================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended September 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number: 0-27556
YOUTHSTREAM MEDIA NETWORKS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 13-4082185
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation of Organization)
28 West 23rd Street, New York, New York 10010
(Address of Principal Executive Offices) (Zip Code)
(212) 622-7300
(Registrant's Telephone Number, Including Area Code)
Check 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 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
---
At November 5, 2001, there were 30,823,689 shares of Common Stock, $.01 par
value outstanding.
================================================================================
YOUTHSTREAM MEDIA NETWORKS, INC.
FORM 10-Q
INDEX
PAGE
PART I--FINANCIAL INFORMATION NUMBER
------
ITEM 1 FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS - SEPTEMBER 30, 2001
(UNAUDITED) AND JUNE 30, 2001.......................................................... 1
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - THREE MONTHS
ENDED SEPTEMBER 30, 2001 AND 2000...................................................... 2
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - THREE MONTHS
ENDED SEPTEMBER 30, 2001 AND 2000...................................................... 3
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - THREE
MONTHS ENDED SEPTEMBER 30, 2001........................................................ 4
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS...................................... 5
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................................................. 9
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK................................ 10
PART II--OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K................................................................ 11
SIGNATURES............................................................................................. 12
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
YOUTHSTREAM MEDIA NETWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
September 30, June 30,
2001 2001
------------- ------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents ................................................. $ 12,546 $ 14,927
Marketable debt securities, at amortized cost ............................. 3,284 5,655
Accounts receivable, net of allowance for doubtful accounts of $195
and $191 at September 30, 2001 and June 30, 2001, respectively ......... 4,303 2,585
Inventories, net of allowance of $146 at September 30, 2001 and
June 30, 2001 .......................................................... 3,209 2,606
Other current assets ...................................................... 1,137 628
-------- --------
Total current assets .......................................................... 24,479 26,401
Property and equipment, net of accumulated depreciation of $6,427
and $5,787 at September 30, 2001 and June 30, 2001, respectively .......... 6,755 6,817
Deferred financing costs, net of accumulated amortization of $1,297
and $1,105 at September 30, 2001 and June 30, 2001, respectively .......... 3,183 3,375
Goodwill, net of accumulated amortization of $2,861
at September 30, 2001 and June 30, 2001 ................................... 11,943 10,785
Restricted cash ............................................................... 1,328 1,328
-------- --------
Total assets................................................................... $ 47,688 $ 48,706
======== ========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable .......................................................... $2,526 $2,820
Accrued employee compensation ............................................. 1,416 2,018
Other accrued expenses .................................................... 3,579 3,253
Net current liabilities of discontinued
operations ............................................................. 2,411 3,078
Deferred revenues ......................................................... 1,875 1,751
Current portion of deferred purchase price ................................ 1,500 1,500
Current portion capitalized lease obligations ............................. 32 46
Current portion of long-term debt ......................................... 1,371 1,169
-------- --------
Total current liabilities ..................................................... 14,710 15,635
Net non-current liabilities of discontinued
operations ................................................................. 65 185
Long-term debt ................................................................ 18,166 18,630
Capitalized lese obligations .................................................. -- 5
Other liabilities ............................................................. 367 741
Commitments and contingencies ................................................. -- --
Stockholders' equity:
Preferred stock, $.01 par value, 5,000 shares authorized, no shares
issued and outstanding ................................................. -- --
Common stock, $.01 par value, 100,000 shares authorized, 30,823 shares
and 30,091 shares issued and outstanding at September 30, 2001
