Sports Entertainment Gaming Global Corp 10-Q/A for FY2022 Q1
Sports Entertainment Gaming Global Corp (SEGG)
About this 10-Q/A
Sports Entertainment Gaming Global Corp filed this 10-Q/A on May 15, 2023, covering the quarter ended March 31, 2022 (FY2022 Q1).
Headline figures
Quarter ended March 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $3.63M
- down 33.5% from $5.46M a year earlier
- Net loss
- $34.75M
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Amendment No. 1)
For
the quarterly period ended
OR
For the transition period from _______________ to _______________
Commission
file number
(Exact name of registrant as specified in its charter)
| (State
or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) |
(Address of principal executive offices, including zip code)
Registrant’s
telephone number, including area code:
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The
| ||||
| The
|
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. ☐ Yes ☒
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). ☐ Yes ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller
reporting company | |
| Emerging
growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒
As of May 9, 2022, shares of common stock, par value $0.001 per share were issued and outstanding.
EXPLANATORY NOTE
Part I – Item 1. Financial Statements
Part I – Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Part I – Item 4. Controls and Procedures
Part II – Item 6. Exhibits
The complete text of those Items is revised in this Amended Report. The other Items of the Original Report have not been amended and, accordingly, have not been repeated in this Amended Report.
The only changes to the Original Report are those related to the matters described below and only in the items listed above. Except as described herein, this Amended Report does not modify, amend or update any of the other financial information or other information contained in the Original Report. In addition, in accordance with SEC rules, this Amended Report includes updated certifications from our Chief Executive Officer as Exhibits 31.1 and 32.1. Otherwise, the information contained in this Amended Report is as of the date of the Original Report and does not reflect any information or events occurring after the date of the Original Report. Such subsequent information or events include, among other things, the information and events described in our Current Reports on Form 8-K filed subsequent to the date of the Original Report and the information and events described in Amendment No. 1 to our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on May 10, 2023 (the “Amended Annual Report”). For a description of such subsequent information and events, please read our reports filed pursuant to the Exchange Act subsequent to the date of the Original Report, which update and supersede certain information contained in the Original Report and this Amended Report.
On July 6, 2022, the Company announced that the audit committee (the “Audit Committee”) of the board of directors of the Company (the “Board”) had retained outside counsel to conduct an independent investigation that revealed, among other things, issues pertaining to the Company’s internal accounting controls (the “Internal Investigation”). Following a report on the filings of the Internal Investigation, on June 30, 2022, the Board terminated the employment of Ryan Dickinson as the Company’s President, Treasurer and Chief Financial Officer, effective July 1, 2022. Subsequently, the Company initiated a review of its cash balances and related disclosures as well as its revenue recognition processes and other internal accounting controls.
Restatement of the Company’s Financial Statements
On September 20, 2021, the Company entered into a purchase agreement with a major customer for the sale of various service credits with a total purchase price of $30,000,000. In accordance with the terms of the purchase agreement, the customer was required to pay the purchase price within 90 days. Upon execution of the purchase agreement, the Company recognized the $30,000,0000 as income. The customer provided payment prior to December 31, 2021, in the form of a check accepted by the Company for deposit and included in undeposited funds. During 2022, the Company discovered that the service credits it had sold to the customer were non-transferrable and that the Company had pledged its own cash accounts to secure a line of credit in the amount of $30,000,000 utilized by the customer to provide the Company with payment towards the purchase of the service credits. Since the Company was prohibited from transferring the advertising portion of the service credits and therefore could not complete the sale of such credits, the Company cancelled the transaction and could not recognize the income or recognize a cash payment in the Company’s financial statements. In addition, the Company had recorded cost of sales related to this transaction in the amount of $10,000,000. As a result, in the restated December 31, 2021 financial statements included in the Amended Annual Report (the “Restated Audited Financials”), the Company decreased both cash and revenue by $30,000,000 for the year ended December 31, 2021 and reversed the related cost of sales which resulted in a decrease to cost of sales and an increase in prepaid assets by $10,000,000 each for the year ended December 31, 2021.
In addition, the Company had invoiced the customer a further $17,117,472 for various services and advertising credits for the year ended December 31, 2021 and $18,539,472 during the three months ending March 31, 2022. The Company recorded such amounts to both revenue and accounts receivable. As a result of the cancellation of the transaction, the Company decreased both accounts receivables and revenues by $17,117,472, in the Restated Audited Financials; and $18,539,472, in the restated financial statements for the three months ended March 31, 2022 included in this Amended Report.
In an unrelated transaction, the Company entered into an arrangement with another customer totaling $5,000,000 in 2021. The Company recognized the full amount of the arrangement and recorded $5,000,000 as revenue and accounts receivable for the year ended December 31, 2021. The Company started performing the services under the arrangement during 2021, which services were to be completed in 2022. In October of 2021, the customer paid $500,000 towards these services. Subsequently, the Company determined that, in accordance with ASC 606, due to an uncertainty of collectability of the remaining accounts receivable, the Company should not have recognized any revenue from this arrangement during the year ended December 31, 2021. As a result of the payment of $500,000 received during the year ended December 31, 2021, the Company is allowed to record deferred revenue in the amount of $500,000. As a result, the Company (i) decreased accounts receivable by $4,500,000, increased deferred revenue by $500,000 and decreased revenue by $5,000,000, for the year ended December 31, 2021 in the Restated Audited Financials; and (ii) recorded revenue of $500,000 for the three months ended March 31, 2022.
In addition, related to the transaction stated above, in February 2022, the Company loaned the customer $450,000 and initially recorded it as a bridge loan receivable from the customer. In March 2022, the parties executed a formal agreement for the arrangement described above, in the form of a secured promissory note (the “Secured Promissory Note”). The Secured Promissory Note includes provisions regarding the development, implementation, operation, and maintenance of the technology platform contemplated in the arrangement and also indicates that all work previously performed on the project is to be considered performed under and governed by the Secured Promissory Note. The Secured Promissory Note provides that the $450,000 bridge loan made in February be rolled into such note. In connection with the execution of the Secured Promissory Note, an escrow was established and the Company deposited a total of $6,050,000 in the escrow account. The parties subsequently agreed that the conditions of the escrow had been met and all of the funds were released, with $4,500,000 going back to the Company and $1,550,000 going to the customer. The Company recorded the entire $6,500,000 as a Note Receivable and reported it as such in the Original Report. In connection with the restatement of the financial statements included in the Original Report, the Company reviewed this transaction again and determined that since the Company had received $4,500,000 of the $6,050,000 from the escrow, the actual amount loaned to the customer under the Secured Promissory Note was $1,550,000 along with the $450,000 bridge loan, for a total of $2,000,000. As a result, the amount of the Note Receivable has been corrected to $2,000,000 for the three months ended March 31, 2022.
Further, during the Company’s reassessment of all accounts as of December 31, 2021, the Company determined that approximately $2,000,000 of prepaid advertising credits purchased during 2017 and 2018 may not be able to be fully utilized. As a result, the Company decreased prepaid expenses by $2,000,000 and increased its reserve loss for prepaid advertising credits by $2,000,000, in the Restated Audited Financials.
The following table presents the impact of the restatements on the Company’s previously reported consolidated balance sheet for the year ended December 31, 2021. The values as previously reported were derived from the 2021 consolidated financial statements contained in the Company’s previously reported balance sheet as of December 31, 2021 filed in the original Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on April 1, 2022.
| Fiscal Year Ended December 31, 2021 | ||||||||||||
| As Previously | Restatement | As | ||||||||||
| Reported | Impacts | Restated | ||||||||||
| ASSETS | ||||||||||||
| Cash | $ | 62,638,970 | $ | (30,000,000 | ) | $ | 32,638,970 | |||||
| Accounts receivable | 21,696,653 | (21,617,472 | ) | 79,181 | ||||||||
| Prepaid expenses | 13,896,638 | 9,000,000 | 22,896,638 | |||||||||
| Total Assets | $ | 147,151,478 | $ | (42,617,472 | ) | $ | 104,534,006 | |||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
| Deferred revenue | 662,335 | 500,000 | 1,162,335 | |||||||||
| Accrued and other expenses | 4,528,815 | (112,647 | ) | 4,416,168 | ||||||||
| Total current liabilities | 10,145,285 | 387,353 | 10,532,638 | |||||||||
| Total liabilities | 10,146,454 | 387,353 | 10,533,807 | |||||||||
| Accumulated deficit | (106,232,518 | ) | (41,955,620 | ) | (148,188,138 | ) | ||||||
| Total Lottery.com Inc. stockholders’ equity | 134,224,933 | (43,004,826 | ) | 91,220,107 | ||||||||
| Total Equity | 137,005,024 | (43,004,825 | ) | 94,000,199 | ||||||||
| Total liabilities and stockholders’ equity | $ | 147,151,478 | $ | (42,617,472 | ) | $ | 104,534,006 | |||||
The following tables present the impact of the restatements on the Company’s previously reported consolidated financial statements for the three months ended March 31, 2022. The values as previously reported were derived from the consolidated financial statements contained in the Original Report.
LOTTERY.COM INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
| As of March 31, 2022 | ||||||||||||
| As Previously | Restatement | As | ||||||||||
| Reported | Impacts | Restated | ||||||||||
| ASSETS | ||||||||||||
| Current assets: | ||||||||||||
| Cash | $ | 50,795,889 | $ | (46,500,250 | ) | $ | 4,295,639 | |||||
| Restricted Cash | - | 30,000,000 | 30,000,000 | |||||||||
| Accounts receivable | 35,796,548 | (34,356,944 | ) | 1,439,604 | ||||||||
| Prepaid expenses | 12,843,029 | 9,000,000 | 21,843,029 | |||||||||
| Long-term assets | 54,962,270 | 8,509,686 | 63,471,956 | |||||||||
| Total assets | $ | 154,644,335 | (33,352,190 | ) | $ | 121,292,145 | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
| Trade payables | 2,559,846 | (167,602 | ) | 2,392,244 | ||||||||
| Accrued and other expenses | 4,081,672 | 391,435 | 4,473,107 | |||||||||
| Commitments and contingencies (Note 14) | - | 30,000,000 | 30,000,000 | |||||||||
| Total liabilities | 10,845,303 | 30,223,833 | 41,069,136 | |||||||||
| Total liabilities and stockholders’ equity | $ | 154,644,335 | $ | (33,352,190 | ) | $ | 121,292,145 | |||||
LOTTERY.COM INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)
| For the three months ending March 31, 2022 | ||||||||||||
| As Previously | Restatement | As | ||||||||||
| Reported | Impacts | Restated | ||||||||||
| Revenue | $ | 21,150,892 | (17,520,200 | ) | $ | 3,630,692 | ||||||
| Cost of revenue | 3,165,469 | (780,727 | ) | 2,384,742 | ||||||||
| Operating expenses: | 33,804,723 | (1,877,805 | ) | 31,926,918 | ||||||||
| Total other expenses, net | (3,389 | ) | 4,196,514 | 4,193,125 | ||||||||
| Net loss | (15,815,911 | ) | (19,081,546 | ) | (34,897,457 | ) | ||||||
| Comprehensive loss | (15,816,975 | ) | (19,081,546 | ) | (34,898,521 | ) | ||||||
| Net income attributable to noncontrolling interest | 129,222 | 18,335 | 147,557 | |||||||||
| Net loss attributable to Lottery.com Inc. | (15,687,753 | ) | (19,063,211 | ) | (34,750,964 | ) | ||||||
LOTTERY.COM INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| For the three months ending March 31, 2022 | ||||||||||||
| As Previously | Restatement | As | ||||||||||
| Reported | Impacts | Restated | ||||||||||
| Net loss attributable to Lottery.com Inc. | $ | (15,686,689 | ) | $ | (19,064,275 | ) | $ | (34,750,964 | ) | |||
| Adjustments to reconcile net loss to net cash used in operating activities: | 23,419,191 | (2,195,301 | ) | 21,223,890 | ||||||||
| Net cash provided by operating activities | (3,904,838 | ) | 5,874,877 | 1,970,037 | ||||||||
| Net cash used in investing activities | (1,143,178 | ) | 1,124,873 | (18,305 | ) | |||||||
| Net cash provided by financing activities | (6,794,001 | ) | 6,500,000 | (294,001 | ) | |||||||
| Net change in net cash and restricted cash | $ | (11,843,081 | ) | $ | 13,499,750 | $ | 1,656,669 | |||||
Management evaluated the quantitative and qualitative impact of these accounting errors on the Company’s previously issued consolidated financial statements included in the Original Report (the “previously issued financial statements”) and concluded that the errors were material to its previously issued financial statements. Accordingly, the Company is restating its previously issued financial statements in this Amended Report. Management also identified material errors in its audited consolidated financial statements for the year ended December 31, 2021 and has restated those financial statements in the Amended Annual Report.
