UNITEDSTATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

FORM10-QSB

|        |                                                                                  |
|--------|----------------------------------------------------------------------------------|
|   | QUARTERLY REPORTUNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |

For the Quarterly Period Ended June 30, 2005

|        |                                                                                   |
|--------|-----------------------------------------------------------------------------------|
|   | TRANSITION REPORT UNDERSECTION 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 specifiedin itscharter)

|                                                             |  |                                       |  |  |  |  |
|-------------------------------------------------------------|--|---------------------------------------|--|--|--|--|
| Delaware                                                    |  | 13-4082185                            |
| (Stateor other jurisdiction ofincorporation ororganization) |  | (I.R.S. EmployerIdentificationNumber) |
| 244Madison Avenue, PMB #358, New York, NewYork              |  | 10016                                 |
| (Address of principal executiveoffices)                     |  | (Zip Code)                            |
|                                                             |

(212)883-0083(Issuer's telephone number, including areacode)

Not applicable(Former name, former addressand former fiscal year, if changed since last report.)

Check whether the issuer (1) filed all reports required to be filedby Section 13 or 15(d) of the Exchange Act during the past 12 months(or such shorter period that the issuer was required to file suchreports), and (2) has been subject to such filing requirements for thepast 90 days. Yes      No 

Checkwhether the issuer is a shell company (as defined in Rule 12b-2 of theExchange Act). Yes      No 

As of August 31,2005, the issuer had 39,242,251 shares of common stock, $0.01 parvalue, issued and outstanding.

Transitional Small BusinessDisclosure Format. Yes      No 

Documentsincorporated by reference: None.

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YOUTHSTREAM MEDIANETWORKS, INC. AND SUBSIDIARIES

The Company elected tofile a Quarterly Report on Form 10-QSB beginning with the quarterlyperiod ended December 31, 2004, as the Company qualified as a SmallBusiness Issuer in accordance with Regulation S-B, and will file itssubsequent periodic reports under Regulation S-B.

ThisQuarterly Report on Form 10-QSB for the quarterly period ended June 30,2005 contains "forward-looking statements"within the meaning of Section 27A of the Securities Act of 1933, asamended, including statements that include the words"believes","expects","anticipates", or similar expressions. Theseforward-looking statements include, but are not limited to, statementsconcerning the Company's expectations regarding its business,growth prospects, revenue trends, operating costs, working capitalrequirements, financing requirements, and other statements ofexpectations, beliefs, future plans and strategies, anticipated eventsor trends, and similar expressions concerning matters that are nothistorical facts. The forward-looking statements in this QuarterlyReport on Form 10-QSB for the quarterly period ended June 30, 2005involve known and unknown risks, uncertainties and other factors thatcould cause the actual results, performance or achievements of theCompany to differ materially from those expressed in or implied by theforward-looking statements contained herein. Except as required byapplicable law or regulation, the Company undertakes no obligation torevise or update these forward-looking statements to reflect any futureevents or circumstances.

INDEX

|                                                                                                                                |  |            |        |        |  |  |
|--------------------------------------------------------------------------------------------------------------------------------|--|------------|--------|--------|--|--|
|                                                                                                                           |  | PageNumber |
| **PART I. FINANCIALINFORMATION**                                                                                               |  |       |   |   |
| ITEM1. FINANCIAL STATEMENTS                                                                                                    |  |       |   |   |
| CondensedConsolidated Balance Sheets — June 30, 2005 (Unaudited) andSeptember 30, 2004                                   |  |       | 3      |   |
| CondensedConsolidated Statements of Operations (Unaudited) — ThreeMonths and Nine Months Ended June 30, 2005 and2004     |  |       | 4      |   |
| Condensed ConsolidatedStatement of Stockholders' Deficiency (Unaudited) —Nine Months Ended June 30,2005                  |  |       | 5      |   |
| Condensed ConsolidatedStatements of Cash Flows (Unaudited) — Nine Months EndedJune 30, 2005 and 2004                     |  |       | 6      |   |
| Notes toCondensed Consolidated Financial Statements (Unaudited)—Three Months and Nine Months Ended June 30, 2005 and2004 |  |       | 7      |   |
| ITEM 2. MANAGEMENT'S DISCUSSIONAND ANALYSIS OR PLAN OF OPERATION                                                               |  |       | 23     |   |
| ITEM 3.CONTROLS ANDPROCEDURES                                                                                                  |  |       | 34     |   |
| **PARTII. OTHER INFORMATION**                                                                                                  |  |       | 35     |   |
| ITEM 1. LEGALPROCEEDINGS                                                                                                       |  |       | 35     |   |
| ITEM 2. UNREGISTERED SALES OFEQUITY SECURITIES AND USE OFPROCEEDS                                                              |  |       | 35     |   |
| ITEM 3. DEFAULTS UPON SENIORSECURITIES                                                                                         |  |       | 35     |   |
| ITEM 4. SUBMISSION OF MATTERSTO A VOTE OF SECURITY HOLDERS                                                                     |  |       | 35     |   |
| ITEM 5.OTHER INFORMATION                                                                                                       |  |       | 35     |   |
| ITEM 6.EXHIBITS                                                                                                                |  |       | 35     |   |
| SIGNATURES                                                                                                                     |  |       | 36     |   |
|                                                                                                                                |

2

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YOUTHSTREAM MEDIANETWORKS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCESHEETS

|                                                                                                                                                                                                                                                                                                     |  |              |              |                   |  |        |              |         |  |  |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--------------|--------------|-------------------|--|--------|--------------|---------|--|--|
|                                                                                                                                                                                                                                                                                                |  | June30, 2005 |              | September 30,2004 |
|                                                                                                                                                                                                                                                                                                |  | (Unaudited)  |              |              |
| ASSETS                                                                                                                                                                                                                                                                                              |  |         |         |              |  |   |         |    |
| Currentassets:                                                                                                                                                                                                                                                                                      |  |         |         |              |  |   |         |    |
| Cash and cashequivalents                                                                                                                                                                                                                                                                            |  | $            | 484,957      |              |  | $      | 674,880      |    |
| Currentportion of note receivable, including accruedinterest                                                                                                                                                                                                                                        |  |         | 223,954      |              |  |   | 242,189      |    |
| Accountsreceivable, less allowance for doubtful accounts of$397,444                                                                                                                                                                                                                                 |  |         | 12,655,536   |              |  |   | —      |    |
| Inventories                                                                                                                                                                                                                                                                                         |  |         | 15,468,096   |              |  |   | —      |    |
| Prepaidexpenses and other currentassets                                                                                                                                                                                                                                                             |  |         | 1,179,159    |              |  |   | 16,624       |    |
| Totalcurrentassets                                                                                                                                                                                                                                                                                  |  |         | 30,011,702   |              |  |   | 933,693      |    |
| Property,plant and equipment,net                                                                                                                                                                                                                                                                    |  |         | 4,103,931    |              |  |   | 25,410       |    |
| Notereceivable, including accrued interest, less currentportion                                                                                                                                                                                                                                     |  |         | 47,732       |              |  |   | 245,465      |    |
| Unamortizedloancosts                                                                                                                                                                                                                                                                                |  |         | 477,902      |              |  |   | —      |    |
| Deposits                                                                                                                                                                                                                                                                                            |  |         | 216,035      |              |  |   | —      |    |
| Deferredcosts related to KEStransaction                                                                                                                                                                                                                                                             |  |         | —      |              |  |   | 175,144      |    |
| Investmentin KESHoldings                                                                                                                                                                                                                                                                            |  |         | —      |              |  |   | 125,000      |    |
| Totalassets                                                                                                                                                                                                                                                                                         |  | $            | 34,857,302   |              |  | $      | 1,504,712    |    |
| LIABILITIESAND STOCKHOLDERS' DEFICIENCY                                                                                                                                                                                                                                                             |  |         |         |              |  |   |         |    |
| Currentliabilities:                                                                                                                                                                                                                                                                                 |  |         |         |              |  |   |         |    |
| Accountspayable                                                                                                                                                                                                                                                                                     |  | $            | 8,149,989    |              |  | $      | 910,074      |    |
| Accruedemployeecompensation                                                                                                                                                                                                                                                                         |  |         | 225,948      |              |  |   | 225,948      |    |
| Accruedexpenses                                                                                                                                                                                                                                                                                     |  |         | 1,423,265    |              |  |   | 752,043      |    |
| Lineofcredit                                                                                                                                                                                                                                                                                        |  |         | 17,030,778   |              |  |   | —      |    |
| Currentportion of equipment contractpayable                                                                                                                                                                                                                                                         |  |         | 75,302       |              |  |   | —      |    |
| Currentliabilities of discontinuedoperations                                                                                                                                                                                                                                                        |  |         | 2,470,741    |              |  |   | 2,498,468    |    |
| Totalcurrentliabilities                                                                                                                                                                                                                                                                             |  |         | 29,376,023   |              |  |   | 4,386,533    |    |
| Non-currentliabilities:                                                                                                                                                                                                                                                                             |  |         |         |              |  |   |         |    |
| Accrued interest payable torelatedparties                                                                                                                                                                                                                                                           |  |         | 1,930,059    |              |  |   | —      |    |
| Deferredrent                                                                                                                                                                                                                                                                                        |  |         | 153,383      |              |  |   | —      |    |
| Notepayable toinvestor                                                                                                                                                                                                                                                                              |  |         | 3,952,775    |              |  |   | 3,952,775    |    |
| Notepayable to investor, net of unamortizeddiscount                                                                                                                                                                                                                                                 |  |         | 963,387      |              |  |   | 961,436      |    |
| 12%subordinated promissory notes payable to relatedparties                                                                                                                                                                                                                                          |  |         | 7,000,000    |              |  |   | —      |    |
| 8%subordinated secured promissory notes payable to relatedparties                                                                                                                                                                                                                                   |  |         | 39,493,000   |              |  |   | —      |    |
| Equipmentcontract payable, less currentportion                                                                                                                                                                                                                                                      |  |         | 192,629      |              |  |   | —      |    |
| Preferredstock of subsidiary subject to mandatory redemption; issued andoutstanding at June 30, 2005 – 24,733 shares of Series A13% cumulative, non-convertible, redeemable preferred stock,mandatory redemption and liquidation value of $1,000.00 per share, pluscumulativedividends        |  |         | 25,807,700   |              |  |   | —      |    |
| Preferredstock subject to mandatory redemption; issued and outstanding at June30, 2005 and September 30, 2004 – 1,000,000 shares of Series A4% cumulative, non-convertible, redeemable preferred stock,mandatory redemption and liquidation value of $4.00 per share, pluscumulativedividends |  |         | 5,269,333    |              |  |   | 5,269,333    |    |
| Minorityinterest – relatedparties                                                                                                                                                                                                                                                             |  |         | —      |              |  |   | —      |    |
| Totalliabilities                                                                                                                                                                                                                                                                                    |  |         | 114,138,289  |              |  |   | 14,570,077   |    |
| Commitmentsandcontingencies                                                                                                                                                                                                                                                                         |  |         |         |              |  |   |         |    |
| Stockholders'deficiency:                                                                                                                                                                                                                                                                            |  |         |         |              |  |   |         |    |
| Preferred stock, $0.01 par value;authorized – 5,000,000 shares; issued and outstanding at June 30,2005 and September 30, 2004 – 1,000,000 shares of Series Apreferred stock (classified in long-term liabilities as preferred stocksubject to mandatoryredemption)                      |  |         | —      |              |  |   | —      |    |
| Commonstock, $0.01 par value; authorized – 100,000,000 shares;39,849,751 shares issued and 39,242,251 shares outstanding at June 30,2005 and September 30,2004                                                                                                                                |  |         | 398,486      |              |  |   | 398,486      |    |
| Additionalpaid-incapital                                                                                                                                                                                                                                                                            |  |         | 268,168,896  |              |  |   | 331,200,561  |    |
| Accumulateddeficit                                                                                                                                                                                                                                                                                  |  |         | (347,018,793 | )            |  |   | (343,834,836 | )  |
| Treasurystock – 607,500 shares, atcost                                                                                                                                                                                                                                                        |  |         | (829,576     | )            |  |   | (829,576     | )  |
| Totalstockholders'deficiency                                                                                                                                                                                                                                                                        |  |         | (79,280,987  | )            |  |   | (13,065,365  | )  |
| Totalliabilities and stockholders'deficiency                                                                                                                                                                                                                                                        |  | $            | 34,857,302   |              |  | $      | 1,504,712    |    |
|                                                                                                                                                                                                                                                                                                     |

Seeaccompanying notes to condensed consolidated financialstatements.

3

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YOUTHSTREAM MEDIA NETWORKS, INC. ANDSUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(UNAUDITED)

|                                                                                                                                                                                                                                                  |  |                           |            |                          |  |        |            |         |  |        |            |         |  |        |            |         |  |  |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|---------------------------|------------|--------------------------|--|--------|------------|---------|--|--------|------------|---------|--|--------|------------|---------|--|--|
|                                                                                                                                                                                                                                             |  | ThreeMonths EndedJune 30, |            | Nine Months EndedJune30, |
|                                                                                                                                                                                                                                             |  | 2005                      |            | 2004                     |  | 2005   |            | 2004    |
| NETSALES                                                                                                                                                                                                                                         |  | $                         | 29,127,566 |                     |  | $      | —    |    |  | $      | 38,261,343 |    |  | $      | —    |    |
| COSTSAND EXPENSES                                                                                                                                                                                                                                |  |                      |       |                     |  |   |       |    |  |   |       |    |  |   |       |    |
| Cost ofsales                                                                                                                                                                                                                                     |  |                      | 27,239,391 |                     |  |   | —    |    |  |   | 35,726,590 |    |  |   | —    |    |
| Selling,general andadministrative                                                                                                                                                                                                                |  |                      | 1,294,537  |                     |  |   | 155,202    |    |  |   | 2,005,752  |    |  |   | 865,159    |    |
|                                                                                                                                                                                                                                             |  |                      | 28,533,928 |                     |  |   | 155,202    |    |  |   | 37,732,342 |    |  |   | 865,159    |    |
| Operatingincome(loss)                                                                                                                                                                                                                            |  |                      | 593,638    |                     |  |   | (155,202   | )  |  |   | 529,001    |    |  |   | (865,159   | )  |
| OTHERINCOME (EXPENSE)                                                                                                                                                                                                                            |  |                      |       |                     |  |   |       |    |  |   |       |    |  |   |       |    |
| Interestincome                                                                                                                                                                                                                                   |  |                      | 9,944      |                     |  |   | 18,615     |    |  |   | 35,478     |    |  |   | 30,063     |    |
| Interestexpense, including $801,621 and $1,074,700 related to 13% SeriesA Preferred Stock and $997,121 and $1,336,799 related to 8% and12% notes payable to related parties for the three months andnine months ended June 30, 2005,respectively |  |                      | (2,293,501 | )                   |  |   | (10,416    | )  |  |   | (3,097,102 | )  |  |   | (31,014    | )  |
| Transactioncosts related to KESacquisition                                                                                                                                                                                                       |  |                      | (280,773   | )                   |  |   | —    |    |  |   | (1,073,727 | )  |  |   | —    |    |
| Otherincome (expense),net                                                                                                                                                                                                                        |  |                      | 4,216      |                     |  |   | —    |    |  |   | (26,489    | )  |  |   | —    |    |
| Otherincome (expense),net                                                                                                                                                                                                                        |  |                      | (2,560,114 | )                   |  |   | 8,199      |    |  |   | (4,161,840 | )  |  |   | (951       | )  |
| LOSS BEFORE INCOME TAXES AND MINORITYINTEREST                                                                                                                                                                                                    |  |                      | (1,966,476 | )                   |  |   | (147,003   | )  |  |   | (3,632,839 | )  |  |   | (866,110   | )  |
| Incometaxbenefit                                                                                                                                                                                                                                 |  |                      | —    |                     |  |   | 1,570      |    |  |   | —    |    |  |   | 13,683     |    |
| LOSSBEFORE MINORITYINTEREST                                                                                                                                                                                                                      |  |                      | (1,966,476 | )                   |  |   | (145,433   | )  |  |   | (3,632,839 | )  |  |   | (852,427   | )  |
| MINORITY INTEREST – relatedparties                                                                                                                                                                                                         |  |                      | 182,452    |                     |  |   | —    |    |  |   | 448,882    |    |  |   | —    |    |
| LOSSFROM CONTINUINGOPERATIONS                                                                                                                                                                                                                    |  |                      | (1,784,024 | )                   |  |   | (145,433   | )  |  |   | (3,183,957 | )  |  |   | (852,427   | )  |
| LOSSFROM DISCONTINUED OPERATIONS                                                                                                                                                                                                                 |  |                      |       |                     |  |   |       |    |  |   |       |    |  |   |       |    |
| Discontinuedoperations                                                                                                                                                                                                                           |  |                      | —    |                     |  |   | (5,150     | )  |  |   | —    |    |  |   | (481,926   | )  |
| Disposalof discontinuedoperations                                                                                                                                                                                                                |  |                      | —    |                     |  |   | —    |    |  |   | —    |    |  |   | (821,721   | )  |
| LOSSFROM DISCONTINUEDOPERATIONS                                                                                                                                                                                                                  |  |                      | —    |                     |  |   | (5,150     | )  |  |   | —    |    |  |   | (1,303,647 | )  |
| NETLOSS                                                                                                                                                                                                                                          |  | $                         | (1,784,024 | )                   |  | $      | (150,583   | )  |  | $      | (3,183,957 | )  |  | $      | (2,156,074 | )  |
| NETLOSS PER COMMON SHARE – BASIC ANDDILUTED                                                                                                                                                                                                |  |                      |       |                     |  |   |       |    |  |   |       |    |  |   |       |    |
| Lossfrom continuingoperations                                                                                                                                                                                                                    |  | $                         | (0.05      | )                   |  | $      | (0.00      | )  |  | $      | (0.08      | )  |  | $      | (0.02      | )  |
| Lossfrom discontinuedoperations                                                                                                                                                                                                                  |  |                      | —    |                     |  |   | —    |    |  |   | —    |    |  |   | (0.03      | )  |
| NETLOSS PER COMMON SHARE – BASIC ANDDILUTED                                                                                                                                                                                                |  | $                         | (0.05      | )                   |  | $      | (0.00      | )  |  | $      | (0.08      | )  |  | $      | (0.05      | )  |
| WEIGHTEDAVERAGE NUMBER OF COMMON SHARES OUTSTANDING – BASIC ANDDILUTED                                                                                                                                                                     |  |                      | 39,242,251 |                     |  |   | 39,242,251 |    |  |   | 39,242,251 |    |  |   | 39,242,251 |    |
|                                                                                                                                                                                                                                                  |

