Unassociated Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2008


Commission File Number 000-25779

THESTREET.COM, INC.
(Exact name of Registrant as specified in its charter)

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

14 Wall Street
New York, New York 10005
(Address of principal executive offices, including zip code)

(212) 321-5000
(Registrant's telephone number, including area code)

 
Indicate by a check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
 
 
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 

Large accelerated filer ྑ Accelerated filer x Non-accelerated filer ྑ Smaller reporting company o
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

   
(Number of Shares Outstanding
(Title of Class)
  
as of November 5, 2008)
Common Stock, par value $0.01 per share
  
30,482,949
 
 
TheStreet.com, Inc.
Form 10-Q

For the Three Months Ended September 30, 2008

Part I - FINANCIAL INFORMATION
1
Item 1.
Interim Consolidated Financial Statements
1
 
Consolidated Balance Sheets
1
 
Consolidated Statements of Operations
2
 
Consolidated Statements of Cash Flows
3
 
Notes to Consolidated Financial Statements
4
Item 2.
Management’s Discussion and Analysis of Financial Condition
  
 
and Results of Operations
17
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
35
Item 4.
Controls and Procedures
35
     
PART II - OTHER INFORMATION
36
Item 1.
Legal Proceedings
36
Item 1A.
Risk Factors
37
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
38
Item 3.
Defaults Upon Senior Securities
38
Item 4.
Submission of Matters to a Vote of Security Holders
39
Item 5.
Other Information
39
Item 6.
Exhibits
40
SIGNATURES
42
 
ii

Part I - FINANCIAL INFORMATION

Item 1.  Interim Consolidated Financial Statements.

THESTREET.COM, INC.
CONSOLIDATED BALANCE SHEETS


   
September 30, 2008
  
December 31, 2007
  
ASSETS
  
(unaudited)
  
(Note 1)
  
Current Assets:
              
Cash and cash equivalents
  
$
52,886,994
  
$
79,170,754
  
Marketable securities
    
24,671,292
    
-
  
Accounts receivable, net of allowance for doubtful accounts of $649,279 as of September 30, 2008 and $242,807 as of December 31, 2007
    
12,466,670
    
11,133,957
 
Other receivables
    
1,092,588
    
1,227,144
 
Deferred taxes
    
5,800,000
    
5,800,000
  
Prepaid expenses and other current assets
    
1,861,873
    
1,652,608
 
Total current assets
    
98,779,417
    
98,984,463
 
               
Property and equipment, net of accumulated depreciation and amortization of $19,801,825 as of September 30, 2008 and $17,493,847 as of December 31, 2007
    
9,733,913
    
7,730,922
 
Marketable securities
    
1,917,942
    
-
  
Long term investment
    
1,392,976
    
-
  
Other assets
    
206,110
    
328,117
 
Goodwill
    
40,001,665
    
40,245,413
 
Other intangibles, net
    
16,645,526
    
18,368,792
 
Deferred taxes
    
10,200,000
    
10,200,000
  
Restricted cash
    
618,660
    
576,951
 
Total assets
  
$
179,496,209
  
$
176,434,658
  
               
LIABILITIES AND STOCKHOLDERS' EQUITY
              
Current Liabilities:
              
Accounts payable
  
$
3,371,859
  
$
2,189,259
  
Accrued expenses
    
3,050,873
    
5,006,635
 
Deferred revenue
   
16,068,563
    
16,240,008
 
Other current liabilities
    
376,424
    
214,654
 
Current liabilities of discontinued operations
    
227,003
    
232,242
 
Total current liabilities
    
23,094,722
    
23,882,798
 
Other liabilities
    
90,473
    
90,105
 
Total liabilities
    
23,185,195
    
23,972,903
 
               
Stockholders' Equity:
              
Series B preferred stock; $0.01 par value; 10,000,000 shares authorized; 5,500 shares issued and 5,500 shares outstanding as of September 30, 2008 and December 31, 2007; the aggregate liquidation preference totals $55,000,000 as of September 30, 2008 and $55,096,424 as of December 31, 2007
    
55
   
55
 
Common stock; $0.01 par value; 100,000,000 shares authorized; 36,262,546 shares issued and 30,482,949 shares outstanding as of September 30, 2008, and 36,006,137 shares issued and 30,254,137 shares outstanding as of December 31, 2007
    
362,625
    
360,061
 
Additional paid-in capital
    
271,244,914
    
270,752,308
 
Treasury stock at cost; 5,779,597 shares as of September 30, 2008 and 5,752,000 shares as of December 31, 2007
    
(9,359,200
)
  
(9,033,471
)
Accumulated deficit
   
(105,937,380)
    
(109,617,198)
  
Total stockholders' equity
       156,311,014       152,461,755  
Total liabilities and stockholders' equity
  
$
179,496,209
  
$
176,434,658
  
               

The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements
 
1

THESTREET.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

   
For the Three Months Ended
September 30,
  
For the Nine Months Ended
September 30,
  
   
2008
  
2007
  
2008
  
2007
  
   
(unaudited)
  
(unaudited)
  
Net revenue:
                          
Paid services
  
$
10,244,212
  
$
9,188,329
  
$
31,293,620
  
$
28,031,229
  
Marketing services
    
6,478,367
    
6,930,030
    
24,065,875
    
17,493,982
  
Total net revenue
    
16,722,579
    
16,118,359
    
55,359,495
    
45,525,211
  
                           
Operating expense:
                          
Cost of services
    
8,405,002
    
6,509,157
    
24,427,285
    
17,780,664
  
Sales and marketing
    
3,550,363
    
2,619,286
    
10,944,352
    
9,004,490
  
General and administrative
    
4,589,851
    
3,064,728
    
13,024,218
    
8,537,882
  
Depreciation and amortization
    
1,481,670
    
654,397
    
4,330,054
    
1,469,539
  
Total operating expense
    
18,026,886
    
12,847,568
    
52,725,909
    
36,792,575
  
Operating (loss) income
    
(1,304,307
)
  
3,270,791
    
2,633,586
    
8,732,636
  
Net interest income
    
345,675
    
571,121
    
1,432,112
    
1,796,820
  
(Loss) income from continuing operations before income taxes
    
(958,632
)
  
3,841,912
    
4,065,698
    
10,529,456
  
(Provision) benefit for income taxes
    
(106,364
)
  
15,923,174
    
(377,985
)
  
15,789,445
  
(Loss) income from continuing operations
    
(1,064,996
)
  
19,765,086
    
3,687,713
    
26,318,901
  
Discontinued operations:
                          
Loss on disposal of discontinued operations
    
(3,079
)
  
(569
)
  
(7,895
)
  
(1,692
)
Loss from discontinued operations
    
(3,079
)
  
(569
)
  
(7,895
)
  
(1,692
)
Net (loss) income
    
(1,068,075
)
  
19,764,517
    
3,679,818
    
26,317,209
  
Preferred stock cash dividends
    
96,424
    
-
    
289,272
    
-
  
Net (loss) income attributable to common stockholders
  
$
(1,164,499
)
$
19,764,517
  
$
3,390,546
  
$
26,317,209
  
                           
Basic net (loss) income per share
                          
(Loss) income from continuing operations
  
$
(0.04
)
$
0.68
  
$
0.12
  
$
0.92
  
Loss on disposal of discontinued operations
    
(0.00
)
  
(0.00
)
  
(0.00
)
  
(0.00
)
Net (loss) income
   
(0.04
)
  
0.68
    
0.12
    
0.92
  
Preferred stock cash dividends
    
(0.00
)
  
-
    
(0.01
)
  
-
  
Net (loss) income attributable to common stockholders
  
$
(0.04
)
$
0.68
  
$
0.11
  
$
0.92
  
                           
Diluted net (loss) income per share
                          
(Loss) income from continuing operations
  
$
(0.04
)
$
0.67
  
$
0.11
  
$
0.91
  
Loss on disposal of discontinued operations
    
(0.00
)
  
(0.00
)
  
(0.00
)
  
(0.00
)
Net (loss) income
   
(0.04
)
  
0.67
    
0.11
    
0.91
  
Preferred stock cash dividends
    
(0.00
)
  
-
    
-
    
-
  
Net (loss) income attributable to common stockholders
  
$
(0.04
)
$
0.67
  
$
0.11
  
$
0.91
  
                           
Weighted average basic shares outstanding
    
30,482,949
    
29,085,700
    
30,442,955
    
28,488,315
  
Weighted average diluted shares outstanding
    
30,482,949
    
29,544,323
    
34,713,061
    
28,936,043
  

The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements
 
2

CONSOLIDATED STATEMENTS OF CASH FLOWS
         

   
For the Nine Months Ended
September 30,
  
   
2008
  
2007
  
   
(unaudited)
  
Cash Flows from Operating Activities:
              
Net income
  
$
3,679,818
  
$
26,317,209
  
Loss from discontinued operations
    
7,895
    
1,692
  
Income from continuing operations
    
3,687,713
    
26,318,901
  
Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
              
Stock-based compensation expense
    
2,639,208
    
1,608,479
  
Provision for doubtful accounts
    
410,000
    
-
  
Depreciation and amortization
    
4,330,054
    
1,469,539
  
Deferred tax benefit
    
-
    
(16,000,000
)
Deferred rent
    
146,470
    
29,840
  
Changes in operating assets and liabilities:
              
Accounts receivable
   
(1,742,713
)
  
(458,397
)
Other receivables
    
134,556
    
(229,680
)
Prepaid expenses and other current assets
    
(157,942
)
  
(331,463
)
Other assets
    
63,883
    
(68,333
)
Accounts payable
    
1,182,600
    
(452,662
)
Accrued expenses
    
(1,859,338
)
  
(2,221,257
)
Deferred revenue
    
(171,445
)
  
(486,590
)
Other current liabilities
   
161,770
    
22,513
  
Other liabilities
    
(50,681
)
  
(2,583
)
Net cash provided by continuing operations
    
8,774,135
    
9,198,307
  
Net cash used in discontinued operations
    
(13,134
)
  
(1,123
)
Net cash provided by operating activities
    
8,761,001
    
9,197,184
  
               
Cash Flows from Investing Activities:
              
Purchase of short-term marketable security
    
(24,671,292
)
  
-
  
Purchase of long-term marketable security
    
(1,917,942
)
  
-
  
Purchase of Bankers Financial Products Corporation
    
(86,252
)
  
-
  
Purchase of Corsis Technology Group II LLC
    
(20,000
)
  
(11,890,071
)
Purchase of Weiss Ratings
    
-
    
31,342
  
Purchase of Stockpickr.com
    
-
    
(1,572,106
)
Long term investment
    
(1,392,976
)
  
-
  
Capital expenditures
    
(4,376,552
)
  
(3,364,371
)
Proceeds from the sale of fixed assets
    
28,153
    
-
  
Net cash used in investing activities
    
(32,436,861
)
  
(16,795,206
)
               
Cash Flows from Financing Activities:
              
Proceeds from the exercise of stock options
    
588,874
    
2,010,563
  
Costs associated with the sale of preferred stock
    
(125,000
)
  
-
  
Cash dividends paid on common stock
    
(2,318,640
)
  
(2,169,176
)
Cash dividends paid on preferred stock
    
(385,696
)
  
-
  
Repayment of note payable
    
-
    
(22,146
)
Purchase of treasury stock
    
(325,729
)
  
-
  
Restricted cash
    
(41,709
)
  
-
  
Net cash used in financing activities
    
(2,607,900
)
  
(180,759
)
Net decrease in cash and cash equivalents
    
(26,283,760
)
  
(7,778,781
)
Cash and cash equivalents, beginning of period
    
79,170,754
    
46,055,232
  
Cash and cash equivalents, end of period
  
$
52,886,994
  
$
38,276,451
  
               
Supplemental disclosures of cash flow information:
              
Cash payments made for interest
  
$
31,399
  
$
29,399
  
Cash payments made for income taxes
  
$
544,241
  
$
267,210
  
 
The accompanying Notes to Consolidated Financial Statements are an integral part of these financial statements

3

TheStreet.com, Inc.

Notes to Consolidated Financial Statements

1.
DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION

Business

TheStreet.com, Inc., together with its wholly owned subsidiaries (collectively, the “Company,” “our,” “we” or “us”), is a leading financial media company. We distribute our content through proprietary properties, including our network of Web sites, email services, mobile devices, podcasts and video programming. We also syndicate our content for distribution by other media companies and print publications. Our goal is to provide information and services that empower a growing audience of investors and consumers, through our expanding network of properties to become the leading online destination where issues and topics related to life and money intersect.

Basis of Presentation

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and for quarterly reports on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month and nine-month periods ended September 30, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008.

The consolidated balance sheet at December 31, 2007 has been derived from the audited financial statements at that date but does not include all of the information and notes required by U.S. generally accepted accounting principles for complete financial statements.

In June 2005, the Company committed to a plan to discontinue the operations of its wholly owned subsidiary, Independent Research Group LLC, which operated the Company’s securities research and brokerage segment. Accordingly, the operating results relating to this segment have been segregated from continuing operations and reported as a separate line item on the consolidated statements of operations and cash flows.

For further information, refer to the consolidated financial statements and accompanying notes included in the Company’s annual report on Form 10-K for the year ended December 31, 2007, filed with the Securities and Exchange Commission (“SEC”) on March 14, 2008.

Recent Accounting Pronouncements

In March 2008, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133” (“SFAS No. 161”). SFAS No. 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows.  The guidance in SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. This Statement encourages, but does not require, comparative disclosures for earlier periods at initial adoption.  Management has concluded that the implementation of SFAS No. 161 will have no impact on the Company’s consolidated financial statements.
 
4

In February, 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”). SFAS No. 159 provides companies with an option to report selected financial assets and liabilities at fair value. SFAS No. 159's objective is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. SFAS No. 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 requires companies to provide additional information that will help investors and other users of financial statements to more easily understand the effect of the company's choice to use fair value on its earnings. It also requires entities to display the fair value of those assets and liabilities for which the company has chosen to use fair value on the face of the balance sheet. SFAS No. 159 is effective as of the beginning of an entity's first fiscal year beginning after November 15, 2007. The implementation of SFAS No. 159 did not have a material effect on the Company’s consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”). This Statement defines fair value, establishes a framework for measuring fair value and expands disclosure of fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements and accordingly, does not require any new fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The implementation of SFAS No. 157 did not have a material effect on the Company’s consolidated financial statements.

