Filed by Bowne Pure ance

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
September 30, 2008

Commission File Number: 0-26015

YOUBET.COM, INC.

(Exact name of registrant as specified in its charter)


Delaware		95-4627253
(State or other jurisdiction		(I.R.S. Employer
of incorporation or organization)		Identification No.)

5901 De Soto Avenue
Woodland Hills, California 91367
(Address of principal executive offices)

(818) 668-2100
(Registrant’s telephone number, including area code)

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 þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer o	Accelerated filer þ	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

As of September 30, 2008, the issuer had approximately 41,519,024 shares of common stock, par value $0.001 per share, outstanding (net of treasury shares).

Part I. Financial Information

Item 1. Condensed Consolidated Financial Statements

YOUBET.COM, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)


	September 30,			December 31,
	2008			2007
	(unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	12,532		$	6,551
Current portion of restricted cash		4,741			8,635
Accounts receivable, net		3,512			7,314
Inventories		1,951			2,085
Prepaid expenses and other current assets		1,140			1,417

		23,876			26,002
Property and equipment, net		20,992			24,664
Intangibles assets other than goodwill, net		5,949			6,505
Goodwill		6,859			6,859
Other assets		651			1,020

	$	58,327		$	65,050


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Current portion of long-term debt	$	9,561		$	10,390
Trade payables		6,069			10,028
Accrued expenses		11,320			11,346
Customer deposits		4,599			8,326
Deferred revenues		208			212

		31,757			40,302
Long-term debt, net of current portion		262			4,767

		32,019			45,069

Stockholders’ equity
Preferred stock, $0.001 par value, authorized 1,000,000 shares, none outstanding
Common stock, $0.001 par value, authorized 100,000,000 shares, 42,562,805 and 42,562,805 shares issued		43			43
Additional paid-in capital		135,199			134,286
Accumulated other comprehensive loss		(114	)		(56	)
Deficit		(106,501	)		(111,973	)
Less treasury stock, 1,043,781 shares at cost		(2,319	)		(2,319	)

		26,308			19,981

	$	58,327		$	65,050

The accompanying notes are an integral part of these condensed consolidated financial statements.

YOUBET.COM, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)
(in thousands, except per share amounts)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2008			2007			2008			2007
Revenues
Commissions	$	22,570		$	25,656		$	62,784		$	73,331
Contract revenues		5,613			6,488			17,076			18,279
Equipment sales		340			287			837			801
Other		795			961			2,371			2,847

		29,318			33,392			83,068			95,258

Costs and expenses
Track fees		10,599			9,774			29,075			31,052
Licensing fees		2,482			6,991			6,958			15,431
Network costs		985			1,079			2,893			3,516
Contract costs		3,906			4,258			11,302			12,323
Equipment costs		159			189			389			398

		18,131			22,291			50,617			62,720

Gross profit		11,187			11,101			32,451			32,538


Operating expenses
General and administrative		3,633			4,342			12,813			13,775
Sales and marketing		1,351			2,173			3,753			7,913
Research and development		796			925			2,592			2,616
Depreciation and amortization, including intangibles		2,197			2,820			5,975			6,587

		7,977			10,260			25,133			30,891

Income from continuing operations before other income (expense) and income tax (benefit)		3,210			841			7,318			1,647

Other income (expense)
Interest income		52			168			169			552
Interest expense		(275	)		(391	)		(947	)		(1,410	)
Other		101			30			37			49

Income from continuing operations before income tax (benefit)		3,088			648			6,577			838
Income tax (benefit)		286			(59	)		362			(307	)

Net income from continuing operations		2,802			707			6,215			1,145

Discontinued operations
Income (loss) from discontinued operations, without tax effect		(120	)		(640	)		(743	)		150

Net income	$	2,682		$	67		$	5,472		$	1,295


Basic income (loss) per share
Income from continuing operations	$	0.07		$	0.02		$	0.15		$	0.03
Income (loss) from discontinued operations		(0.01	)		(0.02	)		(0.02	)		0.00
Net income per common share		0.06			0.00			0.13			0.03
Diluted income (loss) per share
Income from continuing operations	$	0.07		$	0.02		$	0.15		$	0.03
Income (loss) from discontinued operations		(0.01	)		(0.02	)		(0.02	)		0.00
Net income per common share		0.06			0.00			0.13			0.03
Weighted average shares outstanding
Basic		41,519,024			41,897,638			41,519,024			41,882,566
Diluted		42,405,151			42,529,450			42,171,337			42,805,805

The accompanying notes are an integral part of these condensed consolidated financial statements.

YOUBET.COM, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)
(in thousands)


	Nine Months Ended
	September 30,
	2008			2007
Operating activities
Net income	$	5,472		$	1,295
Income (loss) from discontinued operations		(743	)		150

Income from continuing operations		6,215			1,145
Adjustments to reconcile income from continuing operations to net cash provided by operating activities, continuing operations

Depreciation and amortization of property and equipment		5,419			5,960
Amortization of intangibles		556			627
Stock-based compensation		913			660
Provision for doubtful accounts receivables		477			1,105
Increase in operating (assets) and liabilities		3,673			(4,156	)

Net cash provided by operating activities, continuing operations		17,253			5,341

Investing activities
Purchase of property and equipment		(1,098	)		(2,452	)
Cash paid for United Tote Company (make-whole)					(4,473	)
Increase in restricted cash (other than Players Trust^SM)		(5	)		(168	)
Cash paid for IRG acquisition earn-out					(3,106	)
Other		34

Net cash used in investing activities		(1,069	)		(10,199	)

Financing activities
Proceeds from exercise of stock options and warrants					352
Proceeds from debt		630			2,894
Repayment of debt		(6,743	)		(8,512	)
Proceeds from sale-leaseback transaction					1,065
Repurchase of common stock					(1,002	)
Other					(88	)

Net cash used in financing activities		(6,113	)		(5,291	)


Net cash provided by (used in) operating activities, discontinued operations		(4,032	)		213
Foreign currency translation adjustments		(58	)		31

Net increase (decrease) in cash and cash equivalents		5,981			(9,905	)
Cash and cash equivalents at the beginning of period		6,551			21,051

Cash and cash equivalents at the end of period	$	12,532		$	11,146

The accompanying notes are an integral part of these condensed consolidated financial statements.