Seeaccompanying notes to condensed consolidated financialstatements.

4

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YOUTHSTREAM MEDIA NETWORKS, INC. ANDSUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OFSTOCKHOLDERS' DEFICIENCY (UNAUDITED) NINE MONTHS ENDED JUNE30,2005

|                                                                                                      |  |             |            |                          |  |                    |         |               |  |        |             |         |  |        |              |         |  |        |          |         |  |        |             |         |  |  |
|------------------------------------------------------------------------------------------------------|--|-------------|------------|--------------------------|--|--------------------|---------|---------------|--|--------|-------------|---------|--|--------|--------------|---------|--|--------|----------|---------|--|--------|-------------|---------|--|--|
|                                                                                                 |  | CommonStock |            | AdditionalPaid-inCapital |  | AccumulatedDeficit |         | TreasuryStock |  | Total  |
|                                                                                                 |  | Shares      |            | Amount                   |  |
|                                                                                                 |  |        |       |                     |  |               |    |          |  |   |        |    |  |   |         |    |  |   |     |    |  |   |        |    |
| Balancesat October 1,2004                                                                            |  |        | 39,849,751 |                     |  | $                  | 398,486 |          |  | $      | 331,200,561 |    |  | $      | (343,834,836 | )  |  | $      | (829,576 | )  |  | $      | (13,065,365 | )  |
| Deemeddistribution to sellers of KES Acquisition Company, LLC in excess ofpredecessor company'sbasis |  |        | —    |                     |  |               | — |          |  |   | (63,031,665 | )  |  |   | —      |    |  |   | —  |    |  |   | (63,031,665 | )  |
| Netloss                                                                                              |  |        | —    |                     |  |               | — |          |  |   | —     |    |  |   | (3,183,957   | )  |  |   | —  |    |  |   | (3,183,957  | )  |
| Balancesat June 30,2005                                                                              |  |        | 39,849,751 |                     |  | $                  | 398,486 |          |  | $      | 268,168,896 |    |  | $      | (347,078,793 | )  |  | $      | (829,576 | )  |  | $      | (79,280,987 | )  |
|                                                                                                      |

Seeaccompanying notes to condensed consolidated financialstatements.

5

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YOUTHSTREAM MEDIA NETWORKS, INC. ANDSUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(UNAUDITED)

|                                                                                                  |  |                         |            |         |  |        |            |         |  |  |
|--------------------------------------------------------------------------------------------------|--|-------------------------|------------|---------|--|--------|------------|---------|--|--|
|                                                                                             |  | NineMonths EndedJune30, |
|                                                                                             |  | 2005                    |            | 2004    |
| CASHFLOWS FROM OPERATINGACTIVITIES                                                               |  |                    |       |    |  |   |       |    |
| Netloss                                                                                          |  | $                       | (3,183,957 | )  |  | $      | (2,156,074 | )  |
| Adjustmentsto reconcile net loss to net cash used in operatingactivities:                        |  |                    |       |    |  |   |       |    |
| Loss fromdiscontinuedoperations                                                                  |  |                    | —    |    |  |   | 481,926    |    |
| Losson disposal of discontinuedoperations                                                        |  |                    | —    |    |  |   | 821,721    |    |
| Netchange in assets and liabilities of discontinuedoperations                                    |  |                    | (27,727    | )  |  |   | (199,473   | )  |
| Depreciation andamortization                                                                     |  |                    | 105,337    |    |  |   | 14,941     |    |
| Amortizationof original issue discount on subordinatednotes                                      |  |                    | 1,951      |    |  |   | 1,015      |    |
| Amortizationof loancosts                                                                         |  |                    | 152,456    |    |  |   | —    |    |
| Write-offof fixedassets                                                                          |  |                    | 20,430     |    |  |   | —    |    |
| Write-offof KES acquisitioncosts                                                                 |  |                    | 362,846    |    |  |   | —    |    |
| Minorityinterest – relatedparties                                                          |  |                    | (448,882   | )  |  |   | —    |    |
| Changesin operating assets and liabilities, net of effect of KESacquisition:                     |  |                    |       |    |  |   |       |    |
| (Increase) decrease in–                                                                    |  |                    |       |    |  |   |       |    |
| Accounts receivable,net                                                                          |  |                    | (1,995,119 | )  |  |   | —    |    |
| Inventories                                                                                      |  |                    | 2,382,375  |    |  |   | —    |    |
| Accruedinterestreceivable                                                                        |  |                    | (31,259    | )  |  |   | (27,297    | )  |
| Prepaidexpenses                                                                                  |  |                    | (258,264   | )  |  |   | 153,067    |    |
| Increase(decrease) in –                                                                    |  |                    |       |    |  |   |       |    |
| Accountspayable                                                                                  |  |                    | (1,414,665 | )  |  |   | (48,519    | )  |
| Accrued employeecompensation                                                                     |  |                    | —    |    |  |   | (24,778    | )  |
| Accruedinterestpayable                                                                           |  |                    | 2,411,499  |    |  |   | —    |    |
| Accruedexpenses                                                                                  |  |                    | (802,726   | )  |  |   | 15,350     |    |
| Deferredrent                                                                                     |  |                    | (12,030    | )  |  |   | —    |    |
| NETCASH USED IN OPERATINGACTIVITIES                                                              |  |                    | (2,737,735 | )  |  |   | (968,122   | )  |
| CASHFLOWS FROM INVESTING ACTIVITIES                                                              |  |                    |       |    |  |   |       |    |
| Proceeds from saleof BTWassets                                                                   |  |                    | —    |    |  |   | 820,000    |    |
| Principal andinterest payments on notereceivable                                                 |  |                    | 247,227    |    |  |   | 400,000    |    |
| NETCASH PROVIDED BY INVESTINGACTIVITIES                                                          |  |                    | 247,227    |    |  |   | 1,220,000  |    |
| CASHFLOWS FROM FINANCING ACTIVITIES                                                              |  |                    |       |    |  |   |       |    |
| Net increase in lineofcredit                                                                     |  |                    | 1,410,683  |    |  |   | —    |    |
| Principalpayments on equipment contractpayable                                                   |  |                    | (23,292    | )  |  |   | —    |    |
| NETCASH PROVIDED BY FINANCINGACTIVITIES                                                          |  |                    | 1,387,391  |    |  |   | —    |    |
| NETCASH PROVIDED BY (USED IN) OPERATING, INVESTING AND FINANCINGACTIVITIES                       |  |                    | (1,103,117 | )  |  |   | 251,878    |    |
| CASHACQUIRED IN CONNECTION WITH KESACQUISITION                                                   |  |                    | 913,194    |    |  |   | —    |    |
| CASHAND CASH EQUIVALENTS                                                                         |  |                    |       |    |  |   |       |    |
| Net increase(decrease)                                                                           |  |                    | (189,923   | )  |  |   | 251,878    |    |
| Balanceat beginning ofperiod                                                                     |  |                    | 674,880    |    |  |   | 531,466    |    |
| Balanceat end ofperiod                                                                           |  | $                       | 484,957    |    |  | $      | 783,344    |    |
| SUPPLEMENTALCASH FLOW INFORMATION                                                                |  |                    |       |    |  |   |       |    |
| Cash paid for–                                                                             |  |                    |       |    |  |   |       |    |
| Interest                                                                                         |  | $                       | 685,603    |    |  | $      | —    |    |
| Incometaxes                                                                                      |  | $                       | —    |    |  | $      | —    |    |
| NON-CASH INVESTINGAND FINANCING ACTIVITIES                                                       |  |                    |       |    |  |   |       |    |
| Preferred stock issued inconnection with acquisition of KES Acquisition Company,LLC              |  | $                       | 24,733,000 |    |  | $      | —    |    |
| Notes payable issued in connection withacquisition of KES Acquisition Company,LLC                |  | $                       | 39,493,000 |    |  | $      | —    |    |
| Assets acquired in connection withacquisition of KES Acquisition Company, LLC, less cashacquired |  | $                       | 34,528,542 |    |  | $      | —    |    |
| Liabilities assumed in connection withacquisition of KES Acquisition Company,LLC                 |  | $                       | 33,673,519 |    |  | $      | —    |    |
| Deemed distribution to sellers of KESAcquisition Company, LLC in excess of predecessor'sbasis    |  | $                       | 63,031,665 |    |  | $      | —    |    |
| Loan fees capitalized and added to noteprincipal                                                 |  | $                       | 125,000    |    |  | $      | —    |    |
|                                                                                                  |

See accompanying notes to condensedconsolidated financialstatements.

6

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YOUTHSTREAMMEDIA NETWORKS, INC. AND SUBSIDIARIES NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) THREE MONTHS AND NINEMONTHS ENDED JUNE 30, 2005 AND 2004

1.    Organization andBasis of Presentation

Basis of Presentation

Theaccompanying condensed consolidated financial statements include theaccounts of YouthStream Media Networks,  Inc.("YouthStream"), and its direct and indirectwholly and majority-owned subsidiaries: Network Event Theater,Inc. ("NET"), American Passage Media,Inc. ("American Passage"), Beyond theWall,  Inc. ("Beyond the Wall" or"BTW"), and W3T.com,  Inc.("Teen.com") (all inactive); and, commencingMarch 1, 2005, YouthStream Acquisition Corp., Atacama KES HoldingCorporation and KES Acquisition Company, LLC (see Note 2)(collectively, the "Company").

Thecondensed consolidated financial statements have been prepared inaccordance with generally accepted accounting principles in the UnitedStates of America. Intercompany items and transactions have beeneliminated in consolidation.

During fiscal 2001, the Companyreorganized into two market segments: media and retail.

OnAugust 5, 2002, the Company sold substantially all of its remainingmedia assets and assigned certain liabilities of its NET and AmericanPassage subsidiaries to Alloy, Inc. and ceased operating the mediasegment.

On February 25, 2004, the Company sold the assets andoperations of its Beyond the Wall subsidiary and ceased operating theretail segment. Beyond the Wall had been engaged in the sale ofdecorative wall posters through on-campus sales events, retail storesand internet sales, primarily to teenagers and young adults. During theperiod from October 1, 2003 through February 25, 2004, Beyond the Walloperated 17 stores in 12 states, plus Washington, D.C., throughout theEast and mid-West, as well as a warehouse and distribution center inStroudsburg, Pennsylvania, and was the Company's onlyrevenue-generating business operation. The consolidated financialstatements for the nine months ended June 30, 2004 present Beyond theWall's operations as a discontinued operation as a result of thedisposal of its assets and operations on February 25, 2004 (see Note3).

Commencing March 1, 2005, the Company has included theoperations of a steel mini-mill located in Ashland, Kentucky in itsconsolidated financial statements (see Note 2), which represents theonly business segment in which the Company currently operates.

The accompanying condensed consolidated financial statements areunaudited, but in the opinion of management of the Company, contain alladjustments, which include normal recurring accruals, necessary topresent fairly the financial position at June 30, 2005, the results ofoperations for the three months and nine months ended June 30, 2005 and2004, and the cash flows for the nine months ended June 30, 2005 and2004. The balance sheet as of September 30, 2004 is derived from theCompany's audited financial statements included in theCompany's Annual Report on Form 10-K for the fiscal year endedSeptember 30, 2004.

Certain information and footnote disclosuresnormally included in financial statements that have been prepared inaccordance with generally accepted accounting principles have beencondensed or omitted pursuant to the rules and regulations of theSecurities and Exchange Commission, although management of the Companybelieves that the disclosures contained in these financial statementsare adequate to make the information presented therein not misleading.For further information, refer to the financial statements and thenotes thereto included in the Company's Annual Report on Form10-K for the fiscal year ended September 30, 2004 and the QuarterlyReport on Form 10-QSB for the quarterly period ended March 31, 2005, asfiled with the Securities and Exchange Commission.

Thepreparation of financial statements in conformity with accountingprinciples generally accepted in the United States of America requiresmanagement to make estimates and assumptions that affect the reportedamounts of assets and liabilities, disclosure of contingent assets andliabilities at the date of 

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the financial statements, and the reportedamounts of revenues and expenses during the reporting period. Actualresults could differ from those estimates.

The results ofoperations for the three months and nine months ended June 30, 2005 arenot necessarily indicative of the results of operations to be expectedfor the full fiscal year ending September 30, 2005.

GoingConcern

The Company has incurred recurring operating lossessince its inception. As of September 30, 2004, the Company had anaccumulated deficit of $343,834,836, a stockholders' deficiencyof $13,065,365, a working capital deficiency of $3,452,840, and hadincurred a net loss and negative cash flows from operating activitiesfor the year ended September 30, 2004 of $2,365,620 and $901,443,respectively. As of June  30, 2005, the Company had anaccumulated deficit of $347,018,793, a stockholders' deficiencyof $79,280,987 and had incurred a net loss and negative cash flows fromoperating activities for the nine months ended June 30, 2005 of$3,183,957 and $2,737,735, respectively. As of September 30, 2004 andJune 30, 2005, the Company had insufficient capital to fund all of itsobligations on a consolidated basis. These conditions raise substantialdoubt about the Company's ability to continue as a going concern.The consolidated financial statements do not include any adjustments toreflect the possible future effect of the recoverability andclassification of assets or the amounts and classifications ofliabilities that may result from the outcome of this uncertainty. TheCompany's independent registered public accounting firm, in itsreport dated December 17, 2004, included an explanatory paragraphstating that the Company's recurring losses and accumulateddeficit, working capital deficiency and negative cash flow, among otherthings, raise substantial doubt about the Company's ability tocontinue as a going concern.

