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 June 30, 2019

 

Commission File Number 000-25779

 

THESTREET, INC.

(Exact name of Registrant as specified in its charter)

 

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

 

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 ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically 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 ☒ No ☐

 

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

 

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☒
      Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

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

Yes ☐ No ☒

 

Securities registered pursuant to Section 12(b) of the Act:

 

        Name of each exchange
Title of each class   Trading Symbol(s)   on which registered
Common Stock, par value $0.01 per share   TST   Nasdaq Capital Market

 

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 August 5, 2019
Common Stock, par value $0.01 per share   5,336,639

 

 

TheStreet, Inc.

Form 10-Q

 

As of and for the Three Months Ended June 30, 2019

 

     
Part I - FINANCIAL INFORMATION 3
Item 1. Condensed Consolidated Financial Statements (unaudited) 3
  Condensed Consolidated Balance Sheets 3
  Condensed Consolidated Statements of Operations 4
  Condensed Consolidated Statements of Comprehensive (Loss) Income 5
  Condensed Consolidated Statements of Stockholders’ Equity 6
  Condensed Consolidated Statements of Cash Flows 7
  Notes to Condensed Consolidated Financial Statements 8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 20
Item 3. Quantitative and Qualitative Disclosures About Market Risk 25
Item 4. Controls and Procedures 26
     
PART II - OTHER INFORMATION 26
Item 1. Legal Proceedings 26
Item 1A. Risk Factors 26
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 26
Item 3. Defaults Upon Senior Securities 26
Item 4. Mine Safety Disclosures 26
Item 5. Other Information 26
Item 6. Exhibits 27
SIGNATURES 28

 

SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which reflect our current views with respect to, among other things, our operations and financial performance.  You can identify these forward-looking statements by the use of words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words.  Such forward-looking statements are subject to various risks and uncertainties.  Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements.  We believe these factors include but are not limited to those described under “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018.  Additional risk factors may be described from time to time in our future filings with the Securities and Exchange Commission.  We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.

 

Unless the context suggests otherwise, specifically, references in this Quarterly Report to “TheStreet,” the “Company,” “we,” “us” and “our” refer to TheStreet, Inc. and its consolidated subsidiaries .

 

 

Part I – FINANCIAL INFORMATION

 

Item 1. Condensed Consolidated Financial Statements.

 

THESTREET, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

 

    June 30, 2019     March 31, 2019  
assets                
Current Assets:                
Cash and cash equivalents   $ 24,322,594     $ 117,991,200  
Accounts receivable, net of allowance for doubtful accounts of $177,245 as of June 30, 2019 and $210,493 as of March 31, 2019     1,948,294       2,433,426  
Other receivables, net     4,292,173       4,552,062  
Prepaid expenses and other current assets     1,063,581       1,438,351  
Total current assets     31,626,642       126,415,039  
Noncurrent Assets:                
Property and equipment, net of accumulated depreciation and amortization of $4,717,044 as of June 30, 2019 and $5,567,690 as of March 31, 2019     569,008       676,856  
Marketable securities     —         1,850,000  
Right of use lease asset     1,517,950       1,492,791  
Other assets     12,585       19,818  
Other intangible assets, net of accumulated amortization of $8,151,100 as of June 30, 2019 and $7,754,297 as of March 31, 2019     3,026,239       3,160,724  
Restricted cash     500,000       500,000  
Total assets   $ 37,252,424     $ 134,115,228  
                 
liabilities and stockholders’ equity                
Current Liabilities:                
Accounts payable   $ 2,076,998     $ 2,194,181  
Accrued expenses     4,355,694       4,684,362  
Deferred revenue     10,815,270       10,725,477  
Lease liability     1,744,642       1,732,332  
Other current liabilities     2,129,413       970,674  
Total current liabilities     21,122,017       20,307,026  
Noncurrent Liabilities:                
Lease liability     900,823       1,342,235  
Deferred revenue     895,722       809,240  
Total liabilities     22,918,562       22,458,501  
                 
Stockholders’ Equity:                
Common Stock; $0.01 par value; 10,000,000 shares authorized; 6,407,273 shares issued and 5,336,639 shares outstanding as of June 30, 2019, and 6,203,150 shares issued and 5,230,384 shares outstanding as of March 31, 2019     64,073       62,031  
Additional paid-in capital     176,561,989       268,409,674  
Treasury stock at cost; 1,070,634 shares as of June 30, 2019 and 972,766 shares as of March 31, 2019     (20,176,812 )     (17,955,616 )
Accumulated deficit     (142,115,388 )     (138,859,362 )
Total stockholders’ equity     14,333,862       111,656,727  
Total liabilities and stockholders’ equity   $ 37,252,424     $ 134,115,228  

 

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

 

3

 

THESTREET, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

    For the Three Months Ended June 30,  
    2019     2018  
Total revenue   $ 6,923,270     $ 6,901,644  
Operating expense:                
Cost of services     3,375,408       3,722,976  
Sales and marketing     1,749,645       2,462,524  
General and administrative     2,469,343       3,505,077  
Depreciation and amortization     509,970       461,459  
Transaction costs     1,729,072       —    
Restructuring and other charges     30,610       —    
Total operating expense     9,864,048       10,152,036  
Operating loss     (2,940,778 )     (3,250,392 )
Net interest income     248,671       22,485  
Loss before income taxes from continuing operations     (2,692,107 )     (3,227,907 )
(Loss) income from discontinued operations     (563,919 )     2,581,835  
Gain on sale of business, net of tax     —         27,100,199  
(Loss) income before income taxes     (3,256,026 )     26,454,127  
Benefit for income taxes     —         1,061,868  
Net (loss) income attributable to common stockholders   $ (3,256,026 )   $ 27,515,995  

Net (loss) income per share: 

               
                 
Basic net (loss) income attributable to common stockholders:                
Continuing operations   $ (0.50 )   $ (0.44 )
Discontinued operations     (0.11 )     6.02  
Basic net (loss) income per share   $ (0.61 )   $ 5.58  

Diluted net (loss) income attributable to common stockholders: 

               
Continuing operations   $ (0.50 )   $ (0.43 )
Discontinued operations     (0.11 )     5.87  
Diluted net (loss) income per share   $ (0.61 )   $ 5.44  
                 

Weighted average basic shares outstanding

    5,326,958       4,929,606  
Weighted average diluted shares outstanding     5,326,958       5,055,124  

 

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

 

4

 

THESTREET, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(unaudited)

 

    For the Three Months Ended June 30,  
    2019     2018  
Net (loss) income   $ (3,256,026 )   $ 27,515,995  
Foreign currency translation loss     —         (686,712 )
Unrealized gain on marketable securities     —         1,221  
Comprehensive (loss) income   $ (3,256,026 )   $ 26,830,504  

 

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

 

5

 

THESTREET, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(unaudited)

 

      Common Stock                       Treasury Stock                  
      Shares       Par Value       Additional
Paid in Capital 		      Accumulated
Other
Comprehensive
Loss 		      Shares       Cost       Accumulated
Deficit 		      Total
Stockholders’
Equity 		 
Balance at March 31, 2018     5,690,072     $ 56,901     $ 260,422,118     $ (4,419,337 )     (771,404 )   $ (13,490,213 )   $ (206,769,135 )   $ 35,800,334  
Unrealized gain on marketable
securities 		                            1,221                               1,221  
Foreign currency translation loss                             (686,712 )                             (686,712 )
Exercise and issuance of equity
grants 		    40,695       407       (407 )             (264 )     (4,592 )             (4,592 )
Stock-based consideration for
services 		                    578,056                                       578,056  
Net income                                                     27,515,995       27,515,995  
Balance at June 30, 2018     5,730,767     $ 57,308     $ 260,999,767     $ (5,104,828 )     (771,668 )   $ (13,494,805 )   $ (179,253,140 )   $ 63,204,302  

