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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 March 31, 2002
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.
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(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
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(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 March 31, 2002, there were 31,508,000 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 - MARCH 31, 2002
(UNAUDITED) AND JUNE 30, 2001.................................................... 1
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - THREE AND NINE MONTHS
ENDED MARCH 31, 2002 AND 2001.................................................... 2
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - NINE MONTHS
ENDED MARCH 31, 2002 AND 2001.................................................... 3
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - NINE MONTHS
ENDED MARCH 31, 2002............................................................. 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.......................... 11
PART II--OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................................... 12
SIGNATURES.................................................................................. 13
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
YOUTHSTREAM MEDIA NETWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
March 31, June 30,
2002 2001
--------- ---------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents ................................................... $ 1,211 $ 14,927
Marketable debt securities, at amortized cost ............................... 2,042 5,655
Accounts receivable, net of allowance for doubtful accounts of $102 and $171
at March 31, 2002 and June 30, 2001, respectively ....................... 4,113 2,461
Inventories ................................................................. 3,629 2,606
Other current assets ........................................................ 1,340 627
Restricted cash ............................................................. 1,022 576
--------- ---------
Total current assets ............................................................. 13,357 26,852
Property and equipment, net of accumulated depreciation of $7,480
and $5,787 at March 31, 2002 and June 30, 2001, respectively ................ 6,028 6,612
Assets from discontinued operations .............................................. 19 330
Deferred financing costs, net of accumulated amortization of $1,681
and $1,105 at March 31, 2002 and June 30, 2001, respectively ................ 2,799 3,375
Intangibles, net of accumulated amortization of $2,861
at March 31, 2002 and June 30, 2001 ......................................... 12,193 10,785
Restricted Cash .................................................................. 306 752
--------- ---------
Total assets ..................................................................... $ 34,702 $ 48,706
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................................ $ 2,166 $ 2,723
Accrued expenses ............................................................ 3,175 5,066
Current liabilities of discontinued operations .............................. 1,817 3,381
Deferred revenues ........................................................... 1,148 1,750
Deferred purchase price ..................................................... 750 1,500
Current portion of capitalized lease obligations ............................ 36 46
Current portion of long-term debt ........................................... 360 1,169
--------- ---------
Total current liabilities ........................................................ 9,452 15,635
Non-current liabilities of discontinued operations ............................... 52 185
Long-term capitalized lease obligations .......................................... 118 5
Long-term debt ................................................................... 17,958 18,630
Other liabilities ................................................................ 370 741
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, 31,508
shares and 30,091 shares issued and outstanding at March 31, 2002
and June 30, 2001, respectively ......................................... 314 301
Additional paid-in capital .................................................. 330,546 329,097
Accumulated deficit ......................................................... (323,278) (315,649)
Treasury stock, 607 shares and 143 shares at March 31, 2002
and June 30, 2001, respectively ......................................... (830) (239)
--------- ---------
Total stockholders' equity ....................................................... 6,752 13,510
--------- ---------
Total liabilities and stockholders' equity ....................................... $ 34,702 $ 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 Nine months ended
March 31, March 31,
--------------------------- ----------------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Net revenues .................................................... $ 7,313 $ 5,560 $ 28,023 $ 22,844
Cost of sales ................................................... 4,169 3,091 11,909 10,458
--------- --------- --------- ---------
Gross profit ................................................ 3,144 2,469 16,114 12,386
Selling, general, administrative and corporate expenses ... 6,582 6,231 20,519 19,850
Depreciation and amortization ............................. 212 489 550 2,357
--------- --------- --------- ---------
Loss from operations ............................................ (3,650) (4,251) (4,955) (9,821)
Interest income ................................................. 130 391 440 1,691
Other income .................................................... -- 34 -- 44
Interest expense ................................................ (750) (790) (2,284) (2,382)
--------- --------- --------- ---------
Loss before provision for income taxes .......................... (4,270) (4,616) (6,799) (10,468)
Provision for income taxes ...................................... 132 121 177 421
--------- --------- --------- ---------
