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 March 31, 2000
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)
14 Wall Street, 14th Floor
New York, New York 10005
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(Address of principal executive offices)
(212) 321-5000
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(Registrant's telephone number, including area code)
Two Rector Street, 14th Floor
New York, NY 10006
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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 .
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Number of shares of Common Stock outstanding at May 10, 2000:
Common Stock, par value $0.01 per share 25,368,612
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(Class) (Number of Shares)
THESTREET.COM, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
Part I - FINANCIAL INFORMATION...............................................1
Item 1. Condensed Consolidated Financial Statements....................1
Condensed Consolidated Balance Sheets as of
December 31, 1999 and March 31, 2000.........................1
Condensed Consolidated Statements of Operations
for the Three Months Ended March 31, 1999 and 2000...........2
Condensed Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1999 and 2000...........3
Notes to Condensed Consolidated Financial Statements...........4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................5
Item 3. Quantitative and Qualitative Disclosures About Market Risk....18
PART II - OTHER INFORMATION.................................................19
Item 1. Legal Proceedings.............................................19
Item 2. Changes in Securities and Use of Proceeds.....................19
Item 3. Defaults Upon Senior Securities...............................19
Item 4. Submission of Matters to a Vote of Security Holders...........19
Item 5. Other Information.............................................19
Item 6. Exhibits and Reports on Form 8-K..............................19
SIGNATURES..................................................................20
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
THESTREET.COM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND MARCH 31, 2000
DECEMBER 31, 1999 MARCH 31, 2000
----------------- --------------
(UNAUDITED)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 108,239,811 $ 79,683,229
Short term investments 11,175,322 27,994,372
Accounts receivable, net of allowance
for doubtful accounts of $300,000
and $518,000 as of December 31, 1999
and March 31, 2000, respectively 2,467,164 3,249,614
Other receivables 2,607,162 1,936,378
Prepaid expenses and other current assets 4,122,057 3,510,505
--------------- -------------
Total current assets 128,611,516 116,374,098
Property and equipment, net of
accumulated depreciation and amortization
of $769,707 and $1,489,406 as of
December 31, 1999 and March 31, 2000, respectively 10,199,653 12,584,911
Other assets 410,717 413,817
Goodwill and intangibles, net of accumulated
amortization of $0 and $173,196 as of
December 31, 1999 and March 31, 2000, respectively 2,078,349 1,905,153
Long-term investment, at cost 2,250,000 2,250,000
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Total assets $ 143,550,235 $ 133,527,979
=============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of capital lease obligation $ - $ 405,542
Accounts payable 4,290,538 5,431,189
Accrued expenses 6,675,541 6,550,770
Deferred revenue 2,858,945 3,743,061
Other current liabilities 242,456 876,492
--------------- -------------
Total current liabilities 14,067,480 17,007,054
Long-term portion of capital lease obligation - 1,982,757
Deferred rent 2,182,100 2,195,798
Minority interest 15,886,741 14,159,576
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Total liabilities 32,136,321 35,345,185
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STOCKHOLDERS' EQUITY
Common Stock; $0.01 par value;
100,000,000 shares authorized, 25,248,434
and 25,307,456 shares issued and outstanding
at December 31, 1999 and March 31, 2000,
respectively 252,484 253,075
Additional paid-in capital 174,363,323 172,758,850
Deferred compensation (5,450,860) (3,203,677)
Advertising receivable (10,042,062) (9,858,753)
Accumulated comprehensive income (20,618) (195,550)
Accumulated deficit (47,688,353) (61,571,151)
--------------- -------------
Total stockholders' equity 111,413,914 98,182,794
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Total liabilities and stockholders' equity $ 143,550,235 $ 133,527,979
=============== =============
The accompanying notes are an integral part of these financial statements.
</TABLE>
THE STREET.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000
FOR THE THREE FOR THE THREE
MONTHS ENDED MONTHS ENDED
MARCH 31, 1999 MARCH 31, 2000
--------------- ---------------
(UNAUDITED)
NET REVENUES:
Advertising & E-commerce revenues $ 1,123,767 $ 2,954,634
Subscription revenues 712,761 2,037,486
Other revenues 154,295 730,476
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Total net revenues 1,990,823 5,722,596
Cost of revenues 1,604,257 3,916,126
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Gross profit 386,566 1,806,470
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OPERATING EXPENSES:
Product development expenses 1,400,327 5,491,665
Sales and marketing expenses 2,153,811 8,162,768
General and administrative expenses 2,986,115 4,870,185
Noncash compensation expense 1,197,748 544,729
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Total operating expenses 7,738,001 19,069,347
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Loss from operations (7,351,435) (17,262,877)
Interest income 250,812 1,652,915
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Loss before provision for income taxes
and minority interest (7,100,623) (15,609,962)
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Provision for income taxes 75,925 -
Minority interest - 1,727,164
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Net Loss $ (7,176,548) (13,882,798)
============= ===========
Net loss per share - basic and diluted $ (0.64) $ (0.55)
============= ===========
Weighted average basic
and diluted shares outstanding 14,372,756 25,291,042
============= ===========
The accompanying notes are an integral part of these financial statements.