 

Balance at March 31, 2019

    6,203,150     $ 62,031     $ 268,409,674     $ —         (972,766 )   $ (17,955,616 )   $ (138,859,362 )   $ 111,656,727  
Exercise and issuance of equity
grants 		    204,123       2,042       2,587,768               (97,868 )     (2,221,196 )             368,614  
Common stock cash dividend                     (94,435,453 )                                     (94,435,453 )
Net loss                                                     (3,256,026 )     (3,256,026 )
Balance at June 30, 2019     6,407,273     $ 64,073     $ 176,561,989     $ —         (1,070,634 )   $ (20,176,812 )   $ (142,115,388 )   $ 14,333,862  

 

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

 

6

 

THESTREET, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

    For the Three Months Ended June 30,  
    2019     2018  
Cash Flows from Operating Activities:                
Net (loss) income   $ (3,256,026 )   $ 27,515,995  
Adjustments to reconcile net (loss) income to net cash provided by
operating activities: 		               
Gain on sale of business, net of tax     —         (27,100,199 )
Stock-based compensation expense     —         578,056  
(Gain) provision for doubtful accounts     (14,741 )     30,946  
Loss on disposal of fixed assets     12,378       —    
Depreciation and amortization     509,970       1,223,491  
Deferred taxes     —         (899,897 )
Deferred rent     —         (192,164 )
Changes in operating assets and liabilities:                
Accounts receivable     499,873       185,544  
Other receivables     259,889       29,565  
Prepaid expenses and other current assets     374,770       (309,419 )
Right of use asset     (25,159 )     —    
Other assets     7,233       (6,201 )
Accounts payable     (117,183 )     456,457  
Accrued expenses     (328,668 )     790,967  
Deferred revenue     176,275       791,544  
Other current liabilities     1,158,739       47,139  
Lease liability     (429,102 )     —    
Other liabilities     —         119,887  
Net cash (used in) provided by operating activities     (1,171,752 )     3,261,711  
                 
Cash Flows from Investing Activities:                
Proceeds from sale of business, net     —         28,232,100  
Sale of marketable securities     1,850,000       —    
Capital expenditures     (280,015 )     (875,567 )
Net cash provided by investing activities     1,569,985       27,356,533  
                 
Cash Flows from Financing Activities:                
Earnout payment for prior acquisition     —         (951,867 )
Cash dividends paid on Common Stock     (94,435,453 )     —    
Net proceeds from the exercise of stock options     2,589,810       —    
Shares withheld on vesting to pay for withholding taxes     (2,221,196 )     (4,592 )
Net cash used in financing activities     (94,066,839 )     (956,459 )
                 
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash     —         (224,247 )
                 
Net (decrease) increase in cash, cash equivalents and restricted cash     (93,668,606 )     29,437,538  
Cash, cash equivalents and restricted cash beginning of period     118,491,200       13,723,536  
Cash, cash equivalents and restricted cash end of period   $ 24,822,594     $ 43,161,074  

 

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

 

7

 

TheStreet, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

1. DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION

 

TheStreet, Inc. is a leading financial news and information provider. Our content and products provide individual investors with actionable information from the worlds of finance and business. The Company’s flagship brand, TheStreet ( www.thestreet.com ), has produced unbiased business news and market analysis for individual investors for more than 20 years.

 

From time to time, the Board of Directors and our senior management team review and evaluate strategic opportunities and alternatives as part of a long-term strategy to increase stockholder value. Following the realignment of our capital structure in November 2017, the Board focused on a review of the Company’s diverse businesses and in June 2018 sold its RateWatch business for a cash payment totaling $33.5 million to S&P Global Market Intelligence Inc., an affiliate of S&P Global Inc. (“S&P”). The Company also sold its business-to-business, or B2B, units, The Deal and BoardEx, for a cash payment totaling $87.3 million to Euromoney Institutional Investor PLC in February 2019 (the “B2B Sale”), and then entered into a definitive merger agreement with TheMaven, Inc. by which a subsidiary of TheMaven will acquire the outstanding common shares of TheStreet for a cash payment totaling $16.5 million. The sale is expected to close during August 2019. As a result of these dispositions, RateWatch and our B2B businesses are reported as discontinued operations in our Condensed Consolidated Statements of Operations.

 

Following the B2B Sale in February 2019, we continued to own and operate our business-to-consumer, or B2C, business, which is led by our namesake website, TheStreet.com , and includes our free editorial content and houses our premium subscription products that target varying segments of the retail investing public. Our B2C business primarily generates revenue from premium subscription products, advertising and event revenue.

 

On April 3, 2019, the Company announced that its Board of Directors had declared a special cash distribution in the amount of approximately $94.4 million, or $17.70 per share ($1.77 per share prior to the reverse stock split discussed below), paid on April 22, 2019 to stockholders of record on April 15, 2019. In connection with the distribution, the Board of Directors also approved a 10-for-1 reverse stock split of the Company’s common stock effective prior to the opening of trading on April 26, 2019. All share amounts and per share amounts within this Form 10-Q have been adjusted for this stock split. Additionally, the Company changed its fiscal and tax year to a March 31 year-end.

 

Unaudited Interim Financial Statements

 

The interim condensed consolidated balance sheets as of June 30, 2019 and March 31, 2019, the condensed consolidated statements of operations, comprehensive (loss) income, statements of stockholders’ equity, and statements of cash flows for the three months ended June 30, 2019 and 2018 are unaudited. The unaudited interim financial statements have been prepared on a basis consistent with the Company’s annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments necessary to state fairly the Company’s financial position as of June 30, 2019, its results of consolidated operations, comprehensive (loss) income and cash flows for the three months ended June 30, 2019 and 2018. The financial data and other financial information disclosed in the notes to the financial statements related to these periods are also unaudited. The results of operations for the three months ended June 30, 2019 are not necessarily indicative of the results to be expected for the fiscal year ending March 31, 2020 or for any other future annual or interim period.

 

There have been no material changes in the significant accounting policies from those that were disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, which was initially filed with the SEC on March 15, 2019, amended on March 21, 2019 solely to correct certain clerical errors and on April 30, 2019 solely to include the information required by Part III of Form 10-K, other than the adoption of ASU 2016-02 “ Leases ” on January 1, 2019 . These financial statements should also be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2018. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been omitted pursuant to such rules and regulations.

 

The Company has evaluated subsequent events for recognition or disclosure.

 

8

 

Recently Issued Accounting Pronouncements

 

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ” (“ASU 2016-13”). ASU 2016-13 requires the measurement and recognition of expected credit losses for financial assets held at amortized cost.  ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted for interim and annual reporting periods beginning after December 15, 2018.  ASU 2016-13 is required to be adopted using the modified retrospective basis, with a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. Based upon the level and makeup of the Company’s financial receivables, past loss activity and current known activity regarding our outstanding receivables, the Company does not expect that the adoption of this new standard will have a material impact on its consolidated financial statements.