and June 30, 2001, respectively ........................................ 308 301
Additional paid-in capital ................................................ 329,983 329,097
Accumulated deficit ....................................................... (315,373) (315,649)
Treasury stock, 408 shares and 143 shares at September 30, 2001
and June 30, 2001, respectively ........................................ (538) (239)
-------- --------
Total stockholders' equity .................................................... 14,380 13,510
-------- --------
Total liabilities and stockholders' equity .................................... $ 47,688 $ 48,706
======== ========
See notes to condensed consolidated financial statements
1
YOUTHSTREAM MEDIA NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three months ended
September 30,
----------------------
2001 2000
---- ----
Net revenues ............................................... $12,810 $ 10,567
Operating expenses:
Cost of sales, including depreciation
of $526 and $453 in 2001 and 2000, respectively .... 4,099 4,042
Selling, general and administrative expenses .......... 6,418 6,155
Corporate expenses .................................... 1,277 1,628
Depreciation and amortization ......................... 114 863
------- ---------
Total operating expenses ................................... 11,908 12,688
------- ---------
Income (loss) from operations .............................. 902 (2,121)
Interest income ............................................ 184 747
Other income ............................................... -- 24
Interest expense ........................................... (774) (795)
------- ---------
Income (loss) before provision for income taxes ............ 312 (2,145)
Provision for income taxes ................................. 36 228
------- ---------
Income (loss) from continuing
operations ............................................. 276 (2,373)
Loss from discontinued operations .......................... -- (24,839)
------- ---------
Net income (loss) .......................................... $ 276 $ (27,212)
======= =========
Per share of common stock basic:
Income (loss) from continuing operations ............... $ 0.01 $ (0.08)
Loss from operation of discontinued
operations .......................................... -- (0.86)
------- ---------
Net income (loss) per basic common share ................... $ 0.01 $ (0.94)
======= =========
Per share of common stock diluted:
Income (loss) from continuing operations ............... $ 0.01 $ (0.08)
Loss from operation of discontinued
operations .......................................... -- (0.86)
------- ---------
Net income (loss) per basic common share ................... $ 0.01 $ (0.94)
======= =========
Weighted average basic common
shares outstanding ...................................... 29,922 28,897
======= =========
Weighted average diluted common
shares outstanding ...................................... 30,027 28,897
======= =========
See notes to condensed consolidated financial statements
2
YOUTHSTREAM MEDIA NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Three months ended
September 30,
-------------------
2001 2000
------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ................................................... $ 276 $(27,212)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Loss from discontinued operations ............................... -- 24,839
Depreciation and amortization ................................... 640 1,316
Bad debt expense ................................................ 4 121
Net change in assets and liabilities of discontinued operations.. (787) (12,044)
Amortization of deferred financing costs ........................ 192 183
Amortization of original issue discount on Subordinated Notes ... 29 29
Deferred rent ................................................... 1 1
Gain on disposal of equipment ................................... -- (24)
Other ........................................................... (40) --
Changes in assets and liabilities, net of acquisitions:
Accounts receivable ........................................... (1,722) (516)
Inventories ................................................... (603) 75
Other current assets .......................................... (509) 7,652
Accounts payable .............................................. (294) 544
Accrued employee compensation ................................. (602) (624)
Other accrued expenses ........................................ (274) 223
Deferred revenues ............................................. 124 274
------- --------
Net cash used in operating activities ............................... (3,565) (5,163)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures .............................................. (543) (10)
Proceeds from sale of equipment ................................... -- 37
Proceeds from marketable debt securities upon maturity ............ 2,371 3,696
Other assets ...................................................... -- (127)
Payment for business acquisitions (net of cash acquired) .......... -- (126)
------- --------
Net cash provided by investing activities ........................... 1,828 3,470
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from sale of common stock and exercise
