TheStreet, Inc.
THESTREET, INC. (Form: 10-Q, Received: 11/07/2014 10:33:45)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2014

 

Commission File Number 000-25779

 

THESTREET, INC.

(Exact name of Registrant as specified in its charter)

 

Delaware 06-1515824
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)  

 

14 Wall Street

New York, New York 10005

(Address of principal executive offices, including zip code)

 

(212) 321-5000

(Registrant's telephone number, including area code)

 

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

 

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

 

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

 

Large accelerated filer  ¨    Accelerated filer  ¨ Non-accelerated filer  ¨    Smaller reporting company  x

 

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

 

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

 

  Number of Shares Outstanding
Title of Class as of November 4, 2014
Common Stock, par value $0.01 per share 34,454,255

 

 
 

 

TheStreet, Inc.

Form 10-Q

 

As of and for the Three and Nine Months Ended September 30, 2014

 

Part I - FINANCIAL INFORMATION 1
Item 1. Interim Condensed Consolidated Financial Statements 1
  Condensed Consolidated Balance Sheets 1
  Condensed Consolidated Statements of Operations 2
  Condensed Consolidated Statements of Comprehensive Loss 3
  Condensed Consolidated Statements of Cash Flows 4
  Notes to Condensed Consolidated Financial Statements 5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 15
Item 3. Quantitative and Qualitative Disclosures About Market Risk 23
Item 4. Controls and Procedures 23
     
PART II - OTHER INFORMATION 23
Item 1. Legal Proceedings 23
Item 1A. Risk Factors 23
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 23
Item 3. Defaults Upon Senior Securities 23
Item 4. Mine Safety Disclosures 24
Item 5. Other Information 24
Item 6. Exhibits 24
SIGNATURES 25

 

ii
 

 

Part I – FINANCIAL INFORMATION

 

Item 1. Interim Condensed Consolidated Financial Statements.

 

THESTREET, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

 

    September 30, 2014     December 31, 2013  
    (unaudited)          
assets                
Current Assets:                
Cash and cash equivalents   $ 48,275,969     $ 45,443,759  
Accounts receivable, net of allowance for doubtful accounts of $257,033 as of September 30, 2014 and $202,207 as of December 31, 2013     3,894,744       4,502,344  
Marketable securities     6,043,940       9,426,875  
Other receivables, net     413,123       299,687  
Prepaid expenses and other current assets     1,281,878       1,167,029  
Restricted cash     139,750       139,750  
Total current assets     60,049,404       60,979,444  
                 
Property and equipment, net of accumulated depreciation and amortization of $16,949,863 as of September 30, 2014 and $16,035,351 as of December 31, 2013     4,809,295       4,400,404  
Marketable securities     1,550,000       3,670,860  
Other assets     8,128       21,800  
Goodwill     27,997,286       27,997,286  
Other intangibles, net of accumulated amortization of $8,259,169 as of September 30, 2014 and $6,994,772 as of December 31, 2013     9,398,586       10,662,983  
Restricted cash     1,161,250       1,161,250  
Total assets   $ 104,973,949     $ 108,894,027  
                 
liabilities and stockholders’ equity                
Current Liabilities:                
Accounts payable   $ 2,283,362     $ 2,352,521  
Accrued expenses     3,929,501       4,338,423  
Deferred revenue     22,823,142       22,122,763  
Other current liabilities     804,429       957,741  
Total current liabilities     29,840,434       29,771,448  
Deferred tax liability     288,000       288,000  
Other liabilities     4,623,914       4,671,421  
Total liabilities     34,752,348       34,730,869  
                 
Stockholders’ Equity                
Preferred stock; $0.01 par value; 10,000,000 shares authorized; 5,500 issued and outstanding as of September 30, 2014 and December 31, 2013; the aggregate liquidation preference totals $55,000,000 as of September 30, 2014 and December 31, 2013     55       55  
Common stock; $0.01 par value; 100,000,000 shares authorized; 41,503,750 shares issued and 34,444,358 shares outstanding as of September 30, 2014, and 41,058,246 shares issued and 34,044,339 shares outstanding as of December 31, 2013     415,038       410,582  
Additional paid-in capital     272,371,156       273,861,536  
Accumulated other comprehensive loss     (283,167 )     (178,183 )
Treasury stock at cost; 7,059,392 shares as of September 30, 2014 and 7,013,907 shares as of December 31, 2013     (12,480,568 )     (12,364,460 )
Accumulated deficit     (189,800,913 )     (187,566,372 )
Total stockholders’ equity     70,221,601       74,163,158  
Total liabilities and stockholders’ equity   $ 104,973,949     $ 108,894,027  

 

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

 

1
 

 

THESTREET, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

    For the Three Months Ended
September 30,
    For the Nine Months Ended
September 30,
 
    2014     2013     2014     2013  
Net revenue:                                
Subscription services   $ 11,715,504     $ 11,169,084     $ 34,722,784     $ 32,179,403  
Media     2,903,571       2,415,644       9,047,623       7,469,905  
Total net revenue     14,619,075       13,584,728       43,770,407       39,649,308  
                                 
Operating expense:                                
Cost of services     7,483,414       7,460,950       22,897,998       20,607,534  
Sales and marketing     3,343,017       3,525,520       11,202,886       10,644,273  
General and administrative     3,564,887       2,755,016       9,821,941       9,230,616  
Depreciation and amortization     721,536       883,760       2,178,908       2,762,283  
Restructuring and other charges     -       -       -       385,610  
Loss on disposition of assets     -       171,000       -       187,434  
Total operating expense     15,112,854       14,796,246       46,101,733       43,817,750  
Operating loss     (493,779 )     (1,211,518 )     (2,331,326 )     (4,168,442 )
Net interest income     26,850       32,053       96,785       169,884  
Net loss     (466,929 )     (1,179,465 )     (2,234,541 )     (3,998,558 )
Preferred stock cash dividends     96,424       -       289,272       -  
Net loss attributable to common stockholders   $ (563,353 )   $ (1,179,465 )   $ (2,523,813 )   $ (3,998,558 )
                                 
Basic and diluted net loss per share                                
Net loss   $ (0.02 )   $ (0.03 )   $ (0.06 )   $ (0.12 )
Preferred stock cash dividends     (0.00 )     -       (0.01 )     -  
Net loss attributable to common stockholders   $ (0.02 )   $ (0.03 )   $ (0.07 )   $ (0.12 )
                                 
Weighted average basic and diluted shares outstanding     34,436,335       33,892,790       34,337,597       33,654,044  

 

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

 

2
 

 

THESTREET, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(unaudited)

 

    For the Three Months Ended
September 30,
    For the Nine Months Ended
September 30,
 
    2014     2013     2014     2013  
Net loss   $ (466,929 )   $ (1,179,465 )   $ (2,234,541 )   $ (3,998,558 )
Unrealized gain (loss) on marketable securities     29,642       (112,398 )     (104,984 )     (35,973 )
Comprehensive loss   $ (437,287 )   $ (1,291,863 )   $ (2,339,525 )   $ (4,034,531 )

 

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

 

3
 

 

THESTREET, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

    For the Nine Months Ended September 30,  
    2014     2013  
Cash Flows from Operating Activities:                
Net loss   $ (2,234,541 )   $ (3,998,558 )
Adjustments to reconcile net loss to net cash provided by operating activities:                
Stock-based compensation expense     1,354,722       1,216,041  
Provision for doubtful accounts     36,201       3,730  
Depreciation and amortization     2,178,908       2,762,283  
Restructuring and other charges     -       393,195  
Deferred rent     (243,859 )     (241,899 )
Noncash barter activity     -       20,000  
Loss on disposition of assets     -       187,434  
Changes in operating assets and liabilities:                
Accounts receivable     565,016       1,773,584  
Other receivables     (107,053 )     865,159  
Prepaid expenses and other current assets     (114,847 )     (145,417 )
Other assets     13,672       2,928  
Accounts payable     (69,159 )     (1,695,000 )
Accrued expenses     (340,598 )     (1,954,966 )
Deferred revenue     742,186       1,375,369  
Other current liabilities     (155,302 )     (58,676 )
Other liabilities     -       (24,001 )
Net cash provided by operating activities     1,625,346       481,206  
                 
Cash Flows from Investing Activities:                
Sale and maturity of marketable securities     5,398,811       17,923,464  
Purchase of assets from DealFlow Media, Inc.     -       (1,764,716 )
Capital expenditures     (1,323,403 )     (813,469 )
Proceeds from the disposition of assets     -       71,881  
Net cash provided by investing activities     4,075,408       15,417,160  
                 
Cash Flows from Financing Activities:                
Cash dividends paid on common stock     (2,613,116 )     -  
Cash dividends paid on preferred stock     (289,272 )     -  
Proceeds from the exercise of stock options     149,952       18,000  
Shares withheld on RSU vesting to pay for withholding taxes     (116,108 )     (135,847 )
Net cash used in financing activities     (2,868,544 )     (117,847 )
Net increase in cash and cash equivalents     2,832,210       15,780,519  
Cash and cash equivalents, beginning of period     45,443,759       23,845,360  
Cash and cash equivalents, end of period   $ 48,275,969     $ 39,625,879  
                 
Noncash investing and financing activities:                
Stock issued for business combination   $ -     $ 780,863  

 

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

 

4
 

 

TheStreet, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION

 

Business

 

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

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and for quarterly reports on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The financial statements require the use of management estimates and include the accounts of the Company as required by GAAP.   Operating results for the nine month period ended September 30, 2014 is not necessarily indicative of the results that may be expected for the year ending December 31, 2014.

 

The consolidated balance sheet at December 31, 2013 has been derived from the audited financial statements at that date, but does not include all of the information and notes required by GAAP for complete financial statements.

 

For further information, refer to the consolidated financial statements and accompanying notes included in the Company’s annual report on Form 10-K for the year ended December 31, 2013, filed with the Securities and Exchange Commission (“SEC”) on February 28, 2014 (“2013 Form 10-K”).

 

The Company has evaluated subsequent events for recognition or disclosure.

