to a reduction in television
and online advertising caused by our initial public offering. We anticipate
incurring additional costs related to advertising and promotion on
television, online and in print.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses consist primarily of compensation
and benefits for general management, finance and administrative personnel,
occupancy costs, professional fees, depreciation and other office
expenses. General and administrative expenses increased from $1,021,000
for the three months ended June 30, 1998 to $3,449,000 for the three
months ended June 30, 1999 primarily as a result of incurring additional
costs to support the growth of our business and costs related to our being
a public company. The increased costs of supporting the growth of our
business primarily relate to hiring additional personnel, one-time costs
related to an office move, increased computer supplies and services,
increased professional service fees and increased costs for office
supplies.
NONCASH COMPENSATION EXPENSE
In 1998 and the first six months of 1999, we granted options to
purchase shares of common stock at exercise prices that were less than the
fair market value of the underlying shares of common stock on the date of
grant. This resulted in noncash compensation expense incurred over the
period that these specific options vest. The noncash compensation expense
was approximately $632,000 for the three months ended June 30, 1999. The
remaining noncash compensation expense for 1999 is currently estimated to
be $1.3 million.
INTEREST EXPENSE (INCOME) NET
For the three months ended June 30, 1998, interest expense on loans
from members of TheStreet.com, L.L.C. was $125,000. In May 1998, the loans
and remaining accrued interest were converted into equity when
TheStreet.com, L.L.C. converted into TheStreet.com, Inc. For the three
months ended June 30, 1998, interest income was $48,000, primarily from
interest earned on the cash proceeds from a private placement in May 1998.
For the three months ended June 30, 1999, interest income was $870,000
primarily as a result of proceeds from the completion of a $25 million
private placement in December 1998, additional equity investments in the
first quarter of 1999 and net proceeds from our initial public offering in
May 1999 of $108,788,000.
INCOME TAXES
The provision for income taxes of $19,000 for the three months ended
June 30, 1999 relates primarily to state and local taxes.
SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1999
NET REVENUES
Advertising Revenues. Advertising revenues increased from $1,160,000
in the six months ended June 30, 1998 to $2,864,000 in the six months ended
June 30, 1999 due to an increase in our sales of sponsorship banner and
email advertisements. In the six months ended June 30, 1998, 82% of our
advertising revenues were derived from sponsorship contracts. In the six
months ended June 30, 1999, 81% of our advertising revenues was derived
from sponsorship contracts.
The number of advertisers increased from 30 for the six months ended
June 30, 1998 to 114 for the six months ended June 30, 1999. Our top five
advertisers contributed 51% of advertising revenues for the six months
ended June 30, 1999, compared to 73% for the six months ended June 30,
1998.
Subscription Revenues. Net subscription revenues increased from
$707,000 in the six months ended June 30, 1998 to $1,647,000 in the six
months ended June 30, 1999 primarily as a result of the growth in our
subscriber base. During the six months ended June 30, 1999, cancellation
chargebacks and refunds accounted for approximately 4% of total
subscription revenues. For the six months ended June 30, 1999,
approximately 73% of our net subscription revenues was derived from annual
subscriptions.
Other Revenues. Other revenues increased from $168,000 in the six
months ended June 30, 1998 to $740,000 in the six months ended June 30,
1999. In the six months ended June 30, 1998, our other revenues consisted
of revenues derived from a syndication and hosting partnership with
ABCNEWS.com and Starwave (an affiliate of ABCNEWS.com). As part of this
arrangement, we agreed to syndicate a portion of our news content to
ABCNEWS.com in return for technology and hosting services from Starwave.
This arrangement ceased once our internal subscription management system
became operational in late May 1999. In the six months ended June 30,
1999, other revenues consisted primarily of hosting and new syndication
arrangements with online and print media companies, and revenues from one-
time consulting services related to content syndication.
