TheStreet, Inc.
THESTREET, INC. (Form: 10-Q, Received: 11/03/2011 15:56:54)

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, 2011

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 o

          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 o

          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 o      Accelerated filer x      Non-accelerated filer o      Smaller reporting company o

 

          Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o 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 1, 2011)



Common Stock, par value $0.01 per share

32,013,743

 

 



TheStreet, Inc.
Form 10-Q

As of and for the Three and Nine Months Ended September 30, 2011

 

 

 

 

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 Cash Flows

 

3

 

Notes to Condensed Consolidated Financial Statements

 

4

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

15

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

22

Item 4.

Controls and Procedures

 

22

 

 

 

 

PART II - OTHER INFORMATION

 

22

Item 1.

Legal Proceedings

 

23

Item 1A.

Risk Factors

 

24

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

24

Item 3.

Defaults Upon Senior Securities

 

24

Item 4.

[Reserved]

 

24

Item 5.

Other Information

 

24

Item 6.

Exhibits

 

25

SIGNATURES

 

26

ii


P art I – FINANCIAL INFORMATION

 

 

I tem 1.

Interim Condensed Consolidated Financial Statements.

THESTREET, INC.
C ONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

 

 

 

September 30, 2011

 

December 31, 2010

 

 

 


 


 

ASSETS

 

 

(unaudited)

 

 

(audited)

 

Current Assets:

 

 

 

 

 

 

 

Cash and cash equivalents (Note 2)

 

$

33,709,574

 

$

20,089,660

 

Marketable securities (Note 2)

 

 

28,488,741

 

 

26,502,945

 

Accounts receivable, net of allowance for doubtful accounts of $250,929 as of September 30, 2011 and $238,228 as of December 31, 2010

 

 

4,919,191

 

 

6,623,261

 

Other receivables, net

 

 

703,198

 

 

663,968

 

Prepaid expenses and other current assets

 

 

1,945,098

 

 

1,785,007

 

 

 



 



 

Total current assets

 

 

69,765,802

 

 

55,664,841

 

 

 

 

 

 

 

 

 

Property and equipment, net of accumulated depreciation and amortization of $14,715,316 as of September 30, 2011 and $12,845,359 as of December 31, 2010

 

 

8,957,283

 

 

10,887,732

 

Marketable securities (Note 2)

 

 

12,910,722

 

 

30,302,428

 

Other assets

 

 

211,732

 

 

243,611

 

Goodwill

 

 

24,057,616

 

 

24,057,616

 

Other intangibles, net of accumulated amortization of $5,233,949 at September 30, 2011 and $4,174,403 at December 31, 2010

 

 

5,665,916

 

 

6,725,462

 

Restricted cash (Note 2)

 

 

1,660,370

 

 

1,660,370

 

 

 



 



 

Total assets

 

$

123,229,441

 

$

129,542,060

 

 

 



 



 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

2,035,623

 

$

2,455,894

 

Accrued expenses

 

 

6,925,336

 

 

8,239,064

 

Deferred revenue

 

 

18,760,302

 

 

17,431,381

 

Other current liabilities

 

 

512,859

 

 

184,328

 

Liabilities of discontinued operations

 

 

 

 

1,871

 

 

 



 



 

Total current liabilities

 

 

28,234,120

 

 

28,312,538

 

Deferred tax liability

 

 

288,000

 

 

288,000

 

Other liabilities

 

 

4,232,200

 

 

2,948,181

 

 

 



 



 

Total liabilities

 

 

32,754,320

 

 

31,548,719

 

 

 



 



 

Stockholders’ Equity

 

 

 

 

 

 

 

Preferred stock; $0.01 par value; 10,000,000 shares authorized; 5,500 issued and outstanding as of September 30, 2011 and December 31, 2010; the aggregate liquidation preference totals $55,000,000 as of September 30, 2011 and December 31, 2010

 

 

55

 

 

55

 

Common stock; $0.01 par value; 100,000,000 shares authorized; 38,244,018 shares issued and 32,013,743 shares outstanding as of September 30, 2011, and 37,775,381 shares issued and 31,667,600 shares outstanding as of December 31, 2010

 

 

382,440

 

 

377,754

 

Additional paid-in capital

 

 

269,921,217

 

 

270,644,658

 

Accumulated other comprehensive income

 

 

(325,142

)

 

331,311

 

Treasury stock at cost; 6,230,275 shares as of September 30, 2011 and 6,107,781 shares as of December 31, 2010

 

 

(10,830,154

)

 

(10,478,838

)

Accumulated deficit

 

 

(168,673,295

)

 

(162,881,599

)

 

 



 



 

Total stockholders’ equity

 

 

90,475,121

 

 

97,993,341

 

 

 



 



 

Total liabilities and stockholders’ equity

 

$

123,229,441

 

$

129,542,060

 

 

 



 



 

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

1


THESTREET, INC.
C ONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended September 30,

 

For the Nine Months Ended
September 30,

 

 

 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 


 


 


 


 

 

 

(unaudited)

 

(unaudited)

 

Net revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

Premium services

 

$

9,994,184

 

$

9,645,939

 

$

29,678,616

 

$

29,165,672

 

Marketing services

 

 

4,346,907

 

 

4,691,007

 

 

13,812,144

 

 

13,335,308

 

 

 



 



 



 



 

Total net revenue

 

 

14,341,091

 

 

14,336,946

 

 

43,490,760

 

 

42,500,980

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services

 

 

6,274,741

 

 

6,466,484

 

 

20,036,270

 

 

18,972,725

 

Sales and marketing

 

 

4,640,908

 

 

4,202,380

 

 

13,122,182

 

 

11,289,600

 

General and administrative

 

 

3,750,475

 

 

4,648,992

 

 

12,159,579

 

 

14,003,161

 

Depreciation and amortization

 

 

1,326,484

 

 

1,087,009

 

 

4,492,525

 

 

3,225,968

 

Asset impairments

 

 

 

 

 

 

 

 

555,000

 

Gain on disposition of assets

 

 

 

 

 

 

 

 

(1,318,607

)

 

 



 



 



 



 

Total operating expense

 

 

15,992,608

 

 

16,404,865

 

 

49,810,556

 

 

46,727,847

 

 

 



 



 



 



 

Operating loss

 

 

(1,651,517

)

 

(2,067,919

)

 

(6,319,796

)

 

(4,226,867

)

Net interest income

 

 

155,123

 

 

240,078

 

 

529,898

 

 

642,483

 

Other income

 

 

 

 

 

 

 

 

20,374

 

 

 



 



 



 



 

Loss from continuing operations before income taxes

 

 

(1,496,394

)

 

(1,827,841

)

 

(5,789,898

)

 

(3,564,010

)

Provision for income taxes

 

 

 

 

 

 

 

 

 

 

 



 



 



 



 

Loss from continuing operations

 

 

(1,496,394

)

 

(1,827,841

)

 

(5,789,898

)

 

(3,564,010

)

Discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations

 

 

46

 

 

2,257

 

 

1,798

 

 

23,430

 

 

 



 



 



 



 

Net loss

 

 

(1,496,440

)

 

(1,830,098

)

 

(5,791,696

)

 

(3,587,440

)

Preferred stock cash dividends

 

 

96,424

 

 

96,424

 

 

289,272

 

 

289,272

 

 

 



 



 



 



 

Net loss attributable to common stockholders

 

$

(1,592,864

)

$

(1,926,522

)

$

(6,080,968

)

$

(3,876,712

)

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per share

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations

 

$

(0.05

)

$

(0.06

)

$

(0.18

)

$

(0.11

)

Loss from discontinued operations

 

 

(0.00

)

 

(0.00

)

 

(0.00

)

 

(0.00

)

 

 



 



 



 



 

Net loss

 

 

(0.05

)

 

(0.06

)

 

(0.18

)

 

(0.11

)

Preferred stock cash dividends

 

 

(0.00

)

 

(0.00

)

 

(0.01

)

 

(0.01

)

 

 



 



 



 



 

Net loss attributable to common stockholders

 

$

(0.05

)

$

(0.06

)

$

(0.19

)

$

(0.12

)

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average basic and diluted shares outstanding

 

 

31,994,227

 

 

31,653,337

 

 

31,933,296

 

 

31,570,624

 

 

 



 



 



 



 

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

2


THESTREET, INC.
C ONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended September 30,

 

 

 


 

 

 

2011

 

2010

 

 

 


 


 

 

 

(unaudited)

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

Net loss

 

$

(5,791,696

)

$

(3,587,440

)

Loss from discontinued operations

 

 

1,798

 

 

23,430

 

 

 



 



 

Loss from continuing operations

 

 

(5,789,898

)

 

(3,564,010

)

Adjustments to reconcile loss from continuing operations to net cash provided by operating activities:

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

2,166,161

 