YOUBET.COM, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2008

Note 1: Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) relating to interim information. The condensed consolidated balance sheet at December 31, 2007 was derived from the restated audited financial statements as of that date but does not include all disclosures required for annual financial statements by accounting principles generally accepted in the United States (“GAAP”). Accordingly, certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted. For further information, please refer to the restated consolidated financial statements and the related notes included in the Company’s annual report on Form 10-K/A for the year ended December 31, 2007.

The unaudited condensed consolidated financial statements include the accounts of Youbet.com, Inc. (“Youbet”) and its wholly-owned subsidiaries (collectively, the “Company”). Youbet’s UT Gaming, Inc. subsidiary and its wholly-owned subsidiaries, United Tote Company and United Tote Canada, are collectively referred to as “United Tote,” unless the context requires otherwise. The group of Youbet’s subsidiaries consisting of IRG U.S. Holdings Corp., IRG Holdings Curacao, N.V., International Racing Group N.V., and IRG Services, Inc. are collectively referred to herein as “IRG,” unless the context requires otherwise. The operations of IRG were shutdown effective February 15, 2008. Bruen Productions International, Inc., was a Youbet subsidiary until it was sold effective December 31, 2007 and is referred to as “Bruen.” Both IRG and Bruen are retroactively reported as discontinued operations (Note 10). All significant inter-company accounts and transactions have been eliminated in consolidation.

Preparation of these unaudited condensed consolidated financial statements involves and requires the use of estimates and judgments where appropriate. In the opinion of management, all adjustments, consisting of normal recurring accruals considered necessary for a fair presentation, have been included. The results for current interim periods are not necessarily indicative of the results to be expected for the full year.

Note 2: Earnings Per Share

Basic earnings per share are calculated based on the weighted average number of shares of Youbet common stock outstanding during the reporting period. Diluted earnings per share are calculated giving effect to all potentially dilutive common shares, assuming such shares were outstanding during the reporting period; however, during loss periods, the basic and diluted loss per share amounts are equivalent because the effect of stock options would be antidilutive as a result of the losses. The following is a reconciliation of the numerators and denominators of the continuing operations computations for the periods presented (in thousands, except per share amounts):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2008		2007		2008		2007
Numerator:
Net income from continuing operations	$	2,802	$	707	$	6,215	$	1,145


Denominator:
Basic weighted average shares outstanding		41,519		41,898		41,519		41,883
Effect of dilutive stock options		886		631		652		923

Diluted weighted average shares outstanding		42,405		42,529		42,171		42,806


Earnings per share — basic	$	0.07	$	0.02	$	0.15	$	0.03

Earnings per share — diluted	$	0.07	$	0.02	$	0.15	$	0.03

Note 3: Detail of Selected Balance Sheet Accounts


	September 30,			December 31,
	2008			2007
	(unaudited)
	(in thousands)
Accounts receivable, net
Track receivables	$	3,722		$	7,964
Player receivable		16			60
Other		285			2,696

		4,023			10,720
Less: allowance for doubtful accounts		(511	)		(3,406	)

	$	3,512		$	7,314


Inventory
Totalizator components	$	1,651		$	1,477
Ticket stock		300			608

	$	1,951		$	2,085


Property and equipment, net
Pari-mutual equipment	$	22,345		$	21,966
Computer equipment		15,012			14,520
Computer equpment under capital lease		2,053			1,605
Software		4,554			4,347
Leasehold improvements		3,190			3,201
Office furniture, fixtures and equipment		576			663

		47,730			46,302
Less: accumulated depreciation		(26,738	)		(21,638	)

	$	20,992		$	24,664


Intangibles assets other than goodwill, net
Intangibles, other than goodwill	$	7,925		$	10,274
Less: accumulated amortization		(1,976	)		(3,769	)

	$	5,949		$	6,505

Note 4: Debt

Debt consisted of the following:


	September 30,		December 31,
	2008		2007
	(unaudited)
	(in thousands)

Promissory notes	$	3,200	$	3,200
Bank term loan		5,750		10,958
Capital lease obligations and other		873		999

		9,823		15,157
Less: short-term debt and current portion of long-term debt		9,561		10,390

Long-term debt, less current maturities	$	262	$	4,767

In February 2006, the Company completed its acquisition of all of the outstanding stock of United Tote for consideration valued at $31.9 million, plus the assumption of approximately $14.7 million of debt (primarily related to the financing of equipment placed with United Tote’s track customers). As part of this purchase, the Company issued three unsecured promissory notes to United Tote’s former owners aggregating $10.2 million in principal amount, with each promissory note bearing interest at a fixed rate of 5.02% per annum. The only remaining $3.2 million principal amount promissory note is currently due, but is subject to rights of indemnification and offset. The Company has four outstanding claims for indemnification against the former owners of United Tote and will not pay the net balance due until those matters are resolved.

In July 2006, the Company entered into a credit agreement that provides for a revolving line of credit and a $15.0 million term loan. The revolving line of credit requires monthly interest payments and the outstanding principal, if any, is due at maturity. The principal of the term loan is being repaid in monthly installments ($3 million annually) plus interest.

In March 2008, the Company amended the credit agreement. The principal changes effected by this amendment were to:

	•		change the maturity date to January 31, 2009;

	•		eliminate the Company’s option to have its interest rate determined by reference to LIBOR;

	•		provide for additional payments on principal of $1.0 million each on the date of the amendment, July 1, 2008 and September 1, 2008, respectively, and $0.5 million on December 1, 2008;

	•		set the prime rate margin at 1.50%;

	•		modify the definition of EBITDA and the adjustments to EBITDA for purposes of the credit facility; and

	•		amend the minimum EBITDA level and leverage ratio the Company is required to maintain.

In consideration of this amendment, the Company paid the administrative agent an amendment fee of $50,000.

The credit agreement, as amended, provides for mandatory prepayment upon the occurrence of certain specified events. The credit facility is collateralized by a security interest in certain specified assets of Youbet and United Tote, as co-borrowers, and certain of our subsidiaries, as guarantors. The credit agreement contains customary covenants for financings of this type, including, but not limited to, restrictions on our ability to incur indebtedness, make investments, pay dividends, repurchase shares or make capital expenditures. The credit agreement also contains certain financial covenants, including (i) a requirement to achieve certain specified EBITDA thresholds, (ii) a requirement to achieve a specified free cash flow (as defined in the credit agreement) threshold, (iii) a requirement to maintain a specified leverage ratio, and (iv) limitations on capital expenditures.

