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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

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FORM 10-Q

(Mark One)

|/x/ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | ---------------------------------------------------------------------------------------

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001

OR

|/ / | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | ----------------------------------------------------------------------------------------

FOR THE TRANSITION PERIOD FROM  TO

COMMISSION FILE NUMBER: 33-13789LA

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YOUBET.COM(Exact name of registrant as specified in its charter)

DELAWARE(State or other jurisdiction
of incorporation or organization)

95-4627253(I.R.S. Employer
Identification Number)5901 De Soto Avenue, Woodland Hills, California 91367(Address of principal executive offices, including zip code)


(818) 668-2100(Issuer's telephone number, including area code)

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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
 Yes /x/  No / /

As
of November 12, 2001, the issuer had 19,537,950 shares of common stock issued and outstanding.

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YOUBET.COM, INC.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED
SEPTEMBER 30, 2001

|           |  |                                                                                                                            |  | Page
|---------- |  | -------------------------------------------------------------------------------------------------------------------------- |  | ----
|PART I.    |  | FINANCIAL INFORMATION                                                                                                      |  |     
|Item 1.    |  | Financial Statements                                                                                                       |  |     
|           |  | Consolidated Balance Sheets as of September 30, 2001 and December 31, 2000                                                 |  | 3   
|           |  | Consolidated Statements of Operations for the three months and nine months ended September 30, 2001 and September 30, 2000 |  | 4   
|           |  | Consolidated Statements of Cash Flows for the nine months ended September 30, 2001 and September 30, 2000                  |  | 6   
|           |  | Summary of Accounting Policies                                                                                             |  | 7   
|           |  | Notes to Unaudited Consolidated Financial Statements                                                                       |  | 8   
|Item 2.    |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                                      |  | 11  
|Item 3.    |  | Quantitative and Qualitative Disclosures About Market Risk                                                                 |  | 16  
|PART II.   |  | OTHER INFORMATION                                                                                                          |  |     
|Item 1.    |  | Legal Proceedings                                                                                                          |  | 17  
|Item 2.    |  | Changes in Securities                                                                                                      |  | 17  
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                                                        |  | 17  
|Item 5.    |  | Other Information                                                                                                          |  | 18  
|Item 6.    |  | Exhibits and Reports on Form 8-K                                                                                           |  | 18  
|Signatures |  | 19                                                                                                                        

2

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Part I. Financial Information

Item 1. Financial Statements

YOUBET.COM, INC.
CONSOLIDATED BALANCE SHEETS

|                                                                                                                                                                      |                                            | September 30, 2001 |             | December 31, 2000 |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------------------ | ----------- | ----------------- | -
|
|ASSETS                                                                                                                                                                |                                            |                    |             |                   |  
|Current assets:                                                                                                                                                       |                                            |                    |             |                   |  
|Cash and cash equivalents                                                                                                                                             |                                            | $                  | 4,993,839   |                   | $
|Restricted cash (Note 1)                                                                                                                                              |                                            |                    | 107,867     |                   |  
|Receivables                                                                                                                                                           |                                            |                    | 432,015     |                   |  
|Interest and other receivables                                                                                                                                        |                                            |                    | 70,251      |                   |  
|Prepaid expenses                                                                                                                                                      |                                            |                    | 341,947     |                   |  
|                                                                                                                                                                      |                                            |                    |             |                   |  
|                                                                                                                                                                      | Total current assets                       |                    |             | 5,945,919         |  
|                                                                                                                                                                      |                                            |                    |             |                   |  
|Property and equipment                                                                                                                                                |                                            |                    | 9,810,796   |                   |  
|Less: Accumulated depreciation and amortization                                                                                                                       |                                            |                    | (3,475,143  | )                 |  
|                                                                                                                                                                      |                                            |                    |             |                   |  
|                                                                                                                                                                      | Property and equipment, net                |                    |             | 6,335,653         |  
|                                                                                                                                                                      |                                            |                    |             |                   |  
|Capitalized software (Note 2)                                                                                                                                         |                                            |                    | 2,542,506   |                   |  
|Licensing rights, net (Note 6)                                                                                                                                        |                                            |                    | 9,542,058   |                   |  
|Restricted cash (Note 1)                                                                                                                                              |                                            |                    | 812,938     |                   |  
|Deposits and other                                                                                                                                                    |                                            |                    | 116,221     |                   |  
|                                                                                                                                                                      |                                            |                    |             |                   |  
|                                                                                                                                                                      | Total assets                               |                    | $           | 25,295,295        |  
|                                                                                                                                                                      |                                            |                    |             |                   |  
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                                                  |                                            |                    |             |                   |  
|Current liabilities:                                                                                                                                                  |                                            |                    |             |                   |  
|Accounts payable                                                                                                                                                      |                                            | $                  | 1,317,211   |                   | $
|Accrued expenses                                                                                                                                                      |                                            |                    | 1,647,888   |                   |  
|Customer deposits                                                                                                                                                     |                                            |                    | 107,191     |                   |  
|Accrued compensation and related items                                                                                                                                |                                            |                    | 230,426     |                   |  
|Track related liabilities                                                                                                                                             |                                            |                    | 13,076      |                   |  
|Deferred revenues                                                                                                                                                     |                                            |                    | 8,864       |                   |  
|Current portion of capitalized lease obligation                                                                                                                       |                                            |                    |            |                   |  
|                                                                                                                                                                      |                                            |                    |             |                   |  
|                                                                                                                                                                      | Total current liabilities                  |                    |             | 3,324,656         |  
|                                                                                                                                                                      |                                            |                    |             |                   |  
|                                                                                                                                                                      | Total liabilities                          |                    |             | 3,324,656         |  
|Commitments and contingencies (Notes 1,4, and 6)                                                                                                                      |                                            |                    |             |                   |  
|Stockholders' equity:                                                                                                                                                 |                                            |                    |             |                   |  
|Preferred stock, $.001 par value (aggregate liquidation preference of $0)Authorized 1,000,000 shares, none outstanding                                               |                                            |                    |            |                   |  
|Common stock, $.001 par valueAuthorized 100,000,000 shares, 19,520,850 and 19,537,950 shares outstanding as of December 31, 2000 and September 30, 2001 respectively |                                            |                    | 19,537      |                   |  
|Additional paid-in capital                                                                                                                                            |                                            |                    | 95,471,870  |                   |  
|Accumulated deficit                                                                                                                                                   |                                            |                    | (73,380,768 | )                 |  
|Note receivable from stockholder                                                                                                                                      |                                            |                    | (140,000    | )                 |  
|                                                                                                                                                                      |                                            |                    |             |                   |  
|                                                                                                                                                                      | Total stockholders' equity                 |                    |             | 21,970,639        |  
|                                                                                                                                                                      |                                            |                    |             |                   |  
|                                                                                                                                                                      | Total liabilities and stockholders' equity |                    | $           | 25,295,295        |  
|                                                                                                                                                                      |                                            |                    |             |                   |  

