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UNITEDSTATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM10-K

|        |                                                                                    |
|--------|------------------------------------------------------------------------------------|
|   | ANNUAL REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934 |

For the fiscal year ended September 30,2004

|        |                                                                                        |
|--------|----------------------------------------------------------------------------------------|
|   | TRANSITION REPORTPURSUANT TO 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 registrant asspecified in its charter)

|                                                                                            |  |                                                               |  |  |  |  |
|--------------------------------------------------------------------------------------------|--|---------------------------------------------------------------|--|--|--|--|
| Delaware                                                                                   |  | 13-4082185                                                    |
| (State or other jurisdictionof incorporation or organization)                              |  | (I.R.S. EmployerIdentificationNumber)     |
| **244Madison Avenue, PMB #358, New York, New York**(Address of Principal ExecutiveOffices) |  | **10016**(ZipCode)                        |
|                                                                                            |

(212) 883-0083

(Registrant's telephonenumber, including Area Code)

Securities registered pursuant toSection 12(b) of the Act:None

Securitiesregistered pursuant to Section 12(g) of the Act:Common Stock,par value $0.01 per share

Indicate by check markwhether the registrant (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrantas required to file such reports) and (2) has been subject to suchfiling requirements for the past 90 days.

Yes          No 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-Kis not contained herein, and will not be contained, to the best ofregistrant's knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of this Form 10-K orany amendment to this Form 10-K. 

Indicate by check markwhether the registrant is an accelerated filer (as defined in ExchangeAct Rule 12b-2 of the Act).

Yes          No 

As of December 31, 2004, there were39,242,000 shares of the registrant's common stockoutstanding.

As of December 31, 2004, the aggregate market valueof voting stock held by non-affiliates of the registrant was$14,044,455 (based on the closing price of the registrant'scommon stock on such date of $0.45 per share).

Documentsincorporated by reference:None.

    

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YOUTHSTREAMMEDIA NETWORKS, INC.ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

|                                           |  |                                                                                      |     |        |    |        |  |  |  |  |
|-------------------------------------------|--|--------------------------------------------------------------------------------------|-----|--------|----|--------|--|--|--|--|
| ItemNo.                                   |  | Page                                                                                 |
| PartI                                     |  |
| 1.                                        |  | Business                                                                             |     |   | 1  |   |
| 2.                                        |  | Properties                                                                           |     |   | 5  |   |
| 3.                                        |  | Legal Proceedings                                                                    |     |   | 6  |   |
| 4.                                        |  | Submission of Matters to aVote of Security Holders                                   |     |   | 6  |   |
| PartII                                    |  |
| 5.                                        |  | Market for Registrant's CommonEquity and Related Stockholder Matters                 |     |   | 6  |   |
| 6.                                        |  | Selected Financial Data                                                              |     |   | 7  |   |
| 7.                                        |  | Management's Discussionand Analysis of Financial Condition and Results of Operations |     |   | 9  |   |
| 7A.                                       |  | Quantitative and QualitativeDisclosures about Market Risk                            |     |   | 14 |   |
| 8.                                        |  | Financial Statements andSupplementary Data                                           |     |   | 14 |   |
| 9.                                        |  | Changes inand Disagreements with Accountants on Accounting and FinancialDisclosure   |     |   | 14 |   |
| 9A.                                       |  | Controls andProcedures                                                               |     |   | 14 |   |
| 9B.                                       |  | Other Information                                                                    |     |   | 15 |   |
| PartIII                                   |  |
| 10.                                       |  | Directors and Executive Officers ofthe Registrant                                    |     |   | 16 |   |
| 11.                                       |  | ExecutiveCompensation                                                                |     |   | 18 |   |
| 12.                                       |  | SecurityOwnership of Certain Beneficial Owners and Management                        |     |   | 23 |   |
| 13.                                       |  | Certain Relationships andRelated Transactions                                        |     |   | 24 |   |
| 14.                                       |  | Principal Accountant Feesand Services                                                |     |   | 25 |   |
| PartIV                                    |  |
| 15.                                       |  | Exhibits and Financial StatementSchedules                                            |     |   | 26 |   |
|                                      |  |
| Indexto Consolidated Financial Statements |  |                                                                                 | F-1 |   |
| Signatures                                |  |                                                                                 | S-1 |   |
|                                           |

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PART I

ITEM 1. BUSINESS

This Annual Report on Form 10-K, includingwithout limitation the Business section and Management'sDiscussion and Analysis of Financial Condition and Results ofOperations, contains forward-looking statements within the meaning ofSection 27A of the Securities Act of 1933, as amended, and Section 21Eof the Securities Exchange Act of 1934, as amended. These statementsinclude, but are not limited to, statements concerning future liquidityand financing requirements and plans to make acquisitions, dispositionsor strategic investments.

Certain information and statementscontained in Management's Discussion and Analysis of FinancialCondition and Results of Operations and other sections of this report,including statements containing words such as"could", "expects","may","anticipates","believes","estimates","plans", and similar expressions, areforward-looking statements. The forward-looking statements of theCompany are subject to risks and uncertainties. Some of the factorsthat could cause future results to materially differ from the recentresults or those projected in the forward-looking statements include,but are not limited to, management's success in settling theCompany's outstanding obligations, ability to acquire newbusiness opportunities, results of litigation, failure to retain andrecruit key employees, adverse economic conditions, acts of war orglobal terrorism, and unexpected natural disasters. The Companyundertakes no obligation to update forward-looking statements toreflect events or circumstances occurring after the date of this AnnualReport on Form 10-K.

OVERVIEW

Prior to August 2002,YouthStream Media Networks, Inc.("YouthStream" or the"Company") had two reporting segments: mediaand retail. The media segment represented the Company's media,marketing and promotional services provided to advertisers by NetworkEvent Theater, Inc. ("NET") and AmericanPassage Media, Inc. ("American Passage"). InAugust 2002, the Company sold substantially all of the assets andcertain liabilities from this segment to Cass Communications, Inc., asubsidiary of Alloy, Inc., for a purchase price of $7 million in cash.The Company discontinued any remaining media operations at such time.The retail segment consisted of on-campus, online and retail storeposter sales provided by its Beyond the Wall subsidiary. In February2004, the Company sold substantially all of the assets, subject tocertain liabilities, of this segment and discontinued its operation(see below). As of September 30, 2004, the Company did not have anyrevenue-generating business operations.

The Company'smanagement intends to continue efforts to settle the Company'soutstanding obligations and minimize operating costs. In addition, theCompany's management is exploring various strategic alternatives,including the acquisition of new business opportunities, which may befrom related or unrelated parties. However, there can be no assurancesthat such efforts will be successful. The Company may finance anyacquisitions through a combination of debt and/or equitysecurities.

In July 2004, the Company entered into a letter ofintent to acquire a steel mini-mill located in Ashland, Kentucky (seebelow). If the Company is able to complete this transaction, theCompany expects to utilize all or most of its available cash resourcesto fund such endeavor.

The Company believes that its currentavailable cash resources will be adequate to fund its current limitedlevel of operations through its fiscal year ended September 30, 2005.However, to the extent the Company's estimates and assumptionsare inaccurate and/or the Company is unable to successfully settleoutstanding obligations at reduced amounts, the Company may not havesufficient cash resources to fund its ongoing obligations. In suchevent, the Company may be required to seek other funding and/orconsider a formal or informal restructuring or reorganization.

In July 2003, the Company, pursuant to a board resolution dated June27, 2003, changed its fiscal year end from June 30 to September 30. Thepresentation of fiscal year 2003 contained in this Annual Report onForm 10-K represents the twelve month period October 1, 2002 throughSeptember 30, 2003. The transition period for the three month periodJuly 1, 2002 through September 30, 2002 (the "TransitionPeriod") is reported separately in this Annual Report onForm 10-K.

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DEBT RESTRUCTURING

InJanuary  2003, the Company reached an agreement with the holdersof all of its and its Network Event Theater subsidiary'soutstanding notes (NET Notes, YSTM Notes  and YSTM 2 Note), inthe aggregate principal amount of $18,000,000, to cancel those notes.In exchange for cancellation of all of the principal due on the oldnotes, including accrued interest of $2,062,000, the note holdersreceived in aggregate $4,500,000 in cash, redeemable preferred stockwith a face value of $4,000,000 and 3,985,000 shares of common stock,valued at $255,000, and $4,000,000 aggregate principal amount ofpromissory notes issued by the Company's retail subsidiary,Beyond the Wall,  Inc., formerly secured by the Company'spledge of all of its stock in Beyond the Wall.

At the closing ofthe January  2003 debt restructuring, all of the Company'sprevious directors and officers resigned, and three new directors wereappointed. Jonathan V. Diamond, who previously had been a director andinterim Chief Executive Officer of the Company, was appointed asChairman of the Board of Directors, and Hal G. Byer and Robert ScottFritz were appointed as directors of the Company. Mr.  Diamondwas appointed as Chief Executive Officer and Robert N. Weingarten wasappointed as Chief Financial Officer.

In May  2003, theCompany issued options to the three new directors to purchase anaggregate of 700,000 shares of common stock exercisable at the fairmarket value of $0.04 per share for a period of seven years. Inaddition, each of the three new directors paid $2,500 ($0.04 per share)in cash to acquire options from the holder of the shares of preferredstock that were issued in the January  2003 restructuring topurchase 62,500 shares of such holder's preferred stock,exercisable at $0.36 per share. In July 2004, Mr. Diamond irrevocablywaived any and all rights related to this option.

The terms andconditions of the January  2003 debt restructuring agreementqualified as a troubled debt restructuring for accounting purposes inaccordance with SFAS No.  15 "Accounting by Debtorsand Creditors for Troubled Debt Restructurings". Indetermining the proper accounting treatment, the Company evaluated thenature of the economic consequences of each of the three separatetransactions for purposes of determining the gain, if any, inconnection with the extinguishment of the NET Notes, YSTM Notes andYSTM 2 Note in accordance with SFAS No.  15.

Thecancellation of the NET Notes qualified as a full debt settlementwhereby in exchange for the extinguishment of the $5,000,000 note andcancellation of accrued interest, the holders received $3,000,000 cash.As of the settlement date, the adjusted carrying value of the NETNotes, net of accrued interest, unamortized original issue discount andunamortized closing costs, was $5,448,000. The settlement resulted in again of $2,448,000.

The cancellation of the YSTM Notes wasaccounted for as a combination of a partial debt settlement and acontinuation of debt with modified terms. In exchange for theextinguishment of the YSTM Notes, the holder received $1,500,000 cash,3,486,875 shares of common stock with a fair value of $223,000,1,000,000 shares of 4% redeemable preferred stock with a facevalue of $4,000,000, including cumulative dividends, totaling$5,269,000, due December  31, 2010, and a $3,000,000 promissorynote bearing interest at 4% per annum with principal andcumulative interest due December  31, 2010. As of the settlementdate, the adjusted carrying value of the YSTM Notes, net of accruedinterest, unamortized original issue discount and unamortized closingcosts, was $11,251,000. After adjusting for the fair value of the cashand common stock exchanged, the carrying value of the YSTM Notes was$9,528,000. For purposes of determining the gain on the extinguishmentof the YSTM Notes, the redeemable preferred stock was accounted for asa debt instrument given the mandatory redemption features of thesecurity. The issuance of the $3,000,000 promissory note and the1,000,000 shares of redeemable preferred stock constituted acontinuation of debt with modified terms. Given that the undiscountedfuture value of the promissory note and the redeemable preferred stock,including accrued interest and cumulative dividends, was less than theadjusted carrying value of the YSTM Notes extinguished, the Companyrecognized a gain totaling $306,000 and recorded the value of thepromissory note and the redeemable preferred stock at the undiscountedfuture value of $3,953,000 and $5,269,000, respectively, with nointerest expense or accretion in value to be recognized over theremaining life of the promissory note and preferred stock.

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The cancellation of the YSTM 2 Note wasaccounted for as a combination of a partial debt settlement and acontinuation of debt with modified terms. In exchange for theextinguishment of the YSTM 2 Note, the holder received 498,125 sharesof the Company's common stock with a fair value of $32,000 and a$1,000,000 promissory note bearing interest at 4% per annum,with principal and accrued interest due December  31, 2010. As ofthe settlement date, the adjusted carrying value of the YSTM 2 Note,net of accrued interest, unamortized original issue discount andunamortized closing costs, was $991,000. After adjusting for the fairvalue of the common shares exchanged, the carrying value of the YSTM 2Note was $960,000. The issuance of the $1,000,000 promissory noteconstituted a continuation of debt with modified terms. Given that theundiscounted future value of the promissory note, including principaland interest, was greater than the adjusted carrying value of the YSTM2 Note extinguished, the Company recognized no gain. The promissorynote was revalued at the adjusted carrying value of the YSTM 2 Notesurrendered, resulting in an imputed discount of $41,000.

Intotal, the Company recognized a gain from the troubled debtrestructuring of approximately $2,800,000. The gain was classified aspart of continuing operations in accordance with SFAS No.  145,"Rescission of SFAS Nos. 4, 44 and 64, Amendment of SFASNo.  13, and Technical Corrections as of April2000". The gain from the transaction resulted in areduction in basic and diluted loss per common share of $0.07 for theyear ended September  30, 2003.

During June  2003,the Company amended the original provisions of the $4,000,000 ofpromissory notes issued in conjunction with the January  24, 2003restructuring to provide for the following:

|          |                                                                                                                                      |
|----------|--------------------------------------------------------------------------------------------------------------------------------------|
| a.  | Beyond the Wall was replaced by the Companyas the issuer of the notes, and was released from any liability withrespect to the notes. |

|          |                                                                                                                                                                        |
|----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| b.  | The note holdersagreed to convert the notes from secured to unsecured, and to releasetheir security interest in all of the outstanding common stock ofBeyond the Wall. |

|          |                                                                                                                                                                       |
|----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| c.  | The note holders agreedto delete all provisions in the notes requiring the issuer of the notesto make mandatory prepayments based on the occurrence of certainevents. |

|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| d.  | The note holders agreed to deleteprovisions in the notes prohibiting the issuer from: (i)incurring any indebtedness for borrowed money; (ii)  selling, orentering into any agreement to sell, all or substantially all of theassets or all or substantially all of the capital stock of the issuer;or (iii)  entering into any transaction with an affiliate, otherthan transactions with the Company, Network Event Theater,  Inc.and/or their successors, that have fair and reasonable terms which areno less favorable to the issuer than would be obtained in a comparablearms-length transaction with a person or entity that is not anaffiliate. |

RECENT EVENTS

The Company underwentsignificant changes during the fiscal year ended September 30, 2004 asdescribed below:

Sale of Retail Segment

EffectiveFebruary 25, 2004, the Company's wholly-owned subsidiary, Beyondthe Wall, Inc. ("BTW"), sold substantiallyall of its assets and operations to a group unaffiliated with theCompany (which included certain former management of BTW), for$1,920,000, consisting of a cash payment of $820,000 and a subordinatedsecured promissory note (the "Note") for$1,100,000, with interest at 10% per annum, due October 31,2006. The buyer had the right to make certain optional principalpre-payments on the Note by June 30, 2004, which would result in theprincipal balance of the Note being adjusted downward, in excess ofsuch principal pre-payments, based on an agreed-upon sliding scale asset forth in the Note.

On April 30, 2004, the buyer made anoptional principal pre-payment on the Note of $400,000. Accordingly,under the provisions of the sale agreement, the buyer received a creditof $107,000 against the Note (in excess of the $400,000 payment), aswell as an additional $150,000 back-end credit on the Note.

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The Company initially recognized a loss of$565,000 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 accelerated payment creditand the back-end credit resulted in an additional loss of $257,000,which decreased the carrying value of the note receivable from$1,100,000 to $843,000 and increased the loss on the BTW sale from$565,000 to $822,000. The loss on the BTW sale was reported as a losson the disposal of discontinued operations for the year ended September30, 2004. As a result of the sale, the retail segment operations werediscontinued during the year ended September 30, 2004.

Investment in KES Holdings

In September 2003, the Companyannounced that it made an investment of $125,000 for a 1.00%membership interest in KES Holdings, LLC, a Delaware limited liabilitycompany ("KES Holdings"), which was formed toacquire certain 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 Section 363 of theUnited States Bankruptcy Code for cash consideration of $2,650,000. KESceased production 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 in operation forapproximately 50 years, and was refurbished by KES Acquisitionsubsequent to its acquisition. The refurbished steel mini-mill has beengenerating revenues since early 2004.

In addition to theCompany, investors in KES Holdings include, among others, affiliates ofLibra Securities, LLC, a Delaware limited liability company, which is abroker-dealer registered with the Securities and Exchange Commissionand an NASD member ("Libra"), consisting ofLibra's parent entity, certain employees of Libra and the RavichRevocable Trust of 1989 (Jess M. Ravich, Trustee) (the"Ravich Trust"). Robert Scott Fritz, one ofthe directors of the Company, is also an investor in KES Holdings. JessM. Ravich, the President and Chief Executive Officer of Libra and theprincipal stockholder of Libra's parent entity, is the manager ofKES Holdings, 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 voting commonstock, and will capitalize that subsidiary with $500,000. In connectionwith the acquisition, the new subsidiary is expected to issue to theowners of KES Acquisition in exchange for 100% of their equityinterest in KES Acquisition (i) $25,000,000 of its non-convertiblenon-voting redeemable preferred stock with a redemption price equal to$25,000,000 and a 13% annual cumulative dividend and (ii) seniorsubordinated promissory notes in the aggregate principal amount of$40,000,000 with an annual interest rate of 8%. As part of thistransaction, the remaining 19.99% common stock interest in thenew subsidiary will be owned by the former owners of KESAcquisition.

The letter of intent is subject to, among otherconditions, negotiation, preparation and execution of definitivetransaction documents, preparation of consolidated financialstatements, compliance with state and federal securities laws andregulations, and receipt of requisite corporate approvals. Thetransaction is expected to close in the first calendar quarter of 2005.However, as a result of the foregoing uncertainties, there can be noassurances that the transaction will be completed. Furthermore, even ifthe transaction is completed, there can be no assurances that thefuture operations of the steel mini-mill will be successful.

Through September 30, 2004, the Company incurred $175,000 inprofessional fees with respect to this transaction, which the Companyhas presented as deferred costs in the consolidated balance sheet

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at September 30, 2004. These costs will beaccounted for as part of the purchase consideration if and when thistransaction is completed. If the Company does not complete thistransaction, these costs will be charged to operations in the periodthat the Company's efforts to complete this transaction areterminated.

The Ravich Trust currently owns 1,000,000 shares ofredeemable preferred stock and 1,860,000 shares of common stock of theCompany. The Ravich Trust also owns warrants to purchase 500,000 sharesof common stock of the Company exercisable through August 31, 2008,400,000 of which are exercisable at $0.11 per share and 100,000 ofwhich are exercisable at $0.16 per share.

In May 2003, theCompany's three directors who were appointed at the closing ofthe January 2003 debt restructuring each paid $2,500 ($0.04 per share)to acquire an option from the Ravich Trust to purchase 62,500 shares at$0.36 per share of the Company's preferred stock issued to theRavich Trust in January 2003, exercisable until December 31, 2006 orearlier upon the occurrence of certain events. In July 2004, Mr.Diamond irrevocably waived any and all rights related to hisoption.

MEDIA BUSINESS

As a result of the sale of itsmedia segment effective August 5, 2002, the Company did not operatethis segment during the fiscal year ended September 30, 2004.

RETAIL BUSINESS

As described above, in February 2004, theCompany sold the assets and operations of its Beyond the Wallsubsidiary. The Beyond the Wall subsidiary was in the business ofselling decorative wall posters, frames and related items to teenagersand young adults at on-campus sales events, through its chain of retailstores, and via the Internet. Beyond the Wall purchased merchandisefrom major vendors located primarily in the United Kingdom and theUnited States and served as a distributor of posters and did not retainany licensing rights to the poster titles. In fiscal 2004, theCompany's retail segment generated 100% of its operatingrevenues, which were classified as discontinued operations in theconsolidated statement of operations.

PERSONNEL

As ofSeptember 30, 2004, the Company had three persons, including its ChiefExecutive Officer and its Chief Financial Officer, performing servicesdedicated primarily to general corporate matters, including managementof the Company, maintenance of the corporate entity, review ofstrategic options, acquisition negotiations, and settlement of debtsand obligations.

ITEM 2. PROPERTIES

At September 30,2003, the Company's real estate properties resided within itsBeyond the Wall subsidiary. Beyond the Wall owned a warehousecontaining office space in Stroudsburg, Pennsylvania, where theCompany's retail operations were headquartered.

As ofSeptember 30, 2003, Beyond the Wall was a party to leases for retailstores operating in Ann Arbor, Michigan; Bloomington, Indiana;Burlington, Vermont; Chicago, Illinois; East Lansing, Michigan; Hadley,Massachusetts; Ithaca, New York; Lawrence, Kansas; Lexington, Kentucky;Myrtle Beach, South Carolina; New Hope, Pennsylvania; Newark, Delaware;New York, New York; Philadelphia, Pennsylvania; Saint Louis, Missouri;Taylor, Michigan; Valley Mall, Virginia; and Washington, D.C.

Asof September 30, 2003, Beyond the Wall had vacated non-performingstores in Augusta, Georgia; Berkeley, California, Charlottesville,Virginia; Chesapeake, Virginia; Cincinnati, Ohio; Cleveland, Ohio;Chicago, Illinois; Nanuet, New York; and Yorktown Heights, New York, inadvance of the termination dates for the leases governing these stores,and was seeking to negotiate settlements of these liabilities wherepossible.

As the result of the sale of the retail business toClive Corporation, Inc. and 1903 West Main Street Realty Management,LLC in February 2004, all of the real estate properties and retailstore leases were transferred to the buyer.

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At September 30, 2004, the Company nolonger owned any real estate or had any leases.

AtSeptember  30, 2004, approximately $432,000 in lease obligationswere classified as current liabilities. These leases relate toobligations for which the Company is still liable, although thepremises are no longer occupied or assets to which they apply werepreviously written off. Of the total, approximately $141,000 applies tocontinuing operations, and approximately $291,000 relates todiscontinued operations.

ITEM 3. LEGAL PROCEEDINGS

During fiscal 2003, the Company was involved in an arbitration filedin New York by the Company's former President and Chief ExecutiveOfficer seeking damages for alleged breach of his employment agreement,among other things. The Company reached an agreement in October 2003 tosettle the dispute for nominal consideration.

The Company and/orits former subsidiary, Beyond the Wall, are also defendants in variousother lawsuits and claims from various trade creditors and formerlandlords seeking damages aggregating approximately $300,000. Certainof these claims are the responsibility of the buyer of the Beyond theWall business. The Company evaluates its response in each situationbased on the particular facts and circumstances of a claim.Accordingly, the ultimate outcome of these matters cannot be determinedat this time and may ultimately result in judgments and liens againstthe Company, its real estate or its other assets. The Company has madesufficient accruals for the exposure related to such matters that havebeen deemed probable and reasonably estimable at September 30,2004.

Given the Company's current financial situation, thecosts of defending these proceedings and diversion ofmanagement's attention to these matters, the outcome of suchproceedings could have a material adverse effect on the Company'sfinancial condition or operating results, including its ability torestructure its debts without seeking bankruptcy protection or beingthe subject of an involuntary bankruptcy petition, or its ability tocontinue as a going concern.

ITEM 4. SUBMISSION OF MATTERS TO AVOTE OF SECURITY HOLDERS

The Company held its annual meeting ofstockholders on September 27, 2004, at which the stockholders of theCompany approved the re-election of Jonathan V. Diamond and RobertScott Fritz to the Board of Directors and ratified the appointment ofWeinberg & Company, P.A. as the Company's independentauditors. The tabulation of the votes cast at such meeting was asfollows:

|                                           |  |            |  |                |  |              |  |               |  |  |  |  |  |  |  |  |  |  |
|-------------------------------------------|--|------------|--|----------------|--|--------------|--|---------------|--|--|--|--|--|--|--|--|--|--|
| 1.Election of Directors                   |  | VotesFor   |  | Votes Withheld |  |
|                                      |  |
| Election of Robert ScottFritz             |  | 34,932,813 |  | 65,076         |  |
| Election of Jonathan V.Diamond            |  | 34,918,213 |  | 79,676         |  |
|                                      |  |
| 2. Ratification of Appointment ofAuditors |  | Votes For  |  | VotesAgainst   |  | VotesAbstain |  | Brokerunvoted |
|                                      |  |
|                                      |  | 34,953,941 |  | 22,192         |  | 21,755       |  | 1             |
|                                           |

PART II

ITEM 5.MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

TheCompany's common stock trades on the OTC Bulletin Board under thesymbol "YSTM". The following table sets forththe high and low closing bid prices for the common stock as provided byAmerica Online. The quotations reflect inter-dealer prices, withoutretail mark-up, mark-down or commission, and may not represent actualtransactions.

