<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended March 31, 2000
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 Small Business Issuer as Specified in Its Charter)
Delaware 13-4082185
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation of Organization)
529 Fifth Avenue, New York, New York 10017
(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 May 3, 2000 there were 27,927,251 shares of Common Stock, $.01 par value
outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
<PAGE>
YouthStream Media Networks, Inc.
Form 10-QSB
Index
Page
PART I--FINANCIAL INFORMATION Number
Item 1 Financial Statements
Consolidated balance sheets - March 31, 2000
(unaudited) and June 30, 1999............................... 1
Consolidated statements of operations - three months and nine
ended March 31, 2000 and 1999 (unaudited)................... 2
Consolidated statements of cash flows - nine months ended
March 31, 2000 and 1999 (unaudited)......................... 3
Consolidated statement of stockholders' equity - nine
months ended March 31, 2000 (unaudited)..................... 5
Notes to consolidated financial statements.................... 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 10
PART II--OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K................................ 12
Signatures............................................................. 13
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
YouthStream Media Networks, Inc.
Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
March 31, June 30,
2000 1999
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 42,220 $ 7,046
Restricted Cash 1,328 -
Accounts receivable, net of allowance for
doubtful accounts of $321 and $158 at
March 31, 2000 and June 30, 1999, respectively 7,286 2,653
Inventories 887 852
Prepaid expenses and other current assets 6,503 823
----------- -----------
Total current assets 58,224 11,374
Property and equipment, net of accumulated
depreciation of $5,645 and $3,760 at
March 31, 2000 and June 30, 1999, respectively 11,404 4,360
Deferred financing costs, net of accumulated
amortization of $310 and $174 at March 31, 2000
and June 30, 1999, respectively 588 724
Intangible assets, net of accumulated amortization
of $14,713 and $1,370 at March 31, 2000 and
June 30, 1999, respectively 222,540 13,663
Other assets 2,816 131
----------- -----------
Total assets $ 295,572 $ 30,252
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,313 $ 1,442
Accrued employee compensation 883 561
Other accrued expenses 1,628 1,048
Deferred revenues 575 521
Current portion of deferred purchase price 2,000 -
Current portion of capital lease obligation 767 -
Current portion of long-term debt 1,384 857
----------- -----------
Total current liabilities 10,845 4,429
Capital lease obligation, net of current portion 1,304 -
Long-term debt 7,494 6,589
Deferred rent 295 -
Deferred purchase price 2,000 -
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, 27,873 shares and 14,897 shares
issued and outstanding at March 31, 2000
and June 30, 1999, respectively 279 149
Additional paid-in capital 320,732 47,043
Accumulated deficit (47,056) (27,958)
Accumulated other comprehensive loss (26) -
----------- -----------
Total stockholders' equity 273,929 19,234
----------- -----------
Total liabilities and stockholders' equity $ 295,572 % 30,252
=========== ===========
</TABLE>
See notes to consolidated financial statements
1
<PAGE>
YouthStream Media Networks, Inc.
Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
------------------ --------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Revenues $ 7,471 $ 4,169 $ 24,433 $10,979
Operating Expenses:
Cost of goods sold 166 - 1,688 -
Selling, general and administrative 9,895 3,876 22,393 10,785
Corporate expenses 1,271 853 3,156 3,111
Depreciation and amortization 12,626 520 15,228 1,500
-------- -------- -------- --------
Total operating expenses 23,958 5,249 42,465 15,396
-------- -------- -------- --------
Loss from operations (16,487) (1,080) (18,032) (4,417)
Equity loss in investment (850) - (2,890) -
Interest income 493 130 1,065 257
Other income 704 - 1,745 -
Interest expense (306) (294) (795) (878)
-------- -------- -------- --------
Loss before provision for income taxes (16,446) (1,244) (18,907) (5,038)
Provision for income taxes 99 32 191 125
-------- -------- -------- --------
Net loss (16,545) (1,276) (19,098) (5,163)
-------- -------- -------- --------
Other comprehensive loss
Unrealized loss on available for sale
marketable equity securities (26) - (26) -
-------- -------- -------- --------
Comprehensive loss $(16,571) $(1,276) $(19,124) $(5,163)
======== ======== ======== ========
Net loss per basic and diluted common share $(0.72) $ (0.09) $ (1.01) $ (0.42)
======== ======== ======== ========
Weighted average basic and diluted common
shares outstanding 23,091 13,808 18,853 12,207
======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements
2
<PAGE>
YouthStream Media Networks, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
March 31,
----------------------------------------
2000 1999
---- ----
<S> <C> <C>
Cash Flows From Operating Activities
Net loss $ (19,098) $ (5,163)
Adjustments to reconcile net loss to
net cash used in operating activities:
Provision for bad debts 110 17
Depreciation and amortization 15,228 1,500
Amortization of deferred financing costs 136 190
Amortization of original issue discount on Subordinated Notes 27 9
Deferred rent 48 _
Changes in assets and liabilities:
Increase in accounts receivable (4,081) (1,598)
Increase in inventory (35) -
Increase in prepaid expenses and other current assets (325) (329)
Increase (decrease) in accounts payable 725 (445)
Increase in accrued employee compensation 322 19
(Decrease) increase in other accrued expenses (1,195) 210
Increase (decrease) in deferred revenues 16 (331)
----------- -----------
Net cash used in operating activities (8,122) (5,921)
----------- -----------
Cash Flows From Investing Activities
Capital expenditures (4,734) (1,462)
Unrealized loss on marketable equity securities (26) -
Other assets (2,562) (131)
Payment for business acquisitions (net of cash acquired) (6,529) -
----------- -----------
Net cash used in investing activities (13,851) (1,593)
----------- -----------
Cash Flows From Financing Activities
Net proceeds from sale of common stock and exercise of warrants and options 55,895 15,295
Net proceeds from issuance of warrants in connection with long-term debt - 188
Repayment of long-term lease obligation (153) -
Proceeds from long-term debt 1,971 4,502
Repayment of long-term debt (566) (1,500)
----------- -----------
Net cash provided by financing activities 57,147 18,485
----------- -----------
Increase in cash and cash equivalents 35,174 10,971
Cash and cash equivalents at beginning of period 7,046 2,271
----------- -----------
Cash and cash equivalents at end of period $ 42,220 $ 13,242
=========== ===========
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
YouthStream Media Networks, Inc.
Consolidated Statements of Cash Flows (Continued)
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
March 31,
-----------------------------------------
2000 1999
---- ----
<S> <C> <C>
Supplemental cash flow information
Cash paid for interest $ 777 $ 602
================ ===============
Cash paid for income taxes $ 101 $ 70
================ ===============
Noncash Financing Activities
Issuance of warrants in connection with long-term debt $ - $ 552
================ ===============
Issuance of common stock in connection with acquisition of CollegeWeb $ 2,529 $ -
================ ===============
Issuance of common stock in connection with acquisition of Invino $ 4,384 $ -
================ ===============
Deferred purchase price in connection with acquisition of Invino $ 4,000 $ -
================ ===============
Issuance of common stock in connection with acquisition of sixdegrees $ 110,715 $ -
================ ===============
Issuance of warrants and options in connection with acquisition of sixdegrees $ 15,700 $ -
================ ===============
Issuance of common stock in connection with acquisition of CommonPlaces $ 78,934 $ -
================ ===============
Issuance of stock options in connection with acquisition of CommonPlaces $ 4,600 $ -
================ ===============
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
YouthStream Media Networks, Inc.
