UNITEDSTATESSECURITIES AND EXCHANGECOMMISSIONWASHINGTON, D.C.20549

FORM 10-QSB/AAmendment No.1

|        |                                                                                  |
|--------|----------------------------------------------------------------------------------|
|   | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934 |

For the Quarterly PeriodEnded June  30,  2005

|        |                                                                                  |
|--------|----------------------------------------------------------------------------------|
|   | TRANSITIONREPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934 |

For the transition period from       to            

Commission file number: 0-27556

YOUTHSTREAM MEDIANETWORKS, INC.

(Exact name of small businessissuer as specified in itscharter)

|                                                                         |  |                                                    |  |  |  |  |
|-------------------------------------------------------------------------|--|----------------------------------------------------|--|--|--|--|
| **Delaware**(Stateor other jurisdiction ofincorporation ororganization) |  | **13-4082185**(I.R.S.EmployerIdentificationNumber) |
| **244 MadisonAvenue, PMB #358, New York, NewYork**                      |  | **10016**                                          |
| (Addressof principal executive offices)                                 |  | (ZipCode)                                          |
|                                                                         |

(212) 883-0083(Issuer’stelephone number, including area code)

Notapplicable(Former name, former address and former fiscal year,if changed since last report.)

Check whether theissuer (1) filed all reports required to be filed by Section 13 or15(d) of the Exchange Act during the past 12 months (or such shorterperiod that the issuer was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.Yes [   ]   No [x]

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

Asof February  28,  2006, the issuer had 39,242,251 shares ofcommon stock, $0.01 par value, issued andoutstanding.

Transitional Small Business DisclosureFormat. Yes[   ]   No [x]

Documentsincorporated by reference: None.

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YOUTHSTREAMMEDIA NETWORKS, INC. AND SUBSIDIARIES

EXPLANATORYNOTES

This Amendment No. 1 to the Company’sQuarterly Report on Form 10-QSB for the quarterly period endedJune  30,  2005 reflects changes to the June30,  2005 consolidated financial statements as a result of adetermination by management to re-characterize a lease for certainequipment utilized by KES Acquisition Company, LLC (which was acquiredby the Company effective March  1,  2005) as a capitallease rather than an operating lease. The Company also recordedadditional interest expense with respect to notes payable of $10,000and $20,000 for the three months and nine months ended June30,  2005, respectively. These adjustments did not have asignificant effect on the Company’s results of operations orcash flows. The Company also made several minor changes and revisionsto improve various disclosures. Except as required to reflect thechanges and revisions noted above, this Form 10-QSB/A does notattempt to modify or update any other disclosures as set forth in thedocument as originally filed. Additionally, except with respect to thedisclosure set forth in Part II, Item 3 hereto, thisForm 10-QSB/A does not purport to provide a general update ordiscussion of any other developments at the Company subsequent to theoriginal filing. The filing of this Form 10-QSB/A shall not bedeemed an admission that the original filing, when made, included anyuntrue statement of material fact or omitted to state a material factnecessary to make a statement not misleading.

The Companyelected to file a Quarterly Report on Form 10-QSB beginning with thequarterly period ended December  31,  2004, as the Companyqualified as a Small Business Issuer in accordance with Regulation S-B,and will file its subsequent periodic reports under Regulation S-B.

This Quarterly Report on Form 10-QSB/A for the quarterlyperiod ended June  30,  2005 contains‘‘forward-looking statements’’ within themeaning of Section 27A of the Securities Act of 1933, as amended,including statements that include the words‘‘believes’’,‘‘expects’’,‘‘anticipates’’, or similar expressions.These forward-looking statements include, but are not limited to,statements concerning the Company’s expectations regarding itsbusiness, growth prospects, revenue trends, operating costs, workingcapital requirements, 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/A for the quarterly period ended June30,  2005 involve known and unknown risks, uncertainties andother factors that could cause the actual results, performance orachievements of the Company to differ materially from those expressedin or implied by the forward-looking statements contained herein.Except as required by applicable law or regulation, the Companyundertakes no obligation to revise or update these forward-lookingstatements to reflect any future events orcircumstances.

2

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INDEX

|                                                                                                                                  |  |                    |  |  |  |  |
|----------------------------------------------------------------------------------------------------------------------------------|--|--------------------|--|--|--|--|
|                                                                                                                             |  | **Page****Number** |
| **PART I.    FINANCIALINFORMATION**                                                                          |  |               |
| ITEM1.    FINANCIALSTATEMENTS                                                                                |  |               |
| Condensed ConsolidatedBalance Sheets —June  30,  2005 (Unaudited) andSeptember  30,2004                                    |  | 4                  |
| Condensed ConsolidatedStatements of Operations (Unaudited) —Three Months and NineMonths Ended June  30,  2005 and2004      |  | 5                  |
| Condensed ConsolidatedStatement of Stockholders’ Deficiency (Unaudited)—Nine Months Ended June  30,2005              |  | 6                  |
| Condensed ConsolidatedStatements of Cash Flows (Unaudited) —Nine Months EndedJune  30,  2005 and2004                       |  | 7                  |
| Notes to CondensedConsolidated Financial Statements (Unaudited) —Three Monthsand Nine Months Ended June  30,  2005 and2004 |  | 8                  |
| ITEM 2.    MANAGEMENT’SDISCUSSION AND ANALYSIS OR PLAN OFOPERATION                                     |  | 24                 |
| ITEM 3.    CONTROLS ANDPROCEDURES                                                                            |  | 35                 |
| **PARTII.    OTHER INFORMATION**                                                                             |  |               |
| ITEM1.    LEGAL PROCEEDINGS                                                                                  |  | 36                 |
| ITEM2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OFPROCEEDS                                         |  | 36                 |
| ITEM 3.    DEFAULTS UPONSENIOR SECURITIES                                                                    |  | 36                 |
| ITEM 4.    SUBMISSIONOF MATTERS TO A VOTE OF SECURITYHOLDERS                                                 |  | 36                 |
| ITEM 5.    OTHERINFORMATION                                                                                  |  | 36                 |
| ITEM6.    EXHIBITS                                                                                           |  | 36                 |
| SIGNATURES                                                                                                                       |  | 37                 |
|                                                                                                                                  |

3

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YOUTHSTREAM MEDIANETWORKS, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCESHEETS

|                                                                                                                                                                                                                                                                                                         |  |                                    |              |                  |  |        |              |         |  |  |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|------------------------------------|--------------|------------------|--|--------|--------------|---------|--|--|
|                                                                                                                                                                                                                                                                                                    |  | June30, 2005                       |              | September30,2004 |
|                                                                                                                                                                                                                                                                                                    |  | (Unaudited)(Restated–Note10) |              |             |
| 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                                                                                                                                                                                                                                                                        |  |                               | 5,750,286    |             |  |   | 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                                                                                                                                                                                                                                                                                             |  | $                                  | 36,503,657   |             |  | $      | 1,504,712    |    |
| LIABILITIESAND STOCKHOLDERS’DEFICIENCY                                                                                                                                                                                                                                                            |  |                               |         |             |  |   |         |    |
| Currentliabilities:                                                                                                                                                                                                                                                                                     |  |                               |         |             |  |   |         |    |
| Accountspayable                                                                                                                                                                                                                                                                                         |  | $                                  | 8,149,989    |             |  | $      | 910,074      |    |
| Accruedemployeecompensation                                                                                                                                                                                                                                                                             |  |                               | 225,948      |             |  |   | 225,948      |    |
| Accruedexpenses                                                                                                                                                                                                                                                                                         |  |                               | 1,443,265    |             |  |   | 752,043      |    |
| Lineofcredit                                                                                                                                                                                                                                                                                            |  |                               | 17,030,778   |             |  |   | —      |    |
| Currentportion of equipment contract payable and capital leaseobligation                                                                                                                                                                                                                                |  |                               | 433,940      |             |  |   | —      |    |
| Currentliabilities of discontinuedoperations                                                                                                                                                                                                                                                            |  |                               | 2,470,741    |             |  |   | 2,498,468    |    |
| Totalcurrentliabilities                                                                                                                                                                                                                                                                                 |  |                               | 29,754,661   |             |  |   | 4,386,533    |    |
| Non-currentliabilities:                                                                                                                                                                                                                                                                                 |  |                               |         |             |  |   |         |    |
| Accruedinterest payable to relatedparties                                                                                                                                                                                                                                                               |  |                               | 1,930,059    |             |  |   | —      |    |
| Deferredrent                                                                                                                                                                                                                                                                                            |  |                               | 153,383      |             |  |   | —      |    |
| 4%note payable to related party, plus cumulativeinterest                                                                                                                                                                                                                                                |  |                               | 3,952,775    |             |  |   | 3,952,775    |    |
| 4%note payable 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 current portion                                                                                                                                                                                                                                                         |  |                               | 192,629      |             |  |   | —      |    |
| Capitallease obligation, less currentportion                                                                                                                                                                                                                                                            |  |                               | 1,410,393    |             |  |   |         |    |
| Preferred stockof subsidiary subject to mandatory redemption; issued and outstandingat 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 atJune  30,  2005 and September  30,  2004– 1,000,000 shares of Series A 4% cumulative,non-convertible, redeemable preferred stock, mandatory redemption andliquidation value of $4.00 per share, plus cumulativedividends |  |                               | 5,269,333    |             |  |   | 5,269,333    |    |
| Minorityinterest – relatedparties                                                                                                                                                                                                                                                                 |  |                               | —      |             |  |   | —      |    |
| Totalliabilities                                                                                                                                                                                                                                                                                        |  |                               | 115,927,320  |             |  |   | 14,570,077   |    |
| Commitmentsandcontingencies                                                                                                                                                                                                                                                                             |  |                               |         |             |  |   |         |    |
| Stockholders’deficiency:                                                                                                                                                                                                                                                                          |  |                               |         |             |  |   |         |    |
| Preferredstock, $0.01 par value; authorized – 5,000,000 shares; issued andoutstanding at June  30,  2005 and September30,  2004 – 1,000,000 shares of Series A preferred stock(classified in long-term liabilities as preferred stock subject tomandatoryredemption)                        |  |                               | —      |             |  |   | —      |    |
| Commonstock, $0.01 par value; authorized – 100,000,000 shares; issued– 39,849,751 shares; outstanding – 39,242,251 shares atJune  30,  2005 and September  30,2004                                                                                                                    |  |                               | 398,486      |             |  |   | 398,486      |    |
| Additionalpaid-incapital                                                                                                                                                                                                                                                                                |  |                               | 268,096,138  |             |  |   | 331,200,561  |    |
| Accumulateddeficit                                                                                                                                                                                                                                                                                      |  |                               | (347,088,711 | )           |  |   | (343,834,836 | )  |
| Treasurystock – 607,500 shares, atcost                                                                                                                                                                                                                                                            |  |                               | (829,576     | )           |  |   | (829,576     | )  |
| Totalstockholders’deficiency                                                                                                                                                                                                                                                                      |  |                               | (79,423,663  | )           |  |   | (13,065,365  | )  |
| Totalliabilities and stockholders’deficiency                                                                                                                                                                                                                                                      |  | $                                  | 36,503,657   |             |  | $      | 1,504,712    |    |
|                                                                                                                                                                                                                                                                                                         |

Seeaccompanying notes to condensed consolidated financialstatements.

4

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

|                                                                              |  |                            |            |                           |  |                          |            |         |  |        |            |         |  |        |            |         |  |  |
|------------------------------------------------------------------------------|--|----------------------------|------------|---------------------------|--|--------------------------|------------|---------|--|--------|------------|---------|--|--------|------------|---------|--|--|
|                                                                         |  | ThreeMonths Ended June 30, |            | Nine Months Ended June30, |
|                                                                         |  | 2005                       |            | 2004                      |  | 2005                     |            | 2004    |
|                                                                         |  | (Restated–Note 10)   |            |                      |  | (Restated –Note10) |            |    |
| NETSALES                                                                     |  | $                          | 29,127,566 |                      |  | $                        | —    |    |  | $      | 38,261,343 |    |  | $      | —    |    |
| COSTSANDEXPENSES                                                             |  |                       |       |                      |  |                     |       |    |  |   |       |    |  |   |       |    |
| Costofsales                                                                  |  |                       | 27,194,477 |                      |  |                     | —    |    |  |   | 35,666,705 |    |  |   | —    |    |
| Selling,general andadministrative                                            |  |                       | 1,294,537  |                      |  |                     | 155,202    |    |  |   | 2,005,752  |    |  |   | 865,159    |    |
|                                                                         |  |                       | 28,489,014 |                      |  |                     | 155,202    |    |  |   | 37,672,457 |    |  |   | 865,159    |    |
| Operatingincome(loss)                                                        |  |                       | 638,552    |                      |  |                     | (155,202   | )  |  |   | 588,886    |    |  |   | (865,159   | )  |
| OTHERINCOME(EXPENSE)                                                         |  |                       |       |                      |  |                     |       |    |  |   |       |    |  |   |       |    |
| Interestincome                                                               |  |                       | 9,944      |                      |  |                     | 18,615     |    |  |   | 35,478     |    |  |   | 30,063     |    |
| Interestexpense     13% Series A PreferredStock          |  |                       | (801,621   | )                    |  |                     | —    |    |  |   | (1,074,700 | )  |  |   | —    |    |
| Notespayable to relatedparties                                               |  |                       | (997,121   | )                    |  |                     | —    |    |  |   | (1,336,799 | )  |  |   | —    |    |
| Other                                                                        |  |                       | (573,146   | )                    |  |                     | (10,416    | )  |  |   | (797,455   | )  |  |   | (31,014    | )  |
| Transactioncosts related to KESacquisition                                   |  |                       | (280,773   | )                    |  |                     | —    |    |  |   | (1,073,727 | )  |  |   | —    |    |
| Otherincome (expense),net                                                    |  |                       | 4,216      |                      |  |                     | —    |    |  |   | (26,489    | )  |  |   | —    |    |
| Otherincome (expense),net                                                    |  |                       | (2,638,501 | )                    |  |                     | 8,199      |    |  |   | (4,273,692 | )  |  |   | (951       | )  |
| LOSSBEFORE INCOME TAXES AND MINORITYINTEREST                                 |  |                       | (1,999,949 | )                    |  |                     | (147,003   | )  |  |   | (3,684,806 | )  |  |   | (866,110   | )  |
| Incometaxbenefit                                                             |  |                       | —    |                      |  |                     | 1,570      |    |  |   | —    |    |  |   | 13,683     |    |
| LOSSBEFORE MINORITYINTEREST                                                  |  |                       | (1,999,949 | )                    |  |                     | (145,433   | )  |  |   | (3,684,806 | )  |  |   | (852,427   | )  |
| MINORITYINTEREST – relatedparties                                      |  |                       | 162,820    |                      |  |                     | —    |    |  |   | 430,931    |    |  |   | —    |    |
| LOSSFROM CONTINUINGOPERATIONS                                                |  |                       | (1,837,129 | )                    |  |                     | (145,433   | )  |  |   | (3,253,875 | )  |  |   | (852,427   | )  |
| LOSSFROM DISCONTINUEDOPERATIONS                                              |  |                       |       |                      |  |                     |       |    |  |   |       |    |  |   |       |    |
| Discontinuedoperations                                                       |  |                       | —    |                      |  |                     | (5,150     | )  |  |   | —    |    |  |   | (481,926   | )  |
| Disposalof discontinuedoperations                                            |  |                       | —    |                      |  |                     | —    |    |  |   | —    |    |  |   | (821,721   | )  |
| LOSSFROM DISCONTINUEDOPERATIONS                                              |  |                       | —    |                      |  |                     | (5,150     | )  |  |   | —    |    |  |   | (1,303,647 | )  |
| NETLOSS                                                                      |  | $                          | (1,837,129 | )                    |  | $                        | (150,583   | )  |  | $      | (3,253,875 | )  |  | $      | (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.

