YOUBET COM INC, S-3, 1999-04-09

YOUBET COM INC
S-3, 1999-04-09
BLANK CHECKS

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<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 9, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------

FORM S-3

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933
--------------------------

YOUBET.COM, INC.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
DELAWARE 95-4627253
(State or other jurisdiction (I.R.S. Employer
of Identification
incorporation or organization) Number)
</TABLE>

1950 SAWTELLE BOULEVARD, SUITE 180
LOS ANGELES, CALIFORNIA 90025
(310) 445-3300

(Address, including zip code, and telephone number, including
area code, of registrant's principal executive office)

ROBERT M. FELL
CHIEF EXECUTIVE OFFICER
1950 SAWTELLE BLVD., SUITE 180
LOS ANGELES, CALIFORNIA 90025
(310) 444-3300
(Name, address, including zip code, and telephone number, including
area code, of agent of service)
--------------------------

COPIES TO:

GARY N. JACOBS, ESQ. JONATHAN K. LAYNE, ESQ.
CHRISTENSEN, MILLER, FINK, JACOBS, GIBSON, DUNN & CRUTCHER LLP
GLASER, WEIL & SHAPIRO, LLP 333 SOUTH GRAND AVENUE
2121 AVENUE OF THE STARS, 18TH FLOOR LOS ANGELES, CALIFORNIA 90071
LOS ANGELES, CALIFORNIA 90067 (213) 229-7000
(310) 553-3000

--------------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities At of
1933, other than the securities offered only in connection with dividend or
interest reinvestment plans, check the following box / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number on the earlier effective registration statement
for the same offering / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box / /
--------------------------

CALCULATION OF REGISTRATION FEES

<TABLE>
<CAPTION>
PROPOSED PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO MAXIMUM OFFERING AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PRICE PER UNIT(2) PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value $.001 per
share................................ 3,881,250 shares $14.9375 $57,976,172 $16,118
</TABLE>

(1) Includes 506,250 shares of Common Stock covered by an option granted to the
Underwriters to cover over-allotments, if any.
(2) Based on a last reported sale price for the common stock on the
over-the-counter bulletin board of $14.9375 on April 8, 1999.
------------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED APRIL 9, 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE
SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION
WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
YOUBET.COM, INC.

COMMON STOCK

Youbet.com, Inc. is offering shares of common stock and shares
are being sold by certain selling stockholders on the exercise of outstanding
stock purchase warrants. Youbet.com's common stock is currently traded on the
electronic bulletin board under the symbol "UBET." Youbet.com has applied to
have its common stock approved for quotation on the Nasdaq SmallCap Market under
the symbol "UBET" and intends to apply to have its stock approved for quotation
on the Nasdaq National Market. The closing bid for Youbet.com's common stock on
April 8, 1999 on the over-the-counter bulletin board was 14 15/16.

------------------------

INVESTING IN YOUBET.COM'S COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 8.

------------------------

<TABLE>
<CAPTION>
PER SHARE TOTAL
---------- ----------
<S> <C> <C>
Public Offering Price........................................................... $ $
Underwriting Discounts and Commissions.......................................... $ $
Proceeds to Youbet.com.......................................................... $ $
Proceeds to Selling Stockholders................................................ $ $
</TABLE>

THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

The selling stockholders have granted the underwriters a 30-day option to
purchase up to an additional shares of common stock to cover
over-allotments. The underwriters expect to deliver the shares of common stock
to purchasers on , 1999.

------------------------

BANCBOSTON ROBERTSON STEPHENS ING BARING FURMAN SELZ

THE DATE OF THIS PROSPECTUS IS , 1999.
<PAGE>
[GATEFOLD ILLUSTRATION OF THE PROCESS OF PLACING A WAGER -- TO COME]

You should rely only on the information contained in this prospectus.
Youbet.com has not authorized anyone to provide you with information different
from that contained in this prospectus. Youbet.com and the selling stockholders
are offering to sell, and seeking offers to buy, shares of common stock only in
jurisdictions where offers and sales are permitted. The information contained in
this prospectus is accurate only as of the date of this prospectus.

Until [ ], 1999 (25 days after the date of this prospectus), all dealers
that buy, sell or trade Youbet.com's common stock, whether or not participating
in this offering, may be required to deliver a prospectus. This requirement is
in addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.

------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 4
Risk Factors.............................................................. 8
Use of Proceeds........................................................... 17
Dividend Policy........................................................... 17
Capitalization............................................................ 18
Dilution.................................................................. 19
Selected Consolidated Financial Data...................................... 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 21
Business.................................................................. 32
Management................................................................ 47
Principal Stockholders.................................................... 57
Description of Capital Stock.............................................. 59
Shares Eligible for Future Sale........................................... 62
Selling Stockholders...................................................... 64
Underwriting/Plan of Distribution......................................... 64
Legal Matters............................................................. 67
Experts................................................................... 67
Incorporation of Documents by Reference................................... 67
Available Information..................................................... 68
Index to Financial Statements............................................. F-1
Appendix 1................................................................ A-1
</TABLE>

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<PAGE>
PROSPECTUS SUMMARY

BECAUSE THIS IS ONLY A SUMMARY, IT DOES NOT CONTAIN ALL THE INFORMATION THAT
MAY BE IMPORTANT TO YOU. YOU SHOULD READ THE ENTIRE PROSPECTUS, INCLUDING "RISK
FACTORS" AND THE CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES BEFORE
DECIDING TO INVEST IN YOUBET.COM'S COMMON STOCK. UNLESS OTHERWISE INDICATED, ALL
INFORMATION CONTAINED IN THIS PROSPECTUS ASSUMES THAT THE UNDERWRITERS WILL NOT
EXERCISE THEIR OVER-ALLOTMENT OPTION. THIS PROSPECTUS CONTAINS FORWARD-LOOKING
STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. YOUBET.COM'S ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING
STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK
FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.

YOUBET.COM

Youbet.com intends to establish itself as the leading global brand name for
online live event wagering. Wagering on live events such as horse track racing,
car racing, soccer, football, etc., is a large industry. Youbet.com has focused
its efforts primarily on the United States horse track racing industry and
believes that its principal product, the You Bet Network, is currently the only
legal system available for online wagering in the United States. Youbet.com
intends to pursue an aggressive marketing program to build a horse track racing
subscriber base and brand awareness in the United States. At the same time,
Youbet.com plans to pursue the much larger opportunities for live event wagering
offered in international markets.

Youbet.com believes that online communication is an ideal medium for live
event wagering. First, online communication allows bettors instant access to
vast amounts of historical performance data used in assessing potential wagers.
Second, online communication offers the ability to sort and analyze such data in
ways and at speeds that are unachievable manually. Third, online communications
technology allows wagers to be placed from virtually any location within a
jurisdiction where wagering is legal, thus freeing bettors from traditional
site-specific wagering locations. In addition, the speed of electronic
communications allows wagers to be placed and acknowledged in seconds. This
represents a dramatic improvement over alternative methods such as standing in
line at an event venue or waiting on the telephone for a voice transaction. This
shortening of response time is critically important in wagering, since it allows
bettors to place their wager seconds before the closing of the wagering pool.
Finally, online technologies such as streaming audio and video allow an event to
be displayed in real time on a user's PC as it is actually occurring, thereby
allowing the user to experience the event without actually attending in person.
For these reasons, Youbet.com believes that the online-capable PC is the ideal
appliance for wagering.

Youbet.com has chosen to focus initially on horse track racing in the United
States because it is the most widely permitted form of live event wagering.
General sports wagering is legal only in Nevada and to persons physically
located in Nevada. Such wagers may not be taken (by phone or otherwise) from any
bettor outside Nevada. In contrast, 42 states permit pari-mutuel wagering on
horse track racing. Furthermore, certain states provide for "account wagering"
where wagers on horse races are taken from out-of-state bettors, with wins and
losses settled in an account maintained for the bettor by a licensed wagering
entity located in the host state. It is this account wagering activity which
forms the core of Youbet.com's United States business.

Youbet.com's initial product, the You Bet Network, is a PC-based system
which utilizes the communications backbone of the Internet and a closed-loop
private network with Internet access to provide up-to-the minute detailed
information on races taking place at horse tracks nationwide and at selected
international venues. Youbet.com also delivers a live simulcast of selected
horse races directly to the subscriber's computer. In addition, subscribers can
use the You Bet Network to fill out an electronic wagering ticket with a brief
series of mouse-clicks and transmit this information electronically to an
account wagering entity. Youbet.com currently has an account wagering agreement
with Mountain

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<PAGE>
Laurel Racing, Inc., and Washington Trotting Association, Inc., both of which
are subsidiaries of Ladbroke USA (collectivity "Ladbroke"). Ladbroke accepts and
processes wagers into the particular horse track pari-mutuel pool from its hub
in Pennsylvania. Youbet.com transmits electronic information related to wagers
to Ladbroke from the 40 states where Ladbroke currently accepts telephone
wagers. After processing the wager, Ladbroke sends an electronic confirmation to
the bettor through the You Bet Network. The time for the entire process from
information submission to acknowledgment is usually less than three seconds.

YOUBET.COM DOES NOT ACTUALLY ACCEPT OR PLACE ANY WAGERS. Wagers are
accepted and placed only by a state licensed wagering facility, currently
Ladbroke. Youbet.com's role in the wagering process is limited to transmitting
information related to the wagers to the licensed wagering facility.

Youbet.com is not aware of any United States based competitor currently
offering another online or Internet-based wagering product for horse track
racing, and the only prospective competitor of which it is aware is at the
prototype stage of development. Thus, Youbet.com believes that it has a lead
time advantage in the United States horse track racing market. Youbet.com
intends to significantly increase its marketing expenditures in order to further
develop the "Youbet.com" brand name and increase its subscriber base before any
competitor has an opportunity to establish a rival product.

Youbet.com currently derives revenue from the You Bet Network in three ways.
First, it charges a monthly subscription fee, currently $5.95 per month. Second,
it receives a fee from Ladbroke equal to fifty percent (50%) of the net
commissions to Ladbroke derived from wagers placed by Youbet.com subscribers.
Third, it receives revenue from the sale of handicapping information.

Youbet.com believes the international opportunity is dramatically larger and
less restricted than the United States opportunity. Youbet.com believes that
sports wagering on live events is legal in most parts of Europe, Asia, Australia
and Latin America and that wagering on horse track racing is also legal in most
jurisdictions. In many of these jurisdictions, such as Hong Kong and Japan, the
annual amount wagered on horse track racing per capita is several times larger
than is wagered in the United States. Youbet.com believes that it has a
significant opportunity overseas because overseas markets have embraced Internet
gaming to a greater degree than the United States. While there are significantly
more wagering competitors overseas, Youbet.com believes that the market is large
enough to support many competitors profitably.

Youbet.com's strategy is to be the dominant global brand for online live
event wagering. Youbet.com believes that it must significantly increase
expenditures on marketing in order to maximize consumer awareness and increase
the size of its subscriber base before its competitors can respond. To fund this
marketing program, Youbet.com has recently raised significant new capital, and
will use such capital, together with the proceeds of this offering, primarily
for marketing. In addition, Youbet.com intends to establish strategic
relationships with important partners, including content, Internet and
telecommunications providers.

Youbet.com's executive offices are located at 1950 Sawtelle Boulevard, Suite
180, Los Angeles, CA 90025. Youbet.com's telephone number is (310) 444-3300 and
its World Wide Web site is http://www.youbet.com. INFORMATION CONTAINED IN
YOUBET.COM'S WEB SITE SHOULD NOT BE CONSIDERED A PART OF THIS PROSPECTUS.

5
<PAGE>
THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by Youbet.com........... [ ] shares

Common Stock offered by the Selling
Shareholders............................... [ ] shares

Total.................................. [ ] shares

Common Stock to be outstanding after the
offering................................... [ ] shares

Common Stock fully diluted after the
offering................................... [ ] shares

Use of Proceeds.............................. Brand development, marketing expenditures and
development of Youbet.com's infrastructure
worldwide. The balance of the proceeds will
be used for general corporate purposes,
including working capital. See "Use of
Proceeds."
Market Symbol................................ UBET
</TABLE>

Common stock fully diluted after the offering includes 1,051,100 shares
issuable upon conversion of outstanding shares of Series A Convertible Preferred
Stock, 2,081,596 shares issuable upon exercise of outstanding options and
7,586,514 shares issuable upon exercise of outstanding warrants.

Youbet.com's common stock currently trades on the over-the-counter bulletin
board. Youbet.com has applied to have its common stock approved for quotation on
the the Nasdaq SmallCap Market and intends to apply to have its common stock
approved for quotation on the Nasdaq National Market.

6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Set forth below is the consolidated statement of operations data and
operating data for the years ended December 31, 1996, 1997 and 1998, and the
consolidated balance sheet data, as of December 31, 1998, on an actual basis, an
as adjusted basis and a pro forma as adjusted basis. See "Use of Proceeds". This
information should be read in conjunction with Youbet.com's Consolidated
Financial Statements and the related notes appearing elsewhere in this
prospectus.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1996 1997 1998
---------- ---------- ------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................................. $ 0 $ 0 $ 264
Loss from operations...................................................... $ (3,941) $ (6,918) $ (11,096)
Net loss.................................................................. $ (3,865) $ (19,417) $ (13,862)
Net loss per share, basic and diluted..................................... $ (0.67) $ (3.06) $ (1.32)
Weighted average shares outstanding....................................... 5,730 6,355 10,535

OPERATING DATA:
Pari-mutuel handle........................................................ $ 0 $ 0 $ 5,822
Commission on pari mutuel handle.......................................... $ 0 $ 0 $ 264
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------
<S> <C> <C> <C>
AS PRO FORMA AS
ACTUAL ADJUSTED ADJUSTED
--------- --------- -------------
BALANCE SHEET DATA:
Cash........................................................................... $ 1,541 $ 36,670
Working capital................................................................ $ 1,925 $ 37,054
Total assets................................................................... $ 4,653 $ 41,382
Long-term debt................................................................. $ 60 $ 36,789
Total stockholders' equity..................................................... $ 2,793 $ 2,793
</TABLE>

The as adjusted amounts reflect the issuance on April 5, 1999 of 11% Senior
Convertible Discount Notes payable with a principal amount of $45,500,000 for
cash proceeds of $36,728,510 generating net proceeds of approximately
$35,129,000.

The pro forma as adjusted amounts include (1) the sale of the 11% Senior
Convertible Discount Notes and (2) the sale of [ ] shares of common stock in
this offering at an assumed public offering price of $[ ] per share, after
deducting the underwriting discounts and estimated offering expenses payable by
Youbet.com, and the application of the net proceeds from this offering and (3)
the exercise of approximately [ ] warrants with an average exercise price
of approximately $[ ] per share.

7
<PAGE>
RISK FACTORS

THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER
THE RISKS DESCRIBED BELOW BEFORE DECIDING WHETHER TO INVEST IN SHARES OF COMMON
STOCK OF YOUBET.COM. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. THESE STATEMENTS REFER TO FUTURE PLANS AND MAY
USE WORDS SUCH AS "EXPECT," "INTEND," "ANTICIPATE" AND "PLAN". ANY SUCH
FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES, AND ACTUAL RESULTS
MAY DIFFER MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS AS A RESULT
OF MANY UNCERTAINTIES AND OTHER FACTORS.

RISKS RELATED TO WAGERING STATUTES AND REGULATIONS

LEGAL ISSUES CONCERNING ONLINE WAGERING MAY ADVERSELY AFFECT YOUBET.COM

To the extent that Youbet.com's facilities are used by subscribers to place
intrastate or interstate wagers or Youbet.com receives commissions derived from
such wagers, various federal and state statutes and regulations could have a
direct and material adverse effect on Youbet.com's business and indirectly could
have a material adverse effect on the public's demand for Youbet.com's services.
Gaming activities are subject to extensive statutory and regulatory regulation
by both state and federal authorities, and are likely to be significantly
affected by any changes in the political climate and changes in economic and
regulatory policies. Such effects could be materially adverse to Youbet.com.

All 50 states currently have statutes or regulations regarding gaming
activities, and three states have no gaming at all. In most states it is illegal
to place or accept a wager, with specific state-by-state statutory exceptions.
For example, pari-mutuel wagering of some kind is permitted in 42 states. Eight
of these 42 states have statutes which provide for account wagering, and five of
these eight states allow accounts for pari-mutuel wagers to be established from
bettors outside of their state. The adoption of laws or regulations affecting
pari-mutuel wagering or adoption of anti-pari-mutuel wagering policies by any
jurisdiction could have a material adverse effect on Youbet.com's business.

The Federal Interstate Wire Act contains provisions which make it a crime
for anyone in the business of gaming to use an interstate or international
telephone line to transmit information assisting in the placing of wagers,
unless the wagering is legal in the jurisdictions from which and into which the
transmission is made.

Other federal laws impacting gaming activities include the Interstate Horse
Racing Act, the Interstate Wagering Paraphernalia Act, the Travel Act and the
Organized Crime Control Act. Various regulatory and legislative agencies
including the National Gambling Impact Study Commission are conducting studies
of interstate and interactive wagering, and any anti-gaming conclusions they may
reach are likely to be influential.

Federal legislation has been proposed which could limit either the
intrastate or interstate activities Youbet.com engages in or the type of
activities associated with such wagering. Any change in either the substance or
the enforcement of the applicable rules and regulations in these areas could
have an adverse effect on Youbet.com's business and prospects.

Youbet.com believes that its activities conform to those gaming laws and
regulations as currently applied which are applicable to its activities.
However, because there is very little clear statutory and case law authority,
this conclusion is not free from doubt. While it is possible to compare
Youbet.com's activities to applicable statutes, the wording of many such
statutes is ambiguous. Furthermore, there is very little case law to rely upon
for interpretation of these ambiguities. Thus, it is possible that Youbet.com
may be alleged to be in violation of an applicable statute based on an
interpretation of the statute which differs from Youbet.com's and its counsel's
or based on a future change of law or interpretation or enforcement policy. Such
allegations could result in either civil or criminal proceedings brought by
governmental or private litigants. As a result of such proceedings, Youbet.com
could incur substantial litigation expense, fines, diversion of the attention of
key Youbet.com

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<PAGE>
employees, and injunctions or other prohibitions preventing Youbet.com from
engaging in various anticipated business activities. Also, if it were finally
determined that Youbet.com did violate applicable law, then civil damages or
criminal penalties could be imposed and Youbet.com might be barred from pursuing
that activity. Such an outcome would have a material adverse effect on
Youbet.com.

INCREASED GOVERNMENT REGULATION OF INTERNET COMMERCE AND GAMING MAY ADVERSELY
AFFECT YOUBET.COM

Various state legislatures, Congress, and federal and state executive
authorities have proposed laws and regulations directly applicable to online and
Internet gaming which could have a material adverse effect on Youbet.com. Most
prominently, in 1998, a bill sponsored by U.S. Senator Jon Kyl of Arizona and
adopted by a wide margin in the Senate (but ultimately not enacted) would have
prohibited online and Internet gaming, with specified exceptions, including
exceptions for certain horse race wagering and certain "closed-loop" online
systems. However, the latter exceptions were narrow and this 1998 bill, had it
been enacted, would have had a material adverse effect on Youbet.com's business.
Other online and Internet gaming bills have been considered in recent years in
both the Senate and the House of Representatives. Senator Kyl has reintroduced a
new version of his online and Internet Gambling Prohibition Act of 1999. This
1999 Kyl bill (S. 692) contains more broadly drafted exceptions than the 1998
Kyl bill and, if it were enacted in the form in which it was introduced on March
23, 1999, Youbet.com does not believe that the bill would have a material
adverse effect on Youbet.com's business. However, a proposal such as the 1998
Kyl bill could emerge again in Congress; many states are considering Internet
gaming legislation and regulations which may or may not contain exceptions that
would permit Youbet.com's business to continue in such states; and the National
Gambling Impact Study Commission or other legislative or regulatory bodies may
reach influential anti-gaming conclusions which could form the basis for new
laws, regulations, or enforcement policies that could have a material adverse
effect on Youbet.com's business.

TAXES ON WAGERS MAY BE IMPOSED

If one or more governmental authorities successfully asserts that Youbet.com
should collect taxes on wagers it could adversely affect Youbet.com's business.
Youbet.com does not currently collect taxes for wagers, as all wagering
transactions by Youbet.com subscribers are currently processed by Ladbroke at
its facility in Pennsylvania. Ladbroke pays all applicable taxes to the State of
Pennsylvania. However, one or more local, state or foreign jurisdictions may
seek to tax online and Internet wagering when a subscriber is physically within
their jurisdiction at the time the wager is placed. Such taxes if imposed might
have a materially adverse effect on Youbet.com's business.

RISKS RELATED TO YOUBET.COM'S OPERATIONS

YOUBET.COM HAS A LIMITED OPERATING HISTORY

Youbet.com's limited operating experience may not form a sufficient basis on
which to predict future results. Youbet.com commenced development in 1995 of
PC-based proprietary communications software for online entertainment. Its first
service, the You Bet Network, has only recently been introduced and it is a new
business in a rapidly changing field.

YOUBET.COM HAS A HISTORY OF LOSSES AND ANTICIPATES FUTURE LOSSES

Youbet.com has experienced significant losses since its inception and has
financed its operations from the sale of its securities and short-term debt.
Youbet.com incurred net losses of approximately $13.9 million for the fiscal
year ended December 31, 1998. Youbet.com expects operating losses and negative
cash flow to continue at least through 1999 and possibly later. These losses are
expected to increase as Youbet.com increases its levels of spending to implement
its business plan and it is possible that such increases in spending may not
generate sufficient increases in revenue to permit profitable

9
<PAGE>
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Loss from Operations."

YOUBET.COM'S FUTURE OPERATING RESULTS ARE UNPREDICTABLE

Due to Youbet.com's short operating history, results are unpredictable and
may vary on a quarterly basis as a result of a variety of factors. Many of these
factors are outside of Youbet.com's control. These factors include:

- Youbet.com may not be able to attract and retain subscribers to the You
Bet Network;

- Youbet.com may not be successful in maintaining good relations with horse
tracks and other content and information suppliers;

- The introduction of competing wagering services from interactive gaming or
leisure companies may have an adverse effect on Youbet.com's business;

- Youbet.com may not succeed in its brand-building and marketing campaigns;

- Price competition from competing services may become more intense;

- The level of use of online and Internet interactive services, both
domestically and internationally, may not grow as expected;

- There may be a lack of consumer confidence in and acceptance of online and
interactive services for leisure and wagering;

- Youbet.com may not experience the expected increases in volume, size,
timing and completion rates for wagers transmitted through the You Bet
Network;

- There may be technical difficulties or lengthy interruptions in the You
Bet Network;

- Youbet.com may not be able to adequately update and upgrade the You Bet
Network with technological innovations and infrastructure to accommodate
growth;

- Federal or local governmental controls and regulation may change and
become less favorable; and

- General economic conditions and economic conditions specific to online and
Internet interactive activity may be depressed.

YOUBET.COM MAY NEED ADDITIONAL CAPITAL

Youbet.com intends to establish Youbet.com as a brand name by significantly
increasing expenditures on marketing, advertising and product development both
domestically and internationally. To the extent that such increases in
expenditures are not followed by increases in revenues, Youbet.com will be
adversely affected financially.

Youbet.com currently anticipates that the net proceeds of this offering,
together with existing capital resources, will be sufficient to meet
Youbet.com's capital requirements for the next 12 months. In the event
additional capital is required to fund operating losses or other capital needs,
Youbet.com may not be able to obtain such capital or such capital may be
available on terms which are unfavorable to Youbet.com or its stockholders. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

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<PAGE>
YOUBET.COM FACES STRONG COMPETITION FROM THE TELEVISION GAMES NETWORK AND OTHERS

Youbet.com expects that competition from an interactive cable channel known
as the "Television Games Network" and others will become more intense and that
new companies will enter the market. The Television Games Network is owned by TV
Guide, Inc. and has access to substantial resources.

The Television Games Network has announced that it has formed exclusive
relationships with a number of major United States horse tracks. Further
expansion of the Television Games Network's exclusive relationships may make it
difficult for Youbet.com to obtain quality racing content to supply the You Bet
Network. If such exclusive relationships account for a significant number of
horse tracks, the Television Games Network may be able to secure additional
horse tracks at more favorable terms than Youbet.com.

Worldwide, numerous Internet and other interactive ventures have been
announced. Youbet.com expects to compete with these entities, as well as other
established companies which may enter the interactive, pari-mutuel gaming
market. Many of Youbet.com's other current and potential competitors have far
greater resources than Youbet.com. See "Business--Competition."

YOUBET.COM CURRENTLY RELIES HEAVILY ON ITS RELATIONSHIP WITH LADBROKE

Youbet.com expects to obtain a majority of its future revenues from fees
derived as a percentage of Ladbroke's net commissions on amounts wagered through
the You Bet Network. Accordingly, Youbet.com is highly dependent on maintaining
its online connection with Ladbroke's wagering system. Any system interruption
or malfunction at Ladbroke which inhibits its ability to process wagers from the
You Bet Network may adversely affect Youbet.com's business. Additionally,
Ladbroke's termination of its agreement with Youbet.com, whether due to an
intentional breach or due to Ladbroke's inability to comply with its terms,
would also adversely affect Youbet.com's business. See "Business--Strategic
Relationships."

CREDIT CARD COMPANIES MAY REFUSE TO PROCESS YOUBET.COM ACCOUNTS OR WAGERING
ACCOUNTS

Due to perceived legal uncertainty surrounding online live event wagering,
credit card companies may as a policy refuse to process wagering account
transactions for Ladbroke or any other account wagering entities with whom
Youbet.com has a relationship. Additionally, although Youbet.com does not
actually accept or place any wagers, credit card companies may also be hesitant
to process fees and online transactions by Youbet.com subscribers for the You
Bet Network and other handicapping products. This would limit the methods of
payment available to Youbet.com subscribers, lowering the convenience of the You
Bet Network and may make competitive services more attractive. This may
adversely affect Youbet.com's business and its relationship with account
wagering entities.

YOUBET.COM RELIES ON CONTENT PROVIDERS

Youbet.com is largely dependent upon negotiating and maintaining agreements
with third party information providers and horse tracks for much of the audio,
video and other content presented on the You Bet Network. Youbet.com does not
have exclusive relationships with any content providers. Youbet.com and Ladbroke
may not be able to negotiate or renew acceptable agreements with such third
parties on a timely basis or under acceptable terms and conditions.

As of the date of this prospectus, Youbet.com and Ladbroke have agreements
which allow a subscriber to obtain simulcast audio and video signals from 24
horse tracks. These horse tracks may terminate the agreements. Youbet.com
strives to improve its content and may not be able to obtain such agreements for
such additional content from other providers or may lose providers, especially
in light of the efforts of competitors, such as the Television Games Network, to
enter into exclusive contracts with such providers.

11
<PAGE>
YOUBET.COM MAY HAVE DIFFICULTY MAINTAINING ITS TECHNOLOGICAL POSITION

Youbet.com's performance depends on its ability to develop, license or
acquire new technologies to enhance its existing services in a time effective
manner. Youbet.com may not be able to maintain its competitive technological
position against current and potential competitors, especially those with
greater financial resources. Youbet.com relies on its software technology to
give it a competitive advantage. This software operates the You Bet Network and
runs on subscribers' PCs. Although Youbet.com is exploring the possibility of
additional intellectual property protection, its software is not currently
protected by patents or copyrights. Youbet.com's main technological advantage
versus potential competitors is its software lead-time in the market and
Youbet.com's experience in operating a wagering network. Therefore, if
competitors introduce new products and services which are based on the You Bet
Network, Youbet.com may have little recourse and its business could be adversely
affected.

INTERNATIONAL EXPANSION EFFORTS MAY NOT SUCCEED

Youbet.com is exploring international relationships and joint ventures to
facilitate the international deployment of sports wagering networks similar to
the United States launch of the You Bet Network. However, there are many risks
in doing business on an international basis, including:

- Potential online live wagering networks, offered by competitors with
greater resources;

- Satisfying different and possibly conflicting regulatory requirements;

- Foreign currency exchange rate fluctuations;

- Legal uncertainty regarding liability;

- Tariffs, and other trade barriers;

- Difficulties in staffing and managing foreign operations;

- Longer payment cycles and problems in collecting account receivables;

- Different accounting practices;

- Political instability;

- Seasonal reductions in business activity; and

- Potentially adverse tax consequences.

Any of these risks could affect the success of Youbet.com's international
expansion. Also, Youbet.com may not be able to successfully establish itself
internationally. See "Business--Youbet.com International Initiatives."

SYSTEM DAMAGE OR FAILURE MAY ADVERSELY AFFECT YOUBET.COM

Youbet.com's systems are vulnerable to damage from earthquake, fire, floods,
power loss, telecommunications failures, break-ins and other unforseen events.
Youbet.com's business is dependent upon its communications hardware and computer
hardware, substantially all of which are located at a leased facility in Los
Angeles, California. Youbet.com has built in certain redundancies in its systems
in case of a system failure or damage, but does not have duplicate geographic
locations for its site of operations. A substantial interruption in its systems
would adversely affect Youbet.com's business.

Youbet.com has property and business interruption insurance covering damage
or interruption of Youbet.com's systems. However, this insurance may not
compensate Youbet.com for all losses that may occur.

12
<PAGE>
YOUBET.COM IS SUBJECT TO ONLINE SECURITY RISKS

If Youbet.com's systems and controls are unable to handle online security
risks, its business will be adversely affected. Youbet.com uses packet filters,
fire walls, and proxy servers which are all designed to control and filter the
data allowed to enter Youbet.com's data center. However, advances in computer
capabilities, new discoveries in the field of cryptography, or other events or
developments may make it easier for someone to compromise or breach the
technology used by Youbet.com to protect subscribers' transaction data. If such
a breach of security were to occur, it could cause interruptions in service and
loss of data or cessation in service to subscribers of Youbet.com. This may also
allow someone to introduce a "virus," or other harmful component to the You Bet
Network causing an interruption or malfunction.

To the extent that activities of Youbet.com involve the storage and
transmission of information such as credit card numbers, security breaches could
damage Youbet.com's reputation and expose Youbet.com to a risk of loss or
litigation and possible liability. Youbet.com's insurance policies may not be
adequate to reimburse Youbet.com for losses caused by such security breaches.

YOUBET.COM DEPENDS ON THE COMMUNICATIONS INFRASTRUCTURE OF THE INTERNET FOR
TRANSMITTING WAGERING INFORMATION

Youbet.com utilizes electronic communications and the Internet
infrastructure to send and receive information to and from subscribers, Ladbroke
and other suppliers. Youbet.com's future success will depend, in significant
part, upon the maintenance and growth of this infrastructure and any failure or
interruption may have a material adverse effect on Youbet.com's business. This
infrastructure is necessary to economically transmit the large amounts of audio
and video data which comprise a broadcast of a horse track racing event. To the
extent that this infrastructure continues to experience increased numbers of
users, increased frequency of use or increased bandwidth requirements of users,
Youbet.com cannot be certain that this infrastructure will be able to support
the demands placed on it or that the performance or reliability of this
infrastructure will not be adversely affected.

Outages and delays in sending or receiving data as a result of damage to
portions of this infrastructure could also affect Youbet.com's subscribers
ability to transmit wagering information or Ladbroke's ability to process such
information. This will also have an adverse effect on Youbet.com's business.

YOUBET.COM MAY FACE LIABILITY FOR CONTENT AND INFORMATION TRANSMITTED ON THE YOU
BET NETWORK

Youbet.com may face potential direct and indirect liability for negligence,
copyright, patent or trademark infringement, and other claims based upon the
content and data which Youbet.com makes available or sells to subscribers. If
Youbet.com were to be found liable, it would have an adverse effect on
Youbet.com's business. For example, by distributing an incorrect past
performance report, a subscriber may claim he relied on such information and
suffered a monetary loss. Computer failures may also result in incorrect data
being distributed. In these and other instances, Youbet.com may be required to
engage in long and expensive litigation, which could have the effect of
diverting management's attention and require the expenditure of significant sums
of money. Youbet.com's liability insurance may not cover all of these claims or
may not be adequate to protect against all liability that may be imposed. Any
such claims or resulting litigation could have a material adverse effect on
Youbet.com's business.

YOUBET.COM MAY EXPERIENCE PROBLEMS WITH RAPID GROWTH

In order to grow the You Bet Network, Youbet.com will be required to improve
existing transaction processing and operational systems and to train and grow
its number of employees. Youbet.com's current and planned management systems and
controls may not be adequate to support

13
<PAGE>
such growth. Additionally, Youbet.com's management may not succeed in expanding
and exploiting existing and potential strategic relationships and market
opportunities. The failure of Youbet.com to expand effectively could have a
material adverse effect on Youbet.com's business, results of operations and
financial condition.

YEAR 2000 RISKS MAY ADVERSELY AFFECT YOUBET.COM

System failure or miscalculations resulting from the year 2000 risk could
disrupt Youbet.com's operations, resulting in, among other things, a temporary
inability to process transactions, send wagering confirmations or engage in
similar normal business activities. The year 2000 risk is the result of computer
programs being written using two digits rather than four digits to define the
applicable year. Computer programs that have sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000.

Based on an internal assessment, Youbet.com believes that its software
programs, both those developed internally and purchased from outside vendors,
are already year 2000 compliant or will be by December 31, 1999. However, any
failure of Youbet.com's software to properly process dates for the year 2000
could require Youbet.com to incur unanticipated expenses. This could have an
adverse effect on Youbet.com's business. Also, Youbet.com may suffer a system
failure if any third party supplier of content or software, such as Ladbroke, is
not fully year 2000 compliant. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Impact of the Year 2000."

YOUBET.COM DEPENDS ON KEY PERSONNEL

Youbet.com depends on the services of its senior management, which if not
available might have a material adverse effect on Youbet.com. While certain
members of senior management are parties to employment or services agreements
with Youbet.com, none of these agreements are long-term, and none prohibit an
employee from terminating such an agreement. Additionally, Youbet.com has not
yet filled certain key positions in its management team, which management
believes are crucial to Youbet.com's development, including a senior marketing
executive. Youbet.com's future success depends on its ability to identify,
attract, hire, train, retain and motivate highly skilled technical, managerial,
marketing and customer service personnel. Competition for such personnel is
intense and Youbet.com may not be able to retain and attract such employees.
Also, at the present time Youbet.com does not carry any key personnel life
insurance.

RISKS RELATED TO THE OFFERING

YOUBET.COM HAS A SIGNIFICANT AMOUNT OF DEBT

Youbet.com has a significant amount of debt outstanding consisting primarily
of $45.5 million principal amount of 11% Senior Convertible Discount Notes and
has approximately $2.8 million of stockholders' equity. The degree to which
Youbet.com is leveraged could have important consequences to the stockholders,
including the following:

- Youbet.com's ability to obtain additional financings for working capital,
capital expenditures, acquisitions or general corporate purposes may be
impaired;

- Commencing in October 2001, Youbet.com must pay interest on its notes
leaving less funds for other purposes;

- Youbet.com may be at a competitive disadvantage to its less leveraged
competitors; and

- Youbet.com may be more vulnerable to a downturn in general economic
conditions.