See
accompanying notes to unaudited consolidated financial statements.

3

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YOUBET.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

|                        |                                                   | Three Months Ended September 30,                     |           
|----------------------- | ------------------------------------------------- | ---------------------------------------------------- | ----------
|
|Revenues                |                                                   | $                                                    | 1,129,925 
|Operating expenses      |                                                   |                                                      |           
|                        | Network operations                                |                                                      |           
|                        | Research and development                          |                                                      |           
|                        | Sales and marketing                               |                                                      |           
|                        | General and administrative                        |                                                      |           
|                        | Depreciation and amortization                     |                                                      |           
|                        |                                                   |                                                      |           
|                        |                                                   | Total operating expenses                             |           
|                        |                                                   |                                                      |           
|Loss from operations    |                                                   |                                                      | (3,781,452
|Other income (expense): |                                                   |                                                      |           
|                        | Interest income                                   |                                                      |           
|                        | Interest expense                                  |                                                      |           
|                        | Amortization of deferred financing costs          |                                                      |           
|                        | Fair value of warrants issued for financing costs |                                                      |           
|                        | Other                                             |                                                      |           
|                        |                                                   |                                                      |           
|                        |                                                   | Total other income (expense)                         |           
|                        |                                                   |                                                      |           
|Net loss                |                                                   | $                                                    | (3,728,229
|                        |                                                   |                                                      |           
|Basic and diluted:      |                                                   |                                                      |           
|                        |                                                   | Net loss per common share                            |           
|                        |                                                   |                                                      |           
|                        |                                                   | Weighted average number of common shares outstanding |           
|                        |                                                   |                                                      |           

See
accompanying notes to unaudited consolidated financial statements.

4

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YOUBET.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

|                               |                                                   | Nine Months Ended
September 30,                      |           
|------------------------------ | ------------------------------------------------- | ---------------------------------------------------- | ----------
|
|Revenues                       |                                                   | $                                                    | 4,494,851 
|Operating expenses             |                                                   |                                                      |           
|                               | Network operations                                |                                                      |           
|                               | Research and development                          |                                                      |           
|                               | Sales and marketing                               |                                                      |           
|                               | General and administrative                        |                                                      |           
|                               | Depreciation and amortization                     |                                                      |           
|                               |                                                   |                                                      |           
|                               |                                                   | Total operating expenses                             |           
|                               |                                                   |                                                      |           
|Loss from operations           |                                                   |                                                      | (9,648,727
|Other income (expense):        |                                                   |                                                      |           
|                               | Interest income                                   |                                                      |           
|                               | Interest expense                                  |                                                      |           
|                               | Amortization of deferred financing costs          |                                                      |           
|                               | Fair value of warrants issued for financing costs |                                                      |           
|                               | Other                                             |                                                      |           
|                               |                                                   |                                                      |           
|                               |                                                   | Total other income (expense)                         |           
|                               |                                                   |                                                      |           
|Loss before extraordinary item |                                                   |                                                      | (9,327,158
|                               | Extraordinary item (Note 5)                       |                                                      |           
|                               |                                                   |                                                      |           
|Net loss                       |                                                   | $                                                    | (9,327,158
|                               |                                                   |                                                      |           
|Basic and diluted:             |                                                   |                                                      |           
|                               |                                                   | Loss before extraordinary item per common share      |           
|                               |                                                   | Extraordinary item (Note 5)                          |           
|                               |                                                   |                                                      |           
|                               |                                                   | Net loss per common share                            |           
|                               |                                                   |                                                      |           
|                               |                                                   | Weighted average number of common shares outstanding |           
|                               |                                                   |                                                      |           

See
accompanying notes to unaudited consolidated financial statements.

5

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YOUBET.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