5

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YOUTHSTREAM MEDIANETWORKS, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENT OFSTOCKHOLDERS’ DEFICIENCY (UNAUDITED)NINE MONTHS ENDED JUNE30, 2005(Restated — Note10)

|                                                                                                            |  |             |            |                          |  |                    |         |               |  |        |             |         |  |        |              |         |  |        |          |         |  |        |             |         |  |  |
|------------------------------------------------------------------------------------------------------------|--|-------------|------------|--------------------------|--|--------------------|---------|---------------|--|--------|-------------|---------|--|--------|--------------|---------|--|--------|----------|---------|--|--------|-------------|---------|--|--|
|                                                                                                       |  | 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 |  |        | —    |                     |  |               | — |          |  |   | (63,104,423 | )  |  |   | —      |    |  |   | —  |    |  |   | (63,104,423 | )  |
| Netloss                                                                                                    |  |        | —    |                     |  |               | — |          |  |   | —     |    |  |   | (3,253,875   | )  |  |   | —  |    |  |   | (3,253,875  | )  |
| Balancesat June  30,2005                                                                                   |  |        | 39,849,751 |                     |  | $                  | 398,486 |          |  | $      | 268,096,138 |    |  | $      | (347,088,711 | )  |  | $      | (829,576 | )  |  | $      | (79,423,663 | )  |
|                                                                                                            |

Seeaccompanying notes to condensed consolidated financialstatements.

6

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

|                                                                                                    |  |                           |            |         |  |        |                                                         |         |  |  |
|----------------------------------------------------------------------------------------------------|--|---------------------------|------------|---------|--|--------|---------------------------------------------------------|---------|--|--|
|                                                                                               |  | NineMonths EndedJune30,   |
|                                                                                               |  | 2005                      |            | 2004    |
|                                                                                               |  | (Restated–(Note 10) |            |    |
| CASH FLOWSFROM OPERATING ACTIVITIES                                                                |  |                      |       |    |  |   |                                                    |    |
| Netloss                                                                                            |  | $                         | (3,253,875 | )  |  | $      | (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                                                | )  |
| Depreciationandamortization                                                                        |  |                      | 245,452    |    |  |   | 14,941                                                  |    |
| Amortizationof original issue discount on subordinatednotes                                        |  |                      | 1,951      |    |  |   | 1,015                                                   |    |
| Amortizationof loancosts                                                                           |  |                      | 152,456    |    |  |   | —                                                 |    |
| Write-offof fixedassets                                                                            |  |                      | 20,430     |    |  |   | —                                                 |    |
| Write-offof KES acquisition costs                                                                  |  |                      | 362,846    |    |  |   | —                                                 |    |
| Minorityinterest – relatedparties                                                            |  |                      | (430,931   | )  |  |   | —                                                 |    |
| Changesin operating assets and liabilities, net of effect of KESacquisition:                       |  |                      |       |    |  |   |                                                    |    |
| (Increase)decrease in–                                                                       |  |                      |       |    |  |   |                                                    |    |
| Accountsreceivable,net                                                                             |  |                      | (2,202,051 | )  |  |   | —                                                 |    |
| Inventories                                                                                        |  |                      | 3,294,122  |    |  |   | —                                                 |    |
| Accruedinterestreceivable                                                                          |  |                      | (31,259    | )  |  |   | (27,297                                                 | )  |
| Prepaidexpenses                                                                                    |  |                      | (258,264   | )  |  |   | 153,067                                                 |    |
| Increase(decrease) in–                                                                       |  |                      |       |    |  |   |                                                    |    |
| Accountspayable                                                                                    |  |                      | (2,326,412 | )  |  |   | (48,519                                                 | )  |
| Accruedemployeecompensation                                                                        |  |                      | —    |    |  |   | (24,778                                                 | )  |
| Accruedinterestpayable                                                                             |  |                      | 2,411,499  |    |  |   | —                                                 |    |
| Accruedexpenses                                                                                    |  |                      | (575,794   | )  |  |   | 15,350                                                  |    |
| Deferredrent                                                                                       |  |                      | (12,030    | )  |  |   | —                                                 |    |
| NETCASH USED IN OPERATINGACTIVITIES                                                                |  |                      | (2,629,587 | )  |  |   | (968,122                                                | )  |
| CASHFLOWS FROM INVESTINGACTIVITIES                                                                 |  |                      |       |    |  |   |                                                    |    |
| Proceeds from sale ofBTWassets                                                                     |  |                      | —    |    |  |   | 820,000                                                 |    |
| Principaland interest payments on notereceivable                                                   |  |                      | 247,227    |    |  |   | 400,000                                                 |    |
| NETCASH PROVIDED BY INVESTINGACTIVITIES                                                            |  |                      | 247,227    |    |  |   | 1,220,000                                               |    |
| CASHFLOWS FROM FINANCINGACTIVITIES                                                                 |  |                      |       |    |  |   |                                                    |    |
| Net increase in line ofcredit                                                                      |  |                      | 1,410,683  |    |  |   | —                                                 |    |
| Principalpayments on equipment contract payable and capital leaseobligation                        |  |                      | (131,440   | )  |  |   | —                                                 |    |
| NETCASH PROVIDED BY FINANCINGACTIVITIES                                                            |  |                      | 1,279,243  |    |  |   | —                                                 |    |
| 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 FLOWINFORMATION                                                                   |  |                      |       |    |  |   |                                                    |    |
| Cash paidfor–                                                                                |  |                      |       |    |  |   |                                                    |    |
| Interest                                                                                           |  | $                         | 777,455    |    |  | $      | —                                                 |    |
| Incometaxes                                                                                        |  | $                         | —    |    |  | $      | —                                                 |    |
| NON-CASHINVESTING AND FINANCINGACTIVITIES                                                          |  |                      |       |    |  |   |                                                    |    |
| Preferred stock issuedin connection with acquisition of KES Acquisition Company,LLC                |  | $                         | 24,733,000 |    |  | $      | —                                                 |    |
| Notespayable issued in connection with acquisition of KES AcquisitionCompany,LLC                   |  | $                         | 39,493,000 |    |  | $      |         — |    |
| Non-cashassets acquired in connection with acquisition of KES AcquisitionCompany,LLC               |  | $                         | 37,019,827 |    |  | $      | —                                                 |    |
| Liabilitiesassumed in connection with acquisition of KES Acquisition Company,LLC                   |  | $                         | 36,255,513 |    |  | $      | —                                                 |    |
| Deemeddistribution to sellers of KES Acquisition Company, LLC in excess ofpredecessor’sbasis |  | $                         | 63,104,423 |    |  | $      | —                                                 |    |
| Loanfees capitalized and added to noteprincipal                                                    |  | $                         | 125,000    |    |  | $      | —                                                 |    |
|                                                                                                    |

Seeaccompanying notes to condensed consolidated financialstatements.

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YOUTHSTREAM MEDIANETWORKS, INC. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS (UNAUDITED)THREE MONTHS AND NINE MONTHS ENDEDJUNE 30, 2005 AND 2004

1.    Organization and Basis ofPresentation

Basis ofPresentation

The accompanying condensed consolidatedfinancial statements include the accounts of YouthStream MediaNetworks, Inc. (‘‘YouthStream’’),and its direct and indirect wholly and majority-owned subsidiaries:Network Event Theater, Inc.(‘‘NET’’), American PassageMedia, Inc. (‘‘American Passage’’),Beyond the Wall, Inc. (‘‘Beyond theWall’’ or ‘‘BTW’’), andW3T.com, Inc. (‘‘Teen.com’’) (allinactive); and, commencing March  1,  2005, YouthStreamAcquisition Corp. (‘‘Acquisition Corp.’’),Atacama KES Holding Corporation (‘‘AtacamaKES’’) and KES Acquisition Company, LLC(‘‘KES Acquisition’’) (see Note 2)(collectively, the ‘‘Company’’).

The condensed consolidated financial statements have beenprepared in accordance with generally accepted accounting principles inthe United States of America. All intercompany items and transactionshave been eliminated in consolidation.

During fiscal 2001,the Company reorganized into two market segments: media andretail.

On August  5,  2002, the Company soldsubstantially all of its remaining media assets and assigned certainliabilities of its NET and American Passage subsidiaries to Alloy, Inc.and ceased operating the media segment.

On February25,  2004, the Company sold the assets and operations of itsBeyond the Wall subsidiary and ceased operating the retail segment.Beyond the Wall had been engaged in the sale of decorative wall postersthrough on-campus sales events, retail stores and internet sales,primarily to teenagers and young adults. During the period fromOctober  1,  2003 through February  25,  2004,Beyond the Wall operated 17 stores in 12 states, plus Washington, D.C.,throughout the East and mid-West, as well as a warehouse anddistribution center in Stroudsburg, Pennsylvania, and was theCompany’s only revenue-generating business operation. Theconsolidated financial statements for the nine months ended June30,  2004 present Beyond the Wall’s operations as adiscontinued operation as a result of the disposal of its assets andoperations on February  25,  2004 (see Note 3).

Commencing March  1,  2005, the Company hasincluded the operations of a steel mini-mill located in Ashland,Kentucky in its consolidated financial statements (see Note 2), whichrepresents the only business segment in which the Company currentlyoperates.

The accompanying condensed consolidatedfinancial statements are unaudited, but in the opinion of management ofthe Company, contain all adjustments, which include normal recurringaccruals, necessary to present fairly the financial position atJune  30,  2005, the results of operations for the threemonths and nine months ended June  30,  2005 and 2004, andthe cash flows for the nine months ended June  30,  2005and 2004. The balance sheet as of September  30,  2004 isderived from the Company’s audited financial statements includedin the Company’s Annual Report on Form 10-K for the fiscal yearended September  30,  2004.

Certaininformation and footnote disclosures normally included in financialstatements that have been prepared in accordance with generallyaccepted accounting principles have been condensed or omitted pursuantto the rules and regulations of the Securities and Exchange Commission,although management of the Company believes that the disclosurescontained in these financial statements are adequate to make theinformation presented therein not misleading. For further information,refer to the financial statements and the notes thereto included in theCompany’s Annual Report on Form 10-K for the fiscal year endedSeptember  30,  2004 and the Quarterly Report on Form10-QSB/A for the quarterly period ended March  31,  2005,as filed 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 June30,  2005 are not necessarily indicative of the results ofoperations to be expected for the full fiscal year endingSeptember  30,  2005.

GoingConcern

The Company has incurred recurring operatinglosses since its inception. As of September  30,  2004, theCompany had an accumulated deficit of $343,834,836, astockholders' deficiency of $13,065,365, a working capitaldeficiency of $3,452,840, and had incurred a net loss and negative cashflows from operating activities for the year ended September30,  2004 of $2,365,620 and $901,443, respectively. As ofJune 30, 2005, the Company had an accumulated deficit of$347,088,711, a stockholders’ deficiency of $79,423,663 and hadincurred a net loss and negative cash flows from operating activitiesfor the nine months ended June  30,  2005 of $3,253,875 and$2,629,587, respectively. As of September  30,  2004 andJune  30,  2005, the Company had insufficient capital tofund all of its obligations on a consolidated basis. These conditionsraise substantial doubt about the Company’s ability to continueas a going concern. The consolidated financial statements do notinclude any adjustments to reflect the possible future effect of therecoverability and classification of assets or the amounts andclassifications of liabilities that may result from the outcome of thisuncertainty. The Company’s independent registered publicaccounting firm, in its report dated December  17,  2004,included an explanatory paragraph stating that the Company’srecurring losses and accumulated deficit, working capital deficiencyand negative cash flow, among other things, raise substantial doubtabout the Company’s ability to continue as a goingconcern.

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 theprevious owners, and has incurred losses until recently. For the threemonths and nine months ended June  30,  2005, operatingincome was $638,552 and $588,886, respectively, exclusive of interestexpense. The steel mini-mill relies on cash flows from operations tosupport a line of credit with General Electric Capital Corporation tofund 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.