Loss from continuing operations ................................. (4,402) (4,737) (6,976) (10,889)
Loss from discontinued operations ........................... -- (1,025) (666) (43,092)
Gain/(loss) on disposal of discontinued operations .......... 303 -- 13 (164,971)
--------- --------- --------- ---------
Net loss ........................................................ $ (4,099) $ (5,762) $ (7,629) $(218,952)
========= ========= ========= =========
Per share of common stock basic and diluted
Loss from continuing operations ............................. $ (0.14) $ (0.16) $ (0.23) $ (0.37)
Loss from discontinued operations ........................... -- (0.04) (0.02) (1.48)
Gain/(loss) on disposal of discontinued operations .......... 0.01 -- -- (5.65)
--------- --------- --------- ---------
Net loss per basic and diluted common share ..................... $ (0.13) $ (0.20) $ (0.25) $ (7.50)
========= ========= ========= =========
Weighted average basic and diluted common
shares outstanding .......................................... 30,505 29,481 30,228 29,181
========= ========= ========= =========
See notes to condensed consolidated financial statements
2
YOUTHSTREAM MEDIA NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Nine months ended
March 31,
---------------------------
2002 2001
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss .................................................................... $ (7,629) $(218,952)
Adjustments to reconcile net loss to
net cash used in operating activities:
Loss from discontinued operations ...................................... 666 43,092
(Gain)/loss on disposal of discontinued operations ..................... (13) 164,971
Net change in assets and liabilities of discontinued operations ........ (2,260) (13,515)
Bad debt expense ....................................................... 3 (80)
Depreciation and amortization .......................................... 1,961 3,493
Loss on sale of equipment .............................................. 28 24
Amortization of deferred financing costs ............................... 576 558
Deferred rent .......................................................... 4 10
Amortization of original issue discount on Subordinated Notes .......... -- 89
Changes in assets and liabilities, net of acquisitions:
Accounts receivable .................................................. (1,655) (265)
Inventory ............................................................ (1,023) (28)
Other current assets ................................................. (713) 2,605
Accounts payable ..................................................... (557) (78)
Accrued expenses ..................................................... (1,891) (579)
Deferred revenues .................................................... (602) 1,290
--------- ---------
Net cash used in operating activities ....................................... (13,105) (17,365)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ...................................................... (1,250) (1,202)
Proceeds from sale of equipment ........................................... -- 37
Sale of investments in marketable debt securities ......................... 3,613 11,879
Other assets .............................................................. (250) 149
Payment for business acquisitions (net of cash acquired) .................. (600) (109)
--------- ---------
Net cash provided by investing activities ................................... 1,513 10,754
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from sale of common stock and exercise of warrants and options -- 127
Net proceeds from issuance of warrants in connection with long-term debt .. -- 35
Common stock repurchase ................................................... (591) --
Repayment of capitalized lease obligations ................................ (52) (108)
Proceeds from long-term debt .............................................. -- 965
Repayment of long-term debt ............................................... (1,481) (944)
--------- ---------
Net cash (used in) provided by financing activities ......................... (2,124) 75
--------- ---------
Decrease in cash and cash equivalents ....................................... (13,716) (6,536)
Cash and cash equivalents at beginning of period ............................ 14,927 18,232
--------- ---------
Cash and cash equivalents at end of period .................................. $ 1,211 $ 11,696
========= =========
Supplemental cash flow information:
Cash paid for interest .................................................... $ 2,484 $ 1,506
========= =========
Cash paid for income taxes ................................................ $ 132 $ 252
========= =========
Noncash financing activities:
Capitalized lease obligations ............................................. $ 155 --
========= =========
Issuance of warrants in connection with long-term debt .................... -- 162
========= =========
Issuance of common stock in connection with acquisitions .................. $ 1,462 $ 6,423
========= =========
See notes to condensed consolidated financial statements
3
YOUTHSTREAM MEDIA NETWORKS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD JUNE 30, 2001 TO MARCH 31, 2002
(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 .................. 958 9 894 -- -- 903
Issuance of common stock in connection with
acquisition of Trent ................... 458 4 554 -- -- 558
Issuance of common stock in connection with
acquisition of sixdegrees .............. 1 -- 1 -- -- 1
Stock repurchase .......................... -- -- -- -- (591) (591)
Net loss .................................. -- -- -- (7,629) -- (7,629)
-----------------------------------------------------------------------------------
Balances at March 31, 2002 ................ 31,508 $ 314 $330,546 $(323,278) $(830) $ 6,752
===================================================================================
See notes to condensed consolidated financial statements
4
YOUTHSTREAM MEDIA NETWORKS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
(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"), 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.
