| THESTREET COM Item 1A Risk Factors |
| You should carefully consider the following material risks facing the Company |
| If any of the following risks occur, the Company’s business, results of operations or financial condition could be materially adversely affected |
| We Have a History of Losses and May Incur Further Losses We earned net income of dlra0dtta2 million, or dlra0dtta01 per share on a fully diluted basis, for the year ended December 31, 2005 |
| Income from continuing operations for the year was dlra5dtta8 million, or dlra0dtta22 per share on a fully diluted basis |
| For many of the previous quarters, we have incurred operating losses, and may again experience operating losses in the future |
| As of December 31, 2005, we had an accumulated deficit of approximately dlra153dtta5 million |
| We will need to generate significant revenue in order to cover the operating expenses we expect to incur during 2006 |
| Accordingly, we can make no assurances that we will be able to remain profitable on a quarterly or annual basis in the future |
| Our Quarterly Financial Results May Fluctuate and our Future Revenue Is Difficult to Forecast Our quarterly operating results may fluctuate significantly in the future as a result of a variety of factors, many of which are outside our control, including: • the level of interest and investment in the stock market by both individual and institutional investors and their willingness to pay for content distributed over the Internet, where a large quantity of content is available for free; 10 _________________________________________________________________ • demand for advertising on our Web sites, which is affected by seasonal weakness in the first and third quarters, advertising budget cycles of our customers, and the demand for advertising on the Internet generally; • subscription price reductions attributable to decreased demand or increased competition; • new products or services introduced by our competitors; • content distribution fees or other costs; • costs associated with system downtime affecting the Internet generally or our Web sites in particular; and • general economic and market conditions |
| Although we generated net income in the third and fourth quarters and for the full year of 2005, you should not rely on the results for those periods as an indication of future performance |
| We may not be cash flow positive or generate net income in future periods |
| We forecast our current and future expense levels based on expected revenue and our operating plans |
| Because of the above factors, as well as other material risks we face, as described elsewhere in this report, our operating results may be below the expectations of public market analysts and investors in some future quarters |
| In such an event, the price of our common stock is likely to decline |
| A Significant Portion of Our Subscription Revenue is Generated by James J Cramer and Other Key Writers We strive to differentiate our services from those provided by other financial and investing products available in the marketplace, having introduced, in recent years, publications containing a broad variety of features from a multitude of contributors, as well as more narrowly targeted, trading-oriented newsletters, some of which are the work of an individual writer |
| While we believe that the success of our publications is dependent in part upon our brands, some of these publications, particularly the newsletters, nonetheless reflect the talents, efforts, personalities and reputations of their respective writers |
| As a result, the services of these key writers, particularly Company co-founder James J Cramer, form an essential element of our subscription revenue |
| Accordingly, we seek to compensate and provide incentives for these key writers through competitive salaries, stock ownership and bonus plans, and have entered into employment agreements with several of them, including Mr |
| Cramer, who in August 2005 entered into a new employment agreement with us for a term expiring on December 31, 2007 |
| However, we can make no assurances that these programs will enable us to retain key writers or, should we lose the services of one or more of our key writers to death, disability, loss of reputation or other reason, to attract new writers acceptable to readers of our publications |
| The loss of services of one or more of our key writers could have a material adverse effect on our business, results of operations and financial condition |
| The Loss of the Services of Other Key Employees Could Affect Our Business Our continued success also depends upon the retention of other key employees, including executives to operate our business, technology personnel to run our publishing, commerce, communications and other systems, and salespersons to sell our advertising inventory |
| Several, but not all, of our key employees are bound by employment or non-competition agreements |
| In addition, we may incur increased costs to continue to compensate our key executives, as well as other employees, through competitive salaries, stock ownership and bonus plans |
| Nevertheless, we can make no assurances that these programs will allow us to retain key employees or hire new employees |
| The loss of one or more of our key employees, or our inability to attract experienced and qualified replacements, could materially adversely affect our business, results of operations and financial condition |
| We May Have Difficulty Increasing Our Advertising Revenue, a Significant Portion of Which Is Concentrated Among Our Top Advertisers Our ability to increase our advertising revenue depends on a variety of factors, including general market conditions, seasonal fluctuations in financial news consumption and overall online usage, our 11 _________________________________________________________________ ability to increase our unique visitors and page view inventory, and our ability to win our share of advertisers’ total advertising budgets from other Web sites, television, radio and print media |
