##### 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
March 31, 2010
 Commission File Number: 001-34276
 YOUBET.COM, INC.
  Delaware
    
    95-4627253(State or other jurisdiction
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification No.)
 2600 West Olive Avenue, 5 th Floor
Burbank, Ca. 91505
 (818) 668-2100
 þ o
 Yes o No o
 Rule 12b-2
 Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



YOUBET.COM, INC.
INDEX TO FORM 10-Q/A
FOR THE QUARTER ENDED
March 31, 2010
 PagePART I. FINANCIAL INFORMATIONItem 1. Consolidated financial statements:Balance sheets as of March 31, 2010 (unaudited) and December 31, 2009
    
    
    2Statements of operations for the three months ended March 31, 2010 and 2009 (unaudited)
    
    
    3Statements of cash flows for the three months ended March 31, 2010 and 2009 (unaudited)
    
    
    4Notes to unaudited financial statements
    
    
    5Item 2. Managements discussion and analysis of financial condition and results of operations
    
    
    12Item 3. Quantitative and qualitative disclosures about market risk
    
    
    19Item 4. Controls and procedures
    
    
    19PART II. OTHER INFORMATIONItem 1. Legal proceedings
    
    
    20Item 1A. Risk factors
    
    
    20Item 2. Unregistered sales of equity securities and use of proceeds
    
    
    20Item 3. Defaults upon senior securities
    
    
    20Item 4. Submission of matters to a vote of security holders
    
    
    20Item 5. Other information
    
    
    20Item 6. Exhibits
    
    
    20Exhibit 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
 (Dollars in thousands, except share amounts)
 March 31,
    
    
    December 31,2010
    
    
    2009(unaudited)ASSETSCurrent assetsCash and equivalents
    
    $
    12,061
    
    
    $
    15,884Restricted cash
    
    
    4,787
    
    
    
    4,616Accounts receivable, net of allowance for doubtful
collections of $814 and $578
    
    
    3,364
    
    
    
    3,413Inventories
    
    
    1,241
    
    
    
    1,278Prepaid expenses and other
    
    
    1,060
    
    
    
    1,141Deferred tax assets
    
    
    2,700
    
    
    
    2,70025,213
    
    
    
    29,032Property and equipment, net of accumulated depreciation
and amortization of $36,471 and $34,928
    
    
    11,835
    
    
    
    12,890Intangible assets, net of amortization of $2,962 and $2,802
    
    
    3,788
    
    
    
    3,948Deferred tax assets
    
    
    5,400
    
    
    
    5,400Other assets
    
    
    312
    
    
    
    374$
    46,548
    
    
    $
    51,644LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesCurrent portion of long-term debt
    
    $
    2,675
    
    
    $
    7,196Trade payables
    
    
    4,881
    
    
    
    5,430Accrued expenses
    
    
    4,364
    
    
    
    4,622Customer deposits
    
    
    4,776
    
    
    
    4,558Deferred revenues
    
    
    359
    
    
    
    16217,055
    
    
    
    21,968Stockholders 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,
42,829,373 shares issued
    
    
    43
    
    
    
    43Additional paid-in capital
    
    
    137,291
    
    
    
    136,970Deficit
    
    
    (105,333
    )
    
    
    (104,806
    )Accumulated other comprehensive loss
    
    
    (129
    )
    
    
    (152
    )Less treasury stock, 1,099,335 common shares
    
    
    (2,379
    )
    
    
    (2,379
    )29,493
    
    
    
    29,676$
    46,548
    
    
    $
    51,644
 See
notes to these unaudited consolidated financial statements.
  2




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YOUBET.COM, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (UNAUDITED)
 (Dollars in thousands, except per share amounts)
 Three Months EndedMarch 31,2010
    
    
    2009RevenuesCommissions
    
    $
    21,213
    
    
    $
    23,118Contract services
    
    
    4,123
    
    
    
    4,281Equipment sales
    
    
    81
    
    
    
    86Other
    
    
    548
    
    
    
    56325,965
    
    
    