5
Net revenues and loss from discontinued operations are as follows (in
thousands):
Three months ended Three months ended Nine months ended Nine months ended
March 31, 2002 March 31, 2001 March 31, 2002 March 31, 2001
-------------------- ------------------- ----------------- ------------------
Net revenues ............................ $ 0 $ 205 $ 143 $ 1,180
==================== =================== ================= ==================
Loss from discontinued operations ....... -- (1,025) (666) (43,092)
Gain/(loss) on disposal of discontinued
operations ............................ 303 -- 13 (164,971)
-------------------- ------------------- ----------------- ------------------
Net gain/(loss) from discontinued
operations ............................ $303 $(1,025) $(653) $(208,063)
==================== =================== ================= ==================
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. 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 Nine months ended
March 31, March 31,
------------------------- -------------------------
2002 2001 2002 2001
-------- -------- -------- -----------
Reported net loss .................... $ (4,099) $ (5,762) $ (7,629) $ (218,952)
Add back goodwill amortization ....... -- 718 -- 38,446
-------- -------- -------- ----------
Adjusted net loss .................... $ (4,099) $ (5,044) $ (7,629) $ (180,506)
======== ======== ======== ==========
Basic and diluted earnings per share:
Reported net loss .................... $ (.13) $ (0.20) $ (.25) $ (7.50)
Goodwill amortization ................ -- .02 -- 1.31
-------- -------- -------- ----------
Adjusted net loss .................... $ (.13) $ (0.18) $ (.25) $ (6.19)
======== ======== ======== ==========
In December 2000, the Company wrote off approximately $127 million of goodwill
relating to its Internet segment. For the three months and nine months ended
March 31, 2001 goodwill amortization relating to discontinued operations totaled
$0.4 million and $37.7 million, respectively.
6
4. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
March 31, June 30,
2002 2001
------- -------
Note Payable to Bank (A) .................................................... $ -- $ 1,072
Subordinated Notes - Private Placement (B) ................................... 5,000 5,000
Note Payable to Finance Company (C) .......................................... 672 1,169
Subordinated Notes - Private Placement (D) ................................... 12,000 12,000
Subordinated Notes - Private Placement (E) ................................... 1,000 1,000
Other ........................................................................ 3 6
------- -------
18,675 20,247
Less: Unamortized original issue discount attributed to subordinated notes ... 357 448
------- -------
18,318 19,799
Less: Current portion of long-term debt ...................................... 360 1,169
------- -------
Long-term debt total ....................... $17,958 $18,630
======= =======
(A) 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.
(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
March 31, 2002, 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. 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, 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 and American Passage. The retail segment consists of
on-campus and retail store poster
7
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
March 31, 2002 March 31, 2001
------------------------------------------ -------------------------------------------
Media Retail Total Media Retail Total
-------- -------- -------- -------- -------- ---------
Net revenues ................ $ 4,744 $ 2,569 $ 7,313 $ 4,018 $ 1,542 $ 5,560
Depreciation and amortization 552 136 688 549 173 722
Loss from operations ........ (2,277) (1,373) (3,650) (3,131) (1,120) (4,251)
Capital expenditures ........ 418 123 541 204 133 337
Nine months ended Nine months ended
March 31, 2002 March 31, 2001
------------------------------------------ -------------------------------------------
Media Retail Total Media Retail Total
-------- -------- -------- -------- -------- ---------
Net revenues .................. $ 14,501 $ 13,522 $ 28,023 $ 13,733 $ 9,111 $ 22,844
Depreciation and amortization.. 1,610 351 1,961 2,955 503 3,458
Gain/(loss) from operations.... (4,003) (953) (4,956) (7,042) (2,779) (9,821)
Capital expenditures .......... 638 767 1,405 817 385 1,202
March 31, 2002 June 30, 2001
------------------------------------------ -------------------------------------------
Media Retail Total Media Retail Total
-------- -------- -------- -------- -------- ---------
Identifiable assets ......... $ 13,566 $ 13,639 27,205 $ 20,497 $ 10,827 $ 31,324
======== ======== ======== ========
Corporate ................... 7,497 17,382
-------- --------
Total Assets ................ $ 34,702 $ 48,706
======== ========
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 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 nine months ended March 31,
2002 (unaudited) to the three and nine months ended March 31, 2001 (unaudited).
CRITICAL ACCOUNTING POLICIES
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined on a
first-in, first-out basis. Inventories consist primarily of posters and related
products.
INTANGIBLE ASSETS
Intangible assets represent acquisition costs in excess of the net assets of
businesses acquired and a covenant not-to-compete, which are amortized on the
straight-line basis ranging from 3 to 15 years.