COST OF REVENUES
Cost of revenues increased from $1,490,000 for the six months ended
June 30, 1998 to $3,681,000 for the six months ended June 30, 1999
primarily as a result of the growth of our editorial staff from 35 as of
June 30, 1998 to 66 as of June 30, 1999, an increase in the number of
outside contributors, an increase in data service fees for editorial
research, and an increase in content licensing fees.
PRODUCT DEVELOPMENT EXPENSES
Product development expenses increased from $341,000 for the six
months ended June 30, 1998 to $2,826,000 for the six months ended June 30,
1999, primarily as a result of the commencement of new product development
projects, and an increase in the headcount from 6 people as of June 30,
1998 to 24 people as of June 30, 1999.
SALES AND MARKETING EXPENSES
Sales and marketing expenses decreased from $6,419,000 for the six
months ended June 30, 1998 to $5,511,000 for the six months ended June 30,
1999, primarily due to a reduction in television and online advertising
caused by our initial public offering. We anticipate incurring additional
costs related to advertising and promotion on television, online and in
print.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative costs increased from $1,788,000 for the six
months ended June 30, 1998 to $6,435,000 for the six months ended June 30,
1999 primarily as a result of hiring additional personnel and incurring
additional costs to support the growth of our business and costs related to
our being a public company. The increased costs of supporting the growth
of our business primarily relate to rent and moving expenses, professional
service fees, insurance costs and equipment depreciation.
NONCASH COMPENSATION EXPENSE
During 1998 and the first six months of 1999, we granted options to
purchase shares of common stock at exercise prices that were less than the
fair market value of the underlying shares of common stock on the date of
grant. This resulted in noncash compensation expense over the period that
these specific options vest. For the first six months ended June 30, 1999,
we recorded $1,830,000 noncash compensation expense related to these
options. We estimate this expense will be approximately $3.130 million for
the year ended December 31, 1999. The remaining noncash compensation
expense beyond 1999 is currently estimated to be $8 million.
INTEREST EXPENSE (INCOME) NET
For the six months ended June 30, 1998, interest expense on loans from
founders of the TheStreet.com, L.L.C. was $383,000. In May 1998, the loans
and remaining accrued interest were converted into equity when
TheStreet.com, L.L.C. converted into TheStreet.com, Inc. For the first six
months of June 30, 1998 interest income was $48,000, primarily from
interest earned on the cash proceeds from a private placement in May 1998.
For the six months ended June 30, 1999, interest income was $1,121,000,
primarily from interest earned on the cash proceeds from our initial public
offering.
INCOME TAXES
For the six months ended June 30, 1999, income taxes were $95,000,
primarily due to state and local income tax assessments.
LIQUIDITY AND CAPITAL RESOURCES
We currently invest in money market funds that are highly liquid, of
high-quality investment grade, and have maturities of less than three
months with the intent to make such funds readily available for operating
purposes. As of June 30, 1999, our cash and cash equivalents amounted to
$127,101,000, compared to $24,612,000 as of December 31, 1998.
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.
Cash used in operating activities of $9,273,000 for the six months
ended June 30, 1999 was primarily due to a net loss of $14,005,000, offset
by non cash charges of $1,830,000 for compensation expense, an increase in
accounts payable and accrued expenses of $1,581,000 for normal operating
expenses, and an increase in deferred revenue of $900,000 primarily due to
the increase in annual subscriptions sales. Significant uses of cash in
operations for the six months ended June 30, 1999 include costs associated
with additional reporters and editors, sales and marketing activities to
establish and promote our products and services, product development
expenses to enhance our web site's features and functionality, and general
and administrative expenses to support the growth of our business.
Cash used in investing activities of $1,022,000 for the six months
ended June 30, 1999 consisted primarily of capital expenditures. Capital
expenditures have generally consisted of purchases of computer hardware
related to increasing our capacity and enhancing our web site.
Cash provided by financing activities was $112,785,000 for the six
months ended June 30, 1999 due to the initial public offering completed in
May 1999 of 6,325,000 shares at a $19 offering price per share with
proceeds of $108,788,000 net of underwriting and offering expenses, and
$4,000,000 as a result of issuances of common stock in the first quarter of
1999.