THE STREET.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000
FOR THE THREE FOR THE THREE
MONTHS ENDED MONTHS ENDED
MARCH 31, 1999 MARCH 31, 2000
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(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (7,176,548) $ (13,882,798)
Adjustments to reconcile net loss
to cash used in operating activities:
Noncash compensation expense 1,197,748 544,729
Noncash advertising expense - 183,308
Provision for doubtful accounts 40,000 220,000
Minority interest - (1,727,164)
Depreciation and amortization 28,197 889,809
Decrease (increase) in accounts receivable 219,213 (1,000,450)
Decrease in other receivables 243,301 670,784
(Increase) decrease in prepaid expenses
and other current assets (453,252) 611,552
Increase in other assets (59,443) (30,430)
(Decrease) increase in accounts payable
and accrued expenses (573,054) 1,015,880
Increase in deferred revenue 543,280 884,116
Increase in other current liabilities - 634,036
Increase in deferred rent - 70,000
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Net cash used in operating activities (5,990,558) (10,916,628)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments - (18,788,450)
Sale of short-term investments - 1,969,400
Capital expenditures (237,929) (3,130,328)
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Net cash used in investing activities (237,929) (19,949,378)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale/leaseback - 2,388,239
Proceeds from issuance of common stock 4,000,125 96,117
Repayments under line of credit (3,333) -
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Net cash provided by
financing activities 3,996,792 2,484,356
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Effect of exchange rate on changes in cash - (174,932)
Net decrease in cash (2,231,695) (28,556,582)
Cash and cash equivalents,
beginning of period 24,611,958 108,239,811
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Cash and cash equivalents,
end of period $ 22,380,263 $ 79,683,229
============== ==============
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes $ 75,925 $ -
Noncash investing and
financing activities:
Equipment acquired under capital lease $ - $ 2,388,239
The accompanying notes are an integral part of these financial statements.
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 a leading web based provider
of original, timely, comprehensive and trustworthy financial news,
commentary and information aimed at helping readers make informed
investment decisions. 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 110 professional reporters and editors, in addition to more than 30
outside contributors. We update our site with 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.
BASIS OF PRESENTATION
The information presented as of March 31, 2000 and 1999, and for the
three month periods then ended, is unaudited, but in the opinion of
management of TheStreet.com, the accompanying unaudited financial
statements contain all adjustments (consisting only of normal recurring
adjustments) which TheStreet.com considers necessary for the fair
presentation of its financial position as of March 31, 2000, the results of
its operations for the three-month periods ended March 31, 2000 and 1999,
and its cash flows for the three-month periods ended March 31, 2000 and
1999. 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, 1999, included in
TheStreet.com's Annual Report on Form 10-K as filed with the Securities and
Exchange Commission.
The consolidated financial statements include the accounts of The
Street.com, Inc. and its 63% owned subsidiary TheStreet.co.uk. All
intercompany balances and transactions have been eliminated in
consolidation.
Results for the interim period are not necessarily indicative of
results that may be expected for the entire year.
2. NET LOSS PER SHARE OF COMMON STOCK
TheStreet.com computes net 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
3/31/99 3/31/00
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(UNAUDITED)
NUMERATOR:
Net loss $ (7,176,548) $ (13,882,798)
Preferred stock dividends $ (1,118,693) $ -
Accretion of redeemable
convertible series B $ (843,969) $ -
--------------- ---------------
Net loss available
to common shareholder $ (9,139,210) $ (13,882,798)
--------------- ---------------
DENOMINATOR:
Weighted average basic
& diluted shares outstanding 14,372,756 25,291,042
--------------- ---------------
NET LOSS PER SHARE $ (0.64) $ (0.55)
=============== ===============
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, who was TheStreet.com's Chairman of the
Board, Chief Executive Officer and President at that time, 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
The following discussion 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 10-Q
are based on information available to us on the date hereof, and we assume
no obligation to update any such forward-looking statements. These
forward-looking statements are subject to risks and uncertainties which
could cause actual results to differ.
The following discussion and analysis should be read in conjunction
with the unaudited condensed consolidated financial statements and notes
thereto.