In addition, the Company re-evaluated the effectiveness of its internal controls over financial reporting and identified additional control deficiencies associated with the accounting errors, which the Company has concluded represent material weaknesses in the Company’s internal control over financial reporting as of March 31, 2022. Accordingly, the Company is filing this Amended Report to reiterate management’s assessment of the Company’s internal control over financial reporting and its disclosure controls and procedures to indicate that they were not effective as of March 31, 2022.
For a more detailed description of these accounting errors and the restatement of the previously issued financial statements, please refer to Note 4, Restatement of Financial Statements, to the consolidated financial statements of the Company included in Item 1 of this Amended Report.
TABLE OF CONTENTS
| i |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Amendment No. 1 to Quarterly Report on Form 10-Q/A (this “Amended Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including statements about the financial condition, results of operations, earnings outlook and prospects of Lottery.com Inc. (“Lottery.com”, the “Company”, “we” or “us”). Forward-looking statements appear in a number of places in this Amended Report, including, without limitation, under the heading in Part I, “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. Forward-looking statements are typically identified by words such as “plan,” “believe,” “expect,” “anticipate,” “intend,” “outlook,” “estimate,” “forecast,” “project,” “continue,” “could,” “may,” “might,” “possible,” “potential,” “predict,” “should,” “would” and other similar words and expressions, but the absence of these words does not mean that a statement is not forward-looking.
Forward-looking statements are based on the current expectations of the management of Lottery.com and are inherently subject to uncertainties and changes in circumstances and their potential effects and speak only as of the date of such statement. There can be no assurance that future developments will be those that have been anticipated. These forward-looking statements involve a number of risks, uncertainties or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors discussed and identified in the section entitled “Risk Factors” in Amendment No. 1 to our Annual Report on Form 10-K/A for the year ended December 31, 2021 (the “Amended Annual Report”) and in this Amended Report, as such factors may be updated in our periodic reports filed with the Securities and Exchange Commission (the “SEC”), as well as the following:
| ● | The findings of the previously disclosed Internal Investigation and other matters have exposed us to a number of legal proceedings, investigations and inquiries, resulted in significant legal and other expenses, required significant time and attention from our senior management, among other adverse impacts. | |
| ● | We and certain of our former officers are, and in the future, we or our officers and directors may become, the subject of legal proceedings, investigations and inquiries by governmental agencies with respect to the findings of the Internal Investigation and other matters, which could have a material adverse effect on our reputation, business, financial condition, cash flows and results of operations, and could result in additional claims and material liabilities. | |
| ● | We have been named as a defendant in a number of lawsuits filed by purchasers of our securities, including class action lawsuits that could have a material adverse impact on our business, financial condition, results of operation and cash flows, and our reputation. | |
| ● | Matters relating to or arising from the restatement and the Internal Investigation, including adverse publicity and potential concerns from our users, customers or others with whom we do business, have had and could continue to have an adverse effect on our business and financial condition. | |
| ● | In July 2022, we furloughed the majority of our employees and suspended our lottery game sales operations after determining that we did not have sufficient financial resources to fund our operations or pay certain existing obligations, including our payroll and related obligations. As a result, we may not be able to continue as a going concern. | |
| ● | We need additional capital to, among other things, support and restart our operations, re-hire employees and pay our expenses. Such capital may not be available on commercially acceptable terms, if at all. If we do not receive the additional capital, we may be forced to curtail or abandon our plans to recommence our operations and we may need to permanently cease our operations. |
| ii |
| ● | If we fail to implement and maintain an effective system of internal controls, we may be unable to accurately report our results of operations, meet our reporting obligations or prevent fraud, and investor confidence and the trading price of our common stock and warrants may be materially and adversely affected. | |
| ● | The circumstances that led to the failure to file our annual report and quarterly reports on time, and our efforts to investigate, assess and remediate those matters have caused and may continue to cause substantial delays in our SEC filings. | |
| ● | Our inability to compete with other forms of entertainment for consumers’ discretionary time and income. | |
| ● | Economic downturns, inflation, geopolitical and political and market conditions beyond our control. | |
| ● | Negative events or media coverage relating to our business, our management and directors, the lottery, lottery games or online gaming or betting. | |
| ● | Our inability to attract and retain users, including as a result of failing to appear in Internet search engine results. | |
| ● | Our continued ability to use domain names to promote and increase the value of our brand. | |
| ● | Scrutiny by stakeholders with respect to responsible gaming and ethical conduct. | |
| ● | Our ability to achieve profitability and growth in the newly-developed market for online lottery games. | |
| ● | Our inability to profitably expand into new markets or capitalize on new gaming and lottery industry trends and changes, such as by developing successful new product offerings. | |
| ● | The effectiveness of our marketing efforts in developing and maintaining our brand and reputation. | |
| ● | Failure to offer high-quality user support. | |
| ● | Adverse impacts to user relationships resulting from disruptions to our information technology. | |
| ● | The vulnerability of our information systems to cyberattacks and disruptions caused with respect thereto, including an inability to securely maintain personal and other proprietary user information. | |
| ● | Our inability to adapt to changes or updates in the Internet, mobile or personal devices, or new technology platforms or network infrastructures. | |
| ● | The exposure of our online infrastructure to risks relating to new and untested distributed ledger technology. | |
| ● | Our inability to comply with complex, ever-changing and multi-jurisdictional regulatory regimes and other legal requirements applicable to the gaming and lottery industries. | |
| ● | Geopolitical shifts and changes in applicable laws or regulations or the manner in which they are interpreted. | |
| ● | Our inability to successfully expand geographically and acquire and integrate new operations. | |
| ● | Our dependence on third-party service providers to timely perform services or software component products for our gaming platforms, product offerings and the processing of user payments and withdrawals. | |
| ● | Our inability to maintain successful relationships and/or agreements with lottery organizations and other third-party marketing or service provider affiliates. |
| iii |
| ● | Failure of third-party service providers to protect, enforce, or defend intellectual property rights required to fulfill contractual obligations required for the operation of our business. | |
| ● | The effectiveness of our transition and compliance with the regulatory and other requirements of being a newly public company. | |
| ● | We are currently not in compliance with the continued listing standards of Nasdaq and may not be able to regain compliance with Nasdaq’s continued listing standards in the future. | |
| ● | Limited liquidity and trading of our securities. | |
| ● | Woodford may not loan us the amounts they agreed to under the Loan Agreement. | |
| ● | Our obligations under the Loan Agreement are secured by a first priority security interest in substantially all of our assets and if we were to default, they could force us to curtain or abandon our business plans and operations. | |
| ● | The issuance and sale of common stock upon conversion of the amounts owed or upon exercise of the warrants issued to Woodford under the Loan Agreement may depress the market price of our common stock and cause substantial dilution | |
| ● | We currently owe a significant amount of money under our Loan Agreement, which we may not be able to repay. |
The risks described herein or in the “Risk Factors” sections of our other public filings referenced above are not exhaustive. Other sections of this Amended Report describe additional factors that could adversely affect our business, financial condition or results of operations. New risk factors emerge from time to time and it is not possible to predict all such risk factors, nor can we assess the impact of all such risk factors on our business, or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. Forward-looking statements are not guarantees of performance. You should not put undue reliance on these statements, which speak only as of the date hereof. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing cautionary statements. We undertake no obligations to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
| iv |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
| 1 |
LOTTERY.COM INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (As Restated) | (As Restated) | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable | ||||||||
| Prepaid expenses | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Notes receivable | ||||||||
| Investments | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Property and equipment, net | ||||||||
| Other long term assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Trade payables | $ | $ | ||||||
| Deferred revenue | ||||||||
| Notes payable – current | ||||||||
| Accrued interest | ||||||||
| Accrued and other expenses | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities: | ||||||||
| Convertible debt, net – noncurrent | ||||||||
| Other long term liabilities | ||||||||
| Total long-term liabilities | ||||||||
| Commitments and contingencies (Note 14) | ||||||||
| Total liabilities | ||||||||
| Equity | ||||||||
| Controlling Interest | ||||||||
| Preferred Stock, par value $, shares authorized, issued and outstanding | ||||||||
| Common stock, par value $, shares authorized, and issued and outstanding as of March 31, 2022 and December 31, 2021, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Lottery.com Inc. stockholders’ equity | ||||||||
| Noncontrolling interest | ||||||||
| Total Equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| F-1 |
LOTTERY.COM INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)
| 2022 | 2021 | |||||||
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| (As Restated) | ||||||||
| Revenue | $ | $ | ||||||
| Cost of revenue | ||||||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| Personnel costs | ||||||||
| Professional fees | ||||||||
| General and administrative | ||||||||
| Depreciation and amortization | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other expenses | ||||||||
| Interest expense | ||||||||
| Other expense | ||||||||
| Total other expenses, net | ||||||||
| Net loss before income tax | ( | ) | ( | ) | ||||
| Income tax expense (benefit) | ||||||||
| Net loss | ( | ) | ( | ) | ||||
| Other comprehensive loss | ||||||||
| Foreign currency translation adjustment, net | ( | ) | ||||||
| Comprehensive loss | ( | ) | ( | ) | ||||
| Net income attributable to noncontrolling interest | ||||||||
| Net loss attributable to Lottery.com Inc. | $ | ( | ) | $ | ( | ) | ||
| Net loss per common share | ||||||||
| Basic and diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average common shares outstanding | ||||||||
| Basic and diluted | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| F-2 |
LOTTERY.COM INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
| Shares | Amount | Shares | Amount | Capital | Deficit | Income | Equity | Interest | Equity | |||||||||||||||||||||||||||||||
| Common Stock | Preferred Stock | Additional Paid-In | Accumulated | Accumulated Other Comprehensive | Total AutoLotto Inc. Stockholders’ | Noncontrolling | Total Stockholders’ | |||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Income | Equity | Interest | Equity | |||||||||||||||||||||||||||||||
| Balance as of December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||||
| Balance value | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||||
| Issuance of common stock upon stock option exercise | - | ( | ) | |||||||||||||||||||||||||||||||||||||
| Issuance of common stock for legal settlement | - | |||||||||||||||||||||||||||||||||||||||
| Stock based compensation | - | - | ||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Comprehensive loss | - | - | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance as of March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||||
| Balance value | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||||
| Common Stock | Preferred Stock | Additional Paid-In | Accumulated | Accumulated Other Comprehensive | Total AutoLotto Inc. Stockholders’ | Noncontrolling | Total Stockholders’ | |||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Income | Equity | Interest | Equity | |||||||||||||||||||||||||||||||
| Balance as of December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Balance, value | $ | $ | $ | $ | ( | ) | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Issuance of common stock upon stock option exercise | - | |||||||||||||||||||||||||||||||||||||||
| Conversion of convertible debt | - | |||||||||||||||||||||||||||||||||||||||
| Beneficial conversion feature | - | - | ||||||||||||||||||||||||||||||||||||||
| Issuance of digital securities | - | - | ||||||||||||||||||||||||||||||||||||||
| Stock based compensation | - | - | ||||||||||||||||||||||||||||||||||||||
| Comprehensive loss | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Balance as of March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Balance, value | $ | $ | $ | $ | ( | ) | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| F-3 |
LOTTERY.COM INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| 2022 | 2021 | |||||||
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Cash flow from operating activities | ||||||||
| Net loss attributable to Lottery.com Inc. | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Net income attributable to noncontrolling interest | ( | ) | ||||||
| Depreciation and amortization | ||||||||
| Non-cash interest expense | ||||||||
| Stock-based compensation expense | ||||||||
| Issuance of debt to pay expenses | ||||||||
| Changes in assets & liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Prepaid expenses | ||||||||
| Notes Receivable | ( | ) | ||||||
| Commitments and contingencies (Note 14) | ||||||||
| Other current assets | ( | ) | ( | ) | ||||
| Trade payables | ( | ) | ||||||
| Deferred revenue | ( | ) | ( | ) | ||||
| Accrued interest | ( | ) | ||||||
| Accrued and other expenses | ||||||||
| Other long term asset | ( | ) | ||||||
| Other long term liabilities | ||||||||
| Net cash provided by operating activities | ( | ) | ||||||
| Cash flow from investing activities | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Purchases of intangible assets | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flow from financing activities | ||||||||
| Issuance of digital securities | ||||||||
| Proceeds from exercise of options and warrants | ||||||||
| Proceeds from issuance of convertible debt | ||||||||
| Payments on notes payable - related parties | ( | ) | ||||||
| Principal payments on debt | ( | ) | ||||||
| Net cash provided by financing activities | ( | ) | ||||||
| Effect of exchange rate changes on cash | ( | ) | ||||||
| Net change in net cash and restricted cash | ||||||||
| Cash and restricted cash at beginning of period | ||||||||
| Cash and restricted cash at end of period | $ | $ | ||||||
| Supplemental Disclosure of Cash Flow Information: | ||||||||
| Interest paid in cash | $ | $ | ||||||
| Taxes paid in cash | $ | $ | ||||||
| Non cash investing and financing activities | ||||||||
| Conversion of convertible debt into common stock | $ | $ | ||||||
| Purchase of intangible assets through the issuance of convertible debt | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| F-4 |
LOTTERY.COM INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Nature of Operations
Description of Business
Lottery.com Inc. (formerly Trident Acquisitions Corp) (“TDAC”, “Lottery.com” or “the Company”), was formed as a Delaware corporation on March 17, 2016. On October 29, 2021, we consummated a business combination (the “Business Combination”) with AutoLotto, Inc. (“AutoLotto”) pursuant to the terms of a Business Combination Agreement, dated February 21, 2021 (“Business Combination Agreement”). Following the closing of the Business Combination (the “Closing”) we changed our name from “Trident Acquisitions Corp.” to “Lottery.com Inc.” and the business of AutoLotto became our business. In connection with the Business Combination, we moved our headquarters from New York, New York to AutoLotto’s offices in Spicewood, Texas.