In October 2008, The FASB issued FSP 157-3 “Determining Fair Value of a Financial Asset in a Market That is Not Active” (FSP 157-3). FSP 157-3 classified the application of SFAS No. 157 in an inactive market. It demonstrated how the fair value of a financial asset is determined when the market for that financial asset is inactive. FSP 157-3 was effective upon issuance, including prior periods for which financial statements had not been issued. The implementation of FSP 157-3 did not have a material effect on the Company’s consolidated financial statements.

Reclassifications

Certain prior period amounts have been reclassified to conform to current year presentation.

2.
MARKETABLE SECURITIES

Current asset
In accordance with SFAS 115 “Accounting for Certain Investments in Debt and Equity Securities”, the Company classifies each investment into one of three categories, with different accounting for each category. Securities which the Company has the intent and ability to hold to maturity are classified as held-to-maturity securities and recorded at amortized cost in current or noncurrent marketable securities, as appropriate. The effects of amortizing these securities are recorded in current earnings. Should the Company sell a security prior to maturity, any realized gains or losses would be recorded in income in the period of sale. The securities purchased by the Company, which are U.S. Treasury Bills, mature in less than one year, and are therefore classified as current on the Company’s Consolidated Balance Sheet as of September 30, 2008.
 
5

The following is a summary of the Company’s held-to-maturity securities at September 30, 2008:

       
Gross
      
   
Amortized
  
Unrealized
  
Fair
  
   
Cost
  
Loss
  
Value
  
Balance at January 1, 2008
  
$
-
  
$
-
  
$
-
  
U.S. Government Securities
    
24,671,292
   
73,042
   
24,598,250
 
Balance at September 30, 2008
  
$
24,671,292
  
$
73,042
  
$
24,598,250
  

Noncurrent asset
The Company holds investments in two municipal auction rate securities (“ARS”) issued by the District of Columbia with a par value of $1.9 million. These securities pay interest in accordance with their terms at each respective auction date, typically every 35 days, and mature in the year 2038. The Company has the ability to hold to maturity these securities and has determined that these securities are not impaired as of September 30, 2008.

3.
CAPITALIZED SOFTWARE AND WEB SITE DEVELOPMENT COSTS

The Company expenses all costs incurred in the preliminary project stage for software developed for internal use and capitalizes all external direct costs of materials and services consumed in developing or obtaining internal-use computer software in accordance with Statement of Position (“SOP”) 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use.” In addition, for employees who are directly associated with and who devote time to internal-use computer software projects, to the extent of the time spent directly on the project, the Company capitalizes payroll and payroll-related costs of such employees incurred once the development has reached the applications development stage. For the three- and nine-month periods ended September 30, 2008, the Company capitalized software development costs totaling $123,689 and $483,567, respectively, as compared to $63,589 and $287,827, respectively, for the three- and nine-month periods ended September 30, 2007. All costs incurred for upgrades, maintenance and enhancements that do not result in additional functionality are expensed.

In December 1999, the Company adopted Emerging Issues Task Force Abstract (“EITF”) Issue number 00-2, “Accounting for Web Site Development Costs.” EITF 00-2 provides guidance on the accounting for the costs of development of company Web sites, dividing the Web site development costs into five stages: (1) the planning stage, during which the business and/or project plan is formulated and functionalities, necessary hardware and technology are determined, (2) the Web site application and infrastructure development stage, which involves acquiring or developing hardware and software to operate the Web site, (3) the graphics development stage, during which the initial graphics and layout of each page are designed and coded, (4) the content development stage, during which the information to be presented on the Web site, which may be either textual or graphical in nature, is developed, and (5) the operating stage, during which training, administration, maintenance and other costs to operate the existing Web site are incurred. The costs incurred in the Web site application and infrastructure stage, the graphics development stage and the content development stage are capitalized; all other costs are expensed as incurred. Amortization of capitalized costs will not commence until the project is completed and placed into service. For the three- and nine-month periods ended September 30, 2008, the Company capitalized Web site development costs totaling $671,239 and $1,933,539, respectively, as compared to $512,578 and $1,572,857, respectively, for the three- and nine-month periods ended September 30, 2007.

Capitalized software and Web site development costs are amortized using the straight-line method over the estimated useful life of the software or Web site. Total amortization expense for the three- and nine-month periods ended September 30, 2008 was $230,791, and $621,655, respectively, as compared to $11,072 and $34,622, respectively, for the three- and nine-month periods ended September 30, 2007.
 
6

 
4.
ACQUISITIONS
 
Stockpickr LLC
 
On January 3, 2007, the Company formed a joint venture with A.R. Partners, a New York-based media holding company, to operate a Web site called Stockpickr - “The Stock Idea Network.” Stockpickr, located at www.stockpickr.com, allows its members to compare their portfolios to others in the network, scan portfolios for investment ideas and open a dialogue with like-minded investors in a secure environment. A.R. Partners owned 50.1% and the Company 49.9% of the venture. On April 25, 2007, the Company announced the acquisition of the remaining 50.1% stake in the Stockpickr.com business that it did not already own. The purchase price of the acquisition was $1.5 million in cash and 329,567 unregistered shares of the Company’s common stock, having a value on the closing date of approximately $3.5 million.

Corsis Technology Group II LLC (renamed Promotions.com LLC)
 
On August 2, 2007, the Company acquired, through a newly created subsidiary, 100% of the membership interests of Corsis Technology Group II LLC (“Corsis”), a leading provider of custom solutions for advertisers, marketers and content publishers. The acquisition of Corsis also included the Promotions.com business, which is a full-service online promotions agency that implements interactive promotions campaigns for some of the largest brands in the world. The purchase price of the acquisition was approximately $20.7 million. Subsequent to the acquisition, the entity was renamed Promotions.com LLC.
 
Bankers Financial Products Corporation
 
On November 2, 2007, the Company acquired, through a newly created subsidiary, all of the outstanding shares of Bankers Financial Products Corporation (“Bankers”). Bankers, using its trade name RateWatch, offers pricing information (such as certificates of deposit, IRAs, money market accounts, savings accounts, checking accounts, home mortgages, home equity loans, credit cards, and auto loans) to more than 5,500 financial institutions (including banks, credit unions, internet banks and mortgage companies). The purchase price of the acquisition was approximately $25.4 million.

Proforma Information for all Acquisitions
 
Unaudited pro forma consolidated financial information is presented below as if all of the acquisitions had occurred as of the first day of the period presented. The results have been adjusted to account for the amortization of acquired intangible assets. The pro forma information presented below does not purport to present what actual results would have been if the acquisitions had occurred at the beginning of such period, nor does the information project results for any future period. The unaudited pro forma consolidated financial information should be read in conjunction with the historical financial information of the Company included in this report, as well as the historical financial information included in other reports and documents filed with the Securities and Exchange Commission. The unaudited pro forma consolidated financial information for the three- and nine-month periods ended September 30, 2007 is as follows:

   
For the Three Months
Ended September 30, 2007
  
For the Nine Months
Ended September 30, 2007
  
Total revenue
  
$
18,550,583
  
$
56,741,529
  
Net income
  
$
19,641,663
  
$
26,031,751
  
Basic net income per share
  
$
0.66
  
$
0.89
  
Diluted net income per share
  
$
0.65
  
$
0.88
  
Weighted average basic shares outstanding
    
29,721,781
   
29,124,396
  
Weighted average diluted shares outstanding
    
30,180,404
   
29,572,124
 
 
7
 
5.
STOCK-BASED COMPENSATION

Under the terms of the Company’s 1998 Stock Incentive Plan, as amended (the “1998 Plan”), 8,900,000 shares of common stock of the Company were reserved for awards of incentive stock options, nonqualified stock options (incentive and nonqualified stock options are collectively referred to as “Options”), restricted stock, deferred stock (also referred to as restricted stock units, or RSUs), or any combination thereof. At the Company’s annual stockholders’ meeting in May 2007, stockholders of the Company approved TheStreet.com, Inc. 2007 Performance Incentive Plan (the “2007 Plan”). Under the terms of the 2007 Plan, 1,250,000 shares of common stock of the Company were reserved for awards of incentive stock options, nonqualified stock options, stock appreciation rights (SARs), restricted stock, restricted stock units (RSUs) or other stock-based awards. The plan also authorized cash performance awards. Additionally, under the terms of the 2007 Plan, unused shares authorized for award under the 1998 Plan are available for issuance under the 2007 Plan. No further awards will be made under the 1998 Plan. At the Company’s annual stockholders’ meeting in May 2008, stockholders of the Company approved an amendment to the 2007 Plan to increase the number of shares of common stock available for awards by 1,000,000, to a total of 2,250,000. Awards may be granted to such directors, employees and consultants of the Company as the Compensation Committee of the Board of Directors shall in its discretion select. Only employees of the Company are eligible to receive grants of equity incentives. Awards that have been granted under the 1998 Plan and the 2007 Plan generally vest over a three-year period (except the grant to Mr. Cramer pursuant to his Employment Agreement which vests over a five year period) and stock options generally have terms of five years. As of September 30, 2008, there remained 1,405,864 shares available for future awards under the 2007 Plan. In connection with awards under both the 1998 and 2007 Plans, the Company recorded $986,076 and $2,639,208 of non-cash compensation for the three- and nine-month periods ended September 30, 2008, respectively, as compared to $536,898 and $1,608,479, respectively, for the three- and nine-month periods ended September 30, 2007.

A stock option represents the right, once the option has vested and become exercisable, to purchase a share of the Company’s common stock at a particular exercise price set at the time of the grant. An RSU represents the right to receive one share of the Company’s common stock (or, if provided in the award, the fair market value of a share in cash) on the applicable vesting date for such RSU. Until the stock certificate for a share of common stock represented by an RSU is delivered, the holder of an RSU does not have any of the rights of a stockholder with respect to the common stock. The grant of an RSU includes the grant of dividend equivalents with respect to such RSU. The Company records cash dividends for RSUs to be paid in the future at an amount equal to the rate paid on a share of common stock for each then-outstanding RSU granted. The accumulated dividend equivalents related to outstanding grants vest on the applicable vesting date for the RSU with respect to which such dividend equivalents were credited, and are paid in cash at the time a stock certificate evidencing the shares represented by such vested RSU is delivered.

As of October 1, 2005, the Company elected early adoption of Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share Based Payment: An Amendment of FASB Statements 123 and 95.” This statement requires that the cost resulting from all share-based payment transactions be recognized in the financial statements based upon estimated fair values. SFAS No. 123(R) supersedes the Company’s previous accounting under Accounting Principles Board No. 25, “Accounting for Stock Issued to Employees” (“APB 25”). In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107 (“SAB 107”) relating to SFAS No. 123(R). The Company has applied the provisions of SAB 107 in its adoption of SFAS No. 123(R).

The Company adopted SFAS No. 123(R) using the modified prospective transition method. The accompanying consolidated statements of operations for the three- and nine-month periods ended September 30, 2008 and 2007 reflect the impact of SFAS No. 123(R). Stock-based compensation expense recognized under SFAS No. 123(R) for the three- and nine-month periods ended September 30, 2008 was $986,076 and $2,639,208, respectively, as compared to $536,898 and $1,608,479, respectively, for the three- and nine-month periods ended September 30, 2007. As of September 30, 2008, there was approximately $7.0 million of unrecognized stock-based compensation expense remaining to be recognized over a weighted-average period of 2.70 years.

SFAS No. 123(R) requires companies to estimate the fair value of share-based payment awards on the date of grant. The value of stock options granted to employees and directors is estimated using an option-pricing model. The value of each restricted stock unit under the 1998 Plan is equal to the closing price per share of the Company’s common stock on the trading day immediately prior to the date of grant. The value of each restricted stock unit under the 2007 Plan 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. Prior to the adoption of SFAS No. 123(R), the Company accounted for stock-based awards to employees and directors using the intrinsic value method in accordance with APB 25 as allowed under Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation.” Under the intrinsic value method, no stock-based compensation expense had been recognized, as the exercise price of the Company’s stock options granted to employees and directors equaled the fair market value of the underlying stock at the date of grant.
 
8
 
Stock-based compensation expense recognized in the Company’s Consolidated Statements of Operations for the three- and nine-month periods ended September 30, 2008 and 2007 includes compensation expense for all share-based payment awards granted prior to, but not yet vested as of January 1, 2006, based upon the grant date fair value estimated in accordance with the pro forma provision of SFAS No. 123, and compensation expense for the share-based payment awards granted subsequent to January 1, 2006, based upon the grant date fair value estimated in accordance with the provisions of SFAS No. 123(R). 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 three- and nine-month periods ended September 30, 2008 and 2007 is based upon awards ultimately expected to vest, it has been reduced for estimated forfeitures. SFAS No. 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

Upon adoption of SFAS No. 123(R), the Company continued its practice of estimating the value of employee stock options on the date of grant using the Black-Scholes option-pricing model. This determination is affected by the Company’s stock price as well as assumptions regarding expected volatility, risk-free interest rate, and expected dividends. The weighted-average fair value of employee stock options granted during the nine months ended September 30, 2008 and 2007 was $3.56 and $4.06, respectively, using the Black-Scholes model with the weighted-average assumptions presented below. Because option-pricing models require the use of subjective assumptions, changes in these assumptions can materially affect the fair value of the options. The assumptions presented below represent the weighted-average value of the applicable assumption used to value stock options 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 is based upon observed interest rates appropriate for the term of the Company’s employee stock options. The dividend yield assumption is based on the history and expectation of future dividend payouts. The periodic expense is determined based on the valuation of the options, and at that time an estimated forfeiture rate is used to reduce the expense recorded. The Company’s estimate of pre-vesting forfeitures is primarily based on the Company’s historical experience and is adjusted to reflect actual forfeitures as the options vest.

