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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, 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.
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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
Incorporation of Organization) Identification No.)
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 May 8, 2001 there were 29,844,480 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
Consolidated balance sheets - March 31, 2001
(unaudited) and June 30, 2000 .................................. 1
Consolidated statements of operations - three and nine months
ended March 31, 2001 and 2000 (unaudited) ...................... 2
Consolidated statements of cash flows - nine months ended
March 31, 2001 and 2000 (unaudited) ............................ 3
Consolidated statement of stockholders' equity - nine
months ended March 31, 2001 (unaudited) ........................ 4
Notes to consolidated financial statements ........................ 5
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations ...................................... 8
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.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
March 31, June 30,
2001 2000
--------- ---------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents ................................................ $ 11,696 $ 18,232
Marketable debt securities, at amortized cost ............................ 13,310 25,189
Accounts receivable, net of allowance for doubtful accounts of $324
and $404 at March 31, 2001 and June 30, 2000, respectively ............ 5,226 4,631
Inventories .............................................................. 1,499 1,471
Prepaid expenses ......................................................... 5,673 5,372
Deposits and other current assets ........................................ -- 2,905
--------- ---------
Total current assets .......................................................... 37,404 57,800
Property and equipment, net of accumulated depreciation of $5,650
and $3,593 at March 31, 2001 and June 30, 2000, respectively ............. 7,520 8,165
Deferred financing costs, net of accumulated amortization of $913 and
$355 at March 31, 2001 and June 30, 2000, respectively ................... 3,567 3,963
Intangible assets, net of accumulated amortization of $4,569
and $2,468 at March 31, 2001 and June 30, 2000, respectively ............. 17,021 13,709
Restricted cash ............................................................... 1,328 1,328
Net non-current assets of discontinued operations ............................. -- 191,091
Other assets .................................................................. 241 389
--------- ---------
Total assets .................................................................. $ 67,081 $ 276,445
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ......................................................... $ 1,645 $ 1,589
Accrued employee compensation ............................................ 860 895
Other accrued expenses ................................................... 2,188 2,424
Net current liabilities of discontinued operations ....................... 4,891 2,187
Deferred revenues ........................................................ 1,955 665
Current portion of deferred purchase price ............................... -- 45
Current portion of capitalized lease obligations ......................... 130 83
Current portion of long-term debt ........................................ 1,328 1,275
--------- ---------
Total current liabilities ..................................................... 12,997 9,163
Net non-current liabilities of discontinued operations ........................ 429 --
Capitalized lease obligations ................................................. 67 106
Long-term debt ................................................................ 18,766 18,709
Deferred rent ................................................................. 363 353
Deferred purchase price ....................................................... 2,250 3,700
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, 29,844
shares and 28,031 shares issued and outstanding at March 31,
2001 and June 30, 2000, respectively .................................. 298 280
Additional paid-in capital ............................................... 328,709 321,980
Accumulated deficit ...................................................... (296,798) (77,846)
--------- ---------
Total stockholders' equity .................................................... 32,209 244,414
--------- ---------
Total liabilities and stockholders' equity .................................... $ 67,081 $ 276,445
========= =========
See notes to consolidated financial statements
1
YOUTHSTREAM MEDIA NETWORKS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
(UNAUDITED)
Three months ended Nine months ended
March 31, March 31,
----------------------- ----------------------
2001 2000 2001 2000
--------- --------- --------- ---------
Net Revenues .............................................. $ 5,765 $ 7,069 $ 23,623 $ 24,031
Operating Expenses:
Cost of goods sold ................................... 325 166 1,954 1,688
Selling, general and administrative expenses ......... 7,406 5,849 24,360 18,347
Corporate expenses ................................... 1,850 1,271 5,420 3,159
Depreciation and amortization ........................ 1,422 814 4,158 2,522
--------- --------- --------- ---------
Total operating expenses .................................. 11,003 8,100 35,892 25,716
--------- --------- --------- ---------
Loss from operations ...................................... (5,238) (1,031) (12,269) (1,685)
Equity loss in investment ................................. -- (850) -- (2,890)
Interest income ........................................... 425 446 1,725 1,018
Other income .............................................. (34) -- (24) --
Interest expense .......................................... (794) (238) (2,386) (727)
--------- --------- --------- ---------
Loss before provision for income taxes .................... (5,641) (1,673) (12,954) (4,284)
Provision for income taxes ................................ 121 92 421 184
--------- --------- --------- ---------
Loss from continuing operations ........................... (5,762) (1,765) (13,375) (4,468)
Loss from discontinued operations .................... -- (14,780) (40,606) (14,630)
Loss on disposal of discontinued operations, including
provision of $5,175 for operating losses during
phase-out period .................................. -- -- (164,971) --
