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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
   Form 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004 COMMISSION FILE NUMBER: 0-26015    YOUBET.COM, INC. DELAWARE
    
    95-4627253
 5901 De Soto Avenue, Woodland Hills, California 91367 (818) 668-2100 Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X]  No [  ] Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [  ]  No [X] As of November 1, 2004, the issuer had 30,676,291 shares of common stock, par
value $0.001 per share, issued and outstanding. The aggregate market value of
the issuers common stock held by non-affiliates (assuming that the
Registrants only affiliates are its officers, directors and 10% or greater
stockholders) of the issuer as of November 1, 2004 was approximately
$102,358,428 based upon the closing market price of $3.44 per common share on
that date as reported on the Nasdaq SmallCap Market.




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YOUBET.COM, INC.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED
SEPTEMBER 30, 2004 PagePART I. FINANCIAL INFORMATIONItem 1.
    Condensed consolidated financial statementsBalance sheets as of September 30, 2004 (unaudited) and December 31, 2003
    
    
    3Statements of operations for the three months ended September 30, 2004 and September 30, 2003 (unaudited)
    
    
    4Statements of operations for the nine months ended September 30, 2004 and September 30, 2003 (unaudited)
    
    
    5Statements of cash flows for the nine months ended September 30, 2004 and September 30, 2003 (unaudited)
    
    
    6Notes to unaudited financial statements
    
    
    7Item 2.
    Management's discussion and analysis of financial condition and results of operations
    
    
    12Item 3.
    Quantitative and qualitative disclosures about market risk.
    
    
    19Item 4.
    Controls and procedures
    
    
    19PART II. OTHER INFORMATIONItem 1.
    Legal proceedings
    
    
    20Item 2.
    Unregistered sales of equity securities and use of proceeds
    
    
    20Item 3.
    Defaults upon senior securities
    
    
    20Item 4.
    Submission of matters to a vote of security holders
    
    
    20Item 5.
    Other information
    
    
    20Item 6.
    Exhibits
    
    
    21Exhibit 31.1Exhibit 31.2Exhibit 32.1
  Preliminary Note This quarterly report on Form 10-Q is for the three-month period ended September 30, 2004. This quarterly report modifies and
supersedes documents filed prior to this quarterly report. The SEC allows Youbet to incorporate by reference information that
Youbet files with it, which means that Youbet can disclose important information to you by referring you directly to those
documents. Information incorporated by reference is considered to be part of this quarterly report. In addition, information that
Youbet files with the SEC in the future will automatically update and supersede information contained in this quarterly report. 2




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Part I. Financial Information 
 Item 1. Financial Statements
 YOUBET.COM, INC. 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 September 30,
    
    December 31,2004
    
    2003(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    11,744,905
    
    
    $
    8,273,926Restricted cash, current
    
    
    3,084,501
    
    
    
    2,924,034Accounts receivable
    
    
    544,622
    
    
    
    279,057Other receivables
    
    
    1,351,037
    
    
    
    1,132,359Prepaid expenses
    
    
    870,290
    
    
    
    884,409Deferred tax asset
    
    
    3,250,000
    
    
    
    20,845,355
    
    
    
    13,493,785Property and equipment, net
    
    
    2,814,287
    
    
    
    2,731,922Restricted cash, long-term
    
    
    487,750
    
    
    
    593,982Licenses and patents, net of amortization
    
    
    41,809
    
    
    
    1,407,447Deposits and other
    
    
    151,690
    
    
    
    624,981$
    24,340,891
    
    
    $
    18,852,117LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of lease liability
    
    $
    119,934
    
    
    $
    Trade payables, TVG
    
    
    4,495,723
    
    
    
    3,426,076Trade payables, track related
    
    
    1,567,449
    
    
    
    2,539,534Trade payables, other
    
    
    761,271
    
    
    
    439,559Accrued expenses and other
    
    
    1,067,479
    
    
    
    2,281,115Customer deposits
    
    
    2,860,631
    
    
    
    2,356,004Deferred revenues
    
    
    92,475
    
    
    
    79,51910,964,962
    
    
    
    11,121,807Lease liability, net of current portion
    
    
    185,553
    
    
    
    11,150,515
    
    
    
    11,121,807Stockholders equity:Preferred stock, $0.001 par value, authorized
1,000,000 shares, none outstanding
    
    
    
    
    
    
    Common stock, $0.001 par value, authorized 100,000,000 shares
30,676,291 and 28,377,443 shares outstanding as of
September 30, 2004 and December 31, 2003, respectively
    
    
    30,676
    
    
    
    28,377Additional paid-in capital
    
    
    102,739,044
    
    
    
    101,377,238Deficit
    
    
    (87,750,635
    )
    
    
    (91,846,596
    )Treasury stock (623,683 shares at cost)
    
    
    (1,828,709
    )
    
    
    (1,828,709
    )13,190,376
    
    
    
    7,730,310$
    24,340,891
    
    
    $
    18,852,117
 See notes to condensed consolidated financial statements 3




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##### Table of Contents



YOUBET.COM, INC. 
 CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
 Three months ended September 30,2004
    
    2003RevenuesCommissions
    
    $
    16,923,438
    
    
    $
    14,043,202Subscription and transaction fees
    
    
    202,459
    
    
    
    178,129Race information
    
    
    118,238
    
    
    
    83,58917,244,135
    
    
    
    14,304,920Operating expensesTrack fees
    
    
    7,107,531
    
    
    
    6,100,240Licensing, TVG
    
    
    4,320,794
    
    
    
    3,462,710Network operations
    
    
    584,542
    
    
    
    484,002Research and development
    
    
    415,352
    
    
    
    379,734Sales and marketing
    
    
    940,271
    
    
    
    558,651General and administrative
    
    
    2,848,690
    
    
    
    2,616,101Depreciation and amortization
    
    
    208,747
    
    
    
    1,212,95816,425,927
    
    
    
    14,814,396Income (loss) from operations
    
    
    818,208
    
    
    
    (509,476
    )Other income (expense)Interest incomeInterest expense
    
    
    34,267
    
    
    
    10,285Other
    
    
    (3,013
    )
    
    
    (121,364
    )(58,377
    )
    