If Youbet.com were to be in default under the notes for any reason, there can be
no assurance that any assets will remain for Youbet.com's stockholders after
payment of amounts owed to the noteholders.

14
<PAGE>
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations-- Liquidity and Capital Resources."

YOUBET.COM'S OFFICERS AND DIRECTORS EXERCISE VOTING CONTROL OVER YOUBET.COM

In June, 1998 the Robert M. Fell Living Trust, David Marshall, Russell Fine
and other stockholders, entered into a stockholders agreement, whereby they
collectively exercise voting control over Youbet.com in the election of
directors. Under the agreement, the parties agreed to vote all shares of
Youbet.com's Series A Convertible Preferred Stock and common stock owned by them
for the election to the board of directors of four persons designated by Mr.
Fell and three persons designated by Messrs. Marshall and Fine. After completion
of this offering, assuming no exercise of the over-allotment option, the parties
to the stockholders agreement will beneficially own Youbet.com securities
representing approximately [ %] of the voting power of Youbet.com. As a result
of the ability to designate four directors as provided in the stockholders
agreement, Robert M. Fell may be deemed to control Youbet.com. This stockholders
agreement terminates in June, 2000. Additionally, upon completion of the
offering, the officers and directors of Youbet.com as a group will control,
either directly or by reason of the stockholders agreement, [ %] of the voting
power of Youbet.com. See "Principal Stockholders."

MANAGEMENT HAS BROAD DISCRETION OVER ALLOCATION OF PROCEEDS

Youbet.com's management will retain broad discretion as to the allocation of
the proceeds of this offering, estimated at approximately [ ], to Youbet.com.
The failure of management to apply such funds effectively would have a material
adverse effect on Youbet.com's business. See "Use of Proceeds."

PURCHASERS OF COMMON STOCK WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION

At the offering price of $[ ] per share, purchasers of shares of common
stock will incur immediate and substantial dilution of $[ ] per share in the
net tangible book value of their purchased shares of common stock. See
"Dilution." Investors may also experience substantial additional dilution as a
result of the issuance and exercise of stock options or warrants. See "Shares
Eligible for Future Sale," and "Description of Capital Stock--Registration
Rights."

YOUBET.COM DOES NOT INTEND TO PAY DIVIDENDS

Youbet.com does not anticipate paying any cash dividends on its common stock
to its stockholders for the foreseeable future. Youbet.com intends to retain
future earnings, if any, for use in the operation and expansion of its business.
In addition, the 11% Senior Convertible Discount Notes contain, and it is
probable that any debt financing agreements entered into by Youbet.com in the
future will contain, restrictions on Youbet.com's ability to declare dividends.
See "Dividend Policy."

YOUBET.COM'S NASDAQ LISTING APPLICATIONS MAY NOT BE APPROVED

Although Youbet.com has applied to have its common stock approved for
quotation on the Nasdaq SmallCap Market and intends to apply to have its common
stock approved for quotation on the Nasdaq National Market, these applications
may not be approved. In such event, Youbet.com's stock will continue to trade on
the over-the-counter bulletin board, although Youbet.com may consider applying
to list the common stock on a national or regional securities exchange or
reapplying to Nasdaq.

15
<PAGE>
YOUBET.COM'S COMMON STOCK MAY EXPERIENCE EXTREME PRICE AND VOLUME FLUCTUATIONS

The stock markets in general, the Nasdaq SmallCap Market, the Nasdaq
National Market and the market for Internet/online companies in particular, have
experienced extreme price and volume fluctuations that have often been unrelated
or disproportionate to the operating performance of such companies. The trading
prices of many technology companies' stocks are at or near historical highs and
reflect valuations substantially above historical levels. These trading prices
and valuations may not be sustainable. In the past, following periods of
volatility in the market price of a company's securities, securities class
action litigation has often been instituted against such a company. Such
litigation, if instituted against Youbet.com, could result in substantial costs
which would have a material adverse effect on Youbet.com's business.

SHARES ELIGIBLE FOR FUTURE SALE MAY NEGATIVELY AFFECT TRADING PRICE

After the offering, sales of Youbet.com's common stock in the public market
(including on the exercise of stock options and warrants), may negatively affect
the market price of the common stock. This could also lessen Youbet.com's
ability to sell equity or equity related securities at a future time. Presently,
Youbet.com has outstanding 14,314,731 shares of common stock and Series A
Convertible Preferred Stock convertible into 1,051,100 shares of common stock,
of which 10,001,845 restricted shares of common stock and common stock
equivalents are eligible or will become eligible for sale in the public markets
under Rule 144 within the next six months. The underwriters are requiring the
officers and directors of Youbet.com to agree not to sell any shares of common
stock in the public market for 210 days following completion of this offering
without the consent of the underwriters. Youbet.com has agreed to register by
September 30, 1999 the common stock into which the 11% Senior Convertible
Discount Notes may be converted (approximately 4,550,000 shares at the present
conversion rate, assuming conversion on April 5, 2001). Additionally, the
holders of the 11% Senior Convertible Discount Notes have agreed not to sell any
such shares in the public market for 180 days following completion of this
offering without the consent of the underwriters. Additionally, Youbet.com has
outstanding 9,668,110 stock options and warrants. Youbet.com intends within the
next twelve months to register the common stock underlying such warrants and
options, so these additional shares may be available for resale and be an
"overhang" on the public market for Youbet.com's common stock.

YOUBET.COM IS SUBJECT TO ANTI-TAKEOVER PROVISIONS

Delaware law provisions which are not opted out of by Youbet.com's
Certificate of Incorporation and Bylaws could make it more difficult for a third
party to acquire Youbet.com, even if doing so would be beneficial to
Youbet.com's stockholders. Additionally, Youbet.com's Certificate of
Incorporation authorizes the board of directors to issue up to 1,000,000 shares
of preferred stock, in one or more series and permits the board of directors to
fix the rights, preferences, powers and designations of such series without a
stockholders vote. Depending on the terms of any such series, such preferred
stock may discourage attempts to acquire Youbet.com. See "Description of Capital
Stock."

The holders of the 11% Senior Convertible Discount Notes may call the notes
due and payable upon a "change in control" of Youbet.com. "Change in control"
includes a sale of substantially all of Youbet.com's assets, an acquisition of
20% or more of the voting power of Youbet.com by a "group" of affiliated persons
within the meaning of Section 13(d) of the Securities and Exchange Act of 1934,
as amended, the acquisition by Youbet.com of more than 30% of its capital stock
outstanding immediately prior to such acquisition, the payment of a dividend or
other distribution to Youbet.com's stockholders in an amount that is 30% or more
of the fair market value of Youbet.com's outstanding capital stock immediately
prior to such distribution or dividend, or the acquisition by a person or
affiliated group of the power to elect or appoint the majority of Youbet.com's
board of directors.

16
<PAGE>
USE OF PROCEEDS

The net proceeds to Youbet.com from the offering, after deducting
underwriting discounts and commissions and estimated offering expenses payable
by Youbet.com, are estimated to be approximately $[ ] million at an assumed
offering price of $[ ] per share. Additionally, since the shares sold by the
selling stockholders will be purchased from Youbet.com on the exercise of
warrants, Youbet.com anticipates receiving approximately [ ] of proceeds
from the exercise of such warrants (assuming the over-allotment option is not
exercised). Youbet.com intends to use up to approximately $[ ] million of such
proceeds for its marketing and brand development expenditures and for
development of Youbet.com's international expansion. The balance of the proceeds
will be used for general corporate purposes, including working capital.

DIVIDEND POLICY

Youbet.com has never declared or paid any dividends on its common stock.
Youbet.com intends to retain any future earnings for use in the operation and
expansion of its business. Consequently, Youbet.com does not anticipate paying
any cash dividends on its common stock to its stockholders for the foreseeable
future. Furthermore, under the terms of the 11% Senior Convertible Discount
Notes Youbet.com may not declare or pay dividends and the ability to do so in
the future may be further limited by the terms of any then-existing credit
facilities which may contain covenants restricting the payment of cash
dividends.

17
<PAGE>
CAPITALIZATION

The following table sets forth, as of December 31, 1998, the capitalization
of Youbet.com on an actual basis, an as adjusted basis and a pro forma as
adjusted basis. See "Use of Proceeds." This information should be read in
conjunction with Youbet.com's Consolidated Financial Statements and the related
notes appearing elsewhere in this prospectus.

<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------------------------------
<S> <C> <C> <C>
PRO FORMA
ACTUAL AS ADJUSTED AS ADJUSTED
-------------- -------------- --------------
Long-Term Debt:
11% Senior Convertible Discount Notes.......................... $ 0 $ 36,728,510 $ 36,728,510
Other long-term debt........................................... 60,134 60,134 60,134
-------------- -------------- --------------
Total long-term debt....................................... 60,134 36,788,644 36,788,644

Stockholders' equity:
Series A Convertible Preferred Stock, $.001 par value
(aggregate liquidation preference of $2,677,750;
authorized--1,000,000 shares; 107,110 issued and
outstanding.................................................. 107 107 107
Common stock, $.001 par value; authorized--50,000,000 shares
issuable--13,970,268 shares issued and outstanding on an
actual basis and on an as adjusted basis, and [ ] shares
issued and outstanding on a pro forma adjusted basis......... 13,970 13,970 0
Additional paid-in capital..................................... 42,326,397 42,326,397 0
Accumulated deficit during development stage................... (37,825,941) (37,825,941) (37,825,941)
Deferred compensation.......................................... (1,161,372) (1,161,372) (1,161,372)
Stock notes receivable......................................... (560,000) (560,000) (560,000)
-------------- -------------- --------------
Total stockholders' equity................................. 2,793,161 2,793,161 0
-------------- -------------- --------------
Total Capitalization..................................... $ 2,853,295 $ 39,581,805 $ 0
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>

18
<PAGE>
DILUTION

The pro forma net tangible book value of Youbet.com as of December 31, 1998,
was $[ ] million, or $[ ] per share of common stock. Pro forma net tangible
book value per share is equal to the amount of Youbet.com's total tangible
assets (total assets and total liabilities), divided by the number of shares of
common stock outstanding as of December 31, 1998. Assuming (1) the sale by
Youbet.com of [ ] shares of common stock offered in this offering at an
assumed public offering price of $[ ] per share, and the application of the
estimated net proceeds from this offering, and (2) the exercise of approximately
[ ] warrants with an average exercise price of $[ ] per share,
Youbet.com's pro forma net tangible book value as of December 1998 would have
been $[ ] million, or $[ ] per share of common stock. This represents
an immediate increase in pro forma net tangible book value of $[ ] per
share to existing investors and immediate dilution of $[ ] per share for new
investors. The following table illustrates this per share dilution:

<TABLE>
<S> <C>
Assumed public offering price per share..............................................
Pro forma net tangible book value per share as of December 31, 1998................
Pro forma increase attributable to new investors...................................

Pro forma net tangible book value per share after the offering.......................
</TABLE>

The following table summarizes, on a pro forma basis as of December 31,
1998, the total number of shares of common stock purchased from Youbet.com, the
total consideration paid to Youbet.com and the average price per share paid by
existing stockholders and by new investors.

<TABLE>
<CAPTION>
TOTAL CONSIDERATION
SHARES PURCHASED
------------------------ ------------------------ AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders........................................

New investors................................................

Total..................................................
</TABLE>

If the underwriters' over-allotment option is exercised in full, the number
of shares of common stock held by existing stockholders will be reduced to
[ ] or [ ]% of the total number of shares of common stock to be
outstanding after this offering, and will increase the number of shares of
common stock held by the new investors to [ ] shares, or [ ]% of the
total number of shares of common stock to be outstanding immediately after this
offering. See "Principal Stockholders."

19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Youbet.com's Consolidated Financial Statements
and the related notes included elsewhere in this prospectus. The selected
consolidated statement of operations data for the years ended December 31, 1996,
1997 and 1998 and the selected consolidated balance sheet data as of December
31, 1997 and 1998 are derived from Youbet.com's audited Consolidated Financial
Statements included elsewhere in this prospectus. The selected consolidated
statement of operations data for the years ended December 31, 1994 and 1995 and
the selected consolidated balance sheet data as of December 31, 1995 are derived
from Youbet.com's audited Consolidated Financial Statements not included in this
prospectus.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1995
THROUGH
1994 1995 1996 1997 1998 1998
--------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................................... $ 0 $ 0 $ 0 $ 0 $ 264 $ 264
Operating Expenses:
Network operations............................. 0 0 221 665 1,287 2,173
Research and development....................... 2 318 1,390 1,254 1,267 4,229
Sales and marketing............................ 0 0 664 711 1,405 2,780
General and administrative..................... 107 193 1,441 1,804 2,741 6,179
Depreciation and amortization.................. 0 3 123 308 397 831
Non-cash compensation.......................... 0 38 102 2,176 4,263 6,579
--------- --------- --------- ---------- ---------- ----------
Total Operating Expenses....................... 109 552 3,941 6,918 11,360 22,771

Loss from operations............................. (109) (552) (3,941) (6,918) (11,096) (22,507)

Net interest income (expense).................... (24) (20) 63 (389) (261) (607)
Other income (expense)........................... 184 170 13 (12,110) (2,505) (14,432)

Net income (loss)................................ $ 51 (402) (3,865) (19,417) (13,862) (37,546)
--------- --------- --------- ---------- ---------- ----------
--------- --------- --------- ---------- ---------- ----------
Net income (loss) per share, basic and diluted... $ 0.15 (0.59) (0.67) (3.06) (1.32)
Weighted average shares outstanding.............. 343 678 5,730 6,355 10,535

OPERATING DATA:
Pari-mutuel handle............................... $ 0 $ 0 $ 0 $ 0 $ 5,822
Commission on pari-mutuel handle................. $ 0 $ 0 $ 0 $ 0 $ 264
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1995 1996 1997 1998
--------- --------- ---------- ----------

<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash............................................. $ 3,298 $ 87 $ 53 $ 1,541
Working capital (deficit)........................ $ 3,027 $ (1,375) $ (2,739) $ 1,925
Total assets..................................... $ 3,417 $ 1,311 $ 1,004 $ 4,653
Long-term debt................................... $ 312 $ 98 $ 0 $ 60
Total stockholders' equity (deficit)............. $ 3,105 $ (405) $ (1,848) $ 2,793
</TABLE>

The statement of operations data and balance sheet data for the years ended
December 31, 1994 and 1995 are not relevant to Youbet.com's present operating
history because Youbet.com has been engaged in its current business only since
mid-1995.

The cumulative amounts for 1995 through 1998 represent the period Youbet.com
was in the development stage.

20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF YOUBET.COM, SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND THE RELATED NOTES INCLUDED ELSEWHERE IN THIS
PROSPECTUS. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. YOUBET.COM'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM
THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS
FACTORS, INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH UNDER "RISK FACTORS" AND
ELSEWHERE IN THIS PROSPECTUS.

OVERVIEW

Youbet.com intends to establish itself as the leading global brand name for
online live event wagering. Youbet.com has initially focused its efforts
primarily on the United States horse track racing industry and believes that its
principal product, the You Bet Network, is currently the only legal system
available for online wagering in the United States. Youbet.com believes that
online communication is an ideal medium for live event wagering. First, online
communication allows bettors instant access to vast amounts of historical
performance data used in assessing potential wagers. Second, online
communication offers the ability to sort and analyze such data in ways and at
speeds that are unachievable manually. Third, online communication technology
allows wagers to be placed from virtually any location within a jurisdiction
where wagering is legal, thus freeing bettors from traditional site-specific
wagering locations. In addition, the speed of electronic communication allows
wagers to be placed and acknowledged in seconds.

Youbet.com's initial product, the You Bet Network, is a PC-based system
which utilizes the infrastructure of the Internet and a closed-loop private
network with Internet access to provide up-to-the minute detailed information on
races taking place at horse tracks nationwide. Youbet.com also delivers a live
simulcast of most of these races directly to the subscriber's computer. In
addition, subscribers can use the You Bet Network to transmit information and
thereby facilitate wagers, using the system's icon-driven menus to fill out an
electronic betting ticket with a brief series of mouse-clicks. The information
is then transmitted electronically to a licensed account wagering entity,
currently Ladbroke. Ladbroke accepts and processes the wager from its hub in
Pennsylvania. After processing the wager, Ladbroke sends an electronic
confirmation to the bettor through the You Bet Network. The round-trip time from
information submission to acknowledgment is usually less than three seconds.

Youbet.com currently derives revenue from the You Bet Network in three ways.
First, it charges a monthly subscription fee, currently $5.95 per month. Second,
it receives a fee from Ladbroke equal to fifty percent (50%) of the net
commissions to Ladbroke derived from wages placed by Youbet.com subscribers.
Third, it receives revenue from the sale of handicapping information.

Since mid-1995, Youbet.com has been engaged in developing the You Bet
Network, its first service being offered to subscribers. Youbet.com has incurred
substantial software development costs since inception, which have been charged
to operations as research and development costs. Management believes that the
technological feasibility of Youbet.com's proprietary software technology was
established during the year ended December 31, 1998.

As of December 31, 1998 Youbet.com was considered to be a development stage
entity as it had not realized a significant amount of revenues from planned
principal operations. During 1995, Youbet.com shifted its business strategy by
de-emphasizing consulting services and software licensing, as a result of which
Youbet.com became a development stage company.

Youbet.com has expanded its operations in recent years and has grown from 38
employees at December 31, 1996 and 1997 to 51 employees at December 31, 1998.
Youbet.com expects to add

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<PAGE>
additional personnel in the United States and plans to commence operations and
add personnel internationally as operations expand. Youbet.com currently expects
to significantly increase its operating expenses in order to grow its sales and
marketing operations, expand in international markets and upgrade and enhance
its service and technologies. As a result of these and other factors, Youbet.com
expects to incur significant losses at least through 1999.

Youbet.com has incurred significant losses since inception, and as of
December 31, 1998 had an accumulated net loss of $37,546,000. Included in this
accumulated deficit is $20,940,000 in non-cash expenses related to the recording
of the fair value of warrants and stock options charged to operations over the
period of benefit, discount on conversion of bridge loans, accounts payable and
employee deferred salaries into common stock and warrants, and the release of
forfeiture provisions on certain shares of common stock. The recognition of
these expenses did not affect working capital, net stockholders' equity
(deficiency) or cash flows. The remaining deferred compensation at December 31,
1998 of $1,161,000 is expected to be amortized as compensation during 1999
($930,000) and subsequent years. Youbet.com does not expect that these types of
costs will continue at the previous levels.

On January 22, 1999 Youbet.com became the successor to You Bet
International, Inc. through a merger transaction. The subsidiaries of You Bet
International, Inc. (You Bet!, Inc., a Delaware corporation, and Middleware
Telecom Corporation, a California corporation) were also merged into Youbet.com.

On December 6, 1995, Continental Embassy Acquisition, Inc. ("CEA"), which
was organized in the State of Utah in 1987 for the purpose of raising capital
and acquiring a suitable business opportunity through a merger with, or
acquisition of, a private business enterprise, acquired 100% of the outstanding
capital stock of You Bet!, Inc., a Delaware corporation (formerly know as PC
Totes, Inc.), in exchange for the issuance of 5,800,000 shares of common stock,
including 5,710,000 shares of common stock to David M. Marshall and Russell M.
Fine (who were the founders of Youbet.com's predecessor entity), their nominees
and a stockholder related to one of the officers. Concurrent with this
transaction, CEA reincorporated in the State of Delaware and changed its name to
You Bet International, Inc., and the management of You Bet!, Inc. became the
management of You Bet International, Inc. For accounting purposes, the
acquisition of You Bet!, Inc. by You Bet International, Inc. has been treated as
a reverse acquisition of You Bet!, Inc. with You Bet!, Inc. considered the
acquirer. Concurrent with this transaction, 100% of the capital stock of
Middleware Telecom Corporation was contributed by its stockholders, who were
substantially the same as the stockholders of You Bet!, Inc. to You Bet!, Inc.
for no additional consideration. Youbet.com also effected a 1 for 1.5 reverse
stock split of its common stock in December 1995.

At the time of the reverse merger in December 1995, PC Totes, Inc. had over
eight years of experience developing computer-based wagering systems. In 1987,
PC Totes, Inc. developed a PC-based "totalisator" system that is used to operate
the wagering systems at horse and dog racing tracks. The totalisator system is
called the "PC Tote" and includes facilities for infield scoreboards, closed
circuit television and numerous types of customer ticket issuing machines.

CONSOLIDATED RESULTS OF OPERATIONS--YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

REVENUES

Youbet.com commenced recognizing revenues from operations during the year
ended December 31, 1998. Revenues during 1998 were $264,000, representing
Youbet.com's commission on the gross amount of each wager placed by its
subscribers. Youbet.com did not charge monthly subscription fees for its service
in 1998.

22
<PAGE>
In June 1997, Youbet.com and Ladbroke entered into a Telecommunication
Facilitation Agreement which expires in November 2002. Under the agreement,
Youbet.com provides Ladbroke with an interactive graphics interface to the You
Bet Network whereby Youbet.com's subscribers who have established accounts with
Ladbroke's Call-A-Bet System in Pennsylvania are able to communicate
interactively with Ladbroke using their PCs to transmit wagering information to
Ladbroke. The agreement provides for Youbet.com to receive a fee from Ladbroke
equal to fifty percent (50%) of the net commissions to Ladbroke derived from
wages placed by Youbet.com subscribers who use the Call-A-Bet System either
through the computer graphics interface provided by Youbet.com or more
traditional telephone communication. The Ladbroke agreement contains provisions
allowing the termination of the agreement by either party at any time prior to
January 2003, in the event that net commissions are, or are projected in good
faith by either party to the agreement, to be less than $1,000,000 for either
the initial eighteen month period beginning January 1998 and ending June 1999,
or for any full twelve month period during the term of the agreement subsequent
to the initial eighteen month period.

During the year ended December 31, 1998, 100% of Youbet.com's revenues were
generated from the Ladbroke agreement, and Youbet.com expects that approximately
60% of its revenues during the year ending December 31, 1999 will also be
generated from the Ladbroke agreement. Youbet.com currently estimates that net
commissions will exceed $1,000,000 during the initial eighteen month period
beginning January 1998 and ending June 1999. However, should net commissions be
less than $1,000,000 during such eighteen month period, Ladbroke could elect to
terminate the agreement, which could have a material adverse effect on
Youbet.com.

OPERATING EXPENSES

NETWORK OPERATIONS. Network operations costs consist primarily of salaries
and costs to support the closed-loop private network. Network operations costs
increased by $622,000 or 93.5% to $1,287,000 in 1998 from $665,000 in 1997 and
increased by $444,000 or 200.9% in 1997 from $221,000 in 1996 reflecting the
continued development and expansion of the You Bet Network. Youbet.com expects
network operations costs to increase significantly as the You Bet Network
expands to support the growth in subscribers.

RESEARCH AND DEVELOPMENT. Research and development costs consist primarily
of salaries. Research and development costs increased slightly to $1,267,000 in
1998 from $1,254,000 in 1997 and decreased by $136,000 or 9.8% from $1,390,000
in 1996 reflecting the continued development of the You Bet Network. Youbet.com
will continue to invest in the development of the You Bet Network, which
Youbet.com believes is critical to achieving its strategic objectives and, as a
result, expects research and development costs to increase significantly in
future periods.

SALES AND MARKETING. Sales and marketing expenses consist primarily of
marketing program expenses and salaries. Sales and marketing expenses increased
by $694,000 or 97.6% to $1,405,000 in 1998 from $711,000 in 1997 and increased
7.1% from $664,000 in 1996. The increase in sales and marketing reflects the
expansion of Youbet.com's marketing activities and the launch of the You Bet
Network in 1998. Youbet.com expects sales and marketing expense to increase
significantly in order to brand the You Bet Network, grow its subscriber base,
hire additional sales and marketing personnel and expand internationally.

GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
principally of salaries, facilities expenses, legal and accounting and investor
relations. General and administrative expenses increased by $937,000 or 51.9% to
$2,741,000 in 1998 from $1,804,000 in 1997 an increase of $363,000 or 25.2% from
$1,441,000 in 1996. The increases reflect a general increase in personnel
related costs, legal and accounting fees, general operating activity, and the
expansion of the investor relations program in 1998. During 1998, Youbet.com
entered into an agreement with a financial and marketing

23
<PAGE>
consulting firm to develop and manage an expanded investor relations program
aimed at Youbet.com's stockholders, investors, brokerage firms and industry
professionals during 1998. During the year ended December 31, 1998, Youbet.com
incurred $489,000 in costs related to this program. Youbet.com does not expect
this program to continue. 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 business.

NON-CASH COMPENSATION. Non-cash compensation relates to the recording of
the fair value of warrants and stock options charged to the period of benefit.
Non-cash compensation increased $2,087,000 or 95.9% to $4,263,000 from
$2,176,000 in 1997 and increased by $2,074,000 from $102,000 in 1996. The
increases are due to Youbet.com issuing a greater number of warrants and stock
options in each subsequent year. As previously discussed, the deferred
compensation at December 31, 1998 of $1,161,000 will be amortized during 1999
and subsequent years. Youbet.com does not expect that these costs will continue
at the previous levels.

LOSS FROM OPERATIONS

As described above, Youbet.com has made a significant investment in
developing The You Bet Network to maintain its technological advantage and to
begin to brand and market the service. The loss from operations for the year
ended December 31, 1998 increased $4,178,000 or 60.4% to $11,096,000 from
$6,918,000 in 1997 and increased by $2,977,000 or 75.5% from $3,941,000 in 1996.
Youbet.com expects to incur significant losses at least through 1999.

OTHER INCOME (EXPENSE)

NET INTEREST INCOME (EXPENSE). Net interest expense of $261,000 in 1998
decreased by $128,000 or 32.9% from $389,000 in 1997 an increase of $452,000
from net interest income of $63,000 in 1996. Net interest expense in 1998 and
1997 are the result of advances and bridge loans being outstanding during both
years. Youbet.com expects interest expense to increase significantly in 1999 as
a result of the issuance in April 1999 of its 11% Senior Convertible Discount
Notes. However, Youbet.com will not pay cash interest thereon until October
2001.

NON-CASH EQUITY TRANSACTIONS. Non-cash equity transactions relate to the
recording of the discount on conversion of bridge loans, accounts payable and
employee deferred salaries into common stock and warrants, and the release of
forfeiture provisions on certain shares of common stock. These transactions
decreased $9,849,000 or 81.4% to $2,256,000 in 1998 from $12,105,000 in 1997.
Youbet.com did not incur this cost in 1996. During the year ended December 31,
1998, these costs consisted of $1,406,000 for financing costs and $850,000 to
reflect a discount on conversion of bridge loans, accounts payable and employee
deferred salaries into common stock and warrants. During the year ended December
31, 1997, Youbet.com incurred $3,656,000 for financing costs, $573,000 to
reflect a discount on conversion of bridge loans, accounts payable and employee
deferred salaries into common stock and warrants, and $7,875,000 to reflect the
accounting for the release of forfeiture provisions on certain shares of common
stock owned by Russell M. Fine and David M. Marshall and a shareholder related
to one of the officers. In conjunction with the 1995 private placement offering,
2,500,000 shares of common stock were subject to forfeiture under certain
conditions if Youbet.com did not achieve certain subscriber levels by December
5, 1999. However, as a result of a change in the marketing strategy in 1997 to
focus on building a brand and becoming the market leader to maximize long-term
profitability, the forfeiture restrictions on the 2,500,000 shares of common
stock were released in exchange for the return to Youbet.com and cancellation of
750,000 of such shares. Youbet.com does not expect that these types of costs
will continue at the previous levels.

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<PAGE>
INCOME TAXES

At December 31, 1998, Youbet.com has available federal and state net
operating loss carryforwards of $16,896,000 and $16,659,000, respectively, for
income tax purposes, which expire in varying amounts through 2018 for federal
and 2005 for state purposes.

The net operating loss carryforward generated a deferred tax asset of
approximately $7,200,000 as of December 31, 1998. The deferred tax asset has not
been recognized since management is unable to determine whether it is more
likely than not that it will be realized. Accordingly, a 100% valuation
allowance has been provided.

SELECTED UNAUDITED QUARTERLY RESULTS OF OPERATIONS

The following table sets forth unaudited quarterly consolidated statements
of operations data for each of the eight quarters ended December 31, 1998. In
the opinion of management, the unaudited financial results include all
adjustments, consisting only of normal recurring adjustments, necessary for the
fair presentation of Youbet.com's consolidated results of operations for those
periods. The consolidated quarterly data should be read in conjunction with the
audited Consolidated Financial Statements and the notes thereto appearing
elsewhere in this prospectus. The results of operations for any quarter are not
necessarily indicative of the results of operations for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1997 1997 1997 1997 1998 1998 1998
----------- ----------- ----------- --------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues........................ $ 0 $ 0 $ 0 $ 0 $ 0 $ 20 $ 76
Operating expenses:
Network operations............ 118 197 168 182 149 182 405
Research and development...... 335 330 296 293 230 348 349
Sales and marketing........... 171 151 143 246 156 535 500
General and administrative.... 364 412 513 515 443 783 819
Depreciation and
amortization................ 74 76 80 78 76 82 86
Non-cash compensation......... 25 25 1,169 957 1,223 1,522 707
----------- ----------- ----------- --------- ----------- ----------- -----------
Total operating expenses...... 1,087 1,191 2,369 2,271 2,277 3,452 2,866
----------- ----------- ----------- --------- ----------- ----------- -----------
Loss from operations............ (1,087) (1,191) (2,369) (2,271) (2,277) (3,432) (2,790)
Net interest income (expense)... (34) (92) (198) (65) (69) (174) (30)
Other income (expense).......... 1 2 (2,800) (9,313) (484) (1,759) (235)
----------- ----------- ----------- --------- ----------- ----------- -----------
Net loss........................ $ (1,120) $ (1,281) $ (5,367) $ (11,649) $ (2,830) $ (5,365) $ (3,055)
----------- ----------- ----------- --------- ----------- ----------- -----------
----------- ----------- ----------- --------- ----------- ----------- -----------

DEC. 31,
1998
-----------

<S> <C>
Revenues........................ $ 168
Operating expenses:
Network operations............ 551
Research and development...... 340
Sales and marketing........... 214
General and administrative.... 696
Depreciation and
amortization................ 153
Non-cash compensation......... 811
-----------
Total operating expenses...... 2,765
-----------
Loss from operations............ (2,597)
Net interest income (expense)... 12
Other income (expense).......... (27)
-----------
Net loss........................ $ (2,612)
-----------
-----------
</TABLE>

Revenues commenced, with the testing of the You Bet Network, during the
second quarter of 1998 and increased steadily in all subsequent quarters with
the launch of the service in the third quarter. Operating expenses in the
second, third and fourth quarters of 1998 have increased significantly over the
corresponding quarters of the prior year due to the launch of the You Bet
Network. Correspondingly, network operations costs increased significantly in
the third and fourth quarters of 1998 due to an increase in personnel and costs
to support the closed-loop private network. Sales and marketing expenses
increased in the second and third quarters of 1998 due to the launch of the
service and the commencement of the marketing programs to acquire subscribers.
The fourth quarter decrease in sales and marketing expense is due to a reduction
is marketing programs during this period. General and administrative expenses
increased during the second, third and fourth quarters due to increases in
personnel, legal and accounting fees, and expansion of the investor relations
program.

Youbet.com's quarterly revenues, operating costs and expenses and results of
operations have fluctuated significantly in the past and are expected to
continue to fluctuate significantly in the future. Causes of these fluctuations
have included and may include, among other factors, Youbet.com's ability to
retain and attract new subscribers to the You Bet Network; maintaining good
relations with the

25
<PAGE>
horse tracks and other content and information providers; introduction of
competing wagering services; success of brand-building and marketing campaigns;
price competition from competing services; the level of use of online and
Internet interactive services; increasing consumer confidence in and acceptance
of the online and interactive services for leisure and wagering; volume, size,
timing and completion rates for wagers transmitted through the You Bet Network;
technical difficulties or interruptions in the You Bet Network; Youbet.com's
ability to update and upgrade the You Bet Network with technological innovations
and infrastructure to accommodate growth; Federal or local governmental controls
and regulation; and general economic conditions and economic conditions specific
to online and Internet interactive activity. Any one or more of these factors
could have a material and adverse effect on Youbet.com's business, results of
operations and financial condition, and makes the prediction of results of
operations on a quarterly basis unreliable.

LIQUIDITY AND CAPITAL RESOURCES

Youbet.com has financed its operations primarily through the sale of its
securities and short-term debt as Youbet.com has generated only negative cash
flow from operations since inception. Between December 5, 1995 and December 31,
1998, Youbet.com has received an aggregate of $16,290,000 in net proceeds from
the sale of common stock, Series A Convertible Preferred Stock and the exercise
of stock options, warrants and short term debt. At December 31, 1998 Youbet.com
had $1,541,000 in cash and $2,100,000 in stock subscription receivables, which
was received in January and February 1999. Youbet.com's principal commitments
consists of obligations under capital leases.

Net cash used in operating activities was $6,538,000, $3,862,000 and
$2,832,000 for the years ended December 31, 1998, 1997 and 1996, respectively.
The principal use of cash for all periods was to fund losses from operations.
The increases in the net cash used in operating activities reflected a general
increase in all levels of activity as Youbet.com developed the You Bet Network
and commenced marketing activities during 1998.

Net cash used in investing activities was $360,000, $132,000 and $790,000
for the years ended December 31, 1998, 1997 and 1996, respectively, for
purchases of property and equipment. During 1998 Youbet.com, in conjunction with
the restructuring of a capital lease obligation, increased the outstanding lease
obligation by $80,000 to reflect the acquisition of office and computer
equipment. During 1997 the purchases of property and equipment were funded by
the proceeds of a capital lease aggregating $150,000.

Net cash provided by financing activities was $8,385,000, $3,960,000 and
$412,000 for the years ended December 31, 1998, 1997 and 1996, respectively. Net
cash provided by and used by financing activities consisted principally of
proceeds from short-term loans, primarily from related parties, bridge loans
from both related and unrelated parties, the exercise of stock options and
warrants, and the private placement of common stock, Series A Convertible
Preferred Stock and stock purchase warrants offset by the repayment of a portion
of the short term debt. During 1998, Youbet.com received net advances of
$560,000 and bridge financing of $1,465,000, as well as the net proceeds from
preferred and common stock financings of $5,501,000 and $1,069,000 from the
exercise of stock options and warrants to fund its cash requirements. In
addition, during December 1998 Youbet.com completed the sale of common stock and
Series A Convertible Preferred Stock generating net proceeds of $1,980,000,
which was received in January and February 1999.

