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UNITEDSTATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM10-QSB

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

For the Quarterly Period Ended December 31,2004

|        |                                                                                  |
|--------|----------------------------------------------------------------------------------|
|   | 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 MEDIA NETWORKS, INC.

(Exact name of small business issueras specified in itscharter)

|                                                             |  |                                       |  |  |  |  |
|-------------------------------------------------------------|--|---------------------------------------|--|--|--|--|
| Delaware                                                    |  | 13-4082185                            |
| (Stateor other jurisdiction ofincorporation oforganization) |  | (I.R.S. EmployerIdentificationNumber) |
| 244Madison Avenue, PMB #358, New York, NewYork              |  | 10016                                 |
| (Address of principal executiveoffices)                     |  | (ZipCode)                             |
| (212)883-0083                                               |
| (Issuer's telephone number,including areacode)              |
|                                                             |

|                                                                                  |  |  |
|----------------------------------------------------------------------------------|--|--|
| Notapplicable                                                                    |
| (Former name,former address and former fiscal year, if changed since lastreport) |
|                                                                                  |

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 

As of January 31, 2005, theissuer had 39,242,251 shares of common stock, $0.01 par value, issuedand outstanding.

Transitional Small BusinessDisclosure Format. Yes  No 

Documents incorporated by reference:None.

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YOUTHSTREAM MEDIANETWORKS, INC. AND SUBSIDIARIES

The Company has elected to filea Quarterly Report on Form 10-QSB for the quarterly period endedDecember 31, 2004, as the Company qualifies as a Small Business Issuerin accordance with Regulation S-B. The Company intends to filesubsequent periodic reports under Regulation S-B.

This QuarterlyReport on Form 10-QSB for the quarterly period ended December 31, 2004contains "forward-looking statements" withinthe meaning of Section 27A of the Securities Act of 1933, as amended,including statements that include the words"believes","expects","anticipates", or similar expressions. Theseforward-looking statements include, but are not limited to, statementsconcerning the Company's expectations regarding its workingcapital requirements, financing requirements, business prospects, andother statements of expectations, beliefs, future plans and strategies,anticipated events or trends, and similar expressions concerningmatters that are not historical facts. The forward-looking statementsin this Quarterly Report on Form 10-QSB for the quarterly period endedDecember 31, 2004 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. TheCompany undertakes no obligation to publicly release the results of anyrevisions to these forward-looking statements that may be made toreflect any future events or circumstances.

INDEX

|                                                                                                                      |  |        |        |        |  |  |
|----------------------------------------------------------------------------------------------------------------------|--|--------|--------|--------|--|--|
| **PARTI—FINANCIAL INFORMATION**                                                                                |  |   |   |   |
| ITEM1.    FINANCIAL STATEMENTS                                                                   |  |
| CondensedConsolidated Balance Sheets — December 31, 2004 (Unaudited)and September 30, 2004                     |  |   | 3      |   |
| CondensedConsolidated Statements of Operations (Unaudited) — ThreeMonths Ended December 31, 2004 and2003       |  |   | 4      |   |
| Condensed ConsolidatedStatement of Stockholders' Deficiency (Unaudited) —Three Months Ended December 31,2004   |  |   | 5      |   |
| Condensed ConsolidatedStatements of Cash Flows (Unaudited) — Three Months EndedDecember 31, 2004 and 2003      |  |   | 6      |   |
| Notes toCondensed Consolidated Financial Statements (Unaudited) —Three Months Ended December 31, 2004 and 2003 |  |   | 7      |   |
| ITEM 2.    MANAGEMENT'S DISCUSSION ANDANALYSIS OR PLAN OF OPERATION                              |  |   | 14     |   |
| ITEM3.    CONTROLS ANDPROCEDURES                                                                 |  |   | 19     |   |
| **PARTII—OTHER INFORMATION**                                                                                   |  |
| ITEM 1.    LEGALPROCEEDINGS                                                                      |  |   | 20     |   |
| ITEM6.    EXHIBITS                                                                               |  |   | 20     |   |
| SIGNATURES                                                                                                           |  |
|                                                                                                                      |

2

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YOUTHSTREAM MEDIA NETWORKS, INC. ANDSUBSIDIARIES CONDENSED CONSOLIDATED BALANCESHEETS

|                                                                                                                                                                                                                                                                                                                        |  |                 |              |                  |  |        |              |         |  |  |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|-----------------|--------------|------------------|--|--------|--------------|---------|--|--|
|                                                                                                                                                                                                                                                                                                                   |  | December31,2004 |              | September30,2004 |
|                                                                                                                                                                                                                                                                                                                   |  | (Unaudited)     |              |
| ASSETS                                                                                                                                                                                                                                                                                                                 |  |            |         |             |  |
| Currentassets:                                                                                                                                                                                                                                                                                                         |  |            |         |             |  |   |         |    |
| Cash and cashequivalents                                                                                                                                                                                                                                                                                               |  | $               | 558,958      |             |  | $      | 674,880      |    |
| Currentportion of note receivable, including accruedinterest                                                                                                                                                                                                                                                           |  |            | 204,343      |             |  |   | 242,189      |    |
| Prepaidexpenses                                                                                                                                                                                                                                                                                                        |  |            | 27,805       |             |  |   | 16,624       |    |
| Totalcurrentassets                                                                                                                                                                                                                                                                                                     |  |            | 791,106      |             |  |   | 933,693      |    |
| Property andequipment, net                                                                                                                                                                                                                                                                                             |  |            | —      |             |  |   | 25,410       |    |
| Notereceivable, including accruedinterest                                                                                                                                                                                                                                                                              |  |            | 47,732       |             |  |   | 245,465      |    |
| Deferredcosts related to KEStransaction                                                                                                                                                                                                                                                                                |  |            | 335,146      |             |  |   | 175,144      |    |
| Investmentin KESHoldings                                                                                                                                                                                                                                                                                               |  |            | 125,000      |             |  |   | 125,000      |    |
| Totalassets                                                                                                                                                                                                                                                                                                            |  | $               | 1,298,984    |             |  | $      | 1,504,712    |    |
| LIABILITIESAND STOCKHOLDERS' DEFICIENCY                                                                                                                                                                                                                                                                                |  |
| Currentliabilities:                                                                                                                                                                                                                                                                                                    |  |
| Accountspayable                                                                                                                                                                                                                                                                                                        |  | $               | 949,773      |             |  | $      | 910,074      |    |
| Accruedemployeecompensation                                                                                                                                                                                                                                                                                            |  |            | 225,948      |             |  |   | 225,948      |    |
| Accruedexpenses                                                                                                                                                                                                                                                                                                        |  |            | 722,135      |             |  |   | 752,043      |    |
| Currentliabilities of discontinuedoperations                                                                                                                                                                                                                                                                           |  |            | 2,490,993    |             |  |   | 2,498,468    |    |
| Totalcurrentliabilities                                                                                                                                                                                                                                                                                                |  |            | 4,388,849    |             |  |   | 4,386,533    |    |
| Long-termdebt                                                                                                                                                                                                                                                                                                          |  |            | 4,914,783    |             |  |   | 4,914,211    |    |
| Preferredstock subject to mandatory redemption; issued and outstanding atDecember 31, 2004 and September 30, 2004 – 1,000,000 shares ofSeries A 4% cumulative, non-convertible, redeemable preferredstock, mandatory redemption and liquidation value of $4.00 per share,plus cumulative dividends, or$5,269,333 |  |            | 5,269,333    |             |  |   | 5,269,333    |    |
| Totalliabilities                                                                                                                                                                                                                                                                                                       |  |            | 14,572,965   |             |  |   | 14,570,077   |    |
| Commitmentsand contingencies                                                                                                                                                                                                                                                                                           |  |
| Stockholders'deficiency:                                                                                                                                                                                                                                                                                               |  |
| Preferred stock, $0.01 par value,authorized – 5,000,000 shares; issued and outstanding at December31, 2004 and September 30, 2004 – 1,000,000 shares of Series Apreferred stock (classified in long-term liabilities as preferred stocksubject to mandatoryredemption)                                     |  |            | —      |             |  |   | —      |    |
| Commonstock, $0.01 par value, 100,000,000 shares authorized, 39,849,751shares issued and 39,242,251 shares outstanding at December 31, 2004and September 30,2004                                                                                                                                                       |  |            | 398,486      |             |  |   | 398,486      |    |
| Additionalpaid-incapital                                                                                                                                                                                                                                                                                               |  |            | 331,200,561  |             |  |   | 331,200,561  |    |
| Accumulateddeficit                                                                                                                                                                                                                                                                                                     |  |            | (344,043,452 | )           |  |   | (343,834,836 | )  |
| Treasurystock, 607,500 shares, atcost                                                                                                                                                                                                                                                                                  |  |            | (829,576     | )           |  |   | (829,576     | )  |
| Totalstockholders'deficiency                                                                                                                                                                                                                                                                                           |  |            | (13,273,981  | )           |  |   | (13,065,365  | )  |
| Totalliabilities and stockholders'deficiency                                                                                                                                                                                                                                                                           |  | $               | 1,298,984    |             |  | $      | 1,504,712    |    |
|                                                                                                                                                                                                                                                                                                                        |