OVERVIEW
TheStreet.com is a leading 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 over 110 professional reporters and editors, together with over 30
outside contributors, we update our sites with 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. In September 1999, we formed a subsidiary, The Street.com
(Europe) Limited, to begin our international expansion by creating a
London-based counterpart to TheStreet.com to be known as TheStreet.co.uk.
During December of 1999, we acquired ipoPros.com, Inc., a company with a
subscription-based online website offering research, ratings, data and news
about initial and secondary stock offerings. We are based in New York City
with bureaus in San Francisco and London and correspondents in Silicon
Valley, Tokyo, Hong Kong, Berlin and Washington, D.C.
We currently derive our revenues from advertising and e-commerce,
retail and professional subscriptions, and other sources, including
advertising and sponsor revenues from TheStreet.com television show on the
FOX News Channel, and content syndication fees. Of these, our two principal
sources of revenue are advertisers and subscribers.
We have a number of strategic relationships with third parties that
continue to help create brand awareness and increase subscription and
advertising revenues, including the following: subscription distribution
agreements with E*Trade and DLJdirect; e-commerce marketing partnerships
with First USA and NetStock Direct; content distribution agreements with
Yahoo!, America Online and Intuit; and joint ventures with media companies
such as The New York Times Co., Fox News Network, and Ha'aretz Group, a
leading Israeli newspaper publisher.
RECENT DEVELOPMENTS
During the first quarter of 2000, we signed a worldwide content
licensing agreement with Motorola for the delivery of certain content over
Motorola's Mobile Internet Exchange(TM) communications platform and
partnered with ON24 to co- produce original streaming content which will be
distributed to more than 450 financial websites. In addition, we entered
into content-syndication alliances with Microsoft MSN MoneyCentral and News
Digital Media's FoxSports.com website.
TheStreet.co.uk website was launched on February 15, 2000 as a free
site and publishes financial news and analysis to UK investors.
TheStreet.co.uk derives its revenues primarily from advertising.
TheStreet.co.uk has entered into content syndication agreements with local
portals, including AOL UK and Lycos UK, and has signed advertising
agreements with E*Trade United Kingdom and DLJdirect United Kingdom.
On January 10, 2000, we announced a new strategy to transform our
current offering of news and commentary into a network of free and paid
sites under TheStreet.com name. We aim to further develop a mass audience
for our site by going free in order to increase the number of unique
visitors to the site and increase our advertising and e-commerce revenues.
We expect to begin implementing our new strategy in the second quarter of
2000.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 2000
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
$1,124,000 for the three months ended March 31, 1999 to $2,955,000 for the
three months ended March 31, 2000, primarily as a result of agreements with
new advertisers and e-commerce partners and revenues from TheStreet.co.uk.
For the three months ended March 31, 2000, 55% of our advertising and
e-commerce revenues were derived from sponsorship contracts compared with
90% for the three months ended March 31, 1999, reflecting our decreased
dependence on sponsors as a source of revenue. Our number of advertisers
for the first quarter of 2000 was 112, compared with 43 for the first
quarter of 1999. For the three months ended March 31, 2000, our top five
advertisers accounted for approximately 27% of our total advertising and e-
commerce revenues, compared with approximately 65% for the three months
ended March 31, 1999 reflecting an increase in our advertiser base.
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 March 31, 2000, cancellation chargebacks and
refunds accounted for approximately 6% of total subscription revenues. Net
subscription revenues increased from $713,000 for the three months ended
March 31, 1999 to $2,037,000 for the three months ended March 31, 2000,
primarily as a result of the growth in our subscriber base. For the three
months ended March 31, 2000, approximately 78% 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 116,000 annual and monthly subscribers as of March
31, 2000 (not including free trials, but including subscribers paid for as
part of bulk subscription contracts). During the three months ended March
31, 2000, our sites worldwide averaged 3.6 million unique visitors per
month and 41 million page views per month. During this same period,
registered users including retail subscribers and free trial members spent
an average of 27 minutes per visit on TheStreet.com site.
Other Revenues. Other revenues increased from $154,000 for the three
months ended March 31, 1999 to $730,000 for the three months ended March
31, 2000, primarily as a result of unique barter arrangements with online
and print media companies, and revenues from TheStreet.com television show
on the FOX News Channel. Barter revenue increased from $64,000 for the
three months ended March 31, 1999 to $508,000 for the three months ended
March 31, 2000. Barter transactions are recognized at the fair value as
determined by the comparable advertising market rates at the time of
placement. In future periods, management intends to maximize cash
advertising revenue, although the Company will continue to enter into
barter relationships when deemed appropriate.