On March 9, 2005, the Companycompleted the acquisition of a steel mini-mill located in Ashland,Kentucky (see Note 2). The Company utilized substantially all of itsavailable cash resources to fund such acquisition and requiresadditional operating capital to fund corporate general andadministrative expenses. In addition, the steel mini-mill restartedoperations in late January 2004 after being acquired by the previousowners, and has incurred losses until recently. For the three monthsand nine months ended June 30, 2005, operating income was $593,638 and$529,001, respectively, exclusive of interest expense. The steelmini-mill relies on cash flows from operations to support a line ofcredit with General Electric Capital Corporation to fund its separateoperations. Subsequent to June 30, 2005, the operating performance ofthe steel mini-mill has improved and the Company has been able toincrease borrowing availability under its line of credit with GeneralElectric Capital Corporation.

The Company believes that itscurrent internal and external cash resources will be adequate to fundits operations through September 30, 2005. However, to the extent theCompany's estimates and assumptions are inaccurate, the Companymay not have sufficient cash resources to fund its operations. In suchevent, the Company may have to consider a formal or informalrestructuring or reorganization, including a sale or other dispositionof its assets.

The Company's management may also considervarious strategic alternatives in the future, including the acquisitionof new business opportunities, which may be from related or unrelatedparties.   However, there can be no assurances that such effortswill ultimately be successful.   The Company may finance anyacquisitions through a combination of debt and/or equitysecurities.

Recent Developments:

During September 2005,the Company borrowed $50,000 from certain directors under short-termunsecured notes due December 31, 2005, with interest at 4% perannum, to fund corporate general and administrative expenses. The notesare subject to mandatory prepayment based on any proceeds received bythe Company from, among other sources, the note that the Companyreceived from the sale of the assets and operations of Beyond the Wallin February 2004 and any tax sharing payments under the Tax SharingAgreement, as described below. The Company intends to repay the notespayable to directors from the proceeds from the settlement of theBeyond the Wall note receivable, which were received on September 30,2005, as described below.

For the nine months ending September30, 2005, Acquisition Corp., KES Acquisition and Atacama KES arecollectively required to have, on a consolidated basis, in excess of$4,000,000 of earnings 

8

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before interest, taxes, depreciation andamortization, calculated in accordance with generally acceptedaccounting principles ("EBITDA").   Foreach of the fiscal years ending on  and after September 30, 2006,Acquisition Corp., KES Acquisition and Atacama KES are collectivelyrequired to have, on a consolidated basis, in excess of $7,200,000 ofEBITDA.   At March 31 of each  fiscal year following thefiscal year ending September 30, 2005 in which the obligations underthe Notes remain outstanding, Acquisition Corp., KES Acquisition andAtacama KES are collectively required to have, on a consolidated basis,in excess of $3,000,000 of EBITDA for the six months then ended.Effective September 23, 2005, the holders of the Notes executed anagreement to amend the Notes to eliminate the requirement thatAcquisition Corp., KES Acquisition and Atacama KES collectively have,on a consolidated basis, in excess of $4,000,000 of EBITDA for the ninemonths ending September 30, 2005.

On September 30, 2005, theCompany received a cash payment of $258,922 as settlement in full ofthe outstanding note receivable of that had a balance, includingaccrued interest, of $271,686 at June 30, 2005 that the Company hadpreviously received from the sale of the assets and operations ofBeyond the Wall in February 2004 (see Note 3).

Stock-BasedCompensation

The Company generally grants stock options tomanagement and employees for a fixed number of shares with an exerciseprice equal to or greater than the fair value of the shares at the dateof grant. The Company accounts for stock option grants in accordancewith Accounting Principles Board ("APB")Opinion No. 25, "Accounting for Stock Issued toEmployees", and, accordingly, recognizes compensationexpense only if the fair value of the underlying common stock exceedsthe exercise price of the stock option on the date of grant. Aspermitted by Statement of Financial Accounting Standards("SFAS") No. 123, the Company continues toaccount for stock-based compensation in accordance with APB Opinion No.25 and has elected the pro forma disclosure alternative of SFAS No.123, as amended by SFAS No. 148 (see Note 5).

Net Loss PerShare

The Company calculates net loss per share as required bySFAS No. 128, "Earnings per Share". Basicearnings per share excludes any dilution for common stock equivalentsand is computed by dividing net loss by the weighted average number ofcommon shares outstanding during the relevant period. Diluted earningsper share reflects the potential dilution that could occur if optionsor other securities or contracts entitling the holder to acquire sharesof common stock were exercised or converted, resulting in the issuanceof additional shares of common stock that would then share in earnings.However, diluted earnings per share does not consider such dilution ifits effect would be anti-dilutive. Accordingly, basic and diluted lossper share is the same for all periods presented.

RecentAccounting Pronouncements

In December 2004, the FASB issued SFASNo. 123(Revised 2004), "Share-Based Payment".SFAS No. 123(R) revises SFAS No. 123, "Accounting forStock-Based Compensation" and supersedes APB Opinion No.25, "Accounting for Stock Issued toEmployees" and amends SFAS No. 95, "Statementof Cash Flows". SFAS No. 123(R) focuses primarily on theaccounting for transactions in which an entity obtains employeeservices in share-based payment transactions. SFAS No. 123(R) requirescompanies to recognize in the statement of operations the cost ofemployee services received in exchange for awards of equity instrumentsbased on the grant-date fair value of those awards (with limitedexceptions). SFAS No. 123(R) is effective as of the Company'sfirst interim or annual reporting period that begins after December 15,2005. Accordingly, the Company will adopt SFAS No. 123(R) effectiveJanuary 1, 2006. The Company is currently evaluating the provisions ofSFAS No. 123(R) and has not yet determined the impact, if any, thatSFAS No. 123(R) will have on its financial statement presentation ordisclosures.

In November 2004, the FASB issued SFASNo.  151, "Inventory Costs  — AnAmendment of ARB No.  43, Chapter  4"(SFAS  No. 151). SFAS  No. 151 clarifies that abnormalamounts of idle facility expense, freight, handling costs and spoilageshould be expensed as incurred and not included in overhead. Further,SFAS  No. 151 requires that allocation of fixed and productionfacilities overhead to 

9

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conversion costs should be based on normalcapacity of the production facilities. The provisions in SFASNo. 151 are effective for inventory costs incurred during fiscal yearsbeginning after June  15, 2005. Accordingly, the Company willadopt SFAS No. 151 effective October 1, 2005. The Company is currentlyevaluating the provisions of SFAS No. 151 and has not yet determinedthe impact, if any, that SFAS No. 151 will have on its financialstatement presentation or disclosures.

In December 2004, theFASB issued SFAS No.  153, "Exchanges of NonmonetaryAssets, an amendment to APB Opinion No. 29"("SFAS  153"). SFAS  No. 153amends Accounting Principles Board Opinion No.  29,"Accounting for Nonmonetary Transactions", torequire that exchanges of nonmonetary assets be measured and accountedfor at fair value, rather than at carryover basis, of the assetsexchanged. Nonmonetary exchanges that lack commercial substance areexempt from this requirement. SFAS  No. 153 is effective fornonmonetary exchanges entered into in fiscal periods beginning afterJune  15, 2005. Accordingly, the Company will adopt SFAS No. 153effective July 1, 2005. The Company is currently evaluating theprovisions of SFAS  No. 153, and has not yet determined theimpact, if any, that it will have on the Company's financialstatement presentation or disclosures.

2.    Acquisition ofSteel Mini-Mill

In September  2003, YouthStream invested$125,000 to acquire a 1.00% membership interest in KES Holdings,LLC, a Delaware limited liability company ("KESHoldings"), which was formed to acquire certain assets ofKentucky Electric Steel,  Inc., a Delaware company("KES"), consisting of a steel mini-milllocated in Ashland, Kentucky (the "Mill"). OnSeptember  2, 2003, KES Holdings, through its subsidiary, KESAcquisition Company, LLC, a Delaware limited liability company("KES Acquisition"), completed theacquisition of the Mill pursuant to Section  363 of the UnitedStates Bankruptcy Code for cash consideration of $2,650,000, which wasfunded through the contributions of the members of KES Holdings.Members' contributions were also used for start-up costs, workingcapital purposes and payment of deferred maintenance of the Mill. KEShad ceased production on or about December  16, 2002 and filed avoluntary petition for relief under Chapter 11 of the United StatesBankruptcy Code on February  5, 2003.

The Mill had been inoperation for approximately forty years and was refurbished by KESAcquisition subsequent to its acquisition.   The refurbished Millhas been generating revenues since late January 2004. As currentlyconfigured, the Mill has an annual production capacity of 240,000 tonsof steel, and is currently operating at approximately 80% ofsuch annualized capacity. Management is focusing on developing thebusiness and improving operating efficiencies.

The Mill producesbar flats that are produced to a variety of specifications and fallprimarily into two general quality levels – merchant bar qualitysteel bar flats ("MBQ Bar Flats") for generictypes of applications, and special bar quality steel bar flats("SBQ Bar Flats"), where more precisecustomer specifications require the use of alloys, customized equipmentand special production procedures to insure that the finished productmeets critical end-use performance characteristics. The Mill is aleading manufacturer of SBQ Bar Flats for the cold draw bar converterand truck trailer support beam markets.

The Mill manufacturesover 2,600 different Bar Flat items which are sold to the leaf-springsuspension market for light- and heavy-duty trucks, mini-vans andutility vehicles, cold drawn bar converters, certain specialtyapplications for steel service centers, truck trailer manufacturers andother miscellaneous markets. The Mill was specifically designed tomanufacture wider and thicker bar flats up to three inches in thicknessand twelve inches in width that are required by these markets. Inaddition, the Mill employs a variety of specially designed equipmentwhich is required in order to manufacture SBQ Bar Flats to thespecifications of the Mill's customers.

On March 9, 2005,YouthStream completed the acquisition of KES Acquisition (the"Acquisition"), which was deemed effectiveMarch 1, 2005. Pursuant to definitive agreements executed with KESHoldings and Atacama Capital Holdings, Ltd., a British Virgin Islandscompany ("Atacama", and together with KESHoldings, collectively, the "Sellers"),YouthStream, through its newly-formed subsidiary, YouthStreamAcquisition Corp., a Delaware corporation ("AcquisitionCorp."), acquired 

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100% of the membership interests ofKES Acquisition by acquiring (i) a 37.45% membership interestfrom KES Holdings and (ii) all of the capital stock of Atacama KESHolding Corporation, a wholly-owned subsidiary of Atacama("Atacama KES"), the owner of the remaining62.55% membership interest in KES Acquisition. As considerationfor the Acquisition, Acquisition Corp. issued to the Sellers (i) $40million in promissory notes (the "Notes"),(ii) 25,000 shares of 13% Series A Non-Convertible PreferredStock with an aggregate liquidation value of $25 million (the"13% Series A Preferred Stock") and(iii) 100% of its authorized shares of Series B Non-VotingCommon Stock. With respect to the $65,000,000 of purchaseconsideration, $19,000,000 of the Notes and $10,000,000 of the13% Series A Preferred Stock were issued to KES Holdings and$21,000,000 of the Notes and $15,000,000 of the 13% Series APreferred Stock were issued to Atacama. YouthStream also contributed anaggregate of $500,000 of cash to Acquisition Corp. as consideration forthe issuance by Acquisition Corp. of 100% of its Series A VotingCommon Stock. In addition, YouthStream will periodically be required topurchase shares of Series B Preferred Stock of Acquisition Corp.

As a result of these transactions, YouthStream owns 80.01% ofthe common stock, and 100% of the voting stock, of AcquisitionCorp. The remaining 19.99% common stock interest in AcquisitionCorp. is owned 62.55% by Atacama and 37.45% by KESHoldings. YouthStream has a 2.67% equity interest in KESHoldings, as a result of which the Company has eliminated its $507,000interest in the Notes and $267,000 interest in the 13% Series APreferred Stock in the consolidated balance sheet at June 30, 2005.YouthStream has consolidated the operations of the Mill through itsownership of KES Acquisition commencing March 1, 2005. As a result ofthe Acquisition, the Company's financial statements for periodsending after March 1, 2005 are materially different from and are notcomparable to its financial statements prior to that date.

Subsequent to this transaction, the management of the Mill remainedintact. This transaction did not result in any change in theMill's business operations or financial condition, and, otherthan as set forth herein, the working capital, operating cash flow,debt service obligations and credit profile of the Mill were notaffected in any way by this transaction.

As described herein,the Notes and 13% Series A Preferred Stock were issued byAcquisition Corp., the parent company of KES Acquisition. KESAcquisition is a separate legal entity that owns and operates the Mill.The Notes are legal obligations solely of Acquisition Corp., and arenot obligations of KES Acquisition, nor are they secured by the assetsor cash flows of the Mill. In the future, Acquisition Corp. may grantliens to secure repayment of the Notes, upon the consent of any seniorlender to KES Acquisition at that time. In addition, the Notes arenon-recourse to the assets of YouthStream, except for the shares ofcapital stock of Acquisition Corp. that have been pledged byYouthStream to the holders of the Notes. Pursuant to the terms of thetransaction documentation in connection with the Acquisition and theloan facility with General Electric Capital Corporation, YouthStreamand Acquisition Corp. are currently limited in their ability to receivecash distributions from KES Acquisition.

The Notes arestructurally subordinate in right and payment of up to $40,000,000 ofsenior debt, including existing debt obligations in favor of GeneralElectric Capital Corporation. Scheduled principal payments commence in(i) February 2007 with respect to the $19,000,000 principal amount ofNotes issued in favor of KES Holdings and (ii) February 2011 withrespect to the $21,000,000 principal amount of Notes issued in favor ofAtacama. In addition, the Notes require additional quarterly principalpayments out of "free cash" as that term isdefined in the Note Purchase Agreement. The Notes bear interest at therate of 8% per annum, payable annually during the first twoyears of the Note (or earlier if consented to by General ElectricCapital Corporation or any other senior lender) and quarterlythereafter. The obligations of Acquisition Corp. under the Notes aresecured by a limited guaranty by YouthStream, which guaranty is securedby and limited in recourse solely to a pledge by YouthStream of all ofits interest in Acquisition Corp. As of June 30, 2005, the balanceoutstanding on the Notes was $39,493,000, and related accrued interestpayable was $1,056,032.

For the nine months ending September 30,2005, Acquisition Corp., KES Acquisition and Atacama KES arecollectively required to have, on a consolidated basis, in excess of$4,000,000 of earnings 

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before interest, taxes, depreciation andamortization, calculated in accordance with generally acceptedaccounting principles ("EBITDA").   Foreach of the fiscal years ending on  and after September 30, 2006,Acquisition Corp., KES Acquisition and Atacama KES are collectivelyrequired to have, on a consolidated basis, in excess of $7,200,000 ofEBITDA.   At March 31 of each  fiscal year following thefiscal year ending September 30, 2005 in which the obligations underthe Notes remain outstanding, Acquisition Corp., KES Acquisition andAtacama KES are collectively required to have, on a consolidated basis,in excess of $3,000,000 of EBITDA for the six months then ended.Effective September 23, 2005, the holders of the Notes executed anagreement to amend the Notes to eliminate the requirement thatAcquisition Corp., KES Acquisition and Atacama KES collectively have,on a consolidated basis, in excess of $4,000,000 of EBITDA for the ninemonths ending September 30, 2005.