 

Recent Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued ASU 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"). ASU 2014-09 requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 is applicable for fiscal years beginning after December 15, 2016, including interim periods therein, and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. We are currently evaluating the impact that adopting this new accounting standard will have on our consolidated financial statements and have not yet determined the method by which we will adopt the standard in 2017.

 

5
 

 

2. ACQUISITION

 

On April 19, 2013, the Company acquired The DealFlow Report, The Life Settlements Report and the PrivateRaise database (the “DealFlow” acquisition) from DealFlow Media, Inc. These newsletters and database, and the employees providing their content, have been incorporated into The Deal, TheStreet’s institutional platform. The Company paid cash consideration of approximately $2.0 million, issued 408,829 unregistered shares of the Company’s common stock having a value on the closing date of approximately $781 thousand, and assumed net liabilities of approximately $726 thousand. The acquisition was not significant and pro forma financial information was not required.

 

3. CASH AND CASH EQUIVALENTS, MARKETABLE SECURITIES AND RESTRICTED CASH

 

The Company’s cash, cash equivalents and restricted cash primarily consist of money market funds and checking accounts. Marketable securities consist of investment grade corporate bonds and floating rate notes, and two municipal auction rate securities (“ARS”) issued by the District of Columbia with a par value of approximately $1.9 million. As of September 30, 2014, the total fair value of these marketable securities was approximately $7.6 million and the total cost basis was approximately $7.9 million. As of December 31, 2013, the total fair value of these marketable securities was approximately $13.1 million and the total cost basis was approximately $13.3 million. The decrease in marketable securities was due to the Company not reinvesting the proceeds as securities matured. With the exception of the ARS, the maximum maturity for any investment is three years. The ARS mature in the year 2038. The Company accounts for its marketable securities in accordance with the provisions of ASC 320-10. The Company classifies these securities as available for sale and the securities are reported at fair value. Unrealized gains and losses are recorded as a component of accumulated other comprehensive loss and excluded from net loss. Additionally, the Company has a total of approximately $1.3 million of cash that serves as collateral for outstanding letters of credit, and which cash is therefore restricted. The letters of credit serve as security deposits for the Company’s office space in New York City.

 

    September 30,
2014
    December 31,
2013
 
Cash and cash equivalents   $ 48,275,969     $ 45,443,759  
Current and noncurrent marketable securities     7,593,940       13,097,735  
Current and noncurrent restricted cash     1,301,000       1,301,000  
Total cash and cash equivalents, current and noncurrent marketable securities and current and noncurrent restricted cash   $ 57,170,909     $ 59,842,494  

 

4. FAIR VALUE MEASUREMENTS

 

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

 

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

 

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

 

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

 

    As of September 30, 2014  
    Total     Level 1     Level 2     Level 3  
Description:                                
Cash and cash equivalents (1)   $ 48,275,969     $ 48,275,969     $     $  
Restricted cash (1)     1,301,000       1,301,000              
Marketable securities (2)     7,593,940       6,043,940             1,550,000  
Total at fair value   $ 57,170,909     $ 55,620,909     $     $ 1,550,000  

 

    As of December 31, 2013  
    Total     Level 1     Level 2     Level 3  
Description:                                
Cash and cash equivalents (1)   $ 45,443,759     $ 45,443,759     $     $  
Restricted cash (1)     1,301,000       1,301,000              
Marketable securities (2)     13,097,735       11,517,735             1,580,000  
Total at fair value   $ 59,842,494     $ 58,262,494     $     $ 1,580,000  

 

(1) Cash, cash equivalents and restricted cash primarily consist of money market funds and checking accounts for which we determine fair value through quoted market prices.

 

(2) Marketable securities primarily consist of investment grade corporate bonds and floating rate notes for which we determine fair value through quoted market prices. Marketable securities also consist of two municipal ARS issued by the District of Columbia having a fair value totaling approximately $1.6 million as of September 30, 2014 and December 31, 2013. Historically, the fair value of ARS investments approximated par value due to the frequent resets through the auction process. Due to events in credit markets, the auction events, which historically have provided liquidity for these securities, have been unsuccessful. The result of a failed auction is that these ARS holdings will continue to pay interest in accordance with their terms at each respective auction date; however, liquidity of the securities will be limited until there is a successful auction, the issuer redeems the securities, the securities mature or until such time as other markets for these ARS holdings develop. For each of our ARS, we evaluate the risks related to the structure, collateral and liquidity of the investment, and forecast the probability of issuer default, auction failure, a successful auction at par, or a redemption at par, for each future auction period. Temporary impairment charges are recorded in accumulated other comprehensive (loss) income, whereas other-than-temporary impairment charges are recorded in our consolidated statement of operations. As of September 30, 2014, the Company determined that there was a decline in the fair value of its ARS investments of $300 thousand from its cost basis, which was deemed temporary and was included within accumulated other comprehensive loss. The Company used both a discounted cash flow and market approach model to determine the estimated fair value of its investment in ARS. The assumptions used in preparing the discounted cash flow model include estimates for interest rate, timing and amount of cash flows and expected holding period of ARS.

 

7
 

 

The following table provides a reconciliation of the beginning and ending balance for the Company’s marketable securities measured at fair value using significant unobservable inputs (Level 3):

 

    Marketable
Securities
 
Balance at December 31, 2013   $ 1,580,000  
Decrease in fair value of investment     (30,000 )
Balance at September 30, 2014   $ 1,550,000  

 

5. STOCK-BASED COMPENSATION

 

The Company estimates the fair value of stock option awards on the date of grant using the Black-Scholes option-pricing model. This determination is affected by the Company’s stock price as well as assumptions regarding expected volatility, risk-free interest rate, and expected dividend yields. Because option-pricing models require the use of subjective assumptions, changes in these assumptions can materially affect the fair value of the options. The weighted-average grant date fair value per share of stock option awards granted during the nine months ended September 30, 2014 and 2013 was $0.46 and $0.63, respectively, using the Black-Scholes model with the following weighted-average assumptions:

 

    For the Nine Months Ended
September 30,
 
    2014     2013  
Expected option lives     3.5 years       3.7 years  
Expected volatility     35.98 %     40.14 %
Risk-free interest rate     1.04 %     0.85 %
Expected dividend yield     4.04 %     0.00 %

 

The value of each restricted stock unit awarded is equal to the closing price per share of the Company’s Common Stock on the date of grant. The weighted-average grant date fair value per share of restricted stock units granted during the nine months ended September 30, 2014 and 2013 was $2.23 and $1.69, respectively.

 

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

 

As of September 30, 2014, there remained 1,788,631 shares available for future awards under the Company’s 2007 Performance Incentive Plan (the “2007 Plan”). In connection with awards under both the 2007 Plan and awards issued outside of the Plan, the Company recorded approximately $491 thousand and $1.4 million of noncash stock-based compensation for the three and nine month periods ended September 30, 2014, as compared to approximately $418 thousand and $1.6 million (inclusive of $393 thousand included in restructuring and other charges) of noncash stock-based compensation for the three and nine month periods ended September 30, 2013, respectively. As of September 30, 2014, there was approximately $3.8 million of unrecognized stock-based compensation expense remaining to be recognized over a weighted-average period of 2.9 years.

 

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

 

    Shares
Underlying
Awards
    Weighted
Average
Exercise
Price
    Aggregate
Intrinsic
Value
($000)
    Weighted
Average
Remaining
Contractual
Life (In Years)
 
Awards outstanding at December 31, 2013     4,435,536     $ 1.89                  
Options granted     125,958     $ 2.35                  
Options exercised     (81,313 )   $ 1.84                  
Options cancelled     (99,354 )   $ 1.82                  
Options expired     (37,410 )   $ 2.92                  
Awards outstanding at September 30, 2014     4,343,417     $ 1.89     $ 1,641       4.05  
Awards vested and expected to vest at September 30, 2014     4,103,168     $ 1.89     $ 1,569       4.04  
Awards exercisable at September 30, 2014     2,124,474     $ 1.88     $ 891       3.92  

 

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

 

    Shares
Underlying
Awards
    Aggregate
Intrinsic
Value
($000)
    Weighted
Average
Remaining
Contractual
Life (In Years)
 
Awards outstanding at December 31, 2013     1,478,447                  
Restricted stock units granted     470,853                  
Restricted stock units vested     (364,191 )                
Restricted stock units cancelled     (20,522 )                
Awards outstanding at September 30, 2014     1,564,587     $ 3,505       3.11  
Awards vested and expected to vest at September 30, 2014     1,533,858     $ 3,436       2.93  

 

A summary of the status of the Company’s unvested share-based payment awards as of September 30, 2014 and changes in the nine month period then ended, is as follows:

 

Unvested Awards   Number of Shares     Weighted
Average Grant
Date Fair Value
 
Shares underlying awards unvested at December 31, 2013     4,711,899     $ 1.03  
Shares underlying options granted     125,958     $ 0.46  
Shares underlying restricted stock units granted     470,853     $ 2.23  
Shares underlying options vested     (1,041,113 )   $ 0.56  
Shares underlying restricted stock units vested     (364,191 )   $ 1.84  
Shares underlying options cancelled     (99,354 )   $ 0.50  
Shares underlying restricted stock units cancelled     (20,522 )   $ 1.70  
Shares underlying awards unvested at September 30, 2014     3,783,530     $ 1.23  

 

9
 

 

 

 

For the nine months ended September 30, 2014 and 2013, the total fair value of share-based awards vested was approximately $1.4 million and $1.5 million, respectively. For the nine months ended September 30, 2014 and 2013, the total intrinsic value of options exercised was approximately $64 thousand and $4 thousand, respectively. For the nine months ended September 30, 2014 and 2013, approximately 126 thousand and 1.6 million stock options, respectively, were granted to employees of the Company, and 81 thousand and 10 thousand stock options, respectively, were exercised yielding $150 thousand and $18 thousand, respectively, of cash proceeds to the Company. Additionally, for the nine months ended September 30, 2014 and 2013, approximately 471 thousand and 338 thousand restricted stock units, respectively, were granted to employees of the Company, and approximately 364 thousand and 529 thousand shares, respectively, were issued under restricted stock unit grants.