The Company believes that its current internal and externalcash resources will be adequate to fund its operations throughSeptember  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 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 that suchefforts will ultimately be successful. The Company may financeany acquisitions through a combination of debt and/or equitysecurities.

RecentDevelopments:

During September  2005, the Companyborrowed $50,000 from certain directors under short-term unsecurednotes due December  31,  2005, with interest at 4%per annum, to fund corporate general and administrative expenses. Thenotes are subject to mandatory prepayment based on any proceedsreceived by the Company from, among other sources, the note that theCompany received from the sale of the assets and operations of Beyondthe Wall in February  2004 and any tax sharing payments under theTax Sharing Agreement, as described below. The Company repaid the notespayable to directors from the proceeds from the settlement of theBeyond the Wall note receivable, which were received onSeptember  30,  2005, as described below.

Forthe nine months ending September  30,  2005, AcquisitionCorp., KES Acquisition and Atacama KES are collectively required tohave, 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’’). For each of the fiscalyears 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 followingthe fiscal year ending September  30,  2005 in which theobligations under the Notes remain outstanding, Acquisition Corp., KESAcquisition and Atacama KES are collectively required to have, on aconsolidated basis, in excess of $3,000,000 of EBITDA for the sixmonths then ended. Effective September  23,  2005, theholders of the Notes executed an agreement to amend the Notes toeliminate the requirement that Acquisition Corp., KES Acquisition andAtacama KES collectively have, on a consolidated basis, in excess of$4,000,000 of EBITDA for the nine months ending September30,  2005.

On September  30,  2005, theCompany received a cash payment of $258,922 as settlement in full of anoutstanding note receivable with a balance, including accrued interest,of $271,686 at June  30,  2005. The Company had previouslyreceived the note in the sale of the assets and operations of Beyondthe Wall in February  2004 (see Note 3).

Stock-Based Compensation

The Companygenerally grants stock options to management and employees for a fixednumber of shares with an exercise price equal to or greater than thefair value of the shares at the date of grant. The Company accounts forstock option grants in accordance with 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 continuesto account for stock-based compensation in accordance with APB OpinionNo. 25 and has elected the pro forma disclosure alternative of SFAS No.123, as amended by SFAS No. 148 (see Note 5).

NetLoss Per Share

The Company calculates net loss per shareas required by SFAS No. 128, ‘‘Earnings perShare’’. Basic earnings per share excludes any dilutionfor common stock equivalents and is computed by dividing net loss bythe weighted average number of common shares outstanding during therelevant period. Diluted earnings per share reflects the potentialdilution that could occur if options or other securities or contractsentitling the holder to acquire shares of common stock were exercisedor converted, resulting in the issuance of additional shares of commonstock that would then share in earnings. However, diluted earnings pershare does not consider such dilution if its effect would beanti-dilutive. Accordingly, basic and diluted loss per share is thesame for all periods presented.

Recent AccountingPronouncements

In December  2004, the FASB issuedSFAS No. 123 (Revised 2004), ‘‘Share-BasedPayment’’. SFAS No. 123(R) revises SFAS No. 123,‘‘Accounting for Stock-Based Compensation’’and supersedes APB Opinion No. 25, ‘‘Accounting for StockIssued to Employees’’ and amends SFAS No. 95,‘‘Statement of Cash Flows’’. SFAS No.123(R) focuses primarily on the accounting for transactions in which anentity obtains employee services in share-based payment transactions.SFAS No. 123(R) requires companies to recognize in the statement ofoperations the cost of employee services received in exchange forawards of equity instruments based on the grant-date fair value ofthose awards (with limited exceptions). SFAS No. 123(R) is effective asof the Company’s first interim or annual reporting period thatbegins after December  15,  2005. Accordingly, the Companywill adopt SFAS No. 123(R) effective January  1,  2006. TheCompany is currently evaluating the provisions of SFAS No. 123(R) andhas not yet determined the impact, if any, that SFAS No. 123(R) willhave on its financial statement presentation ordisclosures.

In November  2004, the FASB issuedSFAS No. 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 

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conversion costs should be based on normalcapacity of the production facilities. The provisions inSFAS No. 151 are effective for inventory costs incurred duringfiscal years beginning after June 15, 2005. Accordingly, theCompany will adopt SFAS No. 151 effective October  1,2005. The Company is currently evaluating the provisions of SFAS No.151 and has not yet determined the impact, if any, that SFAS No. 151will have on its financial statement presentation ordisclosures.

In December  2004, the FASB issued SFASNo. 153, ‘‘Exchanges of Nonmonetary Assets, anamendment to APB Opinion No. 29’’(‘‘SFAS No. 153’’). SFAS No.153 amends Accounting Principles Board Opinion No. 29,‘‘Accounting for NonmonetaryTransactions’’, to require that exchanges of nonmonetaryassets be measured and accounted for at fair value, rather than atcarryover basis, of the assets exchanged. Nonmonetary exchanges thatlack commercial substance are exempt from this requirement.SFAS No. 153 is effective for nonmonetary exchanges entered intoin fiscal periods beginning after June 15, 2005. Accordingly,the Company will adopt SFAS No. 153 effective July  1,2005. The Company is currently evaluating the provisions ofSFAS No. 153, and has not yet determined the impact, if any,that it will have on the Company’s financial statementpresentation or disclosures.

2.    Acquisition of SteelMini-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 assetsof Kentucky Electric Steel, Inc., a Delaware company(‘‘KES’’), consisting of a steel mini-milllocated in Ashland, Kentucky (the‘‘Mill’’). On September 2, 2003, KESHoldings, through its subsidiary, KES Acquisition Company, LLC, aDelaware limited liability company (‘‘KESAcquisition’’), completed the acquisition of the Millpursuant to Section 363 of the United States Bankruptcy Code forcash consideration of $2,650,000, which was funded through thecontributions of the members of KES Holdings. Members’contributions were also used for start-up costs, working capitalpurposes and payment of deferred maintenance of the Mill. KES hadceased 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 hadbeen in operation for approximately forty years and was refurbished byKES Acquisition subsequent to its acquisition. The refurbishedMill has been generating revenues since late January  2004. Ascurrently configured, the Mill has an annual production capacity of240,000 tons of steel, and is currently operating at approximately80% of such annualized capacity. Management is focusing ondeveloping the business and improving operatingefficiencies.

The Mill produces bar flats that areproduced to a variety of specifications and fall primarily into twogeneral quality levels – merchant bar quality steel bar flats(‘‘MBQ Bar Flats’’) for generic types ofapplications, 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 Millmanufactures over 2,600 different Bar Flat items which are sold to theleaf-spring suspension market for light- and heavy-duty trucks,mini-vans and utility vehicles, cold drawn bar converters, certainspecialty applications for steel service centers, truck trailermanufacturers and other miscellaneous markets. The Mill wasspecifically designed to manufacture wider and thicker bar flats up tothree inches in thickness and twelve inches in width that are requiredby these markets. In addition, the Mill employs a variety of speciallydesigned equipment which is required in order to manufacture SBQ BarFlats to the specifications of the Mill’scustomers.

On March  9,  2005, YouthStreamcompleted the acquisition of KES Acquisition (the‘‘Acquisition’’), which was deemedeffective March  1,  2005. Pursuant to definitiveagreements executed with KES Holdings and Atacama Capital Holdings,Ltd., a British Virgin Islands company(‘‘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 theremaining 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 of13% Series A Non-Convertible Preferred Stock with an aggregateliquidation value of $25  million (the ‘‘13%Series A Preferred Stock’’) and (iii) 100% of itsauthorized shares of Series B Non-Voting Common Stock. With respect tothe $65,000,000 of purchase consideration, $19,000,000 of the Notes and$10,000,000 of the 13% Series A Preferred Stock were issued toKES Holdings and $21,000,000 of the Notes and $15,000,000 of the13% Series A Preferred Stock were issued to Atacama. YouthStreamalso contributed an aggregate of $500,000 of cash to Acquisition Corp.as consideration for the issuance by Acquisition Corp. of 100%of its 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 consolidatedbalance 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 theAcquisition, the Company’s financial statements for periodsending after March  1,  2005 are materially different fromand are not comparable to its financial statements prior to thatdate.

Subsequent to this transaction, the management ofthe Mill remained intact. This transaction did not result in any changein the Mill’s business operations or financial condition, and,other than as set forth herein, the working capital, operating cashflow, debt service obligations and credit profile of the Mill were notaffected in any way by this transaction.

As describedherein, the Notes and 13% Series A Preferred Stock were issuedby Acquisition 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 principalamount of Notes issued in favor of KES Holdings and (ii)February  2011 with respect to the $21,000,000 principal amountof Notes issued in favor of Atacama. In addition, the Notes requireadditional quarterly principal payments out of ‘‘freecash’’ as that term is defined in the Note PurchaseAgreement. The Notes bear interest at the rate of 8% per annum,payable annually during the first two years of the Note (or earlier ifconsented to by General Electric Capital Corporation or any othersenior lender) and quarterly thereafter. The obligations of AcquisitionCorp. under the Notes are secured by a limited guaranty by YouthStream,which guaranty is secured by and limited in recourse solely to a pledgeby YouthStream of all of its interest in Acquisition Corp. As ofJune  30,  2005, the balance outstanding on the Notes was$39,493,000, and related accrued interest payable was $1,056,032.

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

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before interest, taxes, depreciation andamortization, calculated in accordance with generally acceptedaccounting principles(‘‘EBITDA’’). For each of the fiscalyears ending on and after September  30, 2006, AcquisitionCorp., KES Acquisition and Atacama KES are collectively required tohave, on a consolidated basis, in excess of $7,200,000 ofEBITDA. At March  31 of each fiscal year followingthe fiscal year ending September  30,  2005 in which theobligations under the Notes remain outstanding, Acquisition Corp., KESAcquisition and Atacama KES are collectively required to have, on aconsolidated basis, in excess of $3,000,000 of EBITDA for the sixmonths then ended. Effective September  23,  2005, theholders of the Notes executed an agreement to amend the Notes toeliminate the requirement that Acquisition Corp., KES Acquisition andAtacama KES collectively have, on a consolidated basis, in excess of$4,000,000 of EBITDA for the nine months ending September30,  2005.

The holders of each share of 13%Series A Preferred Stock are entitled to receive a cumulative dividendat an annual rate of 13% of the sum of $1,000 and all accruedbut unpaid dividends. The 13% Series A Preferred Stock containsa liquidation preference equal to $1,000 per share, plus accrued butunpaid dividends, and is redeemable out of, and to the extent of,legally available funds, at a redemption price equal to the sum of$1,000 and all accrued but unpaid dividends on the earlier to occur of(i) any liquidation of Acquisition Corp. or (ii) the occurrence of anevent of default under the Note Purchase Agreement pursuant to whichthe Notes were issued. In addition, beginning with the secondanniversary of the initial issuance of the 13% Series APreferred Stock, Acquisition Corp. will be required to use‘‘free cash’’ (as that term is defined inthe Securities Purchase Agreement) to commence redeeming shares of13% Series A Preferred Stock in increments of at least$4,000,000, with limited exceptions.

Since the acquisitionof the Mill by the Sellers, the Mill has been operating under aManagement Services Agreement with Pinnacle Steel, LLC (the‘‘Pinnacle Agreement’’), which agreementremained in effect following the closing. The principals of PinnacleSteel LLC that manage the Mill have significant experience andexpertise in the steel industry. The Pinnacle Agreement will remain ineffect through January  31,  2009, subject to earliertermination or extension based on the financial performance of theMill. Pinnacle is entitled to a monthly management fee and a managementincentive fee as provided in the PinnacleAgreement.

Subsequent to the acquisition of the Mill bythe Sellers, 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 interest payablemonthly, subject to compliance with various agreements and covenants,with principal and interest due and payable upon the earlier to occurof (i) an event of default under the Loan and Security Agreement withGeneral Electric Capital Corporation or (ii) December  31,2006.

Related parties with respect to this transaction aresummarized as follows: Robert Scott Fritz, a director of YouthStream,is an investor in KES Holdings. Hal G. Byer, another director ofYouthStream, is an employee of affiliates of Libra/KES Investment I,LLC (collectively, ‘‘Libra’’), the Managerof KES Holdings and has an economic interest in KES Holdings throughhis relationship with Libra. Certain other affiliates of Libra are alsoinvestors in KES Holdings, including trusts for the benefit of JessM.  Ravich (the ‘‘Ravich Trusts’’)and certain of his family members. Mr.  Ravich is a principal ofLibra and holds 1,860,000 shares of YouthStream's common stockand warrants to purchase 500,000 shares of YouthStream's commonstock exercisable through August  31,  2008, as well as1,000,000 shares of YouthStream's redeemable preferred stock.Through his positions at Libra, Mr.  Ravich managed the businessof KES Acquisition through February  28,  2005.Subordinated Promissory Notes with a principal amount of $1,650,000 and$450,000 are payable to the Ravich Trusts and Libra, respectively.Mr.  Fritz and Mr.  Byer have each previously acquired anoption from the Ravich Trusts for $2,500 ($0.04 per share) to purchase62,500 shares of YouthStream's redeemable preferred stock issuedto the Ravich Trusts in January  2003, exercisable at $0.36 pershare until December  31,  2006 or earlier upon theoccurrence of certain events.