We believe that the net proceeds from our initial public offering,
together with our current cash, 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.
YEAR 2000 READINESS DISCLOSURE
OUR STATE OF READINESS
We have defined Year 2000 compliance as follows: Information
Technology ("IT") time and date data processes, including, but not limited
to, calculating, comparing and sequencing data from, into and between the
20th and 21st centuries contained in our products and services, and our
non-IT systems, will function accurately, continuously and without
degradation in performance and without requiring intervention or
modification in any manner that will or could materially adversely affect
the performance of such products or the delivery of such services as
applicable at any time hereafter.
We have substantially completed the process of determining the Year
2000 readiness of our IT systems, which include the hardware and software
necessary to provide and deliver our service, and of our non-IT systems,
except for our telephone systems which we expect to replace before the end
of this year. TheStreet.com's assessment plan consists of the following
steps:
(i) evaluating our date dependent code, software and hardware and
evaluating external dependencies;
(ii) quality assurance testing of our internally-developed proprietary
software and systems;
(iii) obtaining assurances or warranties from third-party vendors
and licensors of material hardware, software and services
that are related to the delivery of our services; and
(iv) evaluating the need for, and preparing and implementing if
required, a contingency plan.
To date, our assessment has determined that our material internally
developed software and systems are Year 2000 compliant and our material
hardware, software and service vendors have informed us that the products
we are using to support our services are Year 2000 compliant. Our hosting
service, Exodus Communications, has represented to us that its systems are
Year 2000 compliant or will be upgraded to be compliant in the normal
course of business through upgrades or installation of software patches.
Substantially all hardware used in our network operations and office
operations has been certified as Year 2000 compliant by our vendors. We
expect to be moving from our present facilities at the end of this year,
and, therefore, we have not asked for assurances from our current landlord
on the Year 2000 compliance of our existing facilities.
THE COSTS TO ADDRESS YEAR 2000 ISSUES
We have incurred $25,200 in costs in connection with our Year 2000
compliance efforts since inception through June 30, 1999. We expect to
incur approximately $20,000 in additional costs to make our systems Year
2000 compliant, which will be expensed as incurred.
We are not currently aware of any material operational issues or costs
associated with preparing our systems for the Year 2000. Nonetheless, we
may experience material unexpected costs caused by undetected errors or
defects in the technology used in our systems or because of the failure of
a material vendor to be Year 2000 compliant.
CONTINGENCY PLANS
We have not yet developed a contingency plan to address situations
that may result if we are unable to achieve Year 2000 compliance. The cost
of developing and implementing such a plan, if necessary, could be
material.
RISK FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
You should carefully consider the following risks before making an
investment decision. If any of the following risks occur, our business,
results of operations or financial condition could be materially adversely
affected.
OUR LIMITED OPERATING HISTORY MAKES EVALUATING OUR BUSINESS DIFFICULT
We commenced operations in June 1996 and launched our web site in
November 1996. Accordingly, we have only a limited operating history upon
which you can evaluate our business and prospects. An investor in our
common stock must consider the risks, expenses and difficulties frequently
encountered by early stage companies in new and rapidly evolving markets,
including web-based financial news and information companies.
WE HAVE A HISTORY OF LOSSES AND WE ANTICIPATE LOSSES WILL CONTINUE
As of June 30, 1999, we had an accumulated deficit of $28.1 million.
We have not achieved profitability and expect to continue to incur net
losses in 1999 and subsequent fiscal periods. 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.
IF WE ARE UNABLE TO ATTRACT OR RETAIN QUALIFIED EDITORIAL STAFF AND OUTSIDE
CONTRIBUTORS, OUR BUSINESS COULD BE HARMED
Our future success depends substantially upon the continued efforts of
our editorial staff and outside contributors to produce original, timely,
comprehensive and trustworthy content. Only a few of our writers are bound
by employment agreements. Competition for financial journalists is intense,
and we may not be able to retain existing or attract additional highly
qualified writers in the future. If we lose the services of a significant
number of our editorial staff and outside contributors or are unable to
continue to attract additional writers with appropriate qualifications, our
business, results of operations and financial condition could be materially
adversely affected.