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|                       |  |      |  |      |  |  |  |  |  |  |
|-----------------------|--|------|--|------|--|--|--|--|--|--|
|                  |  | High |  | Low  |
| Fiscal2004            |  |
| First Quarter12/31/03 |  | 0.32 |  | 0.12 |
| SecondQuarter 3/31/04 |  | 0.27 |  | 0.16 |
| ThirdQuarter 6/30/04  |  | 0.17 |  | 0.11 |
| FourthQuarter9/30/04  |  | 0.27 |  | 0.14 |
| Fiscal2003            |  |
| First Quarter12/31/02 |  | 0.24 |  | 0.02 |
| Second Quarter3/31/03 |  | 0.11 |  | 0.03 |
| Third Quarter6/30/03  |  | 0.10 |  | 0.03 |
| Fourth Quarter9/30/03 |  | 0.24 |  | 0.10 |
|                       |

As of December31, 2004, there were approximately 226 holders of record of theCompany's common stock. To date, the Company has not declared orpaid any dividends on its common stock. The payment by the Company ofdividends, if any, is within the discretion of the board of directorsand will depend on the Company's earnings, if any, its capitalrequirements and financial condition, as well as other relevantfactors. The board of directors does not intend to declare anydividends in the foreseeable future but instead intends to retainearnings for use in the Company's business operations.

Equity Compensation Plan Information

|                                                          |  |                                                                                                                   |  |                                                                                                    |  |                                                                                                                                        |  |  |  |  |  |  |  |  |
|----------------------------------------------------------|--|-------------------------------------------------------------------------------------------------------------------|--|----------------------------------------------------------------------------------------------------|--|----------------------------------------------------------------------------------------------------------------------------------------|--|--|--|--|--|--|--|--|
| PLANCATEGORY                         |  | NUMBER OF SECURITIES TO BE ISSUEDUPON EXERCISE OF OUTSTANDING OPTIONS, WARRANTS ANDRIGHTS     |  | WEIGHTED-AVERAGE EXERCISE PRICE OFOUTSTANDING OPTIONS, WARRANTS AND RIGHTS     |  | NUMBEROF SECURITIES REMAINING AVAILABLE FOR FUTUREISSUANCE UNDER EQUITY COMPENSATION PLANS (excludingsecurities reflected incolumn(a)) |
| (a)                                                      |  | (b)                                                                                                               |  | (c)                                                                                                |  |
| Equity compensation plansapproved by securityholders     |  | 1,205,404                                                                                                         |  | $0.16                                                                                              |  | 3,794,596                                                                                                                              |
| Equitycompensation plans not approved by securityholders |  | —                                                                                                           |  | —                                                                                            |  | —                                                                                                                                |
| Total                                                    |  | 1,205,404                                                                                                         |  | $0.16                                                                                              |  | 3,794,596                                                                                                                              |
|                                                          |

Asof December 31, 2004, 5,000,000 options were authorized under the 2000Plan, and options to purchase 1,205,404 shares were outstanding and3,794,596 options were available for future grants.

RECENTSALES OF UNREGISTERED SECURITIES

During October 2003, theCompany issued an option to purchase 50,000 shares of common stock toJonathan V. Diamond, the Company's Chief Executive Officer,exercisable through October 2010 at $0.26 per share, which was the fairmarket value on the date of issuance.

On June 3, 2004, the Boardof Directors appointed Patrick J. Panzarella as a director of theCompany and granted him an option to purchase 200,000 shares of commonstock exercisable at the closing common stock price on the date ofgrant of $0.14 per share for a period of seven years.

ITEM 6.SELECTED FINANCIAL DATA

The selected consolidated financialdata should be read in conjunction with "ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS" and the Company'sconsolidated financial statements and notes thereto included elsewherein this document. The Company has restated its selected financial datato reflect its business operations sold during the periods presented asdiscontinued operations.

7

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**(amounts inthousands, except per shareamounts)**

|                                                                             |  |                          |        |                                   |  |                    |        |         |  |        |        |         |  |        |         |         |  |        |          |         |  |        |         |         |  |  |
|-----------------------------------------------------------------------------|--|--------------------------|--------|-----------------------------------|--|--------------------|--------|---------|--|--------|--------|---------|--|--------|---------|---------|--|--------|----------|---------|--|--------|---------|---------|--|--|
|                                                                        |  | YearsEnded September 30, |        | ThreeMonthsEndedSeptember 30,2002 |  | Years EndedJune30, |
|                                                                        |  | 2004                     |        | 2003                              |  | 2002               |        | 2001    |  | 2000   |        |
| Netloss                                                                     |  |
| Loss from continuingoperations                                              |  | $                        | (994   | )                            |  | $                  | (831   | )  |  | $      | (2,783 | )  |  | $      | (9,128  | )  |  | $      | (9,941   | )  |  | $      | (40,688 | )  |
| Gain(loss) from discontinuedoperations                                      |  | $                        | (1,372 | )                            |  | $                  | (2,297 | )  |  | $      | 604    |    |  | $      | (11,384 | )  |  | $      | (227,862 | )  |  | $      | (9,200  | )  |
| Netloss                                                                     |  | $                        | (2,366 | )                            |  | $                  | (3,128 | )  |  | $      | (2,179 | )  |  | $      | (20,512 | )  |  | $      | (237,803 | )  |  | $      | (49,888 | )  |
| Totalassets                                                                 |  | $                        | 1,505  |                              |  | $                  | 6,079  |    |  | $      | 18,978 |    |  | $      | 19,987  |    |  | $      | 48,706   |    |  | $      | 276,445 |    |
| Long-termdebt and capital lease obligations, less currentportion            |  | $                        | 4,914  |                              |  | $                  | 4,913  |    |  | $      | 38     |    |  | $      | 113     |    |  | $      | 18,635   |    |  | $      | 18,815  |    |
| Netloss – basic and diluted                                           |  |
| Loss fromcontinuingoperations                                               |  | $                        | (0.03  | )                            |  | $                  | (0.02  | )  |  | $      | (0.08  | )  |  | $      | (0.30   | )  |  | $      | (0.34    | )  |  | $      | (1.93   | )  |
| Gain(loss) from discontinuedoperations                                      |  | $                        | (0.03  | )                            |  | $                  | (0.06  | )  |  | $      | 0.01   |    |  | $      | (0.37   | )  |  | $      | (7.77    | )  |  | $      | (0.43   | )  |
| Netloss                                                                     |  | $                        | (0.06  | )                            |  | $                  | (0.08  | )  |  | $      | (0.07  | )  |  | $      | (0.67   | )  |  | $      | (8.11    | )  |  | $      | (2.36   | )  |
| Weightedaverage shares of common stock outstanding – basic anddiluted |  |                     | 39,242 |                              |  |               | 37,987 |    |  |   | 33,008 |    |  |   | 30,414  |    |  |   | 29,334   |    |  |   | 21,111  |    |
|                                                                             |

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|              |                                                                                      |
|--------------|--------------------------------------------------------------------------------------|
| ITEM7.  | MANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS |

The followingdiscussion of the financial condition and results of operations of theCompany should be read in conjunction with the consolidated financialstatements and related notes thereto. The following discussion containscertain forward-looking statements that involve risks anduncertainties. The Company's actual results could differmaterially from those discussed herein. Factors that could cause orcontribute to such differences include, but are not limited to, theCompany's ability to discharge its liabilities and restructureits debt, changing consumer tastes and general economic conditions. 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.

As a result of thechange in 2003 in the Company's fiscal year end from June 30 toSeptember 30, the following financial analysis compares the fiscalyears ended September 30, 2004, September 30, 2003 and June 30,2002.

Overview:

In December  2000, the Companydiscontinued the operations of CommonPlaces, LLC("CommonPlaces"), sixdegrees, inc.("sixdegrees"), CollegeWeb.com,  Inc.("CollegeWeb"), and Invino Corporation("Invino"). In December 2001, the Companydiscontinued its Teen.com operations and closed its Hotstamp collegebusiness. In August 2002, the Company sold substantially all of itsmedia assets and assigned certain liabilities of its NET and AmericanPassage subsidiaries to Alloy,  Inc. and ceased operating themedia segment.

In February 2004, the Company sold the assets andoperations of its Beyond the Wall subsidiary and ceased operating theretail segment. Beyond the Wall was engaged in the sale of decorativewall posters through on-campus sales events, retail stores and internetsales, primarily to teenagers and young adults. 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. Beyond the Wall's operations have beenpresented as a discontinued operation in the consolidated financialstatements for all periods presented.

The consolidated financialstatements for the fiscal years ended September 30, 2003 andJune  30, 2002, and for the three months ended September 30,2002, have been restated to reflect discontinued operations as a resultof the businesses disposed of through September  30, 2004,including the sale of the media segment on August  5, 2002 andthe retail segment on February 25, 2004. Accordingly, all of theCompany's operations have been presented as discontinuedoperations in the consolidated financial statements for the years endedSeptember 30, 2004 and 2003 and June 30, 2002, and the three monthsended September 30, 2002.

Going Concern:

The Companyhas incurred recurring operating losses since its inception. As ofSeptember  30, 2004, the Company had an accumulated deficit of$343,834,000, a stockholders' deficiency of $13,065,000, aworking capital deficiency of $3,453,000, and a net loss and negativecash flows from operating activities for the year endedSeptember  30, 2004 of $2,366,000 and $901,000, respectively, andhas insufficient capital to fund all of its obligations. In August andSeptember  2002, the Company defaulted on approximately$18,000,000 of its long-term debt. In addition, during the year endedSeptember 30, 2004, the Company sold its remaining operating business,as a result of which the Company did not have any revenue-generatingbusiness operations at September 30, 2004. These conditions raisesubstantial doubt about the Company's ability to continue as agoing concern. The 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.

The Company's management intends to continue efforts to settlethe Company's outstanding obligations and minimize operatingcosts.   The Company believes that its current available cash

9

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resources will be adequate to fund itscurrent limited level of operations through its fiscal year endedSeptember  30, 2005. However, to the extent the Company'sestimates and assumptions are inaccurate and/or the Company is unableto successfully settle outstanding obligations at reduced amounts, theCompany may not have sufficient cash resources to fund its ongoingobligations. In such event, the Company may be required to seek otherfunding and/or consider a formal or informal restructuring orreorganization.

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 September 30, 2004.In July 2004, the Company entered into a letter of intent to acquire asteel mini-mill located in Ashland, Kentucky. If the Company is able tocomplete this transaction, the Company expects to utilize all or mostof its available cash resources to fund such endeavor, and willtherefore need to obtain additional operating capital to fund corporategeneral and administrative 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 efforts willultimately be successful. The Company may finance any acquisitionsthrough a combination of debt and/or equity securities.

Critical Accounting Policies:

The Company prepared thefinancial statements in accordance with accounting principles generallyaccepted in the United States. The preparation of these financialstatements requires the use of estimates and assumptions that affectthe reported amounts of assets and liabilities and the disclosure ofcontingent assets and liabilities at the date of the financialstatements and the reported amount of revenues and expenses during thereporting period. Management periodically evaluates the estimates andjudgments made. Management bases its estimates and judgments onhistorical experience and on various factors that are believed to bereasonable under the circumstances. Actual results may differ fromthese estimates as a result of different assumptions or conditions.

The following critical accounting policies affect the moresignificant judgments and estimates used in the preparation of theCompany's financial statements.

Impairment of Assets

The Company periodically evaluates its non-current assets forpotential impairment indicators. The Company's judgmentsregarding the potential impairment are based on legal factors, marketconditions and operational performance indicators, among others. Futureevents could cause us to conclude that impairment indicators exist andthat such assets (primarily investments, notes receivable and fixedassets) are impaired.

Income Taxes

The Company recordsa valuation allowance to reduce its deferred tax assets to the amountthat is more likely than not to be realized. In the event the Companywas to determine that it would be able to realize its deferred taxassets in the future in excess of its recorded amount, an adjustment tothe deferred tax assets would be credited to operations in the periodsuch determination was made. Likewise, should the Company determinethat it would not be able to realize all or part of its deferred taxassets in the future, an adjustment to the deferred tax assets would becharged to operations in the period such determination was made.

RESULTS OF OPERATIONS

The following presents the results ofoperations of the Company's Beyond the Wall subsidiary, theassets and operations of which were sold in February 2004, as adiscontinued operation.

YEAR ENDED SEPTEMBER 30, 2004 ASCOMPARED TO YEAR ENDED SEPTEMBER 30, 2003

For the year endedSeptember 30, 2004, corporate general and administrative expenses were$1,070,000, as compared to $2,564,000 for the year ended September 30,2003. The decrease of 

10

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$1,494,000 was due to various costreductions, including reduced corporate personnel and office expenses,in 2004 as compared to 2003.

For the year ended September 30,2004, depreciation and amortization expense was $20,000, as compared to$20,000 for the year ended September 30, 2003.

For the yearended September 30, 2004, interest income was $50,000, as compared to$36,000 for the year ended September 30, 2003.

For the yearended September 30, 2004, interest expense was $42,000, as compared to$1,053,000 for the year ended September 30, 2003. The decrease of$1,011,000 was primarily related to the decrease in interest-bearingdebt as a result of the debt restructuring in January  2003.

The Company recognized a gain on debt settlement of $2,800,000during the year ended September 30, 2003 as a result of the January2003 debt restructuring. There was no similar transaction in 2004.

For the year ended September 30, 2004, the Company recorded abenefit from income taxes of $88,000, as compared to a provision forincome taxes of $30,000 for the year ended September 30, 2003.

For the year ended September 30, 2004, as a result of theaforementioned factors, the loss from continuing operations was$994,000, as compared to $831,000 for the year ended September 30,2003.

For the year ended September 30, 2004, the loss fromdiscontinued operations was $550,000, as compared to $2,997,000 for theyear ended September 30, 2003. The loss from discontinued operationsfor the year ended September 30, 2004 of $550,000 consists of anoperating loss of $1,050,000, offset by a gain resulting from thereduction of a prior accrual with respect to the closing of retailstores. The reduction in the accrual was a result of the Companyreaching settlements with landlords below what had been originallyaccrued.

For the year ended September 30, 2004, the Company hada loss on disposal of discontinued operations, which related to Beyondthe Wall, of $822,000. For the year ended September 30, 2003, theCompany had a gain on disposal of discontinued operations of $700,000relating to the sale of a patent in September 2003.

For the yearended September 30, 2004, as a result of the aforementioned factors,the Company had a net loss of $2,366,000, as compared to a net loss of$3,128,000 for the year ended September 30, 2003.

YEAR ENDEDSEPTEMBER 30, 2003 AS COMPARED TO YEAR ENDED JUNE 30, 2002

Forthe year ended September 30, 2003, corporate general and administrativeexpenses were $2,564,000, as compared to $6,134,000 for the year endedJune 30, 2002. The decrease of $3,570,000 was due to overhead savingsattributable to sale of the media business in August 2002 and theclosing of the New York City corporate headquarters in October 2002, aswell as the change in management and substantial layoffs and other costreductions implemented by new management.

For the year endedSeptember 30, 2003, depreciation and amortization expense was $20,000,as compared to $209,000 for the year ended June 30, 2002, as a resultof the write-off of fixed assets located at the New York City corporateheadquarters, which was closed in October 2002.

For the yearended September 30, 2003, interest income was $36,000, as compared to$450,000 for the year ended June 30, 2002, as a result of a reductionin interest-bearing cash balances.

For the year ended September30, 2003, interest expense was $1,053,000, as compared to $3,068,000for the year ended June 30, 2002. The decrease of $2,015,000 wasprimarily related to the decrease in interest-bearing debt as a resultof the debt restructuring in January 2003.

The Companyrecognized a gain on debt settlement of $2,800,000 during the yearended September 30, 2003 as a result of the January 2003 debtrestructuring.

For the year ended September 30, 2003, theCompany recorded a provision for income taxes was $30,000, as comparedto $167,000 for the year ended June 30, 2002.

11

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For the year ended September 30, 2003, asa result of the aforementioned factors, the loss from continuingoperations was $831,000, as compared to $9,128,000 for the year endedJune 30, 2002.

For the year ended September 30, 2003, the lossfrom discontinued operations was $2,997,000, as compared to $12,261,000for the year ended June 30, 2002.

For the year ended September30, 2003, the Company had a gain on disposal of discontinued operationsof $700,000 relating to the sale of a patent in September 2003. For theyear ended June 30, 2002, the Company had a gain on disposal ofdiscontinued operations of $877,000.

For the year endedSeptember 30, 2003, as a result of the aforementioned factors, theCompany had a net loss of $3,128,000, as compared to a net loss of$20,512,000 for the year ended June 30, 2002.

LIQUIDITY ANDCAPITAL RESOURCES

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 ofSeptember 30, 2004, the Company had $675,000 in cash, an increase of$144,000 as compared to September 30, 2003. The Company has never beenprofitable and as currently configured expects to continue to incurlosses subsequent to September 30, 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 auditors, in their report on theCompany's consolidated financial statements for the fiscal yearended September 30, 2004, have included an explanatory paragraphstating that the Company's recurring losses and accumulateddeficit, working capital deficiency and negative cash flow, among otherfactors, raise substantial doubt about the Company's ability tocontinue as a going concern. The Company may find it necessary to relyupon financing from the issuance of debt and/or equity securities to beable to sustain its operations, acquire or develop new operations, andfund its ongoing obligations. However, there can be no assurance thatthe Company will be able to obtain sufficient additional capital underacceptable terms or conditions. Furthermore, there can be no assurancesthat the Company will be able to generate sufficient revenues from anew business opportunity to meet the Company's ongoingobligations. These conditions raise substantial doubt about theCompany's ability to continue as a going concern.

Duringthe year ended September 30, 2004, the Company used $901,000 of cash inoperating activities related primarily to its net loss in 2004 of$2,366,000, which included a loss from discontinued operations of$550,000, a loss on disposal of discontinued operations of $822,000,and a net change in assets and liabilities of discontinued operationsof $(207,000). During the year ended September 30, 2003, the Companyused $1,509,000 of cash in operating activities related primarily toits net loss in 2003 of $3,128,000, which included a loss fromdiscontinued operations of $2,997,000, a gain on disposal ofdiscontinued operations of $700,000, and a net change in assets andliabilities of discontinued operations of $2,519,000. During the yearended June 30, 2002, the Company used $17,703,000 in cash in operatingactivities related primarily to its net loss in 2002 of $20,512,000,which included a loss from discontinued operations of $12,261,000, again on disposal of discontinued operations of $877,000, and a netchange in assets and liabilities of discontinued operations of$(12,772,000).

During the fiscal year ended September 30, 2004,the Company received payments aggregating $1,220,000 from the sale ofthe assets and operations of Beyond the Wall (see "ITEM 1.BUSINESS"). Remaining scheduled principal payments withrespect to the note that the Company received from the sale of theassets and operations of Beyond the Wall at September 30, 2004 totaling$443,000 are shown below. The Company received the October 31, 2004scheduled principal payment of $198,000, plus accrued interest of$49,000, on a timely basis.

October 31, 2004– $198,000October 31, 2005 – $198,000October 31,2006 – $ 47,000

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For the year ended September 30, 2004, netcash generated by investing activities was $1,045,000, consisting ofthe proceeds of $1,220,000 from the sale of the assets and operationsof Beyond the Wall, offset by $175,000 of deferred costs with respectto the KES Holdings transaction. For the year ended September 30, 2003,net cash generated by investing activities was $575,000, consisting ofthe $700,000 of proceeds from the sale of a patent, offset by aninvestment of $125,000 in KES Holdings. For the year ended June 30,2002, net cash generated by investing activities was $5,546,000,consisting of the sale of $5,655,000 of investments in marketable debtsecurities, offset by $109,000 for capital expenditures.

For theyear ended September 30, 2004, the Company did not generate or use anycash in financing transactions. For the year ended September 30, 2003,net cash used in financing activities was $5,018,000, consisting of$4,970,000 for the repayment of long-term debt (primarily in connectionwith the January 2003 debt restructuring, which utilized $4,500,000 ofcash) and $48,000 for the payment of capitalized lease obligations. TheCompany also borrowed and repaid $250,000 from related parties duringthe year ended September 30, 2003. For the year ended June 30, 2002,net cash used in financing activities was $2,331,000, consisting of therepayment of long-term debt of $1,739,000 and the repurchase of commonstock of $592,000.

Principal Commitments:

At September30, 2004, the Company's principal commitments consisted of thefollowing obligations:

|                                                |  |                        |        |                  |  |                   |                                 |                 |  |             |                                 |        |  |        |                                 |        |  |   |        |        |  |  |
|------------------------------------------------|--|------------------------|--------|------------------|--|-------------------|---------------------------------|-----------------|--|-------------|---------------------------------|--------|--|--------|---------------------------------|--------|--|---|--------|--------|--|--|
|                                           |  | (amounts in thousands) |
| Contractual CashObligations                    |  | Total                  |        | LessThanOne Year |  | 1 – 3 Years |                                 | 4 –5Years |  | Over 5Years |
| Long-term debt                                 |  | $                      | 4,914  |             |  |              |     — |            |  |        |   —   |   |  |   |   —   |   |  | $ | 4,914  |   |
| Preferredstock subject to mandatory redemption |  | $                      | 5,269  |             |  |              | —                         |            |  |        | —                         |   |  |   | —                         |   |  | $ | 5,269  |   |
| Total                                          |  | $                      | 10,183 |             |  |              | —                         |            |  |        | —                         |   |  |   | —                         |   |  | $ | 10,183 |   |
|                                                |

AtSeptember 30, 2004, the Company does not have any material commitmentsfor capital expenditures or have any transactions, obligations orrelationships that could be considered off-balance sheetarrangements.

Recent Accounting Pronouncements

InMay  2003, the FASB issued SFAS No.  150,"Accounting for Certain Financial Instruments withCharacteristics of both Liabilities and Equity". SFASNo.  150 establishes standards for how an issuer classifies andmeasures in its statement of financial position certain financialinstruments with characteristics of both liabilities and equity. SFASNo.  150 requires that an issuer classify a financial instrumentthat 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 financialinstruments entered into or modified after May  31, 2003 andotherwise is effective at the beginning of the first interim periodbeginning 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 thebeginning of the interim period of adoption. Restatement is notpermitted. The impact from the adoption of SFAS No.  150 for theyear ended September  30, 2003 resulted in the reclassificationof the mandatorily redeemable preferred stock from the mezzaninesection of the balance sheet to non-current liabilities.

InJanuary 2003, the FASB issued Interpretation No. 46,"Consolidation of Variable Interest Entities"("FIN 46"), which clarifies the applicationof Accounting Research Bulletin No. 51, "ConsolidatedFinancial Statements", relating to consolidation ofcertain entities. In December 2003, the FASB issued a revised versionof FIN 46 ("FIN 46R") that replaced theoriginal FIN 46. FIN 46R requires identification of a company'sparticipation in variable interest entities("VIEs"), which are defined as entities witha level of invested equity that is not sufficient to fund futureactivities to 

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permit it to operate on a standalone basis.For entities identified as a VIE, FIN 46R sets forth a model toevaluate potential consolidation based on an assessment of which partyto the VIE (if any) bears a majority of the exposure to its expectedlosses, or stands to gain from a majority of its expected returns. FIN46R also sets forth certain disclosures regarding interests in VIEsthat are deemed significant, even if consolidation is not required. TheCompany is not currently participating in, or invested in any VIEs, asdefined in FIN 46R. Accordingly, the implementation of the provisionsof FIN 46R did not have a significant effect on the Company'sconsolidated financial statement presentation or disclosures.

|                |                                                           |
|----------------|-----------------------------------------------------------|
| ITEM 7A.  | QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK |

Market Risk

The Companydoes not have any market risk with respect to such factors as commodityprices, equity prices and other market changes that affect market risksensitive investments.

The Company does not have any foreigncurrency risk, as its revenues and expenses, as well as its debtobligations, are denominated and settled in United States dollars.

Interest Rate Risk

The Company is not exposed to anyinterest rate risk through its assets and liabilities.

|              |                                            |
|--------------|--------------------------------------------|
| ITEM8.  | FINANCIAL STATEMENTS AND SUPPLEMENTARYDATA |

Information with respect to this item appears as aseparate section following Item 15 of this document. Such informationis incorporated herein by reference.

|              |                                                                                     |
|--------------|-------------------------------------------------------------------------------------|
| ITEM9.  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTSON ACCOUNTING AND FINANCIAL DISCLOSURE |

Effective June 27, 2003,the Company terminated Ernst & Young LLP("EY") as its independent accountant.Effective July 26, 2003, the Company engaged Weinberg & Company,P.A. as its new independent accountant. The termination of EY and theretention of Weinberg were approved by the Company's Board ofDirectors.

EY audited the Company's consolidated financialstatements for the fiscal years ended June 30, 2001 and 2002.EY's reports on the Company's consolidated financialstatements for the fiscal years ended June 30, 2001 and 2002 did notcontain an adverse opinion or a disclaimer of opinion, nor were theyqualified or modified as to audit scope or accounting principles;however, the report for the fiscal year ended June 30, 2002 contained amodification paragraph that expressed substantial doubt about theCompany's ability to continue as a going concern.

Duringthe fiscal years ended June 30, 2001 and 2002 and the subsequentinterim period, there were no disagreements with EY on any matters ofaccounting principles or practices, financial statement disclosure, orauditing scope and procedures, which if not resolved to thesatisfaction of EY would have caused EY to make reference to the matterin their report. There were no "reportableevents" as that term is described in Item 304(a)(1)(v) ofRegulation S-K.

Prior to Weinberg being retained as theindependent accountant for the Company, neither the Company, nor anyoneon its behalf, consulted with Weinberg regarding either: (i) theapplication of accounting principles to a specified transaction, eithercompleted or proposed; or the type of audit opinion that might berendered on the Company's financial statements, and no writtenreport or oral advice was provided that Weinberg concluded was animportant factor considered by the Company in reaching a decision as tothe accounting, auditing or financial reporting issue; or (ii) anymatter that was either the subject of a disagreement as defined at Item304(a)(1)(iv) or a reportable event as defined at Item 304 (a)(1)(v) ofRegulation S-K.

|                |                        |
|----------------|------------------------|
| ITEM 9A.  | 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,

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summarized and reported, within the timeperiods specified 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 Exchange Act of1934 is accumulated and communicated to management, including itsprincipal executive and financial officers, as appropriate, to allowtimely decisions regarding required disclosure.