The holders of each share of13% Series A Preferred Stock are entitled to receive acumulative dividend at an annual rate of 13% of the sum of$1,000 and all accrued but unpaid dividends. The 13% Series APreferred Stock contains a liquidation preference equal to $1,000 pershare, plus accrued but unpaid dividends, and is redeemable out of, andto the extent of, legally available funds, at a redemption price equalto the sum of $1,000 and all accrued but unpaid dividends on theearlier to occur of (i) any liquidation of Acquisition Corp. or (ii)the occurrence of an event of default under the Note Purchase Agreementpursuant to which the Notes were issued. In addition, beginning withthe second anniversary of the initial issuance of the 13% SeriesA Preferred Stock, Acquisition Corp. will be required to use"free cash" (as that term is defined in theSecurities Purchase Agreement) to commence redeeming shares of13% Series A Preferred Stock in increments of at least$4,000,000, with limited exceptions.

Since the acquisition ofthe Mill by the Sellers, the Mill has been operating under a ManagementServices Agreement with Pinnacle Steel, LLC (the "PinnacleAgreement"), which agreement remained in effect followingthe closing. The principals of Pinnacle Steel LLC that manage the Millhave significant experience and expertise in the steel industry. ThePinnacle Agreement will remain in effect through January 31, 2009,subject to earlier termination or extension based on the financialperformance of the Mill. Pinnacle is entitled to a monthly managementfee and a management incentive fee as provided in the PinnacleAgreement.

Subsequent to the acquisition of the Mill by theSellers, KES Acquisition issued an aggregate of $7,000,000 ofsubordinated promissory notes to the Sellers and certain of theirrespective affiliates (the "Subordinated PromissoryNotes"). Cash proceeds from the Subordinated PromissoryNotes were used to accelerate the development and expansion of theMill's operations. The Subordinated Promissory Notes bearinterest at the rate of 12% per annum, with principal andinterest due and payable upon the earlier to occur of (i) an event ofdefault under the Loan and Security Agreement with General ElectricCapital Corporation or (ii) December 31, 2006.

Related partieswith respect to this transaction are summarized as follows: RobertScott Fritz, a director of YouthStream, is an investor in KES Holdings.Hal G. Byer, another director of YouthStream, is an employee ofaffiliates of Libra/KES Investment I, LLC (collectively,"Libra"), the Manager of KES Holdings and hasan economic interest in KES Holdings through his relationship withLibra. Certain other affiliates of Libra are also investors in KESHoldings, including trusts for the benefit of Jess M. Ravich (the"Ravich Trusts") and certain of his familymembers. Mr. Ravich is a principal of Libra and holds 1,860,000 sharesof YouthStream's common stock and warrants to purchase 500,000shares of YouthStream's common stock exercisable through August31, 2008, as well as 1,000,000 shares of YouthStream's redeemablepreferred stock. Through his positions at Libra, Mr. Ravich managed thebusiness of KES Acquisition through February 28, 2005. SubordinatedPromissory Notes with a principal amount of $1,650,000 and $450,000 arepayable to the Ravich Trusts and Libra, respectively. Mr. Fritz and Mr.Byer have each previously acquired an option from the Ravich Trusts for$2,500 ($0.04 per share) to purchase 62,500 shares ofYouthStream's redeemable preferred stock issued to the RavichTrusts in January 2003, exercisable at $0.36 per share until December31, 2006 or earlier upon the occurrence of certain events.

TheAcquisition was accounted for as a purchase in accordance with SFAS No.141, "Business Combinations", and inaccordance with Emerging Issues Task Force (EITF) No. 88-16,"Basis in 

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Leveraged Buyout Transactions".As a result of the substantial and continuing relationships betweenYouthStream and the Sellers, including the significant influenceretained by the Sellers over the operations of the Mill, and theprovisions of EITF 88-16 that must be considered when determining theextent of fair value/predecessor basis to be used in recording thetransaction, the Acquisition has been recorded at predecessor basis.Since the debt and equity held by the Sellers represented almost theentire amount of capital at risk both before and after the Acquisition,the application of the "monetary test"specified in Section 3 of EITF 88-16, which limits the portion of thepurchase consideration that can be valued at fair value to thepercentage of the total consideration that is monetary, was utilized bythe Company in determining to record the transaction at predecessorbasis. The excess of the purchase price over predecessor basis of thenet assets acquired has been reflected as a deemed distribution of$63,031,665 to the Sellers at the date of acquisition in theconsolidated financial statements.

For taxable periods beginningafter February 28, 2005, Acquisition Corp. and Atacama KES are includedin the consolidated federal income tax return filed by YouthStream asthe common parent.   Acquisition Corp. and Atacama KES haveentered into a Tax Sharing Agreement with YouthStream, pursuant towhich they have agreed to pay YouthStream an amount equal to 50%of their respective "separate company taxliability".   The term "separatecompany tax liability" is defined as the amount, if any,of the federal income tax liability (including, without limitation,liability for any penalty, fine, additions to tax, interest, minimumtax and other items applicable to  such subsidiary in connectionwith the determination of the subsidiary's tax liability),which  such subsidiary would have incurred if its federal incometax liability for the periods during which it is includible in aconsolidated federal income tax return with YouthStream  weredetermined generally in the same manner in which its separate returnliability would have been calculated under Section 1552(a)(2) of theInternal Revenue Code of 1986, as amended.   YouthStream hasapproximately $250,000,000 of federal net operating loss carryoverscurrently available to offset the consolidated federal taxable incomeof the affiliated group in the future.

The total purchase priceof $65,000,000, as well as the terms and conditions of the Notes and13% Series A Preferred Stock issued to the Sellers, wasdetermined to be at fair value based on reports prepared by anindependent valuation firm. The following table summarizes the assetsacquired and liabilities assumed at February 28, 2005.

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|                                                    |  |        |             |         |  |  |
|----------------------------------------------------|--|--------|-------------|---------|--|--|
| AssetsAcquired:                                    |  |   |        |    |
| Cash                                               |  | $      | 913,194     |    |
| Accountsreceivable,net                             |  |   | 10,660,417  |    |
| Inventories                                        |  |   | 17,850,471  |    |
| Prepaidexpenses and other currentassets            |  |   | 904,271     |    |
| Property, plant andequipment, net                  |  |   | 4,204,288   |    |
| Due fromYouthStream Acquisition Corp.              |  |   | 187,702     |    |
| Othernon-currentassets                             |  |   | 721,393     |    |
|                                               |  |   |        |    |
| Totalassetsacquired                                |  |   | 35,441,736  |    |
|                                               |  |   |        |    |
| LiabilitiesAssumed:                                |  |   |        |    |
| Accountspayable                                    |  |   | 8,654,580   |    |
| Accruedexpenses                                    |  |   | 1,473,948   |    |
| Accrued interestpayable                            |  |   | 593,260     |    |
| Deferredrent                                       |  |   | 165,413     |    |
| Subordinated promissory notespayable               |  |   | 7,000,000   |    |
| Line ofcredit                                      |  |   | 15,495,095  |    |
| Equipment contractpayable                          |  |   | 291,223     |    |
|                                               |  |   |        |    |
| Totalliabilitiesassumed                            |  |   | 33,673,519  |    |
|                                               |  |   |        |    |
| Netassetsacquired                                  |  |   | 1,768,217   |    |
|                                               |  |   |        |    |
| Adjustmentto recognize minorityinterest            |  |   | (349,931    | )  |
|                                               |  |   |        |    |
|                                               |  | $      | 1,418,286   |    |
|                                               |  |   |        |    |
| Totalpurchase consideration:                       |  |   |        |    |
| 8%Subordinated secured promissory notespayable     |  | $      | 40,000,000  |    |
| 13% SeriesA preferredstock                         |  |   | 25,000,000  |    |
|                                               |  |   | 65,000,000  |    |
| Lesselimination for 2.67% interest in KESHoldings: |  |   |        |    |
| 8% Subordinatedsecured promissory notespayable     |  |   | (507,000    | )  |
| 13% Series Apreferredstock                         |  |   | (267,000    | )  |
|                                               |  |   |        |    |
| Netpurchaseconsideration                           |  |   | 64,226,000  |    |
|                                               |  |   |        |    |
| Minorityinterests inequity                         |  |   | 223,951     |    |
|                                               |  |   |        |    |
| Adjustmentto record deemed distribution toSellers  |  |   | (63,031,665 | )  |
|                                               |  |   |        |    |
|                                               |  | $      | 1,418,286   |    |
|                                                    |

Theamount due from YouthStream Acquisition Corp. of $187,702 representscosts incurred by KES Acquisition with respect to the Acquisition,which were included in the $1,073,727 of transaction costs related tothe KES Acquisition charged to operations during the nine months endedJune 30, 2005.

As of December 31, 2004 and September 30, 2004,the Company incurred $335,146 and $175,144, respectively, of costs withrespect to the Acquisition, which were presented as deferred costs inthe 

14

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Company's consolidated balance sheetsat such dates. These costs were included in the $1,073,727 oftransaction costs related to the KES Acquisition charged to operationsduring the nine months ended June 30, 2005.

Minority interest– related parties was $448,882 on February 28, 2005. For March2005, the net loss of Acquisition Corp. allocable to the 19.99%minority shareholders was $266,430, which reduced minority interest– related parties to $182,452 at March 31, 2005. For the threemonths ended June 30, 2005, the net loss of Acquisition Corp. allocableto the 19.99% minority shareholders was $361,247, but thereduction to minority interest – related parties was limited tothe balance at March 31, 2005 of $182,452. Accordingly, the remainderof the net loss of Acquisition Corp. allocable to the 19.99%minority shareholders for the three months ended June 30, 2005 of$178,795 was included in the Company's consolidated statement ofoperations for the three months ended June 30, 2005, and will berecovered to the extent that Acquisition Corp. generates net income infuture periods.

The following pro forma operating data presentsthe results of operations for the three months ended June 30, 2005 and2004, as if the Acquisition had occurred on March 31, 2005 and 2004,respectively, and for the nine months ended June 30, 2005 and 2004, asif the Acquisition had occurred on September 30, 2004 and 2003,respectively. Accordingly, transaction costs of $280,773 and $1,073,727related to the KES Acquisition for the three months and nine monthsended June 30, 2005 are not included in the net loss from continuingoperations shown below. In addition, discontinued operations for thethree months and nine months ended June 30, 2004 are not included. TheMill commenced generating revenues in late January 2004. The pro formaresults are not necessarily indicative of the financial results thatmight have occurred had the Acquisition actually taken place on therespective dates, or of future results of operations. TheCompany's unaudited pro forma information is summarized asfollows:

|                                           |  |                           |            |                          |  |        |            |         |  |        |            |         |  |        |             |         |  |  |
|-------------------------------------------|--|---------------------------|------------|--------------------------|--|--------|------------|---------|--|--------|------------|---------|--|--------|-------------|---------|--|--|
|                                      |  | ThreeMonths EndedJune 30, |            | Nine Months EndedJune30, |
|                                      |  | 2005                      |            | 2004                     |  | 2005   |            | 2004    |
| Netrevenues                               |  | $                         | 29,127,566 |                     |  | $      | 16,085,610 |    |  | $      | 82,865,614 |    |  | $      | 19,645,318  |    |
| Costofsales                               |  |                      | 27,239,391 |                     |  |   | 17,940,014 |    |  |   | 78,127,873 |    |  |   | 22,640,868  |    |
| Grossmargin(deficit)                      |  |                      | 1,888,175  |                     |  |   | (1,854,404 | )  |  |   | 4,737,741  |    |  |   | (2,995,550  | )  |
| Operatingincome(loss)                     |  |                      | 593,638    |                     |  |   | (2,873,047 | )  |  |   | 851,914    |    |  |   | (6,871,039  | )  |
| Interestexpense                           |  |                      | (2,293,501 | )                   |  |   | (1,812,720 | )  |  |   | (6,761,935 | )  |  |   | (5,039,536  | )  |
| Minorityinterest                          |  |                      | 236,391    |                     |  |   | 236,391    |    |  |   | 236,391    |    |  |   | 236,391     |    |
| Netloss from continuingoperations         |  | $                         | (1,449,312 | )                   |  | $      | (4,412,084 | )  |  | $      | (5,576,110 | )  |  | $      | (11,499,155 | )  |
|                                      |  |                      |       |                     |  |   |       |    |  |   |       |    |  |   |        |    |
| Basicand diluted net loss per commonshare |  | $                         | (0.04      | )                   |  | $      | (0.11      | )  |  | $      | (0.14      | )  |  | $      | (0.29       | )  |
| Weightedaverage common sharesoutstanding  |  |                      | 39,242,251 |                     |  |   | 39,242,251 |    |  |   | 39,242,251 |    |  |   | 39,242,251  |    |
|                                           |

Asummary of significant accounting policies with respect to theoperations of the Mill is presented below.

Cash and CashEquivalents

Cash and equivalents include all cash, demanddeposits and money market accounts with original maturities of threemonths or less.

Accounts Receivable

In order todetermine the value of the Company's accounts receivable, theCompany records a provision for doubtful accounts to cover estimatedcredit losses. Management reviews and adjusts this allowanceperiodically based on historical experience and its evaluation of thecollectibility of outstanding accounts receivable. The Companyevaluates the credit risk of its customers utilizing historical dataand estimates of future performance.

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Inventories

Inventories arecomprised of raw materials (consisting of billets and scrap metal),semi-finished goods and finished goods. Inventory costs includematerial, labor and manufacturing overhead. Inventories are valued atthe lower of average cost or market.

Property, Plant andEquipment

Property, plant and equipment are recorded at cost.Expenditures for routine maintenance and repairs are charged to expenseas incurred. Expenditures for equipment renewals and improvements,which extend the useful life of an asset, are capitalized.

Depreciation is provided on the straight-line method over theestimated useful lives of the assets, generally 3 to 20 years formachinery and equipment, and 20 to 40 years for buildings andimprovements.

Impairment of Long-Lived Assets

Long-lived assets are evaluated for impairment whenever events orchanges in circumstances indicate that the carrying amount of an assetmay not be recoverable in accordance with SFAS No. 144,"Accounting for the Impairment or Disposal of Long-LivedAssets". An asset is considered impaired if its carryingamount exceeds the future net cash flow the asset is expected togenerate. If an asset is considered to be impaired, the impairment tobe recognized is measured by the amount by which the carrying amount ofthe asset exceeds its fair market value. The recoverability oflong-lived assets is assessed by determining whether the unamortizedbalances can be recovered through undiscounted future net cash flows ofthe related assets. The amount of impairment, if any, is measured basedon projected discounted future net cash flows using a discount ratereflecting the Company's average cost of capital.

LoanCosts

Direct costs and fees associated with the establishmentof debt financing are capitalized and amortized on a straight-linebasis over the term of the underlying debt.

RevenueRecognition

The Company recognizes revenues when title passes,the earnings process is substantially complete, and the Company isreasonably assured of the collection of the proceeds from the exchange,all of which generally occur either upon shipment of theCompany's products or delivery of the product at the destinationspecified by the customer.

Shipping and Handling Fees andCosts

In accordance with EITF No. 00-10,"Accounting for Shipping and Handling Fees andCosts", shipping and handling fees and costs billed tocustomers are included in net sales and the actual costs incurred bythe Company are included in cost of sales.

OperatingLeases

Leases where substantially all the rewards and risks ofownership of the assets remain with the leasing company are accountedfor as operating leases. Rent payable under operating leases isrecorded in the statement of operations on a straight-line basis overthe lease terms.

Income Taxes

The Company accounts forincome taxes in accordance with Statement of Financial AccountingStandards No.  109, "Accounting for IncomeTaxes". Under this method, deferred income taxes areprovided for differences between the carrying amounts of theCompany's assets and liabilities for 

16

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financial reporting purposes and the amountsused for income tax purposes using expected tax rates in effect for theyear in which those temporary differences are expected to be recoveredor settled. KES Acquisition is treated as a limited liability companyfor federal and state income taxes. Consequently, federal and stateincome taxes are not provided for, but rather, are taxed to its solemember.