 

1,807,083

 

Provision for doubtful accounts

 

 

133,089

 

 

59,649

 

Depreciation and amortization

 

 

4,492,525

 

 

3,225,968

 

Impairment charges

 

 

 

 

555,000

 

Deferred rent

 

 

742,447

 

 

1,367,463

 

Gain on disposal of equipment

 

 

 

 

(20,600

)

Gain on disposition of assets

 

 

 

 

(1,318,607

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

1,538,860

 

 

(566,634

)

Other receivables

 

 

(272,110

)

 

22,394

 

Prepaid expenses and other current assets

 

 

(160,091

)

 

(747,176

)

Other assets

 

 

5,119

 

 

(42,549

)

Accounts payable

 

 

(420,271

)

 

(91,210

)

Accrued expenses

 

 

(1,074,228

)

 

(362,585

)

Deferred revenue

 

 

1,948,915

 

 

189,204

 

Other current liabilities

 

 

10,609

 

 

118,386

 

Other liabilities

 

 

 

 

15,167

 

 

 



 



 

Net cash provided by continuing operations

 

 

3,321,127

 

 

646,943

 

Net cash used in discontinued operations

 

 

(3,669

)

 

(22,002

)

 

 



 



 

Net cash provided by operating activities

 

 

3,317,458

 

 

624,941

 

 

 



 



 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

Purchase of marketable securities

 

 

(24,854,469

)

 

(121,814,456

)

Sale of marketable securities

 

 

39,603,926

 

 

82,952,627

 

Capital expenditures

 

 

(1,475,768

)

 

(3,804,467

)

Sale of Promotions.com

 

 

265,000

 

 

1,746,876

 

Sale of certain assets of TheStreet Ratings

 

 

 

 

1,348,902

 

Proceeds from the sale of fixed assets

 

 

 

 

43,300

 

 

 



 



 

Net cash provided by (used in) investing activities

 

 

13,538,689

 

 

(39,527,218

)

 

 



 



 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

Cash dividends paid on common stock

 

 

(2,595,645

)

 

(2,511,000

)

Cash dividends paid on preferred stock

 

 

(289,272

)

 

(289,272

)

Purchase of treasury stock

 

 

(351,316

)

 

(66,886

)

 

 



 



 

Net cash used in financing activities

 

 

(3,236,233

)

 

(2,867,158

)

 

 



 



 

Net increase (decrease) in cash and cash equivalents

 

 

13,619,914

 

 

(41,769,435

)

Cash and cash equivalents, beginning of period

 

 

20,089,660

 

 

60,542,494

 

 

 



 



 

Cash and cash equivalents, end of period

 

$

33,709,574

 

$

18,773,059

 

 

 



 



 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

Cash payments made for interest

 

$

 

$

1,720

 

 

 



 



 

Cash payments made for income taxes

 

$

 

$

 

 

 



 



 

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

3


TheStreet, Inc.

N otes to Condensed Consolidated Financial Statements
(unaudited)

 

 

1.

DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION

Business

          TheStreet, Inc., together with its wholly owned subsidiaries (“we”, “us” or the “Company”), is a digital financial media company. Our goal is to be the primary independent online-only source of reliable and actionable investing ideas, news and analysis, markets and rate data and analytical tools for a large audience of active self-directed investors, as well as to assist advertisers desiring to connect with our affluent audience. We distribute our fee-based premium content and advertising-supported content through a network of proprietary electronic services including: Web sites, blogs, social media, widgets, email services, mobile devices and tablets, podcasts and online video channels. We also syndicate our content for distribution by financial institutions and other media organizations.

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 three and nine month periods ended September 30, 2011 is not necessarily indicative of the results that may be expected for the year ending December 31, 2011.

          The consolidated balance sheet at December 31, 2010 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, 2010, filed with the Securities and Exchange Commission (“SEC”) on March 14, 2011 (“2010 Form 10-K”).

          The Company accrues quarterly expenses related to its full year cash incentive compensation on a straight-line basis based on the Company’s estimate of expected full year cash incentive compensation.

          The Company has evaluated subsequent events for recognition or disclosure.

Recent Accounting Pronouncements

          In October 2009, the Financial Accounting Standards Board (“FASB”) issued ASU 2009-13 (an update to ASC 605-25), Revenue Recognition: Multiple-Element Arrangements (“ASU 2009-13”) which is effective for annual periods beginning on or after June 15, 2010; however, early adoption is permitted. In arrangements with multiple deliverables, ASU 2009-13 permits entities to use management’s best estimate of selling price to value individual deliverables when those deliverables have never been sold separately or when third-party evidence is not available. In addition, any discounts provided in multiple-element arrangements will be allocated on the basis of the relative selling price of each deliverable. The implementation of ASU 2009-13 did not have a material impact on the Company’s consolidated financial statements.

4


          In April 2010, the FASB issued ASU No. 2010-17, Milestone Method of Revenue Recognition, a consensus of the FASB Emerging Issues Task Force (“ASU 2010-17”). ASU 2010-17 provides guidance on the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate. A vendor can recognize consideration that is contingent upon achievement of a milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone meets all criteria to be considered substantive. This statement is effective prospectively for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. The implementation of ASU 2010-17 did not have a material impact on the Company’s consolidated financial statements.

          In May 2011, the FASB issued FASB ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ ASU 2011-04 ”). ASU 2011-04 provides new guidance for fair value measurements intended to achieve common fair value measurement and disclosure requirements in U.S. GAAP and International Financial Reporting Standards. The amended guidance provides a consistent definition of fair value to ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. The amended guidance changes certain fair value measurement principles and enhances the disclosure requirements, particularly for Level 3 fair value measurements. The amended guidance is effective for interim and annual periods beginning after December 15, 2011. Early adoption is not permitted. The implementation of ASU 2011-04 is not expected to have a material impact on the Company’s consolidated financial statements.

          In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”). Under the amendments in ASU 2011-05, an entity has two options for presenting its total comprehensive income: to present total comprehensive income and its components along with the components of net income in a single continuous statement, or in two separate but consecutive statements. The amendments in ASU 2011-05 are required to be applied retrospectively and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. The Company intends to conform to the new presentation required in ASU 2011-05 beginning with its Form 10-Q for the three months ended March 31, 2012.

          In September 2011, the FASB issued ASU 2011-08, Testing for Goodwill Impairment (“ASU 2011-08”). ASU 2011-08 permits an entity to make a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the two-step goodwill impairment test. If an entity concludes it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, it need not perform the two-step impairment test. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 31, 2011. Early adoption is permitted. The implementation of ASU 2011-08 is not expected to have a material impact on the Company’s consolidated financial statements.

 

 

2.

CASH AND CASH EQUIVALENTS, MARKETABLE SECURITIES AND RESTRICTED CASH

          The Company’s cash and cash equivalents primarily consist of money market funds and checking accounts totaling $33.7 million. Marketable securities consist of cash reserves in liquid short-term U.S. Treasuries, government agencies, certificates of deposit (insured up to FDIC limits), investment grade corporate and municipal bonds, and corporate floating rate notes, with a total fair value of approximately $41.4 million and a total cost basis of approximately $41.7 million. The maximum maturity for any investment is three years. The Company also holds two municipal auction rate securities (“ARS”) issued by the District of Columbia with a par value of $1.9 million. The ARS pay interest in accordance with their terms at each respective auction date, typically every 35 days, and 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 income and excluded from net loss. See Note 11 (Comprehensive Loss). Additionally, we have a total of $1.7 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 our office space in New York City.

5



 

 

 

 

 

 

 

 

 

 

September 30,
2011

 

December 31,
2010

 

 

 


 


 

Cash and cash equivalents

 

$

33,709,574

 

$

20,089,660

 

Current and noncurrent marketable securities

 

 

41,399,463

 

 

56,805,373

 

Restricted cash

 

 

1,660,370

 

 

1,660,370

 

 

 



 



 

Total cash and cash equivalents, current and noncurrent marketable securities and restricted cash

 

$

76,769,407

 

$

78,555,403

 

 

 



 



 


 

 

3.

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 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).

 

 

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 as of September 30, 2011 are classified based on the valuation technique level in the table below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

Level 1

 

Level 2

 

Level 3

 

 

 


 


 


 


 

Description:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents (1)

 

$

33,709,574

 

$

33,709,574

 

$

 

$

 

Marketable securities (2)

 

 

41,399,463

 

 

39,969,463

 

 

 

 

1,430,000

 

 

 



 



 



 



 

Total at fair value

 

$

75,109,037

 

$

73,679,037

 

$

 

$

1,430,000

 

 

 



 



 



 



 


 

 

(1)

Cash and cash equivalents, totaling $33.7 million, consists primarily of money market funds and checking accounts for which we determine fair value through quoted market prices.