In addition, we believe that some of our writers, including Mr. James
J. Cramer and Mr. Herb Greenberg, have a large and loyal following among
our readers. Mr. Cramer has an employment agreement with us that terminates
in February 2003. Mr. Greenberg has an employment agreement with us that
terminates in March 2001. If we lose the services of prominent members of
our editorial staff, including Mr. Greenberg, or popular outside
contributors, including Mr. Cramer, a significant number of our subscribers
may not renew their subscriptions or the number of our readers may
decrease. A significant reduction in the number of our subscribers or
readers could materially adversely affect our business, results of
operations and financial condition.
POTENTIAL FLUCTUATIONS IN OUR QUARTERLY FINANCIAL RESULTS MAKE FINANCIAL
FORECASTING DIFFICULT
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 or other patterns may develop 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 may fall.
OUR FUTURE SUCCESS DEPENDS ON MAINTAINING AND INCREASING OUR SUBSCRIBER
BASE
Our future success is highly dependent on an increase in the number of
readers who are willing to subscribe to online financial news and
information publications. The number of Internet users willing to pay for
online financial news and information may not continue to increase. If the
market for subscription-based online financial news and information
publications develops more slowly than we expect, our business, results of
operations and financial condition could be materially adversely affected.
Further, we presently offer a portion of our content for free. In the
future we intend to increase the free portion of our content to increase
traffic. However, this change may reduce the number of our new or renewing
subscribers, which could have a material adverse effect on our business,
results of operations and financial condition. Additionally, during the
fourth quarter of 1998, we began to participate in a program where our
readers can receive annual subscriptions to our site by redeeming frequent
flyer miles through a third-party service. Additional readers may not
subscribe through this program. Further, while we do not expect that these
subscribers will renew their subscriptions at a rate consistent with the
renewal rate of our general subscriber base, it is possible that the actual
renewal rate of these subscribers may be significantly lower than our
expectations, which could materially adversely affect our business, results
of operations and financial condition.
WE DEPEND ON OUR TOP ADVERTISERS FOR A SIGNIFICANT PORTION OF OUR
ADVERTISING REVENUES, AND THE LOSS OF ONE OR MORE OF OUR TOP ADVERTISERS
MAY HARM OUR BUSINESS
In 1998, our top advertiser accounted for approximately 40%, and our
top five advertisers accounted for approximately 65%, of our total
advertising revenues. For the six months ended June 30, 1999, our top five
advertisers accounted for approximately 51% of our total advertising
revenues. Our business, results of operations and financial condition could
be materially adversely affected by the loss of one or more of our top
advertisers. 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. We believe that we charge
advertising rates that are among the highest of financial web sites.
However, there can be no assurance that we will be able to command premium
rates in the future. Further, as we increase the free portion of our site,
which may command lower advertising rates than our premium sections,
current advertisers may seek to switch to these less expensive areas. As is
typical in the advertising industry, our advertising contracts have
cancellation provisions.
OUR INTERNATIONAL EXPANSION MAY INCREASE EXPENSES AND CREATE COMPLIANCE AND
OPERATIONAL DIFFICULTIES
We intend to expand our business into international markets. In the
event that we conduct international expansion, we will incur significant
additional costs which would result in additional losses. Also, we will
encounter many of the risks associated with international business
expansion, generally. These risks include, but are not limited to, language
barriers, changes in currency exchange rates, political and economic
instability, difficulties with regulatory compliance and difficulties with
enforcing contracts and other legal obligations.