of warrants and options ........................................ -- 127
Repurchase of common stock ........................................ (299) --
Net proceeds from issuance of warrants in connection with long-term -- 35
debt
Repayment of capitalized lease obligations ........................ (19) (203)
Proceeds from long-term debt ...................................... -- 965
Repayment of long-term debt ....................................... (326) (310)
------- --------
Net cash (used in) provided by financing activities ................. (644) 614
------- --------
Decrease in cash and cash equivalents ............................... (2,381) (1,079)
Cash and cash equivalents at beginning of period .................... 14,927 18,232
------- --------
Cash and cash equivalents at end of period .......................... $12,546 $ 17,153
======= ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest ............................................ $ 553 $ 660
======= ========
Cash paid for income taxes ........................................ $ 16 $ 89
======= ========
NONCASH FINANCING ACTIVITIES:
Issuance of common stock in connection with acquisitions .......... $ 893 $ 5,514
======= ========
Issuance of warrants in connection with long-term debt ............ $ -- $ 162
======= ========
Debt issued in connection with purchase of fixed asset ............ $ 35 $ --
======= ========
Accrued earn-out................................................... $ 600 $ --
======= ========
See notes to condensed consolidated financial statements
3
YOUTHSTREAM MEDIA NETWORKS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD JUNE 30, 2001 TO SEPTEMBER 30, 2001
(IN THOUSANDS)
(UNAUDITED)
Common Stock Additional
--------------------- Paid-in Accumulated Treasury
Shares Amount Capital Deficit Stock Total
-----------------------------------------------------------------------------
Balances at June 30, 2001 ..................... 30,091 $301 $329,097 $(315,649) $(239) $13,510
Issuance of common stock in connection with
acquisition of Invino ...................... 274 3 332 -- -- 335
Issuance of common stock in connection with
acquisition of Trent ....................... 458 4 554 -- -- 558
Stock repurchase .............................. -- -- -- -- (299) (299)
Net income .................................... -- -- -- 276 -- 276
-----------------------------------------------------------------------------
Balances at September 30, 2001 ................ 30,823 $308 $329,983 $(315,373) $(538) $14,380
=============================================================================
See notes to condensed consolidated financial statements
4
YOUTHSTREAM MEDIA NETWORKS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
YouthStream Media Networks, Inc. ("YouthStream"), and its wholly-owned
subsidiaries, (collectively, the "Company"). The Company's operations consist of
Network Event Theater, Inc. ("NET"), American Passage Media, Inc. ("American
Passage"), Campus Voice, Inc. ("Campus Voice"), Beyond the Wall, Inc. ("Beyond
the Wall"), Trent Graphics, Inc. ("Trent") and W3T.com, Inc. ("Teen.com"). In
December 2000, the Company discontinued the operations of CommonPlaces, LLC
("CommonPlaces"), sixdegrees, inc., ("sixdegrees"), CollegeWeb.com, Inc.
("CollegeWeb") and Invino Corporation ("Invino") See Note 3. - Discontinued
Operations.
YouthStream Media Networks, Inc. through its subsidiaries, is a leading
cross-platform media, marketing services and retail company that targets
teenagers and young adult ages 12 to 24. During fiscal 2001, YouthStream
reorganized into two market segments: media and retail.
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q. Accordingly, they do not
include all the information and footnotes required by 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
interim period are not necessarily indicative of the results that may be
expected for the year ended June 30, 2002. For further information, refer to the
consolidated financial statements and footnotes thereto included in Company's
Form 10-K for the fiscal year ended June 30, 2001.
2. DISCONTINUED OPERATIONS
In December 2000, the Company announced its decision to discontinue its online
segment, including the operations of its sixdegrees subsidiary and exit its
Application Service Provider ("ASP") business. The ASP business included the
technology that was acquired and further developed by CommonPlaces, CollegeWeb
and Invino. The Company determined that the ASP business was not aligned with
its long-term vision and strategy. The Company shut down its sixdegrees website
on December 30, 2000, and final disposal of the ASP business occurred prior to
June 30, 2001. In connection with the discontinuance of these businesses, the
Company incurred a one-time charge of $164 million, related primarily to the
write-off of goodwill, and also including other net assets and an accrual for
estimated losses during the phase-out period. The discontinuation of sixdegrees
and the disposal of the ASP business represent the disposal of a business
segment under Accounting Principles Board ("APB") Opinion No. 30. Accordingly,
results of these operations have been classified as discontinued and prior
periods have been restated.