   
For the Nine Months Ended
 September 30,
  
   
2008
  
2007
  
Expected option lives
    
3.5 years
    
3.5 years
  
Expected volatility
    
47.57
%
  
46.67
%
Risk-free interest rate
    
2.37
%
  
4.64
%
Expected dividend yield
    
0.83
%
  
0.94
%

On November 10, 2005, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position No. 123(R)-3 “Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards.” The Company has elected to adopt the alternative transition method provided in the FASB Staff Position for calculating the tax effects of stock-based compensation pursuant to SFAS No. 123(R). The alternative transition method includes simplified methods to establish the beginning balance of the additional paid-in capital pool (“APIC pool”) related to the tax effects of employee stock-based compensation, and to determine the subsequent impact on the APIC pool and cash flows of the tax effects of employee stock-based compensation awards that are outstanding upon adoption of SFAS 123(R).
 
9
 
A summary of the activity of the 1998 and 2007 Stock Incentive Plans is as follows:

   
Shares
Underlying
Awards
  
Weighted
Average
Exercise
Price
  
Aggregate
Intrinsic
Value
($000)
  
Weighted
Average
Remaining
Contractual
Life (In
Years)
  
Awards outstanding at December 31, 2007
    
1,926,354
 
$
6.45
              
Options granted
    
399,478
  
$
11.24
              
Restricted stock units granted
    
148,261
  
$
0.00
              
Options exercised
    
(107,268
)
$
4.19
              
Shares issued under restricted stock units
    
(118,041
)
$
0.00
              
Options cancelled
    
(5,000
)
$
10.24
              
Restricted stock units forfeited
    
(13,335
)
$
0.00
              
Awards outstanding at March 31, 2008
    
2,230,449
  
$
7.36
              
Options granted
    
172,628
  
$
8.65
              
Restricted stock units granted
    
310,110
  
$
0.00
              
Options exercised
    
(31,100
)
$
4.48
              
Options cancelled
    
(46,835
)
$
10.42
              
Awards outstanding at June 30, 2008
    
2,635,252
  
$
6.56
              
Options cancelled
    
(65,367
)
$
9.18
              
Restricted stock units forfeited
    
(5,000
)
$
0.00
              
Awards outstanding at September 30, 2008
    
2,564,885
  
$
6.50
  
$
5,516
    
2.80
  
Awards vested and expected to vest at September 30, 2008
    
2,434,975
  
$
6.40
  
$
5,350
    
2.02
  
Options exercisable at September 30, 2008
    
1,016,664
  
$
6.21
  
$
2,005
    
1.50
  
Restricted stock units eligible to be issued at September 30, 2008
    
0
  
$
0.00
  
$
0
    
3.15
  

A summary of the status of the Company’s unvested share-based payment awards as of September 30, 2008 and changes in the nine-month period then ended, is as follows:

Unvested Awards
  
Number of
Shares
  
Weighted
Average Grant
Date Fair Value
  
Shares underlying awards unvested at December 31, 2007
    
1,203,127
 
$
4.66
  
Shares underlying options granted
    
572,106
 
$
3.56
  
Shares underlying restricted stock units granted
    
458,371
  
$
9.81
  
Shares underlying options vested
    
(444,671
)
$
3.08
  
Shares underlying restricted stock units vested
    
(118,041
)
$
8.59
  
Shares underlying options cancelled
    
(104,336
)
$
3.61
  
Shares underlying restricted stock units forfeited
    
(18,335
)
$
9.19
  
Shares underlying awards unvested at September 30, 2008
    
1,548,221
  
$
5.95
  

10
 
For the nine months ended September 30, 2008 and 2007, the total fair value of share-based awards vested was $2,382,064 and $1,819,444, respectively. For the nine months ended September 30, 2008 and 2007, the total intrinsic value of options exercised was $1,152,566 and $3,507,994, respectively.

6.
STOCKHOLDERS’ EQUITY

Preferred Stock

Securities Purchase Agreement

On November 15, 2007, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with TCV VI, L.P., a Delaware limited partnership, and TCV Member Fund, L.P., a Delaware limited partnership (the “Purchasers”).

Pursuant to the Purchase Agreement, the Company sold the Purchasers for aggregate consideration of $55 million 5,500 shares of its newly-created Series B Preferred Stock, par value $0.01 per share (“Series B Preferred Stock”), which are immediately convertible into an aggregate of 3,856,942 shares of the Company’s Common Stock, par value $0.01 per share (“Common Stock”) at a conversion price of $14.26 per share, and warrants (the “Warrants”) to purchase an aggregate of 1,157,083 shares of Common Stock for $15.69 per share.

The issuance of the Series B Preferred Stock and Warrants to the Purchasers was completed through a private placement to accredited investors and is exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”). The shares of the Series B Preferred Stock, the shares of the Common Stock issuable upon the conversion of the Series B Preferred Stock, the Warrants and the shares of the Common Stock issuable upon the exercise of the Warrants have not been registered under the Securities Act or any state securities laws.

Investor Rights Agreement

On November 15, 2007, the Company also entered into an Investor Rights Agreement with the Purchasers pursuant to which, among other things, the Company agreed to grant the Purchasers certain rights including the right to require the Company to file a registration statement within 30 days to register the Common Stock issuable upon conversion of the Series B Preferred Stock and upon exercise of the Warrants and to use its reasonable best efforts to cause the registration to be declared effective within 90 days after the date the registration statement is filed.

Certificate of Designation

On November 15, 2007, the Company also filed a Certificate of Designation for the Series B Preferred Stock (the “Certificate of Designation”) with the Secretary of State of the State of Delaware. The Certificate of Designation authorizes the Company to issue 5,500 of its 10,000,000 authorized shares of preferred stock as shares of Series B Preferred Stock.

The Series B Preferred Stock was purchased for $10,000 per share (the “Original Issue Price”). In the event of any Liquidation Event (as defined in the Certificate of Designation), the holders of Series B Preferred Stock are entitled to receive, prior to any distribution to the holders of Common Stock, an amount per share equal to the Original Issue Price, plus any declared and unpaid dividends.

The holders of Series B Preferred Stock have the right to vote on any matter submitted to a vote of the stockholders of the Company and are entitled to that number of votes equal to the aggregate number of shares of Common Stock issuable upon the conversion of such holders’ shares of Series B Preferred Stock. For so long as 40% of the shares of Series B Preferred Stock remain outstanding, the holders of a majority of such shares will have the right to elect one person to the Company’s board of directors.
 
11

The Series B Preferred Stock automatically converts into an aggregate of 3,856,942 shares of Common Stock in the event that the Common Stock trades on a trading market at or above a closing price equal to $28.52 per share for 90 consecutive trading days and any demand registration previously requested by the holders of the Series B Preferred Stock has become effective.

Warrants

As discussed above, the Warrants entitle the Purchasers to purchase an aggregate of 1,157,083 shares of Common Stock for $15.69 per share. The Warrants expire on the fifth anniversary of the date they were first issued, or earlier in certain circumstances.

Treasury Stock

In December 2000 the Company’s Board of Directors authorized the repurchase of up to $10 million worth of the Company’s common stock, from time to time, in private purchases or in the open market. In February 2004, the Company’s Board of Directors approved the resumption of the stock repurchase program under new price and volume parameters, leaving unchanged the maximum amount available for repurchase under the program. However, the affirmative vote of the holders of a majority of the outstanding shares of Series B Preferred Stock, voting separately as a single class, is necessary for the Company to repurchase its stock. During the nine-month periods ended September 30, 2008 and 2007, the Company did not purchase any shares of common stock under the program. Since inception of the program, the Company has purchased a total of 5,453,416 shares of common stock at an aggregate cost of $7,321,122. In addition, pursuant to the terms of the Company’s 1998 Stock Incentive Plan, as amended (the “1998 Plan”) and certain additional stock option exercise procedures adopted by the Compensation Committee of the Board of Directors, in connection with the exercise of stock options by certain of the Company’s executive officers in November 2005 and February 2006, and the issuance of restricted stock units in January 2008 to Company employees, the Company withheld 231,602, 66,982 and 27,597 shares, respectively, in lieu of payment of the exercise price and/or the minimum amount of applicable withholding taxes then due. These shares have been recorded as treasury stock.

Stock Options

Under the 1998 Plan, 8,900,000 shares of common stock of the Company were reserved for awards of incentive stock options, nonqualified stock options (incentive and nonqualified stock options are collectively referred to as “Options”), restricted stock, deferred stock (also referred to as restricted stock units, or RSUs), or any combination thereof. At the Company’s annual stockholders’ meeting in May 2007, stockholders of the Company approved TheStreet.com, Inc. 2007 Performance Incentive Plan (the “2007 Plan”). Under the terms of the 2007 Plan, 1,250,000 shares of common stock of the Company were reserved for awards of incentive stock options, nonqualified stock options, stock appreciation rights (SARs), restricted stock, restricted stock units (RSUs) or other stock-based awards. The plan also authorized cash performance awards. Additionally, under the terms of the 2007 Plan, unused shares authorized for award under the 1998 Plan are available for issuance under the 2007 Plan. No further awards will be made under the 1998 Plan. At the Company’s annual stockholders’ meeting in May 2008, stockholders of the Company approved an amendment to the 2007 Plan to increase the number of shares of common stock available for awards by 1,000,000, to a total of 2,250,000. Awards may be granted to such directors, employees and consultants of the Company as the Compensation Committee of the Board of Directors shall in its discretion select. Only employees of the Company are eligible to receive grants of equity incentives. Awards that have been granted under the 1998 Plan and the 2007 Plan generally vest over a three-year period (except the grant to Mr. Cramer pursuant to his Employment Agreement which vests over a five year period) and stock options generally have terms of five years. As of September 30, 2008, there remained 1,405,864 shares available for future awards under the 2007 Plan. In connection with awards under both the 1998 and 2007 Plans, the Company recorded $986,076 and $2,639,208 of non-cash compensation for the three- and nine-month periods ended September 30, 2008, respectively, as compared to $536,898 and $1,608,479, respectively, for the three- and nine-month periods ended September 30, 2007.
 
12

For the three- and nine-month periods ended September 30, 2008, zero and 572,106 options, respectively, and zero and 458,371 restricted stock units, respectively, were granted to employees of the Company. For the three- and nine-month periods ended September 30, 2007, 180,000 and 492,500 options, respectively, and zero and 247,210 restricted stock units, respectively, were granted to employees of the Company. Additionally, for the three- and nine-month periods ended September 30, 2008, zero and 138,368 stock options, respectively, were exercised, and zero and 118,041 shares were issued under restricted stock unit grants, respectively, yielding approximately zero dollars and $0.6 million, respectively, to the Company. For the three- and nine-month periods ended September 30, 2007, 132,032 and 513,365 stock options, respectively, were exercised, and zero and 46,996 shares were issued under restricted stock unit grants, respectively, yielding approximately $0.6 million and $2.0 million, respectively, to the Company.

Issuance of Common Stock for Acquisitions

On April 25, 2007, the Company announced the acquisition of the remaining 50.1% stake in Stockpickr LLC that it did not already own (See Note 4 to the Consolidated Financial Statements). In connection with this acquisition, the Company issued 329,567 unregistered shares of the Company’s common stock.

On August 2, 2007, the Company announced the acquisition of Corsis Technology Group II LLC (renamed Promotions.com LLC) (See Note 4 to the Consolidated Financial Statements). In connection with this acquisition, the Company issued 694,230 unregistered shares of the Company’s common stock.

On November 2, 2007, the Company announced the acquisition of Bankers Financial Products Corporation (See Note 4 to the Consolidated Financial Statements). In connection with this acquisition, the Company issued 636,081 unregistered shares of the Company’s common stock.

Dividends

On September 30, 2008, the Company paid its quarterly cash dividend of $0.025 per share on its common stock and its convertible preferred stock on a converted common share basis, to stockholders of record at the close of business on September 15, 2008. These dividends totaled approximately $0.9 million.
 
7.
LEGAL PROCEEDINGS
 
In December 2001, the Company was named as a defendant in a securities class action filed in the United States District Court for the Southern District of New York related to its initial public offering (“IPO”) in May 1999. The lawsuit also named as individual defendants certain of its former officers and directors, James J. Cramer, the Chairman of the Board of the Company, and certain of the underwriters of the IPO, including The Goldman Sachs Group, Inc., Hambrecht & Quist LLC (now part of JP Morgan Chase & Co.), Thomas Weisel Partners LLC, Robertson Stephens Inc. (an investment banking subsidiary of BankBoston Corp., later FleetBoston Corp., which ceased operations in 2002), and Merrill Lynch Pierce Fenner & Smith, Inc. Approximately 300 other issuers and their underwriters have had similar suits filed against them, all of which are included in a single coordinated proceeding in the district court (the “IPO Litigations”). The complaints allege that the prospectus and the registration statement for the IPO failed to disclose that the underwriters allegedly solicited and received “excessive” commissions from investors and that some investors in the IPO allegedly agreed with the underwriters to buy additional shares in the aftermarket in order to inflate the price of the Company’s stock. An amended complaint was filed April 19, 2002. The Company and the officers and directors were named in the suits pursuant to Section 11 of the Securities Act of 1933, Section 10(b) of the Exchange Act of 1934, and other related provisions. The complaints seek unspecified damages, attorney and expert fees, and other unspecified litigation costs.
 
13

On July 1, 2002, the underwriter defendants in the consolidated actions moved to dismiss all of the IPO Litigations, including the action involving the Company. On July 15, 2002, the Company, along with other non-underwriter defendants in the coordinated cases, also moved to dismiss the litigation. On February 19, 2003, the district court ruled on the motions. The district court granted the Company’s motion to dismiss the claims against it under Rule 10b-5, due to the insufficiency of the allegations against the Company. The motions to dismiss the claims under Section 11 of the Securities Act were denied as to virtually all of the defendants in the consolidated cases, including the Company. In addition, some of the individual defendants in the IPO Litigations, including Mr. Cramer, signed a tolling agreement and were dismissed from the action without prejudice on October 9, 2002.

In June 2003, a proposed collective partial settlement of this litigation was structured between the plaintiffs, the issuer defendants in the consolidated actions, the issuer officers and directors named as defendants, and the issuers’ insurance companies. On or about June 25, 2003, a committee of the Company’s Board of Directors conditionally approved the proposed settlement. In June 2004, an agreement of partial settlement was submitted to the court for preliminary approval. The court granted the preliminary approval motion on February 15, 2005, subject to certain modifications. On August 31, 2005, the court issued a preliminary order further approving the modifications to the settlement and certifying the settlement classes. The court also appointed the notice administrator for the settlement and ordered that notice of the settlement be distributed to all settlement class members by January 15, 2006. The settlement fairness hearing occurred on April 24, 2006, and the court reserved decision at that time.

