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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
March 31, 2009
 Commission File Number: 0-26015
 YOUBET.COM, INC.
  Delaware
    
    95-4627253(State or other jurisdiction
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification No.)
 2600 West Olive Avenue, 5 th Floor
Burbank, Ca. 91505
 (818) 668-2100
  þ o
  o o
 Rule 12b-2
 Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
  o þ




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YOUBET.COM, INC.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED
March 31, 2009
 PagePART I. FINANCIAL INFORMATIONItem 1. Consolidated financial statements:
    
    
    2Balance sheets as of March 31, 2009 (unaudited) and December 31, 2008
    
    
    2Statements of operations for the three months ended March 31, 2009 and 2008 (unaudited)
    
    
    3Statements of cash flows for the three months ended March 31, 2009 and 2008 (unaudited)
    
    
    4Notes to unaudited financial statements
    
    
    5Item 2. Managements discussion and analysis of financial condition and results of operations
    
    
    12Item 3. Quantitative and qualitative disclosures about market risk
    
    
    17Item 4. Controls and procedures
    
    
    17PART II. OTHER INFORMATIONItem 1. Legal proceedings
    
    
    17Item 1A. Risk factors
    
    
    17Item 2. Unregistered sales of equity securities and use of proceeds
    
    
    17Item 3. Defaults upon senior securities
    
    
    17Item 4. Submission of matters to a vote of security holders
    
    
    17Item 5. Other information
    
    
    17Item 6. Exhibits
    
    
    18Exhibit 31.1Exhibit 31.2Exhibit 32.1
 Preliminary Note




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Part I. Financial Information
 
 Item 1. Consolidated Financial Statements
 YOUBET.COM, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 (in thousands, except share amounts)
 March 31,
    
    
    December 31,2009
    
    
    2008(unaudited)ASSETSCurrent assetsCash and cash equivalents
    
    $
    17,674
    
    
    $
    16,538Current portion of restricted cash
    
    
    4,643
    
    
    
    4,698Accounts receivable, net
    
    
    2,569
    
    
    
    3,031Inventories
    
    
    2,121
    
    
    
    1,937Prepaid expenses and other current assets
    
    
    893
    
    
    
    1,06627,900
    
    
    
    27,270Property and equipment, net
    
    
    15,170
    
    
    
    16,218Intangibles assets, net
    
    
    4,428
    
    
    
    4,588Other assets
    
    
    600
    
    
    
    804$
    48,098
    
    
    $
    48,880LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesCurrent portion of long-term debt
    
    $
    8,531
    
    
    $
    8,704Trade payables
    
    
    7,004
    
    
    
    6,484Accrued expenses
    
    
    6,931
    
    
    
    8,287Customer deposits
    
    
    4,343
    
    
    
    4,445Deferred revenues
    
    
    305
    
    
    
    12127,114
    
    
    
    28,041Long-term debt, net of current portion
    
    
    2,680
    
    
    
    3,99629,794
    
    
    
    32,037Stockholders equityPreferred stock, $0.001 par value, authorized 1,000,000
shares, none
outstandingCommon stock, $0.001 par value, authorized 100,000,000 shares,
42,562,805 shares issued
    
    
    43
    
    
    
    43Additional paid-in capital
    
    
    136,032
    
    
    
    135,732Accumulated other comprehensive loss
    
    
    (134
    )
    
    
    (129
    )Deficit
    
    
    (115,258
    )
    
    
    (116,424
    )Less treasury stock, 1,099,335 shares at cost
    
    
    (2,379
    )
    
    
    (2,379
    )18,304
    
    
    
    16,843$
    48,098
    
    
    $
    48,880
 The accompanying notes are an integral part of these consolidated financial statements.
  2




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YOUBET.COM, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (UNAUDITED)
 (in thousands, except per share amounts)
 Three Months EndedMarch 31,2009
    
    
    2008RevenuesCommissions
    
    $
    23,495
    
    
    $
    18,422Contract revenues
    
    
    4,281
    
    
    
    5,171Equipment sales
    
    
    86
    
    
    
    164Other
    
    
    563
    
    
    
    75428,425
    
    
    
    24,511Costs and expensesTrack fees
    
    
    13,063
    
    
    
    8,277Licensing fees
    
    
    1,317
    
    
    
    2,098Network costs
    
    
    1,005
    
    
    
    925Contract costs
    
    
    3,240
    
    
    
    3,536Equipment costs
    
    
    58
    
    
    