We are a provider of domestic and international lottery products and services. As an independent third-party lottery game service, we offer a platform developed and operated by us to enable the remote purchase of legally sanctioned lottery games in the U.S. and abroad (the “Platform”). Our revenue generating activities are focused on (i) offering the Platform via the Lottery.com app and our websites to users located in the U.S. and international jurisdictions where the sale of lottery games is legal and our services are enabled for the remote purchase of legally sanctioned lottery games (our “B2C Platform”); (ii) offering an internally developed, created and operated business-to-business application programming interface (“API”) of the Platform to enable commercial partners in permitted U.S. and international jurisdictions to purchase certain legally operated lottery games from us and resell them to users located within their respective jurisdictions (“B2B API”); and (iii) delivering global lottery data, such as winning numbers and results, to commercial digital subscribers and providing access to other proprietary, anonymized transaction data pursuant to multi-year contracts (“Data Service”).
We have been a provider of lottery products and services, our business is subject to regulation in each jurisdiction in which we offer the B2C Platform, or a commercial partner offers users access to lottery games through the B2B API. In addition, we must also comply with the requirements of federal and other domestic and foreign regulatory bodies and governmental authorities in jurisdictions in which we operate or with authority over our business. Our business is also subject to multiple other domestic and international laws, including those relating to the transmission of information, privacy, security, data retention, and other consumer focused laws, and, as such, may be impacted by changes in the interpretation of such laws.
On June 30, 2021, we acquired an interest in Medios Electronicos y de Comunicacion, S.A.P.I de C.V. (“Aganar”) and JuegaLotto, S.A. de C.V. (“JuegaLotto”). Aganar is authorized to operate in the licensed iLottery market in Mexico since 2007 as an online retailer of Mexican National Lottery draw games, instant digital scratch-off games and other games of chance. JuegaLotto is authorized by the Mexican federal regulatory authorities to sell international lottery games in Mexico.
On July 28, 2022, the Board determined that the Company did not currently have sufficient financial resources to fund its operations or pay certain existing obligations, including its payroll and related obligations and effectively ceased its operations furloughing certain employees effective July 29, 2022 (the “Operational Cessation”). Subsequently, the Company has had minimal day-to-day operations and has primarily focused its operations on restarting certain aspects of its core business (the “Plans for Recommencement of Company Operations”).
On April 25, 2023, as part of the Plans for Recommencement of Company Operations, the Company resumed its ticket sales operations to support its affiliate partners through its Texas retail network.
2. Liquidity and Going Concern
The accompanying consolidated financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and classification of liabilities and commitments in the normal course of business. The accompanying consolidated financial statements do not reflect any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classifications of liabilities that might result if the Company is unable to continue as a going concern.
Pursuant to the requirements of the Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”) Topic 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year from the date these financial statements are issued. This evaluation does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented or are not within control of the Company as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued.
Due to
losses experienced by the Company’s Operational Cessation, the Company has experienced recurring net losses and negative cash
flows from operations and has an accumulated deficit of approximately $
| F-5 |
The Company has historically funded its activities to date almost exclusively from debt and equity financing. Management’s plans in order to meet its operating cash flow requirements include financing activities such as private placements of its common stock, preferred stock offerings, and issuances of debt and convertible debt. Although Management believes that it will be able to continue to raise funds by sale of its securities to provide the additional cash needed to meet the Company’s obligations as they become due beginning with a loan agreement the Company entered into with Woodford Eurasia Assets, Ltd. (“Woodford”) on December 7, 2022 (see Note 16. Subsequent Events), the Plans for Recommencement of Company Operations to require substantial funds to implement and there is no assurance that the Company will be able to continue raising the required capital.
The Company’s ability to continue as a going concern for the next twelve months from the issuance of these financial statements depends on its ability to execute its business plan, increase revenue, and reduce expenditures. Such conditions raise substantial doubt about the Company’s ability to continue as a going concern.
We will require additional financing to continue to execute on our business plan. However, there can be no assurances that we will be successful in raising the additional capital necessary to continue operations and execute on our business plan.
3. Significant Accounting Policies
Restatement
On
January 4, 2022, AutoLotto entered into a Business Loan Agreement (the “Business Loan”) with The Provident Bank (“Provident”),
pursuant to which the Company borrowed $
As previously disclosed in the Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission (“SEC”) on July 22, 2022, as amended on July 22, 2022, the Company’s Management met on July 19, 2022 in consultation with the Chairman of the Board of Directors of the Company, the Company’s legal counsel and the Company’s auditors at that time (Armanino LLP) and concluded that the Company’s previously issued audited consolidated financial statements for the fiscal year ended December 31, 2021, and the unaudited consolidated financial statements for the quarter ended March 31, 2022, previously filed with the SEC should no longer be relied upon and should be restated.
The need for the restatement arose out of the Company’s reexamination of various transactions that occurred in 2021 and which were later rescinded or canceled in 2022. The Company has restated its financial statements for the year ended December 31, 2021, as included herein as discussed below and to reflect a change in the recognition of income in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 606.
On
September 20, 2021, the Company entered into a purchase agreement with a major customer for the sale of various service credits with
a total purchase price of $
In
addition, the Company had invoiced the customer a further $
| F-6 |
In
an unrelated transaction, the Company entered into an arrangement with another customer totaling $
In addition, related to the transaction
stated above, in February 2022, the Company loaned the customer $
Further, during the Company’s reassessment of all accounts as of
December 31, 2021, the Company determined that approximately $
The following table presents the impact of the restatements on the Company’s previously reported consolidated balance sheet for the fiscal year ended December 31, 2021. The values as previously reported were derived from the 2021 consolidated financial statements contained in the Company’s previously reported balance sheet as of December 31, 2021 filed in the Company’s Annual Report on Form 10-K, which were included in the Company’s Annual Report on Form 10-K that was filed with the SEC on May 10, 2023.
Schedule of Restatements of Previously Reported Consolidated Balance Sheet
| Reported | Impacts | Restated | ||||||||||
| Fiscal Year Ended December 31, 2021 | ||||||||||||
| As Previously | Restatement | As | ||||||||||
| Reported | Impacts | Restated | ||||||||||
| ASSETS | ||||||||||||
| Cash | $ | $ | ( | ) | $ | |||||||
| Accounts receivable | ( | ) | ||||||||||
| Prepaid expenses | ||||||||||||
| Total Asset | $ | $ | ( | ) | $ | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
| Deferred revenue | ||||||||||||
| Accrued and other expenses | ( | ) | ||||||||||
| Total current liabilities | ||||||||||||
| Total liabilities | ||||||||||||
| Accumulated deficit | ( | ) | ( | ) | - | |||||||
| Total Lottery.com Inc. stockholders’ equity | ( | ) | ||||||||||
| Total Equity | ( | ) | ||||||||||
| Total liabilities and stockholders’ equity | $ | $ | ( | ) | $ | |||||||
| F-7 |
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X. Certain footnotes and other financial information normally required by accounting principles generally accepted in the United States of America, or GAAP, have been condensed or omitted in accordance with such rules and regulations. In management’s opinion, these condensed consolidated financial statements have been prepared on the same basis as our annual consolidated financial statements and notes thereto and include all adjustments, consisting of normal recurring items, considered necessary for the fair presentation. The operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.
The condensed consolidated balance sheet as of December 31, 2021 has been derived from our audited financial statements at that date but does not include all disclosures and financial information required by GAAP for complete financial statements. The information included in this quarterly report on Form 10-Q should be read in conjunction with our consolidated financial statements and notes thereto for the year ended December 31, 2021, which were included in Amendment No. 1 to our Annual Report on Form 10-K that was filed with the Securities and Exchange Commission on May 10, 2023.
Impact of Trident Acquisition Corp. Business Combination
We accounted for the October 29, 2021 Business Combination as a reverse recapitalization whereby AutoLotto was determined as the accounting acquirer and TDAC as the accounting acquiree. This determination was primarily based on:
| ● | former AutoLotto stockholders having the largest voting interest in Lottery.com; | |
| ● | the Board of Directors of Lottery.com having not less than 5 members, and TDAC only having the ability under the Business Combination Agreement to nominate one member to the Board of Directors for an initial two year term; | |
| ● | AutoLotto management continuing to hold executive management roles for the post-Business Combination entity and being responsible for the day-to-day operations; | |
| ● | the post-Business Combination entity assuming the Lottery.com name, which was the assumed name under which AutoLotto conducted business; | |
| ● | Lottery.com maintaining the pre-existing AutoLotto headquarters; and | |
| ● | the intended strategy of Lottery.com being a continuation of AutoLotto’s strategy. |
Accordingly, the Business Combination was treated as the equivalent of AutoLotto issuing stock for the net assets of TDAC, accompanied by a recapitalization. The net assets of TDAC are stated at historical cost, with no goodwill or other intangible assets recorded.
While TDAC was the legal acquirer in the Business Combination, because AutoLotto was determined to be the accounting acquirer, the historical financial statements of AutoLotto became the historical financial statements of the combined company, upon the consummation of the Business Combination. As a result, the financial statements included in the accompanying condensed consolidated financial statements reflect (i) the historical operating results of AutoLotto prior to the Business Combination; (ii) our combined results and AutoLotto following the Closing; (iii) the assets and liabilities of AutoLotto at their historical cost; and (iv) our equity structure for all periods presented.
In connection with the Business Combination transaction, we have converted the equity structure for the periods prior to the Business Combination to reflect the number of shares of our common stock issued to AutoLotto’s stockholders in connection with the recapitalization transaction. As such, the shares, corresponding capital amounts and earnings per share, as applicable, related to AutoLotto convertible preferred stock and common stock prior to the Business Combination have been retroactively converted by applying the exchange ratio established in the Business Combination.
| F-8 |
Non-controlling Interests
Non-controlling interests represent the proportionate ownership of Aganar and JuegaLotto, held by minority members and reflect their capital investments as well as their proportionate interest in subsidiary losses and other changes in members’ equity, including translation adjustments.
Segment Reporting
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by our management in deciding how to allocate resources and in assessing operating performance. Under the provisions of ASC 280-10, “Segment Reporting” (“ASC 280”), we are not organized around specific services or geographic regions. We operate in one service line, providing lottery products and services.
Our management uses financial information, business prospects, competitive factors, operating results and other non-U.S. GAAP financial ratios to evaluate our performance, which is the same basis on which our results and performance are communicated to our Board of Directors. Based on the information described above and in accordance with the applicable literature, management has concluded that we are organized and operated as one operating and reportable segment on a condensed consolidated basis for each of the periods presented.