While the partial settlement was pending approval, the plaintiffs continued to litigate against the underwriter defendants. The district court directed that the litigation proceed within a number of “focus cases” rather than in all of the 310 cases that have been consolidated. The Company’s case is not one of these focus cases. On October 13, 2004, the district court certified the focus cases as class actions. The underwriter defendants appealed that ruling, and on December 5, 2006, the Court of Appeals for the Second Circuit reversed the district court’s class certification decision. On April 6, 2007, the Second Circuit denied plaintiffs’ petition for rehearing. In light of the Second Circuit opinion, counsel to the issuers informed the district court that the settlement with the plaintiffs could not be approved because the defined settlement class, like the litigation class, could not be certified. The settlement was terminated pursuant to a Stipulation and Order dated June 25, 2007.

On August 14, 2007, plaintiffs filed their second consolidated amended class action complaints against the focus cases and, on September 27, 2007, again moved for class certification. On November 12, 2007, certain of the defendants in the focus cases moved to dismiss plaintiffs’ second amended consolidated class action complaints. On March 26, 2008, the district court denied the motions to dismiss except as to Section 11 claims raised by those plaintiffs who sold their securities for a price in excess of the initial offering price and those who purchased outside of the previously certified class period. Briefing on the class certification motion was completed in May 2008. That motion was withdrawn without prejudice on October 10, 2008.

We are presently defending the action vigorously. Any unfavorable outcome of this litigation could have an adverse impact on the Company’s business, financial condition, results of operations, and cash flows.
 
8.
NET INCOME (LOSS) PER SHARE OF COMMON STOCK

Basic net income per share is computed using the weighted average number of common shares outstanding during the period. Diluted net income per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of restricted stock units (using the treasury stock method), the incremental common shares issuable upon the exercise of stock options (using the treasury stock method), and the conversion of the Company’s convertible preferred stock and warrants (using the if-converted method). For the three month period ended September 30, 2008, no potential common shares were included in the calculation, as the result was anti-dilutive. For the three months ended September 30, 2007, approximately 0.4 million options and warrants to purchase common stock were excluded from the calculation, as the exercise prices were greater than the average market price of the common stock during the respective periods. For the nine month periods ended September 30, 2008 and 2007, approximately 2.4 million and 0.4 million options and warrants to purchase common stock, respectively, were excluded from the calculation, as the exercise prices were greater than the average market price of the common stock during the respective periods.
 
14

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

   
For the Three Months Ended
September 30,
  
For the Nine Months Ended
September 30,
  
   
2008
  
2007
  
2008
  
2007
  
Basic net (loss) income per share
                          
Numerator:
                          
(Loss) income from continuing operations
  
$
(1,064,996
)
$
19,765,086
  
$
3,687,713
  
$
26,318,901
  
Loss on disposal of discontinued operations
    
(3,079
)
  
(569
)
  
(7,895
)
  
(1,692
)
Preferred stock cash dividends
    
(96,424
)
  
-
   
(289,272
)
  
-
 
Numerator for basic earnings per share -
                          
Net (loss) income available to common stockholders
  
$
(1,164,499
)
$
19,764,517
  
$
3,390,546
  
$
26,317,209
  
                           
Denominator:
                          
Weighted average basic shares outstanding
    
30,482,949
   
29,085,700
   
30,442,955
   
28,488,315
 
                           
Net (loss) income per basic share:
                          
(Loss) income from continuing operations
  
$
(0.04
)
$
0.68
  
$
0.12
  
$
0.92
  
Loss on disposal of discontinued operations
    
(0.00
)
  
(0.00
)
  
(0.00
)
  
(0.00
)
Preferred stock cash dividends
    
(0.00
)
  
-
   
(0.01
)
  
-
 
Net (loss) income available to common stockholders
  
$
(0.04
)
$
0.68
  
$
0.11
  
$
0.92
  
                           
Dilutive net (loss) income per share
                          
Numerator:
                          
(Loss) income from continuing operations
  
$
(1,064,996
)
$
19,765,086
  
$
3,687,713
  
$
26,318,901
  
Loss on disposal of discontinued operations
    
(3,079
)
  
(569
)
  
(7,895
)
  
(1,692
)
Preferred stock cash dividends
    
(96,424
)
  
-
   
-
   
-
 
Numerator for diluted earnings per share -
                          
Net (loss) income available to common stockholders
  
$
(1,164,499
)
$
19,764,517
  
$
3,679,818
  
$
26,317,209
  
                           
Denominator:
                          
Weighted average basic shares outstanding
    
30,482,949
   
29,085,700
   
30,442,955
   
28,488,315
 
Weighted average effect of dilutive securities:
                          
Employee stock options and restricted stock units
    
-
   
458,623
   
413,164
   
447,728
 
Convertible preferred stock
    
-
   
-
   
3,856,942
   
-
 
Weighted average diluted shares outstanding
    
30,482,949
   
29,544,323
   
34,713,061
   
28,936,043
 
                           
Net (loss) income per diluted share:
                          
(Loss) income from continuing operations
  
$
(0.04
)
$
0.67
  
$
0.11
  
$
0.91
  
Loss on disposal of discontinued operations
    
(0.00
)
  
(0.00
)
  
(0.00
)
  
(0.00
)
Preferred stock cash dividends
    
(0.00
)
  
-
   
-
   
-
 
Net (loss) income available to common stockholders
  
$
(0.04
)
$
0.67
  
$
0.11
  
$
0.91
  

15
 
9.
INCOME TAXES

Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

For the year ended December 31, 2006, the Company recorded a full valuation allowance against the deferred tax asset. During the year ended December 31, 2007, the valuation allowance was reduced by $16 million, as management concluded that it was more likely than not that the Company would realize the benefits of this portion of its deferred tax asset through taxable income to be generated in future years. Due to the reversal of the valuation allowance, this amount was reflected as a benefit to that year’s tax provision.

The Company recognized a deferred tax asset of approximately $44 million and $53 million as of September 30, 2008 and 2007, respectively, primarily relating to net operating loss carryforwards of approximately $125 million and $132 million as of September 30, 2008 and 2007, respectively, available to offset future taxable income through 2025.

In accordance with Section 382 of the Internal Revenue Code, the usage of the Company’s net operating loss carryforward could be limited in the event of a change in ownership. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. As of September 30, 2008, the Company recorded a valuation allowance of $28 million against the deferred tax asset. Based upon a study that analyzed the Company’s stock ownership activity from inception to December 31, 2007, a change of ownership was deemed to have occurred in August, 2000 and again in November, 2007. These changes of ownership created an annual limitation on the usage of the Company’s losses which will become available over the years of 2008 to 2025.

In evaluating the reasonableness of the valuation allowance, management assessed whether it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. Ultimately, the realization of deferred tax assets is dependant upon the generation of future taxable income during those periods in which the temporary differences become deductible and/or credits can be utilized. To this end, management considered that the Company had taxable income in 2007 and anticipates continued taxable income through the year ended December 31, 2010. Based on these considerations management believes it is more likely than not that the Company will realize the benefit of its deferred tax asset, net of the September 30, 2008 valuation allowance.
 
10.
ACCRUED EXPENSES
 
Accrued expenses as of September 30, 2008 and December 31, 2007 consists of the following:
 
   
September 30,
  
December 31,
  
   
2008
  
2007
  
Other liabilities
  
$
975,236
  
$
940,170
  
Professional fees
    
419,221
   
830,831
 
Payroll and related costs
    
419,095
   
821,529
 
Advertising fees
    
272,018
   
242,242
 
Insurance
    
249,075
   
222,207
 
Third party content and data costs
    
219,185
   
197,319
 
Consulting fees
    
173,222
   
39,232
 
Tax related costs
    
169,690
   
331,198
 
Bonuses
    
92,255
   
1,001,885
 
Distribution fees
    
47,917
   
270,378
 
Statistical services fees
    
13,959
   
109,644
 
Total accrued expenses
  
$
3,050,873
  
$
5,006,635
  
 
16
 
11.
BUSINESS CONCENTRATIONS AND CREDIT RISK

Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents, marketable securities, restricted cash and accounts receivable. The Company maintains all of its cash, cash equivalents, marketable securities and restricted cash in six financial institutions, although substantially all of the balance is within one institution. The Company performs periodic evaluations of the relative credit standing of the six institutions. The cash balances are insured by either the FDIC, up to $250,000 per depositor, or the U.S. Department of Treasury’s Temporary Guarantee Program for Money Market Funds.  The Company has cash balances on deposit with two financial institutions at September 30, 2008 that exceed the insured limit in the amount of $1.3 million.  In addition, the Company holds investments in two municipal auction rate securities issued by the District of Columbia with a par value of $1.9 million. The Company’s customers are primarily concentrated in the United States. The Company performs ongoing credit evaluations, generally does not require collateral, and establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of customers, historical trends and other information. To date, actual losses have been within management’s expectations.

For the nine months ended September 30, 2008 and 2007, the Company’s top five advertisers accounted for approximately 26% and 31%, respectively, of its total advertising revenue. For the nine months ended September 30, 2008 and 2007, no advertiser accounted for 10% or more of total advertising revenue.

12.
LONG TERM INVESTMENT

On April 23, 2008, the Company made an investment in Debtfolio, Inc., doing business as Geezeo, a Web-based personal finance site. Geezeo combines online personal finance tools in a social networking environment to assist consumers in achieving their financial goals. Geezeo allows users to track bank accounts and credit card balances, as well as investments, mortgages, student loans and auto loans. The Company’s initial investment in Geezeo included an investment of $1.2 million for an approximate 13% interest in Geezeo. On October 23, 2008, the Company invested $650,000 in additional funds to increase to an 18.5% ownership. The Company also retains the option to purchase the company based on an equity value of $12 million at any point prior to April 23, 2009. Promotions.com has agreed to provide software development services to Geezeo on an arm’s length basis.

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

Statements contained in this quarterly report on Form 10-Q relating to plans, strategies, objectives, economic performance and trends and other statements that are not descriptions of historical facts may be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking information is inherently subject to risks and uncertainties, and actual results could differ materially from those currently anticipated due to a number of factors, which include, but are not limited to, the factors set forth under the heading “Risk Factors” and elsewhere in this quarterly report, and in other documents filed by the Company with the Securities and Exchange Commission from time to time, including, without limitation, the Company’s annual report on Form 10-K for the year ended December 31, 2007. Forward-looking statements may be identified by terms such as “may”, “will”, “should”, “could”, “expects”, “plans”, “intends”, “anticipates”, “believes”, “estimates”, “predicts”, “forecasts”, “potential”, or “continue” or similar terms or the negative of these terms. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance or achievements. The Company has no obligation to update these forward-looking statements.

The following discussion and analysis should be read in conjunction with the Company’s unaudited consolidated financial statements and notes thereto.
 
17

Overview

TheStreet.com, Inc., together with its wholly owned subsidiaries (collectively, the “Company,” “our,” “we” or “us”), is a leading financial media company. We distribute our content through proprietary properties, including our network of Web sites, email services, mobile devices, podcasts and video programming. We also syndicate our content for distribution by other media companies and print publications. Our goal is to provide information and services that empower a growing audience of investors and consumers, through our expanding network of properties to become the leading online destination where issues and topics related to life and money intersect.

The Company pioneered the electronic publishing of business and investment information on the Internet through our creation of TheStreet.com, which launched in 1996 as a paid subscription news and commentary Web site. The Company generates its revenue from (i) paid services, which includes subscription revenue, syndication and licensing fees, and information services revenue, and (ii) marketing services, which includes advertising and interactive marketing services revenue. In the third quarter of 2008, the Company’s revenue from paid services and marketing services comprised 61% and 39%, respectively, of total revenue, compared to 57% and 43%, respectively, in the third quarter of 2007.

Paid services revenue includes revenue from our subscription Web sites and newsletters (“Subscriptions Services”), which are generally targeted at more experienced investors, as well as syndication, licensing and information services revenue.

Syndication and licensing fees include revenue from the licensing and syndication of content from TheStreet.com Ratings, which tracks the risk adjusted performance of more than 16,000 mutual funds and more than 6,000 stocks. In addition, TheStreet.com Ratings uses proprietary quantitative computer models to evaluate the financial strength of more than 13,000 financial institutions, including life, health and annuity insurers, property and casualty insurers, HMOs, Blue Cross Blue Shield plans, banks and savings and loans. In addition to generating revenue from the licensing and syndication of content from TheStreet.com Ratings, the stock, ETF and mutual fund ratings have been incorporated into our network of Web sites, including on the stock quote pages of TheStreet.com, as well as through online screening tools and regularly published stories.

Paid services also includes information services revenue from RateWatch,which offers competitive rate and financial data (including data about certificates of deposit, IRAs, money market accounts, savings accounts, checking accounts, home mortgages, home equity loans, credit cards and auto loans) to more than 5,500 financial institutions. The information is obtained from more than 70,000 financial institutions (including branches), providing a comprehensive collection of rate information that also serves as the foundation for the data available on BankingMyWay.com, a free advertising supported web site that enables consumers to search for the most competitive local and national rates from the RateWatch data.

We seek to grow our paid services business through ongoing tailoring and enhancement of our product offerings, external marketing and promotion, and promotion on our expanding network of Web sites.

Marketing services revenue includes advertising revenue and interactive marketing services revenue from our Promotions.com business. We believe that the growth opportunity of our marketing services business is greater than that of our paid services business. Through our growing network of online Web sites -- which include TheStreet.com, Stockpickr.com, MainStreet.com and BankingMyWay.com, along with our recent minority interest in Geezeo.com -- our goal is to meet our audience and advertiser demands while becoming the leading independent online network where issues and topics related to life and money intersect. We plan to accomplish this goal by providing:

 
•
A broader range of content to our audience, including personal finance, real estate, politics, entrepreneurship, small business, and luxury living across a growing network of Web sites; and

18


 
•
Innovative, interactive solutions for our advertisers, across our full range of distribution platforms.