In connection with the Company’s decision to exit the IRG business, the administrative agent under the Company’s credit agreement agreed that the Company could fund legal fees associated with the ongoing government investigation up to $0.5 million, if necessary. This consent letter also contained customary representations by the Company and a provision reducing the Company’s ability to draw on a revolving line of credit under the credit facility from $4.0 million to $1.0 million, which amount can be increased or decreased in the administrative agent’s sole discretion.

At September 30, 2008, the interest rate on this facility was 6.50% per annum, and there were no amounts outstanding under the revolving line of credit. The Company was in compliance with the financial covenants in the credit agreement, as amended, as of September 30, 2008.

Note 5: Income Taxes

The Company accounts for income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Management evaluates the need to establish a valuation allowance for deferred tax assets based upon the amount of existing temporary differences, the period in which they are expected to be recovered and expected levels of taxable income. A valuation allowance to reduce deferred tax assets is established when it is “more likely than not” that some or all of the deferred tax assets will not be realized. Management has determined that a full valuation allowance against the Company’s net deferred tax assets is appropriate.

The Company has federal and state net operating loss (“NOL”) carry forwards in the amount of $58.5 million and $15.0 million, substantially all of which were also available for federal and state income tax purposes, at September 30, 2008, and are expected to begin expiring in 2012 and 2013, respectively. As of September 30, 2008, the State of California suspended the ability of corporations to offset taxable income with NOL carry forwards for the tax years 2008 and 2009. The Company’s effective tax rate for the interim period presented differs from statutory tax rates primarily due to the utilization of NOL carry forwards.

Utilization of the NOL carry forwards may be subject to a substantial annual limitation due to ownership change limitations that may have occurred or that could occur in the future, as required by Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), as well as similar state and foreign provisions. These ownership changes may limit the amount of NOL carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an “ownership change” as defined by Section 382 of the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the market value of a company by certain stockholders or public groups. Due to the existence of the valuation allowance, future changes in the Company’s unrecognized tax benefits will not impact its effective tax rate. Any carry forwards that may expire prior to utilization as a result of such limitations will be removed, if applicable, from deferred tax assets with a corresponding reduction of the valuation allowance.

The Company adopted the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109” (“FIN 48”) on January 1, 2007. Based on management’s evaluation, the Company concluded that there were no significant uncertain tax positions requiring recognition in its financial statements or related disclosures. Accordingly, no adjustments to recorded tax liabilities or accumulated deficit were required as a result of adopting FIN 48. As of September 30, 2008, there were no increases or decreases to liability for income taxes associated with uncertain tax positions.

The Company’s federal return was selected for examination by the Internal Revenue Service (“IRS”) for prior tax year ended December 31, 2006. As of September 30, 2008, the IRS has not proposed any significant adjustments to the Company’s tax positions. Additionally, the Canadian Revenue Agency is currently auditing United Tote’s Canadian subsidiary’s operations for the tax years 2002, 2003 and 2004. The outcome of these audits is uncertain; however, management believes there is no material tax liability exposure to the Company at this time.

Note 6: Litigation and Contingencies

The Company is a party to legal proceedings that are ordinary and incidental to it’s business. Management is unable to estimate any minimum losses from any of these matters. Accordingly, no losses have been accrued.

The Company often carries cash on deposit with financial institutions substantially in excess of federally-insured limits, and the risk of losses related to such concentrations may be increasing as a result of recent economic developments. The extent of a future loss as a result of uninsured deposits in the event of a future failure of a bank or other financial institutions, if any, is not subject to estimation at this time.

As of September 30, 2008, the Company had net negative working capital of $7.9 million, compared to negative working capital of $14.3 million at December 31, 2007. During the first nine months of 2008, the Company funded operations primarily with net cash provided by operating activities. Principal ongoing cash requirements consist of payroll and benefits, business insurance, real estate and equipment leases, legal fees, data center operations, telecommunications and debt service.

Management believes that cash from operations and its on-going efforts to contain costs and operate efficiently, combined with the new targeted marketing initiatives to increase handle and our continuing yield improvement at Youbet Express, will provide sufficient cash flow to adequately support operations sufficiently to fund our working capital and capital expenditure requirements for at least the next 12 months, although the Company will need to repay, refinance or negotiate an extension of our credit agreement before the end of January 2009. If necessary, management believes the Company will be able to fully repay its credit agreement from available cash at the January 31, 2009 maturity date.

In addition, the Company may from time to time seek additional capital to fund operations, and to reduce liabilities in response to changes in the business environment. To raise capital, the Company may seek to sell additional equity securities, issue debt or convertible securities or seek to obtain credit facilities through financial institutions or other resources. The Company has an effective shelf registration statement under which it may from time to time issue and offer debentures, notes, bonds and other evidence of indebtedness, and forward contracts in respect of any such indebtedness, shares of preferred stock, shares of common stock, warrants, stock purchase contracts, stock purchase units and stock purchase rights for an original maximum aggregate offering amount of approximately $30 million, or up to approximately $36 million if the Company utilized the shelf for one offering. Unless otherwise described in future prospectus supplements, the Company intends to use the net proceeds from the sale of securities registered under this universal shelf registration statement for general corporate purposes, which may include additions to working capital, the repayment or redemption of existing indebtedness and the financing of capital expenditures and future acquisitions. The sale of additional equity or convertible securities would result in additional dilution to the Company’s stockholders.

Note 7: Stockholders’ Equity

As of September 30, 2008, options to purchase 10,371,176 shares of common stock had been issued under the Youbet.com, Inc. Equity Incentive Plan , out of a total approved pool of 13,750,000 shares.

