Increased Handle Bolsters's Bottom Line; Stock Price Falls

Despite a favorable quarterly earnings report issued Tuesday, the per-share price for stock in was down more than 20% in trading on the NASDAQ exchange.

With heavy volume of 1,039,257 traded Tuesday, closed at $2.62, down $0.66, or 20.32%, from Monday's close of $3.28.

The online wagering company reported net income of $39,766 in the second quarter of 2004, representing a $1-million improvement over the net loss of $982,545 for the same quarter a year ago. Earnings before income taxes, depreciation and amortization (EBITDA) for the three months ended June 30, 2004 rose 22.6% to $743,033 in 2004 when compared with $606,034 in 2003.

The company reported that the gains were offset by "higher marketing related expenses and by a $245,000 non-cash legal expense reserve to protect against any non-payment by the company's D&O insurance carrier."

Gross handle in the second quarter of 2004 increased 13.3% to $83.0 million, compared to $73.3 million in the second quarter of 2003. Despite being contractually prohibited from handling any wagers on the Preakness Stakes (gr. I) and all non-California racing content provided by Magna Entertainment Corp, Youbet set a record for quarterly handle in the second three months of the year.

Net revenues for the quarter ended June 30, 2004 increased 22.2% to a record $5.7 million, compared to $4.6 million in the second quarter of 2003.

"During this quarter, our first as a truly independent organization, we took steps to put ourselves on a course toward sustained business expansion," said chairman and chief executive officer Charles F. Champion. "These steps included a realignment of our executive team to focus on operating excellence, enhancing customer service enhancement and developing growth opportunities and an aggressive marketing stance to take advantage of heightened racing interest during the Triple Crown. Advanced deposit wagering is gaining traction among operators, jurisdictions and consumers both here and abroad and Youbet, with its industry-leading technology, content and customer service, is uniquely positioned to take advantage of the opportunities that the market is creating."

Operating expenses, excluding track and licensing fees, for the second quarter were $4.9 million, compared to $4.0 million in the same quarter of 2003. The company reported the higher operating expenses were relaated to increases in network operations costs and higher sales and marketing expense. Marketing related expenses were $340,000 higher in the second quarter of 2004, reflecting an effort by the company to take advantage of the heightened interest in racing's Triple Crown and to retain customers during the week of the Preakness, a statement from said. "The program resulted in a 13.3% increase in Preakness week handle -- to $6.8 million in 2004 from $6.0 million in 2003 -- even though the race was not carried on Youbet's network," the company said.

For the six months ended June 30, 2004, Youbet earned net income of $54,876 compared to net loss of $2.2 million for the same period in 2003. EBITDA for the six months rose to $1,838,270 in 2004 versus $1,071,034 in 2003, an increase of 72 percent.

Gross handle for the six months ended June 30, 2004 grew 15.3% to $154.8 million from $134.3 million in the 2003 period. Net revenue for the six months increased to $11.1 million, a 31.4% improvement from the same period a year ago.

Youbet also reported that it will conduct its 2003 annual meeting at the company's corporate offices in Woodland Hills, California on Aug. 24, 2004.