Consolidated Statement of Stockholders' Equity
For the period from July 1, 1999 to March 31, 2000
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional
----------------------------- Paid-in
Shares Amount Capital
------ ------ -------
<S> <C> <C> <C>
Balances at June 30, 1999 14,897 $ 149 $47,043
Issuance of common stock, net of issuance costs 2,477 25 52,950
Issuance of common stock upon exercise of warrants 736 7 289
Issuance of common stock upon exercise of stock options 932 10 2,614
Issuance of common stock in connection with
acquisition of CollegeWeb 109 1 2,528
Issuance of common stock in connection with
acquisition of Invino 187 2 4,382
Additional stock options issued in connection with
acquisition of American Passage - - 1,062
Issuance of common stock in connection with
acquisition of sixdegrees 3,742 37 110,678
Issuance of warrants and stock options in
connection with acquisition of sixdegrees - - 15,700
Issuance of common stock in connection with
acquisition of CommonPlaces 4,793 48 78,886
Issuance of stock options in connection with
acquisition of CommonPlaces - - 4,600
Unrealized loss on marketable equity securities
Net loss - - -
--------- --------- ---------
Comprehensive loss - - -
--------- --------- ---------
Balances at March 31, 2000 27,873 $ 279 $320,732
========= ========= =========
<CAPTION>
Accumulated
Other
Accumulated Comprehensive
Deficit Loss Total
------- ---- -----
<S> <C> <C> <C>
Balances at June 30, 1999 $ (27,958) $ - $ 19,234
Issuance of common stock, net of issuance costs - - 52,975
Issuance of common stock upon exercise of warrants - - 296
Issuance of common stock upon exercise of stock options - - 2,624
Issuance of common stock in connection with
acquisition of CollegeWeb - - 2,529
Issuance of common stock in connection with
acquisition of Invino - - 4,384
Additional stock options issued in connection with
acquisition of American Passage - - 1,062
Issuance of common stock in connection with
acquisition of sixdegrees - - 110,715
Issuance of warrants and stock options in
connection with acquisition of sixdegrees - - 15,700
Issuance of common stock in connection with
acquisition of CommonPlaces - - 78,934
Issuance of stock options in connection with
acquisition of CommonPlaces - - 4,600
Unrealized loss on marketable equity securities (26) (26)
Net loss (19,098) - (19,098)
--------- --------- ---------
Comprehensive loss (19,098) (26) (19,124)
--------- --------- ---------
Balances at March 31, 2000 $ (47,056) $ (26) $ 273,929
========= ========= =========
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
YouthStream Media Networks, Inc.
Notes to Consolidated Financial Statements
March 31, 2000
(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, Common Places, LLC ("CommonPlaces"), sixdegrees, inc.,
("sixdegrees"), 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"),
CollegeWeb.com, Inc. ("CollegeWeb") and Invino Corporation ("Invino")
(collectively, the "Company"). All significant intercompany transactions have
been eliminated.
The Company is a leading media, marketing services, promotions and Internet
company targeting the young adult marketplace, particularly college and
university audiences. Through the combination of a unique portfolio of targeted
off-line media properties and two next generation on-line websites, namely
mybytes.com and sixdegrees.com, the Company provides integrated, cost effective
solutions to advertisers and sponsors looking to reach young adults. The
Company's portfolio of on-line and off-line Internet and media services
properties include:
o sixdegrees, creator of sixdegrees.com, which provides individuals with
the ability to administer their own personal virtual communities using
a proprietary connection engine that members can use to find and
connect to other members for a wide variety of purposes, including
finding jobs, referrals, dates, introductions and recommendations;
o CommonPlaces, creator of mybytes.com, one of the first full service
Internet hubs designed for and targeting the college market which
provides a self-evolving, personalized community with academic tools,
campus based content and integrated advertising, e-commerce and
lifestyle services including Pulsefinder.com, which is an on-line real
time research and polling service that tracks and measures the latest
trends in the college market;
o NET, the nation's only national network of theaters on college campuses
for delivering entertainment and educational events via digital
satellite transmission;
o American Passage, the leading college newspaper advertising placement
service and the leading campus postering and promotions company;
o Beyond the Wall, the largest print poster catalog with a circulation of
over four million reaching over 600 campuses;
o Campus Voice, an editorial wall media network reaching approximately
480 campuses through more than 3,700 boards generating more than 100
million passers-by each month;
o HotStamp, the largest national free postcard advertising brand with
niche programs on and off college campuses and at movie theaters,
record stores, conventions and malls utilizing over 2,000 postcard
racks that distribute over six million postcards each month; and
o Trent, the leading on campus seller of wall posters to students at
colleges and universities throughout the country including a chain of
poster retail stores being rolled out nationally.
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-QSB and Item 310 of Regulation
S-B. 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, 2000. 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,
1999.