 

6. STOCKHOLDERS’ EQUITY

 

Treasury Stock

 

In December 2000, the Company’s Board of Directors authorized the repurchase of up to $10 million of the Company’s Common Stock, from time to time, in private purchases or in the open market. In February 2004, the Company’s Board of Directors approved the resumption of the stock repurchase program (the “Program”) under new price and volume parameters, leaving unchanged the maximum amount available for repurchase under the Program. However, the affirmative vote of the holders of a majority of the outstanding shares of Series B Preferred Stock, voting separately as a single class, is necessary for the Company to repurchase its Common Stock (except for the purchase or redemption from employees, directors and consultants pursuant to agreements providing us with repurchase rights upon termination of their service with us), unless after such purchase we have unrestricted cash (net of all indebtedness for borrowed money, purchase money obligations, promissory notes or bonds) equal to at least two times the product obtained by multiplying the number of shares of Series B Preferred Stock outstanding at the time such dividend is paid by the liquidation preference. During the nine-month periods ended September 30, 2014 and 2013, the Company did not purchase any shares of Common Stock under the Program. Since inception of the Program, the Company has purchased a total of 5,453,416 shares of Common Stock at an aggregate cost of approximately $7.3 million.

 

In addition, pursuant to the terms of the Company’s 2007 Plan, and certain procedures adopted by the Compensation Committee of the Board of Directors, in connection with the exercise of stock options by certain of the Company’s employees, and the issuance of shares of Common Stock in settlement of vested restricted stock units, the Company may withhold shares in lieu of payment of the exercise price and/or the minimum amount of applicable withholding taxes then due. Through September 30, 2014, the Company had withheld an aggregate of 1,394,368 shares which have been recorded as treasury stock.

 

The Company has also received an aggregate of 208,270 shares as partial settlement of the working capital and debt adjustment from the acquisition of Corsis Technology Group II LLC and 3,338 shares as partial settlement of the working capital adjustment from the acquisition of Kikucall, Inc. These shares have also been recorded as treasury stock.

 

Dividends

 

During the third quarter of 2014, the Company paid a quarterly cash dividend of $0.025 per share on its Common Stock and its Series B Preferred Stock on a converted common share basis. The dividend payment totaled approximately $989 thousand. When combined with the quarterly cash dividend paid during the first and second quarters of 2014, year-to-date dividend payments totaled approximately $2.9 million. There were no dividends paid during the nine months ended September 30, 2013.

 

10
 

  

7. LEGAL PROCEEDINGS

 

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

 

8. NET LOSS PER SHARE OF COMMON STOCK

 

Basic net loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed using the weighted average number of common shares and potential common shares outstanding during the period, so long as the inclusion of potential common shares does not result in a lower net loss per share. Potential common shares consist of restricted stock units (using the treasury stock method), the incremental common shares issuable upon the exercise of stock options (using the treasury stock method), and the conversion of the Company’s convertible preferred stock (using the if-converted method). For the three months ended September 30, 2014 and 2013, approximately 5.9 million and 4.6 million unvested restricted stock units and vested and unvested options to purchase Common Stock, respectively, were excluded from the calculation, as their effect would result in a lower net loss per share. For the nine months ended September 30, 2014 and 2013, approximately 5.9 million and 4.2 million unvested restricted stock units and vested and unvested options to purchase Common Stock, respectively, were excluded from the calculation, as their effect would result in a lower net loss per share.

 

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

 

    For the Three Months Ended
September 30,
    For the Nine Months Ended
September 30,
 
    2014     2013     2014     2013  
Basic and diluted net loss per share:                                
Numerator:                                
Net loss   $ (466,929 )   $ (1,179,465 )   $ (2,234,541 )   $ (3,998,558 )
Preferred stock cash dividends     96,424       -       289,272       -  
Numerator for basic and diluted earnings per share                                
Net loss available to common stockholders   $ (563,353 )   $ (1,179,465 )   $ (2,523,813 )   $ (3,998,558 )
Denominator:                                
Weighted average basic and diluted shares outstanding     34,436,335       33,892,790       34,337,597       33,654,044  
                                 
Basic and diluted net loss per share:                                
Net loss   $ (0.02 )   $ (0.03 )   $ (0.06 )   $ (0.12 )
Preferred stock cash dividends     (0.00 )     -       (0.01 )     -  
Net loss available to common stockholders   $ (0.02 )   $ (0.03 )   $ (0.07 )   $ (0.12 )

 

9. INCOME TAXES

 

The Company accounts for its income taxes in accordance with ASC 740-10. Under ASC 740-10, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their tax bases. ASC 740-10 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax assets will not be realized based on all available positive and negative evidence.

 

The Company had approximately $156 million of federal and state net operating loss carryforwards as of December 31, 2013, which results in deferred tax assets of approximately $64 million. The Company has a full valuation allowance against its deferred tax assets as management concluded that it was more likely than not that the Company would not realize the benefit of its deferred tax assets by generating sufficient taxable income in future years. The Company expects to continue to provide a full valuation allowance until, or unless, it can sustain a level of profitability that demonstrates its ability to utilize these assets.

 

11
 

  

Subject to potential Section 382 limitations as discussed below, the federal losses are available to offset future taxable income through 2033 and expire from 2019 through 2033. Since the Company does business in various states and each state has its own rules with respect to the number of years losses may be carried forward, the state net operating loss carryforwards expire from 2014 through 2033. The net operating loss carryforward as of December 31, 2013 includes approximately $15 million related to windfall tax benefits for which a benefit would be recorded to additional paid in capital when realized. Based on operating results for the nine months ended September 30, 2014 and three month projections, management expects to generate a tax loss in 2014 and no tax benefit has been recorded.

 

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

 

10. BUSINESS CONCENTRATIONS AND CREDIT RISK

 

Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents and restricted cash. The Company maintains all of its cash, cash equivalents and restricted cash in four domestic financial institutions, and performs periodic evaluations of the relative credit standing of these institutions. As of September 30, 2014, the Company’s cash, cash equivalents and restricted cash primarily consisted of money market funds and checking accounts.

 

For the three and nine months ended September 30, 2014 and 2013, no individual client accounted for 10% or more of consolidated revenue. As of September 30, 2014, no individual client accounted for more than 10% of our gross accounts receivable balance. As of December 31, 2013, one individual client accounted for more than 10% of our gross accounts receivable balance.

 

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

 

11. RESTRUCTURING AND OTHER CHARGES

 

During the nine months ended September 30, 2013, the Company recognized restructuring and other charges totaling approximately $386 thousand primarily related to noncash stock-based compensation costs in connection with the accelerated vesting of certain restricted stock units for a terminated employee.

 

During the year ended December 31, 2012, the Company implemented a targeted reduction in force. Additionally, in assessing the ongoing needs of the organization, the Company elected to discontinue using certain software as a service, consulting and data providers, and elected to write-off certain previously capitalized software development projects. The actions were taken after a review of the Company’s cost structure with the goal of better aligning the cost structure with the Company’s revenue base. These restructuring efforts resulted in restructuring and other charges of approximately $3.4 million during the year ended December 31, 2012. Additionally, as a result of the Company’s acquisition of The Deal, LLC (“the Deal”) in September 2012, the Company discontinued the use of The Deal’s office space and implemented a reduction in force to eliminate redundant positions, resulting in restructuring and other charges of approximately $3.5 million during the year ended December 31, 2012. Collectively, these activities are referred to as the “2012 Restructuring”.

 

12
 

  

The following table displays the activity of the 2012 Restructuring reserve account during the nine months ended September 30, 2014 and 2013. The remaining balance as of September 30, 2014 relates to the lease for The Deal’s office space which expires in August 2021.

 

    For the Nine Months Ended
September 30,
 
    2014     2013  
Beginning balance   $ 1,281,412     $ 2,680,006  
Adjustment to prior estimate     143,115       16,849  
Net credit (payment)     13,420       (1,414,179 )
Ending balance   $ 1,437,947     $ 1,282,676  

 

In December 2011, the Company announced a management transition under which the Company’s chief executive officer would step down from his position by March 31, 2012. Additionally, in December 2011, a senior vice president separated from the Company. As a result of these activities, the Company incurred restructuring and other charges of approximately $1.8 million during the year ended December 31, 2011 (the “2011 Restructuring”).

 

The following table displays the activity of the 2011 Restructuring reserve account during the nine months ended September 30, 2013:

 

Balance, December 31, 2012   $ 1,541  
Payments     (1,541 )
Balance, September 30, 2013   $ -  

 

In March 2009, the Company announced and implemented a reorganization plan, including an approximate 8% reduction in the Company’s workforce, to align the Company’s resources with its strategic business objectives. Additionally, effective March 21, 2009, the Company’s then Chief Executive Officer tendered his resignation, effective May 8, 2009, the Company’s then Chief Financial Officer tendered his resignation, and in December 2009, the Company sold its Promotions.com subsidiary and entered into negotiations to sublease certain office space maintained by Promotions.com. As a result of these activities, the Company incurred restructuring and other charges of approximately $3.5 million during the year ended December 31, 2009 (the “2009 Restructuring”).