 

 

(2)

Marketable securities consist of liquid short-term U.S. Treasuries, government agencies, certificates of deposit (insured up to FDIC limits), investment grade corporate and municipal bonds, and corporate 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 $1.4 million as of September 30, 2011. 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

6



 

 

 

failure and a successful auction at par, or a redemption at par, for each future auction period. Temporary impairment charges are recorded in accumulated other comprehensive income, whereas other-than-temporary impairment charges are recorded in our consolidated statement of operations. As of September 30, 2011, the Company determined there was a decline in the fair value of its ARS investments of $0.4 million from its cost basis, which was deemed temporary and was included within accumulated other comprehensive income. The Company used a discounted cash flow 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.

          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 January 1, 2011

 

$

1,810,000

 

Decrease in fair value of investment

 

 

(380,000

)

 

 



 

Balance at September 30, 2011

 

$

1,430,000

 

 

 



 


 

 

4.

STOCK-BASED COMPENSATION

          For a detailed description of past equity-based compensation activity, please refer to the Company’s 2010 Form 10-K. There have been no significant changes in the Company’s equity-based compensation accounting policies and assumptions from those that were disclosed in the 2010 Form 10-K.

          The Company estimates the value of employee stock options 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 dividends. The weighted-average grant date fair value per share of employee stock options granted during the nine months ended September 30, 2011 and 2010 was $1.07 and $1.15, respectively, using the Black-Scholes model with the weighted-average assumptions presented below. Because option-pricing models require the use of subjective assumptions, changes in these assumptions can materially affect the fair value of the options.

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended
September 30,

 

 

 


 

 

 

2011

 

2010

 

 

 


 


 

Expected option lives

 

 

3.5 years

 

 

3.5 years

 

Expected volatility

 

 

55.92

%

 

57.00

%

Risk-free interest rate

 

 

1.52

%

 

1.70

%

Expected dividend yield

 

 

3.51

%

 

3.70

%

          As of September 30, 2011, there remained 897,014 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 the Company’s 1998 Stock Incentive Plan (the “1998 Plan”), the Company recorded $0.7 million and $2.2 million of non-cash stock-based compensation for the three and nine month periods ended September 30, 2011, respectively, as compared to $0.6 million and $1.8 million for the three and nine month periods ended September 30, 2010, respectively. As of September 30, 2011, there was approximately $6.3 million of unrecognized stock-based compensation expense remaining to be recognized over a weighted-average period of 2.55 years.

          A summary of the activity of the 1998 Plan and 2007 Plan pertaining to stock option grants is as follows:

7



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares
Underlying
Awards

 

Weighted
Average
Exercise
Price

 

Aggregate
Intrinsic
Value
($000)

 

Weighted
Average
Remaining
Contractual
Life (In Years)

 

 

 


 


 


 


 

Awards outstanding, December 31, 2010

 

 

845,528

 

$

6.92

 

 

 

 

 

 

 

Options granted

 

 

524,500

 

$

3.20

 

 

 

 

 

 

 

Options cancelled

 

 

(32,500

)

$

3.52

 

 

 

 

 

 

 

Options expired

 

 

(200,000

)

$

8.38

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

Awards outstanding, March 31, 2011

 

 

1,137,528

 

$

5.05

 

 

 

 

 

 

 

Options granted

 

 

15,750

 

$

3.50

 

 

 

 

 

 

 

Options cancelled

 

 

(49,501

)

$

3.29

 

 

 

 

 

 

 

Options expired

 

 

(35,000

)

$

11.94

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

Awards outstanding, June 30, 2011

 

 

1,068,777

 

$

4.88

 

 

 

 

 

 

 

Options granted

 

 

10,000

 

$

2.34

 

 

 

 

 

 

 

Options cancelled

 

 

(30,334

)

$

3.05

 

 

 

 

 

 

 

Options expired

 

 

(9,899

)

$

5.82

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

Awards outstanding, September 30, 2011

 

 

1,038,544

 

$

4.90

 

$

 

 

3.37

 

 

 



 

 

 

 



 



 

Awards vested and expected to vest at September 30, 2011

 

 

945,938

 

$

5.07

 

$

 

 

3.28

 

 

 



 

 

 

 



 



 

Awards exercisable at September 30, 2011

 

 

361,618

 

$

8.02

 

$

 

 

1.73

 

 

 



 

 

 

 



 



 

          A summary of the activity of the 1998 Plan and 2007 Plan pertaining to grants of restricted stock units is as follows:

8



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares
Underlying
Awards

 

Weighted
Average
Exercise
Price

 

Aggregate
Intrinsic
Value
($000)

 

Weighted
Average
Remaining
Contractual
Life (In Years)

 

 

 


 


 


 


 

Awards outstanding, December 31, 2010

 

 

1,928,393

 

$

 

 

 

 

 

 

 

Restricted stock units granted

 

 

1,170,341

 

$

 

 

 

 

 

 

 

Restricted stock units settled by delivery of common stock upon vesting

 

 

(327,100

)

$

 

 

 

 

 

 

 

Restricted stock units cancelled

 

 

(2,500

)

$

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

Awards outstanding, March 31, 2011

 

 

2,769,134

 

$

 

 

 

 

 

 

 

Restricted stock units granted

 

 

30,000

 

$

 

 

 

 

 

 

 

Restricted stock units settled by delivery of common stock upon vesting

 

 

(68,370

)

$

 

 

 

 

 

 

 

Restricted stock units cancelled

 

 

 

$

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

Awards outstanding, June 30, 2011

 

 

2,730,764

 

$

 

 

 

 

 

 

 

Restricted stock units granted

 

 

40,000

 

$

 

 

 

 

 

 

 

Restricted stock units settled by delivery of common stock upon vesting

 

 

(67,477

)

$

 

 

 

 

 

 

 

Restricted stock units cancelled

 

 

(16,667

)

$

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

Awards outstanding, September 30, 2011

 

 

2,686,620

 

$

 

$

5,320

 

 

2.53

 

 

 



 

 

 

 



 



 

Awards vested and expected to vest at September 30, 2011

 

 

2,305,808

 

$

 

$

4,565

 

 

2.44

 

 

 



 

 

 

 



 



 

Awards exercisable at September 30, 2011

 

 

 

$

 

$

 

 

 

 

 



 

 

 

 



 



 

          A summary of the status of the Company’s unvested share-based payment awards as of September 30, 2011 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, 2010

 

 

2,307,104

 

$

2.72

 

Shares underlying options granted

 

 

550,250

 

$

1.07

 

Shares underlying restricted stock units granted

 

 

1,240,341

 

$

2.93

 

Shares underlying options vested

 

 

(141,700

)

$

1.96

 

Shares underlying restricted stock units vested

 

 

(462,947

)

$

3.60

 

Shares underlying options cancelled

 

 

(112,335

)

$

1.11

 

Shares underlying restricted stock units cancelled

 

 

(19,167

)

$

3.31

 

 

 



 

 

 

 

Shares underlying awards unvested at September 30, 2011

 

 

3,361,546

 

$

2.49

 

 

 



 

 

 

 

          For the nine months ended September 30, 2011 and 2010, the total fair value of share-based awards vested was $1.6 million and $1.3 million, respectively. For the nine months ended September 30, 2011 and

9


2010, the total intrinsic value of options exercised was $0 and $0, respectively (no options were exercised in either period). For the nine months ended September 30, 2011 and 2010, 550,250 and 334,000 stock options, respectively, and 1,240,341 and 565,916 restricted stock units, respectively, were granted to employees of the Company. Additionally, for the nine months ended September 30, 2011 and 2010, zero and zero stock options, respectively, were exercised, and 462,947 and 542,209 shares were issued under restricted stock unit grants, respectively, yielding approximately $0 and $0, respectively, to the Company.

 

 

5.

STOCKHOLDERS’ EQUITY

Treasury Stock

          In December 2000, the Company’s Board of Directors authorized the repurchase of up to $10 million worth 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 stock. During the nine-month periods ended September 30, 2011 and 2010, 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 $7.3 million. In addition, pursuant to the terms of the Company’s 1998 Plan and 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, 2011, the Company had withheld an aggregate of 565,251 shares which have been recorded as treasury stock. In addition, the Company 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, 104,055 of which were received in December 2008 and 104,215 of which were received in September 2009, and 3,338 shares as partial settlement of the working capital adjustment from the acquisition of Kikucall, Inc., which were received in March 2011. These shares have been recorded as treasury stock.

Dividends

          On September 30, 2011, the Company paid its quarterly cash dividend of $0.025 per share on its common stock and its convertible preferred stock on a converted common share basis, to stockholders of record at the close of business on September 15, 2011. These dividends totaled approximately $1.0 million. When combined with the quarterly cash dividend paid on March 31, 2011 and June 30, 2011, year-to-date dividend payments totaled approximately $2.9 million. The Company’s Board of Directors reviews the dividend payment each quarter and there can be no assurance that we will continue to pay this cash dividend in the future.