--------- --------- --------- ---------
Net Loss .................................................. $ (5,762) $ (16,545) $(218,952) $ (19,098)
========= ========= ========= =========
Per share of common stock basic and diluted
Loss from continuing operations ....................... $ (0.20) $ (0.08) $ (0.46) $ (0.24)
Loss from operation of discontinued operations ........ -- (0.64) (1.39) (0.77)
Loss on disposal of discontinued operations ........... -- -- (5.65) --
--------- --------- --------- ---------
Net loss per basic and diluted common share ............... $ (0.20) $ (0.72) $ (7.50) $ (0.15)
========= ========= ========= =========
Weighted average basic and diluted common
shares outstanding .................................... 29,481 23,091 29,181 18,853
========= ========= ========= =========
See notes to consolidated financial statements
2
YOUTHSTREAM MEDIA NETWORKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Nine months ended
March 31,
-------------------------
2001 2000
---------- ----------
Cash Flows From Operating Activities
Net loss .............................................................. $ (218,952) $ (19,098)
Adjustments to reconcile net loss to
net cash used in operating activities:
Loss from discontinued operations ................................. 40,606 14,630
Loss on disposal of discontinued operations ....................... 164,971 --
Net change in assets and liabilities of discontinued operations ... (11,694) (9,618)
Bad debt expense .................................................. (80) 110
Depreciation and amortization ..................................... 4,158 2,522
Loss on disposal of equipment ..................................... 24 --
Amortization of deferred financing costs .......................... 558 136
Deferred rent ..................................................... 10 48
Amortization of original issue discount on Subordinated Notes ..... 89 27
Changes in assets and liabilities, net of acquisitions:
Accounts receivable ............................................. (265) (4,153)
Inventory ....................................................... (28) (35)
Prepaid expenses ................................................ (300) (367)
Deposits and other current assets ............................... 2,905 --
Accounts payable ................................................ (78) 1,038
Accrued employee compensation ................................... (298) (150)
Other accrued expenses .......................................... (281) (58)
Deferred revenues ............................................... 1,290 40
---------- ----------
Net cash used in operating activities ................................. (17,365) (14,928)
Cash Flows From Investing Activities
Capital expenditures ................................................ (1,202) (4,466)
Unrealized loss on marketable securities ............................ -- (26)
Proceeds from sale of equipment ..................................... 37 --
Proceeds from marketable debt securities upon maturity .............. 11,879 --
Other assets ........................................................ 149 (2,685)
Payment for business acquisitions (net of cash acquired) ............ (109) --
---------- ----------
Net cash provided by (used in) investing activities ................... 10,754 (7,177)
Cash Flows From Financing Activities
Net proceeds from sale of common stock and exercise of warrants and
options ........................................................... 127 55,895
Net proceeds from issuance of warrants in connection with long-term
debt .............................................................. 35 --
Repayment of capitalized lease obligations .......................... (108) (21)
Proceeds from long-term debt ........................................ 965 1,971
Repayment of long-term debt ......................................... (944) (566)
---------- ----------
Net cash provided by financing activities ............................. 75 57,279
---------- ----------
(Decrease) increase in cash and equivalents ........................... (6,536) 35,174
Cash and equivalents at beginning of period ........................... 18,232 7,046
---------- ----------
Cash and equivalents at end of period ................................. $ 11,696 $ 42,220
========== ==========
Supplemental cash flow information
Cash paid for interest .............................................. $ 1,506 $ 777
========== ==========
Cash paid for income taxes .......................................... $ 252 $ 101
========== ==========
Noncash Financing Activities
Issuance of warrants in connection with long-term debt .............. $ 162 $ --
========== ==========
Issuance of common stock in connection with acquisitions ............ $ 6,423 $ 216,862
========== ==========
See notes to consolidated financial statements
3
YOUTHSTREAM MEDIA NETWORKS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD JULY 1, 2000 TO MARCH 31, 2001
(IN THOUSANDS)
(UNAUDITED)
Common Stock Additional
-------------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
-------- --------- --------- --------- ---------
Balances at June 30, 2000 .................................... 28,031 $ 280 $ 321,980 $ (77,846) $ 244,414
Issuance of warrants in connection with long-term debt ....... -- -- 197 -- 197
Issuance of common stock upon exercise of stock options ...... 45 1 126 -- 127
Issuance of common stock in connection with
acquisition of Teen.com ................................... 944 9 5,211 -- 5,220
Issuance of common stock in connection with
acquisition of HelloXpress ................................ 53 1 293 -- 294
Issuance of common stock in connection with
acquisition of Invino ..................................... 711 6 857 -- 863
Issuance of common stock in connection with
acquisition of sixdegrees ................................. 60 1 45 -- 46
Net loss ..................................................... -- -- -- (218,952) (218,952)
-------- --------- --------- --------- ---------
Balances at March 31, 2001 ................................... 29,844 $ 298 $ 328,709 $(296,798) $ 32,209
======== ========= ========= ========= =========
See notes to consolidated financial statements
4
YOUTHSTREAM MEDIA NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 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 announced its intention to discontinue the operations
of CommonPlaces, LLC ("CommonPlaces"), sixdegrees, inc., ("sixdegrees"),
CollegeWeb.com, Inc. ("CollegeWeb") and Invino Corporation ("Invino") see note 2
- Discontinued Operations. All significant intercompany transactions have been
eliminated.