|                                                                            |                                                                                   | Nine Months Ended
September 30,                     |           
|--------------------------------------------------------------------------- | --------------------------------------------------------------------------------- | --------------------------------------------------- | ----------
|
|Increase (Decrease) in Cash and Cash Equivalents                            |                                                                                   |                                                     |           
|Cash flows from operating activities:                                       |                                                                                   |                                                     |           
|                                                                            | Net loss                                                                          |                                                     | $         
|Adjustments to reconcile net loss to net cash used in operating activities: |                                                                                   |                                                     |           
|                                                                            | Depreciation and amortization                                                     |                                                     |           
|                                                                            | Amortization of deferred financing costs                                          |                                                     |           
|                                                                            | Extraordinary gain on repurchase of convertible notes                             |                                                     |           
|                                                                            | Write-off of deferred financing costs relating to repurchase of convertible notes |                                                     |           
|                                                                            | Interest accreted on note payable                                                 |                                                     |           
|                                                                            | Non-cash compensation                                                             |                                                     |           
|                                                                            | Fair value of warrants issued for financing costs                                 |                                                     |           
|                                                                            | Settlement with vendors                                                           |                                                     |           
|                                                                            | Loss on disposal of assets                                                        |                                                     |           
|Change in operating assets and liabilities:                                 |                                                                                   |                                                     |           
|                                                                            | Receivables                                                                       |                                                     |           
|                                                                            | Prepaid expenses                                                                  |                                                     |           
|                                                                            | Other current assets                                                              |                                                     |           
|                                                                            | Deposits and other                                                                |                                                     |           
|                                                                            | Accounts payable                                                                  |                                                     |           
|                                                                            | Customer deposits                                                                 |                                                     |           
|                                                                            | Accrued compensation and related items                                            |                                                     |           
|                                                                            | Other accrued expenses                                                            |                                                     |           
|                                                                            | Deferred revenues                                                                 |                                                     |           
|                                                                            |                                                                                   |                                                     |           
|                                                                            |                                                                                   | Net cash used in operating activities               |           
|                                                                            |                                                                                   |                                                     |           
|Cash flows from investing activities:                                       |                                                                                   |                                                     |           
|                                                                            | Restricted cash                                                                   |                                                     |           
|                                                                            | Expenditures on capitalized software                                              |                                                     |           
|                                                                            | Purchases of property and equipment                                               |                                                     |           
|                                                                            |                                                                                   |                                                     |           
|                                                                            |                                                                                   | Net cash used in investing activities               |           
|                                                                            |                                                                                   |                                                     |           
|Cash flows from financing activities:                                       |                                                                                   |                                                     |           
|                                                                            | Repurchase of convertible note                                                    |                                                     |           
|                                                                            | Proceeds from exercise of stock options and warrants                              |                                                     |           
|                                                                            | Increase in deferred financing costs                                              |                                                     |           
|                                                                            | Payments on capitalized lease obligations                                         |                                                     |           
|                                                                            |                                                                                   |                                                     |           
|                                                                            |                                                                                   | Net cash provided by (used in) financing activities |           
|                                                                            |                                                                                   |                                                     |           
|Net decrease in cash and cash equivalents                                   |                                                                                   |                                                     | (7,100,333
|Cash and cash equivalents at the beginning of the period                    |                                                                                   |                                                     | 12,094,172
|                                                                            |                                                                                   |                                                     |           
|Cash and cash equivalents at the end of the period                          |                                                                                   | $                                                   | 4,993,839 
|                                                                            |                                                                                   |                                                     |           
|Supplemental disclosure of cash flow information                            |                                                                                   |                                                     |           
|                                                                            | Cash paid for interest                                                            |                                                     | $         
|                                                                            |                                                                                   |                                                     |           
|                                                                            | Non-cash investing and financing activities:                                      |                                                     |           
|                                                                            | Issuance of warrants for licensing rights                                         |                                                     | $         
|                                                                            |                                                                                   |                                                     |           

See accompanying notes to unaudited consolidated financial statements.

6

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YOUBET.COM, INC.
SUMMARY OF ACCOUNTING POLICIES
NINE MONTHS ENDED SEPTEMBER 30, 2001

Organization and Basis of Presentation

Business

Youbet.com, Inc. (the "Company") is a Delaware corporation. The Company is engaged in developing PC-based proprietary communications
software technology to be utilized by consumers for online live event wagering. The Company intends to establish itself as the leading global brand name for legal online live-event sports
entertainment wagering and other forms of legal online gaming. The Company has initially focused its efforts primarily on the United States horse racing market, and its principal product, the You Bet
Network, a PC-based system which allows a subscriber to transmit information and thereby facilitate wagers.

During
the quarter ended June 30, 2001, the Company received a multi-jurisdictional license from the State of Oregon horse racing authorities for the acceptance and placement
of wagers. The acceptance and placement of wagers will be processed through Youbet Oregon, Inc., a wholly owned subsidiary of the Company. The Company commenced operations in Oregon during the
third quarter of 2001. All of Youbet Oregon, Inc.'s operations are presented on consolidated basis. All intercompany transactions have been eliminated.

Basis of Presentation

In the opinion of management, the accompanying unaudited financial statements for the three and nine months ended September 30, 2001 and 2000 include
all adjustments (consisting of normal recurring accruals) which management considers necessary to present fairly the financial position of the Company as of September 30, 2001, the results of
its operations for the three and nine months ended
September 30, 2001 and September 30, 2000, and its cash flows for the nine months ended September 30, 2001 and September 30, 2000 in conformity with generally accepted
accounting principles ("GAAP"). These financial statements have been prepared consistently with the accounting policies described in the Company's Annual Report on Form 10-K for the
year ended December 31, 2000, as filed with the Securities and Exchange Commission on April 2, 2001 and should be read in conjunction with this Quarterly Report on
Form 10-Q. The results of operations for the three and nine months ended September 30, 2001 are not necessarily indicative of the consolidated results of operations to be
expected for the full fiscal year ending December 31, 2001.

Certain
information and footnote disclosures normally included in the financial statements presented in accordance with GAAP have been condensed or omitted. The accompanying unaudited
financial statements should be read in conjunction with the Company's audited financial statements and notes thereto in the Company's Annual Report on Form 10-K for the year ended
December 31, 2000.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.

Basic and Diluted Earnings (Loss) Per Share

Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period.
Diluted income (loss) per share is calculated by dividing net loss by the basic shares outstanding and all dilutive securities, including stock options,

7

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warrants, convertible notes and preferred stock, but does not include the impact of potential common shares that would be anti-dilutive. These dilutive securities were
anti-dilutive in 2001 and 2000.

Concentration of Credit Risk

The Company maintains cash balances at various financial institutions. Deposits not to exceed $100,000 for each institution are insured by the Federal Deposit
Insurance Corporation. At September 30, 2001, the Company had uninsured cash and cash equivalents and restricted cash in the amount of $5,447,707.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation.