Asset Retirement Obligations

TheCompany accounts for its asset retirement obligations in accordancewith SFAS No. 143, "Accounting for Asset RetirementObligations", which addresses financial accounting andreporting for obligations associated with the retirement of tangiblelong-lived assets and associated costs. SFAS 143 requires that thediscounted fair value of a liability for an asset retirement obligationbe recognized in the period in which it is incurred if a reasonableestimate of the fair value can be made. The associated asset retirementcosts are capitalized as part of the carrying amount of the long-livedasset.

All material environmental remediation liabilities fornon-capital expenditures, which are probable and estimable, arerecorded in the financial statements based on current technologies andcurrent environmental standards at the time of evaluation. Adjustmentsare made when additional information is available that suggestsdifferent remediation methods or periods may be required and affect thetotal cost.

Self-Insurance

The Company is self-insuredfor health care costs up to $25,000 per subscriber annually. Insurancecoverage is carried for risks in excess of this amount. The Companyrecognized self-insured health care expense of approximately $462,000and $584,000, for the three months and nine months ended June 30, 2005,respectively. Estimated claims incurred but not reported wereapproximately $215,000 as of June 30, 2005, which are included inaccrued liabilities in the consolidated balance sheet at June 30,2005.

Fair Value of Financial Instruments

The Companybelieves that the carrying value of its cash, accounts receivable,accounts payable, accrued liabilities, and line of credit as of June30, 2005 approximates their respective fair values due to the demand orshort-term nature of those instruments. The carrying value of long-termobligations approximates the fair value based on the effective interestrates compared to current market rates.

Concentrations andCommitments

The Company's cash balances exceededfederally-insured levels at June 30, 2005. The Company minimizes itscredit risk by investing its cash and cash equivalents with major banksand financial institutions located in the United States, as a result ofwhich the Company believes that it had nominal risk with respect to itsconcentration of balances in cash and cash equivalents at suchdate.

For the three months and nine months ended June 30, 2005,the Company has two suppliers that account for approximately 81%of raw materials purchases, one providing approximately 43% andthe other providing approximately 38%, of which approximately$3,200,000 was included in accounts payable at June 30, 2005. For thethree months and nine months ended June 30, 2005, the Company has twocustomers that each accounted for 6% or more of net sales(aggregate 12%), of which approximately $2,200,000 was includedin accounts receivable at June 30, 2005.

The Mill has beenoperating under a Management Services Agreement with Pinnacle Steel,LLC ("Pinnacle") effective through October31, 2009 that provides for Pinnacle to provide, at its expense,employees to serve as the General Manager of the Mill and provideoversight and general management of the operations of the Mill, forwhich Pinnacle receives an annual fee of $700,000, payable monthly, andbonus payments based on 16.6% of defined earnings beforeinterest, taxes, depreciation and amortization("EBITDA") in excess of $4,500,000 for thenine months ending September 30, 2005 and $6,000,000 for the fiscalyears ending September 30, 2006 and thereafter.

17

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The Company has various short-termcommitments for the purchase of materials, supplies and energy arisingin the ordinary course of business which aggregated approximately$6,900,000 at June 30, 2005.

The Company leases a ladlemetallurgy furnace facility and certain other machinery and equipment.At June 30, 2005, future minimum annual payments for all operatingleases are as follows:

|                                                                                                                                                                             |  |        |           |        |  |  |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--------|-----------|--------|--|--|
|             TwelveMonths Ending June30,             |  |   |
| 2006                                                                                                                                                                        |  | $      | 1,025,868 |   |
| 2007                                                                                                                                                                        |  |   | 1,017,437 |   |
| 2008                                                                                                                                                                        |  |   | 990,363   |   |
| 2009                                                                                                                                                                        |  |   | 890,363   |   |
| 2010                                                                                                                                                                        |  |   | 78,019    |   |
| Totalminimum leasepayments                                                                                                                                                  |  | $      | 4,002,050 |   |
|                                                                                                                                                                             |

Equipmentrental expense for the three months and nine months ended June 30, 2005was $304,843 and $407,034, respectively.

3.    DiscontinuedOperations

Effective February 25, 2004, the Company'swholly-owned subsidiary, Beyond the Wall, Inc.("BTW"),  sold substantially all of itsassets and operations to a group unaffiliated with the Company (whichincluded certain former management of BTW), for $1,920,000, consistingof a cash payment of $820,000 and a subordinated secured promissorynote (the "Note") for $1,100,000, withinterest at 10% per annum, due October 31, 2006.   Thebuyer had the right to make certain optional principal pre-payments onthe Note by June 30, 2004, which would result in the principal balanceof the Note being adjusted downward, in excess of such principalpre-payments, based on an agreed-upon sliding scale as set forth in theNote.

On April 30, 2004, the buyer made an optional principalpre-payment on the Note of $400,000.   Accordingly, under theprovisions of the sale agreement, the buyer received a credit of$106,800 against the $1,100,000 note (in excess of the $400,000payment), as well as an additional $150,000 back-end credit on theNote. On October 31, 2004, the buyer made its scheduled principalpayment on the Note of $197,734, plus accrued interest of $49,493.Remaining scheduled principal payments at June 30, 2005 with respect tothe Note totaling $245,466 are as follows: October 31, 2005 –$197,734; October 31, 2006 – $47,732.

The Companyinitially recognized a loss of $564,921 with respect to this salebefore taking into consideration the effect of the $400,000 principalpre-payment made on April 30, 2004.   Inclusive of such payment,the effect of the accelerated payment credit and the back-end creditresulted in an additional loss of $256,800, which decreased thecarrying value of the note receivable from $1,100,000 to $843,200 andincreased the loss on the BTW sale from $564,921 to $821,721.The loss on the BTW sale was reported as a loss on the disposal ofdiscontinued operations for the nine months ended June 30, 2004.As a result of the sale, the retail segment operations have beenpresented as a discontinued operation for the three months and ninemonths ended June 30, 2004.

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The Company's unaudited netrevenues and loss from discontinued operations are summarized asfollows:

|                                           |  |                           |                           |                          |  |        |         |         |  |        |                           |        |  |        |            |         |  |  |
|-------------------------------------------|--|---------------------------|---------------------------|--------------------------|--|--------|---------|---------|--|--------|---------------------------|--------|--|--------|------------|---------|--|--|
|                                      |  | ThreeMonths EndedJune 30, |                           | Nine Months EndedJune30, |
|                                      |  | 2005                      |                           | 2004                     |  | 2005   |         | 2004    |
| Netrevenues                               |  | $                         |    — |                     |  | $      | — |    |  | $      |    — |   |  |   | 2,513,000  |    |
|                                      |  |                      |                      |                     |  |   |    |    |  |   |                      |   |  |   |       |    |
| Lossfrom discontinuedoperations           |  | $                         | —                   |                     |  | $      | (5,150  | )  |  | $      | —                   |   |  |   | (481,926   | )  |
| Losson disposal of discontinuedoperations |  |                      | —                   |                     |  |   | — |    |  |   | —                   |   |  |   | (821,721   | )  |
| Lossfrom discontinuedoperations           |  | $                         | —                   |                     |  | $      | (5,150  | )  |  | $      | —                   |   |  |   | (1,303,647 | )  |
|                                           |

Asof June 30, 2005 and September  30, 2004, the Company has accruedliabilities of $2,470,741 and $2,498,468, respectively, remaining fromits discontinued businesses. The accrued liabilities consist primarilyof severance, lease payments and other costs related to the operationsof the discontinued businesses.

4.    Inventories

Inventories are comprised of the following at June 30,2005:

|                    |  |        |            |        |  |  |
|--------------------|--|--------|------------|--------|--|--|
| Rawmaterials       |  | $      | 2,835,997  |   |
| Semi-finishedgoods |  |   | 2,592,547  |   |
| Finishedgoods      |  |   | 10,039,552 |   |
|               |  |   |       |   |
| Total              |  | $      | 15,468,096 |   |
|                    |

5.    Stock-BasedCompensation

On October 15, 2003, the Company issued an optionto purchase 50,000 shares of common stock to its Chief ExecutiveOfficer, exercisable through October 15, 2010 at $0.26 per share, whichwas the fair market value on the date of issuance. The option was fullyvested upon issuance.

On June 3, 2004, the Company issued anoption to purchase 200,000 shares of common stock to a new director,exercisable through June 3, 2011 at $0.14 per share, which was the fairmarket value on the date of issuance. The option was fully vested uponissuance.

On February 15, 2005, the Company issued an option topurchase 200,000 shares of common stock to new director, exercisablethrough February 15, 2012 at $0.30 per share, which was the fair marketvalue on the date of issuance. The option vests over a 12-month periodin equal monthly installments beginning March 1, 2005.

TheCompany accounts for stock-based employee compensation in accordancewith the provisions of Accounting Principles Board("APB") Opinion No.  25 and FASBInterpretation No.  44 ("FIN 44"),"Accounting for Certain Transactions Involving StockCompensation", and complies with the disclosurerequirements of SFAS No.  123, "Accounting forStock-Based Compensation". Under APB No.  25,compensation expense is recorded based on the difference, if any,between the fair value of the Company's stock and the exerciseprice on the measurement date. The Company accounts for stock issued tonon-employees in accordance with SFAS No.  123, which requiresentities to recognize as expense over the service period the fair valueof all stock-based awards on the date of grant and EITF 96-18,"Accounting for Equity Investments that are Issued toOther Than Employees for Acquiring, or in Conjunction with Selling,Goods or Services", which addresses the measurement dateand recognition approach for such transactions.

Pro formainformation regarding net loss per share is required by SFAS No. 123,and has been determined as if the Company had accounted for itsemployee stock options under the fair value 

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method of such statement. The fair value forthese options was estimated at the date of grant using theBlack-Scholes option-pricing model.

For the purpose of pro formadisclosures, the estimated fair value of the options is amortized tooperations over the vesting period of the options or the expectedperiod of benefit. The Company's unaudited pro forma informationis summarized as follows:

|                                                                                               |  |                           |            |                          |  |        |          |         |  |        |            |         |  |        |            |         |  |  |
|-----------------------------------------------------------------------------------------------|--|---------------------------|------------|--------------------------|--|--------|----------|---------|--|--------|------------|---------|--|--------|------------|---------|--|--|
|                                                                                          |  | ThreeMonths EndedJune 30, |            | Nine Months EndedJune30, |
|                                                                                          |  | 2005                      |            | 2004                     |  | 2005   |          | 2004    |
| Netloss attributable to common shares – asreported                                      |  | $                         | (1,784,024 | )                   |  | $      | (150,583 | )  |  | $      | (3,183,957 | )  |  | $      | (2,156,074 | )  |
| Add:Total stock-based compensation expense included in reported netloss                       |  |                      | —    |                     |  |   | —  |    |  |   | —    |    |  |   | —    |    |
| Deduct:Total stock-based compensation expense determined under fair valuemethod for allawards |  |                      | (13,500    | )                   |  |   | (25,000  | )  |  |   | (20,250    | )  |  |   | (28,000    | )  |
| Netloss – proforma                                                                      |  | $                         | (1,797,524 | )                   |  | $      | (175,583 | )  |  | $      | (3,204,207 | )  |  | $      | (2,184,074 | )  |
|                                                                                          |  |                      |       |                     |  |   |     |    |  |   |       |    |  |   |       |    |
| Basicand diluted net loss per common share – asreported                                 |  | $                         | (0.05      | )                   |  | $      | (0.00    | )  |  | $      | (0.08      | )  |  | $      | (0.05      | )  |
|                                                                                          |  |                      |       |                     |  |   |     |    |  |   |       |    |  |   |       |    |
| Basicand diluted net loss per common share – proforma                                   |  | $                         | (0.05      | )                   |  | $      | (0.00    | )  |  | $      | (0.08      | )  |  | $      | (0.06      | )  |
|                                                                                               |

Securitiesentitling the holder to acquire shares of common stock that have beenexcluded from the calculation of diluted net loss per share due totheir anti-dilutive effect are summarized as follows:

|                              |  |              |           |                    |  |        |           |        |  |  |
|------------------------------|--|--------------|-----------|--------------------|--|--------|-----------|--------|--|--|
|                         |  | June30, 2005 |           | September 30, 2004 |
| Stockoptions                 |  |         | 1,405,404 |               |  |   | 1,205,404 |   |
| Commonstock purchasewarrants |  |         | 1,000,000 |               |  |   | 1,000,000 |   |
|                              |

AtJune 30, 2005, the weighted average exercise price of the stock optionsand common stock purchase warrants was $0.18 per share and $0.12 pershare, respectively.

6.    Property, Plant and Equipment

Property, plant and equipment consisted of the following at June 30,2005 and September 30, 2004:

|                                         |  |             |           |                   |  |        |          |         |  |  |
|-----------------------------------------|--|-------------|-----------|-------------------|--|--------|----------|---------|--|--|
|                                    |  | June30,2005 |           | September 30,2004 |
|                                    |  | (Unaudited) |           |              |
|                                    |  |        |      |              |  |   |     |    |
| Land                                    |  | $           | 142,498   |              |  | $      | —  |    |
| Buildingsandimprovements                |  |        | 672,529   |              |  |   | —  |    |
| Machineryandequipment                   |  |        | 3,713,256 |              |  |   | —  |    |
| Officeequipment                         |  |        | —   |              |  |   | 140,068  |    |
| Total                                   |  |        | 4,528,283 |              |  |   | 140,068  |    |
| Accumulateddepreciation andamortization |  |        | (424,352  | )            |  |   | (114,658 | )  |
| Property,plant and equipment,net        |  | $           | 4,103,931 |              |  | $      | 25,410   |    |
|                                         |

Depreciationexpense for the three months ended June 30, 2005 and 2004 was $74,331and $4,981, respectively, and for the nine months ended June 30, 2005and 2004 was $105,337 and $14,941, respectively.

20

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At December 31, 2004, in conjunction withthe restructuring of its corporate and administrative offices, theCompany wrote off the remaining balance of its office equipment of$20,429.

7.    Non-Current Liabilities

Non-currentliabilities assumed by YouthStream in conjunction with the acquisitionof KES Acquisition (see Note 2) are summarized below.

Subordinated Secured Promissory Notes Payable to RelatedParties

Subordinated secured promissory notes payable consistof seven notes payable aggregating $7,000,000 issued by KES Acquisitionto three related parties. The notes bear interest at 12% perannum, are secured by subordinated security interest in all of theassets of KES Acquisition, and are subject to an Intercreditor andSubordination Agreement dated March 24, 2004 with General ElectricCapital Corporation. When originally issued, the notes were due, withinterest, upon the earlier to occur of (i) an event of default underthe Loan and Security Agreement with General Electric CapitalCorporation or (ii) each note's respective due date, which rangedfrom March 31, 2005 to December 31, 2005. As of June 3, 2005, all sevenof the notes had been extended to December 31, 2006. Proceeds fromthese notes were used to accelerate and expand the operations of thesteel mini-mill. At June 30, 2005, accrued interest payable withrespect to the subordinated secured promissory notes payable was$874,027.

Line of Credit

Effective March 24, 2004, KESAcquisition entered into a loan and security agreement, as amended,with General Electric Capital Corporation. Under the terms of theagreement, KES Acquisition has the ability to borrow up to $23,000,000,subject to limitations under the lender's borrowing base formulaand compliance with a minimum fixed charge coverage ratio. Interest ispayable monthly in arrears on the outstanding principal balance at theindex rate (defined as the thirty-day dealer commercial paper rate)plus 5.5% per annum. The line of credit matures on March 24,2007, and is secured by all of the assets of KES Acquisition and apledge of (i) the membership interests of KES Acquisition owned byAcquisition Corp. and (ii) the capital stock of Atacama KES owned byAcquisition Corp. As of June 30, 2005, the balance outstanding on theline of credit was $17,030,778, which has been presented as a currentliability in the consolidated balance sheet at such date due tocontinuing uncertainty with respect to the Company's ability tomaintain compliance with the minimum fixed charge coverage ratio.