As a result of expanded content offerings and implementation of marketing relationships with other high-traffic Web sites, we experienced increases in unique visitors to our network of Web sites. In the third quarter of 2008, our network attracted an average of 8.0 million unique visitors per month, an increase of 27% over the same period in the prior year. The growth in our unique audience attracted new advertisers to the site and allowed us to expand our relationships with a number of our existing advertisers. See “Risk Factors — We May Have Difficulty Increasing Our Advertising Revenue, a Significant Portion of Which Is Concentrated Among Our Top Advertisers.”

We generate advertising revenue from our content through the sale of the following types of advertising placements:

 
•
Banner, tile and interactive advertisement and sponsorship placements in our advertising-supported Web sites, TheStreet.com, Stockpickr.com, BankingMyWay.com and MainStreet.com, as well as on our paid subscription site, RealMoney.com;

 
•
Advertisement placements in our free email newsletters;

 
•
Stand-alone emails sent on behalf of our advertisers to our registered users; and

 
•
Advertisements in TheStreet.com TV and in our Podcasts.

We generate interactive marketing services revenue from Promotions.com, which we acquired in August, 2007. Promotions.com implements online and mobile interactive promotions -- including sweepstakes, instant win games and customer loyalty programs -- for some of the world’s largest brands, and provides the Company with the capabilities to deliver these promotions for our advertisers on campaigns that run across our network of Web sites.

The free, advertising supported content on our network of Web sites, and paid content offerings through our RealMoney Web site and subscription services, has earned recognition from our audience and our professional peers, which attracts a growing audience and draws in advertisers seeking to associate their brands with our content. During 2008, we have received the following awards and distinctions:

 
•
New York Press Club Journalism Award in the Business Internet category;
     
 
•
New York Press Club Journalism Award in the Political Coverage Internet category;
     
 
•
Webby Award nomination for the Company's recently launched personal finance Web site MainStreet.com (www.mainstreet.com) for the Best Business Blog of 2008;

 
•
Society of American Editors and Writers Award for Enterprise Reporting; and

 
•
Society of American Editors and Writers Award for Commentary.

Our goal is to be a trusted resource to our audience, helping our readers to understand financial alternatives and providing them with the tools necessary for sound and informed financial decision-making. Our strategy is to continue to expand our network, content offerings and distribution channels to attract a wider consumer audience to our online network where issues and topics related to life and money intersect.
 
19

Critical Accounting Estimates

General

The Company’s discussion and analysis of its financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires management to make estimates and assumptions, specifically for the allowance for doubtful accounts receivable, the useful lives of fixed assets, the valuation of goodwill and intangible assets, as well as accrued expense estimates 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.

The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

Revenue Recognition

The Company generates its revenue primarily from paid and marketing services.

Paid services include subscription fees paid by customers for access to particular services for the term of the subscription as well as syndication and licensing revenue. Subscriptions are generally charged to customers’ credit cards or are directly billed to corporate subscribers. These are generally billed in advance on a monthly or annual basis. The Company calculates net subscription revenue by deducting from gross revenue an estimate of potential refunds from cancelled subscriptions as well as chargebacks of disputed credit card charges. Net subscription revenue is recognized ratably over the subscription periods. Deferred revenue relates to subscription fees for which amounts have been collected but for which revenue has not been recognized.

Subscription revenue is subject to estimation and variability due to the fact that, in the normal course of business, subscribers may for various reasons contact us or their credit card companies to request a refund or other adjustment for a previously purchased subscription. Accordingly, we maintain a provision for estimated future revenue reductions resulting from expected refunds and chargebacks related to subscriptions for which revenue was recognized in a prior period. The calculation of this provision is based upon historical trends and is reevaluated each quarter.

Marketing services include advertising revenue, which is derived from the sale of Internet sponsorship arrangements and from the delivery of banner, video and email advertisements on the Company’s Web sites, and is recognized ratably over the period the advertising is displayed, provided that collection of the resulting receivable is reasonably assured. Although infrequent, Company obligations could include guarantees of a minimum number of times that users of the Company’s Web sites “click-through” to the advertisers’ Web site, or take additional specified action, such as opening an account. In such cases, revenue is recognized as the guaranteed “click-throughs” or other relevant delivery criteria are fulfilled.

Marketing services also include revenue associated with Promotions.com. Promotions.com revenue is derived principally from management contracts in which Promotions.com typically provides custom online and mobile interactive solutions for advertisers, marketers and content publishers. Promotions.com recognizes revenue related to its services as the services are provided or ratably over the period of the contract, provided that no significant obligations remain and collection of the resulting receivable is reasonably assured.

Marketing services revenue is subject to estimation and variability due to our policy of recognizing revenue only for arrangements with customers in which, among other things, management believes that collectibility of amounts due is reasonably assured. Promotions.com revenue, specifically, is subject to estimation and variability due to the judgment involved in estimating the percentage of completion of a particular contract in determining the amount of revenue to be recognized. Accordingly, we estimate and record a provision for doubtful accounts for estimated losses resulting from the failure of our marketing services customers to make required payments. This provision is recorded as a bad debt expense. A considerable amount of judgment is required in assessing the ultimate realization of these receivables, including the current credit-worthiness of each customer.
 
20

Capitalized Software and Web Site Development Costs

The Company expenses all costs incurred in the preliminary project stage for software developed for internal use and capitalizes all external direct costs of materials and services consumed in developing or obtaining internal-use computer software in accordance with Statement of Position (“SOP”) 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use.” In addition, for employees who are directly associated with and who devote time to internal-use computer software projects, to the extent of the time spent directly on the project, the Company capitalizes payroll and payroll-related costs of such employees incurred once the development has reached the applications development stage. For the three- and nine-month periods ended September 30, 2008, the Company capitalized software development costs totaling $123,689 and $483,567, respectively, as compared to $63,589 and $287,827, respectively, for the three- and nine-month periods ended September 30, 2007. All costs incurred for upgrades, maintenance and enhancements that do not result in additional functionality are expensed.

In December 1999, the Company adopted Emerging Issues Task Force Abstract (“EITF”) Issue number 00-2, “Accounting for Web Site Development Costs.” EITF 00-2 provides guidance on the accounting for the costs of development of company Web sites, dividing the Web site development costs into five stages: (1) the planning stage, during which the business and/or project plan is formulated and functionalities, necessary hardware and technology are determined, (2) the Web site application and infrastructure development stage, which involves acquiring or developing hardware and software to operate the Web site, (3) the graphics development stage, during which the initial graphics and layout of each page are designed and coded, (4) the content development stage, during which the information to be presented on the Web site, which may be either textual or graphical in nature, is developed, and (5) the operating stage, during which training, administration, maintenance and other costs to operate the existing Web site are incurred. The costs incurred in the Web site application and infrastructure stage, the graphics development stage and the content development stage are capitalized; all other costs are expensed as incurred. Amortization of capitalized costs will not commence until the project is completed and placed into service. For the three- and nine-month periods ended September 30, 2008, the Company capitalized Web site development costs totaling $671,239 and $1,933,539 respectively, as compared to $512,578 and $1,572,857, respectively, for the three- and nine-month periods ended September 30, 2007.

Capitalized software and Web site development costs are amortized using the straight-line method over the estimated useful life of the software or Web site. Total amortization expense for the three- and nine-month periods ended September 30, 2008 was $230,791, and $621,655, respectively, as compared to $11,072 and $34,622, respectively, for the three- and nine-month periods ended September 30, 2007.

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation and amortization. Property and equipment are depreciated on a straight-line basis over the estimated useful lives of the assets. The estimated useful life of computer equipment, computer software and telephone equipment is three years; of furniture and fixtures is five years; and of capitalized software and Web site development costs is variable based upon the applicable project. Leasehold improvements are amortized on a straight-line basis over the shorter of the respective lease term or the estimated useful life of the asset. If the useful lives of the assets differ materially from the estimates contained herein, additional costs could be incurred, which could have an adverse impact on the Company’s expenses.

Goodwill and Other Intangible Assets

In July 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142 requires companies to stop amortizing goodwill and certain other intangible assets with indefinite useful lives. Instead, goodwill and other intangible assets deemed to have an indefinite useful life will be subject to an annual review for impairment. Separable intangible assets that are not deemed to have indefinite useful lives will continue to be amortized over their estimated useful lives (but with no maximum life).
 
21

Upon the adoption of SFAS No. 142 in the first quarter of 2002, the Company stopped the amortization of goodwill and certain other intangible assets with indefinite useful lives, and completed the required transitional fair value impairment test on its goodwill and certain other intangible assets, the results of which had no impact on the Company’s financial statements. The Company’s goodwill and intangible assets with indefinite useful lives is tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Based upon annual impairment tests as of October 31, 2007 and September 30, 2006, no impairment was indicated for the Company’s goodwill and intangible assets with indefinite lives.

Investment of the Company’s Cash

Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents, marketable securities and restricted cash. The Company maintains all of its cash, cash equivalents, marketable securities and restricted cash in six financial institutions, although substantially all of the balance is within one institution. The Company performs periodic evaluations of the relative credit standing of the six institutions. As of September 30, 2008, the Company’s cash, cash equivalents, marketable securities and restricted cash are primarily invested directly in U.S. Treasury Bills, or indirectly in U.S. Treasury backed securities with a focus on asset protection rather than yield maximization. The cash balances are insured by either the FDIC, up to $250,000 per depositor, or the U.S. Department of Treasury’s Temporary Guarantee Program for Money Market Funds.  The Company has cash balances on deposit with two financial institutions at September 30, 2008 that exceed the insured limit in the amount of $1.3 million. 

The Company also holds investments in two municipal auction rate securities ("ARS") issued by the District of Columbia with a par value of $1.9 million. Due to recent events in credit markets, the auction events, which historically have provided liquidity for these securities, began failing during the first quarter of 2008, and there have been no successful auction events for these ARS since that time. The result of a failed auction is that these ARS holdings will continue to pay interest in accordance with their terms at each respective auction date; however, liquidity of the securities will be limited until there is a successful auction, the issuer redeems the securities, the securities mature or until such time as other markets for these ARS holdings develop.

Credit Risks of Customers and Business Concentrations

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

For the three- and nine-month periods ended September 30, 2008, the Company’s top five advertisers accounted for approximately 33% and 26%, respectively, of its total advertising revenue as compared to approximately 29% and 31%, respectively, for the three- and nine-month periods ended September 30, 2007. For the three- and nine-month periods ended September 30, 2008 and 2007, no advertiser accounted for 10% or more of total advertising revenue.
 
22

Stock-based Compensation

As of October 1, 2005, the Company elected early adoption of Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share Based Payment: An Amendment of FASB Statements 123 and 95.” This statement requires that the cost resulting from all share-based payment transactions be recognized in the financial statements based upon estimated fair values. SFAS No. 123(R) supersedes the Company’s previous accounting under Accounting Principles Board No. 25, “Accounting for Stock Issued to Employees” (“APB 25”). In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107 (“SAB 107”) relating to SFAS No. 123(R). The Company has applied the provisions of SAB 107 in its adoption of SFAS No. 123(R).

The Company adopted SFAS No. 123(R) using the modified prospective transition method. Stock-based compensation expense recognized under SFAS No. 123(R) for the three- and nine-month periods ended September 30, 2008 was $986,076 and $2,639,208, respectively, as compared to $536,898 and $1,608,479, respectively, for the three- and nine-month periods ended September 30, 2007. As of September 30, 2008, there was approximately $7.0 million of unrecognized stock-based compensation expense remaining to be recognized over a weighted-average period of 2.70 years.

Upon adoption of SFAS No. 123(R), the Company continued its practice of estimating the value of employee stock options on the date of grant using the Black-Scholes option-pricing model. This determination is affected by the Company’s stock price as well as assumptions regarding expected volatility, risk-free interest rate, and expected dividends. The weighted-average fair value of employee stock options granted during the nine months ended September 30, 2008 and 2007 was $3.56 and $4.06, respectively, using the Black-Scholes model with the following weighted-average assumptions. 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 options 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 is based upon observed interest rates appropriate for the term of the Company’s employee stock options. The dividend yield assumption is based on the history and expectation of future dividend payouts.
 
   
For the Nine Months Ended
September 30,
  
   
2008
  
2007
  
Expected option lives
    
3.5 years
    
3.5 years
  
Expected volatility
    
47.57
%
  
46.67
%
Risk-free interest rate
    
2.37
%
  
4.64
%
Expected dividend yield
    
0.83
%
  
0.94
%

As stock-based compensation expense recognized in the Consolidated Statements of Operations is based on awards that are ultimately expected to vest, it has been reduced for expected forfeitures. SFAS No. 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on historical experience.

If factors change and the Company employs different assumptions in the application of SFAS No. 123(R) in future periods, the compensation expense that the Company records under SFAS No. 123(R) may differ significantly from what it has recorded in the current period.

23
 
Income Taxes

The Company accounts for its income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes.” Under SFAS No. 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets or liabilities of a change in tax rates is recognized in the period that the tax change occurs. SFAS No. 109 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax asset will not be realized.

Deferred tax assets pertaining to windfall tax benefits on exercise of share based awards and the corresponding credit to additional paid-in capital are recorded if the related tax deduction reduces tax payable. The Company has elected the “with-and -without approach” regarding ordering of windfall tax benefits to determine whether the windfall tax benefit did reduce taxes payable in the current year. Under this approach, the windfall tax benefits would be recognized in additional paid-in capital only if an incremental tax benefit is realized after considering all other tax benefits presently available to the Company.

Results of Operations

Comparison of Three Months Ended September 30, 2008 and September 30, 2007

Revenue

   
For the Three Months Ended September 30,
      
 
    
2008
 
 
Percent
of Total
Revenue
 
 
2007
 
 
Percent
of Total
Revenue
 
 
Percent
Change
  
Revenue:
                                
Paid services
  
$
10,244,212
    
61
%
$
9,188,329
    
57
%
  
11
%
Marketing services
    
6,478,367
   
39
%
  
6,930,030
   
43
%
  
-7
%
Total revenue
  
$
16,722,579
    
100
%
$
16,118,359
    
100
%
  
4
%

Paid services. Paid services revenue is derived from annual and monthly subscriptions to the Company’s 15 subscription newsletter services and our paid Web site RealMoney.com, through the syndication and licensing of our content to third parties, and information services revenue attributable to RateWatch. Subscription revenue is recognized ratably over the subscription period, while syndication, licensing and information services revenue is recognized over the contract period.
 
