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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 December 31, 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 February 1, 2002, there were 31,107,000 shares of Common Stock, $.01 par
value outstanding.
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YouthStream Media Networks, Inc.
Form 10-Q
Index
Page
PART I--FINANCIAL INFORMATION Number
------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - December 31, 2001
(unaudited) and June 30, 2001..................................... 1
Unaudited Condensed Consolidated Statements of Operations - three and
six months ended December 31, 2001 and 2000....................... 2
Unaudited Condensed Consolidated Statements of Cash Flows - six months
ended December 31, 2001 and 2000.................................. 3
Unaudited Consolidated Statement of Stockholders' Equity - six months
ended December 31, 2001........................................... 4
Notes to condensed consolidated financial statements................. 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................ 8
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)
December 31, June 30,
2001 2001
----------- ---------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents .......................................... $ 6,503 $ 14,927
Marketable debt securities, at amortized cost ...................... 2,774 5,655
Accounts receivable, net of allowance for doubtful accounts of $171
at December 31, 2001 and June 30, 2001, respectively ............ 4,611 2,461
Inventories, net of allowance of $164 and $146 at December 31, 2001
and June 30, 2001, respectively ................................. 3,937 2,606
Other current assets ............................................... 1,082 627
--------- ---------
Total current assets ................................................... 18,907 26,276
Property and equipment, net of accumulated depreciation of $5,664
and $5,787 at December 31, 2001 and June 30, 2001, respectively .... 6,446 6,612
Assets from discontinued operations .................................... 330
Deferred financing costs, net of accumulated amortization of $1,489
and $1,105 at December 31, 2001 and June 30, 2001, respectively .... 2,991 3,375
Intangibles, net of accumulated amortization of $2,861
at December 31, 2001 and June 30, 2001 ............................. 12,193 10,785
Restricted cash ........................................................ 1,328 1,328
--------- ---------
Total assets ........................................................... $ 41,865 $ 48,706
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................................... $ 2,326 $ 2,723
Accrued expenses ................................................... 3,722 5,066
Current liabilities of discontinued operations ..................... 2,613 3,381
Deferred revenues .................................................. 1,742 1,750
Deferred purchase price ............................................ 1,125 1,500
Current portion capitalized lease obligations ...................... 15 46
Current portion of long-term debt .................................. 1,469 1,169
--------- ---------
Total current liabilities .............................................. 13,012 15,635
Non-current liabilities of discontinued operations...................... 52 185
Long-term debt ......................................................... 17,792 18,630
Other liabilities ...................................................... 369 746
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, 31,107
shares and 30,091 shares issued and outstanding at December 31,
2001 and June 30, 2001, respectively ............................ 311 301
Additional paid-in capital ......................................... 330,338 329,097
Accumulated deficit ................................................ (319,179) (315,649)
Treasury stock, 607 shares and 143 shares at December 31, 2001
and June 30, 2001, respectively ................................. (830) (239)
--------- ---------
Total stockholders' equity ............................................. 10,640 13,510
--------- ---------
Total liabilities and stockholders' equity ............................. $ 41,865 $ 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 Six months ended
December 31, December 31,
---------------------- ----------------------
2001 2000 2001 2000
--------- --------- --------- ---------
Net revenues ................................... $ 8,026 $ 6,968 $ 20,710 $ 17,284
Cost of sales .................................. 3,782 3,169 7,740 7,367
--------- --------- --------- ---------
Gross profit .............................. 4,244 3,799 12,970 9,917
Selling, general, administrative and
corporate expenses ...................... 6,441 7,023 13,850 13,619
Depreciation and amortization ............. 224 487 338 1,868
--------- --------- --------- ---------
Loss from operations ........................... (2,421) (3,711) (1,218) (5,570)
Interest income ................................ 126 552 310 1,300
Other income ................................... -- (14) -- 10
Interest expense ............................... (760) (796) (1,534) (1,592)
--------- --------- --------- ---------
Loss before provision for income taxes ......... (3,055) (3,969) (2,442) (5,852)
Provision for income taxes ..................... 38 72 74 300
--------- --------- --------- ---------
Loss from continuing operations ................ (3,093) (4,041) (2,516) (6,152)
Loss from discontinued operations ......... (365) (16,966) (666) (42,067)