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The Acquisition was accounted foras a purchase in accordance with SFAS No. 141, ‘‘BusinessCombinations’’, and in accordance with Emerging IssuesTask Force (EITF) No. 88-16, ‘‘Basis in Leveraged BuyoutTransactions’’. As a result of the substantial andcontinuing relationships between YouthStream and the Sellers, includingthe significant influence retained by the Sellers over the operationsof the Mill, and the provisions of EITF 88-16 that must be consideredwhen determining the extent of fair value/predecessor basis to be usedin recording the transaction, the Acquisition has been recorded atpredecessor basis. Since the debt and equity held by the Sellersrepresented almost the entire amount of capital at risk both before andafter the Acquisition, the application of the ‘‘monetarytest’’ specified in Section 3 of EITF 88-16, which limitsthe portion of the purchase consideration that can be valued at fairvalue to the percentage of the total consideration that is monetary,was utilized by the Company in determining to record the transaction atpredecessor basis. The excess of the purchase price over predecessorbasis of the net assets acquired has been reflected as a deemeddistribution of $63,104,423 to the Sellers at the date of acquisitionin the consolidated financial statements.

For taxableperiods beginning after February  28,  2005, AcquisitionCorp. and Atacama KES are included in the consolidated federal incometax return filed by YouthStream as the commonparent. Acquisition Corp. and Atacama KES have entered into aTax Sharing Agreement with YouthStream, pursuant to which they haveagreed to pay YouthStream an amount equal to 50% of theirrespective ‘‘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 purchaseprice of $65,000,000, as well as the terms and conditions of the Notesand 13% 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.

|                                         |  |        |            |        |  |  |
|-----------------------------------------|--|--------|------------|--------|--|--|
| AssetsAcquired:                         |  |   |       |   |
| Cash                                    |  | $      | 913,194    |   |
| Accountsreceivable,net                  |  |   | 10,453,485 |   |
| Inventories                             |  |   | 18,762,218 |   |
| Prepaidexpenses and other currentassets |  |   | 904,271    |   |
| Property, plant andequipment, net       |  |   | 5,990,758  |   |
| Due fromYouthStream Acquisition Corp.   |  |   | 187,702    |   |
| Othernon-currentassets                  |  |   | 721,393    |   |
| Totalassetsacquired                     |  |   | 37,933,021 |   |
| LiabilitiesAssumed:                     |  |   |       |   |
| Accountspayable                         |  |   | 9,566,327  |   |
| Accruedexpenses                         |  |   | 1,267,016  |   |
| Accrued interestpayable                 |  |   | 593,260    |   |
| Deferredrent                            |  |   | 165,413    |   |
| Subordinated promissory notespayable    |  |   | 7,000,000  |   |
| Line ofcredit                           |  |   | 15,495,095 |   |
| Equipment contractpayable               |  |   | 291,223    |   |
|                                         |

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|                                                                                                     |  |        |             |         |  |  |
|-----------------------------------------------------------------------------------------------------|--|--------|-------------|---------|--|--|
| Capital leaseobligation                                                                             |  |   | 1,877,179   |    |
| Totalliabilitiesassumed                                                                             |  |   | 36,255,513  |    |
| Netassetsacquired                                                                                   |  |   | 1,677,508   |    |
| Adjustment torecognize minorityinterest                                                             |  |   | (331,981    | )  |
|                                                                                                |  | $      | 1,345,527   |    |
| Totalpurchase consideration, net of intercompany eliminations of2.67% interest held by KESHoldings: |  |   |        |    |
| 8%Subordinated secured promissory notespayable                                                      |  | $      | 39,493,000  |    |
| 13% SeriesA preferredstock                                                                          |  |   | 24,733,000  |    |
| Netpurchaseconsideration                                                                            |  |   | 64,226,000  |    |
| Minorityinterests inequity                                                                          |  |   | 223,950     |    |
| Adjustment torecord deemed distribution toSellers                                                   |  |   | (63,104,423 | )  |
|                                                                                                |  | $      | 1,345,527   |    |
|                                                                                                     |

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 December31,  2004 and September  30,  2004, the Companyincurred $335,146 and $175,144, respectively, of costs with respect tothe Acquisition, which were presented as deferred costs in theCompany’s consolidated balance sheets at such dates. These costswere included in the $1,073,727 of transaction costs related to the KESAcquisition charged to operations during the nine months endedJune  30,  2005.

Minority interest –related parties was $430,931 on February  28,  2005. ForMarch  2005, the net loss of Acquisition Corp. allocable to the19.99% minority shareholders was $268,111, which reducedminority interest – related parties to $162,820 at March31,  2005. For the three months ended June  30,2005, the net loss of Acquisition Corp. allocable to the 19.99%minority shareholders was $365,892, but the reduction to minorityinterest – related parties was limited to the balance atMarch  31,  2005 of $162,820. Accordingly, the remainder ofthe net loss of Acquisition Corp. allocable to the 19.99%minority shareholders for the three months ended June  30,2005 of $203,072 was included in the Company’s consolidatedstatement of operations for the three months ended June30,  2005, and will be recovered to the extent that AcquisitionCorp. generates net income in future periods.

Thefollowing pro forma operating data presents the results of operationsfor the three months ended June  30,  2005 and 2004, as ifthe Acquisition had occurred on March  31,  2005 and 2004,respectively, and for the nine months ended June  30,  2005and 2004, as if the Acquisition had occurred on September30,  2004 and 2003, respectively. Accordingly, transaction costsof $280,773 and $1,073,727 related to the KES Acquisition for the threemonths and nine months ended June  30,  2005 are notincluded in the net loss from continuing operations shown below. Inaddition, discontinued operations for the three months and nine monthsended June  30,  2004 are not included. The Mill commencedgenerating revenues in late January  2004. The pro forma resultsare not necessarily indicative of the financial results that might haveoccurred had the Acquisition actually taken place on the respectivedates, or of future results of operations. The Company’sunaudited pro forma information is summarized asfollows:

15

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|                                           |  |                            |            |                           |  |        |            |         |  |        |            |         |  |        |             |         |  |  |
|-------------------------------------------|--|----------------------------|------------|---------------------------|--|--------|------------|---------|--|--------|------------|---------|--|--------|-------------|---------|--|--|
|                                      |  | ThreeMonths Ended June 30, |            | Nine Months Ended June30, |
|                                      |  | 2005                       |            | 2004                      |  | 2005   |            | 2004    |
| Netrevenues                               |  | $                          | 29,127,566 |                      |  | $      | 16,085,610 |    |  | $      | 82,865,839 |    |  | $      | 19,645,318  |    |
| Costofsales                               |  |                       | 27,194,477 |                      |  |   | 17,925,043 |    |  |   | 77,993,132 |    |  |   | 22,625,896  |    |
| Grossmargin(deficit)                      |  |                       | 1,933,089  |                      |  |   | (1,839,433 | )  |  |   | 4,872,707  |    |  |   | (2,980,578  | )  |
| Operatingincome(loss)                     |  |                       | 638,552    |                      |  |   | (2,858,076 | )  |  |   | 1,066,767  |    |  |   | (6,856,067  | )  |
| Interestexpense                           |  |                       | (2,371,888 | )                    |  |   | (1,838,992 | )  |  |   | (7,075,831 | )  |  |   | (5,065,808  | )  |
| Minorityinterest                          |  |                       | 218,439    |                      |  |   | 218,439    |    |  |   | 218,439    |    |  |   | 218,439     |    |
| Netloss from continuingoperations         |  | $                          | (1,500,737 | )                    |  | $      | (4,441,336 | )  |  | $      | (5,693,104 | )  |  | $      | (11,528,406 | )  |
| Basicand diluted net loss per commonshare |  | $                          | (0.04      | )                    |  | $      | (0.11      | )  |  | $      | (0.15      | )  |  | $      | (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 futureperformance.

Inventories

Inventories are comprisedof raw materials (consisting of billets and scrap metal), semi-finishedgoods and finished goods. Inventory costs include material, labor andmanufacturing overhead. Inventories are valued at the lower of averagecost or market.

Property, Plant andEquipment

Property, plant and equipment are recorded atcost. Expenditures for routine maintenance and repairs are charged toexpense as incurred. Expenditures for equipment renewals andimprovements, which extend the useful life of an asset, arecapitalized. Certain equipment held under capital lease is classifiedas property, plant and equipment and the related obligation is recordedas a liability. Lease amortization is included in depreciationexpense.

Depreciation is provided on the straight-linemethod over the estimated useful lives of the assets, generally 3 to 20years for machinery and equipment, and 20 to 40 years for buildings andimprovements. Equipment under capital lease is amortized using thestraight-line method over the lease term.

Impairment ofLong-Lived Assets

Long-lived assets are evaluated forimpairment whenever events or changes in circumstances indicate thatthe carrying amount of an asset may not be recoverable in accordancewith SFAS No. 144, ‘‘Accounting for the Impairment orDisposal of Long-Lived Assets’’.

An asset isconsidered impaired if its carrying amount exceeds the future net cashflow the asset is expected to generate. If an asset is considered to beimpaired, the impairment to be recognized is measured by the amount bywhich the carrying amount of the asset exceeds its fair market value.The 

16

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recoverability of long-lived assets isassessed by determining whether the unamortized balances can berecovered through undiscounted future net cash flows of the relatedassets. The amount of impairment, if any, is measured based onprojected discounted future net cash flows using a discount ratereflecting the Company's average cost of capital.

LoanCosts

Direct costs and fees associated with theestablishment of debt financing are capitalized and amortized on astraight-line basis over the term of the underlying debt.

Revenue Recognition

The Company recognizes revenueswhen title passes, the earnings process is substantially complete, andthe Company is reasonably assured of the collection of the proceedsfrom the exchange, all of which generally occur either upon shipment ofthe Company’s products or delivery of the product at thedestination specified by the customer.

Shipping and HandlingFees and Costs

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 andrisks of ownership of the assets remain with the leasing company areaccounted for as operating leases. Rent payable under operating leasesis recorded in the statement of operations on a straight-line basisover the lease terms.

Income Taxes

The Companyaccounts for income taxes in accordance with SFAS No. 109,‘‘Accounting for Income Taxes’’. Under thismethod, deferred income taxes are provided for differences between thecarrying amounts of the Company's assets and liabilities forfinancial reporting purposes and the amounts used for income taxpurposes using expected tax rates in effect for the year in which thosetemporary differences are expected to be recovered or settled. KESAcquisition is treated as a limited liability company for federal andstate income taxes. Consequently, federal and state income taxes arenot provided for, but rather, are taxed to its solemember.

Asset Retirement Obligations

The Companyaccounts for its asset retirement obligations in accordance with SFASNo. 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 liabilitiesfor non-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 isself-insured for health care costs up to $25,000 per subscriberannually. Insurance coverage is carried for risks in excess of thisamount. The Company recognized self-insured health 

17

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care expense of approximately $462,000 and$584,000, for the three months and nine months ended June30,  2005, respectively. Estimated claims incurred but notreported were approximately $215,000 as of June  30,  2005,which are included in accrued liabilities in the consolidated balancesheet at June  30,  2005.

Fair Value of FinancialInstruments

The Company believes that the carrying valueof its cash, accounts receivable, accounts payable, accruedliabilities, and line of credit as of June  30,  2005approximates 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 Companyminimizes its credit risk by investing its cash and cash equivalentswith major banks and financial institutions located in the UnitedStates, as a result of which the Company believes that it had nominalrisk with respect to its concentration of balances in cash and cashequivalents at such date.

For the three months and ninemonths ended June  30,  2005, the Company has two suppliersthat account for approximately 81% of raw materials purchases,one providing approximately 43% and the other providingapproximately 38%, of which approximately $3,200,000 wasincluded in accounts payable at June  30,  2005. For thethree months and nine months ended June  30,  2005, theCompany has two customers that each accounted for 6% or more ofnet sales (aggregate 12%), of which approximately $2,200,000 wasincluded in accounts receivable at June  30,2005.

The Mill has been operating under a ManagementServices Agreement with Pinnacle Steel, LLC(‘‘Pinnacle’’) effective throughOctober  31,  2009 that provides for Pinnacle to provide,at its expense, employees to serve as the General Manager of the Milland provide oversight and general management of the operations of theMill, for which Pinnacle receives an annual fee of $700,000, payablemonthly, and bonus payments based on 16.6% of defined earningsbefore interest, taxes, depreciation and amortization(‘‘EBITDA’’) in excess of $4,500,000 forthe nine months ending September  30,  2005 and $6,000,000for the fiscal years ending September  30,  2006 andthereafter.

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 Companyleases a ladle metallurgy furnace facility under a capital leasearrangement and certain other machinery and equipment under anoperating lease. At June  30,  2005, future minimum annuallease payments under scheduled capital and operating leases that haveinitial or remaining non-cancelable terms in excess of one year are asfollows:

|                                         |  |              |           |                |  |        |           |        |  |  |
|-----------------------------------------|--|--------------|-----------|----------------|--|--------|-----------|--------|--|--|
| TwelveMonths Ending June 30,            |  | CapitalLease |           | OperatingLease |
| 2006                                    |  | $            | 600,000   |           |  | $      | 425,868   |   |
| 2007                                    |  |         | 600,000   |           |  |   | 415,163   |   |
| 2008                                    |  |         | 600,000   |           |  |   | 390,363   |   |
| 2009                                    |  |         | 500,000   |           |  |   | 390,363   |   |
| 2010                                    |  |         | —   |           |  |   | 78,019    |   |
| Totalminimumpayments                    |  |         | 2,300,000 |           |  | $      | 1,699,776 |   |
| Amountrepresentinginterest              |  |         | (530,969  | )         |  |   |      |   |
| Obligationsunder capitallease           |  |         | 1,769,031 |           |  |   |      |   |
| Obligations duewithin oneyear           |  |         | (358,638  | )         |  |   |      |   |
| Long-termobligations under capitallease |  | $            | 1,410,393 |           |  |   |      |   |
|                                         |

Equipmentrental expense under operating leases for the three months and ninemonths ended June  30,  2005 was $154,843 and $207,034,respectively.

18

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3.    DiscontinuedOperations

Effective February  25,  2004, theCompany’s wholly-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. The buyer had the right to make certain optional principalpre-payments on the Note by June  30,  2004, which wouldresult in the principal balance of the Note being adjusted downward, inexcess of such principal pre-payments, based on an agreed-upon slidingscale as set forth in the Note.

