Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999

• Revenues increased by 105 percent or $771,000 from $733,000 for the three months ended June 30, 1999 to $1,504,000 for the three months ended June 30, 2000. The increase in revenues was primarily driven by the increased amount of wagers placed by Youbet.com subscribers. Revenue consists of the commission on the gross amount of each wager placed by its subscribers, the $5.95 monthly subscription fee, and sales of handicapping information. Youbet.com commenced charging a monthly subscription fee to its subscribers in February 1999 and began charging subscribers for handicapping information in April 1999.

• Network operations costs consist primarily of salaries and costs to support the closed-loop private network. For the three months ended June 30, 2000, network operations costs increased by 65 percent or $318,000 from $490,000 in 1999 to $808,000 in 2000 reflecting the continued development and expansion of the You Bet Network. Management expects network operations costs to continue to increase significantly as the You Bet Network expands to support the growth in subscribers.

• Research and development costs consist primarily of salaries. For the three months ended June 30, 2000, research and development costs increased by 21 percent or $129,000 from $603,000 in 1999 to $732,000 in 2000. This increase resulted primarily from the hiring of developers and consultants and the continued development of the You Bet Network. The company will continue to invest in the development of the You Bet Network and other projects, which management believes are of value and critical to achieving its strategic objectives and, as a result, expects research and development costs to continue to increase significantly in future periods.

• Sales and marketing expenses consist primarily of marketing program expense and salaries. For the three months ended June 30, 2000, sales and marketing expenses increased by 59 percent or $630,000 from $1,066,000 to $1,696,000. The increase in sales and marketing reflects the expansion of Youbet.com's marketing activities that began in the third quarter of 1999. This increase is mainly due to higher expenditures relating to direct mailing costs, media advertising, consulting fees, and prizes. Sales and marketing expenses include non-cash compensation of $106,000 and $75,000 for the three months ended June 30, 2000 and 1999, respectively, the result of issuance of warrants and options to third-party consultants or the issuance of below market options to employees. Youbet.com expects sales and marketing expenses to increase significantly to brand the You Bet Network, grow its subscriber base, hire additional sales and marketing personnel and expand internationally.

• General and administrative expenses consist principally of salaries, facilities expenses, legal and accounting and investor relations. For the three months ended June 30, 2000, general and administrative expenses decreased by 14 percent or $207,000 from $1,713,000 to $1,506,000. The decrease resulted primarily from a reduction in compensation and lower legal and professional fees. General and administrative expenses include non-cash compensation of $62,000 and $755,000 for the three months ended June 30, 2000 and 1999, respectively, the result of issuance of warrants and options to third-party consultants or the issuance of below market options to employees. Youbet.com expects that general and administrative expenses will increase in future periods as it hires additional personnel to provide for the growth of the domestic and international business.

• For the three months ended June 30, 2000, interest expense decreased by 14 percent or $139,000 from $1,017,000 to $878,000. The decrease in interest expense is due to the Company's repurchase of a portion of its convertible notes during 2000

• For the three months ended June 30, 2000, amortization of deferred financing costs decreased by 39 percent or $35,000 from $89,000 to $54,000. The decrease is due to the Company's write-off of the portion of deferred financing costs relating to the repurchase of the convertible notes during 2000.

• For the three months ended June 30, 2000, fair value of warrants issued decreased by 97 percent or $453,000 from$466,000 to $13,000. The decrease is due to a much larger number of warrants issued during the three months ended June 30, 1999 as compared to the number of warrants issued during the same period in 2000.

• For the three months ended June 30, 2000, interest income, increased by 67 percent or $331,000 from $494,000 in 1999 to $825,000 in 2000. The increase is mainly due to cash on hand received during the quarter ended June 30, 1999 being utilized for the full period in 2000 compared to partial period in 1999, and due to an increase in interest rates in 2000.

• The net gain on note repurchase for the three months ended June 30, 2000 resulted from the repurchase of $18,950,000 of notes for $9,901,000 which represented approximately 57 percent of the accreted value at the time of purchase. The gain was realized on the difference between the amount paid and the accreted value of the notes on the date of repurchase. The amount of the gain, net of the proportionate write-off of unamortized financing costs, was $6,858,000.

Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999

• Revenues increased by 169 percent or $2,016,000 from $1,194,000 to $3,210,000 for the six months ended June 30, 2000. The increase in revenues was primarily driven by the increased amount of wagers placed by Youbet.com subscribers. Revenue consists of the commission on the gross amount of each wager placed by its subscribers, the $5.95 monthly subscription fee, and sales of handicapping information. Youbet.com commenced charging a monthly subscription fee to its subscribers in February 1999, and began charging subscribers for handicapping information in April 1999.

• Network operations costs consist primarily of salaries and costs to support the closed-loop private network. For the six months ended June 30, 2000, network operations costs increased by 45 percent or $481,000 from $1,064,000 in 1999 to $1,545,000 in 2000 reflecting the continued development and expansion of the You Bet Network. Network operations costs include non-cash compensation of $2,000 and $166,000 for the six months ended June 30, 2000 and 1999, respectively, the result of issuance of warrants and options to third-party consultants or the issuance of below market options to employees. The Company expects network operations costs to continue to increase significantly as the You Bet Network expands to support the growth in subscribers.