The Companycarried out an evaluation, under the supervision and with theparticipation of the Company's management, including itsprincipal executive and financial officers, of the effectiveness of thedesign and operation of the Company's disclosure controls andprocedures as of the end of the period covered by this report. Basedupon and as of the date of that evaluation, the Company'sprincipal executive and financial officers concluded that theCompany's disclosure controls and procedures are effective toensure that information required to be disclosed in the reports theCompany files and submits under the Exchange Act of 1934 is recorded,processed, summarized and reported within the time periods specified inthe Securities and Exchange Commission's rules and forms.

(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 recent evaluation.

|                |                   |
|----------------|-------------------|
| ITEM 9B.  | OTHER INFORMATION |

The Company did nothave any reportable events during the fourth quarter of the fiscal yearended September 30, 2004 which were be required to be filed on Form 8-Kwhich were not so reported.

15

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth certain information regarding theCompany's directors and executive officers.

|                      |  |     |  |                                                                                   |  |  |  |  |  |  |
|----------------------|--|-----|--|-----------------------------------------------------------------------------------|--|--|--|--|--|--|
| Name                 |  | Age |  | Position                                                                          |
| JonathanV.Diamond    |  | 46  |  | Chairmanof the Board of Directors (Class III Director) and Chief ExecutiveOfficer |
| Robert N.Weingarten  |  | 52  |  | Chief Financial Officer andSecretary                                              |
| Hal G. Byer          |  | 47  |  | Class IIDirector                                                                  |
| Robert Scott Fritz   |  | 48  |  | ClassI Director                                                                   |
| Patrick J.Panzarella |  | 39  |  | Class IIDirector                                                                  |
|                      |

The Company's Board of Directors isdivided into three classes, with one class being elected each year andmembers of each class holding office for a three-year term. All of thedirectors serve until their terms expire and until their successors areelected and qualified, or until their earlier death, retirement,resignation or removal.

In connection with the January 2003 debtrestructuring transactions, all of the Company's previousdirectors and officers resigned, and three directors were appointed.Jonathan V. Diamond, who had previously served as a director andinterim Chief Executive Officer of the Company, was appointed asChairman of the Board of Directors, and Hal G. Byer and Robert ScottFritz were appointed as directors. Mr. Fritz has been designated as aClass I director and Mr. Byer has been designated as a Class IIdirector. Mr. Diamond had been previously designated as a Class IIIdirector. Mr. Panzarella was appointed to the Board of Director in June2004 as a Class II director.

The Class I director's termwill expire at the annual meeting to be held subsequent to the fiscalyear ended September 30, 2006. The Class II directors' termsexpire at the annual meeting to be held subsequent to the fiscal yearended September 30, 2004. The Class III director's term willexpire at the annual meeting to be held subsequent to the fiscal yearended September 30, 2005.

The board of directors has establishedAudit, Compensation and Stock Option Committees. Messrs. Byer and Fritzcurrently serve on the Audit, Compensation and Stock OptionCommittees.

The Company does not currently have an auditcommittee financial expert serving on its Audit Committee, as theCompany has limited resources and is continuing its restructuringefforts. The Company intends to attempt to add a qualified board memberto serve as an audit committee financial expert in the future.

The following is a brief summary of the background of theCompany's directors and executive officers.

Directors

Jonathan V. Diamond. Mr. Diamond has served asChairman of the Board and Chief Executive Officer of the Company sinceJanuary 30, 2003. Mr. Diamond previously served as a director fromApril 4, 2001 to December 2, 2002, and as interim Chief ExecutiveOfficer from August 17, 2002 to December 2, 2002. From September 2003to the present, he has served as the Chief Executive Officer and adirector of ARTISTdirect, Inc., a publicly traded music entertainmentcompany. He was the co-founder of N2K, Inc. and served as its ViceChairman and Chief Executive Officer through its 1999 merger withCDnow, Inc., an e-commerce company. He continued to serve as Chairmanof the combined company until its sale to Bertelsmann Music Group inAugust 2000. Mr. Diamond is a former partner in GRP Records, anindependent music label acquired by MCA in 1990. Mr. Diamond holds anM.B.A. from the Columbia University Graduate School of Business and aB.A. in Economics and Music from the University of Michigan.

HalG. Byer. Mr. Byer has served as a director of the Company since January30, 2003. Mr. Byer joined Libra Securities, LLC, a broker-dealerregistered with the Securities and Exchange Commission 

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and an NASD member, in May 2001, and has beena Senior Vice President since January 2002. From 1995 to 2003, Mr. Byerwas Chief Executive Officer of Byer Distributing Co., a snack fooddistribution company. From 2000 to 2003, Mr. Byer was also the ChiefOperating Officer of eGreatcause.com, an internet start-up involved infundraising for charitable and non-profit organizations that is nolonger active.

Robert Scott Fritz. Mr. Fritz has served as adirector of the Company since January 30, 2003. Mr. Fritz is thepresident and owner of Robert Fritz and Sons Sales Company, a foodbroker and paper distributor located in New Jersey, and has operated inthat capacity for the past five years.

Patrick J. Panzarella.Mr. Panzarella has served as a director of the Company since June 3,2004. Mr. Panzarella has served as the Chief Executive Officer ofPacific Entertainment Group, a global entertainment corporation withinterests in artist management, marketing, promotion, publishing, andproduction, since May 2001. Prior to joining Pacific EntertainmentGroup, Mr. Panzarella served as Partner and Co-Chairman of the Board ofSheridan Square Entertainment, a global music company, from April 1999to May 2002. Mr. Panzarella also served as Partner, President and ChiefExecutive Officer of C&P Investment Properties, a privateinvestment fund focused on the entertainment industry, from November1991 to December 2002. This fund participated in numerous acquisitionsand start ups over an eleven year period. Mr. Panzarella received aB.A. in Business from University of Southern California in 1988.

Other Executive Officer

Robert N. Weingarten. Mr.Weingarten was appointed Chief Financial Officer of the Company onFebruary 6, 2003. From July 1992 to present, Mr. Weingarten has beenthe sole shareholder of Resource One Group, Inc., a financialconsulting and advisory company. From January 2004 to present, he hasserved as the Chief Financial Officer and Secretary of ARTISTdirect,Inc., a publicly traded music entertainment company. Since 1979, Mr.Weingarten has served as a consultant to numerous public companies invarious stages of development, operation or reorganization. Mr.Weingarten received an M.B.A. Degree in Finance from the University ofSouthern California in 1975 and a B.A. Degree in Accounting from theUniversity of Washington in 1974. Mr. Weingarten currently serves asPresident and Chief Financial Officer of Aries Ventures Inc. andResource Ventures, Inc., both of which are public companies. Mr.Weingarten was retained to assist in the restructuring of thepredecessor to both such companies in November 1998, and was an officerof such predecessor company when it filed for reorganization underChapter 11 of the United States Bankruptcy Code in December 1999 andsuccessfully confirmed its Plan of Reorganization in March 2000.

Compliance with Section 16(a) of the Exchange Act

Section16(a) of the Securities Exchange Act of 1934, as amended, requires acompany's directors and executive officers, and beneficial ownersof more than 10% of the common stock of such company to filewith the Securities and Exchange Commission initial reports ofownership and periodic reports of changes in ownership of thecompany's securities. Based upon a review of the copies of suchforms furnished to the Company and written representations from theCompany's executive officers and directors, the Company believesthat during the fiscal year ended September 30, 2004, all Forms 3, 4and 5 were filed on a timely basis for the Company's executiveofficers and directors.

Family Relationships among Directorsand Executive Officers

There were no family relationships amongdirectors and executive officers during the fiscal year ended September30, 2004.

Code of Ethics

The Company has adopted awritten Code of Ethics that applies to its senior management, includingits Chief Executive Officer and Chief Financial Officer. A copy of theCompany's Code of Ethics is available to any shareholder thatrequests a copy, and has been filed as an exhibit to the 

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Company's Annual Report on Form 10-K/Afor the fiscal year ended September 30, 2003. Such request should beaddressed to the attention of the Secretary of the Company and mailedto the Company's corporate offices. Any amendment to the Code ofEthics or any waiver of the Code of Ethics will be disclosed promptlyfollowing the date of such amendment or waiver pursuant to a Form 8-Kfiling with the Securities and Exchange Commission.

Changes inProcedures to Nominate Directors

Since the date of theCompany's last disclosures pursuant to Item 7(d)(s)(ii)(G) ofSchedule 14A of the Securities Exchange Act of 1934, as amended, therehave been no material changes to the procedures by which securityholders may recommend nominees to the Company's Board ofDirectors.

ITEM 11. EXECUTIVE COMPENSATION

Thefollowing table sets forth the total compensation paid or accrued bythe Company to the named executive officers for services renderedduring the last three fiscal years. No other executive officersreceived total annual compensation exceeding $100,000 during suchfiscal years.

|                                                      |  |                    |  |                       |  |         |  |                                   |  |                       |  |  |  |  |  |  |  |  |  |  |  |  |
|------------------------------------------------------|--|--------------------|--|-----------------------|--|---------|--|-----------------------------------|--|-----------------------|--|--|--|--|--|--|--|--|--|--|--|--|
|                                                 |  | AnnualCompensation |  | Long-TermCompensation |
|                                                 |  | Year               |  | Salary                |  | Bonus   |  | SecuritiesUnderlying Options/SARs |  | All OtherCompensation |
| Jonathan V.Diamond                                   |  | 2004               |  | $120,000              |  | — |  | 50,000                            |  |
| Chairman of the Board and Chief Executive Officer(1) |  | 2003               |  | $98,000               |  |    |  | 300,000                           |  | $11,000(7)            |
| RobertN.Weingarten                                   |  | 2004               |  | $85,000(8)            |  | — |  | —                           |  | —               |
| Chief Financial Officer and Secretary(3)             |  | 2003               |  | $90,000(8)            |  |    |  | 175,000                           |  | —               |
| HarlanPeltz                                          |  | 2003               |  | $135,417(2)           |  | — |  | —                           |  | —               |
| Former Chief CorporateStrategist and Chairman(4)     |  | 2002               |  | $250,000              |  | — |  | —                           |  | —               |
| James Lucchesi                                       |  | 2002               |  | $274,615(6)           |  | — |  | —                           |  | —               |
| Former Chief Executive Officer andPresident(5)       |  |
|                                                      |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                                         |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | Mr.Diamond served as interim Chief Executive Officer from August 17, 2002to December 2, 2002, and was named Chief Executive Officer on January30, 2003. |

|     |                                                                                            |
|-----|--------------------------------------------------------------------------------------------|
| (2) | Mr.Peltz's compensation is calculated for the period July 1, 2002through January 24, 2003. |

|     |                                                                             |
|-----|-----------------------------------------------------------------------------|
| (3) | Mr. Weingarten has served asChief Financial Officer since February 6, 2003. |

|     |                                                                        |
|-----|------------------------------------------------------------------------|
| (4) | Mr. Peltz's employmentwith the Company terminated on January 24, 2003. |

|     |                                                                         |
|-----|-------------------------------------------------------------------------|
| (5) | Mr. Lucchesi'semployment with the Company terminated on April 11, 2002. |

|     |                                                                                             |
|-----|---------------------------------------------------------------------------------------------|
| (6) | Mr. Lucchesi'scompensation is calculated for the period July 1, 2001 through April11, 2002. |

|     |                                                                                                                                                                                                                              |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (7) | Pursuantto Mr. Diamond's agreement with the Company, the Company recordeda liability for $11,000 at September 30, 2003, to be used as a creditagainst the exercise price of any of Mr. Diamond's stock optionsin the future. |

|     |                                                                                                                                                                                                                                                                                                                                                          |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (8) | Mr.Weingarten was compensated at an effective rate of $120,000 per annumduring the fiscal year ended September 30, 2003. Mr. Weingarten'scompensation decreased to an effective rate of $60,000 per annumeffective March 1, 2004, as a result of the sale of the assets andoperations of the Company's Beyond the Wall, Inc. subsidiary inFebruary 2004. |

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Option Grants in Last Fiscal Year

The following table sets forth certain information regarding stockoptions granted to the Company's executive officers during thefiscal year ended September 30, 2004.

|                   |  |                                               |  |                                                          |  |                             |  |                 |  |                                                                                                  |  |         |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|-------------------|--|-----------------------------------------------|--|----------------------------------------------------------|--|-----------------------------|--|-----------------|--|--------------------------------------------------------------------------------------------------|--|---------|--|--|--|--|--|--|--|--|--|--|--|--|--|--|
|              |  | IndividualGrants(1)                           |  |
| Name              |  | Numberof Securities Underlying OptionsGranted |  | Percent of Total Options Granted toEmployees in 2004 (2) |  | Exercise Price Per Share($) |  | Expiration Date |  | PotentialRealizable Value at Assumed Annual Rates of StockPrice Appreciation for Option Term (3) |
|              |  | 5%                                            |  | 10%                                                      |
| JonathanV.Diamond |  | 50,000                                        |  | 100.0%                                                   |  | $0.26                       |  | 10/15/10        |  | $5,292                                                                                           |  | $12,333 |
|                   |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                                                     |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | Eachoption represents the right to purchase one share of common stock. Theoptions shown in this table were all granted under the YouthStream 2000Stock Option Plan. |

|     |                                                                                                                                                                  |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | During thefiscal year ended September 30, 2004, the Company granted options tomanagement and employees to purchase an aggregate of 50,000 shares ofcommon stock. |

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (3) | Amountsrepresent hypothetical gains that could be achieved for the respectiveoptions if exercised at the end of the option term. The 5% and10% assumed annual rates of compounded stock price appreciationare mandated by the rules of the Securities and Exchange Commission anddo not represent the Company's estimate or projection of futurecommon stock price growth. These amounts represent certain assumedrates of appreciation in the value of the Company's common stockfrom the fair market value on the date of grant. Actual gains, if any,on stock option exercises are dependent on the future performance ofthe common stock and overall stock market conditions. The amountsreflected in the table may not necessarily be achieved. |

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-EndOption Values

The following table sets forth informationconcerning the exercise of stock options during the fiscal year endedSeptember 30, 2004 with respect to the Company's executiveofficers and the fiscal year-end value of unexercised options. Nooptions were exercised by any of the Company's executive officersduring the fiscal year ended September 30, 2004.

|                    |  |                                                                         |  |                                                                   |  |             |  |               |  |  |  |  |  |  |  |  |  |  |
|--------------------|--|-------------------------------------------------------------------------|--|-------------------------------------------------------------------|--|-------------|--|---------------|--|--|--|--|--|--|--|--|--|--|
| Name               |  | Numberof Securities Underlying Unexercised Options atSeptember 30, 2004 |  | Value of UnexercisedIn-The-Money Options at September 30, 2004(1) |
|               |  | Exercisable                                                             |  | Unexercisable                                                     |  | Exercisable |  | Unexercisable |
| JonathanV.Diamond  |  | 430,404                                                                 |  | —                                                           |  | $66,000     |  | —       |
| RobertN.Weingarten |  | 175,000                                                                 |  | —                                                           |  | $38,500     |  | —       |
|                    |

|  |
|--|
|  |  |
|  |

|     |                                                                    |
|-----|--------------------------------------------------------------------|
| (1) | Basedon September 30, 2004 closing stock price of $0.26 per share. |

STOCK OPTION PLAN

In February 2000, the Company adopted theYouthStream 2000 Stock Option Plan (the "2000Plan") in order to grant employees providing services tothe Company incentive stock options. The 2000 Plan allows for thegranting of options to purchase up to 5,000,000 shares of theCompany's common stock. All option plans of the Company inexistence at the formation of the 2000 Plan were merged into the 2000Plan. The terms of the options were not changed upon merging the Plans.The exercise price of the options granted was at fair market value onthe date of the grant. Options generally vest over three years.

As of December 31, 2004, 5,000,000 options were authorized under the2000 Plan and options to purchase 1,205,404 shares were outstanding and3,794,596 options were available for future grants.

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Director Compensation

The Companyhas no standard arrangements for compensation of directors. Directorsare reimbursed for reasonable out-of-pocket expenses incurred inattending board meetings.

In June 2004, the Company issuedoptions to purchase an aggregate of 200,000 shares of common stock toMr. Panzarella, exercisable at the fair market value of $0.14 per sharefor a period of seven years. The option is fully vested.

Employment Contracts, Termination of Employment and Change inControl Arrangements

The Company does not have any employmentcontracts, termination of employment or change in control arrangementswith its current officers.

Long-Term Incentive Plans

The Company does not have any long-term incentive plans.

Meetings and Committees of the Board of Directors

The Boardof Directors held six meetings and took one action by written consentduring the fiscal year ended September 30, 2004. The Board has an AuditCommittee, a Compensation Committee and a Stock Option Committee. EachDirector attended or participated in 75% or more of theaggregate of (i) the total number of meetings of the Board and (ii) thetotal number of meetings held by all committees of the Board on whichsuch Director served during the fiscal year ended September 30,2004.

The Audit Committee reviews, acts on and reports to theBoard of Directors with respect to various auditing and accountingmatters, including the selection of the Company's independentauditors, the scope of the annual audits, fees to be paid to theauditors, the performance of the independent auditors and theCompany's accounting practices. The members of the AuditCommittee are Messrs. Byer and Fritz, each non-employee directors ofthe Company. The Audit Committee as currently configured held fourmeetings during the fiscal year ended September 30, 2004.

TheCompany does not currently have an "audit committeefinancial expert" as defined in Item 401(e) of RegulationS-B under the Securities Exchange Act of 1934, as amended, serving onits Audit Committee, as the Company has limited resources and iscontinuing its restructuring efforts. The Company intends to attempt toadd a qualified board member to serve as an "auditcommittee financial expert" in the future.

TheCompensation Committee reviews and approves the compensation andbenefits of its key executive officers, administers its employeebenefit plans and makes recommendations to the Board regarding suchmatters. The members of the Compensation Committee are Messrs. Byer andFritz. The Compensation Committee did not hold any meetings during thefiscal year ended September 30, 2004.

The Stock Option Committeereviews and approves the options that are issued pursuant to the 2000Stock Option Plan, unless such stock options are approved by the Boardof Directors. The members of the Compensation Committee are Messrs.Byer and Fritz. The Stock Option Committee did not hold any meetingsduring the fiscal year ended September 30, 2004.

NominatingCommittee

The Company does not currently have a NominatingCommittee. Board of Director nominations are recommended by a majorityof directors. In making its nominations, the Board of Directoridentifies candidates who meet the current challenges and needs of theBoard of Directors. In determining whether it is appropriate to add orremove individuals, the Board of Directors will consider issues ofjudgment, diversity, age, skills, background and experience. In makingsuch decisions, the Board of Directors considers, among other things,an individual's business experience, industry experience,financial background and experiences.

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Compensation Committee

Compensation Committee Report on Executive Compensation

        Scope of the Committee's Work

TheCompensation Committee of the Board of Directors reviews and approvesthe Company's executive compensation philosophy and policies andapplies those policies to the compensation of executive officers. Thecurrent members of the Compensation Committee are Messrs. Byer andFritz. The Compensation Committee believes that the compensationprograms for the Company's executive officers should reflect theCompany's performance and the value created for theCompany's stockholders. In addition, the Compensation Committeebelieves that the compensation programs should support the short-termand long-term strategic goals and values of the Company and shouldreward individual contribution to the Company's success. TheCompensation Committee ensures that the executive compensation policiesand plans provide the necessary total remuneration program to properlyalign the Company's performance with the interests of theCompany's stockholders through the use of competitive andequitable executive compensation in a balanced and reasonable manner,for both the short and long-term.

        ExecutiveCompensation Philosophy and Policies

The Company'soverall compensation philosophy is to provide a total compensationpackage that is competitive and enables the Company to attract,motivate, reward and retain key executives and other employees who havethe skills and experience necessary to promote the short and long-termfinancial performance and growth of the Company.

TheCompensation Committee recognizes the critical role of its executiveofficers in the significant growth and success of the Company to dateand its future prospects. Accordingly, the Company's executivecompensation policies are designed to (1) align the interests ofexecutive officers and stockholders by encouraging stock ownership byexecutive officers and by making a significant portion of executivecompensation dependent upon the Company's financial performance;(2) provide compensation that will attract and retain talentedprofessionals; (3) reward individual results through base salary,annual cash bonuses, long-term incentive compensation in the form ofstock options and various other benefits; and (4) manage compensationbased on skill, knowledge, effort and responsibility needed to performa particular job successfully.

In its recommendations on salary,bonuses and long-term incentive compensation for its executiveofficers, the Compensation Committee takes into account both theposition and expertise of a particular executive, as well as theCompensation Committee's understanding of the competitivecompensation for similarly situated executives in the Company'sindustry and situation.

        Executive Compensation

Base Salary.    Salaries for executive officers for thefiscal years ended September 30, 2003 and 2004 were generallydetermined on an individual basis by evaluating each executive'sscope of responsibility, performance, prior experience and salaryhistory, as well as the salaries for similar positions at comparablecompanies.

Bonus.    The amount of cash bonuses paid toexecutives is partially based upon the financial results of theCompany, personal and team objectives and the recommendations of theCompensation Committee. No bonuses were paid to the Company'sexecutive officers during the fiscal years ended September 30, 2003 and2004.

        Long-Term Incentive Awards

TheCompensation Committee believes that equity-based compensation in theform of stock options links the interests of executives with thelong-term interests of the Company's stockholders and encouragesexecutives to remain in the Company's employ. The Company grantsstock options in 

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accordance with its stock option plan. Grantsare awarded based on a number of factors, including theindividual's level of responsibility, the amount and term ofoptions already held by the individual, the individual'scontributions to the achievement of the Company's financial andstrategic objectives, and industry practices and norms.

        Compensation of the Chief Executive Officer

Mr.Diamond has served as Chairman of the Board of Directors and ChiefExecutive Officer since January 30, 2003. The Compensation Committeeconsidered various matters in determining Mr. Diamond'scompensation, including his general business knowledge and experience,particularly as its relates to the management of businesses in variousstages of start-up, development, restructuring and/or sale, hisknowledge and background of the Company's operations, thefinancial condition and financial resources of the Company, the skillsnecessary to lead the continuing restructuring of the Company, theability to design and implement a long-term strategy as well as ashort-term operating plan, and the time necessary to direct and managethe Company's business affairs. The Compensation Committee alsoconsidered the Company's general financial condition, short-termoutlook and its limited working capital resources. The CompensationCommittee took all of these factors into account in establishing Mr.Diamond's base compensation as $120,000 per year, subject,however to review if and when the Company completes the acquisition ofa new business.

Submitted by the CompensationCommittee: Hal G. Byer Robert Scott Fritz

Compensation Committee Interlocks and Insider Participation

Messrs. Byer and Fritz serve on the Company's CompensationCommittee. Mr. Fritz is an investor in KES Holdings, an entity in whichthe Company maintains a 1% interest and which was formed toacquire certain assets of Kentucky Electric Steel, Inc., a Delawarecompany ("KES"), consisting of a steelmini-mill located in Ashland, Kentucky. Mr. Byer is a Senior VicePresident of Libra Securities LLC ("Libra"),and by virtue of his employment agreement with Libra, Mr. Byer has aneconomic interest in the investment in KES Holdings made byLibra's parent entity. In addition, Messrs. Byer and Fritz eachpurchased an option for $2,500 ($0.04 per share) from the Ravich Trustto purchase 62,500 shares at $0.36 per share of the Company'spreferred stock issued to the Ravich Trust in January 2003, exercisableuntil December 31, 2006 or earlier upon the occurrence of certainevents, as described above at "ITEM 1.BUSINESS". Further information with respect to thisrelationship is described below in "ITEM 13. CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS".

