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Youbet.com reports results

WOODLAND HILLS, California -- (PRESS RELEASE) -- Youbet.com, Inc. (NASDAQ: UBET) today announced earnings for the three-month and full-year periods ended December 31, 2007.

Youbet interim Chief Executive Officer Gary W. Sproule commented: "2007 was a challenging year for Youbet; however, we have also made progress toward restructuring the company, including shedding non-core assets, streamlining operations and reorganizing the senior management team. We are focusing our efforts and priorities on our Youbet Express platform and fully expect that the impact of our initiatives will be evident in 2008. Additionally, we will continue to focus on improving our yields and operating margins as well as securing new content."

Subsequent Events

On January 18, 2008, Youbet sold Bruen Productions back to its original owner effective as of December 31, 2007 in order to free up management resources to focus on the company's core businesses.

As a result of declining profitability in the fourth quarter and for the foreseeable future, IRG stopped taking wagers and ceased all other operations associated with its business on February 15, 2008. Accordingly, the company recorded a $9.9 million non-cash intangible asset impairment charge, fully reserved for the $1.5 million of cash seized by the government and provided for $0.5 million in severance obligations in the fourth quarter of 2007.

On March 14, 2008, Youbet entered into two separate agreements to resolve the pending investigation into the wagering activities of certain IRG customers being conducted by federal and state authorities in Nevada. Under the terms of an agreement signed with the U.S. Attorney's Office in Las Vegas, the government agreed not to pursue any charges against Youbet or its subsidiaries. In exchange, the company has agreed to continue cooperating with the government in its investigation. Youbet has also agreed not to contest the previously announced seizure of approximately $1.5 million from IRG by the government, an amount which the company had already fully reserved.

Management is assessing strategic alternatives for United Tote, including a possible sale. In connection with this evaluation, on March 25, 2008, we concluded that United Tote goodwill was impaired and recorded a non-cash impairment charge of $8.0 million as of December 31, 2007.

On March 28, 2008, we entered into a second amendment to our credit agreement with Wells Fargo Foothill, Inc., the administrative agent under the credit facility. The more significant terms of this amendment include revising certain financial covenants, providing waivers of our non-compliance as of year end, accelerating the maturity date to January 31, 2009, and providing new scheduled term loan prepayments.

Fourth Quarter 2007 Operating Results

The following table summarizes the key ADW components of revenue in the three-month and twelve-month periods ended December 31, 2007 and 2006. Total revenue was $28.1 million, a decrease of 12% from the prior-year period, based on total handle of $120.0 million, down 34% year-over-year. However, Youbet Express revenue was $21.5 million, down 1% from fourth quarter 2006 based on handle of $106.4 million, a decrease of 9% from the prior-year period. In the fourth quarter of 2006, the company recorded a $1.1 million arbitration settlement with TVG and a $0.8 million additional accrual for the Youbet Player Rewards program. Excluding these charges, the 2006 quarterly yield would have been 6.2%. This compares with a yield of 7.6% in the fourth quarter of 2007, or an improvement of 140 basis points.

For the fourth quarter of 2007, totalizator contract revenue at United Tote of $5.6 million was down 1% compared to the prior-year period, and equipment sales were also $0.1 million lower compared with 2006. Cost of revenue for the fourth quarter 2007 was $4.3 million, an increase of 16% compared to the prior-year period. This increase was primarily attributable to higher data communication and paper costs. Gross profit for the fourth quarter 2007 declined 33% to $1.4 million versus $2.1 million in the prior-year period.

Total operating expenses for the three months ended December 31, 2007 increased $22.9 million to $35.3 million from $12.4 million in the prior-year period. Research and development costs of $1.4 million increased $0.7 million over 2006. Sales and marketing costs of $2.6 million were fairly comparable with 2006 levels. Total general and administrative expense, which includes payroll-related costs, transaction processing fees and professional consulting fees, increased $3.1 million, or 42%, in the fourth quarter of 2007 compared to the fourth quarter of 2006. This increase was attributable to $2.0 million in severance costs – including $1.4 million associated with Chuck Champion's departure – the $1.5 million reserve for the seized IRG funds, $1.0 million in legal costs associated with the IRG investigation, $0.4 million reserved for IRG customer receivables and a $0.3 million increase in the accounts receivable reserve at United Tote. The increase was partially offset by the fact that in 2006 the company incurred non-recurring expenses of $0.9 million related to the settlement of certain local tax matters, $0.4 million of legal fees associated with the TVG arbitration, a $0.4 million payment to the IRS for late filings of W-2G's and $0.4 million in Sarbanes-Oxley and other consulting fees. Depreciation and amortization increased $1.1 million, or 64%, compared to the fourth quarter of 2006, primarily due to higher depreciation expense and intangible amortization expense at United Tote subsequent to the final purchase price allocation completed at year-end 2006. As noted above, the company also recorded a $9.9 million impairment of goodwill related to our shutdown of IRG and an $8.0 million impairment of goodwill related to United Tote.

For the fourth quarter of 2007, the company reported a net loss of $28.7 million, or $0.68 per diluted share compared to a loss of $0.14 per share in the prior-year quarter.

Liquidity and Capital Resources

As of December 31, 2007, we had negative net working capital of $13.3 million, compared to positive working capital of $5.0 million at December 31, 2006 (including the current portion of our deferred tax assets). The decline in working capital primarily relates to a decline in year-over-year earnings, continued pay-down of our term loan by $3.0 million, a one-time make-whole payment to the former owners of United Tote of $4.5 million and a $1.0 million increase in performance earn-out payment to the former owners of IRG. As of December 31, 2007, we had $6.6 million in unrestricted cash and cash equivalents, $8.6 million in restricted cash and $15.2 million in debt. Net cash provided by operating activities for 2007 was $2.0 million. Net cash used in investing activities for 2007 was $9.9 million, of which $3.1 million was associated with the IRG acquisition earn-out and $4.5 million was attributable to a make-whole payment to the former owners of United Tote. Net cash used in financing activities was $6.3 million, with most of this attributed to debt reduction and the repurchase of shares.

During the fourth quarter, we did not repurchase any shares; as of December 31, 2007, we had repurchased a total of 586,766 shares for approximately $1 million. Youbet's $10 million repurchase program allows the company to repurchase up to two million common shares in total by March 2009.

Full Year 2007 Operating Results

Total revenue for 2007 improved 1.3% to $138.2 million from $136.4 million in 2006. Total handle for 2007 decreased 6% to $716.0 million. Handle for 2007 at Youbet Express increased 4%, with yield on this handle improving to 7.2% from 6.4% in the prior year after adjusting for the TVG arbitration settlement charge.

Totalizator service revenue for 2007 improved 8.1% to $23.3 million from $21.6 million in the prior year, largely due to including results for the full year, as United Tote was acquired in mid-February 2006.

For 2007, total cost of revenue decreased by 1.9% compared to 2006; cost of revenue in 2006 included a one-time charge of $1.1 million for an arbitration settlement with TVG. Track fees, licensing fees and network operations experienced favorable year-over-year percentage change reductions of 4%, 10% and 3%, respectively. Contract costs for 2007 increased to $16.6 million from $13.6 million in 2006, with most of the increase due to a full year of results for United Tote in 2007. Gross profit for 2007 increased 8.5% to $46.1 million compared to $42.4 million in the prior year, which includes the one-time TVG arbitration settlement in 2006.

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