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 $1,604,000 for the
three months ended March 31, 1999 to $3,916,000 for the three months ended
March 31, 2000. This increase was primarily as a result of the growth of
our editorial staff from 56 employees as of March 31, 1999 to 112 as of
March 31, 2000 and the growth in the number of new research tools made
available to our subscribers. In addition, we have experienced an increase
in the number of outside contributors, data service fees for editorial
research and costs related to TheStreet.co.uk.
PRODUCT DEVELOPMENT EXPENSES
Product development expenses include compensation and benefits for
software developers and graphic designers, expenses for contract
programmers and developers, communication lines and other technology costs.
Product development expenses increased from $1,400,000 for the three months
ended March 31, 1999 to $5,492,000 for the three months ended March 31,
2000 primarily as a result of costs related to the conversion of
TheStreet.com into a network of free and paid sites and an increase in our
technology and product development headcount from 20 employees as of March
31, 1999 to 68 as of March 31, 2000, which includes technology staff for
TheStreet.co.uk, and staff of ipoPros.com, Inc., which we acquired in
December 1999. 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, content distribution fees, and compensation expenses
for our direct sales force. Sales and marketing expenses increased from
$2,154,000 for the three months ended March 31, 1999 to $8,163,000 for the
three months ended March 31, 2000, primarily due to an increase in our
sales and marketing headcount from 46 as of March 31, 1999 to 72 as of
March 31, 2000, which includes staff from TheStreet.co.uk and content
distribution fees. In addition, in connection with our barter transactions,
we recorded barter advertising expenses during the three months ended March
31, 1999 and 2000, which is equivalent to the barter advertising revenues
we recorded in those periods.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses consist primarily of compensation
for general management, finance and administrative personnel, occupancy
costs, professional fees, equipment rental and other office expenses.
General and administrative costs increased from $2,986,000 for the three
months ended March 31, 1999 to $4,870,000 for the three months ended March
31, 2000, primarily as a result of an increase in headcount from 11 as of
March 31, 1999 to 22 as of March 31, 2000, which includes administrative
staff from TheStreet.co.uk, and additional costs to support the growth of
our business such as occupancy costs, professional service fees, insurance
costs, equipment rental and administrative costs for TheStreet.co.uk.
General and administrative expenses for the three months ended March 31,
2000 include goodwill amortization of $161,000 related to the acquisition
of ipoPros.com, Inc. in December 1999.
NONCASH COMPENSATION EXPENSE
In 1998, and the first three months of 1999, we granted options to
purchase shares of our common stock at exercise prices that were less than
the fair market value of the underlying shares of common stock on the date
of grant. This resulted in noncash compensation expense incurred over the
period that these specific options vest. The noncash compensation expense
was $545,000 for the three months ended March 31, 2000. The remaining
noncash compensation expense for 2000 is currently estimated to be
$848,000, which reflects the resignation during the first quarter of
certain individuals from the Company, which will have the effect of
decreasing the noncash compensation expense incurred in future quarters.
The remaining noncash compensation expense beyond the year 2000 is
estimated to be $3.2 million.
MINORITY INTEREST
For the three months ended March 31, 2000, minority interest was
$1,727,000. This figure accounts for the minority interest held by outside
investors in the net losses of TheStreet.com (Europe) Limited of
$1,947,000, offset by preferred dividends of $220,000.
INTEREST EXPENSE (INCOME) NET
For the three months ended March 31, 1999, interest income was
$251,000, primarily as a result of proceeds from the completion of a $25
million private placement in December 1998 and additional equity
investments in the first quarter of 1999. For the three months ended March
31, 2000, interest income was $1,653,000, primarily as result of interest
earned on the net proceeds from the IPO.
LIQUIDITY AND CAPITAL RESOURCES
We currently invest in money market funds and other short-term,
investment grade instruments that are highly liquid, of high-quality, and
have maturities of less than one year, with the intent that such funds
easily be made available for operating purposes. As of March 31, 2000, our
cash, cash equivalents, and short term investments amounted to
$107,678,000, representing 81% of our total assets.
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 $10,917,000 for the three months
ended March 31, 2000 was primarily due to a net loss of $13,883,000, offset
by noncash charges and increases in accounts payable and accrued expenses,
deferred revenue, and other current liabilities and decreases in other
receivables and prepaid expenses and other current assets, partially offset
by the minority interest in the net losses of The Street.co.uk and an
increase in accounts receivable.