Loss on disposal of discontinued operations (348) (164,971) (348) (164,971)
--------- --------- --------- ---------
Net loss ....................................... $ (3,806) $(185,978) $ (3,530) $(213,190)
========= ========= ========= =========
Per share of common stock basic and diluted
Loss from continuing operations ............ $ (0.10) $ (0.14) $ (0.08) $ (0.21)
Loss from discontinued operations .......... (0.02) (0.58) (0.03) (1.45)
Loss on disposal of discontinued operations (0.01) (5.66) (0.01) (5.68)
--------- --------- --------- ---------
Net loss per basic and diluted common share .... $ (0.13) $ (6.38) $ (0.12) $ (7.34)
========= ========= ========= =========
Weighted average basic and diluted common
shares outstanding ......................... 30,270 29,172 30,092 29,034
========= ========= ========= =========
See notes to condensed consolidated financial statements
2
YOUTHSTREAM MEDIA NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six months ended
December 31,
----------------------
2001 2000
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ............................................................ $ (3,530) $(213,190)
Adjustments to reconcile net loss to
net cash used in operating activities:
Loss from discontinued operations ............................... 666 42,067
Loss on disposal of discontinued operations ..................... 348 164,971
Net change in assets and liabilities of discontinued operations . (1,882) (10,749)
Bad debt expense ................................................ (147)
Depreciation and amortization ................................... 1,273 2,736
Gain on sale of equipment ....................................... (9)
Amortization of deferred financing costs ........................ 384 425
Deferred rent ................................................... 3 4
Changes in assets and liabilities, net of acquisitions:
Accounts receivable ........................................... (2,150) (1,295)
Inventory ..................................................... (1,331) (2)
Other current assets .......................................... (455) 2,677
Accounts payable .............................................. (397) (365)
Accrued expenses .............................................. (1,344) (650)
Deferred revenues ............................................. (8) 1,001
--------- ---------
Net cash used in operating activities ............................... (8,423) (12,526)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures .............................................. (867) (865)
Proceeds from sale of equipment ................................... 37
Sale of investments in marketable debt securities ................. 2,881 5,152
Other assets ...................................................... (250) 58
Payment for business acquisitions (net of cash acquired) .......... (600) (99)
--------- ---------
Net cash provided by investing activities ........................... 1,164 4,283
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from sale of common stock and exercise of warrants and
options ......................................................... -- 162
Common stock repurchase ........................................... (591) --
Repayment of capitalized lease obligations ........................ (36) (149)
Proceeds from long-term debt ...................................... -- 965
Repayment of long-term debt ....................................... (538) (626)
--------- ---------
Net cash (used in) provided by financing activities ................. (1,165) 352
--------- ---------
Decrease in cash and cash equivalents ............................... (8,424) (7,891)
Cash and cash equivalents at beginning of period .................... 14,927 18,232
--------- ---------
Cash and cash equivalents at end of period .......................... $ 6,503 $ 10,341
========= =========
Supplemental cash flow information:
Cash paid for interest ............................................ $ 595 $ 1,538
========= =========
Cash paid for income taxes ........................................ $ 189 $ 142
========= =========
Noncash financing activities:
Issuance of warrants in connection with long-term debt ............ -- 162
========= =========
Issuance of common stock in connection with acquisitions .......... $ 1,251 $ 5,886
========= =========
See notes to condensed consolidated financial statements
3
YOUTHSTREAM MEDIA NETWORKS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the period June 30, 2001 to December 31, 2001
(In thousands)
(Unaudited)
Common Stock
------------------------- Additional Accumulated Treasury
Shares Amount Capital Paid-in 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 ...................... 558 6 687 -- -- 693
Issuance of common stock in connection with
acquisition of Trent ....................... 458 4 554 -- -- 558
Stock repurchase .............................. -- -- -- -- (591) (591)
Net loss ...................................... -- -- -- (3,530) -- (3,530)
---------------------------------------------------------------------------------
Balances at December 31, 2001 ................. 31,107 $ 311 $ 330,338 $ (319,179) $ (830) $ 10,640
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See notes to condensed consolidated financial statements
4
YOUTHSTREAM MEDIA NETWORKS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 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"). In December, 2001 the Company
discontinued its Teen.com operations and closed its HotStamp college business.
