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 September 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.
(Exact name of Registrant as specified in its charter)
Delaware 06-1515824
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2 Rector Street, 14th Floor
New York, New York 10006
(Address of principal executive offices)
(212) 602-0400
(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 September 30, 1999:
Common Stock, par value $0.01 per share 24,522,410
_____________________________________________ __________________
(Class) (Number of Shares)
THESTREET.COM, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
Part I -- FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements..................1
Condensed Consolidated Balance Sheets as of
December 31, 1998 and September 30, 1999...................1
Condensed Consolidated Statements of Operations for
the Three and Nine Months Ended September 30,
1998 and 1999..............................................2
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 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 CONSOLIDATED FINANCIAL STATEMENTS
THESTREET.COM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER
1998 30, 1999
(UNAUDITED)
------------ -----------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $24,611,958 $136,532,538
Accounts receivable, net of allowance for doubtful accounts of
$40,000 and $180,000 as of December 31, 1998 and September 30, 811,419 1,876,575
1999, respectively.
Other receivables and unbilled revenue 663,137 209,150
Prepaid expenses and other current assets 687,639 1,900,376
-------------- ------------
Total current assets 26,774,153 140,518,639
Property and equipment, net of accumulated depreciation and
amortization of $78,110 and $411,788 as of December 31, 1998 and 599,937 3,096,182
September 30, 1999, respectively.
Other assets 207,329 395,814
-------------- ------------
Total assets $27,581,419 $144,010,636
============== ============
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Line of credit $3,333 $ -
Accounts payable 1,927,065 2,522,541
Accrued expenses 1,250,577 4,205,212
Deferred revenue 675,513 2,499,228
Other current liabilities - 100,318
-------------- ------------
Total current liabilities 3,856,488 9,327,299
Long-term debt 200,636 -
Minority Interest - 16,687,215
-------------- ------------
Total liabilities 4,057,124 26,014,514
-------------- ------------
Redeemable convertible Series B preferred stock; $0.01 par value; 21,106,898 -
9 1/2% cumulative; 345,366 and 0 shares issued and outstanding as
of December 31, 1998 and June 30, 1999, respectively.
STOCKHOLDERS' EQUITY
Common Stock; $0.01 par value;
100,000,000 shares authorized, 13,763,838 and 24,522,410 shares 137,638 245,224
issued and outstanding at December 31, 1998 and September 30,
1999, respectively.
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 1,184 -
September 30, 1999, respectively.
Series C; $0.01 par value; 1,500 shares issued and outstanding as
of December 31, 1998 and 0 as of September 30, 1999. 15 -
Additional paid-in capital 16,349,199 173,049,021
Deferred compensation (1,578,000) (8,453,605)
Advertising receivable - (10,952,025)
Accumulated deficit (12,492,639) (35,892,493)
-------------- ------------
Total stockholders' equity 2,417,397 117,996,122
-------------- ------------
Total liabilities and stockholders' equity $27,581,419 $144,010,636
============== ============
The accompanying notes are an integral part of these balance
sheets.
</TABLE>
THESTREET.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
(UNAUDITED) (UNAUDITED)
---------------------------- -------------------------------
1998 1999 1998 1999
---- ---- ---- ----
Net revenues:
<S> <C> <C> <C> <C>
Advertising & E-Commerce revenues $ 574,681 $ 2,141,675 $ 1,734,646 $ 5,005,883
Subscription revenues 437,669 1,350,937 1,144,226 2,997,917
Other revenues 105,227 455,430 273,193 1,195,475
------------ ------------- --------------- -------------
Total net revenues 1,117,577 3,948,042 3,152,065 9,199,275
Cost of revenues 1,076,846 2,664,024 2,567,325 6,344,947
------------ ------------- --------------- -------------
Gross profit 40,731 1,284,018 584,740 2,854,328
------------ ------------- --------------- -------------
Operating expenses:
Product development expenses 444,222 1,735,726 785,540 4,561,979
Sales and marketing expenses 1,534,668 4,697,601 7,953,783 10,208,439
General and administrative
expenses 1,313,491 3,756,270 3,101,222 10,191,191
Noncash compensation expense 26,000 629,925 40,000 2,460,100
------------ ------------- --------------- -------------
Total Operating expenses 3,318,381 10,819,523 11,880,545 27,421,710
------------ ------------- --------------- -------------
Loss from operations (3,277,650) (9,535,505) (11,295,805) (24,567,382)
Interest expense - - (383,043) -
Interest income 75,785 1,475,096 123,781 2,596,385
------------ ------------- --------------- -------------
Loss before provision for income
taxes and minority interest (3,201,865) (8,060,409) (11,555,067) (21,970,997)
Provision for income taxes - - - 94,750
Minority Interest - 238,729 - 238,729
------------ ------------- --------------- -------------
Net Loss $ (3,201,865) $ (7,821,680) $ (11,555,067) $(21,827,018)
============ ============= =============== =============
Net loss per share - basic and
diluted $ (0.40) $ (0.32) $ (1.57) $ (1.24)
============ ============= =============== =============
Weighted average basic and diluted
shares outstanding 9,691,061 24,521,730 8,019,484 19,812,052
============ ============= =============== =============
The accompanying notes are an integral part of these financial
statements.