 

The following table displays the activity of the 2009 Restructuring reserve account during the nine months ended September 30, 2014 and 2013:

 

    For the Nine Months Ended
September 30,
 
    2014     2013  
Beginning balance   $ 96,274     $ 220,297  
Adjustment to prior estimate     (75,603 )     -  
Net payments     (20,671 )     (93,018 )
Ending balance   $ -     $ 127,279  

 

13
 

  

12. OTHER LIABILITIES

 

Other liabilities consist of the following:

 

    September 30,
2014
    December 31,
2013
 
Noncurrent deferred rent   $ 2,383,949     $ 2,629,798  
Noncurrent restructuring charge     1,437,947       1,281,412  
Noncurrent deferred revenue     799,926       758,119  
Other noncurrent liabilities     2,092       2,092  
Total other liabilities   $ 4,623,914     $ 4,671,421  

 

13. SUBSEQUENT EVENT

 

On October 31, 2014, the Company closed its previously announced acquisition. On October 7, 2014, the Company entered into a share purchase agreement with Management Diagnostics Limited (“MDL”), a privately held company headquartered in London, England, and certain MDL shareholders to acquire all of the outstanding share capital of MDL. MDL is the owner of BoardEx, an institutional relationship capital management database and platform. Clients, including investment banks, consultancies and law firms use BoardEx to leverage their relationships and facilitate business and corporate development initiatives. The company was founded in 1999 and is based in London with additional offices in New York City and Chennai, India. BoardEx will be integrated into The Deal, a business unit of TheStreet that serves corporate dealmakers with analysis of mergers and acquisitions, private equity and restructuring. BoardEx’s proprietary people data will be combined with The Deal’s newsroom and transaction data, allowing subscribers to easily network with the very people they read about in The Deal’s exclusive editorial content. The acquisition of BoardEx advances the strategic objectives of TheStreet by increasing both institutional content and subscribers.

 

The Company paid net cash consideration of approximately $21 million at closing, of which $1.5 million was placed in escrow which will be used to secure indemnity obligations for a period of 24 months. Concurrent with the signing of the agreement, the Company also purchased warranty insurance from Pembroke Syndicate 4000 at Lloyds with a policy limit of $5 million dollars, subject to a deductible. In addition, an earn-out may be payable in 2018 based on 2017 net revenue of BoardEx’s existing products and services. The results of operations of MDL will be included in the consolidated financial statements for the year ended December 31, 2014 from the date of acquisition.

 

14
 

 

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

 

Special Note Regarding Forward-Looking Statements – all statements contained in this quarterly report on Form 10-Q (the “Report”) that are not descriptions of historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are inherently subject to risks and uncertainties, and actual results could differ materially from those reflected in the forward-looking statements due to a number of factors, which include, but are not limited to, the factors set forth under the heading “Risk Factors” and elsewhere in this Report, and in other documents we file with the Securities and Exchange Commission from time to time, including, without limitation, the Company’s annual report on Form 10-K for the year ended December 31, 2013 (the “2013 Form 10-K”). Certain forward-looking statements may be identified by terms such as “may,” “will,” “should,” “could,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “forecasts,” “potential,” or “continue” or similar terms or the negative of these terms. All statements relating to our plans, strategies and objectives are deemed forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. The forward-looking statements speak only as of the date of the filing of this Report; we have no obligation to update these forward-looking statements, whether as a result of new information, future developments or otherwise.

 

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

 

Overview

 

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

 

We report revenue in two categories: subscription services and media. Subscription services is comprised of subscriptions, licenses and fees for access to securities investment information, stock market commentary, rate services and transactional information pertaining to the mergers and acquisitions environment. Media is comprised of fees charged for the placement of advertising and sponsorships within TheStreet and our affiliated properties, our subscription and institutional services, and other miscellaneous revenue.

 

Due to an increase in the value of the Company’s public float as of June 30, 2014, TheStreet, Inc. will become an accelerated filer commencing with its annual report on Form 10-K for the year ended December 31, 2014. This change in filing status requires the Company to have an audit of its internal control over financial reporting, which will increase fees related to the annual audit, and also require Form 10-K to be filed within 75 days after year-end instead of 90 days, and Form 10-Q’s to be filed within 40 days after each quarter-end period rather than 45 days.

 

15
 

 

Critical Accounting Estimates

 

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

 

· useful lives of intangible assets,
· useful lives of fixed assets,
· the carrying value of goodwill, intangible assets and marketable securities,
· allowances for doubtful accounts and deferred tax assets,
· accrued expense estimates,
· reserves for estimated tax liabilities,
· certain estimates and assumptions used in the calculation of the fair value of equity compensation issued to employees, and
· restructuring charges.

 

We perform annual impairment tests of goodwill and other intangible assets with indefinite lives as of September 30 each year and between annual tests whenever circumstances arise that indicate a possible impairment might exist. In conducting our annual 2014 impairment test through our independent appraisal firm, we used the market approach for the valuation of our common stock and the income approach for our preferred shares. We also performed an income approach by using the discounted cash flow (“DCF”) method to confirm the reasonableness of the results of the common stock market approach. Based on these approaches, we determined the Company’s business enterprise value (common equity plus preferred equity) exceeded its book value. The fair value of the Company’s outstanding Preferred Shares requires significant judgments, including the estimation of the amount of time until a liquidation event occurs as well as an appropriate cash flow discount rate. Further, in assigning a fair value to the Company’s Preferred Stock, the Company also considered that the preferred shareholders are entitled to receive a $55 million liquidation preference upon liquidation or dissolution of the Company or upon any change of control event. Additionally, the holders of the Preferred Shares are entitled to receive dividends and to vote as a single class together with the holders of the Common Stock on an as-converted basis and, provided certain preferred share ownership levels are maintained, are entitled to representation on the Company’s board of directors and may unilaterally block issuance of certain classes of capital stock, the purchase or redemption of certain classes of capital stock, including Common Stock (with certain exceptions) and any increases in the per-share amount of dividends payable to the holders of the Common Stock. A decrease in the price of the Company’s Common Stock, or changes in the estimated value of the Company’s Preferred Shares, could materially affect the determination of the fair value and could result in an impairment charge to reduce the carrying value of goodwill, which could be material to the Company’s financial position and results of operations.

 

A summary of our critical accounting policies and estimates can be found in our 2013 Form 10-K.

 

16
 

  

Contingencies

 

Accounting for contingencies, including those matters described in the Commitments and Contingencies section of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company’s 2013 Form 10-K, is highly subjective and requires the use of judgments and estimates in assessing their magnitude and likely outcome. In many cases, the outcomes of such matters will be determined by third parties, including governmental or judicial bodies. The provisions made in the consolidated financial statements, as well as the related disclosures, represent management’s best estimate of the then current status of such matters and their potential outcome based on a review of the facts and in consultation with outside legal counsel where deemed appropriate. The Company would record a material loss contingency in its consolidated financial statements if the loss is both probable of occurring and reasonably estimated. The Company regularly reviews contingencies and as new information becomes available may, in the future, adjust its associated liabilities.

 

Results of Operations

 

Comparison of Three Months Ended September 30, 2014 and September 30, 2013

 

Revenue

 

    For the Three Months Ended September 30,        
    2014     Percent
of Total
Revenue
    2013     Percent
of Total
Revenue
    Percent
Change
 
Revenue:                                        
Subscription services   $ 11,715,504       80 %   $ 11,169,084       82 %     5 %
Media     2,903,571       20 %     2,415,644       18 %     20 %
Total revenue   $ 14,619,075       100 %   $ 13,584,728       100 %     8 %

 

Subscription services . Subscription services revenue is comprised of subscriptions, licenses and fees for access to securities investment information, stock market commentary, rate services and transactional information pertaining to the mergers and acquisitions environment. Revenue is recognized ratably over the contract period.

 

Subscription services revenue increased by approximately $546 thousand, or 5%, over the periods. The increase was primarily related to a 13% increase in the weighted-average number of subscriptions, partially offset by an 8% decrease in the average revenue recognized per subscription. The increase in the weighted average number of subscriptions was due to new subscribers to the Company’s newsletter products, primarily from the introduction of several new newsletters in 2013. The decrease in the average revenue recognized per subscription during the period was primarily the result of the mix of products sold, including the introduction of several newsletter products at lower prices.

 

Media . Media revenue is comprised of fees charged for the placement of advertising and sponsorships within TheStreet and its affiliated properties, our subscription and institutional services, and other miscellaneous revenue.

 

Media revenue increased by approximately $488 thousand, or 20%, over the periods. The increase was primarily the result of higher demand from repeat and non-repeat advertisers. Media revenue includes approximately $15 thousand of barter revenue in the three months ended September 30, 2013. There was no barter revenue in the current year period.

 

17
 

 

Operating Expense

 

    For the Three Months Ended September 30,        
    2014     Percent
of Total
Revenue
    2013     Percent
of Total
Revenue
    Percent
Change
 
Operating expense:                                        
Cost of services   $ 7,483,414       51 %   $ 7,460,950       55 %     0 %
Sales and marketing     3,343,017       23 %     3,525,520       26 %     -5 %
General and administrative     3,564,887       24 %     2,755,016       20 %     29 %
Depreciation and amortization     721,536       5 %     883,760       7 %     -18 %
Loss on disposition of assets     -       -       171,000       1 %     -100 %
Total operating expense   $ 15,112,854             $ 14,796,246               2 %

 

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

 

Cost of services expense increased by approximately $22 thousand, or 0%, over the periods. The increase was primarily the result of increased compensation and related expense due to a 3% increase in average headcount, as well as higher consulting fees, the aggregate of which increased by approximately $509 thousand. These cost increases were partially offset by lower revenue share payments made to certain distribution partners, and an increased amount of salaries capitalized from website and software development projects, the aggregate of which decreased by approximately $469 thousand.

 

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

 

Sales and marketing expense decreased by approximately $183 thousand, or 5%, over the periods. The decrease was primarily the result of lower compensation and related costs due to a 7% decrease in average headcount, as well as reduced advertising and promotion related costs, the aggregate of which decreased by approximately $149 thousand. Sales and marketing expense includes approximately $15 thousand of barter expense in the three months ended September 30, 2013. There was no barter expense in the current year period.

 

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

 

General and administrative expense increased by approximately $810 thousand, or 29%, over the periods. The increase was primarily the result of transaction related costs resulting from the Company’s acquisition of Management Diagnostics Limited (see note 13 above “Subsequent Event”), higher compensation and related costs, increased occupancy costs and contributions made by the Company to TheStreet Foundation, the aggregate of which increased by approximately $846 thousand. These cost increases were partially offset by a reduction in consulting fees totaling approximately $97 thousand.

 

Depreciation and amortization. Depreciation and amortization expense decreased by approximately $162 thousand, or 18%, over the periods. The decrease was primarily the result of an overall reduced level of capital expenditures over the past few years.