See Note 2 - 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 adults 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 the
Company's Form 10-K for the fiscal year ended June 30, 2001.
2. DISCONTINUED OPERATIONS
In December 2001, the Company discontinued its Teen.com website. In connection
with the discontinuance of this business, the Company incurred a one-time charge
of $348,000, related primarily to the write-off of property and equipment and an
accrual for severance.
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 online businesses were 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 Teen.com and sixdegrees and the disposal of the ASP
business have been classified as discontinued and prior periods have been
restated.
Net revenues and loss from discontinued operations are as follows (in
thousands):
Three months ended Three months ended Six months ended Six months ended
December 31, 2001 December 31, 2000 December 31, 2001 December 31, 2000
------------------ ------------------ ----------------- -----------------
Net revenues ........................ $30 $541 $143 $975
================== ================== ================= =================
Loss from discontinued operations ... (365) (16,966) (666) (42,067)
Loss on disposal of discontinued
operations ........................ (348) (164,971) (348) (164,971)
------------------ ------------------ ----------------- -----------------
Net loss from discontinued
operations ........................ $(713) $(181,937) $(1,014) $(207,038)
================== ================== ================= =================
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
5
impairment test that requires a fair value determination as of July 1, 2001. As
of December 31, 2001 the Company has performed the transitional impairment test,
and has determined that the value of its intangible assets are fairly presented
in the financial statements.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and supersedes
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, and the accounting and reporting provisions
of APB Opinion No. 30, Reporting the Results of Operations for a disposal of a
segment of a business. The Company elected early adoption of SFAS No. 144 as of
July 1, 2001. As a result of the adoption of SFAS No. 144, the disposal of
Teen.com, which was not a separate segment of the Company, qualified as a
discontinued operation. The Company was not otherwise significantly impacted by
the adoption of SFAS No. 144.
Had the Company accounted for its goodwill under SFAS No. 142 for all periods
presented, the Company's net loss and loss per share would have been as follows
(in thousands except per share amounts):
Three months ended Six months ended
December 31, December 31,
--------------------- ---------------------
2001 2000 2001 2000
-------- --------- ------- -----------
Reported net loss ................... $ (3,806) $(185,978) $(3,530) $ (213,190)
Add back goodwill amortization ...... 18,864 37,728
-------- --------- ------- -----------
Adjusted net loss ................... $ (3,806) $(167,114) $(3,530) $ (175,462)
======== ========= ======= ===========
Basic and diluted earnings per share:
Reported net loss ................... $ (.13) $ (6.38) $ (.12) $ (7.34)
Goodwill amortization ............... -- .65 1.30
-------- --------- ------- -----------
Adjusted net loss ................... $ (.13) $ (5.73) $ (.12) $ (6.04)
======== ========= ======= ===========
In December 2000, the Company wrote off approximately $127 million of goodwill
relating to its internet segment.
4. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
December 31, June 30,
2001 2001
------- --------
Note Payable to Bank (A) ................. $ 739 $ 1,072
Subordinated Notes - Private Placement (B) 5,000 5,000
Note Payable to Finance Company (C) ...... 843 1,169
Subordinated Notes - Private Placement (D) 12,000 12,000
Subordinated Notes - Private Placement (E) 1,000 1,000
Other .................................... 66 6
------- -------
19,648 20,247
Less unamortized original issue discount
attributed to subordinated notes ....... 387 448
------- -------
19,261 19,799
Less current portion ..................... 1,469 1,169
------- -------
$17,792 $18,630
======= =======
(A) This loan was 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 was payable in equal monthly installments, commencing in February 1998,
over a maximum of six years. Interest was payable monthly at a rate of interest
of 275 basis points above LIBOR for U.S. dollar deposits of one-month maturity.
The Borrowers were 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 fair value of the interest rate exchange agreement at December 31,
2001 was immaterial.
On January 15, 2002, the Company repaid the loan and retired the interest rate
exchange agreement.
(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.
6
(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
December 31, 2001, the Company purchased, on the open market, 607,000 shares at
a cost of $830,000.