    28,048Costs and expensesTrack fees
    
    
    12,451
    
    
    
    13,063Licensing fees
    
    
    840
    
    
    
    1,317Network costs
    
    
    923
    
    
    
    1,005Contract costs
    
    
    3,237
    
    
    
    3,240Equipment costs
    
    
    49
    
    
    
    5817,500
    
    
    
    18,683Gross profit
    
    
    8,465
    
    
    
    9,365Operating expensesGeneral and administrative
    
    
    5,147
    
    
    
    4,181Sales and marketing
    
    
    1,627
    
    
    
    1,406Research and development
    
    
    961
    
    
    
    903Depreciation and amortization
    
    
    1,692
    
    
    
    1,8349,427
    
    
    
    8,324Income (loss) from continuing operations before other income (expense) and
income tax (benefit)
    
    
    (962
    )
    
    
    1,041Other income (expense)Interest income
    
    
    1
    
    
    
    26Interest expense
    
    
    (97
    )
    
    
    (224
    )Other
    
    
    104
    
    
    
    81Income (loss) from continuing operations before income tax (benefit)
    
    
    (954
    )
    
    
    924Income
tax (benefit)
    
    
    (427
    )
    
    
    88Net income (loss) from continuing operations
    
    
    (527
    )
    
    
    836Loss from
discontinued operations, with no tax effect
    
    
    
    
    
    
    (16
    )Net income (loss)
    
    $
    (527
    )
    
    $
    820Basic
income (loss) and diluted income per shareIncome (loss) from continuing operations
    
    $
    (0.01
    )
    
    $
    0.02Loss from discontinued operations
    
    
    0.00
    
    
    
    0.00Net income (loss)
    
    $
    (0.01
    )
    
    $
    0.02Weighted average shares outstandingBasic
    
    
    41,730,038
    
    
    
    41,463,470Diluted
    
    
    44,713,780
    
    
    
    42,109,982
 See notes to unaudited consolidated financial statements.
  3




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YOUBET.COM, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (UNAUDITED)
 (in thousands)
 Three Months EndedMarch 31,2010
    
    
    2009Operating activitiesNet income (loss)
    
    $
    (527
    )
    
    $
    820Loss from discontinued operations
    
    
    
    
    
    
    16Income (loss) from continuing operations
    
    
    (527
    )
    
    
    836Adjustments to reconcile income (loss) from continuing operations to net cash provided
by operating activitiesDepreciation and amortization of property and equipment
    
    
    1,532
    
    
    
    1,674Amortization of intangibles
    
    
    160
    
    
    
    160Stock-based compensation
    
    
    321
    
    
    
    300Provision for bad debt
    
    
    249
    
    
    
    161Increase in operating (assets) and liabilities
    
    
    (641
    )
    
    
    (663
    )Net cash provided by continuing operations
    
    
    1,094
    
    
    
    2,468Net cash provided by discontinued operations
    
    
    
    
    
    
    788Net cash provided by operating activities
    
    
    1,094
    
    
    
    3,256Investing activitiesPurchase of property and equipment
    
    
    (477
    )
    
    
    (626
    )Decrease in restricted cash (other than Players TrustSM)
    
    
    58Net cash used in investing activities
    
    
    (419
    )
    
    
    (626
    )Financing activitiesRepayment of debt
    
    
    (4,521
    )
    
    
    (1,489
    )Foreign currency translation adjustments
    
    
    23
    
    
    
    (5
    )Net increase (decrease) in cash and equivalents
    
    
    (3,823
    )
    
    
    1,136Cash and equivalents, beginning of period
    
    
    15,884
    
    
    
    16,538Cash and equivalents, end of period
    
    $
    12,061
    
    
    $
    17,674
 See notes to unaudited consolidated financial statements.
  4




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YOUBET.COM, INC. AND SUBSIDIARIES
 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 THREE MONTHS ENDED March 31, 2010
 Note 1: Basis of Presentation
     Note 2: Earnings Per Share
  Three Months EndedMarch 31,2010
    
    
    2009Numerator:Income (loss) from continuing operations
    
    $
    (527
    )
    
