##### Table of Contents



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
June 30, 2009
 Commission File Number: 0-26015
 YOUBET.COM, INC.
  Delaware
(State or other jurisdiction 
of incorporation or organization)
    
    95-4627253
(I.R.S. Employer
Identification No.)
 2600 West Olive Avenue, 5 th Floor
Burbank, Ca. 91505
 (818) 668-2100
  þ o
  o o
 12b-2 of the Exchange Act.
 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
June 30, 2009
  
 PagePART I. FINANCIAL INFORMATIONItem 1. Consolidated financial statements:Balance sheets as of June 30, 2009 (unaudited) and December 31, 2008
    
    
    2Statements of operations for the three and six months ended June 30, 2009 and 2008 (unaudited)
    
    
    3Statements of cash flows for the six months ended June 30, 2009 and 2008 (unaudited)
    
    
    4Notes to unaudited financial statements
    
    
    5Item 2. Managements discussion and analysis of financial condition and results of operations
    
    
    10Item 3. Quantitative and qualitative disclosures about market risk
    
    
    16Item 4. Controls and procedures
    
    
    16PART II. OTHER INFORMATIONItem 1. Legal proceedings
    
    
    16Item 1A. Risk factors
    
    
    16Item 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)
 June 30,
    
    
    December 31,2009
    
    
    2008(unaudited)ASSETSCurrent assetsCash and cash equivalents
    
    $
    15,482
    
    
    $
    16,538Current portion of restricted cash
    
    
    4,848
    
    
    
    4,698Accounts receivable, net of allowance for doubtful
collections of $774 and $541
    
    
    3,705
    
    
    
    3,031Inventories
    
    
    1,967
    
    
    
    1,937Prepaid expenses and other
    
    
    1,417
    
    
    
    1,06627,419
    
    
    
    27,270Property and equipment, net of accumulated depreciation
and amortization of $32,032 and $28,623
    
    
    14,264
    
    
    
    16,218Intangibles assets, net of amortization of $2,482 and $2,162
    
    
    4,268
    
    
    
    4,588Other assets
    
    
    536
    
    
    
    804$
    46,487
    
    
    $
    48,880LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesCurrent portion of long-term debt
    
    $
    8,504
    
    
    $
    8,704Trade payables
    
    
    6,153
    
    
    
    6,484Accrued expenses
    
    
    5,149
    
    
    
    8,287Customer deposits
    
    
    4,767
    
    
    
    4,445Deferred revenues
    
    
    259
    
    
    
    12124,832
    
    
    
    28,041Long-term debt, net of current portion
    
    
    1,363
    
    
    
    3,99626,195
    
    
    
    32,037Stockholders equityPreferred stock, $0.001 par value, authorized 1,000,000 shares,
none issued or outstandingCommon stock, $0.001 par value, authorized 100,000,000 shares,
42,600,305 shares issued
    
    
    43
    
    
    
    43Additional paid-in capital
    
    
    136,595
    
    
    
    135,732Accumulated other comprehensive loss
    
    
    (161
    )
    
    
    (129
    )Deficit
    
    
    (113,806
    )
    
    
    (116,424
    )Less treasury stock, 1,099,335 common shares at cost
    
    
    (2,379
    )
    
    
    (2,379
    )20,292
    
    
    
    16,843$
    46,487
    
    
    $
    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 Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008RevenuesCommissions
    
    $
    23,952
    
    
    $
    21,792
    
    
    $
    47,447
    
    
    $
    40,214Contract revenues
    
    
    5,501
    
    
    
    6,292
    
    
    
    9,782
    
    
    
    11,463Equipment sales
    
    
    65
    
    
    
    333
    
    
    
    151
    
    
    
    498Other
    
    
    666
    
    
    
    822
    
    
    
    1,229
    
    
    
    1,57530,184
    
    
    
    29,239
    
    
    
    58,609
    
    
    
    53,750Costs and expensesTrack fees
    
    
    13,786
    
    
    
    10,199
    
    
    
    26,850
    
    
    