REVENUE RECOGNITION
The Company's primary source of revenue is derived from the sale of advertising
space in media, which is owned either by the Company or by third parties and by
the sale of marketing services. Revenue is generally recognized in the month of
media publication and in the case of marketing services, the month such services
are provided. Retail revenue is derived from the sale of merchandise to
consumers on college campuses and in stores. Retail revenue is recognized at the
time of the sale to the consumer.
USE OF ESTIMATES
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
IMPAIRMENT OF GOODWILL
We periodically evaluate acquired businesses for potential impairment
indicators. Our judgments regarding the existence of impairment indicators are
based on legal factors, market conditions and operational performance of our
acquired businesses. Future events could cause us to conclude that impairment
indicators exist and that goodwill associated with our acquired businesses is
impaired. Any resulting impairment loss could have a material adverse impact on
our financial condition and results of operations.
ACCOUNTS RECEIVABLE
Accounts receivable consist primarily of amounts due to us from our normal
business activities. We maintain an allowance for doubtful accounts to reflect
the expected uncollectibility of accounts receivable based on past collection
history and specific risk identified in the portfolio.
RESULTS OF OPERATIONS
(In Thousands)
YouthStream generated revenues 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. Its 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 catalogs. In December 2001, the Company discontinued its Teen.com
business and closed its HotStamp college operations.
----------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
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2002 2001 2002 2001
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Revenues as stated in the Financial
Statements .................................. $7,313 $ 5,560 $28,023 $22,844
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HotStamp college and cities program and Ads
as Art poster catalog ..................... -- (288) (306) (2,217)
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Adjusted Revenue ............................ $7,313 $ 5,272 $27,717 $20,627
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Adjusted revenues increased to $7.3 million for the three months ended March 31,
2002 from $5.3 million for the three months ended March 31, 2001. Revenue growth
was attributable to a 66.7% increase in the retail segment to $2.6 million
coupled with a 27.2% increase in the media segment to $4.7 million for the three
months ended March 31, 2002. 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 growth was due to a sharp increase in
the event marketing business.
Adjusted revenues increased to $27.7 million for the nine months ended March 31,
2002 from $20.6 million for the nine months ended March 31, 2001. Revenue growth
was attributable to a 23.3% increase in the media segment to $14.2 million and a
48.4% increase in the retail segment to $13.5 million for the nine months ended
March 31, 2002. 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 year over year.
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 57.0% for the three
months ended March 31, 2002 from 55.6% for the three months ended March 31,
2001. Cost of sales as a percentage of revenues decreased to 42.5% for the nine
months ended March 31, 2002 from 45.8% for the nine months ended March 31, 2001.
The decrease in the cost of sales is due primarily to retail revenue being 48.2%
of total revenue for the period ending March 31, 2002 as compared to 40.3% for
the nine months ended March 31, 2001.
For the three months ended March 31, 2002, selling, general, administrative and
corporate expenses were $6.6 million as compared to $6.2 million for the three
months ended March 31, 2001. The increase of $0.4 million was due primarily to
increased cost relating to store openings in the retail operation partially
offset by corporate cost cutting measures.
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For the nine months ended March 31, 2002, selling, general, administrative and
corporate expenses were $20.5 million as compared to $19.9 million for the nine
months ended March 31, 2001. The increase of $0.6 million was due to increased
cost relating to store openings in the retail division partially offset by
corporate cost cutting measures.
For the three months ended March 31, 2002 and 2001, depreciation and
amortization expense was $0.7 million.
For the nine months ended March 31, 2002, depreciation and amortization expenses
were $1.9 million as compared to $3.5 million for the nine months ended March
31, 2001. The decrease of $1.6 million was primarily due to the adoption of SFAS
142, which no longer requires goodwill to be amortized.
For the three months ended March 31, 2002, interest income was $0.1 million as
compared to $0.4 million for the three months ended March 31, 2001. The decrease
of $0.3 million was due to lower cash balances and declining interest rates.
For the nine months ended March 31, 2002, interest income was $0.4 million as
compared to $1.7 million for the nine months ended March 31, 2001. The decrease
of $1.3 million was due to lower cash balances and declining interest rates.
For the three months ended March 31, 2002 and 2001, interest expense was $0.8
million.
For the nine months ended March 31, 2002, interest expense was $2.3 million as
compared to $2.4 million for the nine months ended March 31, 2001. The decrease
of $0.1 was due to the reduction in debt.
For the three months ended March 31, 2002, gain from discontinued operations was
zero as compared to loss of $1.0 million for the three months ended March 31,
2001. For the nine months ended March 31, 2002, loss from discontinued
operations was $0.7 million as compared to a loss of $43.1 million for the nine
months ended March 31, 2001. The loss from discontinued operations represents
the net loss from Teen.com and the online segment operations.
