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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 UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|-------------------------------------------- | ----------------------------------------------------------------------------------
|For the quarterly period ended June 30, 2001
|or                                          
|/ /                                          | TRANSITION REPORT UNDER 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, INC.(Exact name of registrant as specified in its charter)

|Delaware                                                       |  | 95-4627253                             
|-------------------------------------------------------------- |  | ---------------------------------------
|(State or other jurisdiction
of incorporation or organization) |  | (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 / /

As
of August 10, 2001, the issuer had 19,520,850 shares of common stock issued and outstanding.

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

|           |  |                                                                                       |                                                                                                                 |    | Page
|---------- |  | ------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------- | -- | ----
|PART I.    |  | FINANCIAL INFORMATION                                                                 |                                                                                                                 |   
|Item 1.    |  | Financial Statements                                                                  |                                                                                                                 |   
|           |  |                                                                                       | Consolidated Balance Sheets as of June 30, 2001 and December 31, 2000                                           |    | 3   
|           |  |                                                                                       | Consolidated Statements of Operations for the three months and six months ended June 30, 2001 and June 30, 2000 |    | 4   
|           |  |                                                                                       | Consolidated Statements of Cash Flows for the six months ended June 30, 2001 and June 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                            |                                                                                                                 | 15
|PART II.   |  | OTHER INFORMATION                                                                     |                                                                                                                 |   
|Item 1.    |  | Legal Proceedings                                                                     |                                                                                                                 | 16
|Item 2.    |  | Changes in Securities                                                                 |                                                                                                                 | 16
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                   |                                                                                                                 | 16
|Item 5.    |  | Other Information                                                                     |                                                                                                                 | 17
|Item 6.    |  | Exhibits and Reports on Form 8-K                                                      |                                                                                                                 | 17
|Signatures |  | 18                                                                                   

2

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Part I. Financial Information

Item 1. Financial Statements

YOUBET.COM, INC.        CONSOLIDATED BALANCE SHEETS

|                                                                                                                                       |                                            | June 30, 2001 |             | December 31, 2000 |  
|-------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------------- | ----------- | ----------------- | -
|
|ASSETS                                                                                                                                 |                                            |               |             |                   |  
|Current assets:                                                                                                                        |                                            |               |             |                   |  
|Cash and cash equivalents                                                                                                              |                                            | $             | 7,254,755   |                   | $
|Restricted cash (Note 1)                                                                                                               |                                            |               | 107,867     |                   |  
|Receivables                                                                                                                            |                                            |               | 145,457     |                   |  
|Interest and other receivables                                                                                                         |                                            |               | 39,053      |                   |  
|Prepaid expenses                                                                                                                       |                                            |               | 423,031     |                   |  
|                                                                                                                                       |                                            |               |             |                   |  
|                                                                                                                                       | Total current assets                       |               |             | 7,970,163         |  
|                                                                                                                                       |                                            |               |             |                   |  
|Property and equipment                                                                                                                 |                                            |               | 9,783,713   |                   |  
|Less: Accumulated depreciation and amortization                                                                                        |                                            |               | (2,974,528  | )                 |  
|                                                                                                                                       |                                            |               |             |                   |  
|                                                                                                                                       | Property and equipment, net                |               |             | 6,809,185         |  
|                                                                                                                                       |                                            |               |             |                   |  
|Capitalized software (Note 2)                                                                                                          |                                            |               | 2,542,506   |                   |  
|Licensing rights, net (Note 6)                                                                                                         |                                            |               | 2,803,822   |                   |  
|Restricted cash (Note 1)                                                                                                               |                                            |               | 812,938     |                   |  
|Deposits and other                                                                                                                     |                                            |               | 115,919     |                   |  
|                                                                                                                                       |                                            |               |             |                   |  
|                                                                                                                                       | Total assets                               |               | $           | 21,054,533        |  
|                                                                                                                                       |                                            |               |             |                   |  
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                   |                                            |               |             |                   |  
|Current liabilities:                                                                                                                   |                                            |               |             |                   |  
|Accounts payable                                                                                                                       |                                            | $             | 792,549     |                   | $
|Accrued compensation and related items                                                                                                 |                                            |               | 289,827     |                   |  
|Accrued expenses                                                                                                                       |                                            |               | 1,689,964   |                   |  
|Deferred revenues                                                                                                                      |                                            |               | 9,623       |                   |  
|Current portion of capitalized lease obligation                                                                                        |                                            |               |            |                   |  
|                                                                                                                                       |                                            |               |             |                   |  
|                                                                                                                                       | Total current liabilities                  |               |             | 2,781,963         |  
|                                                                                                                                       |                                            |               |             |                   |  
|                                                                                                                                       | Total liabilities                          |               |             | 2,781,963         |  
|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 50,000,000 shares, 19,520,850 shares outstanding as of June 30, 2001, and December 31, 2000 |                                            |               | 19,521      |                   |  
|Additional paid-in capital                                                                                                             |                                            |               | 88,045,588  |                   |  
|Accumulated deficit                                                                                                                    |                                            |               | (69,652,539 | )                 |  
|Notes receivable from stockholders                                                                                                     |                                            |               | (140,000    | )                 |  
|                                                                                                                                       |                                            |               |             |                   |  
|                                                                                                                                       | Total stockholders' equity                 |               |             | 18,272,570        |  
|                                                                                                                                       |                                            |               |             |                   |  
|                                                                                                                                       | Total liabilities and stockholders' equity |               | $           | 21,054,533        |  
|                                                                                                                                       |                                            |               |             |                   |  