    
    2,702(27,123
    )
    
    
    (108,377
    )Income (loss) before income taxes
    
    
    791,085
    
    
    
    (617,853
    )Income tax benefitDecrease in deferred tax asset valuation allowance net
of $310,000 applied to the current period pre-tax income
    
    
    (3,250,000
    )
    
    
    Net income (loss)
    
    $
    4,041,085
    
    
    $
    (617,853
    )Income (loss) per share  basic
    
    $
    0.13
    
    
    $
    (0.02
    )Income (loss) per share  diluted
    
    $
    0.12
    
    
    $
    (0.02
    )
 See notes to condensed consolidated financial statements 4




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YOUBET.COM, INC. 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 Nine months ended September 30,2004
    
    2003RevenuesCommissions
    
    $
    47,239,274
    
    
    $
    38,429,172Subscription and transaction fees
    
    
    585,432
    
    
    
    420,788Race information
    
    
    304,615
    
    
    
    243,04348,129,321
    
    
    
    39,093,003Operating expensesTrack fees
    
    
    21,063,234
    
    
    
    18,250,282Licensing, TVG
    
    
    10,145,866
    
    
    
    7,650,562Network operations
    
    
    1,644,367
    
    
    
    1,300,205Research and development
    
    
    1,271,554
    
    
    
    1,207,214Sales and marketing
    
    
    2,578,383
    
    
    
    1,695,812General and administrative
    
    
    8,552,394
    
    
    
    7,213,935Depreciation and amortization
    
    
    2,048,496
    
    
    
    4,096,60047,304,294
    
    
    
    41,414,610Income (loss) from operations
    
    
    825,027
    
    
    
    (2,321,607
    )Other income (expense)Interest income
    
    
    97,631
    
    
    
    30,790Interest expense
    
    
    (5,519
    )
    
    
    (637,082
    )Other
    
    
    (71,177
    )
    
    
    79,82120,935
    
    
    
    (526,471
    )Income (loss) before income taxes
    
    
    845,962
    
    
    
    (2,848,078
    )Income tax benefitDecrease in deferred tax asset valuation allowance net
of $750,000 applied to the current period pre-tax
income
    
    
    (3,250,000
    )
    
    
    Net income (loss)
    
    $
    4,095,962
    
    
    $
    (2,848,078
    )Income (loss) per share  basic
    
    $
    0.14
    
    
    $
    (0.11
    )Income (loss) per share  diluted
    
    $
    0.12
    
    
    $
    (0.11
    )
 See notes to condensed consolidated financial statements 5




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YOUBET.COM, INC. 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 Nine months ended September 30,2004
    
    2003Operating activitiesNet income (loss)
    
    $
    4,095,962
    
    
    $
    (2,848,078
    )Adjustments to reconcile net income (loss) to
net cash provided by operating activitiesDepreciation and amortization
    
    
    2,048,496
    
    
    
    4,096,601Non-cash interest expense
    
    
    
    
    
    
    488,194Stock-based compensation (benefit)
    
    
    (60,001
    )
    
    
    303,410(Gain) loss on sale of property and equipment
    
    
    7,648
    
    
    
    (1,693
    )Increase in operating (assets) and liabilitiesRestricted cash, Players Trust
    
    
    (314,881
    )
    
    
    (1,017,543
    )Accounts receivable
    
    
    (265,565
    )
    
    
    251,538Other receivables
    
    
    (218,677
    )
    
    
    (352,654
    )Prepaid expenses
    
    
    14,119
    
    
    
    (651,012
    )Deferred tax asset
    
    
    (3,250,000
    )
    
    
    Deposits and other
    
    
    473,291
    
    
    
    (19,173
    )Trade payables, TVG
    
    
    1,069,647
    
    
    
    1,418,277Trade payables, track related
    
    
    (972,085
    )
    
    
    (2,160,524
    )Trade payables, other
    
    
    321,712
    
    
    
    (108,533
    )Accrued expenses and other
    
    
    (797,753
    )
    
    
    120,561Customer deposits
    
    
    504,627
    
    
    
    927,156Deferred revenues
    
    
    12,956
    
    
    
    34,766Net cash provided by operating activities
    
    
    2,669,496
    
    
    
    481,293Investing activitiesPurchases of property and equipment
    
    
    (425,819
    )
    
    
    (422,440
    )Proceeds from sale of property and equipment
    
    
    243
    
    
    
    11,500Investment in licenses and patents
    
    
    (41,809
    )
    
    
    Restricted cash, other
    
    
    260,644
    
    
    
    342,116Net used in investing activities
    
    
    (206,741
    )
    
    
    (68,824
    )Financing activitiesProceeds from exercise of stock options and warrants, net
    
    
    1,008,224
    
    
    
    2,589,438Proceeds from notes payable
    
    
    
    
    
    
    2,000,000Repayments of notes payable
    
    
    
    
    
    
    (750,000
    )Net cash provided by financing activities
    
    
    1,008,224
    
    
    
    3,839,438Increase in cash and cash equivalents
    
    
    3,470,979
    
    
    
    4,251,907Cash and cash equivalents, beginning of period
    
    
    8,273,926
    
    
    
    4,559,897Cash and cash equivalents, end of period
    
    $
    11,744,905
    
    
    $
    8,811,804Supplemental disclosure of cash flow informationCash paid for interest
    
    $
    5,519
    
    
    $
    172,727Non-cash investing and financing activitiesIssuance of warrants for $2 million note
    
    $
    
    
    
    $
    518,223Stock issuance for surrender of TVGs additional warrant
    
    
    3,640,000
    
    
    
    Stock issuance for TVG legal expense reimbursement
    
    
    415,882Equipment acquired with capital lease
    
    
    305,487
    
    
    