2. Acquisitions
In February 2000, YouthStream acquired the remaining equity of CommonPlaces not
owned by NET in a merger transaction. A new public holding company was created,
namely YouthStream, and it exchanged 0.89 of its shares for each unit of
CommonPlaces. In addition, YouthStream exchanged one of its shares for each
share of NET presently outstanding. The effect of this transaction was that
YouthStream became a public holding company and NET became a wholly owned
subsidiary of YouthStream.
CommonPlaces unitholders, excluding NET, received 4,792,867 shares of the
Company's common stock, valued at $78,934,000, or approximately $16.47 per
share, the current three day average price per share when the merger was first
announced in June 1999. The Company also issued 1,301,374 of its common stock
options in exchange for the same number of options in CommonPlaces units valued
at approximately $4,600,000, or $3.99 per option.
In January 2000, NET acquired sixdegrees pursuant to a merger agreement between
NET and sixdegrees. The Company issued 2,742,536 shares of common stock and
999,957 shares of convertible preferred stock valued at $110,715,000, or
approximately $29.583 per share, the current three day average price per share
when the merger was announced in December 1999. The convertible preferred stock
was converted into common stock in March 2000. The Company also exchanged
7,722,643 of its options and warrants for 640,979 of sixdegrees's options and
warrants valued at approximately $15,700,000.
In October 1999, NET acquired Invino pursuant to a merger agreement between NET
and Invino. Invino is the developer of an instant messaging application for the
college market, which features the ability to drag and drop text, audio, video
and other types of files into instant messages, and to conduct instant messaging
with groups of people simultaneously. The purchase price aggregating $9,000,000
is payable in the Company's common stock, of which $3,486,000 (167,358 shares)
was paid at closing, based on the 30 day average share price prior to the
quarterly payment date. In December 1999, the Company issued an additional
19,301 shares valued at approximately $558,000 in connection with the first
quarterly installment. As of March 31, 2000, the Company was obligated to issue
an additional 27,325 shares of the Company's common stock valued at
approximately $340,000 in connection with the second quarterly installment.
These shares were issued in April 2000. The aggregate purchase price was
recorded
6
<PAGE>
YouthStream Media Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
March 31, 2000
(Unaudited)
in October 1999 and the deferred purchase price included in the accompanying
balance sheet represents the unpaid portion. Any differences between the use of
the 30 day and 3 day average trading prices will be accounted for as an
adjustment to the purchase price. For accounting purposes, the value of the
shares issued and to be issued has been and will be determined on the 3 day
average trading price one day before and one day after the date of issuance. The
Company has licensed Invino's technology to CommonPlaces (see Note 6). For the
period October through February 2000 (CommonPlaces merger), the Company
recognized approximately $1,216,000 in license fee income and CommonPlaces
recognized approximately $1,216,000 in license fee expense.
In August 1999, NET acquired CollegeWeb pursuant to a merger agreement between
NET and CollegeWeb. CollegeWeb owns and maintains a Web site aimed at college
students which, among other things, permits students to communicate with other
students using video cameras attached to their computers. The purchase price
consisted of 108,971 shares of the Company's common stock, valued at $2,529,000,
or approximately $23.22 per share, the then current market price. The Company
has licensed CollegeWeb's technology to CommonPlaces (see Note 6). For the
period August through February 2000 (CommonPlaces merger), the Company
recognized approximately $525,000 in license fee income and CommonPlaces
recognized approximately $525,000 in license fee expense.
In June 1999, the Company acquired Trent and certain assets and liabilities of
HelloXpress USA, Inc. The following unaudited pro forma information is presented
as if the Company had completed the acquisitions of sixdegrees, CommonPlaces,
Trent, HelloXpress,USA, Inc., CollegeWeb and Invino as of July 1, 1999 and 1998
respectively.
<TABLE>
<CAPTION>
Nine months ended March 31,
2000 1999
---- ----
<S> <C> <C>
Net revenue $23,058,000 $18,182,000
Net loss (81,967,000) (52,437,000)
Net loss per basic and common share (3.14) (2.77)
Weighted average common shares outstanding basic and diluted 26,132,000 18,945,000
</TABLE>
The pro forma information above is not necessarily indicative of the results of
operations that would have occurred had the acquisitions been made at the
beginning of the respective periods.