 

18
 

 

Net Interest Income

 

    For the Three Months Ended        
    September 30,     Percent  
    2014     2013     Change  
Net interest income   $ 26,850     $ 32,053       -16 %

 

The decrease in net interest income was the result of reduced marketable securities balances and lower interest rates, partially offset by reduced interest expense related to the net present value calculation of certain restructuring costs that were recorded during 2012.

 

Net Loss

 

Net loss for the three months ended September 30, 2014 totaled approximately $467 thousand, or $0.02 per basic and diluted share, compared to net loss totaling approximately $1.2 million, or $0.03 per basic and diluted share, for the three months ended September 30, 2013.

 

Comparison of Nine Months Ended September 30, 2014 and September 30, 2013

 

Revenue

 

    For the Nine Months Ended September 30,        
    2014     Percent
of Total
Revenue
    2013     Percent
of Total
Revenue
    Percent
Change
 
Revenue:                                        
Subscription services   $ 34,722,784       79 %   $ 32,179,403       81 %     8 %
Media     9,047,623       21 %     7,469,905       19 %     21 %
Total revenue   $ 43,770,407       100 %   $ 39,649,308       100 %     10 %

 

Subscription services . Subscription services revenue increased by approximately $2.5 million, or 8%, over the periods. The increase was primarily related to a 16% increase in the weighted-average number of subscriptions, partially offset by a 7% decrease in the average revenue recognized per subscription. The increase in the weighted average number of subscriptions was due to new subscribers to the Company’s newsletter products, primarily from the introduction of several new newsletters in 2013. The decrease in the average revenue recognized per subscription during the period was primarily the result of the mix of products sold and the introduction of several newsletter products at lower prices.

 

Media . Media revenue increased by approximately $1.6 million, or 21%, over the periods. The increase was primarily the result of higher demand from repeat and non-repeat advertisers. Media revenue includes approximately $8 thousand of barter revenue in the nine months ended September 30, 2014, as compared to approximately $78 thousand of barter revenue in the prior year period.

 

19
 

 

Operating Expense

 

    For the Nine Months Ended September 30,        
    2014     Percent
of Total
Revenue
    2013     Percent
of Total
Revenue
    Percent
Change
 
Operating expense:                                        
Cost of services   $ 22,897,998       52 %   $ 20,607,534       52 %     11 %
Sales and marketing     11,202,886       26 %     10,644,273       27 %     5 %
General and administrative     9,821,941       22 %     9,230,616       23 %     6 %
Depreciation and amortization     2,178,908       5 %     2,762,283       7 %     -21 %
Restructuring and other charges     -       -       385,610       1 %     -100 %
Loss on disposition of assets     -       -       187,434       0 %     -100 %
Total operating expense   $ 46,101,733             $ 43,817,750               5 %

 

Cost of services. Cost of services expense increased by approximately $2.3 million, or 11%, over the periods. The increase was primarily the result of increased compensation and related expense due to a 7% increase in average headcount, fees paid to outside contributors, consulting fees and recruiting costs, the aggregate of which increased by approximately $3.2 million. These cost increases were partially offset by lower revenue share payments made to certain distribution partners, and reduced computer services and supplies and data costs, the aggregate of which decreased by approximately $1.1 million.

 

Sales and marketing. Sales and marketing expense increased by approximately $559 thousand, or 5%, over the periods. The increase was primarily the result of higher advertising and promotion, employee commission and benefit expenses, credit card processing fees and public relations expense, the aggregate of which increased by $1.1 million. These cost increases were partially offset by reduced salary costs due to a 5% decrease in average headcount, and lower consulting fees, the aggregate of which decreased by approximately $439 thousand. Sales and marketing expense includes approximately $8 thousand of barter expense in the nine months ended September 30, 2014, as compared to approximately $78 thousand in the prior year period.

 

General and administrative . General and administrative expense increased by approximately $591 thousand, or 6%, over the periods. The increase was primarily the result of transaction related costs resulting from the Company’s acquisition of Management Diagnostics Limited (see note 13 above “Subsequent Event”), higher compensation and related costs, contributions made by the Company to TheStreet Foundation and costs to host an industry conference, the aggregate of which increased by approximately $1.1 million. These cost increases were partially offset by reduced professional fees, taxes and consulting costs, the aggregate of which decreased by approximately $593 thousand.

 

Depreciation and amortization. Depreciation and amortization expense decreased by approximately $583 thousand, or 21%, over the periods. The decrease was primarily the result of an overall reduced level of capital expenditures over the past few years partially offset by increased amortization expense related to the purchase of assets from DealFlow Media, Inc.

 

Restructuring and other charges . The Company did not incur any restructuring and other charges during the nine months ended September 30, 2014. During the nine months ended September 30, 2013, the Company recognized restructuring and other charges totaling approximately $386 thousand primarily related to noncash stock-based compensation costs in connection with the accelerated vesting of certain restricted stock units for a terminated employee.

 

20
 

 

Net Interest Income

 

    For the Nine Months Ended
September 30,
    Percent  
    2014     2013     Change  
Net interest income   $ 96,785     $ 169,884       -43 %

 

The decrease in net interest income was the result of reduced marketable securities balances, lower interest rates, partially offset by reduced interest expense related to the net present value calculation of certain restructuring costs that were recorded during 2012.

 

Net Loss

 

Net loss for the nine months ended September 30, 2014 totaled approximately $2.2 million, or $0.06 per basic and diluted share, compared to net loss totaling approximately $4.0 million, or $0.12 per basic and diluted share, for the nine months ended September 30, 2013.

 

Liquidity and Capital Resources

 

Our current assets as of September 30, 2014 consisted primarily of cash and cash equivalents, marketable securities, and accounts receivable. Our current liabilities as of September 30, 2014 consisted primarily of deferred revenue, accrued expenses and accounts payable. As of September 30, 2014, our current assets totaled approximately $60.0 million, 2.0 times greater than our current liabilities. With respect to many of our annual newsletter subscription products, we offer the ability to receive a refund during the first 30 days but none thereafter. We do not as a general matter offer refunds for advertising that has run.

 

We generally have invested in money market funds and other short-term, investment grade instruments that are highly liquid and of high quality, with the intent that such funds are available for sale for acquisition and operating purposes. As of September 30, 2014, our cash, cash equivalents, marketable securities and restricted cash amounted to approximately $57.2 million, representing 54% of total assets. Our cash, cash equivalents and restricted cash primarily consist of money market funds and checking accounts. Our marketable securities consisted of investment grade corporate bonds and floating rate notes, with a maximum maturity of three years, and two municipal auction rate securities issued by the District of Columbia with a par value of approximately $1.9 million and a fair value of approximately $1.6 million that mature in the year 2038. Our total cash-related position is as follows:

 

    June 30,
2014
    December 31,
2013
 
Cash and cash equivalents   $ 48,275,969     $ 45,443,759  
Current and noncurrent marketable securities     7,593,940       13,097,735  
Current and noncurrent restricted cash     1,301,000       1,301,000  
Total cash and cash equivalents, current and noncurrent marketable securities and current and noncurrent restricted cash   $ 57,170,909     $ 59,842,494  

 

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

 

21
 

 

Net cash provided by operating activities for the nine-month period ended September 30, 2014 totaled approximately $1.6 million, as compared to net cash provided by operating activities totaling approximately $481 thousand for the nine-month period ended September 30, 2013. The improvement in net cash provided by operating activities was primarily related to a decrease in the net loss from operations of approximately $1.8 million, as well as changes in the balances of accounts payable and accrued expenses over the periods. These improvements were partially offset by changes in the balances of accounts receivable and other receivables, combined with reduced noncash expenses.

 

Net cash provided by investing activities for the nine-month period ended September 30, 2014 totaled approximately $4.1 million, as compared to net cash provided by investing activities totaling approximately $15.4 million for the nine-month period ended September 30, 2013. The reduction in net cash provided by investing activities was primarily the result of fewer maturities of marketable securities as well as increased capital expenditures, partially offset by the absence of acquisition related costs incurred in the prior year period.

 

Net cash used in financing activities for the nine-month period ended September 30, 2014 totaled approximately $2.9 million, as compared to net cash used in financing activities totaling approximately $118 thousand for the nine-month period ended September 30, 2013. The increase in net cash used in financing activities was primarily the result of dividend payments totaling approximately $2.9 million in the current year. There were no dividend payments in the prior year period. These uses of cash were partially offset by increased cash received from the exercise of stock options.

 

We have a total of approximately $1.3 million of cash that serves as collateral for outstanding letters of credit, and which cash is therefore restricted. The letters of credit serve as security deposits for office space in New York City.

 

We believe that our current cash and cash equivalents will be sufficient to meet our anticipated cash needs for at least the next 12 months. We are committed to cash expenditures in an aggregate amount of approximately $4.5 million through September 30, 2015, primarily related to operating leases and minimum payments due under an employment agreement.

 

As of December 31, 2013, we had approximately $156 million of federal and state net operating loss carryforwards, which results in deferred tax assets of approximately $64 million. Based on operating results for the nine months ended September 30, 2014 and three month projections, management expects to generate a tax loss in 2014 and no tax benefit has been recorded. We maintain a full valuation allowance against our deferred tax assets as management concluded that it is more likely than not that we will not realize the benefit of our deferred tax assets by generating sufficient taxable income in future years. We expect to continue to provide a full valuation allowance until, or unless, we can sustain a level of profitability that demonstrates our ability to utilize these assets.

 

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

 

Treasury Stock

 

Pursuant to the terms of the Company’s 1998 Stock Incentive Plan and our 2007 Performance Incentive Plan, and certain procedures adopted by the Compensation Committee of our Board of Directors, in connection with the exercise of stock options by certain of our employees, and the issuance of shares of Common Stock in settlement of vested restricted stock units, we may withhold shares in lieu of payment of the exercise price and/or the minimum amount of applicable withholding taxes then due. Through September 30, 2014, we have withheld an aggregate of 1,394,368 shares which have been recorded as treasury stock. In addition, we received an aggregate of 208,270 shares as partial settlement of the working capital and debt adjustment from the acquisition of Corsis Technology Group II LLC and 3,338 shares as partial settlement of a working capital adjustment related to our acquisition of Kikucall, Inc. These shares have been recorded as treasury stock.