Notes to Unaudited Consolidated Financial Statements:

Note 1Description of Property

Youbet.com's offices occupy approximately 30,000 square feet and are located at 5901 De Soto Avenue, Woodland Hills, California under a lease that expires
March 15, 2010. The base term of the lease is ten years with an option to extend an additional five years. Base rent payments are $60,078 per month with annual increases as specified in the
lease agreement. In conjunction with this lease agreement, the Company originally obtained a one-year $1,029,000 letter of credit, which is secured by cash. The Company is obligated for
the next ten years (from the initial date of the lease) to obtain a letter of credit equal to the original amount of $1,029,000 less $107,867 per year for every year elapsed during the first five
years and less $97,867 per year for every year elapsed thereafter. As of September 30, 2001, Youbet.com had obtained a letter of credit in the amount of $920,805, which is classified as
restricted cash in the Company's accompanying unaudited financial statements.

On
July 1, 2001 the Company entered into a lease agreement for its Oregon facility. The base term of the lease is three years. Base rent payments are $2,103 per month with
annual increases as specified in the lease agreement.

Note 2Capitalized Software

As of September 30, 2001, the Company incurred approximately $2,543,000 in costs relating to the development of a new sports platform. Management
reviews unamortized capitalized software on a quarterly basis and writes-off amounts capitalized when management believes the related assets have been impaired. Amortization will be
recognized when the product is available for general release to the public.

Note 3Stockholders' Equity

Issuance of Stock Options

During the nine months ended September 30, 2001, the Company granted various stock options, as follows:



8

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Issuance of warrants

During the nine months ended September 30, 2001, in connection with the TVG transaction, the Company issued two warrants to TVG to purchase up to 51% of
the outstanding common stock. See Note-6 to the accompanying notes to the unaudited consolidated financial statements.

Note 4Legal Proceedings

On June 4, 1999, a complaint was filed against the Company in the Court of Chancery of the State of Delaware in and for New Castle County entitled
George Von Opel v. Youbet.com Inc. (C.A. No. 17200 NC). In the complaint Mr. Von Opel alleges that the Company breached its contractual obligation pursuant to a Private Placement
Memorandum by failing to register the shares of common stock underlying 400,000 warrants issued by the Company to an affiliate of Mr. Von Opel. The complaint seeks specific performance of the
alleged obligation to register such shares and damages for alleged breach of contract in the amount of $8.7 million. The Company has answered the complaint and intends to defend itself
vigorously in the action. On August 19, 1999, Mr. Von Opel moved for summary judgment on the issue of liability, which on June 2, 2000, the court denied. The Company is proceeding
with discovery and has noticed the deposition of Mr. Von Opel. As the litigation is at an initial stage, an outcome cannot be predicted at this time.

Note 5Notes Payable

During the nine months ended September 30, 2000, Youbet.com repurchased $22,950,000 of its 11% Senior Convertible Discount Notes ("Notes") for
$12,878,975 which represented a discount to the accreted value of the notes at the date of purchase, therefore, a gain was realized on the difference between the amount paid and the accreted value of
the notes on the date of repurchase. The amount of the gain, net of the proportionate write-off of unamortized financing costs of $677,000, was approximately $7,288,000.

Note 6Agreement with TVG

In May 2001, Youbet.com entered into a warrant issuance agreement (the "Warrant Agreement") and a track content and patent license agreement (the
"License Agreement") with ODS Technologies, L.P., a subsidiary of Gemstar-TV Guide International, doing business as TVG ("TVG"). These agreements relate to the grant by TVG to Youbet.com
of a non-exclusive license to use TVG's patented systems for making pari-mutuel wagers on horse races online and using telephones and certain simulcast audio, video and data
content for the purpose of streaming such content online and the agreement of race tracks to accept wagers based on such content. Among other things, the agreements call for Youbet.com, to issue to
TVG two warrants to purchase up to 51% of our outstanding common stock.
The issuance of the second of these two warrants (the "Additional TVG Warrant") was subject to stockholder's approval, which was obtained on September 20, 2001.

9

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The License Agreement remains in effect until the later of (i) May 18, 2011, (ii) the date of expiration of the last to expire of the TVG patents licensed to
Youbet.com under the agreement, or (iii) the date on which the last of TVG's agreements with the TVG Exclusive Tracks expires (unless extended, TVG's agreements with the TVG Exclusive Tracks
expire before May 18, 2011). The License Agreement may be terminated before the expiration of its term (a) by TVG, if Youbet.com ceases to operate its Oregon account wagering hub or
another account wagering facility approved by TVG at any time thereafter during the term; (b) by TVG, in the event that Youbet.com brings any legal action against TVG or any of TVG's
affiliates, including Gemstar-TV Guide International, unless it is finally determined in such action that TVG (or its affiliate) acted in bad faith with respect to any claim that is the
subject of the legal action; and (c) by either Youbet.com or TVG, in the event that the other party materially breaches the License Agreement without cure upon notice.

The
Company issued TVG an initial warrant (the "Initial TVG Warrant"), on May 18, 2001 (the time the Warrant Agreement was executed) entitling TVG to purchase an aggregate of
up to 3,884,650 shares of Youbet.com common stock (the "Initial Warrant Shares") at an exercise price of $0.001 per share exercisable for a period of three years. The Company recorded the fair value
of the Initial TVG Warrant ($2,910,000), using the Black-Scholes method, as a deferred asset captioned "Licensing Rights" and is being amortized over three years.