 

 

6.

LEGAL PROCEEDINGS

          As previously disclosed, in 2001, the Company, certain of its current or former officers and directors and certain underwriters were named in a securities class action related to the Company’s initial public offering (“IPO”). Similar suits were filed against approximately 300 other issuers and their underwriters, all of which are included in a single coordinated proceeding in the district court (the “IPO Litigations”). The complaints allege that the prospectus and the registration statement for the IPO failed to disclose that the underwriters allegedly solicited and received “excessive” commissions from investors and that some investors in the IPO allegedly agreed with the underwriters to buy additional shares in the aftermarket in order to inflate the price of the Company’s stock. The complaints seek unspecified damages, attorney and expert fees, and other unspecified litigation costs. In 2003, the district court granted the Company’s motion to dismiss the claims against it under Rule 10b-5 but motions to dismiss the claims under Section 11 of the Securities Act of 1933 were denied as to virtually all of the defendants in the consolidated cases, including the Company. In addition, some of the individual defendants in the IPO Litigations signed a tolling agreement and were dismissed from the action

10


without prejudice on October 9, 2002. In 2003, a proposed collective partial settlement of this litigation was structured between the plaintiffs, the issuer defendants in the consolidated actions, the issuer officers and directors named as defendants, and the issuers’ insurance companies. The court granted preliminary approval of the settlement in 2005 but in 2007 the settlement was terminated, in light of a ruling by the appellate court in related litigation in 2006 that reversed the trial court’s certification of classes in that related litigation. In 2009, another settlement was entered into and approved by the trial court. Under the settlement, the Company’s obligation of approximately $339,000 would be paid by the issuers’ insurance companies. The settlement was appealed; in May 2011, the Second Circuit Court of Appeals dismissed one appeal and remanded another appeal to the District Court to determine whether the appellant has standing; in August 2011, the District Court determined that the applicable appellant did not have standing, which decision is being appealed. There can be no assurance that the approval of the settlement will not be reversed on appeal and that the settlement will be implemented in its current form, or at all. Due to the inherent uncertainties of litigation, the ultimate outcome of the matter is uncertain.

          As previously disclosed, we conducted a review of the accounting in our former Promotions.com subsidiary, which subsidiary we sold in December 2009. As a result of this review, in February 2010 we filed a Form 10-K/A for the year ended December 31, 2008 and a Form 10-Q/A for the quarter ended March 31, 2009, respectively, to restate and correct certain previously-reported financial information as well as filed Forms 10-Q for the quarters ended June 30, 2009 and September 30, 2009, respectively. The SEC commenced an investigation in March 2010 into the facts surrounding our restatement of previously issued financial statements and related matters. We are cooperating fully with the SEC. The investigation could result in the SEC seeking various penalties and relief including, without limitation, civil injunctive relief and/or civil monetary penalties or administrative relief. The nature of the relief or remedies the SEC may seek, if any, cannot be predicted at this time. The Company has incurred legal defense costs that are reimbursable under its D&O insurance plan and that the insurer has indicated would pay. The Company has recorded the insurance recoveries totaling $0.5 million as a benefit within General and administrative expenses on its statement of operations and $0.5 million in Other receivables, net on its balance sheet as insurance recoveries receivable.

          As previously disclosed, in April 2010, we and one of our reporters were named in a lawsuit captioned Generex Biotechnology Corporation v. Feuerstein et al. (N.Y. Supreme Court, County of New York, Index No. 10104433), in which plaintiff alleges that certain articles we published concerning plaintiff were libelous. In May 2010 we filed an answer denying all claims. We intend to vigorously defend ourselves in this matter and believe we have meritorious defenses. Due to the preliminary stage of this matter and the inherent uncertainties of litigation, the ultimate outcome of the matter is uncertain.

          In December 2010, the Company was named as one of several defendants in a lawsuit captioned EIT Holdings LLC v. WebMD, LLC et al. , (U.S.D.C., D. Del.), on the same day that plaintiff filed a substantially identical suit against a different group of defendants in a lawsuit captioned EIT Holdings LLC v. Yelp!, Inc. et al. , (U.S.D.C., N. D. Cal.). In February 2011, by agreement of plaintiff and the Company, the Company was dismissed from the Delaware action without prejudice and named as a defendant in the California action. In May 2011, the action against the Company and all but one defendant were dismissed for misjoinder and plaintiff filed separate cases against the dismissed defendants; the action against the Company is captioned EIT Holdings LLC v. TheStreet.com, Inc. , (U.S.D.C., N. D. Cal.). The complaints allege that defendants infringe U.S. Patent No. 5,828,837, putatively owned by plaintiff, related to a certain method of displaying information to an Internet-accessible device. The Company intends to vigorously defend itself and believes it has meritorious defenses. Due to the early stage of this matter and the inherent uncertainties of litigation, the ultimate outcome of this matter is uncertain.

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

 

 

7.

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

11


and, if dilutive, potential common shares outstanding during the period. 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 and warrants (using the if-converted method). For the three months ended September 30, 2011 and 2010, approximately 5.0 million and 4.0 million unvested restricted stock units, vested and unvested options and warrants to purchase common stock, respectively, were excluded from the calculation, as their effect would be anti-dilutive because the exercise prices were greater than the average market price of the common stock during the respective periods and because the Company recorded a net loss. For the nine months ended September 30, 2011 and 2010, approximately 4.8 million and 3.8 million unvested restricted stock units, vested and unvested options and warrants to purchase common stock, respectively, were excluded from the calculation, as their effect would be anti-dilutive because the exercise prices were greater than the average market price of the common stock during the respective periods and because the Company recorded a net loss.

          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,

 

 

 


 


 

 

 

2011

 

2010

 

2011

 

2010

 

 

 


 


 


 


 

Basic and diluted net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations

 

$

(1,496,394

)

$

(1,827,841

)

$

(5,789,898

)

$

(3,564,010

)

Loss from discontinued operations

 

 

(46

)

 

(2,257

)

 

(1,798

)

 

(23,430

)

Preferred stock cash dividends

 

 

(96,424

)

 

(96,424

)

 

(289,272

)

 

(289,272

)

 

 



 



 



 



 

Numerator for basic and diluted earnings per share -

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss available to common stockholders

 

$

(1,592,864

)

$

(1,926,522

)

$

(6,080,968

)

$

(3,876,712

)

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average basic and diluted shares outstanding

 

 

31,994,227

 

 

31,653,337

 

 

31,933,296

 

 

31,570,624

 

 

 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations

 

$

(0.05

)

$

(0.06

)

$

(0.18

)

$

(0.11

)

Loss from discontinued operations

 

 

(0.00

)

 

(0.00

)

 

(0.00

)

 

(0.00

)

Preferred stock cash dividends

 

 

(0.00

)

 

(0.00

)

 

(0.01

)

 

(0.01

)

 

 



 



 



 



 

Net loss available to common stockholders

 

$

(0.05

)

$

(0.06

)

$

(0.19

)

$

(0.12

)

 

 



 



 



 



 


 

 

8.

INCOME TAXES

          The Company accounts for its income taxes in accordance with ASC 740. Under ASC 740, 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 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.

          As of December 31, 2010, the Company had approximately $136 million of federal and state net operating loss carryforwards, which are available through 2030. Based on operating results for the nine months ended September 30, 2011 and three month projections, management expects to generate a tax loss in 2011 and no tax benefit has been recorded. 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.

          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. Such an ownership change would create an annual limitation on the usage of the Company’s net operating loss carryforward. The ultimate realization of

12


net operating loss carryforwards is dependent upon the generation of future taxable income during the periods following an ownership change. As such, a portion of the existing net operating loss carryforwards may be subject to limitation. During the year ended December 31, 2009, the Company acquired approximately $3 million of net operating loss carryforwards when it acquired the stock of Kikucall, Inc. In accordance with Section 382 of the Internal Revenue Code, the usage of the Kikucall, Inc. net operating loss carryforward could be limited.

 

 

9.

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 six domestic financial institutions. The Company performs periodic evaluations of the relative credit standing of these institutions. As of September 30, 2011, the Company’s cash and cash equivalents primarily consisted of money market funds and checking accounts.

          For the three and nine months ended September 30, 2011 and 2010, no individual client accounted for 10% or more of consolidated revenue. As of September 30, 2011, no client accounted for more than 10% of our gross accounts receivable balance. As of December 31, 2010, one client accounted for more than 10% of our gross accounts receivable balance.

          The Company’s customers are primarily concentrated in the United States. 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.

 

 

10.

RESTRUCTURING AND OTHER CHARGES

          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 from continuing operations of approximately $3.5 million during the year ended December 31, 2009.