 

22
 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

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

 

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

 

Item 4. Controls and Procedures.

 

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

 

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

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

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

 

Item 1A. Risk Factors.

 

In addition to the other information set forth in this report, you should carefully consider the information set forth in Part 1, Item 1A. “Risk Factors” in our Form 10-K for the year ended December 31, 2013, which we filed with the Securities and Exchange Commission on February 28, 2014.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

Not applicable

 

Item 3. Defaults Upon Senior Securities.

 

Not applicable.

 

23
 

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

Not applicable.

 

Item 6. Exhibits.

 

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

 

Exhibit    
Number   Description
10.1+   Severance Agreement dated as of November 5, 2014 between the Company and Erwin Eichmann
     
31.1   Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
31.2   Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
32.1   Certifications of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
32.2   Certifications of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

101.INS*   XBRL Instance Document
     
101.SCH*   XBRL Taxonomy Extension Schema Document
     
101.CAL*   XBRL Taxonomy Extension Calculation Document
     
101.DEF*   XBRL Taxonomy Extension Definitions Document
     
101.LAB*   XBRL Taxonomy Extension Labels Document
     
101.PRE*   XBRL Taxonomy Extension Presentation Document

 

 

 

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

 

24
 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  THESTREET, INC.
       
Date: November 7, 2014   By: /s/ Elisabeth DeMarse
    Name:    Elisabeth DeMarse
    Title: Chief Executive Officer (principal executive officer)
       
Date: November 7, 2014   By: /s/ John Ferrara
    Name: John Ferrara
    Title: Chief Financial Officer (principal financial officer)

 

25
 

 

EXHIBIT INDEX

 

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

 

Exhibit    
Number   Description
10.1+   Severance Agreement dated as of November 5, 2014 between the Company and Erwin Eichmann
     
31.1   Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
31.2   Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
32.1   Certifications of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
32.2   Certifications of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

101.INS*   XBRL Instance Document
     
101.SCH*   XBRL Taxonomy Extension Schema Document
     
101.CAL*   XBRL Taxonomy Extension Calculation Document
     
101.DEF*   XBRL Taxonomy Extension Definitions Document
     
101.LAB*   XBRL Taxonomy Extension Labels Document
     
101.PRE*   XBRL Taxonomy Extension Presentation Document

 

 

 

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

 

 

 

EXHIBIT 10.1

 

SEVERANCE AGREEMENT

 

SEVERANCE AGREEMENT (this “ Agreement ”), dated as of November 5, 2014, by and between TheStreet, Inc., a Delaware corporation (the “ Company ” or “ TheStreet ”), and Erwin Eichmann (“Mr. Eichmann” and together with the Company, each a “ Party ” and collectively the “ Parties ”).

 

WHEREAS, the Company desires that Mr. Eichmann enter into this Agreement, and Mr. Eichmann desires to enter into this Agreement, on the terms and conditions set forth herein;

 

WHEREAS, the Company granted Mr. Eichmann 275,000 stock options and 25,000 restricted stock units (“RSU”) pursuant to one RSU and two stock option agreement(s), dated 2/1/2013; 8/17/2012 and 9/13/2013, respectively. (collectively, the “ Equity Agreements ”);

 

WHEREAS, Mr. Eichmann agreed to be bound by certain restrictive covenants in the Equity Agreements; and

 

NOW THEREFORE, the parties hereto agree as follows:

 

Section 1 . Severance Benefits .

 

(a)                General Severance . In the event that the Company (or Successor (as defined below), if applicable) terminates Mr. Eichmann’s employment with the Company (or Successor, if applicable) without Cause (as defined in the Equity Agreements), then Mr. Eichmann shall be entitled to the following severance benefits:

 

(A) pay Mr. Eichmann an amount equal to the greater of (i) six (6) months or (ii) four (4) weeks per year of service of his base salary (at the annual rate in effect immediately prior to termination, but in no event less than Mr. Eichmann’s original annual salary of $220,000); and

 

(B) If Mr. Eichmann elects continuation coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) for himself and his eligible dependents, within the time period prescribed pursuant to COBRA, the Company will reimburse Mr. Eichmann for (or pay directly) the COBRA premiums for such coverage (at the coverage levels in effect immediately prior to Mr. Eichmann’s termination) until the earlier of (x) a period of twelve (12) months from the last date of employment with the Company, or (y) the date upon which he and/or his eligible dependents becomes covered under similar plans. COBRA reimbursements will be made by the Company to Mr. Eichmann consistent with the Company’s normal expense reimbursement policy and will be taxable to the extent required to avoid adverse consequences to Executive or the Company under either Code Section 105(h) or the Patient Protection and Affordable Care Act of 2010.; and

For purposes of this Agreement, “ Successor ” shall mean any person or entity that acquires all or substantially all of the Company’s assets or into which the Company is merged or combined with the Company ceasing to exist (or the successor to any such entity, whether by merger, assignment or otherwise).

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(b)               Payment of Benefits . Subject to Section 15, if Mr. Eichmann becomes entitled to a payment under Section 1(a)(A)(i), the Company (or Successor, if applicable) shall pay Mr. Eichmann the applicable amount in accordance with the Company’s then current payroll schedule, less applicable taxes, commencing the pay period immediately following Mr. Eichmann’s date of termination.

 

Section 2 . Parachute Payment Limitation .

 

Anything in this Agreement or the Equity Agreements to the contrary notwithstanding, in the event that:

 

(a) the aggregate payments or benefits to be made or distributed by the Company or its affiliates to or for the benefit of Mr. Eichmann (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) which are deemed to be parachute payments as defined in Internal Revenue Code (“ Code ”) Section 280G or any successor thereto (the “ Change of Control Benefits ”) would be deemed to include an “excess parachute payment” under Code Section 280G; and

 

(b) if such Change of Control Benefits were reduced to an amount (the “ Non-Triggering Amount ”), the value of which is one dollar ($1.00) less than an amount equal to three (3) times Mr. Eichmann’s “base amount,” as determined in accordance with Code Section 280G and the Non-Triggering Amount less the product of the marginal rate of any applicable state and federal income tax times the Non-Triggering Amount would be greater than the aggregate value of the Change of Control Benefits (without such reduction) minus (x) the amount of tax required to be paid by Mr. Eichmann thereon by Code Section 4999 and further minus (y) the product of the Change of Control Benefits times the marginal rate of any applicable state and federal income tax, then the Change of Control Benefits shall be reduced to the Non-Triggering Amount. Any reduction made pursuant to this Section 2(b) shall be made in accordance with the following order of priority: (i) stock options whose exercise price exceeds the fair market value of the optioned stock (“Underwater Options”), (ii) Full Credit Payments (as defined below) that are payable in cash, (iii) non-cash Full Credit Payments that are taxable, (iv) non-cash Full Credit Payments that are not taxable, (v) Partial Credit Payments (as defined below) and (vi) non-cash employee welfare benefits. In each case, reductions shall be made in reverse chronological order such that the payment or benefit owed on the latest date following the occurrence of the event triggering the excise tax will be the first payment or benefit to be reduced (with reductions made pro-rata in the event payments or benefits are owed at the same time). “Full Credit Payment” means a payment, distribution or benefit, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, that if reduced in value by one dollar reduces the amount of the parachute payment (as defined in Code Section 280G) by one dollar, determined as if such payment, distribution or benefit had been paid or distributed on the date of the event triggering the excise tax. “Partial Credit Payment” means any payment, distribution or benefit that is not a Full Credit Payment. In no event shall Mr. Eichmann have any discretion with respect to the ordering of payment reductions.

 

2
 

 



Section 3 . Certain Covenants .

 

In partial consideration for the right to receive the benefits described in Section 1, Mr. Eichmann agrees as follows. For avoidance of doubt, the covenants set forth below are independent of the covenants set forth in the Equity Agreements and any covenants that may be set forth in any subsequent written agreements between the Parties:

 

(a) Non-competition . During her/his employment by the Company or any subsidiary and through the end of one (1) year after the cessation of her/his employment with the Company or any subsidiary, Mr. Eichmann will not engage in a Competitive Activity (as defined below) with the Company or any of its subsidiaries. As used herein, “ Competitive Activity ” means Mr. Eichmann’s service as a director, officer, employee, principal, agent, stockholder, member, owner or partner of, or Mr. Eichmann permitting her/his name to be used in connection with the activities of, any other business or organization anywhere in the United States, or in any other geographic area in which the Company or any of its subsidiaries operates or with respect to which the Company provides financial news and commentary coverage (or from which such other business or organization provides financial news and commentary coverage of the United States), which engages in a business that competes with any business in which the Company or any subsidiary is engaged (a “ Competing Business .) Notwithstanding the foregoing, Mr. Eichmann may work in a non-competitive business of a company which is carrying on a Competing Business.

 

(b) Non-solicitation of Employees . During her/his employment by the Company or any subsidiary and through the end of one (1) year after the cessation of her/his employment with the Company or any subsidiary, Mr. Eichmann will not solicit for employment or hire, in any business enterprise or activity, any employee of the Company or any subsidiary who was employed by the Company or a subsidiary during Mr. Eichmann’s period of employment by the Company or a subsidiary; provided that (a) the foregoing shall not be violated by any general advertising not targeted at any Company or subsidiary employees nor by Mr. Eichmann serving as a reference upon request, and (b) Mr. Eichmann may solicit and hire any one or more former employees of the Company or its subsidiaries who had ceased being such an employee for a period of at least six (6) months prior to any such solicitation or hiring.