Seeaccompanying notes to condensed consolidated financialstatements.

3

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

|                                                                              |  |                              |            |         |  |        |            |         |  |  |
|------------------------------------------------------------------------------|--|------------------------------|------------|---------|--|--------|------------|---------|--|--|
|                                                                         |  | ThreeMonths EndedDecember31, |
|                                                                         |  | 2004                         |            | 2003    |
| REVENUES                                                                     |  | $                            | —    |    |  | $      | —    |    |
| EXPENSES                                                                     |  |
| Generaland administrative expenses –corporate                          |  |                         | 189,691    |    |  |   | 328,563    |    |
| Write-offof fixedassets                                                      |  |                         | 20,429     |    |  |   | —    |    |
| Depreciationandamortization                                                  |  |                         | 4,980      |    |  |   | 4,980      |    |
|                                                                         |  |                         | 215,100    |    |  |   | 333,543    |    |
| Lossfromoperations                                                           |  |                         | (215,100   | )  |  |   | (333,543   | )  |
| Interestincome                                                               |  |                         | 14,365     |    |  |   | 299        |    |
| Interestexpense                                                              |  |                         | (10,572    | )  |  |   | (10,260    | )  |
| Lossbefore provision for incometaxes                                         |  |                         | (211,307   | )  |  |   | (343,504   | )  |
| Provisionfor incometaxes                                                     |  |                         | —    |    |  |   | 60         |    |
| LOSSFROM CONTINUINGOPERATIONS                                                |  |                         | (211,307   | )  |  |   | (343,564   | )  |
| GAIN(LOSS) FROM DISCONTINUEDOPERATIONS                                       |  |                         | 2,691      |    |  |   | (321,108   | )  |
| NETLOSS                                                                      |  | $                            | (208,616   | )  |  | $      | (664,672   | )  |
| NETINCOME (LOSS) PER COMMON SHARE – BASIC ANDDILUTED                   |  |
| Loss from continuingoperations                                               |  | $                            | (0.01      | )  |  | $      | (0.01      | )  |
| Gain(loss) from discontinuedoperations                                       |  |                         | 0.00       |    |  |   | (0.01      | )  |
| NETLOSS PER COMMON SHARE – BASIC ANDDILUTED                            |  | $                            | (0.01      | )  |  | $      | (0.02      | )  |
| WEIGHTEDAVERAGE NUMBER OF COMMON SHARES OUTSTANDING – BASIC ANDDILUTED |  |                         | 39,242,251 |    |  |   | 39,242,251 |    |
|                                                                              |

Seeaccompanying notes to condensed consolidated financialstatements.

4

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YOUTHSTREAM MEDIA NETWORKS,INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OFSTOCKHOLDERS' DEFICIENCY (UNAUDITED) THREE MONTHS ENDEDDECEMBER 31,2004

|                             |  |             |            |                          |  |                    |         |               |  |        |             |        |  |        |              |         |  |        |          |         |  |        |             |         |  |  |
|-----------------------------|--|-------------|------------|--------------------------|--|--------------------|---------|---------------|--|--------|-------------|--------|--|--------|--------------|---------|--|--------|----------|---------|--|--------|-------------|---------|--|--|
|                        |  | 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 | )  |
| Netloss                     |  |        | —    |                     |  |               | — |          |  |   | —     |   |  |   | (208,616     | )  |  |   | —  |    |  |   | (208,616    | )  |
| Balancesat December 31,2004 |  |        | 39,849,751 |                     |  | $                  | 398,486 |          |  | $      | 331,200,561 |   |  | $      | (344,043,452 | )  |  | $      | (829,576 | )  |  | $      | (13,273,981 | )  |
|                             |

Seeaccompanying notes to condensed consolidated financialstatements.

5

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

|                                                                           |  |                              |          |         |  |        |          |         |  |  |
|---------------------------------------------------------------------------|--|------------------------------|----------|---------|--|--------|----------|---------|--|--|
|                                                                      |  | ThreeMonths EndedDecember31, |
|                                                                      |  | 2004                         |          | 2003    |
| CASHFLOWS FROM OPERATING ACTIVITIES                                       |  |
| Netloss                                                                   |  | $                            | (208,616 | )  |  | $      | (664,672 | )  |
| Adjustmentsto reconcile net loss to net cash used in operatingactivities: |  |
| (Gain) loss from discontinuedoperations                                   |  |                         | (2,691   | )  |  |   | 321,108  |    |
| Netchange in assets and liabilities of discontinuedoperations             |  |                         | (4,784   | )  |  |   | 13,745   |    |
| Depreciationandamortization                                               |  |                         | 4,980    |    |  |   | 4,980    |    |
| Write-offof fixedassets                                                   |  |                         | 20,429   |    |  |   | —  |    |
| Amortizationof original issue discount on subordinatednotes               |  |                         | 572      |    |  |   | 260      |    |
| Accruedinterest from notereceivable                                       |  |                         | (11,647  | )  |  |   | —  |    |
| Changesin operating assets and liabilities, net ofacquisitions:           |  |
| (Increase) decreasein –                                             |  |
| Prepaidexpenses                                                           |  |                         | (11,181  | )  |  |   | 70,621   |    |
| Increase(decrease) in –                                             |  |
| Accountspayable                                                           |  |                         | 39,699   |    |  |   | (65,097  | )  |
| Accruedemployeecompensation                                               |  |                         | —  |    |  |   | (19,778  | )  |
| Otheraccruedexpenses                                                      |  |                         | (29,908  | )  |  |   | 38,272   |    |
| Netcash used in operatingactivities                                       |  |                         | (203,147 | )  |  |   | (300,561 | )  |
| CASHFLOWS FROM INVESTING ACTIVITIES                                       |  |
| Principal andinterest payments on notereceivable                          |  |                         | 247,227  |    |  |   | —  |    |
| Deferredcosts related to KEStransaction                                   |  |                         | (160,002 | )  |  |   | —  |    |
| Netcash provided by investingactivities                                   |  |                         | 87,225   |    |  |   | —  |    |
| CASHAND CASH EQUIVALENTS                                                  |  |
| Netdecrease                                                               |  |                         | (115,922 | )  |  |   | (300,561 | )  |
| Balanceat beginning ofperiod                                              |  |                         | 674,880  |    |  |   | 531,466  |    |
| Balanceat end ofperiod                                                    |  | $                            | 558,958  |    |  | $      | 230,905  |    |
| SUPPLEMENTALCASH FLOW INFORMATION                                         |  |
| Cash paid forinterest                                                     |  | $                            | —  |    |  | $      | —  |    |
| Cash paid for incometaxes                                                 |  | $                            | —  |    |  | $      | 60       |    |
|                                                                           |