 

Reclassifications

 

During the three months ended June 30, 2019, the Company effected a 10-for-1 reverse stock split. Prior period amounts have been reclassified to conform to current period presentation.

 

2. SUBSEQUENT EVENT

 

In June 2019, the Company announced that it had entered into a definitive merger agreement with TheMaven, Inc, by which a subsidiary of TheMaven will acquire all of the outstanding common shares of TheStreet for a cash payment totaling $16.5 million. The transaction is subject to the approval of a majority of the outstanding shares of common stock of TheStreet and is expected to close during August 2019.

 

3. DIVESTITURES

 

Sale of RateWatch

 

On June 20, 2018, the Company entered into an asset purchase agreement (the “Purchase Agreement”) with S&P pursuant to which the Company agreed to sell the assets comprising its RateWatch business to S&P for an aggregate cash payment totaling $33.5 million. Of the purchase price, $3,350,000 was placed in escrow to secure S&P’s rights to indemnification and their right to any post-closing adjustment in its favor. This escrow amount is included within other receivables on the Company’s Condensed Consolidated Balance Sheets.

 

Operating results for the RateWatch business, which have been previously included in the Business to Business segment, have now been reclassified as discontinued operations for the three months ended June 30, 2018.

 

Gain on sale of RateWatch, which amounted to $27.1 million net of a tax expense of $1.6 million, was calculated as the selling price less direct costs to complete the transaction. Included in such costs is approximately $568 thousand pertaining to certain employee costs that were assumed by the Company as part of the transaction.

 

The following table presents the discontinued operations of RateWatch in the June 30, 2018 Condensed Consolidated Statements of Operations. These amounts exclude previously allocated corporate overhead costs.

 

    Three Months
Ended
June 30, 2018 		 
Net revenue   $ 1,810,618  
Operating expense:        
Cost of services     414,812  
Sales and marketing     381,396  
General and administrative     107,182  
Depreciation and amortization     76,637  
Total operating expense     980,027  
Operating income     830,591  
Provision for income taxes     (46,131 )
Net income   $ 784,460  

 

9

 

The following table presents the discontinued operations of RateWatch in the June 30, 2018 Condensed Consolidated Statements of Cash Flows:

 

    Three Months Ended June 30, 2018  
Net cash provided by operating activities   $ 850,655  
Net cash used in investing activities     (26,443 )
Net increase in cash, cash equivalents and restricted cash   $ 824,212  

 

Sale of B2B Business

 

On February 14, 2019, TheStreet sold its B2B business to Euromoney Institutional Investor PLC for a cash payment totaling $87.3 million. As part of the sale, a portion of the proceeds amounting to $620 thousand was placed in escrow and the Company recognized approximately $3.3 million in deal related costs. The decision to sell the B2B business was part of the Board’s continuous review of strategic alternatives to enhance shareholder value.

 

Operating results for the B2B business have now been reclassified as discontinued operations for the period ended June 30, 2018.

 

The following table presents the discontinued operations of our B2B business in the Condensed Consolidated Statements of Operations.

 

   

Three Months Ended

June 30, 2018

 
Net revenue   $ 6,687,376  
Operating expense:        
Cost of services     2,022,426  
Sales and marketing     1,434,696  
General and administrative     645,880  
Depreciation and amortization     688,848  
Total operating expense     4,791,850  
Operating income     1,895,526  
Interest income     7,546  
Provision for income taxes     (105,697 )
Net income   $ 1,797,375  

 

The following table presents the discontinued operations of our B2B business in the Condensed Consolidated Statements of Cash Flows:

 

    Three Months
Ended
June 30, 2018 		 
Net cash provided by operating activities   $ 2,464,147  
Net cash used in investing activities     (89,613 )
Effect of foreign exchange rate changes on cash and cash equivalents     (224,247 )
Net increase in cash, cash equivalents and restricted cash   $ 2,150,287  

 

10

 

4. REVENUES

 

Adoption of ASC Topic 606, “Revenue from Contracts with Customers”

 

On January 1, 2018, we adopted Topic 606 using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under Topic 605.

 

Nature of our Services

 

Our current business consists of consumer subscription revenue primarily comprised of subscriptions that provide access to securities investment information and stock market commentary. The consumer business also generated advertising revenue which is comprised of fees charged for the placement of advertising and sponsorships, primarily within TheStreet.com website. Other revenue from the consumer business is primarily composed of events/conferences, information services and other miscellaneous revenue.

 

We provide subscription and advertising services on a global basis to a broad range of clients. Our principal source of revenue is derived from fees for subscription services sold on an annual or monthly basis. We measure revenue based upon the consideration specified in the client arrangement, and revenue is recognized when the performance obligations in the client arrangement are satisfied. A performance obligation is a promise in a contract to transfer a distinct service to the customer. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as the customer receives the benefit of the performance obligation. Clients typically receive the benefit of our services as they are performed. Under ASC 606, revenue is recognized when a customer obtains control of promised services in an amount that reflects the consideration we expect to receive in exchange for those services. To achieve this core principal, the Company applies the following five steps:

 

1) Identify the contract with a customer

 

A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights regarding the services to be transferred and identifies the payment terms related to these services, (ii) the contract has commercial substance and (iii) the Company determines that collection of substantially all consideration for services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company applies judgment in determining the customer’s ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or, in the case of a new customer, published credit and financial information pertaining to the customer.

 

2) Identify the performance obligations in the contract

 

Performance obligations promised in a contract are identified based on the services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the services is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised services, the Company must apply its judgment to determine whether promised services are capable of being distinct in the context of the contract. If these criteria are not met, the promised services are accounted for as a combined performance obligation.

 

3) Determine the transaction price

 

The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring services to the customer.

 

11

 

4) Allocate the transaction price to performance obligations in the contract

 

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. However, if a series of distinct services that are substantially the same qualifies as a single performance obligation in a contract with variable consideration, the Company must determine if the variable consideration is attributable to the entire contract or to a specific part of the contract. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct service that forms part of a single performance obligation. The Company determines standalone selling price based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price by taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations.

 

5) Recognize revenue when or as the Company satisfies a performance obligation

 

The Company satisfies performance obligations either over time or at a point in time. Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised service to a customer.

 

Substantially all of our revenue is recognized over time as the services are performed. For subscriptions, revenue is recognized ratably over the subscription period. For advertising, revenue is recognized as the advertisement is displayed, provided that collection of the resulting receivable is reasonably assured.

 

The following table presents our revenues disaggregated by revenue discipline.

 

    For the Three Months Ended
June 30, 		 
    2019     2018  
Subscription   $ 5,091,889     $ 4,844,201  
Advertising     1,483,978       1,560,771  
Other     347,403       496,672  
Total Revenue   $ 6,923,270     $ 6,901,644  

 

Deferred Revenue  

 

We record deferred revenues when cash payments are received in advance of our performance, primarily for subscription revenues.  

 

Practical Expedients and Exemptions

 

The Company did not apply any practical expedients during the adoption of ASC 606.

 

12

 

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

 

The Company’s cash and cash equivalents and restricted cash primarily consist of a checking account and money market funds. As of March 31, 2019, marketable securities consisted of two municipal auction rate securities (“ARS”) issued by the District of Columbia with a cost basis of approximately $1.9 million and a fair value of approximately $1.9 million. The ARS were sold at face value in June 2019. Except for the ARS, which matured in 2038, Company policy limits the maximum maturity for any investment to three years. The Company had accounted for its marketable securities in accordance with the provisions of ASC 320-10. The Company classified these securities as available for sale and the securities were reported at fair value. Any unrealized gains or losses were recorded as a component of accumulated other comprehensive (loss) income and excluded from net income as they were deemed temporary. Additionally, as of June 30, 2019 and March 31, 2019, the Company has a total of $500 thousand 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 the Company’s office space in New York City.