Net revenues and loss from discontinued operations for the three month period
ended September 30, 2000 are as follows (in thousands):
Net revenues $ 219
=========
Loss from discontinued operations $(24,839)
=========
3. RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 141, Business Combinations. SFAS
No. 141 addresses the initial recognition and measurement of goodwill and other
intangible assets acquired in a business combination. SFAS No. 141 is applicable
to business combinations beginning July 1, 2001.
In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 142 addresses the recognition and measurement of goodwill and
other intangible assets subsequent to their acquisition. SFAS No. 142 also
addresses the initial recognition and measurement of intangible assets acquired
outside of a business combination whether acquired individually or with a group
of other assets. Goodwill previously recorded in the Company's financial
statements is affected by the provisions of SFAS No. 142. This statement
provides that intangible assets with indefinite lives and goodwill will not be
amortized, but will be tested at least annually for impairment. The Company
elected early adoption of SFAS No. 142 in the first quarter of fiscal year 2002.
As defined by SFAS No. 142, the Company identified two reporting units which
constitute components of the Company's business. The Company is required to
complete, within six months from the date of adoption, a transitional impairment
test that requires a fair value determination as of July 1, 2001. As of
September 30, 2001 the Company has not performed the transitional impairment
test, however it does not expect any impairment loss as a result of such test.
5
Had the Company accounted for its goodwill under SFAS 142 for all periods
presented, the Company's net income (loss) and earnings (loss) per share would
have been as follows (in thousands except per share amounts):
Three months ended
September 30,
-----------------------
2001 2000
-----------------------
Reported net income (loss) ..... $ 276 $(27,212)
Add back goodwill amortization.. -- $ 18,864
----- --------
Adjusted net income (loss) ..... $ 276 $ (8,348)
===== ========
Basic Earnings Per Share:
Reported net income (loss) ..... $0.01 $ (0.94)
Goodwill amortization .......... -- 0.65
----- --------
Adjusted net income (loss) ..... $0.01 $ (0.29)
===== ========
Diluted Earnings Per Share:
Reported net income (loss) ..... $0.01 $ (0.94)
Goodwill amortization .......... -- 0.65
----- --------
Adjusted net income (loss) ..... $0.01 $ (0.29)
===== ========
4. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
September 30
2001 2000
-------- --------
Note Payable to Bank (A) ......................................................... $ 906 $ 1,072
Subordinated Notes - Private Placement (B) ....................................... 5,000 5,000
Note Payable to Finance Company (C) .............................................. 1,009 1,169
Subordinated Notes - Private Placement (D) ....................................... 12,000 12,000
Subordinated Notes - Private Placement (E) ....................................... 1,000 1,000
Other ............................................................................ 40 6
------- -------
19,955 20,247
Less unamortized original issue discount attributed to subordinated notes ........ 418 448
------- -------
19,537 19,799
Less current portion ............................................................. 1,371 1,169
------- -------
$18,166 $18,630
======= =======
(A) This loan is secured by all of the assets of Campus Voice, Beyond the Wall
and American Passage (the "Borrowers") and is guaranteed by the Company. This
loan is payable in equal monthly installments, commencing in February 1998, over
a maximum of six years. Interest is payable monthly at a rate of interest of 275
basis points above LIBOR for U.S. dollar deposits of one-month maturity.
The Borrowers are also party to an interest rate exchange agreement originally
converting $3.0 million of the aforementioned floating rate debt to a fixed
rate. Under the interest rate exchange agreement, the Borrowers are required to
pay interest at a fixed rate of 9.11% on the notional amount covered by the
interest rate exchange agreement. In return, the Company receives interest
payments on the same notional amount at the prevailing LIBOR rate plus 275 basis
points. The interest rate exchange agreement terminates in June 2002. The fair
value of the interest rate exchange agreement at September 30, 2001 was
immaterial.