See accompanying notes tocondensed consolidated financialstatements.

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YOUTHSTREAM MEDIANETWORKS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS (UNAUDITED) THREE MONTHS ENDED DECEMBER 31,2004 AND 2003

1.    Organization and Basis of Presentation

Basis of Presentation

The accompanyingcondensed consolidated financial statements include the accounts ofYouthStream Media Networks,  Inc.("YouthStream"), and its wholly-ownedinactive subsidiaries, Network Event Theater,  Inc.("NET"), American Passage Media,  Inc.("American Passage"), Beyond the Wall,Inc. ("Beyond the Wall" or"BTW"), and W3T.com,  Inc.("Teen.com") (collectively, the"Company"). During fiscal 2001, the Companyreorganized into two market segments: media and retail. The condensedconsolidated financial statements have been prepared in accordance withgenerally accepted accounting principles in the United States ofAmerica. All intercompany items and transactions have been eliminatedin consolidation.

In August 2002, the Company sold substantiallyall of its remaining media assets and assigned certain liabilities ofits NET and American Passage subsidiaries to Alloy, Inc. and ceasedoperating the media segment.

In February 2004, the Company soldthe assets and operations of its Beyond the Wall subsidiary and ceasedoperating the retail segment. Beyond the Wall was engaged in the saleof decorative wall posters through on-campus sales events, retailstores and internet sales, primarily to teenagers and young adults.During the three months ended December 31, 2003, Beyond the Walloperated 17 stores in 12 states, plus Washington, D.C., throughout theEast and mid-West, as well as a warehouse and distribution center inStroudsburg, Pennsylvania, and was the Company's onlyrevenue-generating business operation. The condensed consolidatedfinancial statements for the three months ended December 31, 2003 havebeen restated to reflect Beyond the Wall's operations as adiscontinued operation as a result of the disposal of the its assetsand operations on February 25, 2004 (see Note 3).

The Companydid not have any revenue-generating business operations during thethree months ended December 31, 2004.

The accompanying condensedconsolidated financial statements are unaudited, but in the opinion ofmanagement of the Company, contain all adjustments, which includenormal recurring adjustments, necessary to present fairly the financialposition at December 31, 2004, the results of operations for the threemonths December 31, 2004 and 2003, and the cash flows for the threemonths ended December 31, 2004 and 2003. The balance sheet as ofSeptember 30, 2004 is derived from the Company's auditedfinancial statements included in the Company's Annual Report onForm 10-K for the fiscal year ended 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, as filed with the Securities and ExchangeCommission.

The preparation of financial statements inconformity with generally accepted accounting principles requiresmanagement to make estimates and assumptions that affect the reportedamounts of assets and liabilities, disclosure of contingent assets andliabilities at the date of 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 ended December 31, 2004 are notnecessarily indicative of the results of operations to be expected forthe full fiscal year ending September 30, 2005.

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Financial StatementPresentation

The Company has incurred recurring operatinglosses since its inception. As of September 30, 2004, the Company hadan accumulated deficit of $343,834,836, a stockholders'deficiency of $13,065,365, a working capital deficiency of $3,452,840,and a net loss and negative cash flows from operating activities forthe year ended September 30, 2004 of $2,365,620 and $901,443,respectively. As of December  31, 2004, the Company had anaccumulated deficit of $344,043,452, a stockholders' deficiencyof $13,273,981, a working capital deficiency of $3,597,743, and a netloss and negative cash flows from operating activities for the threemonths ended December  31, 2004 of $208,616 and $203,147,respectively. The Company has insufficient capital to fund all of itsobligations. The Company also sold its remaining operating businessduring the year ended September 30, 2004. These conditions raisesubstantial doubt about the Company's ability to continue as agoing concern. The condensed 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 anexplanatory paragraph stating that the Company's recurring lossesand accumulated deficit, working capital deficiency and negative cashflow, among other things, raise substantial doubt about theCompany's ability to continue as a going concern.

TheCompany's management intends to continue efforts to settle theCompany's outstanding obligations and minimize operating costs.The Company believes that its current cash resources will be adequateto fund its operations at current levels during the remainder of fiscal2005. However, to the extent the Company's estimates andassumptions are inaccurate and/or the Company is unable to successfullysettle outstanding obligations at reduced amounts, the Company may nothave sufficient cash resources to fund such obligations and maintainits operations. In such event, the Company may be required to considera formal or informal restructuring or reorganization.

As aresult of the sale of the assets and operations of Beyond the Wall inFebruary 2004, the Company did not have any revenue-generating businessoperations at December 31, 2004.   In July 2004, the Companyentered into a letter of intent to acquire a steel mini-mill located inAshland, Kentucky (see Note 2). If the Company is able to complete thistransaction, the Company expects to utilize all or most of itsavailable cash resources to fund such endeavor, and will therefore needto obtain additional operating capital to fund corporate general andadministrative expenses either through internal or externalresources.

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

Stock-Based Compensation

TheCompany generally grants stock options to management and employees fora fixed number of shares with an exercise price equal to or greaterthan the fair value of the shares at the date of grant. The Companyaccounts for stock option grants in accordance with AccountingPrinciples Board ("APB") Opinion No. 25,"Accounting for Stock Issued to Employees",and, accordingly, recognizes compensation expense only if the fairvalue of the underlying common stock exceeds the exercise price of thestock option on the date of grant. As permitted by SFAS No. 123, theCompany continues to account for stock-based compensation in accordancewith APB Opinion No. 25 and has elected the pro forma disclosurealternative of SFAS No. 123, as amended by SFAS No. 148 (see Note4).

Net Loss Per Share

The Companycalculates net loss per share as required by SFAS No. 128,"Earnings per Share". Basic earnings pershare excludes any dilution for common stock equivalents and iscomputed by dividing net loss by the weighted average number of commonshares outstanding during the relevant period. Diluted earnings pershare reflects the potential dilution that could occur if options orother 

8

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securities or contracts entitling the holderto acquire shares of common stock were exercised or converted,resulting in the issuance of additional shares of common stock thatwould then share in earnings. However, diluted earnings per share doesnot consider such dilution if its effect would be anti-dilutive.Accordingly, basic and diluted loss per share are the same for allperiods presented.