</TABLE>
THESTREET.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
<TABLE>
<CAPTION>
FOR THE NINE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
(UNAUDITED) (UNAUDITED)
------------------------------------------
1998 1999
------------------- --------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Loss $ (11,555,067) $ (21,827,018)
Adjustments to reconcile net loss to net
cash used in operating activities:
Noncash compensation expense 40,000 2,460,100
Noncash advertising expense - 1,047,975
Allowance for doubtful accounts 60,000 140,000
Minority Interest - (238,729)
Depreciation and amortization (175,158) 315,188
(Increase) decrease in accounts receivable (394,387) (1,205,156)
(Increase) decrease in other receivables and
unbilled revenue (198,105) 453,987
(Increase) decrease in prepaid expenses and other
current assets (278,028) (1,212,737)
(Increase) decrease in other assets (56,766) (188,485)
Increase (decrease) in accounts payable and accrued
expenses 313,668 3,550,111
Increase (decrease) in deferred revenue 359,160 1,823,715
Increase (decrease) in deferred rent 120,758 (100,317)
------------------- --------------------
Net cash used in operating activities (11,763,925) (14,981,366)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures 54,935 (2,808,557)
------------------- --------------------
Net cash used for investing activities 54,935 (2,808,557)
------------------- --------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in Minority Interest - 16,925,944
Proceeds from issuance of common stock - 112,787,892
Net borrowings (repayments) under line of credit - (3,333)
Proceeds from notes payable 5,733,955 -
Net proceeds from private placements 9,984,334 -
------------------- --------------------
Net cash provided by financing activities 15,718,289 129,710,503
------------------- --------------------
Net increase in cash 4,009,299 111,920,580
Cash and cash equivalents, beginning of period 156,692 24,611,958
------------------- --------------------
Cash and cash equivalents, end of period $ 4,165,991 $ 136,532,538
=================== ====================
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ - $ -
Income Taxes $ - $ 94,750
The accompanying notes are an integral part of these financial
statements.
</TABLE>
THESTREET.COM, INC.
NOTES TO CONDENSED CONSOLIDATED 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 approximately 80 professional reporters and
editors, in addition to more than 30 outside contributors. We update our
site with approximately 50 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 September 30, 1999 and 1998, and for
the three month and nine 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 September 30,
1999, the results of its operations for the three-month and nine-month
periods ended September 30, 1999 and 1998 and its cash flows for the
nine-month period ended September 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.
In September 1999, TheStreet.com, Inc. and minority investors
including 3i, Barclays Capital, Chase Capital Partners, ETF Group, and
Intel formed TheStreet.com (Europe) Limited, a holding company majority
owned by TheStreet.com Inc. TheStreet.com, Inc. owns approximately 63% of
the holding company, which in 2000 plans to launch TheStreet.co.uk, a
financial news and commentary web site for UK investors. The holding
company's financial results are consolidated in TheStreet.com, Inc.'s
financial statements.