    
 See notes to condensed consolidated financial statements 6




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YOUBET.COM, INC. 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2004
 Note 1: Basis of presentation The accompanying financial statements have been prepared by Youbet.com, Inc.
(the Company) pursuant to the rules and regulations of the Securities and
Exchange Commission relating to interim financial statements. Accordingly,
certain information and note disclosures normally included in the annual
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. For further information, please
refer to the annual financial statements of the Company, and the related notes,
included within the Companys Form 10-K for the fiscal year ended December 31,
2003, previously filed with the Securities and Exchange Commission, from which
the balance sheet information as of December 31, 2003, is derived. In the opinion of management, all adjustments considered necessary for a fair
presentation have been included. The results for the interim period are not
necessarily indicative of the results to be expected for the full year. Certain amounts, as previously reported, have been reclassified to conform to
the current period presentation. Note 2: TVG In May 2001, Youbet entered into a track content and patent license agreement
(the License Agreement) and a warrant issuance agreement with ODS
Technologies, L.P., a subsidiary of Gemstar-TV Guide International (Gemstar),
doing business as Television Games Network (TVG). In consideration of the
rights granted to Youbet under the License Agreement, Youbet agreed to pay to
TVG fees based on the handle generated by Youbet from wagering activity and
issued to TVG warrants to purchase Youbet common stock Youbet issued to TVG an initial warrant (the Initial TVG Warrant) on May 18,
2001, and recorded the fair value of the Initial TVG Warrant as an asset
captioned Licensing Rights. The Initial TVG Warrant was exercised during the
quarter ended June 30, 2002, resulting in the issuance of 3,884,650 shares of
Youbet common stock to TVG. Youbet also issued to TVG an additional warrant
(the Additional Warrant) on September 20, 2001, and recorded the fair value
of the Additional Warrant as an asset captioned Licensing Rights. The
Licensing Rights attributable to the Initial TVG Warrant and the Additional
Warrant were amortized over the three-year period ended in May 2004. In February 2004, the Company and TVG agreed to settle certain disputes, and in
connection therewith, the Company issued to TVG 1,124,144 shares of its common
stock, and in March 2004, TVG surrendered its Additional Warrant. The
agreement pursuant to which the Initial TVG Warrant and the Additional Warrant
were issued contained registration rights which TVG exercised, and on June 10,
2004, the Company filed a shelf-registration statement for the resale of TVGs
common stock. On September 9, 2004, TVG sold all of its 5,008,794 shares of
the Companys common stock. The License Agreement remains in effect at least
through May 2011. 7




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##### Table of Contents



Note 3: Income taxes As of September 30, 2004, the Company had available net operating loss
carryforwards and other tax credits of $92,178,000. The net operating loss
carryforwards and other tax credits generated a deferred tax asset of
approximately $24,661,000. The deferred tax asset was previously not
recognized since management was unable to determine that it was more likely
than not that the asset would be realized. During the third quarter of 2004,
management determined that $4,000,000 of the deferred tax asset should be
recognized. The change in allowance created an income tax benefit of
$3,250,000, net of the $750,000 that otherwise would have been the current
period income tax expense. Management decisions are made at each reporting
period and actual results could vary significantly from the estimates of future
tax rates and associated liabilities. Note 4: Earnings per share The following table is a reconciliation of the weighted average shares used in
the computation of basic and diluted earnings per share for the periods
presented: Three Months Ended September 30,2004
    
    2003Weighted
    
    
    
    
    
    
    
    
    
    WeightedNet
    
    Average
    
    
    
    
    
    Net
    
    AverageIncome
    
    Shares
    
    EPS
    
    (Loss)
    
    Shares
    
    EPSEarnings
per share -
Basic
    
    $
    4,041,085
    
    
    
    30,647,470
    
    
    $
    0.13
    
    
    $
    (617,853
    )
    
    
    27,431,953
    
    
    $
    (0.02
    )Effect of
dilutive
securities
    
    
    
    
    
    
    3,797,270
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Earnings
per share -
Diluted
    
    $
    4,041,085
    
    
    
    34,444,740
    
    
    $
    0.12
    
    
    $
    (617,853
    )
    
    
    27,431,953
    
    
    $
    (0.02
    )
 Three Months Ended September 30,2004
    
    2003Weighted
    
    
    
    
    
    
    
    
    
    WeightedNet
    
    Average
    
    
    
    
    
    Net
    
    AverageIncome
    
    Shares
    
    EPS
    
    (Loss)
    
    Shares
    
    EPSEarnings
per share -
basic
    
    $
    4,095,962
    
    
    
    29,876,472
    
    
    $
    0.14
    
    
    $
    (2,848,078
    )
    
    
    25,553,337
    
    
    $
    (0.11
    )Effect of
dilutive
securities
    
    
    
    
    
    
    4,472,431
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Earnings
per share -
diluted
    
    $
    4,095,962
    
    
    
    34,348,903
    
    
    $
    0.12
    
    
    $
    (2,848,078
    )
    
    
    25,553,337
    
    
    $
    (0.11
    )
 8




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Note 5: Stockholders equity The Company has issued various stock options and warrants in non-capital
raising transactions for services rendered and to be rendered and as financing
costs. In accordance with the election available under Statement of Financial
Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation, the Company accounts for stock options issued to officers and
employees under the recognition and measurement principles of Accounting Policy
Board Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. No stock-based employee compensation cost is reflected in net
income, as all options granted under the plan had an exercise price equal to
the market value of the underlying common stock on the date of grant. However,
certain repriced options discussed below resulted in compensation adjustments,
which have been reflected in net income. The Company has calculated the fair
value of warrants and non-employee stock options according to the Black-Scholes
pricing model. All warrants described below were issued under an exemption to the registration
requirements of the Securities Act of 1933, as amended, pursuant to Section
4(2) thereof and Regulation D. Issuance of warrants Information with respect to common stock purchase warrants issued is
summarized as follows: WeightedAverage ExerciseWarrants
    
    PriceBalance, December 31, 2003
    
    
    17,861,874
    
    
    $
    2.54Warrants Terminated
    
    
    (16,686,236
    )
    
    
    2.66Warrants Exercised
    
    
    (373,953
    )
    
    
    1.09Warrants Exercisable at September 30, 2004
    
    
    801,685
    
    
    $
    0.80
 Additional information about outstanding warrants to purchase the
Companys common stock at September 30, 2004 is as follows: Warrants Outstanding and ExercisableWeighted Avg.
    