Information with respect to stock option activity for the nine months ended September 30, 2008 is summarized below:


				Weighted
				Average
	Stock			Option
	Options			Price
	(in thousands)
Balance at January 1, 2008		4,717		$	2.70
Options granted		2,071			1.47
Options exercised
Options cancelled		(1,429	)		3.39

Balance at September 30, 2008		5,359		$	2.04

Additional information about outstanding options to purchase Youbet’s common stock at September 30, 2008 is as follows:


	Options Outstanding						Options Exercisable
					Weighted
			Weighted		Average				Weighted
			Average		Remaining				Average
	Number of Shares		Exercise		Contractual		Number of Shares		Exercise
	(in thousands)		Price		Life (years)		(in thousands)		Price
Range of Exercise Prices:
$0.50 to $0.68		870	$	0.53		3.67		870	$	0.53
$1.22 to $1.95		2,060		1.47		7.53		235		1.41
$2.23 to $2.74		1,439		2.35		5.97		1,255		2.33
$3.04 to $3.92		455		3.63		7.71		177		3.52
$4.00 to $4.91		452		4.37		5.65		370		4.37
$5.03 to $5.62		83		5.32		6.61		70		5.33

Total at September 30, 2008		5,359		2.04		6.33		2,977		2.13

Note 8: Segment Reporting

Since the acquisition of United Tote, the Company has operated as two reportable segments. The Company’s advance deposit wagering segment consists of the operations of Youbet Express and its totalizator services segment consists of the operations of United Tote. Bruen and IRG were previously reported as part of the advance deposit wagering segment, but are now reported retroactively as discontinued operations (Note 10); therefore, the amounts reported below for the advanced deposit wagering segment have been adjusted to exclude Bruen and IRG.


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	(unaudited, in thousands)
	2008			2007			2008			2007
Revenue
Advance deposit wagering segment	$	23,365		$	26,617		$	65,154		$	76,178
Totalizator services segment		6,297			7,167			18,861			20,019

		29,662			33,784			84,015			96,197
Intersegment eliminations		(344	)		(392	)		(947	)		(939	)

	$	29,318		$	33,392		$	83,068		$	95,258


Revenue by Geographic Area
United States	$	28,643		$	32,675		$	82,018		$	94,251
International		675			717			1,050			1,007

	$	29,318		$	33,392		$	83,068		$	95,258


Reconciliation to Income Before Income Tax Expense or Benefit
Income (loss) from operations, before other income (expense) and income tax (benefit)
Advance deposit wagering segment	$	3,688		$	1,363		$	8,611		$	3,215
Totalizator service segment		(478	)		(522	)		(1,293	)		(1,568	)

		3,210			841			7,318			1,647
Interest income		52			168			169			552
Interest expense		(275	)		(391	)		(947	)		(1,410	)
Other		101			30			37			49

Income (loss) before income tax (benefit) from continuing operations		3,088			648			6,577			838
Income (loss) before income tax (benefit) from discontinued operations		(120	)		(640	)		(743	)		150

Income (loss) before income tax (benefit)	$	2,968		$	8		$	5,834		$	988


Capital Spending, includes capital leases (non-cash)
Advance deposit wagering segment	$	476		$	410		$	1,369		$	828
Totalizator services segment		323			224			508			1,934

	$	799		$	634		$	1,877		$	2,762


Depreciation and Amortization
Advance deposit wagering segment	$	405		$	986		$	1,234		$	1,936
Totalizator services segment		1,792			1,834			4,741			4,651

	$	2,197		$	2,820		$	5,975		$	6,587


	September 30,		December 31,
	2008		2007
	(unaudited)
	(in thousands)
Total Assets
Advance deposit wagering segment	$	22,619	$	23,617
Totalizator services segment		35,708		41,433

	$	58,327	$	65,050

Note 9: Impairment of Intangibles and Goodwill

Intangibles and goodwill are reviewed for impairment annually during the third quarter or when circumstances exist which indicate a possible impairment has occurred. The fair value of the reporting unit associated with the intangibles and goodwill is typically estimated using the expected present value of future cash flows. If expected future cash flows are less than the carrying value of an asset, an impairment charge is taken to reduce the value on the Company’s balance sheet to fair value.

Due to the loss of content and the adverse impact from the government investigation on IRG handle, the Company performed an impairment test as of December 31, 2007 to ascertain the need for an impairment adjustment of the intangibles associated with IRG. The intangibles reviewed included those relating to acquired customer lists and a non-compete agreement. As a result of this test, the Company recorded a non-cash impairment charge of $11.0 million as of December 31, 2007. As of September 30, 2008, the Company has accrued approximately $4.3 million for a potential final earn-out payable to the prior owners of IRG resulting from the achievement of certain performance criteria pursuant to the purchase agreement, which was due to be paid as of August 31, 2008. On August 29, 2008, the Company sent the former owners of IRG a letter informing them that it believed the Company had certain claims under the agreements entered into when Youbet acquired IRG and, therefore, the Company was holding back any final earn-out payment pursuant to the stock purchase agreement until it could determine the full extent of such claims.

During the third quarter of 2008, the Company conducted its annual impairment test in accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” and concluded that there was no impairment to the goodwill.

Note 10: Discontinued Operations

Effective December 31, 2007, the Company sold Bruen back to the original owner.

The following results of Bruen’s operations have been retroactively treated as discontinued operations in these financial statements for the three-month and nine-month periods ended September 30, 2007 (in thousands):


	Three Months Ended			Nine Months Ended
	September 30,			September 30,
	2007			2007
Revenues	$	190		$	561
Cost of revenues		94			269

Gross profit		96			292
Operating expenses		640			1,056

Net loss	$	(544	)	$	(764	)


Impact on the Company’s earning (loss) per share:
- Basic	$	(0.01	)	$	(0.02	)

- Diluted	$	(0.01	)	$	(0.02	)

Effective February 15, 2008, the Company ceased operations at IRG in an orderly and businesslike fashion and, accordingly, has accounted for such operations retroactively as discontinued. The Company expects to incur ongoing costs associated with its continued cooperation with a government investigation. The precise amount or timing of such costs cannot be predicted at this time and such costs are not related to the Company’s decision to shutdown the IRG business. The following results of IRG also have been treated as discontinued operations for the three-month and nine-month periods ended September 30, 2008 and 2007 (in thousands):


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2008			2007			2008			2007
Revenues	$	—		$	4,845		$	46		$	15,381
Cost of Revenues		(3	)		3,640			75			11,224

Gross profit (loss)		3			1,205			(29	)		4,157
Operating expenses		123			1,301			714			3,243