At June 30, 2005 KES Acquisition was in compliance with the fixedcharge coverage ratio. At March 31, 2005, KES Acquisition was not incompliance with the fixed charge coverage ratio, in part relating tochanges to its accounting procedures as a result of the review of itsfinancial statements conducted in conjunction with its acquisition byYouthStream (see Note 2), and has since received a waiver of defaultfrom the lender. In the event that KES Acquisition is not in compliancewith the fixed charge coverage ratio in any future period, the Companywill seek a further waiver of any default from the lender, and if nosuch waiver is received, the lender would have the right to acceleratethe maturity of the line of credit.

Equipment ContractPayable

The equipment contract payable is due in 47 equalmonthly installments of $8,099, including interest at 9.35% perannum, with a balloon payment of $35,252 due on May 8, 2008. Theequipment contract payable is secured by the related equipment. As ofJune 30, 2005, the balance outstanding on the equipment contractpayable was $267,931. Future scheduled principal payments on theequipment contract payable are summarized as follows:

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|                                                                                                                                                                             |  |        |         |        |  |  |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--------|---------|--------|--|--|
|             TwelveMonths Ending June30,             |  |   |
| 2006                                                                                                                                                                        |  | $      | 75,302  |   |
| 2007                                                                                                                                                                        |  |   | 82,652  |   |
| 2008                                                                                                                                                                        |  |   | 109,977 |   |
| Totalprincipalpayments                                                                                                                                                      |  | $      | 267,931 |   |
|                                                                                                                                                                             |

8.    LegalProceedings

From time to time the Company and/or its subsidiarythat owned its former operating business, Beyond the Wall, aredefendants in various lawsuits and claims from various trade creditorsand former landlords. Certain of these claims are the responsibility ofthe buyer of the Beyond the Wall business. The Company evaluates itsresponse in each situation based on the particular facts andcircumstances of a claim. Accordingly, the ultimate outcome of thesematters cannot be determined at this time and may ultimately result injudgments and liens against the Company or its assets. The Company hasmade sufficient accruals for the exposure related to such matters thathave been deemed probable and reasonably estimable at June 30, 2005 andSeptember  30, 2004.

KES Acquisition has been named in awrongful death lawsuit in West Virginia with respect to an employee ofa contractor who died while working at the Mill in April 2004. KESAcquisition is being defended by its insurance carrier. The Companydoes not believe that the resolution of this litigation will have amaterial adverse effect on its financial condition or results ofoperations.

9.    Income Taxes

No federal taxprovision has been provided for the three months and nine months endedJune 30, 2005 and 2004 due to the significant consolidated lossesincurred to date.

At June 30, 2005, the Company had netoperating loss carryovers for federal income tax purposes ofapproximately $286,000,000 that expire from 2012 through 2024. The useof approximately $36,000,000 of this net operating loss in future yearsmay be restricted under Section 382 of the Internal Revenue Code. Forfinancial reporting purposes, a 100% valuation allowance hasbeen recognized to offset the net deferred tax asset principallyrelated to the net operating loss carryovers for all periodspresented.

The Company is subject to periodic audits by federal,state and local tax authorities for various tax liabilities incurred inprior periods from the parent entity and its subsidiaries, includingany discontinued businesses. The amount of any tax assessments andpenalties may be material and may negatively impact the Company'soperations. Given the uncertainty in the amount and the difficulty inestimating the probability of the assessments arising from future taxaudits, the Company has not made accruals for such taxcontingencies.

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ITEM2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OFOPERATION

General Overview:

During fiscal 2001, theCompany reorganized into two market segments: media and retail.

On August 5, 2002, the Company sold substantially all of itsremaining media assets and assigned certain liabilities of its NET andAmerican Passage subsidiaries to Alloy, Inc. and ceased operating themedia segment.

On February 25, 2004, the Company sold the assetsand operations of its Beyond the Wall subsidiary and ceased operatingthe retail segment. Beyond the Wall had been engaged in the sale ofdecorative wall posters through on-campus sales events, retail storesand internet sales, primarily to teenagers and young adults. During theperiod from October 1, 2003 through February 25, 2004, Beyond the Walloperated 17 stores in 12 states, plus Washington, D.C., throughout theEast and mid-West, as well as a warehouse and distribution center inStroudsburg, Pennsylvania, and was the Company's onlyrevenue-generating business operation. The consolidated financialstatements for the nine months ended June 30, 2004 present Beyond theWall's operations as a discontinued operation as a result of thedisposal of its assets and operations on February 25, 2004.

Commencing March 1, 2005, the Company has included the operations ofa steel mini-mill located in Ashland, Kentucky in its consolidatedfinancial statements, which represents the only business segment inwhich the Company currently operates.

Going Concern:

The Company has incurred recurring operating losses since itsinception. As of September 30, 2004, the Company had an accumulateddeficit of $343,834,836, a stockholders' deficiency of$13,065,365, a working capital deficiency of $3,452,840, and hadincurred a net loss and negative cash flows from operating activitiesfor the year ended September 30, 2004 of $2,365,620 and $901,443,respectively. As of June  30, 2005, the Company had anaccumulated deficit of $347,018,793, a stockholders' deficiencyof $79,280,987 and had incurred a net loss and negative cash flows fromoperating activities for the nine months ended June 30, 2005 of$3,183,957 and $2,737,735, respectively. As of September 30, 2004 andJune 30, 2005, the Company had insufficient capital to fund all of itsobligations on a consolidated basis. These conditions raise substantialdoubt about the Company's ability to continue as a going concern.The consolidated financial statements do not include any adjustments toreflect the possible future effect of the recoverability andclassification of assets or the amounts and classifications ofliabilities that may result from the outcome of this uncertainty. TheCompany's independent registered public accounting firm, in itsreport dated December 17, 2004, included an explanatory paragraphstating that the Company's recurring losses and accumulateddeficit, working capital deficiency and negative cash flow, among otherthings, raise substantial doubt about the Company's ability tocontinue as a going concern.

On March 9, 2005, the Companycompleted the acquisition of a steel mini-mill located in Ashland,Kentucky. The Company utilized substantially all of its available cashresources to fund such acquisition and requires additional operatingcapital to fund corporate general and administrative expenses. Inaddition, the steel mini-mill restarted operations in late January 2004after being acquired by the previous owners, and has incurred lossesuntil recently. For the three months and nine months ended June 30,2005, operating income was $593,638 and $529,001, respectively,exclusive of interest expense. The steel mini-mill relies on cash flowsfrom operations to support a line of credit with General ElectricCapital Corporation to fund its separate operations. Subsequent to June30, 2005, the operating performance of the steel mini-mill has improvedand the Company has been able to increase borrowing availability underits line of credit with General Electric Capital Corporation.

The Company believes that its current internal and external cashresources will be adequate to fund its operations through September 30,2005. However, to the extent the Company's estimates andassumptions are inaccurate, the Company may not have sufficient cashresources to fund its operations. In such event, the Company may haveto consider a formal or informal restructuring or reorganization,including a sale or other disposition of its assets.

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The Company's management may alsoconsider various strategic alternatives in the future, including theacquisition of new business opportunities, which may be from related orunrelated parties.   However, there can be no assurances thatsuch efforts will ultimately be successful.   The Company mayfinance any acquisitions through a combination of debt and/or equitysecurities.

Recent Developments:

DuringSeptember 2005, the Company borrowed $50,000 from certain directorsunder short-term unsecured notes due December 31, 2005, with interestat 4% per annum, to fund corporate general and administrativeexpenses. The notes are subject to mandatory prepayment based on anyproceeds received by the Company from, among other sources, the notethat the Company received from the sale of the assets and operations ofBeyond the Wall in February 2004 and any tax sharing payments under theTax Sharing Agreement, as described below. The Company intends to repaythe notes payable to directors from the proceeds from the settlement ofthe Beyond the Wall note receivable, which were received on September30, 2005, as described below.

For the nine months endingSeptember 30, 2005, Acquisition Corp., KES Acquisition and Atacama KESare collectively required to have, on a consolidated basis, in excessof $4,000,000 of earnings before interest, taxes, depreciation andamortization, calculated in accordance with generally acceptedaccounting principles ("EBITDA").   Foreach of the fiscal years ending on  and after September 30, 2006,Acquisition Corp., KES Acquisition and Atacama KES are collectivelyrequired to have, on a consolidated basis, in excess of $7,200,000 ofEBITDA.   At March 31 of each  fiscal year following thefiscal year ending September 30, 2005 in which the obligations underthe Notes remain outstanding, Acquisition Corp., KES Acquisition andAtacama KES are collectively required to have, on a consolidated basis,in excess of $3,000,000 of EBITDA for the six months then ended.Effective September 23, 2005, the holders of the Notes executed anagreement to amend the Notes to eliminate the requirement thatAcquisition Corp., KES Acquisition and Atacama KES collectively have,on a consolidated basis, in excess of $4,000,000 of EBITDA for the ninemonths ending September 30, 2005.

On September 30, 2005, theCompany received a cash payment of $258,922 as settlement in full ofthe outstanding note receivable that had a balance, including accruedinterest, of $271,686 at June 30, 2005 that the Company had previouslyreceived from the sale of the assets and operations of Beyond the Wallin February 2004 (see "Sale of Assets and Operations ofBeyond the Wall, Inc." below).

Sale of Assets andOperations of Beyond the Wall, Inc.:

Effective February 25,2004, the Company's wholly-owned subsidiary, Beyond the Wall,Inc. ("BTW"),  sold substantially allof its assets and operations to a group unaffiliated with the Company(which included certain former management of BTW), for $1,920,000,consisting of a cash payment of $820,000 and a subordinated securedpromissory note (the "Note") for $1,100,000,with interest at 10% per annum, due October 31, 2006.The buyer had the right to make certain optional principal pre-paymentson the Note by June 30, 2004, which would result in the principalbalance of the Note being adjusted downward, in excess of suchprincipal pre-payments, based on an agreed-upon sliding scale as setforth in the Note.

On April 30, 2004, the buyer made an optionalprincipal pre-payment on the Note of $400,000.   Accordingly,under the provisions of the sale agreement, the buyer received a creditof $106,800 against the $1,100,000 note (in excess of the $400,000payment), as well as an additional $150,000 back-end credit on theNote. On October 31, 2004, the buyer made its scheduled principalpayment on the Note of $197,734, plus accrued interest of $49,493.Remaining scheduled principal payments at June 30, 2005 with respect tothe Note totaling $245,466 are as follows: October 31, 2005 –$197,734; October 31, 2006 – $47,732.

The Companyinitially recognized a loss of $564,921 with respect to this salebefore taking into consideration the effect of the $400,000 principalpre-payment made on April 30, 2004.   Inclusive of such payment,the effect of the accelerated payment credit and the back-end creditresulted in an 

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additional loss of $256,800, which decreasedthe carrying value of the note receivable from $1,100,000 to $843,200and increased the loss on the BTW sale from $564,921 to$821,721.   The loss on the BTW sale was reported as a loss onthe disposal of discontinued operations for the nine months ended June30, 2004.   As a result of the sale, the retail segmentoperations have been presented as a discontinued operation for thethree months and nine months ended June 30, 2004.

Acquisitionof Steel Mini-Mill:

In September  2003, YouthStreaminvested $125,000 to acquire a 1.00% membership interest in KESHoldings, LLC, a Delaware limited liability company ("KESHoldings"), which was formed to acquire certain assets ofKentucky Electric Steel,  Inc., a Delaware company("KES"), consisting of a steel mini-milllocated in Ashland, Kentucky (the "Mill"). OnSeptember  2, 2003, KES Holdings, through its subsidiary, KESAcquisition Company, LLC, a Delaware limited liability company("KES Acquisition"), completed theacquisition of the Mill pursuant to Section  363 of the UnitedStates Bankruptcy Code for cash consideration of $2,650,000, which wasfunded through the contributions of the members of KES Holdings.Members' contributions were also used for start-up costs, workingcapital purposes and payment of deferred maintenance of the Mill. KEShad ceased production on or about December  16, 2002 and filed avoluntary petition for relief under Chapter 11 of the United StatesBankruptcy Code on February  5, 2003.

The Mill had been inoperation for approximately forty years and was refurbished by KESAcquisition subsequent to its acquisition.   The refurbished Millhas been generating revenues since late January 2004. As currentlyconfigured, the Mill has an annual production capacity of 240,000 tonsof steel, and is currently operating at approximately 80% ofsuch annualized capacity. Management is focusing on developing thebusiness and improving operating efficiencies.

The Mill producesbar flats that are produced to a variety of specifications and fallprimarily into two general quality levels – merchant bar qualitysteel bar flats ("MBQ Bar Flats") for generictypes of applications, and special bar quality steel bar flats("SBQ Bar Flats"), where more precisecustomer specifications require the use of alloys, customized equipmentand special production procedures to insure that the finished productmeets critical end-use performance characteristics. The Mill is aleading manufacturer of SBQ Bar Flats for the cold draw bar converterand truck trailer support beam markets.

The Mill manufacturesover 2,600 different Bar Flat items which are sold to the leaf-springsuspension market for light- and heavy-duty trucks, mini-vans andutility vehicles, cold drawn bar converters, certain specialtyapplications for steel service centers, truck trailer manufacturers andother miscellaneous markets. The Mill was specifically designed tomanufacture wider and thicker bar flats up to three inches in thicknessand twelve inches in width that are required by these markets. Inaddition, the Mill employs a variety of specially designed equipmentwhich is required in order to manufacture SBQ Bar Flats to thespecifications of the Mill's customers.

On March 9, 2005,YouthStream completed the acquisition of KES Acquisition (the"Acquisition"), which was deemed effectiveMarch 1, 2005. Pursuant to definitive agreements executed with KESHoldings and Atacama Capital Holdings, Ltd., a British Virgin Islandscompany ("Atacama", and together with KESHoldings, collectively, the "Sellers"),YouthStream, through its newly-formed subsidiary, YouthStreamAcquisition Corp., a Delaware corporation ("AcquisitionCorp."), acquired 100% of the membership interestsof KES Acquisition by acquiring (i) a 37.45% membership interestfrom KES Holdings and (ii) all of the capital stock of Atacama KESHolding Corporation, a wholly-owned subsidiary of Atacama, the owner ofthe remaining 62.55% membership interest in KES Acquisition. Asconsideration for the Acquisition, Acquisition Corp. issued to theSellers (i) $40 million in promissory notes (the"Notes"), (ii) 25,000 shares of Series ANon-Convertible Preferred Stock with an aggregate liquidation value of$25 million (the "13% Series A PreferredStock") and (iii) 100% of its authorized shares ofSeries B Non-Voting Common Stock. With respect to the $65,000,000 ofpurchase consideration, $19,000,000 of the Notes and $10,000,000 of the13% Series A Preferred Stock were issued to KES Holdings and$21,000,000 of the Notes and $15,000,000 of the 13% Series APreferred Stock were issued to Atacama. YouthStream also contributed anaggregate of 

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$500,000 of cash to Acquisition Corp. asconsideration for the issuance by Acquisition Corp. of 100% ofits Series A Voting Common Stock. In addition, YouthStream willperiodically be required to purchase shares of Series B Preferred Stockof Acquisition Corp.

As a result of these transactions,YouthStream owns 80.01% of the common stock, and 100% ofthe voting stock, of Acquisition Corp. The remaining 19.99%common stock interest in Acquisition Corp. is owned 62.55% byAtacama and 37.45% by KES Holdings. YouthStream has a2.67% equity interest in KES Holdings, as a result of which theCompany has eliminated its $507,000 interest in the Notes and $267,000interest in the 13% Series A Preferred Stock in the condensedconsolidated balance sheet at June 30, 2005. YouthStream hasconsolidated the operations of the Mill through its ownership of KESAcquisition commencing March 1, 2005. As a result of the Acquisition,the Company's financial statements for periods ending after March1, 2005 are materially different from and are not comparable to itsfinancial statements prior to that date.