   
For the Three Months Ended
September 30,
  
Percent
  
   
2008
  
2007
  
Change
  
Paid services:
                    
Subscription  
  
$
7,432,481
  
$
8,339,087
    
-11
%
Syndication, licensing and information services
    
2,811,731
   
849,242
   
231
%
Total
  
$
10,244,212
  
$
9,188,329
    
11
%

Subscription revenue for the three months ended September 30, 2008 decreased by 11% when compared to the three months ended September 30, 2007. The decrease is partially attributable to the outsourcing of TheStreet.com Ratings business to Grey House Publishing in the second quarter of 2007. Prior to the outsourcing of this business, subscription revenue included the full sales price of the product. Revenue now reflects a fee based upon a percentage of the sales price, which is recorded as licensing revenue. Subscription revenue from TheStreet.com Ratings totaled approximately $260,000 in the three months ended September 30, 2007, as compared to approximately $12,000 in the three months ended September 30, 2008. Excluding the impact of the Ratings outsourcing, revenue specifically from our Subscription Services business decreased 8%, which was primarily related to an 8% decrease in subscribers to our Subscription Services from approximately 85,700 as of September 30, 2007 to approximately 79,200 as of September 30, 2008. The performance of the subscription business is impacted by the performance of the stock market. Prolonged declines in the stock market reduce the size of the potential market for subscribers as more investors turn away from the stock market in their search for investment growth and preservation of principal. While the retention rates across our subscription products remain strong, with renewal rates during the current quarter of 65% and 90% for annual and monthly subscribers, respectively, our lower acquisition rates across our subscriber marketing channels resulted in lower year over year subscribers and subscription revenue.
 
24

For the three months ended September 30, 2008, approximately 78% of the Company’s net subscription revenue was derived from annual subscriptions, as compared to approximately 70% for the three months ended September 30, 2007. The Company calculates net subscription revenue by deducting from gross revenue an estimate of potential refunds from cancelled subscriptions as well as chargebacks of disputed credit card charges. Refunds and chargebacks totaled less than 1% of gross subscription revenue during each of the three months ended September 30, 2008 and 2007.
 
Syndication, licensing and information services revenue for the three months ended September 30, 2008 increased by 231% when compared to the three months ended September 30, 2007. The increase is primarily the result of the information services revenue from the operations of RateWatch, which was acquired on November 2, 2007 and thus did not contribute revenue during the earlier period. Additional licensing revenue is derived from the TheStreet.com Ratings license agreement with Grey House Publishing as noted above and other syndication of TheStreet.com Ratings data.

Marketing services. Marketing services revenue is derived from the placement of advertisements on the Company’s Web sites, email newsletters, video content and podcasts, as well as interactive marketing services for which the Company develops online and mobile interactive solutions for advertisers, marketers and content publishers.


   
For the Three Months Ended
September 30,
  
Percent
  
   
2008
  
2007
  
Change
  
Marketing services:
                    
Advertising 
  
$
5,436,633
  
$
4,610,579
    
18
%
Interactive marketing services
    
1,041,734
   
2,319,451
   
-55
%
Total
  
$
6,478,367
  
$
6,930,030
    
-7
%

Advertising revenue for the three months ended September 30, 2008 increased by 18% when compared to the three months ended September 30, 2007. The increase is primarily attributable to the effective monetization of a 27% increase in the average number of monthly unique visitors to the Company’s Web sites, when compared to the three months ended September 30, 2007. The increase in reach, combined with continued strength in our audience demographics, and the ability to create new and unique customized advertising solutions enabled us to expand relationships with existing advertisers, acquire new financial advertisers and attract increasing numbers of non-endemic advertisers.

Interactive marketing services revenue for the three months ended September 30, 2008 decreased by 55% when compared to the three months ended September 30, 2007. Our Promotions.com business was negatively impacted in the quarter, as current and prospective clients delayed promotions and interactive marketing initiatives beyond the third quarter.

25
 
Operating Expense
 
   
For the Three Months Ended September 30,
  
Percent
  
   
2008
  
(*)
  
2007
  
(*)
  
Change
  
Operating expense:
                                
Cost of services
 
$
8,405,002
    
50.3
%
$
6,509,157
    
40.4
%
  
29
%
Sales and marketing
   
3,550,363
    
21.2
%
  
2,619,286
    
16.3
%
  
36
%
General and administrative
   
4,589,851
    
27.4
%
  
3,064,728
    
19.0
%
  
50
%
Depreciation and amortization
   
1,481,670
    
8.9
%
  
654,397
    
4.1
%
  
126
%
Total operating expense
 
$
18,026,886
        
$
12,847,568
          
40
%

(*) Percent of revenue
                  

Cost of services. Cost of services expense includes compensation and benefits for the Company’s editorial, technology, marketing services, ratings analyst and video staff, as well as fees paid to non-employee content providers, expenses for contract programmers and developers, communication lines and other technology costs.

The increase in cost of services over the periods was largely the result of increased compensation costs totaling approximately $1.3 million. These increased compensation costs are primarily attributable to incremental costs associated with the operations of Promotions.com and Bankers Financial Products since the dates of their acquisitions, as well as compensation expense associated with BankingMyWay.com and MainStreet.com, which were launched in the quarters ended December 31, 2007 and March 31, 2008, respectively. The Company also experienced increased costs related to hosting, data and consulting, the sum of which increased by approximately $0.5 million over the periods.

Sales and marketing. Sales and marketing expense consists primarily of advertising and promotion, promotional materials, content distribution fees, and compensation expense for the direct sales force and customer service departments.

The increase in sales and marketing expense was largely the result of increased compensation and online marketing costs totaling approximately $0.7 million year over year. This increase included an investment in a larger ad sales team to deliver advertising revenue growth across an expanding network of Web sites, as well as an increase in our search engine marketing and online marketing spend to support the launch of BankingMyWay.com and MainStreet.com. The increased expense also reflects incremental costs associated with the operations of Promotions.com and Bankers Financial Products since the dates of their acquisitions.

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

The increase in general and administrative expense over the periods was partially the result of higher compensation costs totaling approximately $0.7 million, including an increase in noncash compensation costs of approximately $0.2 million. In addition, the increase in general and administrative expense was the result of increased costs related to occupancy totaling approximately $0.3 million, an increase to our bad debt reserve in the amount of approximately $0.3 million in the quarter and a non-recurring charge for professional fees in the amount of approximately $0.3 million.

26
 
Depreciation and amortization. The increase in depreciation and amortization expense is largely attributable to the amortization of intangible assets related to the Promotions.com, Bankers Financial Products and Stockpickr acquisitions, resulting in approximately $0.4 million of additional amortization cost over the periods, depreciation of capitalized costs associated with the redesign of TheStreet.com and development of the MainStreet.com Web sites, and higher depreciation costs due to increased capital expenditures.

Net Interest Income

   
For the Three Months Ended
September 30,
  
Percent
  
   
2008
  
2007
  
Change
  
Net interest income
  
$
345,675
  
$
571,121
    
-39
%

The decrease in net interest income is primarily the result of reduced interest rates as a result of our decision to invest our cash balances, directly in U.S. Treasury Bills, or indirectly in U.S. Treasury backed securities with a focus on asset protection rather than yield maximization. The lower yield in the quarter was partially offset by a higher cash balance.

Discontinued Operations
 
   
For the Three Months Ended
September 30,
  
Percent
  
   
2008
  
2007
  
Change
  
Loss on disposal of discontinued operations
  
$
3,079
  
$
569
    
441
%

In June 2005, the Company committed to a plan to discontinue the operations of the Company’s securities research and brokerage segment. Accordingly, the operating results relating to this segment have been segregated from continuing operations and reported as a separate line item on the consolidated statements of operations.

For the three-month periods ended September 30, 2008 and 2007, loss on disposal of discontinued operations represents additional costs incurred with the liquidation process.

The fair market values of the remaining liabilities of the discontinued operation are as follows:

   
September 30, 2008
  
December 31, 2007
  
Current liabilities
  
$
227,003
  
$
232,242
  

Net (Loss) Income

Net loss for the three-month period ended September 30, 2008 totaled $1,068,075, or $0.04 per basic and diluted share, compared to net income totaling $19,764,517, or $0.68 per basic and $0.67 per diluted share for the three-month period ended September 30, 2007. The decrease over the periods was largely the result of a $16 million reduction to the Company’s deferred tax asset valuation allowance, which was recorded as a benefit to the income tax provision in the previous year period.

27
 
Earnings Before Interest, Taxes, Depreciation and Amortization

Earnings before interest, taxes, depreciation and amortization (“EBITDA”) for the three-month period ended September 30, 2008 totaled $174,284 as compared to EBITDA of $3,970,595 for the three-month period ended September 30, 2007. The Company utilizes EBITDA to evaluate the performance of its businesses. EBITDA is considered an important indicator of the operational strength of the Company’s business and it provides an indication of the Company’s ability to service debt and fund capital expenditures. EBITDA eliminates the uneven effect of considerable amounts of noncash depreciation of tangible assets and amortization of certain intangible assets that were recognized in business combinations. A limitation of this measure, however, is that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues in the Company’s businesses. Management evaluates the investments in such tangible and intangible assets through other financial measures, such as capital expenditure budgets and investment spending levels.

EBITDA should be considered in addition to, not as a substitute for, the Company’s net income and various cash flow measures (e.g., cash provided by operations) as well as other measures of financial performance reported in accordance with U.S. generally accepted accounting principles (“GAAP”).

EBITDA is calculated as follows:
 
   
 For the Three Months Ended
September 30,
  
   
2008
  
2007
  
Net (loss) income
  
$
(1,068,075
)
$
19,764,517
  
Less net interest income
    
(345,675
)
  
(571,121
)
Add taxes
    
106,364
    
(15,877,198
)
Add depreciation and amortization
    
1,481,670
   
654,397
 
EBITDA
  
$
174,284
  
$
3,970,595
  

Comparison of Nine Months Ended September 30, 2008 and September 30, 2007

Revenue

   
For the Nine Months Ended September 30,
      
 
    
2008
 
 
Percent of
Total
Revenue
 
 
2007
 
 
Percent of
Total
Revenue
 
 
Percent
Change
  
Revenue:
                                
Paid services
  
$
31,293,620
    
57
%
$
28,031,229
    
62
%
  
12
%
Marketing services
    
24,065,875
   
43
%
  
17,493,982
   
38
%
  
38
%
Total revenue
  
$
55,359,495
    
100
%
$
45,525,211
    
100
%
  
22
%

Paid services.
 
   
For the Nine Months Ended
September 30,
  
Percent
  
   
2008
  
2007
  
Change
  
Paid services:
                    
Subscription  
  
$
23,114,062
  
$
25,649,904
    
-10
%
Syndication, licensing
and information services
    
8,179,558
   
2,381,325
   
243
%
Total
  
$
31,293,620
  
$
28,031,229
    
12
%

 
28
 
Subscription revenue for the nine months ended September 30, 2008 decreased by 10% when compared to the nine months ended September 30, 2007. The decrease is partially attributable to the outsourcing of TheStreet.com Ratings business to Grey House Publishing in the second quarter of 2007. Prior to the outsourcing of this business, subscription revenue included the full sales price of the product. Revenue now reflects a fee based upon a percentage of the sales price, which is recorded as licensing revenue. Subscription revenue from TheStreet.com Ratings totaled approximately $1,480,000 in the nine months ended September 30, 2007, as compared to approximately $137,000 in the nine months ended September 30, 2008. Excluding the impact of the Ratings outsourcing, revenue specifically from our Subscription Services business decreased by 5%, which was primarily related to an 8% decrease in subscribers to our subscription services from approximately 85,700 as of September 30, 2007 to approximately 79,200 as of September 30, 2008. The performance of the subscription business is impacted by the performance of the stock market. Prolonged declines in the stock market reduce the size of the potential market for subscribers as more investors turn away from the stock market in their search for investment growth and preservation of principal. While the retention rates across our subscription products remain strong, with renewal rates during the current year to date period of 65% and 90% for annual and monthly subscribers respectively, our lower acquisition rates across our subscriber marketing channels resulted in lower year over year subscribers and subscription revenue.

For the nine months ended September 30, 2008, approximately 75% of the Company’s net subscription revenue was derived from annual subscriptions, as compared to approximately 70% for the nine months ended September 30, 2007. The Company calculates net subscription revenue by deducting from gross revenue an estimate of potential refunds from cancelled subscriptions as well as chargebacks of disputed credit card charges. Refunds and chargebacks totaled less than 1% of gross subscription revenue during each of the nine months ended September 30, 2008 and 2007.

Syndication, licensing and information services revenue for the nine months ended September 30, 2008 increased by 243% when compared to the nine months ended September 30, 2007. The increase is primarily the result of the information services revenue from the operations of RateWatch, which was acquired on November 2, 2007 and thus did not contribute revenue during the earlier period. Additional licensing revenue is derived from the TheStreet.com Ratings license agreement with Grey House Publishing noted above, and other syndication of TheStreet.com Ratings data.

Marketing services.
 
   
For the Nine Months Ended
September 30,
  
Percent
  
   
2008
  
2007
  
Change
  
Marketing services:
                    
Advertising 
  
$
17,777,230
  
$
15,174,531
    
17
%
Interactive marketing services
    
6,288,645
    
2,319,451
   
171
%
Total
  
$
24,065,875
  
$
17,493,982
    
38
%

Advertising revenue for the nine months ended September 30, 2008, increased by 17% when compared to the nine months ended September 30, 2007. The increase is primarily attributable to the effective monetization of a 29% increase in the average number of monthly unique visitors to the Company’s Web sites, when compared to the nine months ended September 30, 2007. The increase in reach, combined with continued strength in our audience demographics, and the ability to create new and unique customized advertising solutions enabled us to expand relationships with existing advertisers, acquire new financial advertisers and attract increasing numbers of non-endemic advertisers.

 
29

We believe that we have particular appeal to a growing number of non-financial advertisers, who comprised 41% of total advertising revenue in the nine months ended September 30, 2008, as compared to 40% in the nine months ended September 30, 2007. Additionally, we believe that the continued shift of advertising spending from traditional media to online advertising has led generally to increased spending by the Company’s advertisers and to an increase in the number of advertisers choosing to place their advertisements throughout the Company’s network of Web sites and newsletters.