| While we have recently experienced increases in our online advertising revenue, there can be no assurance that such increases will continue |
| If our advertising revenue decreases because of the foregoing, our business, results of operations and financial condition could be materially adversely affected |
| In 2005, our top five advertisers accounted for approximately 33prca of our total advertising revenue, a decrease from 43prca for 2004 |
| Furthermore, although we have had success attracting advertisers from outside the financial services industry, such as advertisers of automotive and luxury goods, a large proportion of our top advertisers are concentrated in financial services, particularly in the online brokerage business |
| If these industries were to weaken significantly or to consolidate, or if other factors caused us to lose a number of our top advertisers, our business, results of operations and financial condition could be materially adversely affected |
| As is typical in the advertising industry, our advertising contracts have short notice cancellation provisions |
| We Face Risks Associated with the Growth and Diversification of Our Business Our business has grown and diversified in recent years and now includes a variety of professional and consumer subscription services |
| We intend to continue to expand and diversify our business, both organically and possibly through acquisitions of other companies |
| Such expansion and diversification may require significant time and resource commitments from our senior management, which will limit the amount of time these individuals will have available to devote to our existing operations, and ultimately may not result in the creation of successful new business lines |
| For example, our attempt to bring high-quality, independent equity research to institutional clients through the development of a separate, wholly owned broker dealer subsidiary during the period from late 2002 through mid 2005, was unsuccessful |
| ” Growth in diversity and complexity may also impact our evolving business in ways we have not anticipated |
| The efficiency of our operations will depend on our ability to successfully manage the increasing complexity of the commerce, publishing, financial reporting, and other systems we depend on |
| Acquisitions could require the incurrence of debt and contingent liabilities and the issuance of new equity or debt securities |
| Any failure or any inability to effectively manage and integrate our growth and diversification could have a material adverse effect on our business, financial condition and results of operations |
| System Failure or Interruption May Result in Reduced Traffic, Reduced Revenue and Harm to Our Reputation Our ability to provide timely, updated information depends on the efficient and uninterrupted operation of our computer and communications hardware and software systems |
| Similarly, our ability to track, measure and report the delivery of advertisements on our Web sites depends on the efficient and uninterrupted operation of a third-party system |
| Our operations depend in part on the protection of our data systems and those of our third party provider against damage from human error, natural disasters, fire, power loss, water damage, telecommunications failure, computer viruses, terrorist acts, vandalism, sabotage, and other adverse events |
| Although we utilize the services of a third party data-center host with both physical and procedural security systems and have put in place certain other disaster recovery measures including offsite storage of backup data, there is no guarantee that our Internet access and other data operations will be uninterrupted, error-free or secure |
| Any system failure, including network, software or hardware failure, that causes an interruption in our service or a decrease in responsiveness of our Web sites could result in reduced traffic, reduced revenue and harm to our reputation, brand and relations with our advertisers and strategic partners |
| Our insurance policies may not adequately compensate us for such losses |
| In such event, our business, results of operations and financial condition could be materially adversely affected |
| Difficulties in New Product Development Could Harm Our Business In the past few years, we have introduced a significant number of new products and services, and expect to continue to do so |
| However, we may experience difficulties that could delay or prevent us from introducing new products and services in the future, or cause our costs to be higher than 12 _________________________________________________________________ anticipated, which could materially adversely affect our business, results of operations and financial condition |
| Failure to Establish and Maintain Successful Strategic Relationships with Other Companies Could Decrease our Subscriber and Reader Base We rely in part on establishing and maintaining successful strategic relationships with other companies to attract and retain a portion of our current subscriber and reader base and to enhance public awareness of our brands |
| In particular, our relationships with Yahoo!, which indexes our headlines and hosts our content, CBS Radio, which broadcasts our radio program, and CNBC, which telecasts James Cramer’s “Mad Money” television program, have been important components of our effort to enhance public awareness of our brands |
| There is intense competition for relationships with these firms and for content placement on their Web sites and for distribution of our audio and video content, and we may have to pay significant fees to establish additional relationships with large, high-traffic partners or maintain existing relationships in the future |
| From time to time, we enter into agreements with advertisers that require us to exclusively feature these parties in sections of our Web sites |
| Existing and future exclusivity arrangements may prevent us from entering into other advertising or sponsorship arrangements or other strategic relationships |