Cash used in investing activities of $19,949,000 for the three months
ended March 31, 2000 consisted of net purchases of short-term investments
and 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 of $2,484,000 for the three
months ended March 31, 2000 consisted of proceeds from a sale/leaseback
transaction related to computer equipment purchased by TheStreet.co.uk and
issuances of common stock upon the exercise of stock options.
We believe that the net proceeds from the IPO 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 COMPLIANCE
To date our systems and software have not experienced any material
disruption due to the onset of the Year 2000, and we have completed our
Year 2000 preparedness activities. However, we cannot assure that we will
not experience disruptions in the future as a consequence of Year 2000
issues. We cannot quantify the amount of our potential exposure, but do not
believe it to be material.
RISK FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
You should carefully consider the following risks before making an
investment decision. The risks described below are all the material risks
facing TheStreet.com. We may also face some non-material risks which we
have not discussed in the following description of our risk factors. If any
of the following risks occur, our business, results of operations or
financial condition could be materially adversely affected.
WE HAVE A HISTORY OF LOSSES AND WE ANTICIPATE LOSSES WILL CONTINUE
As of March 31, 2000, we had an accumulated deficit of $61.6 million.
We have not achieved profitability and expect to continue to incur net
losses in 2000 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.
We recently announced that we expect our U.S. operations to become
EBITDA-positive beginning in the second half of 2001, but we cannot
guarantee that this will happen. EBITDA is a measure of earnings before
interest, taxes, depreciation or amortization are taken into account. If we
are unable to achieve EBITDA-positive results beginning in the second half
of 2001, the price of our common stock may decrease.
RISKS ASSOCIATED WITH OUR NEW STRATEGY
CHANGES TO OUR NEW STRATEGY MAY HARM OUR BUSINESS
We recently announced that we plan to convert our main Web site to a
free site in the second quarter of 2000, accompanied by a network of free
and subscription sites. We may decide to change that strategy prior to
implementation, or we may decide to implement a different strategy. We
believe the successful implementation of this new strategy will increase
our number of unique visitors and page views, and that we will be able to
increase our advertising revenues as a result. However, we cannot assure
you that we will be able to implement this strategy on schedule and in a
cost-effective manner or at all, or that the strategy will help us attract
significantly increased traffic, or that we will be able to increase our
advertising revenues as a result.
UNFORESEEN DEVELOPMENT DIFFICULTIES MAY HINDER OR PREVENT THE
IMPLEMENTATION OF OUR NEW STRATEGY
We expect to spend significant resources in re-launching our free
main site in the second quarter of 2000 and in enhancing our technological
infrastructure to accommodate the expected increase in traffic, but
unforeseen development difficulties could prevent us from implementing the
strategy on schedule or at all. The cost to implement our strategy,
including technology and related costs, could be higher than anticipated.
Additionally, the enhanced technological infrastructure may not support the
anticipated increase in traffic.
WE DEPEND ON THIRD PARTIES FOR ASSISTANCE IN TECHNOLOGICAL
IMPLEMENTATION
We are dependent on third parties, including technology consulting
firms, to help us implement the strategy and develop a forthcoming site
intended for investment professionals and active individual investors. If
these third parties are not able to fulfill their responsibilities to us on
schedule or if the technology developed by them for our use does not
function as anticipated, the implementation of our strategy may be delayed
and the cost of implementation may be higher than anticipated.
WE MAY HAVE DIFFICULTY INCREASING OUR CAPACITY TO SELL OUR INCREASED
ADVERTISING INVENTORY
We also plan to substantially increase the size of our advertising
sales force in order to sell the increased advertising inventory that would
result from having a network of multiple sites and from the expected
increase in traffic. However, if we are unable to quickly attract and
integrate new advertising sales staff and retain current staff, we may not
be able to increase or sustain our advertising revenues. Additionally, we
expect that our overall advertising rates will decrease under this
strategy. If we are unable to attract significantly increased traffic and
advertising revenues under this strategy, or if we are unable to
successfully implement the strategy on schedule and in a cost-effective
manner, our business, results of operations and financial condition could
be materially adversely affected.
WE MAY HAVE DIFFICULTY RETAINING CURRENT SUBSCRIBERS AFTER WE GO FREE
We will seek to retain our current subscribers under our strategy and
attract new subscribers by marketing our subscription-based services to
users of our free content. We may not be able to retain our current
subscribers and attract additional subscribers in a cost-effective manner.
If our subscription base declines or our cost of subscriber acquisition
increases, our business, results of operations and financial condition
could be materially adversely affected.