Concentration of Credit Risks
Financial instruments
that are potentially subject to concentrations of credit risk are primarily cash. Cash holdings are placed with major financial
institutions deemed to be of high-credit-quality in order to limit credit exposure. The Company maintains deposits and certificates of
deposit with banks which may exceed the Federal Deposit Insurance Corporation (“FDIC”) insured limit and money market accounts
which are not FDIC insured. In addition, deposits aggregating approximately $
Use of Estimates
The preparation of the financial statements requires management to make estimates and assumptions to determine the reported amounts of assets, liabilities, revenue and expenses. Although management believes these estimates are reasonable, actual results could differ from these estimates. We evaluate our estimates on an ongoing basis and prepare our estimates on a historical experience using assumptions we believe to be reasonable under the circumstances.
| F-9 |
Foreign currency translation
The financial statements of the Company’s significant non-U.S. subsidiaries are translated into United States dollars in accordance with ASC 830, “Foreign Currency Matters”, using period-end rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues, costs and expenses and historical rates for equity. Resulting foreign currency translation adjustments are recorded directly in accumulated other comprehensive loss as a separate component of shareholders’ deficit. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in general and administrative expenses in the accompanying consolidated statement of operations and comprehensive loss when realized.
Cash
As of March 31, 2022 and December 31, 2021, cash and cash equivalents were composed of cash deposits. Certain deposits with some banks exceeded federally insured limits with the majority of cash held in one financial institution. Management believes all financial institutions holding its cash are of high credit quality and does not believe we are subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.
The
Company had
Accounts Receivable
Through the various merchant providers used by us, we pre-authorize forms of payment prior to the sale of digital representation of lottery games to minimize exposure to losses related to uncollected payments and we do not extend credit to the user of the B2C Platform or the commercial partner of the B2B API, as its customers, in the normal course of business. We accrue 100 percent of all expenses associated with LotteryLink prior to issuing accounts payable to a Master Affiliate or receiving associated payments. We estimate our bad debt exposure each period and record a bad debt provision for accounts receivable we believe may not be collected in full. The Company did not record any allowance for uncollectible receivables as of March 31, 2022 and December 31, 2021. The Company has not incurred bad debt expense historically.
Prepaid Expenses
Prepaid expenses consist of payments made on contractual obligations for services to be consumed in future periods. The Company entered into an agreement with a third party to provide advertising services and issued equity instruments as compensation for the advertising services. The Company expenses the service as it is performed. The value of the services provided were used to value these contracts. The current portion of prepaid expenses is included in current assets on the condensed consolidated balance sheets.
Investments
On
August 2, 2018, AutoLotto purchased shares of Class A-1 common stock of a third-party business development partner representing
% of the total outstanding shares of such company. As this investment resulted in less than
Property and equipment, net
Property
and equipment are stated at cost. Depreciation and amortization are generally computed using the straight-line method over estimated
useful lives ranging from to
| F-10 |
Depreciation of property and equipment is computed using the straight-line method over the following estimated useful lives:
Schedule of Depreciation of Property and Equipment
| Computers and equipment | ||
| Furniture and fixtures | ||
| Software |
Notes Receivable
Notes receivable consist of contracts where the Company has loaned funds to outside parties. The Company accrues interest receivable over the term of the outstanding notes and reviews for doubtful collectability periodically but in no instance less than annually.
Leases
Right-of-use assets (“ROU assets”) represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Variable lease payments are not included in the calculation of the right-of-use asset and lease liability due to uncertainty of the payment amount and are recorded as lease expense in the period incurred. As most of the leases do not provide an implicit rate, the Company used its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Otherwise, the implicit rate was used when readily determinable. The lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
Under the available practical expedient, the Company accounts for the lease and non-lease components as a single lease component for all classes of underlying assets as both a lessee and lessor. Further, management elected a short-term lease exception policy on all classes of underlying assets, permitting the Company to not apply the recognition requirements of this standard to short-term leases (i.e. leases with terms of 12 months or less).
Internal Use Software Development
Software development costs incurred internally to develop software programs to be used solely to meet our internal needs and applications are capitalized once the preliminary project stage is complete and it is probable that the project will be completed and the software will be used to perform the intended function. Additionally, we capitalize qualifying costs incurred for upgrades and enhancements to existing software that result in additional functionality. Costs related to preliminary project planning activities, post-implementation activities, maintenance and minor modifications are expensed as incurred. Internal-use software development costs are amortized on a straight line basis over the estimated useful life of the software.
Software License
Software license represents the Company’s license agreements for third party software, which are amortized over their estimated economic lives.
Customer relationships
Customer relationships are finite-lived intangible assets, which are amortized over their estimated economic lives. Customer relationships are generally recognized as the result of business combinations.
Gaming Licenses
The Company incurs fees in connection with applying for and maintaining good standing in jurisdictions via business licenses. Fees incurred in connection with the application and subsequent renewals are capitalized and amortized using the straight-line method over an estimated useful life. These fees are capitalized and amortized over the shorter of their expected benefit under the partnership agreement or estimated useful life.
| F-11 |
Trademarks and Tradenames
The Company incurs fees in connection with applying for and maintaining trademarks and tradenames as well as trademarks and tradenames resulting from acquisitions. Fees incurred in connection with the application and subsequent renewals are capitalized and amortized using the straight-line method over an estimated useful life.
Domain Name
Domain name represents the cost incurred to purchase the website domain name and is being amortized on a straight-line method over an estimated useful life.
Impairment of Long-Lived Assets
Long-lived assets, except for goodwill, consist of property and equipment and finite-lived acquired intangible assets, such as internal-use software, software licenses, customer relationships, gaming licenses, trademarks, tradenames and customer relationships. Long-lived assets, except for goodwill and indefinite-lived assets, are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the asset may not be fully recoverable. Impairment expense is recognized to the extent an asset’s expected undiscounted future cash flows are less than the asset’s carrying amount. The Company determined that there was no significant impairment of long-lived assets during the three months ended March 31, 2022 or the year ended December 31, 2021.
Goodwill
The Company’s business is classified into one reporting unit. In testing goodwill for impairment, the Company has the option to begin with a qualitative assessment, commonly referred to as “Step 0,” to determine whether it is more likely than not that the fair value of a reporting unit containing goodwill is less than its carrying value. This qualitative assessment may include, but is not limited to, reviewing factors such as macroeconomic conditions, industry and market considerations, cost factors, entity-specific financial performance and other events, such as changes in the Company’s management, strategy and primary user base. If the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying value, the Company performs a quantitative goodwill impairment analysis by comparing the carrying amount to the fair value of the reporting unit. If the carrying amount exceeds the fair value, goodwill will be written down to the fair value and recorded as impairment expense in the consolidated statements of operations. The Company performs its impairment testing annually and when circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value.
Revenue Recognition
Under the new standard, ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASC 606”), the Company recognizes revenues when the following criteria are met: (i) persuasive evidence of a contract with a customer exists; (ii) identifiable performance obligations under the contract exist; (iii) the transaction price is determinable for each performance obligation; (iv) the transaction price is allocated to each performance obligation; and (v) when the performance obligations are satisfied. Revenues are recognized when control of the promised goods or services is transferred to the customers in an amount that reflects the consideration expected to be entitled to in exchange for those goods or services.
Lottery game revenue
Items that fall under this revenue classification include:
Lottery game sales
The Company’s performance obligations of delivering lottery games are satisfied at the time in which the digital representation of the lottery game is delivered to the user of the B2C Platform or the commercial partner of the B2B API, therefore, revenue is recognized at a point in time. The Company receives consideration for lottery game sales at the time of delivery to the customer, either the user or commercial partner, as applicable. There is no variable consideration related to lottery game sales. As each individual lottery game delivered represents a distinct performance obligation and consideration for each game sale is fixed, representing the standalone selling price, there is no allocation of consideration necessary.
In accordance with ASC 606, the Company evaluates the presentation of revenue on a gross versus net basis dependent on if the Company is a principal or agent. In making this evaluation, some of the factors that are considered include whether the Company has control over the specified good or service before it is transferred to the customer. The Company also assesses if it is primarily responsible for fulfilling the promise to provide the specified good or service, has inventory risk, and has discretion in establishing the price. For all of the Company’s transactions, management concluded that gross presentation is appropriate, as the Company is primarily responsible for providing the performance obligation directly to the customers and assumes fulfillment risk of all lottery game sales as it retains physical possession of lottery game sales tickets from time of sale until the point of redemption. The Company also retains inventory risk on all lottery game sales tickets as they are responsible for any potential winnings related to lost or unredeemable tickets at the time of redemption. Finally, while each jurisdiction establishes the face value of the lottery ticket, representing the game sales prices, the Company charges a separate and additional fee for the services it provides.
| F-12 |
Affiliate marketing credit revenue
The Company’s performance obligation in agreements with certain customers is to transfer previously acquired affiliate marketing credits (“credits”). Customers’ payment for these credits is priced on a per-contract basis. The performance obligation in these agreements is to provide title rights of the previously acquired credits to the customer. This transfer is point-in-time when the revenue is recognized, and there are no variable considerations related to this performance obligation.
Arrangements with multiple performance obligations
The Company’s contracts with customers may include multiple performance obligations. For such arrangements, management allocates revenue to each performance obligation based on its relative standalone selling price. Management generally determines standalone selling prices based on the prices charged to customers.
Deferred Revenue
The Company records deferred revenue when cash payments are received or due in advance of any performance, including amounts which are refundable.
Payment terms vary by the type and location of the customer and the products or services offered. The term between invoicing and when payment is due is not significant. For certain products or services and customer types, management requires payment before the products or services are delivered to the customer.
Contract Assets
Given the nature of the Company’s services and contracts, it has no contract assets.
Taxes
Taxes assessed by a governmental authority that are both imposed on and concurrent with specific revenue-producing transactions, that are collected by us from a customer, are excluded from revenue.
Cost of Revenue
Cost of revenue consists primarily of variable costs, comprising (i) the cost of procurement of lottery games, minus winnings to users, additional expenses related to the sale of lottery games, including, commissions, affiliate fees and revenue shares; and (ii) payment processing fees on user fees, including, chargebacks imposed on the Company. Non-variable costs included in cost of revenue include affiliate marketing credits acquired on a per-contract basis.
Effective October 1, 2019, the Company adopted ASU 2018-07, Compensation – “Stock Compensation (Topic 718): Improvements to Nonemployee Share-based Payment Accounting” (“ASC 718”), which addresses aspects of the accounting for nonemployee share-based payment transactions and accounts for share-based awards to employees in accordance with ASC 718. Under this guidance, stock compensation expense is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the estimated service period (generally the vesting period) on the straight-line attribute method.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that may have an impact on our accounting and reporting. We believe that such recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future either will not have an impact on our accounting or reporting or that such impact will not be material to our financial position, results of operations and cash flows when implemented.