Recent AccountingPronouncements

In May 2003, the FASB issued SFAS No. 150,"Accounting for Certain Financial Instruments withCharacteristics of both Liabilities and Equity". SFAS No.150 establishes standards for how an issuer classifies and measures inits statement of financial position certain financial instruments withcharacteristics of both liabilities and equity. SFAS No. 150 requiresthat an issuer classify a financial instrument that is within its scopeas a liability (or an asset in some circumstances) because thatfinancial instrument embodies an obligation of the issuer. SFAS No. 150is effective for financial instruments entered into or modified afterMay 31, 2003 and otherwise is effective at the beginning of the firstinterim period beginning after June 15, 2003. SFAS No. 150 is to beimplemented by reporting the cumulative effect of a change inaccounting principle for financial instruments created before theissuance date of SFAS No. 150 and still existing at the beginning ofthe interim period of adoption. Restatement is not permitted. Theimpact from the adoption of SFAS No. 150 for the year ended September30, 2003 resulted in the reclassification of the mandatorily redeemablepreferred stock from the mezzanine section of the balance sheet tonon-current liabilities.

In January 2003, the FASB issuedInterpretation No. 46, "Consolidation of Variable InterestEntities" ("FIN 46"), whichclarifies the application of Accounting Research Bulletin No. 51,"Consolidated Financial Statements", relatingto consolidation of certain entities. In December 2003, the FASB issueda revised version of FIN 46 ("FIN 46R") thatreplaced the original FIN 46. FIN 46R requires identification of acompany's participation in variable interest entities("VIEs"), which are defined as entities witha level of invested equity that is not sufficient to fund futureactivities to permit it to operate on a standalone basis. For entitiesidentified as a VIE, FIN 46R sets forth a model to evaluate potentialconsolidation based on an assessment of which party to the VIE (if any)bears a majority of the exposure to its expected losses, or stands togain from a majority of its expected returns. FIN 46R also sets forthcertain disclosures regarding interests in VIEs that are deemedsignificant, even if consolidation is not required. The Company is notcurrently participating in, or invested in any VIEs, as defined in FIN46R. Accordingly, the implementation of the provisions of FIN 46R didnot have a significant effect on the Company's consolidatedfinancial statement presentation or disclosures.

In December2004, the FASB issued SFAS No. 123(R), "Share-BasedPayment". SFAS No. 123(R) revises SFAS No. 123,"Accounting for Stock-Based Compensation" andsupersedes APB Opinion No. 25, "Accounting for StockIssued to Employees". SFAS No. 123(R) focuses primarily onthe accounting for transactions in which an entity obtains employeeservices in share-based payment transactions. SFAS No. 123(R) requirescompanies to recognize in the statement of operations the cost ofemployee services received in exchange for awards of equity instrumentsbased on the grant-date fair value of those awards (with limitedexceptions). SFAS No. 123(R) is effective as of the first interim orannual reporting period that begins after June 15, 2005 for non-smallbusiness issuers and after December 15, 2005 for small businessissuers. Accordingly, the Company will adopt SFAS No. 123(R) in itsquarter ending March 31, 2006. The Company is currently evaluating theprovisions of SFAS No. 123(R) and has not yet determined the impact, ifany, that SFAS No. 123(R) will have on its financial statementpresentation or disclosures.

2.    Investment in KESHoldings

In September  2003, the Company announced thatit made an investment of $125,000 for a 1.00% membershipinterest in KES Holdings, LLC, a Delaware limited liability company("KES Holdings"), which was formed to acquirecertain assets of Kentucky Electric Steel,  Inc., a Delawarecompany ("KES"), consisting of anon-operating steel mini-mill located in Ashland, Kentucky. OnSeptember  2, 2003, KES Holdings, through its subsidiary, KESAcquisition Company, LLC, a Delaware limited liability company("KES Acquisition"), completed theacquisition of the steel-mini-mill pursuant to 

9

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Section  363 of the United StatesBankruptcy Code for cash consideration of $2,650,000. KES ceasedproduction on or about December  16, 2002 and filed a voluntarypetition for relief under Chapter 11 of the United States BankruptcyCode on February  5, 2003. The steel mini-mill had been inoperation for approximately 50 years, and was refurbished by KESAcquisition subsequent to its acquisition.   The refurbishedsteel mini-mill has been generating revenues since early 2004.

In addition to the Company, investors in KES Holdings include, amongothers, affiliates of Libra Securities, LLC, a Delaware limitedliability company, which is a broker-dealer registered with theSecurities and Exchange Commission and an NASD member("Libra"), consisting of Libra's parententity, certain employees of Libra and the Ravich Revocable Trust of1989 (Jess M. Ravich, Trustee) (the "RavichTrust"). Robert Scott Fritz, one of the directors of theCompany, is also an investor in KES Holdings. Jess M. Ravich, thePresident and Chief Executive Officer of Libra and the principalstockholder of Libra's parent entity, is the manager of KESHoldings, but does not have a controlling equity interest in KESHoldings. Hal G. Byer, a director of the Company, is a Senior VicePresident of Libra, and by virtue of his employment with Libra, Mr.Byer has an economic interest in the investment in KES Holdings made byLibra's parent entity. The contributions of the members of KESHoldings were used in part to fund the purchase price of the steelmini-mill, with the balance used for start-up costs, working capitalpurposes and payment of deferred maintenance of the steelmini-mill.

Effective July 18, 2004, the Company entered into apreliminary letter of intent with KES Holdings to acquire KESAcquisition. In conjunction with the proposed acquisition, the Companywill form a new subsidiary in which it will own 80.01% of thetotal outstanding  common stock and 100% of the votingcommon stock, and will capitalize that subsidiary with $500,000. Inconnection with the acquisition, the new subsidiary is expected toissue to the owners of KES Acquisition in exchange for 100% oftheir equity interest in KES Acquisition (i) $25,000,000 of itsnon-convertible non-voting redeemable preferred stock with a redemptionprice equal to $25,000,000 and a 13% annual cumulative dividendand (ii) senior subordinated promissory notes in the aggregateprincipal amount of $40,000,000 with an annual interest rate of8%. As part of this transaction, the remaining19.99%  common stock interest in the new subsidiary willbe owned by the former owners of KES Acquisition.

The letter ofintent is subject to, among other conditions, negotiation, preparationand execution of definitive transaction documents, preparation ofconsolidated financial statements, compliance with state and federalsecurities laws and regulations, and receipt of requisite corporateapprovals.   The transaction is expected to close in the firstcalendar quarter of 2005.   However, as a result of the foregoinguncertainties, there can be no assurances that the transaction will becompleted. Furthermore, even if the transaction is completed, there canbe no assurances that the future operations of the steel mini-mill willbe successful.

As of December 31, 2004 and September 30, 2004,the Company incurred $335,146 and $175,144, respectively, inprofessional fees with respect to this transaction, which the Companyhas presented as deferred costs in the accompanying condensedconsolidated balance sheets. These costs will be accounted for as partof the purchase consideration if and when this transaction iscompleted. If the Company does not complete this transaction, thesecosts will be charged to operations in the period that theCompany's efforts to complete this transaction areterminated.

3.    Discontinued Operations

OnAugust  5, 2002, the Company sold substantially all of its mediaassets and assigned certain liabilities to Cass Communications,Inc., a subsidiary of Alloy,  Inc. and, as a result of the sale,the media segment of the Company's operations was discontinuedduring the three months ended September  30, 2002.