Net loss	$	(120	)	$	(96	)	$	(743	)	$	914


Impact on the Company’s earning (loss) per share:
- Basic	$	(0.00	)	$	(0.00	)	$	(0.02	)	$	0.02

- Diluted	$	(0.00	)	$	(0.00	)	$	(0.02	)	$	0.02

Item 2. Management’s discussion and analysis of financial condition and results of operations

Forward-looking statements

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements included in Item 1 of this report. This discussion and other sections of this report contain forward-looking statements that are based on the current beliefs and expectations of management, as well as assumptions made by, and information currently available to, management. Such statements include those regarding general economic and e-gaming industry trends. Such statements involve risks and uncertainties including, without limitation: the timely development and market acceptance of products and technologies; our ability to control operating expenses; increased competition in the advance deposit wagering business; a decline in the public acceptance of wagering; wagering ceasing to be legal in jurisdictions where Youbet currently operates; the limitation, conditioning, or suspension of any of our licenses; a decline in the general economy; and other factors described in our annual report on Form 10-K for the year ended December 31, 2007 and from time to time in our other filings with the Securities and Exchange Commission, or the SEC. Actual actions and strategies and the timing and expected results may differ materially from those expressed or implied by such forward-looking statements, and our 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

We are a diversified provider of technology and pari-mutuel horse racing content for consumers through the Internet and a leading supplier of totalizator systems, terminals and other pari-mutuel wagering services and systems to the pari-mutuel industry. Youbet Express is a leading online advance deposit wagering (ADW) company focused on horse racing primarily in the United States.

Our website, www.youbet.com, enables our customers to securely wager on horse races at over 150 racetracks worldwide from the convenience of their homes or other locations. Our customers receive the same odds and expected payouts they would receive if they were wagering directly at the host track and wagers are placed directly into the track betting pools.

We strive to appeal to both new and experienced handicappers by providing a user-friendly “one-stop-shop” experience. To place a wager, customers open an account and deposit funds with us via several convenient options, including our ExpressCash system, which links our customers’ wagering accounts directly to their personal checking accounts. To enable our customers to make informed wagers, we provide 24-hour access to up-to-the minute track information, real-time odds and value-added handicapping products, such as Turfday Super Stats, a comprehensive database of racing statistics and a grading system to assess trainers, jockeys and horses. Our customers can view high-quality, live audio/video broadcasts of races as well as replays of a horse’s past races. Our convenient automated services are complemented by our player service agents, who are available 15 hours a day, seven days a week to provide technical support and address any wagering or funding questions.

Our content partners provide us the same live satellite feeds that they normally broadcast at the track and to off-track betting facilities (OTBs). As a result, our partners have the opportunity to increase the total handle wagered on their racing signal, which we believe leads to higher revenues for the host track and a higher quality of racing through larger purses for the horse owners. In return, we receive a commission, or a percentage, of wagers handled through Youbet Express.

Our acquisition of United Tote Company in February 2006 diversified our product offerings. United Tote is a leading supplier of totalizator systems (equipment and technology that processes wagers and payouts) and processed more than $7 billion in handle in 2007 on a global basis, approximately 90% of which is North American pari-mutuel handle. United Tote provides pari-mutuel tote services to approximately 100 racing facilities in North America and additional facilities in a number of foreign markets. As result of this acquisition, we now operate two business segments for financial accounting purposes: ADW and totalizator systems.

As previously disclosed, we sold Bruen Productions effective December 31, 2007, and we shutdown our IRG business effective February 15, 2008. As a result, Bruen Productions and IRG are treated as discontinued operations, and the revenues and expenses associated with Bruen Productions and IRG have been excluded from the particular revenue and expense line items on our condensed consolidated financial statements and are reported as a net amount in discontinued operations. For more information about our discontinued operations, see Note 10 to our condensed consolidated financial statements in Item 1 of this report.

In the second quarter of 2008, we incurred unique compensation-related expenses. We incurred a $0.8 million charge for severance in connection with the departure of our interim chief executive officer. We also incurred additional compensation expense primarily related to performance-based stock options issued to our new chief executive officer and to a key board member to motivate our new chief executive and to recognize their efforts as members of the company’s management advisory committee during a critical time for Youbet. We also issued stock options in the second and third quarters of 2008 to hire, retain and motivate key personnel, as prior stock option grants remain underwater and the company experienced turnover in key positions earlier in the year. The foregoing grants combined with the annual option grant to our directors under our director compensation program resulted in an unusual number of stock options being granted this year, particularly in the second quarter and a correspondingly larger than usual non-cash compensation expense.

Critical accounting estimates and policies

Critical accounting policies are those that are important to the portrayal of our financial condition and results, and which require management to make difficult, subjective or complex estimates and judgments. Critical accounting policies cover accounting matters that are inherently uncertain because the future resolution of such matters is unknown. Our critical accounting estimates and policies are set forth in management’s discussion and analysis of financial condition and results of operations in our amended annual report on Form 10-K/A for the year ended December 31, 2007. There have been no material changes to our critical accounting policies or estimates.

Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair value and establishes a framework for measuring fair value and expands disclosures about fair value measurements. In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — including an amendment of FAS No. 115.” SFAS No. 159 allows entities to choose, at specified election dates, to measure eligible financial assets and liabilities at fair value in situations when they are not required to be measured at fair value. Although SFAS No. 157 is effective now for financial assets and liabilities carried at fair value, it will become effective in 2009 for non-financial assets and liabilities and SFAS No. 159 is optional. We do not believe the adoption of the non-financial provisions of SFAS No. 157 or SFAS No. 159 will have a material impact on our financial position, results of operations or cash flows.

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations.” SFAS No. 141R establishes principles and requirements for how the acquirer of a business and other qualifying assets recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. The statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statement to evaluate the nature and financial effects of the business combination. SFAS No. 141R will be effective for financial statements issued for fiscal years beginning after December 15, 2008 and earlier adoption is prohibited. Accordingly, any business combinations we engage in will be recorded and disclosed following existing generally accepted accounting principles (GAAP) until January 1, 2009. We expect SFAS No. 141R will have an impact on our consolidated financial statements when effective, but only if and when we engage in business combinations or other covered acquisitions, none of which are presently contemplated and the nature and magnitude of the specific effects will depend upon the nature, terms and size of any acquisitions we may consummate after the effective date.