 

(c) Non-solicitation of Clients and Vendors . During her/his employment by the Company or any subsidiary and through the end of one (1) year after the cessation of her/his employment with the Company or any subsidiary, Mr. Eichmann will not solicit, in any business enterprise or activity, any client, customer, licensee, licensor, third-party service provider or vendor (a “ Business Relation ”) of the Company or any subsidiary who was a Business Relation of the Company or any subsidiary during Mr. Eichmann’s period of employment by the Company or any subsidiary to (i) cease being a Business Relation of the Company or any subsidiary or (ii) become a Business Relation of a Competing Business unless (without you having solicited such third party to cease such relationship) such third party ceased being a Business Relation of the Company or any subsidiary for a period of at least six (6) months prior to such solicitation.

 

3
 

 

 

(d) The parties acknowledge that the restrictions contained in this Section 3 are a reasonable and necessary protection of the immediate interests of the Company, and any violation of these restrictions could cause substantial injury to the Company and that the Company would not have entered into this Agreement, without receiving the additional consideration offered by Mr. Eichmann in binding her/himself to these restrictions. In the event of a breach or threatened breach by Mr. Eichmann of any of these restrictions, the Company shall be entitled to apply to any court of competent jurisdiction for an injunction restraining Mr. Eichmann from such breach or threatened breach; provided, however, that the right to apply for an injunction shall not be construed as prohibiting the Company from pursuing any other available remedies for such breach or threatened breach.

 

Section 4 . Notices .

 

Unless otherwise provided herein, any notice, exercise of rights or other communication required or permitted to be given hereunder shall be in writing and shall be given by overnight delivery service such as Federal Express or personal delivery against receipt, or mailed by registered or certified mail (return receipt requested), to the party to whom it is given at, in the case of the Company, General Counsel/Compensation Committee Chair, TheStreet, Inc., 14 Wall Street, 15 th Floor, New York, NY 10005, or, in the case of Mr. Eichmann, at her/his principal residence address as then reflected on the records of the Company or such other address as such party may hereafter specify by notice to the other party hereto. Any notice or other communication shall be deemed to have been given as of the date so personally delivered or transmitted by telecopy or like transmission or on the next business day after sent by overnight delivery service for next business day delivery or on the fifth business day after sent by registered or certified mail.

 

Section 5 . Representations .

 

The Company hereby represents and warrants that the execution and delivery of this Agreement and the performance by the Company of its obligations hereunder have been duly authorized by all necessary corporate action of the Company.

 

Section 6 . Amendment .

 

This Agreement may be amended only by a written agreement signed by the parties hereto.

 

Section 7 . Binding Effect .

 

The rights and duties under this Agreement are not assignable by Mr. Eichmann other than as a result of her/his death. None of Mr. Eichmann’s rights under this Agreement shall be subject to any encumbrances or the claims of Mr. Eichmann’s creditors. This Agreement shall be binding upon and inure to the benefit of the Company and any successor organization which shall succeed to the Company by merger or consolidation or operation of law, or by acquisition of all or substantially all of the assets of the Company.

 

4
 

 

 

Section 8 . Governing Law .

 

This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York applicable to contracts to be performed wholly within the state and without regard to its conflict of laws provisions that would defer to the laws of another jurisdiction.

 

Section 9 . Severability .

 

If any provision of this Agreement shall for any reason be held invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions hereof shall not be affected or impaired thereby. Moreover, if any one or more of the provisions of this Agreement shall be held to be excessively broad as to duration, activity or subject, such provisions shall be construed by limiting and reducing them so as to be enforceable to the maximum extent allowable by applicable law. To the extent permitted by applicable law, each party hereto waives any provision of law that renders any provision of this Agreement invalid, illegal or unenforceable in any way.

 

Section 10 . Execution in Counterparts .

 

This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original and all of which shall constitute one and the same instrument.

 

Section 11 . Entire Agreement .

 

This Agreement, together with the Equity Agreements, sets forth the entire agreement, and supersedes all prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof and thereof.

 

Section 12 . Titles and Headings .

 

Titles and headings to Sections herein are for purposes of reference only, and shall in no way limit, define or otherwise affect the meaning or interpretation of any of the provisions of this Agreement.

 

Section 13 . Consent to Jurisdiction .

 

The parties hereto each hereby irrevocably submit to the exclusive jurisdiction of any New York State or Federal court sitting in the Borough of Manhattan, City of New York in any action or proceeding to enforce the provisions of this Agreement, and waives the defense of inconvenient forum to the maintenance of any such action or proceeding.

 

 

 

5
 

 

Section 14 . No Duty to Mitigate .

 

Mr. Eichmann shall have no duty to mitigate or have any off-set made against amounts payable by the Company to Mr. Eichmann hereunder.

 

Section 15 . Release .

 

As a condition to the obligation of the Company to make the payments provided for in this Agreement and otherwise perform its obligations hereunder to Mr. Eichmann upon termination of Mr. Eichmann’s employment (other than due to her death), Mr. Eichmann or her legal representatives shall deliver to the Company a written release, substantially in the form attached hereto as Exhibit A (the “Release”), which must become effective no later than the sixtieth (60th) day following Mr. Eichmann’s termination of employment (the “Release Deadline”), and if not, Mr. Eichmann will forfeit any right to severance payments or benefits under this Agreement. To become effective, the Release must be executed by Mr. Eichmann and any revocation periods (as required by statute, regulation, or otherwise) must have expired without Mr. Eichmann having revoked the Release. In addition, in no event will severance payments or benefits be paid or provided until the Release actually becomes effective. If the termination of employment occurs at a time during the calendar year where the Release Deadline could occur in the calendar year following the calendar year in which Mr. Eichmann’s termination of employment occurs, then any severance payments or benefits under this Agreement that would be considered deferred compensation not exempt under Section 409A (as defined below) will be paid on the first payroll date to occur during the calendar year following the calendar year in which such termination occurs, or such later time as required by (i) the date the Release becomes effective, or (iii) Section 16, provided that the first payment shall include all amounts that would have been paid to Mr. Eichmann if payment had commenced on the date of Mr. Eichmann’s termination of employment.

 

 

Section 16 . Section 409A .

 

(a) Notwithstanding anything to the contrary in this Agreement, no severance pay or benefits to be paid or provided to Mr. Eichmann, if any, pursuant to this Agreement that, when considered together with any other severance payments or separation benefits, are considered deferred compensation not exempt under Section 409A (together, the “Deferred Payments”) will be paid or otherwise provided until Mr. Eichmann has a “separation from service” within the meaning of Section 409A. Similarly, no severance payable to Mr. Eichmann, if any, pursuant to this Agreement that otherwise would be exempt from Section 409A pursuant to Treasury Regulation Section 1.409A-1(b)(9) will be payable until Mr. Eichmann has a “separation from service” within the meaning of Section 409A. For purposes of this Agreement, “Section 409A” means Section 409A of the Internal Revenue Code of 1986, as amended or any regulations or Treasury guidance promulgated thereunder (“ Section 409A ”).

 

(b) Notwithstanding any provision of this Agreement to the contrary, if Mr. Eichmann is a “specified employee” as determined by the Board or the Compensation Committee of the Board in accordance with Section 409A, Mr. Eichmann shall not be entitled to any Deferred Payments until the earlier of (i) the date which is six (6) months and one (1) day after her/his termination of employment for any reason other than death (except that during such six (6) month period Mr. Eichmann may receive total payments from the Company that do not exceed the amount specified in Treas. Reg. Section 1.409A-1(b)(9) or that constitute a short-term deferral within the meaning of Section 409A), or (ii) the date of her death.

 

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(c) The foregoing provisions are intended to be exempt from or comply with the requirements of Section 409A so that none of the severance payments and benefits to be provided hereunder will be subject to the additional tax imposed under Section 409A, and any ambiguities or ambiguous terms herein will be interpreted to be exempt or so comply. If any provision of this Agreement or of any award of compensation, including equity compensation or benefits would cause Mr. Eichmann to incur any additional tax or interest under Section 409A, the parties agree to negotiate in good faith to reform such provision in such manner as to maintain, to the maximum extent practicable, the original intent and economic terms of the applicable provision without violating the provisions of Section 409A.

 

(d) To the extent that reimbursements or in-kind benefits under this Agreement constitute non-exempt “nonqualified deferred compensation” for purposes of Section 409A, (1) all reimbursements hereunder shall be made on or prior to the last day of the calendar year following the calendar year in which the expense was incurred by Mr. Eichmann, (2) any right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit, and (3) the amount of expenses eligible for reimbursement or in-kind benefits provided in any calendar year shall not in any way affect the expenses eligible for reimbursement or in-kind benefits to be provided, in any other calendar year.

 

[The remainder of this page is intentionally left blank]

 

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(e) Notwithstanding any provision of this Agreement to the contrary, to the extent any compensation or award which constitutes deferred compensation within the meaning of Section 409A shall vest upon the occurrence of a Change of Control and such Change of Control does not constitute a “change in the ownership or effective control” or a “change in the ownership of a substantial portion of the assets” of the Corporation within the meaning of Section 409A, then notwithstanding such vesting, payment will be made to Mr. Eichmann on the earliest of (i) Mr. Eichmann’s “separation from service” with the Company (determined in accordance with Section 409A) or, if Mr. Eichmann is a specified employee within the meaning of Section 409A, such later date as provided in paragraph (b) of this Section 16, (ii) the date payment otherwise would have been made, or (iii) Mr. Eichmann’s death.

 

 

 

    IN WITNESS WHEREOF, the undersigned have executed this Agreement as of November 5, 2014.

 

 

/s/Erwin Eichmann ________________  
Erwin Eichmann  
   
   
THESTREET, INC.   
   
By:  /s/Elisabeth DeMarse  
Name: Elisabeth DeMarse  
Title: Chair and Chief Executive Officer

 

 

 

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EXHIBIT A

 

Form of Release

 

This Release (this “ Release ”) is entered into by __________ (“________”) and TheStreet, Inc., a Delaware corporation (the “ Company ”), effective as of [DATE] (the “ Effective Date ”).