See
accompanying notes to unaudited consolidated financial statements.

3

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

|                               |                                                      | Three Months Ended June 30,  |           
|------------------------------ | ---------------------------------------------------- | ---------------------------- | ----------
|
|Revenues                       |                                                      | $                            | 1,717,162 
|Operating expenses             |                                                      |                              |           
|                               | Network operations                                   |                              |           
|                               | Research and development                             |                              |           
|                               | Sales and marketing                                  |                              |           
|                               | General and administrative                           |                              |           
|                               | Depreciation and amortization                        |                              |           
|                               |                                                      |                              |           
|                               |                                                      | Total operating expenses     |           
|                               |                                                      |                              |           
|Loss from operations           |                                                      |                              | (3,343,972
|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 |                                                      |                              | (3,245,804
|                               | Extraordinary item (Note 5)                          |                              |           
|                               |                                                      |                              |           
|Net income (loss)              |                                                      | $                            | (3,245,804
|                               |                                                      |                              |           
|Basic and diluted:             |                                                      |                              |           
|                               | Loss before extraordinary item per common share      |                              | $         
|                               | Extraordinary item (Note 5)                          |                              |           
|                               |                                                      |                              |           
|                               | Net income (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)

|                               |                                                      | Six Months Ended June 30,    |           
|------------------------------ | ---------------------------------------------------- | ---------------------------- | ----------
|
|Revenues                       |                                                      | $                            | 3,364,927 
|Operating expenses             |                                                      |                              |           
|                               | Network operations                                   |                              |           
|                               | Research and development                             |                              |           
|                               | Sales and marketing                                  |                              |           
|                               | General and administrative                           |                              |           
|                               | Depreciation and amortization                        |                              |           
|                               |                                                      |                              |           
|                               |                                                      | Total operating expenses     |           
|                               |                                                      |                              |           
|Loss from operations           |                                                      |                              | (5,867,277
|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 |                                                      |                              | (5,598,930
|                               | Extraordinary item (Note 5)                          |                              |           
|                               |                                                      |                              |           
|Net income (loss)              |                                                      | $                            | (5,598,930
|                               |                                                      |                              |           
|Basic and diluted:             |                                                      |                              |           
|                               | Loss before extraordinary item per common share      |                              | $         
|                               | Extraordinary item (Note 5)                          |                              |           
|                               |                                                      |                              |           
|                               | Net income (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)