In December 2007, the FASB also issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements-An Amendment of ARB No. 51.” SFAS No. 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. In addition, this statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the noncontrolling equity investment on the deconsolidation date. SFAS No. 160 will be effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008, and earlier adoption is prohibited. Since we do not now have and do not contemplate acquiring any interests in subsidiaries, including variable interest entities with non-controlling interests, we do not currently expect that SFAS No. 160 will have an impact on our future financial position, results of operations or operating cash flows.

In March 2008, the FASB issued SFAS No. 161, “Disclosures About Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133”. SFAS No. 161 expands the disclosure requirements in SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” regarding an entity’s derivative instruments and hedging activities. SFAS No. 161 will be effective for the Company’s fiscal year and interim periods beginning January 1, 2009. We do not expect that SFAS No. 161 will have an impact on the Company’s future financial condition, results of operations or cash flows.

In April 2008, the FASB issued Staff Position (FSP) No. 142-3 “Determination of the Useful Life of Intangible Assets” to improve the consistency between the useful life of a recognized intangible asset (under SFAS No. 142) and the period of expected cash flows used to measure the fair value of the intangible asset (under SFAS No. 141R). FSP No. 142-3 amends the factors to be considered when developing renewal or extension assumptions that are used to estimate an intangible asset’s useful life under SFAS No. 142. The guidance in the new staff position is to be applied prospectively to intangible assets acquired after December 31, 2008. In addition, FSP No. 142-3 increases the disclosure requirements related to renewal or extension assumptions. Management is currently assessing the impact of the adoption of FSP No. 142-3 on our future consolidated financial statements.

Results of continuing operations for the three months ended September 30, 2008 compared to the three months ended September 30, 2007

Revenues

Total revenues decreased $4.1 million, or 12%, for the third quarter of 2008 compared to the third quarter of 2007. Commissions on ADW decreased approximately $3.1 million, or 12%, resulting from a 9% decline in handle, as well as higher customer incentives and rebates, compared with the prior year quarter. Totalizator segment revenues decreased $0.8 million, or 12%, when compared to the third quarter of 2007.

Total handle for the three months ended September 30, 2008 was $121.7 million, a decrease of $11.7 million, or 9%, due to the loss of certain track content and handle from states where we did not accept wagers in the third quarter of 2008.

Youbet Express yield, defined as commission revenue less track and licensing fees (each calculated in accordance with generally accepted accounting principles), increased 110 basis points to 7.8% in the third quarter of 2008 versus 6.7% in the third quarter 2007. The yield improvement reflects the impact of changes in track mix favoring tracks with higher take-out rates, the loss of lower yielding TrackNet content and a reduction in lower yielding TVG content in the third quarter of 2008. We believe that yield is a useful measure to evaluate our operating results and profitability. Yield, however, should not be considered an alternative to operating income or net income as indicators of Youbet’s financial performance and may not be comparable to similarly titled measures used by other companies.

Operating expenses

Track fees: Track fees increased $0.8 million, or 8%, in the third quarter of 2008 compared to the third quarter of 2007. This increase is primarily due to higher host fees paid to the NYRA tracks. In the beginning of 2008, these tracks were no longer TVG exclusive. Track fees primarily consist of host and market access fees paid and payable to various tracks.

Licensing fees: For the three months ended September 30, 2008, these fees decreased $4.5 million, or 64%, compared to the third quarter of 2007, primarily due to decreased wagering on horse races at TVG tracks and the fact that, in the fourth quarter of 2007, California racetracks, and beginning in 2008, NYRA racetracks were no longer TVG exclusive and, therefore, became subject to lower licensing fees. Licensing fees represent amounts paid and payable under our licensing agreement with TVG.

Network costs: Network costs of $1.0 million were $0.1 million, or 9%, below the third quarter of 2007. This decrease was primarily attributable to lower data communication and totalizator fees, partially offset by higher outside service expenses related to the moving of our servers to a secure facility. Network operations expense consists of costs for salaries, data center management, telecommunications and various totalizator fees.

Contract costs: United Tote contract costs decreased $0.4 million, or 8%, in the third quarter of 2008 compared to the third quarter of 2007, largely due to lower compensation costs resulting from the restructuring initiated during the second half of 2007. In addition, lower repair and maintenance costs, professional fees and data communication expenses were partially offset by higher equipment rental and outside labor expense. Contract costs are primarily the costs associated with providing totalizator services at racetracks.

Research and development: Research and development expense for the third quarter of 2008 of $0.8 million was $0.1 million lower compared with the third quarter of 2007 primarily due to higher capitalization of costs at United Tote compared with the third quarter of 2007. We continue to invest in the development of our network infrastructure and to support continued technology upgrades as necessary, which may increase our research and development expenses in the future.

Sales and marketing: Sales and marketing expense decreased $0.8 million, or 38%, in the third quarter of 2008 compared to the third quarter of 2007. This decrease was primarily all in the Youbet Express business and resulted from an management priority to reduce and more appropriately target marketing efforts to specific initiatives including online customer acquisition, conversion and retention. In addition, personnel costs are lower as we continue to restructure the organization. Sales and marketing expense consists of costs for salaries, marketing and advertising, player services and business development.

General and administrative: General and administrative expense decreased $0.7 million, or 16%, in the third quarter of 2008 compared to the third quarter of 2007. This decrease was primarily due to reduced personnel, recruiting and bad debt related expenses, partially offset by an increase in legal expenses compared to the prior year quarter.

Depreciation and amortization: Depreciation and amortization decreased $0.6 million, or 22%, compared to the third quarter of 2007, due to the amortization of $0.5 million of capitalized software development costs associated with our King Contest product in 2007.

Interest expense (income): Interest expense of $0.3 million in the third quarter of 2008, decreased $0.1 million compared to $0.4 million in the third quarter of 2007. This decrease is primarily due to lower debt levels during the third quarter of 2008. Interest income was $0.1 million lower than the comparable 2007 quarter, primarily due to lower investment yields in 2008 compared with 2007.

Other income: Other income decreased $0.1 million compared to the three months ended June 30, 2007.

Income taxes: Income tax expense increased to $0.3 million for the third quarter of 2008, as compared to a small income tax benefit in the comparable period last year. This change is primarily attributable to the State of California suspending the use of net operating loss carry forwards. See Note 5 to our condensed consolidated financial statements in Part I, Item 1 of this report for more information.