4. Restatement of Financial Statements
Management of the Company re-evaluated its accounting for three months ending March 31, 2022, the Company determined to restate its previously issued financial statements as of March 31, 2022 to correct accounting errors related to cash on hand, accounts receivable, other assets, deferred revenue, accrued expenses, revenue, costs of revenue and stock-based compensation which caused the following misstatements.
| F-13 |
The following tables summarize the effect of the restatements on the specific items presented in our previously reported financial statements:
Schedule of Restatements Reported In Financial Statements
LOTTERY.COM
CONSOLIDATED BALANCE SHEET
| March 31, | March 31, | |||||||||||
| 2022 | Adjustments | 2022 | ||||||||||
| (As Filed) | (As Restated) | |||||||||||
| ASSETS | ||||||||||||
| Current assets: | ||||||||||||
| Cash | $ | ( | )(1) (2) | $ | ||||||||
| ( | ) | |||||||||||
| Restricted cash | (1) | |||||||||||
| Accounts receivable | ( | )(1) (2) | ||||||||||
| ( | ) | |||||||||||
| Prepaid expenses | (1) | |||||||||||
| Other current assets | ( | ) | ||||||||||
| Total current assets | ||||||||||||
| Long-term assets | (1) (2) | |||||||||||
| Total assets | $ | $ | ||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
| Current liabilities: | ||||||||||||
| Trade payables | $ | ( | )(3) | $ | ||||||||
| Deferred revenue | ||||||||||||
| Notes payable - current | ||||||||||||
| Accrued interest | ||||||||||||
| Accrued and other expenses | (3) | |||||||||||
| Total current liabilities | ||||||||||||
| Long-term liabilities: | ||||||||||||
| Other long term liabilities | ||||||||||||
| Total long-term liabilities | ||||||||||||
| Commitments and contingencies (Note 14) | (1) | |||||||||||
| Total liabilities | ||||||||||||
| Commitments and contingencies | ||||||||||||
| Equity | ||||||||||||
| Controlling Interest | ||||||||||||
| Preferred Stock, par value $, shares authorized, issued and outstanding | ||||||||||||
| Common stock, par value $, shares authorized, and issued and outstanding as of March 31, 2022 and December 31, 2021, respectively | (7) | |||||||||||
| Additional paid-in capital | ( | )(4) | ||||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||||||
| Accumulated deficit | ( | ) | ( | )(9) | ( | ) | ||||||
| Total Lottery.com Inc. stockholders’ equity | ||||||||||||
| Noncontrolling interest | ( | )(9) | ||||||||||
| Total Equity | ||||||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||||||
| F-14 |
LOTTERY.COM
CONSOLIDATED STATEMENT OF OPERATIONS
| 2022 | Adjustments | 2022 | ||||||||||
| Three Months Ended March 31, | ||||||||||||
| 2022 | Adjustments | 2022 | ||||||||||
| (As Filed) | (As Restated) | |||||||||||
| Revenue | $ | ( | )(1) (2) | $ | ||||||||
| Cost of revenue | ( | )(1) (2) | ||||||||||
| Gross profit | ||||||||||||
| Operating expenses: | ( | )(2) | ||||||||||
| Loss from operations | ( | ) | $ | ( | ) | |||||||
| Other expenses | ||||||||||||
| Interest expense | ( | ) | (3) | |||||||||
| Other expense | ( | ) | (2) | |||||||||
| Total other expenses, net | ( | ) | ||||||||||
| Net loss before income tax | $ | ( | ) | $ | ( | ) | ||||||
| Income tax expense (benefit) | (2) | |||||||||||
| Net loss | ( | ) | ( | ) | ||||||||
| Other comprehensive loss | ||||||||||||
| Foreign currency translation adjustment, net | ( | ) | ||||||||||
| Comprehensive loss | ( | ) | ( | ) | ||||||||
| Net income attributable to noncontrolling interest | (3) | |||||||||||
| Net loss attributable to Lottery.com Inc. | ( | ) | ( | ) | ||||||||
| Net loss per common share, basic and diluted | $ | ( | ) | $ | ( | ) | ||||||
| Weighted average common shares outstanding, basic and diluted | ||||||||||||
| F-15 |
LOTTERY.COM
CONSOLIDATED STATEMENT OF CASH FLOWS
| 2022 | Adjustments | 2022 | ||||||||||
| Three Months Ending March 31, | ||||||||||||
| 2022 | Adjustments | 2022 | ||||||||||
| (As Filed) | (As Restated) | |||||||||||
| Cash flow from operating activities | ||||||||||||
| Net loss attributable to Lottery.com Inc. | ( | ) | $ | ( | )(9) | ( | ) | |||||
| Adjustments to reconcile net loss to net cash used in operating activities: | $ | ($ | ) (9) | |||||||||
| Changes in assets & liabilities: | ||||||||||||
| Accounts receivable | ( | ) | (1) (2) | ( | ) | |||||||
| Prepaid expenses | ||||||||||||
| Note Receivable | ( | )(6) | ( | ) | ||||||||
| Other current assets | ( | ) | (9) | ( | ) | |||||||
| Trade payables | ( | )(9) | ||||||||||
| Deferred revenue | ( | ) | ( | ) (1) (2) | ( | ) | ||||||
| ( | ) | |||||||||||
| Accrued interest | ||||||||||||
| Accrued and other expenses | ( | ) | (9) | |||||||||
| Other long term assets | ( | )(8) | ( | ) | ||||||||
| Other long term liabilities | ||||||||||||
| Net cash provided by operating activities | ( | ) | ||||||||||
| Cash flow from investing activities | ||||||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||||||
| Purchases of intangible assets | ( | ) | (9) | |||||||||
| Investment in subsidiary, net | ||||||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||||||
| Cash flow from financing activities | ||||||||||||
| Issuance of digital securities | ||||||||||||
| Proceeds from exercise of options and warrants | ||||||||||||
| Proceeds from issuance of convertible debt | ||||||||||||
| Payment of debt issuance costs | ||||||||||||
| Issuance of note receivable | ( | ) | (6) | |||||||||
| Proceeds from issuance of notes payable | ||||||||||||
| Principal payments on debt | ( | ) | ( | ) | ||||||||
| Net cash provided by financing activities | ( | ) | ( | ) | ||||||||
| Effect of exchange rate changes on cash | ( | ) | ( | ) | ||||||||
| Net change in net cash and restricted cash | ( | ) | (9) | |||||||||
| Cash and restricted cash at beginning of period | ( | )(1) | ||||||||||
| Cash and restricted cash at end of period | ||||||||||||
| F-16 |
The following tables summarize the effect of the restatements on the specific items presented in our previously reported financial statements:
The specific explanations for the items noted above in the restated financial statements are as follows:
| (1) | ||
| (2) |
| F-17 |
| a. | On
September 20, 2021, the Company entered into a purchase agreement with a major customer for the sale of various service credits with
a total purchase price of $ | |
| b. | In
addition, the Company had invoiced the customer a further $ | |
| c. | The
total adjustment to accounts receivable was an increase of $ | |
| d. | The
total adjustment to pre-paid expenses was an increase of $ | |
| e. | The
total adjustment to trade payables was a decrease of $ | |
| f. | The
total adjustment to revenue was a decrease of $ | |
| g. | Income tax expense increase of $ | |
| h. | The
total adjustment to cost of revenue was an increase of $ | |
| i. | The
total adjustment to operating expenses was a decrease of $ |
| (3) | ||
| (4) |
| F-18 |
| (5) |
| (6) |
| (7) | ||
| (8) | ||
| (9) |
5. Business Combination
TDAC Combination
On October 29, 2021, the Company and AutoLotto consummated the transactions contemplated by the Business Combination Agreement. At the Closing, each share of common stock and preferred stock of AutoLotto that was issued and outstanding immediately prior to the effective time of the Business Combination (other than excluded shares as contemplated by the Business Combination Agreement) was canceled and converted into the right to receive approximately shares (the “Exchange Ratio”) of Lottery.com. common stock.
The
Business Combination closing was a triggering event for the Series B convertible notes, of which $
At the Closing, each option to purchase AutoLotto’s common stock, whether vested or unvested, was assumed and converted into an option to purchase a number of shares of Lottery.com common stock in the manner set forth in the Business Combination Agreement.
The Company accounted for the Business Combination as a reverse recapitalization whereby AutoLotto was determined as the accounting acquirer and TDAC as the accounting acquiree. Refer to Note 3, Significant Accounting Policies, for further details. Accordingly, the Business Combination was treated as the equivalent of AutoLotto issuing stock for the net assets of TDAC, accompanied by a recapitalization. The net assets of TDAC are stated at historical cost, with no goodwill or other intangible assets recorded.
The accompanying condensed consolidated financial statements and related notes reflect the historical results of AutoLotto prior to the merger and do not include the historical results of TDAC prior to the consummation of the Business Combination.
Upon
the Closing, AutoLotto received total net proceeds of approximately $
| F-19 |
Pursuant to the terms of the Business Combination Agreement, the holders of issued and outstanding shares of AutoLotto prior to the Closing (the “Sellers”) were entitled to receive up to additional shares of Common Stock (the “Seller Earnout Shares”) and Vadim Komissarov, Ilya Ponomarev and Marat Rosenberg (collectively the “TDAC Founders”) were also entitled to receive up to additional shares of Common Stock (the “TDAC Founder Earnout Shares” and, together with the Seller Earnout Shares, the “Earnout Shares”). One of the earnout criteria had not been met by the December 31, 2021 deadline, thus no earnout shares were granted specific to that criteria. As of March 31, 2022, of the Seller Earnout Shares and TDAC Founder Earnout Shares were still eligible Earnout Shares until December 31, 2022.
Global Gaming Acquisition
On
June 30, 2021, the Company acquired
The net purchase price was allocated to the assets and liabilities acquired as per the table below. Goodwill represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. The fair values of the acquired intangible assets were determined using Level 3 inputs which were not observable in the market.
The
total purchase price of $
Schedule of Tangible and Intangible Assets Acquisition
| Cash | $ | |||
| Accounts receivable, net | ||||
| Prepaids | ||||
| Property and equipment, net | ||||
| Other assets, net | ||||
| Intangible assets | ||||
| Goodwill | ||||
| Total assets | $ | |||
| Accounts payable and other liabilities | $ | ( | ) | |
| Customer deposits | ( | ) | ||
| Related party loan | ( | ) | ||
| Total liabilities | $ | ( | ) | |
| Total net assets of Acquirees | $ |
| F-20 |
Goodwill recognized in connection with the acquisition is primarily attributed to an anticipated growing lottery market in Mexico that is expected to be achieved from the integration of these Mexican entities. None of the goodwill is expected to be deductible for income tax purposes.
The following are details of the purchase price allocated to the intangible assets acquired.
Schedule of Intangible Assets Acquired
| Category | Fair Value | |||
| Customer relationships | $ | |||
| Gaming approvals | ||||
| Trade names and trademarks | ||||
| Technology | ||||
| Total Intangibles | $ | |||
Subsequently,
the Company adjusted Goodwill for the recording of related deferred tax liabilities as the Company released $
6. Property and Equipment, net
Property and equipment, net as of March 31, 2022 and December 31, 2021, consisted of the following:
Schedule of Property and Equipment, Net
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| Computers and equipment | $ | $ | ||||||
| Furniture and fixtures | ||||||||
| Software | ||||||||
| Property and equipment | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation
expense was $
| F-21 |
7. Intangible assets, net
Gross carrying values and accumulated amortization of intangible assets:
| March 31, 2022 | December 31, 2021 | |||||||||||||||||||||||||
| Useful Life | Gross Carrying Amount | Accumulated Amortization | Net | Gross Carrying Amount | Accumulated Amortization | Net | ||||||||||||||||||||
| Amortizing intangible assets | ||||||||||||||||||||||||||
| Customer relationships | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||||
| Trade name | ( | ) | ( | ) | ||||||||||||||||||||||
| Technology | ( | ) | ( | ) | ||||||||||||||||||||||
| Software agreements | ( | ) | ( | ) | ||||||||||||||||||||||
| Gaming license | ( | ) | ( | ) | ||||||||||||||||||||||
| Internally developed software | ( | ) | ( | ) | ||||||||||||||||||||||
| Domain name | ( | ) | ( | ) | ||||||||||||||||||||||
| $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | |||||||||||||||||
Amortization
expense with respect to intangible assets for the three months ended March 31, 2022 and 2021 totaled $
Estimated amortization expense for years of useful life remaining is as follows:
Schedule of Estimated Amortization Expense
| Years ending December 31, | Amount | |||
| Remainder of 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | $ | |||
The
Company had software development costs of $
8. Notes Receivable
On
March 22, 2022, the Company entered into a three year secured promissory note agreement with a principal amount of $
This note was received in consideration for a portion of the development work that the Company performed for the borrower who intends to use the Company’s technology to launch its own online game in a jurisdiction outside the U.S., where the Company is unlikely to operate.
9. Notes Payable and Convertible Debt
Series A Notes
From
August to October 2017, the Company entered into seven Convertible Promissory Note Agreements with unaffiliated investors for an aggregate
amount of $
| F-22 |
Series B Notes
From
November 2018 to December 2020, the Company entered into multiple Convertible Promissory Note agreements with unaffiliated investors
for an aggregate amount of $
During
the year ended December 31, 2021, the Company entered into multiple Convertible Promissory Note agreements with unaffiliated investors
for an aggregate amount of $
During
the year ended December 31, 2021, the Company entered into amendments with six of the Series B promissory noteholders to increase the
principal value of the notes. The additional principal associated with the amendments totaled $
As
of October 29, 2021, all except $
Short term loans
On
June 29, 2020, the Company entered into a Promissory Note with the U.S. Small Business Administration (“SBA”) for $
In
August 2020, the Company entered into three separate note payable agreements with three individuals for an aggregate amount of $
Notes payable – related parties
On
August 28, 2018, in connection with the purchase of the entire membership interest of TinBu, the Company entered into several notes payable
totaling $
| F-23 |
10. Stockholders’ Equity
Common Stock
Our
Certificate of Incorporation, as amended, authorizes the issuance of an aggregate of shares of Common Stock, par value $
per share. The shares of Common Stock are duly authorized, issued, fully paid and non-assessable. Our purpose is to engage in any lawful
act or activity for which corporations may now or hereafter be organized under the DGCL. Unless our Board determines otherwise, we will
issue all shares of our common stock in uncertificated form. Holders of our Common Stock are entitled to
As of March 31, 2022 and December 31, 2021, there were and shares of common stock outstanding, respectively. During the three months ended March 31, 2022, the Company issued the following shares of common stock.