    WeightedRemaining
    
    AverageNumber
    
    Contractual Life
    
    Exerciseof Shares
    
    (in years)
    
    PriceRange of Exercise Prices:$0.50  0.99
    
    
    791,685
    
    
    
    0.70
    
    
    $
    0.76$2.00  4.99
    
    
    10,000
    
    
    
    1.25
    
    
    
    4.28Total
    
    
    801,685
    
    
    
    
    
    
    $
    0.80
 Stock option arrangements As of September 30, 2004, under the Companys 1998 Stock Option Plan,
there were 8,495,492 stock options granted out of a total approved pool of
8,500,000 options. 9




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Issuance of stock options During the nine months ended September 30, 2004, the Company granted
various stock options to officers, other employees and directors, as
follows: Stock options were granted to officers of the Company to purchase 450,000
shares of common stock at exercise prices ranging from $2.49 to $3.49, the
fair market values at the dates of grant. The vesting schedules for these
options range from vesting immediately to vesting ratably over four years.
These options are exercisable for five years. Stock options were granted to employees of the Company to purchase 257,800
shares of common stock at exercise prices ranging from $2.49 to $5.49, the
fair market value at the date of grant. These options vest ratably
between two and four years and are exercisable for five years. Stock options were granted to directors of the Company to purchase 110,000
shares of common stock at exercise prices ranging from $2.76 to $5.62, the
fair market value at the date of grant. These options vest ratably over
twelve months and are exercisable for ten years. Information with respect to activity under the Companys Stock Option
Plans is summarized below. Weighted AverageStock Options
    
    Exercise PriceBalance, December 31, 2003
    
    
    6,581,704
    
    
    $
    1.15Options Granted
    
    
    817,800
    
    
    
    3.43Options Exercised
    
    
    (800,751
    )
    
    
    0.75Options Cancelled
    
    
    (84,650
    )
    
    
    2.76Options Forfeited
    
    
    (115,339
    )
    
    
    0.55Balance, September 30, 2004
    
    
    6,398,764
    
    
    
    1.49Options Exercisable (Vested) at September 30, 2004
    
    
    5,231,408
    
    
    $
    1.25
 Additional information about outstanding options to purchase the Companys
common stock at September 30, 2004 is as follows: Options Outstanding
    
    Options ExercisableWeightedAverage
    
    Weighted
    
    
    
    
    
    WeightedRemaining
    
    Average
    
    
    
    
    
    AverageRange of Exercise
    
    Number of
    
    Contractual
    
    Exercise
    
    Number of
    
    ExercisePrices
    
    Shares
    
    Life (in years)
    
    Price
    
    Shares
    
    Price$0.26 - $0.99
    
    
    3,613,636
    
    
    
    5.40
    
    
    $
    0.65
    
    
    
    3,262,020
    
    
    $
    0.65$1.00 - $1.99
    
    
    277,730
    
    
    
    2.24
    
    
    
    1.29
    
    
    
    185,880
    
    
    
    1.12$2.00 - $4.99
    
    
    2,412,398
    
    
    
    6.30
    
    
    
    2.61
    
    
    
    1,761,008
    
    
    
    2.33$5.00 - $10.50
    
    
    95,000
    
    
    
    7.00
    
    
    
    5.35
    
    
    
    22,500
    
    
    
    5.62TOTAL
    
    
    6,398,764
    
    
    
    5.62
    
    
    $
    1.49
    
    
    
    5,231,408
    
    
    $
    1.25
 10




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##### Table of Contents



In 2001, the Board of Directors approved an option repricing plan whereby
each current non-executive employees stock options previously issued at a
strike price above $1.00, were repriced to the then current market price
of the common stock ($1.00). The Board of Directors believed that many of
the stock options previously granted by the Company no longer provided the
performance incentive intended by the option because the exercise price of
many of the Companys outstanding stock options was well in excess of the
market price of the common stock. Pursuant to the repricing plan, 378,774
options were repriced to $1.00. Each repriced option retained its
expiration date and vesting schedule. As of September 30, 2004, 93,075 of
the $1.00 repriced options remained vested and unexercised and 8,038 of
the $1.00 repriced options remained unvested. If compensation expense for stock options issued to officers and employees
had been determined based upon the fair value at the grant date consistent
with the methodology prescribed under SFAS No. 123, the net loss and basic
loss per share would have been as shown below. The fair value of stock
options granted under the Companys plan was estimated on the date of
grant using the Black-Scholes option pricing model using the following
weighted average assumptions for grants in the respective periods. Nine Months Ended September 30,2004
    
    2003Expected Life in Years
    
    
    4.58
    
    
    
    5.0Risk Free Interest Rate
    
    
    4.5
    %
    
    
    4.0
    %Dividend Yield
    
    
    0
    %
    
    
    0
    %Expected Volatility
    
    
    56.1
    %
    
    
    75.2
    %
 The weighted average fair value at the date of grant for stock options
granted during the nine months ended September 30, 2004 was $3.43. No
warrants were granted during the nine month period ended September 30,
2004. Nine Months Ended September 30,2004
    
    2003As Reported Net Income (Loss)
    
    $
    4,095,962
    
    
    $
    (2,848,078
    )Add: Stock-based
employee compensation
expense included in
reported income, net of related tax effects
    
    
    (60,001
    )
    
    
    114,124Less: Total stock based
employee compensation
expense determined under
fair value based methods
for all awards, net of
related tax effects
    
    
    (1,518,465
    )
    
    
    (1,285,460
    )Pro Forma Net Income (Loss)
    