The
Company issued TVG the additional warrant on September 20, 2001 (the time the Warrant Agreement was approved by the stockholders) entitling TVG to purchase for an aggregate
exercise price of $41,082,422 (subject to adjustment as provided in the Additional TVG Warrant) a number of shares of common stock which, when aggregated with the Initial Warrant Shares, is equal to
51% of the sum of (i) the total number of shares of Youbet.com common stock outstanding on the date the Additional TVG Warrant is exercised, plus (ii) the total number of shares of
common stock issuable upon exercise of the Additional TVG Warrant, plus (iii) the total number of Initial Warrant Shares then issuable upon exercise of the Initial TVG Warrant. The Company
recorded the fair value of the Additional TVG Warrant ($7,054,000), using the Black-Scholes method, as a deferred asset captioned "Licensing Rights" and is being amortized over three years.

In
consideration of the rights granted to Youbet.com under the License Agreement, Youbet.com has agreed to pay to TVG fees based on the handle generated by Youbet.com from wagering
activity and to issue to TVG the warrants to purchase Youbet.com common stock on the terms and conditions set forth in the Warrant Issuance Agreement, as described above.

New Accounting Pronouncement

In June 2001, the Financial Accounting Standards Board finalized FASB Statements No. 141,Business
Combinations(SFAS 141),and No. 142,Goodwill and Other Intangible
Assets(SFAS 142).SFAS 141 requires the use of the purchase method of accounting and prohibits the use of the
pooling-of-interests method of accounting for business combinations initiated after June 30, 2001. SFAS 141 also requires that the Company recognize acquired
intangible assets apart from goodwill if the acquired intangible assets meet certain criteria. SFAS 141 applies to all business combinations initiated after June 30, 2001 and for
purchase business combinations completed on or after July 1, 2001. It also requires, upon adoption of SFAS 142, that the Company reclassify the carrying amounts of intangible assets and
goodwill based on the criteria in SFAS 141.

SFAS 142
requires, among other things, that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually. In addition, SFAS 142
requires that the Company identify reporting units for the purposes of assessing potential future impairments of goodwill, reassess the useful lives of other existing recognized intangible assets, and
cease amortization of intangible assets with an indefinite useful life. An intangible asset with an indefinite useful life should be tested for impairment in accordance with the guidance in
SFAS 142. SFAS 142 is required to be applied in

10

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fiscal years beginning after December 15, 2001 to all goodwill and other intangible assets recognized at that date, regardless of when those assets were initially recognized. SFAS 142
requires the Company to complete a transitional goodwill impairment test six months from the date of adoption. The Company is also required to reassess the useful lives of other intangible assets
within the first interim quarter after adoption of SFAS 142. The Company is assessing but has not yet determined how the adoption of SFAS 141 and SFAS 142 will impact its
financial position and results of operations.

In
August 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 requires the fair value of a liability for an asset retirement
obligation to be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying
amount of the long-lived asset. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. The Company believes the adoption of this Statement will have no
material impact on its financial statements.

In
October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFASB 144 requires that those
long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. Therefore,
discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that have not yet occurred. SFASB 144 is effective for financial statements issued
for fiscal years beginning after December 15, 2001 and, generally, are to be applied prospectively. The Company believes the adoption of this Statement will have no material impact on its
financial statements.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

The following discussion of the financial condition and results of operations of Youbet.com, Inc. should be read in conjunction with the financial
statements and the related notes included elsewhere in this 10-Q. This discussion contains forward-looking statements that are based on the current beliefs and expectations of the
Company's management, as well as assumptions made by, and information currently available to, the Company's management. Such statements include those regarding general economic and
e-gaming industry trends. Because such statements involve risks and uncertainties, actual actions and strategies and the timing and expected results thereof may differ materially from
those expressed or implied by such forward-looking statements, and the Company'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.com intends to establish itself as the leading global brand for legal online live event sports entertainment and wagering and other forms of legal
online gaming. The Company has initially focused its efforts primarily on the United States horse racing industry. Youbet.com believes that online communication is an ideal medium for live event
wagering. First, online communication allows bettors instant access to vast amounts of historical performance data used in assessing potential wagers. Second, online communication offers the ability
to sort and analyze such data in ways and at speeds that are unachievable manually. Third, online communication technology allows wagers to be placed from virtually any location within a jurisdiction
where wagering is legal, thus freeing bettors from traditional site-specific wagering locations. In addition, the speed of electronic communication allows wagers to be placed and
acknowledged in seconds.

Youbet.com's
initial product, the You Bet Network, is a PC-based system, which utilizes the infrastructure of the Internet and a closed-loop private network
with Internet access to provide

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up-to-the minute detailed information on races taking place at horse tracks nationwide. The Company also delivers a live simulcast of most of these races directly to the
subscriber's computer. In addition,
subscribers can use the You Bet Network to transmit information and thereby facilitate wagers, using the system's icon-driven menus to fill out an electronic betting ticket with a brief
series of mouse-clicks. The wagering entity accepts and processes the wager. After processing the wager, the Company sends an electronic confirmation to the bettor through the You Bet Network. The
round-trip time from information submission to acknowledgment is usually less than three seconds.

Youbet.com
currently derives revenue from the You Bet Network in three ways. First, it charged a monthly subscription fee of $5.95 per month until September 1, 2001 when the
Company eliminated its $5.95 subscription fee and instead started charging a transaction fee of $0.25 per bet placed. Second, it receives commissions derived from wagers placed by Youbet.com
subscribers. Third, it receives revenue from the sale of handicapping information.

Consolidated Results of OperationsThree Months Ended September 30, 2001 Compared To Three Months Ended September 30, 2000

Revenues

Revenues for the three months ended September 30, 2001 were $1,130,000, a decrease of $257,000 from $1,387,000 for the three months ended
September 30, 2000. The decrease in revenues is mainly due to a decrease in the amount of wagers placed by Youbet.com subscribers, which was partially due to the non-acceptance of
wagers in 2001 from New Jersey customers at the request of the Attorney General of New Jersey. Management also believes that the overall economic conditions and increased competition have also
contributed to the decreases in net revenues.