INTENSE COMPETITION COULD REDUCE OUR MARKET SHARE AND HARM OUR FINANCIAL
PERFORMANCE
An increasing number of financial news and information sources compete
for consumers' and advertisers' attention and spending. We expect this
competition to continue to increase. 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 MarketWatch.com, The Wall Street
Journal Interactive Edition, DowJones.com and The Motley
Fool;
o publishers and distributors of traditional media, including
print, radio and television, such as The Wall Street
Journal, Barrons, 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 and
E*TRADE
Our ability to compete depends on many factors, including the
originality, timeliness, comprehensiveness 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 their financial news for
free) and make more attractive offers to existing and potential employees,
outside contributors, strategic partners and advertisers. Our competitors
may develop content that is equal or superior to ours or that achieves
greater market acceptance than ours. It is also possible that new
competitors may emerge and rapidly acquire significant market share. We may
not be able to compete successfully for advertisers, readers, staff or
outside contributors, which could materially adversely affect our business,
results of operations and financial condition. Increased competition could
result in price reductions, reduced margins or loss of market share, any of
which could materially adversely affect our business, results of operations
and financial condition.
We also compete with other web sites, television, radio and print
media for a share of advertisers' total advertising budgets. If advertisers
perceive the Internet or our web site 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
site.
A FAILURE TO ESTABLISH AND MAINTAIN STRATEGIC RELATIONSHIPS WITH OTHER WEB
SITES COULD DECREASE OUR SUBSCRIBER AND READER BASE, WHICH MAY HARM OUR
BUSINESS
We depend on establishing and maintaining subscription distribution
relationships with online financial services firms and content syndication
relationships with high-traffic web sites for a significant portion of our
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 relationships
or maintain existing relationships in the future. We may be unable to enter
into relationships with these firms or sites on commercially reasonable
terms or at all. Even if we enter into these relationships, they may not
attract significant numbers of readers. Therefore, our site may not receive
a significant number of additional subscribers or readers from such
relationships.
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 site.
FAILURE TO RETAIN AND INTEGRATE OUR ADVERTISING SALES FORCE COULD RESULT IN
LOWER ADVERTISING REVENUES
We depend on our internal advertising sales department to maintain and
increase our advertising sales. As of June 30, 1999, our advertising sales
department consisted of 12 employees. The success of our advertising sales
department is subject to a number of risks, including the competition we
face from other companies in hiring and retaining sales personnel and the
length of time it takes new sales personnel to become productive. Our
business, results of operations and financial condition could be materially
adversely affected if we do not maintain an effective advertising sales
department.
WE MAY BE UNABLE TO MANAGE OUR GROWTH, WHICH MAY HARM OUR BUSINESS
We have experienced rapid growth in our operations. Our rapid growth
has placed, and our anticipated future growth will continue to place, a
significant strain on our managerial, operational and financial resources.
To manage our growth, we must continue to implement and improve our
managerial controls and procedures and operational and financial systems.
In addition, our future success will depend on our ability to expand, train
and manage our workforce, in particular our editorial, advertising sales
and business development staff. As of June 30, 1999, we had a total of 158
employees, as compared to 100 employees as of December 31, 1998 and 33
employees as of December 31, 1997. We expect that the number of our
employees will continue to increase for the foreseeable future. We will
need to integrate these employees into our workforce successfully. We
cannot assure you that we have made adequate allowances for the costs and
risks associated with this expansion, that our systems, procedures or
controls will be adequate to support our operations, or that our management
will be able to successfully offer and expand our services. If we are
unable to manage our growth effectively, our business, results of
operations and financial condition could be materially adversely affected.
WE MAY BE UNABLE TO GROW THROUGH ACQUISITIONS AND INTEGRATE FUTURE
ACQUISITIONS INTO OUR BUSINESS
We intend to pursue a growth strategy involving acquisitions of other
companies. However, we may be unable to successfully pursue and complete
these 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.