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|               |                                                               |
|---------------|---------------------------------------------------------------|
| ITEM12.  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERSAND MANAGEMENT |

The following table sets forth, as of December31, 2004, the beneficial ownership of common stock with respect to (i)each person who was known by the Company to own beneficially more than5% of the outstanding shares of common stock, (ii) eachdirector, (iii) each of the Company's current executive officers,and (iv) all directors and executive officers as a group. As ofDecember 31, 2004, the Company had 39,242,000 shares of common stockissued and outstanding, which was the only class of voting securitiesauthorized or outstanding. Unless otherwise indicated, the address ofeach beneficial owner is c/o YouthStream Media Networks, Inc., 244Madison Avenue, PMB #358, New York, New York 10016.

|                                                                                                                 |  |                                             |           |                 |  |        |        |         |  |  |
|-----------------------------------------------------------------------------------------------------------------|--|---------------------------------------------|-----------|-----------------|--|--------|--------|---------|--|--|
| Nameand Address of Beneficial Owner                                                                             |  | Amount and Nature ofBeneficial Ownership(1) |           | Percent ofClass |
| **ExecutiveOfficers andDirectors:**                                                                             |  |                                        |      |            |  |   |   |    |
| Jonathan V.Diamond                                                                                              |  |                                        | 1,560,404 | (2)        |  |   | 3.88   | %  |
| RobertN. Weingarten                                                                                             |  |                                        | 175,000   | (3)        |  |   | 0.44   | %  |
| RobertScott Fritz 711 Sycamore Avenue Red Bank, NJ 07701                                                        |  |                                        | 200,000   | (4)        |  |   | 0.51   | %  |
| Hal G.Byer c/o Libra Securities, LLC 11766 Wilshire Boulevard,Suite 870 Los Angeles, CA 90025                   |  |                                        | 200,000   | (5)        |  |   | 0.51   | %  |
| PatrickJ. Panzarella820 Manhattan Avenue, Suite 104Manhattan Beach,CA90266                                      |  |                                        | 200,000   | (6)        |  |   | 0.51   | %  |
| Allexecutive officers and directors as a group (5 persons)                                                      |  |                                        | 2,335,404 | (7)        |  |   | 5.70   | %  |
| **5%Stockholders:**                                                                                             |  |                                        |      |            |  |   |   |    |
| RavichRevocable Trust of 1989 c/o Libra Securities, LLC 11766Wilshire Boulevard, Suite 870 Los Angeles, CA90025 |  |                                        | 2,360,000 | (8)        |  |   | 5.94   | %  |
| JosephCorso Jr. 167 Zock Road Cuddlebackville, NY12729                                                          |  |                                        | 5,542,100 | (9)        |  |   | 14.12  | %  |
|                                                                                                                 |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | Sharesof common stock subject to options currently exercisable or exercisablewithin 60 days of December 31, 2004 are deemed outstanding for thepurpose of computing the percentage ownership of the person holdingsuch options but are not deemed outstanding for computing thepercentage ownership of any other person. Unless otherwise indicatedbelow, the persons and entities named in this table have sole votingand sole investment power with respect to all shares beneficiallyowned, subject to community property laws where applicable. |

|     |                                                                        |
|-----|------------------------------------------------------------------------|
| (2) | Includes 930,404 shares issuableupon exercise of options and warrants. |

|     |                                                              |
|-----|--------------------------------------------------------------|
| (3) | Consists of 175,000 sharesissuable upon exercise of options. |

|     |                                                              |
|-----|--------------------------------------------------------------|
| (4) | Consists of 200,000 sharesissuable upon exercise of options. |

|     |                                                              |
|-----|--------------------------------------------------------------|
| (5) | Consists of 200,000 sharesissuable upon exercise of options. |

|     |                                                              |
|-----|--------------------------------------------------------------|
| (6) | Consists of 200,000 sharesissuable upon exercise of options. |

|     |                                                                          |
|-----|--------------------------------------------------------------------------|
| (7) | Includes 1,705,404 sharesissuable upon exercise of options and warrants. |

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|     |                                                                                                                                                                                              |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (8) | Reflectsamount derived from this entity's Schedule 13D as filed with theSecurities and Exchange Commission on September 10, 2003. Includes500,000 shares issuable upon exercise of warrants. |

|     |                                                                                                                                  |
|-----|----------------------------------------------------------------------------------------------------------------------------------|
| (9) | Reflects amount derived from thisperson's Schedule 13G as filed with the Securities and ExchangeCommission on December 29, 2004. |

Securities Authorized forIssuance under Equity Compensation Plans

The informationrequired herein is contained in "ITEM 5. MARKET FOR COMMONEQUITY AND RELATED STOCKHOLDER MATTERS".

Changesin Control

The Company is unaware of any contract or otherarrangement, the operation of which may at a subsequent date result ina change in control of the Company.

ITEM 13.    CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS

Affiliate Loans

During August 2003, the Company's subsidiary, Beyond the Wall,Inc., borrowed $100,000 from each of Jonathan V. Diamond and the RavichTrust, which was used to fund the operations of Beyond the Wall, Inc.The loans, which were due December 31, 2003, were repaid in September2003 and were secured by real estate owned by Beyond the Wall, Inc. Aspartial consideration for the loans, the Company issued to each lenderwarrants to purchase 400,000 shares of common stock, exercisablethrough August 31, 2008 at $0.11 per share, the closing bid price ofthe Company's common stock on the date of the loans. The warrantswere valued using the Black-Scholes option-pricing model and had anaggregate fair value of $88,000, which would have been recognizedratably over the term of the loan. Since the loan was repaid beforeSeptember 30, 2003, however, the entire $88,000 was recognized asinterest expense with a corresponding increase to additional paid-incapital.

During August 2003, the Company also borrowed $25,000from each of Jonathan V. Diamond and the Ravich Trust, which was usedto fund, in part, the Company's investment in KES Holdings (seebelow). The loans, which were due December 31, 2003, were repaid inSeptember 2003 and were unsecured. As partial consideration for theloans, the Company issued to each lender warrants to purchase 100,000shares of common stock, exercisable through August 31, 2008 at $0.16per share, the closing bid price of the Company's common stock onthe date of the loans. The warrants were valued using the Black-Scholesoption-pricing model and had an aggregate fair value of $32,000, whichwould have been recognized ratably over the term of the loan. Since theloan was repaid before September 30, 2003, however, the entire $32,000was recognized as interest expense with a corresponding increase toadditional paid-in capital

Investment in KES Holdings

In September 2003, the Company announced that it made an investmentof $125,000 for a 1.00% membership interest in KES Holdings,LLC, a Delaware limited liability company ("KESHoldings"), which was formed to acquire certain assets ofKentucky Electric Steel, Inc., a Delaware company("KES"), consisting of a non-operating steelmini-mill located in Ashland, Kentucky. On September 2, 2003, KESHoldings, 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 States BankruptcyCode for cash consideration of $2,650,000. KES ceased production on orabout December 16, 2002 and filed a voluntary petition for relief underChapter 11 of the United States Bankruptcy Code on February 5, 2003.The steel mini-mill had been in operation for approximately 50 years,and was refurbished by KES Acquisition subsequent to its acquisition.The refurbished steel mini-mill has been generating revenues sinceearly 2004.

In addition to the Company, investors in KESHoldings include, among others, affiliates of Libra Securities, LLC, aDelaware limited liability company, which is a broker-dealer registeredwith the 

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Securities and Exchange Commission and anNASD member ("Libra"), consisting ofLibra's parent entity, certain employees of Libra and the RavichRevocable Trust of 1989 (Jess M. Ravich, Trustee) (the"Ravich Trust"). Robert Scott Fritz, one ofthe directors of the Company, is also an investor in KES Holdings. JessM. Ravich, the President and Chief Executive Officer of Libra and theprincipal stockholder of Libra's parent entity, is the manager ofKES Holdings, 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 voting commonstock, and will capitalize that subsidiary with $500,000. In connectionwith the acquisition, the new subsidiary is expected to issue to theowners of KES Acquisition in exchange for 100% of their equityinterest in KES Acquisition (i) $25,000,000 of its non-convertiblenon-voting redeemable preferred stock with a redemption price equal to$25,000,000 and a 13% annual cumulative dividend and (ii) seniorsubordinated promissory notes in the aggregate principal amount of$40,000,000 with an annual interest rate of 8%. As part of thistransaction, the remaining 19.99% common stock interest in thenew subsidiary will be owned by the former owners of KESAcquisition.

The letter of intent is subject to, among otherconditions, negotiation, preparation and execution of definitivetransaction documents, preparation of consolidated financialstatements, compliance with state and federal securities laws andregulations, and receipt of requisite corporate approvals. Thetransaction is expected to close in the first calendar quarter of 2005.However, as a result of the foregoing uncertainties, there can be noassurances that the transaction will be completed. Furthermore, even ifthe transaction is completed, there can be no assurances that thefuture operations of the steel mini-mill will be successful

TheRavich Trust currently owns 1,000,000 shares of redeemable preferredstock and 1,860,000 shares of common stock of the Company. The RavichTrust also owns warrants to purchase 500,000 shares of common stock ofthe Company exercisable through August 31, 2008, 400,000 of which areexercisable at $0.11 per share and 100,000 of which are exercisable at$0.16 per share, as described above at "AffiliateLoans".

In May 2003, the Company's threedirectors who were appointed at the closing of the January 2003 debtrestructuring each paid $2,500 ($0.04 per share) to acquire an optionfrom the Ravich Trust to purchase 62,500 shares at $0.36 per share ofthe Company's preferred stock issued to the Ravich Trust inJanuary 2003, exercisable until December 31, 2006 or earlier upon theoccurrence of certain events. In July 2004, Mr. Diamond irrevocablywaived any and all rights related to his option and all rights theretowere rendered null and void (see "ITEM 1.BUSINESS").

ITEM 14.    PRINCIPAL ACCOUNTANTFEES AND SERVICES

Audit and Audit Related Fees

Weinberg & Company, P.A. ("Weinberg")was the Company's independent registered public accounting firmfor the fiscal years ended September 30, 2004 and 2003 and for thetransition period from July 1, 2002 through September 30, 2002.Services provided to the Company by Weinberg with respect to the fiscalyear ended September 30, 2003 consisted of the audit of theCompany's consolidated financial statements and a limited reviewof the condensed consolidated financial statements included in the Form10-Q Quarterly Report for the interim period ended June 30, 2003pursuant to Statement on Auditing Standards No. 100; total fees andexpenses with respect thereto aggregated approximately $119,000.Services provided to the Company by Weinberg with respect to the fiscalyear ended September 30, 2004 consisted of the audit of theCompany's consolidated financial statements and limited reviewsof the condensed consolidated financial statements included in

25

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Form 10-Q Quarterly Reports; total fees andexpenses with respect thereto aggregated approximately $114,000. Duringthe fiscal year ended September 30, 2004, Weinberg also providedcertain services with respect to the audit requirements of a potentialacquisition aggregating approximately $13,000.

Tax Fees

Weinberg did not provide any services to the Company with respect tothe preparation of corporate income tax returns or tax planningmatters.

All Other Fees

Weinberg did not provide anyservices with respect to any matters other than those related to auditand audit-related matters.

Pre-Approval Policies andProcedures

The Audit Committee meets periodically to review andapprove the scope of the services to be provided to the Company by itsindependent accountant, as well to review and discuss any issues thatmay arise during an engagement. The Audit Committee considers variousissues with respect to the services to be provided by its independentaccountant, including the complexity of any engagement, its expectedcost, the knowledge and expertise of the independent accountant'sstaff, any complex accounting or disclosure issues, new accountingpronouncements, and the capability of the Company's financialstaff.

PART IV

ITEM 15.    EXHIBITS AND FINANCIALSTATEMENT SCHEDULES

(a) The following documents are filed aspart of this report:

(1) Financial Statements:

|                                                                                                                                                                                           |  |        |     |        |  |  |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--------|-----|--------|--|--|
| Reportof Independent Registered Public Accounting Firm – Weinberg &Company, P.A.                                                                                                |  |   | F-2 |   |
| Report of IndependentRegistered Public Accounting Firm – Ernst & Young LLP                                                                                                      |  |   | F-3 |   |
| Consolidated Balance Sheets as of September30, 2004 and 2003                                                                                                                              |  |   | F-4 |   |
| ConsolidatedStatements of Operations for the years ended September 30, 2004,September 30, 2003 and June 30, 2002, and for the three months endedSeptember 30, 2002                        |  |   | F-5 |   |
| ConsolidatedStatements of Cash Flows for the years ended September 30, 2004,September 30, 2003 and June 30, 2002, and for the three months endedSeptember 30, 2002                        |  |   | F-6 |   |
| ConsolidatedStatements of Stockholders' Equity (Deficiency) for the yearsended September 30, 2004, September 30, 2003 and June 30, 2002, and forthe three months ended September 30, 2002 |  |   | F-7 |   |
| Notes to Consolidated Financial Statements                                                                                                                                                |  |   | F-8 |   |
|                                                                                                                                                                                           |

(2) Financial StatementSchedules: All financial schedules have been omitted because they arenot applicable or the required information is shown in the financialstatements or notes thereto.

(b)Exhibits:

|     |  |                                                                                                                                                                                                          |  |  |  |  |
|-----|--|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|--|--|
| 3.1 |  | Certificateof Incorporation (incorporated by reference to Exhibit 3.1 to theCompany's Registration Statement on Form SB-2, Registration No.33-80935, filed on March 6,1996).                             |
| 3.2 |  | Certificate of Amendment ofCertificate of Incorporation (incorporated by reference to Exhibit 3.2to the Company's Registration Statement on Form SB-2,Registration No. 33-80935, filed on March 6,1996). |
|     |

26

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|      |  |                                                                                                                                                                                                                                                                 |  |  |  |  |
|------|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|--|--|
| 3.3  |  | Certificate of Amendmentof Certificate of Incorporation (incorporated by reference to Exhibit3.3 to the Company's Form 10-KSB for the fiscal year ended June30, 1998, filed May 27,1998).                                                                       |
| 3.4  |  | Certificate of Designation forPreferred Stock of YouthStream Media Networks, Inc. (incorporated byreference to Exhibit 99.3 to the Company's Form 8K filed February7, 2003).                                                                                    |
| 3.5  |  | Certificate of Correction tothe Certificate of Designation of Series A Preferred Stock ofYouthStream Media Networks, Inc. (incorporated by reference to Exhibit3.5 to the Company's Amended Form 10-K/A, filed March 5,2004).                                   |
| 3.6  |  | Bylaws (incorporated by referenceto Exhibit 3.3 to the Company's Registration Statement on FormSB-2, Registration No. 33-80935, filed on March 6,1996).                                                                                                         |
| 3.7  |  | Bylaws (incorporated by referenceto Exhibit 4.2 to YouthStream's Registration Statement on FormS-8, Registration No. 333-32022, filed on March 9,2000).                                                                                                         |
| 3.8  |  | Amendment to Bylaws (incorporatedby reference to Exhibit 3.8 to the Company's Form 10-Q for thequarter ended June 30, 2004, filed August 13,2004).                                                                                                              |
| 4.1  |  | Warrant Agreement (incorporatedby reference to Exhibit 4.1 to the Company's RegistrationStatement on Form SB-2, Registration No. 33-80935, filed on March 6,1996).                                                                                              |
| 4.2  |  | Underwriter's Warrant(incorporated by reference to Exhibit 4.2 to the Company'sRegistration Statement on Form SB-2, Registration No. 33-80935, filedon March 6, 1996).                                                                                          |
| 10.1 |  | Employment StockOption Plan of the Company (incorporated by reference to Exhibit 10.1to the Company's Registration Statement on Form SB-2,Registration No. 33-80935, filed on March 6,1996).                                                                    |
| 10.2 |  | Employment Agreement between theCompany and Harlan D. Peltz (incorporated by reference to Exhibit 10.2to the Company's Registration Statement on Form SB-2,Registration No. 33-80935, filed on March 6,1996).                                                   |
| 10.3 |  | Employment Agreement between theCompany and Don Leeds (incorporated by reference to Exhibit 1 to theCompany's Form 10-QSB for the quarterly period ended June 30,1996).                                                                                         |
| 10.4 |  | Non-Incentive Stock OptionAgreement dated June 17, 1996 between the Company and Don Leedsincorporated by reference to Exhibit 10.3 to the Company's Form10-QSB for the quarterly period ended June 30,1996).                                                    |
| 10.5 |  | Employment Agreement between theCompany and Bruce L. Resnik (incorporated by reference to Exhibit 2 tothe Company's Form 10-QSB for the quarterly period endedSeptember 30, 1996).                                                                              |
| 10.6 |  | NET PortfolioInvestors Agreement dated December 21, 1995 between the Company and NETPortfolio Investors, L.P. (incorporated by reference to Exhibit 10.5 tothe Company's Registration Statement on Form SB-2, RegistrationNo. 33-80935, filed on March 6,1996). |
| 10.7 |  | Standard Form of School Contract(incorporated by reference to Exhibit 10.8 to the Company'sRegistration Statement on Form SB-2, Registration No. 33-80935, filedon March 6, 1996).                                                                              |
| 10.8 |  | Asset PurchaseAgreement dated September 13, 1996 among American Passage MediaCorporation, Gilbert Scherer, the Company and American Passage Media,Inc. (incorporated by reference to Exhibit 2 to the Company'sForm 8-K, filed on September 28, 1996).          |
|      |

27

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|       |  |                                                                                                                                                                                                                                                                                                             |  |  |  |  |
|-------|--|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|--|--|
| 10.9  |  | Option Agreementbetween the Company and American Passage Media corporation(incorporated by reference to Exhibit 5 to the Company's Form8-K, filed on September 28,1996).                                                                                                                                    |
| 10.10 |  | Bill of Sale and Agreementdated January 31, 1997 among SCCGS, Inc., Sirrom Capital Corporation,Campus Voice, L.L.C. and the Company (incorporated by reference toExhibit 10.23 to the Company's Form 10-KSB for the fiscal yearended June 30, 1997).                                                        |
| 10.11 |  | Asset PurchaseAgreement dated April 11, 1997 among Posters Preferred, Inc., DennisRoche, Brian Gordon and the Company (incorporated by reference toExhibit 10.30 to the Company's Form 10-KSB for the fiscal yearended June 30, 1997).                                                                      |
| 10.12 |  | Asset PurchaseAgreement dated April 30, 1997 among the Company, Pik:Nik Media, LLC,Pik:Nik, LLC and Garth Holsinger, Annett Schaefer-Sell and Sunny Smith(incorporated by reference to Exhibit 10.31 to the Company's Form10-KSB for the fiscal year ended June 30,1997).                                   |
| 10.13 |  | Stock Purchase Agreement datedJune 24, 1997 among Warburg, Pincus Emerging Growth Fund, Inc., SmallCompany Growth Portfolio of Warburg, Pincus Institutional Fund, Inc.and the Company (incorporated by reference to Exhibit 10.32 to theCompany's Form 10-KSB for the fiscal year ended June 30,1997).     |
| 10.14 |  | Registration Rights Agreementdated June 24, 1997 among Warburg, Pincus Emerging Growth Fund, Inc.,Small Company Growth Portfolio of Warburg, Pincus Institution Fund,Inc., and the Company (incorporated by reference to Exhibit 10.33 tothe Company's Form 10-KSB for the fiscal year ended June 30,1997). |
| 10.15 |  | Stock Purchase Agreement datedDecember 23, 1997 between the Company and Dirrom Investments, Inc.(incorporated by reference to Exhibit 10.15 to the Company's Form10-KSB for the fiscal year ended June 30,1998).                                                                                            |
| 10.16 |  | Placement Manager Agreement(incorporated by reference to Exhibit 10.17 to the Company's Form10-KSB for the fiscal year ended June 30,1998).                                                                                                                                                                 |
| 10.17 |  | Form of Stock PurchaseAgreement (incorporated by reference to Exhibit 10.1 to theCompany's Form 10-KSB for the fiscal year ended June 30,1998).                                                                                                                                                             |
| 10.18 |  | Loan Agreement dated December30, 1997 between First Union National Bank, American Passage Media,Inc., Beyond the Wall, Inc. and Campus Voice, Inc. (incorporated byreference to Exhibit 10.18 to the Company's Form 10-KSB for thefiscal year ended June 30,1998).                                          |
| 10.19 |  | Unconditional Guaranty datedDecember 30, 1997 by the Company and National Campus Media, Inc. infavor of First Union National Bank (incorporated by reference toExhibit 10.19 to the Company's Form 10-KSB for the fiscal yearended June 30, 1998).                                                          |
| 10.20 |  | Merger Agreementdated June 9, 1999 among the Company, Trent Acquisition Co., Inc.,Trent Graphics, Inc. and Charles Sirolly, Thomas Sirolly, DanielSirolly and William Sirolly (incorporated by reference to Exhibit 2 tothe Company's Form 8-K filed June 24,1999).                                         |
| 10.21 |  | Asset Purchase Agreement datedJune 10, 1999 among the Company, Pik:Nik Media, Inc., HelloXpress USA,Inc., and Dalia Smith and Ron Smith (incorporated by reference toExhibit 2 to the Company's Form 8-K filed June 24,1999).                                                                               |
| 10.22 |  | Option Agreement dated August3, 1999 among the Company, New CW, Inc., CollegeWeb.com, Inc. and J.Alexander Chriss and Todd M. Ragaza (incorporated by reference toExhibit 10.22 to the Company's Form 10-KSB for the fiscal yearended June 30, 1999).                                                       |
|       |

28

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|       |  |                                                                                                                                                                                                                                                                                                                                                                             |  |  |  |  |
|-------|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|--|--|
| 10.23 |  | Agreement and Plan ofMerger dated August 3 1999 among the Company, New CW, Inc.,CollegeWeb.com, Inc. and J. Alexander Chriss and Todd M. Ragaza(incorporated by reference to Exhibit 10.23 to the Company's Form10-KSB for the fiscal year ended June 30,1999).                                                                                                             |
| 10.24 |  | Operating Agreement of CommonPlaces, LLC (incorporated by reference to Exhibit 10.1 to theCompany's quarterly report on Form 10-QSB for the quarter endedDecember 31, 1998).                                                                                                                                                                                                |
| 10.25 |  | Agreement and Planof Merger dated June 28, 1999 among the Company, Common Places, LLC,YouthStream Media Networks, Inc., Nunet, Inc., Nucommon, Inc., a whollyowned subsidiary of New Parent, Harlan Peltz, Benjamin Bassi, WilliamTownsend and Mark Palmer (incorporated by reference to Exhibit 10.25 tothe Company's Form 10-KSB for the fiscal year ended June 30,1999). |
| 10.26 |  | Restated Certificate ofIncorporation of YouthStream Media Networks, Inc. (incorporated byreference to Exhibit 10.26 to the Company's Form 10-KSB for thefiscal year ended June 30,1999).                                                                                                                                                                                    |
| 10.27 |  | Rights Agreement betweenYouthStream Media Networks, Inc. and the Rights Agent (unsigned andundated) (incorporated by reference to Exhibit 10.27 to theCompany's Form 10-KSB for the fiscal year ended June 30,1999).                                                                                                                                                        |
| 10.28 |  | YouthStream Media Networks,Inc. 2000 Stock Incentive Plan (incorporated by reference to Exhibit10.28 to the Company's Form 10-KSB for the fiscal year ended June30, 1999).                                                                                                                                                                                                  |
| 10.29 |  | Voting Trust Agreementamong YouthStream Media Networks, Inc., Benjamin Bassi, WilliamTownsend, Mark Palmer, Harlan Peltz and the Voting Trustee(incorporated by reference to Exhibit 10.29 to the Company's Form10-KSB for the fiscal year ended June 30,1999).                                                                                                             |
| 10.30 |  | Stockholders Agreement amongYouthStream Media Networks, Inc., Benjamin Bassi, William Townsend,Mark Palmer, Harlan Peltz individually, Harlan Peltz as voting trustee(incorporated by reference to Exhibit 10.30 to the Company's Form10-KSB for the fiscal year ended June 30,1999).                                                                                       |
| 10.31 |  | Employment Agreement betweenYouthStream Media Networks, Inc. And Benjamin Bassi (incorporated byreference to Exhibit 10.31 to the Company's Form 10-KSB for thefiscal year ended June 30,1999).                                                                                                                                                                             |
| 10.32 |  | Employment Agreement betweenYouthStream Media Networks, Inc. And Harlan Peltz (incorporated byreference to Exhibit 10.32 to the Company's Form 10-KSB for thefiscal year ended June 30,1999).                                                                                                                                                                               |
| 10.33 |  | Merger Agreement dated December14, 1999 among the Company, Sixdegrees Acquisition Corp. andsixdegrees, inc. (incorporated by reference to Exhibit 10.33 to theCompany's Form 8-K filed January 20,2000).                                                                                                                                                                    |
| 10.34 |  | Certificate of Designation ofSeries A Convertible Preferred Stock of the Company (incorporated byreference to Exhibit 10.34 to the Company's Form 8-K filedJanuary 20, 2000).                                                                                                                                                                                               |
| 10.35 |  | 1999 Stock OptionPlan of the Company (incorporated by reference to Exhibit 10.35 to theCompany's Form 8-K filed January 20,2000).                                                                                                                                                                                                                                           |
| 10.36 |  | 1999 Special Stock Option Planof the Company (incorporated by reference to Exhibit 10.36 to theCompany's Form 8-K filed January 20,2000).                                                                                                                                                                                                                                   |
| 10.37 |  | 1999 Special Incentive StockPlan of the Company (incorporated by reference to Exhibit 10.37 to theCompany's Form 8-K filed January 20,2000).                                                                                                                                                                                                                                |
|       |