    $
    2,517,496
    
    
    $
    (4,019,414
    )Net Income (Loss) per Share:As Reported, fully diluted
    
    $
    0.12
    
    
    $
    (0.11
    )Pro Forma, fully diluted
    
    $
    0.07
    
    
    $
    (0.16
    )
 11




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations. Forward looking statements The following discussion and analysis of Youbets financial condition and
results of operations should be read in conjunction with Youbets
Condensed Consolidated Financial Statements and other financial
information included herein. This Managements Discussion and Analysis of
Financial Condition and Results of Operations and other sections of this
report contain forward-looking statements that are based on the current
beliefs and expectations of management, as well as assumptions made by,
and information currently available to, management. Such statements
include those regarding general economic and e-gaming industry trends.
Such statements involve risks and uncertainties, including the timely
development and market acceptance of products and technologies, successful
integration of acquisitions, the ability to secure external sources of
financing on acceptable terms, the ability to reduce operating expense and
other factors described in our filings with the Securities and Exchange
Commission. Actual actions and strategies and the timing and expected
results may differ materially from those expressed or implied by such
forward-looking statements, and Youbets future results, performance or
achievements could differ materially from those expressed in, or implied
by, any such forward-looking statements. Future events and actual results
could differ materially from those set forth in or underlying the
forward-looking statements. Overview Youbet has established itself as a leading, global brand name for online
horse race wagering and believes that its technology and systems are
adaptable to other live event sports entertainment and wagering. Wagering
on live events, such as horse racing, car racing, soccer, football, and
other sporting events is a large global industry, which adapts well to the
Internet. Youbets current focus is on the United States horse race
wagering market through its main product, Youbet ExpressSM, which features
online wagering, simulcast, and in-depth, up-to-the-minute information on
horse racing. Youbet is working to expand the Youbet.comSM brand, its
products, and its services throughout the United States and in select
international markets. Youbet currently provides its customers the
ability to receive interactive, real-time audio/video broadcasts directly
on their computers, access a comprehensive database of handicapping
information and, in most states, wager on a wide selection of U.S. and
international horse races. Since the introduction of simulcasting in 1978 and the passage of the
Interstate Horse Wagering Act, horse wagering has migrated away from the
horse track. Handicappers prefer to place wagers at either remote sites or
by phone because it is more convenient. This trend is expected to continue
for the foreseeable future. Currently, approximately 84% of all horse
racing wagers are placed from remote locations. Off-track wagering is typically captured through intertrack simulcasts,
off-track betting (OTB) facilities, telephone-based live operator and
interactive voice recognition (IVR), and PC-based and wireless
transmissions. This shift from at-the-track to off-track wagering was
driven by racing enthusiasts desire for convenient, remote access to a
wide range of horse racing events, the ability to deliver this service
through developments in electronic systems, and the concept of advance
deposit wagering (ADW). ADW is accomplished when a customer opens an
account with a state-licensed entity and then deposits funds into that 12




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##### Table of Contents



account for future wagering. Customers may then use their funds plus any
realized winnings for on-going wagering. Customers using OTB facilities,
including our ADW service, receive the same odds as they would receive if
they were physically at the track. Similar to most forms of gaming, live event wagering is most enjoyable
when there are a wide variety of wagering options available.
Simultaneously covering the action at more than one hundred domestic and
international horse tracks, Youbet exhibits dozens of races every day.
Our customers using their personal computers and our web-based technology
have substantially more betting alternatives than is possible through any
other live event wagering venue. Our proprietary interactive system
completes the wagering process, including exotic selections, much faster
than face-to-face or phone transactions with winning outcomes instantly
credited to the customers account for future events or prompt
disbursement. As we consider expansion into gaming venues beyond horse
racing, these advanced gaming platforms and wagering products may be
leveraged into new markets. The convenience of remote wagering has encouraged new and existing
customers to become more engaged with the sport of horse racing. We
believe that our marketing activities and user-friendly products have
attracted consumers who have rarely or never wagered, but have now found
an efficient, friendly method in which to experience the thrill of
wagering. During the three and nine month periods ended September 30,
2004, our customers wagered (sometimes referred to as handle)
$83,714,438 and $238,546,041, respectively, compared to $72,532,744 and
$206,837,561 for the same periods of the prior year, each representing a
15% and 15% increase over the prior year period. Our handle growth was
primarily due to increases in new customer accounts, targeted marketing
campaigns and promotions, enhancements in Web content and functionality,
and our robust content offering. Key developments During the third quarter of 2004, Youbet released two significant product
enhancements, Race Replays and X2 Video. Race Replays allows the
customer to watch past races and X2 Video allows the customer to watch
two races at the same time. On August 30, 2004, Youbet announced that it completed an agreement to
sponsor ESPN.coms ESPNMotionTM service. Youbets financial commitment to
ESPN for the first 12-month term is $175,000. On October 4, 2004, Youbet filed a competing plan of reorganization in the
United States Bankruptcy Court for the District of Nevada seeking to
acquire all of the outstanding stock of American Wagering, Inc. (AWI) for
total consideration of $9.5 million, consisting of approximately $4.5
million of cash and $4.5 million of Youbet common stock. AWI and its
wholly-owned subsidiary, Leroys Horse and Sports Place (Leroys), are
currently operating their respective businesses under Chapter 11 of the
Bankruptcy Code. Leroys operates a network of approximately 51 sports and race wagering
facilities. AWI also owns and operates Computerized Booking Systems, Inc.
which supplies a substantial portion of the sports wagering computer
systems in use by Nevada casinos, and AWI Manufacturing, Inc., a
manufacturer, distributor and supplier of race and sports self-service
wagering kiosks. 13




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##### Table of Contents



On
November 12, 2004, the Bankruptcy Court approved
Youbets proposed disclosure statement to accompany its reorganization plan,
subject to certain additional disclosures approved at the hearing to be
submitted with the Bankruptcy Court order. As a result, the Bankruptcy Court is
scheduled to consider AWIs plan, Youbets plan, and any other competing plans
at the confirmation hearing currently scheduled for February 14, 2005. Youbets
proposed acquisition is subject to several conditions and approvals, including
approval by AWIs creditors and shareholders, the Bankruptcy Court, and the
Nevada Gaming Commission. The acquisition of AWI is also contingent upon Youbet
successfully securing a Nevada gaming license, which involves a rigorous and
potentially lengthy review process. We cannot predict the length or outcome of
the Nevada licensing process. Critical accounting estimates and policies Revenues.Youbet records commission revenues and the related track and
market access fees as operating expenses when wagers are settled,
typically the same day as the wager. Other sources of revenue are
relatively insignificant. Incentives offered to customers for them to
wager on tracks that generate the greatest margins are deducted from
revenues. Licenses and patents. Licenses and patents are stated at cost and are
amortized over their estimated economic life or agreement term,
whichever is shorter. Youbet previously recorded its TVG license rights
based on the fair value of the related warrants issued, using the
Black-Scholes option pricing model and amortized the cost over a
three-year period concluding in May 2004. While the TVG license
agreement remains in effect at least through May 2011, management
concluded that the economic life of the license was much shorter because
the estimated useful life of the licensed patented wagering technology
for online and automated telephone applications was determined to be
three years. Results of Operations for the Three Months Ended September 30, 2004, Compared
to the Three Months Ended September 30, 2003 Revenues increased 21% for the third quarter of 2004, compared to the third
quarter of 2003. Our third quarter year over year revenue growth outpaced
our third quarter year over year handle growth by 6%. Revenue increased at a
higher rate than handle, in part, because Youbet discontinued Magnas
Call-a-Bet service prior to the start of the quarter. In 2003, Youbet
reported Magnas Call-a-Bet revenue at the net commission amount which was
2.2% and as a result this lowered the total commission percentage. Youbets
commission on handle now ranges from 10% to 30%, but on average is
approximately 20%. Also contributing to the higher revenue growth rate is
the fact that Youbets customers, in aggregate, have shifted their wagering
patterns slightly towards exotics wagers, such as exactas, trifectas, and
superfectas. Exotic wagers generate higher commissions than win-place-show
wagers. Finally, prior to the third quarter of 2004, California approved a
0.5% increase in commission rates to accommodate for rising workers
compensation expenses. Our higher margin tracks (primarily the tracks that
are not subject to the TVG and Magna agreements) accounted for 71% of our
commission revenues for the quarter, an increase of 5% over the prior year
quarter. 14