Operating Expenses

NETWORK OPERATIONSNetwork operations costs consist primarily of salaries, data center management and telecommunications including costs to support
the closed-loop private network. For the three months ended September 30, 2001, network operations costs decreased by $259,000 or 29% to $633,000 in 2001 from $892,000 in 2000. The
decrease was mainly due to decreases in salaries and non-cash compensation, which was partially offset by increases in telecommunication costs.

RESEARCH
AND DEVELOPMENTResearch and development costs consist primarily of salaries. For the three months ended September 30, 2001, research and development costs
decreased by $239,000 or 25% to $710,000 in 2001 from $949,000 in 2000. This decrease resulted primarily from decreases in consulting expenses and salaries, which was partially offset by increases in
non-cash compensation. The
Company will continue to invest in the development of the You Bet Network and other projects, which management believes are of value and critical to achieving its strategic objectives.

SALES
AND MARKETINGSales and marketing expenses consist primarily of marketing program expense and salaries. For the three months ended September 30, 2001, sales
and marketing expenses decreased by $148,000 or 12% to $1,112,000 in 2001 from $1,260,000 in 2000 mainly due to a reduction in expenditures on marketing programs, and to decreases in salaries and
non-cash compensation. These decreases were partially offset by an increase in expenses relating to the TVG agreement.

GENERAL
AND ADMINISTRATIVEGeneral and administrative expenses consist principally of salaries, facilities expenses, legal, accounting, and investor relations. For the
three months ended September 30, 2001, general and administrative expenses decreased by $212,000 or 11% to $1,640,000 in 2001 from $1,852,000 in 2000. The decrease resulted primarily from
decreases in professional fees that were partially offset by increases in non-cash compensation.

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DEPRECIATION AND AMORTIZATIONFor the three months ended September 30, 2001, depreciation and amortization increased by $516,000 or 171% to $817,000 in 2001 from
$301,000 in 2000. The increase was due to additional assets being placed in service relating to the You Bet Network, to the amortization of leasehold improvements relating to the Woodland Hills
facility, and the amortization of licensing rights.

Other Income (Expense)

INTEREST INCOMEFor the three months ended September 30, 2001, interest income decreased by $543,000 or 90% to $62,000 in 2001 from $605,000
in 2000. The decrease is mainly due to lower cash balances being utilized for the period in 2001 as compared to 2000.

INTEREST
EXPENSEFor the three months ended September 30, 2001, interest expense decreased by $561,000 or 98% to $9,000 in 2001 from $570,000 in 2000. The decrease
in interest expense is due to the Company's repurchase of its notes during 2000.

AMORTIZATION
OF DEFERRED FINANCING COSTSFor the three months ended September 30, 2001, amortization of deferred financing costs decreased to $0 from $42,000 in
2000. The decrease is due to the Company's write-off of deferred financing costs relating to the repurchase of its notes during 2000.

Consolidated Results of OperationsNine Months Ended September 30, 2001 Compared To Nine Months Ended September 30, 2000

Revenues

Revenues for the nine months ended September 30, 2001 were $4,495,000, a decrease of $102,000 from $4,597,000 for the nine months ended
September 30, 2000. The decrease in revenues is mainly due a decrease in the amount of wagers placed by Youbet.com subscribers, which was partially due to the non-acceptance of
wagers in 2001 from New Jersey customers at the request of the Attorney General of New Jersey. Management also believes that the overall economic conditions and increased competition have also
contributed to the decreases in net revenues.

Operating Expenses

NETWORK OPERATIONSNetwork operations costs consist primarily of salaries, data center management and telecommunications including costs to support
the closed-loop private network. For the nine months ended September 30, 2001, network operations costs decreased by $425,000 or 17% to $2,012,000 in 2001 from $2,437,000 in 2000.
The decrease was mainly due to decreases in salaries, non-cash compensation, and in overhead expenses. These decreases were partially offset by increases in telecommunication costs.

RESEARCH
AND DEVELOPMENTResearch and development costs consist primarily of salaries. For the nine months ended September 30, 2001, research and development costs
decreased by $169,000 or 7% to $2,132,000 in 2001 from $2,301,000 in 2000. This decrease resulted primarily from the hiring of developers and consultants in 2000, which was partially offset by
increases in non-cash compensation in 2001. The Company will continue to invest in the development of the You Bet Network and other projects, which management believes are of value and
critical to achieving its strategic objectives.

SALES
AND MARKETINGSales and marketing expenses consist primarily of marketing program expense and salaries. For the nine months ended September 30, 2001, sales
and marketing expenses decreased by $856,000 or 19% to $3,734,000 in 2001 from $4,590,000 in 2000 mainly due to a reduction in expenditures on marketing programs and related expenses, which was
partially offset by increases in non-cash compensation.

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GENERAL AND ADMINISTRATIVEGeneral and administrative expenses consist principally of salaries, facilities expenses, legal, accounting, and investor relations. For the
nine months ended September 30, 2001, general and administrative expenses decreased by $591,000 or 12% to $4,331,000 in 2001 from $4,922,000 in 2000. The decrease resulted primarily from
decreases in professional fees that were partially offset by increases in rents and in non-cash compensation.

DEPRECIATION
AND AMORTIZATIONFor the nine months ended September 30, 2001, depreciation and amortization increased by $1,158,000 or 149% to $1,934,000 in 2001 from
$776,000 in 2000. The increase was due to additional assets being placed in service relating to the You Bet Network, to the amortization of leasehold improvements relating to the Woodland Hills
facility, and to the amortization of licensing rights.

Other Income (Expense)

INTEREST INCOMEFor the nine months ended September 30, 2001, interest income decreased by $1,870,000 or 84% to $345,000 in 2001 from
$2,215,000 in 2000. The decrease is mainly due to lower cash balances being utilized for the period in 2001 as compared to 2000.

INTEREST
EXPENSEFor the nine months ended September 30, 2001, interest expense decreased by $2,445,000 or 99% to $21,000 in 2001 from $2,466,000 in 2000. The
decrease in interest expense is due to the Company's repurchase of its notes during 2000.