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

The Company initially recognized a loss of$564,921 with respect to this sale before taking into consideration theeffect of the $400,000 principal pre-payment made on April  30,2004. Inclusive of such payment, the effect of the acceleratedpayment credit and the back-end credit resulted in an additional lossof $256,800, which decreased the carrying value of the note receivablefrom $1,100,000 to $843,200 and increased the loss on the BTW sale from$564,921 to $821,721. The loss on the BTW sale was reported as aloss on the disposal of discontinued operations for the nine monthsended June  30, 2004. As a result of the sale, the retailsegment operations have been presented as a discontinued operation forthe three months and nine months ended June  30,  2004.

The Company’s unaudited net revenues and loss fromdiscontinued operations are summarized as follows:

|                                           |  |                            |                                                                                       |                          |  |        |                                                                                       |         |  |        |                                                                                       |        |  |        |            |         |  |  |
|-------------------------------------------|--|----------------------------|---------------------------------------------------------------------------------------|--------------------------|--|--------|---------------------------------------------------------------------------------------|---------|--|--------|---------------------------------------------------------------------------------------|--------|--|--------|------------|---------|--|--|
|                                      |  | ThreeMonths Ended June 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, theCompany has accrued liabilities of $2,470,741 and $2,498,468,respectively, remaining from its discontinued businesses. The accruedliabilities consist primarily of severance, lease payments and othercosts related to the operations of the discontinuedbusinesses.

4.    Inventories

Inventories arecomprised 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, theCompany issued an option to purchase 50,000 shares of common stock toits Chief Executive Officer, exercisable through October15,  2010 at $0.26 per share, which was the fair market value onthe date of issuance. The option was fully vested uponissuance.

19

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On June  3,  2004, theCompany issued an option to purchase 200,000 shares of common stock toa new director, exercisable through June  3,  2011 at $0.14per share, which was the fair market value on the date of issuance. Theoption was fully vested upon issuance.

On February15,  2005, the Company issued an option to purchase 200,000shares of common stock to new director, exercisable throughFebruary  15,  2012 at $0.30 per share, which was the fairmarket value on the date of issuance. The option vests over a 12-monthperiod in equal monthly installments beginning March  1,2005.

The Company accounts for stock-based employeecompensation in accordance with the provisions of Accounting PrinciplesBoard (‘‘APB’’) Opinion No. 25 andFASB Interpretation No. 44 (‘‘FIN44’’), ‘‘Accounting for CertainTransactions Involving Stock Compensation’’, and complieswith the disclosure requirements of SFAS No. 123,‘‘Accounting for Stock-BasedCompensation’’. Under APB No. 25, compensationexpense is recorded based on the difference, if any, between the fairvalue of the Company’s stock and the exercise price on themeasurement 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 method of such statement.The fair value for these options was estimated at the date of grantusing the Black-Scholes option-pricing model.

For thepurpose of pro forma disclosures, the estimated fair value of theoptions is amortized to operations over the vesting period of theoptions or the expected period of benefit. The Company’sunaudited pro forma information is summarized as follows:

|                                                                                                |  |                           |            |                          |  |        |          |         |  |        |            |         |  |        |            |         |  |  |
|------------------------------------------------------------------------------------------------|--|---------------------------|------------|--------------------------|--|--------|----------|---------|--|--------|------------|---------|--|--------|------------|---------|--|--|
|                                                                                           |  | ThreeMonths Ended June30, |            | Nine Months EndedJune30, |
|                                                                                           |  | 2005                      |            | 2004                     |  | 2005   |          | 2004    |
| Netloss attributable to common shares – asreported                                       |  | $                         | (1,837,129 | )                   |  | $      | (150,583 | )  |  | $      | (3,253,875 | )  |  | $      | (2,156,074 | )  |
| Add:Total stock-based compensation expense included in reported netloss                        |  |                      | —    |                     |  |   | —  |    |  |   | —    |    |  |   | —    |    |
| Deduct:Total stock-based compensation expense determined under fair valuemethod for all awards |  |                      | (13,500    | )                   |  |   | (25,000  | )  |  |   | (20,250    | )  |  |   | (28,000    | )  |
| Netloss – proforma                                                                       |  | $                         | (1,850,629 | )                   |  | $      | (175,583 | )  |  | $      | (3,274,125 | )  |  | $      | (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 asfollows:

|                              |  |              |           |                    |  |        |           |        |  |  |
|------------------------------|--|--------------|-----------|--------------------|--|--------|-----------|--------|--|--|
|                         |  | 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 thestock options and common stock purchase warrants was $0.18 per shareand $0.12 per share, respectively.

20

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6.    Property, Plant andEquipment

Property, plant and equipment consisted of thefollowing at June  30,  2005 and September30,  2004:

|                                         |  |              |           |                   |  |        |          |         |  |  |
|-----------------------------------------|--|--------------|-----------|-------------------|--|--------|----------|---------|--|--|
|                                    |  | June30, 2005 |           | September 30,2004 |
|                                    |  | (Unaudited)  |           |              |
| Land                                    |  | $            | 142,498   |              |  | $      | —  |    |
| Buildingsandimprovements                |  |         | 672,529   |              |  |   | —  |    |
| Machineryandequipment                   |  |         | 5,814,985 |              |  |   | —  |    |
| Officeequipment                         |  |         | —   |              |  |   | 140,068  |    |
| Total                                   |  |         | 6,630,012 |              |  |   | 140,068  |    |
| Accumulateddepreciation andamortization |  |         | (879,726  | )            |  |   | (114,658 | )  |
| Property,plant and equipment,net        |  | $            | 5,750,286 |              |  | $      | 25,410   |    |
|                                         |

Assetsrecorded under capitalized lease arrangements included in property,plant and equipment consist of thefollowing:

|                                         |  |               |           |                    |  |        |         |        |  |  |
|-----------------------------------------|--|---------------|-----------|--------------------|--|--------|---------|--------|--|--|
|                                    |  | March31, 2005 |           | September  30,2004 |
|                                    |  | (Unaudited)   |           |               |
| Machineryandequipment                   |  | $             | 2,101,730 |               |  | $      | — |   |
| Accumulateddepreciation andamortization |  |          | (455,375  | )             |  |   | — |   |
| Property,plant and equipment,net        |  | $             | 1,646,355 |               |  | $      | — |   |
|                                         |

Depreciationexpense for the three months ended June  30,  2005 and 2004was $179,417 and $4,981, respectively, and for the nine months endedJune  30,  2005 and 2004 was $245,452 and $14,941,respectively.

At December  31,  2004, inconjunction with the restructuring of its corporate and administrativeoffices, the Company wrote off the remaining balance of its officeequipment of $20,429.

7.    Non-CurrentLiabilities

Non-current liabilities assumed byYouthStream in conjunction with the acquisition of KES Acquisition (seeNote 2) are summarized below.

Subordinated Secured PromissoryNotes Payable to Related Parties

Subordinated securedpromissory notes payable consist of seven notes payable aggregating$7,000,000 issued by KES Acquisition to three related parties. Thenotes bear interest at 12% per annum, with interest payablemonthly, subject to compliance with various agreements and covenants,are secured by subordinated security interest in all of the assets ofKES Acquisition, and are subject to an Intercreditor and SubordinationAgreement 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, whichranged from March  31,  2005 to December  31,2005. As of June  30,  2005, all seven of the notes hadbeen extended to December  31,  2006. Proceeds from thesenotes were used to accelerate and expand the operations of the steelmini-mill. At June  30,  2005, accrued interest payablewith respect to the subordinated secured promissory notes payable was$874,027.

Line of Credit

Effective March24,  2004, KES Acquisition entered into a loan and securityagreement, as amended, with General Electric Capital Corporation. Underthe terms of the agreement, KES Acquisition has the ability to borrowup to $23,000,000, subject to limitations under the lender’sborrowing base formula and compliance with a minimum fixed chargecoverage ratio. Interest is payable monthly in arrears on theoutstanding principal balance at the index rate (defined as thethirty-day dealer 

21

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commercial paper rate) plus 5.5% perannum. The line of credit matures on March  24,  2007, andis secured by all of the assets of KES Acquisition and a pledge of (i)the membership interests of KES Acquisition owned by Acquisition Corp.and (ii) the capital stock of Atacama KES owned by Acquisition Corp. Asof June  30,  2005, the balance outstanding on the line ofcredit was $17,030,778, which has been presented as a current liabilityin the consolidated balance sheet at such date due to continuinguncertainty with respect to the Company’s ability to maintaincompliance with the minimum fixed charge coverage ratio.

At March  31,  2005, KES Acquisition was not incompliance with the fixed charge coverage ratio based on itsconsolidated financial statements as originally filed, in part relatingto changes to its accounting procedures as a result of the review ofits financial statements conducted in conjunction with its acquisitionby YouthStream (see Note 2), and subsequently received a waiver ofdefault from the lender. At June  30,  2005, KESAcquisition was in compliance with the fixed charge coverage ratiobased on its consolidated financial statements as originally filed.However, KES Acquisition was not in compliance with the fixed chargecoverage ratio at June  30,  2005 based on its consolidatedfinancial statements as revised (see Note 10). The Company intends toseek an amended waiver of default from the lender with respect to therestated March  31,  2005 consolidated financial statementsand a waiver of default from the lender with respect to the restatedJune  30,  2005 consolidated financial statements. If nosuch waivers are received, the lender would have the right toaccelerate the maturity of the line of credit.

In theevent that KES Acquisition is not in compliance with the fixed chargecoverage ratio in any future period, the Company intends to seek afurther waiver of any default from the lender, and if no such waiver isreceived, the lender would have the right to accelerate the maturity ofthe line of credit at that time.

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. The equipment contract payable is secured by the relatedequipment. As of June  30,  2005, the balance outstandingon the equipment contract payable was $267,931. Future scheduledprincipal payments on the equipment contract payable are summarized asfollows:

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

Capital LeaseObligation

The Company leases a ladle metallurgy furnacefacility under a capital lease arrangement requiring monthly paymentsof $50,000 per month for a term of 5 years commencing June1,  2004, reflecting a total obligation of $3,000,000. TheCompany has the option to renew the lease for an additional 5 years.The Company determined that the fair value of this asset at the date ofacquisition, calculated utilizing an effective interest rate of15% per annum, was $2,101,730. At March  31,  2005,future minimum annual lease payments under this capital leasearrangement are as follows:

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|                                         |  |        |           |         |  |  |
|-----------------------------------------|--|--------|-----------|---------|--|--|
| TwelveMonths Ending June30,             |  |   |
| 2006                                    |  | $      | 600,000   |    |
| 2007                                    |  |   | 600,000   |    |
| 2008                                    |  |   | 600,000   |    |
| 2009                                    |  |   | 500,000   |    |
| Totalminimum payments                   |  |   | 2,300,000 |    |
| Amountrepresentinginterest              |  |   | (530,969  | )  |
| Obligationsunder capital lease          |  |   | 1,769,031 |    |
| Obligationsdue within oneyear           |  |   | (358,638  | )  |
| Long-termobligations under capitallease |  | $      | 1,410,393 |    |
|                                         |

8.    LegalProceedings

From time to time the Company and/or itssubsidiary that owned its former operating business, Beyond the Wall,are defendants in various lawsuits and claims from various tradecreditors and former landlords. Certain of these claims are theresponsibility of the buyer of the Beyond the Wall business. TheCompany evaluates its response in each situation based on theparticular facts and circumstances of a claim. Accordingly, theultimate outcome of these matters cannot be determined at this time andmay ultimately result in judgments and liens against the Company or itsassets. The Company has made sufficient accruals for the exposurerelated to such matters that have been deemed probable and reasonablyestimable at June  30,  2005 and September 30,2004.

KES Acquisition has been named in a wrongful deathlawsuit in West Virginia with respect to an employee of a contractorwho 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 consolidatedlosses incurred to date.

At June  30,  2005,the Company had net operating loss carryovers for federal income taxpurposes of approximately $286,000,000 that expire from 2012 through2024. The use of approximately $36,000,000 of this net operating lossin future years may be restricted under Section 382 of the InternalRevenue Code. For financial reporting purposes, a 100% valuationallowance has been recognized to offset the net deferred tax assetprincipally related to the net operating loss carryovers for allperiods presented.

The Company is subject to periodicaudits by federal, state and local tax authorities for various taxliabilities incurred in prior periods from the parent entity and itssubsidiaries, including any discontinued businesses. The amount of anytax assessments and penalties may be material and may negatively impactthe Company's operations. Given the uncertainty in the amount andthe difficulty in estimating the probability of the assessments arisingfrom future tax audits, the Company has not made accruals for such taxcontingencies.

10.    Restatement

The Companyhas restated its June  30,  2005 consolidated financialstatements as a result of a determination by management tore-characterize a lease for certain equipment utilized by KESAcquisition Company, LLC (which was acquired by the Company effectiveMarch  1,  2005) as a capital lease rather than anoperating lease (see Note 7). The Company also recorded additionalinterest expense with respect to notes payable of $10,000 and $20,000for the three months and nine months ended June  30,  2005,respectively. These adjustments did not have a significant effect onthe Company’s results of operations or cashflows.