The Company was in violation of certain of its covenants as of September 30,
2001. The Company has obtained a waiver from the bank through March 31, 2002,
and management believes that the Company will be in compliance after March 31,
2002.
6
(B) In July 1998, the Company issued subordinated notes to accredited investors
in the aggregate amount of $5,000,000 less an original discount of $188,000.
These notes bear interest at 11% per annum and are due in July 2003. In
connection with the issuance of the subordinated notes, the Company issued
375,000 warrants to the accredited investors for $188,000, and 150,000 warrants
to the placement agent. Each warrant, which expires in July 2003, entitles the
holder to purchase one share of the Company's common stock for $4.125, the
market price of the Company's common stock at the date of issuance. Based on an
independent appraisal, the 525,000 warrants were valued at $740,000. The value
of the warrants and closing costs of $314,000 have been recorded as deferred
financing costs and are being amortized over the term of the subordinated notes.
The original issue discount of $188,000 is also being amortized over the term of
the related debt.
(C) In March 2000, the Company issued a note to a finance company in the amount
of $1,971,000. The note bears interest at the rate of 11.95% per annum and is
payable in 36 equal monthly payments commencing in March 2000. The note is
secured by certain equipment owned by the Company.
(D) In June 2000, the Company issued a subordinated note to an accredited
investor in the amount of $12,000,000, less an original issue discount of
$420,000. The note bears interest at 11% per annum and is due in June 2005. In
connection with the issuance of the subordinated note, the Company issued
1,020,000 warrants to an accredited investor in exchange for $420,000. Each
warrant, which expires in June 2005, entitles the holder to purchase one share
of the Company's common stock for $5.9375, the market price of the Company's
common stock at the date of issuance. Based on an independent appraisal, the
1,020,000 warrants were valued at $3,346,000. The value of the warrants and
closing costs of $494,000 were recorded as deferred financing costs and are
being amortized over the term of the subordinated note. The original issue
discount of $420,000 is being amortized over the term of the related debt.
(E) In July 2000, the Company issued a subordinated note to an accredited
investor in the amount of $1,000,000, less an original issue discount of
$35,000. The note bears interest at 11% per annum and is due in July 2005. In
connection with the issuance of the subordinated note, the Company issued 60,000
warrants to an accredited investor in exchange for $35,000. Each warrant, which
expires in July 2005, entitles the holder to purchase one share of the Company's
common stock for $3.75, the market price of the Company's common stock at the
date of issuance. Based on an independent appraisal, the 60,000 warrants were
valued at $197,000. The value of the warrants was recorded as deferred financing
costs and is being amortized over the term of the subordinated note. The
original issue discount of $35,000 is being amortized over the term of the
related debt.
5. STOCKHOLDER'S EQUITY
In May 2001, the Board of Directors authorized the Company to make open market
purchases of the Company's common stock aggregating up to $2 million. As of
September 30, 2001, the Company purchased, on the open market, 408,000 shares at
a cost of $538,000.
In May 2001, the Company approved a Voluntary Stock Option Exchange Program to
be carried out under the Company's 2000 Stock Incentive Plan ("the Plan").
Employees were given the option to exchange all or a portion of their options on
July 20, 2001 which had an exercise price equal to or greater than $9.00. In
exchange, employees are eligible to receive, six months and one day after
cancellation on July 20, 2001, new options for 80% of the number of shares
covered by the cancelled options, with an exercise price equal to the fair
market value of the Company's stock on the date of new grant, January 21, 2001.
On July 20, 2001, 743,800 options were cancelled and are subject to re-issuance
on January 21, 2002.
The July 1999 Trent acquisition agreement provided for additional consideration
for the purchase contingent upon Trent meeting certain targets as defined in the
merger agreement. Accordingly, those targets were met and at September 30, 2001
the Company issued 458,000 shares of the Company's common stock, valued at
$558,000, and accrued for a $600,000 payment in cash to be paid subsequently.