Schedule of Common Stock
| Issuance of Common Stock for legal settlement | ||||
| Exercise of options (Note 10) | ||||
| Total | ||||
Public Warrants
The Public Warrants became exercisable 30 days after the Closing as the Company has an effective registration statement under the Securities Act covering the shares of common stock issuable upon exercise of the Public Warrants and a current prospectus relating to them is available (or the Company permits holders to exercise their Public Warrants on a cashless basis and such cashless exercise is exempt from registration under the Securities Act). The S-1 registration became effective November 24, 2021. The Public Warrants will expire five years after October 29, 2021, which was the completion of the TDAC Combination or earlier upon redemption or liquidation.
The Company may redeem the Public Warrants:
| ● | in whole and not in part; | |
| ● | at a price of $ per warrant; | |
| ● | upon
a minimum of | |
| ● | if,
and only if, the last sale price of the Company’s common stock equals or exceeds $ per share for any | |
| ● | if,
and only if, there is a current registration statement in effect with respect to the shares of common stock underlying such warrants
at the time of redemption and for the entire |
If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement. These warrants cannot be net cash settled by the Company in any event.
| F-24 |
After
giving effect to the Business Combination, there were
Schedule of Common Stock Warrant
| Weighted | ||||||||||||||||
| Weighted | Average | |||||||||||||||
| Average | Remaining | |||||||||||||||
| Number of | Exercise | Contractual | Aggregate | |||||||||||||
| Shares | Price | Life (years) | Intrinsic Value | |||||||||||||
| Outstanding at December 31, 2021 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ||||||||||||||||
| Forfeited/cancelled | ||||||||||||||||
| Outstanding at March 31, 2022 | $ | |||||||||||||||
| Exercisable at March 31, 2022 | $ | $ | ||||||||||||||
Private Warrants
Private warrants of TDAC issued before the business combination were forfeited and did not transfer to the surviving entity.
Unit Purchase Option
On
June 1, 2018, the Company sold to the underwriter (and its designees), for $
Common Stock Warrants
On
February 15, 2022, the Company issued warrants to purchase an aggregate shares of the Company’s common stock at an exercise
price of $
The Company has classified the warrants as having Level 2 inputs, and used the Black-Scholes option-pricing model to value the warrants. The fair value at the issuance dates for the above warrants was based upon the following management assumptions:
| Issuance dates | ||||
| Risk-free interest rate | % | |||
| Expected dividend yield | % | |||
| Expected volatility | % | |||
| Term | years | |||
| Fair value of common stock | $ | |||
| F-25 |
The
Company did not issue any other warrants during the three months ended March 31, 2022 or the year ended December 31, 2021. All outstanding
warrants are fully vested and have a weighted average remaining contractual life of years. The Company incurred expenses related
to outstanding warrants of $
Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (years) | Aggregate Intrinsic Value | |||||||||||||
| Outstanding at December 31, 2020 | $ | $ | ||||||||||||||
| Granted | - | |||||||||||||||
| Exercised | ( | ) | - | |||||||||||||
| Forfeited/canceled | - | |||||||||||||||
| Outstanding at December 31, 2021 | ||||||||||||||||
| Granted | ||||||||||||||||
| Exercised | - | |||||||||||||||
| Forfeited/canceled | - | |||||||||||||||
| Outstanding at March 31, 2022 | $ | $ | ||||||||||||||
| Exercisable at March 31, 2022 | $ | $ | ||||||||||||||
Beneficial Conversion Feature – Convertible Debt
As
detailed in Note 8 – Notes Payable and Convertible Debt, the Company has issued two series of convertible debt. Both issuances
resulted in the recognition of the beneficial conversion features contained within both of the instruments. The Company recognized the
proceeds allocable to the beneficial conversion feature of $
Earnout Shares
As detailed in Note 3 – as part of the TDAC Combination as of December 31, 2021 a total of Earnout Shares are eligible for issuance until December 31, 2022.
2015 Stock Option Plan
Prior
to the Closing, AutoLotto had the AutoLotto, Inc. 2015 Stock Option/Stock Issuance Plan (the “2015 Plan”) in place. Under
the 2015 Plan, incentive stock options could be granted at a price not less than fair market value of the AutoLotto common stock (the
“AutoLotto Common Stock”). If the AutoLotto Common Stock was at the time of grant listed on any stock exchange, then such
fair market value would be the closing selling price per share of AutoLotto Common Stock on the date in question on such stock exchange,
as such price is officially quoted in the composite tape of transactions on such stock exchange and published in The Wall Street Journal.
If there was no closing selling price for the Common Stock on the date in question, then the fair market value would be the closing selling
price on the last preceding date for which such quotation exists. If the Common Stock is at the time not listed on any Stock Exchange,
then the fair market value would be determined by the Board of Directors or the Committee acting in its capacity as administrator of
the Plan after taking into account such factors as the Plan Administrator shall deem appropriate.
| F-26 |
2021 Equity Incentive Plan
In connection with the Business Combination, our Board of Directors adopted, and our stockholders approved, the Lottery.com 2021 Incentive Plan (the “2021 Plan”) under which shares of Class A common stock were initially reserved for issuance. The 2021 Plan allows for the issuance of incentive and non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units and other stock or cash based awards. The number of shares of the Company’s Class A common stock available for issuance under the 2021 Plan increases annually on the first day of each calendar year, beginning on and including January 1, 2022 and ending on and including January 1, 2031 by a number of shares of Company common stock equal to percent of the total outstanding shares of Company common stock on the last day of the prior calendar year. The maximum number of incentive stock options which can be granted under the 2021 Plan is . Notwithstanding the foregoing, the Board may act prior to January 1st of a given year to provide that there will be no such increase in the share reserve for such year or that the increase in the share reserve for such year will be a lesser number of shares of Company common stock than would otherwise occur pursuant to the preceding sentence.
Stock Options
The Company did not issue any new stock options during the three months ended March 31, 2022 and 2021. The following table shows stock option activity for the three months ended March 31, 2022 and 2021:
| Shares Available for Grant | Outstanding Stock Awards | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (years) | Aggregate Intrinsic Value | ||||||||||||||||
| Outstanding at December 31, 2020 | $ | $ | ||||||||||||||||||
| Granted | - | |||||||||||||||||||
| Exercised | ( | ) | ( | ) | - | |||||||||||||||
| Forfeited/canceled | ( | ) | ( | ) | - | |||||||||||||||
| Outstanding at December 31, 2021 | ||||||||||||||||||||
| Granted | - | |||||||||||||||||||
| Exercised | ( | ) | ( | ) | - | |||||||||||||||
| Forfeited/canceled (uncanceled) | ( | ) | - | |||||||||||||||||
| Outstanding at March 31, 2022 | $ | $ | ||||||||||||||||||
| Exercisable at March 31, 2022 | $ | $ | ||||||||||||||||||
Stock-based compensation expense related to the employee options was $ and $ for the three months ended March 31, 2022 and 2021, respectively.
No income tax benefit has been recognized related to the stock-based compensation expense, and no tax benefits have been realized from the exercised stock options. As of March 31, 2022 and December 31, 2021, unrecognized stock-based compensation associated with stock options amounted to $.
| F-27 |
Restricted awards
The Company awarded restricted stock to employees on October 28, 2021, which were granted with various vesting terms including, service-based vesting, and performance-based vesting. In accordance with ASC 718, the Company has classified the restricted stock as equity.
For employee issuances, the measurement date is the date of grant, and the Company recognizes compensation expense for the grant of the restricted shares, over the service period for the restricted shares that vest over a period of multiple months or years and for performance-based vesting awards, the Company recognizes the expense when management believes it is probable the performance condition will be achieved. As of December 31, 2021, the Company had granted shares with vesting to begin April 2022.
On April 29, 2022, restricted stock awards for certain employees vested and resulted in withhold tax for those employees. Given the limited trading liquidity of the Company’s common shares, the Company withheld shares, valued at $ per share (the closing price on April 29, 2022) from the employees, and paid the withholding tax on the employees’ behalf.
For the three months ended March 31, 2022, the Company recognized $ of stock compensation expense related to the employee restricted stock grants. As of March 31, 2022, unrecognized stock-based compensation associated with the restricted stock awards is $ which will be expensed over the next 3.3 years.
Schedule of Restricted Stock Awards Activity
| Weighted | ||||||||
| Average | ||||||||
| Number of | Grant | |||||||
| Shares | Fair Value | |||||||
| To Outstanding at December 31, 2021 | $ | |||||||
| Granted | ||||||||
| Vested | ||||||||
| Forfeited/canceled | ||||||||
| Restricted shares unvested at March 31, 2022 | $ | |||||||
Schedule of Basic and Dilutes Net Income Loss Per Share
| 2022 | 2021 | |||||||
| Three Months Ended March 31, | ||||||||
| 2022
As Restated | 2021 | |||||||
| Comprehensive net loss attributable to stockholders | $ | ( | ) | $ | ( | ) | ||
| Weighted average common shares outstanding | ||||||||
| Basic and diluted | ||||||||
| Net loss per common share | ||||||||
| Basic and diluted | $ | ( | ) | $ | ( | ) | ||
As of March 31, 2022, the Company excluded stock options, restricted awards, warrants, earn out shares and unit purchase options respectively in the calculation of diluted loss per share, as the effect would be anti-dilutive due to losses incurred.
| F-28 |
13. Income Taxes
We are required to file federal and state income tax returns in the United States. The preparation of these tax returns requires us to interpret the applicable tax laws and regulations in effect in such jurisdictions, which could affect the amount of tax paid by us. In consultation with our tax advisors, we base our tax returns on interpretations that are believed to be reasonable under the circumstances. The tax returns, however, are subject to routine reviews by the various federal and state taxing authorities in the jurisdictions in which we file tax returns. As part of these reviews, a taxing authority may disagree with respect to the income tax positions taken by us (“uncertain tax positions”) and, therefore, may require us to pay additional taxes. As required under applicable accounting rules, we accrue an amount for our estimate of additional income tax liability, including interest and penalties, which we could incur as a result of the ultimate or effective resolution of the uncertain tax positions. We account for income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributed to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences and carry-forwards are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established when necessary to reduce deferred tax assets to amounts expected to be realized.
14. Commitments and Contingencies
Indemnification Agreements
The Company enters into indemnification provisions under its agreements with other entities in its ordinary course of business, typically with members of its Board of Directors, Officers, business partners, customers, landlords, lenders and lessors. Under these provisions, the Company generally indemnifies and holds harmless the indemnified party for losses suffered or incurred by the indemnified party as a result of the Company’s activities or, in some cases, as a result of the indemnified party’s activities under the agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification provisions is unlimited. The Company has not incurred material costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, the Company believes the estimated fair value of these agreements is minimal. Accordingly, the Company has no liabilities recorded for these agreements as of March 31, 2022 and December 31, 2021.
Digital Securities
In
2018, the Company commenced an offering (the “LDC Offering”) of
The
Company leases office space in Spicewood, Texas (the “Spicewood Lease”), under an agreement which expires
| F-29 |
The
Company leases space to facilitate its business in Waco, Texas (the “Waco Lease”). On or about April 6, 2022, the Company
remitted payment in the amount of $
As of March 31, 2022, future minimum rent payments due under non-cancellable leases with initial maturities greater than one year are as follows:
Schedule of Future Minimum Rent Payments Due Under Non Cancellable Leases
| Years ending December 31, | Amount | |||
| 2022 (nine months) | ||||
| 2023 | ||||
| 2024 | ||||
| Total | $ | |||
Litigation and Other Loss Contingencies
As of March 31, 2022, there were no pending proceedings that are deemed to be materially detrimental. The Company is a party to legal proceedings in the ordinary course of its business. The Company believes that the nature of these proceedings is typical for a company of its size and scope. See Note 16 for additional information.