3. Long-term Capital Lease Obligation
Prior to its acquisition, sixdegrees refinanced certain equipment purchased from
the period January 1997 through December 1999 pursuant to three sale/leaseback
agreeements. The leases have been accounted for as capital leases. The gains
from the sale and leaseback have been deferred over the life of the leases and
are netted with the capital lease assets for reporting purposes.
4. Long-Term Debt
A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
March 31, June 30,
2000 1999
-------------------------------
<S> <C> <C>
Note Payable to Bank (A) $1,906,000 $2,406,000
Subordinated notes - private placement (B) 5,000,000 5,000,000
Note payable to finance company (C) 1,907,000 -
Other 188,000 190,000
---------- ----------
9,001,000 7,596,000
Less unamortized original discount attributed to subordinated notes 123,000 150,000
---------- ----------
8,878,000 7,446,000
Less current portion 1,384,000 857,000
---------- ----------
$7,494,000 $6,589,000
========== ==========
</TABLE>
(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 $3,000,000 of the aforementioned floating rate debt to a fixed rate.
The balance of the interest rate agreement at March 31, 2000 was $1,500,000.
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.
7
<PAGE>
YouthStream Media Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
March 31, 2000
(Unaudited)
(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 valued at $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 $1,972,000. 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.
5. Stockholders' Equity
In August 1999, the Company sold 1,219,521 shares of its common stock for
$25,000,000 in a private placement. In conjunction with the private placement,
the Company issued to the placement agent a warrant to purchase 36,585 shares of
the Company's common stock at $23.50 per share, the then current market price.
The Company incurred approximately $1,500,000 of fees and related expenses in
this transaction.
In connection with the Company's initial public offering in April 1996, the
Company issued 230,000 warrants to the underwriter. Each warrant entitled the
holder to purchase one share of the Company's stock for $8.25 and an additional
warrant for $.165. Each additional warrant entitled the holder to purchase one
share of the Company's common stock for $8.25. All warrants expire in April
2002. For the period July 1, 1999 through March 31, 2000 17,749 warrants and
42,749 additional warrants were exercised resulting in net proceeds to the
Company of $296,000. Approximately 25,000 of the additional warrants were
exercised in cashless transactions. At March 31, 2000, 4,122 warrants remain
unexercised.
In connection with the issuance of Subordinated Notes in July 1998, the Company
issued 525,000 warrants to accredited investors and 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. During July and September 1999, the
warrants were exercised in a cashless transaction resulting in the issuance of
450,568 shares of the Company's common stock .
In December 1999, the Company issued 249,791 shares of its common stock to a
public relations firm upon the cashless exercise of 300,000 warrants issued in
December 1997. The warrants entitled the holder to purchase one share of the
Company's common stock for $5.00
In connection with certain earn out contingencies related to the American
Passage acquisition in September 1996, the Company issued 75,000 options which
entitled the holder to purchase one share of the Company's common stock for
$2.627. The value of such options of $1,062,000 was recorded as additional
purchase price. In November 1999, the Company issued 75,000 shares of its common
stock in connection with the exercise of such options.
For the nine months ending March 31, 2000, options were exercised resulting in
the issuance of approximately 932,000 shares of common stock, including the
options related to the American Passage earn out, resulting in net proceeds of
approximately $2,624,000.
In December 1999, the Company sold 1,257,400 shares of its common stock for
$31,435,000 in a private placement. In conjunction with the private placement,
the Company issued to the placement agent a warrant to purchase 37,722 shares of
the Company's common stock at $25.00 per share, the then current market price.
The Company incurred approximately $1,900,000 of fees and related expenses in
this transaction.
6. Investment
In November 1998, NET had acquired 5,000,000 common units in CommonPlaces in
exchange for providing media and marketing services having an aggregate value of
$15,000,000 over a four year period commencing upon the initial public launch
campaign promoting CommonPlaces' business, but not later than August 31, 1999.
Twenty-five percent of the common units initially acquired by NET, or 1,250,000
common units, were not subject to vesting and no additional performance of
services by NET was necessary with respect to those units.