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##### Table of Contents



Operating expenses TRACK FEES: Track fees increased 17% to $7,107,531 in the third quarter
of 2004, compared to $6,100,240 in the third quarter of 2003. The
increase was primarily due to an increase in handle and revenues. Track
Fees consist of amounts paid and payable to various tracks, the California
Horse Racing Board, the Oregon Racing Commission, and various totalizator
fees (the systems that process the wagers and the payouts). LICENSING FEES  TVG: Licensing fees represent amounts paid and payable as
a result of our licensing agreement with TVG. For the three months ended
September 30, 2004, these fees increased 25% to $4,320,794 compared to
$3,462,710 for the third quarter of 2003 primarily due to increased
wagering on TVG tracks. NETWORK OPERATIONS: Network operations expense increased 21% to $584,542
in the third quarter of 2004, compared to $484,002 in the third quarter of
2003. This increase was due to the increased number of data center
personnel and data center expenses. Network Operations expense consists
of costs for salaries, data center management, and telecommunications. RESEARCH AND DEVELOPMENT: Research and development expense increased 9%
to $415,352 in the third quarter of 2004, compared to $379,734 in the
third quarter of 2003. The increase was primarily due to increased
personnel, partially offset by reduced consulting fees. We will continue
to invest in the development of our network infrastructure and to support
continued technology upgrades, which could further increase our Research
and Development expenses in the future. SALES AND MARKETING: Sales and marketing expense increased 68% to
$940,271 in 2004, compared to $558,651 in the third quarter of 2003. The
increase was primarily due to increased marketing and advertising
programs. Sales and marketing expense consists of costs for salaries,
marketing and advertising, member services, account services, and business
development. GENERAL AND ADMINISTRATIVE: General and administrative expense increased
9% to $2,848,690 in the third quarter of 2004, compared to $2,616,102 in
the third quarter of 2003. The increase was primarily due to increases in
fully burdened salaries, performance related bonuses, our 401(k) matching
program, outside legal and consulting expenses, and investor relations
expenses; partially offset by decreased bad debt expense. General and
administrative expense consists primarily of salaries, benefits,
insurance, facilities expenses, legal, accounting, and investor relations. DEPRECIATION AND AMORTIZATION: Depreciation and amortization decreased
83% to $208,747 in the third quarter of 2004 compared to $1,212,958 in the
third quarter of 2003. Depreciation and amortization primarily consists
of amortization of licensing rights related to the TVG license agreement,
which was fully amortized in May 2004. INCOME TAXES: Youbets deferred tax asset of approximately $24,661,000
was previously not recognized since management was unable to determine
that the asset was more likely than not to be realized. During 2004,
management determined that $4,000,000 of the deferred tax asset should be
recognized. Youbets growth plans potentially may include industry
consolidation, acquisitions, international expansion, a Nevada gaming
license, and 15




---



##### Table of Contents



expanding into other gaming businesses. Although management anticipates
that all potential transactions will be accretive to earnings, management
is aware of the risks involved with such an aggressive growth strategy.
Therefore, based on the current level of uncertainty, combined with our
cautious optimism, management believes that $4,000,000 of the deferred tax
asset being recognized now is supportable with objective evidence. The current change in the tax asset valuation allowance created an income
tax benefit of $4,000,000 which was partially offset by $750,000 of
current period income tax expense. $310,000 of the current period income
tax expense is attributable to the third quarter and $440,000 is
attributable to the six months ended June 30, 2004. This change increased
our net income by $3,250,000 for the three months ended September 30,
2004. Results of Operations for the Nine Months Ended September 30, 2004 Compared to
the Nine Months Ended September 30, 2003 Revenues increased 23% for the nine months ended September 30, 2004, compared
to the same period last year. Our year over year revenue growth for the nine
month period ended September 30, 2004 outpaced our year over year handle growth
for the same period by 8%. For the nine months ended September 30, 2004,
revenue increased at a higher rate than handle, in part, because Youbet
discontinued Magnas Call-a-Bet service during 2004. In 2003, Youbet reported
Magnas Call-a-Bet revenue at the net commission amount which was 2.2% and as a
result this lowered the total commission percentage. Youbets commission on
handle now ranges from 10% to 30%, but on average it is approximately 20%.
Also contributing to the higher revenue growth rate is the fact that Youbets
customers, in aggregate, have shifted their wagering patterns slightly towards
exotics wagers, such as exactas, trifectas, and superfectas. Exotic wagers
generate higher commissions than win-place-show wagers. Finally, during 2004,
California approved a 0.5% increase in commission rates to accommodate for
rising workers compensation expenses. Our higher margin tracks (primarily the
tracks that are not subject to the TVG and Magna agreements) accounted for 74%
of our commission revenues for the nine months ended September 30, 2004, and
increase of 6% over the prior year same period. Operating expenses TRACK FEES: Track fees increased 15% to $21,063,234 in the nine months
ended September 30, 2004, compared to $18,250,282 for the nine months
ended September 30, 2003. The increase was primarily due to an increase
in handle and revenues. Track Fees consist of amounts paid and payable to
various tracks, the California Horse Racing Board, the Oregon Racing
Commission, and various totalizator fees (the systems that process the
wagers and the payouts). LICENSING FEES  TVG: Licensing fees represent amounts paid and payable
as a result of our licensing agreement with TVG. For the nine months
ended September 30, 2004, these fees increased 33% to $10,145,866 compared
to $7,650,562 for the nine months ended September 30, 2003 primarily due
to increased wagering on TVG tracks. NETWORK OPERATIONS: Network operations expense increased 27% to
$1,644,367 in the nine months ended September 30, 2004, compared to
$1,300,205 for the nine months ended September 30, 2003. This increase
was due to the increased number of data center personnel and data center
expenses. Network operations expense consists of costs for salaries, data
center management, and telecommunications. 16