          The following tables display the activity of the restructuring and other charges reserve account during the nine months ended September 30, 2011 and 2010:

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended September 30,

 

 

 


 

 

 

2011

 

2010

 

 

 


 


 

Beginning balance

 

$

844,761

 

$

1,230,056

 

Payments

 

 

142,014

 

 

356,913

 

 

 



 



 

Ending balance

 

$

702,747

 

$

873,143

 

 

 



 



 

13



 

 

11.

COMPREHENSIVE LOSS

 

 

 

Comprehensive loss consists of the following:


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended
September 30,

 

For the Nine Months Ended
September 30,

 

 

 


 


 

 

 

2011

 

2010

 

2011

 

2010

 

 

 


 


 


 


 

Net loss

 

$

(1,496,440

)

$

(1,830,098

)

$

(5,791,696

)

$

(3,587,440

)

Unrealized (loss) gain on marketable securities

 

 

(150,558

)

 

180,487

 

 

(276,453

)

 

8,630

 

(Increase) decrease of temporary impairment of ARS

 

 

(290,000

)

 

(25,000

)

 

(380,000

)

 

15,000

 

Reclass from accumulated other comprehensive income to earnings due to sale

 

 

 

 

 

 

 

 

226

 

 

 



 



 



 



 

Comprehensive loss

 

$

(1,936,998

)

$

(1,674,611

)

$

(6,448,149

)

$

(3,563,584

)

 

 



 



 



 



 


 

 

12.

DISCONTINUED OPERATIONS

          In June 2005, the Company committed to a plan to discontinue the operations of the Company’s securities research and brokerage segment. Accordingly, the operating results relating to this segment, which are limited to certain professional fees, have been segregated from continuing operations and reported as a separate line item in the accompanying condensed consolidated statements of operations and cash flows. There were no cash flows from discontinued operations from investing or financing activities for the periods presented.

 

 

13.

OTHER LIABILITIES

 

 

 

Other liabilities consist of the following:


 

 

 

 

 

 

 

 

 

 

September 30, 2011

 

December 31, 2010

 

 

 


 


 

Deferred rent

 

$

3,357,539

 

$

2,933,014

 

Other liabilities

 

 

874,661

 

 

15,167

 

 

 



 



 

Total other liabilities

 

$

4,232,200

 

$

2,948,181

 

 

 



 



 


 

 

14.

ASSET IMPAIRMENTS

          During the three months ended June 30, 2010, the Company determined it necessary to record an impairment charge approximating $0.6 million, writing the value of its investment in Debtfolio, Inc. to zero. This was deemed necessary by management based upon their consideration of Debtfolio, Inc.’s continued negative cash flow from operations, current financial position and lack of current liquidity.

 

 

15.

DISPOSITION OF ASSETS

          On May 4, 2010, the Company sold certain assets of TheStreet Ratings business (those pertaining to banking and insurance ratings) for an aggregate price of approximately $1.7 million, subject to adjustment as provided in the agreement. The purchaser is an entity under the same control as was the entity from which the Company had purchased TheStreet Ratings business in August 2006. In connection with the sale, the purchaser assumed a net $0.3 million of liabilities ($0.4 million of deferred revenue liabilities offset in part by working capital items) and paid the Company $1.3 million in cash, subject to adjustment. Gain on disposition of assets approximated $1.3 million.

14



 

 

I tem 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, 2010 (“2010 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 (“we”, “us” or the “Company”), is a digital financial media company. Our goal is to be the primary independent online-only source of reliable and actionable investing ideas, news and analysis, markets and rate data and analytical tools for a large audience of active self-directed investors, as well as to assist advertisers desiring to connect with our affluent audience. We distribute our fee-based premium content and advertising-supported content through a network of proprietary electronic services including: Web sites, blogs, social media, widgets, email services, mobile devices and tablets, podcasts and online video channels. We also syndicate our content for distribution by financial institutions and other media organizations.

          We report revenue in two categories: premium services and marketing services. Premium services revenue is comprised of subscriptions, licenses and fees for access to investment information and rate services. Marketing services revenue is comprised of fees charged for the placement of advertising and sponsorships within our services, as well as licensing fees paid by third parties to obtain the right to display the Company’s awards logos on their Web sites and marketing materials in relation to certain award designations.

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 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:

 

 

incentive cash compensation,

15



 

 

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, and

certain estimates and assumptions used in the calculation of the fair value of equity compensation issued to employees.

     The Company accrues quarterly expenses related to its full year cash incentive compensation on a straight-line basis based on the Company’s estimate of expected full year cash incentive compensation.

          A summary of our critical accounting policies and estimates can be found in our 2010 Form 10-K.

Results of Operations

Comparison of Three Months Ended September 30, 2011 and September 30, 2010

          Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended September 30,

 

 

 

 

 

 


 

 

 

 

 

 

2011

 

Percent
of Total
Revenue

 

2010

 

Percent
of Total
Revenue

 

Percent
Change

 

 

 


 


 


 


 


 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Premium services

 

$

9,994,184

 

 

70

%

$

9,645,939

 

 

67

%

 

4

%

Marketing services

 

 

4,346,907

 

 

30

%

 

4,691,007

 

 

33

%

 

-7

%

 

 


 


 


 


 

 

 

Total revenue

 

$

14,341,091

 

 

100

%

$

14,336,946

 

 

100

%

 

0

%

 

 



 



 



 



 

 

 

 

          Premium services . Premium service revenue is comprised of subscriptions, licenses and fees for access to securities investment information and rate services. Revenue is recognized ratably over the contract period.

          Premium services revenue for the three months ended September 30, 2011 increased by 4% when compared to the three months ended September 30, 2010, primarily attributable to a 5% increase in revenue from subscriptions to our products. This increase is primarily the result of a 4% increase in the average revenue recognized per subscription during the three months ended September 30, 2011 as compared to the three months ended September 30, 2010, combined with a 1% increase in the weighted-average number of subscriptions during the three months ended September 30, 2011 as compared to the three months ended September 30, 2010. The increase in the average revenue recognized per subscription during the three months ended September 30, 2011 as compared to the three months ended September 30, 2010 is primarily the result of both the mix of products sold and higher average selling prices for a number of our subscription products. The increase in the weighted-average number of subscriptions during the period is primarily a result of increased subscriber acquisition and renewal efforts.

          Marketing services . Marketing services revenue is comprised of fees charged for the placement of advertising and sponsorships within our services, as well as licensing fees paid by third parties to obtain the right to display the Company’s awards logos on their Web sites and marketing materials in relation to certain award designations.

          Marketing services revenue for the three months ended September 30, 2011 decreased by 7% when compared to the three months ended September 30, 2010. The decrease in marketing services revenue was primarily the result of reduced demand from new advertisers, partially offset by higher demand from repeat advertisers. Marketing services revenue includes $0.1 million and $0.1 million of barter revenue in the three

16


months ended September 30, 2011 and 2010, respectively.

          Operating Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended September 30,

 

 

 

 

 

 


 

 

 

 

 

 

2011

 

Percent
of Total
Revenue

 

2010

 

Percent
of Total
Revenue

 

Percent
Change

 

 

 


 


 


 


 


 

Operating expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services

 

$

6,274,741

 

 

44

%

$

6,466,484

 

 

45

%

 

-3

%

Sales and marketing

 

 

4,640,908

 

 

32

%

 

4,202,380

 

 

29

%

 

10

%

General and administrative

 

 

3,750,475

 

 

26

%

 

4,648,992

 

 

32

%

 

-19

%

Depreciation and amortization

 

 

1,326,484

 

 

9

%

 

1,087,009

 

 

8

%

 

22

%

 

 



 

 

 

 



 

 

 

 

 

 

 

Total operating expense

 

$

15,992,608

 

 

 

 

$

16,404,865

 

 

 

 

 

-3

%

 

 



 

 

 

 



 

 

 

 

 

 

 

          Cost of services. Cost of services expense includes 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 decreased by approximately $0.2 million, or 3%, over the periods. The decrease was primarily the result of reduced incentive compensation accruals and a higher amount of salaries capitalized for internal developed software and Web site development projects, combined with lower recruiting fees, and costs related to nonemployee content providers, the aggregate of which decreased by approximately $0.5 million. These cost decreases were partially offset by higher base salary and stock-based compensation costs related to a 1% increase in headcount, combined with higher consulting fees and computer service and supply costs, the aggregate of which increased by approximately $0.3 million. As a percentage of revenue, cost of services expense decreased to 44% in the three months ended September 30, 2011, from 45% in the prior year period.