In April 1999, Youbet.com issued $45,500,000 principal amount of 11% Senior
Convertible Discount Notes for cash proceeds of $36,728,510, which represents a
discount of 11% per year, compounded semi-annually to April 2001. The notes
begin accruing interest in April 2001 at 11% per year, payable semi-annually.
Principal and unpaid interest are due and payable on April 5, 2004. The notes
plus accrued, unpaid interest are convertible at any time at the rate of $10 per
common share, subject to reset provisions as defined in the notes. The
conversion price resets one time at the earlier of (1) a

26
<PAGE>
placement, after April 1999, of common stock and any securities convertible into
common stock which raises at least $15 million gross proceeds to Youbet.com or
(2) April 5, 2000. In the event that a placement of common stock or convertible
securities occurs first, the conversion price will be reset to the lesser of $10
per share or the lowest price per share at which Youbet.com sells common stock
after the date of the placement of common stock or convertible securities
(excluding options, warrants and other convertible securities existing prior to
April 1999). In the event that the reset occurs on April 5, 2000, the conversion
price will be reset to the lower of $10 per share or the average daily closing
price for the ten-day period ending on April 5, 2000, but in no event less than
$5 per share.

During November 1997, Youbet.com completed a private placement offering of
securities to investors. Youbet.com sold 89.78 units at $25,000 per unit,
resulting in net proceeds of $1,953,380. Each unit consisted of 10,000 shares of
common stock and 5,000 Series D common stock purchase warrants exercisable at
$5.25. As a result of the sale of 89.78 units under this private placement in
1997, Youbet.com issued a total of 897,760 shares of common stock and 448,880
Series D common stock purchase warrants.

In conjunction with the closing of the private placement offering in
November 1997, bridge loans payable aggregating $1,679,000, representing a
principal balance of $1,460,000 and accrued interest of $219,000, were exchanged
for 89.55 units of common stock and Series D common stock purchase warrants.
Included in the $1,679,000 was $632,500, representing a principal balance of
$550,000 and accrued interest of $82,500, from related parties. As a result of
the issuance of 89.55 units in 1997, Youbet.com issued 895,468 shares of common
stock and 447,734 Series D common stock purchase warrants, including 337,335
shares of common stock and 168,667 Series D common stock purchase warrants to
related parties. During the year ended December 31, 1997, $209,000 of advances,
including $104,000 to related parties, were repaid. As of December 31, 1997,
bridge loans payable aggregating $300,000 to unrelated parties remained
outstanding.

The holders of the 1997 bridge loans had the option of converting such
loans, including accrued interest, into the lesser of units, consisting of
10,000 shares of common stock and 5,000 Series D warrants, at the rate of
$18,750 per unit, or 75% of the next private placement offering price of an
offering over $5,000,000. During the year ended December 31, 1998, as a result
of the completion of the Series A Convertible Preferred Stock financing, the
holders of the bridge loans converted such loans, plus accrued interest of
$94,188, at the rate of $1.875 per unit, into common stock and Series D common
stock purchase warrants. Accordingly, during the year ended December 31, 1998,
Youbet.com issued 210,232 shares of common stock and 105,117 Series D common
stock purchase warrants.

In January 1998, Youbet.com commenced a new bridge financing, consisting of
a secured note with interest at 12% per annum due December 1998, secured by a
junior lien on substantially all the assets of Youbet.com. Youbet.com issued a
total of $2,415,000 of bridge notes (including $950,000 converted from
advances), of which $1,247,000 were issued to related parties. At the option of
the holder, each note was convertible into the securities of a subsequent
private placement (or the equivalent amount of common stock, if such financing
was not a common stock financing) at the lower of $2.75 or 80% of the private
placement price. During the year ended December 31, 1998, as a result of the
completion of the Series A Convertible Preferred Stock financing, the holders of
the $2,415,000 principal amount of bridge notes converted such notes, plus
accrued interest of $191,682, at the rate of $2.00 per share, into 1,303,319
shares of common stock, including 683,176 shares attributable to related
parties. During the year ended December 31, 1998, as a result of the conversion
of the 1998 bridge financing into common stock, Youbet.com issued 79,312 Series
E common stock purchase warrants, which had an aggregate fair value of $210,915,
to certain finders with respect to such bridge financing. These warrants are
exercisable at $3.125 per share for a period of three years. Finders fees paid
in cash with respect to such bridge notes aggregating $96,000 were recorded as
deferred financing costs and were being amortized through the earlier of
December 31, 1998 or the conversion of the bridge notes into

27
<PAGE>
common stock. Accordingly, the unamortized portion of such deferred financing
costs of $56,391 was charged to operations as financing costs during the year
ended December 31, 1998.

Advances payable, all to related parties, were $390,000 at December 31,
1997. During the year ended December 31, 1998, Youbet.com received additional
advances of $613,875, including $508,875 from related parties, of which $53,875
was repaid in 1998. The holders of the advances had the right to convert such
amounts into the 1998 bridge financing until such time as the bridge notes were
either called or repaid. During the year ended December 31, 1998, all of the
advances aggregating $950,000 converted into the 1998 bridge financing.

During the year ended December 31, 1998, Youbet.com issued 355,000 shares of
common stock to four individuals in conjunction with the exercise of warrants
and stock options with exercise prices ranging from $2.50 to $3.125 per share,
generating gross proceeds to Youbet.com of $1,069,000.

On June 29, 1998, Youbet.com entered into a Stock Purchase Agreement with
certain private and institutional investors. Pursuant to the Stock Purchase
Agreement, Youbet.com sold 200,000 shares of Series A Convertible Preferred
Stock for a cash purchase price of $25.00 per share, resulting in gross proceeds
to Youbet.com of $5,010,000. Officers and directors purchased 35,890 shares of
Series A Convertible Preferred Stock.

During July 1998 and December 1998, Youbet.com sold an additional 20,000
shares and 22,500 shares, respectively, of Series A Convertible Preferred Stock
under the same terms for aggregate gross proceeds of $1,062,500, $100,000 of
which was received in January 1999. During December 1998, 155,390 shares of
Series A Convertible Preferred Stock were converted into 1,553,900 shares of
common stock.

The Series A Convertible Preferred Stock has a liquidation preference of
$25.00 per share and will rank senior to all other series of preferred stock
that may be issued in the future. Each share of Series A Convertible Preferred
Stock is convertible into ten shares of common stock of Youbet.com, and will be
automatically converted into common stock at then prevailing conversion rate at
such time as Youbet.com has completed a secondary public offering which raises
not less than $15,000,000 in gross proceeds and has its common stock listed on
the New York Stock Exchange, the American Stock Exchange or the Nasdaq National
Market. The holders of the Series A Convertible Preferred Stock are not entitled
to dividends, except that if dividends are paid on Youbet.com's common stock,
holders of Series A Convertible Preferred Stock will be entitled to dividends on
the basis of the number of shares of common stock into which the Series A
Convertible Preferred Stock is then convertible. The Series A Convertible
Preferred Stock will vote together with the holders of common stock on all
matters presented to stockholders for a vote on the basis of the number of
shares of common stock into which the Series A Convertible Preferred Stock is
then convertible. The holders of the Series A Convertible Preferred Stock have
unlimited piggyback registration rights and certain demand registration rights.
Based on a valuation report prepared by an investment and merchant banking firm
dated July 31, 1998, Youbet.com has determined that the Series A Convertible
Preferred Stock was sold at fair market value. As of December 31, 1998 155,390
shares of Series A Convertible Preferred Stock had converted into 1,553,900
shares of common stock.

In conjunction with the Series A Convertible Preferred Stock financing,
Youbet.com incurred direct costs related to such financing of $360,909, which
were charged to additional paid-in capital. Of such amount, $217,493 was paid to
a firm for investment advisory services. In addition, this firm purchased
warrants for $.0625 per warrant to acquire 72,498 shares of common stock,
consisting of 24,166 warrants exercisable at $.01 per share and 48,332 warrants
exercisable at $2.50 per share. The warrants are exercisable through June 2003,
and have certain piggyback registration rights. The aggregate fair value of such
warrants was $401,639. Youbet.com also paid cash finder's fees to other parties
aggregating $28,500.

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During December 1998, Youbet.com entered into stock subscription agreement
for the sale of 800,000 shares of common stock for net proceeds of $1,880,000
which were received during January and February 1999.

As a result of the sale of Series A Convertible Preferred Stock, common
stock and the conversion of advances and bridge loans into common stock during
1998, Youbet.com had net working capital of $1,924,687 at December 31, 1998, as
compared to a working capital deficit of $2,739,184 at December 31, 1997.

Youbet.com does not currently have any material commitments for capital
expenditures. However, Youbet.com anticipates that it will experience a
substantial increase in capital expenditures and lease commitments consistent
with Youbet.com's anticipated growth in operations and infrastructure, including
various capital expenditures associated with the expansion of operations into
foreign markets. Youbet.com anticipates that it will continue to experience
significant growth in its operating expenses for the foreseeable future and that
these expenses will be a material use of cash resources. Youbet.com believes
that its existing cash and the proceeds from the sale of the 11% Senior
Convertible Discount Notes, will be sufficient to meet its anticipated cash
needs for working capital and capital expenditures at least for the next twelve
months.

IMPACT OF THE YEAR 2000

The year 2000 risk is the result of computer programs being written using
two digits rather than four digits to define the applicable year. Computer
programs that have sensitive software may recognize a date using "00" as the
year 1900 rather than the year 2000. As a result, computer systems and/or
software used by many companies and governmental agencies may need to be
upgraded to comply with year 2000 requirements or risk system failure or
miscalculations causing disruptions of normal business activities.

STATE OF READINESS

Based on an internal assessment, Youbet.com believes that its software
programs, both those developed internally and purchased from material outside
vendors, are year 2000 compliant or will be by December 31, 1999. Youbet.com
began assessing its state of year 2000 readiness during October 1998. This
included reviewing the year 2000 compliance of the following:

- Youbet.com's internally developed proprietary software incorporated in the
You Bet Network;

- Ladbroke's pool wagering and other software;

- Third party handicapping information suppliers;

- Third-party software vendors;

Youbet.com will continue to require its vendors of material hardware and
software to provide assurances of their year 2000 compliance.

COSTS

To date, Youbet.com has incurred approximately $25,000 of costs in
identifying and evaluating year 2000 compliance issues. Most of Youbet.com's
expenses have related to, and are expected to continue to relate to, the
operating costs associated with time spent by employees in the evaluation year
2000 compliance matters. At this time, Youbet.com does not possess the
information necessary to estimate the potential costs of future revisions to
software relating to the You Bet Network should revisions be required or the
replacement of third-party software, hardware or services, if any, that are
determined to not be year 2000 compliant. Although Youbet.com believes that its
software programs, both developed internally and purchased from outside vendors
are either already year 2000 compliant or will be by

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December 31, 1999, failure to identify non year 2000 compliant software could
have a material and adverse effect on Youbet.com's business, results of
operations and financial condition.

RISKS

Youbet.com is not currently aware of any significant year 2000 compliance
problems relating to the You Bet Network or other software systems that would
have a material and adverse effect on business, results of operations and
financial condition. However, there can be no assurance that Youbet.com will not
discover year 2000 compliance problems in its proprietary software or other
third party software that will require a substantial investment to correct.
Youbet.com's inability to fix such hardware or software on a timely basis could
result in lost revenues, increased operating costs and other business
interruptions, any of which could have a material and adverse effect on
Youbet.com's business, results of operations and financial condition.

Failure to adequately address year 2000 compliance issues in Youbet.com's
proprietary software or third party software could result in claims of
mismanagement, misrepresentation or breach of contract and related litigation,
which could be costly and time-consuming to defend. In addition, there can be no
assurance that utility companies, Internet network companies, Internet access
companies, third-party service providers and others outside Youbet.com's control
will be year 2000 compliant. The failure by these entities to be year 2000
compliant could result in a systemic failure beyond Youbet.com's control,
including, for example, a prolonged Internet, telecommunications or electrical
failure, which could also prevent Youbet.com from providing subscribers access
to the You Bet Network or other value added handicapping services any of which
would have a material and adverse effect on Youbet.com's business, results of
operations and financial condition.

CONTINGENCY PLAN

Although Youbet.com continues to evaluate its software for possible year
2000 compliance issues, Youbet.com believes that its software programs, both
those developed internally and purchased from material outside vendors, are
already year 2000 compliant or will be by December 31, 1999. Therefore,
Youbet.com does not have a formal contingency plan for a major year 2000
problem. Youbet.com's inability to locate or correct a significant year 2000
problem, if one exists, could result in an interruption in, or a failure of,
certain normal business activities or operations. In addition, year 2000
problems may affect sub-systems of the You Bet Network, such as the ability to
provide value added handicapping information. Any such failure could cause
Youbet.com's subscribers to seek alternate providers for online wagering. This
could require Youbet.com to incur significant unanticipated expenses to remedy
and could divert Youbet.com's management's time and attention, either of which
could have a material and adverse effect on business, results of operation and
financial condition.

RECENT ACCOUNTING PRONOUNCEMENTS

Youbet.com adopted the Financial Accounting Standards Board statement No.
130, "Reporting Comprehensive Income" (SFAS No. 130), during the year ended
December 31, 1998. This Statement establishes standards for the reporting and
display of comprehensive income and its components in a full set of general
purpose financial statements. Comprehensive income consists of net income and
other comprehensive income. Other comprehensive income refers to revenues,
expenses, gains and losses that under generally accepted accounting principles
are included in comprehensive income but are excluded from net income. Adoption
of this statement did not have an impact on Youbet.com's current disclosures and
presentation.

Youbet.com adopted the Financial Accounting Standards Board statement No.
131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS
No. 131), during the year ended December 31, 1998. This Statement requires that
public companies report certain information about

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their major customers, operating segments, products and services, and the
geographic areas in which they operate. Because Youbet.com operates within a
single operating segment, adoption of this statement did not have an impact on
Youbet.com's current disclosures and presentation.

In February 1998, the Financial Accounting Standards Board issued Statement
No. 132, "Employers' Disclosures about Pension and Other Postretirement
Benefits" (SFAS No. 132), which is effective for financial statements issued for
fiscal years beginning after December 15, 1997. SFAS No. 132 revises employers'
disclosures about pension and other postretirement benefit plans. SFAS No. 132
requires comparative information for earlier years to be restated. Youbet.com
adopted SFAS No. 132 for its fiscal year beginning January 1, 1998. Adoption of
SFAS No. 132 did not have an effect on Youbet.com's financial statement
presentation and disclosures.

In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities," (SFAS No.
133) which is effective for financial statements issued for all fiscal quarters
of fiscal years beginning after June 15, 1999. This statement requires companies
to recognize all derivative contracts as either assets or liabilities in the
balance sheet and to measure them at fair value. If certain conditions are met,
a derivative may be specifically designated as a hedge, the objective of which
is to match the timing of gain or loss recognition on the hedging derivative
with the recognition of (1) the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk or (2) the earnings effect of
the hedged forecasted transaction. For a derivative not designated as a hedging
instrument, the gain or loss is recognized in income in the period of change.
Historically, Youbet.com has not entered into derivative contracts to hedge
existing risks or for speculative purposes. Accordingly, Youbet.com does not
expect adoption of the new standard on January 1, 2000 to have any effect on its
financial statements.

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BUSINESS

OVERVIEW

Youbet.com intends to establish itself as the leading global brand name for
online live event wagering. Wagering on live events, such as horse track racing,
car racing, soccer, football, etc, is a large industry. Youbet.com has initially
focused its efforts primarily on the United States horse track racing industry
and believes that its principal product, the You Bet Network, is currently the
only legal system available for online wagering in the United States.

Youbet.com's initial product, the You Bet Network, is a PC-based system
which allows a subscriber to transmit information and thereby facilitate wagers.
YOUBET.COM DOES NOT ACTUALLY ACCEPT OR PLACE ANY WAGERS. Wagers are placed only
by a state licensed wagering facility, currently Ladbroke, through pari-mutuel
wagering pools at the respective horse tracks.

INDUSTRY BACKGROUND

WORLDWIDE WAGERING

Youbet.com believes that wagering on most forms of live sporting events is
legal in most parts of Europe, Asia, Australia and Latin America. Youbet.com
believes there is substantial wagering worldwide of which in 1997, $639 billion
was wagered in the United States. The amount wagered on horse track racing,
which is Youbet.com's initial target market is also substantially larger
overseas, with Japan and Hong Kong bettors in particular wagering per capita
amounts significantly greater than in the United States. In 1997, of an
estimated $100 billion wagered on horse track racing worldwide approximately
$15.4 billion was wagered in the United States.

Sports wagering includes not only horse track wagering, but sporting events
such as football, basketball, baseball, hockey, soccer, boxing, golf, car
racing, dog track racing and jai alai to name a few. Aside from horse track
racing, dog track racing and jai alai, in the United States other sports
wagering is currently legal only in the State of Nevada. Legal wagering on
sporting events in the United States is estimated in 1997 to have exceeded $20.4
billion and illegal domestic sports event wagering is estimated to have exceeded
$100 billion. Overseas legal and illegal sports event wagering is estimated to
be significantly greater than wagering in the United States.

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Sports wagering worldwide consists of a mixture of fixed-odds wagering and
pari-mutuel wagering (see box below). Pari-mutuel wagering is the dominant form
of legal sports wagering in the United States and most other countries. In
certain countries such as the United Kingdom, fixed-odds wagering is offered by
licensed book-makers and is the dominant form of wagering.

<TABLE>
<S> <C>
PARI-MUTUEL WAGERING FIXED-ODDS WAGERING

No risk of loss to the house--Pari-mutuel Possible loss to the house--Fixed odds
wagering allows bettors to wager against one wagering allows bettors to wager against the
another, with a single entity or "house" entity holding the pool of wagers or "house".
holding the pool of wagers and distributing The house sets ratios of possible winnings on
it back to the winners. There is no risk of various wagers based on an educated guess as
loss to the house because the house retains a to the likely outcome of the event. The
percentage fee from the total amount wagered amount paid into the pool in excess of the
in the pool prior to paying out the remaining amount paid out is the house fee. There is a
amount of the pool to the winners. risk of loss to the house if winnings paid
out are greater than the total amount paid
into the pool.
</TABLE>

HORSE TRACK RACING OVERVIEW

Worldwide horse track wagering in 1997 exceeded $100 billion, 85% of which
came from Japan, Australia, Hong Kong, France, Great Britain and the United
States. In the United States, handicappers (horse track racing fans) wagered
approximately $15.4 billion on horse races in 1997.

UNITED STATES HORSE TRACK RACING MARKET

While many people associate horse track racing with horse track betting, in
1997 more than 77% of United States horse track wagering came from off-track
betting. This movement to off-track betting began after off-track betting was
introduced in the 1970s. During the past 15 years, off-track betting has grown
by more than 600% in the United States and wagering on domestic horse track
racing owes its current growth principally to off-track sources. As the graph
below demonstrates, the revenue mix of the industry is driven by off-track
betting. Off-track wagering currently includes inter-track simulcasts, off-track
betting facilities, telephone account wagering and with the introduction of the
You Bet Network, online wagering.

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
OFF-TRACK & INTER-TRACK ON TRACK
<S> <C> <C>
1982 $1,707.30 $9,990.60
1997 $11,045.80 $3,838.10
</TABLE>

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This dramatic shift from on-track to off-track betting was driven by the
public's' desire to have convenient access to racing, the racing industry's
ability to provide a service that met this need and the legalization of a system
called "account wagering".

Account wagering is accomplished by establishing an account with a state
licensed account wagering entity and depositing funds into that account for
purposes of wagering. Once these funds have cleared, the bettor is free to use
the funds and any resulting winnings for wagering. Many entities in the United
States and worldwide are in the business of establishing such accounts and
placing wagers at the request of bettors.

In the United States, 42 states have pari-mutuel wagering of some kind.
Eight of these 42 states have statutes which specifically provide for account
wagering, and five of these eight states allow out-of-state bettors with
accounts at licensed wagering facilities within any of these five states to
wager on any track carried by the account wagering facility.

It is under this current structure that interstate account wagering has been
operated in the United States for more than two decades by many large licensed
account wagering entities such as Ladbroke. For example, account wagering allows
a customer physically located in Virginia (where pari-mutuel wagering on horse
racing is legal) to place a wager at Ladbroke in Pennsylvania (which permits
interstate account wagering on pari-mutuel horse track racing) on a race run in
Maryland (where horse track racing and pari-mutuel wagering also are legal).

THE INTERNET AS A NEW ENTERTAINMENT AND COMMERCE MEDIUM

The Internet has become an important medium for communication, news,
entertainment and commerce. As a result, it is experiencing rapidly increasing
public awareness, substantial growth and acceptance on a global scale. A 1998
report issued by the United States Department of Commerce estimated that the
number of Internet users worldwide is expected to increase from approximately
100 million at year end 1997 to over 320 million by the year 2002. The same
report projects even higher growth rates for traffic and electronic commerce,
estimating that traffic is doubling approximately every 100 days. Electronic
commerce is expected to increase from an estimated $8.6 billion in 1998 to
approximately $23.3 billion in 2001. This growth is being enabled by rapid
technological advances such as the installation of more secure networks, the
introduction of better and higher performance Internet access options and the
improvement of PCs, as well as the increased penetration of PCs in both the home
and the workplace.

One of the fundamental growth drivers of the Internet is its ability to
deliver information in ways that are not possible using traditional media
sources such as broadcast or print media. Unlike these traditional sources the
Internet is capable of combining textual, graphical, streamed audio and streamed
video formats in a dynamic, interactive and real-time environment. This has
created new programming and content delivery opportunities that are not only
capturing the interest of the general public but also shifting user preferences
away from traditional news and entertainment sources.

A second fundamental growth driver of the Internet is the fact that it is
rapidly becoming a powerful and credible new commerce channel. To this end the
Internet has already significantly impacted consumers and businesses
transactions in a broad range of industries including financial services,
particularly online securities trading and numerous consumer product sectors.
Individuals are showing increasingly strong preferences to consummate
transactions online rather than via traditional means such as over the phone or
in person. Drivers of this trend include the perception that online purchasing
systems are simple, fast, secure, convenient, often able to offer goods at lower
prices and an unmatched source for information which can be used to make complex
purchasing or transaction decisions.

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THE ONLINE WAGERING OPPORTUNITY

Youbet.com believes that horse track racing fans enjoy the sport not only
because it is entertaining to watch but also because wagering adds significant
excitement to the experience. Online communication provides convenience and has
the opportunity to seamlessly integrate the viewing and transaction processing
aspects of wagering in one medium. Youbet.com believes this will significantly
enhance the entertainment value of online based horse track racing systems as
compared to the traditional on-track and off-track systems that are in use
today. Youbet.com also believes that online solutions are likely to appeal to
both new fans and the most serious handicappers for a number of reasons
including the following:

- HANDICAPPERS ARE ALREADY HEAVY PC USERS. According to a study commissioned
by Youbet.com in 1996 by Yankelovich Partners, a leading consumer and
market research firm, 69% of the core group of 4.8 million highly active
handicappers in the United States had access to a computer, 37% used an
online service and 14% used a computer to access handicapping information.
These findings are significant because they indicate that PC and online
service usage among handicappers was significantly greater than the
general United States population even as early as 1996. Moreover,
Youbet.com believes the fact that 14% of handicappers were already using
their computers to access horse track racing information is an indicator
of the high likelihood that handicappers will be interested in utilizing
advanced online wagering and information systems.

- OFF TRACK WAGERING IS THE NORM. Since the introduction of simulcasting in
1978 and the passage of the Interstate Horse Wagering Act, horse track
wagering has migrated away from the horse track. In 1997, for example, 77%
of all horse track racing wagers originated from off-track wagering
facilities. Handicappers prefer to place wagers at either remote sites or
by phone because it is more convenient. This trend is expected to continue
for the foreseeable future.

- HANDICAPPERS VALUE EFFICIENT EXECUTION. Fast execution of wagers as close
to race start times as possible is imperative because it allows
handicappers to place wagers based on the most up-to-date information.
Consequently, systems that facilitate fast execution are of significant
value to handicappers.

- HANDICAPPERS WANT ENTERTAINMENT AND VARIETY. The widespread popularity of
closed circuit television coverage of horse tracks at both on-track and
off-track wagering facilities is a strong indicator of the high
entertainment value that handicappers associate with watching horse track
racing. It is also important to note that one of the main benefits of
multiple television coverage is the ability to watch and wager on races
from a wide variety of horse tracks from a single location.

- HANDICAPPERS NEED DATA. The ability to interpret a wide range of both
historical and current data about jockeys, horses, weather, the condition
of the horse tracks and many other factors improves the handicapper's
chance of winning. Consequently, handicappers, especially those with
experience, will go to great lengths to acquire the most up-to-date data
and will routinely draw from a wide variety of sources.

- WORLDWIDE ONLINE WAGERING LAWS. Youbet.com believes many countries have or
are in the process of enacting laws and procedures for operating online
wagering systems. Youbet.com believes that many horse track racing fans
would be interested, particularly if these online systems are perceived as
reliable and legal, to view and wager on international horse track racing
and sporting events.

Due to these primary factors, Youbet.com believes that online communication is
an ideal medium for live event wagering offering significant enhancements
relative to traditional choices. Current off-track options available to
handicappers, while significantly more convenient than physically going to a
particular horse track, are still very inefficient and not well integrated. For
example, handicappers spend a significant amount of time collecting and
organizing handicapping information from a broad range of

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sources. Once this step is accomplished they must either travel to a horse track
or off-track wagering facility to watch races. Handicappers have the option of
placing wagers at the horse track, at off-track facilities or via phone but must
often wait in lines or on the telephone to actually place wagers. Youbet.com
believes an online system able to integrate the features of gathering
handicapping information, providing live event audio and video feeds and
automating the wagering process will be of great value to handicappers and could
significantly enhance their enjoyment and ultimately draw new fans to the sport
as well. Youbet.com also believes that the fans of many other live event
wagering events will be attracted to online systems with the same basic
features, but customized in terms of content and performance.

THE YOUBET.COM SOLUTION

Youbet.com believes that the You Bet Network is the nation's first
interactive online horse track racing and wagering service. It enables
handicappers who have installed Youbet.com's proprietary software to use their
PC and a standard online connection, to view horse track racing events, access a
comprehensive database of handicapping information and place wagers directly
through a state licensed wagering facility. The You Bet Network is completely
interactive and provides a real-time environment.

Horse track wagering, as an industry, has evolved from predominantly
on-track based to off-track betting and telephone wagering. Youbet.com believes
that its service is not only unique but also has the potential to revolutionize
how handicappers and enthusiasts wager and watch horse track racing events by
offering significant advantages over traditional on-track and off-track options.
Moreover, the underlying technology of the You Bet Network has been designed to
be highly flexible and able to fully leverage the broad access and information
distribution capabilities of an online environment. Youbet.com's technology
enables it to continue to add features to its network, to rapidly expand from
its current coverage of United States based horse track racing to the much
larger international markets and into other live event wagering markets such as
the United Kingdom and Japan. Key benefits of the Youbet.com solution include:

- CONVENIENCE, EASE OF USE. The You Bet Network is the only single source
provider of online live coverage of horse track racing events and
comprehensive handicapping information. Youbet.com provides this service
through an intuitive, easy-to-use PC based system in which users can
access the You Bet Network using a standard modem connection from home,
the office or virtually any location where a computer has online access
and it is legal to wager.

- EFFICIENT EXECUTION. The You Bet Network is able to be electronically tied
to licensed gaming agencies and is substantially faster and more efficient
than traditional on-track or off-track systems. Using the You Bet Network,
handicappers can place wagers and receive confirmation in as little as
three seconds, thus completely eliminating the hassle of waiting in lines
to place wagers or the frequent and frustrating delays associated with
phone-based systems. This faster and more efficient execution feature not
only gives handicappers the option to make more wagers but is also
critically important because it allows one to wait until the last possible
moment and to make use of the most recently available information before
making a wager. The You Bet Network also offers an important back-end
benefit because it automatically updates the user's account balances
immediately after final race results are posted. The handicappers receive
two important benefits from this feature. First, the handicappers always
know their account balance. And second, they always have access to their
full account balance when making future wagers.

- THE INFORMATION EDGE. Youbet.com believes that its system provides
handicappers with comprehensive and easy to use handicapping information
for the United States horse track racing industry. Youbet.com provides
real time information such as horse track conditions and jockey changes
and up to the minute odds on all wagers including exotic wagers such as
exactas,

36
<PAGE>
trifectas and quinellas. Youbet.com has also established relationships
with a broad range of information providers such as Equibase and the Daily
Racing Form. Youbet.com uses proprietary software to package this
information so that it is always available and easy for the handicapper to
use right on his or her PC.

- ENTERTAINMENT VALUE. Youbet.com believes that it provides a broad range of
users, from the most sophisticated handicapper to beginners, with a fun,
entertaining and feature rich wagering experience. Youbet.com believes its
ability to seamlessly combine broadcast-quality graphics, live audio and
video feeds, a broad range of tools to view handicapping information and
analyze wagering odds as well as extensive handicapping information in an
easy and flexible browser based interface is the key to providing this
high degree of entertainment value. Youbet.com currently provides this
information on a real time basis for 24 horse tracks, and is actively
expanding its relationship with new horse tracks.

- BENEFITS TO HORSE TRACKS AND WAGERING FACILITIES. Youbet.com believes that
the You Bet Network will increase the number of handicappers involved in
wagering on horse track races and therefore prove beneficial to and grow
the horse track racing industry as a whole. When a subscriber places a
wager which is facilitated by the You Bet Network, that wager is
aggregated into the total pari-mutuel pool of wagers at each respective
horse track. The horse track receives a percentage of this wager and the
licensed account wagering facility also receives a percentage of this
wager as a commission. Youbet.com receives a fee from the licensed account
wagering facility expressed as a percentage of the licensed wagering
facility's commissions. Therefore, as Youbet.com grows the number of
subscribers, the industry as a whole should benefit.

YOUBET.COM'S STRATEGY

Youbet.com's strategy is to make Youbet.com the leading global brand name
for online live event wagering. It intends to do this by accomplishing the
following goals:

- MAKE WAGERING CONVENIENT. Youbet.com believes that wagering on live events
is an exciting activity which appeals to bettors of widely varying
sophistication. By making wagering more convenient for all types of
bettors, Youbet.com hopes to increase the number of off-track bettors
using the You Bet Network and also increase the overall number of bettors.
For example, Youbet.com intends to make wagering easier for sophisticated
bettors by providing, in one easy-to-access and highly flexible format,
all the data and analytical tools that existing bettors routinely assemble
manually from a variety of sources. Newcomers to the sport are assisted by
tutorials and introductory tools, together with a friendly and dedicated
customer support staff. And, for all bettors, convenience and immediacy is
greatly enhanced by allowing these activities to take place in familiar
locations such as the home or office as opposed to the horse track, off-
track betting locations or other simulcast venues.

- INCREASE WAGERING OPPORTUNITIES. Live event wagering, like other forms of
gaming, is most enjoyable when there is a wide variety of wagering options
available, and when the stream of wagering decisions and wagering outcomes
is as full as possible. Online communications technology allows players to
make more wagers on more events in a given time period than is possible
through any other live event wagering alternative. For example, patrons at
a horse track are limited to the races offered at that horse track only
(or to the limited simulcast selection offered in addition). This provides
fewer wagering opportunities. The You Bet Network, which offers racing
content from 24 horse tracks (and growing), provides as many as 32 races
per hour, thus affording subscribers more opportunities than are available
via any other method. Online technology also allows the execution of
wagers to happen much faster than in person or over the phone (a very
important advantage), and wins are instantly credited to the bettors
account and available to be wagered again. Finally, in addition to the
numbers of races, online technology allows for a

37
<PAGE>
greater ease of wagering (including exotic wagers such as exactas,
trifectas and quinellas) than can be accomplished by other means.

- MAKE WAGERING ACCESSIBLE TO A BROADER AUDIENCE. Youbet.com expects that
the convenience of in-home wagering will encourage the new bettor to
become more active. In addition, Youbet.com believes that its marketing
activities will attract consumers who have rarely or never wagered and
that its easy-to-use product will allow them to realize the fun of
wagering with a minimum of difficulty or intimidation. In this way,
Youbet.com hopes to expand the total wagering activity in the events it
presents by lowering the challenges to participation by newcomers.

- SIGNIFICANTLY INCREASE EXPENDITURES ON MARKETING TO MAKE THE YOUBET.COM
BRAND NAME AND THE YOU BET NETWORK UBIQUITOUS.Although Youbet.com's
competitors, domestic and overseas, may have greater financial resources,
Youbet.com believes that it has a lead time advantage. Youbet.com intends
to capitalize on that lead time by significantly increasing expenditures
on domestic and international marketing to add as many subscribers as
possible as rapidly as possible. Youbet.com believes that a large base of
satisfied subscribers should present a significant challenge for new
entrants to overcome. Youbet.com's ultimate goal is for the name
"Youbet.com" to become the household name for live event online wagering,
so that a consumer's first instinct when deciding to wager online is to do
so through Youbet.com.

- PURSUE INTERNATIONAL MARKETS AGGRESSIVELY. While Youbet.com intends to
fully exploit the opportunities available to it in the United States,
foreign markets represent a much more significant opportunity due to, the
relative size of wagering in these markets, cultural or other factors
resulting in a higher propensity to wager in some foreign markets, and
regulatory structures in certain foreign countries which facilitate online
wagering. Youbet.com will devote a significant portion of its resources in
the near term to establishing a presence in key international markets by
entering into arrangements with joint venture partners in countries with a
significant sports wagering market.

- BUILD STRATEGIC RELATIONSHIPS. Youbet.com believes that it can enter into
mutually beneficial agreements with other companies and organizations, and
it will pursue relationships selectively. Youbet.com will most likely
pursue those relationships in areas outside its core technical, regulatory
or geographic competencies. In particular, Youbet.com expects to develop
such relationships in international wagering markets.

- EXPLOIT DEVELOPMENTS IN TECHNOLOGY. Youbet.com's strategy is based upon
being the first to bring a new technology in online communications to the
horse track racing market. Youbet.com will continue to enhance and improve
its existing products and technologies, and will carefully monitor
developments in technology and will adopt any new technologies which will
make online live event wagering easier, faster and more entertaining.

THE YOU BET NETWORK

In July 1998, the You Bet Network became fully operational. The You Bet
Network had undergone an extensive six month system-wide test ending in December
1997, and was launched in limited release in January 1998. The limited release,
with more than 400 subscribers, consisted mainly of computer-literate
handicappers, along with a small section of non-racing participants and was
intended to further research system features and functionality, as well as to
study marketing issues, such as pricing and packaging.