|                                                                            |                                                       | Six Months Ended June 30,             |           
|--------------------------------------------------------------------------- | ----------------------------------------------------- | ------------------------------------- | ----------
|
|Increase (Decrease) in Cash and Cash Equivalents                            |                                                       |                                       |           
|Cash flows from operating activities:                                       |                                                       |                                       |           
|                                                                            | Net income (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 |                                       |           
|                                                                            | 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                                      |                                       |           
|                                                                            | 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 used in financing activities |           
|                                                                            |                                                       |                                       |           
|Net decrease in cash and cash equivalents                                   |                                                       |                                       | (4,839,417
|Cash and cash equivalents at the beginning of the period                    |                                                       |                                       | 12,094,172
|                                                                            |                                                       |                                       |           
|Cash and cash equivalents at the end of the period                          |                                                       | $                                     | 7,254,755 
|                                                                            |                                                       |                                       |           
|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    SIX MONTHS ENDED JUNE 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 expects operations in Oregon to commence
during the third quarter of 2001. All of Youbet Oregon, Inc.'s operations, when they commence, will be presented on consolidated basis.

Basis
of Presentation

In
the opinion of management, the accompanying unaudited financial statements for the three and six months ended June 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 June 30, 2001, the results of its operations for the three and six months ended
June 30, 2001 and June 30, 2000, and its cash flows for the six months ended June 30, 2001 and June 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 six months ended June 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, 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.

7

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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 June 30, 2001, the Company had uninsured cash and cash equivalents and restricted cash in the amount of $7,764,008.

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 executive and operating 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 June 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.

Note 2Capitalized Software

As of June 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 six months ended June 30, 2001, the Company granted various stock options, as follows:



8

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Issuance
of warrants

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.

From
time to time the Company receives correspondence from various state governmental agencies inquiring into the legality of the Company's activities. The Company recently received
such an inquiry from the Attorney General of the State of Michigan. The Company believes that its activities are in full compliance with applicable law.

Note 5Notes Payable

During the six months ended June 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") is subject to stockholder approval.

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 has not opened its Oregon
account wagering hub or other facility approved by TVG within 180 days after May 18, 2001, or ceases to operate the Oregon 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

9

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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.

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. The fees payable to TVG under
the License Agreement have a two-tiered structure, based on whether or not Youbet.com's stockholders approve the issuance of the Additional TVG Warrant.

As
of June 30, 2001, Youbet.com recorded an accrual for the portion relating to the entire commissions earned on TVG exclusive tracks from May 21, 2001 through
June 30, 2001 of approximately $144,000, which represents the amount owed to TVG if the Additional TVG Warrant is approved. If the shareholders do not approve the Additional TVG Warrant, Youbet
would owe TVG an additional amount of approximately $429,000.

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 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.

10

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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 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 information is then transmitted electronically to a licensed account
wagering entity, currently Ladbroke USA ("Ladbroke"). Ladbroke accepts and processes the wager from its hub in Pennsylvania. After processing the wager, Ladbroke 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 charges a monthly subscription fee, currently $5.95 per month. Second, it receives a fee from
Ladbroke equal to fifty percent (50%) of the net commissions to Ladbroke 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 June 30, 2001 Compared To Three Months Ended June 30, 2000

Revenues

Revenues for the three months ended June 30, 2001 were $1,717,000, an increase of $213,000 from $1,504,000 for the three months ended June 30,
2000. The increase in revenues is due to an increase in the amount of wagers placed by Youbet.com subscribers, which was partially offset by a decrease in

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revenues due to Ladbroke not accepting wagers in 2001 from New Jersey customers at the request of the Attorney General of New Jersey. Revenue consists of the $5.95 monthly subscription fee, the
commission on the gross amount of each wager placed by its subscribers, and sales of handicapping information.

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 June 30, 2001, network operations costs decreased by $143,000 or 18% to $665,000 in 2001 from $808,000 in 2000. The
decrease was mainly due to decreases in salaries which was partially offset by increases in telecommunication costs and non-cash compensation.