29

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|       |  |                                                                                                                                                                                                                                                                                                                                                                                       |  |  |  |  |
|-------|--|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|--|--|
| 10.38 |  | Employment Agreementdated June 20, 2000 between YouthStream Media Networks, Inc. and JamesG. Lucchesi (incorporated by reference to Exhibit 10.38 to theCompany's Form 10-KSB filed September 27,2000).                                                                                                                                                                               |
| 10.39 |  | Non-Qualified Stock OptionAgreement of James G. Lucchesi dated June 20, 2000 (incorporated byreference to Exhibit 10.39 to the Company's Form 10-KSB filedSeptember 27, 2000).                                                                                                                                                                                                        |
| 10.40 |  | Amendment toEmployment Agreement as of June 20, 2000 between YouthStream MediaNetworks, Inc. and Harlan D. Peltz (incorporated by reference toExhibit 10.40 to the Company's Form 10-KSB filed September 27,2000).                                                                                                                                                                    |
| 10.41 |  | Employment Agreement dated July1, 2000 between YouthStream Media Networks, Inc. and Thea A. Winarsky(incorporated by reference to Exhibit 10.41 to the Company's Form10-KSB filed September 27,2000).                                                                                                                                                                                 |
| 10.42 |  | Merger Agreement dated July 13,2000 among YouthStream Media Networks, Inc., W3T Acquisition, Inc., awholly-owned subsidiary of YouthStream, W3T.com, Inc., Gerald Croteau,Eugene Bellotti, Donald Dion, Richard King, James Westra, Mark Fusco,Suzanne W. Bookstein and John Genest (incorporated by reference toExhibit 10.42 to the Company's Form 10-KSB filed September 27,2000). |
| 10.43 |  | Consulting and Non-CompetitionAgreement dated July 25, 2000 between YouthStream Media Networks, Inc.and Andrew P. Weinreich (incorporated by reference to Exhibit 10.43 tothe Company's Form 10-KSB filed September 27,2000).                                                                                                                                                         |
| 10.44 |  | Amendment No. 1 dated July 28,2000 to Stockholders Agreement dated February 28, 2000 amongYouthStream Media Networks, Inc., Benjamin Bassi, William Townsend,Mark Palmer, Harlan D. Peltz, individually, and Harlan D. Peltz, asvoting trustee (incorporated by reference to Exhibit 10.44 to theCompany's Form 10-KSB filed September 27,2000).                                      |
| 10.45 |  | Non-Qualified Stock OptionAgreement of Thea A. Winarsky dated August 16, 2000 (incorporated byreference to Exhibit 10.45 to the Company's Form 10-KSB filedSeptember 27, 2000).                                                                                                                                                                                                       |
| 10.46 |  | Non-QualifiedStock Option Agreement of James G. Lucchesi dated September 26, 2000(incorporated by reference to Exhibit 10.46 to the Company's Form10-KSB filed September 27,2000).                                                                                                                                                                                                    |
| 10.47 |  | Non-Qualified Stock OptionAgreement of James G. Lucchesi dated July 2,2001.                                                                                                                                                                                                                                                                                                           |
| 10.48 |  | Non-Qualified Stock OptionAgreement of James G. Lucchesi dated July 2,2001.                                                                                                                                                                                                                                                                                                           |
| 10.49 |  | Amendment to the EmploymentAgreement (dated June 20, 2000) dated June 29, 2001 for James G.Lucchesi.                                                                                                                                                                                                                                                                                  |
| 10.50 |  | Amendment to Non-QualifiedStock Option Agreement (dated July 31, 2000) dated June 29, 2001 forJames G. Lucchesi.                                                                                                                                                                                                                                                                      |
| 10.51 |  | Amendment toNon-Qualified Stock Option Agreement (dated June 20, 2000) dated June29, 2001 for James G. Lucchesi.                                                                                                                                                                                                                                                                      |
| 10.52 |  | AssetPurchase Agreement by and between Alloy, Inc., Cass Communications,Inc., YouthStream Media Networks, Inc., American Passage Media, Inc.and Network Event Theater, Inc., dated August 5, 2002 (incorporated byreference to Exhibit 10-1 to the Company's Form 8K filed August20, 2002).                                                                                           |
|       |

30

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|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |  |  |  |
|-------|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|--|--|
| 10.53 |  | RestructuringAgreement dated as of January 20, 2003 by and among YouthStream MediaNetworks, Inc., and its subsidiary, Network Event Theater, Inc., theUnited States Small Business Administration as Receiver for InterequityCapital Partners, LP, TCW Shared Opportunity Fund II, L.P., SharedOpportunity Fund IIB, LLC, The Charles and Adele Thurnher Living TrustDated December 7, 1989, The Morrish Community Property Trust DatedApril 15, 1998, and Jean Smith, Stanley J. Schrager, RichardCoppersmith, Rand Ravich and Jess M. Ravich, individually (incorporatedby reference to Exhibit 99.2 to the Company's Form 8K filedFebruary 7, 2003).         |
| 10.54 |  | Promissory NoteIssued from Beyond the Wall, Inc. to The Ravich Revocable Trust of 1989(incorporated by reference to Exhibit 99.4 to the Company's Form8K filed February 7, 2003).                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.55 |  | PromissoryNote Issued from Beyond the Wall, Inc. to Interequity Capital Partners,LP. incorporated by reference to Exhibit 99.5 to the Company'sForm 8K filed February 7, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.56 |  | MutualRelease by and between each of Ravich Revocable Trust of 1989, LibraSecurities, LLC, the United States Small Business Administration asReceiver for Interequity Capital Partners, LP, TCW Shared OpportunityFund II, L.P., Shared Opportunity Fund IIB, LLC, The Charles and AdeleThurnher Living Trust Dated December 7, 1989, The Morrish CommunityProperty Trust Dated April 15, 1998, and Jean Smith, Stanley J.Schrager, Richard Coppersmith, Rand Ravich and Jess M. Ravich,individually, YouthStream Media Networks, Inc. and Network EventTheater, Inc. (incorporated by reference to Exhibit 99.6 to theCompany's Form 8K filed February 7,2003. |
| 10.57 |  | Letter by Libra Securities, LLC.(incorporated by reference to Exhibit 99.7 to the Company's Form8K filed February 7, 2003)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.58 |  | ExistingDirector Release to YouthStream Media Networks, Inc. (incorporated byreference to Exhibit 99.8 to the Company's Form 8K filed February7, 2003).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.59 |  | Ravich Security Agreement byand among YouthStream Media Networks, Inc., and The Ravich RevocableTrust of 1989 and the United States Small Business Administration, asReceiver for Interequity Capital Partners, LP. (incorporated byreference to Exhibit 99.9 to the Company's Form 8K filed February7, 2003).                                                                                                                                                                                                                                                                                                                                                  |
| 10.60 |  | Amendment No. 1 toRestructuring Agreement dated as of January 23, 2003 by and amongYouthStream Media Networks, Inc., and its subsidiary, Network EventTheater Inc., each of which is a Delaware corporation, and the RavichRevocable Trust of 1989. (incorporated by reference to Exhibit 99.10 tothe Company's Form 8K filed February 7,2003).                                                                                                                                                                                                                                                                                                                 |
| 10.61 |  | Amendment No. 2 toRestructuring Agreement dated as of January 24, 2003 by and betweenYouthStream Media Networks, Inc., its subsidiary, Network Event TheaterInc., each of which is a Delaware corporation, the Ravich RevocableTrust of 1989 and the United States Small Business Administration asReceiver for Interequity Capital Partners, LP. (incorporated byreference to Exhibit 99.11 to the Company's Form 8K filedFebruary 7, 2003).                                                                                                                                                                                                                   |
| 10.62 |  | Agreement datedJune 9, 2003 by and among YouthStream Media Networks, Inc., NetworkEvent Theater, Inc., Beyond the Wall, Inc., the Ravich Revocable Trustof 1989 and the United States Small Business Administration as Receiverfor Interequity Capital Partners, LP. (incorporated by reference toExhibit 99.1 to the Company's Form 8K filed June 16,2003).                                                                                                                                                                                                                                                                                                    |
| 10.63 |  | Amendment No. 1 to PromissoryNote dated January 24, 2003 issued to the Ravich Revocable Trust of1989. (incorporated by reference to Exhibit 99.2 to the Company'sForm 8K filed June 16, 2003).                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|       |

31

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|       |  |                                                                                                                                                                                                                                                             |  |  |  |  |
|-------|--|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|--|--|
| 10.64 |  | Amendment No. 1 toPromissory Note dated January 24, 2003 issued to Interequity CapitalPartners, LP. (incorporated by reference to Exhibit 99.3 to theCompany's Form 8K filed June 16,2003).                                                                 |
| 10.65 |  | Inter-Creditor Agreementbetween the Ravich Revocable Trust of 1989 and Jonathan V. Diamond,dated August 13, 2003 (incorporated by reference to Exhibit 10.1 to theCompany's Form 8K filed September 11,2003).                                               |
| 10.66 |  | Promissory Note for $100,000from Beyond the Wall, Inc., to Jonathan V. Diamond, dated August 13,2003 (incorporated by reference to Exhibit 10.2 to the Company'sForm 8K filed September 11,2003).                                                           |
| 10.67 |  | Promissory Note for $100,000from Beyond the Wall, Inc. to the Ravich Revocable Trust of 1989, datedAugust 13, 2003 (incorporated by reference to Exhibit 10.3 to theCompany's Form 8K filed September 11,2003).                                             |
| 10.68 |  | Mortgage from Beyond the Wall,Inc. to Jonathan V. Diamond, dated August 13, 2003 (incorporated byreference to Exhibit 10.4 to the Company's Form 8K filedSeptember 11, 2003).                                                                               |
| 10.69 |  | Mortgage fromBeyond the Wall, Inc. to the Ravich Revocable Trust of 1989, datedAugust 13, 2003 (incorporated by reference to Exhibit 10.5 to theCompany's Form 8K filed September 11,2003).                                                                 |
| 10.70 |  | Warrant Certificate to acquire400,000 shares of common stock, dated August 13, 2003, issued by theCompany to Jonathan V. Diamond (incorporated by reference to Exhibit10.6 to the Company's Form 8K filed September 11,2003).                               |
| 10.71 |  | Warrant Certificate to acquire400,000 shares of common stock, dated August 13, 2003, issued by theCompany to the Ravich Revocable Trust of 1989 (incorporated byreference to Exhibit 10.7 to the Company's Form 8K filedSeptember 11, 2003).                |
| 10.72 |  | Warrant HolderRights Agreement with respect to 400,000 shares of common stock,between the Company and Jonathan V. Diamond, dated August 13, 2003(incorporated by reference to Exhibit 10.8 to the Company's Form8K filed September 11, 2003).               |
| 10.73 |  | WarrantHolder Rights Agreement with respect to 400,000 shares of common stock,between the Company and the Ravich Revocable Trust of 1989, datedAugust 13, 2003 (incorporated by reference to Exhibit 10.9 to theCompany's Form 8K filed September 11,2003). |
| 10.74 |  | Promissory Note for $25,000from the Company to Jonathan V. Diamond, dated August 28, 2003(incorporated by reference to Exhibit 10.10 to the Company's Form8K filed September 11,2003).                                                                      |
| 10.75 |  | Promissory Note for $25,000from the Company to the Ravich Revocable Trust of 1989, dated August28, 2003 (incorporated by reference to Exhibit 10.11 to theCompany's Form 8K filed September 11,2003).                                                       |
| 10.76 |  | Warrant Certificate to acquire100,000 shares of common stock, dated August 28, 2003, issued by theCompany to Jonathan V. Diamond (incorporated by reference to Exhibit10.12 to the Company's Form 8K filed September 11,2003).                              |
| 10.77 |  | Warrant Certificate to acquire100,000 shares of common stock, dated August 28, 2003, issued by theCompany to the Ravich Revocable Trust of 1989 (incorporated byreference to Exhibit 10.13 to the Company's Form 8K filedSeptember 11, 2003).               |
| 10.78 |  | Asset PurchaseAgreement, by and among Beyond the Wall, Inc., Clive Corporation, Inc.and the Company (incorporated by reference to Exhibit 10.1 to theCompany's Form 8-K, filed March 11,2004).                                                              |
|       |

32

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|       |  |                                                                                                                                                                                           |  |  |  |  |
|-------|--|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|--|--|
| 10.79 |  | Agreement of Salebetween Beyond the Wall, Inc. and 1903 West Main Street RealtyManagement, LLC (incorporated by reference to Exhibit 10.2 to theCompany's Form 8-K, filed March 11,2004). |
| 10.80 |  | Secured Promissory Note(incorporated by reference to Exhibit 10.3 to the Company's Form8-K, filed March 11, 2004).                                                                        |
| 14.1  |  | Code ofEthics—CEO (incorporated by reference to Exhibit 14.1 to theCompany's Amended Form 10-K/A, filed March 5,2004).                                                              |
| 14.2  |  | Code of Ethics—CFO(incorporated by reference to Exhibit 14.2 to the Company'sAmended Form 10-K/A, filed March 5,2004).                                                              |
| 16.1  |  | Letter from Ernst & YoungLLP addressed to the Securities and Exchange Commission (incorporatedby reference to Exhibit 16.1 to the Company's Form 8K filed July2, 2003).               |
| 21    |  | Subsidiaries of the Company ofthe Company (incorporated by reference to Exhibit  21 to theCompany's June  30, 2001 Form  10-K filedAugust  31, 2001).                                     |
| 31.1* |  | Certificationof CEO                                                                                                                                                                       |
| 31.2* |  | Certification ofCFO                                                                                                                                                                       |
| 32*   |  | Certification of CEO andCFO                                                                                                                                                               |
|       |

|  |
|--|
|  |  |
|  |

|   |               |
|---|---------------|
| * | Filedherewith |

33

----

YOUTHSTREAMMEDIA NETWORKS,  INC. INDEX TO CONSOLIDATED FINANCIALSTATEMENTS

|                                                                                                                                                                                            |  |        |     |        |  |  |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--------|-----|--------|--|--|
| Reportof Independent Registered Public Accounting Firm – Weinberg &Company, P.A.                                                                                                 |  |   | F-2 |   |
| Report of IndependentRegistered Public Accounting Firm – Ernst & YoungLLP                                                                                                        |  |   | F-3 |   |
| Consolidated Balance Sheets as ofSeptember  30, 2004 and2003                                                                                                                               |  |   | F-4 |   |
| Consolidated Statements ofOperations for the years ended September  30, 2004, September 30,2003 and June 30, 2002, and for the three months ended September30, 2002                        |  |   | F-5 |   |
| Consolidated Statements of CashFlows for the years ended September 30, 2004, September 30, 2003 andJune 30, 2002, and for the three months ended September  30,2002                        |  |   | F-6 |   |
| Consolidated Statements ofStockholders' Equity (Deficiency) for the years ended September30, 2004, September 30, 2003 and June  30, 2002, and for thethree months ended September  30,2002 |  |   | F-7 |   |
| Notes to Consolidated FinancialStatements                                                                                                                                                  |  |   | F-8 |   |
|                                                                                                                                                                                            |

F-1

----

REPORT OF INDEPENDENT REGISTERED PUBLICACCOUNTING FIRM

The Board of Directors YouthStreamMedia Networks,  Inc.

We have audited the accompanyingconsolidated balance sheets of YouthStream Media Networks,  Inc.and subsidiaries as of September  30, 2004 and 2003, and therelated consolidated statements of operations, stockholders'equity (deficiency) and cash flows for the years ended September30, 2004 and 2003 and for the three months ended September  30,2002. These consolidated financial statements are the responsibility ofthe Company's management. Our responsibility is to express anopinion on these consolidated financial statements based on ouraudits.

We conducted our audits in accordance in accordance withthe standards of the Public Company Accounting Oversight Board (UnitedStates). Those standards require that we plan and perform the audits toobtain reasonable assurance about whether the consolidated financialstatements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts anddisclosures in the consolidated financial statements. An audit alsoincludes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overallfinancial statement presentation. We believe that our audits provide areasonable basis for our opinion.

In our opinion, theconsolidated financial statements referred to above present fairly, inall material respects, the consolidated financial position ofYouthStream Media Networks,  Inc. and subsidiaries as ofSeptember  30, 2004 and 2003, and the results of theirconsolidated operations and their consolidated cash flows for the yearsended September  30, 2004 and 2003 and for the three months endedSeptember  30, 2002, in conformity with accounting principlesgenerally accepted in the United States.

The accompanyingconsolidated financial statements have been prepared assuming that theCompany will continue as a going concern. As discussed in Note  1to the consolidated financial statements, the Company has anaccumulated deficit of $343,834,000, a stockholders' deficiencyof $13,065,000, a working capital deficiency of $3,453,000, and a netloss and negative cash flow from operating activities for the yearended September  30, 2004 of $2,366,000 and $901,000,respectively. The Company also sold its remaining operating businessduring the year ended September 30, 2004. These factors raisesubstantial doubt about the Company's ability to continue as agoing concern. Management's plans concerning this matter are alsodescribed in Note  1. The accompanying consolidated financialstatements do not include any adjustments to reflect the possiblefuture effects on the recoverability and classification of assets orthe amounts and classification of liabilities that may result from theoutcome of this uncertainty.

Weinberg  &Company, P.A. Certified Public Accountants

BocaRaton, Florida December 17, 2004

F-2

----

REPORT OF INDEPENDENT REGISTERED PUBLICACCOUNTING FIRM

The Board of Directors YouthStreamMedia Networks,  Inc.

We have audited the consolidatedstatements of operations, cash flows and stockholders' equity(deficiency) of YouthStream Media Networks, Inc. (the"Company") for the year ended June 30, 2002.These consolidated financial statements are the responsibility of theCompany's management. Our responsibility is to express an opinionon these financial statements based on our audit.

We conductedour audit in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement. Anaudit includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements. An audit alsoincludes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overallfinancial statement presentation. We believe that our audit provides areasonable basis for our opinion.

In our opinion, theconsolidated financial statements referred to above present fairly, inall material respects, the consolidated results of operations and cashflows of YouthStream Media Networks, Inc. for the year ended June 30,2002, in conformity with accounting principles generally accepted inthe United States.

The financial statements have been preparedassuming that Youthstream Media Networks, Inc will continue as a goingconcern. As more fully described in Note  1, the Company hasincurred recurring operating losses and has a working capital andstockholders' deficiency. In addition, the Company is in defaultwith respect to its long-term debt. These conditions raise substantialdoubt about the Company's ability to continue as a going concern.Management's plans in regard to these matters are also describedin Note  1. The financial statements do not include anyadjustments to reflect the possible future effects on therecoverability and classification of assets or the amounts andclassification of liabilities that may result from the outcome of thisuncertainty.

Ernst  & Young LLP

New York, New York September  27, 2002

F-3

----

YouthStreamMedia Networks,  Inc.Consolidated Balance Sheets(Inthousands)

|                                                                                                                                                                                                                                                                                                   |  |              |          |         |  |        |          |         |  |  |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--------------|----------|---------|--|--------|----------|---------|--|--|
|                                                                                                                                                                                                                                                                                              |  | September30, |
|                                                                                                                                                                                                                                                                                              |  | 2004         |          | 2003    |
| Assets                                                                                                                                                                                                                                                                                            |  |         |     |    |  |   |     |    |
| Currentassets:                                                                                                                                                                                                                                                                                    |  |         |     |    |  |   |     |    |
| Cash and cashequivalents                                                                                                                                                                                                                                                                          |  | $            | 675      |    |  | $      | 531      |    |
| Current portion ofnote receivable, including accrued interest                                                                                                                                                                                                                                     |  |         | 242      |    |  |   | —  |    |
| Prepaid expenses                                                                                                                                                                                                                                                                                  |  |         | 17       |    |  |   | 188      |    |
| Totalcurrent assets                                                                                                                                                                                                                                                                               |  |         | 934      |    |  |   | 719      |    |
|                                                                                                                                                                                                                                                                                              |  |         |     |    |  |   |     |    |
| Propertyand equipment, net                                                                                                                                                                                                                                                                        |  |         | 25       |    |  |   | 45       |    |
| Note receivable,including accrued interest, less currentportion                                                                                                                                                                                                                                   |  |         | 246      |    |  |   | —  |    |
| Deferredcosts related to KES transaction                                                                                                                                                                                                                                                          |  |         | 175      |    |  |   | —  |    |
| Investment inKES Holdings                                                                                                                                                                                                                                                                         |  |         | 125      |    |  |   | 125      |    |
| Assetsfrom discontinued operations                                                                                                                                                                                                                                                                |  |         | —  |    |  |   | 5,190    |    |
| Totalassets                                                                                                                                                                                                                                                                                       |  | $            | 1,505    |    |  | $      | 6,079    |    |
|                                                                                                                                                                                                                                                                                              |  |         |     |    |  |   |     |    |
| Liabilitiesand Stockholders'Deficiency                                                                                                                                                                                                                                                            |  |         |     |    |  |   |     |    |
| Currentliabilities:                                                                                                                                                                                                                                                                               |  |         |     |    |  |   |     |    |
| Accountspayable                                                                                                                                                                                                                                                                                   |  | $            | 910      |    |  | $      | 858      |    |
| Accruedemployee compensation                                                                                                                                                                                                                                                                      |  |         | 226      |    |  |   | 266      |    |
| Accrued expenses                                                                                                                                                                                                                                                                                  |  |         | 752      |    |  |   | 613      |    |
| Current liabilitiesof discontinued operations                                                                                                                                                                                                                                                     |  |         | 2,499    |    |  |   | 4,859    |    |
| Totalcurrent liabilities                                                                                                                                                                                                                                                                          |  |         | 4,387    |    |  |   | 6,596    |    |
|                                                                                                                                                                                                                                                                                              |  |         |     |    |  |   |     |    |
| Long-termdebt                                                                                                                                                                                                                                                                                     |  |         | 4,914    |    |  |   | 4,913    |    |
| Preferred stocksubject to mandatory redemption; issued and outstanding atSeptember  30, 2004 and 2003—1,000 shares of SeriesA 4% cumulative, non-convertible, redeemable preferred stock,mandatory redemption and liquidation value of $4.00 per share, pluscumulative dividends, or $5,269 |  |         | 5,269    |    |  |   | 5,269    |    |
| Totalliabilities                                                                                                                                                                                                                                                                                  |  |         | 14,570   |    |  |   | 16,778   |    |
|                                                                                                                                                                                                                                                                                              |  |         |     |    |  |   |     |    |
| Commitmentsandcontingencies                                                                                                                                                                                                                                                                       |  |         |     |    |  |   |     |    |
|                                                                                                                                                                                                                                                                                              |  |         |     |    |  |   |     |    |
| Stockholders'deficiency:                                                                                                                                                                                                                                                                          |  |         |     |    |  |   |     |    |
| Preferredstock, $0.01 par value, authorized—5,000 shares; issued andoutstanding at September 30, 2004 and 2003—1,000 shares of SeriesA preferred stock (classified in long-term liabilities as preferredstock subject to mandatory redemption)                                        |  |         | —  |    |  |   | —  |    |
| Commonstock, $0.01 par value, authorized—100,000 shares; 39,850 sharesissued and 39,242 shares outstanding at September 30, 2004 and 2003                                                                                                                                                   |  |         | 398      |    |  |   | 398      |    |
| Additional paid-incapital                                                                                                                                                                                                                                                                         |  |         | 331,200  |    |  |   | 331,200  |    |
| Accumulateddeficit                                                                                                                                                                                                                                                                                |  |         | (343,834 | )  |  |   | (341,468 | )  |
| Treasurystock (608 shares of common stock, valued at cost)                                                                                                                                                                                                                                        |  |         | (829     | )  |  |   | (829     | )  |
| Totalstockholders' deficiency                                                                                                                                                                                                                                                                     |  |         | (13,065  | )  |  |   | (10,699  | )  |
| Totalliabilities and stockholders' deficiency                                                                                                                                                                                                                                                     |  | $            | 1,505    |    |  | $      | 6,079    |    |
|                                                                                                                                                                                                                                                                                                   |

Seeaccompanying notes to consolidated financial statements.

F-4

----

YouthStream Media Networks,Inc.Consolidated Statements of Operations(In thousands,except per shareamounts)

|                                                                              |  |                                                  |         |                                    |  |                      |        |         |  |        |         |         |  |        |         |         |  |  |
|------------------------------------------------------------------------------|--|--------------------------------------------------|---------|------------------------------------|--|----------------------|--------|---------|--|--------|---------|---------|--|--------|---------|---------|--|--|
|                                                                         |  |     Yearsended September 30, |         | Threemonths endedSeptember 30,2002 |  | YearendedJune30,2002 |
|                                                                         |  | 2004                                             |         | 2003                               |  |
| Generaland administrative expenses – corporate                         |  | $                                                | 1,070   |                               |  | $                    | 2,564  |    |  | $      | 1,954   |    |  | $      | 6,134   |    |
| Depreciationand amortization                                                 |  |                                             | 20      |                               |  |                 | 20     |    |  |   | 27      |    |  |   | 209     |    |
| Lossfrom operations                                                          |  |                                             | (1,090  | )                             |  |                 | (2,584 | )  |  |   | (1,981  | )  |  |   | (6,343  | )  |
| Interestincome                                                               |  |                                             | 50      |                               |  |                 | 36     |    |  |   | 24      |    |  |   | 450     |    |
| Interestexpense                                                              |  |                                             | (42     | )                             |  |                 | (1,053 | )  |  |   | (731    | )  |  |   | (3,068  | )  |
| Gainon debt settlement                                                       |  |                                             | — |                               |  |                 | 2,800  |    |  |   | — |    |  |   | — |    |
| Lossbefore provision for income taxes                                        |  |                                             | (1,082  | )                             |  |                 | (801   | )  |  |   | (2,688  | )  |  |   | (8,961  | )  |
| Provision(benefit) for income taxes                                          |  |                                             | (88     | )                             |  |                 | 30     |    |  |   | 95      |    |  |   | 167     |    |
| Lossfrom continuing operations                                               |  |                                             | (994    | )                             |  |                 | (831   | )  |  |   | (2,783  | )  |  |   | (9,128  | )  |
| Gain(loss) from discontinued operations                                      |  |                                             | (550    | )                             |  |                 | (2,997 | )  |  |   | 122     |    |  |   | (12,261 | )  |
| Gain(loss) on disposal of discontinued operations                            |  |                                             | (822    | )                             |  |                 | 700    |    |  |   | 482     |    |  |   | 877     |    |
| Netloss                                                                      |  | $                                                | (2,366  | )                             |  | $                    | (3,128 | )  |  | $      | (2,179  | )  |  | $      | (20,512 | )  |
|                                                                         |  |                                             |    |                               |  |                 |   |    |  |   |    |    |  |   |    |    |
| Netincome (loss) per common share – basic anddiluted:                  |  |                                             |    |                               |  |                 |   |    |  |   |    |    |  |   |    |    |
| Lossfrom continuing operations                                               |  | $                                                | (0.03   | )                             |  | $                    | (0.02  | )  |  | $      | (0.08   | )  |  | $      | (0.30   | )  |
| Gain(loss) from discontinued operations                                      |  |                                             | (0.01   | )                             |  |                 | (0.08  | )  |  |   | — |    |  |   | (0.40   | )  |
| Gain(loss) on disposal of discontinued operations                            |  |                                             | (0.02   | )                             |  |                 | 0.02   |    |  |   | 0.01    |    |  |   | 0.03    |    |
| Netloss per common share – basic and diluted                           |  | $                                                | (0.06   | )                             |  | $                    | (0.08  | )  |  | $      | (0.07   | )  |  | $      | (0.67   | )  |
| Weightedaverage shares of common stock outstanding – basic and diluted |  |                                             | 39,242  |                               |  |                 | 37,987 |    |  |   | 33,008  |    |  |   | 30,414  |    |
|                                                                              |

Seeaccompanying notes to consolidated financial statements.