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<PAGE>
AVAILABILITY OF THE YOU BET NETWORK

The You Bet Network is normally available to subscribers 24 hours a day,
seven days a week and offers subscribers support 14 hours a day, seven days a
week. Live horse track racing is available on the You Bet Network approximately
10-14 hours per day, depending on which horse tracks are running on a particular
day. Access to handicapping information such as past performances, is available
24 hours a day and the availability to place wagers is subject to the actual
horse tracks' time schedule of accepting wagers. If for any reason the You Bet
Network is unavailable for a particular race or for any other reason whatsoever,
Youbet.com subscribers can place wagers over the telephone by calling Ladbroke
directly via a toll free number. As the graphs below illustrate, the number of
subscribers and the pari-mutuel handle have increased substantially since the
You Bet Network became operational.

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
SUBSCRIBERS

<S> <C>
Jun-98 750.00
Jul-98 900.00
Aug-98 1,169.00
Sep-98 1,442.00
Oct-98 1,697.00
Nov-98 2,022.00
Dec-98 2,237.00
Jan-99 1,848.00
Feb-99 2,735.00
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
JUN-98 JUL-98 AUG-98 SEP-98 OCT-98 NOV-98 DEC-98 JAN-99
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pari-Mutuel Handle $92,356.00 $364,938.00 $518,954.00 $634,372.00 $796,835.00 $746,098.00 $1,225,373.00 $2,139,270.00

<CAPTION>
FEB-99
<S> <C>
Pari-Mutuel Handle $2,841,973.00
</TABLE>

SETTING UP A YOU BET NETWORK ACCOUNT

To subscribe to the You Bet Network, a potential subscriber contacts
Youbet.com, either on its web site or its toll free number, opens an account and
chooses a payment method for charges to the account. This account is used for
the monthly subscription fee and for the purchasing of handicapping information.
In order to access the You Bet Network, a subscriber must install CD-ROM
software which Youbet.com provides at no additional charge. (Youbet.com
anticipates providing this software from its web site in the near future.) Once
the subscriber installs the software and activates the service, the subscriber
has access to simulcasts from the horse tracks and handicapping information.
Since YOUBET.COM DOES NOT ACTUALLY TAKE OR PLACE ANY WAGERS, wagering through
the You Bet Network requires that a subscriber open a separate wagering account
with a licensed wagering entity, currently Ladbroke.

SETTING UP A WAGERING ACCOUNT

In order to set up a wagering account, Ladbroke requires that new
subscribers provide a drivers license number, social security number, proof of
age and state of residence. Once this information is verified by Ladbroke, funds
can be transferred by the subscriber into his or her wagering account.

39
<PAGE>
Several fund transfer methods are available to fund a subscriber's account. From
this wagering account the subscriber can have wagers facilitated by the You Bet
Network, the telephone or an off-track betting facility owned by Ladbroke.

FEATURES OF THE YOU BET NETWORK

The You Bet Network is provided through a secure, proprietary, closed-loop
private online network which a subscriber can access via his or her Internet
service provider. The high performance level of the You Bet Network in terms of
audio, video, transaction processing and information delivery, improved
reliability, and higher levels of security are made possible by the installation
of Youbet.com's proprietary software. Specific features of the You Bet Network
include:

- Wagering directly into horse track pools;

- Immediate access to wager results, payouts and account status;

- 24 horse tracks to chose from, many running simultaneously;

- Ability to play multiple horse tracks simultaneously;

- Up-to-the-minute odds, probable payouts and late changes on the horse
track;

- Access to a vast database of handicapping and past performance
information;

- Live audio and video feed from the horse tracks or any other programming;

- Official programs and data on past performances including races, tracks,
jockeys and horses;

- Simple graphical user interfaces which simulate wagering at the horse
track;

- Summary of previous wagers placed by the subscriber and previous wagering
results; and

- Sophisticated encryption technology.

Youbet.com, with Ladbroke, continue to negotiate contracts with numerous horse
tracks and content and information providers to allow additional features and
content to be added to the You Bet Network.

HOW A WAGER IS FACILITATED BY THE YOU BET NETWORK

Subscribers can use the You Bet Network to facilitate wagers, using the
system's icon-driven menus to fill out an electronic wagering information ticket
similar to a wagering ticket at a horse track. The wager is then transmitted
electronically to Ladbroke, Youbet.com's licensed account wagering provider.
Ladbroke debits the subscriber's account, places the wager at the host horse
track and sends an electronic confirmation to the subscriber through the You Bet
Network. This entire process usually takes less than three seconds. The
subsequent adjustment to the subscriber's account for winnings and losses also
usually takes less than three seconds after official winnings are posted at the
horse track.

CUSTOMER SERVICE FOR THE YOU BET NETWORK

Youbet.com maintains and provides a high level of customer service and
support for its subscribers. Customer service representatives are available from
7:00 a.m. to 9:00 p.m. Pacific Standard Time, seven days a week, to provide
assistance via email or toll free number. Customer service representatives can
handle all questions relating to the You Bet Network, including how to install
Youbet.com's software, how to place a wager and how to find desired features or
information on the You Bet Network. Customer service will also process a
subscriber's credit card information over the telephone to initially set up an
account. Customer service hours have been set by Youbet.com according to the
hours when it is likely that online activity will take place. To date,
Youbet.com has had no significant customer service

40
<PAGE>
issues and intends to continue to devote the resources necessary to maintain
this high level of customer service.

PRICING FOR THE YOU BET NETWORK

Beginning in February 1999, Youbet.com implemented a monthly subscription
fee for access to the You Bet Network which is currently $5.95. This fee does
not include the extra charges applicable for value added features and additional
handicapping information such as past performances, tip sheets and horse track
racing analysis which are billed separately on a monthly basis. New subscribers
may currently access the You Bet Network for an initial one month free trial
period.

REVENUE SOURCES FROM THE YOU BET NETWORK

Pari-mutuel operators typically take a percentage as a commission prior to
distributing payoffs to the winners. Pari-mutuel operators such as Ladbroke also
bring additional wagers into a horse track pool from off-track sources.
Youbet.com receives a fee from Ladbroke equal to fifty percent (50%) of the net
commissions to Ladbroke derived from wagers placed by Youbet.com subscribers who
have wagers placed through Ladbroke. This fee includes not only a percentage of
net commissions for wagers facilitated by the You Bet Network, but also each
wager by a Youbet.com subscriber which is placed by phone with Ladbroke. These
commissions comprise Youbet.com's primary revenue stream. Additional revenues
are generated from monthly subscription fees, the sale of information products
and other value added services such as past performances of various tracks,
jockeys or horses.

Youbet.com expects to continue to derive a majority of its future revenues
through commissions from amounts wagered with licensed wagering facilities
through the You Bet Network. However, Youbet.com anticipates that additional
revenue will be generated from sources such as, advertising on the You Bet
Network, including web banners, and advertising on the live simulcasts as well
as sales of other sports information and sports and logo merchandise. Youbet.com
intends, as part of its marketing plan, to extensively expand advertising on the
You Bet Network once its subscriber base reaches a certain threshold.

YOUBET.COM INTERNATIONAL INITIATIVES

Youbet.com is currently engaged in discussions with several large, overseas
companies with the objective of expanding the You Bet Network to include foreign
handicappers and enabling Youbet.com's subscribers to place wagers on world
class racing from foreign racing centers. Youbet.com's overseas strategy
envisions providing Youbet.com's technology and experience in developing the You
Bet Network to overseas partners who will develop the physical network
facilities under joint venture agreements. These joint ventures will develop
local networks as turn-key operations that can easily be replicated throughout
the world in countries with significant sports wagering markets. As in its
operation in the United States, Youbet.com does not plan to actually accept
wagers or take the risks associated therewith. Instead, the overseas networks
will enter into agreements with licensed wagering entities, for the actual
processing of each wager. Additionally, while wagering on horse track racing is
the only service currently offered by the You Bet Network, Youbet.com's overseas
networks may also include other types of sports wagering.

WAGERING SYSTEMS DEVELOPMENT EXPERIENCE

Youbet.com's predecessor, PC Totes, Inc. had more than eight years of
experience developing computer-based wagering systems, including development of
a PC-based "totalisator" system to operate and process all wagering at horse and
dog tracks at the time of its merger into Youbet.com. To Youbet.com's knowledge,
this was the first PC-based totalisator system to be operated by horse and dog
tracks.

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<PAGE>
MARKETING AND PROMOTION

In December 1998, the National Thoroughbred Racing Association, or NTRA,
published horse track racing customer market research. The NTRA identified a
U.S. thoroughbred racing wagering population of 10 million, who wagered $15.5
billion legally in 1998.

TARGET MARKETS

Youbet.com has stratified the market into two distinct betting groups, as
follows:

- EXISTING BETTOR This type represents the "expert", "above average" and
"average" handicapper. The existing player is a regular bettor, who
currently uses remote betting facilities, often plays casino games and
follows sports.

- NEW BETTOR This type of bettor represents the mainstream online service
users who are sports fans, players of online "fantasy sports," and day
traders, but who do not presently wager on horse track racing. Youbet.com
will target on-line financial, business, sports, and gaming communities in
order to reach this player. Youbet.com believes that the new bettor
represents an extremely large market.

MARKETING STRATEGY

Existing bettors require less time to learn to use the You Bet Network and
provide a very profitable segment of players. The existing bettor is likely to
be targeted by competitors. New bettors will need more education regarding horse
track racing, but represent a larger market and possibly even greater revenues.

Youbet.com intends to attract the existing bettor with superior information
and technology as well as value-added promotions such as complementary monthly
service charges. Youbet.com also believes that significant wagering activity can
be produced by existing and new bettors who may be significant gamblers or have
strong interest in the sports field, but who have not traditionally been large
players due to a perceived lack of time and convenience regarding horse track
wagering. The convenience and ease of use of the You Bet Network, as well as the
immediate excitement of online wagering and wagering results will be heavily
marketed to attract these new players. The Youbet.com brand will also be heavily
marketed to these two market segments to distinguish Youbet.com from its future
competitors and to create brand awareness, sampling of the You Bet Network and
loyalty.

DISTRIBUTION

Sales strategies are concentrated on direct mail campaigns, online marketing
(banners ads, co-marketing ventures, etc.), print advertising, on-track
promotion and bundling with software products and print media.

Youbet.com's website is a primary marketing vehicle and sales driver. In
addition, Youbet.com has entered into strategic relationships with mainstream
and niche online services to enhance its marketing and distribution efforts.

INTERNATIONAL MARKETING

As Youbet.com expands and develops wagering networks overseas, additional
marketing strategies will be implemented to target the players wagering on horse
track racing in their respected countries as well as bettors who may be
interested in wagering on Youbet.com's other live sports wagering products which
will be developed by country, as appropriate.

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<PAGE>
STRATEGIC RELATIONSHIPS

Youbet.com has domestic agreements with Ladbroke, one of the world's largest
licensed account wagering entities, Equibase, the industry's leading source of
racing information, Thoroughbred Sports Network, a leading Internet-based
publisher of horse track racing information, The United States Trotting
Association, the industry's leading source of standardbred racing information
and Netixs Communications, one of the leading Internet providers of networking
services.

LADBROKE

In June 1997, Youbet.com entered into a Telecommunication Facilitation
Agreement with Mountain Laurel Racing, Inc. and Washington Trotting Association,
Inc., both of which are subsidiaries of Ladbroke USA (collectively, "Ladbroke"),
which expires in November 2002. Under the agreement, Youbet.com provides
Ladbroke with an interactive graphics interface to the You Bet Network through
which Youbet.com's subscribers who have established accounts with Ladbroke's
Call-A-Bet System in Pennsylvania are able to communicate interactively with
Ladbroke using their PCs to transmit wagering information to Ladbroke.

Ladbroke provides simulcast signals and pari-mutuel wagering from 32 horse
track racing venues throughout the United States, including most major horse
tracks. Since 1983, Ladbroke has offered telephone wagering through Ladbroke's
Call-A-Bet System, one of the nation's largest account wagering systems.
Youbet.com's agreement with Ladbroke enables Youbet.com's subscribers to place
wagers through Ladbroke's Call-A-Bet System. The agreement also provides for
Youbet.com to receive a fee from Ladbroke equal to fifty percent (50%) of the
net commissions to Ladbroke derived from wagers placed by Youbet.com subscribers
who use the Call-A-Bet System either through the computer graphics interface
provided by Youbet.com or more traditional telephone communication.

Ladbroke is a subsidiary of Ladbroke USA, a subsidiary of the worldwide
gaming and hospitality leader Ladbroke Group PLC. Ladbroke consists of the
Meadows horse track in Pennsylvania and six offtrack wagering facilities, all in
the state of Pennsylvania. Ladbroke USA owns and operates Golden Gate Fields in
California. Ladbroke Group PLC is a multi-national publicly traded corporation
headquartered in the United Kingdom, that owns and operates more than 2,000
wagering shops in the United Kingdom, and is the world's largest operator of
horse track racing and sports wagering properties. In addition, Ladbroke Group
PLC owns Hilton International, which controls more than 160 hotels and casinos
in 50 countries and Ladbroke is the second largest hotel operator in the United
Kingdom and recently acquired the Stakis Hotel and Casino Group.

Youbet.com's agreement with Ladbroke expires in November 2002, and provides
that through June, 1999, subject to certain exceptions, Ladbroke will be the
exclusive horse track wagering facility used by Youbet.com and Youbet.com will
be the exclusive interactive computer-based audio/video telecommunications
facilitator used by Ladbroke. This relationship becomes non-exclusive in June
1999. However, if Youbet.com enters into an arrangement with another account
wagering facility which is more favorable to such account wagering facility than
Youbet.com's agreement with Ladbroke on an overall basis, Ladbroke is entitled
to receive the benefit of such arrangement.

OTHER STRATEGIC RELATIONSHIPS

In March 1996, Equibase Company signed a five-year license agreement,
terminable upon 30 days written notice, with Youbet.com which allows Youbet.com
to produce products and services from Equibase's data and sell programs, past
performances and a wide variety of horse track racing information products to
Youbet.com's subscribers. Equibase is the official "thoroughbred industry owned"
database of racing information. Established in 1990, Equibase is a general
partnership between The Jockey Club and the Thoroughbred Racing Associations of
North America. The agreement provides that Youbet.com will pay Equibase fees for
individual product sales subject to a minimum monthly fee.

43
<PAGE>
In September 1997, Thoroughbred Sports Network, Inc., or TSN, entered into a
five-year, marketing and distribution agreement, terminable upon 90 days written
notice, with Youbet.com, which allows Youbet.com to provide its subscribers with
access to a wide variety of handicapping past performance and sports information
products. The agreement provides that Youbet.com will pay TSN a percentage of
the set price per download for each information product sold. TSN is the leading
Internet-based publisher of horse track racing information products,
specializing in value-added handicapping services and daily reports, designed
especially for the avid handicapper.

In March 1998, the United States Trotting Association, or USTA, entered into
an agreement with Youbet.com, terminable upon 30 days written notice, to provide
past performance information related to horse track racing. Youbet.com agrees to
pay a monthly minimum fee as well as a separate fee for each downloaded horse
track program. The USTA is now in its sixtieth year of operations promoting the
standardbred breed of horses.

In March 1999, Netixs Communications entered into a two-year agreement with
Youbet.com to provide online network services that will deliver video, audio and
data to subscribers of the You Bet Network. The agreement provides that
Youbet.com will pay per an agreed fee on a monthly basis for use of Netixs'
network services. Netixs provides a high-speed fully redundant, nationwide loop
with DS-3 to OC-48 architecture and dedicated MAN rings (metropolitan area
network). Netixs functions as the primary network provider for Youbet.com.

COMPETITION

The online and interactive wagering market is new and rapidly changing.
Youbet.com anticipates that competition will become more intense and that new
companies will enter the market. Worldwide, several Internet and interactive
ventures of various kinds have been announced. Youbet.com expects to compete
with these entities, as well as other established gaming companies, which may
enter the interactive pari-mutuel gaming market. Presently, Youbet.com has
focused its efforts primarily on the United States horse track racing industry
and believes that its principal product, the You Bet Network, is currently the
only legal system available for online wagering in the United States.

Youbet.com believes that its principal domestic competitor in the
interactive pari-mutuel gaming market is the Television Games Network, which is
owned by TV Guide, Inc. The Television Games Network, yet to be nationally
launched, is a 24-hour national racing channel for distribution over cable and
DirecTV, along with an in-home pari-mutuel wagering system that requires a
dedicated television set-top box. The system has undergone limited testing in
Kentucky and has been available to the public in limited release since November
1998. The Television Games Network has announced that it has formed exclusive
relationships with a number of major United States horse tracks. Further
expansion of the Television Games Network's exclusive relationships may make it
difficult for Youbet.com to obtain racing audio and video content to supply the
You Bet Network. If such exclusive relationships account for a significant
number of horse tracks, the Television Games Network may be able to secure
additional horse tracks on more favorable terms than Youbet.com.

Youbet.com believes that potential new competitors, include large
interactive and online software companies, media companies and gaming companies,
which may increase their focus on the interactive wagering market. Competition
for the You Bet Network is influenced by the timing of competitive product
releases and the similarity of such products to those of Youbet.com, which may
result in significant price competition or reduced profit margins.

Youbet.com also anticipates that significant overseas competition will
emerge. This may eventually result in additional competition as these overseas
competitors expand into the United States or as Youbet.com expands
internationally. Specifically, several well-capitalized Australian media
companies and gaming companies are already developing Internet wagering systems.

44
<PAGE>
GOVERNMENT REGULATION AND LEGISLATION

Gaming activities are subject to extensive statutory and regulatory control
by both state and federal authorities, and are likely to be significantly
affected by any changes in the political climate and economic and regulatory
policies. These changes may impact the operations of Youbet.com in a materially
adverse way. To the extent that Youbet.com's facilities are used by subscribers
to place intrastate or interstate wagers or Youbet.com receives commissions from
such wagers, various statutes and regulations could have a direct and material
effect on the business, and indirectly could have a material effect on the
public demand for the You Bet Network.

All 50 states currently have statutes or regulations restricting gaming
activities, and three states have no gaming at all. In most states it is illegal
for anyone either to accept or make a wager, with specific state-by-state
statutory exceptions. The Federal Interstate Wire Act contains provisions which
make it a crime for anyone in the business of gaming to use an interstate or
international telephone line to transmit information assisting in the placing of
wagers, unless the wagering is legal in the jurisdictions from which and into
which the transmission is made. Other federal laws impacting wagering activities
include the Interstate Horse Racing Act, the Interstate Wagering Paraphernalia
Act, the Travel Act and the Organized Crime Control Act. Certain legislation is
currently being considered in Congress and individual states in this regard. In
addition, the United States Justice Department is in the process of taking
action against selected companies that it deems to be operating without proper
licensing and regulatory approval.

In 1998, a bill sponsored by U.S. Senator Jon Kyl of Arizona and adopted by
a wide margin in the Senate (but ultimately not enacted) would have prohibited
online and Internet gaming with specified exceptions, including exceptions for
certain horse race wagering and certain "closed-loop" online systems. However,
the latter exceptions were narrow and this 1998 bill, had it been enacted, would
have had a material adverse effect on Youbet.com's business. Other online and
Internet gaming bills have been considered in recent years in both the Senate
and the House of Representatives. Senator Kyl has reintroduced a new version of
his online and Internet Gambling Prohibition Act of 1999. This 1999 Kyl bill (S.
692) contains more broadly drafted exceptions than the 1998 Kyl bill and, if it
were enacted in the form in which it was introduced on March 23, 1999,
Youbet.com does not believe that the bill would have a material adverse effect
on Youbet.com's business. However, a proposal such as the 1998 Kyl bill could
emerge again in Congress; many states are considering Internet gaming
legislation and regulations which may or may not contain exceptions that would
permit Youbet.com's business to continue in such states; and the National
Gambling Impact Study Commission or other legislative or regulatory bodies may
reach influential anti-gaming conclusions which could form the basis for new
laws, regulations, or enforcement policies that could have a material adverse
effect on Youbet.com's business.

Youbet.com intends to comply with all applicable laws and regulations
including the proposed Kyl bill, if enacted. Youbet.com has designated executive
officers to oversee its legal compliance efforts in the United States and
abroad. Such officers, where appropriate, will consult with Youbet.com's counsel
and others regarding Youbet.com's activities and will monitor proposed
regulations and legislation that would affect Youbet.com's business.

45
<PAGE>
International expansion of the You Bet Network may be subject to regulation
in those countries in which it is made available. Youbet.com believes that it
can operate, or license technology, in numerous jurisdictions that allow
telephone and account wagering, such as Canada, Mexico, the United Kingdom,
Australia, and Hong Kong. However, Youbet.com may not be able to obtain the
approvals necessary to market its services in such jurisdictions.

INTELLECTUAL PROPERTY

In developing the You Bet Network, Youbet.com has acquired and developed
software technologies which it believes give it a technological advantage over
potential competitors. Although Youbet.com's software and technology is not
currently protected by patents or copyrights, Youbet.com believes that its
proprietary software could take time for a competitor to replicate. Youbet.com
also draws from an experienced team of software professionals with years in the
pari-mutuel wagering business. Among the technology which Youbet.com believes
potential competitors will find difficult to replicate or acquire, are the
following:

- A proprietary network design capable of handling the extreme peak loads of
interactive wagering;

- A national multicast network allowing for reliable and economical delivery
of audio, video, and information updates to a virtually unlimited
audience;

- Open architecture design capable of handling multi-currency and
multi-lingual games, including horse track racing and other high-level
participation games; and

- Proprietary encryption and security technologies and techniques.

EMPLOYEES

As of March 25, 1999, Youbet.com had 57 employees. Youbet.com has never had
a work stoppage, and no employees are represented by a union. Youbet.com
considers its relations with its employees to be good. Youbet.com believes that
its future success will depend in part on its continued ability to attract,
integrate, retain and motivate highly qualified technical and managerial
personnel, and upon the continued service of its senior management and key
technical personnel. Competition for qualified personnel in Youbet.com's
industry is intense, particularly for software development and other technical
staff and there can be no assurance that Youbet.com will be successful in
retaining a sufficient numbers of qualified personnel to conduct its business in
the future.

FACILITIES

Youbet.com's principal administrative, data and marketing facilities total
approximately 9,600 square feet, and are located in Los Angeles, California
under a lease which will expire in October 1999. Youbet.com is exploring
alternatives to expand its current space or to secure a larger location.
Youbet.com expects that suitable additional space will be available on
commercially reasonable terms. Youbet.com does not own any real estate.

LEGAL PROCEEDINGS

Youbet.com may from time to time become a party to various legal proceedings
arising in the ordinary course of business. Youbet.com is not currently subject
to any material legal proceedings. However, there can be no assurance that
Youbet.com will not be a party to legal proceedings at some future date.

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<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information regarding the directors,
executive officers and certain key employees of Youbet.com:

<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------- --- ----------------------------------------------------------------
<S> <C> <C>
Robert M. Fell(1)............... 56 Chairman of the Board and Chief Executive Officer

David M. Marshall(1)............ 36 Vice Chairman of the Board and President

Russell M. Fine(1).............. 35 Director, Executive Vice President and Chief Technology Officer

Ron W. Luniewski................ 35 Executive Vice President and Chief Operating Officer

Phillip C. Hermann.............. 49 Executive Vice President and Chief Financial Officer

Jean M. Prewitt................. 50 Executive Vice President, International

Steve A. Molnar................. 55 Executive Vice President, Racing

Gary N. Jacobs.................. 53 Secretary

Caesar P. Kimmel(2)............. 73 Director

Alan Landsburg(2)............... 66 Director

Jess Rifkind(3)................. 68 Director

William H. Roedy(3)............. 51 Director
</TABLE>

- ---------

(1) Member of the Executive Committee

(2) Member of the Compensation Committee

(3) Member of the Audit Committee

ROBERT M. FELL
Mr. Fell has served as Chairman of the Board and Chief Executive Officer of
Youbet.com since June 1998. From 1994 to 1997 prior to joining Youbet.com, Mr.
Fell was chairman of the board and chief executive officer of Archon
Communications, Inc. ("ACI"). ACI acquired control of Premiere Radio Networks,
Inc., which it later sold to Jacor Communications, Inc. Mr. Fell was also the
founder of Silicon Gaming, Inc. and served as its initial President in 1993. Mr.
Fell resigned from the board of Silicon Gaming in early 1998. From 1977 to 1995,
as a consultant in the entertainment and communications industry, Mr. Fell,
through Fell & Company, Inc., played a major role in restructuring and
augmenting the management of Columbia Pictures Industries, Twentieth Century Fox
and other major media companies.

DAVID M. MARSHALL
Mr. Marshall has served as Vice Chairman of the Board and President since June
1998. Mr. Marshall has been a senior executive and director of Youbet.com or its
predecessors since its founding in 1987 and served as chairman of the board and
chief executive officer of Youbet.com or its predecessors from 1989 to June
1998. Mr. Marshall was also the co-founder of MiddleWare Telecom Corporation and
PC-Totes, Inc. Both entities have since been merged into Youbet.com.

RUSSELL M. FINE
Mr. Fine has served as Executive Vice President and Chief Technology Officer
since June 1998. Mr. Fine has been a senior executive and director of Youbet.com
or its predecessors since its founding

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<PAGE>
in 1987. Mr. Fine was also the chief technology officer and co-founder of
MiddleWare Telecom Corporation and vice-president of research and development of
PC-Totes. Both entities have since been merged into Youbet.com.

RON W. LUNIEWSKI
Mr. Luniewski has served as Executive Vice President and Chief Operating Officer
of Youbet.com since February 1999, and was President of You Bet!, Inc. a
subsidiary of Youbet.com or its predecessor since March 1997. For more than five
years prior to joining Youbet.com, or its predecessor, Mr. Luniewski was with
Electronic Data Systems or EDS as a system engineer and held a variety of
positions in software development, project management and business development.

PHILLIP C. HERMANN
Mr. Hermann has served as Executive Vice President and Chief Financial Officer
of Youbet.com since May 1998. From August 1997 to April 1998, Mr. Hermann was
chief operating officer and chief financial officer of Cloud 9 Interactive, a
diversified entertainment company. Previously, from 1992 to August, 1997 Mr.
Hermann was executive vice president and chief financial officer of Strawberry
Industries, a consumer products company. From 1982 to 1986 Mr. Hermann was vice
president and chief financial officer of the Walt Disney Telecommunications
Group.

JEAN M. PREWITT
Ms. Prewitt has served as Executive Vice President, International of Youbet.com
since April 1999. From July 1994 to January 1999 Ms. Prewitt was with
podesta.com, a governmental affairs/public relations firm specializing in media
and technology clients. Previously, Ms. Prewitt was with the National
Telecommunications and Information Administration from 1989 to 1994 where she
advised and represented the United States in communications and information
policies. She also served as senior vice president and general counsel of United
International Pictures from 1982 to 1989.

STEVE A. MOLNAR
Mr. Molnar has served as Executive Vice President, Racing of Youbet.com since
February 1999 and was chief executive officer of You Bet!, Inc. a subsidiary of
Youbet.com or its predecessor from April 1997 to April 1998. From May 1994
through December 1995 Mr. Molnar was a consultant to the horse racing industry
including Youbet.com. Mr. Molnar's involvement in the horse racing industry
spans 12 years prior to joining Youbet.com. From November 1988 to April 1994 he
held the position of president and chief operating officer of McKinnie Systems.

GARY N. JACOBS
Mr. Jacobs has served as Secretary of Youbet.com since July 1998. He has been a
senior partner at Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro,
LLP, or its predecessors since May 1988. Mr. Jacobs is counsel for Youbet.com,
and a director of The InterGroup Corporation, which owns and operates rental
properties and invests in other companies.

CAESAR P. KIMMEL
Mr. Kimmel has served as a Director of Youbet.com since June 1998. Mr. Kimmel
has been a private investor for more than the past five years. Mr. Kimmel is one
of the original founders of Warner Communications, Inc. the predecessor to Time
Warner Inc. and served as Executive Vice President for twenty five years. Mr
Kimmel is also currently a director of the National Museum of Racing.

ALAN LANDSBURG
Mr. Landsburg has served as a Director of Youbet.com since June 1998. Mr.
Landsburg is the founder and has been the chief executive officer of The
Landsburg Company and Alan Landsburg Productions since 1970. As an executive
producer, director and writer he is responsible for more than 2,000 hours of
television production which include seven hit series and more than 50 movies. He
is a founding board member of the Thoroughbred Owners of California. Mr.
Landsburg also serves on Advisory Committees for the California Horse Racing
Board.

48
<PAGE>
JESS RIFKIND
Mr. Rifkind has served as a Director of Youbet.com since December 1995. Mr.
Rifkind is an independent management consultant providing counsel to clients in
the areas of management, finance, and high technology. Prior to establishing his
current practice in 1982, Mr. Rifkind held operating and research executive
positions with Xerox Corporation from May 1968 to December 1981; including vice
president, Field Engineering, and founder and manager of the Advanced
Development Labs of the Xerox Palo Alto Research Center. Mr. Rifkind is also
currently a director of Gemstone Systems Inc, a computer software company that
produces application server and object database software.

WILLIAM H. ROEDY
Mr. Roedy has served as a Director of Youbet.com since June 1998. Mr. Roedy has
been employed by MTV Networks since 1989 and is president of MTV Networks
International and chairman of MTV Networks Europe. Prior to joining MTV, Mr.
Roedy was at Home Box Office from 1979 to 1989, as manager for national accounts
and affiliate operations and vice president.

DIRECTOR COMPENSATION

Non-employee directors receive no annual retainer or meeting fees, but are
reimbursed for travel costs and other out-of-pocket expenses incurred in
attending board of directors and committee meetings. Jess Rifkind, a
non-employee member of the board of directors, was also paid a consulting fee of
$2,400 per month from January through June 1998. As additional compensation for
the non-employee members of the board of directors, Youbet.com issued the
following stock options:

- In April 1998, Youbet.com issued a stock option to Jess Rifkind, the only
non-employee director of Youbet.com at that time under the 1995 Stock
Plans to purchase 5,000 shares of common stock at an exercise price of
$5.50 per share. The stock option was fully vested upon issuance, and is
exercisable for a period of ten years.

- In July 1998, Youbet.com granted to each of its non-employee directors
options to acquire 40,000 shares of common stock, pursuant to the 1998
Stock Plan at an exercise price of $2.50 per share. These options vest
monthly over the one year period beginning July 1998 and are exercisable
for a period of ten years after vesting.

As of the date of this prospectus, options to acquire 180,300 shares of common
stock held in the aggregate by such directors are outstanding, and 153,632 of
such options are vested or will be vested within the next 60 days.

BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD

Youbet.com's Bylaws provide that the number of members of Youbet.com's board
of directors shall be determined by the board of directors. This number is
currently seven. All of the officers identified above serve at the discretion of
the board of directors of Youbet.com. Youbet.com's Bylaws also provide for the
creation of committees of the board of directors. Youbet.com, currently has
three committees: the Executive Committee, the Compensation Committee and the
Audit Committee.

Messrs. Fell, Marshall and Fine are the members of the Executive Committee.
The Executive Committee has full authority to exercise all the powers of the
board of directors to the fullest extent permitted by Delaware law. Actions of
the Executive Committee are taken by a majority vote.

Messrs. Kimmel and Landsburg are the members of the Compensation Committee.
The Compensation Committee administers, reviews and approves, subject to the
board of directors, Youbet.com's stock option plans, and make recommendations to
the board of directors regarding compensation, including payment of salaries,
bonuses and incentive compensation and other benefit programs, including those
relating to Youbet.com's senior management.

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<PAGE>
Messrs. Rifkind and Roedy are the members of the Audit Committee. The Audit
Committee interacts with Youbet.com's Chief Financial Officer and outside
auditors concerning Youbet.com's independent public accountants and the
establishment and oversight of such systems of internal accounting and auditing
control as it deems appropriate.

The board of directors does not have a nominating committee. However, the
board of directors will consider nomination recommendations from stockholders,
which should be addressed to Youbet.com's secretary at its principal executive
offices.

EXECUTIVE COMPENSATION

The following table sets forth all compensation paid by Youbet.com for the
years ended December 31, 1998, 1997 and 1996 to the Chief Executive Officer, the
executive officers of Youbet.com whose total salary and bonus for 1998 exceeded
$100,000 and certain other key employees.

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------------------------------
<S> <C> <C> <C> <C>
OTHER ANNUAL
NAME AND PRINCIPAL POSITIONS YEAR SALARY BONUS COMPENSATION
- ---------------------------------------------------------------- --------- ---------- ----------- -------------
Robert M. Fell(1)............................................... 1998 $ 81,136(4) $ 363(5) $ 4,500(6)
Chairman of the Board and Chief Executive Officer 1997 -- -- --
1996 -- -- --

David M. Marshall(2)............................................ 1998 140,000 363(5) 52,279(7)
Vice Chairman of the Board and President 1997 130,000 -- 17,185(8)
1996 130,000 -- --

Russell M. Fine................................................. 1998 138,333 363(5) 39,898(9)
Executive Vice President and Chief Technology Officer 1997 120,000 -- 14,825(10)
1996 120,000 -- --

Ron W. Luniewski................................................ 1998 138,333 363(5) 2,991(11)
Executive Vice President and Chief Operating Officer 1997 120,000 -- 10,306(12)
1996 101,385 -- --

Phillip C. Hermann(3)........................................... 1998 96,667 363(5) 75,456(5)
Executive Vice President and Chief Financial Officer 1997 -- -- --
1996 -- -- --

Steve A. Molnar................................................. 1998 119,375 363(5) 3,158(11)
Executive Vice President, Racing 1997 121,460 -- 10,812(13)
1996 78,750 -- --
</TABLE>

- ---------

(1) Joined Youbet.com's management in June 1998.

(2) Served as chief executive officer of Youbet.com until June 1998.

(3) Joined Youbet.com's management in May 1998.

(4) Represents compensation paid to Fell & Company, Inc. for the services of
Robert M. Fell (see "Employment and Service Agreements" below).

(5) See "Option Grants in 1998" below.

(6) Represents automobile allowance.

(7) Represents interest on deferred compensation of $9,854, an automobile
allowance of $7,500, and a discount of $34,925 on the conversion of
deferred compensation into 55,879 shares of common stock.

50
<PAGE>
(8) Represents an automobile allowance of $6,000, and interest on deferred
compensation of $11,185.

(9) Represents interest on deferred compensation in of $7,185, automobile
allowance of $7,500 and a discount of $25,213 on the conversion of deferred
compensation into 40,342 shares of common stock.

(10) Represents an automobile allowance of $6,000 and interest on deferred
compensation of $8,825.

(11) Represents interest on deferred compensation.

(12) Represents interest on deferred compensation of $3,743 and a 25% bonus on
deferred compensation of $6,563.

(13) Represents interest on deferred compensation of $3,921 and a 25% bonus on
deferred compensation of $6,891.