 

   

June 30,

2019

   

March 31,

2019

 
Cash and cash equivalents   $ 24,322,594     $ 117,991,200  
Marketable securities     —         1,850,000  
Restricted cash     500,000       500,000  
Total cash and cash equivalents, marketable securities and restricted cash   $ 24,822,594     $ 120,341,200  

 

On April 22, 2019, the Company paid a special cash distribution of approximately $94.4 million, or $17.70 per share ($1.77 per share prior to the 10-for-1 reverse stock split effected on April 26, 2019), to stockholders of record on April 15, 2019, contributing to the difference in cash and cash equivalents as of June 30, 2019 compared to March 31, 2019.

 

  6. 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:

 

  ● Level 1: Inputs are quoted market prices in active markets for identical assets or liabilities (these are observable market inputs).

 

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

 

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

 

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

 

    As of June 30, 2019  
Description:   Total     Level 1     Level 2     Level 3  
Cash and cash equivalents (1)   $ 24,322,594     $ 24,322,594     $ —     $ —  
Restricted cash (1)     500,000       500,000       —       —  
Total at fair value   $ 24,822,594     $ 24,822,594     $ —     $ —  

 

    As of March 31, 2019  
Description:   Total     Level 1     Level 2     Level 3  
Cash and cash equivalents (1)   $ 117,991,200     $ 117,991,200     $ —     $ —  
Restricted cash (1)     500,000       500,000       —       —  
Marketable securities (2)     1,850,000       —       —       1,850,000  
Total at fair value   $ 120,341,200     $ 118,491,200     $ —     $ 1,850,000  

 

  (1) Cash, cash equivalents and restricted cash, totaling approximately $24.8 million and $118.5 million as of June 30, 2019 and March 31, 2019, respectively, consist primarily of a checking account and money market funds for which we determine fair value through quoted market prices.

 

  (2) At March 31, 2019, marketable securities included two municipal ARS issued by the District of Columbia having a fair value totaling approximately $1.9 million.  Historically, the fair value of ARS investments approximated par value due to the frequent resets through the auction process.  The ARS were sold at face value in June 2019.

 

13

 

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 March 31, 2019   $ 1,850,000  
Sale of ARS     (1,850,000 )
Balance June 30, 2019   $ —  

 

7. STOCK-BASED COMPENSATION

 

We account for stock-based compensation in accordance with ASC 718-10, Share Based Payment Transactions (“ASC 718-10”). This requires that the cost resulting from all share-based payment transactions be recognized in the financial statements based upon estimated fair values.

 

With the sale of our B2B business, the Company’s Board of Directors accelerated the vesting of all outstanding stock options and restricted stock units as of the close of the sale, or February 14, 2019, under a change of control clause. As a result, there was no stock-based compensation expense during the three months ended June 30, 2019.

 

Stock-based compensation expense recognized in the Company’s Condensed Consolidated Statements of Operations for the three months ended June 30, 2018 includes compensation expense for all share-based payment awards based upon the estimated grant date fair value. The Company recognizes compensation expense for share-based payment awards on a straight-line basis over the requisite service period of the award. As stock-based compensation expense recognized in the period ended June 30, 2018 was based upon awards ultimately expected to vest, it was reduced for estimated forfeitures. The Company estimated forfeitures at the time of grant which are revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

 

The Company estimates the value of stock option awards on the date of grant using the Black-Scholes option-pricing model. This determination is affected by the Company’s stock price as well as assumptions regarding expected volatility, risk-free interest rate and expected dividends. Because option-pricing models require the use of subjective assumptions, changes in these assumptions can materially affect the fair value of the options. The assumptions presented in the table below represent the weighted-average value of the applicable assumption used to value stock option awards at their grant date. In determining the volatility assumption, the Company used a historical analysis of the volatility of the Company’s share price for the preceding period equal to the expected option lives. The expected option lives, which represent the period of time that options granted are expected to be outstanding, were estimated based upon the “simplified” method for “plain-vanilla” options. The risk-free interest rate assumption was based upon observed interest rates appropriate for the term of the Company’s stock option awards. The dividend yield assumption was based on the history and expectation of future dividend payouts. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service period. The Company’s estimate of pre-vesting forfeitures is primarily based on historical experience and is adjusted to reflect actual forfeitures as the options vest.

 

There were no options granted during the three months ended June 30, 2019. The weighted-average grant date fair value per share of stock option awards granted during the three months ended June 30, 2018 was $6.94 using the Black-Scholes model with the following weighted-average assumptions:

 

Expected option lives   4.0 years
Expected volatility     45.22 %
Risk-free interest rate     2.78 %
Expected dividend yield     0.00 %

 

The value of each restricted stock unit awarded is equal to the closing price per share of the Company’s Common Stock on the date of grant. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods. There were no restricted stock units awarded during the three months ended June 30, 2019. The weighted-average grant date fair value per share of restricted stock units granted during the three months ended June 30, 2018 was $18.00.

 

At the Company’s May 2018 Board of Directors meeting, the number of shares available for grant was increased by 520 thousand shares.

 

14

 

As of June 30, 2019, there remained approximately 344 thousand shares available for future awards under the Company’s 2007 Performance Incentive Plan (the “2007 Plan”). In connection with awards under both the 2007 Plan and awards issued outside of the 2007 Plan as inducement grants to new hires, the Company recorded no noncash compensation expense during the three months ended June 30, 2019 and $578 thousand of stock-based compensation for the three-month period ended June 30, 2018.

 

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

 

   

Shares
Underlying
Awards

  Weighted
Average
Exercise
Price 		  Aggregate
Intrinsic
Value ($000) 		  Weighted
Average
Remaining
Contractual
Life (In
Years)
Awards outstanding at March 31, 2019     210,398     $ 12.82                  
Options granted     —     $ —                  
Options exercised     (204,148 )   $ 12.56                  
Options forfeited     —     $ —                  
Options expired     (4,250 )   $ 22.00                  
Awards outstanding at June 30, 2019     2,000     $ 20.25     $ 8       1.32  
Awards outstanding, vested and expected to vest at June 30, 2019     2,000     $ 20.25     $ 8       1.32  
Awards exercisable at June 30, 2019     2,000     $ 20.25     $ 8       1.32  

 

During the three months ended June 30, 2019, there were no grants of restricted stock units made under the 2007 Plan, nor were there any unvested stock option or restricted stock option awards.

 

For the three months ended June 30, 2018, the total fair value of stock option awards vested was approximately $126 thousand. For the three months ended June 30, 2019 and 2018, the total intrinsic value of options exercised was approximately $2.2 million and $0, respectively (there were no options exercised during the three months ended June 30, 2018), yielding approximately $2.6 million of cash proceeds to the Company. For the three months ended June 30, 2019 and 2018, there were approximately 0 and 10,000 stock options granted. For the three months ended June 30, 2019 and 2018, there was approximately 0 and 202 thousand restricted stock units granted. For the three months ended June 30, 2019 and 2018, approximately 0 and 42 thousand shares were issued under restricted stock unit grants. For the three months ended June 30, 2019 and 2018, the total intrinsic value of restricted stock units that vested was approximately $0 and $75 thousand, respectively. As of June 30, 2019 and 2018, the total intrinsic value of awards outstanding was approximately $8 thousand and $10.2 million, respectively. As of June 30, 2019, there was no unrecognized stock-based compensation expense remaining to be recognized.