F-5

----

YouthStream Media Networks,Inc.Consolidated Statements of Cash Flows(Inthousands)

|                                                                           |  |                                                 |         |                                   |  |                       |         |         |  |        |         |         |  |        |         |         |  |  |
|---------------------------------------------------------------------------|--|-------------------------------------------------|---------|-----------------------------------|--|-----------------------|---------|---------|--|--------|---------|---------|--|--------|---------|---------|--|--|
|                                                                      |  |     Yearsended September30, |         | ThreemonthsendedSeptember 30,2002 |  | Year endedJune30,2002 |
|                                                                      |  | 2004                                            |         | 2003                              |  |
| **Cashflows from operatingactivities**                                    |  |                                            |    |                              |  |                  |    |    |  |   |    |    |  |   |    |    |
| Netloss                                                                   |  | $                                               | (2,366  | )                            |  | $                     | (3,128  | )  |  | $      | (2,179  | )  |  | $      | (20,512 | )  |
| Adjustmentsto reconcile net loss to net cash used in operatingactivities: |  |                                            |    |                              |  |                  |    |    |  |   |    |    |  |   |    |    |
| (Gain)loss from discontinued operations                                   |  |                                            | 550     |                              |  |                  | 2,997   |    |  |   | (122    | )  |  |   | 12,261  |    |
| (Gain)loss on disposal of discontinued operations                         |  |                                            | 822     |                              |  |                  | (700    | )  |  |   | (482    | )  |  |   | (877    | )  |
| Netchange in assets and liabilities of discontinued operations            |  |                                            | (207    | )                            |  |                  | 2,519   |    |  |   | 1,192   |    |  |   | (12,772 | )  |
| Depreciationand amortization                                              |  |                                            | 20      |                              |  |                  | 20      |    |  |   | 27      |    |  |   | 209     |    |
| Losson disposal of equipment                                              |  |                                            | — |                              |  |                  | — |    |  |   | 488     |    |  |   | — |    |
| Gainon debt settlement                                                    |  |                                            | — |                              |  |                  | (2,800  | )  |  |   | — |    |  |   | — |    |
| Non-cashcompensation                                                      |  |                                            | — |                              |  |                  | 120     |    |  |   | — |    |  |   | — |    |
| Amortizationof deferred financing costs                                   |  |                                            | — |                              |  |                  | 239     |    |  |   | 199     |    |  |   | 799     |    |
| Amortizationof original issue discount on Subordinated Notes              |  |                                            | 2       |                              |  |                  | 38      |    |  |   | 29      |    |  |   | 122     |    |
| Deferredrent                                                              |  |                                            | — |                              |  |                  | (346    | )  |  |   | (12     | )  |  |   | (8      | )  |
| Accruedinterest from note receivable                                      |  |                                            | (44     | )                            |  |                  | — |    |  |   | — |    |  |   | — |    |
| Changesin operating assets and liabilities, net ofacquisitions:           |  |                                            |    |                              |  |                  |    |    |  |   |    |    |  |   |    |    |
| (Increase)decrease in – Prepaid expenses                            |  |                                            | 171     |                              |  |                  | 51      |    |  |   | (70     | )  |  |   | (59     | )  |
| Depositsand other current assets                                          |  |                                            | — |                              |  |                  | 655     |    |  |   | 113     |    |  |   | 560     |    |
| Increase(decrease) in – Accounts payable                            |  |                                            | 52      |                              |  |                  | (568    | )  |  |   | (85     | )  |  |   | 909     |    |
| Accruedemployee compensation                                              |  |                                            | (40     | )                            |  |                  | (43     | )  |  |   | (305    | )  |  |   | 104     |    |
| Otheraccrued expenses                                                     |  |                                            | 139     |                              |  |                  | (563    | )  |  |   | 145     |    |  |   | 1,561   |    |
| Netcash used in operating activities                                      |  |                                            | (901    | )                            |  |                  | (1,509  | )  |  |   | (1,062  | )  |  |   | (17,703 | )  |
| **Cashflows from investingactivities**                                    |  |                                            |    |                              |  |                  |    |    |  |   |    |    |  |   |    |    |
| Capitalexpenditures                                                       |  |                                            | — |                              |  |                  | — |    |  |   | — |    |  |   | (109    | )  |
| Proceedsfrom sale of patent                                               |  |                                            | — |                              |  |                  | 700     |    |  |   | — |    |  |   | — |    |
| Saleof investments in marketable debt securities                          |  |                                            | — |                              |  |                  | — |    |  |   | — |    |  |   | 5,655   |    |
| Principalpayment on note receivable                                       |  |                                            | 400     |                              |  |                  | — |    |  |   | — |    |  |   | — |    |
| Paymentfor business acquisitions, net of cash acquired                    |  |                                            | — |                              |  |                  | — |    |  |   | (25     | )  |  |   | — |    |
| Investmentin KES Holdings                                                 |  |                                            | — |                              |  |                  | (125    | )  |  |   | — |    |  |   | — |    |
| Proceedsfrom sale of media segment assets                                 |  |                                            | — |                              |  |                  | — |    |  |   | 7,283   |    |  |   | — |    |
| Proceedsfrom sale of retail segment assets                                |  |                                            | 820     |                              |  |                  | — |    |  |   | — |    |  |   | — |    |
| Deferredcosts related to KES transaction                                  |  |                                            | (175    | )                            |  |                  | — |    |  |   | — |    |  |   | — |    |
| Netcash provided by investing activities                                  |  |                                            | 1,045   |                              |  |                  | 575     |    |  |   | 7,258   |    |  |   | 5,546   |    |
| **Cashflows from financingactivities**                                    |  |                                            |    |                              |  |                  |    |    |  |   |    |    |  |   |    |    |
| Repurchaseof common stock                                                 |  |                                            | — |                              |  |                  | — |    |  |   | — |    |  |   | (592    | )  |
| Paymentof capitalized lease obligations                                   |  |                                            | — |                              |  |                  | (48     | )  |  |   | (113    | )  |  |   | — |    |
| Proceedsfrom related-party loans                                          |  |                                            | — |                              |  |                  | 250     |    |  |   | — |    |  |   | — |    |
| Repaymentof related-party loans                                           |  |                                            | — |                              |  |                  | (250    | )  |  |   | — |    |  |   | — |    |
| Repaymentof long-term debt                                                |  |                                            | — |                              |  |                  | (4,970  | )  |  |   | — |    |  |   | (1,739  | )  |
| Netcash used in financing activities                                      |  |                                            | — |                              |  |                  | (5,018  | )  |  |   | (113    | )  |  |   | (2,331  | )  |
| **Cashand cashequivalents**                                               |  |                                            |    |                              |  |                  |    |    |  |   |    |    |  |   |    |    |
| Netincrease (decrease)                                                    |  |                                            | 144     |                              |  |                  | (5,952  | )  |  |   | 6,083   |    |  |   | (14,488 | )  |
| Balanceat beginning of period                                             |  |                                            | 531     |                              |  |                  | 6,483   |    |  |   | 400     |    |  |   | 14,888  |    |
| Balanceat end of period                                                   |  | $                                               | 675     |                              |  | $                     | 531     |    |  | $      | 6,483   |    |  | $      | 400     |    |
| **Supplementalcash flowinformation**                                      |  |                                            |    |                              |  |                  |    |    |  |   |    |    |  |   |    |    |
| Cashpaid for interest                                                     |  | $                                               | — |                              |  | $                     | — |    |  | $      | — |    |  | $      | 2,079   |    |
| Cash paidfor income taxes                                                 |  | $                                               | — |                              |  | $                     | — |    |  | $      | — |    |  | $      | 148     |    |
| **Non-Cash Investingand FinancingActivities:**                            |  |                                            |    |                              |  |                  |    |    |  |   |    |    |  |   |    |    |
| Issuanceof common stock in connection with acquisitions                   |  | $                                               | — |                              |  | $                     | — |    |  | $      | 114     |    |  | $      | 1,712   |    |
| Issuance ofwarrants in connection with related party loans                |  | $                                               | — |                              |  | $                     | 120     |    |  | $      | — |    |  | $      | — |    |
| Issuance of common stockin connection with debt restructuring             |  | $                                               | — |                              |  | $                     | 254     |    |  | $      | — |    |  | $      | — |    |
| Issuance of preferred stock in connectionwith debt restructuring          |  | $                                               | — |                              |  | $                     | 5,269   |    |  | $      | — |    |  | $      | — |    |
|                                                                           |

See accompanying notes toconsolidated financial statements.

F-6

----

YouthStream Media Networks,Inc.Consolidated Statements of Stockholders' Equity(Deficiency)(Inthousands)

|                                                                      |  |             |         |                          |  |                    |         |               |  |        |         |        |  |        |          |         |  |        |         |         |  |        |         |         |  |  |
|----------------------------------------------------------------------|--|-------------|---------|--------------------------|--|--------------------|---------|---------------|--|--------|---------|--------|--|--------|----------|---------|--|--------|---------|---------|--|--------|---------|---------|--|--|
|                                                                 |  | CommonStock |         | AdditionalPaid-inCapital |  | AccumulatedDeficit |         | TreasuryStock |  |        |
|                                                                 |  | Shares      |         | Amount                   |  | Total              |         |
| **Balances at July 1,2001**                                          |  |        | 30,091  |                     |  | $                  | 301     |          |  | $      | 329,097 |   |  | $      | (315,649 | )  |  | $      | (239    | )  |  | $      | 13,510  |    |
| Issuanceof common stock in connection with acquisition of Invino     |  |        | 3,041   |                     |  |               | 30      |          |  |   | 1,124   |   |  |   | —  |    |  |   | — |    |  |   | 1,154   |    |
| Issuanceof common stock in connection with acquisition of Trent      |  |        | 458     |                     |  |               | 5       |          |  |   | 553     |   |  |   | —  |    |  |   | — |    |  |   | 558     |    |
| Issuanceof common stock in connection with acquisition of SixDegrees |  |        | 1       |                     |  |               | — |          |  |   | — |   |  |   | —  |    |  |   | — |    |  |   | — |    |
| Stockrepurchase                                                      |  |        | — |                     |  |               | — |          |  |   | — |   |  |   | —  |    |  |   | (590    | )  |  |   | (590    | )  |
| Netloss                                                              |  |        | — |                     |  |               | — |          |  |   | — |   |  |   | (20,512  | )  |  |   | — |    |  |   | (20,512 | )  |
| **Balancesat June 30,2002**                                          |  |        | 33,591  |                     |  |               | 336     |          |  |   | 330,774 |   |  |   | (336,161 | )  |  |   | (829    | )  |  |   | (5,880  | )  |
| Issuanceof common stock in connection with acquisition of Invino     |  |        | 2,274   |                     |  |               | 23      |          |  |   | 91      |   |  |   | —  |    |  |   | — |    |  |   | 114     |    |
| Netloss                                                              |  |        | — |                     |  |               | — |          |  |   | — |   |  |   | (2,179   | )  |  |   | — |    |  |   | (2,179  | )  |
| **Balancesat September 30, 2002**                                    |  |        | 35,865  |                     |  |               | 359     |          |  |   | 330,865 |   |  |   | (338,340 | )  |  |   | (829    | )  |  |   | (7,945  | )  |
| Issuanceof common stock in connection with debt restructuring        |  |        | 3,985   |                     |  |               | 39      |          |  |   | 215     |   |  |   | —  |    |  |   | — |    |  |   | 254     |    |
| Issuanceof warrants in connection with related party loans           |  |        | — |                     |  |               | — |          |  |   | 120     |   |  |   | —  |    |  |   | — |    |  |   | 120     |    |
| Netloss                                                              |  |        | — |                     |  |               | — |          |  |   | — |   |  |   | (3,128   | )  |  |   | — |    |  |   | (3,128  | )  |
| **Balancesat September 30, 2003**                                    |  |        | 39,850  |                     |  |               | 398     |          |  |   | 331,200 |   |  |   | (341,468 | )  |  |   | (829    | )  |  |   | (10,699 | )  |
| Netloss                                                              |  |        | — |                     |  |               | — |          |  |   | — |   |  |   | (2,366   | )  |  |   | — |    |  |   | (2,366  | )  |
| **Balancesat September 30, 2004**                                    |  |        | 39,850  |                     |  | $                  | 398     |          |  | $      | 331,200 |   |  | $      | (343,834 | )  |  | $      | (829    | )  |  | $      | (13,065 | )  |
|                                                                      |

Seeaccompanying notes to consolidated financialstatements.

F-7

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YouthStreamMedia Networks,  Inc. Notes to Consolidated FinancialStatements September  30, 2004

1.    Organizationand Basis of Presentation

The accompanying consolidatedfinancial statements include the accounts of YouthStream MediaNetworks,  Inc. ("YouthStream"), andits wholly-owned inactive subsidiaries, Network Event Theater,Inc. ("NET"), American Passage Media,Inc. ("American Passage"), Beyond theWall,  Inc. ("Beyond the Wall"), andW3T.com,  Inc. ("Teen.com")(collectively, the "Company"). During fiscal2001, the Company reorganized into two market segments: media andretail.

In December  2000, the Company discontinued theoperations of CommonPlaces, LLC("CommonPlaces"), sixdegrees,  inc.("sixdegrees"), CollegeWeb.com,  Inc.("CollegeWeb"), and Invino Corporation("Invino"). In December 2001, the Companydiscontinued its Teen.com operations and closed its Hotstamp collegebusiness. In August 2002, the Company sold substantially all of itsmedia assets and assigned certain liabilities of its NET and AmericanPassage subsidiaries to Alloy,  Inc. and ceased operating themedia segment.

In February 2004, the Company sold the assets andoperations of its Beyond the Wall subsidiary and ceased operating theretail segment.   Beyond the Wall was engaged in the sale ofdecorative wall posters through on-campus sales events, retail storesand internet sales, primarily to teenagers and young adults.During the year ended September 30, 2004, Beyond the Wall operated 17stores in 12 states, plus Washington, D.C., throughout the East andmid-West, as well as a warehouse and distribution center inStroudsburg, Pennsylvania. Beyond the Wall's operations have beenpresented as a discontinued operation in the consolidated financialstatements for all periods presented.

The financial statementsand notes thereto as of September  30, 2003, and for the periodsended September 30, 2003, September 30, 2002 and June  30, 2002have been restated to reflect discontinued operations as a result ofthe businesses disposed of through September  30, 2004, includingthe sale of the media segment on August  5, 2002 and the retailsegment on February 25, 2004. Accordingly, all of the Company'soperations have been presented as discontinued operations in theconsolidated financial statements for the years ended September 30,2004 and 2003 and June 30, 2002, and the three months ended September30, 2002.

Change in Fiscal Year

In July 2003, theCompany, pursuant to a board resolution dated June 27, 2003, changedits fiscal year end from June 30 to September 30. The presentation offiscal year 2003 contained in this Annual Report on Form 10-Krepresents the twelve month period October 1, 2002 through September30, 2003. The transition period for the three month period July 1, 2002through September 30, 2002 (the "TransitionPeriod") is reported separately in this Annual Report onForm 10-K.

Financial Statement Presentation

The Companyhas incurred recurring operating losses since its inception. As ofSeptember  30, 2004, the Company had an accumulated deficit of$343,834,000, a stockholders' deficiency of $13,065,000, aworking capital deficiency of $3,453,000, and a net loss and negativecash flows from operating activities for the year endedSeptember  30, 2004 of $2,366,000 and $901,000, respectively, andhas insufficient capital to fund all of its obligations. In August andSeptember  2002, the Company defaulted on approximately$18,000,000 of its long-term debt (see "DebtRestructuring" below and Note  7). In addition,during the year ended September 30, 2004, the Company sold itsremaining operating business, as a result of which the Company did nothave any revenue-generating business operations at September 30, 2004.These conditions raise substantial doubt about the Company'sability to continue as a going concern. The 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.

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The Company's management intends tocontinue efforts to settle the Company's outstanding obligationsand minimize operating costs.   The Company believes that itsavailable current cash resources will be adequate to fund its currentlimited level of operations through its fiscal year ended September 30,2005.   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 its ongoing obligations. In such event, the Company may be required to seek other fundingand/or consider a formal or informal restructuring orreorganization.

 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 September 30,2004.   In July 2004, the Company entered into a letter of intentto acquire a steel mini-mill located in Ashland, Kentucky (see Note 4).If the Company is able to complete this transaction, the Companyexpects to utilize all or most of its available cash resources to fundsuch endeavor, 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

Sale of Media Segment Assets

In response to its liquidity issues and declining earnings, onAugust  5, 2002, following the close of the Company'sfiscal year 2002, the Company sold substantially all of its Mediaassets and assigned certain liabilities to Cass Communications,Inc., a subsidiary of Alloy,  Inc., for proceeds of $7,283,000,which approximated the carrying value of the Media segment at the timeof sale. As a result of the sale, the Media segment operations werediscontinued during the three months ended September  30, 2002(see Note  5).

Sale of Retail Segment Assets

Inearly fiscal 2003, the Company followed through on its previouslyannounced plans to close a number of under performing retail stores inits Beyond the Wall chain. For the fiscal year ended September30, 2003, the Company incurred approximately $1,790,000 of expensesrelating to the closing of 25 retail store operations, including$214,000 for the write-off of fixed assets, $635,000 for the write-offof inventory, $879,000 of accruals for costs relating to the earlytermination of store leases, and $62,000 for other expenses. The totalclosing costs were classified as a loss from discontinued operations inthe statement of operations.

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.

The Company initially recognized a loss of $565,000 withrespect to this sale before taking into consideration the effect of the$400,000 principal pre-payment made on April 30, 2004.Inclusive of such payment, the effect of the accelerated payment creditand the back-end credit resulted in an 

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additional loss of $257,000, which decreasedthe carrying value of the note receivable from $1,100,000 to $843,000and increased the loss on the BTW sale from $565,000 to$822,000.   The loss on the BTW sale was reported as a loss onthe disposal of discontinued operations for the year ended September30, 2004.   As a result of the sale, the retail segmentoperations were discontinued during the year ended September 30,2004.

Remaining scheduled principal payments at September 30,2004 with respect to the Note totaling $443,000 are shown below. TheCompany received the October 31, 2004 scheduled principal payment of$198,000, plus accrued interest of $49,000, on a timely basis.

October 31, 2004 – $198,000 October 31, 2005– $198,000 October 31, 2006 – $ 47,000

DebtRestructuring

In January  2003, the Company reached anagreement with the holders of all of its and its Network Event Theatersubsidiary's outstanding notes (NET Notes, YSTM Notes  andYSTM 2 Note), in the aggregate principal amount of $18,000,000, tocancel those notes. In exchange for cancellation of all of theprincipal due on the old notes, including accrued interest of$2,062,000, the note holders received in aggregate $4,500,000 in cash,redeemable preferred stock with a face value of $4,000,000 (seeNote  6), and 3,985,000 shares of common stock, valued at$255,000, and $4,000,000 aggregate principal amount of promissory notesissued by the Company's retail subsidiary, Beyond theWall,  Inc., formerly secured by the Company's pledge ofall of its stock in Beyond the Wall (see Note 7).

At the closingof the January  2003 debt restructuring, all of theCompany's previous directors and officers resigned, and three newdirectors were appointed. Jonathan V. Diamond, who previously had beena director and interim Chief Executive Officer of the Company, wasappointed as Chairman of the Board of Directors, and Hal G. Byer andRobert Scott Fritz were appointed as directors of the Company.Mr.  Diamond was appointed as Chief Executive Officer and RobertN. Weingarten was appointed as Chief Financial Officer.

InMay  2003, the Company issued options to the three new directorsto purchase an aggregate of 700,000 shares of common stock exercisableat the fair market value of $0.04 per share for a period of sevenyears. In addition, each of the three new directors paid $2,500 ($0.04per share) in cash to acquire options from the holder of the shares ofpreferred stock that were issued in the January  2003restructuring to purchase 62,500 shares of such holder'spreferred stock, exercisable at $0.36 per share. In July 2004, Mr.Diamond irrevocably waived any and all rights related to thisoption.

The terms and conditions of the January  2003 debtrestructuring agreement qualified as a troubled debt restructuring foraccounting purposes in accordance with SFAS No.  15"Accounting by Debtors and Creditors for Troubled DebtRestructurings". In determining the proper accountingtreatment, the Company evaluated the nature of the economicconsequences of each of the three separate transactions for purposes ofdetermining the gain, if any, in connection with the extinguishment ofthe NET Notes, YSTM Notes and YSTM 2 Note in accordance with SFASNo.  15.

The cancellation of the NET Notes qualified as afull debt settlement whereby in exchange for the extinguishment of the$5,000,000 note and cancellation of accrued interest, the holdersreceived $3,000,000 cash. As of the settlement date, the adjustedcarrying value of the NET Notes, net of accrued interest, unamortizedoriginal issue discount and unamortized closing costs, was $5,448,000.The settlement resulted in a gain of $2,448,000.

Thecancellation of the YSTM Notes was accounted for as a combination of apartial debt settlement and a continuation of debt with modified terms.In exchange for the extinguishment of the YSTM Notes, the holderreceived $1,500,000 cash, 3,486,875 shares of common stock with a fairvalue of $223,000, 1,000,000 shares of 4% redeemable preferredstock with a face value of $4,000,000, including cumulative dividends,totaling $5,269,000, due December  31, 2010, and a $3,000,000promissory note bearing interest at 4% per annum with principaland cumulative interest due December  31, 2010 (see Note7). As of the settlement date, the adjusted carrying value of the YSTM

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Notes, net of accrued interest, unamortizedoriginal issue discount and unamortized closing costs, was $11,251,000.After adjusting for the fair value of the cash and common stockexchanged, the carrying value of the YSTM Notes was $9,528,000. Forpurposes of determining the gain on the extinguishment of the YSTMNotes, the redeemable preferred stock was accounted for as a debtinstrument given the mandatory redemption features of the security (seeNote  6). The issuance of the $3,000,000 promissory note and the1,000,000 shares of redeemable preferred stock constituted acontinuation of debt with modified terms. Given that the undiscountedfuture value of the promissory note and the redeemable preferred stock,including accrued interest and cumulative dividends, was less than theadjusted carrying value of the YSTM Notes extinguished, the Companyrecognized a gain totaling $306,000 and recorded the value of thepromissory note and the redeemable preferred stock at the undiscountedfuture value of $3,953,000 and $5,269,000, respectively, with nointerest expense or accretion in value to be recognized over theremaining life of the promissory note and preferred stock.

Thecancellation of the YSTM 2 Note was accounted for as a combination of apartial debt settlement and a continuation of debt with modified terms.In exchange for the extinguishment of the YSTM 2 Note, the holderreceived 498,125 shares of the Company's common stock with a fairvalue of $32,000 and a $1,000,000 promissory note bearing interest at4% per annum, with principal and accrued interest dueDecember  31, 2010 (see Note  7). As of the settlementdate, the adjusted carrying value of the YSTM 2 Note, net of accruedinterest, unamortized original issue discount and unamortized closingcosts, was $991,000. After adjusting for the fair value of the commonshares exchanged, the carrying value of the YSTM 2 Note was $960,000.The issuance of the $1,000,000 promissory note constituted acontinuation of debt with modified terms. Given that the undiscountedfuture value of the promissory note, including principal and interest,was greater than the adjusted carrying value of the YSTM 2 Noteextinguished, the Company recognized no gain. The promissory note wasrevalued at the adjusted carrying value of the YSTM 2 Note surrendered,resulting in an imputed discount of $41,000.

In total, theCompany recognized a gain from the troubled debt restructuring ofapproximately $2,800,000. The gain was classified as part of continuingoperations in accordance with SFAS No.  145,"Rescission of SFAS Nos. 4, 44 and 64, Amendment of SFASNo.  13, and Technical Corrections as of April2000". The gain from the transaction resulted in areduction in basic and diluted loss per common share of $0.07 for theyear ended September  30, 2003.