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, with an exercise price equal to or greater than $9.00. In
exchange, employees were eligible to receive, six months and one day after
cancellation ("Cancellation"), 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 the new grant. On July 20,
2001, 743,800 options were cancelled, and 518,319 options were reissued on
January 22, 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 (as amended). Accordingly, those targets were met and on
September 30, 2001 the Company issued 458,000 shares of the Company's common
stock, valued at $558,000, and paid $600,000 in cash. The additional purchase
price of $1,158,000 was recorded as additional goodwill.
6. SEGMENT INFORMATION
The Company has two reporting segments: media and retail. The media segment
represents the Company's media, marketing and promotional services provided to
advertisers by NET, American Passage, and Campus Voice. The retail segment
consists of on-campus and retail store poster sales provided by Trent. The prior
periods' segments have been restated to reflect the Company's internal
reorganization (in thousands):
Three months ended Three months ended
December 31, 2001 December 31, 2000
---------------------------- ------------ -----------------------------------------
Media Retail Total Media Retail Total
------------ ------------ ------------ ------------ ----------- ------------
Net revenues .................... 5,216 2,810 8,026 $5,815 $1,153 $6,968
Depreciation and amortization ... 549 117 666 1,252 167 $1,419
Loss from operations ............ (1,598) (823) (2,421) (1,981) (1,730) (3,711)
Capital expenditures ............ 169 155 324 319 63 382
Six months ended Six months ended
December 31, 2001 December 31, 2000
------------------------------------------ ----------------------------------------
Media Retail Total Media Retail Total
------------ ------------ ------------ ------------ ----------- ------------
Net revenues .................... 9,757 10,953 20,710 $9,715 $7,569 $17,284
Depreciation and amortization ... 1,031 242 1,273 2,406 330 2,736
Loss from operations ............ (3,171) 1,953 (1,218) (5,646) 76 (5,570)
Capital expenditures ............ 223 644 867 613 252 865
December 31, 2001 June 30, 2001
---------------------------------------- ----------------------------------------
Media Retail Total Media Retail Total
----------- ----------- ---------- ----------- ----------- ----------
Identifiable assets ............. $14,623 $13,997 $28,620 $20,497 $10,827 $31,324
=========== =========== =========== ===========
Corporate ....................... 13,245 17,382
---------- ----------
Total Assets .................... $41,865 $48,706
========== ==========
7
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 and six months ended December
31, 2001 (unaudited) to the six months ended December 31, 2000 (unaudited).
RESULTS OF OPERATIONS
(In Thousands)
Youthstream's revenue consists of revenues generated from two segments, media
and retail. The Company's 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. It's
retail segment derives its revenues from the sale of decorative wall posters,
targeting teens and young adults, through on-campus sales events, retail stores
and internet sales.
In fiscal 2001, the Company closed its HotStamp cities program and Ads as Art
poster catalog. In December 2001, the Company discontinued its Teen.com business
and closed HotStamp college operations. The following table gives effect to the
closing of the HotStamp programs and Ads as Art poster catalog that was not
accounted for as discontinued operations.
-------------------------------------------------------------------------------------
Three months ended Six months ended
December 31, December 31,
-------------------------------------------------------------------------------------
2001 2000 2001 2000
-------------------------------------------------------------------------------------
Revenues as stated in the Financial
Statements $ 8,026 $6,968 $ 20,710 $17,284
-------------------------------------------------------------------------------------
HotStamp college and cities program
and Ads as Art poster catalog (178) (670) (306) (1,929)
-------------------------------------------------------------------------------------
Adjusted Revenue $ 7,848 $6,298 $ 20,404 $15,355
-------------------------------------------------------------------------------------
Adjusted revenues increased to $7.8 million for the three months ended December
31, 2001 from $6.3 million for the three months ended December 31, 2000. Revenue
growth was attributable to a 143.7% increase in the retail segment to $2.8
million coupled with a 2.1% decline in the media segment to $5.0 million for the
three months ended December 31, 2001. Revenue growth in the Company's retail
segment was attributable to the increase in the number of stores in operation,
and same store growth year over year. Media revenue declined due to a decline in
revenues from the out of home properties offset by strong growth in the event
marketing business.