WE FACE A POSSIBLE DECLINE IN OUR USER DEMOGRAPHIC AS WE ATTRACT A
LARGER MAINSTREAM AUDIENCE
Currently, our financially oriented readers provide an upscale
demographic that is desirable to advertisers, enabling us to charge
advertising rates that we believe to be among the highest of financial web
sites. Our desirable reader demographic has enabled us to build a growing
advertising business. To reach this attractive audience, our advertisers
pay rates that we believe are among the highest of financial web sites.
However, as our mainstream traffic increases, particularly in connection
with the implementation of our new strategy to offer our content for free,
we expect to experience dilution of our reader demographic, which would
likely result in a decrease in our ability to command premium advertising
rates.
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 decrease.
OUR FUTURE SUCCESS DEPENDS ON OUR ABILITY TO ATTRACT AND RETAIN
PERSONNEL IN KEY BUSINESS POSITIONS
Our future success depends upon our ability to attract and retain
personnel in key business positions. The loss of one or more of our key
personnel, or our inability to attract replacements, 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, competition in the Internet industry is
intense, and other employees may leave us and work for our competitors or
start their own competing businesses.
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. Certain technology employees have left the company to
pursue new opportunities and we will need to replace these employees.
Competition for skilled technologists is intense, and we may not be able to
retain existing or attract additional technology personnel with appropriate
expertise.
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 DEPEND ON OUR TOP ADVERTISERS FOR A SIGNIFICANT PORTION OF OUR
ADVERTISING REVENUES, AND THE LOSS OF SEVERAL OF OUR TOP ADVERTISERS
WOULD HARM OUR BUSINESS
In the first quarter of 2000, our top five advertisers accounted for
approximately 27% of our total advertising revenues. Our business, results
of operations and financial condition could be materially adversely
affected by the loss of a number of our top advertisers, and such a loss
could be concentrated in a single quarter. Further, if we do not continue
to increase our revenue from financial-services advertisers or attract
advertisers from non-financial industries, our business, results of
operations and financial condition could be materially adversely affected.
We believe that we charge advertising rates that are among the highest of
financial web sites. However, as we convert our main site to a free site,
we believe our overall advertising rates will decrease. As is typical in
the advertising industry, our advertising contracts have cancellation
provisions.
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, was launched in February 2000. However,
there can be no assurance that the site will continue to 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 continue to finance ongoing
operations; attract and retain key personnel, advertisers, users and
strategic partners; prevent system failures; manage growth; and
successfully compete with other well-financed news organizations.
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, cultural differences, 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, CNBC.com, CNNfn.com,
The Wall Street Journal Interactive Edition, DowJones.com,
SmartMoney.com; Microsoft MSN MoneyCentral and The Motley Fool;
o publishers and distributors of traditional media, including
print, radio and television, such as The Wall Street Journal,
Fortune, Bloomberg Business Radio and CNBC;
o providers of terminalobased financial news and data, such as
Bloomberg Business News, Reuters News
Service, Dow Jones Markets and Bridge News Service;
o web "portal" companies, such as Yahoo! and America Online; and
o online brokerage firms, many of which provide financial and
investment news and information, such as Charles Schwab,
E*TRADE and Merrill Lynch.
Our ability to compete depends on many factors, including the
originality, timeliness, 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 faroreaching marketing campaigns, adopt more
aggressive pricing policies (including offering more of their financial
news and commentary for free) and make more attractive offers to existing
and potential employees, outside contributors, strategic partners and
advertisers. Our competitors may develop content that is equal or superior
to ours or that achieves greater market acceptance than ours. It is also
possible that new competitors may emerge and rapidly acquire significant
market share. We may not be able to compete successfully for advertisers,
readers, staff or outside contributors, which could materially adversely
affect our business, results of operations and financial condition.
Increased 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 highotraffic web sites for a significant portion of our
current subscriber and reader base. There is intense competition for
relationships with these firms and placement on these sites, and we may
have to pay significant fees to establish additional content syndication
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, and as our main site becomes free and
our dependency on advertising revenue increases, we expect to expand our
advertising sales staff significantly. As of March 31, 2000, our U.S.
advertising sales department consisted of 19 employees and our U.K.
advertising sales department consisted of five employees. We will need to
quickly add and successfully integrate a number of new advertising sales
staff members under our new strategy. 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 effectively expand and 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 March 31, 2000, we had a total of 229
U.S. employees, as compared to 138 employees as of March 31, 1998. As of
March 31, 1999, TheStreet.co.uk had 28 employees. We expect that the number
of our employees both in the U.S. and in the U.K. 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 that may involve acquisitions
of other companies. However, we may be unable to successfully pursue and
complete acquisitions in a timely and costoeffective 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.