• Research and development costs consist primarily of salaries. For the six months ended June 30, 2000, research and development costs increased by 33 percent or $334,000 from $1,018,000 in 1999 to $1,352,000 in 2000. This increase resulted primarily from the hiring of developers and consultants and the continued development of the You Bet Network. Research and development costs Include non-cash compensation of $4,000 and $59,000 for the six months ended June 30, 2000 and 1999, respectively, the result of issuance of warrants and options to third-party consultants or the issuance of below market options to employees. The Company will continue to invest in the development of the You Bet Network and other projects, which it believes are of value and critical to achieving its strategic objectives and, as a result, expects research and development costs to continue to increase significantly in future periods.

• Sales and marketing expenses consist primarily of marketing program expense and salaries. For the six months ended June 30, 2000, sales and marketing expenses increased by 104 percent or $1,698,000 from $1,632,000 to $3,330,000. The increase in sales and marketing reflects the expansion of Youbet.com's marketing activities that began in the third quarter of 1999. This increase is mainly due to higher expenditures relating to direct mailing costs, media advertising, consulting fees, and prizes. Sales and marketing expenses include non-cash compensation of $133,000 and $165,000 in the six months ended June 30, 2000 and 1999, respectively, the result of issuance of warrants and options to third-party consultants or the issuance of below market options to employees. Youbet.com expects sales and marketing expenses to increase significantly to brand the You Bet Network, grow its subscriber base, hire additional sales and marketing personnel and expand internationally.

• General and administrative expenses consist principally of salaries, facilities expenses, legal and accounting and investor relations. For the six months ended June 30, 2000, general and administrative expenses increased by 15 pecent or $392,000 from $2,678,000 to $3,070,000. The increase resulted primarily from higher legal and professional fees. General and administrative expenses include non-cash compensation of $134,000 and $1,104,000 in the six months ended June 30, 2000 and 1999, respectively, the result of issuance of warrants and options to third-party consultants or the issuance of below market options to employees. Youbet.com expects that general and administrative expenses will increase in future periods as it hires additional personnel to provide for the growth of the domestic and international business.

• For the six months ended June 30, 2000, interest expense increased by 85 perecent or $872,000 from $1,024,000 to $1,896,000. The increase in interest expense is mainly due to the company's notes being outstanding for the full six months in 2000 compared to less than three months in 1999. This increase was partially offset by the Company's repurchase of a portion of its convertible notes during 2000.

• For the six months ended June 30, 2000, amortization of deferred financing costs increased by 38 percent or $37,000 from $97,000 to $134,000. The increase is due to these costs being amortized over the full period in 2000 as compared to a partial period in 1999. This increase was partially offset by the company's write-off of the portion of deferred financing costs relating to the repurchase of the convertible notes during 2000.

• For the six months ended June 30, 2000, fair value of warrants issued decreased by 95 percent or $441,000 from $466,000 to $25,000. The decrease is due to a much larger number of warrants issued during the six months ended June 30, 1999 as compared to the number of warrants issued during the same period in 2000.

• For the six months ended June 30, 2000, interest income, increased by 210 percent or $1,090,000 from $520,000 in 1999 to $1,610,000 in 2000. The increase is mainly due to cash received during the quarter ended June 30, 1999 being utilized for the full period in 2000 compared to a partial utilization in 1999, and due to an increase in interest rates in 2000.

• Net gain on note repurchase was $7,288,000 for the six months ended June 30, 2000. The net gain resulted from the repurchase of $22,950,000 of notes for $12,878,000, which represented approximately 62 percent of the accreted value. The gain was realized on the difference between the amount paid and the accreted value of the notes on the date of repurchase. The amount of the gain, net of the proportionate write-off of unamortized financing costs, was $7,288,000.

Liquidity and Capital Resources

The company has financed its operations primarily through the sale of its securities and convertible debt as Youbet.com has generated negative cash flow from operations since inception. At June 30, 2000, Youbet.com had $37,827,000 in cash and cash equivalents. Youbet.com's principal commitments consist primarily of approximately $21,000,000 in 11 percent senior convertible discount notes.

Net cash used in operating activities was $7,868,000 and $2,195,000 for the six months ended June 30, 2000 and 1999, respectively. The increase in cash used in operating activities of $5,673,000 was mainly due to 1) an increase in loss from operations of $288,000 (which represent net income of $532,847 net of $7,287,838 in net gains relating to the repurchases of the convertible notes), 2) a decrease in warrants issued for financing of $441,000, 3) a decrease in non cash compensation of $1,221,000, 4) payment of settlement costs of $1,308,000 in connection with the civil resolution with the Los Angeles County District Attorney and the Los Angeles Police Department, 5) a decrease in deferred revenues of $779,000, 6) spending on new building totaling $146,000, 7) a decrease in prepaid expenses of $193,000, and 8) payments of payables and other accruals totaling $3,152,000. These changes were partially offset by 1) an increase in accrued interest on notes by $878,000, 2) an increase in depreciation and amortization of $274,000, and 3) the recording of $140,000 settlements with vendors in 2000, and 4) and an increase in other assets and receivables totaling $477,000.

Net cash used in investing activities was $3,950,000 and $556,000 for the six months ended June 30, 2000 and 1999, respectively. The increase in cash used in investing activities of $3,394,000 was mainly due to 1) an increase in restricted cash of $924,000, 2) the Company's purchasing of property and equipment to support the growth of the company amounting to $1,774,000 in 2000, and 3) due to the Company's spending of $1,252,000 relating to the company's efforts to further expand its current software application from horse racing to include sports' information and legal wagering, as well as international application of its exiting and in-development products. Management reviews these expenditures on a quarterly basis and writes-off amounts capitalized based on management beliefs as to the likelihood of realization. Although the Company is actively pursuing applications for its sports and other in-development software, there can be no assurance that the Company will be able to realize any benefits from these expenditures.