OUR FUTURE SUCCESS DEPENDS ON THE CONTINUED SERVICES OF OUR KEY MANAGEMENT
PERSONNEL
Our future success depends upon the continued service of certain key
management personnel. The loss of one or more of our key management
personnel could materially adversely affect our business, results of
operations and financial condition. A few of our employees have entered
into non-competition agreements with us. However, other employees may leave
us and work for our competitors or start their own competing business.
UNEXPECTED INCREASES IN TRAFFIC MAY STRAIN OUR SYSTEMS
In the past, we have experienced significant spikes in traffic on our
web site when there have been important financial news events. In addition,
the number of our readers has continued to increase over time and we are
seeking to increase our reader base further. Accordingly, our web site must
accommodate a high volume of traffic, often at unexpected times. Our web
site has in the past, and may in the future, experience slower response
times than usual or other problems for a variety of reasons. These
occurrences could cause our readers to perceive our web site 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, DART by DoubleClick. These systems and operations are vulnerable to
damage or interruption from human error, natural disasters,
telecommunication failures, break-ins, sabotage, computer viruses,
intentional acts of vandalism and similar events. Although we do not have a
formal disaster recovery plan, we are in the process of developing one. Any
system failure, including network, software or hardware failure, that
causes an interruption in our service or a decrease in responsiveness of
our web site could result in reduced traffic, reduced revenue and harm to
our reputation, brand and our relations with our advertisers. In February
1999, we entered into a one-year Internet-hosting agreement with Exodus
Communications, Inc. to maintain all of our production servers at Exodus'
New Jersey data center. Our operations depend on Exodus' ability to protect
its 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 site provided by
Exodus could materially adversely affect our business, results of
operations and financial condition. 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.
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 subscribers and readers. The importance of brand recognition will
increase in the future because of the growing number of web sites providing
financial news and information. We cannot assure you that our efforts to
build brand awareness will be successful.
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 stock ownership 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 SITE 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 site. 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 site through links to
other web sites. Our insurance may not adequately protect us against these
claims.
YEAR 2000 COMPLICATIONS MAY DISRUPT OUR OPERATIONS AND HARM OUR BUSINESS
Many currently installed computer systems and software products are
coded to accept only two-digit entries to identify a year in the date code
field. Consequently, on January 1, 2000, many of these systems could fail
or malfunction because they may not be able to distinguish between 20th
century dates and 21st century dates. Accordingly, our customers, potential
customers, vendors and strategic partners may need to upgrade their
computer systems and software products to comply with applicable "Year
2000" requirements.
Because we and our subscribers and readers are dependent, to a very
substantial degree, upon the proper functioning of our and their computer
systems, a failure of our or their computer systems to correctly recognize
dates beyond December 31, 1999, could materially disrupt our operations or
the ability of our subscribers and readers to access our web site, which
could materially adversely affect our business, results of operations and
financial condition.
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. 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.
DIFFICULTIES IN DEVELOPING NEW AND ENHANCED SERVICES AND FEATURES FOR OUR
WEB SITE COULD HARM OUR BUSINESS
We intend to introduce additional and enhanced services in order to
retain our current readers and attract new readers. If we introduce a
service that is not favorably received, our current readers may choose a
competitive service over ours or fail to renew their subscriptions. We may
also experience difficulties that could delay or prevent us from
introducing new services. These difficulties may include the loss of, or
inability to obtain or maintain, third-party technology license agreements.
Furthermore, the new services we may introduce could contain errors that
are discovered after these services are introduced. In these cases, we may
need to significantly modify the design or implementation of such services
on our web site to correct these errors. Our business, results of
operations and financial condition could be materially adversely affected
if we experience difficulties in introducing new services or if these new
services are not accepted by our readers.
OUR ABILITY TO MAINTAIN AND INCREASE OUR READER BASE 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 concerns;
o inconsistent quality of service; and
o unavailability of cost-effective, high-speed access to the
Internet.
Our readers depend on Internet service providers, online service
providers and other web site operators for access to our web site. 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 site 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 site 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 OR OUR INABILITY TO ADAPT TO TRENDS
IN ONLINE ADVERTISING COULD HARM OUR ADVERTISING REVENUES
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.