NET did not assign a value to the initial 1,250,000 common units that vested
immediately because of the start-up nature of CommonPlace's business and the
related uncertainty surrounding it. It was NET's intention to record an
investment proportionate to the cost of media and marketing services provided on
an on-going basis related to its $15,000,000, four year commitment. This
investment in CommonPlaces was accounted for using the equity method until the
February 2000, merger. Under the equity method NET's share of earnings or losses
of CommonPlaces was reflected in income as earned and dividends were credited
against the investment when received.
8
<PAGE>
YouthStream Media Networks, Inc.
Notes to Consolidated Financial Statements (Continued)
March 31, 2000
(Unaudited)
For the period July 1, 1999 through February 28, 2000, NET provided
approximately $2,890,000 in media and marketing services to CommonPlaces. NET's
share of CommonPlaces' losses for the period July 1, 1999 through February 28,
2000 and the year ended June 30, 1999 were approximately $7,045,000 and
$2,300,000, respectively. For the period from July 1, 1999 through February 28,
2000, NET recognized approximately $1,741,000 in license fee income and
CommonPlaces recognized $1,741,000 in license fee expense. NET has limited the
recognition of CommonPlaces' losses in its statement of operations to $2,890,000
for the period July 1, 1999 through February 28, 2000 because it was not
required to fund CommonPlaces' losses or to make additional capital
contributions.
7. Segment Information
The Company operates in two business segments, online and offline. The online
segment consists of the operations of two Internet websites, mybytes.com and
sixdegrees.com. The offline segment consists of traditional print media and
promotions.
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, 2000 March 31, 2000
-------------- --------------
Segment Segment
Online Off-line Online Off-line
<S> <C> <C> <C> <C>
Net revenues from external customers $ 402 $ 7,069 $ 402 $ 24,031
Intersegment revenues - 311 - 311
Depreciation and amortization 10,845 1,781 10,848 4,380
Operating loss (14,487) (2,311) (14,487) (3,856)
Identifiable assets 212,467 83,105 212,467 83,105
Capital expenditures 305 1,166 305 4,429
</TABLE>
Segment information is not shown for the three and nine month periods ended
March 31, 1999 as there was no significant online activity during those periods.
8. Subsequent Events
In April 2000, the Company entered into facility operating lease agreements
expiring in October 2010. Annual base rent payable under these agreements is
approximately $2,600,000 in years one to five and $2,900,000 in years six to
ten.
9
<PAGE>
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 ability to obtain financing, integration of acquisitions, the management of
growth, changing consumer tastes 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 following financial analysis compares the three months and the nine months
ended March 31, 2000 (unaudited) to the three months and the nine months ended
March 31, 1999 (unaudited).
Results of Operations
For the three months ended March 31, 2000, net revenues were $7,471,000 as
compared to $4,169,000 for the three months ended March 31, 1999. The increase
of $3,302,000 was primarily due to the acquisition of Trent, which accounted for
$1,177,000 of the increase. The acquisitions of sixdegees and CommonPlaces
accounted for $379,000 and $23,000 of the increase, respectively. Additionally,
contributed media revenues for CommonPlaces accounted for $850,000 of the
increase. The remaining $873,000 was primarily due to increased sales at other
subsidiaries as a result of an increase in sales staff.
For the nine months ended March 31, 2000, net revenues were $24,433,000 as
compared to $10,979,000 for the nine months ended March 31, 1999. The increase
of $13,454,000 was primarily due to the acquisition of Trent, which accounted
for $7,165,000 of the increase. The acquisitions of sixdegees and CommonPlaces
accounted for $379,000 and $23,000 of the increase, respectively. Additionally,
contributed media revenues for CommonPlaces accounted for $2,890,000 of the
increase. The remaining $2,997,000 was primarily due to increased sales at other
subsidiaries as a result of an increase in sales staff.
For the three months and the nine months ended March 31, 2000, cost of goods
sold was $166,000 and $1,688,000, respectively, all related to Trent's
operations.