AMORTIZATION
OF DEFERRED FINANCING COSTSFor the nine months ended September 30, 2001, amortization of deferred financing costs decreased to $0 from $176,000 in
2000. The decrease is due to the Company's write-off of deferred financing costs relating to the repurchase of its notes during 2000.

Extraordinary Item

NET GAIN ON NOTE REPURCHASEFor the nine months ended September 30, 2001, net gain on note repurchase decreased to $0 in 2001 from
$7,288,000 in 2000. The net gain in 2000 resulted from the repurchase of $22,950,0000 of the Company's notes for $12,879,000, which represented a discount to the accreted value of these notes at the
date of repurchase, therefore, a gain was realized on the difference between the amount paid and the accreted value of these notes at the date of repurchase.
The amount of the gain, net of the proportionate write-off of unamortized financing costs of approximately $677,000, was approximately $7,288,000.

Liquidity and Capital Resources

The Company has financed its operations primarily through the sale of its securities and convertible debt as Youbet.com has generated negative cash flow from
operations since inception. At September 30, 2001, Youbet.com had $5,915,000 in cash and cash equivalents including $921,000 in restricted cash. Youbet.com's principal commitments consist
primarily of approximately $3,325,000 in accounts payable and accruals.

Net
cash used in operating activities was $6,631,000 and $11,777,000 for the nine months ended September 30, 2001 and 2000, respectively. The decrease in 2001 from 2000 in cash
used in operating activities of $5,146,000 was mainly due to 1) a decrease in the loss before extraordinary item of $1,406,000, 2) payment of settlement costs of $1,308,000 in connection
with the civil resolution with the Los Angeles County District Attorney and the Los Angeles Police Department in 2000, 3) an increase in accounts payable of $2,063,000, 4) an increase in
other accrued expenses of $723,000, 5) an increase in depreciation and amortization of $1,158,000, 6) a decrease in prepaids and receivables totaling $1,253,000, and 7) a decrease
in deferred revenues of $523,000. These changes were partially offset by 1) a decrease in accrued interest on notes by $2,452,000, 2) an increase in accrued compensation of

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$578,000, 3) a decrease in settlement with vendors of $139,000, and 4) an increase in amortization of deferred financing costs of $176,000.

Net
cash used in investing activities was $473,000 and $7,323,000 for the nine months ended September 30, 2001 and 2000, respectively. The decrease in 2001 from 2000 in cash
used in investing activities of $6,850,000 was mainly due to 1) the Company's purchase of $581,000 in property and equipment in 2001, a decrease of $3,619,000 from 2000, 2) the Company's
expenditures on capitalized software of $2,199,000 in 2000, 3) restricted cash used in 2000 of $924,000, and 4) restricted cash released in 2001 of $108,000.

Net
cash provided by financing activities was $3,000 for the nine months ended September 30, 2001 as compared to net cash used in financing activities of $12,538,000 for the
same period in the prior year. The decrease of $12,541,000 from 2000 in cash used in financing activities was mainly due to the Company's repurchase of a portion of its 11% Convertible Senior Discount
Notes in 2000 for $12,879,000, which was partially offset by a decrease of $368,000 in proceeds from exercise of stock options and warrants.

At
September 30, 2001, the Company had net working capital of $2,621,000 compared to net working capital of $9,743,000 at December 31, 2000. The Company does not
currently have any material commitments for capital expenditures. However, Youbet.com anticipates that it will incur capital expenditures and lease commitments consistent with Youbet.com's anticipated
changes in operations and infrastructure, including various capital expenditures associated with the expansion of operations into foreign markets. The Company anticipates that, for the foreseeable
future, its operating expenses will be a material use of cash resources. Accordingly, in order for the Company to continue its operations as presently constituted and to fulfill its business plan,
management believes that the Company will need to obtain additional working capital either in the form of debt, equity, or a combination thereof. No assurance can be given, however, that the Company
will be successful in raising capital. Additionally, the Company has and is continuing to take steps to reduce its expenses without materially impacting its operations.

New Accounting Pronouncement

In June 2001, the Financial Accounting Standards Board finalized FASB Statements No. 141,Business
Combinations(SFAS 141),and No. 142,Goodwill and Other Intangible
Assets(SFAS 142).SFAS 141 requires the use of the purchase method of accounting and prohibits the use of the
pooling-of-interests method of accounting for business combinations initiated after June 30, 2001. SFAS 141 also requires that the Company recognize acquired
intangible assets apart from goodwill if the acquired intangible assets meet certain criteria. SFAS 141 applies to all business combinations initiated after June 30, 2001 and for
purchase business combinations completed on or after July 1, 2001. It also requires, upon adoption of SFAS 142, that the Company reclassify the carrying amounts of intangible assets and
goodwill based on the criteria in SFAS 141.

SFAS 142
requires, among other things, that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually. In addition, SFAS 142
requires that the Company identify reporting units for the purposes of assessing potential future impairments of goodwill, reassess the useful lives of other existing recognized intangible assets, and
cease amortization of intangible assets with an indefinite useful life. An intangible asset with an indefinite useful life should be tested for impairment in accordance with the guidance in
SFAS 142. SFAS 142 is required to be applied in fiscal years beginning after December 15, 2001 to all goodwill and other intangible assets recognized at that date, regardless of
when those assets were initially recognized. SFAS 142 requires the Company to complete a transitional goodwill impairment test six months from the date of adoption. The Company is also required
to reassess the useful lives of other intangible assets within the first interim quarter

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after adoption of SFAS 142. The Company is assessing but has not yet determined how the adoption of SFAS 141 and SFAS 142 will impact its financial position and results of
operations.

In
August 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 requires the fair value of a liability for an asset retirement
obligation to be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying
amount of the long-lived asset. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. The Company believes the adoption of this Statement will have no
material impact on its financial statements.