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

          Sales and marketing expense increased by approximately $0.4 million, or 10%, over the periods. The increase was primarily the result of an investment in the sales and marketing of our premium subscription-based products, including a 13% increase in headcount, as well as higher costs associated with recruiting, investor and public relations, advertisement serving, and travel and entertainment expense, the aggregate sum of which increased by approximately $0.6 million. These cost increases were partially offset by reduced advertising and promotion, consulting and credit card processing fees, the aggregate sum of which decreased by approximating $0.2 million. Sales and marketing expense includes $0.1 million and $0.2 million of barter expense in the three months ended September 30, 2011 and 2010, respectively. As a percentage of revenue, sales and marketing expense increased to 32% in the three months ended September 30, 2011, from 29% in the prior year period.

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

          General and administrative expense decreased by approximately $0.9 million, or 19%, over the periods. The decrease was primarily the result of reduced professional, recruiting and consulting fees, combined with lower compensation and related, tax, occupancy, insurance, and employee training costs, the aggregate sum of which decreased by approximately $0.8 million. Professional fees incurred have been reduced by approximately $0.5 million for costs related to the previously-disclosed SEC investigation concerning our restatement in 2010 of certain previously issued financial statements and related matters (“SEC Matter”), which costs the Company anticipates will be reimbursed through its insurance coverage. As a percentage of revenue, general and

17


administrative expense decreased to 26% in the three months ended September 30, 2011, from 32% in the prior year period.

          Depreciation and amortization. Depreciation and amortization expense increased by approximately $0.2 million, or 22%, over the periods. The increase is largely attributable to increased amortization expense resulting from a reduction to the estimated useful life of certain past capitalized Web site development projects together with increased leasehold improvement amortization related to a renovation of the Company’s corporate headquarters that was completed late last year. As a percentage of revenue, depreciation and amortization expense increased to 9% in the three months ended September 30, 2011, from 8% in the prior year period.

          Net Interest Income

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months
Ended September 30,

 

Percent
Change

 

 

 


 

 

 

 

2011

 

2010

 

 

 

 


 


 


 

Net interest income

 

$

155,123

 

$

240,078

 

 

-35

%

 

 



 



 

 

 

 

          The decrease in net interest income is primarily the result of the movement of cash balances from higher yielding marketable securities to lower yielding money market funds.

          Net Loss

          Net loss for the three months ended September 30, 2011 totaled $1.5 million, or $0.05 per basic and diluted share, compared to net loss totaling $1.8 million, or $0.06 per basic and diluted share, for the three months ended September 30, 2010.

Comparison of Nine Months Ended September 30, 2011 and September 30, 2010

          Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended September 30,

 

 

 

 

 

 


 

 

 

 

 

 

2011

 

Percent
of Total
Revenue

 

2010

 

Percent
of Total
Revenue

 

Percent
Change

 

 

 


 


 


 


 


 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Premium services

 

$

29,678,616

 

 

68

%

$

29,165,672

 

 

69

%

 

2

%

Marketing services

 

 

13,812,144

 

 

32

%

 

13,335,308

 

 

31

%

 

4

%

 

 



 



 



 



 

 

 

 

Total revenue

 

$

43,490,760

 

 

100

%

$

42,500,980

 

 

100

%

 

2

%

 

 



 



 



 



 

 

 

 

          Premium services revenue for the nine months ended September 30, 2011 increased by 2% when compared to the nine months ended September 30, 2010. The increase is primarily attributable to an increase in revenue from subscriptions to our securities investment information and RateWatch products, offset in part by reduced revenue from our TheStreet Ratings products.

          The increase in revenue from subscriptions to our securities investment information and RateWatch products of 4% is primarily the result of a 4% increase in the weighted-average number of subscriptions during the nine months ended September 30, 2011 as compared to the nine months ended September 30, 2010 resulting from increased subscriber acquisition and renewal efforts.

          The decline in revenue from our TheStreet Ratings products totaled $0.5 million, or 58%, and was primarily related to the sale of certain assets of TheStreet Ratings business in May 2010 which reduced the revenue of the business for the nine months ended September 30, 2011 as compared to the prior year.

18


          Marketing services revenue for the nine months ended September 30, 2011 increased by 4% when compared to the nine months ended September 30, 2010. The increase in marketing services revenue was primarily the result of higher demand from new advertisers, partially offset by reduced demand from repeat advertisers. Marketing services revenue includes $0.4 million and $0.3 million of barter revenue in the nine months ended September 30, 2011 and 2010, respectively.

          Operating Expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended September 30,

 

 

 

 

 

 


 

 

 

 

 

 

2011

 

Percent of
Total
Revenue

 

2010

 

Percent of
Total
Revenue

 

Percent
Change

 

 

 


 


 


 


 


 

Operating expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services

 

$

20,036,270

 

 

46

%

$

18,972,725

 

 

45

%

 

6

%

Sales and marketing

 

 

13,122,182

 

 

30

%

 

11,289,600

 

 

27

%

 

16

%

General and administrative

 

 

12,159,579

 

 

28

%

 

14,003,161

 

 

33

%

 

-13

%

Depreciation and amortization

 

 

4,492,525

 

 

10

%

 

3,225,968

 

 

8

%

 

39

%

Asset impairments

 

 

 

 

N/A

 

 

555,000

 

 

1

%

 

-100

%

Gain on disposition of assets

 

 

 

 

N/A

 

 

(1,318,607

)

 

-3

%

 

100

%

 

 



 

 

 

 



 

 

 

 

 

 

 

Total operating expense

 

$

49,810,556

 

 

 

 

$

46,727,847

 

 

 

 

 

7

%

 

 



 

 

 

 



 

 

 

 

 

 

 

          Cost of services. Cost of services expense increased by approximately $1.1 million, or 6%, over the periods. The increase was primarily the result of higher base salary and stock-based compensation costs related to a 3% increase in headcount, combined with higher costs related to nonemployee content providers, consulting fees, and computer services and supplies, the aggregate of which increased by approximately $1.9 million. These cost increases were partially offset by reduced incentive compensation accruals, a higher amount of salaries capitalized for internal developed software and Web site development projects, and reduced usage of temporary help, the aggregate of which totaled approximately $0.9 million. As a percentage of revenue, cost of services expense increased to 46% in the nine months ended September 30, 2011, from 45% in the prior year period.

          Sales and marketing. Sales and marketing expense increased by approximately $1.8 million, or 16%, over the periods. The increase was primarily the result of an investment in the sales and marketing of our premium subscription-based products, including a 10% increase in headcount, higher costs associated with investor and public relations, advertising and promotion, travel and entertainment, advertisement serving, and recruiting fees, the aggregate sum of which increased by approximately $1.7 million. Sales and marketing expense includes $0.2 million and $0.2 million of barter expense in the nine months ended September 30, 2011 and 2010, respectively. As a percentage of revenue, sales and marketing expense increased to 30% in the nine months ended September 30, 2011, from 27% in the prior year period.

          General and administrative . General and administrative expense decreased by approximately $1.8 million, or 13%, over the periods. The decrease was primarily the result of reduced costs related to a review of certain accounting matters in our former Promotions.com subsidiary and to the SEC Matter, combined with reduced professional fees, consulting, recruiting and tax related costs, the aggregate of which decreased by approximately $1.9 million. Professional fees for costs related to the SEC Matter have been reduced by approximately $0.5 million, which costs the Company anticipates will be reimbursed through its insurance coverage. As a percentage of revenue, general and administrative expense decreased to 28% in the nine months ended September 30, 2011, from 33% in the prior year period.

          Depreciation and amortization. Depreciation and amortization expense increased by approximately $1.3 million, or 39%, over the periods. The increase is largely attributable to increased amortization expense resulting from a reduction to the estimated useful life of certain past capitalized Web site development projects together with increased leasehold improvement amortization related to a renovation of the Company’s corporate headquarters that was completed late last year. As a percentage of revenue, depreciation and amortization

19


expense increased to 10% in the nine months ended September 30, 2011, from 8% in the prior year period.

          Asset impairments . During the three months ended June 30, 2010, the Company recorded an impairment charge to its long term investment approximating $0.6 million based upon management’s consideration of Debtfolio, Inc.’s continued negative cash flow from operations, current financial position and lack of current liquidity.

          Gain on disposition of assets . On May 4, 2010, the Company sold certain assets of TheStreet Ratings business (those pertaining to banking and insurance ratings) resulting in a gain approximating $1.3 million.

          Net Interest Income

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended
September 30,

 

 

 

 

 

 


 

 

 

 

 

 

2011

 

2010

 

Percent
Change

 

 

 


 


 


 

Net interest income

 

$

529,898

 

$

642,483

 

 

-18

%

 

 



 



 

 

 

 

          The decrease in net interest income is primarily the result of the movement of cash balances from higher yielding marketable securities to lower yielding money market funds.

          Net Loss

          Net loss for the nine months ended September 30, 2011 totaled $5.8 million, or $0.18 per basic and diluted share, compared to net loss totaling $3.6 million, or $0.11 per basic and diluted share, for the nine months ended September 30, 2010.