During June  2003,the Company amended the original provisions of the $4,000,000 ofpromissory notes issued in conjunction with the January  24, 2003restructuring to provide for the following:

|          |                                                                                                                                      |
|----------|--------------------------------------------------------------------------------------------------------------------------------------|
| a.  | Beyond the Wall was replaced by the Companyas the issuer of the notes, and was released from any liability withrespect to the notes. |

|          |                                                                                                                                                                        |
|----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| b.  | The note holdersagreed to convert the notes from secured to unsecured, and to releasetheir security interest in all of the outstanding common stock ofBeyond the Wall. |

|          |                                                                                                                                                                       |
|----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| c.  | The note holders agreedto delete all provisions in the notes requiring the issuer of the notesto make mandatory prepayments based on the occurrence of certainevents. |

|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| d.  | The note holders agreed to deleteprovisions in the notes prohibiting the issuer from: (i)incurring any indebtedness for borrowed money; (ii)  selling, orentering into any agreement to sell, all or substantially all of theassets or all or substantially all of the capital stock of the issuer;or (iii)  entering into any transaction with an affiliate, otherthan transactions with the Company, Network Event Theater,  Inc.and/or their successors, that have fair and reasonable terms which areno less favorable to the issuer than would be obtained in a comparablearms-length transaction with a person or entity that is not anaffiliate. |

2.    Significant Accounting Policies

Principles of Consolidation

The accompanying consolidatedfinancial statements include the accounts of the Company and itswholly-owned subsidiaries. All intercompany items and transactions havebeen eliminated in consolidation.

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Cash and Cash Equivalents

Cashand equivalents include all cash, demand deposits and money marketaccounts with maturities of three months or less.

Property andEquipment

Property and equipment are stated at cost.Depreciation of property and equipment is provided for by thestraight-line method over the estimated useful lives of the assetsgenerally over three to five years. Expenditures for maintenance andrepairs are charged to operations as incurred.

Prior toJuly  2001 and in accordance with Financial Accounting andStandards Board ("FASB") Statement ofFinancial Accounting Standards ("SFAS")No.  121, "Accounting for the Impairment ofLong-Lived Assets and for Long-Lived Assets to Be DisposedOf", the Company recorded impairment losses on long-livedassets used in operations when events and circumstances indicated thatthe assets might be impaired and the undiscounted cash flows estimatedto be generated by those assets were less than the carrying amount ofthose assets. In July  2001, the Company adopted FASB StatementNo.  144, "According for the Impairment or Disposalof Long-Lived Assets", which superceded SFAS No.121. SFAS No.  144 retains the fundamental provisions of SFASNo.  121 for recognition and measurement of impairment.

Deferred Acquisition Costs

Deferred acquisition costsrelated to pending transactions are accounted for as part of thepurchase consideration if and when the transaction is completed. If theCompany does not complete the transaction, those costs are charged tooperations in the period that the Company's efforts to completethe transaction are terminated.

Investments

The Companyaccounts for its nominal interests in investments at cost, andperiodically reviews such investments for impairment.

IncomeTaxes

The Company accounts for income taxes in accordance withSFAS No.  109, "Accounting for IncomeTaxes". Under this method, deferred income taxes areprovided for differences between the carrying amounts of theCompany's assets and liabilities for financial reporting purposesand the amounts used for income tax purposes.

Net Loss PerShare

The Company calculates net loss per share as required bySFAS No.  128, "Earnings per Share".Basic earnings per share excludes any dilution for common stockequivalents and is computed by dividing net loss by the weightedaverage number of common shares outstanding during the relevant period.Diluted earnings per share reflects the potential dilution that couldoccur if options or other 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.

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 to Employees",and, accordingly, recognizes compensation expense only if the fairvalue of the underlying common stock exceeds the exercise 

F-12

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price of the stock option on the date ofgrant. As permitted by SFAS No.  123, the Company continues toaccount for stock-based compensation in accordance with APB OpinionNo.  25 and has elected the pro forma disclosure alternative ofSFAS No.  123, as amended by SFAS No.  148 (see Note12).

Use of Estimates

The preparation of the financialstatements in conformity with accounting principles generally acceptedin the United States requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities,disclosure of contingent assets and liabilities at the date of thefinancial statements, and the reported amounts of expenses during thereporting period. Actual results could differ from those estimates.

Fair Value of Financial Instruments

The Company believesthat the carrying value of its cash and cash equivalents, accountspayable and accrued liabilities as of September 30, 2004 and 2003approximates their respective fair values due to the demand orshort-term nature of those instruments and their underlyingliquidity.

Long-term debt and preferred stock classified aslong-term debt are presented at face value plus accrued interest anddividends through the due date. Note receivable is presented at facevalue plus accrued interest through the financial statementdate.

Risks and Uncertainties

Financial instruments thatpotentially subject the Company to concentrations of credit riskconsist primarily of cash and cash equivalents.

3.    RecentAccounting Pronouncements

In May  2003, the FASB issuedSFAS No.  150, "Accounting for Certain FinancialInstruments with Characteristics of both Liabilities andEquity". SFAS No.  150 establishes standards for howan issuer classifies and measures in its statement of financialposition certain financial instruments with characteristics of bothliabilities and equity. SFAS No.  150 requires that an issuerclassify a financial instrument that is within its scope as a liability(or an asset in some circumstances) because that financial instrumentembodies an obligation of the issuer. SFAS No.  150 is effectivefor financial instruments entered into or modified after May  31,2003 and otherwise is effective at the beginning of the first interimperiod beginning after June  15, 2003. SFAS No.  150 is tobe implemented 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 thebeginning of the interim period of adoption. Restatement is notpermitted. The impact from the adoption of SFAS No.  150 for theyear ended September  30, 2003 resulted in the reclassificationof the mandatorily redeemable preferred stock from the mezzaninesection of the balance sheet to non-current liabilities.

InJanuary 2003, the FASB issued Interpretation No. 46,"Consolidation of Variable Interest Entities"("FIN 46"), which clarifies the applicationof Accounting Research Bulletin No. 51, "ConsolidatedFinancial Statements", relating to consolidation ofcertain entities.   In December 2003, the FASB issued a revisedversion of FIN 46 ("FIN 46R") that replacedthe 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.   Forentities identified as a VIE, FIN 46R sets forth a model to evaluatepotential consolidation based on an assessment of which party to theVIE (if any) bears a majority of the exposure to its expected losses,or stands to gain from a majority of its expected returns.   FIN46R also sets forth certain disclosures regarding interests in VIEsthat are deemed significant, even if consolidation is notrequired.   The Company is not currently participating in, orinvested in any VIEs, as defined in FIN 46R. Accordingly, theimplementation of the provisions of FIN 46R did not have a significanteffect on the Company's consolidated financial statementpresentation or disclosures.

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4.    Related Party Transactions

Affiliate Loans

During August  2003, theCompany's subsidiary, Beyond the Wall,  Inc., borrowed$100,000 from each of Jonathan V. Diamond and the Ravich Trust, whichwas used to fund the operations of Beyond the Wall,  Inc. Theloans, which were due December  31, 2003, were repaid inSeptember  2003 and were secured by real estate owned by Beyondthe Wall,  Inc. As partial consideration for the loans, theCompany issued to each lender warrants to purchase 400,000 shares ofcommon stock, exercisable through August  31, 2008 at $0.11 pershare, the closing bid price of the Company's common stock on thedate of the loans. The warrants were valued using the Black-Scholesoption-pricing model and had an aggregate fair value of $88,000, whichwould have been recognized ratably over the term of the loan. Since theloan was repaid before September  30, 2003, however, the entire$88,000 was recognized as interest expense with a correspondingincrease in additional paid-in capital.

During August2003, the Company also borrowed $25,000 from each of Jonathan V.Diamond and the Ravich Trust, which was used to fund, in part, theCompany's investment in KES Holdings (see"Investment in KES Holdings" below). Theloans, which were due December  31, 2003, were repaid inSeptember  2003 and were unsecured. As partial consideration forthe loans, the Company issued to each lender warrants to purchase100,000 shares of common stock, exercisable through August  31,2008 at $0.16 per share, the closing bid price of the Company'scommon stock on the date of the loans. The warrants were valued usingthe Black-Scholes option-pricing model and had an aggregate fair valueof $32,000, which would have been recognized ratably over the term ofthe loan. Since the loan was repaid before September  30, 2003,however, the entire $32,000 was recognized as interest expense with acorresponding increase in additional paid-in capital.

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 voting commonstock, and will capitalize that subsidiary with $500,000. In connectionwith the 

F-14

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acquisition, the new subsidiary is expectedto issue to the owners of KES Acquisition in exchange for 100%of their 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 remaining 19.99%common stock interest in the new subsidiary will be owned by the formerowners of KES Acquisition.

The letter of intent is subject to,among other conditions, negotiation, preparation and execution ofdefinitive transaction documents, preparation of consolidated financialstatements, compliance with state and federal securities laws andregulations, and receipt of requisite corporate approvals.   Thetransaction is expected to close in the first calendar quarter of2005.   However, as a result of the foregoing uncertainties,there can be no assurances that the transaction will be completed.Furthermore, even if the transaction is completed, there can be noassurances that the future operations of the steel mini-mill will besuccessful.

Through September 30, 2004, the Company incurred$175,000 in professional fees with respect to this transaction, whichthe Company has presented as deferred costs in the consolidated balancesheet at September 30, 2004. 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.

The Ravich Trust currently owns 1,000,000 shares ofredeemable preferred stock and 1,860,000 shares of common stock of theCompany.   The Ravich Trust also owns warrants to purchase500,000 shares of common stock of the Company exercisable throughAugust 31, 2008, 400,000 of which are exercisable at $0.11 per shareand 100,000 of which are exercisable at $0.16 per share.

In May2003, the Company's three directors who were appointed at theclosing of the January 2003 debt restructuring each paid $2,500 ($0.04per share) to acquire an option from the Ravich Trust to purchase62,500 shares at $0.36 per share of the Company's preferred stockissued to the Ravich Trust in January  2003, exercisable untilDecember  31, 2006 or earlier upon the occurrence of certainevents. In July 2004, Mr. Diamond irrevocably waived any and all rightsrelated to his option.

5.    Discontinued Operations

In December  2001, the Company discontinued its Teen.comwebsite. In connection with the discontinuance of that business, theCompany incurred a charge of $348,000 relating primarily to thewrite-off of property and equipment and an accrual for severance.

In March 2002, the Company announced a plan to move its Seattleoperations to its New York office. In April  2002, the Companyfinalized its transition plan, which resulted in the termination of 30employees, and completed the transition in June  2002. TheCompany recorded a restructuring charge, which is included in loss fromdiscontinued operations, during the year ended June  30, 2002 ofapproximately $519,000 relating to this decision, which includedseverance costs of $186,000, lease costs of $126,000 for a leaseexpiring November  2002, and $207,000 relating to the abandonmentof certain fixed assets.

On August  5, 2002, the Companysold substantially all of its media assets and assigned certainliabilities to Cass Communications,  Inc., a subsidiary ofAlloy,  Inc., for gross proceeds of $7,000,000 plus a workingcapital adjustment of an additional $283,000, which resulted in a gainof approximately $246,000 at the time of sale, and which is included inthe total gain on disposal of discontinued operations for the threemonths ended September  30, 2002. As a result of the sale, themedia segment of the Company's operations was discontinued duringthe three months ended September  30, 2002.

EffectiveSeptember  23, 2003, the Company sold its interest in U.S. PatentNo.  6,175,831 entitled "Method and apparatus forconstructing a network database and system" (the"Six Degrees Patent") and certain relatedintellectual property rights, including computer source and object codefiles, software assets and other digital assets, documentation andrights (the "Technology"), for a cash paymentof $700,000. The sales price was determined through an auction processinvolving 

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arm's-length qualified purchasers. TheTechnology was sold to Degrees of Connection LLC, a Delaware limitedliability company. Degrees of Connection LLC is unrelated to theCompany or its affiliates, or any of its officers or directors, orassociates of its officers or directors. The proceeds from the sale ofthe Six Degrees Patent resulted in a gain on disposal of discontinuedoperations totaling $700,000 for the year ended September  30,2003.

During the year ended September  30, 2003, theCompany wrote off approximately $316,000 of fixed assets, net ofproceeds from the equipment sales, relating to the closing of itscorporate office in New York in November  2002.

EffectiveFebruary 25, 2004, the Company's wholly-owned subsidiary, Beyondthe Wall, Inc. ("BTW"),  soldsubstantially all of its assets and operations to a group unaffiliatedwith the Company (which included certain former management of BTW), for$1,920,000, consisting of a cash payment of $820,000 and a subordinatedsecured promissory note (the "Note") for$1,100,000, with interest at 10% per annum, due October 31,2006.   The buyer had the right to make certain optionalprincipal pre-payments on the Note by June 30, 2004, which would resultin the principal balance of the Note being adjusted downward, in excessof such principal pre-payments, based on an agreed-upon sliding scaleas set forth in the Note.

On April 30, 2004, the buyer made anoptional principal pre-payment on the Note of $400,000.Accordingly, under the provisions of the sale agreement, the buyerreceived a credit of $107,000 against the $1,100,000 note (in excess ofthe $400,000 payment), as well as an additional $150,000 back-endcredit on the Note.

The Company initially recognized a loss of$565,000 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 $257,000, which decreased the carrying value of the note receivablefrom $1,100,000 to $843,000 and increased the loss on the BTW sale from$565,000 to $822,000.   The loss on the BTW sale was reported asa loss on the disposal of discontinued operations for the year endedSeptember 30, 2004.   As a result of the sale, the retail segmentoperations were discontinued during the year ended September 30,2004.

The loss from discontinued operations for the year endedSeptember 30, 2004 of $550,000 consists of an operating loss of$1,050,000, offset by a gain resulting from the reduction of a prioraccrual with respect to the closing of retail stores. The reduction inthe accrual was a result of the Company reaching settlements withlandlords below what had been originally accrued.

Net revenuesand losses from discontinued operations are as follows (inthousands):

|                                                  |  |                          |        |                                     |  |                       |        |         |  |        |        |        |  |        |         |         |  |  |
|--------------------------------------------------|--|--------------------------|--------|-------------------------------------|--|-----------------------|--------|---------|--|--------|--------|--------|--|--------|---------|---------|--|--|
|                                             |  | Yearsended September 30, |        | Three months ended September30,2002 |  | Year endedJune30,2002 |
|                                             |  | 2004                     |        | 2003                                |  |
| Netrevenues                                      |  | $                        | 7,749  |                                |  | $                     | 9,203  |    |  | $      | 6,845  |   |  | $      | 33,218  |    |
|                                             |  |                     |   |                                |  |                  |   |    |  |   |   |   |  |   |    |    |
| Gain(loss) from discontinuedoperations           |  | $                        | (550   | )                              |  | $                     | (2,997 | )  |  | $      | 122    |   |  | $      | (12,261 | )  |
| Gain(loss) on disposal of discontinuedoperations |  |                     | (822   | )                              |  |                  | 700    |    |  |   | 482    |   |  |   | 877     |    |
| Netgain (loss) from discontinuedoperations       |  | $                        | (1,372 | )                              |  | $                     | (2,297 | )  |  | $      | 604    |   |  | $      | (11,384 | )  |
|                                                  |

Asof September  30, 2004 and 2003, the Company has accruedliabilities of $2,499,000 and $4,859,000, respectively, remaining fromits discontinued businesses. The accruals primarily consists ofseverance, lease payments and other costs related to the operations ofthe discontinued businesses.

6.    Redeemable PreferredStock

In connection with the January  2003 debtrestructuring agreement with the holders of the YSTM Notes and pursuantto the Company's amended articles of incorporation, authorizingthe issuance of 

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up to 5,000,000 shares of preferred stock,the Company issued 1,000,000 shares of Series  A Preferred Stockwith the following characteristics:

|          |                                                                                                                                                                                                                                                                                                                       |
|----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| a.  | Dividend Rights. The holders of the shares ofpreferred stock are entitled to receive, when and as declared by theCompany's board of directors, out of funds legally available forthat purpose, cumulative preferential dividends in cash at the rate of4% a year on the face amount of $4 per share payablequarterly. |

|          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|----------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| b.  | Redemption. The Company shallredeem all of the preferred stock outstanding as of December  31,2010 at $4.00 per share, plus all accrued and unpaid dividends thereon.As of September  30, 2004, the redemption value of the totalissued and outstanding shares of redeemable preferred stock totaled$5,269,000. The Company has the option in 2004 to repurchase all or aportion of preferred stock outstanding for 75% of its faceamount plus 100% of accrued and unpaid dividends thereon. |

|          |                                                                                                                                                                                                                                                                                                              |
|----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| c.  | Convertibility and Voting Rights. TheSeries  A Preferred Stock is not convertible into any othersecurity of the Company, and the holders thereof have no voting rightsexcept with respect to  any proposed changes in the preferencesand special rights of such stock or except as granted to holders bylaw. |

Because the preferred stock is mandatorily redeemable, itis classified as a long term liability in accordance with SFASNo. 150 at the future redemption value of $5,269,000, includingcumulative dividends, with no future accretion adjustments to thebalance to be taken against stockholders' equity (deficit) insubsequent periods.

7.    Long-term Debt

Long-termdebt consists of the following (inthousands):

|                                                                       |  |              |         |         |  |        |         |         |  |  |
|-----------------------------------------------------------------------|--|--------------|---------|---------|--|--------|---------|---------|--|--|
|                                                                  |  | September30, |
|                                                                  |  | 2004         |         | 2003    |
| Promissorynote                                                        |  | $            | 3,953   |    |  | $      | 3,953   |    |
| Promissorynote                                                        |  |         | 1,000   |    |  |   | 1,000   |    |
|                                                                  |  |         | 4,953   |    |  |   | 4,953   |    |
| Lessunamortized original issue discount attributed to promissorynotes |  |         | (39     | )  |  |   | (40     | )  |
|                                                                  |  |         | 4,914   |    |  |   | 4,913   |    |
| Lesscurrentportion                                                    |  |         | — |    |  |   | — |    |
|                                                                  |  | $            | 4,914   |    |  | $      | 4,913   |    |
|                                                                       |

InJuly  1998, the Company issued subordinated notes to accreditedinvestors in the aggregate amount of $5,000,000 less an originaldiscount of $188,000 (the "NET Notes"). Thesenotes bore interest at 11% per annum and were due in July2003. In connection with the issuance of the subordinated notes, theCompany issued 375,000 warrants to the accredited investors for$188,000, and 150,000 warrants to the placement agent. Each warrant,which expired in July  2003, entitled the holder to purchase oneshare of the Company's common stock for $4.125, the market priceof the Company's common stock at the date of issuance. Based onan independent appraisal conducted at that time, the 525,000 warrantswere valued at $740,000. The value of the warrants and closing costs of$314,000 was recorded as deferred financing costs and was amortizedover the term of the subordinated notes. The original issue discount of$188,000 was also amortized over the term of the related debt. OnSeptember  8, 2002, NET failed to make the interest payment dueon the NET Notes, constituting an event of default under the terms ofthe NET Notes, and as a result, the holder of a majority of the NETNotes declared these notes due and payable under the terms of the NETNotes. In January  2003, the Company reached a debt restructuringagreement with the holders of the NET Notes to cancel all the principalof and interest on the NET Notes in exchange for aggregate cashpayments of $3,000,000. As of January  2003, the carrying valueof the debt, including accrued interest and unamortized deferredclosing costs and discount, was $5,448,000. The settlement of the NETNotes resulted in a gain totaling $2,448,000.

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In March  2000, the Company issueda note to a finance company in the amount of $1,971,000 (the"Equipment Note"). The note bore interest atthe rate of 11.95% per annum and was payable in 36 equal monthlypayments commencing in March  2000. The note was secured bycertain equipment owned by NET. NET failed to make payments ofapproximately $65,000 due on August  1, 2002 and $65,000 due onSeptember  1, 2002, in connection with the Equipment Note. OnSeptember  6, 2002, NET received notice from the finance companyholding the Equipment Note stating that the entire outstandingindebtedness ($496,000) under the Equipment Note was due and payablepursuant to the terms of the note. On September  16, 2002, theholder of the Equipment Note commenced litigation against NET seekingrepayment of the note. In December  2002, the Company reached anagreement with the holder of the Equipment Note and (a)  paid$470,000 in exchange for the cancellation of the principal of andinterest on the Equipment Note, totaling $516,000, and (b)transferred title of the equipment securing the Equipment Note to thefinance company. This transaction resulted in a gain of $46,000.

In June  2000, the Company issued subordinated notes to anaccredited investor in the amount of $12,000,000, less an originalissue discount of $420,000 (the "YSTMNotes"). The notes bore interest at 11% per annumand were due in June  2005. In connection with the issuance ofthe subordinated notes, the Company issued 1,020,000 warrants toaccredited investors in exchange for $420,000. Each warrant, whichexpires in June  2005, entitles the holder to purchase one shareof the Company's common stock for $5.9375, the market price ofthe Company's common stock at the date of issuance. Based on anindependent appraisal at that time, the 1,020,000 warrants were valuedat $3,346,000. The value of the warrants and closing costs of $494,000were recorded as deferred financing costs and were amortized over theterm of the subordinated note. The original issue discount of $420,000was amortized over the term of the related debt. On August  31,2002, the Company failed to make interest payments due on the YSTMNotes, constituting an event of default under the terms of the YSTMNotes. On September  9, 2002, the holders of the YSTM Notesdeclared this note due and payable under the terms of the YSTM Notes.In January  2003, as part of the debt restructuring, the Companyreached an agreement with the holders of the YSTM Notes to cancel allof the principal and interest on the YSTM Notes in exchange for(a)  cash of $1,500,000; (b)  1,000,000 shares ofredeemable preferred stock of the Company; (c)  3,486,875 sharesof common stock of the Company; and (d)  a $3,000,000 promissorynote issued by Beyond the Wall and secured by a pledge of theCompany's stock in Beyond the Wall.

In July  2000,the Company issued a subordinated note to an accredited investor in theamount of $1,000,000, less an original issue discount of $35,000 (the"YSTM 2 Note"). The note bore interest at11% per annum and was due in July  2005. In connectionwith the issuance of the subordinated note, the Company issued 60,000warrants to an accredited investor in exchange for $35,000. Eachwarrant, which expires in July  2005, entitles the holder topurchase one share of the Company's common stock for $3.75, themarket price of the Company's common stock at the date ofissuance. Based on an independent appraisal at that time, the 60,000warrants were valued at $197,000. The value of the warrants wasrecorded as deferred financing costs and was amortized over the term ofthe subordinated note. The original issue discount of $35,000 wasamortized over the term of the related debt. On August  31, 2002,the Company failed to make an interest payment due on the YSTM 2 Note,constituting an event of default under the terms of the YSTM 2 Note,and the holder of the note had the right to declare this noteimmediately due and payable. In January  2003 the Company reachedan agreement with the holder of the YSTM 2 Note to cancel all of theprincipal and interest on the YSTM 2 Note in exchange for (a)  a$1,000,000 promissory note issued by Beyond the Wall and secured by apledge of the Company's stock in Beyond the Wall; and (b)498,125 shares of the Company's common stock. No gain or loss wasrecognized on the settlement.

In January  2003, as part ofthe debt restructuring the Company issued a promissory note to anaccredited investor with a face amount of $3,000,000 and total futureinterest payments of $953,000. The note bears interest at 4% perannum with accrued interest and principal due December  31, 2010.This note was issued as part of the January  2003 debtrestructuring whereby the YSTM Notes were extinguished in exchange fora $1,500,000 cash payment, issuance of 3,486,875 shares of commonstock, valued at $223,000, issuance of 1,000,000 shares of redeemablepreferred stock and issuance of a 

F-18

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$3,000,000 promissory note secured by theCompany's pledge of all of its stock in its subsidiary, Beyondthe Wall. The transaction was accounted for as a troubled debtrestructuring involving a combination of a partial debt settlement anda continuation of debt with modified terms. As the total undiscountedfuture cash payments from the promissory note were less than theadjusted carrying value of the YSTM Notes, the promissory note wasrecorded at the undiscounted future cash value of $3,953,000 with nointerest expense to be recognized over the remaining life of the newnote. The restructuring of the YSTM Notes resulted in a gain totaling$306,000.

In January  2003, the Company issued apromissory note to an accredited investor with a face value of$1,000,000 and total future interest payments of $318,000. The notebears interest at 4% per annum with accrued interest andprincipal due December  31, 2010. This note was issued as part ofthe January  2003 debt restructuring whereby the YSTM 2 Note wasextinguished in exchange for the issuance of 498,125 shares of commonstock, valued at $32,000, and issuance of the promissory note securedby the Company's pledge of all of its stock in its subsidiary,Beyond the Wall. The transaction was accounted for as a troubled debtrestructuring involving a combination of a partial debt settlement anda continuation of debt with modified terms. As the total undiscountedfuture cash payments from the promissory note, including principal andaccrued interest, were greater than the adjusted carrying value of theYSTM 2 Note, the promissory note issued was recorded at the adjustedcarrying value of the YSTM 2 Note surrendered, resulting in an imputeddiscount of $41,000.

8.    Loss on Impairment of Assets

Operating results at the Company's Trent subsidiary declinedduring 2002. In the fourth quarter of fiscal 2002, the Companyevaluated the recoverability of the goodwill of this subsidiary inaccordance with its accounting policy. This evaluation indicated thatthe carrying value of the goodwill of this subsidiary was impaired. Asa result, in fiscal 2002 the Company recorded goodwill impairmentcharges totaling $7,439,000 in the retail segment. In addition, theCompany determined during fiscal year 2002 that the fixed assetsrelated to its satellite network were impaired as the Company decidedto use alternative means of showing movies on college campuses for the2003 season. In May 2002, the Company recognized a charge of $672,000for impairment of these fixed assets which were owned by NET within themedia segment. The impairment charges from the Trent subsidiary havebeen recorded as a loss on impairment of assets and included indiscontinued operations in the consolidated statement of operations forthe year ended June  30, 2002, and the impairment charges fromthe satellite network equipment have also been recorded as a loss fromdiscontinued operations for the year ended June  30, 2002.