Inearly fiscal 2003 the Company followed through on its previouslyannounced plans to close a number of under performing retail storeswithin its Beyond the Wall chain and incurred approximately $989,000 ofstore-closing costs during the three months ended December 31,2002.   The loss from discontinued operations for the threemonths ended December 31, 2003 of $321,108 consists of an operatingloss of $821,108, offset by a gain of $500,000 resulting from thereduction of a prior accrual 

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with respect to the closing of retail stores.The reduction in the accrual was a result of the Company completingsettlements with landlords below what had been originally accrued.

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

On April 30, 2004, the buyer made an optional principalpre-payment on the Note of $400,000.   Accordingly, under theprovisions of the sale agreement, the buyer received a credit of$107,000 against the $1,100,000 note (in excess of the $400,000payment), as well as an additional $150,000 back-end credit on theNote. On October 31, 2004, the buyer made its scheduled principalpayment on the Note of $198,000, plus accrued interest of $49,227.Remaining scheduled principal payments at December 31, 2004 withrespect to the Note totaling $245,000 are as follows: October 31, 2005– $198,000; October 31, 2006 – $47,000.

The Companyinitially recognized a loss of $565,000 with respect to this salebefore taking into consideration the effect of the $400,000 principalpre-payment made on April 30, 2004.   Inclusive of such payment,the effect of the accelerated payment credit and the back-end creditresulted in an additional loss of $257,000, which decreased thecarrying value of the note receivable from $1,100,000 to $843,000 andincreased the loss on the BTW sale from $565,000 to $822,000.The loss on the BTW sale was reported as a loss on the disposal ofdiscontinued operations for the three months ended March 31,2004.   As a result of the sale, the retail segment operationswere discontinued during the three months ended March 31, 2004.

Net revenues and gain (loss) from discontinued operations aresummarized as follows:

|                                            |  |                              |         |        |  |        |           |         |  |  |
|--------------------------------------------|--|------------------------------|---------|--------|--|--------|-----------|---------|--|--|
|                                       |  | ThreeMonths EndedDecember31, |
|                                       |  | 2004                         |         | 2003   |
| Netrevenues                                |  | $                            | — |   |  | $      | 1,053,567 |    |
| Gain(loss) from discontinuedoperations     |  | $                            | 2,691   |   |  | $      | (821,108  | )  |
| Gain ondisposal of discontinuedoperations  |  |                         | — |   |  |   | 500,000   |    |
| Netgain (loss) from discontinuedoperations |  | $                            | 2,691   |   |  | $      | (321,108  | )  |
|                                            |

Asof December 31, 2004 and September  30, 2004, the Company hasaccrued liabilities of $2,490,993 and $2,498,468, respectively,remaining from its discontinued businesses. The accruals primarilyconsists of severance, lease payments and other costs related to theoperations of the discontinued businesses

4.    Stock-BasedCompensation

During October 2003, the Company issued an optionto purchase 50,000 shares of common stock to its Chief ExecutiveOfficer, exercisable through October 2010 at $0.26 per share, which wasthe fair market value on the date of issuance.

The Companyaccounts for stock-based employee compensation in accordance with theprovisions of Accounting Principles Board("APB") Opinion No.  25 and FASBInterpretation No.  44 ("FIN 44"),"Accounting for Certain Transactions Involving StockCompensation", and complies with the disclosurerequirements of SFAS No.  123, "Accounting forStock-Based Compensation". Under APB No.  25,compensation expense is recorded based on the difference, if any,between the fair value of the Company's stock and the exerciseprice on the measurement date. The Company accounts for stock issued tonon-employees in accordance with SFAS No.  123, which requiresentities to recognize as expense over the service period the fair valueof all stock-based awards on the date of grant and 

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EITF 96-18, "Accounting forEquity Investments that are Issued to Other Than Employees forAcquiring, or in Conjunction with Selling, Goods orServices", which addresses the measurement date andrecognition approach for such transactions.

Pro formainformation regarding net loss per share is required by SFAS 123, andhas been determined as if the Company had accounted for its employeestock options under the fair value method of such statement. The fairvalue for these options was estimated at the date of grant using theBlack-Scholes option-pricing model.

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

|                                                                                                        |  |                              |          |         |  |        |          |         |  |  |
|--------------------------------------------------------------------------------------------------------|--|------------------------------|----------|---------|--|--------|----------|---------|--|--|
|                                                                                                   |  | ThreeMonths EndedDecember31, |
|                                                                                                   |  | 2004                         |          | 2003    |
| Netloss attributable to common shares – asreported                                               |  | $                            | (208,616 | )  |  | $      | (664,672 | )  |
| Add:Total stock-based employee compensation expense included in reportednet loss                       |  |                         | —  |    |  |   | —  |    |
| Deduct:Total stock-based employee compensation expense determined under fairvalue method for allawards |  |                         | —  |    |  |   | (13,000  | )  |
| Netloss, proforma                                                                                      |  | $                            | (208,616 | )  |  | $      | (677,672 | )  |
| Basicand diluted net loss per common share, asreported                                                 |  | $                            | (0.01    | )  |  | $      | (0.02    | )  |
| Basicand diluted net loss per common share, proforma                                                   |  | $                            | (0.01    | )  |  | $      | (0.02    | )  |
|                                                                                                        |

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

|                              |  |                  |           |                    |  |        |           |        |  |  |
|------------------------------|--|------------------|-----------|--------------------|--|--------|-----------|--------|--|--|
|                         |  | December31, 2004 |           | September 30, 2004 |
| Stockoptions                 |  |             | 1,205,404 |               |  |   | 1,205,404 |   |
| Commonstock purchasewarrants |  |             | 1,000,000 |               |  |   | 1,000,000 |   |
|                              |

5.    Propertyand Equipment

At December 31, 2004, in conjunction with therelocation of the Company's administrative offices, the Companywrote off the remaining balance of its office equipment of $20,429.

6.    Legal Proceedings

The Company and/or its formersubsidiary, Beyond the Wall, are also defendants in various otherlawsuits and claims from various trade creditors and former landlordsseeking damages aggregating approximately $300,000. Certain of theseclaims are the responsibility of the buyer of the Beyond the Wallbusiness. The Company evaluates its response in each situation based onthe particular 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, itsreal estate or its other assets. The Company has made sufficientaccruals for the exposure related to such matters that have been deemedprobable and reasonably estimable at December 31, 2004 andSeptember  30, 2004.

Given the Company's currentfinancial situation, the costs of defending these proceedings anddiversion of management's attention to these matters, the outcomeof such proceedings could have a material adverse effect on theCompany's financial condition or operating results, including itsability to restructure its debts without seeking bankruptcy protectionor being the subject of an involuntary bankruptcy petition, or itsability to continue as a going concern.

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7.    Income Taxes

No currentor deferred federal tax provision or benefit has been provided for thethree months ended December 31, 2004 and 2003 due to the significantlosses incurred to date.

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.

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ITEM 2.    MANAGEMENT'SDISCUSSION AND ANALYSIS OR PLAN OF OPERATION

GeneralOverview

During fiscal 2001, the Company reorganized into twomarket segments: media and retail. In August 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.

In February 2004, theCompany sold the assets and operations of its Beyond the Wallsubsidiary and ceased operating the retail segment. Beyond the Wall wasengaged in the sale of decorative wall posters through on-campus salesevents, retail stores and internet sales, primarily to teenagers andyoung adults. During the three months ended December 31, 2003, Beyondthe 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. Thecondensed consolidated financial statements for the three months endedDecember 31, 2003 have been restated to reflect Beyond the Wall'soperations as a discontinued operation as a result of the disposal ofthe assets and operations of Beyond the Wall on February 25, 2004.