    $
    836Denominator:Basic weighted average shares outstanding
    
    
    41,730
    
    
    
    41,463Dilutive stock options
    
    
    2,984
    
    
    
    647Diluted weighted average shares outstanding
    
    
    44,714
    
    
    
    42,110Income (loss) per share  basic and diluted
    
    $
    (0.01
    )
    
    $
    0.02
  5




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##### Table of Contents



Note 3: Debt
  March 31,
    
    
    December 31,2010
    
    
    2009(unaudited)Promissory notes
    
    $
    
    
    
    $
    3,200Bank term loan
    
    
    2,500
    
    
    
    3,750Capital
lease and other obligations
    
    
    175
    
    
    
    2462,675
    
    
    
    7,196Current portion of long-term debt
    
    
    2,675
    
    
    
    7,196Long-term debt, less current maturities
    
    $
    
    
    
    $
    
     Note 4: Income Taxes
   6




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Note 5: Contingencies
 Shareholder
Litigation Related to Pending Merger with Churchill Downs Incorporated
 Wayne Witkowski v. Youbet.com, Inc., et al.
  Raymond Balch v. Youbet.com, Inc., et al., Balch Balch Balch
  7




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If the settlement is consummated, the Los Angeles litigation and the Balch litigation will each be
dismissed with prejudice and the defendants and other released persons will receive from or on
behalf of all of the Companys non-affiliated public
stockholders who held the Companys common stock at any time from
November 10, 2009 through the date of the consummation of the merger a release of all claims
relating to the proposed merger, the Merger Agreement and the transactions contemplated therein,
disclosures made relating to the proposed merger, and any compensation or other payments made to
the defendants in connection with the proposed merger; except that the settlement will not include
a release of claims by current and former Youbet stockholders to exercise their appraisal rights
under Delaware law. Likewise, the plaintiffs will receive a release from the defendants, on the
same or substantially equivalent terms as the release to be provided to the defendants. Members of
the purported plaintiff class will be sent notice of the proposed settlement, and a hearing date
before the Superior Court of California, County of Los Angeles, California, will be scheduled
regarding, among other things, approval of the proposed settlement and any application by
plaintiffs counsel for an award of attorneys fees and expenses.
 Other Litigation
  General Economic Conditions
   Note 6: Stockholders Equity
  Options available per the equity incentive plan
    
    
    13,750Stock options outstanding
    
    
    6,560Options available for grant
    
    
    1,545
  8




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##### Table of Contents



2010
    
    
    2009Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageStock
    
    
    Option
    
    
    Stock
    
    
    OptionOptions
    
    
    Price
    
    
    Options
    
    
    Price(in thousands)
    
    
    
    
    
    (in thousands)Balance at January 1
    
    
    6,795
    
    
    $
    1.72
    
    
    
    5,559
    
    
    $
    1.99Options granted
    
    
    
    
    
    
    
    
    
    
    2,090
    
    
    
    1.26Options exercisedOptions cancelled
    
    
    (235
    )
    
    
    3.66
    
    
    
    (276
    )
    
    
    2.56Balance at March 31
    
    
    6,560
    
    
    $
    1.65
    
    
    
    7,373
    
    
    $
    1.76
  Options Outstanding
    
    
    Options ExercisableWeightedWeighted
    
    
    Average
    
    
    
    
    
    
    WeightedAverage
    
    
    Remaining
    
    
    
    
    
    
    AverageNumber of Shares
    
    
    Exercise
    
    
    Contractual
    
    
    Number of Shares
    
    
    ExerciseRange of Exercise Prices:
    
    (in thousands)
    
    
    Price
    
    
    Life (years)
    
    
    (in thousands)
    
    
    Price$0.50 to $0.95
    
    
    669
    
    
    $
    0.56
    
    
    
    2.49
    
    
    
    650
    
    
    $
    0.55$1.10 to $1.95
    
    
    4,153
    
    
    
    1.32
    
    
    
    7.59
    
    
    
    1,959
    
    
    