Adjusted revenues increased to $20.4 million for the six months ended December
31, 2001 from $15.4 million for the six months ended December 31, 2000. Revenue
growth was attributable to a 21.4% increase in the media segment to $9.5 million
and a 44.7% increase in the retail segment to $11.0 million for the six months
ended December 31, 2001. Media revenues increased primarily because of increased
sales in the event marketing business. Revenue growth in the Company's retail
segment was attributable to the increase in the number of stores in operation,
and same stores growth.
Cost of sales consists of the cost of decorative wall posters sold in our retail
segment, and the cost of printing, freight, production, products and
depreciation of equipment directly associated with our media segment.
Cost of sales as a percentage of revenues increased to 47.1% for the three
months ended December 31, 2001 from 45.5% for the three months ended December
31, 2000. The increase in the cost of sales represents a shift in our media
revenues weighted more heavily to our event marketing business.
Cost of sales as a percentage of revenues decreased to 37.4% for the six months
ended December 31, 2001 from 42.6% for the six months ended December 31, 2000.
The decrease in the cost of sales is due primarily to retail revenue being 52.9%
of total revenue for the period ending December 31, 2001 as compared to 43.8%
for the six months ended December 31, 2000.
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For the three months ended December 31, 2001, selling, general administrative
and corporate expenses were $6.4 million as compared to $7.0 million for the
three months ended December 31, 2000. The decrease of $0.6 million was due
primarily to corporate cost cutting measures partially offset by increased cost
relating to store openings in the retail operation.
For the six months ended December 31, 2001, selling, general administrative and
corporate expenses were $13.9 million as compared to $13.6 million for the six
months ended December 31, 2000. The increase of $0.3 million was due to
increased cost relating to store openings in the retail division partially
offset by cost cutting measures in the corporate department.
For the three months ended December 31, 2001, depreciation and amortization
expenses were $0.7 million as compared to $1.4 million for the three months
ended December 31, 2000. The decrease of $ 0.7 million was primarily due to the
adoption of SFAS 142, which no longer requires goodwill to be amortized, and the
write-down of goodwill relating to Teen.com, HotStamp and Ads as Art Catalog in
the fourth quarter of fiscal 2001.
For the six months ended December 31, 2001, depreciation and amortization
expenses were $1.3 million as compared to $2.7 million for the six months ended
December 31, 2000. The decrease of $1.4 million was primarily due to the
adoption of SFAS 142, which no longer requires goodwill to be amortized, and the
write-down of goodwill relating to Teen.com, HotStamp and Ads as Art Catalog in
the fourth quarter of fiscal 2001.
For the three months ended December 31, 2001, interest income was $0.1 million
as compared to $0.6 million for the three months ended December 31, 2000. The
decrease of $0.5 million was due to lower cash balances and declining interest
rates.
For the six months ended December 31, 2001, interest income was $0.3 million as
compared to $1.3 million for the six months ended December 31, 2000. The
decrease of $1 million was due to lower cash balances and declining interest
rates.
For the three months ended December 31, 2001, interest expense was $0.8 million
as compared to $0.8 million for the three months ended December 31, 2000.
For the six months ended December 31, 2001, interest expense was $1.5 million as
compared to $ 1.6 million for the six months ended December 31, 2000. The
decrease of $0.1 was due to the reduction in long-term debt.
For the three and six months ended December 31, 2001, loss from discontinued
operations was $0.4 million and $0.7 million, respectively. The loss represents
the net loss from Teen.com operations. For the three and six months ended
December 31, 2000, loss from discontinued operations was $17 million and $42
million, respectively. The loss from discontinued operations represents the net
loss of the online segment prior to the December 2000 measurement date.
For the three and six months ended December 31, 2001, loss on disposal of
discontinued operations was $0.3 million. The loss on disposal represents the
write down of Teen.com assets and severance costs. For the period December 31,
2000, loss on disposal of discontinued operations was $165.0 million. The loss
on disposal primarily represents the write-down of net assets, including
goodwill of the online segment and provision for operating losses during
phase-out period.
LIQUIDITY AND CAPITAL RESOURCES
The Company used approximately $8.4 million of cash in operating activities for
six months ended December 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 December 31, 2001, the Company had approximately $6.5 million in cash and
equivalents. The Company believes that such amounts plus an additional amount of
$2.8 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
December 31, 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
currently expects a net loss of less than $10.0 million during fiscal year 2002.
The
9
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.
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PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
None.
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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.
February 13, 2002
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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