          Liquidity and Capital Resources

          We have generally 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 operating purposes. As of September 30, 2011, our cash, cash equivalents, marketable securities, and restricted cash amounted to $76.8 million, representing 62% of total assets. Our cash and cash equivalents primarily consisted of money market funds and checking accounts. Our marketable securities consisted of approximately $41.4 million of liquid short-term U.S. Treasuries, government agencies, certificates of deposit (insured up to FDIC limits), investment grade corporate and municipal bonds, and corporate floating rate notes, with a maximum maturity of three years, and two auction rate securities issued by the District of Columbia with a par value of $1.9 million. Our total cash-related position is as follows:

 

 

 

 

 

 

 

 

 

 

September 30,
2011

 

December 31,
2010

 

 

 


 


 

Cash and cash equivalents

 

$

33,709,574

 

$

20,089,660

 

Current and noncurrent marketable securities

 

 

41,399,463

 

 

56,805,373

 

Restricted cash

 

 

1,660,370

 

 

1,660,370

 

 

 



 



 

Total cash and cash equivalents, current and noncurrent marketable securities and restricted cash

 

$

76,769,407

 

$

78,555,403

 

 

 



 



 

          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 six domestic financial institutions and perform periodic evaluations of the relative credit standing of these institutions.

          Cash generated from operations was sufficient to cover expenses during the nine-month period ended September 30, 2011. Net cash provided by operating activities for the nine-month period ended September 30,

20


2011 totaled $3.3 million, as compared to net cash provided by operating activities totaling $0.6 million for the nine-month period ended September 30, 2010. The increase in net cash provided by operating activities is primarily related to the following:

 

 

 

 

Ÿ

cash collection efforts resulting in a decrease in accounts receivable;

 

Ÿ

an increase in the growth of deferred revenue resulting from stronger subscription sales; and

 

Ÿ

a decrease in the growth of prepaid expenses and other current assets.

These increases in net cash provided by operating activities were partially offset by:

 

 

 

 

Ÿ

a larger decrease in both accounts payable and accrued expenses during the nine months ended September 30, 2011 as compared to the prior year period; and

 

Ÿ

an increase in the loss from continuing operations, which in turn was partially offset by increased noncash expenses.

          Net cash provided by investing activities of $13.5 million for the nine-month period ended September 30, 2011 was primarily the result of the $14.7 million net sale and maturity of marketable securities, partially offset by $1.5 million of capital expenditures.

          Net cash used in financing activities of $3.2 million for the nine-month period ended September 30, 2011 primarily consisted of cash dividends paid and the purchase of treasury stock by retaining shares issuable upon the vesting of restricted stock units in connection with the minimum tax withholding requirements.

          We have a total of $1.7 million of cash that serves as collateral for an outstanding letter of credit, and which cash is therefore restricted. The letter of credit serves as a security deposit for our 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 $2.3 million through September 30, 2012, primarily related to operating leases. Additionally, our Board of Directors declared a quarterly cash dividend in the amount of $0.025 per share of common stock and convertible preferred stock (on a common share equivalent basis) during each of the first three quarters of 2011, which resulted in cash expenditures of approximately $2.9 million. Our Board of Directors reviews the dividend payment each quarter and there can be no assurance that we will continue to pay this cash dividend in the future.

          As of December 31, 2010, we had approximately $136 million of federal and state net operating loss carryforwards, which are available through 2030. Based on operating results for the nine months ended September 30, 2011 and three-month projections, management expects to generate a tax loss in 2011 and no tax benefit has been recorded. We maintain a full valuation allowance against our deferred tax assets as management concluded that it was more likely than not that we would 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 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. Such an ownership change would create an annual limitation on the usage of the Company’s net operating loss carryforward. The ultimate realization of net operating loss carryforwards is dependent upon the generation of future taxable income during the periods following an ownership change. As such, a portion of the existing net operating loss carryforwards may be subject to limitation. During the year ended December 31, 2009, the Company acquired approximately $3 million of net operating loss carryforwards when it acquired the stock of Kikucall, Inc. In accordance with Section 382 of the Internal Revenue Code, the usage of the Kikucall, Inc. net operating loss carryforward could be limited.

21


Treasury Stock

          In December 2000, our Board of Directors authorized the repurchase of up to $10 million worth of our common stock, from time to time, in private purchases or in the open market. In February 2004, our Board of Directors approved the resumption of the stock repurchase 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 us to repurchase our stock. During the nine months ended September 30, 2011 we did not purchase any shares of common stock under the program. Since inception of the program, we have purchased a total of 5,453,416 shares of common stock at an aggregate cost of $7.3 million. In addition, pursuant to the terms of the Company’s 1998 Plan and 2007 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, 2011, we have withheld an aggregate of 565,251 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, 104,055 of which were received in October 2008 and 104,215 of which were received in September 2009, and 3,338 shares as partial settlement of the working capital adjustment from the acquisition of Kikucall, Inc., which were received in March 2011. These shares have been recorded as treasury stock.

 

 

I tem 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 six 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.

 

 

I tem 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.

P ART II - OTHER INFORMATION

22


 

 

I tem 1.

Legal Proceedings.

          As previously disclosed, in 2001, the Company, certain of its current or former officers and directors and certain underwriters were named in a securities class action related to the Company’s initial public offering (“IPO”). Similar suits were filed against approximately 300 other issuers and their underwriters, all of which are included in a single coordinated proceeding in the district court (the “IPO Litigations”). The complaints allege that the prospectus and the registration statement for the IPO failed to disclose that the underwriters allegedly solicited and received “excessive” commissions from investors and that some investors in the IPO allegedly agreed with the underwriters to buy additional shares in the aftermarket in order to inflate the price of the Company’s stock. The complaints seek unspecified damages, attorney and expert fees, and other unspecified litigation costs. In 2003, the district court granted the Company’s motion to dismiss the claims against it under Rule 10b-5 but motions to dismiss the claims under Section 11 of the Securities Act of 1933 were denied as to virtually all of the defendants in the consolidated cases, including the Company. In addition, some of the individual defendants in the IPO Litigations signed a tolling agreement and were dismissed from the action without prejudice on October 9, 2002. In 2003, a proposed collective partial settlement of this litigation was structured between the plaintiffs, the issuer defendants in the consolidated actions, the issuer officers and directors named as defendants, and the issuers’ insurance companies. The court granted preliminary approval of the settlement in 2005 but in 2007 the settlement was terminated, in light of a ruling by the appellate court in related litigation in 2006 that reversed the trial court’s certification of classes in that related litigation. In 2009, another settlement was entered into and approved by the trial court. Under the settlement, the Company’s obligation of approximately $339,000 would be paid by the issuers’ insurance companies. The settlement was appealed; in May 2011, the Second Circuit Court of Appeals dismissed one appeal and remanded another appeal to the District Court to determine whether the appellant has standing; in August 2011, the District Court determined that the applicable appellant did not have standing, which decision is being appealed. There can be no assurance that the approval of the settlement will not be reversed on appeal and that the settlement will be implemented in its current form, or at all. Due to the inherent uncertainties of litigation, the ultimate outcome of the matter is uncertain.

          As previously disclosed, we conducted a review of the accounting in our former Promotions.com subsidiary, which subsidiary we sold in December 2009. As a result of this review, in February 2010 we filed a Form 10-K/A for the year ended December 31, 2008 and a Form 10-Q/A for the quarter ended March 31, 2009, respectively, to restate and correct certain previously-reported financial information as well as filed Forms 10-Q for the quarters ended June 30, 2009 and September 30, 2009, respectively. The SEC commenced an investigation in March 2010 into the facts surrounding our restatement of previously issued financial statements and related matters. We are cooperating fully with the SEC. The investigation could result in the SEC seeking various penalties and relief including, without limitation, civil injunctive relief and/or civil monetary penalties or administrative relief. The nature of the relief or remedies the SEC may seek, if any, cannot be predicted at this time.

          As previously disclosed, in April 2010, we and one of our reporters were named in a lawsuit captioned Generex Biotechnology Corporation v. Feuerstein et al. (N.Y. Supreme Court, County of New York, Index No. 10104433), in which plaintiff alleges that certain articles we published concerning plaintiff were libelous. In May 2010 we filed an answer denying all claims. We intend to vigorously defend ourselves in this matter and believe we have meritorious defenses. Due to the preliminary stage of this matter and the inherent uncertainties of litigation, the ultimate outcome of the matter is uncertain.