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 site 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 site.
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 READER BASE
Existing domestic and international laws or regulations specifically
regulate communications or commerce on the web. Further, laws and
regulations that address issues such as user privacy, pricing, online
content regulation, taxation and the characteristics and quality of online
products and services are under consideration by federal, state, local and
foreign governments and agencies. 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. This regulation, if imposed, could increase the cost of
transmitting data over the web. 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
are applicable to the web. The Federal Trade Commission and government
agencies in certain states have been investigating certain Internet
companies regarding their use of personal information. 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. 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 site or
otherwise materially adversely affect our business.
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 site 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.
SHARES ELIGIBLE FOR PUBLIC SALE AFTER OUR INITIAL PUBLIC OFFERING COULD
ADVERSELY AFFECT OUR STOCK PRICE
As of June 30, 1999, there were outstanding 24,509,910 shares of our
common stock. Of these shares, the shares sold in our initial public
offering are freely tradeable except for any shares purchased by our
"affiliates" as defined in Rule 144 under the Securities Act. The remaining
shares will be "restricted securities," subject to the volume limitations
and other conditions of Rule 144 under the Securities Act.
Our directors, executive officers, and substantially all of our
current stockholders and optionholders have agreed, subject to limited
exceptions, that during the period between May 10, 1999 through and
including November 6, 1999, that they will not, without the prior written
consent of Goldman, Sachs & Co., directly or indirectly, offer to sell,
sell or otherwise dispose of any shares of common stock. After the first
anniversary of our initial public offering, some holders of common stock
will have the right to request the registration of their shares under the
Securities Act. Upon the effectiveness of that registration statement, all
shares covered by that registration statement will be freely transferable.
We cannot predict if future sales of our common stock, or the
availability of our common stock for sale, will materially adversely affect
the market price for our common stock or our ability to raise capital by
offering equity securities.
CONTROL BY PRINCIPAL STOCKHOLDERS, OFFICERS AND DIRECTORS COULD ADVERSELY
AFFECT OUR STOCKHOLDERS
As of June 30, 1999, our officers, directors and greater-than-five-
percent stockholders (and their affiliates), in the aggregate, beneficially
own approximately 55% of the outstanding common stock. As a result, these
persons, acting together, have the ability to control substantially all
matters submitted to our stockholders for approval (including the election
and removal of directors and any merger, consolidation or sale of all or
substantially all of our assets) and to control our management and affairs.
Accordingly, this concentration of ownership may have the effect of
delaying, deferring or preventing a change in control of us, impeding a
merger, consolidation, takeover or other business combination involving us
or discouraging a potential acquirer from making a tender offer or
otherwise attempting to obtain control of us, which in turn could
materially adversely affect the market price of the common stock.
VOLATILITY OF OUR STOCK PRICE COULD ADVERSELY AFFECT OUR STOCKHOLDERS
The stock market has experienced significant price and volume
fluctuations and the market prices of securities of technology companies,
particularly Internet-related companies, have been highly volatile.
Investors may not be able to resell their shares at or above the price at
which they bought them.
In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted against that company. The institution of similar litigation
against us could result in substantial costs and a diversion of our
management's attention and resources, which could materially adversely
affect our business, results of operations and financial condition.
ANTI-TAKEOVER PROVISIONS COULD PREVENT OR DELAY A CHANGE OF CONTROL
Provisions of our amended and restated certificate of incorporation
and amended and restated bylaws and Delaware law could make it more
difficult for a third party to acquire us, even if doing so would be
beneficial to our stockholders.
WE DO NOT INTEND TO PAY DIVIDENDS
We have never declared or paid any cash dividends on our common stock.