 

8. STOCKHOLDERS’ EQUITY

 

Treasury Stock

 

In November 2017, our Board of Directors approved a new share buyback program authorizing the repurchase of up to 500,000 shares of the Company’s Common Stock (the “Program”). Purchases may be made in the open market or in privately negotiated transactions, subject to management’s evaluation of the trading price of the security, market conditions and other factors. The Company may, among other things, utilize existing cash reserves and cash flows from operations to fund any purchases. The timing and amount of any purchases will be determined by the Company’s management based upon its evaluation. The Program does not obligate the Company to purchase any dollar amount or number of shares and may be extended, modified, suspended or discontinued at any time. During the three months ended June 30, 2019, the Company did not purchase any shares of Common Stock under the Program. Since the Program’s inception in November 2017, the Company has purchased a total of 111 shares of Common Stock at an aggregate cost of approximately $1,415, inclusive of commissions.

 

15

 

In addition, pursuant to the terms of the Company’s 2007 Plan and certain procedures approved by the Compensation Committee of the Board of Directors, in connection with the exercise of stock options by 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 the payment of the exercise price and/or the minimum amount of applicable withholding taxes then due. During the three months ended June 30, 2019, 97,868 shares were withheld in settlement of the exercise of stock options and vested restricted stock units. Through June 30, 2019, the Company withheld an aggregate of 504,021 shares which have been recorded as treasury stock. In addition, the Company received an aggregate of 21,161 shares in treasury stock resulting from prior acquisitions. These shares have also been recorded as treasury stock.

 

April 2019 Special Cash Distribution and Reverse Stock Split

 

On April 3, 2019, the Company announced that its Board of Directors had declared a special cash distribution in the amount of approximately $94.4 million, or $17.70 per share ($1.77 per share prior to the 10-for-1 reverse stock split effected on April 26, 2019), paid on April 22, 2019 to stockholders of record as of April 15, 2019 to distribute cash received from the sale of RateWatch, The Deal and BoardEx to the Company’s shareholders. In connection with the distribution, the Board of Directors also approved a 10-for-1 reverse stock split of the Company’s Common Stock effective prior to the opening of trading on April 26, 2019. Additionally, the Company changed its fiscal and tax year to a March 31 year-end. All share amounts and per share amounts within this Form 10-Q have been adjusted for the 10-for-1 reverse stock split.

 

Dividends

 

Beginning with the first quarter of 2016, the Company’s Board of Directors suspended the payment of a quarterly dividend.

 

9. LEGAL PROCEEDINGS

 

From time to time, the Company may be party to legal proceedings arising in the ordinary course of business or otherwise. Currently, there are no legal proceedings which are deemed material.

 

10. NET (LOSS) INCOME PER SHARE OF COMMON STOCK

 

Basic net (loss) income per share is computed using the weighted-average number of common shares outstanding during the period. Diluted net (loss) income per share is computed using the weighted-average number of common shares and potential common shares outstanding during the period, so long as the inclusion of potential common shares does not result in a lower net (loss) income per share. Potential common shares consist of vested restricted stock units (using the treasury stock method) and the incremental common shares issuable upon the exercise of stock options (using the treasury stock method). For the three months ended June 30, 2019, approximately 2 thousand vested stock options were excluded from the calculation, as their effect would result in a lower net loss per share.

 

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

 

    For the Three Months Ended
June 30, 		 
    2019     2018  
Basic and diluted net (loss) income per share:            
Numerator:            
Net (loss) income attributable to common stockholders   $ (3,256,026 )   $ 27,515,995  
Denominator:                
Weighted average basic shares outstanding     5,326,958       4,929,606  
Weighted average diluted shares outstanding     5,326,958       5,055,124  
                 
Net (loss) income per share:                
Basic net (loss) income attributable to common stockholders   $ (0.61 )   $ 5.58  
Diluted net (loss) income attributable to common stockholders   $ (0.61 )   $ 5.44  

 

16

 

11. INCOME TAXES

 

The income tax benefit from continuing operations for the three months ended June 30, 2019 was zero and reflects an effective tax rate (ETR) of 0.0% as compared to a benefit of approximately $1.1 million for the three months ended June 30, 2018, reflecting an ETR of approximately 32.9%.

 

The Company’s ETR for the three months ended June 30, 2019 is zero due to Management’s assessment that the Company does not have sufficient sources of future income to realize the current period loss. The Company’s ETR for the three months ended June 30, 2018 was primarily impacted by domestic losses, state taxes, the movement in the deferred tax liability related to the tax amortization of goodwill and the consideration of the gain from discontinued operations as a source of income which enables the Company to realize a benefit in continuing operations under the intraperiod allocation guidance. The Company’s ETR for the three months ended June 30, 2018 was also impacted by the Company recording certain adjustments to the beginning balance of the state deferred tax liability, which resulted in a $272 thousand discrete tax benefit.

 

At June 30, 2019, the Company has no uncertain tax positions or interest and penalties accrued.

 

12. 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 its cash, cash equivalents and restricted cash in federally insured financial institutions and performs periodic evaluations of the relative credit standing of these institutions. As of June 30, 2019 and March 31, 2019, the Company’s cash, cash equivalents and restricted cash primarily consisted of a checking account and money market funds.

 

For the three months ended June 30, 2019 and 2018, no individual client accounted for 10% or more of consolidated revenue. As of June 30, 2019, two clients accounted for more than 10% of gross accounts receivable balance. As of March 31, 2019, one client accounted for more than 10% of gross accounts receivable balance.

 

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

 

13. RESTRUCTURING AND OTHER CHARGES

 

During the three months ended June 30, 2019, the Company incurred restructuring costs totaling $30,610 related to severance payments.

 

14. LEASES

 

The Company has operating leases primarily consisting of office space with remaining lease terms of 1 to 2 years, subject to certain renewal options as applicable. Current leases include our office space in New York, and also amounts for other miscellaneous office equipment.

 

Leases with an initial term of twelve months or less are not recorded on the balance sheet, and the Company does not separate lease and non-lease components of contracts. There are no material residual guarantees associated with any of the Company’s leases, and there are no significant restrictions or covenants included in the Company’s lease agreements. Certain leases include variable payments related to common area maintenance and property taxes, which are billed by the landlord, as is customary with these types of charges for office space.

 

Our lease agreements generally do not provide an implicit borrowing rate. Therefore, the Company used a benchmark approach to derive an appropriate imputed discount rate. The Company benchmarked itself against other companies of similar credit ratings and comparable quality and derived an imputed rate, which was used in a portfolio approach to discount its real estate lease liabilities. We used the incremental borrowing rate on December 31, 2018 for all leases that commenced prior to that date.

 

17

 

There was no sublease rental income for the three months ended June 30, 2019 or March 31, 2019, the Company is not the lessor in any lease arrangement, and no related party transactions for lease arrangements have occurred.