EMPLOYMENT AND SERVICE AGREEMENTS

In June 1998 Youbet.com and Fell & Company, Inc. entered into a services
agreement which was amended in March 1999 pursuant to which Mr. Fell serves as
Chairman of the Board and as the Chief Executive Officer. For making Mr. Fell's
services available, Fell & Company, Inc. receives a base fee of $225,000 per
year, subject to cost of living increases, plus the amount of payroll taxes
Youbet.com would pay if Mr. Fell were an employee of Youbet.com and other
miscellaneous benefits. While Mr. Fell is serving as Chief Executive Officer he
will devote 100% of his business time to the affairs of Youbet.com. At such time
as Mr. Fell is no longer serving as Chief Executive Officer, he will be required
to devote 70% of his business time to the affairs of Youbet.com and the base fee
will be reduced to $150,000 per year. The services agreement expires in June
2001. If Fell & Company, Inc. is willing to renew the agreement and Youbet.com
does not do so, Fell & Company, Inc. will receive a termination fee equal to the
amount paid to Fell & Company, Inc. by Youbet.com during the 12 months preceding
the expiration of the agreement.

In January 1999 David Marshall, Inc. and Youbet.com entered into a services
agreement pursuant to which Mr. Marshall serves as Vice-Chairman of the Board
and President of Youbet.com. For making Mr. Marshall's services available, David
Marshall, Inc. receives a base fee of $150,000 per year, subject to cost of
living increases, plus the amount of payroll taxes Youbet.com would pay if Mr.
Marshall were an employee of Youbet.com and other miscellaneous benefits. David
Marshall, Inc. is also entitled to receive an annual bonus determined by the
board of directors in its discretion. The services agreement also provides that
the compensation and benefits paid by Youbet.com for Mr. Marshall's services
will be no less favorable than the compensation and benefits received by any
employee of Youbet.com, other than the Chief Executive Officer. The services
agreement expires in June 2003. The services agreement permits David Marshall,
Inc. to terminate the agreement at anytime after December 31, 1999 and receive
the compensation and benefits provided under the agreement for the lesser of two
years or the remaining portion of the term, but at least one year. The services
agreement replaced an employment agreement between Mr. Marshall and Youbet.com
which had substantially the same terms.

In June 1998 Russell Fine and Youbet.com entered into an employment
agreement pursuant to which Mr. Fine will serve as Chief Technology Officer. Mr.
Fine will receive a base salary of $150,000, subject to cost of living
increases, and other miscellaneous benefits. Mr. Fine is also entitled to
receive an annual bonus determined by the board of directors. The employment
agreement also provides that the compensation and benefits paid to Mr. Fine will
be no less favorable than the compensation and benefits provided to any employee
of Youbet.com, other than the Chief Executive Officer. The employment agreement
expires in June 2003. The employment agreement permits Mr. Fine to terminate the
agreement at anytime after December 29, 1999 and receive the compensation and
benefits provided under the agreement for the lesser of two years or the
remaining portion of the term, but at least one year.

51
<PAGE>
In February 1999 Ron Luniewski and Youbet.com entered into an employment
agreement pursuant to which Mr. Luniewski serves as Executive Vice President and
Chief Operating Officer of Youbet.com through April 2000. This employment
agreement replaced an agreement which was to expire in April 1999 and provides
for Mr. Luniewski to receive an annual salary of $150,000, options to purchase
100,000 shares of common stock and other miscellaneous benefits. The options
have a 10 year term, vest in four equal annual installments beginning in May
2000 and are exercisable for $10.50 per share. All options will vest upon a
change of control of Youbet.com. Mr. Luniewski is also entitled to receive an
annual bonus determined by the board of directors in its discretion. The
agreement also permits Mr. Luniewski to terminate his employment with Youbet.com
under certain circumstances and receive two months salary and benefits.

In February 1999 Phillip Hermann and Youbet.com entered into an employment
agreement pursuant to which Mr. Hermann serves as Executive Vice President and
Chief Financial Officer of Youbet.com through April 2000. This employment
agreement replaced an agreement which was to expire in April 1999 and provides
for Mr. Hermann to receive an annual salary of $150,000, options to purchase
50,000 shares of common stock and other miscellaneous benefits. The options have
a 10 year term, vest in four equal annual installments beginning in May 2000 and
are exercisable for $10.50 per share. All options will vest upon a change of
control of Youbet.com. Mr. Hermann is also entitled to receive an annual bonus
determined by the board of directors in its discretion.

OPTION GRANTS IN 1998

The following table sets forth certain information regarding option grants
to each of Youbet.com's named executive officers during the year ended December
31, 1998.

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
-----------------------------------------------------------
<S> <C> <C> <C> <C>
NUMBER OF
SECURITIES PERCENT OF
UNDERLYING TOTAL OPTIONS EXERCISE
OPTIONS GRANTED TO PRICE EXPIRATION
NAME GRANTED (1) EMPLOYEES IN 1998 PER SHARE DATE
- -------------------------------------------------------- ----------- ------------------- ----------- ------------
Ron W. Luniewski........................................ 100,000 12.0% $ 2.50 02/05/2003
100 (2) 2.50 12/11/2003

Phillip C. Hermann...................................... 75,000 9.0 2.50 04/30/2008
5,000 0.6 2.50 04/30/2003
100 (2) 2.50 12/11/2003

Steve A. Molnar......................................... 50,000 6.0 2.50 02/05/2003
100 (2) 2.50 12/11/2003

David M. Marshall....................................... 100 (2) 2.50 12/11/2003

Russell M. Fine......................................... 100 (2) 2.50 12/11/2003

Robert M. Fell.......................................... 100 (2) 2.50 12/11/2003
</TABLE>

- ---------

(1) Options were granted under the 1995 and 1998 Stock Option Plans and are
exercisable for common stock of Youbet.com.

(2) Less than .1%.

52
<PAGE>
OPTION EXERCISES AND FISCAL YEAR-END VALUES

The following table sets forth the number of shares acquired upon the
exercise of stock options during the year ended December 31, 1998 and the number
of shares covered by both exercisable and unexercisable stock options held by
each of the named executive officers at December 31, 1998.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT YEAR-END(1) AT YEAR-END(2)
ACQUIRED VALUE -------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------- ------------- ----------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Ron W. Luniewski.................. -- -- 175,100 25,000 $ 679,388 $ 97,000
Phillip C. Hermann................ -- -- 5,100 75,000 19,788 291,000
Steve A. Molnar................... -- -- 130,100 20,000 504,788 67,600
David M. Marshall................. -- -- 100 -- 388 --
Russell M. Fine................... -- -- 100 -- 388 --
Robert M. Fell.................... -- -- 100 -- 388 --
----- ----- ----------- ------------- ------------ -------------
TOTAL........................... -- -- 310,600 120,000 $ 1,205,128 $ 455,600
----- ----- ----------- ------------- ------------ -------------
----- ----- ----------- ------------- ------------ -------------
</TABLE>

- ---------

(1) Options shown were granted under the 1995 and 1998 Stock Option Plans and
are exercisable for common stock. See "1995 Stock Option Plans" and "1998
Stock Option Plan" for a description of the material terms of these options.

(2) The dollar values are calculated by determining the difference between the
weighted average exercise price of the options and the market price for the
common stock of $6.38 on December 31, 1998.

1995 STOCK OPTION PLANS

In November 1995, Youbet.com's board of directors approved the 1995 Stock
Option Plan and the 1995 Stock Option Plan for Non-Employee Directors
(collectively, the "1995 Stock Plans"). The 1995 Stock Plans provide for the
granting of awards of incentive stock options, non-qualified stock options, and
stock appreciation rights. The aggregate number of shares of common stock
available for issuance under the 1995 Stock Plans, as amended, are 15% of the
total number of shares of common stock outstanding, allocated 13.5% to the 1995
Stock Option Plan and 1.5% to the 1995 Stock Option Plan for Non-Employee
Directors. The options generally vest in four equal annual installments, and
have a term of ten years. The 1995 Stock Plans provide for the granting of
incentive stock options within the meaning of Section 422A of the Internal
Revenue Code of 1986 and non-qualified stock options. Non-qualified stock
options may be granted to employees, directors and consultants of Youbet.com,
while incentive stock options may be granted only to employees. The 1995 Stock
Plans are currently administered by the compensation committee of the board of
directors, which determines the terms and conditions of the options granted
under the 1995 Stock Plans, including the exercise price, number of shares
subject to options and the exercisability thereof. The exercise price of all
Incentive Stock Options granted under the 1995 Stock Plans must be at least
equal to the fair market value of the common stock of Youbet.com on the date of
grant, and must be 110% of fair market value when granted to a 10% or more
stockholder. The exercise price of all non-qualified stock options granted under
the 1995 Stock Plans shall be not less than the par value per share of the
common stock. The term of all options granted under the 1995 Stock Plans may not
exceed ten years, except for incentive options granted to a 10% or more
shareholder which may not exceed five years. The 1995 Stock Plans may be amended
or terminated by the board of directors or the compensation committee, but no
such action may be taken which would materially increase the aggregate number of
shares as to which options may be granted, materially increase the benefits
accruing to the optionees, or materially modify the requirements as to
eligibility for participation under the 1995 Stock Plans. The 1995 Stock Plans

53
<PAGE>
provide the board of directors or the compensation committee with the discretion
to determine when options granted thereunder shall become exercisable and the
vesting period of such options. Upon termination of a participant's employment
or consulting relationship with Youbet.com, all unvested options terminate and
are no longer exercisable. Vested non-qualified options remain exercisable for a
period not to exceed three months following the termination date. However,
because the shares underlying these options have not been registered, the
Compensation Committee has extended the exercise period for these options until
three months after employment is terminated or the underlying shares are
registered, whichever is later (but no later than the expiration of the
options).

1998 STOCK OPTION PLAN

In February 1998, Youbet.com's board of directors approved the 1998 Stock
Option Plan and reserved 1,000,000 shares of common stock for options granted
thereunder. The 1998 Stock Plan provides for the granting of incentive stock
options within the meaning of Section 422A of the Internal Revenue Code of 1986
and non-qualified stock options. Non-qualified stock options may be granted to
employees, directors, officers and consultants of Youbet.com, while incentive
stock options may be granted only to employees and its affiliates. The 1998
Stock Plan is currently administered by the Compensation Committee of the board
of directors, which determines the terms and conditions of the options granted
under the 1998 Stock Plan, including the exercise price, number of shares
subject to options and the vesting and exercisability of options granted under
the 1998 Plan. The exercise price of the incentive stock options granted under
the 1998 Stock Plan must be at least equal to the fair market value of the
common stock of Youbet.com on the date of grant, and must be 110% of fair market
value when granted to a 10% or more stockholder. The exercise price of
non-qualified stock options will be determined by the Compensation Committee.
The term of all options granted under the 1998 Stock Plan may not exceed ten
years, except the term of incentive options granted to a 10% or more shareholder
may not exceed five years. The board of directors may suspend or terminate and
may amend the 1998 Plan from time to time, except that certain types of
amendments will require approval of the stockholders. Upon termination of a
participant's employment or consulting relationship with Youbet.com, all
unvested options terminate and are no longer exercisable. Vested qualified
options remain exercisable for a period not to exceed three months following the
termination date, unless the participant was terminated for cause or voluntarily
resigned in which all vested options will also terminate. However, because the
shares underlying these options have not been registered, the Compensation
Committee has extended the exercise period for these options until three months
after employment is terminated or the underlying shares are registered,
whichever is later (but no later than the expiration of the options). The 1998
Plan also permits Youbet.com to assist a participant to exercise options granted
under the 1998 Plan, including paying any tax obligations arising therefrom by
making a loan to the participant, permitting the participant to pay the exercise
price of the stock option over a term of years or guaranteeing a loan.

LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS

Youbet.com's Certificate of Incorporation limits the liability of directors
for any breach of the fiduciary duty of a director to the maximum extent
permitted by the Delaware general corporate law. The Delaware general corporate
law provides that a corporation's certificate of incorporation may contain a
provision eliminating or limiting the personal liability of directors for
monetary damages for breach of their fiduciary duties as directors, except for
liability (1) for any breach of their duty of loyalty to the corporation or its
stockholders, (2) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (3) for unlawful payments
of dividends or unlawful stock repurchases or redemptions as provided for in
Section 174 of the Delaware general corporate law or (4) for any transaction
from which the director derived an improper personal benefit.

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<PAGE>
Youbet.com's Bylaws provide that (1) Youbet.com is required to indemnify its
directors and officers to the maximum extent permitted by the Delaware general
corporate law, subject to certain very limited exceptions, (2) Youbet.com may
indemnify its other employees and agents to the maximum extent permitted by the
Delaware general corporate law, (3) Youbet.com is required to advance expenses,
as incurred, to its directors and officers in connection with a legal
proceeding, subject to certain very limited exceptions and (4) the rights
conferred in the Bylaws are not exclusive.

At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of Youbet.com where indemnification will be
required or permitted. Youbet.com is not aware of any threatened litigation or
proceeding that might result in a claim for such indemnification.

CERTAIN TRANSACTIONS

In November 1997 Sid Marshall, the Marshall Gift Trust, and Stuart Fine
exchanged promissory notes having a principal amount of $550,000, plus accrued
interest, for 337,335 shares of common stock, 168,665 Series D Common Stock
purchase warrants and 220,000 Series C Common Stock Warrants issued in
connection with a private placement by Youbet.com. Sid Marshall and Stuart Fine
are the fathers of David M. Marshall and Russell M. Fine, respectively. The
promissory notes were exchanged on the same terms as all other holders of bridge
notes.

In December 1997 Youbet.com released forfeiture conditions on 2,500,000
shares of common stock held by David M. Marshall, Russell M. Fine and Sid
Marshall, in exchange for the return to Youbet.com of 750,000 shares of common
stock. The forfeiture conditions were imposed in connection with Youbet.com's
merger with Continental Embassy Acquisition, Inc. in 1995. However, as a result
of a change in its marketing strategy in 1997 to focus on building a brand and
becoming the market leader to maximize long-term profitability, Youbet.com did
not believe that it was appropriate to retain the forfeiture conditions.

In June 1998, David M. Marshall converted $104,773 of his employee deferred
compensation into 55,879 shares of common stock (and 27,939 Series C and 27,939
Series D common stock purchase warrants) at $1.875 per share as part of a
company wide deferred salary conversion program.

In June 1998, Russell M. Fine converted $75,640 of his employee deferred
compensation into 40,341 shares of common stock (and 20,171 Series C and 20,171
Series D common stock purchase warrants) at $1.875 per share as part of a
company wide deferred salary conversion program.

In June 1998, Youbet.com issued 177,000 Series C common stock purchase
warrants as additional consideration for short-term advances of $440,000, of
which 90,000 warrants were issued to Sid Marshall and 44,000 warrants were
issued to a company associated with Youbet.com's financial and marketing
consulting firm.

In January 1998, Youbet.com commenced a bridge financing, consisting of a
secured note with interest at 12% due December 1998, secured by a junior lien on
substantially all the assets of Youbet.com and an option to convert into
securities offered in any subsequent private placement (or the equivalent amount
of common stock, if such financing did not consist of common stock), at 75% to
80% of the private placement offering price. Youbet.com issued a total of
$2,415,000 of bridge notes of which $1,247,000 were issued to related parties.
In July 1998, as a result of the sale of Series A Convertible Preferred Stock,
the holders of the bridge notes payable converted such notes into 1,303,319
shares of common stock, including 683,176 shares to related parties, of which
232,821 shares were issued to Sid Marshall and 450,355 shares were issued to
companies associated with Youbet.com's financial and marketing consulting firm.

In June 1998 Youbet.com entered into a Stock Purchase Agreement with certain
investors. Pursuant to this agreement Youbet.com sold 200,000 shares of Series A
Convertible Preferred Stock for $25.00 per share. Robert M. Fell, David M.
Marshall, Jess Rifkind, Caesar Kimmel, Alan Landsburg,

55
<PAGE>
William Roedy, Gary N. Jacobs or trusts of which they are beneficiaries
purchased 445, 445, 400, 1,600, 1,000, 10,000 and 2,000 shares, respectively.

In June, 1998, Youbet.com entered into a Securities Purchase Agreement with
the Robert M. Fell Living Trust (the "Fell Trust"). Pursuant to the Securities
Purchase Agreement, the Fell Trust acquired 20,000 shares of Series A
Convertible Preferred Stock and a warrant to purchase 1,200,000 shares of
Youbet.com's common stock (the "Fell Warrant"). The purchase price for the
Series A Convertible Preferred Stock acquired by the Fell Trust was $25.00 per
share, of which $10,000 was paid in cash and $490,000 was paid in the form of a
promissory note (the "$490,000 Note"). The purchase price for the Fell Warrant
was $75,000, of which $5,000 was paid in cash and $70,000 was paid in the form
of a promissory note (the "$70,000 Note"). The Fell Warrant expires on June 29,
2008, and entitles the Fell Trust to purchase 1,200,000 shares of common stock
at $2.50 per share. The Fell Warrant is exercisable one-sixth commencing on June
29, 1998, and one-sixth thereafter on each six month anniversary date. The Fell
Warrant also provides that, with certain exceptions, the common stock received
upon the exercise of the Fell Warrant may not be sold until one year following
the date the shares were first able to be purchased. The $490,000 Note bears
interest at the rate of 8% per annum, which may, at the option of the Fell
Trust, be paid currently or added to the principal amount of the note. The
$490,000 Note is due June 29, 2002, provided that the Fell Trust is required to
prepay the note, without penalty, as soon as possible consistent with its other
cash requirements. The $70,000 Note bears interest at the rate of 6% per annum,
which may, at the option of the Fell Trust, be paid currently or added to the
principal amount of the note. The $70,000 Note is due on June 29, 2008. The Fell
Trust pledged the Fell Warrant and the Series A Convertible Preferred Stock
acquired pursuant to the Securities Purchase Agreement to secure its obligations
under the $490,000 Note and the $70,000 Note. In December 1998 the Fell Trust
converted the Series A Preferred Stock into common stock which remains subject
to such pledge.

In June, 1998 the purchasers of the Series A Convertible Preferred Stock,
Russell M. Fine and Youbet.com, entered into a stockholders agreement, under
which the parties agreed to vote all shares of Series A Convertible Preferred
Stock and common stock beneficially owned by them (determined in accordance with
Rule 13d-3 of the Securities Exchange Act of 1934, as amended) and any stock
acquired in the future, for the election to the board of directors of four
persons designated by Robert Fell and three persons designated by David Marshall
and Russell Fine. The Stockholders Agreement terminates on June 29, 2000. As of
March 25, 1999 the stockholders agreement covers shares of common stock and
Series A Convertible Preferred Stock representing approximately 29.2% of the
outstanding voting power of Youbet.com's stock (not including shares of common
stock beneficially owned as a result of stock options and warrants).

56
<PAGE>
PRINCIPAL STOCKHOLDERS

The following table sets forth, as of March 25, 1999, certain information
regarding the beneficial ownership of Youbet.com's common stock, adjusted to
reflect the sale of the common stock offered hereby, by (1) each person or
entity who is known by Youbet.com to own beneficially 5% or more of Youbet.com's
outstanding common stock; (2) each Director of Youbet.com; (3) each of the named
Executive Officers; and (4) all Directors and Executive Officers of Youbet.com
as a group.

<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME OF BENEFICIAL OWNER(1)(2) BENEFICIAL OWNER PERCENT OF CLASS
- -------------------------------------------------------------------------- -------------------- -----------------
<S> <C> <C>
Robert M. Fell............................................................ 604,550(3) 4.1

David M. Marshall......................................................... 2,099,015(4) 14.6

Sid Marshall.............................................................. 878,222(5) 6.0
1170-M Pacific Coast Highway
Malibu, CA 90265

Marshall Gift Trust....................................................... 532,250(6) 3.7
1700 Bank of America Plaza
300 South Fourth Street
Las Vegas, NV 80101

Russell M. Fine........................................................... 1,976,491(7) 13.8

Ceasar P. Kimmel.......................................................... 49,333(8) .3

Alan Landsburg............................................................ 43,333(9) .3

Jess Rifkind.............................................................. 67,333(10) .5

William H. Roedy.......................................................... 133,333(11) .9

Ron W. Luniewski.......................................................... 120,100(12) .8

Phillip C. Hermann........................................................ 23,850(13) .2

Steve A. Molnar........................................................... 115,850(14) .8

All executive officers and directors as a group (11 persons).............. 5,269,955(15) 34.6
</TABLE>

- ---------

* less than one percent

(1) The address of the above beneficial owners is Youbet.com, Inc., 1950
Sawtelle Boulevard, Suite 180, Los Angeles, California, 90025, unless
otherwise noted.

(2) Beneficial ownership is determined according to the rules of the Securities
and Exchange Commission, and generally includes all voting or investment
power with respect to securities. Except as noted, and subject to community
property laws, the persons named in the table above have sole voting power
of their Youbet.com common stock.

(3) Includes 100 shares of common stock represented by a fully vested stock
option and 400,000 shares of common stock represented by the currently
exercisable portion of the Fell Warrant, but does not include the 800,000
shares of common stock represented by the portion of the Fell Warrant which
is fully vested but not exercisable within 60 days.

(4) Includes 100 shares of common stock represented by a fully vested stock
option and 55,878 shares of common stock represented by currently
exercisable common stock purchase warrants as follows: Series C--27,939;
Series D--27,939. Excludes shares of common stock and common stock purchase
warrants owned by Sid Marshall and the Marshall Gift Trust. David M.
Marshall is the son of Sid Marshall.

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<PAGE>
(5) Includes 457,000 shares of common stock represented by currently
exercisable common stock purchase warrants as follows: Series A--20,000;
Series C--345,000; Series D--92,000. Does not include shares of common
stock and common stock purchase warrants owned by the Marshall Gift Trust,
of which Sid Marshall is the trustee. Sid Marshall is the father of David
M. Marshall.

(6) Includes 141,333 shares of common stock subject to currently exercisable
common stock purchase warrants as follows: Series C--80,000; Series
D--61,333.

(7) Includes 100 shares of common stock represented by a fully vested stock
option and 40,342 shares of common stock subject to currently exercisable
common stock purchase warrants as follows: Series C--20,171; Series
D--20,171.

(8) Includes 33,333 shares of common stock represented by a stock option
exercisable within 60 days of March 25, 1999.

(9) Includes 10,000 shares of common stock represented by 1,000 shares of
Series A Convertible Preferred Stock and 33,333 shares of common stock
represented by a stock option exercisable within 60 days of March 25, 1999.

(10) Includes 53,333 shares of common stock represented by a stock option
exercisable within 60 days of March 25, 1999.

(11) Includes 33,333 shares of common stock represented by a stock option
exercisable within 60 days of March 25, 1999.

(12) Consists solely of 120,100 shares of common stock represented by stock
options exercisable within 60 days of March 25, 1999.

(13) Consists solely of 23,850 shares of common stock represented by stock
options exercisable within 60 days of March 25, 1999.

(14) Consists solely of 115,100 shares of common stock represented by stock
options exercisable within 60 days of March 25, 1999.

(15) Includes 429,450 shares of common stock represented by fully vested stock
options and stock options exercisable within 60 days of March 25, 1999,
96,220 shares of common stock represented by currently exercisable common
stock purchase warrants, 400,000 shares of common stock represented by the
currently exercisable portion of the Fell Warrant, and 10,000 shares of
common stock represented by 1,000 shares of Series A Convertible Preferred
Stock, but does not include the 800,000 shares of common stock represented
by the portion of the Fell Warrant which is fully vested but not
exercisable within 60 days.

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<PAGE>
DESCRIPTION OF CAPITAL STOCK

AUTHORIZED CAPITAL STOCK

The Certificate of Incorporation authorizes 51,000,000 shares of capital
stock consisting of the following:

- 50,000,000 shares of common stock, par value $.001 per share of which
[ ] shares are being offered hereby. Upon closing of this offering,
[ ] shares of common stock will be outstanding;

- 1,000,000 shares of preferred stock, par value $.001 per share; and

- As of March 25, 1999, there were outstanding 14,309,731 shares of common
stock held of record by 375 stockholders, 105,110 shares of Series A
Convertible Preferred Stock convertible into 1,051,100 of common stock,
warrants to purchase 7,536,514 shares of common stock and options to
purchase 1,956,596 shares of common stock. In connection with this
offering, warrants to purchase [ ] shares of common stock will be
exercised.

The common stock is entitled to one vote per share on all matters submitted
to a vote of the stockholders, including the election of directors. Cumulative
voting for the election of directors is not provided for in Youbet.com's
Certificate of Incorporation. Upon liquidation, dissolution or winding-up of
Youbet.com, and after the payment of the preferential rights of the Series A
Convertible Preferred Stock, the holders of shares of common stock will be
entitled to receive pro rata all assets of Youbet.com legally available for
distribution to such stockholders. Except for any preferential rights of the
Series A Convertible Preferred Stock, or any other series of preferred stock
created by the board from time to time, the stockholders of common stock will be
entitled to such cash dividends as may be declared from time to time by the
board from funds available therefor. See "Dividend Policy."

PREFERRED STOCK

Youbet.com has authorized the creation of a series of four hundred thousand
(400,000) shares of preferred stock designated "Series A Convertible Preferred
Stock" out of the one million (1,000,000) preferred shares authorized in
Youbet.com's Certificate of Incorporation. The remaining shares may be issued in
one or more series. The rights, preferences and privileges of any additional
series of preferred stock will be determined by the board of directors of
Youbet.com.

The holders of Series A Convertible Preferred Stock are not entitled to
dividends unless dividends are paid on the common stock, in which case the
Series A Convertible Preferred Stock will receive dividends at the same rate
payable on the common stock on the basis of the number of shares of common stock
into which the Series A Convertible Preferred Stock is convertible. The holders
of Series A Convertible Preferred Stock vote together with the holders of common
stock, on the basis of the number of shares of common stock into which the
Series A Convertible Preferred Stock is convertible, on all matters presented to
the stockholders of Youbet.com to vote. The Series A Convertible Preferred Stock
will vote separately as a class on matters which affect its rights and
preferences.

Each share of the Series A Convertible Preferred Stock is convertible into
ten shares of common stock and will be automatically converted into common stock
at such time as Youbet.com has completed a registered secondary public offering
which raises not less than $15,000,000 in gross proceeds and has its common
stock listed on the New York Stock Exchange, the American Stock Exchange or the
Nasdaq National Market.

Upon liquidation, dissolution or winding-up of Youbet.com, the holders of
shares of Series A Convertible Preferred Stock will be entitled to receive $25
per share, plus any unpaid dividends, prior to the distribution to any shares of
stock ranking junior to the Series A Convertible Preferred Stock. After the
holders of shares of stock ranking junior to the Series A Convertible Stock have
received all

59
<PAGE>
liquidation preference payments to which they are entitled and the holders of
common stock have received $2.50 per share plus any unpaid dividends. Any
remaining assets of Youbet.com will be distributed ratably to the holders of the
common stock and the Series A Convertible Preferred Shares; distributions to the
holders of the Series A Convertible Preferred Shares will be on the basis of the
number of shares of common stock into which the Series A Convertible Preferred
Shares are convertible.

REGISTRATION RIGHTS

Following this offering, under specified circumstances and subject to
customary conditions, the holders of Series A Convertible Preferred Stock and
common stock issuable upon conversion of such Series A Convertible Preferred
Stock will have certain registration rights with respect to their shares of
common stock (subject to the 210 day lock-up arrangement described above). These
registration rights enable such holders to require Youbet.com to register their
shares of common stock under the Securities Act and permit them to "piggyback"
on any future registration of securities by Youbet.com. Youbet.com is not
required to effect more than two demand registrations on behalf of these
holders. These holders of registration rights are subject to lock-up periods of
not more than 180 days following the date of this prospectus or any subsequent
prospectus.

Certain warrants issued by Youbet.com have or may have various registration
rights with respect to the warrants or shares of common stock issuable on
exercise of such warrants. Youbet.com has not registered any of the warrants or
such shares of common stock. In March 1999, Youbet.com sent a proposal to
holders of approximately 6,100,000 warrants, certain of which warrants have or
may have certain registration rights. Among other things, the proposal requested
a release of claims, if any, which may arise from such warrants and shares of
common stock not having been registered in consideration of Youbet.com's
agreeing to register such shares of common stock in 1999 and 2000. As of April
8, 1999, the holders of an aggregate of 4,968,651 warrants (81%) have accepted
such proposal and executed such releases.

The note purchase agreements also require Youbet.com to use its best efforts
to file, have declared effective by the Securities and Exchange Commission and
keep effective for a period of up to five years a registration statement with
respect to all of the shares of common stock into which the 11% Senior
Convertible Discount Notes may be converted (approximately 4,550,000 shares at
the present conversion rate, assuming conversion on April 5, 2001). If
Youbet.com fails to do so it shall pay to each holder for each 30-day period or
portion thereof that a registration statement is not effective, (1) a cash
payment equal to 3% of the principal amount of 11% Senior Convertible Discount
Notes held by such holder, and (2) for each share of common stock held by such
holder which was acquired upon conversion of the 11% Senior Convertible Discount
Notes, a cash payment equal to 3% of the principal amount of the 11% Senior
Convertible Discount Notes from which such common stock was converted, up to a
maximum penalty of 18% of the face principal amount of the 11% Senior
Convertible Discount Notes. The purchasers of the 11% Senior Convertible
Discount Notes are subject to lock-up periods of not more than 180 days
following the date of this prospectus or any subsequent prospectus.

ANTI-TAKEOVER PROVISIONS

Youbet.com is subject to the provisions of Section 203 of the Delaware
General Corporation Law (the "Anti-Takeover Law") regulating corporate
takeovers. The Anti-Takeover Law prevents certain Delaware corporations from
engaging, under certain circumstances, in a "business combination," which
includes a merger or sale of more than 10% of the corporation's assets, with any
"interested stockholder" i.e. a stockholder who owns 15% or more of the
corporation's outstanding voting stock, as well as affiliates and associates of
any such persons for three years following the date that such stockholder became
an "interested stockholder" unless (1) the transaction is approved by the board
of directors prior to the date the "interested stockholder" attained such
status, (2) upon consummation of the

60
<PAGE>
transaction that resulted in the stockholder's becoming an "interested
stockholder," the "interested stockholder" owned at least 85% of the voting
stock of the corporation outstanding at the time the transaction commenced
(excluding those shares owned by (a) persons who are directors and also officers
and (b) employee stock plans in which employee participants do not have the
right to determine confidentially whether shares held subject to the plan will
be tendered in a tender or exchange offer), or (3) on or subsequent to such date
the "business combination" is approved by the board of directors and authorized
at an annual or special meeting of stockholders by the affirmative vote of at
least two-thirds of the outstanding voting stock that is not owned by the
"interested stockholder."

A Delaware corporation may "opt out" of the Anti-Takeover Law with an
express provision in its original certificate of incorporation or an express
provision in its certificate of incorporation or bylaws resulting from a
stockholders' amendment approved by at least a majority of the outstanding
voting shares. Youbet.com has not "opted out" of the provisions of the
Anti-Takeover Law. The statute could prohibit or delay mergers or other takeover
or change-in-control attempts with respect to Youbet.com and, accordingly, may
discourage attempts to acquire Youbet.com.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for Youbet.com's common stock is American
Stock Transfer & Trust Company.

LISTING

Youbet.com's common stock is currently traded on the over-the-counter
bulletin board under the symbol "UBET". Youbet.com has applied to have its
common stock approved for quotation on the Nasdaq SmallCap Market under the
symbol "UBET," and intends to apply to have its stock approved for quotation on
the Nasdaq National Market.

61
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

Sales of a substantial amount of common stock in the public market, or the
perception that such sales could occur, could adversely affect the market price
of the common stock and could impair Youbet.com's ability in the future to raise
capital through the sale of equity securities. See "Risk Factors--Shares
Eligible for Future Sale May Negatively Affect Trading Prices."

Upon the completion of this offering and assuming that the over-allotment
option is not exercised and that no options or warrants are exercised, other
than those sold by selling stockholders in this offering, Youbet.com will have
outstanding [ ] shares of common stock. An additional 1,051,100 shares of
common stock are issuable upon the conversion of Series A Convertible Preferred
Stock. Of such common stock, including shares of common stock issuable upon
exercise of Series A Convertible Preferred Stock, 11,390,392 shares are
"restricted securities" as defined under Rule 144 and may not be sold publicly
unless they are registered under the Securities Act or are sold pursuant to Rule
144 or another exemption from registration.

The directors and executive officers, who hold an aggregate of 4,334,286
shares of common stock and rights to receive an additional 10,000 shares of
common stock upon conversion of Series A Convertible Preferred Stock, have
agreed that they will not sell, directly or indirectly, any shares of common
stock without the prior written consent of the underwriters for a period of 210
days after the date of this prospectus. Subject to these lock-up agreements, the
shares of common stock outstanding upon the completion of this offering and the
common stock issuable upon conversion of the Series A Convertible Preferred
Stock will be available for sale in the public market as follows:

<TABLE>
<CAPTION>
APPROXIMATE
NUMBER OF SHARES STATUS
- ------------------ ----------------------------------------------------------------------------------
<S> <C>

1,116,000 shares.. May be sold by the holders without volume limitations in accordance with Rule
144(k)

6,004,000 shares.. May be sold by the holders subject to volume limitations in accordance with Rule
144

2,881,000 shares.. May be sold by the holders, within six months of the date of this prospectus,
subject to volume limitations in accordance with Rule 144

1,384,000 shares.. May be sold by the holders subject to volume limitations in accordance with Rule
144 commencing no later than March 2000
</TABLE>

In general, under Rule 144, as currently in effect, a person (or persons
whose shares are required to be aggregated), including an affiliate, who has
beneficially owned shares for at least one year is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of (1)
1% of the then outstanding shares of common stock or (2) the average weekly
trading volume in the common stock during the four calendar weeks preceding the
date on which notice of such sale is filed with the Securities and Exchange
Commission, subject to certain restrictions. In addition, a person who is not
deemed to have been an affiliate at any time during the 90 days preceding a sale
and who has beneficially owned the shares proposed to be sold for at least two
years may sell such shares under Rule 144(k) without regard to the volume
limitations described above. To the extent that shares were purchased from an
affiliate such person's holding period for the purpose of effecting a sale under
Rule 144 commences on the date of transfer from the affiliate.

As of the date of this prospectus, options to purchase 2,081,596 shares of
common stock were outstanding under Youbet.com's 1995 Stock Option Plan and 1998
Stock Option Plan. Upon completion of this offering Youbet.com intends to file a
registration statement on Form S-8 to register for resale the [ ] shares
issuable upon exercise of options granted under Youbet.com's 1995 Stock Option
Plans and 1998 Stock Option Plan. That registration statement will become
effective immediately upon

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<PAGE>
filing. Accordingly, shares covered by that registration statement will become
eligible for sale in the public markets, subject to vesting restrictions or the
lock-up agreements with the underwriters. Holders of options to purchase an
aggregate of [ ] shares of common stock have entered into lock-up agreements.

As of the date of this prospectus, warrants to purchase 7,586,514 shares of
common stock were outstanding. As of April 8, 1999 Youbet.com has agreed with
the holders of 4,968,651 warrants to file a registration statement to register
for resale the common stock issuable upon exercise of the warrants no later than
[ ] and to use reasonable efforts to cause such registration statement to
become effective as promptly as possible. The holders of the warrants have
agreed that they will not sell any common stock received upon exercise of
warrants until [ ] and until [ ] they will not sell more than 25% of the
common stock received upon exercise of the warrants in any calendar quarter.