We currently intend to retain any future earnings for funding growth and,
therefore, do not expect to pay any dividends in the foreseeable future.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
TheStreet.com, from time to time, becomes involved in various routine
legal proceedings in the ordinary course of its business. We believe that
the outcome of all pending legal proceedings and unasserted claims in the
aggregate will not have a material adverse effect on its results of
operations, financial position or liquidity.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On May 14, 1999, TheStreet.com completed an initial public offering in
which it sold an aggregate of 6,325,000 shares of its common stock, $0.01
par value (including 741,667 shares from TheStreet.com and 83,333 shares
from Kevin English, TheStreet.com's Chairman of the Board, Chief Executive
Officer and President, subject to the underwriters' over-allotment option).
The managing underwriters in the offering were Goldman, Sachs & Co.,
Hambrecht & Quist LLC and Thomas Weisel Partners LLC. The shares of common
stock sold in the offering were registered under the Securities Act of
1933, as amended, on a Registration Statement on Form S-1 (Reg. No. 333-
72799) (the "Registration Statement") that was declared effective by the
Securities and Exchange Commission on May 10, 1999. All 6,325,000 shares of
common stock registered under the Registration Statement were sold at a
price of $19.00 per share for gross proceeds of $120,175,000. Offering
proceeds to TheStreet.com, net of underwriter discounts and commissions and
other related expenses, were approximately $108.8 million.
Net offering proceeds received on May 14, 1999 from the initial
public offering were used for general corporate purposes and to provide
working capital to develop new products and expand internationally. Funds
not used have been invested in short-term investment-grade instruments,
certificates of deposit or direct or guaranteed obligations of the U.S.
government. TheStreet.com also may use a portion of the net proceeds to
acquire or invest in businesses, technologies, products or services,
although no specific acquisitions have been made and no portion of the net
proceeds has been allocated for any acquisition. None of the net offering
proceeds of the initial public offering have been or will be paid directly
or indirectly to any director, officer of TheStreet.com or their
associates, persons owning 10% or more of any class of TheStreet.com's
equity securities, or an affiliate of TheStreet.com.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO 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
10.1 Agreement of Lease, dated July 22, 1999, between W12/14 Wall
Acquisition Associates LLC and TheStreet.com, Inc.
10.2 Subordination, Non-Disturbance and Attornment Agreement,
dated July 22, 1999, between PW Real Estate Investments Inc.
and TheStreet.com, Inc.
10.3 Sublease Agreement, dated July 22, 1999, between
TheStreet.com, Inc. and W12/14 Wall Acquisition Associates
LLC.
10.4 Letter Agreement, dated July 22, 1999, between Rector
Trinity Associates, LLC, TheStreet.com, Inc. and W12/14 Wall
Acquisition Associates LLC.
10.5 Amendment to Interactive Services Agreement, dated April 16,
1999, by and between America Online, Inc. and TheStreet.com,
L.L.C.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
Not Applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: August 16, 1999 TheStreet.com, Inc.
(Registrant)
By: /s/ Kevin W. English
---------------------------
Name: Kevin W. English
Title: Chairman, Chief Executive Officer
and President
Date: August 16, 1999 By: /s/ Paul Kothari
-------------------------------
Name: Paul Kothari
Title: Vice President and Chief Financial
Officer
EXHIBIT INDEX
Exhibit No. Description
10.1 Agreement of Lease, dated July 22, 1999, between
W12/14 Wall Acquisition Associates LLC and
TheStreet.com, Inc.
10.2 Subordination, Non-Disturbance and Attornment
Agreement, dated July 22, 1999, between PW Real
Estate Investments Inc. and TheStreet.com, Inc.
10.3 Sublease Agreement, dated July 22, 1999, between
TheStreet.com, Inc. and W12/14 Wall Acquisition
Associates LLC.
10.4 Letter Agreement, dated July 22, 1999, between
Rector Trinity Associates, LLC, TheStreet.com,
Inc. and W12/14 Wall Acquisition Associates
LLC.
10.5 Amendment to Interactive Services Agreement,
dated April 16, 1999, by and between America
Online, Inc. and TheStreet.com, L.L.C.
27.1 Financial Data Schedule