The number of advertisers for the nine months ended September 30, 2008 was 172 as compared to 150 for the nine months ended September 30, 2007. The Company’s top five advertisers accounted for approximately 26% of its total advertising revenue for the nine months ended September 30, 2008, as compared to approximately 31% for the nine months ended September 30, 2007. For the nine-month periods ended September 30, 2008 and 2007, no advertiser accounted for 10% or more of total advertising revenue.

Interactive marketing services revenue for the nine months ended September 30, 2008 increased by 171% when compared to the nine months ended September 30, 2007. The increase in revenue is primarily the result of a full nine months of interactive marketing services revenue during the current period associated with Promotions.com, which was acquired on August 2, 2007, and thus did not contribute a full nine months of revenue during the earlier period.

Operating Expense

   
For the Nine Months Ended September 30,
  
Percent
  
   
2008
  
(*)
  
2007
  
(*)
  
Change
  
Operating expense:
                                
Cost of services
 
$
24,427,285
    
44.1
%
$
17,780,664
    
39.1
%
  
37
%
Sales and marketing
   
10,944,352
    
19.8
%
  
9,004,490
    
19.8
%
  
22
%
General and administrative
   
13,024,218
    
23.5
%
  
8,537,882
    
18.8
%
  
53
%
Depreciation and amortization
   
4,330,054
    
7.8
%
  
1,469,539
    
3.2
%
  
195
%
Total operating expense
 
$
52,725,909
        
$
36,792,575
          
43
%

(*) Percent of revenue

Cost of services. The increase in cost of services over the periods was largely the result of increased compensation costs totaling approximately $5.0 million. The increased compensation costs are primarily attributable to incremental costs associated with the operations of Promotions.com and Bankers Financial Products since the dates of their acquisitions, as well as compensation expense associated with BankingMyWay.com and MainStreet.com, which were launched in the quarters ended December 31, 2007 and March 31, 2008, respectively. The Company also experienced increased costs related to hosting, data, fulfillment and computer maintenance, the sum of which increased by approximately $1.8 million over the periods.

 Sales and marketing. The increase in sales and marketing expense was largely the result of increased compensation and online marketing costs totaling approximately $1.3 million year over year. This increase included an investment in a larger ad sales team to deliver advertising revenue growth across an expanding network of Web sites, as well as an increase in our search engine marketing and online marketing spend to support the launch of BankingMyWay.com and MainStreet.com. The increased expense also reflects incremental costs associated with the operations of Promotions.com and Bankers Financial Products since the dates of their acquisitions. These increased costs were partially offset by decreases related to ad serving and credit card processing, the sum of which decreased by approximately $0.2 million over the periods.
 
30

General and administrative. The increase in general and administrative expense over the periods was partially the result of higher compensation costs totaling approximately $2.3 million, including an increase in noncash compensation costs of approximately $0.5 million. In addition, the increase in general and administrative expense was the result of increased costs related to occupancy of approximately $1.0 million, an increase to our bad debt reserve in the amount of approximately $0.4 million and a non-recurring charge for professional fees approximating $0.3 million.

Depreciation and amortization. The increase in depreciation and amortization expense is largely attributable to the amortization of intangible assets related to the Promotions.com, Bankers Financial Products and Stockpickr acquisitions, resulting in approximately $1.5 million of additional amortization cost over the periods, depreciation of capitalized costs associated with the redesign of TheStreet.com and development of the MainStreet.com Web sites, and higher depreciation costs due to increased capital expenditures.

Net Interest Income

   
For the Nine Months Ended
September 30,
  
Percent
  
   
2008
  
2007
  
Change
  
Net interest income
  
$
1,432,112
  
$
1,796,820
    
-20
%

The increase in net interest income is primarily the result of reduced interest rates as a result of our decision to invest our cash balances, directly in U.S. Treasury Bills, or indirectly in U.S. Treasury backed securities with a focus on asset protection rather than yield maximization. The lower yield in the period was partially offset by a higher cash balance.

Discontinued Operations
 
   
For the Nine Months Ended
September 30,
  
Percent
  
   
2008
  
2007
  
Change
  
Loss on disposal of discontinued operations
  
$
7,895
  
$
1,692
    
367
%

In June 2005, the Company committed to a plan to discontinue the operations of the Company’s securities research and brokerage segment. Accordingly, the operating results relating to this segment have been segregated from continuing operations and reported as a separate line item on the consolidated statements of operations.

For the nine-month periods ended September 30, 2008 and 2007, loss on disposal of discontinued operations represents additional costs incurred with the liquidation process. 

 
31


The fair market values of the remaining liabilities of the discontinued operation are as follows:

   
September 30, 2008
  
December 31, 2007
  
Current liabilities
  
$
227,003
  
$
232,242
  

Net (Loss) Income

Net income for the nine-month period ended September 30, 2008 totaled $3,679,818, or $0.12 per basic and $0.11 per diluted share, compared to $26,317,209, or $0.92 per basic and $0.91 per diluted share for the nine-month period ended September 30, 2007. The decrease over the periods was largely the result of a $16 million reduction to the Company’s deferred tax asset valuation allowance, which was recorded as a benefit to the income tax provision in the previous year period.

Earnings Before Interest, Taxes, Depreciation and Amortization

Earnings before interest, taxes, depreciation and amortization (“EBITDA”) for the nine-month period ended September 30, 2008 totaled $6,955,745, as compared to EBITDA of $10,326,326 for the nine-month period ended September 30, 2007. The Company utilizes EBITDA to evaluate the performance of its businesses. EBITDA is considered an important indicator of the operational strength of the Company’s business and it provides an indication of the Company’s ability to service debt and fund capital expenditures. EBITDA eliminates the uneven effect of considerable amounts of noncash depreciation of tangible assets and amortization of certain intangible assets that were recognized in business combinations. A limitation of this measure, however, is that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues in the Company’s businesses. Management evaluates the investments in such tangible and intangible assets through other financial measures, such as capital expenditure budgets and investment spending levels.

EBITDA should be considered in addition to, not as a substitute for, the Company’s net income and various cash flow measures (e.g., cash provided by operations) as well as other measures of financial performance reported in accordance with U.S. generally accepted accounting principles (“GAAP”).

EBITDA is calculated as follows:

   
For the Nine Months Ended
September 30,
  
   
2008
  
2007
  
Net income
  
$
3,679,818
  
$
26,317,209
  
Less net interest income
    
(1,432,112
)
  
(1,796,820
)
Add taxes
    
377,985
    
(15,663,602
)
Add depreciation and amortization
    
4,330,054
   
1,469,539
 
EBITDA
  
$
6,955,745
  
$
10,326,326
  

Liquidity and Capital Resources

The Company has generally invested in money market funds and other short-term, investment grade instruments that are highly liquid and of high-quality, with the intent that such funds could easily be made available for operating purposes. Given the uncertainty surrounding the current macro-economic environment, as of September 30, 2008, substantially all of the Company’s cash, cash equivalents, marketable securities and restricted cash balances were invested directly in U.S. Treasury Bills, or indirectly in U.S. Treasury backed securities with a focus on asset protection rather than yield maximization. As of September 30, 2008, the Company’s cash, cash equivalents, marketable securities and restricted cash amounted to $80,094,888, representing 45% of total assets.

Cash generated from operations was sufficient to cover expenses during the nine-month period ended September 30, 2008. Net cash provided by operating activities totaled $8,761,001 for the nine-month period ended September 30, 2008, as compared to net cash provided by operating activities totaling $9,197,184 for the nine-month period ended September 30, 2007. The decrease in net cash provided by operating activities is primarily related to the following:
 
32

 
·
A decrease in income from continuing operations partially due to a reduction to the deferred tax asset valuation allowance recorded during 2007; and
 
·
an increase in the overall growth of receivables in the nine months ended September 30, 2008, as compared to the nine months ended September 30, 2007 primarily related to higher revenue.

These decreases were partially offset by increased noncash expenses, particularly related to a reduction to the deferred tax asset valuation allowance recorded during 2007, combined with amortization of intangible assets associated with the acquisitions of Stockpickr LLC, Corsis Technology Group II LLC (renamed Promotions.com LLC) and Bankers Financial Products Corporation and an increase in accounts payable as a result of higher operating expenses.

Net cash provided by operating activities of $8,761,001 for the nine-month period ended September 30, 2008 was primarily the result of the Company’s net income combined with noncash expenses and an increase in accounts payable (due primarily to higher operating expenses), partially offset by a decrease in accrued expenses (primarily the result of payments related to annual incentive compensation) and an increase in accounts receivable (primarily related to increased revenue).

Net cash used in investing activities of $32,436,861 for the nine-month period ended September 30, 2008 was primarily the result of the purchase of short term marketable securities (invested in U.S. Treasury bills), capital expenditures consisting of capitalized website and software development costs and purchases of computer hardware, software, leasehold improvements and furniture and fixtures, combined with the Company’s long-term investment in Debtfolio, Inc. (See Note 12 in the Notes to Consolidated Financial Statements)

Net cash used in financing activities of $2,607,900 for the nine-month period ended September 30, 2008 primarily consisted of cash dividends paid and the purchase of treasury stock partially offset by the proceeds from the exercise of stock options.

The Company has a total of $618,660 of cash invested in certificates of deposit that serve as collateral for outstanding letters of credit, and is therefore restricted. The letters of credit serve as security deposits for the Company’s office space in New York City. The office leases do not expire within the next 12 months, and the restricted cash is therefore classified as a noncurrent asset.

The Company believes that its current cash and cash equivalents will be sufficient to meet its anticipated cash needs for at least the next 12 months. The Company is committed to cash expenditures in an aggregate amount of approximately $6.2 million through September 30, 2009, in respect of the contractual obligations set forth below under “Commitments and Contingencies.” Additionally, the Company’s Board of Directors declared a cash dividend in the amount of $0.025 per share of common stock during each of the first three quarters of 2008, which resulted in cash expenditures of approximately $0.9 million and $2.6 million in the three- and nine-month periods ended September 30, 2008, respectively. The Company intends, although there can be no assurance, to maintain the dividend at the current annual level of $0.10 per share, and will review the dividend on an ongoing basis to ensure that it serves the best interests of stockholders by most effectively utilizing cash balances.

For the year ended December 31, 2006, the Company recorded a full valuation allowance against the deferred tax asset. During the year ended December 31, 2007, the valuation allowance was reduced by $16 million, as management concluded that it was more likely than not that the Company would realize the benefits of this portion of its deferred tax asset through taxable income to be generated in future years. Due to the reversal of the valuation allowance, this amount was reflected as a benefit to that year’s tax provision.
 
33

The Company recognized a deferred tax asset of approximately $44 million and $53 million as of September 30, 2008 and 2007, respectively, primarily relating to net operating loss carryforwards of approximately $125 million and $132 million, as of September 30, 2008 and 2007, respectively, available to offset future taxable income through 2025.

In accordance with Section 382 of the Internal Revenue Code, the usage of the Company’s net operating loss carryforward could be limited in the event of a change in ownership. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. As of September 30, 2008, the Company recorded a valuation allowance of $28 million against the deferred tax asset. Based upon a study that analyzed the Company’s stock ownership activity from inception to December 31, 2007, a change of ownership was deemed to have occurred in August, 2000 and again in November, 2007. These changes of ownership created an annual limitation on the usage of the Company’s losses, which will become available over the years of 2008 to 2025.

In evaluating the reasonableness of the valuation allowance, management assessed whether it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. Ultimately, the realization of deferred tax assets is dependant upon the generation of future taxable income during those periods in which the temporary differences become deductible and/or credits can be utilized. To this end, management considered that the Company had taxable income in 2007 and anticipates continued taxable income through the year ended December 31, 2010. Based on these considerations management believes it is more likely than not that the Company will realize the benefit of its deferred tax asset, net of the September 30, 2008 valuation allowance.
 
Commitments and Contingencies

The Company is committed under operating leases, principally for office space. Certain leases are subject to rent reviews and require payment of expenses under escalation clauses. Rent and equipment rental expenses increased to $1,892,581 for the nine-month period ended September 30, 2008, as compared to $1,299,631 for the nine-month period ended September 30, 2007. The change in rent and equipment rental expenses was primarily due to additional office space resulting from the Promotions.com and Bankers Financial Products Corporation acquisitions, increased headcount and changes in operating expense escalations. Additionally, the Company has employment agreements with certain of its employees and outside contributors, whose future minimum payments are dependent on the future fulfillment of their services thereunder. As of September 30, 2008, total future minimum cash payments are as follows:

   
Payments Due by Period
  
       
Less Than
          
After
  
Contractual obligations:
  
Total
  
1 Year
  
1 - 3 Years
  
4 - 5 Years
  
5 Years
  
Operating leases
  
$
4,702,685
  
$
1,821,799
  
$
1,456,544
  
$
920,139
  
$
504,203
  
Employment agreements
    
7,137,530
    
4,116,363
    
3,021,167
    
-
    
-
  
Outside contributor agreements
    
201,933
    
201,933
    
-
    
-
    
-
  
Leases payable
    
112,050
    
72,626
    
39,424
    
-
    
-
  
Total contractual cash obligations
  
$
12,154,198
  
$
6,212,721
  
$
4,517,135
  
$
920,139
  
$
504,203
  

Item 3.   Quantitative and Qualitative Disclosures About Market Risk.

The Company believes that its market risk exposures are immaterial as the Company does 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.
 
34
 
Item 4.  Controls and Procedures.

A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

The Company carried out, under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the quarterly period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2008, the design and operation of these disclosure controls and procedures were effective. During the three-month period covered by this report, there have been no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
35

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings.