J. Streicher Financial
On
July 29, 2022, the Company filed an original Verified Complaint for Breach of Contract and Specific Performance (the “Complaint”)
against J. Streicher Financial, LLC (“Streicher”) in the Court of Chancery of the State of Delaware (the “Chancery
Court”).
In
an effort to avoid post-judgment discovery, Streicher has indicated a willingness to pay the judgment over time with interest and is
attempting to negotiate a settlement and forbearance agreement with the Company. Streicher’s original deadline to produce documents
and respond to the post-judgment discovery was January 16, 2023, and the Deposition was scheduled to take place on January 19, 2023.
On January 20, 2023, faced with post-judgment discovery and depositions, Streicher remitted a partial payment towards the Judgment in
the amount of $
Restricted Cash and Letter of Credit
As of March 31, 2022, the Company had restricted
cash of $
| F-30 |
15. Related Party Transactions
The Company has entered into transactions with related parties. The Company regularly reviews these transactions; however, the Company’s results of operations may have been different if these transactions were conducted with nonrelated parties.
During the year ended December 31, 2020, the Company entered into borrowing arrangements with the individual founders to provide operating cash flow for the Company. The Company paid $ during the year ended December 31, 2020 and has an outstanding balance at March 31, 2022 of $.
Services Agreement with Master Goblin Games, LLC
In March 2020, the Company entered into a service agreement (as amended, the “Service Agreement”), with Master Goblin Games, LLC (“Master Goblin”), an entity that is wholly-owned by our former CFO and President, Ryan Dickinson. Master Goblin leases retail locations in certain U.S. jurisdictions from which it operates tabletop game retail stores and, ancillary to such retail operations, acts as sales agent or retailer licensed by the state lottery commission of such jurisdiction to sell lottery game tickets from such retail stores. The Company acquires lottery games as requested by users from Master Goblin on a non-exclusive basis in such jurisdictions.
Pursuant
to the Service Agreement, Master Goblin is authorized and approved by the Company to incur up to $
In January 2023, Woodford Eurasia Assets, Ltd. signed a letter of intent to acquire Master Goblin. Such letter of intent would give Woodford the right to appoint a director to the Board of Directors of the Company (see Note 16. Subsequent Events). As of the date of this Amended Report, no definitive documentation for this transaction has been signed.
16. Subsequent Events
Effective
July 1, 2022, Harry Dhaliwal was named as the Company’s Interim Chief Financial Officer and principal financial officer. The Company
entered into a consulting agreement with Mr. Dhaliwal on July 1, 2022 (the “Consulting Agreement”). The Consulting Agreement
provided for Mr. Dhaliwal to serve as Interim Chief Financial Officer of the Company for six months, commencing on July 1, 2022 and terminating
on December 31, 2022. Mr. Dhaliwal’s consulting services could be terminated earlier than December 31, 2022 (i) upon Mr. Dhaliwal’s
resignation or death or (ii) by either the Company or Mr. Dhaliwal without cause or reason upon written notice to the other party 15
days prior to the termination date of the Consulting Agreement. Mr. Dhaliwal agreed to among other things, assist the Company with its
financial systems, develop a financial dashboard for the Board of Directors and Senior Management and carry out a comprehensive review
of the Company’s finance function. The Consulting Agreement included customer and employee non-solicitation provisions as well
as confidentiality obligations. Pursuant to the Consulting Agreement, Mr. Dhaliwal was to be paid a total of $
| F-31 |
On July 21, 2022, Lawrence Anthony “Tony” DiMatteo III, the then Chief Executive Officer of the Company and a member of its Board of Directors, provided a notice of resignation as CEO of the Company, its wholly-owned subsidiary, AutoLotto, and all of its other subsidiaries and affiliates with the exception of LTRY WinTogether, Inc., with immediate effect. In connection with Mr. DiMatteo’s resignation, the Company entered into a resignation and release agreement with Mr. DiMatteo effective July 22, 2022 (the “Release Agreement”). Pursuant to the Release Agreement, Mr. DiMatteo resigned as CEO of the Company effective July 22, 2022.
Following
Mr. DiMatteo’s resignation, he agreed to serve as Senior Advisor to the Board commencing on July 22, 2022 and continuing until
the either party gives not less than ten (10) days’ prior notice to the other party (the “Consulting Period”) unless
certain conditions for earlier termination become applicable. Mr. DiMatteo agreed to, among other things, (i) provide consulting and
advisory services to the Board of Directors of the Company as requested and (ii) cooperate in any ongoing and any future investigation
by or related to the Company. Non-compete and customer and employee non-solicitation provisions as well as confidentiality obligations
from prior agreements entered into between Mr. DiMatteo and the Company will apply while he consults and for a period of one year thereafter.
Mr. DiMatteo may be paid $
On
July 28, 2022, the Board determined that the Company did not currently have sufficient financial resources to fund its operations or
pay certain existing obligations, including its payroll and related obligations and ceased its operations. Accordingly, the Company furloughed
certain employees effective July 29, 2022. As of March 31, 2023, the Company owed approximately $
On
July 29, 2022, the Company filed its original Verified Complaint for Breach of Contract and Specific Performance (the “Streicher
Complaint”) against J. Streicher Financial, LLC (“Streicher”) in the Court of Chancery of the State of Delaware (the
“Chancery Court”), styled AutoLotto, Inc. dba Lottery.com v. J. Streicher Financial, LLC (Case No. 2022-0661-MTZ).
On August 19, 2022, Preston Million filed the Class Action Complaint (the “Class Action Complaint”) against the Company and certain former officers and directors of the Company in the United States District Court for Southern District of New York (the “SDNY”), styled Preston Million, Individually and on Behalf of All Others Similarly Situated vs. Lottery.com, Inc. f/k/a Trident Acquisitions Corp., Anthony DiMatteo, Matthew Clemenson and Ryan Dickinson (Case No. 1:22-cv-07111-JLR). The Class Action Complaint alleged violations by all defendants of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) 15 U.S.C. §§ 78j(b), 78t(a), as amended by the Private Securities Litigation Reform Act of 1995 (“PSLRA”), U.S.C. § 78u-4 et seq. (collectively “Federal Securities Laws”). On November 18, 2022, the SNDY ordered the appointment of RTD Bros, LLC, Todd Benn, Tom Benn and Tomasz Rzedian (collectively “Lottery Investor Group”) as lead plaintiff and Glancy Prongay & Murray, LLP as lead counsel for plaintiffs and for the class in the case. On December 5, 2022, the Court stipulated a Scheduling Order in the case. On January 12, 2023, the Company’s legal counsel timely filed its Notice of Appearance. On January 31, 2022, plaintiffs filed their Amended Complaint adding Kathryn Lever, Marat Rosenberg, Vadim Komissarov, Thomas Gallagher, Gennadii Butkevych, Ilya Ponomarev as additional defendants in the case. The Amended Complaint alleges, among other things, that defendants made materially false and misleading statements in violation of Section 10(b),14(a) and 20(a) of the Exchange Act and plaintiffs seek compensatory damages, reasonable cost and expenses including counsel fees and expert fees. Pursuant to the Scheduling Order, the Company filed its motion to dismiss the Amended Complaint on April 3, 2023, under the newly consolidated caption and its proposed order to dismiss the matter. Plaintiffs are expected to file their opposition to the motion to dismiss no later than May 18, 2023, which would trigger the Company’s deadline to file its reply brief in support of their motion to dismiss no later than June 20, 2023.
| F-32 |
On September 8, 2022, the Board appointed Mr. Sohail S. Quraeshi as CEO of the Company effective from September 12, 2022.
On September 27, 2022, Armanino LLP (“Armanino”) resigned as the independent registered public accounting firm of the Company effective immediately.
On October 7, 2022, the Audit Committee of the Board of Directors of the Company approved the engagement of Yusufali & Associates, LLC, (“Yusufali”) as the Company’s new independent registered public accounting firm.
On November 15, 2022, the Company formed a new wholly-owned subsidiary, Sports.Com, Inc., as a Texas corporation (the “New Subsidiary”). The New Subsidiary will share the same principal address as the Company. In connection therewith, on November 19, 2022, the Company filed in the State of Texas a “doing business as” assumed name registration under the name, “Sports.Com”, and intends to file additional assumed name registrations under this name in other U.S. and foreign jurisdictions.
In December 2022, an agreement was signed by and between Sports.com and Data Sports Group, GmbH (“DSG”), that provides Sports.com, Inc. the exclusive North American distribution rights for sports data products offered and maintained by DSG. This suite of offerings is being sold via the same sales resources and sales channels as the lottery data offered by TinBu, another wholly-owned subsidiary of the Company. This relationship is in full effect now and the first signed contracts are expected in the second quarter of 2023.
The
Company has received funding that became available through Woodford Eurasia Assets, Ltd. (“Woodford”), which entered
into a Loan agreement with the Company on December 7, 2022. Pursuant to the Loan Agreement,
Conditions to the loan included the resignation of four of the then members of the Board of Directors (Lisa Borders, Steven M. Cohen, Lawrence Anthony DiMatteo and William Thompson, all of which persons have subsequently resigned from the Board of Directors), and the appointment of two new directors (who have been appointed). Subsequent loans under the Loan Agreement also require our compliance with all listing requirements, unless waived by Woodford. The Loan Agreement also allows Woodford to nominate another director to the Board of Directors, in the event any independent member of the Board of Directors resigns.
| F-33 |
Proceeds of the loans can only be used by us for restarting our operations, and for general corporate purposes agreed to by Woodford.
The
Loan Agreement includes confidentiality obligations, representations, warranties, covenants, and events of default, which are customary
for a transaction of this size and nature. Included in the Loan Agreement are covenants prohibiting us from
We
also agreed to grant warrants to Woodford to purchase 15% of the issued and outstanding common stock of the Company shares
of common stock, with an exercise price equal to the average of the Nasdaq Official Closing Price for each of the ten days prior to the
first amount being debited from the bank account of Woodford, which equates to an exercise price of $
On January 30, 2023, Mr. Edward K. Moffly resigned as Interim Chief Financial Officer of the Company.
On February 1, 2023, the Board of Directors of the Company appointed Mr. Mark Gustavson as Chief Executive Officer and principal executive officer of the Company. Mr. Gustavson will also serve as principal financial/accounting officer of the Company until a replacement is found. Mr. Mark Gustavson, as CEO, replaced Mr. Sohail S. Quraeshi, who is no longer serving as Chief Executive Officer or as a principal executive officer of the Company, effective February 1, 2023, as a result of the change in Chief Executive Officer of the Company approved by the Board of Directors.
On
March 13, 2023, John Brier, Bin Tu and JBBT, LLC (collectively, the “TinBu Plaintiffs”) filed its original complaint
against Lottery.com, Inc. f/k/a AutoLotto, Inc. and its wholly-owned subsidiary TinBu, LLC (“TinBu”) in the Circuit
Court of the 13th Judicial District in and for Hillsborough County, Florida (the “TinBu Complaint”). The
Complaint alleges breach of contract(s) and misrepresentation with alleged damages in excess of $
On March 29, 2023, the WinTogether Foundation Board of Directors voted to suspend its relationship with the Company.
On April 22, 2023, the Company signed an exclusive affiliate agreement with International Gaming Alliance (IGA), to supply official Texas lottery tickets in the Dominican Republic.
On April 25, 2023, the Company recommenced its ticket sales operations through its Texas retail network.
| F-34 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations together with the condensed consolidated financial statements and the related notes appearing elsewhere in this Amended Report contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of events may differ materially from those expressed or implied in such forward- looking statements as a result of various factors, including those set forth in the section entitled “Cautionary Note Regarding Forward-Looking Statements” included herein and the sections entitled “Risk Factors” included in this Amended Report and in Amendment No. 1 to our Annual Report on Form 10-K/A for the year ended December 31, 2021 (our “Amended Annual Report”).
Recent Developments
Internal Investigation and Operational Cessation
On July 6, 2022, the Company announced that the Audit Committee (the “Audit Committee”) of the board of directors of the Company (the “Board”) had retained outside counsel to conduct an independent investigation that revealed instances of non-compliance with state and federal laws concerning the states in which lottery tickets were procured as well as order fulfillment. The investigation also identified issues pertaining to the Company’s internal accounting controls (the “Internal Investigation”). Following a report on the filings of the Internal Investigation, on June 30, 2022, the Board terminated the employment of Ryan Dickinson as the Company’s President, Treasurer and Chief Financial Officer, effective July 1, 2022. Subsequently, the Company initiated a review of its cash balances and related disclosures as well as its revenue recognition processes and other internal accounting controls.