The additional purchase price of $1,158,000 was recorded as additional goodwill.
6. SEGMENT INFORMATION
During the second quarter of fiscal year 2001, in connection with the decision
to discontinue the Company's online segment, the Company revised its reporting
of the remaining businesses. The Company's segments are now media and retail.
The media segment represents the Company's media, marketing and promotional
services provided to advertisers by NET, American Passage, Campus Voice, Beyond
the Wall and Teen.com. The retail segment consists of on-campus and retail store
poster sales provided by Trent. The segments for fiscal 2000 have been restated
to reflect the Company's internal reorganization (in thousands).
Three months ended Three months ended
September 30, 2001 September 30, 2000
--------------------------------------- ---------------------------------------
Media Retail Total Media Retail Total
---------- --------- -------- ---------- --------- --------
Net revenues ...................... $ 4,689 $8,121 $12,810 $ 4,052 $6,515 $10,567
Depreciation and
amortization ................... 542 98 640 1,153 163 1,316
Income (loss) from operations ..... (1,923) 2,825 902 (4,099) 1,978 (2,121)
Capital expenditures .............. 54 489 543 -- 10 10
September 30, 2001 June 30, 2001
--------------------------------------- ---------------------------------------
Media Retail Total Media Retail Total
---------- --------- -------- ---------- --------- --------
Identifiable assets ................ $18,199 $ 15,351 $33,550 $20,497 $10,827 $31,324
Corporate........................... -- -- 14,138 -- -- 17,382
------- -------- ------- ------- ------- -------
Total assets........................ $18,199 $ 15,351 $47,688 $20,497 $10,827 $48,706
======= ======== ======= ======= ======= =======
7
6. EARNINGS PER SHARE DATA
The following table sets forth the computation of basic and diluted weighted
average shares for the periods indicated.
Three Months Ended
September 30,
----------------------------------
2001 2000
--------------- --------------
Basic:
Weighted average shares outstanding ...... 29,922 28,897
=============== ==============
Diluted:
Weighted average shares outstanding ...... 29,922 28,897
Common equivalent shares from
stock options ......................... 105 --
--------------- --------------
Totals ...................................... 30,027 28,897
=============== ==============
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the financial condition and results of operations of
the Company should be read in conjunction with the consolidated financial
statements and related notes thereto. The following discussion contains certain
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from those discussed herein. Factors that
could cause or contribute to such differences include, but are not limited to,
the Company's ability to timely execute its business plan, the Company's
management of growth, changing consumer tastes, the impact of competitive
products and pricing, conditions in the markets in which the Company conducts
business, including the advertising, media and retail markets, and general
economic conditions. The Company undertakes no obligation to publicly release
the results of any revisions to these forward-looking statements that may be
made to reflect any future events or circumstances.
The Company's consolidated financial statements reflect reclassifications for
prior periods due to the discontinued operation of the Company's online segment.
The Company revised its reporting segments from online and offline to media and
retail. The following analysis incorporates reclassifications of prior periods
due to discontinued operations and revision of the reporting segments. The
following financial analysis compares the three months ended September 30, 2001
(unaudited) to the three months ended September 30, 2000 (unaudited).
RESULTS OF OPERATIONS
(in Thousands)
Youthstream's revenue consists of revenues generated from its two segments,
media and retail. Our media segment includes revenues from event marketing,
proprietary events, on campus theater events, media planning and buying in
campus publications and out-of-home media, such as campus billboards. Our retail
segment derives its revenues from the sale of decorative wall posters, targeting
teens and young adults, through our on-campus sales events, retail stores and
internet sales.
In fiscal 2001, the Company closed its HotStamp cities program and Beyond the
Wall catalog. In order to make the comparison of quarterly results for the
three months ended September 30, 2001 vs. the three months ended September 30,
2000 more meaningful, adjustments for the HotStamp cities program and Beyond the
Wall catalog have been made to the three month period ended September 30, 2000
and, as such, their revenues were excluded from adjusted revenue. The following
table represents adjusted revenues (in thousands).