Youbet.com has agreed not to sell or otherwise dispose of any shares of
common sock during the 180 day period following the date of this prospectus,
except that Youbet.com may grant options to purchase common stock under the 1998
Stock Option Plan and may issue common stock upon the exercise of options and
warrants and/or the conversion of Series A Convertible Preferred Stock. In
addition, Youbet.com may issue shares of common stock in connection with any
acquisition of another company.

Youbet.com has agreements with certain stockholders and holders of options
and warrants and with the holders of 11% Senior Convertible Discount Notes to
register their common stock for resale. See "Description of Capital
Stock--Registration Rights" for a description of these agreements.

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<PAGE>
SELLING STOCKHOLDERS

In connection with this offering, certain stockholders will sell an
aggregate of [ ] shares of common stock upon exercise of the corresponding
warrants. Youbet.com will not receive any of the proceeds from the sale of the
common stock by the selling stockholders. For information regarding the selling
stockholders, please see Appendix 1 hereto.

UNDERWRITING/PLAN OF DISTRIBUTION

The Underwriters named below, acting through their representatives,
BancBoston Robertson Stephens and ING Baring Furman Selz (the "underwriters"),
have severally agreed with Youbet.com and the selling stockholders, subject to
the terms and conditions of the Underwriting Agreement, to purchase the number
of shares of common stock set forth below opposite their respective names. The
underwriters are committed to purchase and pay for all shares if any are
purchased.

<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITER OF COMMON STOCK
- ---------------------------------------------------------------------------- ----------------
<S> <C>
BancBoston Robertson Stephens...............................................
ING Baring Furman Selz......................................................
----------------
Total.....................................................................
----------------
----------------
</TABLE>

The underwriters have advised Youbet.com that the underwriters propose to
offer the shares of common stock to the public at the offering price set forth
on the cover page of this prospectus and to certain dealers at such price less a
concession of not in excess of $[ ] per share, of which $[ ] may be re-allowed
to other dealers. After the offering, the offering price, concession and
relaunch to dealers may be reduced by the underwriters. No such reduction shall
change the amount of proceeds to be received by Youbet.com as set forth on the
cover page of this Prospectus.

OVER-ALLOTMENT OPTION. The selling stockholders have granted to the
underwriters an option, exercisable during the 30-day period after the date of
this prospectus, to purchase up to [ ] shares of common stock to cover
over-allotments.

The following table summarizes the compensation to be paid to the
underwriters by Youbet.com and the selling stockholders:

<TABLE>
<CAPTION>
TOTAL
------------------------------
<S> <C> <C> <C>
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
----------- -------------- --------------
Underwriting Discounts and Commissions payable by
Youbet.com.......................................
Underwriting Discounts and Commissions payable by
the selling stockholders.........................
</TABLE>

Youbet.com estimates that its expenses payable in connection with this
offering (other than the underwriting discounts and commissions referred to
above) will be approximately [$ ].

INDEMNITY. The underwriting agreement contains covenants of indemnity among
the underwriters, Youbet.com and the selling stockholders against certain civil
liabilities, including liabilities under the Securities Act, and liabilities
arising from breaches of representations and warranties contained in the
underwriting agreement.

LOCK-UP AGREEMENTS. Each executive officer and director of Youbet.com has
agreed, during the period of 210 days after the effective date of this
prospectus ("the lock-up period"), subject to specified

64
<PAGE>
exceptions, not to offer to sell, contract to sell, or otherwise sell, dispose
of, loan, pledge or grant any rights with respect to any shares of common stock
or any options or warrants to purchase any shares of common stock, or any
securities convertible into or exchangeable for shares of common stock owned as
of the date of this prospectus or thereafter acquired directly by such holder or
with respect to which such holder has the power of disposition, without the
prior written consent of the underwriters. However, the underwriters may, in
their sole discretion and at any time or from time to time, without notice,
release all or any portion of the securities subject to lock-up agreements.
There are no existing agreements between the underwriters and any of
Youbet.com's stockholders who have executed a lock-up agreement providing
consent to the sale of shares prior to the expiration of the lock-up period.

Youbet.com has agreed that during the lock-up period Youbet.com will not,
without the prior written consent of the underwriters, subject to certain
exceptions, (1) consent to the disposition of any shares held by stockholders
subject to lock-up agreements prior to the expiration of the lock-up period or
(2) issue, sell, contract to sell, or otherwise dispose of, any shares of common
stock, any options or warrants to purchase any shares of common stock or any
securities convertible into, exercisable for or exchangeable for shares of
common stock other than Youbet.com's sale of shares in this offering, the
issuance of Youbet.com's common stock upon the exercise of outstanding options
or warrants, and the issuance of options under existing stock option and
incentive plans provided that those options do not vest prior to the expiration
of the lock-up period. See "Shares Eligible for Future Sale."

The underwriters have advised Youbet.com that they do not intend to confirm
sales to any accounts over which they exercise discretionary authority.

In addition, the holders of the 11% Senior Convertible Discount Notes are
subject to lock-up periods of not more than 180 days following the date of this
prospectus or any subsequent prospectuses.

Prior to this offering, there has only been a limited public market for the
common stock. Consequently, the offering price for the common stock offered
hereby will be determined through negotiations among Youbet.com and the
underwriters. Among the factors to be considered in such negotiations are the
prevailing market conditions, certain financial information of Youbet.com,
market valuations of other companies that Youbet.com and the underwriters
believe to be comparable to Youbet.com, estimates of the business potential of
Youbet.com, the present state of Youbet.com's development and other factors
deemed relevant.

LISTING. Application has been made to have the shares of common stock
approved for quotation on the Nasdaq SmallCap Market for quotation under the
symbol "UBET," and intends to apply to have its stock approved for quotation on
the Nasdaq National Market.

STABILIZATION. The underwriters have advised Youbet.com that, pursuant to
Regulation M under the Securities Exchange Act of 1934, some persons
participating in the offering may engage in transactions, including stabilizing
bids, syndicate covering transactions or the imposition of penalty bids, that
may have the effect of stabilizing or maintaining the market price of the shares
of common stock at a level above that which might otherwise prevail in the open
market. A "stabilizing bid" is a bid for or the purchase of shares of common
stock on behalf of the underwriters for the purpose of fixing or maintaining the
price of the common stock. A "syndicate covering transaction" is the bid for or
purchase of common stock on behalf of the underwriters to reduce a short
position incurred by the underwriters in connection with the offering. A
"penalty bid" is an arrangement permitting the underwriters to reclaim the
selling concession otherwise accruing to an underwriter or syndicate member in
connection with the offering if the common stock originally sold by such
underwriter or syndicate member purchased by the underwriters in a syndicate
covering transaction and have therefore not been effectively placed by such
underwriter or syndicate member. The underwriters have advised Youbet.com that
such transactions may be effected on the Nasdaq SmallCap Market, the Nasdaq
National Market or otherwise and, if commenced, may be discontinued at any time.

65
<PAGE>
Youbet.com has issued an aggregate of 7,586,514 stock purchase warrants with
exercise prices ranging from $0.01 to $10.00 per share, at an average price of
$3.37 per share. In connection with the issuance of certain of these warrants,
Youbet.com granted the holders certain registration rights. Youbet.com and the
holders of warrants with registration rights have agreed that in satisfaction of
such registration rights, an aggregate of [ ] shares of Youbet.com's common
stock will be sold in this offering by holders of warrants with registration
rights on a pro rata basis by those holders who wish to sell such shares.

To the extent the underwriters exercise their over allotment option, such
warrant holders will, on a pro rata basis, be permitted to sell up to [ ]
additional shares.

Additionally, Youbet.com has agreed, for the benefit of those warrant
holders with registration rights, to file a registration statement with respect
to all remaining shares subject to such warrants, by no later than [ ] 2000,
and to diligently seek to have such registration statement declared effective by
the Securities and Exchange Commission. Pursuant to such registration statement,
such warrant holders will, on exercise of their warrants, be able to sell to the
public the shares of Youbet.com common stock acquired on exercise of the
warrants.

Youbet.com will not receive any proceeds from the sale of such common stock,
although it will receive all proceeds from the exercise of such warrants.

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<PAGE>
LEGAL MATTERS

The validity of the common stock offered hereby will be passed upon for
Youbet.com by Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP.
Certain legal matters in connection with this offering will be passed upon for
the underwriters by Gibson Dunn & Crutcher LLP. As of the date of this
prospectus, Gary N. Jacobs, a senior partner of Christensen, Miller, Fink,
Jacobs, Glaser, Weil & Shapiro, LLP who serves as Youbet.com's Secretary,
beneficially owns 40,100 shares of common stock, including shares which may be
acquired pursuant to stock options exercisable within 60 days. Another attorney
having an "of counsel" relationship with Christensen, Miller, Fink, Jacobs,
Glaser, Weil & Shapiro, LLP owns 2,000 shares of Series A Convertible Preferred
Stock.

EXPERTS

The financial statements of Youbet.com, Inc. as of December 31, 1998 and
1997 and for each of the years in the two year period ended December 31, 1998
appearing herein and in the Registration Statement have been audited by BDO
Seidman, LLP, independent certified public accountants, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given on the authority of such firm as experts in accounting and
auditing.

The statements of operations, stockholders' (deficiency) and cash flows of
Youbet.com, Inc. for the year ended December 31, 1996 were audited by Weinbaum &
Yalamanchi, independent certified public accountants, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given on the authority of such firm as experts in accounting and
auditing.

INCORPORATION OF DOCUMENTS BY REFERENCE

The Securities and Exchange Commission allows Youbet.com to "incorporate by
reference" the information Youbet.com files with it, which means that Youbet.com
can disclose important information to prospective investors by referring
prospective investors to those documents. The information incorporated by
reference is considered to be part of this prospectus, and later information
that Youbet.com files with the Securities and Exchange Commission will
automatically update and supersede this information. Youbet.com incorporates by
reference the Form 10-KSB for the year ended December 31, 1998, and any filings
made with the Securities and Exchange Commission under Section 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act of 1934 after December 31 1998. This
prospectus is part of the registration statement Youbet.com filed with the
Securities and Exchange Commission. Youbet.com's Securities and Exchange
Commission File Number is 33-13789LA.

Youbet.com will provide without charge to any person to whom this Prospectus
is delivered, upon the written or oral request of such person, a copy of any or
all of the documents referred to above which have been incorporated by
reference, other than exhibits to such documents. Written requests for such
copies should be addressed to: Youbet.com, Inc., 1950 Sawtelle Boulevard., Suite
180, Los Angeles, CA 90025, Attention: Phillip Hermann. Youbet.com's telephone
number is (310) 444-3300.

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<PAGE>
AVAILABLE INFORMATION

Youbet.com has filed with the Securities and Exchange Commission a
registration statement (of which this prospectus is a part) on Form S-3 under
the Securities Act, with respect to the common stock offered hereby. This
prospectus does not contain all the information set forth in the registration
statement and the exhibits and schedules thereto. Statements contained in this
prospectus as to the content of any contract or other document are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the registration statement,
each such statement being qualified in all respects by such reference and the
exhibits and schedules thereto.

Youbet.com is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended and in accordance therewith files reports and
other information with the commission. The registration statement, including the
exhibits and schedules thereto, as well as any other information filed by
Youbet.com may be inspected and copied at the public reference rooms maintained
by the commission at its principal office located at 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549, the New York Regional Office located at
7 World Trade Center, New York, New York 10048, and the Chicago Regional Office
located at Northwest Atrium Center, 500 West Madison Street, Room 1204, Chicago,
Illinois 60661-2511. Please call the commission at 1-800-SEC-0330 for further
information on the public reference rooms.

Electronics filings made by Youbet.com through the commission's Electronic
Data Gathering, Analysis and Retrieval System are publicly available through the
commission's World Wide Web site (http://www.sec.gov), which contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the commission.

68
<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Certified Public Accountants--BDO Seidman, LLP....................................... F-2

Independent Accountants' Report--Weinbaum & Yalamanchi..................................................... F-3

Consolidated Balance Sheets--December 31, 1997 and 1998.................................................... F-4

Consolidated Statements of Operations--Years Ended December 31, 1996, 1997, 1998 and 1995 through 1998..... F-5

Consolidated Statements of Stockholders' Equity (Deficiency)--Years Ended December 31, 1995, 1996, 1997 and
1998..................................................................................................... F-6

Consolidated Statements of Cash Flows--Years Ended December 31, 1996, 1997, 1998 and 1995 through 1998..... F-9

Notes to Consolidated Financial Statements--Years Ended December 31, 1996, 1997, 1998 and 1995 through
1998..................................................................................................... F-11
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders
Youbet.com, Inc.
Los Angeles, California

We have audited the accompanying consolidated balance sheet of Youbet.com,
Inc. (formerly You Bet International, Inc.) and subsidiaries (a development
stage company) as of December 31, 1997 and 1998, and the related consolidated
statements of operations, stockholders' equity (deficiency) and cash flows for
the years then ended. We have also audited the consolidated statements of
operations and cash flows for the period from inception of development stage
(January 1, 1995) through December 31, 1998 (Note 1), except that we did not
audit these financial statements for the period from inception of development
stage (January 1, 1995) to December 31, 1996 (Note 1); those statements were
audited by other auditors. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Youbet.com, Inc. (a development
stage company) and subsidiaries as of December 1998 and 1997, and the results of
their operations and their cash flows for the years then ended and the
cumulative period from January 1, 1997 to December 31, 1998, in conformity with
generally accepted accounting principles.

BDO SEIDMAN, LLP

Los Angeles, California
March 25, 1999, except for Note 11,
which is as of April 6, 1999

F-2
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT

To the Stockholders of
Youbet.com, Inc. (formerly You Bet International, Inc.)
(a development stage company)
Los Angeles, California

We audited Youbet.com, Inc.'s (Youbet) accompanying consolidated statements
of operations, stockholders' (deficiency) and cash flows for the year ended
December 31, 1996. These financial statements are the responsibility of Youbet's
management. Our responsibility is to express an opinion on the financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant management estimates,
as well as evaluating the overall presentation of the financial statements. We
believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, Youbet's results of operations and
cash flows for the year ended December 31, 1996 in conformity with generally
accepted accounting principles.

WEINBAUM & YALAMANCHI

Los Angeles, California
April 10, 1998

F-3
<PAGE>
YOUBET.COM, INC.

(FORMERLY YOU BET INTERNATIONAL, INC.)

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED BALANCE SHEETS

YEARS ENDED DECEMBER 31, 1997 AND 1998

<TABLE>
<CAPTION>
1997 1998
------------- -------------
<S> <C> <C>
ASSETS (Note 5)
Current assets:
Cash............................................................................. $ 52,895 $ 1,540,616
Stock subscriptions receivable (Note 6a and 6c).................................. -- 2,100,000
Receivables...................................................................... 6,158 50,364
Prepaid expenses................................................................. 49,315 22,344
Other current assets............................................................. 4,288 11,317
------------- -------------
Total current assets........................................................... 112,656 3,724,641
------------- -------------
Property and equipment (Notes 4 and 7)............................................. 1,260,411 1,700,211
Less: Accumulated depreciation and amortization.................................... (423,177) (820,535)
------------- -------------
Property and equipment, net........................................................ 837,234 879,676
------------- -------------
Deferred financing costs, net of amortization...................................... -- 31,395
Deposits........................................................................... 53,963 17,537
------------- -------------
Total assets................................................................... $ 1,003,853 $ 4,653,249
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable................................................................. $ 910,278 $ 984,258
Accrued compensation and related items........................................... 503,467 144,252
Accrued interest payable......................................................... 116,892 --
Other accrued expenses........................................................... 341,108 451,127
Advances and bridge loans payable (Note 5):
Related parties................................................................ 390,000 --
Unrelated parties.............................................................. 300,000 --
State income taxes payable (Note 9).............................................. 6,400 --
Current portion of capitalized lease obligations (Note 7)........................ 283,695 220,317
------------- -------------
Total current liabilities...................................................... 2,851,840 1,799,954
Capitalized lease obligations, less current portion (Note 7)....................... -- 60,134
------------- -------------
Total liabilities.............................................................. 2,851,840 1,860,088
------------- -------------
Commitments and contingencies (Notes 3, 7 and 8)
Stockholders' equity (deficiency) (Note 6):
Preferred stock, $.001 par value (aggregate liquidation preference of
$2,677,750); authorized--1,000,000 shares; issued and outstanding--0 share and
107,110 shares at December 31, 1997 and 1998, respectively..................... -- 107
Common stock, $.001 par value; authorized--50,000,000 shares; issued and
outstanding and issuable--9,603,994 shares and 13,970,268 shares at December
31, 1997 and 1998, respectively................................................ 9,604 13,970
Additional paid-in capital....................................................... 23,413,989 42,326,397
Accumulated deficit during development stage..................................... (23,964,394) (37,825,941)
Deferred compensation (Note 6d).................................................. (1,307,186) (1,161,372)
Stock notes receivable (Note 6c)................................................. -- (560,000)
------------- -------------
Total stockholders' equity (deficiency)........................................ (1,847,987) 2,793,161
------------- -------------
Total liabilities and stockholders' equity (deficiency)........................ $ 1,003,853 $ 4,653,249
------------- -------------
------------- -------------
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE>
YOUBET.COM, INC.

(FORMERLY YOU BET INTERNATIONAL, INC.)

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 1996, 1997, 1998 AND 1995 THROUGH 1998

<TABLE>
<CAPTION>
1995
THROUGH
1998
1996 1997 1998 (NOTE 1)
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues......................................... $ -- $ -- $ 263,793 $ 263,793
Operating expenses:
Network operations............................. 220,721 665,399 1,287,295 2,173,415
Research and development....................... 1,389,883 1,253,663 1,267,153 4,228,766
Sales and marketing............................ 663,572 710,532 1,404,752 2,778,856
General and administrative..................... 1,441,439 1,804,176 2,740,603 6,179,563
Depreciation and amortization.................. 122,673 307,935 397,357 830,821
Non-cash compensation (Note 6d)................ 102,263 2,176,182 4,262,963 6,579,883
-------------- -------------- -------------- --------------
Total operating expenses....................... 3,940,551 6,917,887 11,360,123 22,771,304
-------------- -------------- -------------- --------------
Loss from operations............................. (3,940,551) (6,917,887) (11,096,330) (22,507,511)
Other income (expense):
Interest expense............................... (15,154) (390,471) (331,763) (770,921)
Amortization of deferred financing costs....... -- -- (119,546) (119,546)
Discount on conversion of bridge loans,
accounts payable and employee deferred
salaries into common stock and warrants (Note
6a).......................................... -- (573,348) (849,963) (1,423,311)
Fair value of warrants issued for financing
costs (Note 6d).............................. -- (3,656,202) (1,405,684) (5,061,886)
Release of forfeiture restrictions on common
stock owned by officers/ major stockholders
(Note 6b).................................... -- (7,875,000) -- (7,875,000)
Interest income................................ 78,000 1,145 70,627 163,974
Consulting revenues............................ 7,725 5,400 -- 164,602
Other.......................................... 9,875 (831) (126,488) (97,444)
-------------- -------------- -------------- --------------
Total other income (expense)................... 80,446 (12,489,307) (2,762,817) (15,019,532)
-------------- -------------- -------------- --------------
Loss before provision for state income and
franchise taxes.................................. (3,860,105) (19,407,194) (13,859,147) (37,527,043)
Provision for state income and franchise taxes
(Note 9)......................................... (4,629) (9,644) (2,400) (19,073)
-------------- -------------- -------------- --------------
Net loss......................................... $ (3,864,734) $ (19,416,838) $ (13,861,547) $ (37,546,116)
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Net loss per common share--basic and diluted..... $ (0.67) $ (3.06) $ (1.32)
-------------- -------------- --------------
-------------- -------------- --------------
Weighted average number of common shares
outstanding...................................... 5,730,333 6,355,352 10,534,905
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE>
YOUBET.COM, INC.
(FORMERLY YOU BET INTERNATIONAL, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED DECEMBER 31, 1995, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------------ ---------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1995.................................. -- $ -- 343,333 $ 343 $ 21,657
Issuance of shares in reverse merger (Note 1)............. -- -- 5,800,000 5,800 (522,796)
Shares issued in private placement ($2.50 per share) (Note
6a)..................................................... -- -- 1,490,000 1,490 3,723,510
Costs of private placement................................ -- -- -- -- (575,860)
Shares issued as underwriters compensation ($2.50 per
share) (Note 6a)........................................ -- -- 200,000 200 499,800
Shares issued in exchange for debt ($2.50 per share) (Note
6a)..................................................... -- -- 238,000 238 594,762
Stock options issued for services......................... -- -- -- -- 289,575
Amortization of deferred compensation..................... -- -- -- -- --
Net loss for the year..................................... -- -- -- -- --
--
--- --------- ----------- -----------
BALANCE, December 31, 1995................................ -- -- 8,071,333 8,071 4,030,648
Shares issued in private placement ($2.50 per share) (Note
6a)..................................................... -- -- 212,000 212 529,788
Costs of private placement (Note 6a)...................... -- -- -- -- (278,025)
Stock options issued for services rendered (Note 6d)...... -- -- -- -- 128,250
Amortization of deferred compensation (Note 6d)........... -- -- -- -- --
Net loss for the year..................................... -- -- -- -- --
--
--- --------- ----------- -----------
BALANCE, December 31, 1996................................ -- -- 8,283,333 8,283 4,410,661
Shares issued as payment for amounts due to vendors and
employees ($2.50 per share for vendors and $1.88 per
share for employee services) (Note 6a).................. -- -- 27,433 28 61,410
Shares issued in private placement ($2.50 per share) (Note
6a)..................................................... -- -- 897,760 898 2,243,502
Costs of private placement (Note 6a)...................... -- -- -- -- (291,020)
Shares issued to bridge loan investors for conversion into
common stock and warrants ($1.88 per share) (Note 6a)... -- -- 895,468 895 1,678,105

(continued)

<CAPTION>
STOCK
ACCUMULATED DEFERRED NOTES
DEFICIT COMPENSATION RECEIVABLE TOTAL
------------ ------------- ------------- -----------
<S> <C> <C> <C> <C>
BALANCE, January 1, 1995.................................. $ (279,825) $ -- $ -- $ (257,825)
Issuance of shares in reverse merger (Note 1)............. -- -- -- (516,996)
Shares issued in private placement ($2.50 per share) (Note
6a)..................................................... -- -- -- 3,725,000
Costs of private placement................................ -- -- -- (575,860)
Shares issued as underwriters compensation ($2.50 per
share) (Note 6a)........................................ -- -- -- 500,000
Shares issued in exchange for debt ($2.50 per share) (Note
6a)..................................................... -- -- -- 595,000
Stock options issued for services......................... -- (289,575) -- --
Amortization of deferred compensation..................... -- 38,475 -- 38,475
Net loss for the year..................................... (402,997) -- -- (402,997)

------------ ------------- --- -----------
BALANCE, December 31, 1995................................ (682,822) (251,100) -- 3,104,797
Shares issued in private placement ($2.50 per share) (Note
6a)..................................................... -- -- -- 530,000
Costs of private placement (Note 6a)...................... -- -- -- (278,025)
Stock options issued for services rendered (Note 6d)...... -- (128,250) -- --
Amortization of deferred compensation (Note 6d)........... -- 102,263 -- 102,263
Net loss for the year..................................... (3,864,734) -- -- (3,864,734)

------------ ------------- --- -----------
BALANCE, December 31, 1996................................ (4,547,556) (277,087) -- (405,699)
Shares issued as payment for amounts due to vendors and
employees ($2.50 per share for vendors and $1.88 per
share for employee services) (Note 6a).................. -- -- -- 61,438
Shares issued in private placement ($2.50 per share) (Note
6a)..................................................... -- -- -- 2,244,400
Costs of private placement (Note 6a)...................... -- -- -- (291,020)
Shares issued to bridge loan investors for conversion into
common stock and warrants ($1.88 per share) (Note 6a)... -- -- -- 1,679,000
(co
</TABLE>

F-6
<PAGE>
YOUBET.COM, INC.
(FORMERLY YOU BET INTERNATIONAL, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
---------------------- ---------------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
--------- ----------- ----------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Shares returned to Company for cancellation by
officers/major stockholders ($0.001 per share)
(Note 6b)........................................ -- -- (750,000) (750) 750 --
Release of forfeiture restrictions on common stock
owned by officers/major stockholders ($4.50 per
share) (Note 6b)................................. -- -- -- -- 7,875,000 --
Discount on conversion of bridge loans, accounts
payable and employee deferred salaries into
common stock and warrants (Note 5)............... -- -- -- -- 573,348 --
Shares issued as finders fees for capital raising
transactions (Note 6a)........................... -- -- 250,000 250 (250) --
Amortization of deferred compensation (Note 6d).... -- -- -- -- -- --
Fair value of stock options and warrants issued
(Note 6d)........................................ -- -- -- -- 6,862,483 --
Net loss for the year.............................. -- -- -- -- -- (19,416,838)
--------- ----- ----------- --------- ------------ -------------
BALANCE, December 31, 1997......................... -- -- 9,603,994 9,604 23,413,989 (23,964,394)
Warrants exercised and converted to stock (Note
6a).............................................. -- -- 355,000 355 1,068,645 --
Shares issued as payment for amounts due to vendors
and employees ($2.50 per share for vendors and
$1.88 per share for employee services) (Note
6a).............................................. -- -- 27,603 28 69,510 --
Shares issued as payment for amounts due to
officers and directors ($1.88 per share) (Note
6a).............................................. -- -- 96,220 96 180,317 --
Shares issued through financing activities ($3.94
per share) (Note 6a)............................. -- -- 20,000 20 78,730 --
Shares issued to bridge loan investors for
conversion into common stock and warrants ($1.88
per share for 1997 loans and $2.00 per share for
1998 loans) (Note 6a)............................ -- -- 1,513,551 1,513 2,999,217 --
Preferred shares issued in private placement
($25.00 per share) (Note 6c)..................... 262,500 262 -- -- 6,562,238 --

(continued)

<CAPTION>
STOCK
DEFERRED NOTES
COMPENSATION RECEIVABLE TOTAL
------------- ---------- -------------
<S> <C> <C> <C>
Shares returned to Company for cancellation by
officers/major stockholders ($0.001 per share)
(Note 6b)........................................ -- -- --
Release of forfeiture restrictions on common stock
owned by officers/major stockholders ($4.50 per
share) (Note 6b)................................. -- -- 7,875,000
Discount on conversion of bridge loans, accounts
payable and employee deferred salaries into
common stock and warrants (Note 5)............... -- -- 573,348
Shares issued as finders fees for capital raising
transactions (Note 6a)........................... -- -- --
Amortization of deferred compensation (Note 6d).... 167,965 -- 167,965
Fair value of stock options and warrants issued
(Note 6d)........................................ (1,198,064) -- 5,664,419
Net loss for the year.............................. -- -- (19,416,838)
------------- ---------- -------------
BALANCE, December 31, 1997......................... (1,307,186) -- (1,847,987)
Warrants exercised and converted to stock (Note
6a).............................................. -- -- 1,069,000
Shares issued as payment for amounts due to vendors
and employees ($2.50 per share for vendors and
$1.88 per share for employee services) (Note
6a).............................................. -- -- 69,538
Shares issued as payment for amounts due to
officers and directors ($1.88 per share) (Note
6a).............................................. -- -- 180,413
Shares issued through financing activities ($3.94
per share) (Note 6a)............................. -- -- 78,750
Shares issued to bridge loan investors for
conversion into common stock and warrants ($1.88
per share for 1997 loans and $2.00 per share for
1998 loans) (Note 6a)............................ -- -- 3,000,730
Preferred shares issued in private placement
($25.00 per share) (Note 6c)..................... -- (490,000) 6,072,500

</TABLE>

F-7
<PAGE>
YOUBET.COM, INC.
(FORMERLY YOU BET INTERNATIONAL, INC.)
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
---------------------- ----------------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
--------- ----------- ------------ --------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Cost of private placement (Note 6c)................. -- -- -- -- (360,909) --
Proceeds from the sale of warrants (Note 6c)........ -- -- -- -- 4,531 --
Warrants purchased by officers (Note 6c)............ -- -- -- -- 75,000 --
Preferred stock converted to common shares (Note
6c)............................................... (155,390) (155) 1,553,900 1,554 (1,399) --
Shares issued in private placement ($2.50 per share)
(Note 6a)......................................... -- -- 800,000 800 1,999,200 --
Cost of private placement (Note 6a)................. -- -- -- -- (120,000) --
Discount on conversion of bridge loans, accounts
payable and employee deferred salaries into common
stock and warrants (Note 5)....................... -- -- -- -- 849,963 --
Fair value of warrants issued for financing costs
(Note 6d)......................................... -- -- -- -- 1,405,684 --
Non-cash compensation (Note 6d)..................... -- -- -- -- 4,196,881 --
Cancellation of warrants (Note 6d).................. -- -- -- -- (95,200) --
Amortization of deferred compensation (Note 6d)..... -- -- -- -- -- --
Net loss for the year............................... -- -- -- -- -- (13,861,547)
--------- ----- ------------ --------- ------------ -------------
BALANCE, December 31, 1998.......................... 107,110 $ 107 13,970,268 $ 13,970 $ 42,326,397 $ (37,825,941)
--------- ----- ------------ --------- ------------ -------------
--------- ----- ------------ --------- ------------ -------------

<CAPTION>
STOCK
DEFERRED NOTES
COMPENSATION RECEIVABLE TOTAL
------------- ---------- -------------
<S> <C> <C> <C>
Cost of private placement (Note 6c)................. -- -- (360,909)
Proceeds from the sale of warrants (Note 6c)........ -- -- 4,531
Warrants purchased by officers (Note 6c)............ -- (70,000) 5,000
Preferred stock converted to common shares (Note
6c)............................................... -- -- --
Shares issued in private placement ($2.50 per share)
(Note 6a)......................................... -- -- 2,000,000
Cost of private placement (Note 6a)................. -- -- (120,000)
Discount on conversion of bridge loans, accounts
payable and employee deferred salaries into common
stock and warrants (Note 5)....................... -- -- 849,963
Fair value of warrants issued for financing costs
(Note 6d)......................................... -- -- 1,405,684
Non-cash compensation (Note 6d)..................... (1,434,988) -- 2,761,893
Cancellation of warrants (Note 6d).................. -- -- (95,200)
Amortization of deferred compensation (Note 6d)..... 1,580,802 -- 1,580,802
Net loss for the year............................... -- -- (13,861,547)
------------- ---------- -------------
BALANCE, December 31, 1998.......................... $(1,161,372) $ (560,000) $ 2,793,161
------------- ---------- -------------
------------- ---------- -------------
</TABLE>

See accompanying notes to consolidated financial statements.

F-8
<PAGE>
YOUBET.COM, INC.

(FORMERLY YOU BET INTERNATIONAL, INC.)

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 1996, 1997, 1998 AND 1995 THROUGH 1998
INCREASE (DECREASE) IN CASH

<TABLE>
<CAPTION>
1996 1997 1998
---------- ----------- -----------
1995
THROUGH
1998
-----------
(NOTE 1)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(3,864,734) $(19,416,838) $(13,861,547) $(37,546,116)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization......................... 122,673 307,935 397,357 830,821
Amortization of deferred financing.................... -- -- 119,546 119,546
Other losses.......................................... -- -- 70,640 70,640
Reduction of loan from settlement agreement........... -- -- -- (20,000)
Settlement of accounts payable and accrued
liabilities......................................... -- 280,438 520,212 800,650
Non-cash compensation................................. 102,263 2,176,182 4,262,963 6,579,883
Discount on conversion of bridge loans, accounts
payable and employee deferred salaries into common
stock and warrants.................................. -- 573,348 849,963 1,423,311
Fair value of warrants issued for financing costs..... -- 3,656,202 1,405,684 5,061,886
Release of forfeiture restrictions on common stock
owned by officers/major stockholders................ -- 7,875,000 -- 7,875,000
Changes in operating assets and liabilities:
(Increase) decrease in:
Receivables......................................... 28,100 1,350 (44,206) (20,364)
Prepaid expenses.................................... (143,238) 93,923 10,296 (39,019)
Other current assets................................ (632) 1,708 16,532 12,244
Deposits............................................ (53,963) -- (17,537) (71,500)
Increase (decrease) in:
Accounts payable.................................... 568,385 82,679 73,980 984,258
Accrued compensation and related items.............. 146,712 311,542 (374,065) 115,996
Accrued interest payable............................ 1,250 115,642 (71,128) 28,685
Other accrued expenses.............................. 258,901 76,797 110,019 451,128
State income taxes payable.......................... 2,020 1,980 (6,400) (800)
---------- ----------- ----------- -----------
Net cash used in operating activities....................... (2,832,263) (3,862,112) (6,537,690) (13,343,751)
---------- ----------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment....................... (790,152) (132,356) (359,800) (1,363,318)
---------- ----------- ----------- -----------
Net cash used in investing activities....................... (790,152) (132,356) (359,800) (1,363,318)
---------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from exercise of stock options and warrants...... -- -- 1,069,000 1,069,000
Increase in deferred financing costs...................... -- -- (96,000) (96,000)
Proceeds from lease financing............................. -- 150,261 -- 150,261
Proceeds from sale of securities, net of offering costs... 251,975 1,953,380 5,501,122 10,855,617
Proceeds from advances and bridge loans:
Related parties......................................... 200,000 844,000 888,875 2,218,862
Unrelated parties....................................... -- 1,315,000 1,190,000 2,505,000
Repayments of advances:
Related parties......................................... -- (104,000) (23,875) (127,875)
Unrelated parties....................................... -- (105,000) (30,000) (135,000)
Payments on capitalized lease obligations................. (40,150) (93,596) (113,911) (247,657)
---------- ----------- ----------- -----------
Net cash provided by financing activities................... 411,825 3,960,045 8,385,211 16,192,208
---------- ----------- ----------- -----------
</TABLE>

(continued)

F-9
<PAGE>
YOUBET.COM, INC.

(FORMERLY YOU BET INTERNATIONAL, INC.)