 

In consideration of the promises set forth in the Severance Agreement between ________ and the Company, dated as of _______, 2014 (the “ Agreement ”), ________ and the Company agree as follows:

 

1.  General Releases and Waivers of Claims .

 

(a)   ________’s Release of Company . In consideration of the payments and benefits provided to ________ under the Agreement and after consultation with counsel, ________ on behalf of him/herself and each of her/his respective heirs, executors, administrators, representatives, agents, successors and assigns (collectively, the “ ________ Parties ”) hereby irrevocably and unconditionally release and forever discharge the Company and its current and former subsidiaries and affiliates and each of their respective current and former officers, employees, directors, shareholders and agents (“ Company Parties ”) from any and all claims, actions, causes of action, rights, judgments, fees and costs (including attorneys’ fees), obligations, damages, demands, accountings or liabilities of whatever kind or character (collectively, “ Claims ”), including, without limitation, any Claims based upon contract, tort, or under any federal, state, local or foreign law, that the ________ Parties may have, or in the future may possess, arising out of any aspect of ________’s employment relationship with and service as an employee, officer, director or agent of the Company, or the termination of such relationship or service, that occurred, existed or arose on or prior to the date hereof; provided, however, that ________ does not release, discharge or waive (i) any rights to payments and benefits provided under the Agreement, (ii) any right ________ may have to enforce this Release or the Agreement, (iii) ________’s eligibility for indemnification in accordance with the Company’s certificate of incorporation, bylaws or other corporate governance document, any applicable insurance policy or any contract or provision to which ________ is a party or as to which ________ otherwise is entitled to indemnification benefits, with respect to any liability she incurred or might incur as an employee, officer or director of the Company, (iv) any claims for accrued, vested benefits under any employee benefit or pension plan of the Company Parties subject to the terms and conditions of such plan and applicable law including, without limitation, any such claims under COBRA or the Employee Retirement Income Security Act of 1974, or (v) any rights under or in respect of the Agreement for Grant of Non-Qualified Stock Options between ________ and the Company, dated as of _____ 2014 (the “Non-Qualified Option Agreement”), the Agreement for Grant of Incentive Stock Option Pursuant to 2007 Performance Incentive Plan between ________ and the Company, dated as of _____ 2014 (the “Incentive Option Agreement” and together with the Non-Qualified Option Agreement, the “Equity Agreements”) or any written agreements that may be executed by the parties after the date of the Equity Agreements (collectively, the “Applicable Agreements”).

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(b) Executive’s Specific Release of ADEA Claims . In further consideration of the payments and benefits provided to ________ under the Agreement, ________ on behalf of him/herself and the other ________ Parties hereby unconditionally release and forever discharge the Company Parties from any and all Claims that the ________ Parties may have as of the date ________ signs this Release arising under the Federal Age Discrimination in Employment Act of 1967, as amended, and the applicable rules and regulations promulgated thereunder (“ ADEA ”). By signing this Release, ________ hereby acknowledges and confirms the following: (i) ________ was advised by the Company in connection with his/her termination to consult with an attorney of his/her choice prior to signing this Release and to have such attorney explain to him/her the terms of this Release, including, without limitation, the terms relating to his/her release of claims arising under ADEA, and ________ has in fact consulted with an attorney; (ii) ________ was given a period of not fewer than twenty-one (21) days to consider the terms of this Release and to consult with an attorney of his/her choosing with respect thereto; and (iii) ________ knowingly and voluntarily accepts the terms of this Release. ________ also understands that s/he has seven (7) days following the date on which s/he signs this Release within which to revoke the release contained in this paragraph, by providing the Company a written notice of his/her revocation of the release and waiver contained in this paragraph.

 

(c)   Company’s Release of Executive . The Company for itself and on behalf of the Company Parties hereby irrevocably and unconditionally release and forever discharge the ________ Parties from any and all Claims, including, without limitation, any Claims based upon contract, tort, or under any federal, state, local or foreign law, that the Company Parties may have, or in the future may possess, arising out of any aspect of ________’s employment relationship with and service as an employee, officer, director or agent of the Company, or the termination of such relationship or service, that occurred, existed or arose on or prior to the date hereof, excepting (i) any Claim which would constitute or result from conduct by ________ that constituted the basis for termination for Cause under the Agreement or could be a crime of any kind, or (ii) rights arising under or in respect of the Equity Agreements. Anything to the contrary notwithstanding in this Release, nothing herein shall release ________ or any other ________ Party from any Claims based on any right the Company may have to enforce this Release or the Agreement or any of the Applicable Agreements.

 

(d)   No Assignment . The parties represent and warrant that they have not assigned any of the Claims being released under this Release.

 

2.  Proceedings . Neither ________ nor the Company have filed any complaint, charge, claim or proceeding against the other party before any local, state or federal agency, court or other body relating to ________’s employment or the termination thereof (each, individually, a “ Proceeding ”).

 

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3.  Remedies .

 

(a)  In the event ________ initiates or voluntarily participates in any Proceeding involving any of the matters waived or released in this Release, or if she fails to abide by any of the terms of this Release, or if s/he revokes the ADEA release contained in Paragraph 1(b) of this Release within the seven (7)-day period provided under Paragraph 1(b), the Company may, in addition to any other remedies it may have, reclaim any amounts paid to him/her, and terminate any benefits or payments that are due pursuant to the termination provisions of the Agreement, without waiving the release granted herein. In addition, in the event that ________ has failed to comply with Section 3 of the Agreement or with Sections 11 and/or 12 of either or both of the equity Agreements (other than as a result of an unintentional and immaterial disclosure of confidential information), the Company may, in addition to any other remedies it may have, to the extent permitted in the Agreement and the Equity Agreements reclaim any amounts paid to her pursuant to the Agreement or the Equity Agreements, without waiving the release granted herein. ________ acknowledges and agrees that the remedy at law available to the Company for breach of any of his/her post-termination obligations under the Agreement or any of the Applicable Agreements or his/her obligations hereunder or thereunder would be inadequate and that damages flowing from such a breach may not readily be susceptible to being measured in monetary terms. Accordingly, ________ acknowledges, consents and agrees that, in addition to any other rights or remedies that the Company may have at law or in equity, the Company shall be entitled to seek a temporary restraining order or a preliminary or permanent injunction, or both, without bond or other security, restraining ________ from breaching his/her post-termination obligations under the Agreement or any of the Applicable Agreements or her obligations hereunder or thereunder. Such injunctive relief in any court shall be available to the Company, in lieu of, or prior to or pending determination in, any arbitration proceeding.

 

(b)  ________ understands that by entering into this Release s/he will be limiting the availability of certain remedies that s/he may have against the Company and limiting also his/her ability to pursue certain claims against the Company.

 

(c)  The Company acknowledges and agrees that the remedy at law available to ________ for breach of any of its post-termination obligations under the Agreement or any of the Applicable Agreements or its obligations hereunder or thereunder would be inadequate and that damages flowing from such a breach may not readily be susceptible to being measured in monetary terms. Accordingly, the Company acknowledges, consents and agrees that, in addition to any other rights or remedies that ________ may have at law or in equity, ________ shall be entitled to seek a temporary restraining order or a preliminary or permanent injunction, or both, without bond or other security, restraining the Company from breaching its post-termination obligations under the Agreement or any of the Applicable Agreements or its obligations hereunder or thereunder. Such injunctive relief in any court shall be available to ________, in lieu of, or prior to or pending determination in, any arbitration proceeding.

 

(d)  The Company understands that by entering into this Release it will be limiting the availability of certain remedies that it may have against ________ and limiting also its ability to pursue certain claims against ________.

 

4.  Severability Clause . In the event any provision or part of this Release is found to be invalid or unenforceable, only that particular provision or part so found, and not the entire Release, will be inoperative.

 

5.  Nonadmission . Nothing contained in this Release will be deemed or construed as an admission of wrongdoing or liability on the part of the Company or ________.

 

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6.  Governing Law . All matters affecting this Release, including the validity thereof, are to be governed by, and interpreted and construed in accordance with, the laws of the New York applicable to contracts executed in and to be performed in that State.

 

7.  Notices . All notices or communications hereunder shall be made in accordance with Section 4 of the Agreement.

 

________ ACKNOWLEDGES THAT S/HE HAS READ THIS RELEASE AND THAT SHE FULLY KNOWS, UNDERSTANDS AND APPRECIATES ITS CONTENTS, AND THAT SHE HEREBY EXECUTES THE SAME AND MAKES THIS RELEASE AND THE RELEASE AND AGREEMENTS PROVIDED FOR HEREIN VOLUNTARILY AND OF HER OWN FREE WILL.

 

IN WITNESS WHEREOF, the parties have executed this Release as of _______________.

 

 

 

 

 
____________
   

 

THESTREET, INC.

   
By:  
Name:  
Title:  

 

 

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Exhibit 31.1

 

CERTIFICATION

 

I, Elisabeth DeMarse, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of TheStreet, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: November 7, 2014 By: /s/ Elisabeth DeMarse
  Name:    Elisabeth DeMarse
  Title: Chief Executive Officer (principal executive officer)

 

 

 

 

Exhibit 31.2

 

CERTIFICATION

 

I, John Ferrara, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of TheStreet, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: November 7, 2014 By: /s/ John Ferrara
  Name:    John Ferrara
  Title: Chief Financial Officer (principal financial officer)

 

 

 

 

Exhibit 32.1

 

Certification Pursuant to

18 U.S.C. Section 1350,

As Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

 

In connection with the Quarterly Report on Form 10-Q of TheStreet, Inc. (the "Company") for the quarterly period ended September 30, 2014, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Elisabeth DeMarse, Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

 

(1)          The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2)          The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

/s/ Elisabeth DeMarse  
Name: Elisabeth DeMarse  
Title: Chief Executive Officer (principal executive officer)  
November 7, 2014  

 

 

 

 

Exhibit 32.2

 

Certification Pursuant to

18 U.S.C. Section 1350,

As Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

 

In connection with the Quarterly Report on Form 10-Q of TheStreet, Inc. (the "Company") for the quarterly period ended September 30, 2014, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John Ferrara, Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

 

(1)          The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2)          The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

/s/ John Ferrara  
Name: John Ferrara  
Title: Chief Financial Officer (principal financial officer)  
November 7, 2014