The Company did not have any revenue-generating business operationsduring the three months ended December 31, 2004.

GoingConcern

The Company has incurred recurring operating lossessince its inception. As of September 30, 2004, the Company had anaccumulated deficit of $343,834,836, a stockholders' deficiencyof $13,065,365, a working capital deficiency of $3,452,840, and a netloss and negative cash flows from operating activities for the yearended September 30, 2004 of $2,365,620 and $901,443, respectively. Asof December  31, 2004, the Company had an accumulated deficit of$344,043,452, a stockholders' deficiency of $13,273,981, aworking capital deficiency of $3,597,743, and a net loss and negativecash flows from operating activities for the three months endedDecember  31, 2004 of $208,616 and $203,147, respectively. TheCompany has insufficient capital to fund all of its obligations. TheCompany also sold its remaining operating business during the yearended September 30, 2004. These conditions raise substantial doubtabout the Company's ability to continue as a going concern. Thecondensed consolidated financial statements do not include anyadjustments to reflect the possible future effect of the recoverabilityand classification of assets or the amounts and classifications ofliabilities that may result from the outcome of this uncertainty. TheCompany's independent registered public accounting firm, in itsreport dated December 17, 2004, included an explanatory paragraphstating that the Company's recurring losses and accumulateddeficit, working capital deficiency and negative cash flow, among otherthings, raise substantial doubt about the Company's ability tocontinue as a going concern.

Sale of Assets and Operations ofBeyond the Wall, Inc.

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.   Thebuyer had the right to make certain optional principal pre-payments onthe Note by June 30, 2004, which would result in the principal balanceof the Note being adjusted downward, in excess of such principalpre-payments, based on an agreed-upon sliding scale as set forth in theNote.

On April 30, 2004, the buyer made an optional principalpre-payment on the Note of $400,000.   Accordingly, under theprovisions of the sale agreement, the buyer received a credit of$107,000 against the $1,100,000 note (in excess of the $400,000payment), as well as an additional $150,000 back-end credit on theNote. On October 31, 2004, the buyer made its scheduled principalpayment on 

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the Note of $198,000, plus accrued interestof $49,227. Remaining scheduled principal payments at December 31, 2004with respect to the Note totaling $245,000 are as follows: October 31,2005 – $198,000; October 31, 2006 – $47,000.

TheCompany initially recognized a loss of $565,000 with respect to thissale before taking into consideration the effect of the $400,000principal pre-payment made on April 30, 2004.   Inclusive of suchpayment, the effect of the accelerated payment credit and the back-endcredit resulted in an additional loss of $257,000, which decreased thecarrying value of the note receivable from $1,100,000 to $843,000 andincreased the loss on the BTW sale from $565,000 to $822,000.The loss on the BTW sale was reported as a loss on the disposal ofdiscontinued operations for the three months ended March 31,2004.   As a result of the sale, the retail segment operationswere discontinued during the three months ended March 31, 2004.

Investment in KES Holdings

In September  2003, theCompany announced that it made an investment of $125,000 for a1.00% membership interest in KES Holdings, LLC, a Delawarelimited liability company ("KES Holdings"),which was formed to acquire certain assets of Kentucky ElectricSteel,  Inc., a Delaware company("KES"), consisting of a non-operating steelmini-mill located in Ashland, Kentucky. On September  2, 2003,KES Holdings, through its subsidiary, KES Acquisition Company, LLC, aDelaware limited liability company ("KESAcquisition"), completed the acquisition of thesteel-mini-mill pursuant to Section  363 of the United StatesBankruptcy Code for cash consideration of $2,650,000. KES ceasedproduction on or about December  16, 2002 and filed a voluntarypetition for relief under Chapter 11 of the United States BankruptcyCode on February  5, 2003. The steel mini-mill had been inoperation for approximately 50 years, and was refurbished by KESAcquisition subsequent to its acquisition.   The refurbishedsteel mini-mill has been generating revenues since early 2004.

In addition to the Company, investors in KES Holdings include, amongothers, affiliates of Libra Securities, LLC, a Delaware limitedliability company, which is a broker-dealer registered with theSecurities and Exchange Commission and an NASD member("Libra"), consisting of Libra's parententity, certain employees of Libra and the Ravich Revocable Trust of1989 (Jess M. Ravich, Trustee) (the "RavichTrust"). Robert Scott Fritz, one of the directors of theCompany, is also an investor in KES Holdings. Jess M. Ravich, thePresident and Chief Executive Officer of Libra and the principalstockholder of Libra's parent entity, is the manager of KESHoldings, but does not have a controlling equity interest in KESHoldings. Hal G. Byer, a director of the Company, is a Senior VicePresident of Libra, and by virtue of his employment with Libra, Mr.Byer has an economic interest in the investment in KES Holdings made byLibra's parent entity. The contributions of the members of KESHoldings were used in part to fund the purchase price of the steelmini-mill, with the balance used for start-up costs, working capitalpurposes and payment of deferred maintenance of the steelmini-mill.

Effective July 18, 2004, the Company entered into apreliminary letter of intent with KES Holdings to acquire KESAcquisition. In conjunction with the proposed acquisition, the Companywill form a new subsidiary in which it will own 80.01% of thetotal outstanding  common stock and 100% of the votingcommon stock, and will capitalize that subsidiary with $500,000. Inconnection with the acquisition, the new subsidiary is expected toissue to the owners of KES Acquisition in exchange for 100% oftheir equity interest in KES Acquisition (i) $25,000,000 of itsnon-convertible non-voting redeemable preferred stock with a redemptionprice equal to $25,000,000 and a 13% annual cumulative dividendand (ii) senior subordinated promissory notes in the aggregateprincipal amount of $40,000,000 with an annual interest rate of8%. As part of this transaction, the remaining19.99%  common stock interest in the new subsidiary willbe owned by the former owners of KES Acquisition.

The letter ofintent is subject to, among other conditions, negotiation, preparationand execution of definitive transaction documents, preparation ofconsolidated financial statements, compliance with state and federalsecurities laws and regulations, and receipt of requisite corporateapprovals.   The transaction is expected to close in the firstcalendar quarter of 2005.   However, as a result of the foregoinguncertainties, there can be no assurances that the transaction will becompleted. Furthermore, even if the transaction is completed, there canbe no assurances that the future operations of the steel mini-mill willbe successful.

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As of December 31, 2004 and September 30,2004, the Company incurred $335,146 and $175,144, respectively, inprofessional fees with respect to this transaction, which the Companyhas presented as deferred costs in the accompanying condensedconsolidated balance sheets. These costs will be accounted for as partof the purchase consideration if and when this transaction iscompleted. If the Company does not complete this transaction, thesecosts will be charged to operations in the period that theCompany's efforts to complete this transaction areterminated.

Critical Accounting Policies

The Companyprepared its financial statements in accordance with accountingprinciples generally accepted in the United States. The preparation ofthese financial statements requires the use of estimates andassumptions that affect the reported amounts of assets and liabilitiesand the disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amount of revenues andexpenses during the reporting period. Management periodically evaluatesthe estimates and judgments made. Management bases its estimates andjudgments on historical experience and on various factors that arebelieved to be reasonable under the circumstances. Actual results maydiffer from these estimates as a result of different assumptions orconditions.

The following critical accounting policies affectthe more significant judgments and estimates used in the preparation ofthe Company's financial statements.