 

Lease Costs

 

The table below presents certain information related to the lease costs for the Company’s operating leases for the three months ended June 30, 2019 and March 31, 2019:

 

Components of total lease cost:   Three Months
Ended
June 30, 2019 		    Three Months
Ended
March 31, 2019 		 
Operating lease expense   $ 221,979     $ 413,809  
Variable lease cost     39,701       80,147  
Total lease cost   $ 261,680     $ 493,956  

 

Lease Position as of June 30, 2019 and March 31, 2019

 

Right of use lease assets and lease liabilities for our operating leases were recorded in the Condensed Consolidated Balance Sheets as follows:

 

    As of
June 30, 2019 		    As of
March 31, 2019 		 
Assets                
Lease assets   $ 1,517,950     $ 2,228,691  
Impairment     —       (735,900 )
Total lease assets   $ 1,517,950     $ 1,492,791  
                 
Liabilities                
Current liabilities:                
Lease liability   $ 1,744,642     $ 1,732,332  
Noncurrent liabilities:                
Noncurrent lease liability     900,823       1,342,235  
Total lease liability   $ 2,645,465     $ 3,074,567  

 

Lease Terms and Discount Rate

 

The table below presents certain information related to the weighted average remaining lease term and the weighted average discount rate for the Company’s operating leases as of June 30, 2019:

 

Weighted average remaining lease term (in years) – operating leases   1.49 years
Weighted average discount rate – operating leases   5.5%

 

Cash Flows

 

The table below presents certain information related to the cash flows for the Company’s operating leases for the three months ended June 30, 2019 and March 31, 2019:

 

Cash paid for amounts included in the measurement of lease liabilities:   Three Months
Ended
June 30, 2019 		 
Operating cash flows for operating leases   $ 469,397  

 

18

 

Undiscounted Cash Flows

 

Future lease payments included in the measurement of lease liabilities on the Condensed Consolidated Balance Sheets as of June 30, 2019, for the following five fiscal years and thereafter were as follows:

 

    As of
June 30, 2019 		 
2019 - Remaining   $ 930,573  
2020     1,830,928  
Total future minimum lease payments     2,761,501  
Less effects of discounting     116,036  
Present value of future minimum lease payments   $ 2,645,465  

 

15. SEGMENT AND GEOGRAPHIC DATA

 

Segments

 

Following the sale of RateWatch in 2018 and our remaining B2B business, comprised of The Deal and BoardEx, in February 2019, we now report in one segment.

 

Geographic Data

 

During the three months ended June 30, 2019 and 2018, substantially all of the Company’s revenue was from customers in the United States and all of our long-lived assets are located in the United States.

 

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

 

The following discussion of our financial condition and results of operations should be read together with our interim consolidated financial statements contained elsewhere in this Quarterly Report on Form 10-Q and with information contained in our other filings, including the audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

 

This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” of this Quarterly Report on Form 10-Q and in other parts of this report.

 

Overview

 

TheStreet, Inc. is a leading financial news and information provider. Our content and products provide individual investors with actionable information from the worlds of finance and business. The Company’s flagship brand, TheStreet ( www.thestreet.com ) has produced unbiased business news and market analysis for individual investors for more than 20 years.

 

Our business is led by our namesake website, TheStreet.com , and includes free editorial content and houses our premium subscription products that target varying segments of the retail investing public. Since our inception in 1996, we have distinguished ourselves as a trusted and reliable source for financial news and information with journalistic excellence, an unbiased approach and interactive multimedia coverage of the financial markets, economy, industry trends, investment and financial planning.

 

Our business generates revenue primarily from premium subscription products, advertising and events.

 

Critical Accounting Estimates

 

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

 

  ● useful lives of intangible assets,
  ● useful lives of fixed assets,
  ● allowances for doubtful accounts,
  ● accrued expense estimates, and
  ● reserves for estimated tax assets and/or liabilities.

 

Under the provisions of ASC 350, goodwill and indefinite lived intangible assets are required to be tested for impairment on an annual basis and between annual tests whenever circumstances arise that indicate a possible impairment might exist. We perform our annual impairment tests as of October 1 each year and between annual tests whenever circumstances arise that indicate a possible impairment might exist. Impairment exists when the carrying amount of goodwill or indefinite lived intangible assets of a reporting unit exceed their implied enterprise value, resulting in an impairment charge for this excess.  During the year ended December 31, 2018, we recorded an impairment to our goodwill totaling approximately $15.1 million at October 1, and based upon certain impairment indicators, we recorded an additional impairment totaling approximately $6.4 million at December 31, 2018. Subsequent to these impairment charges and the sale of our B2B business, no goodwill is recorded by the Company as of June 30, 2019.

 

Additionally, we evaluate the remaining useful lives of intangible assets each year to determine whether events or circumstances continue to support their useful life.  There have been no changes in useful lives of intangible assets for each period presented.

 

20

 

A summary of our critical accounting policies and estimates can be found in our Form 10-K for the fiscal year ended December 31, 2018.

 

Contingencies

 

Accounting for contingencies, including those matters described in the Commitments and Contingencies section of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company’s Form 10-K for the fiscal year ended December 31, 2018, is highly subjective and requires the use of judgments and estimates in assessing their magnitude and likely outcome. In many cases, the outcomes of such matters will be determined by third parties, including governmental or judicial bodies. The provisions made in the consolidated financial statements, as well as the related disclosures, represent management’s best estimate of the then current status of such matters and their potential outcome based on a review of the facts and in consultation with outside legal counsel where deemed appropriate. The Company would record a material loss contingency in its consolidated financial statements if the loss is both probable of occurring and reasonably estimated. The Company regularly reviews contingencies and as new information becomes available may, in the future, adjust its associated liabilities.

 

Unless otherwise stated, the following results of operations reflect the Company’s continuing consumer business operations.

 

Results of Operations

 

Comparison of Three Months Ended June 30, 2019 and June 30, 2018

 

Revenue

 

    For the Three Months Ended June 30,        
Revenue:   2019     Percent
of Total
Revenue 		    2018     Percent
of Total
Revenue 		    Percent
Change 		 
Subscription   $ 5,091,889       74 %   $ 4,844,201       70 %     5 %
Advertising     1,483,978       21 %     1,560,771       23 %     -5 %
Other     347,403       5 %     496,672       7 %     -30 %
Net revenue   $ 6,923,270       100 %   $ 6,901,644       100 %     0 %

 

We derive revenue primarily from premium subscription products, advertising and events.

 

Subscription revenue increased by approximately $248 thousand, or 5%, in the three months ended June 30, 2019 as compared to the three months ended June 30, 2018. This increase was primarily due to a 4% increase in the weighted-average number of subscriptions combined with a 1% increase in the average revenue recognized per subscription.

 

Advertising revenue decreased by approximately $77 thousand, or 5%, in the three months ended June 30, 2019 as compared to the three months ended June 30, 2018. The decrease was the result of reduced page views generated by our websites.

 

Other revenue decreased by approximately $149 thousand, or 30%, in the three months ended June 30, 2019 as compared to the three months ended June 30, 2018. The decline is mainly due to two key clients not renewing content licensing arrangements and fewer events held during the current period.