Subsequent to thistransaction, the management of the Mill remained intact. Thistransaction did not result in any change in the Mill's businessoperations or financial condition, and, other than as set forth herein,the working capital, operating cash flow, debt service obligations andcredit profile of the Mill were not affected in any way by thistransaction.

As described herein, the Notes and 13%Series A Preferred Stock were issued by Acquisition Corp., the parentcompany of KES Acquisition. KES Acquisition is a separate legal entitythat owns and operates the Mill. The Notes are legal obligations solelyof Acquisition Corp., and are not obligations of KES Acquisition, norare they secured by the assets or cash flows of the Mill. In thefuture, Acquisition Corp. may grant liens to secure repayment of theNotes, upon the consent of any senior lender to KES Acquisition at thattime. In addition, the Notes are non-recourse to the assets ofYouthStream, except for the shares of capital stock of AcquisitionCorp. that have been pledged by YouthStream to the holders of theNotes. Pursuant to the terms of the transaction documentation inconnection with the Acquisition and the loan facility with GeneralElectric Capital Corporation, YouthStream and Acquisition Corp. arecurrently limited in their ability to receive cash distributions fromKES Acquisition.

The following pro forma operating data presentsthe results of operations for the three months ended June 30, 2005 and2004, as if the Acquisition had occurred on March 31, 2004 and 2003,respectively, and for the nine months ended June 30, 2005 and 2004, asif the Acquisition had occurred on September 30, 2004 and 2003,respectively. Accordingly, transaction costs of $280,773 and $1,073,727related to the KES Acquisition for the three months and nine monthsended June 30, 2005 are not included in the net loss from continuingoperations shown below. In addition, discontinued operations for thethree months and nine months ended June 30, 2004 are not included. TheMill commenced generating revenues in late January 2004. The pro formaresults are not necessarily indicative of the financial results thatmight have occurred had the Acquisition actually taken place on therespective dates, or of future results of operations. TheCompany's unaudited pro forma information is summarized asfollows:

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|                                           |  |                           |            |                          |  |        |            |         |  |        |            |         |  |        |             |         |  |  |
|-------------------------------------------|--|---------------------------|------------|--------------------------|--|--------|------------|---------|--|--------|------------|---------|--|--------|-------------|---------|--|--|
|                                      |  | ThreeMonths EndedJune 30, |            | Nine Months EndedJune30, |
|                                      |  | 2005                      |            | 2004                     |  | 2005   |            | 2004    |
| Netrevenues                               |  | $                         | 29,127,566 |                     |  | $      | 16,085,610 |    |  | $      | 82,865,614 |    |  | $      | 19,645,318  |    |
| Costofsales                               |  |                      | 27,239,391 |                     |  |   | 17,940,014 |    |  |   | 78,127,873 |    |  |   | 22,640,868  |    |
| Grossmargin(deficit)                      |  |                      | 1,888,175  |                     |  |   | (1,854,404 | )  |  |   | 4,737,741  |    |  |   | (2,995,550  | )  |
| Operatingincome(loss)                     |  |                      | 593,638    |                     |  |   | (2,873,047 | )  |  |   | 851,914    |    |  |   | (6,871,039  | )  |
| Interestexpense                           |  |                      | (2,293,501 | )                   |  |   | (1,812,720 | )  |  |   | (6,761,935 | )  |  |   | (5,039,536  | )  |
| Minorityinterest                          |  |                      | 236,391    |                     |  |   | 236,391    |    |  |   | 236,391    |    |  |   | 236,391     |    |
| Netloss from continuingoperations         |  | $                         | (1,449,312 | )                   |  | $      | (4,412,084 | )  |  | $      | (5,576,110 | )  |  | $      | (11,499,155 | )  |
| Basicand diluted net loss per commonshare |  | $                         | (0.04      | )                   |  | $      | (0.11      | )  |  | $      | (0.14      | )  |  | $      | (0.29       | )  |
| Weighted average common sharesoutstanding |  |                      | 39,242,251 |                     |  |   | 39,242,251 |    |  |   | 39,242,251 |    |  |   | 39,242,251  |    |
|                                           |

CriticalAccounting Policies:

The Company prepared its financialstatements in accordance with accounting principles generally acceptedin the United States. The preparation of these financial statementsrequires the use of estimates and assumptions that affect the reportedamounts of assets and liabilities and the disclosure of contingentassets and liabilities at the date of the financial statements and thereported amount of revenues and expenses during the reporting period.Management periodically evaluates the estimates and judgments made.Management bases its estimates and judgments on historical experienceand on various factors that are believed to be reasonable under thecircumstances. Actual results may differ from these estimates as aresult of different assumptions or conditions.

The followingcritical accounting policies affect the more significant judgments andestimates used in the preparation of the Company's financialstatements. In addition, as a result of the acquisition of the Millduring the nine months ended June 30, 2005, the Company adoptedadditional accounting policies as described at Note 2 to the condensedconsolidated financial statements.

RevenueRecognition:

The Company recognizes revenues when title passes,the earnings process is substantially complete, and the Company isreasonably assured of the collection of the proceeds from the exchange,all of which generally occur either upon shipment of theCompany's products or delivery of the product at the destinationspecified by the customer.

Accounts Receivable:

In order to determine the value of the Company's accountsreceivable, the Company records a provision for doubtful accounts tocover estimated credit losses. Management reviews and adjusts thisallowance periodically based on historical experience and itsevaluation of the collectibility of outstanding accounts receivable.The Company evaluates the credit risk of its customers utilizinghistorical data and estimates of future performance.

Inventories:

Inventories consist of raw materials,semi-finished goods and finished goods. Inventory costs includematerial, labor and manufacturing overhead. Inventories are valued atthe lower of average cost or market.

Impairment ofAssets:

The Company periodically evaluates its non-currentassets for potential impairment indicators. The Company'sjudgments regarding the potential impairment are based on legalfactors, market conditions and operational performance indicators,among others. Future events could cause us to conclude that impairmentindicators exist and that such assets (primarily investments, notesreceivable and fixed assets) are impaired.

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Income Taxes:

The Companyrecords a valuation allowance to reduce its deferred tax assets to theamount that is more likely than not to be realized. In the event theCompany was to determine that it would be able to realize its deferredtax assets in the future in excess of its recorded amount, anadjustment to the deferred tax assets would be credited to operationsin the period such determination was made. Likewise, should the Companydetermine that it would not be able to realize all or part of itsdeferred tax assets in the future, an adjustment to the deferred taxassets would be charged to operations in the period such determinationwas made.

Results of Operations:

The retail segmentoperations of Beyond the Wall have been presented as a discontinuedoperation in 2004. Accordingly, for the three months and nine monthsended June 30, 2004, the Company did not have any revenues or cost ofrevenues from continuing operations.

The refurbished Millrestarted operations in late January 2004 and completed its ramp-upphase and reached full operating status in August 2004. The Companyacquired the Mill effective February 28, 2005, and the operations ofthe Mill have been consolidated commencing March 1, 2005. Sales andcost of sales were generated by the operations of the Mill during 2005.The Company's results of operations for the three months endedJune 30, 2005 include the Mill's operations for three months(April through June 2005) and the Company's results of operationsfor the nine months ended June 30, 2005 include the Mill'soperations for four months (March through June 2005). As a result ofthe acquisition of the Mill, the Company's financial statementsfor periods ending after March 1, 2005 are materially different fromand are not comparable to its financial statements prior to thatdate.

Three Months Ended June 30, 2005 and 2004:

NetSales.    Net sales were $29,127,566 for the three months ended June30, 2005, an average of $9,709,189 per month, as compared to pro formanet sales of $16,085,610 for the three months ended June 30, 2004, anaverage of $5,361,870 per month. Average monthly net sales for thethree months ended June 30, 2005 were $4,347,319 or 81.1%greater than pro forma average monthly net sales for the three monthsended June 30, 2004.

Cost of Sales.    Cost of sales was$27,239,391 for the three months ended June 30, 2005, resulting ingross profit of $1,888,175 and a gross profit margin of 6.5%.Pro forma gross profit margin for the three months ended March 31, 2005was 4.4% and for the six months ended March 31, 2005 was5.3%. The improvement in gross profit margin for the threemonths ended June 30, 2005 as compared to the prior 2005 periods was aresult of various factors, including the utilization of lower costvendors for raw materials purchases, improved plant operatingefficiency and increased steel prices. Due to the restart of Milloperations in late January 2004, a comparison of 2004 cost of salesamounts to 2005 cost of sales amounts is not meaningful.

Selling, General and Administrative Expenses.    For the threemonths ended June 30, 2005, selling, general and administrativeexpenses were $1,294,537 or 4.4% of net sales. For the threemonths ended June 30, 2004, selling, general and administrativeexpenses were $155,202, which reflected corporate general andadministrative expenses, including management compensation, legal andaccounting fees and insurance costs.

Operating Income(Loss).    Operating income was $593,638 for the three months endedJune 30, 2005, as compared to an operating loss of $155,202 for thethree months ended June 30, 2004.

Interest Income.    Interestincome was $9,944 for the three months ended June 30, 2005, as comparedto $18,615 for the three months ended June 30, 2004.

InterestExpense.    For the three months ended June 30, 2005, interestexpense was $2,293,501, which included interest expense related to the8% notes payable of $787,696 and the 13% Series APreferred Stock of $801,621 issued in conjunction with the acquisitionof the Mill, and the 12% notes payable of $209,425. For thethree months ended June 30, 2004, interest expense was $10,416.

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Transaction Costs Related to KESAcquisition.    The Company incurred $280,773 of costs with respectto the acquisition of the Mill (primarily legal and accounting fees),which were charged to operations during the three months ended June 30,2005.

Other Income (Expense).    For the three months endedJune 30, 2005, other income was $4,216. There was no other income(expense) for the three months ended June 30, 2004.

Loss beforeIncome Taxes and Minority Interest.    The loss before income taxesand minority interest was $1,966,476 for the three months ended June30, 2005, as compared to $147,003 for the three months ended June 30,2004.

Income Taxes.    For the three months ended June 30,2004, the Company recorded a benefit from income taxes of $1,570. TheCompany did not record any provision for or benefit from income taxesfor the three months ended June 30, 2005.

Loss before MinorityInterest.    The loss before minority interest was $1,966,476 for thethree months ended June 30, 2005, as compared to $145,433 for the threemonths ended June 30, 2004.

Minority Interest.    For thethree months ended June 30, 2005, minority interest was $182,452,reflecting the minority interest's share in the loss ofYouthStream Acquisition Corp., an 80.01%-owned consolidatedsubsidiary.

Loss from Continuing Operations.    The loss fromcontinuing operations was $1,784,024 for the three months ended June30, 2005, as compared to $145,433 for the three months ended June 30,2004.

Loss from Discontinued Operations.    For the threemonths ended June 30, 2004, the Company had a loss from discontinuedoperations of $5,150, which related to the former operations of Beyondthe Wall.

Net Loss.    Net loss was $1,784,024 for the threemonths ended June 30, 2005, as compared $150,583 for the three monthsended June 30, 2004.

Nine Months Ended June 30, 2005 and2004:

Net Sales.    Net sales were $38,261,343 for the ninemonths ended June 30, 2005, an average of $9,565,336 per month. Proforma net sales were $82,865,614 for the nine months ended June 30,2005, an average of $9,207,290 per month, as compared to pro forma netsales of $19,645,318 for the nine months ended June 30, 2004, anaverage of $3,929,064 per month. Pro forma average monthly net salesfor the nine months ended June 30, 2005 were $5,278,226 or134.3% greater than pro forma average monthly net sales for thenine months ended June 30, 2004.

Cost of Sales.    Cost ofsales was $35,726,590 for the nine months ended June 30, 2005,resulting in gross profit of $2,534,753 and a gross profit margin of6.6%. Pro forma gross profit margin for the nine months endedJune 30, 2005 was 5.7%. Due to the restart of Mill operations inlate January 2004, a comparison of 2004 cost of sales amounts to 2005cost of sales amounts is not meaningful.

Selling, General andAdministrative Expenses.    For the nine months ended June 30, 2005,selling, general and administrative expenses were $2,005,752 or5.2% of sales. Selling, general and administrative expenses werehigher for the nine months ended June 30, 2005, at 5.2% of netsales, as compared to 4.4% of net sales for the three monthsended June 30, 2005, since the Company incurred corporate general andadministrative expenses during the entire nine months ended June 30,2005, but only had operating revenues for the last four months of thenine months ended June 30, 2005. For the nine months ended June 30,2004, selling, general and administrative expenses were $865,159, whichreflected corporate general and administrative expenses, includingmanagement compensation, legal and accounting fees and insurancecosts.

Operating Income.    Operating income was $529,001 forthe nine months ended June 30, 2005, as compared to an operating lossof $865,159 for the nine months ended June 30, 2004.

InterestIncome.    Interest income was $35,478 for the nine months ended June30, 2005, as compared to $30,063 for the nine months ended June 30,2004.

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Interest Expense.    For the nine monthsended June 30, 2005, interest expense was $3,097,102, which includedinterest expense related to the 8% notes payable of $1,056,032and the 13% Series A Preferred Stock of $1,074,700 issued inconjunction with the acquisition of the Mill, and the 12% notespayable of $280,767. For the nine months ended June 30, 2004, interestexpense was $31,014.

Transaction Costs Related to KESAcquisition.    The Company incurred $1,073,727 of costs with respectto the acquisition of the Mill (primarily legal and accounting fees),which were charged to operations during the nine months ended June 30,2005. Included in such costs was $187,702 of transaction costs incurredby KES Acquisition prior to February 28, 2005.

Other Income(Expense).    For the nine months ended June 30, 2005, other expensewas $26,489. There was no other income (expense) for the nine monthsended June 30, 2004.

Loss before Income Taxes and MinorityInterest.    The loss before income taxes and minority interest was$3,632,839 for the nine months ended June 30, 2005, as compared to$866,110 for the nine months ended June 30, 2004.

IncomeTaxes.    For the nine months ended March 31, 2004, the Companyrecorded a benefit from income taxes of $13,683. The Company did notrecord any provision for or benefit from income taxes for the ninemonths ended June 30, 2005.

Loss before MinorityInterest.    The loss before minority interest was $3,632,839 for thenine months ended June 30, 2005, as compared to $852,427 for the ninemonths ended June 30, 2004.

Minority Interest.    For the ninemonths ended June 30, 2005, minority interest was $448,882, reflectingthe minority interest's share in the loss of YouthStreamAcquisition Corp., an 80.01%-owned consolidated subsidiary.

Loss from Continuing Operations.    The loss from continuingoperations was $3,183,957 for the nine months ended June 30, 2005, ascompared to $852,427 for the nine months ended June 30, 2004.

Loss from Discontinued Operations.    For the nine months endedJune 30, 2004, the Company had a loss from discontinued operations of$1,303,647, which related to the former operations of Beyond the Wall.The loss from discontinued operations of $481,926 for the nine monthsended June 30, 2004 consisted of an operating loss of $981,926, offsetby a gain of $500,000 resulting from the reduction of a prior accrualwith respect to the closing of retail stores as a result of the Companycompleting settlements with landlords below what had been originallyaccrued. The Company also had a loss on the disposal of discontinuedoperations of $821,721 for the nine months ended June 30, 2004, as aresult of the sale of the assets and operations of Beyond the Wall inFebruary 2004.

Net Loss.    Net loss was $3,183,957 for thenine months ended June 30, 2005, as compared $2,156,074 for the ninemonths ended June 30, 2004.

Liquidity and Capital Resources– June 30, 2005:

On March 9, 2005, YouthStream completedthe acquisition of the Mill. YouthStream owns 80.01% of thecommon stock, and 100% of the voting stock, of Acquisition Corp,which owns, directly and indirectly, 100% of KES Acquisition,the legal entity that owns and operates the Mill. Accordingly,YouthStream has consolidated the operations of the Mill commencingMarch 1, 2005. As a result of this transaction, the Company'sfinancial statements for periods ending after March 1, 2005 arematerially different from and are not comparable to the its financialstatements prior to that date.