    8818,683
    
    
    
    14,924Gross profit
    
    
    9,742
    
    
    
    9,587Operating expensesGeneral and administrative
    
    
    4,181
    
    
    
    4,198Sales and marketing
    
    
    1,406
    
    
    
    1,243Research and development
    
    
    903
    
    
    
    862Depreciation and amortization, including intangibles
    
    
    1,834
    
    
    
    1,8068,324
    
    
    
    8,109Income from continuing operations before other income (expense) and income tax
    
    
    1,418
    
    
    
    1,478Other income (expense)Interest income
    
    
    26
    
    
    
    69Interest expense
    
    
    (224
    )
    
    
    (354
    )Other
    
    
    81
    
    
    
    9Income from continuing operations before income tax
    
    
    1,301
    
    
    
    1,202Income tax
    
    
    119
    
    
    
    19Income from continuing operations
    
    
    1,182
    
    
    
    1,183Discontinued operationsLoss from discontinued operations, without tax effect
    
    
    (16
    )
    
    
    (409
    )Net income
    
    $
    1,166
    
    
    $
    774Basic income (loss) per shareIncome from continuing operations
    
    $
    0.03
    
    
    $
    0.03Loss from discontinued operations
    
    
    (0.00
    )
    
    
    (0.01
    )Net income per common share
    
    
    0.03
    
    
    
    0.02Diluted income per shareIncome from continuing operations
    
    $
    0.03
    
    
    $
    0.03Loss from discontinued operations
    
    
    (0.00
    )
    
    
    (0.01
    )Net income per common share
    
    
    0.03
    
    
    
    0.02Weighted average shares outstandingBasic
    
    
    41,463,470
    
    
    
    41,519,024Diluted
    
    
    42,109,982
    
    
    
    41,906,975
 The accompanying notes are an integral part of these consolidated financial statements.
  3




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YOUBET.COM, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (UNAUDITED)
 (in thousands)
 Three Months EndedMarch 31,2009
    
    
    2008Operating activitiesNet income
    
    $
    1,166
    
    
    $
    774Loss from discontinued operations
    
    
    (16
    )
    
    
    (409
    )Income from continuing operations
    
    
    1,182
    
    
    
    1,183Adjustments to reconcile income from continuing operations to net cash provided by
operating activities, continuing operationsDepreciation and amortization of property and equipment
    
    
    1,674
    
    
    
    1,621Amortization of intangibles
    
    
    160
    
    
    
    185Stock-based compensation
    
    
    300
    
    
    
    175Provision for doubtful accounts receivables
    
    
    161
    
    
    
    277Increase in operating (assets) and liabilities
    
    
    (46
    )
    
    
    1,233Net cash provided by operating activities,
continuing operations
    
    
    3,431
    
    
    
    4,674Net cash used in operating activities,
discontinued operations
    
    
    (175
    )
    
    
    (14
    )Net cash provided by operating activities
    
    
    3,256
    
    
    
    4,660Investing activitiesPurchase of property and equipment
    
    
    (626
    )
    
    
    (304
    )Increase in restricted cash (other than Players TrustSM)
    
    
    
    
    
    
    (48
    )Other
    
    
    
    
    
    
    34Net cash used in investing activities
    
    
    (626
    )
    
    
    (318
    )Financing activitiesProceeds from debt
    
    
    
    
    
    
    308Repayment of debt
    
    
    (1,489
    )
    
    
    (2,186
    )Net cash used in financing activities
    
    
    (1,489
    )
    
    
    (1,878
    )Foreign currency translation adjustments
    
    
    (5
    )
    
    
    (5
    )Net increase in cash and cash equivalents
    
    
    1,136
    
    
    
    2,459Cash and cash equivalents at the beginning of period
    
    
    16,538
    
    
    
    6,551Cash and cash equivalents at the end of period
    
    $
    17,674
    
    
    $
    9,010
 The accompanying notes are an integral part of these consolidated financial statements.
  4




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YOUBET.COM, INC. AND SUBSIDIARIES
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 THREE MONTHS ENDED MARCH 31, 2009
 Note 1: Basis of Presentation
    Note 2: Earnings Per Share
  Three Months EndedMarch 31,2009
    
    
    2008Numerator:Income from continuing operations
    
    $
    1,182
    
    
    $
    1,183Denominator:Basic weighted average shares outstanding
    
    
    41,463
    
    
    
    41,519Effect of dilutive stock options
    
    
    647
    
    
    