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:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
----------------------------- ------------------------------
9/30/1998 9/30/1999 9/30/1998 9/30/1999
----------------------------- ------------------------------
(UNAUDITED) (UNAUDITED)
NUMERATOR:
<S> <C> <C> <C> <C>
Net Loss $(3,201,865) $(7,821,680) $(11,555,067) $(21,827,018)
Preferred Stock Dividends (533,908) - (847,288) (1,572,836)
Accretion of Redeemable
Convertible Series B
Preferred Stock (137,356) - (217,978) (1,252,569)
============== ============== ============== ===============
Net Loss Available to Common
Shareholders $(3,873,129) $(7,821,680) $(12,620,333) $(24,652,423)
============== ============== ============== ===============
DENOMINATOR:
Weighted Average Basic &
Diluted Shares
Outstanding 9,691,061 24,521,730 8,019,484 19,812,052
NET LOSS PER SHARE $ (0.40) $ (0.32) $ (1.57) $ (1.24)
</TABLE>
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 former 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
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 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 approximately 80 professional reporters and editors, together with over
30 outside contributors, we update our site with approximately 50 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 that provides for a loyal and increasing readership base.
We originally organized in September 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,
Silicon Valley and London. Mr. Kevin W. English, who served as our chairman
and chief executive officer since October 1998, resigned those positions on
November 5, 1999. Mr. Thomas Clarke, Jr., who was hired in October 1999 as
president and chief operating officer, was appointed chief executive
officer on November 5, 1999. Mr. Fred Wilson, who has served as a director
since May 1998, was appointed chairman of the board on November 5, 1999.
We derive our revenues from retail and professional subscriptions,
advertising and e-commerce, and other sources including advertising and
sponsor revenues from TheStreet.com television show on the FOX News
channel, and content syndication fees. Our two principal sources of revenue
are generated from advertisers and subscribers. During the third quarter of
1999, we entered into e-commerce marketing partnerships with First USA and
LowestFare.com.
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 DLJdirect; content distribution agreements with companies
including Yahoo!, America Online and Intuit; and joint ventures with media
companies such as The New York Times Co. and Fox News Network. In the third
quarter of 1999, we made a majority investment in TheStreet.com (Europe)
Limited to form TheStreet.co.uk, a London-based counterpart to
TheStreet.com.
In July 1999 as part of our joint venture with Fox News Network, we
launched a weekly cablecast show called "TheStreet.com" on the FOX News
Channel. The program features several of our editorial personalities along
with special guests from the financial community in a pre-taped segment,
which runs in three half-hour time slots each weekend.
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, TheStreet.com and the American Stock Exchange created TheStreet.com
E-Commerce Index, an index of 15 electronic commerce stocks. In June 1999,
TheStreet.com and the American Stock Exchange created a third stock index,
TheStreet.com E-Finance index, an index of 11 electronic finance stocks.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1999
NET REVENUES
Advertising & E-Commerce Revenues. Advertising and e-commerce
revenues are derived from sponsorship arrangements and from the delivery of
banner and email advertisements. Advertising revenues increased from
$575,000 for the three months ended September 30, 1998 to $2,142,000 for
the three months ended September 30, 1999 primarily as a result of
agreements with new advertisers and e-commerce partners. For the three
months ended September 30, 1998 and 1999 the majority of our advertising
and e-commerce revenue was derived from sponsorship contracts. Previously,
we have reported our number of advertisers based on the number of
advertising contracts within a given period. In line with industry
practice, we now report unique advertisers. Using this methodology, our
number of advertisers for the third quarter of 1999 was 65, compared with
56 for the second quarter of 1999 and 43 for the first quarter of 1999. For
the three months ended September 30, 1999, our top five advertisers
accounted for approximately 43% of our total advertising and e-commerce
revenues, compared with approximately 78% for the three months ended
September 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 September 30, 1999, these cancellation
chargebacks and refunds accounted for approximately 4% of total
subscription revenues. Net subscription revenues increased from $438,000
for the three months ended September 30, 1998 to $1,351,000 for the three
months ended September 30, 1999 primarily as a result of the growth in our
subscriber base. For the three months ended September 30, 1999,
approximately 76% of our net subscription revenue was derived from annual
subscriptions.
We continue to attract new subscribers to our site, as our
subscriber base has grown to over 94,000 annual and monthly subscribers not
including free trials, but including subscribers paid for as part of bulk
subscription contracts, as of September 30, 1999. During the three months
ended September 30, 1999, we averaged 1.3 million unique visitors per month
and 17 million page views per month. During this same period, registered
users including retail subscribers and free trial members spent an average
of 26 minutes per visit on our site.