    18,476Licensing fees
    
    
    1,343
    
    
    
    2,378
    
    
    
    2,660
    
    
    
    4,476Network costs
    
    
    981
    
    
    
    983
    
    
    
    1,986
    
    
    
    1,908Contract costs
    
    
    3,842
    
    
    
    3,859
    
    
    
    7,082
    
    
    
    7,395Equipment costs
    
    
    40
    
    
    
    142
    
    
    
    98
    
    
    
    23019,992
    
    
    
    17,561
    
    
    
    38,676
    
    
    
    32,485Gross profit
    
    
    10,192
    
    
    
    11,678
    
    
    
    19,933
    
    
    
    21,265Operating expensesGeneral and administrative
    
    
    4,263
    
    
    
    4,983
    
    
    
    8,445
    
    
    
    9,179Sales and marketing
    
    
    1,487
    
    
    
    1,160
    
    
    
    2,894
    
    
    
    2,403Research and development
    
    
    800
    
    
    
    934
    
    
    
    1,703
    
    
    
    1,796Depreciation and amortization, including intangibles
    
    
    1,786
    
    
    
    1,972
    
    
    
    3,619
    
    
    
    3,7798,336
    
    
    
    9,049
    
    
    
    16,661
    
    
    
    17,157Income from continuing operations before other income (expense) and income tax
    
    
    1,856
    
    
    
    2,629
    
    
    
    3,272
    
    
    
    4,108Other income (expense)Interest income
    
    
    7
    
    
    
    48
    
    
    
    33
    
    
    
    117Interest expense
    
    
    (191
    )
    
    
    (318
    )
    
    
    (415
    )
    
    
    (672
    )Other
    
    
    124
    
    
    
    (73
    )
    
    
    205
    
    
    
    (65
    )Income from continuing operations before income tax
    
    
    1,796
    
    
    
    2,286
    
    
    
    3,095
    
    
    
    3,488Income tax
    
    
    341
    
    
    
    57
    
    
    
    459
    
    
    
    76Net income from continuing operations
    
    
    1,455
    
    
    
    2,229
    
    
    
    2,636
    
    
    
    3,412Discontinued operationsLoss from discontinued operations, without tax effect
    
    
    (2
    )
    
    
    (213
    )
    
    
    (18
    )
    
    
    (622
    )Net income
    
    $
    1,453
    
    
    $
    2,016
    
    
    $
    2,618
    
    
    $
    2,790Basic income (loss) per shareIncome from continuing operations
    
    $
    0.04
    
    
    $
    0.05
    
    
    $
    0.06
    
    
    $
    0.08Loss from discontinued operations
    
    
    0.00
    
    
    
    0.00
    
    
    
    0.00
    
    
    
    (0.01
    )Net income
    
    
    0.04
    
    
    
    0.05
    
    
    
    0.06
    
    
    
    0.07Diluted income (loss) per shareIncome from continuing operations
    
    $
    0.03
    
    
    $
    0.05
    
    
    $
    0.06
    
    
    $
    0.08Loss from discontinued operations
    
    
    0.00
    
    
    
    0.00
    
    
    
    0.00
    
    
    
    (0.01
    )Net income
    
    
    0.03
    
    
    
    0.05
    
    
    
    0.06
    
    
    
    0.07Weighted average shares outstandingBasic
    
    
    41,465,530
    
    
    
    41,519,024
    
    
    
    41,464,506
    
    
    
    41,519,024Diluted
    
    
    44,238,133
    
    
    
    41,987,398
    
    
    
    43,381,685
    
    
    
    41,951,478
 The accompanying notes are an integral part of these condensed consolidated financial statements.
  3




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YOUBET.COM, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS  (UNAUDITED)  (in thousands)
 Six Months EndedJune 30,2009
    
    
    2008Operating activitiesNet income
    
    $
    2,618
    
    
    $
    2,790Loss from discontinued operations
    
    
    (18
    )
    
    
    (622
    )Income from continuing operations
    
    
    2,636
    
    
    