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1997, 1998 AND 1995 THROUGH 1998
INCREASE (DECREASE) IN CASH

<TABLE>
<CAPTION>
1995
THROUGH
1996 1997 1998 1998
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net increase (decrease) in cash and cash
equivalents.............................. (3,210,590) (34,423) 1,487,721 1,485,139
Cash and cash equivalents at beginning of
period................................... 3,297,908 87,318 52,895 55,477
---------- --------- --------- ---------
Cash and cash equivalents at end of
period................................... $ 87,318 $ 52,895 $1,540,616 $1,540,616
---------- --------- --------- ---------
---------- --------- --------- ---------

Supplemental disclosure of cash flow
information:
Cash paid for:
Interest................................. $ 12,627 $ 27,364 $ 26,780 $ 117,383
State income taxes....................... 1,756 6,443 6,166 15,165
---------- --------- --------- ---------
---------- --------- --------- ---------

Non-cash investing and financing activities:
Equipment acquired under capital leases.... $ 267,180 $ -- $ 80,000 $ 347,180
Reduction of loan from settlement
agreement................................ -- -- -- (20,000)
Additions to deferred compensation......... 128,250 -- 1,434,988 1,852,813
Advances and bridge loans, including
accrued interest, converted into common
stock and warrants:
Related parties........................ -- 632,500 1,366,365 1,998,865
Unrelated parties...................... -- 1,046,500 1,634,504 2,681,004
Conversion of accounts payable and accrued
compensation into common stock........... -- 61,438 249,951 311,389
---------- --------- --------- ---------
---------- --------- --------- ---------
</TABLE>

See accompanying notes to consolidated financial statements.

F-10
<PAGE>
YOUBET.COM, INC.

(FORMERLY YOU BET INTERNATIONAL, INC.)

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1996, 1997, 1998 AND 1995 THROUGH 1998

NOTE 1--ORGANIZATION AND BASIS OF PRESENTATION

PRINCIPLES OF CONSOLIDATION

Youbet.com, Inc., a Delaware corporation (formerly known as You Bet
International, Inc.), You Bet!, Inc., a Delaware corporation and a wholly-owned
subsidiary of Youbet.com, Inc., and Middelware Telecom Corporation, a California
corporation and a wholly-owned subsidiary of You Bet!, Inc., are collectively
referred to herein as the "Company". Youbet.com, Inc. is the successor to You
Bet International, Inc. through a merger transaction effective January 22, 1999.
All intercompany accounts and transactions have been eliminated in
consolidation.

BUSINESS

Since mid-1995, the Company has been engaged in developing PC-based
proprietary communications software technology to be utilized by consumers for
online entertainment purposes. The Company's first service being offered to
subscribers is The You Bet Network, an interactive online horseracing network
that is broadcast over the Company's virtual private network.

DEVELOPMENT STAGE

As of December 31, 1998, the Company is considered to be a development stage
entity, as it has not realized a significant amount of revenues from planned
principal operations. Accordingly, the Company has provided cumulative
consolidated statements of operations, consolidated statements of stockholders'
equity (deficiency) and consolidated statements of cash flows for the period
from inception of development stage (January 1, 1995) through December 31, 1998.

ORGANIZATION

On December 6, 1995, Continental Embassy Acquisition, Inc. ("CEA"), a public
shell which was organized in Utah in 1987, acquired 100% of the outstanding
capital stock of You Bet!, Inc., a Delaware corporation, in exchange for the
issuance of 5,800,000 shares of common stock, including 5,710,000 shares of
common stock to two officers/major stockholders of the Company (who were the
founders of the Company's predecessor entity), their nominees and a stockholder
related to one of the officers. In conjunction with the contemporaneous 1995
private placement of the Company's securities as described at Note 6, 2,500,000
of the 5,710,000 shares were deemed subject to forfeiture by the holders under
certain conditions, also as described at Note 6b. Concurrent with this
transaction, CEA reincorporated in the State of Delaware and changed its name to
You Bet International, Inc., and the management of You Bet!, Inc. became the
management of You Bet International, Inc. For accounting purposes, the
acquisition of You Bet!, Inc. by You Bet International, Inc. has been treated as
a reverse acquisition of You Bet!, Inc. with You Bet!, Inc. considered the
acquiror. The operating results reflected in the accompanying financial
statements, where 1995 through 1998 amounts are presented, do not include CEA's
operating activities prior to the You Bet!, Inc. acquisition, as the amounts are
not significant.

F-11
<PAGE>
YOUBET.COM, INC.

(FORMERLY YOU BET INTERNATIONAL, INC.)

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1997, 1998 AND 1995 THROUGH 1998

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

REVENUE RECOGNITION

The Company recognizes revenue as wagers are placed (see Note 3). The
Company also recognizes revenue from monthly subscription fees as earned and
from the sale of handicapping information as used by subscribers.

SOFTWARE DEVELOPMENT COSTS

The Company capitalizes internally generated software development costs in
compliance with SFAS No. 86, "Accounting for the Costs of Computer Software to
be Sold, Leased or Otherwise Marketed." Capitalization of computer software
development costs begins upon the establishment of technological feasibility for
the product and continues until the product is available for sale or use. The
Company's software, which is marketed to customers, includes the You Bet Network
(YBN), an internet site developed by the Company, and software which customers
install on their personal computers in order to access the YBN. Management
believes technological feasibility was achieved in early 1998, and the Company's
network became available for general release to customers shortly thereafter.
Capitalizable software costs incurred subsequent to establishing technological
feasibility have not been capitalized due to the uncertainty surrounding the
recoverability of these costs. The Company has determined that software
development costs to date should properly be charged to operations. Since the
Company's software has become available for use, the Company has expensed
maintenance costs as incurred.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Equipment and furniture are
depreciated using the straight-line method over their estimated useful life of
three to five years. Leasehold improvements are amortized over the term of the
lease.

Property and equipment are reviewed for impairment whenever events or
circumstances indicate that the asset's undiscounted expected cash flows are not
sufficient to recover its carrying amount. The Company measures impairment loss
by comparing the fair value of the asset to its carrying amount. Fair value of
an asset is calculated as the present value of expected future cash flows.
Impairment losses, if any, are recorded currently.

INCOME TAXES

The Company accounts for income taxes utilizing the asset and liability
approach, which requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of temporary differences between the
basis of assets and liabilities for financial reporting purposes and tax
purposes. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. A valuation allowance is
provided when management cannot determine whether or not it is more likely that
the net deferred tax asset will be realized.

F-12
<PAGE>
YOUBET.COM, INC.

(FORMERLY YOU BET INTERNATIONAL, INC.)

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1997, 1998 AND 1995 THROUGH 1998

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOSS PER SHARE

Basic earnings per share are calculated by dividing net income (loss) by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share are calculated by dividing net income (loss) by the basic
shares outstanding and all dilutive securities, including stock options,
warrants, convertible notes and preferred stock, but does not include the impact
of potential common shares which would be antidilutive. These dilutive
securities were anti-dilutive in 1996, 1997 and 1998.

For the year ended December 31, 1996, potential dilutive securities
representing 1,026,364 outstanding stock options, 1,387,188 outstanding common
stock purchase warrants, and $200,000 of convertible notes, are not included in
the earnings per share calculation since their effect would be antidilutive.

For the year ended December 31, 1997, potential dilutive securities
representing 1,121,433 outstanding stock options, 5,896,011 outstanding common
stock purchase warrants, and $345,000 of convertible notes, are not included in
the earnings per share calculation since their effect would be antidilutive.

As of December 31, 1998, potential dilutive securities representing
10,804,038 shares of common stock were not included in the earnings per share
calculation since their effect would be anti-dilutive. Potential dilutive
securities consisted of 1,914,212 outstanding stock options, 7,818,726
outstanding common stock purchase warrants, and 107,110 shares of preferred
stock convertible into 1,071,100 shares of common stock. Basic and diluted
earnings per share are the same for all periods presented.

During 1997, 2,500,000 shares of common stock issued and outstanding to two
officers/major stockholders and a stockholder related to one of the officers
were subject to forfeiture under certain specified conditions, and were excluded
from the calculation of net loss per share in 1997. The forfeiture provisions
were released effective December 31, 1997, in exchange for the return to the
Company and cancellation of 750,000 of such shares. See Note 6b for additional
information.

STOCK-BASED COMPENSATION

The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
123, "Accounting for Stock-Based Compensation", which establishes a fair value
method of accounting for stock-based compensation plans. The provisions of this
Statement allow companies to either expense the estimated fair value of stock
options or to continue to follow the intrinsic value method set forth in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", but to disclose the pro forma effect on net income (loss) and net
income (loss) per share had the fair value of the stock options been expensed.
The Company has elected to continue to account for stock-based compensation
plans utilizing the intrinsic value method. Accordingly, compensation cost for
stock options is measured as the excess, if any, of the fair market price of the
Company's stock at the date of grant above the amount an employee must pay to
acquire the stock.

In accordance with this Statement, the Company has provided footnote
disclosure with respect to stock-based employee compensation. The cost of
stock-based employee compensation is measured at the grant date based on the
value of the award and is recognized over the vesting period. The value of

F-13
<PAGE>
YOUBET.COM, INC.

(FORMERLY YOU BET INTERNATIONAL, INC.)

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1997, 1998 AND 1995 THROUGH 1998

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the stock-based award is determined using a pricing model whereby compensation
cost is the excess of the fair value of the award as determined by the pricing
model at grant date or other measurement date above the amount an employee must
pay to acquire the stock.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of the Company's financial instruments, consisting
primarily of stock subscriptions receivable, accounts payable, notes payable and
capitalized lease obligations, approximates fair value due to the maturity of
these financial instruments and the borrowing costs to the Company.

RECLASSIFICATIONS

Certain prior period amounts have been reclassified to conform to the
current year presentation.

RECENT ACCOUNTING PRONOUNCEMENTS

The Company adopted Statement of Financial Accounting Standards (SFAS) No.
130, "Reporting Comprehensive Income", during the year ended December 31, 1998.
This Statement establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. Comprehensive income consists of net income and other
comprehensive income. Other comprehensive income refers to revenues, expenses,
gains and losses that under generally accepted accounting principles are
included in comprehensive income but are excluded from net income. Adoption of
this statement did not have an impact on the Company's current disclosures and
presentation.

The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", during the year ended December 31, 1998.
This Statement requires that public companies report certain information about
their major customers, operating segments, products and services, and the
geographic areas in which they operate. Because the Company operates within a
single operating segment, adoption of this statement did not have an impact on
the Company's current disclosures and presentation.

In February 1998, the Financial Accounting Standards Board issued Statement
No. 132, "Employers' Disclosures about Pension and Other Postretirement
Benefits" (SFAS No. 132), which is effective for financial statements issued for
fiscal years beginning after December 15, 1997. SFAS No. 132 revises employers'
disclosures about pension and other postretirement benefit plans. SFAS No. 132
requires comparative information for earlier years to be restated. The Company
adopted SFAS No. 132 for its fiscal year beginning January 1, 1998. Adoption of
SFAS No. 132 did not have an effect on the Company's financial statement
presentation and disclosures.

F-14
<PAGE>
YOUBET.COM, INC.

(FORMERLY YOU BET INTERNATIONAL, INC.)

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1997, 1998 AND 1995 THROUGH 1998

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities," which is
effective for financial statements issued for all fiscal quarters of fiscal
years beginning after June 15, 1999. This statement requires companies to
recognize all derivative contracts as either assets or liabilities in the
balance sheet and to measure them at fair value. If certain conditions are met,
a derivative may be specifically designated as a hedge, the objective of which
is to match the timing of gain or loss recognition on the hedging derivative
with the recognition of (i) the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk or (ii) the earnings effect
of the hedged forecasted transaction. For a derivative not designated as a
hedging instrument, the gain or loss is recognized in income in the period of
change. Historically, the Company has not entered into derivative contracts to
hedge existing risks or for speculative purposes. Accordingly, the Company does
not expect adoption of the new standard on January 1, 2000 to have any effect on
its financial statements.

NOTE 3--AGREEMENT WITH LADBROKE

Mountain Laurel Racing, Inc. and Washington Trotting Association, Inc.,
(collectively, "Ladbroke"), operate horseracing operations within the State of
Pennsylvania. Effective June 23, 1997, the Company and Ladbroke entered into a
Telecommunications Facilitation System Agreement (the "Ladbroke Agreement"),
which provides that the Company will facilitate interactive telecommunications
between subscribers to The You Bet Network and Ladbroke's horseracing
activities. The Ladbroke Agreement contains certain exclusivity provisions
during the first two years of the agreement, and also provides Ladbroke with the
right to receive the benefit of any more favorable terms should the Company
enter into a subsequent agreement with another horseracing facility. The
Ladbroke Agreement provides for a term of five years subsequent to the first
transmission of live wagering information over The You Bet Network to an end
user. The initial transmissions of live wagering information over The You Bet
Network commenced during January 1998. As a result, the term of the Ladbroke
Agreement is through January 2003.

The Company is entitled to receive on a weekly basis one half of the net
commission to Ladbroke derived from wagers placed by Youbet.com subscribers. Net
commissions are calculated as gross commissions generated from wagers, less
state taxes and certain direct costs. The Ladbroke Agreement contains provisions
allowing the termination of the agreement by either party at any time prior to
January 2003, in the event that net commissions are, or are projected in good
faith by either party to the agreement, to be less than $1,000,000 for either
the initial eighteen month period ending June 1999, or for any full twelve month
period during the term of the agreement subsequent to the initial eighteen month
period.

During the year ended December 31, 1998, all of the Company's revenues were
generated from the Ladbroke Agreement, and the Company expects that
approximately one-half of its revenues during the year ending December 31, 1999
will also be generated from the Ladbroke Agreement. The Company currently
estimates that net commissions will exceed $1,000,000 during the initial
eighteen month period ending June 1999. However, should net commissions be less
than $1,000,000 during such eighteen month period, Ladbroke could elect to
terminate the agreement, which could have a material adverse effect on the
Company's business plans and capital raising efforts.

F-15
<PAGE>
YOUBET.COM, INC.

(FORMERLY YOU BET INTERNATIONAL, INC.)

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1997, 1998 AND 1995 THROUGH 1998

NOTE 4--PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at December 31, 1997 and
1998:

<TABLE>
<CAPTION>
1997 1998
------------ ------------
<S> <C> <C>
Computer equipment................................................ $ 602,449 $ 1,015,411
Office furniture and equipment.................................... 176,987 202,504
Leasehold improvements............................................ 63,534 64,855
Assets under capital leases (Note 7).............................. 417,441 417,441
------------ ------------
1,260,411 1,700,211
Less: Accumulated depreciation and amortization................... (423,177) (820,535)
------------ ------------
$ 837,234 $ 879,676
------------ ------------
------------ ------------
</TABLE>

At December 31, 1997 and 1998, accumulated depreciation and amortization
included $131,352 and $113,540, respectively, related to assets under capital
leases.

NOTE 5--ADVANCES AND BRIDGE LOANS PAYABLE

Advances and bridge loans consisted of the following at December 31, 1997
and 1998:

<TABLE>
<CAPTION>
RELATED UNRELATED
PARTIES PARTIES
------------- -------------
<S> <C> <C>
ADVANCES
Balance, January 1, 1997............................................................ $ -- $ --
Add: New loans...................................................................... 594,000 105,000
Less: Repayments.................................................................... (104,000) (105,000)
Converted into 1997 bridge financing........................................... (100,000) --
------------- -------------
Balance, December 31, 1997.......................................................... 390,000 --
Add: New loans...................................................................... 508,875 105,000
Less: Repayments.................................................................... (23,875) (30,000)
Converted into 1998 bridge financing........................................... (875,000) (75,000)
------------- -------------
Balance, December 31, 1998.......................................................... $ -- $ --
------------- -------------
------------- -------------
BRIDGE LOANS PAYABLE
Balance, January 1, 1997............................................................ $ 200,000 $ --
Add: New loans...................................................................... 250,000 1,210,000
Converted from advances........................................................ 100,000 --
Less: Converted into common stock and warrants...................................... (550,000) (910,000)
------------- -------------
Balance, December 31, 1997.......................................................... -- 300,000
Add: New loans...................................................................... 380,000 1,085,000
Converted from advances........................................................ 875,000 75,000
Less: Conversion of 1997 bridge loans into common stock and warrants................ -- (300,000)
Conversion of 1998 bridge loans into common stock.............................. (1,255,000) (1,160,000)
------------- -------------
Balance, December 31, 1998.......................................................... $ -- $ --
------------- -------------
------------- -------------
</TABLE>

F-16
<PAGE>
YOUBET.COM, INC.

(FORMERLY YOU BET INTERNATIONAL, INC.)

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1997, 1998 AND 1995 THROUGH 1998

NOTE 5--ADVANCES AND BRIDGE LOANS PAYABLE (CONTINUED)
Interest expense with respect to bridge loans payable aggregated $264,000
during 1997, including $82,500 to related parties. Additional financing cost was
also incurred during 1997 as a result of the issuance of an aggregate of 966,000
Series C common stock purchase warrants to the parties that provided unsecured
advances during 1997 and to the participants in the 1997 bridge financing,
including 456,000 warrants to related parties. As a result, the Company recorded
a charge to operations of $2,949,420 in 1997, including $1,504,580 allocable to
related parties, as more fully described at Note 6a.

Interest expense with respect to bridge loans and advances payable
aggregated $240,730 during 1998, including $111,365 to related parties.
Additional financing cost was also incurred during 1998 as a result of the
issuance of an aggregate of 177,000 Series C and 105,117 Series D common stock
purchase warrants to the parties that provided unsecured advances during 1998
and to the participants in the 1998 bridge financing, including 134,000 warrants
to related parties. As a result, the Company recorded a charge to operations of
$910,099 in 1998, including $500,600 allocable to related parties, as more fully
described at Note 6a.

CONVERSION DISCOUNT

As part of the consideration for making the 1997 bridge loans, the Company
agreed at the time the bridge loans were funded to give the bridge investors the
option to convert their bridge loans, including accrued interest, into the
subsequent private placement securities at the lesser of $25,000 per unit or 75%
of the private placement offering price. As a result, bridge investors exchanged
their bridge loans for units offered in the private placement at the rate of
$18,750 per unit, equivalent to a 25% discount from the $25,000 private
placement price. Accordingly, the Company recognized a charge to operations,
with a corresponding credit to additional paid-in capital, representing the
aggregate discount of $559,667, including $210,834 allocable to related parties.

As part of the consideration for making the 1998 bridge loans, the Company
granted the investors the option to convert their bridge loans, including
accrued interest, into the securities offered in any subsequent private
placement (or the equivalent amount of common stock, if such financing is not a
common stock financing), at 75% to 80% of the private placement offering price,
representing discounts of 20% to 25%. As a result of the sale of preferred stock
on June 29, 1998 as described in Note 6c, the difference between the fair value
of the Company's common stock of $2.50 per share on June 29, 1998 (as determined
by an investment and merchant banking firm) and the effective conversion rates
ranging from $1.875 to $2.00 per share, was recognized as a charge to
operations. Accordingly, the Company recognized a charge to operations, with a
corresponding credit to additional paid-in capital, representing the aggregate
discount of $849,963, including $341,588 allocable to related parties.

NOTE 6--STOCKHOLDERS' EQUITY (DEFICIENCY)

A. ISSUANCE OF COMMON STOCK AND WARRANTS

Concurrent with the completion of the reverse merger discussed in Note 1,
the Company completed a private placement offering of securities to investors.
The Company sold 149 units at $25,000 per unit. Each unit consisted of 10,000
shares of common stock and 5,000 Series A common stock

F-17
<PAGE>
YOUBET.COM, INC.

(FORMERLY YOU BET INTERNATIONAL, INC.)

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1997, 1998 AND 1995 THROUGH 1998

NOTE 6--STOCKHOLDERS' EQUITY (DEFICIENCY) (CONTINUED)
purchase warrants exercisable at $5.25 per share and expiring two years from the
date on which a registration statement registering the warrants is declared
effective. Total offering costs of $575,860 were charged against the gross
proceeds of $3,725,000, resulting in net proceeds of $3,149,140. As a result of
the sale of 149 units under this private placement offering in 1995, the Company
issued a total of 1,490,000 shares of common stock and 745,000 Series A common
stock purchase warrants.

In 1995, the Company issued 200,000 shares of common stock and Series B
common stock purchase warrants representing the right to purchase 417,188 shares
of common stock as commission to the placement agent of the private placement
offering, which were valued at $500,000. The Series B common stock purchase
warrants are exercisable at $3.12.

In conjunction with the closing of the reverse merger and private placement
offering in 1995, bridge loans payable aggregating $250,000 were exchanged for
10 units of common stock and Series A common stock purchase warrants, and
advances aggregating $345,000, including $100,000 from a related party, were
exchanged for 13.8 units of common stock and Series A common stock purchase
warrants. As a result of the issuance of 23.8 units, the Company issued an
aggregate of 238,000 shares of common stock and 119,000 Series A common stock
purchase warrants, including 40,000 shares and 20,000 Series A common stock
purchase warrants to a related party.

During 1996, the Company sold an additional 21.2 units as part of the
private placement offering commenced during 1995. Total offering costs of
$278,025 were charged against the gross proceeds of $530,000, resulting in net
proceeds of $251,975. As a result of the sale of 21.2 units under this private
placement offering in 1996, the Company issued a total of 212,000 shares of
common stock and 106,000 Series A common stock purchase warrants.

During November 1997, the Company reduced the exercise price of the Series A
common stock purchase warrants from $5.25 to $2.50 per share.

During November 1997, the Company completed a private placement offering of
securities to investors. The Company sold 89.78 units at $25,000 per unit. Each
unit consisted of 10,000 shares of common stock and 5,000 Series D common stock
purchase warrants exercisable at $5.25 and expiring November 1999. Total
offering costs of $291,020 were charged against the gross proceeds of
$2,244,400, resulting in net proceeds of $1,953,380. As a result of the sale of
89.78 units under this private placement in 1997, the Company issued a total of
897,760 shares of common stock and 448,880 Series D common stock purchase
warrants.

In conjunction with the closing of the private placement offering, bridge
loans payable aggregating $1,679,000, representing a principal balance of
$1,460,000 and accrued interest of $219,000, were exchanged for 89.55 units of
common stock and Series D common stock purchase warrants. Included in the
$1,679,000 was $632,500, representing a principal balance of $550,000 and
accrued interest of $82,500, from related parties. As a result of the issuance
of 89.55 units in 1997, the Company issued 895,468 shares of common stock and
447,734 Series D common stock purchase warrants, including 337,335 shares of
common stock and 168,667 Series D common stock purchase warrants to related
parties.

F-18
<PAGE>
YOUBET.COM, INC.

(FORMERLY YOU BET INTERNATIONAL, INC.)

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1997, 1998 AND 1995 THROUGH 1998

NOTE 6--STOCKHOLDERS' EQUITY (DEFICIENCY) (CONTINUED)
In conjunction with the 1997 private placement offering, the Company issued
690,275 Series E common stock purchase warrants to finders exercisable at $3.125
per share through November 2000. The Series E common stock purchase warrants had
an aggregate fair value of $1,891,354. The Company also issued 250,000 common
stock shares to finders.

During 1997, amounts due to vendors aggregating $40,000 and deferred
employee compensation aggregating $21,438 were exchanged for 2.74 units of
common stock and Series D common stock purchase warrants. As a result of the
issuance of 2.74 units, the Company issued 27,433 shares of common stock and
13,717 Series D common stock purchase warrants. The employees exchanged their
deferred compensation for common stock and warrants at the same rate as did the
bridge investors, and the vendors received a premium to exchange their debt for
common stock and warrants. As a result, the Company also recognized a charge to
operations, with a corresponding credit to additional paid-in capital, for
$13,681.

During 1998, in conjunction with the restructuring of a capital lease
obligation, the Company issued 20,000 shares of common stock to the lessor with
an approximate fair market value of $79,000 (Note 7).

During 1998, the Company issued 2,500 shares of common stock to a former
employee for services rendered which were valued at $15,469 and charged to
operations.

During 1998, the Company issued 1,513,551 shares of common stock (and
105,117 Series D common stock purchase warrants) in conjunction with the
conversion of bridge financing notes with a principal balance of $2,715,000 and
accrued interest of $285,730.

During 1998, the Company issued 355,000 shares of common stock to four
individuals, including two former officers, in conjunction with the exercise of
warrants and stock options with exercise prices ranging from $2.50 to $3.125 per
share, generating gross proceeds to the Company of $1,069,000.

During 1998, the Company issued 11,200 shares of common stock (and 5,600
Series D common stock purchase warrants) in conjunction with the conversion of
vendor debt of $28,000 into common stock.

During 1998, the Company issued 110,123 shares of common stock (and 55,063
Series C and 55,063 Series D common stock purchase warrants), including 96,220
shares to two officers/major stockholders, in conjunction with the conversion of
employee deferred compensation of $206,483 into common stock.

During December 1998, the Company entered into a stock subscription
agreement for the sale of 800,000 shares of common stock and 40,000 Series E
common stock purchase warrants for gross proceeds of $2,000,000. The Company
incurred direct costs related to such financing of $120,000. The Company
received the proceeds during January and February 1999.

F-19
<PAGE>
YOUBET.COM, INC.

(FORMERLY YOU BET INTERNATIONAL, INC.)

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1997, 1998 AND 1995 THROUGH 1998

NOTE 6--STOCKHOLDERS' EQUITY (DEFICIENCY) (CONTINUED)
B. DIVESTMENT SHARES

In conjunction with the December 1995 reverse merger discussed in Note 1 and
the contemporaneous 1995 private placement offering, 2,500,000 of the 5,710,000
shares issued to related parties were subject to forfeiture under certain
conditions if the Company did not achieve certain customer subscription levels
within a specified timeframe through December 5, 1999 (the "Divestment Shares").
The Company's original short-term goal, established in 1995, was to maximize
customer subscription levels. However, as a result of a change in the Company's
marketing strategy during 1997, the Company has decided to de-emphasize its
original short-term goal in order to focus on certain long-term goals. The
Company's revised marketing strategy is focused on building a brand name and
becoming a market leader, acquiring and retaining a large and loyal customer
base, and maximizing long-term profitability. Accordingly, effective December
31, 1997, the Board of Directors authorized the release of the forfeiture
restrictions on the 2,500,000 shares of common stock in exchange for the return
of 750,000 shares to the Company.

The release from the possibility of forfeiture with respect to the
Divestment Shares is recorded for accounting purposes as the payment of
compensation to the recipients when the possibility of forfeiture terminates,
and results in a charge to operations in an amount equal to the fair market
value of the Divestment Shares retained at the time such forfeiture possibility
terminates. Accordingly, the Company recognized a charge to operations, with a
corresponding credit to additional paid-in capital, of $7,875,000 at December
31, 1997, reflecting the release of the 1,750,000 shares.

C. PREFERRED STOCK FINANCING

On June 29, 1998, the Company entered into a Stock Purchase Agreement with
certain private and institutional investors. Pursuant to the Stock Purchase
Agreement, the Company sold 200,000 shares of Series A Convertible Preferred
Stock (the "Preferred Stock") for a cash purchase price of $25.00 per share,
resulting in gross proceeds to the Company of $5,000,000. Officers and directors
purchased 15,890 shares of Preferred Stock.

On July 31, 1998 and during December 1998, the Company sold an additional
20,000 shares and 22,500 shares, respectively, of Preferred Stock under the same
terms for aggregate gross proceeds of $1,062,500 of which $100,000 was received
in January 1999. During December 1998, 155,390 shares of Preferred Stock were
converted into 1,553,900 shares of common stock.

The Preferred Stock has a liquidation preference of $25.00 per share and
will rank senior to all other series of preferred stock that may be issued in
the future. Each share of Preferred Stock is convertible into ten shares of
common stock of the Company, and will be automatically converted into common
stock at the then prevailing conversion rate at such time as the Company has
completed a public offering which raises not less than $15,000,000 in gross
proceeds and has its common stock listed on a major exchange or the NASDAQ
National Market System. The holders of the Preferred Stock are not entitled to
dividends, except that if dividends are paid on the Company's common stock,
holders of Preferred Stock will be entitled to dividends on the basis of the
number of shares of common stock into which the Preferred Stock is then
convertible. The Preferred Stock will vote together with the

F-20
<PAGE>
YOUBET.COM, INC.

(FORMERLY YOU BET INTERNATIONAL, INC.)

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1997, 1998 AND 1995 THROUGH 1998

NOTE 6--STOCKHOLDERS' EQUITY (DEFICIENCY) (CONTINUED)
holders of common stock on all matters presented to stockholders for a vote on
the basis of the number of shares of common stock into which the Preferred Stock
is then convertible. The holders of the Preferred Stock have unlimited piggyback
registration rights and certain demand registration rights.

Based on a valuation report prepared by an investment and merchant banking
firm dated July 31, 1998, the Company has determined that the Preferred Stock
was sold at fair market value.

Robert M. Fell assisted the Company in its Preferred Stock financing during
1998 prior to his appointment as an officer and director of the Company. As a
result of the completion of such financing on June 29, 1998, Mr. Fell acquired
the right to designate four directors of the Company and may therefore be deemed
to have acquired control of the Company. In conjunction therewith, on June 29,
1998, the Company entered into a Securities Purchase Agreement with the Robert
M. Fell Living Trust (the "Fell Trust"). Pursuant to the Securities Purchase
Agreement, the Fell Trust acquired 20,000 shares of Preferred Stock and a
warrant to purchase 1,200,000 shares of the Company's common stock (the "Fell
Warrant"). The purchase price of the Preferred Stock acquired by the Fell Trust
was $25.00 per share, or an aggregate of $500,000, of which $10,000 was paid in
cash and $490,000 was paid in the form of a promissory note (the "$490,000
Note"). The purchase price of the Fell Warrant was $75,000, of which $5,000 was
paid in cash and $70,000 was paid in the form of a promissory note (the "$70,000
Note"). The $490,000 Note and the $70,000 Note are sometimes collectively
referred to as the "Notes". The Fell Warrant expires on June 29, 2008, and
entitles the Fell Trust to purchase 1,200,000 shares of common stock at $2.50
per share. The Fell Warrant is exercisable one-sixth on June 29, 1998, and
one-sixth thereafter on each six month anniversary date. The $490,000 Note bears
interest at the rate of 8% per annum, which may, at the option of the Fell
Trust, be paid currently or added to the principal amount of the note. The
$490,000 Note is due June 29, 2002, provided that the Fell Trust is required to
prepay the note, without penalty, as soon as possible consistent with its other
cash requirements. The $70,000 Note bears interest at the rate of 6% per annum,
which may, at the option of the Fell Trust, be paid currently or added to the
principal amount of the note. The $70,000 Note is due on June 29, 2008. The Fell
Trust has pledged the Fell Warrant and the Preferred Stock acquired pursuant to
the Securities Purchase Agreement to secure its obligations under the $490,000
Note and the $70,000 Note. In December 1998, the Preferred Stock held by the
Fell Trust was converted into common stock, which remained subject to the pledge
to secure the Notes.

The $490,000 Note and the $70,000 Note were recorded as reductions to
stockholders' equity at December 31, 1998. Based on a valuation report prepared
by an investment and merchant banking firm dated July 31, 1998, the Company has
determined that the exercise price of the Fell Warrant was at not less than fair
market value. The Fell Warrant had an aggregate fair value of $2,112,000.

Effective June 29, 1998, in connection with the Preferred Stock financing,
the Company entered into a Services Agreement with Fell & Company, Inc.,
pursuant to which Mr. Fell will serve as Chairman of the Board of Directors for
a period of three years. The Services Agreement also provided that Mr. Fell
would serve as interim Chief Executive Officer until a new Chief Executive
Officer is appointed, provided that if an employment agreement is not entered
into with a new Chief Executive Officer within six months from June 29, 1998, or
such person does not commence employment within

F-21
<PAGE>
YOUBET.COM, INC.

(FORMERLY YOU BET INTERNATIONAL, INC.)

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1997, 1998 AND 1995 THROUGH 1998

NOTE 6--STOCKHOLDERS' EQUITY (DEFICIENCY) (CONTINUED)
eight months of June 29, 1998, the position of Chief Executive Officer will
become the Office of the Chief Executive and will consist of Mr. Fell, Mr.
Marshall and Mr. Fine. For making Mr. Fell's services available to the Company,
Fell & Company, Inc. would receive $150,000 per annum, subject to cost of living
increases, plus the amount of payroll taxes the Company would pay if Mr. Fell
were an employee of the Company, and standard benefits. Effective February 23,
1999, the Board of Directors approved the appointment of Mr. Fell as full-time
Chief Executive Officer, and Mr. Marshall and Mr. Fine agreed to waive the
requirement for formation of the Office of the Chief Executive. The Board of
Directors also approved an increase in the amount payable to Fell & Company,
Inc. for making Mr. Fell's services available to the Company, to $225,000 per
annum effective March 1, 1999, reflecting the increase in Mr. Fell's involvement
with the Company from 70% to 100% of his available time.

Effective June 29, 1998, in connection with the Preferred Stock financing,
the Company entered into new employment agreements with Mr. Marshall and Mr.
Fine pursuant to which they will serve as Vice Chairman and Chief Technology
Officer, respectively. Both employment agreements provide for terms of five
years and compensation of $150,000 per annum, subject to cost of living
increases, and standard benefits.

In conjunction with the Preferred Stock financing, the Company incurred
direct costs related to such financing of $360,909. In addition, this firm
purchased warrants for $.0625 per warrant to acquire 72,498 shares of common
stock, consisting of 24,166 warrants exercisable at $.01 per share and 48,332
warrants exercisable at $2.50 per share. The warrants are exercisable through
June 2003. The aggregate fair value of such warrants was $401,639. The Company
also paid cash finder's fees to other parties aggregating $28,500.

D. STOCK OPTIONS AND WARRANTS

The Company issued various stock options and warrants during 1997 in
non-capital raising transactions for services rendered and to be rendered, and
as financing costs. The Company accounts for stock options and warrants granted
to non-employees in accordance with Statement of Financial Accounting Standards
No. 123, which requires non-cash compensation expense be recognized over the
expected period of benefit. The Company has calculated the fair value of such
warrants and stock options according to the Black-Scholes pricing model. The
resulting amount has been recorded as a charge to deferred compensation, with a
corresponding credit to additional paid-in capital. Deferred compensation is
being amortized on the straight-line basis over the period in which the Company
expects to receive benefit.

The Company issued a warrant to an officer of a subsidiary in 1997 to
purchase 100,000 shares of common stock at an exercise price of $3.00,
exercisable through October 31, 1998, partially in exchange for an accrued but
unpaid bonus. Aggregate fair value of the warrant was $210,000, which was
charged to operations in 1997.

The Company issued various stock options and warrants to certain consultants
during 1997 to purchase an aggregate of 394,000 shares of common stock at
exercise prices ranging from $2.50 to $3.12 and exercisable for periods ranging
from one to five years. Aggregate fair value was $720,680, of

F-22
<PAGE>
YOUBET.COM, INC.

(FORMERLY YOU BET INTERNATIONAL, INC.)

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1997, 1998 AND 1995 THROUGH 1998

NOTE 6--STOCKHOLDERS' EQUITY (DEFICIENCY) (CONTINUED)
which $359,421 was charged to operations in 1997, and the remaining $361,259 is
being charged to operations in 1998 and 1999.