Results of continuing operations for the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007

Revenues

Total revenues from continuing operations decreased $12.2 million, or 13%, for the nine months ended September 30, 2008 compared to the same period in 2007. Commissions on ADW decreased $10.5 million, or 14%, as a result of decreased handle, as well as higher customer incentives and rebates compared with the prior nine-month period. Totalizator segment revenues decreased $1.2 million when compared to the first nine months of 2007.

Total handle from continuing operations for the nine months ended September 30, 2008 was $330.9 million, a decrease of $46.8 million, or 12%. This reduction in handle was primarily attributable to loss of certain track content and our decision to cease accepting wagers in certain states.

The Youbet Express yield was 8.1% in the nine months ended September 30, 2008, up 100 basis points from 7.1% in the prior year period, reflecting our efforts to increase wagering on higher yielding independent tracks, such as harness tracks, and substantially lower license fees to TVG.

Operating expenses

Track fees: Track fees declined $2.0 million, or 6%, in the first nine months of 2008 compared to the first nine months of 2007. This decrease was related to reduced handle and commission revenues, partially offset by a shift in handle from TVG tracks to higher yielding independent tracks.

Licensing fees: For the nine months ended September 30, 2008, licensing fees decreased $8.5 million, or 55%, compared to the 2007 period, primarily due to the fact that beginning January 1, 2008, NYRA tracks were no longer TVG exclusive and, therefore, became subject to lower TVG licensing fees.

Network costs: Network costs decreased $0.6 million, or 18%, for the first nine months of 2008 primarily as a result of lower audio visual streaming, totalizator fees and communication costs partially offset by higher software costs.

Contract costs: Contract costs decreased $1.0 million, or 8%, in the first nine months of 2008 compared to the comparable period of 2007 primarily as a result of the headcount reductions and other expense efficiencies initiated late in 2007.

Research and development: Research and development expense was consistent with the same period in 2007.

Sales and marketing: Sales and marketing expense decreased $4.2 million, or 52%, in the nine-month period ended September 30, 2008 when compared to the same period of 2007 largely due to management priority to reduce and more appropriately target marketing efforts to specific initiatives including online customer acquisition, conversion and retention at Youbet Express. In addition, personnel costs are lower as we continue to restructure the organization.

General and administrative: General and administrative expense decreased $1.0 million, or 7%, for the nine-month period ended September 2008, when compared to the same period of 2007. The decrease in costs results primarily from reduced personnel and recruiting expenses, accounting fees and expenses related to improving and testing our internal control over financial reporting, as well as other cost reduction initiatives that commenced in the fourth quarter of 2007. These reductions were offset by a $0.8 million severance payment to our former interim chief executive officer accrued in the second quarter of 2008 and higher non-cash compensation expense in 2008 compared with the comparable 2007 period.

Depreciation and amortization: Depreciation and amortization decreased $0.6 million, or 9%, compared to the same period of 2007, due to the amortization of $0.5 million of capitalized software development costs associated with our King Contest product in 2007.

Interest expense: Interest expense decreased to $0.9 million in the first nine months of 2008, compared to $1.4 million in the first nine months of 2007. The decrease is primarily due to a reduction in the credit facility debt and, to a lesser extent, lower capital lease obligations in the first nine months of 2008 compared with 2007. Interest income in the first nine months of 2008 was $0.2 million lower than 2007 due to lower average cash balances and investment yields during the first nine months of 2008 compared with 2007.

Income taxes: Income tax expense increased to $0.4 million for the first nine months of 2008, as compared to an income tax benefit of $0.3 million in the comparable period last year. This change is primarily attributable to the State of California suspending the use of net operating loss carryforwards and the full valuation allowance recorded against our deferred tax assets. See Note 5 to our condensed consolidated financial statements in Part I, Item 1 of this report for more information.

Liquidity and capital resources

During the first nine months of 2008, we funded our operations primarily with net cash provided by operating activities. As of September 30, 2008, we had net negative working capital of $7.9 million, compared to negative working capital of $14.3 million at December 31, 2007. As of September 30, 2008, we had $12.5 million in cash and cash equivalents, $4.7 million in restricted cash and $9.8 million in debt. In accordance with the terms of our credit agreement, as amended, we paid down our term loan by an additional $2.0 million in the third quarter and will pre-pay an additional $0.5 million on December 1, 2008. We used, and expect to use, cash on hand for these payments.

Net cash provided by operating activities for the nine months ended September 30, 2008 of $17.3 million increased by $12.0 million from the $5.3 million provided by operating activities in the same 2007 period, primarily due to improved earnings resulting from reduced expenses, favorable working capital fluctuations and a non-recurring payment of a $1.2 million arbitration award to TVG in the first quarter of 2007.

Net cash used in investing activities for the first nine months of 2008 was $1.1 million, compared to net cash used in investing activities of $10.2 million for the same period of 2007. The $9.1 million decline is attributable to reduced capital spending in 2008, the withholding of a $4.3 million payment to the former owners of IRG pending the completion of the Company’s evaluation of possible claims and offsets (see Note 9 of our condensed consolidated financial statements in Part I, Item I of this report) and a non-recurring “make-whole” payment of $4.5 million to United Tote’s former owners pursuant to the terms of the acquisition agreement in the first quarter of 2007.

Net cash used in financing activities in the first nine months of 2008 of $6.1 million increased $0.8 million when compared to that used in the same period in 2007, primarily due to higher loan repayments in 2008 and proceeds in 2007 from a sale-leaseback transaction.

Our principal ongoing cash requirements consist of payroll and benefits, business insurance, real estate and equipment leases, legal fees, data center operations, telecommunications and debt service.

We have a credit agreement that provides for a revolving credit facility and under which we have a term loan. Our credit agreement, as amended, matures on January 31, 2009. We do not have any borrowings outstanding under the revolving credit facility, and we do not expect to borrow under that facility before January 31, 2009. Management is in discussions with various lenders regarding refinancing the term loan and extending a revolving credit facility. There can be no assurance that a lender will refinance all or any portion of the term loan or provide us with a revolving credit facility on terms acceptable to us or at all. However, management believes that unrestricted cash on hand and cash generated by operating activities will be sufficient to pay scheduled payments on the term loan and the remaining $4.2 million balance expected to be owed at maturity. For more information regarding the terms of our credit agreement, as amended, see Note 4 to our condensed consolidated financial statements in Part I, Item 1 of this report.