    388Diluted weighted average shares outstanding
    
    
    42,110
    
    
    
    41,907Earnings per share  basic
    
    $
    0.03
    
    
    $
    0.03Earnings per share  diluted
    
    $
    0.03
    
    
    $
    0.03
  5




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Note 3: Detail of Selected Balance Sheet Accounts
 March 31,
    
    
    December 31,2009
    
    
    2008(unaudited)(in thousands)Accounts receivable, netTrack receivables
    
    $
    3,031
    
    
    $
    3,445Other
    
    
    196
    
    
    
    1273,227
    
    
    
    3,572Allowance for doubtful accounts
    
    
    (658
    )
    
    
    (541
    )$
    2,569
    
    
    $
    3,031InventoryTotalizator components
    
    $
    1,813
    
    
    $
    1,681Ticket stock
    
    
    308
    
    
    
    256$
    2,121
    
    
    $
    1,937Property and equipment, netPari-mutual equipment
    
    $
    21,709
    
    
    $
    21,634Computer equipment owned
    
    
    12,389
    
    
    
    11,940Computer equpment under capital lease
    
    
    2,053
    
    
    
    2,053Software
    
    
    5,648
    
    
    
    5,448Leasehold improvements
    
    
    3,190
    
    
    
    3,190Office furniture, fixtures and equipment
    
    
    570
    
    
    
    57645,559
    
    
    
    44,841Accumulated depreciation
    
    
    (30,389
    )
    
    
    (28,623
    )$
    15,170
    
    
    $
    16,218Intangibles assets other than goodwill, netIntangibles, other than goodwill
    
    $
    6,750
    
    
    $
    6,750Less: accumulated amortization
    
    
    (2,322
    )
    
    
    (2,162
    )$
    4,428
    
    
    $
    4,588
  6




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Note 4: Debt
  March 31,
    
    
    December 31,2009
    
    
    2008(unaudited)(in thousands)Promissory notes
    
    $
    3,200
    
    
    $
    3,200Bank term loan
    
    
    7,500
    
    
    
    8,750Capital lease obligations and other
    
    
    511
    
    
    
    75011,211
    
    
    
    12,700Less: short-term debt and current portion of long-term debt
    
    
    8,531
    
    
    
    8,704Long-term debt, less current maturities
    
    $
    2,680
    
    
    $
    3,996
       7




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Note 5: Income Taxes
   Accounting for Uncertainty in Income Taxes  an Interpretation of FASB Statement
No. 109
  Note 6: Contingencies
     8




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Note 7: Stockholders Equity
   WeightedAverageStock
    
    
    OptionOptions
    
    
    Price(in thousands)Balance at January 1, 2009
    
    
    5,559
    
    
    $
    1.99Options granted
    
    
    2,090
    
    
    
    1.26Options exercisedOptions cancelled
    
    
    (276
    )
    
    
    2.56Balance at March 31, 2009
    
    
    7,373
    
    
    $
    1.76
  Options Outstanding
    
    
    Options ExercisableWeightedWeighted
    
    
    Average
    
    
    
    
    
    
    WeightedAverage
    
    
    Remaining
    
    
    
    
    
    
    AverageNumber of Shares
    
    
    Exercise
    
    
    Contractual
    
    
    Number of Shares
    
    
    ExerciseRange of Exercise Prices:
    
    (in thousands)
    
    
    Price
    
    
    Life (years)
    
    
    (in thousands)
    
    
    Price$0.50 to $0.95
    
    
    895
    
    
    $
    0.54
    
    
    
    3.35
    
    
    
    870
    
    
    $
    0.53$1.10 to $1.95
    
    
    4,211
    
    
    
    1.33
    
    
    
    8.60
    
    
    
    1,285
    
    
    
    1.28$2.23 to $2.74
    
    
    1,354
    
    
    
    2.34
    
    
    
    5.62
    
    
    
    1,177
    
    
    
    2.31$3.04 to $3.92
    
    
    429
    
    
    
    3.63
    
    
    
    7.22
    
    
    
    242
    
    
    
    3.56$4.00 to $4.91
    
    
    407
    
    
    
    4.36
    
    
    
    4.96
    
    
    
    361
    
    
    
    4.36$5.03 to $5.62
    
    
    77
    
    
    
    5.32
    
    
    
    6.10
    
    
    
    66
    
    
    
    5.33Total at March 31, 2009
    
    
    7,373
    
    
    
    1.76
    
    
    
    7.11
    
    
    