    3,412Adjustments to reconcile income from continuing operations to net cash provided by operating
activities, continuing operationsDepreciation and amortization of property and equipment
    
    
    3,299
    
    
    
    3,408Amortization of intangibles
    
    
    320
    
    
    
    371Stock-based compensation
    
    
    775
    
    
    
    564Provision for doubtful accounts receivables
    
    
    236
    
    
    
    575Increase in operating (assets) and liabilities
    
    
    (4,390
    )
    
    
    (527
    )Net cash provided by continuing operations
    
    
    2,876
    
    
    
    7,803Net cash used in discontinued operations
    
    
    (27
    )
    
    
    (281
    )Net cash provided by operating activities
    
    
    2,849
    
    
    
    7,522Investing activitiesPurchase of property and equipment
    
    
    (1,345
    )
    
    
    (607
    )Decrease (increase) in restricted cash (other than Players TrustSM)
    
    
    217
    
    
    
    (5
    )Other
    
    
    
    
    
    
    34Net cash used in investing activities
    
    
    (1,128
    )
    
    
    (578
    )Financing activitiesProceeds from the exercise of options
    
    
    88Proceeds from debt
    
    
    
    
    
    
    490Repayment of debt
    
    
    (2,833
    )
    
    
    (3,528
    )Net cash used in financing activities
    
    
    (2,745
    )
    
    
    (3,038
    )Foreign currency translation adjustments
    
    
    (32
    )
    
    
    (46
    )Net increase (decrease) in cash and cash equivalents
    
    
    (1,056
    )
    
    
    3,860Cash and cash equivalents at the beginning of period
    
    
    16,538
    
    
    
    6,551Cash and cash equivalents at the end of period
    
    $
    15,482
    
    
    $
    10,411
 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 AND SIX MONTHS ENDED JUNE 30, 2009
 Note 1: Basis of Presentation
    Note 2: Earnings Per Share
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Numerator:Net income from continuing operations
    
    $
    1,455
    
    
    $
    2,229
    
    
    $
    2,636
    
    
    $
    3,412Denominator:Basic weighted average shares outstanding
    
    
    41,466
    
    
    
    41,519
    
    
    
    41,465
    
    
    
    41,519Effect of dilutive stock options
    
    
    2,772
    
    
    
    468
    
    
    
    1,917
    
    
    
    432Diluted weighted average shares outstanding
    
    
    44,238
    
    
    
    41,987
    
    
    
    43,382
    
    
    
    41,951Earnings per share  basic
    
    $
    0.04
    
    
    $
    0.05
    
    
    $
    0.06
    
    
    $
    0.08Earnings per share  diluted
    
    $
    0.03
    
    
    $
    0.05
    
    
    $
    0.06
    
    
    $
    0.08
  5




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##### Table of Contents



Note 3: Debt
  (in thousands)Promissory notes
    
    $
    3,200Bank term loan
    
    
    6,250Capital lease obligations and other
    
    
    4179,867Less: short-term debt and current portion of long-term debt
    
    
    8,504Long-term debt, less current maturities
    
    $
    1,363
     Note 4: Income Taxes
    6




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Note 5: Contingencies
     7




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##### Table of Contents



Note 6: Stockholders Equity
   WeightedAverageStock
    
    
    OptionOptions
    
    
    Price(in thousands)Balance at January 1, 2008
    
    
    5,559
    
    
    $
    1.99Options granted
    
    
    2,180
    
    
    
    1.32Options exercised
    
    
    (38
    )
    
    
    2.35Options cancelled
    
    
    (393
    )
    
    
    2.52Balance at June 30, 2009
    
    
    7,308
    
    
    $
    1.76
  Options Outstanding
    
    
    Options ExercisableWeightedWeighted
    
    
    Average
    
    
    
    
    
    
    WeightedAverage
    
    
    Remaining
    
    
    
    
    
    
    AverageExercise
    
    
    Contractual
    
    
    
    
    
    ExerciseRange of Exercise Prices:
    