For the three months ended March 31, 2000, selling, general and administrative
expenses were $9,895,000 as compared to $3,876,000 for the three months ended
March 31, 1999. The increase of $6,019,000 was primarily due to the acquisitions
of sixdegees, CommonPlaces and Trent, which accounted for $2,265,000, $1,781,000
and $1,220,000 of the increase, respectively. The remaining increase of $753,000
was due to increased level of sales and administrative staff to support the
increase in net revenues.
For the nine months ended March 31, 2000, selling, general and administrative
expenses were $22,393,000 as compared to $10,785,000 for the nine months ended
March 31, 1999. The increase of $11,608,000 was primarily due to the acquisition
of sixdegees, CommonPlaces and Trent, which accounted for $2,265,000, $1,781,000
and $4,800,000 of the increase, respectively. The remaining increase of
$2,762,000 was due to increased level of sales and administrative staff to
support the increase in net revenues.
For the three months ended March 31, 2000, corporate expenses were $1,271,000 as
compared to $853,000 for the three months ended March 31, 1999. The increase of
$418,000 is primarily due to increased corporate personnel and related overhead
expenses required to support the Company's growth.
For the nine months ended March 31, 2000, corporate expenses were $3,156,000 as
compared to $3,111,000 for the nine months ended March 31, 1999. The increase of
$45,000 was primarily due to an increase of $585,000 in corporate personnel and
related overhead expenses required to support the Company's growth offset by a
decrease of $540,000 in bonus expense.
For the three months ended March 31, 2000, depreciation and amortization
expenses were $12,626,000 as compared to $520,000 for the three months ended
March 31, 1999. The increase of $12,106,000 was primarily due to the additional
amortization of goodwill of sixdegrees, CommonPlaces, Trent, HelloXpress,
CollegeWeb and Invino, which accounted for $11,651,000 of the increase. The
remaining increase of $455,000 was related to the depreciation resulting from an
increase in fixed assets related primarily to the acquisitions.
For the nine months ended March 31, 2000, depreciation and amortization expenses
were $15,228,000 as compared to $1,500,000 for the nine months ended March 31,
1999. The increase of $13,728,000 was primarily due to the additional
amortization of goodwill of sixdegrees, CommonPlaces, Trent, HelloXpress,
CollegeWeb and Invino, which accounted for $12,938,000 of the increase. The
remaining increase of $790,000 was related to the depreciation resulting from an
increase in fixed assets related primarily to the acquisitions.
10
<PAGE>
For the three months and nine months ended March 31, 2000, equity loss in
investment was $850,000 and $2,890,000, respectively, representing the Company's
minority interest share of the loss in CommonPlaces. Recognition of such loss
was limited to the Company's investment in CommonPlaces.
For the three months ended March 31, 2000, interest income was $493,000 as
compared to $130,000 for the three months ended March 31, 1999. The increase of
$363,000 was due to interest income earned on increased cash balances resulting
from the sale of common stock.
For the nine months ended March 31, 2000, interest income was $1,065,000 as
compared to $257,000 for the nine months ended March 31, 1999. The increase of
$808,000 was due to interest income earned on increased cash balances resulting
from the sale of common stock.
For the three months and nine months ended March 31, 2000, other income was
$704,000 and $1,745,000, respectively, representing licensing fees relating to
CollegeWeb and Invino due from CommonPlaces, prior to its merger with the
Company.
For the three months ended March 31, 2000, interest expense was $306,000 as
compared to $294,000 for the three months ended March 31, 1999. The increase of
$12,000 primarily relates to an increase of $68,000 from interest on capitalized
leases that were acquired with the sixdegrees acquisition, offset by a $56,000
reduction for long-term debt.
For the nine months ended March 31, 2000, interest expense was $795,000 as
compared to $878,000 for the nine months ended March 31, 1999. The decrease of
$83,000 primarily relates to a decrease of interest due to the reduction in
long-term debt of $151,000 offset by an increase of $68,000 due to interest on
capitalized leases that were acquired with the sixdegrees acquisition.
For the three months ended March 31, 2000, net loss was $16,545,000 as compared
to $1,276,000 for the three months ended March 31, 1999. The increase of
$15,269,000 was due to increased cost of goods sold, selling, general and
administrative expenses, corporate expenses, and amortization expense that were
offset by increased revenues, other income and interest income.