9.    Property and Equipment

Property and equipmentconsists of the following (inthousands):

|                              |  |              |      |         |  |        |     |         |  |  |
|------------------------------|--|--------------|------|---------|--|--------|-----|---------|--|--|
|                         |  | September30, |
|                         |  | 2004         |      | 2003    |
| Officeequipment              |  | $            | 140  |    |  | $      | 140 |    |
| Less accumulateddepreciation |  |         | (115 | )  |  |   | (95 | )  |
| Propertyand equipment,net    |  | $            | 25   |    |  | $      | 45  |    |
|                              |

10.    IncomeTaxes

At September  30, 2004, the Company had a netoperating loss carryforward for federal income tax purposes ofapproximately $284,813,000 that expires from 2012 through 2024. The useof approximately $36,000,000 of this net operating loss in future yearsmay be restricted under Section  382 of the Internal RevenueCode. For financial reporting purposes, a valuation allowance ofapproximately $113,908,000 has been recognized to offset the netdeferred tax asset principally related to the net operating losscarryforward. The valuation allowance increased by approximately$3,082,000, $69,479,000 and $10,646,000 for the years endedSeptember  30, 2004 and 2003, and June  30, 2002,respectively.

F-19

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Deferred income taxes reflect the net taxeffects of temporary differences between the carrying amounts of assetsand liabilities for financial reporting purposes and the amounts usedfor income tax purposes. Significant components of the Company'sdeferred tax assets as of September  30, 2004 and 2003 are asfollows (inthousands):

|                                |  |              |          |         |  |        |          |         |  |  |
|--------------------------------|--|--------------|----------|---------|--|--------|----------|---------|--|--|
|                           |  | September30, |
|                           |  | 2004         |          | 2003    |
| Netoperating losscarryforwards |  | $            | 113,646  |    |  | $      | 110,513  |    |
| Other                          |  |         | 262      |    |  |   | 313      |    |
| Totaldeferred taxassets        |  |         | 113,908  |    |  |   | 110,826  |    |
| Valuationallowance             |  |         | (113,908 | )  |  |   | (110,826 | )  |
| Netdeferred taxasset           |  | $            | —  |    |  | $      | —  |    |
|                                |

Nofederal tax provision has been provided for the periods endedSeptember  30, 2004, September  30, 2003 and June30, 2002 due to the significant losses incurred to date.

TheCompany is subject to periodic audits by federal, state and local taxauthorities for various tax liabilities incurred in prior periods fromthe parent entity and its subsidiaries, including any discontinuedbusinesses. The amount of any tax assessments and penalties may bematerial and may negatively impact the Company's operations.Given the uncertainty in the amount and the difficulty in estimatingthe probability of the assessments arising from future tax audits, theCompany has not made accruals for such tax contingencies.

11.    Stockholders' Equity (Deficiency)

InMay  2001, the Board of Directors authorized the Company to makeopen market purchases of the Company's common stock aggregatingup to $2,000,000. As of September  30, 2004, the Company held intreasury 607,500 shares purchased on the open market at a cost of$829,000.

In January  2003, the Company completed a debtrestructuring transaction whereby a total of 3,985,000 common shares,valued at $255,000, were issued to the holders of the YSTM Notes andYSTM 2 Note, in accordance with the terms of the debt restructuring toextinguish the YSTM Notes and YSTM 2 Note. The additional common shareswere valued using the three-day average trading price one day beforeand one day after the effective date of the debt restructuring.

During August  2003, the Company's subsidiary, Beyondthe Wall,  Inc., borrowed $100,000 from each of Jonathan V.Diamond and the Ravich Trust, which was used to fund the operations ofBeyond the Wall,  Inc. The loans, which were due December31, 2003, were repaid in September  2003 and were secured by realestate owned by Beyond the Wall,  Inc. As partial considerationfor the loans, the Company issued to each lender warrants to purchase400,000 shares of common stock, exercisable through August  31,2008 at $0.11 per share, the closing bid price of the Company'scommon stock on the date of the loans. The warrants were valued usingthe Black-Scholes option-pricing model and had an aggregate fair valueof $88,000, which would have been recognized ratably over the term ofthe loan. Since the loan was repaid before September  30, 2003,however, the entire $88,000 was recognized as interest expense with acorresponding increase in additional paid-in capital.

DuringAugust  2003, the Company also borrowed $25,000 from each ofJonathan V. Diamond and the Ravich Trust, which was used to fund, inpart, the Company's investment in KES Holdings (see Note 4). Theloans, which were due December  31, 2003, were repaid inSeptember  2003 and were unsecured. As partial consideration forthe loans, the Company issued to each lender warrants to purchase100,000 shares of common stock, exercisable through August  31,2008 at $0.16 per share, the closing bid price of the Company'scommon stock on the date of the loans. The warrants were valued usingthe Black-Scholes option-pricing model and had an aggregate fair valueof $32,000, which would have been recognized ratably over the term ofthe loan. Since the loan was repaid before September  30, 2003,however, the entire $32,000 was recognized as interest expense with acorresponding increase in additional paid-in capital.

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 as follows:

F-20

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|                              |  |              |           |             |  |        |           |        |  |        |           |        |  |  |
|------------------------------|--|--------------|-----------|-------------|--|--------|-----------|--------|--|--------|-----------|--------|--|--|
|                         |  | September30, |           | June30,2002 |
|                         |  | 2004         |           | 2003        |  |
| Stockoptions                 |  |         | 1,205,404 |        |  |   | 1,086,544 |   |  |   | 1,882,013 |   |
| Commonstock purchasewarrants |  |         | 1,000,000 |        |  |   | 2,462,000 |   |  |   | 1,462,000 |   |
|                              |

12.    StockOptions and Warrants

During May  2003, the Company issuedoptions to purchase an aggregate of 700,000 shares of common stock toits directors, exercisable through May  2010 at $0.04 per share,which was the fair market value on the date of issuance.

DuringMay  2003, the Company issued options to purchase 175,000 sharesof common stock to its Chief Financial Officer, exercisable throughMay  2010 at $0.04 per share, which was the fair market value onthe date of issuance.

During October 2003, the Company issued anoption to 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.

On June 3, 2004,the Board of Directors appointed Patrick J. Panzarella as a director ofthe Company and granted him an option to purchase 200,000 shares ofcommon stock exercisable at the closing common stock price on the dateof grant of $0.14 per share for a period of seven years.   Theoption was fully vested upon grant.

Pro forma informationregarding net loss per share is required by SFAS  No. 123, andhas been determined as if the Company had accounted for its employeestock options under the fair value method pursuant to SFAS  No.123. The fair value for these options was estimated at the date ofgrant using the Black-Scholes option-pricing model with the followingweighted-average assumptions for the years ended September  30,2004 and 2003, and June  30,2002:

|                                                                            |  |                          |  |                         |  |          |  |  |  |  |  |  |  |  |
|----------------------------------------------------------------------------|--|--------------------------|--|-------------------------|--|----------|--|--|--|--|--|--|--|--|
|                                                                       |  | Yearsended September 30, |  | Year ended June 30,2002 |
|                                                                       |  | 2004                     |  | 2003                    |  |
| Risk-freeinterestrate                                                      |  | 4.00%                    |  | 3.00%                   |  | 3.82%    |
| Dividendyield                                                              |  | 0%                       |  | 0%                      |  | 0%       |
| Volatilityfactor of the expected market price of the Company's commonstock |  | 1.002                    |  | 3.505                   |  | 1.060    |
| Averagelife                                                                |  | 7.0 years                |  | 7.0 years               |  | 3.0years |
|                                                                            |

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The following table presents the effecton net loss and net loss per share had stock-based compensation expensebeen recorded based on the fair value method under SFAS No.123.

(In Thousands, Except Per ShareAmounts)

|                                                                                                        |  |                          |  |                                    |  |                       |  |           |  |  |  |  |  |  |  |  |  |  |
|--------------------------------------------------------------------------------------------------------|--|--------------------------|--|------------------------------------|--|-----------------------|--|-----------|--|--|--|--|--|--|--|--|--|--|
|                                                                                                   |  | Yearsended September 30, |  | Three months endedSeptember30,2002 |  | Year endedJune30,2002 |
|                                                                                                   |  | 2004                     |  | 2003                               |  |
| Netloss attributable to common shares, asreported                                                      |  | $(2,366)                 |  | $(3,128)                           |  | $(2,179)              |  | $(20,512) |
| Add:Total stock-based employee compensation expense included in reportednetloss                        |  | —                  |  | —                            |  | —               |  | —   |
| Deduct:Total stock-based employee compensation expense determined under fairvalue method for allawards |  | (39)                     |  | (51)                               |  | (1,269)               |  | (5,076)   |
| Netloss, proforma                                                                                      |  | $(2,405)                 |  | $(3,179)                           |  | $(3,448)              |  | $(25,588) |
| Basicand diluted net loss per common share, asreported                                                 |  | $(0.06)                  |  | $(0.08)                            |  | $(0.07)               |  | $(0.67)   |
| Basicand diluted net loss per common share, proforma                                                   |  | $(0.06)                  |  | $(0.08)                            |  | $(0.10)               |  | $(0.84)   |
|                                                                                                        |

 StockOption Plans

In February  2000, the Company adopted theYouthStream 2000 Stock Option Plan (the "2000Plan") in order to grant employees providing services tothe Company incentive stock options. The 2000 Plan allows for thegranting of options to purchase up to 5,000,000 shares of theCompany's common stock. All option plans of the Company inexistence at the formation of the 2000 Plan were merged into the 2000Plan. The terms of the options were not changed upon merging the plans.The exercise price of the options granted was at fair market value onthe date of the grant. Options generally vest over three years.

In May  2001, the Company approved a Voluntary Stock OptionExchange Program to be carried out under the Company's 2000 StockIncentive Plan. Employees were given the option to exchange all or aportion of their options on July  20, 2001, with an exerciseprice equal to or greater than $9.00. In exchange, employees wereeligible to receive, six months and one day after cancellation, newoptions for 80% of the number of shares covered by the cancelledoptions, with an exercise price equal to the fair market value of theCompany's common stock on the date of the new grant. OnJuly  20, 2001, 743,800 options were cancelled, and 518,319options were reissued on January  22, 2002.

The followingtable summarizes the 2000 Plan and the effects from the execution ofthe Voluntary Stock Option Exchange Program initiated in May2001:

F-22

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|                                                        |  |        |            |                              |  |        |         |        |  |  |
|--------------------------------------------------------|--|--------|------------|------------------------------|--|--------|---------|--------|--|--|
|                                                   |  | Shares |            | WeightedAverageExercisePrice |
| Options outstanding at July 1,2001                     |  |   | 3,942,021  |                         |  | $      | 7.09    |   |
| Optionsgranted                                         |  |   | 1,097,652  |                         |  | $      | 1.32    |   |
| Optionscanceled                                        |  |   | (3,157,660 | )                       |  | $      | 7.88    |   |
| Optionsexercised                                       |  |   | —    |                         |  |   | — |   |
| Optionsoutstanding at June 30,2002                     |  |   | 1,882,013  |                         |  | $      | 2.53    |   |
| Optionsgranted                                         |  |   | 950,000    |                         |  | $      | 0.05    |   |
| Optionscanceled                                        |  |   | (1,745,469 | )                       |  | $      | 2.61    |   |
| Optionsexercised                                       |  |   | —    |                         |  |   | — |   |
| Optionsoutstanding at September 30,2003                |  |   | 1,086,544  |                         |  | $      | 0.25    |   |
| Optionsgranted                                         |  |   | 250,000    |                         |  | $      | 0.16    |   |
| Optionscanceled                                        |  |   | (131,140   | )                       |  | $      | 0.92    |   |
| Optionsexercised                                       |  |   | —    |                         |  |   | — |   |
| Optionsoutstanding at September 30,2004                |  |   | 1,205,404  |                         |  | $      | 0.16    |   |
| Optionsexercisable at September 30,2004                |  |   | 1,205,404  |                         |  |   |    |   |
| Optionsexercisable at September 30,2003                |  |   | 997,237    |                         |  |   |    |   |
| Optionsavailable for future grant at September 30,2004 |  |   | 3,794,596  |                         |  |   |    |   |
|                                                        |

Informationregarding the options outstanding under the 2000 Plan atSeptember  30, 2004 is asfollows:

|               |  |                                     |           |                               |  |                                 |  |                   |  |                      |           |        |  |       |  |  |  |  |  |  |  |  |
|---------------|--|-------------------------------------|-----------|-------------------------------|--|---------------------------------|--|-------------------|--|----------------------|-----------|--------|--|-------|--|--|--|--|--|--|--|--|
| ExercisePrice |  | NumberofOptionsCurrentlyOutstanding |           | Weighted-AverageExercisePrice |  | Weighted-AverageContractualLife |  | NumberExercisable |  | AverageExercisePrice |
| $0.04         |  |                                | 875,000   |                          |  | $0.04                           |  | 5.6years          |  |                 | 875,000   |   |  | $0.04 |
| $0.14         |  |                                | 200,000   |                          |  | $0.14                           |  | 6.7years          |  |                 | 200,000   |   |  | $0.14 |
| $0.26         |  |                                | 50,000    |                          |  | $0.26                           |  | 6.0years          |  |                 | 50,000    |   |  | $0.26 |
| $1.17         |  |                                | 40,000    |                          |  | $1.17                           |  | 7.3years          |  |                 | 40,000    |   |  | $1.17 |
| $1.63         |  |                                | 40,404    |                          |  | $1.63                           |  | 6.6years          |  |                 | 40,404    |   |  | $1.63 |
|          |  |                                | 1,205,404 |                          |  | $0.16                           |  | 5.9years          |  |                 | 1,205,404 |   |  | $0.16 |
|               |

Theweighted average fair value of options granted during the years endedSeptember  30, 2004 and 2003, and June  30, 2002 was $0.16,$0.05 and $4.62, respectively.

F-23

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Warrants

The Company has warrants outstanding to purchase 1,000,000 shares ofcommon stock (see Note  11).

The following tablesummarizes warranttransactions:

|                                          |  |        |           |                              |  |        |         |        |  |  |
|------------------------------------------|--|--------|-----------|------------------------------|--|--------|---------|--------|--|--|
|                                     |  | Shares |           | WeightedAverageExercisePrice |
| Warrants outstanding at July 1,2001      |  |   | —   |                         |  |   | — |   |
| Warrantsgranted                          |  |   | —   |                         |  |   | — |   |
| Warrantscanceled                         |  |   | —   |                         |  |   | — |   |
| Warrantsexercised                        |  |   | —   |                         |  |   | — |   |
| Warrantsoutstanding at June 30,2002      |  |   | —   |                         |  |   | — |   |
| Warrantsgranted                          |  |   | 1,000,000 |                         |  | $      | 0.12    |   |
| Warrantscanceled                         |  |   | —   |                         |  |   | — |   |
| Warrantsexercised                        |  |   | —   |                         |  |   | — |   |
| Warrantsoutstanding at September 30,2003 |  |   | 1,000,000 |                         |  | $      | 0.12    |   |
| Warrantsgranted                          |  |   | —   |                         |  |   | — |   |
| Warrantscanceled                         |  |   | —   |                         |  |   | — |   |
| Warrantsexercised                        |  |   | —   |                         |  |   | — |   |
| Warrantsoutstanding at September 30,2004 |  |   | 1,000,000 |                         |  | $      | 0.12    |   |
| Warrantsexercisable at September 30,2004 |  |   | 1,000,000 |                         |  | $      | 0.12    |   |
| Warrantsexercisable at September 30,2003 |  |   | 1,000,000 |                         |  | $      | 0.12    |   |
|                                          |

Informationregarding the warrants outstanding at September  30, 2004 is asfollows (all warrants were issued during the year ended September 30,2003):

|               |  |                                      |           |                               |  |                                 |  |                   |          |                      |  |        |           |        |  |       |  |  |  |  |  |  |
|---------------|--|--------------------------------------|-----------|-------------------------------|--|---------------------------------|--|-------------------|----------|----------------------|--|--------|-----------|--------|--|-------|--|--|--|--|--|--|
| ExercisePrice |  | NumberofWarrantsCurrentlyOutstanding |           | Weighted-AverageExercisePrice |  | Weighted-AverageContractualLife |  | NumberExercisable |          | AverageExercisePrice |
| $0.11         |  |                                 | 800,000   |                          |  | $0.11                           |  |              | 3.9years |                 |  |   | 800,000   |   |  | $0.11 |
| $0.16         |  |                                 | 200,000   |                          |  | $0.16                           |  |              | 3.9years |                 |  |   | 200,000   |   |  | $0.16 |
|          |  |                                 | 1,000,000 |                          |  | $0.12                           |  |              | 3.9years |                 |  |   | 1,000,000 |   |  | $0.12 |
|               |

Theweighted average fair value of warrants granted during the year endedSeptember  30, 2003 was $0.12.

13.    Commitments andContingencies

Leases

Rent expense was approximately$15,000, $168,000 and $554,000 for the years ended September  30,2004 and 2003, and June  30, 2002, respectively. AtSeptember  30, 2004, approximately $432,000 in lease obligationswere classified as current liabilities. These leases relate toobligations for which the Company is still liable, although thepremises are no longer occupied or assets to which they apply werepreviously written off. Of the total, approximately $141,000 applies tocontinuing operations, and approximately $291,000 relates todiscontinued operations.

Litigation

During fiscal 2003,the Company was involved in an arbitration filed in New York by theCompany's former President and Chief Executive Officer seekingdamages for alleged breach of his employment agreement, among otherthings. The Company reached an agreement in October  2003 tosettle the dispute for nominal consideration.

F-24

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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 September  30, 2004.

Given the Company's current financial situation, the costs ofdefending these proceedings and diversion of management'sattention to these matters, the outcome of such proceedings could havea material adverse effect on the Company's financial condition oroperating results, including its ability to restructure its debtswithout seeking bankruptcy protection or being the subject of aninvoluntary bankruptcy petition, or its ability to continue as a goingconcern.

14.    401(k) Plan

During 1997, the Companyestablished a 401(k) Plan (the "Plan") forthe benefit of all eligible employees. Eligible participants under thisPlan were defined as all full-time employees with one year of service.All eligible participants could elect to contribute a portion of theircompensation to the Plan subject to Internal Revenue Servicelimitations. The Company could make discretionary matchingcontributions to the Plan, subject to board approval. TheCompany's last matching contribution was approximately $51,000for the year ended June  30, 2002. This Plan was terminatedeffective March  15, 2003.

15.    Quarterly Results(Unaudited)

The following is a summary of the quarterly resultsof operations for the years ended September  30, 2004 and 2003,which has been restated to reflect the operations of Beyond the Wall asdiscontinued for all periods presented (in thousands, except per shareamounts):

|                                                                             |  |                  |         |              |  |              |         |                  |  |        |         |         |  |        |         |         |  |  |
|-----------------------------------------------------------------------------|--|------------------|---------|--------------|--|--------------|---------|------------------|--|--------|---------|---------|--|--------|---------|---------|--|--|
|                                                                        |  | September30,2004 |         | June 30,2004 |  | March31,2004 |         | December 31,2003 |
| Generaland administrative expense –corporate                          |  | $                | 220     |         |  | $            | 150     |             |  | $      | 371     |    |  | $      | 329     |    |
| Lossfromoperations                                                          |  | $                | (225    | )       |  | $            | (155    | )           |  | $      | (376    | )  |  | $      | (334    | )  |
| Lossbefore provision for incometaxes                                        |  | $                | (216    | )       |  | $            | (147    | )           |  | $      | (375    | )  |  | $      | (344    | )  |
| Lossfrom continuingoperations                                               |  | $                | (141    | )       |  | $            | (146    | )           |  | $      | (363    | )  |  | $      | (344    | )  |
| Lossfrom discontinuedoperations                                             |  | $                | (68     | )       |  | $            | (5      | )           |  | $      | (156    | )  |  | $      | (321    | )  |
| Losson disposal of discontinuedoperations                                   |  | $                | — |         |  | $            | — |             |  | $      | (822    | )  |  | $      | — |    |
| Netloss                                                                     |  | $                | (209    | )       |  | $            | (151    | )           |  | $      | (1,341  | )  |  | $      | (665    | )  |
| Netloss per common share – basic anddiluted:                          |  |             |    |         |  |         |    |             |  |   |    |    |  |   |    |    |
| Lossfrom continuingoperations                                               |  | $                | (0.01   | )       |  | $            | — |             |  | $      | (0.01   | )  |  | $      | (0.01   | )  |
| Lossfrom discontinuedoperations                                             |  | $                | — |         |  | $            | — |             |  | $      | — |    |  | $      | (0.01   | )  |
| Losson disposal of discontinuedoperations                                   |  | $                | — |         |  | $            | — |             |  | $      | (0.02   | )  |  | $      | — |    |
| Netloss                                                                     |  | $                | (0.01   | )       |  | $            | — |             |  | $      | (0.03   | )  |  | $      | (0.02   | )  |
| Weightedaverage shares of common stock outstanding – basic anddiluted |  |             | 39,242  |         |  |         | 39,242  |             |  |   | 39,242  |    |  |   | 39,242  |    |
|                                                                             |

F-25

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|                                                                             |  |                  |         |              |  |              |         |                  |  |        |         |         |  |        |         |         |  |  |
|-----------------------------------------------------------------------------|--|------------------|---------|--------------|--|--------------|---------|------------------|--|--------|---------|---------|--|--------|---------|---------|--|--|
|                                                                        |  | September30,2003 |         | June 30,2003 |  | March31,2003 |         | December 31,2002 |
| Generaland administrative expense –corporate                          |  | $                | 551     |         |  | $            | 485     |             |  | $      | 621     |    |  | $      | 907     |    |
| Lossfromoperations                                                          |  | $                | (556    | )       |  | $            | (490    | )           |  | $      | (626    | )  |  | $      | (912    | )  |
| Income(loss) before provision for incometaxes                               |  | $                | (703    | )       |  | $            | (489    | )           |  | $      | 1,950   |    |  | $      | (1,559  | )  |
| Income(loss) from continuingoperations                                      |  | $                | (725    | )       |  | $            | (493    | )           |  | $      | 1,945   |    |  | $      | (1,558  | )  |
| Income(loss) from discontinuedoperations                                    |  | $                | 174     |         |  | $            | (539    | )           |  | $      | (1,217  | )  |  | $      | (1,415  | )  |
| Gainon disposal of discontinuedoperations                                   |  | $                | 700     |         |  | $            | — |             |  | $      | — |    |  | $      | — |    |
| Netincome(loss)                                                             |  | $                | 149     |         |  | $            | (1,032  | )           |  | $      | 728     |    |  | $      | (2,973  | )  |
| Netincome (loss) per common share – basic anddiluted:                 |  |             |    |         |  |         |    |             |  |   |    |    |  |   |    |    |
| Income(loss) from continuingoperations                                      |  | $                | (0.02   | )       |  | $            | (0.01   | )           |  | $      | 0.05    |    |  | $      | (0.04   | )  |
| Income(loss) from discontinuedoperations                                    |  | $                | — |         |  | $            | (0.01   | )           |  | $      | (0.03   | )  |  | $      | (0.04   | )  |
| Gainon disposal of discontinuedoperations                                   |  | $                | 0.02    |         |  | $            | — |             |  | $      | — |    |  | $      | — |    |
| Netincome(loss)                                                             |  | $                | — |         |  | $            | (0.02   | )           |  | $      | 0.02    |    |  | $      | (0.08   | )  |
| Weightedaverage shares of common stock outstanding – basic anddiluted |  |             | 39,242  |         |  |         | 39,242  |             |  |   | 38,224  |    |  |   | 35,257  |    |
|                                                                             |

F-26

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SIGNATURES

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

|                       |  |        |  |                                                        |  |  |  |  |  |  |
|-----------------------|--|--------|--|--------------------------------------------------------|--|--|--|--|--|--|
| Date:January 13, 2005 |  |   |  | YOUTHSTREAM MEDIA NETWORKS,INC.                        |
|                  |  |   |  | (Registrant)                                           |
|                  |  | By:    |  | /s/JONATHAN V. DIAMOND                                 |
|                  |  |   |  | Jonathan V.Diamond Chairman and Chief ExecutiveOfficer |
|                       |

Pursuant to the requirements of theSecurities Exchange Act of 1934, this report has been signed below bythe following persons on behalf of the registrant and in the capacityand on the dates indicated.

|                          |  |                                                  |  |                  |
|--------------------------|--|--------------------------------------------------|--|------------------|
| Signature                |  | Title                                            |  | Date             |
|                          |
| /s/JONATHAN V. DIAMOND   |  | Chief Executive Officer and Chairman of theBoard |  | January 13, 2005 |
|                          |
| Jonathan V. Diamond      |
|                          |
| /s/ ROBERTN. WEINGARTEN  |  | Chief Financial Officer                          |  | January 13,2005  |
|                          |
| Robert N. Weingarten     |
|                          |
| /s/ HAL BYER             |  | Director                                         |  | January 13,2005  |
|                          |
| HalByer                  |
|                          |
| /s/ ROBERT SCOTTFRITZ    |  | Director                                         |  | January 13,2005  |
|                          |
| Robert Scott Fritz       |
|                          |
| /s/ PATRICK J.PANZARELLA |  | Director                                         |  | January 13,2005  |
|                          |
| Patrick J.Panzarella     |
|                          |

S-1

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