    Number of Shares
    
    
    Price
    
    
    Life (years)
    
    
    Number of Shares
    
    
    Price(in thousands)
    
    
    
    
    
    
    
    
    (in thousands)$0.50 to $0.95
    
    
    895
    
    
    $
    0.54
    
    
    
    3.10
    
    
    
    870
    
    
    $
    0.53$1.10 to $1.95
    
    
    4,211
    
    
    
    1.33
    
    
    
    8.35
    
    
    
    1,354
    
    
    
    1.29$2.23 to $2.81
    
    
    1,294
    
    
    
    2.37
    
    
    
    5.38
    
    
    
    1,161
    
    
    
    2.32$3.04 to $3.92
    
    
    430
    
    
    
    3.63
    
    
    
    6.97
    
    
    
    242
    
    
    
    3.56$4.00 to $4.91
    
    
    402
    
    
    
    4.35
    
    
    
    4.73
    
    
    
    359
    
    
    
    4.35$5.03 to $5.62
    
    
    76
    
    
    
    5.32
    
    
    
    5.85
    
    
    
    66
    
    
    
    5.33Total at June 30, 2009
    
    
    7,308
    
    
    
    1.76
    
    
    
    6.87
    
    
    
    4,052
    
    
    
    1.90
 Note 7: Fair Value of Financial Instruments
 Fair Value Measurements
  8




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Note 8: Segment Reporting
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008(in thousands)RevenueAdvance deposit wagering segment
    
    $
    24,618
    
    
    $
    22,615
    
    
    $
    48,676
    
    
    $
    41,789Totalizator services segment
    
    
    5,769
    
    
    
    6,946
    
    
    
    10,428
    
    
    
    12,56530,387
    
    
    
    29,561
    
    
    
    59,104
    
    
    
    54,354Intersegment eliminations
    
    
    (203
    )
    
    
    (322
    )
    
    
    (495
    )
    
    
    (604
    )$
    30,184
    
    
    $
    29,239
    
    
    $
    58,609
    
    
    $
    53,750Revenue by Geographic AreaUnited States
    
    $
    29,670
    
    
    $
    28,647
    
    
    $
    57,715
    
    
    $
    52,700International
    
    
    514
    
    
    
    592
    
    
    
    894
    
    
    
    1,050$
    30,184
    
    
    $
    29,239
    
    
    $
    58,609
    
    
    $
    53,750Reconciliation to Income Before Income Tax Expense or
BenefitIncome (loss) from operations, before other income
(expense) and income tax (benefit)Advance deposit wagering segment
    
    $
    2,566
    
    
    $
    2,787
    
    
    $
    5,204
    
    
    $
    5,083Totalizator service segment
    
    
    (710
    )
    
    
    (158
    )
    
    
    (1,932
    )
    
    
    (975
    )1,856
    
    
    
    2,629
    
    
    
    3,272
    
    
    
    4,108Interest income
    
    
    7
    
    
    
    48
    
    
    
    33
    
    
    
    117Interest expense
    
    
    (191
    )
    
    
    (318
    )
    
    
    (415
    )
    
    
    (672
    )Other
    
    
    124
    
    
    
    (73
    )
    
    
    205
    
    
    
    (65
    )Income before income tax from continuing operations
    
    
    1,796
    
    
    
    2,286
    
    
    
    3,095
    
    
    
    3,488Income before income tax from discontinued operations
    
    
    (2
    )
    
    
    (213
    )
    
    
    (18
    )
    
    
    (622
    )Income before income tax
    
    $
    1,794
    
    
    $
    2,073
    
    
    $
    3,077
    
    
    $
    2,866Capital Spending,includes capital leases (non-cash)Advance deposit wagering segment
    
    $
    561
    
    
    $
    172
    
    
    $
    1,053
    
    
    $
    893Totalizator services segment
    
    
    158
    
    
    
    131
    
    
    
    292
    
    
    