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These adjustments had thefollowing aggregate effect on the Company’s condensedconsolidated balance sheet at June  30,2005:

|                                                                                    |  |                       |              |            |  |        |              |         |  |  |
|------------------------------------------------------------------------------------|--|-----------------------|--------------|------------|--|--------|--------------|---------|--|--|
|                                                                               |  | June30, 2005          |
|                                                                               |  | AsOriginally Reported |              | AsAdjusted |
| Assets:                                                                            |  |                  |         |       |  |   |         |    |
| Currentassets                                                                      |  | $                     | 30,011,702   |       |  | $      | 30,011,702   |    |
| Property,plant and equipment,net                                                   |  |                  | 4,103,931    |       |  |   | 5,750,286    |    |
| Otherassets                                                                        |  |                  | 741,669      |       |  |   | 741,669      |    |
| Totalassets                                                                        |  | $                     | 34,857,302   |       |  | $      | 36,503,657   |    |
| Liabilitiesand Stockholders’Deficiency:                                      |  |                  |         |       |  |   |         |    |
| Currentliabilities                                                                 |  | $                     | 29,376,023   |       |  | $      | 29,754,661   |    |
| Non-currentliabilities                                                             |  |                  | 53,685,233   |       |  |   | 55,095,626   |    |
| Preferredstock of subsidiary subject tomandatory    redemption |  |                  | 25,807,700   |       |  |   | 25,807,700   |    |
| Preferredstock subject to mandatoryredemption                                      |  |                  | 5,269,333    |       |  |   | 5,269,333    |    |
| Minorityinterest – relatedparties                                            |  |                  | —      |       |  |   | —      |    |
| Commonstock                                                                        |  |                  | 398,486      |       |  |   | 398,486      |    |
| Additionalpaid-incapital                                                           |  |                  | 268,168,896  |       |  |   | 268,096,138  |    |
| Accumulateddeficit                                                                 |  |                  | (347,018,793 | )     |  |   | (347,088,711 | )  |
| Treasurystock                                                                      |  |                  | (829,576     | )     |  |   | (829,576     | )  |
| Totalliabilities and stockholders’deficiency                                 |  | $                     | 34,857,302   |       |  | $      | 36,503,657   |    |
|                                                                                    |

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ITEM2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OFOPERATION

General Overview:

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

On August  5,  2002, the Company soldsubstantially all of its remaining media assets and assigned certainliabilities of its NET and American Passage subsidiaries to Alloy, Inc.and ceased operating the media segment.

On February25,  2004, the Company sold the assets and operations of itsBeyond the Wall subsidiary and ceased operating the retail segment.Beyond the Wall had been engaged in the sale of decorative wall postersthrough on-campus sales events, retail stores and internet sales,primarily to teenagers and young adults. During the period fromOctober  1,  2003 through February  25,  2004,Beyond the Wall operated 17 stores in 12 states, plus Washington, D.C.,throughout the East and mid-West, as well as a warehouse anddistribution center in Stroudsburg, Pennsylvania, and was theCompany’s only revenue-generating business operation. Theconsolidated financial statements for the nine months ended June30,  2004 present Beyond the Wall’s operations as adiscontinued operation as a result of the disposal of its assets andoperations on February  25,  2004.

CommencingMarch  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.

GoingConcern:

The Company has incurred recurring operatinglosses since its inception. As of September  30,  2004, theCompany had an accumulated deficit of $343,834,836, astockholders' deficiency of $13,065,365, a working capitaldeficiency of $3,452,840, and had incurred a net loss and negative cashflows from operating activities for the year ended September30,  2004 of $2,365,620 and $901,443, respectively. As ofJune 30, 2005, the Company had an accumulated deficit of$347,088,711, a stockholders’ deficiency of $79,423,663 and hadincurred a net loss and negative cash flows from operating activitiesfor the nine months ended June  30,  2005 of $3,253,875 and$2,629,587, respectively. As of September  30,  2004 andJune  30,  2005, the Company had insufficient capital tofund all of its obligations on a consolidated basis. These conditionsraise substantial doubt about the Company’s ability to continueas a going concern. The consolidated financial statements do notinclude any adjustments to reflect the possible future effect of therecoverability and classification of assets or the amounts andclassifications of liabilities that may result from the outcome of thisuncertainty. The Company’s independent registered publicaccounting firm, in its report dated December  17,  2004,included an explanatory paragraph stating that the Company’srecurring losses and accumulated deficit, working capital deficiencyand negative cash flow, among other things, raise substantial doubtabout the Company’s ability to continue as a goingconcern.

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 lateJanuary  2004 after being acquired by the previous owners, andhas incurred losses until recently. For the three months and ninemonths ended June  30,  2005, operating income was $638,552and $588,886, 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 operatingperformance of the steel mini-mill has improved and the Company hasbeen able to increase borrowing availability under its line of creditwith General Electric Capital Corporation.

The Companybelieves that its current internal and external cash resources will beadequate 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 mayalso consider various strategic alternatives in the future, includingthe acquisition of new business opportunities, which may be fromrelated or unrelated parties. However, there can be noassurances that such efforts will ultimately be successful. TheCompany may finance any acquisitions through a combination of debtand/or equity securities.

RecentDevelopments:

During September  2005, theCompany borrowed $50,000 from certain directors under short-termunsecured notes due December  31,  2005, with interest at4% 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 paymentsunder the Tax Sharing Agreement, as described below. The Company repaidthe notes payable to directors from the proceeds from the settlement ofthe Beyond the Wall note receivable, which proceeds were received onSeptember  30,  2005, as described below.

Forthe nine months ending September  30,  2005, AcquisitionCorp., KES Acquisition and Atacama KES are collectively required tohave, on a consolidated basis, in excess of $4,000,000 of earningsbefore interest, taxes, depreciation and amortization, calculated inaccordance with generally accepted accounting principles(‘‘EBITDA’’). For each of the fiscalyears 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 followingthe fiscal year ending September  30,  2005 in which theobligations under the Notes remain outstanding, Acquisition Corp., KESAcquisition and Atacama KES are collectively required to have, on aconsolidated basis, in excess of $3,000,000 of EBITDA for the sixmonths then ended. Effective September  23,  2005, theholders of the Notes executed an agreement to amend the Notes toeliminate the requirement that Acquisition Corp., KES Acquisition andAtacama KES collectively have, on a consolidated basis, in excess of$4,000,000 of EBITDA for the nine months ending September30,  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 Companyhad previously received from the sale of the assets and operations ofBeyond the Wall in February  2004 (see ‘‘Sale ofAssets and Operations of Beyond the Wall, Inc.’’below).

**Sale of Assets and Operations of Beyond theWall, Inc.:**

Effective February  25,  2004,the Company’s wholly-owned subsidiary, Beyond the Wall, Inc.(‘‘BTW’’), sold substantially all ofits 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 October31, 2006. The buyer had the right to make certain optionalprincipal pre-payments on the Note by June  30,  2004,which would result in the principal balance of the Note being adjusteddownward, in excess of such principal pre-payments, based on anagreed-upon sliding scale as set forth in the Note.

OnApril  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 scheduledprincipal payment on the Note of $197,734, plus accrued interest of$49,493. Remaining scheduled principal payments at June30,  2005 with respect to the Note totaling $245,466 are asfollows: October  31,  2005 – $197,734;October  31,  2006 – $47,732.

TheCompany initially recognized a loss of $564,921 with respect to thissale before taking into consideration the effect of the $400,000principal pre-payment made on April  30, 2004. Inclusiveof such payment, the effect of the accelerated payment credit and theback-end credit resulted in an additional loss of $256,800, whichdecreased the carrying value of the note receivable from $1,100,000

26

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to $843,200 and increased the loss on the BTWsale from $564,921 to $821,721. The loss on the BTW sale wasreported as a loss on the disposal of discontinued operations for thenine months ended June  30, 2004. As a result of the sale,the retail segment operations have been presented as a discontinuedoperation for the three months and nine months ended June30,  2004.

Acquisition of SteelMini-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 assetsof Kentucky Electric Steel, Inc., a Delaware company(‘‘KES’’), consisting of a steel mini-milllocated in Ashland, Kentucky (the‘‘Mill’’). On September 2, 2003, KESHoldings, through its subsidiary, KES Acquisition Company, LLC, aDelaware limited liability company (‘‘KESAcquisition’’), completed the acquisition of the Millpursuant to Section 363 of the United States Bankruptcy Code forcash consideration of $2,650,000, which was funded through thecontributions of the members of KES Holdings. Members’contributions were also used for start-up costs, working capitalpurposes and payment of deferred maintenance of the Mill. KES hadceased 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 hadbeen in operation for approximately forty years and was refurbished byKES Acquisition subsequent to its acquisition. The refurbishedMill has been generating revenues since late January  2004. Ascurrently configured, the Mill has an annual production capacity of240,000 tons of steel, and is currently operating at approximately80% of such annualized capacity. Management is focusing ondeveloping the business and improving operatingefficiencies.

The Mill produces bar flats that areproduced to a variety of specifications and fall primarily into twogeneral quality levels – merchant bar quality steel bar flats(‘‘MBQ Bar Flats’’) for generic types ofapplications, 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 Millmanufactures over 2,600 different Bar Flat items which are sold to theleaf-spring suspension market for light- and heavy-duty trucks,mini-vans and utility vehicles, cold drawn bar converters, certainspecialty applications for steel service centers, truck trailermanufacturers and other miscellaneous markets. The Mill wasspecifically designed to manufacture wider and thicker bar flats up tothree inches in thickness and twelve inches in width that are requiredby these markets. In addition, the Mill employs a variety of speciallydesigned equipment which is required in order to manufacture SBQ BarFlats to the specifications of the Mill’scustomers.

On March  9,  2005, YouthStreamcompleted the acquisition of KES Acquisition (the‘‘Acquisition’’), which was deemedeffective March  1,  2005. Pursuant to definitiveagreements executed with KES Holdings and Atacama Capital Holdings,Ltd., a British Virgin Islands company(‘‘Atacama’’, and together with KESHoldings, collectively, the ‘‘Sellers’’),YouthStream, through its newly-formed subsidiary, YouthStreamAcquisition Corp., a Delaware corporation (‘‘AcquisitionCorp.’’), acquired 100% of the membershipinterests of KES Acquisition by acquiring (i) a 37.45%membership interest from KES Holdings and (ii) all of the capital stockof Atacama KES Holding Corporation, a wholly-owned subsidiary ofAtacama, the owner of the remaining 62.55% membership interestin KES Acquisition. As consideration for the Acquisition, AcquisitionCorp. issued to the Sellers (i) $40  million in promissory notes(the ‘‘Notes’’), (ii) 25,000 shares ofSeries A Non-Convertible Preferred Stock with an aggregate liquidationvalue of $25  million (the ‘‘13% Series APreferred Stock’’) and (iii) 100% of itsauthorized shares of Series B Non-Voting Common Stock. With respect tothe $65,000,000 of purchase consideration, $19,000,000 of the Notes and$10,000,000 of the 13% Series A Preferred Stock were issued toKES Holdings and $21,000,000 of the Notes and $15,000,000 of the13% Series A Preferred Stock were issued to Atacama. YouthStreamalso contributed an aggregate of $500,000 of cash to Acquisition Corp.as consideration for the issuance by Acquisition 

27

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Corp. of 100% of its Series A VotingCommon Stock. In addition, YouthStream will periodically be required topurchase shares of Series B Preferred Stock of AcquisitionCorp.

As a result of these transactions, YouthStream owns80.01% of the common stock, and 100% of the voting stock,of Acquisition Corp. The remaining 19.99% common stock interestin Acquisition Corp. is owned 62.55% by Atacama and37.45% by KES Holdings. YouthStream has a 2.67% equityinterest in KES Holdings, as a result of which the Company haseliminated its $507,000 interest in the Notes and $267,000 interest inthe 13% Series A Preferred Stock in the condensed consolidatedbalance 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 theAcquisition, the Company’s financial statements for periodsending after March  1,  2005 are materially different fromand are not comparable to its financial statements prior to thatdate.

Subsequent to this transaction, the management ofthe Mill remained intact. This transaction did not result in any changein the Mill’s business operations or financial condition, and,other than as set forth herein, the working capital, operating cashflow, debt service obligations and credit profile of the Mill were notaffected in any way by this transaction.

As describedherein, the Notes and 13% Series A Preferred Stock were issuedby Acquisition 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 following proforma operating data presents the results of operations for the threemonths ended June  30,  2005 and 2004, as if theAcquisition had occurred on March  31,  2004 and 2003,respectively, and for the nine months ended June  30,  2005and 2004, as if the Acquisition had occurred on September30,  2004 and 2003, respectively. Accordingly, transaction costsof $280,773 and $1,073,727 related to the KES Acquisition for the threemonths and nine months ended June  30,  2005 are notincluded in the net loss from continuing operations shown below. Inaddition, discontinued operations for the three months and nine monthsended June  30,  2004 are not included. The Mill commencedgenerating revenues in late January  2004. The pro forma resultsare not necessarily indicative of the financial results that might haveoccurred had the Acquisition actually taken place on the respectivedates, or of future results of operations. The Company’sunaudited pro forma information is summarized as follows:

|                                           |  |                            |            |                          |  |        |            |         |  |        |            |         |  |        |             |         |  |  |
|-------------------------------------------|--|----------------------------|------------|--------------------------|--|--------|------------|---------|--|--------|------------|---------|--|--------|-------------|---------|--|--|
|                                      |  | ThreeMonths Ended June 30, |            | Nine Months EndedJune30, |
|                                      |  | 2005                       |            | 2004                     |  | 2005   |            | 2004    |
| Netrevenues                               |  | $                          | 29,127,566 |                     |  | $      | 16,085,610 |    |  | $      | 82,865,839 |    |  | $      | 19,645,318  |    |
| Costofsales                               |  |                       | 27,194,477 |                     |  |   | 17,925,043 |    |  |   | 77,993,132 |    |  |   | 22,625,896  |    |
| Grossmargin(deficit)                      |  |                       | 1,933,089  |                     |  |   | (1,839,433 | )  |  |   | 4,872,707  |    |  |   | (2,980,578  | )  |
| Operatingincome(loss)                     |  |                       | 638,552    |                     |  |   | (2,858,076 | )  |  |   | 1,066,767  |    |  |   | (6,856,067  | )  |
| Interestexpense                           |  |                       | (2,371,888 | )                   |  |   | (1,838,992 | )  |  |   | (7,075,831 | )  |  |   | (5,065,808  | )  |
| Minorityinterest                          |  |                       | 218,439    |                     |  |   | 218,439    |    |  |   | 218,439    |    |  |   | 218,439     |    |
| Netloss from continuingoperations         |  | $                          | (1,500,737 | )                   |  | $      | (4,441,336 | )  |  | $      | (5,693,104 | )  |  | $      | (11,528,406 | )  |
| Basicand diluted net loss per commonshare |  | $                          | (0.04      | )                   |  | $      | (0.11      | )  |  | $      | (0.15      | )  |  | $      | (0.29       | )  |
| Weightedaverage common sharesoutstanding  |  |                       | 39,242,251 |                     |  |   | 39,242,251 |    |  |   | 39,242,251 |    |  |   | 39,242,251  |    |
|                                           |

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Critical AccountingPolicies:

The Company prepared its financial statementsin accordance with accounting principles generally accepted in theUnited States. The preparation of these financial statements requiresthe use of estimates and assumptions that affect the reported amountsof assets and liabilities and the disclosure of contingent assets andliabilities at the date of the financial statements and the reportedamount of revenues and expenses during the reporting period. Managementperiodically evaluates the estimates and judgments made. Managementbases its estimates and judgments on historical experience and onvarious factors that are believed to be reasonable under thecircumstances. Actual results may differ from these estimates as aresult of different assumptions or conditions.