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##### Table of Contents



RESEARCH AND DEVELOPMENT: Research and development expense increased 5%
to $1,271,554 in the nine months ended September 30, 2004, compared to
$1,207,214 for the nine months ended September 30, 2003. The increase was
primarily due to increased personnel costs, partially offset by reduced
consulting fees. SALES AND MARKETING: Sales and marketing expense increased 52% to
$2,578,383 in the nine months ended September 30, 2004, compared to
$1,695,812 for the nine months ended September 30, 2003. The increase was
primarily due to increased marketing and advertising programs. Sales and
marketing expense consists of costs for salaries, marketing and
advertising, member services, account services, and business development. GENERAL AND ADMINISTRATIVE: General and administrative expense increased
19% to $8,552,394 in the nine months ended September 30, 2004, compared to
$7,213,934 for the nine months ended September 30, 2003. The increase was
primarily due to increases in fully burdened salaries, performance related
bonuses, our 401(k) matching program, outside legal, and investor
relations expenses; partially offset by decreased bad debt expense.
General and administrative expense consists primarily of salaries,
benefits, insurance, facilities expenses, legal, accounting, and investor
relations. DEPRECIATION AND AMORTIZATION: Depreciation and amortization decreased
50% to $2,048,496 in the nine months ended September 30, 2004 compared to
$4,096,600 for the nine months ended September 30, 2003. Depreciation and
amortization primarily consists of amortization of licensing rights
related to the TVG license agreement which was fully amortized in May
2004. INCOME TAXES: Youbets deferred tax asset of approximately $24,661,000
was previously not recognized since management was unable to determine
that the asset was more likely than not to be realized. During 2004,
management determined that $4,000,000 of the deferred tax asset should be
recognized. Youbets growth plans potentially may include industry
consolidation, acquisitions, international expansion, a Nevada gaming
license, and expanding into other gaming businesses. Although management
anticipates that all potential transactions will be accretive to earnings,
management is aware of the risks involved with such an aggressive growth
strategy. Therefore, based on the current level of uncertainty combined
with our cautious optimism, management believes that $4,000,000 of the
deferred tax asset being recognized now is supportable with objective
evidence. The current change in the tax asset valuation allowance created an income
tax benefit of $4,000,000 which was partially offset by $750,000 of
current period income tax expense. $310,000 of the current period income
tax expense is attributable to the third quarter and $440,000 is
attributable to the six months ended June 30, 2004. This change increased
our net income by $3,250,000 for the nine months ended September 30, 2004. 17




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##### Table of Contents



Liquidity and capital resources During the first nine months of 2004, we funded our operations primarily
through working capital, in addition to proceeds received from the exercise
of stock option and warrants. As of September 30, 2004, we had net working
capital of $9,880,393 (including the deferred tax asset of $3,250,000),
compared to $2,371,978 at December 31, 2003. As of September 30, 2004, we
had $11,744,905 in cash and cash equivalents, $3,572,251 in restricted cash,
and no debt from borrowed funds. Our principal cash requirements consist of
payroll and benefits, business insurance, real estate leases, data center
operations, and telecommunications. Management believes that its on-going
efforts to reduce costs and operate more efficiently, combined with the
growth in handle, has improved cash flow to a level needed to support future
operations. We expect that our cash flow from operations and our cash and
cash equivalents will be sufficient to fund our working capital and capital
expenditure requirements for at least the next 12 months. However, we may
from time to time seek additional capital to fund our operations, reduce our
liabilities, and fund our expansion plans consistent with our anticipated
changes in operations and infrastructure. To raise capital, we may seek to
sell additional equity securities, issue debt or convertible securities or
seek to obtain credit facilities through financial institutions. The sale of
additional equity or convertible securities would result in additional
dilution to our stockholders. Net cash provided by operating activities was $2,669,495 for the nine months
ended September 30, 2004, compared to $481,293 for the nine months ended
September 30, 2003. The year-over-year increase of $2,188,202 was primarily
due to net income of $4,095,962 reported in the first nine months of 2004,
representing an increase of $6,944,040 from a net loss of $2,848,078 reported
for the same period in 2003; partially offset by a decrease of $3,250,000 in
deferred tax asset valuation allowance net of $750,000 applied to the current
period pre-tax income and a decrease of $2,048,105 in the depreciation and
amortization. Net cash used in investing activities for the nine months ended September 30,
2004 was $206,739, compared to $68,824 in the same period of 2003. The
year-over-year decrease of $137,915 relates primarily to changes in long term
restricted cash, which decreased $260,645 in the current period, representing
a variance of $81,471 from the prior year period, and changes in licensing
rights and other intangibles, which increased $41,809 in the current
nine-month period, representing a variance of $41,809 from the prior year
period. Net cash provided by financing activities was $1,008,224 and $3,839,438 for
the nine months ended September 30, 2004 and 2003, respectively. The
year-over-year decrease of $2,831,214 was primarily due to a decrease of
$1,581,214 in proceeds from exercise of stock options and warrants, which
increased $1,008,224 for the nine months ended September 30, 2004, compared
to an increase of $2,589,438 from the same nine month period in 2003. Youbet settled a dispute with its then largest stockholder, TVG, in February
2004. This settlement required that Youbet reimburse TVG for the legal
expenses incurred during the dispute up to $725,000. Youbet issued 124,144
shares of common stock as partial satisfaction of this obligation in February
2004, and on July 2, 2004, Youbet paid TVG $362,500 to satisfy its remaining
legal expense reimbursement obligation. We have filed an insurance claim to
recover these amounts. TVG held a warrant to acquire 51% of Youbets common stock. In connection
with the February 2004 settlement, on March 31, 2004, TVG surrendered this
warrant to Youbet in exchange for one million shares of Youbet common stock.
Pursuant to its registration rights 18