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 expect
our reader base to increase significantly when our main site converts to a
totally free site. Accordingly, our web site must accommodate a high volume
of traffic, often at unexpected times. Although we are upgrading our
systems in connection with the launch of our network of sites, 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 thirdoparty
system. In February 2000, our Internetohosting agreement with Exodus
Communications, Inc. was renewed, and we currently continue to maintain all
of our production servers at Exodus's New Jersey data center. Our
operations depend on Exodus's ability to protect its own systems and our
systems in its data center against damage from fire, power loss, water
damage, telecommunications failure, vandalism and similar unexpected
adverse events. Although Exodus provides comprehensive facilities
management services, including human and technical monitoring of all
production servers 24 hours per day, seven days per week, Exodus does not
guarantee that our Internet access will be uninterrupted, errorofree 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. In addition, in September 1999, we
entered into an agreement with USinternetworking, Inc. under which USi
provides us with a mirror site for partial disaster recovery in the event
of the failure of our primary systems. In December 1999, we did experience
a system failure that required us to use USi's mirror site for a short
period of time. Our own internal systems and operations, as well as those
of Exodus and USi, may be subject to damage or interruption from human
error, natural disasters, fire, water damage, power loss, telecommunication
failures, breakoins, sabotage, computer viruses, intentional acts of
vandalism and similar events. Any system failure, including network,
software or hardware failure, that causes an interruption in our service or
a decrease in responsiveness of our web site could result in reduced
traffic, reduced revenue and harm to our reputation, brand and our
relations with our advertisers and eocommerce partners. Many prominent web
sites have recently been subjected to "distributed denialoofoservice"
attacks, during which their servers were inundated with requests for data,
causing them to overload and preventing legitimate traffic from getting
through, which rendered the sites unresponsive to users for a period of
time. Like most other web sites, we may be vulnerable to such attacks
and other deliberate attempts to disrupt our technological operations. 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.
ANY FAILURE OF OUR INTERNAL SECURITY MEASURES OR BREACH OF OUR
PRIVACY PROTECTIONS COULD CAUSE US TO LOSE USERS AND SUBJECT US TO
LIABILITY
Users who subscribe to our premium service are required to furnish
certain personal information (including name, email address and credit card
information) which we use to administer our services. After our conversion
to a free site, we will no longer need creditocard information to process
subscription payments for our main site, but we will continue to gather
credit card information for the subscriptionobased sites in our network. In
addition, we plan to collect registration information from users of our
free sites who wish to gain access to certain features of our site. If the
security measures that we use to protect personal information are
ineffective, we may lose users and our business may be harmed.
Additionally, we rely on security and authentication technology licensed
from third parties to perform realotime credit card authorization and
verification. We cannot predict whether technological developments could
allow these security measures to be circumvented. We may need to use
significant resources to prevent security breaches or to alleviate problems
caused by any security breaches. If we are not able to prevent all security
breaches, our business, results of operations and financial condition could
be materially adversely affected.
Our users depend on us to keep their personal information private and
to disclose it to third parties. We therefore maintain a strict privacy
policy, under which we will not furnish, rent or sell to third parties any
personal information about our subscribers or other users. We have retained
the ability to modify the privacy policy at any time. Like most web sites
that require some form of registration, we use "cookies" (small data files
placed by a web server on a user's hard drive to enable the server to track
the user's movement on the site) in order to help our subscribers navigate
throughout the site, and we use individual tracking information obtained
from the cookies for internal purposes, such as to administer subscriber
accounts and process purchases in our online store. In addition, companies
that serve banners and other advertisements on our site use their own
cookies, enabling them to limit the frequency with which a user is shown a
particular ad. Some Internet users and industry observers have expressed
privacy concerns about cookies. If our users perceive that we are not
protecting their privacy, our business, results of operations and financial
condition could be materially adversely affected.
DIFFICULTIES ASSOCIATED WITH OUR BRAND DEVELOPMENT MAY HARM OUR
ABILITY TO ATTRACT SUBSCRIBERS AND READERS
We believe that maintaining and growing awareness about the
TheStreet.com brand is an important aspect of our efforts to continue to
attract 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. The new sites that we plan to introduce
will not have widely recognized brands, and we will need to increase
awareness of these brands among potential users. We cannot assure you that
our efforts to build brand awareness will be cost effective or 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 nonodisclosure of a stock ownership position by one or
more of our writers in breach of our compliance policy, could harm our
reputation for trustworthiness. These events could result in a significant
reduction in the number of our readers, which could materially adversely
affect our business, results of operations and financial condition.
POTENTIAL LIABILITY FOR INFORMATION DISPLAYED ON OUR WEB 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. We recently introduced stock tickerobased message boards
that allow users to post comments about individual stocks. We undertake no
obligation to moderate these message boards, however potential liability
for providers of message board services has not yet been welloestablished.