Three months ended
September 30,
--------------------------
2001 2000
----------- ---------
Revenues as stated in the Financial Statements ..... $ 12,810 $10,567
HotStamp Cities Program and Beyond the Wall
Catalog ............................................ -- (1,080)
----------- ---------
Adjusted Revenues $ 12,810 $ 9,487
=========== ==========
Adjusted revenues increased 35% to $12,810 for the quarter ended September 30,
2001 from $9,487 for the quarter ended September 30, 2000. Revenue growth was
attributable to a 58% increase in the media segment to $4,689 and a 25% increase
in the retail segment to $8,121 for the quarter ended September 30, 2001. Media
revenues increased primarily because of increased sales in the event marketing
business. Revenue growth in the Company's retail segment was primarily
attributable to the increase in the number of stores in operation, same store
sales growth and a price increase in the beginning of fiscal year 2002. Although
the Company reported increased revenues for the quarter ended September 30,
2001, sales from both our media and retail segments were negatively impacted
by the September 11, 2001 events.
Cost of sales consists of the cost of decorative wall posters sold in our retail
segment, printing, freight, production, product costs and depreciation of
equipment associated with our media segment.
Cost of sales as a percentage of revenues declined from 38% for the first three
months of fiscal 2000 to 32% in the first three months of fiscal 2001. Cost of
sales increased slightly for the three months ended September 30, 2001 to $4,099
from $4,042 for the three months ended September 30, 2000. The increase of $57
was due to an increase of $104 in the retail segment offset by a $47 decrease in
the media segment. The media segment decreased $47 due to increased business in
event marketing of $750 offset by a $797 decrease related to the closing of the
Company's HotStamp cities program and the Beyond the Wall catalog. The retail
segment increased $104 due to increased revenues.
For the three months ended September 30, 2001, selling, general and
administrative expenses were $6,418 or 50% of revenues as compared to $6,155 or
58% of revenues for the three months ended September 30, 2000. The increase of
$263 was due to the combination of increased rent, occupancy and personnel
expense of approximately $470 due to increased store openings and hiring
additions to the management team. This was offset by a decrease of bad debt
expense approximately $207 due to implementation of new credit policies.
For the three months ended September 30, 2001, corporate expenses were $1,277 or
10% of revenues as compared to $1,628 or 15% of revenues for the three months
ended September 30, 2000. The decrease of $351 was primarily due to cost cutting
measures.
For the three months ended September 30, 2001, depreciation and amortization
expenses were $640 ($526 in Cost of Sales) as compared to $1,316 ($453 in Cost
of Sales) for the three months ended September 30, 2000. The decrease of $676
was due to the implementation of FAS 142, which no longer requires that goodwill
be amortized, and the write-down of goodwill relating to Teen.com, HotStamp and
Beyond the Wall Catalog in the
9
fourth quarter of fiscal 2001.
For the three months ended September 30, 2001, interest income was $184 as
compared to $747 for the three months ended September 30, 2000. The decrease of
$563 was due to lower cash balances and declining interest rates.
For the three months ended September 30, 2001, interest expense was $774 as
compared to $795 for the three months ended September 30, 2000. The decrease of
$21 was due to the reduction of long-term debt.
For the three months ended September 30, 2001, there was no loss from
discontinued operations as compared to $24,839 for the three months ended
September 30, 2000. The loss from discontinued operations represents the net
loss of the online segment prior to the December 2000 measurement date. For the
three months ended September 30, 2000, loss from discontinued operations
primarily represents amortization of goodwill and depreciation of $18,214 and
operating expenses of $6,844 offset by revenues of $219.
LIQUIDITY AND CAPITAL RESOURCES
The Company used approximately $3.6 million of cash in operating activities for
three months ended September 31, 2001, primarily to fund its working capital and
discontinued operations. The Company funded its operations with cash generated
by the sale of investments in marketable debt securities.