In December 2001, the Company was named as a defendant in a securities class action filed in the United States District Court for the Southern District of New York related to its initial public offering (“IPO”) in May 1999. The lawsuit also named as individual defendants certain of its former officers and directors, James J. Cramer, the Chairman of the Board of the Company, and certain of the underwriters of the IPO, including The Goldman Sachs Group, Inc., Hambrecht & Quist LLC (now part of JP Morgan Chase & Co.), Thomas Weisel Partners LLC, Robertson Stephens Inc. (an investment banking subsidiary of BankBoston Corp., later FleetBoston Corp., which ceased operations in 2002), and Merrill Lynch Pierce Fenner & Smith, Inc. Approximately 300 other issuers and their underwriters have had similar suits filed against them, all of which are included in a single coordinated proceeding in the district court (the “IPO Litigations”). The complaints allege that the prospectus and the registration statement for the IPO failed to disclose that the underwriters allegedly solicited and received “excessive” commissions from investors and that some investors in the IPO allegedly agreed with the underwriters to buy additional shares in the aftermarket in order to inflate the price of the Company’s stock. An amended complaint was filed April 19, 2002. The Company and the officers and directors were named in the suits pursuant to Section 11 of the Securities Act of 1933, Section 10(b) of the Exchange Act of 1934, and other related provisions. The complaints seek unspecified damages, attorney and expert fees, and other unspecified litigation costs.

On July 1, 2002, the underwriter defendants in the consolidated actions moved to dismiss all of the IPO Litigations, including the action involving the Company. On July 15, 2002, the Company, along with other non-underwriter defendants in the coordinated cases, also moved to dismiss the litigation. On February 19, 2003, the district court ruled on the motions. The district court granted the Company’s motion to dismiss the claims against it under Rule 10b-5, due to the insufficiency of the allegations against the Company. The motions to dismiss the claims under Section 11 of the Securities Act were denied as to virtually all of the defendants in the consolidated cases, including the Company. In addition, some of the individual defendants in the IPO Litigations, including Mr. Cramer, signed a tolling agreement and were dismissed from the action without prejudice on October 9, 2002.

In June 2003, a proposed collective partial settlement of this litigation was structured between the plaintiffs, the issuer defendants in the consolidated actions, the issuer officers and directors named as defendants, and the issuers’ insurance companies. On or about June 25, 2003, a committee of the Company’s Board of Directors conditionally approved the proposed settlement. In June 2004, an agreement of partial settlement was submitted to the court for preliminary approval. The court granted the preliminary approval motion on February 15, 2005, subject to certain modifications. On August 31, 2005, the court issued a preliminary order further approving the modifications to the settlement and certifying the settlement classes. The court also appointed the notice administrator for the settlement and ordered that notice of the settlement be distributed to all settlement class members by January 15, 2006. The settlement fairness hearing occurred on April 24, 2006, and the court reserved decision at that time.

While the partial settlement was pending approval, the plaintiffs continued to litigate against the underwriter defendants. The district court directed that the litigation proceed within a number of “focus cases” rather than in all of the 310 cases that have been consolidated. The Company’s case is not one of these focus cases. On October 13, 2004, the district court certified the focus cases as class actions. The underwriter defendants appealed that ruling, and on December 5, 2006, the Court of Appeals for the Second Circuit reversed the district court’s class certification decision. On April 6, 2007, the Second Circuit denied plaintiffs’ petition for rehearing. In light of the Second Circuit opinion, counsel to the issuers informed the district court that the settlement with the plaintiffs could not be approved because the defined settlement class, like the litigation class, could not be certified. The settlement was terminated pursuant to a Stipulation and Order dated June 25, 2007.
 
36
 
On August 14, 2007, plaintiffs filed their second consolidated amended class action complaints against the focus cases and, on September 27, 2007, again moved for class certification. On November 12, 2007, certain of the defendants in the focus cases moved to dismiss plaintiffs’ second amended consolidated class action complaints. On March 26, 2008, the district court denied the motions to dismiss except as to Section 11 claims raised by those plaintiffs who sold their securities for a price in excess of the initial offering price and those who purchased outside of the previously certified class period. Briefing on the class certification motion was completed in May 2008. That motion was withdrawn without prejudice on October 10, 2008.

We are presently defending the action vigorously. Any unfavorable outcome of this litigation could have an adverse impact on the Company’s business, financial condition, results of operations, and cash flows.

Item 1A.         Risk Factors.

In addition to the other information set forth in this report, you should carefully consider the material risks discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2007, which could materially affect our business, financial condition or future results.

A significant portion of our subscription revenue is generated by James J. Cramer and other key writers and the loss of the services of these writers, including in particular Mr. Cramer, who recently entered into a new employment agreement, would have a material adverse effect on the Company.

We strive to differentiate our services from those provided by other finance-focused products available in the marketplace. In recent years, we have introduced Web sites featuring content from leading market commentators, user-generated content, and newsletters 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 products is dependent in part upon our brands, some of these products, particularly our newsletters, reflect the talents, efforts, personalities and reputations of their respective writers. As a result, the services of these key writers, particularly our co-founder and Chairman of the Board 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. On April 9, 2008, we entered into a new employment agreement with Mr. Cramer under which he will provide services similar to those he previously provided. As amended to date, the new agreement has a term of three years and provides that Mr. Cramer may terminate the agreement as of January 15, 2010 and any year thereafter. The loss of Mr. Cramer’s services would have a material adverse effect on us. We can make no assurances that we will be able 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 network of Web sites and newsletters. 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.

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 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, newspapers, magazines, newsletters or other new media. Advertising revenues could be adversely affected by significant changes in the relationships we have with portals and other high-traffic Web sites. 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, our business, results of operations and financial condition could be materially adversely affected.

 
37

For the three months ended September 30, 2008, our top five advertisers accounted for approximately 33% of our total advertising revenue, as compared to approximately 29% for the three months ended September 30, 2007. Furthermore, although we have had success attracting advertisers from outside the financial services industry, such as travel, automotive and technology, 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.

 Our Revenues Could Be Adversely Affected If The Securities Markets Decline. 

Our results of operations, particularly related to subscription revenue, are affected by certain economic factors, including the performance of the securities markets. While we believe investors are seeking more information related to the financial markets from trusted sources, the existence of adverse or stagnant securities markets conditions and lack of investor confidence could result in investors decreasing their interest in investor-related publications, which could adversely affect the subscription revenue we derive from our subscription based Web sites and newsletters. 

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

The following table presents information related to repurchases of its common stock made by the Company during the three months ended September 30, 2008.
 
Period
  
(a) Total
Number
of Shares
(or Units)
Purchased
  
(b)
Average
Price
Paid per
Share (or
Unit)
  
(c) Total Number
of Shares (or
 Units) Purchased
as Part of Publicly
Announced Plans
or Programs
  
(d) Maximum Number
(or Approximate Dollar
Value) of Shares (or
Units) that May Yet Be
Purchased Under the
Plans or Programs *
  
July 1 - 31, 2008
     -   $ -     -   $ 2,678,878  
August 1 - 31, 2008
     -   $ -     -   $ 2,678,878  
September 1 - 30, 2008
     -   $ -     -   $ 2,678,878  
Total
     -   $ -     -   $ 2,678,878  
 
* In December 2000, the Company's Board of Directors authorized the repurchase of up to $10 million worth of the Company's common stock, from time to time, in private purchases or in the open market. In February 2004, the Company's Board approved the resumption of this program under new price and volume parameters, leaving unchanged the maximum amount available for repurchase under the program. However, the affirmative vote of the holders of a majority of the outstanding shares of Series B Preferred Stock, voting seperately as a single class, is necessary for the Company to repurchase its stock. The program does not have a specified expiration date. See Note 6 in Notes to Consolidated Financial Statements.

Item 3.  Defaults Upon Senior Securities.

Not applicable.
 
38

Item 4.  Submission of Matters to a Vote of Security Holders.

Not applicable. 

Item 5.  Other Information.

Not applicable. 

 
39

Item 6.  Exhibits.

The following exhibits are filed herewith or are incorporated by reference to exhibits previously filed with the Commission:
 
Exhibit
Number
  
 
Description
*3.1
  
Amended and Restated Certificate of Incorporation of the Company, incorporated by reference to the Exhibits to the Company’s Registration Statement on Form S-1 filed February 23, 1999.
*3.2
  
Certificate of Designation of the Company’s Series B Preferred Stock, as filed with the Secretary of State of the State of Delaware on November 15, 2007, incorporated by reference to the Exhibits to the Company’s Current Report on Form 8-K filed November 20, 2007.
*3.3
  
Amended and Restated Bylaws of the Company, incorporated by reference to the Exhibits to the Company’s Annual Report on Form 10-K filed March 30, 2000.
*4.1
  
Amended and Restated Registration Rights Agreement dated December 21, 1998, by and among the Company and the stockholders named therein, incorporated by reference to the Exhibits to the Company’s Registration Statement on Form S-1 filed February 23, 1999.
*4.2
  
Form of Rights Agreement incorporated by reference to the Exhibits to the Company’s Registration Statement on Form S-1 filed February 23, 1999.
*4.3
  
Amendment No. 1 to the Rights Agreement dated August 7, 2000, incorporated by reference to the Exhibits to the Company’s Annual Report on Form 10-K filed April 2, 2001.
*4.4
  
Amendment No. 2 to the Rights Agreement dated November 15, 2007 by and between the Company and American Stock Transfer & Trust Company, as Rights Agent, incorporated by reference to the Exhibits to the Company’s Current Report on Form 8-K filed November 20, 2007.
*4.5
  
Option to Purchase Common Stock dated November 1, 2007, incorporated by reference to the Company’s Current Report on Form 8-K filed November 6, 2007.
*4.6
  
Investor Rights Agreement dated November 15, 2007 by and among the Company, TCV VI, L.P. and TCV Member Fund, L.P., incorporated by reference to the Exhibits to the Company’s Current Report on Form 8-K filed November 20, 2007.
*4.7
  
Warrant dated November 15, 2007 issued by the Company to TCV VI, L.P., incorporated by reference to the Exhibits to the Company’s Current Report on Form 8-K filed November 20, 2007.
*4.8
  
Warrant dated November 15, 2007 issued by the Company to TCV Member Fund, L.P., incorporated by reference to the Exhibits to the Company’s Current Report on Form 8-K filed November 20, 2007.
*4.9
  
Specimen certificate for the Company’s shares of common stock, incorporated by reference to the Exhibits to Amendment 3 to the Company’s Registration Statement on Form S-1 filed April 19, 1999.
*10.1
 
Employment Agreement dated April 9, 2008, as amended on July 30, 2008 by and between James Cramer and the Company, incorporated by reference to the Exhibits to the Company’s Current Reports on Form 8-K filed April 9, 2008 and July 30, 2008 respectively.
10.2
  
Letter Agreement dated October 24, 2008, by and between Thomas J. Clarke, Jr. and the Company amending the Employment Agreement dated September 13, 2007.
31.1
  
Rule 13a-14(a) Certification of CEO.
31.2
  
Rule 13a-14(a) Certification of CFO.
32.1
  
Section 1350 Certification of CEO.
32.2
  
Section 1350 Certification of CFO.
 
* Incorporated by Reference

 
40

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.COM, INC.
     
     
Date: November 7, 2008
By:
/s/ Thomas J. Clarke, Jr.
 
Name:
Thomas J. Clarke, Jr.
 
Title:
Chief Executive Officer
     
     
Date: November 7, 2008
By:
/s/ Eric Ashman
 
Name:
Eric Ashman
 
Title:
Chief Financial Officer

41

EXHIBIT INDEX

Exhibit
Number
  
 
Description
*3.1
  
Amended and Restated Certificate of Incorporation of the Company, incorporated by reference to the Exhibits to the Company’s Registration Statement on Form S-1 filed February 23, 1999.
*3.2
  
Certificate of Designation of the Company’s Series B Preferred Stock, as filed with the Secretary of State of the State of Delaware on November 15, 2007, incorporated by reference to the Exhibits to the Company’s Current Report on Form 8-K filed November 20, 2007.
*3.3
  
Amended and Restated Bylaws of the Company, incorporated by reference to the Exhibits to the Company’s Annual Report on Form 10-K filed March 30, 2000.
*4.1
  
Amended and Restated Registration Rights Agreement dated December 21, 1998, by and among the Company and the stockholders named therein, incorporated by reference to the Exhibits to the Company’s Registration Statement on Form S-1 filed February 23, 1999.
*4.2
  
Form of Rights Agreement incorporated by reference to the Exhibits to the Company’s Registration Statement on Form S-1 filed February 23, 1999.
*4.3
  
Amendment No. 1 to the Rights Agreement dated August 7, 2000, incorporated by reference to the Exhibits to the Company’s Annual Report on Form 10-K filed April 2, 2001.
*4.4
  
Amendment No. 2 to the Rights Agreement dated November 15, 2007 by and between the Company and American Stock Transfer & Trust Company, as Rights Agent, incorporated by reference to the Exhibits to the Company’s Current Report on Form 8-K filed November 20, 2007.
*4.5
  
Option to Purchase Common Stock dated November 1, 2007, incorporated by reference to the Company’s Current Report on Form 8-K filed November 6, 2007.
*4.6
  
Investor Rights Agreement dated November 15, 2007 by and among the Company, TCV VI, L.P. and TCV Member Fund, L.P., incorporated by reference to the Exhibits to the Company’s Current Report on Form 8-K filed November 20, 2007.
*4.7
  
Warrant dated November 15, 2007 issued by the Company to TCV VI, L.P., incorporated by reference to the Exhibits to the Company’s Current Report on Form 8-K filed November 20, 2007.
*4.8
  
Warrant dated November 15, 2007 issued by the Company to TCV Member Fund, L.P., incorporated by reference to the Exhibits to the Company’s Current Report on Form 8-K filed November 20, 2007.
*4.9
  
Specimen certificate for the Company’s shares of common stock, incorporated by reference to the Exhibits to Amendment 3 to the Company’s Registration Statement on Form S-1 filed April 19, 1999.
*10.1
 
Employment Agreement dated April 9, 2008, as amended on July 30, 2008 by and between James Cramer and the Company, incorporated by reference to the Exhibits to the Company’s Current Reports on Form 8-K filed April 9, 2008 and July 30, 2008 respectively.
10.2
  
Letter Agreement dated October 24, 2008, by and between Thomas J. Clarke, Jr. and the Company amending the Employment Agreement dated September 13, 2007.
31.1
  
Rule 13a-14(a) Certification of CEO.
31.2
  
Rule 13a-14(a) Certification of CFO.
32.1
  
Section 1350 Certification of CEO.
32.2
  
Section 1350 Certification of CFO.
     
* Incorporated by Reference