Impairment of Assets

The Company periodicallyevaluates its non-current assets for potential impairment indicators.The Company's judgments regarding the potential impairment arebased on legal factors, market conditions and operational performanceindicators, among others. Future events could cause us to conclude thatimpairment indicators exist and that such assets (primarilyinvestments, notes receivable and fixed assets) are impaired.

Income Taxes

The Company records a valuationallowance to reduce its deferred tax assets to the amount that is morelikely than not to be realized. In the event the Company was todetermine that it would be able to realize its deferred tax assets inthe future in excess of its recorded amount, an adjustment to thedeferred tax assets would be credited to operations in the period suchdetermination was made. Likewise, should the Company determine that itwould not be able to realize all or part of its deferred tax assets inthe future, an adjustment to the deferred tax assets would be chargedto operations in the period such determination was made.

Results of Operations – Three Months Ended December 31, 2004and 2003

The assets and operations of the Company'sBeyond the Wall subsidiary were sold in February 2004, as a result ofwhich the operations of this subsidiary for the three months endedDecember 31, 2003 are presented below as a discontinued operation.

General and Administrative.    For the three months endedDecember 31, 2004, corporate general and administrative expenses were$189,691, as compared to $328,563 for the three months ended December31, 2003. The decrease of $138,872 or 42.3% was due to variouscost reductions, including reduced corporate personnel and officeexpenses, in 2004 as compared to 2003. Significant components ofgeneral and administrative expenses include management compensation,legal and accounting fees and insurance costs.

Write-off ofFixed Assets.    At December 31, 2004, in conjunction with therelocation of the Company's administrative offices, the Companywrote off the remaining balance of its office equipment of $20,429.

Depreciation and Amortization.    For the three monthsended December 31, 2004 and 2003, depreciation and amortization expensewas $4,980 for each period.

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Interest Income.    For thethree months ended December 31, 2004, interest income was $14,365, ascompared to $299 for the three months ended December 31, 2003, as aresult of an increase in interest-bearing cash balances.

Interest Expense.    For the three months ended December31, 2004, interest expense was $10,572, as compared to $10,260 for thethree months ended December 31, 2003.

IncomeTaxes.    For the three months ended December 31, 2003, theCompany recorded a benefit from income taxes of $60. The Company didnot record any provision for or benefit from income taxes for the threemonths ended December 31, 2004.

Loss From ContinuingOperations.    For the three months ended December 31, 2004, as aresult of the aforementioned factors, the loss from continuingoperations was $211,307, as compared to a loss from continuingoperations of $343,564 for the three months ended December 31,2003.

Gain (Loss) From Discontinued Operations.    Forthe three months ended December 31, 2004, the Company had a gain fromdiscontinued operations of $2,691, as compared to a loss fromdiscontinued operations of $321,108 for the three months ended December31, 2003. The loss from discontinued operations for the three monthsended December 31, 2003 of $321,108 consists of an operating loss of$821,108, offset by a gain of $500,000 resulting from the reduction ofa prior accrual with respect to the closing of retail stores. Thereduction in the accrual was a result of the Company completingsettlements with landlords below what had been originally accrued.

Net Loss.    For the three months ended December 31, 2004,as a result of the aforementioned factors, the Company had a net lossof $208,616, as compared to a net loss of $664,672 for the three monthsended December 31, 2003.

Liquidity and Capital Resources– December 31, 2004

To date, the Company has financed itsoperations primarily through the sale of equity securities and debt,and the sale or liquidation of its previous operating businesses. As ofDecember 31, 2004, the Company had $558,958 in cash, a decrease of$115,922 as compared to September 30, 2004. The Company has never beenprofitable and as currently configured expects to continue to incurlosses subsequent to December 31, 2004. Since the sale of the assetsand operations of Beyond the Wall in February 2004, the Company has nothad any revenue-generating business operations.

TheCompany's consolidated financial statements have been prepared onthe assumption that the Company will continue as a going concern. TheCompany's independent registered public accounting firm, in itsreport on the Company's consolidated financial statements for thefiscal year ended September 30, 2004, has included an explanatoryparagraph stating that the Company's recurring losses andaccumulated deficit, working capital deficiency and negative cash flow,among other factors, raise substantial doubt about the Company'sability to continue as a going concern. The Company may find itnecessary to rely upon financing from the issuance of debt and/orequity securities to be able to sustain its operations, acquire ordevelop new operations, and fund its ongoing obligations. However,there can be no assurance that the Company will be able to obtainsufficient additional capital under acceptable terms or conditions.Furthermore, there can be no assurances that the Company will be ableto generate sufficient revenues from a new business opportunity to meetthe Company's ongoing obligations. These conditions raisesubstantial doubt about the Company's ability to continue as agoing concern.

The Company's management intends tocontinue efforts to settle the Company's outstanding obligationsand minimize operating costs. The Company believes that its currentcash resources will be adequate to fund its operations at currentlevels during the remainder of fiscal 2005. However, to the extent theCompany's estimates and assumptions are inaccurate and/or theCompany is unable to successfully settle outstanding obligations atreduced amounts, the Company may not have sufficient cash resources tofund such obligations and maintain its operations. In such event, theCompany may be required to consider a formal or informal restructuringor reorganization.

As a result of the sale of the assets andoperations of Beyond the Wall in February 2004, the Company did nothave any revenue-generating business operations at December 31,2004.   In July 

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2004, the Company entered into a letter ofintent to acquire a steel mini-mill located in Ashland, Kentucky. Ifthe Company is able to complete this transaction, the Company expectsto utilize all or most of its available cash resources to fund suchendeavor, and will therefore need to obtain additional operatingcapital to fund corporate general and administrative expenses eitherthrough internal or external resources.

The Company'smanagement may also consider various strategic alternatives in thefuture, including the acquisition of new business opportunities, whichmay be from related or unrelated parties.   However, there can beno assurances that such efforts will ultimately be successful.The Company may finance any acquisitions through a combination of debtand/or equity securities.

Operating Activities. During the threemonths ended December 31, 2004, the Company used $203,147 of cash inoperating activities, primarily to fund its net loss in 2004 of$208,616. During the three months ended December 31, 2003, the Companyused $300,561 of cash in operating activities, primarily to fund itsloss from continuing operations in 2003 of $343,564.

InvestingActivities. During the three months ended December 31, 2004, net cashprovided by investing activities was $87,225, consisting of the October31, 2004 scheduled principal payment of $198,000, plus accrued interestof $49,227, on the note that the Company received in the February 2004sale of the assets and operations of Beyond the Wall, offset by$160,002 of deferred costs with respect to the KES Holdingstransaction.

Financing Activities. During the three months endedDecember 31, 2004 and 2003, the Company did not generate or use anycash in financing transactions.

Principal Commitments

At December 31, 2004, the Company's principal commitmentsconsisted of the following obligations:

|                                               |  |                       |            |                |  |                  |         |                 |  |              |         |        |  |        |         |        |  |        |            |        |  |  |
|-----------------------------------------------|--|-----------------------|------------|----------------|--|------------------|---------|-----------------|--|--------------|---------|--------|--|--------|---------|--------|--|--------|------------|--------|--|--|
|                                          |  | PaymentsDue by Period |
| Contractual cashobligations                   |  | Total                 |            | Less than1year |  | Between2-3 years |         | Between4-5years |  | After5 years |
| Long-termdebt                                 |  | $                     | 4,914,783  |           |  | $                | — |            |  | $            | — |   |  | $      | — |   |  | $      | 4,914,783  |   |
| Preferredstock subject to mandatoryredemption |  |                  | 5,269,333  |           |  |             | — |            |  |         | — |   |  |   | — |   |  |   | 5,269,333  |   |
| Total                                         |  | $                     | 10,184,116 |           |  | $                | — |            |  | $            | — |   |  | $      | — |   |  | $      | 10,184,116 |   |
|                                               |

AtDecember 31, 2004, the Company does not have any material commitmentsfor operating leases or capital expenditures, or have any transactions,obligations or relationships that could be considered off-balance sheetarrangements.