The Company is a media, marketing services, promotions, and retail company
targeting the teenage and young adult marketplace, particularly high school,
college and university audiences. Through the combination of a unique portfolio
of targeted media and retail properties the Company provides integrated,
cost-effective solutions to advertisers and sponsors looking to reach young
adults. The Company's portfolio of retail and media services include:
o Trent, an on-campus seller of decorative wall posters to students at
colleges and universities throughout the country, which also operates a
growing number of retail poster stores complementing its on-campus
presence;
o Nationwide sampling, promotion and event marketing campaigns targeting
teens and young adults;
o A national network of movie theaters on college campuses and expertise
conducting film screenings at dozens of major college campuses;
o A national free postcard advertising brand targeting teenagers and young
adults;
o A leading college newspaper advertising placement service;
o Editorial wall media networks in high schools, middle schools and on
college campuses;
o A unique "Ads as Art" poster catalog distributed on campuses nationwide;
and
o Teen.com, an online community for teenagers.
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 an
interim period are not necessarily indicative of the results that may be
expected for the year ended June 30, 2001. For further information, refer to the
consolidated financial statements and footnotes thereto included in Company's
Form 10-KSB for the fiscal year ended June 30, 2000.
2. DISCONTINUED OPERATIONS
In December 2000, the Company announced its decision to discontinue the
operations of its sixdegrees subsidiary and exit its Application Service
Provider ("ASP") business. The ASP business includes 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 expects disposal of the ASP business to occur prior to June 30,
2001. In connection with the discontinuance of these businesses, the Company
incurred a one-time charge of $165 million, related primarily to the write-off
of goodwill, 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. For business segment reporting purposes, the sixdegrees and ASP
business results were previously classified as the segment "Online".
Net revenues and losses from discontinued operations are as follows (in
thousands):
Three months ended Three months ended Nine months ended Nine months ended
March 31, 2001 March 31, 2000 March 31, 2001 March 31, 2000
------------------ ------------------ ----------------- -----------------
Net revenues .................................. $ -- $ 402 $ 398 $ 402
========= ========= ========== =========
Loss from discontinued operations ............. $ -- $ (14,780) $ (40,606) $ (14,630)
Loss on disposal of discontinued operations ... -- -- (164,971) --
--------- --------- ---------- ---------
Net loss from discontinued operations ......... $ -- $ (14,780) $ (205,577) $ (14,630)
========= ========= ========== =========
5
YOUTHSTREAM MEDIA NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2001
(UNAUDITED)
3. ACQUISITIONS
In July 2000, the Company acquired Teen.com pursuant to a merger agreement among
the Company, a wholly-owned subsidiary of the Company, and Teen.com. Teen.com is
a family-friendly Web destination for teens and is ranked as one of the top
websites visited by 13 to 19 year-olds. The purchase price consisted of 944,000
shares of the Company's common stock, including 50,000 shares issued to the
broker, valued at approximately $5.2 million or approximately $5.53 per share,
the then current market price.