Pursuant to a letter of intent dated May 11, 1997 and a final agreement
entered into on December 19, 1997, the Company issued a financial and marketing
consulting firm warrants to purchase 1,000,000 shares of common stock
exercisable for a period of 5.5 years, 500,000 of which are exercisable at
$3.125 per share and 500,000 of which are exercisable at $5.25 per share, for
services rendered and to be rendered for the two year period commencing May 11,
1997. In addition, the Company issued a bonus to such firm during December 1997
in the form of 500,000 warrants exercisable for a period of 5 years, 250,000 of
which are exercisable at $3.125 per share and 250,000 of which are exercisable
at $5.25 per share. Aggregate fair value of the 1,000,000 warrants was
$1,218,000, of which $389,084 was charged to operations in 1997, and the
remaining $828,916 is being charged to operations through 1999. Aggregate fair
market value of the 500,000 warrants issued as a bonus was $1,037,750, all of
which was charged to operations in 1997.

During 1997, the Company issued an aggregate of 1,114,217 Series C common
stock purchase warrants to various parties as financing costs. The Series C
common stock purchase warrants are exercisable at $2.50 per share through
December 31, 2002. Employees deferring a portion of their compensation received
5,717 warrants, vendors deferring amounts due them received 142,500 warrants,
individuals providing short-term unsecured advances to the Company received
262,000 warrants (including 236,000 warrants to related parties), and bridge
investors received 704,000 warrants (including 220,000 warrants to related
parties). Aggregate fair market value of the warrants was $3,656,202 (including
$1,504,580 allocable to related parties), all of which was charged to operations
in 1997.

During March 1998, the Company entered into a supplemental agreement with a
financial and marketing consulting firm to develop and manage an expanded
investor relations program to publicize the Company to stockholders, investors,
brokerages, and industry professionals during 1998. During April 1998, the
Company issued warrants to the financial and marketing consulting firm to
purchase an aggregate of 300,000 shares of common stock, of which 200,000
warrants are exercisable at $3.125 per share and 100,000 warrants are
exercisable at $5.25 per share, for additional services rendered during January
through June 1998. The warrants are exercisable through March 2003. The
aggregate fair value of the 300,000 warrants of $1,444,000 was recorded as a
charge to operations in 1998.

During April 1998, the Company issued a warrant to purchase 25,000 shares of
common stock exercisable at $3.00 per share to the Company's Acting Chief
Financial Officer at that time for services rendered during 1998. The warrant is
exercisable through April 1999. The fair value of the warrant was approximately
$75,000, which was charged to operations in 1998. The warrant has been
exercised.

During 1998, the Company issued Series C common stock purchase warrants for
254,593 shares of common stock to various parties. The Series C common stock
purchase warrants are exercisable at $2.50 per share through June 2003. The
Company issued 5,000 warrants to a vendor which deferred an amount due it,
55,063 warrants (including 48,110 warrants to two officers/major stockholders)
in conjunction with the conversion into common stock of employee deferred
compensation of $206,483, and 177,000 warrants (including 134,000 warrants to
related parties) as additional consideration for

F-23
<PAGE>
YOUBET.COM, INC.

(FORMERLY YOU BET INTERNATIONAL, INC.)

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1997, 1998 AND 1995 THROUGH 1998

NOTE 6--STOCKHOLDERS' EQUITY (DEFICIENCY) (CONTINUED)
short-term advances of $440,000, all of which were considered financing costs.
Aggregate fair value of the warrants issued for financing costs was $1,019,444,
which was charged to operations as financing costs in 1998.

During 1998, a Series C common stock purchase warrant for 20,000 shares of
common stock, originally issued in 1997, was returned to the Company due to lack
of performance and was cancelled. The fair value of such warrant at the time of
issuance was $95,200, which amount was recognized as a credit to operations in
1998. The Company also issued 17,530 warrants for legal fees. The warrant issued
for legal fees had an aggregate fair value of $100,447, which was charged to
operations in 1998.

During 1998, the Company issued Series D common stock purchase warrants for
165,780 shares of common stock to various parties. The Series D common stock
purchase warrants are exercisable at $5.25 per share through September 2000. The
Company issued 105,117 warrants in conjunction with the conversion into common
stock of 1997 bridge financing notes with a principal balance of $300,000, 5,600
warrants in conjunction with the conversion into common stock of vendor debt of
$28,000, and 55,063 warrants (including 48,110 warrants to two officers/major
stockholders) in conjunction with the conversion into common stock of employee
deferred compensation of $206,483, all of which were considered financing costs.
The aggregate fair value of such warrants of $386,240 was charged to operations
as financing costs in 1998.

During 1998, the Company issued Series E common stock purchase warrants to
various parties. The Series E common stock purchase warrants are exercisable at
$3.125. During April 1998, the Company issued a Series E common stock purchase
warrant for 50,000 shares of common stock to a consulting firm exercisable
through April 2001. The fair value of the warrant of $251,000 was charged to
operations in 1998.

During 1998, in conjunction with the 1997 private placement and the
conversion of the 1998 bridge financing into common stock, the Company issued
87,844 Series E common stock purchase warrants exercisable through 2001, which
had an aggregate fair value of $243,251 and was charged to operations in 1998.

During 1998, in conjunction with the sale of 800,000 shares of common stock,
the Company issued 40,000 Series E common stock purchase warrants exercisable
through February 2004, which had an aggregate fair value of $212,400.

F-24
<PAGE>
YOUBET.COM, INC.

(FORMERLY YOU BET INTERNATIONAL, INC.)

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1997, 1998 AND 1995 THROUGH 1998

NOTE 6--STOCKHOLDERS' EQUITY (DEFICIENCY) (CONTINUED)
Information with respect to common stock purchase warrants and stock options
issued, excluding stock options issued under the Stock Option Plans as described
below, is summarized as follows:

<TABLE>
<CAPTION>
WEIGHTED
EXERCISE
WARRANTS PRICE
---------- -----------
<S> <C> <C>
Balance, January 1, 1996............................................... 1,281,188 $ 2.70
Warrants/stock options issued.......................................... 106,000 $ 2.50
----------
Balance, December 31, 1996............................................. 1,387,188 $ 2.69
Warrants/stock options issued.......................................... 4,508,823 $ 3.70
----------
Balance, December 31, 1997............................................. 5,896,011 $ 3.48
Warrants/stock options issued.......................................... 2,148,628 $ 2.90
Exercised.............................................................. (375,000) $ 3.07
----------
Balance, December 31, 1998............................................. 7,669,639 $ 3.33
----------
----------
Warrants/stock options exercisable (vested) at December 31, 1998....... 7,669,639 $ 3.33
----------
----------
</TABLE>

Additional information about outstanding warrants/stock options to purchase
the Company's common stock at December 31, 1998 is as follows:

<TABLE>
<CAPTION>
WARRANTS/STOCK OPTIONS OUTSTANDING AND
EXERCISABLE
-------------------------------------------------
WEIGHTED AVG.
REMAINING
NUMBER CONTRACTUAL LIFE WEIGHTED AVG.
RANGE OF EXERCISE PRICES OF SHARES (IN YEARS) EXERCISE PRICE
- -------------------------------------------- ---------- -------------------- ---------------
<S> <C> <C> <C>
$.01........................................ 24,166 Not determinable $ .01
$2.50....................................... 52,000 2.68 $ 2.50
$2.50....................................... 3,567,143 Not determinable $ 2.50
$3.00....................................... 112,000 2.12 $ 3.00
$3.13....................................... 1,948,221 Not determinable $ 3.13
$5.25....................................... 1,966,109 Not determinable $ 5.25
---------- -----
Total....................................... 7,669,639 $ 3.33
---------- -----
---------- -----
</TABLE>

STOCK OPTION PLANS

The Company has Employee Stock Option Plans and a Stock Option Plan for
Non-Employee Directors. These Plans provide for the granting of awards of
incentive stock options, non-qualified stock options, and stock appreciation
rights. The aggregate number of shares of common stock available for issuance
under these Plans is 15% of the total number of shares of common stock
outstanding. The options generally vest in four equal annual installments, and
have a term of five to ten years.

F-25
<PAGE>
YOUBET.COM, INC.

(FORMERLY YOU BET INTERNATIONAL, INC.)

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1997, 1998 AND 1995 THROUGH 1998

NOTE 6--STOCKHOLDERS' EQUITY (DEFICIENCY) (CONTINUED)
On February 6, 1998, the Company's Board of Directors adopted a new employee
stock option plan. This plan provides for the granting of options to both
employees and non-employees. The Company issued options to purchase 500,000
shares of common stock at $2.50 per share of such amount, 205,000 options were
issued to officers. Such options were fully vested upon issuance, but are not
exercisable until February 1999, and expire on February 6, 2003. The Company has
recorded the aggregate difference between the fair market value of the Company's
common stock on the issuance date and the $2.50 exercise price of $828,151 as
compensation cost in 1998.

During 1996, deferred compensation of $128,250 was recorded as a result of
the issuance of stock options being granted with exercise prices less than the
current market price, and is being amortized on the straight-line basis over the
vesting period of the stock options. Deferred compensation charged to operations
from the above transaction as well as a transaction occurring in 1995 was
$102,263 in 1996, $167,965 in 1997 and $63,561 in 1998.

During 1997, the Company issued a stock option to the non-employee director
under the 1995 Plan to purchase 5,000 shares of common stock at an exercise
price of $2.75 per share, exercisable for a period of ten years. Aggregate fair
value was $9,083, of which $1,811 was charged to operations in 1997, and the
remaining $7,272 was charged to operations in 1998.

During 1997, the Company issued stock options to certain consultants under
the 1995 Plans to purchase an aggregate of 3,773 shares of common stock at
exercise prices ranging from $3.00 to $3.88 and exercisable for a period of ten
years. Aggregate fair value was $10,151, all of which was charged to operations
in 1997.

During 1998, the Company granted various stock options, as follows:

(1) On May 1, 1998, the Company issued a stock option to its newly-appointed
Executive Vice President and Chief Financial Officer under the 1995 Stock
Option Plan to purchase 75,000 shares of common stock at an exercise
price of $2.50 per share. The stock option vests in four equal annual
installments commencing one year after the grant date, and is exercisable
for a period of ten years. The Company has recorded a charge to deferred
compensation of $323,438 to reflect the aggregate difference between the
fair market value of the Company's common stock on the grant date of
$6.81 per share and the exercise price of $2.50 per share, and is
charging this amount to operations over the four year period beginning
May 1, 1998. On May 1, 1998, the Company also issued a stock option to
its newly-appointed Executive Vice President and Chief Financial Officer
under the 1998 Stock Option Plan to purchase 5,000 shares of common stock
at an exercise price of $2.50 per share. The stock option vested
immediately and is exercisable for a period of five years. The aggregate
difference between the fair market value of the Company's common stock on
the grant date of $6.81 per share and the exercise price of $2.50 per
share was $21,550, and was charged to operations.

(2) Stock options were granted to employees to purchase 13,000 shares of
common stock at $5.50 per share, the fair value on the date of grant.
These options vest over four years and are exercisable for a period of
ten years.

F-26
<PAGE>
YOUBET.COM, INC.

(FORMERLY YOU BET INTERNATIONAL, INC.)

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1997, 1998 AND 1995 THROUGH 1998

NOTE 6--STOCKHOLDERS' EQUITY (DEFICIENCY) (CONTINUED)
(3) Stock options were granted to non-employees to purchase 224,000 shares
of common stock (165,000 to directors), 204,000 shares at $2.50 per
share, and 20,000 shares averaging $5.46 per share, the fair value at the
date of grant. The director options generally vest over one year and the
other options generally vest over one to two years. The fair value of
these stock options of $1,148,860 ($888,150 allocated to the director
options) is being charged to operations over the respective vesting
periods.

(4) During July 1998, the Company issued a stock option to the Company's
legal counsel, who acts as Secretary of the Company, to purchase 40,000
shares of common stock at an exercise price of $2.50 per share. The stock
option vests monthly over the two year period beginning July 1998, and is
exercisable for a period of ten years. The fair value of the stock option
of $179,600 is being charged to operations over the two year period
beginning July 1998. During December 1998, the Company also issued a
stock option to its legal counsel to purchase 100 shares of common stock
at an exercise price of $2.50 per share. The stock option vested
immediately and is exercisable for a period of five years. The fair value
of the stock option of $508 was charged to operations.

(5) During December 1998, the Company issued a stock option to each
executive officer of the Company, consisting of six persons, to purchase
100 shares of common stock at an exercise price of $2.50 per share. The
stock options vested immediately and are exercisable for a period of five
years. The aggregate difference between the fair market value of the
Company's common stock on the grant date of $6.13 per share and exercise
price of $2.50 per share was $2,178, and was charged to operations.

F-27
<PAGE>
YOUBET.COM, INC.

(FORMERLY YOU BET INTERNATIONAL, INC.)

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1997, 1998 AND 1995 THROUGH 1998

NOTE 6--STOCKHOLDERS' EQUITY (DEFICIENCY) (CONTINUED)
Information with respect to activity under the Plans is summarized as
follows:

<TABLE>
<CAPTION>
WEIGHTED
STOCK EXERCISE
OPTIONS PRICE
---------- -----------
<S> <C> <C>
Options granted........................................................ 755,000 $ 2.50
Options terminated..................................................... (111,500) $ 2.50
----------
Balance, January 1, 1996............................................... 643,500 $ 2.50
Options granted........................................................ 469,914 $ 2.60
Options terminated..................................................... (87,050) $ 2.50
----------
Balance, December 31, 1996............................................. 1,026,364 $ 2.55
Options granted........................................................ 246,735 $ 3.06
Options terminated..................................................... (151,666) $ 2.70
----------
Balance, December 31, 1997............................................. 1,121,433 $ 2.64
Options granted........................................................ 837,469 $ 2.65
Options terminated..................................................... (44,690) $ 2.93
----------
Balance December 31, 1998.............................................. 1,914,212 $ 2.64
----------
----------
Options exercisable (vested) at December 31, 1998...................... 1,408,154 $ 2.60
----------
----------
</TABLE>

Additional information about outstanding options to purchase the Company's
common stock at December 31, 1998 is as follows:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------------
WEIGHTED AVG. OPTIONS EXERCISABLE
REMAINING ---------------------------
NUMBER CONTRACTUAL WEIGHTED AVG. NUMBER WEIGHTED AVG.
RANGE OF EXERCISE PRICES OF SHARES LIFE (IN YEARS) EXERCISE PRICE OF SHARES EXERCISE PRICE
- ------------------------- ---------- ----------------- --------------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
$2.50.................... 1,622,186 6.54 2.50 1,240,505 2.50
$2.51-$2.99.............. 30,500 8.25 2.75 11,500 2.75
$3.00.................... 179,706 8.30 3.00 112,429 3.00
$3.01-$5.50.............. 81,820 6.97 4.44 43,720 4.51
---------- --- ----- ---------- -----
Total.................... 1,914,212 6.75 $ 2.64 1,408,154 $ 2.60
---------- --- ----- ---------- -----
---------- --- ----- ---------- -----
</TABLE>

The Company accounts for stock options issued to officers and employees
under Accounting Principles Board Opinion No. 25, under which no compensation
cost is recognized. Options granted to outside directors are accounted for in
accordance with Statement of Financial Accounting Standards No. 123. If
compensation expense for stock options issued to officers and employees had been
determined based upon the fair value at the grant date consistent with the
methodology prescribed under Statement of Financial Accounting Standards No.
123, the net loss and basic loss per share would have

F-28
<PAGE>
YOUBET.COM, INC.

(FORMERLY YOU BET INTERNATIONAL, INC.)

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1997, 1998 AND 1995 THROUGH 1998

NOTE 6--STOCKHOLDERS' EQUITY (DEFICIENCY) (CONTINUED)
been as shown below. The fair value of stock options granted under the Company's
Plans was estimated on the date of grant using the Black-Scholes option pricing
model using the following weighted average assumptions:

<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Expected life in years.......................................... 5 5 5
Risk free interest rate......................................... 5.7% 6.75% 6.75%
Dividend yield.................................................. 0% 0% 0%
Expected volatility............................................. 100% 83.4% 83.4%
</TABLE>

The weighted average fair value at the date of grant for stock options and
warrants granted during 1996, 1997 and 1998 was $2.61 per option in 1996, $2.12
per option and $2.31 per warrant in 1997, and $3.88 per option and $2.84 per
warrant in 1998.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1996 1997 1998
------------- -------------- --------------
<S> <C> <C> <C>
Net loss
As reported................................. $ (3,864,734) $ (19,416,838) $ (13,861,547)
Pro forma................................... $ (4,138,734) $ (20,015,044) $ (15,389,025)

Net loss per share
As reported................................. $ (0.67) $ (3.06) $ (1.32)
Pro forma................................... $ (0.72) $ (3.15) $ (1.46)
</TABLE>

NOTE 7--CAPITAL AND OPERATING LEASES

During the year ended December 31, 1996, the Company acquired $267,180 of
equipment under capital leases. During the year ended December 31, 1997, the
Company financed $150,261 of equipment through a capital lease transaction. The
Company's capitalized lease obligations of $283,695 at December 31, 1997
(excluding the interest portion of $45,556) has been classified as a current
liability in the accompanying consolidated financial statements.

Effective March 31, 1998, the Company restructured a capital lease
obligation aggregating $170,516 into a new capital lease bearing interest at
approximately 14% per annum. In conjunction with this transaction, the Company
increased the outstanding lease obligation by $80,000 to reflect the acquisition
of office and computer equipment from the lessor. The Company agreed to pay the
lessor eighteen monthly payments of $15,500 commencing July 1, 1998 under the
restructured lease agreement. The Company also issued 20,000 shares of common
stock to the lessor with an approximate fair market value of $79,000. The
Company recorded deferred financing costs of $54,941 as a result of the issuance
of the 20,000 shares of common stock to the lessor, which are being amortized to
operations through December 31, 1999.

F-29
<PAGE>
YOUBET.COM, INC.

(FORMERLY YOU BET INTERNATIONAL, INC.)

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1997, 1998 AND 1995 THROUGH 1998

NOTE 7--CAPITAL AND OPERATING LEASES (CONTINUED)
Effective September 1, 1998, the Company restructured a capital lease
obligation aggregating $120,286 into a new capital lease bearing interest at
approximately 7% per annum. The Company agreed to pay the lessor $21,000, and
thirty monthly payments of $4,495 commencing September 15, 1998 under the
restructured lease agreement.

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
- ---------------------------------------------------------------------------------- ----------
<S> <C>
1999.............................................................................. $ 239,940
2000.............................................................................. 53,940
2001.............................................................................. 8,990
----------
Total payments.................................................................... 302,870
Less: amount representing interest................................................ 22,419
----------
Present value of minimum payments................................................. $ 280,451
----------
----------
Current portion................................................................... $ 220,317
Long-term portion................................................................. 60,134
----------
$ 280,451
----------
----------
</TABLE>

The Company leases its executive and operating offices under an operating
lease which expires on October 31, 1999. Rent expense under this lease was
$89,928, $106,269 and $228,578 for the years ended December 31, 1996, 1997 and
1998, respectively. Under this non-cancellable lease, the Company is committed
to future minimum payments of $190,370 through October 31, 1999.

NOTE 8--COMMITMENTS AND CONTINGENCIES

The Company has entered into an employment agreement with Robert M. Fell,
which expires on June 30, 2001. This agreement calls for Mr. Fell to devote
approximately 70% of his business time to the affairs of the Company. This
agreement was amended subsequent December 31, 1998. The new employment agreement
provides for compensation of $225,000 per annum. Additional details are
described at Note 6c.

The Company also entered into new employment agreements with David M.
Marshall and Russell M. Fine. Both employment agreements provide for terms of
five years and compensation of $150,000 per annum, subject to cost of living
increases.

Subsequent to December 31, 1998, the Company renewed employment agreements
with Ronald W. Luniewski and Phillip C. Hermann. Both employment agreements
expire on April 30, 2000 and provide for compensation of $150,000 per annum.

The Company entered into license agreements with service providers which
require the payment of certain license fees based on usage levels and product
sales. The Company is required to make minimum payments of $247,590 in 1999,
$60,000 in 2000, $60,000 in 2001, and $50,000 in 2002.

F-30
<PAGE>
YOUBET.COM, INC.

(FORMERLY YOU BET INTERNATIONAL, INC.)

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED DECEMBER 31, 1996, 1997, 1998 AND 1995 THROUGH 1998

NOTE 8--COMMITMENTS AND CONTINGENCIES (CONTINUED)
From time to time, the Company is involved in litigation arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations or cash flows.

NOTE 9--INCOME TAXES

The Company has recorded a provision for current minimum state income taxes
in the accompanying consolidated financial statements. At December 31, 1998, the
Company has available Federal and State net operating loss carryforwards of
approximately $16,896,000 and $16,659,000, respectively, for income tax
purposes, which expire in varying amounts through 2018 for federal and 2005 for
state purposes.

NOTE 10--RELATED PARTY TRANSACTIONS

The non-employee member of the Board of Directors was paid a consulting fee
of $2,400 per month from January through June 1998.

Additional related party transactions are described at Notes 5 and 6.

NOTE 11--SUBSEQUENT EVENT

On April 5, 1999, the Company issued $45,500,000 principal amount of 11%
Senior Convertible Discount Notes (the "Notes") for cash proceeds of
$36,728,510, which represents a discount of 11% per year, compounded
semi-annually, to April 5, 2001. The Company incurred approximately $1,600,000
of costs related to this offering and issued 50,000 warrants exercisable at
$10.00 per share as a finders fee. The Notes begin accruing interest on April 5,
2001 at 11% per year, payable semi-annually. Principal and unpaid interest are
due and payable on April 5, 2004. The Notes plus accrued, unpaid interest are
convertible at any time at the rate of $10 per common share, subject to reset
provisions as defined in the Notes. The conversion price resets one time at the
earlier of (1) a placement, after April 5, 1999, of common stock and any
securities convertible into common stock which raises at least $15 million gross
proceeds to the Company or (2) April 5, 2000. In the event that a placement of
common stock or convertible securities occurs first, the conversion price will
be reset to the lesser of $10 per share or the lowest price per share at which
the Company sells common stock after the date of the placement of common stock
or convertible securities (excluding options, warrants and other convertible
securities existing prior to April 5, 1999). In the event that the reset occurs
on April 5, 2000, the conversion price will be reset to the lower of $10 per
share or the average daily closing price for the ten-day period ending on April
5, 2000, but in no event less than $5 per share. The notes also contain
customary financial covenants and restrictions limiting the ability of the
Company to engage in certain financings, other transactions and dividend
distributions.

F-31
<PAGE>
APPENDIX 1
SELLING STOCKHOLDERS

<TABLE>
<CAPTION>
OWNERSHIP
OF COMMON STOCK OWNERSHIP
PRIOR TO THE OFFERING(1) OF COMMON STOCK
NUMBER AFTER THE OFFERING(1)
------------------------ OF SHARES -------------------------
NUMBER PERCENTAGE OFFERED NUMBER PERCENTAGE
NAME OF SELLING STOCKHOLDER OF SHARES OWNERSHIP HEREBY OF SHARES OF OWNERSHIP
- ------------------------------------------------------ ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
(2) (2)

[List Selling Stockholders]

</TABLE>

- ---------

(1) Includes shares which may be acquired on the exercise of warrants.

(2) less than 1%

The foregoing stockholders have granted to the underwriters an option,
exercisable during the 30-day period after the date of this Prospectus, to
purchase up to [ ] shares of common stock to cover over-allotments. If the
over-allotment option is exercised, the stockholders listed above will each sell
a pro rata amount of the shares of common stock to be sold to the underwriters.
<PAGE>
PART II

Information Not Required in Prospectus

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

<TABLE>
<S> <C>
Securities and Exchange Commission filing Fee..................... $ 16,118
National Association of Securities Dealers, Inc. filing fee....... $ 6.298
Printing and engraving fees and expenses.......................... $ *
Legal fees and expenses........................................... $ *
Accounting fees and expenses...................................... $ *
"Blue Sky" fees and expenses, including legal fees................ $ *
Miscellaneous other expenses...................................... $ *
Total......................................................... $ *
---------
---------
</TABLE>

* To be filed by amendment

The Company will bear all the foregoing expenses.

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 145 of the General Corporation Law of the State of Delaware provides
that a corporation shall have the power, and in some cases is required, to
indemnify an agent, including an officer or director, who was or is a party or
is threatened to be made a party to any proceedings, against certain expenses,
judgments, fines, settlements and other amounts under certain circumstances.
Article of the Registrant's Bylaws requires indemnification of the
Registrant's officers and directors to the maximum extent permitted by the
Delaware General Corporation Law, and the Registrant maintains insurance
covering certain liabilities of the directors and officers of the Registrant and
its subsidiaries.

ITEM 16. EXHIBITS

<TABLE>
<C> <S>
2.1 Acquisition Agreement between PC Totes, Inc. and Embassy Acquisition, Inc.
dated as of December 6, 1995 (Incorporated herein by reference to
Youbet.com's Form 10-K for the year ended December 31, 1995.)
*2.2 Form of Underwriting Agreement
3.1 Restated Certificate of Incorporation (Incorporated herein by reference to
Youbet.com's Form 10-K for the year ended December 31, 1995.)
3.2 By-Laws of Youbet.com (Incorporated herein by reference to Youbet.com's
Form 10-K for the year ended December 31, 1995.)
3.3 Certificate of Designation for Series A Convertible Preferred dated June
18, 1998 (Incorporated herein by reference to Youbet.com's Form 10-KSB
for the year ended December 31, 1998.)
*5.1 Opinion of Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP
10.1 1995 Stock Option Plan (Incorporated herein by reference to Youbet.com's
Form 10-K for the year ended December 31, 1996.)
10.2 1995 Stock Option Plan for Non-Employee Directors (Incorporated herein by
reference to Youbet.com's Form 10-K for the year ended December 31,
1996.)
10.3 Stock Purchase Agreement dated June 29, 1998 (Incorporated herein by
reference to Youbet.com's Form 8-K for the year ended June 29, 1998.)
10.4 Securities Purchase Agreement dated June 29, 1998 (Incorporated herein by
reference to Youbet.com's Form 8-K dated June 29, 1998.)
</TABLE>

II-1
<PAGE>
<TABLE>
<C> <S>
10.5 Stockholders Agreement dated June 29, 1998 (Incorporated herein by
reference to Youbet.com's Form 8-K dated June 29, 1998.)
10.6 Registration Rights Agreement dated June 29, 1998 (Incorporated herein by
reference to Youbet.com's Form 8-K dated June 29, 1998.)
10.7 Warrant to Purchase Common Stock dated June 29, 1998 (Incorporated herein
by reference to Youbet.com's Form 8-K dated June 29, 1998.)
10.8 Employment Agreement between Youbet.com and David M. Marshall dated June
29, 1998 (Incorporated herein by reference to Youbet.com's Form 8-K
dated June 29, 1998.)
10.9 Employment Agreement between Youbet.com and Russell M. Fine dated June 29,
1998 (Incorporated herein by reference to Youbet.com's Form 8-K dated
June 29, 1998.)
10.10 1998 Stock Option Plan (Incorporated herein by reference to Youbet.com's
Form 10-KSB for the year ended December 31, 1998.)
10.11 Services Agreement between Youbet.com and David Marshall, Inc. dated
January 1, 1999 (Incorporated herein by reference to Youbet.com's Form
10-KSB for the year ended December 31, 1998.)
10.12 Services Agreement between Youbet.com and Fell & Company, Inc. dated June
29, 1998, amended and restated as of March 1, 1999 (Incorporated herein
by reference to Youbet.com's Form 10-KSB for the year ended December 31,
1998.)
10.13 Employment Agreement between Youbet.com and Ronald W. Luniewski dated May
1, 1998, superceded by an Employment Agreement dated March 1, 1999
(Incorporated herein by reference to Youbet.com's Form 10-KSB for the
year ended December 31, 1998.)
10.14 Employment Agreement between Youbet.com and Phillip C. Hermann dated May
1, 1998, superceded by an Employment Agreement dated March 1, 1999
(Incorporated herein by reference to Youbet.com's Form 10-KSB for the
year ended December 31, 1998.)
10.15 Telecommunications Facilitation System Agreement between Youbet.com and
Mountain Laurel Racing, Inc. and Washington Trotting Association, Inc.
dated June 23, 1997 (Incorporated herein by reference to Youbet.com's
Form 10-KSB for the year ended December 31, 1998.)
*10.16 License Agreement between Youbet.com and Equibase Company dated March 25,
1996
*10.17 Marketing and Distribution Agreement between Youbet.com and Thoroughbred
Sports Network, Inc. dated September 26, 1997
*10.18 Agreement between Youbet.com and the United States Trotting Association
dated March 18, 1998
10.19 Agreement between Youbet.com and Netixs Communications dated March 3, 1999
(Incorporated herein by reference to Youbet.com's Form 10-KSB for the
year ended December 31, 1998.)
10.20 Form of Note Purchase Agreement dated April 5, 1999 relating to the 11%
Senior Convertible Discount Notes. (Incorporated herein by reference to
Youbet.com's Form 10-KSB for the year ended December 31, 1998)
10.21 Form of 11% Senior Convertible Discount Note. (Incorporated herein by
reference to Youbet.com's Form 10-KSB for the year ended December 31,
1998)
*23.1 Consent of Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP
(included in Exhibit 5.1)
23.2 Consent of BDO Seidman, LLP
23.3 Consent of Weinbaum & Yalamanchi
27 Financial Data Schedule
</TABLE>

- ---------

* To be filed by amendment.

II-2
<PAGE>
ITEM 17. UNDERTAKINGS

(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to section 13(a) or section 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of
an employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.

(b) The undersigned registrant undertakes to supplement the prospectus, after
the expiration of the subscription period, to set forth the results of the
subscription offer, the transactions by the underwriter during the
subscription period, the amount of unsubscribed securities to be purchased
by the underwriters, and the terms of any subsequent reoffering thereof. If
any public offering by the underwriters is to be made on terms different
from those set forth on the cover page of the prospectus, a post-effective
amendment will be filed to set forth the terms of such offering.

II-3
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Los Angeles, State of California, on April 9, 1999.

<TABLE>
<S> <C> <C>
YOUBET.COM, INC.

By: /s/ ROBERT M. FELL
-----------------------------------------
Robert M. Fell
CHIEF EXECUTIVE OFFICER
</TABLE>

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below, hereby constitutes and appoints Robert M. Fell and Phillip C. Hermann,
each acting alone, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any or all amendments or supplements
to this Registration Statement and to file the same with all exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing necessary or
appropriate to be done with respect to this Registration Statement or any
amendments or supplements hereto in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------

<C> <S> <C>
Chairman of the Board of
/s/ ROBERT M. FELL Directors and Chief
- ------------------------------ Executive Officer; April 9, 1999
Robert M. Fell Director

/s/ DAVID M. MARSHALL Vice Chairman of the Board
- ------------------------------ of Directors and April 9, 1999
David M. Marshall President

/s/ RUSSELL M. FINE Executive Vice President
- ------------------------------ Chief Technology Officer April 9, 1999
Russell M. Fine and Director

/s/ PHILLIP C. HERMANN Executive Vice President
- ------------------------------ and Chief Financial April 9, 1999
Phillip C. Hermann Officer

/s/ CAESAR P. KIMMEL
- ------------------------------ Director April 9, 1999
Caesar P. Kimmel
</TABLE>

II-4
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------

<C> <S> <C>
/s/ ALAN W. LANDSBURG
- ------------------------------ Director April 9, 1999
Alan W. Landsburg

/s/ JESS RIFKIND
- ------------------------------ Director April 9, 1999
Jess Rifkind

- ------------------------------ Director
William H. Roedy
</TABLE>

II-5

<PAGE>
EXHIBIT 23.2

CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS

Youbet.com, Inc.
Los Angeles, California

We hereby consent to the inclusion in the Prospectus constituting a part of
this Registration Statement of our report dated March 25, 1999, except for Note
11, which is as of April 6, 1999, relating to the consolidated financial
statements of Youbet.com, Inc. for the years ended December 31, 1997 and 1998
appearing in the Prospectus.

We also consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement of our report dated March 25,
1999, except for Note 11, which is as of April 6, 1999, relating to the
consolidated financial statements of Youbet.com, Inc. for the years ended
December 31, 1997 and 1998 appearing in the Company's Annual Report on Form
10-KSB for the year ended December 31, 1998.

We also consent to the reference to us under the caption "Experts" in the
Prospectus.

BDO SEIDMAN, LLP

Los Angeles, California
April 9, 1999

<PAGE>
EXHIBIT 23.3

CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS

Youbet.com, Inc.
Los Angeles, California

We hereby consent to the inclusion in the Prospectus constituting a part of
this Registration Statement of our report dated April 10, 1998, relating to the
consolidated statements of operations, stockholders' (deficiency) and cash flows
of Youbet.com, Inc. for the year ended December 31, 1996 appearing in the
Prospectus.

We also consent to incorporating by reference in the Prospectus which is
part of this Registration Statement our April 10, 1998 report, related to
Youbet.com's consolidated statements of operations, stockholders' deficiency and
cash flows for the year ended December 31, 1996 appearing in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1998.

We also consent to the reference to us under the caption "Experts" in the
Prospectus.

WEINBAUM & YALAMANCHI

Los Angeles, California
April 9, 1999

<PAGE>
<ARTICLE> 5

<S> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997 DEC-31-1998 DEC-31-1998
<PERIOD-START> JAN-01-1996 JAN-01-1997 JAN-01-1998 JAN-01-1995
<PERIOD-END> DEC-31-1996 DEC-31-1997 DEC-31-1998 DEC-31-1998
<CASH> 0 52,895 1,540,616 0
<SECURITIES> 0 0 0 0
<RECEIVABLES> 0 6,158 2,150,364 0
<ALLOWANCES> 0 0 0 0
<INVENTORY> 0 0 0 0
<CURRENT-ASSETS> 0 112,656 3,724,641 0
<PP&E> 0 1,260,411 1,700,211 0
<DEPRECIATION> 0 423,177 820,535 0
<TOTAL-ASSETS> 0 1,003,853 4,653,249 0
<CURRENT-LIABILITIES> 0 2,851,840 1,799,954 0
<BONDS> 0 0 60,134 0
0 0 0 0
0 0 107 0
<COMMON> 0 9,604 13,970 0
<OTHER-SE> 0 (1,838,383) 0 0
<TOTAL-LIABILITY-AND-EQUITY> 0 1,003,853 2,793,161 0
<SALES> 0 0 263,793 263,793
<TOTAL-REVENUES> 0 0 0 0
<CGS> 0 0 0 0
<TOTAL-COSTS> 3,940,551 6,917,887 11,096,330 22,507,511
<OTHER-EXPENSES> (80,446) 12,489,307 2,762,817 15,019,532
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 0 0 0 0
<INCOME-PRETAX> (3,860,105) (19,407,194) (13,859,147) (37,527,043)
<INCOME-TAX> 4,629 9,644 2,400 19,073
<INCOME-CONTINUING> 0 0 0 0
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> (3,864,734) (19,416,838) (13,861,547) (37,546,116)
<EPS-PRIMARY> (0.67) (3.06) (1.32) 0
<EPS-DILUTED> (0.67) (3.06) (1.32) 0

</TABLE>