    1.30$2.23 to $2.81
    
    
    1,266
    
    
    
    2.35
    
    
    
    4.62
    
    
    
    1,186
    
    
    
    2.33$3.04 to $3.92
    
    
    240
    
    
    
    3.73
    
    
    
    6.67
    
    
    
    180
    
    
    
    3.73$4.00 to $4.91
    
    
    155
    
    
    
    4.53
    
    
    
    5.41
    
    
    
    154
    
    
    
    4.53$5.03 to $5.62
    
    
    77
    
    
    
    5.32
    
    
    
    5.10
    
    
    
    77
    
    
    
    5.326,560
    
    
    
    1.65
    
    
    
    6.38
    
    
    
    4,206
    
    
    
    1.77
 Note 7: Fair Value of Financial Instruments
  Note 8: Segment Reporting
   9




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Three Months EndedMarch 31,(in thousands)2010
    
    
    2009RevenueAdvance deposit wagering segment
    
    $
    21,762
    
    
    $
    23,681Totalizator services segment
    
    
    4,482
    
    
    
    4,65926,244
    
    
    
    28,340Intersegment eliminations
    
    
    (279
    )
    
    
    (292
    )$
    25,965
    
    
    $
    28,048Revenue by Geographic AreaUnited States
    
    $
    25,460
    
    
    $
    27,673International
    
    
    505
    
    
    
    375$
    25,965
    
    
    $
    28,048Reconciliation
to Income Before Income Tax (Benefit)Income (loss) from operations, before other income
(expense) and income tax (benefit)Advance deposit wagering segment
    
    $
    301
    
    
    $
    2,261Totalizator service segment
    
    
    (1,263
    )
    
    
    (1,220
    )(962
    )
    
    
    1,041Interest income
    
    
    1
    
    
    
    26Interest expense
    
    
    (97
    )
    
    
    (224
    )Other
    
    
    104
    
    
    
    81Income (loss) from continuing operations before income tax (benefit)
    
    
    (954
    )
    
    
    924Loss from discontinued operations before income tax (benefit)
    
    
    0
    
    
    
    (16
    )Income (loss) before income tax (benefit)
    
    $
    (954
    )
    
    $
    908Capital Spending,includes capital leases (non-cash)Advance deposit wagering segment
    
    $
    330
    
    
    $
    492Totalizator services segment
    
    
    147
    
    
    
    134$
    477
    
    
    $
    626Depreciation and AmortizationAdvance deposit wagering segment
    
    $
    688
    
    
    $
    520Totalizator services segment
    
    
    1,004
    
    
    
    1,314$
    1,692
    
    
    $
    1,834
 March 31,
    
    
    December 31,2009
    
    
    2009(in thousands)Total AssetsAdvance deposit wagering segment
    
    $
    30,500
    
    
    $
    34,253Totalizator services segment
    
    
    16,048
    
    
    
    17,391$
    46,548
    
    
    $
    51,644
  10




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Note
9: Impairment and other Long-lived Assets
   Note
10: Pending Merger with Churchill Downs
   11




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




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Critical accounting estimates and policies
  Recent Accounting Pronouncements
   13




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Results of continuing operations for the three months ended March 31, 2010 compared to the three
months ended March 31, 2009
  ADW Segment
    
    
    Totalizator SegmentThree months ended March 31,
    
    
    Three months ended March 31,Increase
    
    
    %
    
    
    
    
    
    
    
    
    
    
    Increase
    
    
    %2010
    
    
    2009
    
    
    (Decrease)
    
    
    Change
    
    
    2010
    
    
    2009
    
    
    (Decrease)
    
    
    Change(in thousands)Revenues
    
    $
    21,762
    
    
    $
    23,681
    
    
    $
    (1,919
    )
    
    
    -8.1
    %
    
    $
    4,482
    
    
    $
    4,659
    
    
    $
    (177
    )
    
    
    -3.8
    %Gross profit
    
    
    7,268
    
    
    
    8,004
    
    
    
    (736
    )
    
    
    -9.2
    %
    
    
    1,197
    
    
    