The following unaudited pro forma information is presented as if the Company had
completed the acquisition of Teen.com as of July 1, 2000 and 1999, respectively,
and exclude those acquisitions that were discontinued (in thousands):
Nine months ended March 31,
2001 2000
---------------------------
Net revenue .................................... $23,693 $25,294
Loss from continuing operations ................ (13,404) (6,317)
Loss from continuing operations per basic and
diluted common share ........................ (0.46) (0.32)
Weighted average common shares outstanding
basic and diluted ........................... 29,215 19,797
The pro forma information above is not necessarily indicative of the results of
operations that would have occurred had the acquisition been made at the
beginning of the respective periods.
In connection with the acquisitions of Invino and sixdegrees, the Company issued
additional shares of common stock during the nine months ended March 31, 2001.
The common stock issued to the former Invino shareholders is being recorded as a
decrease to the deferred purchase price.
4. LONG-TERM DEBT
A summary of long-term debt is as follows (in thousands):
March 31, June 30,
2001 2000
-------- --------
Note Payable to Bank (A) ..................................... $ 1,239 $ 1,739
Subordinated notes - Private Placement (B) ................... 5,000 5,000
Note Payable to Finance Company (C) .......................... 1,326 1,768
Subordinated Notes - Private Placement (D) ................... 12,000 12,000
Subordinated Notes - Private Placement (E) ................... 1,000 --
Other ........................................................ 7 9
======== ========
20,572 20,516
Less unamortized original issue discount attributed
to subordinated notes ..................................... 478 532
-------- --------
20,094 19,984
Less current portion ......................................... 1,328 1,275
-------- --------
$ 18,766 $ 18,709
-------- --------
(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 NET. 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. The balance of the interest rate agreement at March 31, 2001 was $889,000.
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.
(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 NET.
6
YOUTHSTREAM MEDIA NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2001
(UNAUDITED)
(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. STOCKHOLDERS' EQUITY
For the nine months ending March 31, 2001, options were exercised resulting in
the issuance of approximately 45,000 shares of common stock resulting in net
proceeds to the Company of approximately $127,000.
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 prior periods' segments have been restated
to reflect the Company's internal reorganization (in thousands).
Three months ended Three months ended
March 31, 2001 March 31, 2000
------------------------------ -------------------------------
Media Retail Total Media Retail Total
-------- -------- -------- -------- -------- ---------
Net revenues ........................ $ 4,223 $ 1,542 $ 5,765 $ 5,942 $ 1,127 $ 7,069
Depreciation and amortization ....... 1,249 173 1,422 668 146 814
Loss from operations ................ (4,598) (640) (5,238) (625) (406) (1,031)
Capital expenditures ................ 204 133 337 1,063 140 1,203
Nine months ended Nine months ended
March 31, 2001 March 31, 2000
------------------------------ -------------------------------
Media Retail Total Media Retail Total
-------- -------- -------- -------- -------- ---------
Net revenues ........................ $ 14,512 $ 9,111 $ 23,623 $ 16,916 $ 7,115 $ 24,031
Depreciation and amortization ....... 3,655 503 4,158 2,104 418 2,522
Loss from operations ................ (11,705) (564) (12,269) (1,893) 208 (1,685)
Capital expenditures ................ 817 385 1,202 3,401 1,067 4,468
March 31, 2001 June 30, 2000
------------------------------ -------------------------------
Media Retail Total Media Retail Total (a)
-------- -------- -------- -------- -------- ---------
Identifiable assets ................. $ 57,175 $ 9,906 $ 67,081 $ 75,481 $ 9,873 $ 85,354 (a)
(a) June 30, 2000 excludes net non-current assets of discontinued
operations
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 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 and the nine months ended
March 31, 2001 (unaudited) to the three months and the nine months ended March
31, 2000 (unaudited).
RESULTS OF OPERATIONS
For the three months ended March 31, 2001, net revenues were $5.8 million as
compared to $7.1 million for the three months ended March 31, 2000. The decrease
of $1.3 million was due to a decrease of $1.7 million in the media segment
offset by an increase of $0.4 million in the retail segment. After adjusting for
the loss of contributed media of $0.9 million, the decrease of revenue in the
media segment was $0.8 million, attributable to the de-emphasis of certain
non-profitable businesses as well as softening market condition in the
advertising industry, offset by an increase of $0.2 million related to the
acquisition of Teen.com. Contributed media revenues related to media and
marketing services provided to CommonPlaces in exchange for equity prior to the
merger with the Company. The retail segment increase of $0.4 million was
attributable to year-over-year same store growth as well as the expansion of the
retail store network.