RESEARCH
AND DEVELOPMENTResearch and development costs consist primarily of salaries. For the three months ended June 30, 2001, research and development costs
decreased by $23,000 or 3% to $709,000 in 2001 from $732,000 in 2000. This decrease resulted primarily from decreases in consulting expenses which was partially offset by increases in salaries and
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 June 30, 2001, sales and
marketing expenses decreased by $138,000 or 8% to $1,558,000 in 2001 from $1,696,000 in 2000 mainly due to a reduction in expenditures on marketing programs, and to a decrease in 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 June 30, 2001, general and administrative expenses decreased by $1,000 to $1,505,000 in 2001 from $1,506,000 in 2000. The decrease resulted primarily from decreases in
professional fees that were partially offset by increases in rents.

DEPRECIATION
AND AMORTIZATIONFor the three months ended June 30, 2001, depreciation and amortization increased by $358,000 or 135% to $624,000 in 2001 from
$266,000 in 2000. The increase was due to additional assets being placed in service relating to the You Bet Network and to the amortization of leasehold improvements relating to the Woodland Hills
facility.

Other Income (Expense)

INTEREST INCOMEFor the three months ended June 30, 2001, interest income decreased by $718,000 or 87% to $107,000 in 2001 from $825,000 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 June 30, 2001, interest expense decreased by $870,000 or 99% to $8,000 in 2001 from $878,000 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 June 30, 2001, amortization of deferred financing costs decreased to $0 from $54,000 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.

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Extraordinary Item

NET GAIN ON NOTE REPURCHASEFor the three months ended June 30, 2001, net gain on note repurchase decreased to $0 in 2001 from $6,858,000 in
2000. The net gain in 2000 resulted from the repurchase of $18,950,000 of the Company's notes for $9,901,000, 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 $553,000, was approximately $6,858,000.

Consolidated Results of OperationsSix Months Ended June 30, 2001 Compared To Six Months Ended June 30, 2000

Revenues

Revenues for the six months ended June 30, 2001 were $3,365,000, an increase of $155,000 from $3,210,000 for the six months ended June 30, 2000.
The increase in revenues is due an increase in the amount of wagers placed by Youbet.com subscribers, which was partially offset by a decrease in revenues due to Ladbroke not accepting wagers in 2001
from New Jersey customers at the request of the Attorney General of New Jersey.

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 six months ended June 30, 2001, network operations costs decreased by $165,000 or 11% to $1,380,000 in 2001 from $1,545,000 in 2000. The
decrease was mainly due to decreases in salaries, which was partially offset by increases in telecommunication costs.

RESEARCH
AND DEVELOPMENTResearch and development costs consist primarily of salaries. For the six months ended June 30, 2001, research and development costs
increased by $71,000 or 5% to
$1,423,000 in 2001 from $1,352,000 in 2000. This increase resulted primarily from the hiring of developers which was partially offset by decreases in consulting expenses, and by decreases 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 six months ended June 30, 2001, sales and
marketing expenses decreased by $708,000 or 21% to $2,622,000 in 2001 from $3,330,000 in 2000 mainly due to a reduction in expenditures on marketing programs.

GENERAL
AND ADMINISTRATIVEGeneral and administrative expenses consist principally of salaries, facilities expenses, legal, accounting, and investor relations. For the six
months ended June 30, 2001, general and administrative expenses decreased by $379,000 or 12% to $2,691,000 in 2001 from $3,070,000 in 2000. The decrease resulted primarily from decreases in
professional fees that were partially offset by increases in rents.

DEPRECIATION
AND AMORTIZATIONFor the six months ended June 30, 2001, depreciation and amortization increased by $642,000 or 135% to $1,117,000 in 2001 from
$475,000 in 2000. The increase was due to additional assets being placed in service relating to the You Bet Network and to the amortization of leasehold improvements relating to the Woodland Hills
facility.