          In December 2010, the Company was named as one of several defendants in a lawsuit captioned EIT Holdings LLC v. WebMD, LLC et al. , (U.S.D.C., D. Del.), on the same day that plaintiff filed a substantially identical suit against a different group of defendants in a lawsuit captioned EIT Holdings LLC v. Yelp!, Inc. et al. , (U.S.D.C., N. D. Cal.). In February 2011, by agreement of plaintiff and the Company, the Company was dismissed from the Delaware action without prejudice and named as a defendant in the California action. In May 2011, the action against the Company and all but one defendant were dismissed for misjoinder and plaintiff filed separate cases against the dismissed defendants; the action against the Company is captioned EIT Holdings LLC v. TheStreet.com, Inc. , (U.S.D.C., N. D. Cal.). The complaints allege that defendants infringe U.S. Patent No. 5,828,837, putatively owned by plaintiff, related to a certain method of displaying information to an Internet-

23


accessible device. The Company intends to vigorously defend itself and believes it has meritorious defenses. Due to the early stage of this matter and the inherent uncertainties of litigation, the ultimate outcome of this matter is uncertain.

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

 

 

I tem 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, 2010, which we filed with the SEC on March 14, 2011.

 

 

I tem 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

          The following table presents information related to repurchases of its common stock made by the Company during the three months ended September 30, 2011.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Period

 

(a) Total
Number
of Shares
(or Units)
Purchased

 

(b)
Average
Price
Paid per
Share (or
Unit)

 

(c) Total Number
of Shares (or
Units) Purchased
as Part of Publicly
Announced Plans
or Programs

 

(d) Maximum Number
(or Approximate Dollar
Value) of Shares (or
Units) that May Yet Be
Purchased Under the
Plans or Programs *

 


 


 


 


 


 

July 1 – 31, 2011

 

 

 

$

 

 

 

$

2,678,878

 

August 1 – 31, 2011

 

 

 

$

 

 

 

$

2,678,878

 

September 1 – 30, 2011

 

 

 

$

 

 

 

$

2,678,878

 

 

 



 

 

 

 



 

 

 

 

Total

 

 

 

$

 

 

 

$

2,678,878

 

 

 



 

 

 

 



 

 

 

 


 

 

*

In December 2000, the Company’s Board of Directors authorized the repurchase of up to $10 million worth 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 approved the resumption of this program under new price and volume parameters, leaving unchanged the maximum amount available for repurchase under the program. The program does not have a specified expiration date and is subject to certain limitations.


 

 

I tem 3.

Defaults Upon Senior Securities.

          Not applicable.

 

 

I tem 4.

[Reserved]

 

 

I tem 5.

Other Information.

          Not applicable.

24



 

 

Item 6.

Exhibi ts.

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

 

 

 

Exhibit
Number

 

Description


 


*3.1

 

Restated Certificate of Incorporation of the Company, incorporated by reference to the Exhibits to the Company’s Annual Report on Form 10-K filed March 14, 2011.

*3.2

 

Certificate of Amendment dated May 31, 2011 to Restated Certificate of Incorporation, incorporated by reference to the Exhibit to the Company’s Current Report on Form 8-K filed June 2, 2011.

*3.3

 

Amended and Restated Bylaws of the Company, incorporated by reference to the Exhibits to the Company’s Annual Report on Form 10-K filed March 30, 2000.

*4.1

 

Amended and Restated Registration Rights Agreement dated December 21, 1998, by and among the Company and the stockholders named therein, incorporated by reference to the Exhibits to the Company’s Registration Statement on Form S-1 filed February 23, 1999.

*4.2

 

Certificate of Designation of the Company’s Series A Junior Participating Preferred Stock, incorporated by reference to the Exhibits to the Company’s Registration Statement on Form S-1 filed February 23, 1999.

*4.3

 

Certificate of Designation of the Company’s Series B Preferred Stock, as filed with the Secretary of State of the State of Delaware on November 15, 2007, incorporated by reference to the Exhibits to the Company’s Current Report on Form 8-K filed November 20, 2007.

*4.4

 

Option to Purchase Common Stock dated November 1, 2007, incorporated by reference to the Company’s Current Report on Form 8-K filed November 6, 2007.

*4.5

 

Investor Rights Agreement dated November 15, 2007 by and among the Company, TCV VI, L.P. and TCV Member Fund, L.P., incorporated by reference to the Exhibits to the Company’s Current Report on Form 8-K filed November 20, 2007.

*4.6

 

Warrant dated November 15, 2007 issued by the Company to TCV VI, L.P., incorporated by reference to the Exhibits to the Company’s Current Report on Form 8-K filed November 20, 2007.

*4.7

 

Warrant dated November 15, 2007 issued by the Company to TCV Member Fund, L.P., incorporated by reference to the Exhibits to the Company’s Current Report on Form 8-K filed November 20, 2007.

*4.8

 

Specimen certificate for the Company’s shares of common stock, incorporated by reference to the Exhibits to Amendment 3 to the Company’s Registration Statement on Form S-1 filed April 19, 1999.

31.1

 

Rule 13a-14(a) Certification of CEO.

31.2

 

Rule 13a-14(a) Certification of CFO.

32.1

 

Section 1350 Certification of CEO.

32.2

 

Section 1350 Certification of CFO.

**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



 

 

 

*

 

Incorporated by reference

 

 

 

**

 

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

25


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 3, 2011

By:

 

/s/ Daryl Otte

 

 



 

Name:

Daryl Otte

 

Title:

Chief Executive Officer (principal executive officer)

 

 

 

 

 

 

 

 

Date: November 3, 2011

By:

 

/s/ Thomas Etergino

 

 



 

Name:

Thomas Etergino

 

Title:

Chief Financial Officer (principal financial officer)



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


 


 

 

 

*3.1

 

Restated Certificate of Incorporation of the Company, incorporated by reference to the Exhibits to the Company’s Annual Report on Form 10-K filed March 14, 2011.

*3.2

 

Certificate of Amendment dated May 31, 2011 to Restated Certificate of Incorporation, incorporated by reference to the Exhibit to the Company’s Current Report on Form 8-K filed June 2, 2011.

*3.3

 

Amended and Restated Bylaws of the Company, incorporated by reference to the Exhibits to the Company’s Annual Report on Form 10-K filed March 30, 2000.

*4.1

 

Amended and Restated Registration Rights Agreement dated December 21, 1998, by and among the Company and the stockholders named therein, incorporated by reference to the Exhibits to the Company’s Registration Statement on Form S-1 filed February 23, 1999.

*4.2

 

Certificate of Designation of the Company’s Series A Junior Participating Preferred Stock, incorporated by reference to the Exhibits to the Company’s Registration Statement on Form S-1 filed February 23, 1999.

*4.3

 

Certificate of Designation of the Company’s Series B Preferred Stock, as filed with the Secretary of State of the State of Delaware on November 15, 2007, incorporated by reference to the Exhibits to the Company’s Current Report on Form 8-K filed November 20, 2007.

*4.4

 

Option to Purchase Common Stock dated November 1, 2007, incorporated by reference to the Company’s Current Report on Form 8-K filed November 6, 2007.

*4.5

 

Investor Rights Agreement dated November 15, 2007 by and among the Company, TCV VI, L.P. and TCV Member Fund, L.P., incorporated by reference to the Exhibits to the Company’s Current Report on Form 8-K filed November 20, 2007.

*4.6

 

Warrant dated November 15, 2007 issued by the Company to TCV VI, L.P., incorporated by reference to the Exhibits to the Company’s Current Report on Form 8-K filed November 20, 2007.

*4.7

 

Warrant dated November 15, 2007 issued by the Company to TCV Member Fund, L.P., incorporated by reference to the Exhibits to the Company’s Current Report on Form 8-K filed November 20, 2007.

*4.8

 

Specimen certificate for the Company’s shares of common stock, incorporated by reference to the Exhibits to Amendment 3 to the Company’s Registration Statement on Form S-1 filed April 19, 1999.

31.1

 

Rule 13a-14(a) Certification of CEO.

31.2

 

Rule 13a-14(a) Certification of CFO.

32.1

 

Section 1350 Certification of CEO.

32.2

 

Section 1350 Certification of CFO.

**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



 

 

 

*

 

Incorporated by reference

 

 

 

**

 

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 31.1

CERTIFICATION

 

 

 

I, Daryl Otte, 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 3, 2011

 

By:

/s/ Daryl Otte

 

 


 

 

Name:

Daryl Otte

 

 

Title:

Chief Executive Officer (principal executive officer)



Exhibit 31.2

CERTIFICATION

 

 

 

I, Thomas Etergino, 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 3, 2011

 

By:

/s/ Thomas Etergino

 

 


 

 

Name:

Thomas Etergino

 

 

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, 2011, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Daryl Otte, 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/ Daryl Otte


Name:

Daryl Otte

Title:

Chief Executive Officer (principal executive officer)
November 3, 2011



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, 2011, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Thomas Etergino, 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/ Thomas Etergino


Name:

Thomas Etergino

Title:

Chief Financial Officer (principal financial officer)
November 3, 2011