Off-Balance Sheet Arrangements

TheCompany does not have any transactions, obligations or relationshipsthat could be considered off-balance sheet arrangements at December 31,2004.

Recent Accounting Pronouncements

In May 2003, theFASB issued SFAS No. 150, "Accounting for CertainFinancial Instruments with Characteristics of both Liabilities andEquity". SFAS No. 150 establishes standards for how anissuer classifies and measures in its statement of financial positioncertain financial instruments with characteristics of both liabilitiesand equity. SFAS No. 150 requires that an issuer classify a financialinstrument that is within its scope as a liability (or an asset in somecircumstances) because that financial instrument embodies an obligationof the issuer. SFAS No. 150 is effective for financial instrumentsentered into or modified after May 31, 2003 and otherwise is effectiveat the beginning of the first interim period beginning after June 15,2003. SFAS No. 150 is to be implemented by reporting the cumulativeeffect of a change in accounting principle for financial instrumentscreated before the issuance date of SFAS No. 150 and still existing atthe beginning of the interim period of adoption. Restatement is notpermitted. The impact from the adoption of SFAS No. 150 for the yearended September 30, 2003 resulted in the reclassification of themandatorily redeemable preferred stock from the mezzanine section ofthe balance sheet to non-current liabilities.

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In January 2003, the FASB issuedInterpretation No. 46, "Consolidation of Variable InterestEntities" ("FIN 46"), whichclarifies the application of Accounting Research Bulletin No. 51,"Consolidated Financial Statements", relatingto consolidation of certain entities. In December 2003, the FASB issueda revised version of FIN 46 ("FIN 46R") thatreplaced the original FIN 46. FIN 46R requires identification of acompany's participation in variable interest entities("VIEs"), which are defined as entities witha level of invested equity that is not sufficient to fund futureactivities to permit it to operate on a standalone basis. For entitiesidentified as a VIE, FIN 46R sets forth a model to evaluate potentialconsolidation based on an assessment of which party to the VIE (if any)bears a majority of the exposure to its expected losses, or stands togain from a majority of its expected returns. FIN 46R also sets forthcertain disclosures regarding interests in VIEs that are deemedsignificant, even if consolidation is not required. The Company is notcurrently participating in, or invested in any VIEs, as defined in FIN46R. Accordingly, the implementation of the provisions of FIN 46R didnot have a significant effect on the Company's consolidatedfinancial statement presentation or disclosures.

In December2004, the FASB issued SFAS No. 123(R), "Share-BasedPayment". SFAS No. 123(R) revises SFAS No. 123,"Accounting for Stock-Based Compensation" andsupersedes APB Opinion No. 25, "Accounting for StockIssued to Employees". SFAS No. 123(R) focuses primarily onthe accounting for transactions in which an entity obtains employeeservices in share-based payment transactions. SFAS No. 123(R) requirescompanies to recognize in the statement of operations the cost ofemployee services received in exchange for awards of equity instrumentsbased on the grant-date fair value of those awards (with limitedexceptions). SFAS No. 123(R) is effective as of the first interim orannual reporting period that begins after June 15, 2005 for non-smallbusiness issuers and after December 15, 2005 for small businessissuers. Accordingly, the Company will adopt SFAS No. 123(R) in itsquarter ending March 31, 2006. The Company is currently evaluating theprovisions of SFAS No. 123(R) and has not yet determined the impact, ifany, that SFAS No. 123(R) will have on its financial statementpresentation or disclosures.

ITEM 3. CONTROLS ANDPROCEDURES

(a) Evaluation of Disclosure Controls andProcedures

Disclosure controls and procedures are designed toensure that information required to be disclosed in the reports filedor submitted under the Exchange Act of 1934 is recorded, processed,summarized and reported, within the time periods specified in the rulesand forms of the Securities and Exchange Commission. Disclosurecontrols and procedures include, without limitation, controls andprocedures designed to ensure that information required to be disclosedin the reports filed under the Exchange Act of 1934 is accumulated andcommunicated to management, including its principal executive andfinancial officers, as appropriate, to allow timely decisions regardingrequired disclosure.

The Company carried out an evaluation,under the supervision and with the participation of the Company'smanagement, including its principal executive and financial officers,of the effectiveness of the design and operation of the Company'sdisclosure controls and procedures as of the end of the period coveredby this report. Based upon and as of the date of that evaluation, theCompany's principal executive and financial officers concludedthat the Company's disclosure controls and procedures areeffective to ensure that information required to be disclosed in thereports the Company files and submits under the Exchange Act of 1934 isrecorded, processed, summarized and reported within the time periodsspecified in the Securities and Exchange Commission's rules andforms.

(b) Changes in Internal Controls

There were nochanges in the Company's internal controls or in other factorsthat could have significantly affected those controls subsequent to thedate of the Company's most recentevaluation.

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PART II. OTHER INFORMATION

ITEM1. LEGAL PROCEEDINGS

The Company and/or its former subsidiary,Beyond the Wall, are also defendants in various other lawsuits andclaims from various trade creditors and former landlords seekingdamages aggregating approximately $300,000. Certain of these claims arethe responsibility 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, itsreal estate or its other assets. The Company has made sufficientaccruals for the exposure related to such matters that have been deemedprobable and reasonably estimable at December 31, 2004 andSeptember  30, 2004.

Given the Company's currentfinancial situation, the costs of defending these proceedings anddiversion of management's attention to these matters, the outcomeof such proceedings could have a material adverse effect on theCompany's financial condition or operating results, including itsability to restructure its debts without seeking bankruptcy protectionor being the subject of an involuntary bankruptcy petition, or itsability to continue as a going concern.

ITEM 6. EXHIBITS

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

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SIGNATURES

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

|  | YOUTHSTREAM MEDIANETWORKS,INC.                                  (Registrant) |
|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                        |  |     |  |                                                                   |  |  |  |  |  |  |
|------------------------|--|-----|--|-------------------------------------------------------------------|--|--|--|--|--|--|
| DATE: February 18,2005 |  | BY: |  | /s/JONATHAN V. DIAMONDJonathan V. DiamondChief ExecutiveOfficer   |
| DATE: February 18,2005 |  | BY: |  | /s/ ROBERT N. WEINGARTENRobert N.WeingartenChief FinancialOfficer |
|                        |

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INDEXTOEXHIBITS

|      |  |                                                                                                 |  |  |  |  |
|------|--|-------------------------------------------------------------------------------------------------|--|--|--|--|
| 31.1 |  | Certificationof Chief Executive Officer pursuant to Section 302 of theSarbanes-Oxley Act of2002 |
| 31.2 |  | Certificationof Chief Financial Officer pursuant to Section 302 of theSarbanes-Oxley Act of2002 |
| 32   |  | Certificationpursuant to Section 906 of the Sarbanes-Oxley Act of2002                           |
|      |

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