Thefollowing critical accounting policies affect the more significantjudgments and estimates used in the preparation of the Company’sfinancial statements. In addition, as a result of the acquisition ofthe Mill during the nine months ended June  30,  2005, theCompany adopted additional accounting policies as described at Note 2to the condensed consolidated financial statements.

Revenue Recognition:

The Companyrecognizes revenues when title passes, the earnings process issubstantially complete, and the Company is reasonably assured of thecollection of the proceeds from the exchange, all of which generallyoccur either upon shipment of the Company’s products or deliveryof the product at the destination specified by thecustomer.

Accounts Receivable:

Inorder 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 futureperformance.

Inventories:

Inventoriesconsist of raw materials, semi-finished goods and finished goods.Inventory costs include material, labor and manufacturing overhead.Inventories are valued at the lower of average cost or market.

Impairment of Assets:

The Companyperiodically evaluates its non-current assets for potential impairmentindicators. The Company's judgments regarding the potentialimpairment are based on legal factors, market conditions andoperational performance indicators, among others. Future events couldcause us to conclude that impairment indicators exist and that suchassets (primarily investments, notes receivable and fixed assets) areimpaired.

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 retailsegment operations of Beyond the Wall have been presented as adiscontinued operation in 2004. Accordingly, for the three months andnine months ended June  30,  2004, the Company did not haveany revenues or cost of revenues from continuing operations.

The refurbished Mill restarted operations in lateJanuary  2004 and completed its ramp-up phase and reached fulloperating status in August  2004. The Company acquired the Milleffective 

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February  28,  2005, and theoperations of the Mill have been consolidated commencing March1,  2005. Sales and cost of sales were generated by theoperations of the Mill during 2005. The Company’s results ofoperations for the three months ended June  30,  2005include the Mill’s operations for three months (April throughJune  2005) and the Company’s results of operations forthe nine months ended June  30,  2005 include theMill’s operations for four months (March through June2005). As a result of the acquisition of the Mill, the Company’sfinancial statements for periods ending after March  1,2005 are materially different from and are not comparable to itsfinancial statements prior to that date.

Three Months EndedJune  30,  2005 and 2004:

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

Cost of Sales.    Cost of saleswas $27,194,477 for the three months ended June  30,  2005,resulting in gross profit of $1,933,089 and a gross profit margin of7.1%. Pro forma gross profit margin for the three months endedMarch  31,  2005 was 4.6% and for the six monthsended March  31,  2005 was 5.5%. The improvement ingross profit margin for the three months ended June  30,2005 as compared to the prior 2005 periods was a result of variousfactors, including the utilization of lower cost vendors for rawmaterials purchases, improved plant operating efficiency and increasedsteel prices. Due to the restart of Mill operations in lateJanuary  2004, a comparison of 2004 cost of sales amounts to 2005cost of sales amounts is not meaningful.

Selling,General and Administrative Expenses.    For the three monthsended 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 andadministrative expenses were $155,202, which reflected corporategeneral and administrative expenses, including management compensation,legal and accounting fees and insurancecosts.

Operating Income (Loss).    Operatingincome was $638,552 for the three months ended June  30,2005, as compared to an operating loss of $155,202 for the three monthsended June  30,  2004.

InterestIncome.    Interest income was $9,944 for the three months endedJune  30,  2005, as compared to $18,615 for the threemonths ended June  30,  2004.

InterestExpense.    For the three months ended June  30,2005, interest expense was $2,371,888, which included interest expenserelated to the 8% notes payable of $787,696 and the 13%Series A Preferred Stock of $801,621 issued in conjunction with theacquisition of the Mill, and the 12% notes payable of $209,425.For the three months ended June  30,  2004, interestexpense was $10,416.

Transaction Costs Related to KESAcquisition.    The Company incurred $280,773 of costs withrespect to the acquisition of the Mill (primarily legal and accountingfees), which were charged to operations during the three months endedJune  30,  2005.

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

Loss before Income Taxes and MinorityInterest.    The loss before income taxes and minority interestwas $1,999,949 for the three months ended June  30,  2005,as compared to $147,003 for the three months ended June30,  2004.

Income Taxes.    For the threemonths ended June  30,  2004, the Company recorded abenefit from income taxes of $1,570. The Company did not record anyprovision for or benefit from income taxes for the three months endedJune  30,  2005.

Loss before MinorityInterest.    The loss before minority interest was $1,999,949 forthe three months ended June  30,  2005, as compared to$145,433 for the three months ended June  30,2004.

Minority Interest.    For the three monthsended June  30,  2005, minority interest was $162,820,reflecting the minority interest’s share in the loss ofYouthStream Acquisition Corp., an 80.01%-owned consolidatedsubsidiary.

30

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Loss from ContinuingOperations.    The loss from continuing operations was $1,827,129for the three months ended June  30,  2005, as compared to$145,433 for the three months ended June  30,2004.

Loss from Discontinued Operations.    Forthe three months ended June  30,  2004, the Company had aloss from discontinued operations of $5,150, which related to theformer operations of Beyond the Wall.

NetLoss.    Net loss was $1,837,129 for the three months endedJune  30,  2005, as compared $150,583 for the three monthsended June  30,  2004.

Nine Months Ended June30,  2005 and 2004:

Net Sales.    Netsales were $38,261,343 for the nine months ended June  30,2005, an average of $9,565,336 per month. Pro forma net sales were$82,865,839 for the nine months ended June  30,  2005, anaverage of $9,207,315 per month, as compared to pro forma net sales 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 $5,278,251or 134.3% greater than pro forma average monthly net sales forthe nine months ended June  30,  2004.

Cost of Sales.    Cost of sales was $35,666,705 forthe nine months ended June  30,  2005, resulting in grossprofit of $2,594,638 and a gross profit margin of 6.8%. Proforma gross profit margin for the nine months ended June30,  2005 was 5.9%. Due to the restart of Mill operationsin late January  2004, a comparison of 2004 cost of sales amountsto 2005 cost of sales amounts is not meaningful.

Selling, General and Administrative Expenses.    Forthe nine months ended June  30,  2005, selling, general andadministrative expenses were $2,005,752 or 5.2% of sales.Selling, general and administrative expenses were higher for the ninemonths ended June  30,  2005, at 5.2% of net sales,as compared to 4.4% of net sales for the three months endedJune  30,  2005, since the Company incurred corporategeneral and administrative expenses during the entire nine months endedJune  30,  2005, but only had operating revenues for thelast four months of the nine months ended June  30,  2005.For the nine months ended June  30,  2004, selling, generaland administrative expenses were $865,159, which reflected corporategeneral and administrative expenses, including management compensation,legal and accounting fees and insurancecosts.

Operating Income.    Operating income was$588,886 for the nine months ended June  30,  2005, ascompared to an operating loss of $865,159 for the nine months endedJune  30,  2004.

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

InterestExpense.    For the nine months ended June  30,2005, interest expense was $3,208,954, which included interest expenserelated to the 8% notes payable of $1,056,032 and the 13%Series A Preferred Stock of $1,074,700 issued in conjunction with theacquisition of the Mill, and the 12% notes payable of $280,767.For the nine months ended June  30,  2004, interest expensewas $31,014.

Transaction Costs Related to KESAcquisition.    The Company incurred $1,073,727 of costs withrespect to the acquisition of the Mill (primarily legal and accountingfees), which were charged to operations during the nine months endedJune  30,  2005. Included in such costs was $187,702 oftransaction costs incurred by KES Acquisition prior to February28,  2005.

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

Loss before Income Taxesand Minority Interest.    The loss before income taxes andminority interest was $3,684,806 for the nine months ended June30,  2005, as compared to $866,110 for the nine months endedJune  30,  2004.

IncomeTaxes.    For the nine months ended March  31,  2004,the Company recorded a benefit from income taxes of $13,683. TheCompany did not record any provision for or benefit from income taxesfor the nine months ended June  30,2005.

Loss before Minority Interest.    The lossbefore minority interest was $3,684,806 for the nine months endedJune  30,  2005, as compared to $852,427 for the ninemonths ended June  30,  2004.

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Minority Interest.    Forthe nine months ended June  30,  2005, minority interestwas $430,931, reflecting the minority interest’s share in theloss of YouthStream Acquisition Corp., an 80.01%-ownedconsolidated subsidiary.

Loss from ContinuingOperations.    The loss from continuing operations was $3,253,875for the nine months ended June  30,  2005, as compared to$852,427 for the nine months ended June  30,2004.

Loss from Discontinued Operations.    Forthe nine months ended June  30,  2004, the Company had aloss from discontinued operations of $1,303,647, which related to theformer operations of Beyond the Wall. The loss from discontinuedoperations of $481,926 for the nine months ended June  30,2004 consisted of an operating loss of $981,926, offset by a gain of$500,000 resulting from the reduction of a prior accrual with respectto the closing of retail stores as a result of the Company completingsettlements with landlords below what had been originally accrued. TheCompany also had a loss on the disposal of discontinued operations 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$3,253,875 for the nine months ended June  30,  2005, ascompared $2,156,074 for the nine months ended June  30,2004.

Liquidity and Capital Resources – June30,  2005:

On March  9,  2005,YouthStream completed the acquisition of the Mill. YouthStream owns80.01% of the common 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 Millcommencing March  1,  2005. As a result of thistransaction, the Company’s financial statements for periodsending after March  1,  2005 are materially different fromand are not comparable to its financial statements prior to thatdate.

The Company utilized substantially all of itsavailable cash resources to complete the acquisition of the Mill,including its contribution of an aggregate of $500,000 of cash toAcquisition Corp. and the payment of the costs related to thetransaction. Accordingly, the Company requires additional operatingcapital to fund corporate general and administrative expenses, which itis attempting to obtain through both internal and external resources.The 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 operatingperformance of the steel mini-mill has improved and the Company hasbeen able to increase borrowing availability under its line of creditwith General Electric Capital Corporation.

As ofJune  30,  2005, the balance outstanding on the line ofcredit was $17,030,778, which has been presented as a current liabilityin the consolidated balance sheet at such date due to continuinguncertainty with respect to the Company’s ability to maintaincompliance with the minimum fixed charge coverage ratio. AtMarch  31,  2005, KES Acquisition was not in compliancewith the fixed charge coverage ratio based on its consolidatedfinancial statements as originally filed, in part relating to changesto its accounting procedures as a result of the review of its financialstatements conducted in conjunction with its acquisition byYouthStream, and subsequently received a waiver of default from thelender. At June  30,  2005, KES Acquisition was incompliance with the fixed charge coverage ratio based on itsconsolidated financial statements as originally filed. However, KESAcquisition was not in compliance with the fixed charge coverage ratioat June  30,  2005 based on its consolidated financialstatements as revised. The Company intends to seek an amended waiver ofdefault from the lender with respect to the restated March31,  2005 consolidated financial statements and a waiver ofdefault from the lender with respect to the restated June30,  2005 consolidated financial statements. If no such waiversare received, the lender would have the right to accelerate thematurity of the line of credit.

In the event that KESAcquisition is not in compliance with the fixed charge coverage ratioin any future period, the Company intends to seek a further waiver ofany default from the lender, and if no such waiver is received, thelender would have the right to accelerate the maturity of the line ofcredit at that time.

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To the extent that the Millgenerates taxable income in the future, the Tax Sharing Agreement withAcquisition Corp. and Atacama KES will generate cash payments toYouthStream equal to 50% of their respective‘‘separate company tax liability’’. AtJune  30,  2005, the estimated tax sharing payment due toYouthStream was approximately $77,000.YouthStream has approximately$250,000,000 of federal net operating loss carryovers currentlyavailable to offset any federal income tax liability of AcquisitionCorp and Atacama KES subsequent to February  28,  2005.YouthStream expects that its federal net operating loss carryovers willbe sufficient to absorb most of any future federal income tax liabilityof Acquisition Corp. and Atacama KES.

The Mill restartedoperations in January  2004 after being acquired by the previousowners, and has incurred losses until recently. The long-term economicviability of the Mill and its ability to fund its operations and debtservice requirements, including maintaining compliance with variousdebt covenants and servicing the interest and principal obligations onthe Notes and the dividends and redemption features on the 13%Series A Preferred Stock issued in connection with the acquisition ofthe Mill, is dependent on various internal and external factors,including the Mill’s ability to operate on a sustained basis at80% or more of its annual capacity of 240,000 tons per year, ascurrently configured. To the extent that the Mill is not able tomaintain this operating threshold, the ability of the Mill to generatesufficient cash flows to fund its operations and debt servicerequirements and maintain compliance with various debt covenants may beimpaired. In such event, the Company may have to consider a formal orinformal restructuring or reorganization, including a sale or otherdisposition of its assets.