    185$
    719
    
    
    $
    303
    
    
    $
    1,345
    
    
    $
    1,078Depreciation and AmortizationAdvance deposit wagering segment
    
    $
    548
    
    
    $
    391
    
    
    $
    1,067
    
    
    $
    829Totalizator services segment
    
    
    1,238
    
    
    
    1,581
    
    
    
    2,552
    
    
    
    2,950$
    1,786
    
    
    $
    1,972
    
    
    $
    3,619
    
    
    $
    3,779
 June 30,
    
    
    December 31,2009
    
    
    2008(in thousands)Total AssetsAdvance deposit wagering segment
    
    $
    27,066
    
    
    $
    25,431Totalizator services segment
    
    
    19,421
    
    
    
    23,449$
    46,487
    
    
    $
    48,880
  9




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Note 9: Impairment of Intangibles
  Note 10: Discontinued Operations
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenues
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    46Cost of Revenues
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    79Gross profit (loss)
    
    
    
    
    
    
    (11
    )
    
    
    
    
    
    
    (33
    )Operating expenses
    
    
    2
    
    
    
    202
    
    
    
    18
    
    
    
    589Net loss
    
    $
    (2
    )
    
    $
    (213
    )
    
    $
    (18
    )
    
    $
    (622
    )Impact on the Companys earning (loss) per share:- Basic
    
    $
    (0.00
    )
    
    $
    (0.01
    )
    
    $
    (0.00
    )
    
    $
    (0.01
    )- Diluted
    
    $
    (0.00
    )
    
    $
    (0.01
    )
    
    $
    (0.00
    )
    
    $
    (0.01
    )
 
 Item 2.
    
    Managements discussion and analysis of financial condition and results of operations
 Forward-looking statements
   10




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Overview
  www.youbet.com
     Critical accounting estimates and policies
     11




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Results of continuing operations for the three months ended June 30, 2009 compared to the three
months ended June 30, 2008
 Revenues
     Costs and Expenses
 Track fees
 Licensing fees
 Network operations
 Contract costs
 Equipment Costs:
 Operating Expenses
 Research and development
  12




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Sales and marketing
 General and administrative
 Depreciation and amortization
 Interest expense (income)
 Other income
 Income Taxes:
 Discontinued Operations:
 Results of continuing operations for the six months ended June 30, 2009 compared to the six months
ended June 30, 2008
 Revenues
     13




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Costs and Expenses
 Track fees
 Licensing fees
 Network operations
 Contract costs
 Equipment Costs:
 Operating Expenses
 Research and development
 Sales and marketing
 General and administrative
  14




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Depreciation and amortization
 Interest expense (income)
 Other income
 Income Taxes:
 Discontinued Operations:
 Liquidity and capital resources
        15




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Item 3.
    
    Quantitative and qualitative disclosures about market risk
  
 Item 4.
    
    Controls and procedures
 Evaluation of Disclosure Controls and Procedures
   Changes
in Internal Control Over Financial Reporting
 .
 
 Part II. Other information
 
 Item 1.
    
    Legal proceedings
  
 Item 1A.
    
    Risk factors
   16




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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
   Nominee:
    
    Votes For
    
    
    Votes WithheldGary Adelson
    
    
    36,100,965
    
    
    
    936,578Raymond C. Anderson
    
    
    36,096,281
    
    
    
    941,262Michael Brodsky
    
    
    36,625,011
    
    
    
    412,532James Edgar
    
    
    36,307,708
    
    
    
    729,835David Goldberg
    
    
    36,297,954
    
    
    
    739,589F. Jack Liebau
    
    
    36,614,574
    
    
    
    422,969Michael D. Sands
    
    
    36,143,054
    
    
    
    894,498Michael Soenen
    
    
    36,620,736
    
    
    
    416,807
   
 Item 5.
    
    Other information
   17




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##### Table of Contents



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.August 13, 2009
    
    By:
    
    /s/ David GoldbergDavid GoldbergPresident and Chief Executive OfficerAugust 13, 2009
    
    By:
    
    /s/ Michael NelsonMichael NelsonChief Accounting Officer
  18