    1,361
    
    
    
    (164
    )
    
    
    -12.0
    %As % of revenues
    
    
    33.4
    %
    
    
    33.8
    %
    
    
    
    
    
    
    
    
    
    
    26.7
    %
    
    
    29.2
    %Operating expenses
    
    
    6,967
    
    
    
    5,743
    
    
    
    1,224
    
    
    
    21.3
    %
    
    
    2,460
    
    
    
    2,581
    
    
    
    (121
    )
    
    
    -4.7
    %As % of revenues
    
    
    32.0
    %
    
    
    24.3
    %
    
    
    
    
    
    
    
    
    
    
    54.9
    %
    
    
    55.4
    %Income from continuing operations before other income (expense) and income tax
    
    $
    301
    
    
    $
    2,261
    
    
    $
    (1,960
    )
    
    
    -86.7
    %
    
    $
    (1,263
    )
    
    $
    (1,220
    )
    
    $
    (43
    )
    
    
    -3.5
    %As % of revenues
    
    
    1.4
    %
    
    
    9.5
    %
    
    
    
    
    
    
    
    
    
    
    -28.2
    %
    
    
    -26.2
    %
 Revenues
  ADW Segment Revenues
     14




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Three months ended March 31,Favor2010
    
    
    2009
    
    
    (Unfavor)
    
    
    %(in thousands)Handle
    
    $
    115,700
    
    
    $
    123,981
    
    
    $
    (8,281
    )
    
    
    -6.7
    %Commissions
    
    
    21,213
    
    
    
    23,118
    
    
    
    (1,905
    )
    
    
    -8.2
    %Less:Track fees
    
    
    12,451
    
    
    
    13,063
    
    
    
    (612
    )
    
    
    -4.7
    %License fees
    
    
    840
    
    
    
    1,317
    
    
    
    (477
    )
    
    
    -36.2
    %Net revenue
    
    $
    7,922
    
    
    $
    8,738
    
    
    $
    (816
    )
    
    
    -9.3
    %Yield %
    
    
    6.8
    %
    
    
    7.0
    %
  Totalizator Segment Revenues
  Costs and Expenses
  ADW Segment Costs and Expenses
  Track fees
 Licensing fees
  15




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Network operations
  Totalizator Segment Costs and Expenses
  Contract costs
 Equipment Costs:
  Gross Profit
  ADW Segment Gross Profit
  Totalizator Segment Gross Profit
   16




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====================================================================================================================================

Operating Expenses
 Research and development
 Sales and marketing
 General and administrative
 Depreciation and amortization
 Interest expense:
 Other income
 Income Taxes:
  17




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Liquidity and capital resources
    For the Three Month PeriodEnded March 31,2010
    
    
    2009(in thousands)Net cash provided by operating
activities, from continuing operations
    
    $
    1,094
    
    
    $
    2,468Net cash used in investing operations
    
    
    (419
    )
    
    
    (626
    )Net cash used in financing activities
    
    
    (4,521
    )
    
    
    (1,489
    )Net cash
provided by discontinued operations
    
    
    0
    
    
    
    788Foreign currency translation adjustments
    
    
    23
    
    
    
    (5
    )Net increase
(decrease) in cash and equivalents
    
    $
    (3,823
    )
    
    $
    1,136
 Operating Activities
  Investing Activities
  Financing Activities
   18




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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
   19




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Part II. Other information
 
 Item 1. Legal proceedings
  
 Item 1A. Risk factors
  
 Item 2. Unregistered sales of equity securities and use of proceeds
  
 Item 3. Defaults upon senior securities
  
 Item 4. (Removed and Reserved)
 
 Item 5. Other information
  
 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.
  20




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SIGNATURES
  YOUBET.COM, INC.May 7, 2010
    By:
    /s/ David GoldbergDavid GoldbergPresident and Chief Executive OfficerMay 7, 2010
    By:
    /s/ Susan BraceySusan BraceyChief Financial Officer  21




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##### Table of Contents



EXHIBIT INDEX
 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.