We may choose to allow our editorial staffers or outside contributors to
post on our boards, thus increasing our potential liability. 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 were
coded during their production to accept only twoodigit entries to identify
a year in the date code field. To date our systems and software have not
experienced any material disruption due to the onset of the Year 2000, and
our vendors and strategic partners have not reported experiencing any Year
2000 problems. However, because we and our subscribers and readers are
dependent, to a very substantial degree, upon the proper functioning of our
and their computer systems, any future occurrence of Year 2000 problems or
the failure of our Year 2000 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
BRANDoBUILDING 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 thirdoparty 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, thirdoparty 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 READERSHIP DEPENDS ON THE
CONTINUED GROWTH IN USE AND EFFICIENT OPERATION OF THE WEB
The webobased 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 costoeffective, highospeed 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. In addition, some
Internet commentators, privacy advocates and federal and state officials
have recently suggested that legislation may be needed to better safeguard
online privacy, by the limitation or elimination of the use of cookies or
by other methods. If such legislation is passed, it is likely to restrict
the ability of online advertisers to target their ads, which may result in
a decrease in online advertising rates or online advertising spending
generally. Such a decrease could materially adversely affect 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 READERSHIP
Existing domestic and international laws or regulations and private
industry guidelines specifically regulate communications or commerce on the
web. Further, laws and regulations that address issues such as user
privacy, pricing, online content regulation, taxation of eocommerce
transactions and the characteristics and quality of online products and
services are under consideration by federal, state, local and foreign
governments and agencies and by private industry groups. Several
telecommunications companies have petitioned the Federal Communications
Commission to regulate Internet service providers and online services
providers in a manner similar to the regulation of long distance telephone
carriers and to impose access fees on such companies. 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 wellopublicized 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 May 10, 2000, there were outstanding 25,368,612 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 are "restricted securities," subject to the volume limitations and
other conditions of Rule 144 under the Securities Act.
Many of these restricted shares, because they were obtained in 1998
private placements by holders who are not affiliates of the Company, are
now eligible for sale under Rule 144. In addition, 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 of 1933, as amended. 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 by these holders, 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
Our officers, directors and greaterothanofiveopercent stockholders
(and their affiliates), acting together, have the ability to control
substantially all matters submitted to our stockholders for approval
(including the election and removal of directors and any merger,
consolidation or sale of all or substantially all of our assets) and to
control our management and affairs. Accordingly, this concentration of
ownership may have the effect of delaying, deferring or preventing a change
in control of us, impeding a merger, consolidation, takeover or other
business combination involving us or discouraging a potential acquirer from
making a tender offer or otherwise attempting to obtain control of us,
which in turn could materially adversely affect the market price of the
common stock.
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 Internetorelated 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.
ANTIoTAKEOVER 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 our results of
operations, financial position or liquidity.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit
Number Description
------- -----------
*3.1 Amended and Restated Certificate of Incorporation
**3.2 Amended and Restated Bylaws
*4.1 The Street.com Rights Plan
**4.2 Amended and Restated 1998 Stock Incentive Plan
27.1 Financial Data Schedule
(b) Reports on Form 8-K
Not Applicable.
- ---------------------------
* Incorporated by reference to Exhibits to the Registrant's
Registration Statement on Form S-1 dated February 23, 1999 (File No.
333-72799).
** Incorporated by reference to Exhibits to the Registrant's Annual
Report on Form 10-K dated March 30, 2000 (File No. 0-25779).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Date: May 12, 2000 TheStreet.com, Inc.
(Registrant)
By: /s/ Thomas J. Clarke, Jr.
---------------------------------------
Name: Thomas J. Clarke, Jr.
Title: Chief Executive Officer
Date: May 12, 2000 By: /s/ Lisa A. Mogensen
---------------------------------------
Name: Lisa A. Mogensen
Title: Interim Chief Financial Officer
EXHIBIT INDEX
Exhibit No. Description
- ----------- -------------
*3.1 Amended and Restated Certificate of Incorporation
**3.2 Amended and Restated Bylaws
*4.1 The Street.com Rights Plan
**4.2 Amended and Restated 1998 Stock Incentive Plan
27.1 Financial Data Schedule
- -----------------
* Incorporated by reference to Exhibits to the Registrant's
Registration Statement on Form S-1 dated February 23, 1999 (File No.
333-72799).
** Incorporated by reference to Exhibits to the Registrant's Annual
Report on Form 10-K dated March 30, 2000 (File No. 0-25779).
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