OperatingActivities.    During the nine months ended June30,  2005, the Company used $2,629,587 of cash in operatingactivities, both to fund the corporate overhead of YouthStream for thenine months ended June  30,  2005 and to fund theoperations of the Mill for a period of four months from the date ofacquisition through June  30,  2005. During the nine monthsended 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, which consisted of corporate general and administrativeexpenses.

Investing Activities.    During thenine months ended June  30,  2005, net cash provided byinvesting activities of $247,227 consisted of the October31,  2004 scheduled principal payment of $197,734, plus accruedinterest of $49,493, on the note that the Company received in theFebruary  2004 sale of the assets and operations of Beyond theWall. During the nine months ended June  30,  2004, netcash provided by investing activities of $1,220,000 consisted of theproceeds received from the sale of the Beyond the Wall assets andoperations in February  2004.

FinancingActivities.    During the nine months ended June30,  2005, net cash provided by financing activities was$1,279,243, consisting of $1,410,683 from an increase in the line ofcredit with General Electric Capital Corporation, reduced by paymentson long-term debt of $131,440. During the nine months ended June30,  2004, the Company did not generate or use any cash infinancing transactions.

The Company acquired $913,194 ofcash in connection with the acquisition of KES Acquisition,LLC.

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Principal Commitments:

AtJune  30,  2005, the Company's principal commitmentsconsisted of the followingobligations:

|                                                                                                      |  |                        |             |                 |  |                  |            |                  |  |              |            |        |  |        |           |        |  |        |            |        |  |  |
|------------------------------------------------------------------------------------------------------|--|------------------------|-------------|-----------------|--|------------------|------------|------------------|--|--------------|------------|--------|--|--------|-----------|--------|--|--------|------------|--------|--|--|
|                                                                                                 |  | Payments Due by Period |
| Contractual cashobligations                                                                          |  | Total                  |             | Less than 1year |  | Between 2-3years |            | Between 4-5years |  | After 5years |
| Notes payable torelatedparties                                                                       |  | $                      | 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                                                                                      |  |                   | 1,699,776   |            |  |             | 425,868    |             |  |         | 805,526    |   |  |   | 468,382   |   |  |   | —    |   |
| Capitalleaseobligation                                                                               |  |                   | 1,769,031   |            |  |             | 358,638    |             |  |         | 899,503    |   |  |   | 510,890   |   |  |   | —    |   |
| Equipmentcontactpayable                                                                              |  |                   | 267,931     |            |  |             | 75,302     |             |  |         | 192,629    |   |  |   | —   |   |  |   | —    |   |
| Managementservices agreement                                                                         |  |                   | 3,033,333   |            |  |             | 700,000    |             |  |         | 1,400,000  |   |  |   | 933,333   |   |  |   | —    |   |
| 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                                                                                                |  | $                      | 106,287,044 |            |  | $                | 18,590,586 |             |  | $            | 36,706,658 |   |  | $      | 9,828,605 |   |  | $      | 41,161,195 |   |
|                                                                                                      |

AtJune  30,  2005, the Company does not have any materialcommitments for capital expenditures.

At June30,  2005, the Company has various short-term commitments for thepurchase of materials, supplies and energy arising in the ordinarycourse of business which aggregated approximately$6,900,000.

Off-Balance Sheet Arrangements:

TheCompany does not have any transactions, obligations or relationshipsthat could be considered off-balance sheet arrangements at June30,  2005.

Recent AccountingPronouncements:

In December  2004, the FASB issuedSFAS No. 123(Revised 2004), ‘‘Share-BasedPayment’’. SFAS No. 123(R) revises SFAS No. 123,‘‘Accounting for Stock-Based Compensation’’and supersedes APB Opinion No. 25, ‘‘Accounting for StockIssued to Employees’’ and amends SFAS No. 95,‘‘Statement of Cash Flows’’. SFAS No.123(R) focuses primarily on the accounting for transactions in which anentity obtains employee services in share-based payment transactions.SFAS No. 123(R) requires companies to recognize in the statement ofoperations the cost of employee services received in exchange forawards of equity instruments based on the grant-date fair value ofthose awards (with limited exceptions). SFAS No. 123(R) is effective asof the Company’s first interim or annual reporting period thatbegins after December  15,  2005. Accordingly, the Companywill adopt SFAS No. 123(R) effective January  1,  2006. TheCompany is currently evaluating the provisions of SFAS No. 123(R) andhas not yet determined the impact, if any, that SFAS No. 123(R) willhave on its financial statement presentation ordisclosures.

In November  2004, the FASB issuedSFAS No. 151, ‘‘InventoryCosts — An Amendment of ARB No. 43,Chapter 4’’ (SFAS No. 151). SFAS No.151 clarifies that abnormal amounts of idle facility expense, freight,handling costs and spoilage should be expensed as incurred and notincluded in overhead. Further, SFAS No. 151 requires thatallocation of fixed and production facilities overhead to conversioncosts should be based on normal capacity of the production facilities.The provisions in SFAS No. 151 are effective for inventory costsincurred during fiscal years beginning after June 15,

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2005. Accordingly, the Company will adoptSFAS No. 151 effective October  1,  2005. The Company iscurrently evaluating the provisions of SFAS No. 151 and has not yetdetermined the impact, if any, that SFAS No. 151 will have on itsfinancial statement presentation ordisclosures.

InDecember  2004, the FASB issued SFAS No. 153,‘‘Exchanges of Nonmonetary Assets, an amendment to APBOpinion No. 29’’ (‘‘SFAS No.153’’). SFAS No. 153 amends Accounting PrinciplesBoard Opinion No. 29, ‘‘Accounting for NonmonetaryTransactions’’, to require that exchanges of nonmonetaryassets be measured and accounted for at fair value, rather than atcarryover basis, of the assets exchanged. Nonmonetary exchanges thatlack commercial substance are exempt from this requirement.SFAS No. 153 is effective for nonmonetary exchanges entered intoin fiscal periods beginning after June 15, 2005. Accordingly,the Company will adopt SFAS No. 153 effective July  1,2005. The Company is currently evaluating the provisions ofSFAS No. 153, and has not yet determined the impact, if any,that it will have on the Company’s financial statementpresentation or disclosures.

ITEM 3.    CONTROLS ANDPROCEDURES

(a) Evaluation of Disclosure Controlsand 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 ensurethat information required to be disclosed in the reports filed orsubmitted by the Company under the Securities Exchange Act of 1934 isrecorded, processed, summarized and reported, within the time periodsspecified in the rules and forms of the Securities and ExchangeCommission. Disclosure controls and procedures include, withoutlimitation, controls and procedures designed to ensure that informationrequired to be disclosed in the reports filed under the SecuritiesExchange Act of 1934 is accumulated and communicated to management,including its principal executive and financial officers, asappropriate, to allow timely decisions regarding requireddisclosure.

The Company carried out an evaluation, underthe supervision and with the participation of its management, includingits principal executive and financial officers, of the effectiveness ofthe design and operation of the Company’s disclosure controlsand procedures as of the end of the period covered by this report.Based upon and as of the date of that evaluation, the Company’sprincipal executive and financial officers concluded that there werematerial weaknesses in the accounting and financial systems at theCompany’s steel mini-mill, which resulted in deficientdisclosure controls and procedures. The steel mini-mill was acquiredeffective February  28,  2005, and its operations have beenincluded in the consolidated financial statements of the Companycommencing March  1,  2005. Accordingly, as a result ofthis evaluation, the Company’s consolidated financial reportingand disclosure controls were also determined to have materialweaknesses.

Specifically, the steel mini-mill lacksadequate accounting systems and controls and procedures to processinformation for inclusion in the Company’s reports filed withthe Securities and Exchange Commission. Furthermore, the steelmini-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 InternalControls

There were no changes in the Company’sinternal controls or in other factors that could have significantlyaffected those controls subsequent to the date of the Company’smost recent evaluation.

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PART II. OTHERINFORMATION

ITEM 1.    LEGALPROCEEDINGS

Not applicable.

ITEM2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OFPROCEEDS

Not applicable.

ITEM 3.    DEFAULTSUPON SENIOR SECURITIES

Effective March  24,2004, KES Acquisition entered into a loan and security agreement, asamended, with General Electric Capital Corporation. Under the terms ofthe agreement, KES Acquisition has the ability to borrow up to$23,000,000, subject to limitations under the lender’s borrowingbase formula and compliance with a minimum fixed charge coverage ratio.Interest is payable monthly in arrears on the outstanding principalbalance at the index rate (defined as the thirty-day dealer commercialpaper rate) plus 5.5% per annum. The line of credit matures onMarch  24,  2007, and is secured by all of the assets ofKES Acquisition and a pledge of (i) the membership interests of KESAcquisition owned by Acquisition Corp. and (ii) the capital stock ofAtacama KES owned by Acquisition Corp. As of June  30,2005, the balance outstanding on the line of credit was $17,030,778,which has been presented as a current liability in the consolidatedbalance sheet at such date due to continuing uncertainty with respectto the Company’s ability to maintain compliance with the minimumfixed charge coverage ratio.

At March  31,2005, KES Acquisition was not in compliance with the fixed chargecoverage ratio based on its consolidated financial statements asoriginally filed, in part relating to changes to its accountingprocedures as a result of the review of its financial statementsconducted in conjunction with its acquisition by YouthStream, andsubsequently received a waiver of default from the lender. AtJune  30,  2005, KES Acquisition was in compliance with thefixed charge coverage ratio based on its consolidated financialstatements as originally filed. However, KES Acquisition was not incompliance with the fixed charge coverage ratio at June30,  2005 based on its consolidated financial statements asrevised. The Company intends to seek an amended waiver of default fromthe lender with respect to the restated March  31,  2005consolidated financial statements and a waiver of default from thelender with respect to the restated June  30,  2005consolidated financial statements. If no such waivers are received, thelender would have the right to accelerate the maturity of the line ofcredit.

As of March 8, 2006, the Company'ssubsidiary, YouthStream Acquisition Corp., was in default with respectto certain terms and provisions of its previously issued promissorynotes as described below:

1.   8.0%Subordinated Secured Promissory Note due February 28, 2015 in favor ofKES Holdings, LLC in the principal amount of $19,000,000, as amendedJuly 14, 2005.   Accrued interest of approximately $1,520,000 wasdue and payable on February 28, 2006. 

2.8.0% Subordinated Secured Promissory Note due February 28, 2015in favor of Atacama Capital Holdings, Ltd. in the principal amount of$21,000,000, as amended July 14, 2005.   Accrued interest ofapproximately $1,680,000 was due and payable on February 28,2006. 

The Company is in discussions with theholders of these Notes in an effort to waive the current default andamend the Notes to revise the interest payment terms.   Noassurance can be given that such a waiver and amendment will beobtained and that the holders of such Notes will not exercise theirrights to accelerate payment under such Notes, which event would have amaterial adverse affect on the financial condition and operations ofthe Company.  

ITEM 4.    SUBMISSION OF MATTERSTO A VOTE OF SECURITY HOLDERS

Notapplicable.

ITEM 5.    OTHER INFORMATION

Notapplicable.

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ITEM 6.    EXHIBITS

Alist of exhibits required to be filed as part of this report is setforth in the Index to Exhibits, which immediately precedes suchexhibits, and is incorporated herein byreference.

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SIGNATURES

Pursuantto the requirements of Section 13 or 15(d) the Securities Exchange Actof 1934, the registrant has caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.

|                     |  |                                                                                                                                             |  |  |  |  |
|---------------------|--|---------------------------------------------------------------------------------------------------------------------------------------------|--|--|--|--|
|                |  | YOUTHSTREAMMEDIA NETWORKS, INC.                (Registrant) |
| Date: March 7, 2006 |  | By: /s/ JONATHAN V.DIAMOND                                                                     |
|                |  | Jonathan V.DiamondChief ExecutiveOfficer                                                                                                    |
| Date:March 7, 2006  |  | By: /s/ ROBERT N.WEINGARTEN                                                                              |
|                |  | Robert N.WeingartenChief FinancialOfficer                                                                                                   |
|                     |

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INDEX TOEXHIBITS

|             |                                                                                                                                                                                                        |
|-------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.90  | Form of Promissory Notedated September  27,  2005 in the principal amount of$12,500, previously filed as an exhibit to the Quarterly Report on Form10-QSB for the Quarterly Period Ended June  30,2005 |

|             |                                                                                                                                                                                                                                                                                                                           |
|-------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.91  | Payoff and SettlementAgreement dated September  30,  2005, by and amongYouthStream Media Networks, Inc., Beyond the Wall, Inc., 1903 West MainStreet Realty Management, LLC and Clive Corporation, Inc., previouslyfiled as an exhibit to the Quarterly Report on Form 10-QSB for theQuarterly Period Ended June  30,2005 |

|             |                                                                                                                                                                                                                |
|-------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.92  | Letter Agreement datedSeptember  23,  2005 regarding 8% SubordinatedSecured Promissory Notes, previously filed as an exhibit to theQuarterly Report on Form 10-QSB for the Quarterly Period EndedJune  30,2005 |

|            |                                                                                                      |
|------------|------------------------------------------------------------------------------------------------------|
| 31.1  | Certification of the ChiefExecutive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of2002 |

|            |                                                                                                      |
|------------|------------------------------------------------------------------------------------------------------|
| 31.2  | Certification of the ChiefFinancial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of2002 |

|            |                                                                                                      |
|------------|------------------------------------------------------------------------------------------------------|
| 32.1  | Certification of the ChiefExecutive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of2002 |

|            |                                                                                                      |
|------------|------------------------------------------------------------------------------------------------------|
| 32.2  | Certification of the ChiefFinancial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of2002 |

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