 

21

 

Operating Expense

 

    For the Three Months Ended June 30,        
Operating expense:   2019     Percent of Total
Revenue 		    2018     Percent of Total
Revenue 		    Percent
Change 		 
Cost of services   $ 3,375,408       49 %   $ 3,722,976       54 %     -9 %
Sales and marketing     1,749,645       25 %     2,462,524       36 %     -29 %
General and administrative     2,469,343       36 %     3,505,077       51 %     -30 %
Depreciation and amortization     509,970       7 %     461,459       7 %     11 %
Transaction costs     1,729,072       25 %     —       N/A       N/A  
Restructuring and other charges     30,610       0 %     —       N/A       N/A  
Total operating expense   $ 9,864,048       142 %   $ 10,152,036       147 %     -3 %

 

Cost of services. Cost of services expense consists primarily of employee compensation related expenses and 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 $348 thousand, or 9%, in the three months ended June 30, 2019 as compared to the three months ended June 30, 2018. This decrease was primarily the result of lower employee compensation, computer services and supplies, hosting and internet access, editorial data services, revenue share and event costs, the aggregate of which decreased by approximately $661 thousand. These decreases were partially offset by higher consulting and outside contributor costs, the aggregate of which increased by approximately $344 thousand.

 

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

 

Sales and marketing expense decreased by approximately $713 thousand, or 29%, in the three months ended June 30, 2019 as compared to the three months ended June 30, 2018. The decrease was primarily the result of lower employee compensation, advertising and promotion, public/investor relations and advertisement serving costs, the aggregate of which decreased by approximately $707 thousand.

 

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

 

General and administrative expense decreased by approximately $1.0 million, or 30%, in the three months ended June 30, 2019 as compared to the three months ended June 30, 2018. The decrease was primarily the result of lower employee compensation, professional fees, occupancy, tax and employee travel and expense costs, the aggregate of which decreased by approximately $1.0 million.

 

Depreciation and amortization. Depreciation and amortization expense increased by approximately $49 thousand, or 11%, in the three months ended June 30, 2019 as compared to the three months ended June 30, 2018. The increase was primarily the result of increased amortization expense related to capitalized software and website development projects.

 

Transaction costs

 

Transaction costs totaling $1.7 million during the three months ended June 30, 2019 primarily related to the sale of our B2C business as well as our prior sale of The Deal and BoardEx, as well as legal costs incurred in the Company’s dividend distribution.

 

Restructuring and other charges

 

Restructuring and other charges totaling $31 thousand during the three months ended June 30, 2019 primarily related to severance payments.

 

22

 

Net interest income

 

    For the Three Months Ended
June 30, 		    Percent  
    2019     2018     Change  
Net interest income   $ 248,671     $ 22,485       1,006 %

 

Net interest income totaled approximately $249 thousand in the three months ended June 30, 2019, as compared to net interest income approximating $22 thousand in the three months ended June 30,2018. The increase was primarily the result of increased cash balances due to sales of our RateWatch and B2B businesses.

 

(Loss) income from discontinued operations

 

    For the Three Months Ended
June 30, 		    Percent  
    2019     2018     Change  
(Loss) income from discontinued operations   $ (563,919 )   $ 2,581,835       -122 %

 

Loss from discontinued operations totaled $564 thousand in the three months ended June 30, 2019, as compared to income totaling $2.6 million in the three months ended June 30, 2018. The amounts represent activity from our former subsidiaries, RateWatch, which was sold in June 2018, and The Deal and BoardEx, which were sold in February 2019.

 

Gain on sale of business, net of tax

 

    For the Three Months Ended
June 30, 		    Percent  
    2019     2018     Change  
Gain on sale of business, net of tax   $ —     $ 27,100,199       -100 %

 

Gain on sale of business totaled approximately $27.1 million in the three months ended June 30, 2018. This amount represents the gain on the sale of our former subsidiary RateWatch.

 

Benefit for income taxes

 

    For the Three Months Ended
June 30, 		    Percent  
    2019     2018     Change  
Benefit for income taxes   $ —     $ 1,061,868       -100 %

 

The income tax benefit from continuing operations for the three months ended June 30, 2019 was zero and reflects an effective tax rate (ETR) of 0.0% as compared to a benefit of approximately $1.1 million for the three months ended June 30, 2018, reflecting an ETR of approximately 32.9%. The Company’s ETR for the three months ended June 30, 2019 is zero due to Management’s assessment that the Company does not have sufficient sources of future income to realize the current period loss. The Company’s ETR for the three months ended June 30, 2018 was primarily impacted by domestic losses, state taxes, the movement in the deferred tax liability related to the tax amortization of goodwill and the consideration of the gain from discontinued operations as a source of income which enables the Company to realize a benefit in continuing operations under the intraperiod allocation guidance. The Company’s ETR for the three months ended June 30, 2018 was also impacted by the Company recording certain adjustments to the beginning balance of the state deferred tax liability, which resulted in a $272 thousand discrete tax benefit.

 

Net (loss) income attributable to common stockholders

 

Net loss attributable to common stockholders for the three months ended June 30, 2019 totaled approximately $3.3 million, or $0.61 per basic and diluted share, compared to net income attributable to common stockholders totaling approximately $27.5 million, or $ 5.58 per basic and $5.44 per diluted share, for the three months ended June 30, 2018.

 

23

 

Liquidity and Capital Resources

 

As of June 30, 2019, our current assets consisted primarily of cash and cash equivalents, accounts and other receivables and prepaid expenses, and our current liabilities consisted primarily of deferred revenue, accrued expenses, accounts payable, other current liabilities and lease liability. We do not hold inventory. As of June 30, 2019, our current assets were approximately $31.6 million, and our current liabilities were approximately $21.1 million.

 

With respect to many of our annual newsletter subscription products, we offer the ability to receive a refund during the first 30 days but none thereafter. We do not as a general matter offer refunds for advertising that has run.

 

We generally have invested in money market funds and other short-term, investment grade instruments that are highly liquid and of high quality, with the intent that such funds are available for sale for acquisition and operating purposes. Our cash, cash equivalents and restricted cash primarily consist of a checking account and money market funds. As of March 31, 2019, marketable securities consisted of two municipal auction rate securities (“ARS”) issued by the District of Columbia with a cost basis of approximately $1.9 million and a fair value of approximately $1.9 million. The ARS were sold at face value in June 2019. Our total cash-related position is as follows:

 

    June 30,
2019 		    March 31,
2019 		 
Cash and cash equivalents   $ 24,322,594     $ 117,991,200  
Marketable securities     —       1,850,000  
Restricted cash     500,000       500,000  
Total cash and cash equivalents, marketable securities and restricted cash   $ 24,822,594     $ 120,341,200  

 

On April 22, 2019, the Company paid a special cash distribution of approximately $94.4 million, or $17.70 per share ($1.77 per share prior to the 10-for-1 reverse stock split effected on April 26, 2019), to stockholders of record on April 15, 2019, contributing to the difference in cash and cash equivalents as of June 30, 2019 compared to March 31, 2019.

 

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

 

Net cash used in operating activities totaled approximately $1.2 million for the three months ended June 30, 2019, as compared to net cash provided by operating activities totaling approximately $3.3 million for the three months ended June 30, 2018. The decrease in net operating cash was primarily the result of the Company’s net loss, offset by the prior year gain on sale of business and other noncash items, as well as the change in the balances of accrued expenses, deferred revenue, accounts payable and lease liability, partially offset by the changes in other current liabilities, prepaid expenses and other current assets and accounts and other receivables.

 

Net cash provided by investing activities totaled approximately $1.6 million for the three months ended June 30, 2019, as compared to net cash provided by investing activities totaling approximately $27.4 million for the three months ended June 30, 2018. The decrease in net cash provided by investing activities was the result of the absence of the sale of our subsidiary, RateWatch, which occurred during the prior year period, partially offset by the sale of our auction rate securities and decreased capital expenditures.