For the nine months ended March 31, 2001, net revenues were $23.6 million as
compared to $24.0 million for the nine months ended March 31, 2000. The decrease
of $0.4 million was due to a decrease in the media segment of $2.4 million
offset by an increase of $2.0 million in the retail segment. After adjusting for
the loss of contributed media of $2.9 million, revenues in the media segment
increased by $0.5 million. Contributed media revenues related to media and
marketing services provided to CommonPlaces in exchange for equity prior to the
merger with the Company. The retail segment increase of $2.0 million was
attributable to year-over-year same store growth as well as the expansion of the
retail store network.
For the three months ended March 31, 2001, cost of goods sold were $0.3 million
as compared to $0.2 million for the three months March 31, 2000. The increase of
$0.1 million was due to increased revenues in the retail segment.
For the nine months ended March 31, 2001, cost of goods sold were $2.0 million
as compared to $1.7 million for the nine months March 31, 2000. The increase of
$0.3 million was due to increased revenues in the retail segment.
For the three months ended March 31, 2001, selling, general and administrative
expenses were $7.4 million as compared to $5.8 million for the three months
ended March 31, 2000. The increase of $1.6 million was due to an increase of
$1.2 million in the media segment and $0.4 million in the retail segment. The
media segment increase of $1.2 million was primarily due to the acquisition of
Teen.com. The retail segment increase of $0.4 million was primarily due to the
expansion of the retail store network.
For the nine months ended March 31, 2001, selling, general and administrative
expenses were $24.4 million as compared to $18.3 million for the nine months
ended March 31, 2000. The increase of $6.1 million was due to an increase of
$3.6 million in the media segment and $2.5 million in the retail segment. The
media segment increase of $3.6 million was primarily due to the acquisition of
Teen.com. The retail segment increase of $2.5 million was due to $1.8 million of
one time costs related to the acquisition of Trent and the remaining $0.7
million due to increased expenses related to expansion of the retail store
network.
For the three months ended March 31, 2001, corporate expenses were $1.9 million
as compared to $1.3 million for the three months ended March 31, 2000. Corporate
expenses grew as an improved management team was put in place.
For the nine months ended March 31, 2001, corporate expenses were $5.4 million
as compared to $3.2 million for the nine months ended March 31, 2000. The
increase of $2.2 million includes $1.1 million related to the cost of upgrading
the senior management team, $0.4 million related to the exploration of a venture
in the People's Republic of China, and $0.4 million caused by one time charges,
mostly severance and moving expenses.
For the three months ended March 31, 2001, depreciation and amortization
expenses were $1.4 million as compared to $0.8 million for the three months
ended March 31, 2000. The increase of $0.6 million was primarily due to the
acquisition of Teen.com.
For the nine months ended March 31, 2001, depreciation and amortization expenses
were $4.2 million as compared to $2.5 million for the nine months ended March
31, 2000. The increase of $1.7 million was primarily due to the acquisition of
Teen.com.
For the three months ended March 31, 2001, there was no equity loss in
investment as compared to $0.9 million for the three months ended March 31,
2000. Equity loss in investment represented the Company's minority interest
share of the loss in CommonPlaces.
For the nine months ended March 31, 2001, there was no equity loss in investment
as compared to $2.9 million for the nine months ended March 31, 2000. Equity
loss in investment represented the Company's minority interest share of the loss
in CommonPlaces.
8
For the three months ended March 31, 2001, interest income was $0.4 million as
compared to $0.4 million for the three months ended March 31, 2000.
For the nine months ended March 31, 2001, interest income was $1.7 million as
compared to $1.0 million for the nine months ended March 31, 2000. The increase
of $0.7 million was due to interest income earned on increased cash balances
resulting from the issuance of debt and the sale of common stock.
For the three months ended March 31, 2001, interest expense was $0.8 million as
compared to $0.2 million for the three months ended March 31, 2000. The increase
of $0.6 million was primarily related to the increase in long-term debt.
For the nine months ended March 31, 2001, interest expense was $2.4 million as
compared to $0.7 million for the nine months ended March 31, 2000. The increase
of $1.7 million was primarily related to the increase in long-term debt.
For the three months ended March 31, 2001, there was no loss from discontinued
operations as compared to $14.8 million for the three months ended March 31,
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 March 31, 2000, loss from discontinued operations primarily represents
amortization of goodwill and depreciation of $11.8 million, operating expenses
of $4.1 million offset by other income of $0.7 million and net revenues of $0.4
million
For the nine months ended March 31, 2001, loss from discontinued operations was
$40.6 million as compared to $14.6 million for the nine months ended March 31,
2000. The nine months ended March 31, 2001, loss from discontinued operations of
$40.6 million represent operating losses for the online segment from July to the
December 2000 measurement date. The nine months ended March 31, 2000, loss from
discontinued operations of $14.6 million represent operating losses for the
online segment primarily incurred during the period January to March 2000.