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Other Income (Expense)

INTEREST INCOMEFor the six months ended June 30, 2001, interest income decreased by $1,327,000 or 82% to $283,000 in 2001 from $1,610,000
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 six months ended June 30, 2001, interest expense decreased by $1,884,000 or 99% to $12,000 in 2001 from $1,896,000 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 six months ended June 30, 2001, amortization of deferred financing costs decreased to $0 from $134,000 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 six months ended June 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 June 30, 2001, Youbet.com had $8,176,000 in cash and cash equivalents including $921,000 in restricted cash. Youbet.com's principal commitments consist primarily
of approximately $2,800,000 in accounts payable and accruals.

Net
cash used in operating activities was $4,385,000 and $7,868,000 for the six months ended June 30, 2001 and 2000, respectively. The decrease in 2001 from 2000 in cash used
in operating activities of $3,483,000 was mainly due to 1) a decrease in the loss before extraordinary item of $1,156,000, 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 $1,150,000, 4) an increase in
other accrued expenses of $695,000, 5) an increase in depreciation and amortization of $643,000, 6) a decrease in prepaids, other assets and receivables totaling $557,000, and
7) a decrease in deferred revenues of $524,000. These changes were partially offset by 1) an increase in accrued interest on notes by $1,888,000, 2) an increase in accrued
compensation of $394,000, 3) a decrease in settlement with vendors of $139,000, and 4) an increase in amortization of deferred financing costs of $134,000.

Net
cash used in investing activities was $446,000 and $3,950,000 for the six months ended June 30, 2001 and 2000, respectively. The decrease in 2001 from 2000 in cash used in
investing activities of $3,504,000 was mainly due to 1) the Company's purchase of $553,000 in property and equipment in 2001, a decrease of $1,220,000 from 2000, 2) the Company's
expenditures on capitalized software of $1,252,000 in 2000, 3) restricted cash used in 2000 of $924,000, and 4) restricted cash released in 2001 of $108,000.

Net
cash used in financing activities was $9,000 and $12,630,000 for the six months ended June 30, 2001 and 2000, respectively. The decrease in 2001 from 2000 in cash used in
financing activities of $12,621,000 was due to the Company's repurchase of its 11% Convertible Senior Discount Notes in

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2000 for $12,879,000, which was partially offset by a decrease of $274,000 in proceeds from exercise of stock options and warrants.

At
June 30, 2001, the Company had net working capital of $5,188,000 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. The Company believes, with its cost reduction program, that its existing cash will be sufficient to meet its anticipated cash needs for
working capital and capital expenditures at least for the next twelve months.

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 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.

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.

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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.

From
time to time the Company receives correspondence from various state governmental agencies inquiring into the legality of the Company's activities. The Company recently received
such an inquiry from the Attorney General of the State of Michigan. The Company believes that its activities are in full compliance with applicable law.

Item 2. Changes in Securities

Issuance
of Stock Options

During
the six months ended June 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

No matters were submitted to a vote of Youbet.com's stockholders during the quarter ended June 30, 2001.

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Item 5. Other Information

During July 2001, Youbet.com received notification from The Nasdaq Stock Market that that the Listing Qualifications Panel of The Nasdaq Stock Market
(the "Panel") has approved the Company's common stock to continue to be listed on the Nasdaq National Market, and that the Panel has closed the hearing file.

Item 6. Exhibits and Reports On Form 8-K



The
following exhibit are submitted herewith:

|10.27 |  | License and Content Agreement, dated May 18, 2001, by and between the TVG Parties and Youbet.com, Inc.
|----- |  | ------------------------------------------------------------------------------------------------------
|10.28 |  | Warrant Issuance Agreement, dated May 18, 2001, by and between Youbet.com and TVG.                    
|10.29 |  | Letter agreements between Youbet.com and Fell & Company, Inc., dated May 9, 2001. and June 29, 2001.  



Youbet.com
filed a form 8-K dated May 25, 2001 with respect to the Company's formation of the strategic relationship with TVG, and with respect to the
Company's receipt of a determination from Nasdaq that the Company has failed to maintain the minimum bid price and that the Company's securities are therefore subject to delisting.

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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.
| |  | ----------------
| |  | By:             
| |  |                 
| |  | By:             
| |  |                 

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