As of September 30, 2001, the Company had approximately $12.5 million in cash
and equivalents. The Company believes that such amounts plus an additional
amount of $3.3 million, which represents investments in marketable debt
securities with maturities of less than one year, will be sufficient to fund
working capital, including debt service and interest expense, at least through
the period ending September 30, 2002. In the event that the Company's plans and
assumptions for each of its operations, with regard to the Company's ability to
fund operations, working capital, capital expenditures and debt repayments,
prove to be inaccurate, the Company could be required to seek additional
financing. The Company's ability to improve its operations will be subject to
prevailing economic conditions and to legal, financial, business, regulatory,
industry and other factors, many of which are beyond the Company's control. The
Company may also seek additional debt or equity financing to develop or acquire
additional businesses or conduct retail expansion or to fund its operations. To
the extent that the Company finances its requirements through the issuance of
additional equity securities, any such issuance would result in dilution to the
interests of the Company's stockholders.
Additionally, to the extent that the Company incurs indebtedness or issues debt
securities in connection with financing activities, the Company will be subject
to all of the risks associated with incurring substantial indebtedness,
including the risk that interest rates may fluctuate and cash flow may be
insufficient to pay principal and interest on any such indebtedness. The Company
has no current arrangements with respect to, or sources of, additional
financing. There can be no assurance that any additional financing will be
available to the Company on acceptable terms, if at all.
The Company currently projects over thirty-five percent increase in revenues in
fiscal year 2002 in both the media and retail segments. Growth in the media
segment is expected to be broad based but driven primarily by event marketing
activities. These projections assume improvement in the advertising market and
continued growth in the Company's retail operations, among other things. The
retail segment revenue growth is comprised of same store year-over-year growth,
new store openings and price increases for the campus sales events. The Company
also projects earnings before interest, taxes, depreciation and amortization
("EBITDA") to be positive in the full fiscal year 2002 due to projected increase
in revenues, as well as projected improvements in operating margins. The Company
previously projected that EBITDA improvement during fiscal year 2002 was
expected to reduce cash consumption below $7.0 million during the fiscal year
including an expected $3.0 million of capital investments in the business. The
Company currently projects that, while its cash consumption is likely to exceed
$7.0 million during fiscal year 2002, (including an expected $3 million of
capital expense) it will still have a substantial cash reserve at the end of the
year to fund future growth. The change in estimated cash consumption is related
to cash used to purchase shares of the Company's common stock under the
Company's repurchase program, an asset purchase relating to the event marketing
division and improved estimates relating to cash needs of the Company's
continued and discontinued operations. The Company currently expects a net loss
of less than $10.0 million during fiscal year 2002. The Company projects that it
will sustain its revenue growth momentum through fiscal year 2003, which should
result in improved EBITDA, sufficient to generate positive cash flow and
positive net income in fiscal year 2003.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
Our accounts receivable are subject, in the normal course of business to
collection risks. We regularly assess these risks and have established policies
on business practices to protect against the adverse effects of collections
risks.
Interest Rate Risk
Our investments are classified as cash and cash equivalent and debt securities
with original maturities of three months or less. Therefore, changes in the
market's interest rates do not affect the value of the investments as recorded
by us.
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PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
Form 8k was filed with the Securities and Exchange Commission by the
Company on August 21, 2001, attaching a transcript of the Company's
fourth quarter and year-ending June 30, 2001 conference call.
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
November ___, 2001
YOUTHSTREAM MEDIA NETWORKS, INC.
BY: /s/ JAMES G. LUCCHESI
-----------------------------------
JAMES G. LUCCHESI
President and
Chief Executive Officer
BY: /s/ IRWIN ENGELMAN
-----------------------------------
IRWIN ENGELMAN
Executive Vice President,
Chief Financial Officer and
Chief Accounting Officer
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