Other Revenues. Other revenues increased from $105,000 for the three
months ended September 30, 1998 to $455,000 for the three months ended
September 30, 1999 primarily as a result of new syndication arrangements
with online and print media companies, and revenues from TheStreet.com
cablecast show on the FOX News Channel.
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 $1,077,000 for the
three months ended September 30, 1998 to $2,664,000 for the three months
ended September 30, 1999. The increase was primarily as a result of the
growth of our editorial staff from 50 employees as of September 30, 1998 to
91 as of September 30, 1999, which included personnel for our newly formed
securities-analyst ranking group. In addition, we have experienced an
increase in the number of outside contributors, data service fees for
editorial research, the number of new research tools made available to our
subscribers, and costs related to TheStreet.co.uk.
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 $444,000 for the three months ended September 30,
1998 to $1,736,000 for the three months ended September 30, 1999 primarily
as a result of the commencement of new product development projects and an
increase of our technology headcount from 10 employees as of September 30,
1998 to 39 as of September 30, 1999, which included technology staff for
TheStreet.co.uk. In August 1999 we began the development of our
securities-analyst ranking product. Costs related to this product include
database development expenses. 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 expenses for our direct sales
force. Sales and marketing expenses increased from $1,535,000 for the three
months ended September 30, 1998 to $4,698,000 for the three months ended
September 30, 1999 primarily due to an increase in television, print and
online advertising, along with increased content distribution fees.
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 $1,313,000 for the three months ended September 30, 1998 to $3,756,000
for the three months ended September 30, 1999 primarily as a result of
incurring additional costs to support the growth of our business. These
costs primarily relate to hiring additional personnel,increased computer
supplies, services, and equipment rental, increased professional service
fees, and administrative costs for TheStreet.co.uk.
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 $630,000 for the three months ended September 30, 1999. The remaining
noncash compensation expense for 1999 is currently estimated to be
$2,075,000.
MINORITY INTEREST
For the three months ended September 30, 1999, minority interest was
$239,000. This figure accounts for the minority ofinterest in TheStreet.com
(Europe) Limited held by outside investors.
INTEREST EXPENSE (INCOME) NET
For the three months ended September 30, 1998, interest income was
$76,000, primarily from interest earned on the cash proceeds from a private
placement in May 1998. For the three months ended September 30, 1999,
interest income was $1,475,000 primarily as result of interest earned on
additional equity investments in the first quarter of 1999 and net proceeds
from our initial public offering in May 1999.
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1999
NET REVENUES
Advertising and E-Commerce Revenues. Advertising and e-commerce
revenues increased from $1,735,000 for the nine months ended September 30,
1998 to $5,006,000 for the nine months ended September 30, 1999 due to an
increase in our sales of sponsorship, banner, and email advertisements. For
the nine months ended September 30, 1998 and 1999, the majority of our
advertising and e-commerce revenues were derived from sponsorship
contracts.
For the nine months ended September 30, 1999, the top five
advertisers accounted for approximately 46% of advertising and e-commerce
revenue, compared with approximately 70% for the nine months ended
September 30, 1998.
Subscription Revenues. Net subscription revenues increased from
$1,144,000 for the nine months ended September 30, 1998 to $2,998,000 for
the nine months ended September 30, 1999 primarily as a result of the
growth in our subscriber base. During the nine months ended September 30,
1999, cancellation chargebacks and refunds accounted for approximately 4%
of total subscription revenues. For the nine months ended September 30,
1999, approximately 74% of our net subscription revenue was derived from
annual subscriptions.
Other Revenues. Other revenues increased from $273,000 for the nine
months ended September 30, 1998 to $1,195,000 for the nine months ended
September 30, 1999. For the nine months ended September 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. For the nine months ended
September 30, 1999, other revenues consisted primarily of hosting and new
syndication arrangements with online and print media companies, revenues
from TheStreet.com cablecast show, and revenues from one-time consulting
services related to content syndication.