| If we do not successfully establish and maintain our strategic relationships on commercially reasonable terms or if these relationships do not attract significant revenue, our business, results of operations and financial condition could be materially adversely affected |
| Difficulties Associated With Our Brand Development May Harm Our Ability to Attract Subscribers We believe that maintaining and growing awareness about our services is an important aspect of our efforts to continue to attract users |
| Our new services do not have widely recognized brands, and we will need to increase awareness of these brands among potential users |
| Our efforts to build brand awareness may not be cost effective or successful in reaching potential users, and some potential users may not be receptive to our marketing efforts or advertising campaigns |
| Accordingly, we can make no assurances that such efforts will be successful in raising awareness of our brands or in persuading potential users to subscribe to our services |
| Failure to Maintain Our Reputation for Trustworthiness May Harm Our Business It is very important that we maintain our reputation as a trustworthy organization |
| The occurrence of events such as our misreporting a news story, the non-disclosure of a stock ownership position by one or more of our writers, or the manipulation of a security by one or more of our outside contributors, or any other breach of our compliance policies, could harm our reputation for trustworthiness and reduce readership |
| These events could materially adversely affect our business, results of operations and financial condition |
| We May Face Liability for, or Incur Costs to Defend, Information Published in Our Services We may be subject to claims for defamation, libel, or copyright or trademark infringement, or based on other theories of liability, in each case relating to the information we publish in our services |
| These types of claims have been brought, sometimes successfully, against online services as well as other print publications in the past |
| We could also be subject to claims based upon the content that is accessible from our Web sites through links to other Web sites |
| Our insurance may not adequately protect us against these claims |
| We May Not Adequately Protect Our Own Intellectual Property and May Incur Costs to Defend Against, or Face Liability for, Intellectual Property Infringement Claims of Others To protect our rights to our intellectual property, we rely on a combination of trademark and copyright law, trade secret protection, confidentiality agreements and other contractual arrangements with our employees, affiliates, customers, strategic partners and others |
| Additionally, we aggressively 13 _________________________________________________________________ police Internet message boards and other Web sites for copyrighted content that has been republished without our permission |
| The protective steps we have taken may be inadequate to deter misappropriation of our proprietary information |
| We may be unable to detect the unauthorized use of, or take appropriate steps to enforce, our intellectual property rights |
| We have registered several trademarks in the United States and also have pending US applications for other trademarks |
| Failure to adequately protect our intellectual property could harm our brand, devalue our proprietary content and affect our ability to compete effectively |
| In addition, although we believe that our proprietary rights do not infringe on the intellectual property rights of others, other parties may assert infringement claims against us or claim that we have violated a patent or infringed a copyright, trademark or other proprietary right belonging to them |
| We incorporate licensed third-party technology in some of our services |
| In these license agreements, the licensors have generally agreed to defend, indemnify and hold us harmless with respect to any claim by a third party that the licensed software infringes any patent or other proprietary right |
| We cannot assure you that these provisions will be adequate to protect us from infringement claims |
| Protecting our intellectual property rights, or defending against infringement claims, even if not meritorious, could result in the expenditure of significant financial and managerial resources on our part, which could materially adversely affect our business, results of operations and financial condition |
| The growth and development of the market for Internet commerce and communications has prompted both federal and state laws and regulations concerning the collection and use of personally identifiable information (including consumer credit and financial information under the Gramm-Leach-Bliley Act), consumer protection, the content of online publications, the taxation of online transactions and the transmission of unsolicited commercial email, popularly known as “spam |
| ” More laws and regulations are under consideration by various governments, agencies and industry self-regulatory groups |
| Although our compliance with applicable federal and state laws, regulations and industry guidelines has not had a material adverse effect on us, new laws and regulations may be introduced and modifications to existing laws may be enacted that require us to make changes to our business practices |
| Although we believe that our practices are in compliance with applicable laws, regulations and policies, if we were required to defend our practices against investigations of state or federal agencies or if our practices were deemed to be violative of applicable laws, regulations or policies, we could be penalized and our activities enjoined |
| Any of the foregoing could increase the cost of conducting online activities, decrease demand for our services, lessen our ability to effectively market our services, or otherwise materially adversely affect our business, financial condition and results of operations |