The Company utilizedsubstantially all of its available cash resources to complete theacquisition of the Mill, including its contribution of an aggregate of$500,000 of cash to Acquisition Corp. and the payment of the costsrelated to the transaction. Accordingly, the Company requiresadditional operating capital to fund corporate general andadministrative expenses, which it is attempting to obtain through bothinternal and external resources. The Mill relies on cash flows fromoperations to support a line of credit with General Electric CapitalCorporation to fund its separate operations. Subsequent to June 30,2005, the operating performance of the steel mini-mill has improved andthe Company has been able to increase borrowing availability under itsline of credit with General Electric Capital Corporation.

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As of June 30, 2005, the balanceoutstanding on the line of credit was $17,030,778, which has beenpresented as a current liability in the consolidated balance sheet atsuch date due to continuing uncertainty with respect to theCompany's ability to maintain compliance with the minimum fixedcharge coverage ratio. At March 31, 2005, KES Acquisition was not incompliance with the fixed charge coverage ratio, in part relating tochanges to its accounting procedures as a result of the review of itsfinancial statements conducted in conjunction with its acquisition byYouthStream, and has since received a waiver of default from thelender. KES Acquisition was in compliance with the fixed chargecoverage ratio at June 30, 2005. In the event that KES Acquisition isnot in compliance with the fixed charge coverage ratio in any futureperiod, the Company will seek a further waiver of any default from thelender, and if no such waiver is received, the lender would have theright to accelerate the maturity of the line of credit.

To theextent that the Mill generates taxable income in the future, the TaxSharing Agreement with Acquisition Corp. and Atacama KES will generatecash payments to YouthStream equal to 50% of their respective"separate company tax liability". At June 30,2005, the estimated tax sharing payment due to YouthStream wasapproximately $77,000. YouthStream has approximately $250,000,000 offederal net operating loss carryovers currently available to offset anyfederal income tax liability of Acquisition Corp and Atacama KESsubsequent to February 28, 2005. YouthStream expects that its federalnet operating loss carryovers will be sufficient to absorb most of anyfuture federal income tax liability of Acquisition Corp. and AtacamaKES.

The Mill restarted operations in January 2004 after beingacquired by the previous owners, and has incurred losses untilrecently. The long-term economic viability of the Mill and its abilityto fund its operations and debt service requirements, includingmaintaining compliance with various debt covenants and servicing theinterest and principal obligations on the Notes and the dividends andredemption features on the 13% Series A Preferred Stock issuedin connection with the acquisition of the Mill, is dependent on variousinternal and external factors, including the Mill's ability tooperate on a sustained basis at 80% or more of its annualcapacity of 240,000 tons per year, as currently configured. To theextent that the Mill is not able to maintain this operating threshold,the ability of the Mill to generate sufficient cash flows to fund itsoperations and debt service requirements and maintain compliance withvarious debt covenants may be impaired. In such event, the Company mayhave to consider a formal or informal restructuring or reorganization,including a sale or other disposition of its assets.

OperatingActivities.    During the nine months ended June 30, 2005, theCompany used $2,737,735 of cash in operating activities, both to fundthe corporate overhead of YouthStream for the nine months ended June30, 2005 and to fund the operations of the Mill for a period of fourmonths from the date of acquisition through June 30, 2005. During thenine months ended June 30, 2004, the Company used $968,122 of cash inoperating activities, primarily to fund its loss from continuingoperations of $852,427 for the nine months ended June 30, 2004, whichconsisted of corporate general and administrative expenses.

Investing Activities.    During the nine months ended June 30,2005, net cash provided by investing activities of $247,227 consistedof the October 31, 2004 scheduled principal payment of $197,734, plusaccrued interest of $49,493, on the note that the Company received inthe February 2004 sale of the assets and operations of Beyond the Wall.During the nine months ended June 30, 2004, net cash provided byinvesting activities of $1,220,000 consisted of the proceeds receivedfrom the sale of the Beyond the Wall assets and operations in February2004.

Financing Activities.    During the nine months endedJune 30, 2005, net cash provided by financing activities was$1,387,391, consisting of $1,410,683 from an increase in the line ofcredit with General Electric Capital Corporation, reduced by paymentson long-term debt of $23,292. During the nine months ended June 30,2004, the Company did not generate or use any cash in financingtransactions.

The Company acquired $913,194 of cash inconnection with the acquisition of KES Acquisition, LLC.

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Principal Commitments:

At June30, 2005, the Company's principal commitments consisted of thefollowing obligations:

|                                                                                                      |  |                       |             |                |  |                  |            |                 |  |              |            |        |  |        |           |        |  |        |            |        |  |  |
|------------------------------------------------------------------------------------------------------|--|-----------------------|-------------|----------------|--|------------------|------------|-----------------|--|--------------|------------|--------|--|--------|-----------|--------|--|--------|------------|--------|--|--|
|                                                                                                 |  | PaymentsDue by Period |
| Contractual cashobligations                                                                          |  | Total                 |             | Less than1year |  | Between2-3 years |            | Between4-5years |  | After5 years |
| Notes payable toinvestors                                                                            |  | $                     | 4,916,162   |           |  | $                | —    |            |  | $            | —    |   |  | $      | —   |   |  | $      | 4,916,162  |   |
| 12%subordinated promissory notespayable                                                              |  |                  | 7,000,000   |           |  |             | —    |            |  |         | 7,000,000  |   |  |   | —   |   |  |   | —    |   |
| 8%subordinated secured promissory notespayable                                                       |  |                  | 39,493,000  |           |  |             | —    |            |  |         | 18,493,000 |   |  |   | —   |   |  |   | 21,000,000 |   |
| Lineofcredit                                                                                         |  |                  | 17,030,778  |           |  |             | 17,030,778 |            |  |         | —    |   |  |   | —   |   |  |   | —    |   |
| Operatingleases                                                                                      |  |                  | 4,002,050   |           |  |             | 1,025,868  |            |  |         | 2,007,800  |   |  |   | 968,382   |   |  |   | —    |   |
| Equipmentcontactpayable                                                                              |  |                  | 267,931     |           |  |             | 75,302     |            |  |         | 192,629    |   |  |   | —   |   |  |   | —    |   |
| Managementservicesagreement                                                                          |  |                  | 3,033,333   |           |  |             | 700,000    |            |  |         | 1,400,000  |   |  |   | 1,108,333 |   |  |   | —    |   |
| 4%Series A Preferred Stock subject to mandatoryredemption                                            |  |                  | 5,269,333   |           |  |             | —    |            |  |         | —    |   |  |   | —   |   |  |   | 5,269,333  |   |
| 13%Series A Preferred Stock of subsidiary subject to mandatory redemption,excluding accrueddividends |  |                  | 25,807,700  |           |  |             | —    |            |  |         | 7,916,000  |   |  |   | 7,916,000 |   |  |   | 9,975,700  |   |
| Total                                                                                                |  | $                     | 106,820,287 |           |  | $                | 18,831,948 |            |  | $            | 37,009,429 |   |  | $      | 9,817,715 |   |  | $      | 41,161,195 |   |
|                                                                                                      |

AtJune 30, 2005, the Company does not have any material commitments forcapital expenditures.

At June 30, 2005, the Company has variousshort-term commitments for the purchase of materials, supplies andenergy arising in the ordinary course of business which aggregatedapproximately $6,900,000.

Off-Balance Sheet Arrangements:

The Company does not have any transactions, obligations orrelationships that could be considered off-balance sheet arrangementsat June 30, 2005.

Recent Accounting Pronouncements:

InDecember 2004, the FASB issued SFAS No. 123(Revised 2004),"Share-Based Payment". SFAS No. 123(R)revises SFAS No. 123, "Accounting for Stock-BasedCompensation" and supersedes APB Opinion No. 25,"Accounting for Stock Issued to Employees"and amends SFAS No. 95, "Statement of CashFlows". SFAS No. 123(R) focuses primarily on theaccounting for transactions in which an entity obtains employeeservices in share-based payment transactions. SFAS No. 123(R) requirescompanies to recognize in the statement of operations the cost ofemployee services received in exchange for awards of equity instrumentsbased on the grant-date fair value of those awards (with limitedexceptions). SFAS No. 123(R) is effective as of the Company'sfirst interim or annual reporting period that begins after December 15,2005. Accordingly, the Company will adopt SFAS No. 123(R) effectiveJanuary 1, 2006. The Company is currently evaluating the provisions ofSFAS No. 123(R) and has not yet determined the impact, if any, thatSFAS No. 123(R) will have on its financial statement presentation ordisclosures.

In November 2004, the FASB issued SFASNo.  151, "Inventory Costs  — AnAmendment of ARB No.  43, Chapter  4"(SFAS  No. 151). SFAS  No. 151 clarifies that abnormalamounts of idle facility expense, freight, handling costs and spoilageshould be expensed as incurred and not included in overhead. Further,SFAS  No. 151 requires that allocation of fixed and productionfacilities overhead to conversion costs should be based on normalcapacity of the production facilities. The provisions in SFASNo. 151 are effective for inventory costs incurred during fiscal yearsbeginning after June  15, 2005. Accordingly, the Company willadopt SFAS No. 151 effective October 1, 2005. The Company is currentlyevaluating the provisions of SFAS No. 151 and has not yet determinedthe impact, if any, that SFAS No. 151 will have on its financialstatement presentation or disclosures.

In December 2004, theFASB issued SFAS No.  153, "Exchanges of NonmonetaryAssets, an amendment to APB Opinion No. 29"("SFAS  153"). SFAS  No. 153amends Accounting Principles 

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Board Opinion No.  29,"Accounting for Nonmonetary Transactions", torequire that exchanges of nonmonetary assets be measured and accountedfor at fair value, rather than at carryover basis, of the assetsexchanged. Nonmonetary exchanges that lack commercial substance areexempt from this requirement. SFAS  No. 153 is effective fornonmonetary exchanges entered into in fiscal periods beginning afterJune  15, 2005. Accordingly, the Company will adopt SFAS No. 153effective July 1, 2005. The Company is currently evaluating theprovisions of SFAS  No. 153, and has not yet determined theimpact, if any, that it will have on the Company's financialstatement presentation ordisclosures.

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ITEM3.    CONTROLS AND PROCEDURES

(a) Evaluation of DisclosureControls and Procedures

The certifications of the principalexecutive officer and the principal financial officer (or personsperforming similar functions) required by Rules 13a-14 and 15d-14 ofthe Securities Exchange Act of 1934, as amended are filed as exhibitsto this report. This section of the report contains the informationconcerning the evaluation of the Company's disclosure controlsand procedures (as defined in Securities Exchange Act Rules 13a-15(e)and 15d-15(e)) and changes to internal controls over financialreporting (as defined in Securities Exchange Act Rules 13a-15(f) and15d-15(f)) referred to in the certifications and this informationshould be read in conjunction with the certifications for a morecomplete understanding of the topics presented herein.

Disclosure controls and procedures are designed to ensure thatinformation required to be disclosed in the reports filed or submittedby the Company under the Securities Exchange Act of 1934 is recorded,processed, summarized and reported, within the time periods specifiedin the rules and forms of the Securities and Exchange Commission.Disclosure controls and procedures include, without limitation,controls and procedures designed to ensure that information required tobe disclosed in the reports filed under the Securities Exchange Act of1934 is accumulated and communicated to management, including itsprincipal executive and financial officers, as appropriate, to allowtimely decisions regarding required disclosure.

The Companycarried out an evaluation, under the supervision and with theparticipation of its management, including its principal executive andfinancial officers, of the effectiveness of the design and operation ofthe Company's disclosure controls and procedures as of the end ofthe period covered by this report. Based upon and as of the date ofthat evaluation, the Company's principal executive and financialofficers concluded that there were material weaknesses in theaccounting and financial systems at the Company's steelmini-mill, which resulted in deficient disclosure controls andprocedures. The steel mini-mill was acquired effective February 28,2005, and its operations have been included in the consolidatedfinancial statements of the Company commencing March 1, 2005.Accordingly, as a result of this evaluation, the Company'sconsolidated financial reporting and disclosure controls were alsodetermined to have material weaknesses.

Specifically, the steelmini-mill lacks adequate accounting systems and controls and proceduresto process information for inclusion in the Company's reportsfiled with the Securities and Exchange Commission. Furthermore, thesteel mini-mill also lacks adequate accounting personnel in general andadequately trained accounting personnel in particular in order to beable to process and generate the required financial information to beincluded in the Company's consolidated financial statements on atimely basis. The Company has begun to address these issues byreviewing and revising its internal accounting policies and procedures,as necessary. The Company also intends to increase the resources andpersonnel allocated to the steel mini-mill's accountingdepartment. The Company expects that the resolution of these issueswill take several months.

(b) Changes in Internal Controls

There were no changes in the Company's internal controls or inother factors that could have significantly affected those controlssubsequent to the date of the Company's most recentevaluation.

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PART II. OTHER INFORMATION

ITEM1.    LEGAL PROCEEDINGS

Not applicable.

ITEM2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OFPROCEEDS

Not applicable.

ITEM 3.    DEFAULTS UPONSENIOR SECURITIES

Not applicable.

ITEM4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Notapplicable.

ITEM 5.    OTHER INFORMATION

Notapplicable.

ITEM 6.    EXHIBITS

A list of exhibitsrequired to be filed as part of this report is set forth in the Indexto Exhibits, which immediately precedes such exhibits, and isincorporated herein by reference.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) theSecurities Exchange Act of 1934, the registrant has caused this reportto be signed on its behalf by the undersigned, thereunto dulyauthorized.

|                         |  |                                            |  |        |  |  |  |  |  |  |
|-------------------------|--|--------------------------------------------|--|--------|--|--|--|--|--|--|
|                    |  | YOUTHSTREAMMEDIA NETWORKS,INC.(Registrant) |
| Date:September 30, 2005 |  | By: /s/ JONATHAN V.DIAMOND                 |
|                    |  | Jonathan V.Diamond                         |  |   |
|                    |  | Chief ExecutiveOfficer                     |  |   |
| Date:September 30, 2005 |  | By: /s/ ROBERT N.WEINGARTEN                |
|                    |  | Robert N.Weingarten                        |  |   |
|                    |  | Chief FinancialOfficer                     |  |   |
|                         |

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INDEX TOEXHIBITS

|        |  |                                                                                                                                                                                                       |        |        |  |  |
|--------|--|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--|--|
|   |  |                                                                                                                                                                                                  |   |   |
| 10.90  |  | Formof Promissory Note dated September 27, 2005 in the principal amount of$12,500                                                                                                                     |
|   |  |                                                                                                                                                                                                  |
| 10.91  |  | Payoffand Settlement Agreement, dated September 30, 2005, by and amongYouthStream Media Networks, Inc., Beyond the Wall, Inc., 1903 West MainStreet Realty Management, LLC and Clive Corporation,Inc. |
|   |  |                                                                                                                                                                                                  |
| 10.92  |  | LetterAgreement dated September 23, 2005 regarding 8% SubordinatedSecured PromissoryNotes                                                                                                             |
|   |  |                                                                                                                                                                                                  |
| 31.1   |  | Certificationof the Chief Executive Officer pursuant to Section 302 of theSarbanes-Oxley Act of2002                                                                                                   |
|   |  |                                                                                                                                                                                                  |
| 31.2   |  | Certificationof the Chief Financial Officer pursuant to Section 302 of theSarbanes-Oxley Act of2002                                                                                                   |
|   |  |                                                                                                                                                                                                  |
| 32.1   |  | Certificationof the Chief Executive Officer pursuant to Section 906 of theSarbanes-Oxley Act of2002                                                                                                   |
|   |  |                                                                                                                                                                                                  |
| 32.2   |  | Certificationof the Chief Financial Officer pursuant to Section 906 of theSarbanes-Oxley Act of2002                                                                                                   |
|        |

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