COST OF REVENUES
Cost of revenues increased from $2,567,000 for the nine months ended
September 30, 1998 to $6,345,000 for the nine months ended September 30,
1999 primarily as a result of the growth of our editorial staff from 50 as
of September 30, 1998 to 91 as of September 30, 1999, which included
personnel for our newly formed securities-analyst ranking group. In
addition, we have experienced an increase in the number of outside
contributors, data service fees for editorial research, the number of new
research tools made available to our subscribers, and costs related to
TheStreet.co.uk.
PRODUCT DEVELOPMENT EXPENSES
Product development expenses increased from $786,000 for the nine
months ended September 30, 1998 to $4,562,000 for the nine months ended
September 30, 1999, primarily as a result of the commencement of new
product development projects, and an increase in the headcount from 10
employees as of September 30, 1998 to 39 as of September 30, 1999, which
includes staff for TheStreet.co.uk.
SALES AND MARKETING EXPENSES
Sales and marketing expenses increased from $7,954,000 for the nine
months ended September 30, 1998 to $10,208,000 for the nine months ended
September 30, 1999, primarily due to an increase in television, print, and
online advertising along with increased content distribution fees.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative costs increased from $3,101,000 for the
nine months ended September 30, 1998 to $10,191,000 for the nine months
ended September 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, equipment
depreciation, and administrative costs for TheStreet.co.uk.
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 nine months ended September 30,
1999, we recorded $2,460,100 noncash compensation expense related to these
options. We estimate this expense will be approximately $4,535,000 for
year-end December 31, 1999. The remaining noncash compensation expense
beyond 1999 is currently estimated to be $6 million.
INTEREST EXPENSE (INCOME) NET
For the nine months ended September 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 nine
months ended September 30, 1998 interest income was $124,000, primarily
from interest earned on the cash proceeds from a private placement in May
1998. For the nine months ended September 30, 1999, interest income was
$2,596,000, primarily from interest earned on the cash proceeds from our
initial public offering.
INCOME TAXES
For the nine months ended September 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 and other short-term
instruments 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 September 30, 1999,
our cash and cash equivalents amounted to $136,533,000, 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 $14,981,000 for the nine months
ended September 30, 1999 was primarily due to a net loss of $21,827,000,
offset by non cash charges of $2,460,000 for compensation expense, and
$1,048,000 for advertising expense, an increase in accounts payable and
accrued expenses of $3,550,000 for normal operating expenses, and an
increase in deferred revenue of $1,824,000 primarily due to the increase in
annual subscriptions sales as well as advance payments from marketing
partners. Significant uses of cash in operations for the nine months ended
September 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, costs related to our office move, and
general and administrative expenses to support the growth of our business.
Cash used for investing activities of $2,809,000 consisted of
capital expenditures of $2,809,000 and have generally consisted of computer
hardware purchases related to expenses for the UK operation, increasing our
domestic capacity and enhancing our web site.
Cash provided by financing activities of $129,711,000 for the nine
months ended September 30, 1999 consisted of funds contributed by private
equity investors in the TheStreet.com (Europe) Limited totaling $16,926,000
net of offering costs, proceeds from the initial public offering completed
in May 1999 of 6,325,000 shares at a $19 offering price per share totaling
$108,788,000 net of underwriting and offering expenses, and $4,000,000 as a
result of issuance 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 with a Year
2000 compliant system when we move from our present facilities to our new
facilities before the end of this year. TheStreet.com's assessment plan
consists of the following steps:
(1) evaluating our date dependent code, software and hardware and
evaluating external dependencies;
(2) quality assurance testing of our internally-developed
proprietary software and systems;
(3) obtaining certain 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
(4) 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, or are expected to be, compliant
before their known failure dates or the Year 2000 rollover, whichever is
sooner. Our hosting service, Exodus Communications, has represented to us
that its systems are Year 2000 compliant. 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 expect to receive assurances from
our landlord that our new facilities are Year 2000 compliant.
THE COSTS TO ADDRESS YEAR 2000 ISSUES
We have incurred approximately $43,000 in costs in connection with
our Year 2000 compliance efforts since inception through September 30,
1999. We expect to incur approximately $2,000 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 developed a contingency plan that we believe will enable us
to continue providing our services in the event we, or certain of our
outside vendors, are unable to achieve Year 2000 compliance. The cost of
implementing such a plan, if necessary, could be material. See "Risk
Factors -- Year 2000 Complications May Disrupt Our Operations and Harm Our
Business."