| Our activities have evolved to include, among other things, the offering of stand-alone services providing stock recommendations and analysis to subscribers, in contrast to providing such information as part of a larger online financial publication of more general and regular circulation |
| As a result, we registered in 2002 with the SEC as an investment advisor under the Investment Advisers Act of 1940 |
| The securities industry in the United States is subject to extensive regulation under both federal and state laws |
| A failure to comply with regulations applicable to securities industry participants could materially and adversely affect our business, results of operations and financial condition |
| Investment advisors such as TheStreet |
| com are subject to SEC regulations covering all aspects of the operation of their business, including, among others: • advertising, • record-keeping, • conduct of directors, officers and employees, and • supervision of advisory activities |
| Violations of the regulations governing the actions of investment advisors may result in the imposition of censures or fines, the issuance of cease-and-desist orders, and the suspension or expulsion of a firm, our officers, or our employees from the securities business |
| 14 _________________________________________________________________ Our ability to comply with all applicable securities laws and rules is largely dependent on our establishment and maintenance of appropriate compliance systems (including proper supervisory procedures and books and records requirements), as well as our ability to attract and retain qualified compliance personnel |
| Because we operate in an industry subject to extensive regulation, new regulation, changes in existing regulation, or changes in the interpretation or enforcement of existing laws and rules could have a material adverse effect on our business, results of operations and financial condition |
| Foreign Regulation |
| Although we do not actively seek customers and have no property outside the United States, regulatory entities of foreign governments could seek to exercise jurisdiction over our activities |
| If we were required to defend our practices against investigations of foreign regulatory agencies or if our practices were deemed to be violative of the laws, regulations or policies of such jurisdictions, we could be penalized and our activities enjoined |
| Any of the foregoing could materially adversely affect our business, financial condition and results of operations |
| Any Failure of Our Internal Security Measures or Breach of Our Privacy Protections Could Cause Us to Lose Users and Subject Us to Liability Users who subscribe to our subscription-based services are required to furnish certain personal information (including name, mailing address, phone number, email address and credit card information), which we use to administer our services |
| We also require users of some of our free services and features to provide us with some personal information during the membership registration process |
| Additionally, we rely on security and authentication technology licensed from third parties to perform real-time credit card authorization and verification, and at times rely on third parties, including technology consulting firms, to help protect our infrastructure from security threats |
| We may have to continue to expend capital and other resources on the hardware and software infrastructure that provides security for our processing, storage and transmission of personal information |
| In this regard, our users depend on us to keep their personal information safe and private and not to disclose it to third parties or permit our security to be breached |
| However, advances in computer capabilities, new discoveries in the field of cryptography or other events or developments, including improper acts by third parties, may result in a compromise or breach of the security measures we use to protect the personal information of our users |
| If a party were to compromise or breach our information security measures or those of our agents, such party could misappropriate the personal information of our users, cause interruptions in our operations, expose us to significant liabilities and reporting obligations, damage our reputation and discourage potential users from registering to use our Web sites or other services, any of which could have a material adverse effect on our business, results of operations and financial condition |
| Control by Principal Stockholders, Officers and Directors Could Adversely Affect Our Stockholders Our officers, directors and greater-than-five-percent stockholders (and their affiliates), acting together, may have the ability to control our management and affairs, and substantially all matters submitted to stockholders for approval (including the election and removal of directors and any merger, consolidation or sale of all or substantially all of our assets) |
| Some of these persons acting individually or together, even in the absence of control, may be able to exert a significant degree of influence over such matters |
| The interests of persons having this concentration of ownership may not always coincide with our interests or the interests of other stockholders |
| This concentration of ownership, for example, may have the effect of delaying, deferring or preventing a change in control of the Company, impeding a merger, consolidation, takeover or other business combination involving the Company or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of the Company, which in turn could materially adversely affect the market price of the common stock |
| 15 _________________________________________________________________ Anti-Takeover Provisions Could Prevent or Delay a Change of Control Provisions of our amended and restated certificate of incorporation and amended and restated bylaws and Delaware law could make it more difficult for a third party to acquire the Company, even if doing so would be beneficial to our stockholders |