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 phase-out period. The Company's exit from these
operations is expected to occur prior to June 30, 2001.
The following unaudited proforma information is presented for purposes of
restating the Company's prior period results to reflect the impact of
discontinued operations (in thousands):
Three months Three months Three months Three months Twelve months Three months
ended ended ended ended ended ended
September 30, December 31, March ,31 June 30, June 30, September 30,
1999 1999 2000 2000 2000 2000
------------- ------------- ------------- ------------- ------------- -------------
Net Revenues ........................ $ 10,361 $ 6,601 $ 7,069 $ 4,190 $ 28,221 $ 10,567
Income (loss) from operations ....... 346 (1,000) (1,031) (5,636) (7,321) (2,121)
Loss before provision for taxes ..... (468) (2,143) (1,673) (5,246) (9,530) (2,145)
Loss from continuing operations ..... (516) (2,187) (1,765) (5,555) (10,023) (2,373)
Income (loss) from discontinued
Operations ........................ 107 43 (14,780) (25,235) (39,865) (24,839)
------------- ------------- ------------- ------------- ------------- -------------
Net loss ............................ $ (409) $ (2,144) $ (16,545) $ (30,790) $ (49,888) $ (27,212)
============= ============= ============= ============= ============= =============
Per share of common stock basic
And diluted
Loss from continuing operations ... $ (0.04) $ (0.12) $ (0.08) $ (0.21) $ (0.47) $ (0.08)
Income (loss) from discontinued
Operations ....................... 0.01 -- (0.64) ( 0.99) (1.89) (0.86)
------------- ------------- ------------- ------------- ------------- -------------
Net loss ............................ $ (0.03) $ (0.12) $ (0.72) $ (1.20) $ (2.36) $ (0.94)
============= ============= ============= ============= ============= =============
Weighted average basic and diluted
Shares outstanding ................ 15,929 17,584 23,091 25,561 21,111 28,897
============= ============= ============= ============= ============= =============
9
LIQUIDITY AND CAPITAL RESOURCES
In July 2000, the Company realized net proceeds of approximately $1,000,000 from
the sale of an 11% Subordinated Note and warrants to purchase 60,000 shares of
the Company's common stock.
In December 2000, the Company announced the discontinuation of its online
business segment. As a result of this decision, the Company's future cash
requirements to operate these businesses will be significantly reduced.
In May 2001, the Company announced a stock repurchase program. The Company is
authorized to repurchase up to $2.0 million of its outstanding common stock. The
purchases will be made from time to time in open-market transactions at
prevailing prices.
The Company used approximately $17.4 million in its operating activities in the
first nine months of fiscal year 2001 as compared to $14.9 million in the first
nine months of fiscal year 2000. The increase of approximately $2.5 million
represents the increase in net loss, accounts receivable and other assets and
the decrease in short-term liabilities offset by the increase in depreciation
and amortization and a decrease in deposits and other current assets. Cash
provided by investing activities in the first nine months of fiscal year 2001 of
approximately $10.7 million is composed primarily of proceeds from marketable
securities upon maturity offset by capital expenditures. Cash provided by
financing activities in the first nine months of fiscal year 2001 of
approximately $0.1 million is primarily attributable to the issuance of
long-term debt offset by repayments of capitalized lease obligations and
long-term debt.
The Company's primary capital requirements with respect to its operations are to
fund corporate overhead including expenses in evaluating opportunities in China,
expansion of its retail store locations, its network of campus theaters and
postcard distribution. As of March 31, 2001, the Company had approximately $11.7
million in cash and cash equivalents. The Company believes that such amounts
plus an additional amount of $13.3 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
requirements. 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 fund the cost of its retail
expansion, to expand its network of campus theaters, to develop or acquire
additional media and marketing services businesses 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 a 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,
sampling and promotion. 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 first quarter of
fiscal 2002 and in the full fiscal year 2002 due to projected increase in
revenues, as well as projected improvements in operating margins. The projected
EBITDA improvement is expected to reduce cash consumption below $7.0 million in
fiscal year 2002 including an expected $3.0 million of capital investments in
the business. Net income is expected to result in a loss of less than $10.0
million. 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.
10
PART II
OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.
None
11
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 11, 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
12