RISK FACTORS
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.
WE HAVE A HISTORY OF LOSSES AND WE ANTICIPATE LOSSES WILL CONTINUE
As of September 30, 1999, we had an accumulated deficit of $35.5
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 editors
and 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 editors and 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
editors and 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, Mr. Herb Greenberg and Mr. Adam Lashinsky 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. Mr. Lashinsky has an
employment agreement with us that terminates in February 2003. If we lose the
services of prominent members of our editorial staff, including Mr. Greenberg
or Mr. Lashinsky, 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 is likely to fall.
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. We have recently hired a new chief
executive officer. He will need to assume a leadership role and be
integrated into our management team successfully. 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. Our ability to develop and maintain both our site and
our corporate computer network is dependent on our ability to recruit and
retain technology personnel. Competition for skilled technologists is
intense, and we may not be able to retain existing or attract additional
technology personnel.
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.
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. We have
recently increased 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 rate of
subscriber growth.
We plan to develop specialized, higher-priced products for both
retail investors and financial professionals. This tiered-pricing strategy
is dependent on our ability to develop or acquire content or services for
which subscribers are willing to pay an additional fee. If we are unable to
develop tiered-price products or if these products cannot command a higher
price, this will limit our ability to develop this new source of revenue.
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 nine months ended September 30, 1999, our top
five advertisers accounted for approximately 46% 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, 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. 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.
WE DEPEND ON THE SUCCESS OF OUR JOINT NEWSROOM WITH THE NEW YORK TIMES FOR
THE EXPANSION OF OUR FREE CONTENT AND OUR ABILITY TO INCREASE TRAFFIC AND
VISITATION TO OUR SITE
In the fourth quarter of 1999, we expect our joint newsroom with the
New York Times to begin operations, adding to the coverage produced by our
own newsroom. TheStreet.com and The New York Times on the Web will
simultaneously publish news stories from the joint newsroom, and the
stories will generally be accessible without charge on both sites. This
expanded free content available at our site is designed to increase our
site traffic and number of unique visitors, but this may not occur.
OUR INTERNATIONAL EXPANSION INCREASES EXPENSES AND MAY CREATE COMPLIANCE AND
OPERATIONAL DIFFICULTIES
We are expanding our business into international markets.
TheStreet.co.uk, a site intended for investors in the United Kingdom and
majority owned by TheStreet.com, is currently planned for launch in 2000.
However, there can be no assurance that the site will launch in a timely
fashion or operate successfully, and delays or operational difficulties
could adversely affect our business, results of operations, and financial
condition. The success of TheStreet.co.uk depends on its ability to find
and retain key personnel, attract advertisers, paid subscribers, and
strategic partners; prevent system failures; manage growth; successfully
compete with other well-financed news organizations; and continue to
finance ongoing operations.
As we expand internationally, we will continue to incur significant
additional costs that will result in additional losses. Also, we will
continue to 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 CBS MarketWatch.com, The Wall Street
Journal Interactive Edition, DowJones.com, CNBC.com,
Microsoft MoneyCentral Investor, 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
COMPANIES COULD DECREASE OUR SUBSCRIBER AND READER BASE, WHICH MAY HARM OUR
BUSINESS
We depend on establishing and maintaining subscription distribution
relationships with 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 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 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 September 30, 1999, our
advertising sales department consisted of 11 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 September 30, 1999, we had a total of
202 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. We intend to
move our headquarters into a larger facility before year-end. Such a move
could cause disruptions to our publishing and business systems and
operations. 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.
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. 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, or the failure of our
contingency plans, 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. 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.
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 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 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. 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 September 30, 1999, there were outstanding 24,522,410 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 September 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 former 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.
(2) Exhibits
Exhibit
Number Description
------- -----------
27.1 Financial Data Schedule.
(3) 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: November 15, 1999 TheStreet.com, Inc.
(Registrant)
By: /s/ Thomas Clarke, Jr.
------------------------
Name: Thomas Clarke, Jr.
Title: Chief Executive Officer
Date: November 15, 1999 By: /s/ Paul Kothari
-------------------------
Name: Paul Kothari
Title: Vice President and Chief Financial
Officer
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