    4,001
    
    
    
    1.90
  9




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Note 8: Segment Reporting
  Three Months EndedMarch 31,2009
    
    
    2008(unaudited, in thousands)RevenueAdvance deposit wagering segment
    
    $
    24,058
    
    
    $
    19,176Totalizator services segment
    
    
    4,659
    
    
    
    5,61728,717
    
    
    
    24,793Intersegment eliminations
    
    
    (292
    )
    
    
    (282
    )$
    28,425
    
    
    $
    24,511Revenue by Geographic AreaUnited States
    
    $
    28,050
    
    
    $
    24,053International
    
    
    375
    
    
    
    458$
    28,425
    
    
    $
    24,511Reconciliation to Income from Continuing Operations Before Income Tax Expense or BenefitIncome from operations, before other income (expense) and income taxAdvance deposit wagering segment
    
    $
    2,638
    
    
    $
    2,296Totalizator service segment
    
    
    (1,220
    )
    
    
    (818
    )1,418
    
    
    
    1,478Interest income
    
    
    26
    
    
    
    69Interest expense
    
    
    (224
    )
    
    
    (354
    )Other
    
    
    81
    
    
    
    9Income from continuing operations before income tax (benefit)
    
    
    1,301
    
    
    
    1,202Capital Spending,includes capital leases (non-cash)Advance deposit wagering segment
    
    $
    492
    
    
    $
    721Totalizator services segment
    
    
    134
    
    
    
    54$
    626
    
    
    $
    775Depreciation and AmortizationAdvance deposit wagering segment
    
    $
    520
    
    
    $
    438Totalizator services segment
    
    
    1,314
    
    
    
    1,368$
    1,834
    
    
    $
    1,806
 March 31,
    
    
    December 31,2009
    
    
    2008(unaudited)(in thousands)Total AssetsAdvance deposit wagering segment
    
    $
    27,715
    
    
    $
    25,431Totalizator services segment
    
    
    20,383
    
    
    
    23,449$
    48,098
    
    
    $
    48,880
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Note 9: Impairment of Intangibles
  Note 10: Discontinued Operations
  Three Months EndedMarch 31,2009
    
    
    2008(unaudited, in thousands)Revenues
    
    $
    
    
    
    $
    46Cost of Revenues
    
    
    
    
    
    
    67Gross profit (loss)
    
    
    
    
    
    
    (21
    )Operating expenses
    
    
    16
    
    
    
    388Net loss
    
    $
    (16
    )
    
    $
    (409
    )Impact on the Companys earning (loss) per share:- Basic
    
    $
    (0.00
    )
    
    $
    (0.01
    )- Diluted
    
    $
    (0.00
    )
    
    $
    (0.01
    )
  11




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Item 2. Managements discussion and analysis of financial condition and results of operations
 Forward-looking statements
   12




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Overview
  www.youbet.com
      Critical accounting estimates and policies
   13




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Recent Accounting Pronouncements
  Fair Value Measurements.
 Disclosures About Derivative Instruments and Hedging
Activities  an amendment of FASB Statement No. 133
 Results of continuing operations for the three months ended March 31, 2009 compared to the three
months ended March 31, 2008
 Revenues
     Costs and Expenses
 Track fees
  14




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Licensing fees
 Network operations
 Contract costs
 Equipment Costs:
 Operating Expenses
 Research and development
 Sales and marketing
 General and administrative
 Depreciation and amortization
 Interest expense (income)
 Other income
 Income Taxes:
  15




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Discontinued Operations:
 Liquidity and capital resources
         16




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Item 3. Quantitative and qualitative disclosures about market risk
  
 Item 4. Controls and procedures
      
 Part II. Other information
 
 Item 1. Legal proceedings
  
 Item 1A. Risk factors
  
 Item 2. Unregistered sales of equity securities and use of proceeds
  
 Item 3. Defaults upon senior securities
  
 Item 4. Submission of matters to a vote of security holders
  
 Item 5. Other information
   17




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Item 6. Exhibits
 31.1
    
    
    Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) of the
Securities Exchange Act of 1934.31.2
    
    
    Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) of the
Securities Exchange Act of 1934.32.1
    
    
    Certification Pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934.
 
 SIGNATURES
  YOUBET.COM, INC.May 14, 2009
    By:
    /s/ Michael BrodskyMichael BrodskyPresident and Chief Executive OfficerMay 14, 2009
    By:
    /s/ Michael NelsonMichael NelsonChief Accounting Officer  18