In
October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFASB 144 requires that those
long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. Therefore,
discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that have not yet occurred. SFASB 144 is effective for financial statements issued
for fiscal years beginning after December 15, 2001 and, generally, are to be applied prospectively. The Company believes the adoption of this Statement will have no material impact on its
financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The majority of the Company's cash equivalents are in bank accounts and money markets, and the Company does not believe it has significant market risk exposure
with regard to its investments.

We May Face Interruption Of Production And Services Due To Increased Security Measures In Response To Terrorism.

Our business depends on the free flow of products and services through the channels of commerce. Recently, in response to terrorists' activities and threats
aimed at the United States, transportation, mail, financial and other services have been slowed or stopped altogether. Further delays or stoppages in transportation, mail, financial or other services
could have a material adverse effect on our business, results of operations and financial condition. Furthermore, we may experience an increase in operating costs, such as costs for transportation,
insurance and security as a result of the activities and potential activities. We may also experience delays in receiving payments from payers that have been affected by the terrorist activities and
potential activities. The U.S. economy in general is being adversely affected by the terrorist activities and potential activities and any economic downturn could adversely impact our results of
operations, impair our ability to raise capital or otherwise adversely affect our ability to grow our business.

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Part II. Other Information

Item 1. Legal Proceedings

On June 4, 1999, a complaint was filed against Youbet.com in the Court of Chancery of the State of Delaware in and for New Castle County entitled George
Von Opel v. Youbet.com Inc. (C.A. No. 17200 NC). In the complaint Mr. Von Opel alleges that Youbet.com breached its obligation to register the shares of common stock underlying
400,000 warrants issued by Youbet.com to an affiliate of Mr. Von Opel. The complaint seeks specific performance of the alleged obligation to register such shares and damages for alleged breach
of contract in the amount of $8.7 million. The Company has answered the complaint and intends to defend itself vigorously in the action. Mr. Von Opel moved for summary judgment on the
issue of liability, which on June 2, 2000, the court denied. The Company is proceeding with discovery. As the litigation is at an initial stage, an outcome cannot be predicted at this time.

Item 2. Changes in Securities

Issuance
of Stock Options

During
the nine months ended September 30, 2001, the Company granted various stock options, as follows:

Issuance
of warrants

See
Note-6 to the accompanying notes to the unaudited consolidated financial statements.

Item 4. Submission of Matters to a Vote of Security Holders

Youbet.com held its Annual Meeting of Stockholders (the "Meeting") on September 20, 2001 in Woodland Hills, California, at which the Company's
stockholders: (1) elected the nominated slate of four directors, each to serve until the next meeting or until his or her successor has been duly elected and qualified: Robert M. Fell, Caesar
P. Kimmel, Chris J. McCarron, and William H. Roedy, (2) approved the proposal to authorize the issuance of a warrant pursuant to a warrant issuance agreement with TVG, (3) approved the
proposal to amend our Certificate of Incorporation to increase our authorized common stock to 100,000,000 shares, (4) approved BDO Seidman, LLP as the

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Company's independent public accountants and auditors for the fiscal year ending December 31, 2001, and (5) rejected a proposal to amend our Certificate of Incorporation to permit the
redemption of shares of our outstanding capital stock from holders whose stockholdings might adversely affect our ability to receive or maintain account wagering licenses.

Holders
of record of the Company's common stock as of August 14, 2001 were entitled to vote at the meeting. On August 14, 2001, there were 19,520,850 shares of common
stock outstanding and entitled to vote and 16,714,472 of such shares were represented at the Meeting. Of the shares cast, each of the directors received at least 67% in favor of his election. The
shares cast for each director were as follows: Robert M. Fell: 15,037,407 for and 1,677,065 withheld; Caesar P. Kimmel: 13,162,979 for and 3,551,493 withheld; Chris J. McCarron: 15,049,707 for and
1,664,765 withheld; and William H. Roedy: 15,049,707 for and 1,664,765 withheld. For the proposal to authorize the issuance of a warrant pursuant to a warrant issuance agreement with TVG, the shares
cast were 7,079,878 for, 95,065 against, 41,200 shares in abstention and 9,498,329 broker non-votes. The approval of the issuance of the warrant to TVG required an affirmative vote of a
majority of the shares present or represented at the meeting and which are entitled to vote. With respect to this proposal, broker non-votes were shares not entitled to vote and were not
counted either "for" or "against" this proposal. Abstentions had the same effect as votes against the proposal. For the proposal to amend our Certificate of Incorporation to increase our authorized
common stock to 100,000,000 shares, the shares cast were 16,456,857 for, 241,805 against, and 15,810 shares in abstention. With respect to the approval of BDO Seidman, LLP, the shares cast were
16,654,309 for, 41,831 against and 18,332 shares in abstention. For the proposal to amend our Certificate of Incorporation to permit the redemption of shares of our outstanding capital stock from
holders whose stockholdings might adversely affect our ability to receive or maintain account wagering licenses, the shares cast were 3,665,170 for, 3,529,113 against, 21,860 shares in abstention and
9,498,329 broker non-votes.

Item 5. Other Information

Effective November 9, 2001, Mr. Robert Fell resigned as the Company's Chief Executive Officer. Mr. Fell will continue as Chairman of the
Board of Directors. Executive Vice President and Chief Operating Officer Ronald W. Luniewski and Executive Vice President and Chief Financial Officer Phillip C. Hermann were appointed by the Company's
Board of Directors to assume the roles of Co-Chief Executive Officers of the Company. Messers Luniewski and Hermann were also elected to serve on the Company's Board of Directors.

Item 6. Exhibits and Reports On Form 8-K



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Signatures

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.

|                        |  | YOUBET.COM, INC.
|----------------------- |  | ----------------
|Date: November 12, 2001 |  | By:             
|Date: November 12, 2001 |  | By:             

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