For the nine months ended March 31, 2000, net loss was $19,098,000 as compared
to $5,163,000 for the nine months ended March 31, 1999. The increase of
$13,935,000 was due to increased cost of goods sold, selling, general and
administrative expenses, corporate expenses, and amortization expense that were
offset by increased revenues, other income and interest income.
Liquidity and Capital Resources
In July 1999, the Company realized net proceeds of approximately $296,000 from
the exercise of underwriter's warrants. In August 1999, the Company realized net
proceeds of approximately $23,500,000 from the sale of 1,219,521 shares of the
Company's common stock. In December 1999, the Company realized net proceeds of
approximately $29,500,000 from the sale of 1,257,400 shares of the Company's
common stock and approximately $2,624,000 from the exercise of options.
The Company used approximately $8,122,000 in its operating activities in the
first nine months of fiscal year 2000, primarily resulting to funding the net
loss and increase in accounts receivable offset by depreciation and
amortization. The Company used $5,921,000 in operating activities in the first
nine months of fiscal year 1999 substantially related to funding the net loss.
Cash used in investing activities in the first nine months of fiscal year 2000
of approximately $13,851,000 was composed primarily of capital expenditures and
business acquisitions. Cash provided by financing activities in the first nine
months of fiscal year 2000 of approximately $57.1 million was attributable to
the sale of common stock in private placements, proceeds from the exercise of
warrants and options and the issuance of additional long-term debt.
The Company's primary capital requirements with respect to its operations have
been to fund corporate overhead and its online businesses as well as its network
of campus theaters and postcard distribution. In the event that the Company's
plans and assumptions with respect to its network of campus theaters change or
prove to be inaccurate, if its assumptions with respect to NET, American
Passage, Campus Voice, Beyond the Wall and Trent being able to fund their
operations and to make debt service payments out of their own cash flow in the
future prove to be inaccurate, or if the working capital or capital expenditure
requirements of sixdegrees, NET, CommonPlaces, American Passage, Campus Voice,
Beyond the Wall or Trent prove to be greater than anticipated, the Company could
be required to seek additional financing.
As of March 31, 2000, the Company had approximately $42.2 million in
unrestricted cash and cash equivalents. The Company believes that such amounts
will be sufficient to fund working capital, including debt service and interest
requirements for the next fiscal year.
The Company may also seek additional debt or equity financing to fund the cost
of its online businesses or to expand its network of campus theaters and the
cost of developing and acquiring 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.
11
<PAGE>
II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K.
The Company filed a current report on Form 8-K on January 20, 2000, which
disclosed the acquisition of sixdegrees, inc.
The Company filed a current report on Form 8-K on March 2, 2000, which
provided a description of the common stock of the Company.
<PAGE>
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, 2000
YOUTHSTREAM MEDIA NETWORKS, INC.
BY: /s/ HARLAN D. PELTZ
--------------------------
HARLAN D. PELTZ
Chairman of the Board
and Chief Executive Officer
BY: /s/ BRUCE L. RESNIK
--------------------------
BRUCE L. RESNIK
Executive Vice President
Chief Financial Officer and
Chief Accounting Officer
13
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 42,220
<SECURITIES> 0
<RECEIVABLES> 7,607,000
<ALLOWANCES> 321,000
<INVENTORY> 887,000
<CURRENT-ASSETS> 58,224,000
<PP&E> 17,049,000
<DEPRECIATION> 5,645,000
<TOTAL-ASSETS> 295,572,000
<CURRENT-LIABILITIES> 10,845,000
<BONDS> 0
0
0
<COMMON> 279,000
<OTHER-SE> 273,650,000
<TOTAL-LIABILITY-AND-EQUITY> 295,572,000
<SALES> 0
<TOTAL-REVENUES> 24,433,000
<CGS> 1,688,000
<TOTAL-COSTS> 42,465,000
<OTHER-EXPENSES> 2,890,000
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<INTEREST-EXPENSE> 795,000
<INCOME-PRETAX> (18,907,000)
<INCOME-TAX> 191,000
<INCOME-CONTINUING> (19,098,000)
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<NET-INCOME> (19,098,000)
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