For the three months ended March 31, 2002, gain on disposal of discontinued
operations was $0.3 million. For the nine months ended March 31, 2001, 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 the phase-out period.
LIQUIDITY AND CAPITAL RESOURCES
The Company used approximately $13.1 million of cash in operating activities for
nine months ended March 31, 2002, primarily to fund its working capital,
interest expense and discontinued operations. The Company partially funded its
operations with cash on hand and cash generated from the sale of investments in
marketable debt securities.
As of March 31, 2002, the Company had approximately $1.2 million in cash and
equivalents and $2.0 million of marketable debt securities with maturities of
less than one year to fund working capital, including debt service and interest
expense. In addition, the Company had $1.3 million of restricted cash of which
approximately $0.6 million is expected to become unrestricted on or before May
31, 2002 and $0.4 million before July 31, 2002. The Company believes that it
will require additional capital to fund its operations through December 31,
2002, including two interest payments totaling approximately $1 million, due on
June 30 and July 8, 2002, with respect to certain outstanding debt.
The Company is actively pursuing a number of alternatives to increase cash
available to fund operations. First, the Company has received an informal
indication from certain of the holders of its outstanding debt of a willingness
to defer payment of a portion of the June and July interest payments. The
Company is also considering certain other actions, including factoring certain
subsidiary receivables and mortgaging or selling certain real estate owned by a
Company subsidiary. In addition, the Company has received indications of
interest from certain individuals and entities with respect to their willingness
to make available to the Company additional funds at the Company's request.
Accordingly, the Company believes that it will have available to it the
opportunity to obtain cash needed to fund its operations at least through the
end of the current calendar year; however, there can be no assurances that the
Company will achieve these objectives. The Company's decision to effect any
borrowing or seek formal agreement to defer its interest payments will be based
upon a determination of the Company's actual cash needs, which will depend on
various factors, including the effect of cost-saving measures recently
implemented by the Company, the success of the Company's efforts to derive funds
from other sources that it has available to it, and the timing of the receipt of
anticipated revenues from the Company's operations relating to the school year
commencing in the Fall of 2002.
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. 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
and there can be no assurance that any additional financing will be available to
the Company on acceptable terms, if at all.
The Company now projects that its full-year EBITDA loss will be higher than its
previous guidance of $4 million. The Company also expects a full-year net loss
higher than its previously projected $10 million for the full fiscal 2002. While
the Company is not yet in a position to determine the full-year EBITDA and net
loss, it currently believes the EBITDA loss will not be less than $6 million and
the net loss will not be less than $12 million. The Company's revised
projections are due to factors including one-time charges associated with its
recently announced Seattle office closing, increased insurance expenses, and
lower than expected margins on certain event marketing and retail business,
among other things.
The foregoing 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, 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.
SUBSEQUENT EVENTS
The Company announced its plan to move the Seattle Operations to the New York
Office in March, 2002. In April, 2002 the Company finalized its transition plan
and expects to complete the transition by June 30, 2002. This move, in
combination with recent cost cutting and other actions, is expected to save the
Company approximately $3 million in fiscal year 2003.
After the close of the fiscal third quarter, James "P.T." Lucchesi and Irwin
Engelman ceased to be employed by the Company. Dennis Roche was appointed the
Company's President, replacing Mr. Lucchesi, and Wesley Ramjeet was appointed
the Company's Acting Chief Financial Officer, replacing Mr. Engelman.
On April 23, 2002 the Company received a notice from the National Association of
Securities Dealers ("NASDAQ"), stating that for the thirty consecutive trading
days prior to April 23, the price of the Company's common stock had closed below
the minimum $1.00 per share requirement for continued inclusion on the NASDAQ
National Market (the "Minimum Bid Requirement"). The Company has until July 22,
2002 to regain compliance with the Minimum Bid Requirement, which can be
achieved if the bid price of the Company's common stock closes at $1.00 per
share or more for a minimum of ten consecutive trading days, or to take certain
other actions, which may include seeking to transfer its securities to the
NASDAQ SmallCap Market. The Company believes that it will satisfy all listing
requirements necessary to achieve a transfer to the NASDAQ SmallCap Market if it
seeks such a transfer.
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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.
May 15, 2002
YOUTHSTREAM MEDIA NETWORKS, INC.
BY:
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Dennis Roche
President
BY:
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Wesley Ramjeet
Acting Chief Financial Officer
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