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##### Table of Contents



under the warrant issuance agreement, on March 31, 2004, TVG requested that
Youbet file a registration statement covering all shares of common stock held
by TVG. On June 10, 2004, Youbet filed a shelf-registration statement for
the resale of TVGs common stock. On September 9, 2004, TVG sold all of its
5,008,794 shares of the Youbet common stock. During the first nine months of 2004, Youbet entered into a capital lease
arrangement totaling $305,487, and $119,934 will become due under this
capital lease within the next 12 months. During the first nine months of 2004, Youbet entered into employment
agreements with Gary Sproule, our Chief Operating Officer, and Chuck
Bearchell, our Chief Financial Officer, which expire on January 1, 2006 and
March 26, 2006, respectively. Also, Youbet entered into a separation
agreement and release of claims with Michael Veitch, our Chief Marketing
Officer, whose employment with Youbet will continue through December 31,
2004. As of September 30, 2004, the total contracted obligations with
officers (inclusive of, but not limited to Mr. Sproule and Mr. Bearchell)
under employment agreements amounted to $2,349,340. 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk. Our exposure to market risk and related changes in interest rates relates
primarily to our investment portfolio. As of September 30, 2004, our
portfolio of investments included $11,744,905 in cash and cash equivalents
and $3,572,251 of restricted cash. Due to the conservative nature of our
investment portfolio, we believe that a sudden 10% change in interest rates
would not have a material effect on the value of the portfolio since the
average yield on our investments is approximately 1% at September 30, 2004.
The impact on our future interest income will depend largely on the gross
amount of our investment portfolio. We do not expect our operating results
or cash flows to be affected to any significant degree by a sudden change in
market interest rates. 
 Item 4. Controls and Procedures As of September 30, 2004, our management, including our Chief Executive
Officer and our Chief Financial Officer, evaluated the effectiveness of the
design and operation of our disclosure controls and procedures (as defined in
Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as
amended). Based on that evaluation, our management, including the Chief
Executive Officer and our Chief Financial Officer, concluded that our
disclosure controls and procedures are: effective to ensure that information
required to be disclosed by Youbet in the reports filed or submitted by it
under the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time periods specified in the
SECs rules and forms, and include controls and procedures designed to ensure
that information required to be disclosed by Youbet in such reports is
accumulated and communicated to the companys management, including the Chief
Executive Officer and Chief Financial Officer, to allow timely decisions
regarding required disclosure. There have been no changes in our internal control over financial reporting
that occurred during the quarter ended September 30, 2004, that have
materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting. 19




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##### Table of Contents



Part II. Other Information 
 Item 1. Legal Proceedings None 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds None. 
 Item 3. Defaults Upon Senior Securities None. 
 Item 4. Submission of Matters to a Vote of Security Holders Youbet held its Annual Meeting of Stockholders on August 24, 2004. One
matter was voted on at this meeting: Youbets stockholders elected seven
directors to hold office until the 2005 Annual Meeting of Stockholders or
until their successors are duly elected and qualified. The following table sets forth the nominees for director and the votes for
and the votes withheld with respect to each such nominee: Nominee:
    
    Votes For
    
    Votes WithheldCharles F. Champion
    
    
    17,449,975
    
    
    
    43,954David M. Marshall
    
    
    15,963,381
    
    
    
    1,530,548Gary Adelson
    
    
    15,957,191
    
    
    
    1,536,738Guy Chipparoni
    
    
    17,453,075
    
    
    
    40,854James Edgar
    
    
    15,971,519
    
    
    
    1,522,410Joseph Barletta
    
    
    17,451,335
    
    
    
    42,594Robert E. Brierley
    
    
    17,452,035
    
    
    
    41,894
 
 Item 5. Other Information Following the Annual Meeting of Stockholders on August 24, 2004, Youbets
Board of Directors appointed Joseph Barletta, Guy Chipparoni and Robert
Brierley as the members of the Audit Committee and appointed Mr. Brierley as
the Chairman of the Audit Committee. The Board of Directors has determined
that each of Messrs. Barletta, Chipparoni and Brierley is independent under
the applicable rules of the Securities and Exchange Commission and the NASD
such that he may sit on the Audit Committee. In addition, the Board of
Directors has determined that Mr. Brierley qualifies as an audit committee
financial expert, as defined by the Securities and Exchange Commissions
rules. For more information about Messrs. Barletta, Chipparoni and Brierley,
see Youbets proxy statement for its 2004 Annual Meeting of Stockholders
filed with the Securities and Exchange Commission on August 3, 2004. 20




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##### Table of Contents



Item 6. Exhibits (a) Exhibits Exhibit 3.1
    
    Certificate of Incorporation of Youbet.com, as amended
through November 12, 2001 (incorporated by reference to Exhibit 3.1
to the Form 10-Q of Youbet.com. Inc. for the quarter ended September
30, 2003).Exhibit 3.2
    
    Amended and Restated Bylaws of Youbet.com (incorporated by
reference to Exhibit 3.1 to the Form 8-K of Youbet.com, Inc. filed
February 23, 2004).Exhibit 31.1
    
    Certification of Chief Executive Officer Pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934Exhibit 31.2
    
    Certification of Chief Financial Officer Pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934Exhibit 32.1
    
    Certification Pursuant to Rule 13a-14(b) of the Securities
Exchange Act of 1934
 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized. YOUBET.COM, INC. November 15, 2004
    By:
    /s/      Charles F. ChampionCharles F. ChampionPresident and Chief Executive Officer November 15, 2004
    By:
    /s/      Charles R. BearchellCharles R. BearchellChief Financial Officer 21