 

Net cash used in financing activities totaled approximately $94.1 million for the three months ended June 30, 2019, as compared to net cash used in financing activities totaling approximately $956 thousand for the three months ended June 30, 2018. The increase in net cash used in financing activities was primarily the result of the payment of a dividend on our outstanding common stock combined with shares withheld on stock option and restricted stock unit vesting to pay for withholding taxes, partially offset by the proceeds from the exercise of stock options and the absence of a prior year payment of a deferred earn out on the acquisition of BoardEx.

 

We currently have a total of $500 thousand of cash that serves as collateral for an outstanding letter of credit, which cash is classified as restricted. The letter of credit serves as a security deposit for office space in New York City.

 

We believe that our current cash and cash equivalents will be sufficient to meet our anticipated cash needs for at least the next 12 months. We are committed to cash expenditures in an aggregate amount of approximately $4.5 million through June 30, 2020, primarily related to operating leases and minimum payments due under an employment agreement.

 

24

 

As of March 31, 2019, we had approximately $95.8 million of federal and state net operating loss carryforwards. 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 maintain a full valuation allowance until, or unless, we can sustain a level of profitability that demonstrates our ability to utilize these assets.

 

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

 

Sale of our B2C Business

 

In June 2019, we entered into a definitive merger agreement with TheMaven, Inc. by which a subsidiary of TheMaven will acquire the outstanding common shares of TheStreet for a cash payment totaling $16.5 million. The sale is expected to close during August 2019.

 

Off-Balance Sheet Arrangements

 

As of June 30, 2019, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K, that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

Treasury Stock

 

In November 2017, our Board of Directors approved a new share buyback program authorizing the repurchase of up to 500,000 shares of the Company’s common stock. The repurchases are being executed from time to time in the open market or in privately negotiated transactions, subject to management’s evaluation of the trading price of the security, market conditions and other factors. The Company may, among other things, utilize existing cash reserves and cash flows from operations to fund any repurchases. The timing and amount of any repurchases will be determined by the Company’s management based upon its evaluation of the trading price of the security, market conditions and other factors. The repurchase program does not obligate the Company to repurchase any dollar amount or number of shares and may be extended, modified, suspended or discontinued at any time. During the three months ended June 30, 2019 and 2018, the Company did not purchase any shares of Common Stock under the program.

 

In addition, pursuant to the terms of the Company’s 2007 Plan, and certain procedures approved by the Compensation Committee of the Board of Directors, in connection with the exercise of stock options by 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. During the three months ended June 30, 2019, 97,868 shares were withheld in settlement of the exercise of stock options and vested restricted stock units. Through June 30, 2019, the Company had withheld an aggregate of 504,021 shares which have been recorded as treasury stock. In addition, the Company received an aggregate of 21,161 shares in treasury stock resulting from prior acquisitions. These shares have also been recorded as treasury stock.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

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

 

Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents and restricted cash. We maintain all our cash, cash equivalents and restricted cash in federally insured 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.

 

25

 

Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2019. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of June 30, 2019, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

From time to time the Company may be party to legal proceedings arising in the ordinary course of business or otherwise. Currently, there are no legal proceedings which are deemed material.

 

Item 1A. Risk Factors.

 

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Form 10-K for the fiscal year ended December 31, 2018, as well as in our Definitive Proxy Statement which was filed July 15, 2019, which could materially affect our business, financial condition or future results.

 

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

 

In November 2017, our Board of Directors approved a share buyback program authorizing the repurchase of up to 500,000 shares of the Company’s common stock. The repurchases are being executed from time to time in the open market or in privately negotiated transactions, subject to management’s evaluation of the trading prices of the security, market conditions and other factors. The repurchase program does not obligate the Company to repurchase any dollar amount or number of shares and may be extended, modified, suspended or discontinued at any time.

 

There were no repurchases by the Company in the three months ended June 30, 2019.

 

Item 3. Defaults Upon Senior Securities.

 

Not applicable.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

Not applicable.

 

26

 

Item 6. Exhibits.

 

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

 

    Incorporated by Reference      
Exhibit
Number 		Description Form File No. Exhibit Filing Date Filed
Herewith

Furnished

 
                 
2.1 Agreement and Plan of Merger, dated as of June 11, 2019, by and among TheStreet, Inc., TheMaven, Inc. and TST Acquisition Co., Inc. 8-K 000-25779 2.1 6/12/2019      
2.2 Amendment No. 1 to Agreement and Plan of Merger, dated as of July 12, 2019, by and among TheStreet, Inc., TheMaven, Inc. and TST Acquisition Co., Inc.      

X    
10.1 Escrow Agreement, dated as of June 11, 2019, by and among TheStreet, Inc., TheMaven, Inc. and Citibank, N.A. 8-K 000-25779 2.1 6/12/2019      
10.2 Employment side letter dated as of June 10, 2019 by and between TheStreet, Inc. and Eric Lundburg         X    
10.3 Employment side letter dated as of June 10, 2019 by and between TheStreet, Inc. and Margaret de Luna         X    
31.1 Rule 13a – 14(a) certification of CEO/CFO         X    
                 
32.1 Section 1350 certification of CEO/CFO         X  
                 
101.INS XBRL Instance Document         X    
                 
101.SCH XBRL Taxonomy Extension Schema Document         X    
                 
101.CAL XBRL Taxonomy Extension Calculation Document         X    
                 
101.DEF XBRL Taxonomy Extension Definitions Document         X    
                 
101.LAB XBRL Taxonomy Extension Labels Document         X    
                 
101.PRE XBRL Taxonomy Extension Presentation Document         X    
                 

 

27

 

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: August 6, 2019 By: /s/ Eric F. Lundberg  
    Name:  Eric F. Lundberg  
    Title: Chief Executive Officer and Chief Financial Officer
(principal executive and financial officer) 		 

 

28

 

EXHIBIT INDEX

 

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

 

    Incorporated by Reference    

Exhibit

Number

Description Form File No. Exhibit Filing Date Filed
Herewith

Furnished

               
2.1 Agreement and Plan of Merger, dated as of June 11, 2019, by and among TheStreet, Inc., TheMaven, Inc. and TST Acquisition Co., Inc. 8-K 000-25779 2.1 6/12/2019    
2.2 Amendment No. 1 to Agreement and Plan of Merger, dated as of July 12, 2019, by and among The street, Inc., TheMaven, Inc. and TST Acquisition Co., Inc.        

X

 

 
10.1 Escrow Agreement, dated as of June 11, 2019, by and among TheStreet, Inc., TheMaven, Inc. and Citibank, N.A. 8-K 000-25779 2.1 6/12/2019    
10.2 Employment side letter dated as of June 10, 2019 by and between TheStreet, Inc. and Eric Lundburg         X    
10.3 Employment side letter dated as of June 10, 2019 by and between TheStreet, Inc. and Margaret de Luna         X    
31.1 Rule 13a – 14(a) certification of CEO/CFO         X  
               
32.1 Section 1350 certification of CEO/CFO         X
               
101.INS XBRL Instance Document         X  
               
101.SCH XBRL Taxonomy Extension Schema Document         X  
               
101.CAL XBRL Taxonomy Extension Calculation Document         X  
               
101.DEF XBRL Taxonomy Extension Definitions Document         X  
               
101.LAB XBRL Taxonomy Extension Labels Document         X  
               
101.PRE XBRL Taxonomy Extension Presentation Document         X  
               

 

29

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