We are currently withholding payment of the third and final promissory note issued in connection with our acquisition of United Tote, pending resolution of several outstanding claims. This promissory note had an aggregate principal amount of $3.2 million and accrued interest of $0.3 million as of September 30, 2008. We have four outstanding claims for indemnification against the former owners of United Tote, and we expect to offset some or all of the amounts owed under this promissory note based on these claims. While we expect these matters to be resolved in the near-term, we cannot predict the precise timing of resolution. As previously disclosed, we have accrued $4.3 million for a potential final earn-out payment that was due to be paid to the former owners of IRG on August 31, 2008, although the precise payment, if any, is subject to reduction for any claims that may be determined prior to the date such payment is due. On August 29, 2008, we sent the former owners of IRG a letter informing them that we believed we had certain claims under the agreements entered into when we acquired IRG and, therefore, we were holding back any final earn-out payment pursuant to the stock purchase agreement until we could determine the full extent of such claims.

Management believes that cash from operations and its on-going efforts to contain costs and operate efficiently, combined with the new targeted marketing initiatives to increase handle and our continuing yield improvement at Youbet Express, will provide sufficient cash flow to adequately support operations. We believe that our cash flow from operations and our unrestricted cash and cash equivalents are sufficient to fund our working capital and capital expenditure requirements for at least the next 12 months, although we will need to repay, refinance or negotiate an extension of our credit agreement before the end of January 2009. If necessary, we believe we will be able to fully repay our credit agreement from available cash at the January 31, 2009 maturity date.

In addition, we may from time to time seek additional capital to fund our operations, and to reduce our liabilities in response to changes in the business environment. To raise capital, we may seek to sell additional equity securities, issue debt or convertible securities or seek to obtain credit facilities through financial institutions or other resources. We have an effective shelf registration statement under which we may from time to time issue and offer debentures, notes, bonds and other evidence of indebtedness, and forward contracts in respect of any such indebtedness, shares of preferred stock, shares of common stock, warrants, stock purchase contracts, stock purchase units and stock purchase rights for an original maximum aggregate offering amount of approximately $30 million, or up to approximately $36 million if we utilized our shelf for one offering. Unless otherwise described in future prospectus supplements, we intend to use the net proceeds from the sale of securities registered under this universal shelf registration statement for general corporate purposes, which may include additions to working capital, the repayment or redemption of existing indebtedness and the financing of capital expenditures and future acquisitions. The sale of additional equity or convertible securities would result in additional dilution to our stockholders.

Item 3. Quantitative and qualitative disclosures about market risk

We do not undertake any specific actions to diminish our exposure to interest rate risk, and we are not a party to any interest rate risk management transactions. We do not purchase or hold any derivative financial instruments. We believe there has been no material change in our exposure to market risk from that discussed in our annual report on Form 10-K for the year ended December 31, 2007, as amended.

Item 4. Controls and procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, as appropriate, to allow timely decisions regarding required disclosure.

The company’s management evaluated, with the participation of the Chief Executive Officer and Chief Financial Officer, the effectiveness of the company’s disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the company’s disclosure controls and procedures were effective as of the end of the period covered by this report. There has been no change in the company’s internal control over financial reporting that occurred during the quarter covered by this report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting.

Part II. Other information

Item 1. Legal proceedings

For an update on a legal proceeding, refer to Note 6: “Litigation and Contingencies” in Part I, Item 1 of this Form 10-Q.

Item 1A. Risk factors

We have included in Part I, Item 1A of our annual report on Form 10-K for the year ended December 31, 2007, a description of certain risks and uncertainties that could affect our business, future performance or financial condition (the “Risk Factors”). There have been no material changes in the Risk Factors. Investors should consider the Risk Factors prior to making an investment decision with respect to our common stock.

Item 2. Unregistered sales of equity securities and use of proceeds

In March 2007, our board of directors authorized the repurchase of up to two million shares of our common stock for an aggregate purchase not to exceed $10 million. As previously reported, in 2007, we repurchased 586,766 shares for an aggregate purchase price of approximately $1 million. We did not repurchase any shares during the nine months ended September 30, 2008. This program expires in March 2009.

Item 3. Defaults upon senior securities

None.

Item 4. Submission of matters to a vote of security holders

None.

Item 5. Other information

None.

Item 6. Exhibits


	3.1			Certificate of Incorporation of Youbet.com, as amended (incorporated by reference to Exhibit 3.1 to Youbet’s Form 10-Q SB for the quarter ended September 30, 2003).

	3.2			Amended and Restated Bylaws of Youbet.com, as amended (incorporated by reference to Exhibit 3.1 to Youbet’s Current Report on Form 8-K filed April 20, 2007).

	31.1			Certification of President and Chief Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.

	31.2			Certification of Chief Financial Officer and Treasurer 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

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	YOUBET.COM, INC.
November 10, 2008	By:	/s/ Michael Brodsky
		Michael Brodsky
		Chief Executive Officer

November 10, 2008	By:	/s/ James A. Burk
		James A. Burk
		Chief Financial Officer

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PART I. FINANCIAL INFORMATION

Item 1. Condensed consolidated financial statements:

Balance sheets as of September 30, 2008 (unaudited) and December 31, 2007		2

Statements of operations for the three and nine months ended September 30, 2008 and 2007 (unaudited)		3

Statements of cash flows for the nine months ended September 30, 2008 and 2007 (unaudited)		4

Notes to unaudited financial statements		5

Item 2. Management’s discussion and analysis of financial condition and results of operations		13

Item 3. Quantitative and qualitative disclosures about market risk		20

Item 4. Controls and procedures		21

PART II. OTHER INFORMATION

Item 1. Legal proceedings		21

Item 1A. Risk factors		21

Item 2. Unregistered sales of equity securities and use of proceeds		21

Item 3. Defaults upon senior securities		21

Item 4. Submission of matters to a vote of security holders		21

Item 5. Other information		21

Item 6. Exhibits		22

Exhibit 31.1
Exhibit 31.2
Exhibit 32.1