On July 20, 2022, Armanino LLP (“Armanino”), the Company’s registered independent public accountant for the fiscal years ended December 31, 2021 and 2022, advised the Company that its audited financial statements of for the year ended December 31, 2021 (the “2021 Audit”) and the unaudited financial statements for the quarter ended March 31, 2022 (the “March 2022 Financials”), should no longer be relied upon. Armanino advised that it had determined, subsequent to the 2021 Audit and review of the March 2022 Financials, that the Company had entered into a line of credit in January 2022 that was not disclosed in the footnotes to the 2021 Audit and was not properly recorded in the March 2022 Financials (see Note 4 to our consolidated financial statements for more details).
On July 28, 2022, the Board determined that the Company did not have sufficient financial resources to fund its operations or pay certain existing obligations, including its payroll and related obligations, due to a significant misstatement of our cash balances.
The following day, on July 29, 2022, the Company effectively ceased operations (the “Operational Cessation”), when it furloughed the majority of its employees and generally suspended its lottery game sales. The Company’s remaining employees were limited to the heads of the product, information technology and human resources teams as well as the entire legal and compliance team. Within one week, several additional employees were recalled from furlough. All non-furloughed employees were retained, at the discretion of the Company’s then Chief Operating Officer and Chief Legal Officer, to provide the minimal business functions needed to address the Company’s legal and compliance issues and to secure necessary funding to resume the Company’s operations. Less than half of these non-furloughed employees remain active in the efforts to restore Company operations and as of March 31, 2023, approximately $1.4 million in outstanding payroll obligations remain unpaid.
On September 27, 2022, Armanino resigned as the independent registered public accounting firm of the Company, effective immediately.
On October 7, 2022, the Audit Committee approved the engagement of Yusufali & Associates, LLC, (“Yusufali”) as the Company’s new independent registered public accounting firm.
Since the Operational Cessation, the Company has had minimal day-to-day operations and has primarily focused its operations on restarting certain of its core business (as described in more detail under “—Plans for Recommencement of Company Operations” below), completing the restatement of the Company’s 2021 Audit (which was included in the Amended Annual Report) and March 2022 Financials (which is included in this Amended Report) and preparing the Company’s Quarterly Reports on Form 10-Q for the quarters ended June 30, 2022 and September 30, 2022 and Annual Report on Form 10-K for the year ended December 31, 2022.
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AutoLotto $30,000,000 Business Loan
On January 4, 2022, AutoLotto entered into a Business Loan Agreement (the “Business Loan”) with The Provident Bank (“Provident”), pursuant to which the Company borrowed $30,000,000 from Provident, which was evidenced by a $30,000,000 Promissory Note. The Promissory Note accrued interest at the rate of 2.750% per annum (7.750% upon the occurrence of an event of default) and had a maturity date of January 4, 2024. Monthly interest payments were due under the Promissory Note beginning February 4, 2022. The Promissory Note could be repaid at any time without penalty. The Promissory Note included customary events of default for a debt obligation of the size of the Promissory Note. The Business Loan included representations and warranties of AutoLotto and covenants (both positive and negative) which were customary of a customary for a transaction of this nature and size, including rights to set off. Upon the occurrence of an event of default, Provident could declare the entire amount owed immediately due and payable. We were required to pay a 1% commitment fee at the time of our entry into the Business Loan, and another 1% annual loan fee on the first year anniversary thereof.
In accordance with the terms of the Business Loan, upon entering into the agreement, $30,000,000 in a separate account with Provident was pledged as security for the amount outstanding under the loan (“Collateral Security”). The $30,000,000 Collateral Security became restricted and remained restricted until October 12, 2022, when AutoLotto defaulted on its obligations under the Business Loan and Provident foreclosed on the $30,000,000 of Collateral Security. The Collateral Security, which was in the form of restricted cash, was presented as a contingent liability on the Company’s balance sheet from March 31, 2022 until the obligation was satisfied in October of 2022. See Note 4 to our consolidated financial statements for additional information.
Loan Agreement with Woodford
On December 7, 2022, the Company entered into a loan agreement (the “Loan Agreement”) with Woodford Eurasia Assets, Ltd. (“Woodford”), pursuant to which Woodford agreed to provide the Company with up to $2.5 million, subject to certain conditions and requirements, of which approximately $1.25 million has been received to date and $1.25 million is currently owed pursuant to the terms of the Loan Agreement. The parties may also mutually agree to increase the amount of the loan to $52.5 million (i.e., an additional $50 million). Amounts borrowed accrue interest at the rate of 12% per annum (or 22% per annum upon the occurrence of an event of default) and are due within 12 months of the date of each loan. Amounts borrowed can be repaid at any time without penalty.
Amounts borrowed pursuant to the Loan Agreement are convertible, at Woodford’s option, into shares of the Company’s common stock, beginning 60 days after the first loan date at the rate of 80% of the lowest publicly available price per share of common stock within 10 business days of the date of the Loan Agreement (which was equal to $0.28 per share), subject to a 4.99% beneficial ownership limitation and a separate limitation preventing Woodford from holding more than 19.99% of the issued and outstanding common stock of the Company, without the Company obtaining shareholder approval for such issuance.
Conditions to the Loan Agreement included the resignation of four prior members of the Board (Lisa Borders, Steven M. Cohen, Lawrence Anthony DiMatteo and William Thompson, all of whom resigned from the Board in September 2022), and the appointment of two new independent directors. Subsequent loans under the Loan Agreement also require the Company to comply with all listing requirements, unless waived by Woodford. The Loan Agreement also allows Woodford to nominate another director to the Board of Directors, in the event any independent member of the Board of Directors resigns.
Proceeds of the loans can only be used by to restart the Company’s operations and for general corporate purposes agreed to by Woodford.
The Loan Agreement includes confidentiality obligations, representations, warranties, covenants, and events of default, which are customary for a transaction of this size and nature. Included in the Loan Agreement are covenants prohibiting us from (a) making any loan in excess of $1 million or obtaining any loan in amount exceeding $1 million without the consent of Woodford, which consent may not be unreasonably withheld; (b) selling more than $1 million in assets; (c) maintaining less than enough assets to perform our obligations under the Loan Agreement; (d) encumbering any assets, except in the normal course of business, and not in an amount to exceed $1 million; (e) amending or restating our governing documents; (f) declaring or paying any dividend; (g) issuing any shares which negatively affects Woodford; and (h) repurchasing any shares.
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The Company also agreed to grant warrants to purchase shares of common stock to Woodford (the “Woodford Warrants”) in an amount equal to 15% of the Company’s 7,619,207 issued and outstanding shares of common stock. Each Woodford Warrant has an exercise price equal to the average of the closing price of the Company’s common stock for each of the ten days prior to the first amount being debited from the bank account of Woodford, which equates to an exercise price of $0.28 per share. In the event the Company fails to repay the amounts borrowed when due or Woodford fails to convert the amount owed into shares, the exercise price of the warrants may be offset by amounts owed to Woodford, and in such case, the exercise price of the warrants will be subject to a further 25% discount (i.e., will equal $0.21 per share).
In connection with our entry into the Loan Agreement, the Company also entered into a Loan Agreement Deed, Debenture Deed and Securitization, with Woodford (the “Security Agreement”), which provides Woodford with a first floating charge security interest over all present and future assets of the Company in order to secure the repayment of amounts owed under the Loan Agreement. The floating charge may be converted into a fixed charge upon the occurrence of certain events including: an event of default; if Woodford reasonably believes that any secured property may be in jeopardy or danger of being seized or sold; or if Woodford reasonably considers that it is desirable to protect its security interest. The floating charge may be automatically converted into a fixed charge upon the occurrence of certain other events. The Security Agreement prohibits the Company from providing any other security interest over our assets, even if secondary to Woodford, while the amounts borrowed under the Loan Agreement remain unpaid.
Business Combination
On October 29, 2021, we consummated the Business Combination with Trident Acquisitions Corp. (“TDAC” and after the Business Combination described herein, the “Company”), pursuant to the terms of that certain Business Combination Agreement, dated as of February 21, 2021 (the “Business Combination Agreement”), by and among TDAC, Trident Merger Sub II Corp., a wholly-owned subsidiary of TDAC (“Merger Sub”) and AutoLotto. Pursuant to the terms of the Business Combination Agreement, Merger Sub merged with and into AutoLotto with AutoLotto surviving the merger as a wholly owned subsidiary of TDAC, which was renamed “Lottery.com Inc.” The aggregate value of the consideration paid by TDAC to the holders of AutoLotto common stock in the Business Combination (excluding shares that may be issued to former AutoLotto stockholders (the “Sellers”) as earnout consideration) was approximately $440 million, consisting of approximately 40,000,000 shares of common stock valued at $11.00 per share. In addition, the Sellers and TDAC’s founders are also entitled to receive up to 3 million and 2 million additional shares of common stock, respectively, to the extent that certain share price targets are achieved following the Closing.
International Expansion
In June 2021, we closed the acquisition of Global Gaming, which holds 80% of the equity of each of Aganar and JuegaLotto. Aganar operates in the licensed Online Lottery market in Mexico and is licensed to sell Mexican National Lottery draw games, instant win tickets, and other games of chance online with access to a federally approved online casino and sportsbook gaming license. JuegaLotto is licensed by Mexico authorities to commercialize international lottery games in Mexico through an authorized gaming portal and to commercialize games of chance in other countries throughout Latin America. As of December 31, 2020, Latin America’s estimated lottery market was approximately $9.1 billion across 26 countries. As of December 31, 2020, (the most recent date available) the addressable market in the countries that JuegaLotto and Aganar cover includes 664 million people and potential customers. We believe these acquisitions will provide inroads for the Company throughout Mexico and Latin America as we expand our international operations, expand our portfolio of products, and expose our existing products to new markets.
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Operations Prior to Operational Cessation
Prior to the Operational Cessation, the Company was a provider of domestic and international lottery products and services. As an independent third-party lottery game service, we offered a platform that we developed and operated to enable the remote purchase of legally sanctioned lottery games in the U.S. and abroad (the “Platform”). Our revenue generating activities included (i) offering the Platform via our Lottery.com app and our websites to users located in the U.S. and international jurisdictions where the sale of lottery games was legal and our services were enabled for the remote purchase of legally sanctioned lottery games (our “B2C Platform”); (ii) offering an internally developed, created and operated business-to-business application programming interface (“API”) of the Platform, which enabled our commercial partners, in permitted U.S. and international jurisdictions, to purchase certain legally operated lottery games from us and to resell them to users located within their respective jurisdictions (“B2B API”); and (iii) delivering global lottery data, such as winning numbers and results, and subscriptions to data sets of our proprietary, anonymized transaction data pursuant to multi-year contracts to commercial digital subscribers (“Data Service”).
Mobile Lottery Game Platform Services
Both our B2C Platform and our B2B API provided users with the ability to purchase legally sanctioned draw lottery games via a mobile device or computer, securely maintain their acquired lottery game, automatically redeem a winning lottery game, as applicable, and receive support, if required, for the claims and redemption process. Our registration and user interfaces were designed to be easy to use, provide for the creation of an account and purchase of a lottery game with minimum friction and without the creation of a mobile wallet or requirement to pre-load minimum funds and — importantly — to provide instant confirmation of the user’s lottery game numbers, whether selected at random or picked by the user. Users of our B2C Platform services paid a service fee and, in certain non-U.S. jurisdictions, a mark-up on the purchase price. Prior to the Operational Cessation, we generated revenue from this service fee and mark-up. Our B2B API Platform resumed limited operations in April 2023. As of the date of this Amended Report, our B2C Platform is not currently operational. We anticipate that our B2C Platform will become operational in the third quarter of 2023.
The WinTogether Platform
Prior to the Operational Cessation, we operated and administered of all sweepstakes offered by WinTogether, a registered 501(c)(3) charitable organization (“WinTogether”), which was formed in April 2020 to support charitable, educational, and scientific causes. In consideration of our operation of the WinTogether platform and administration of the sweepstakes, we received a percentage of the gross donations to a campaign, from which we paid certain dividends and all administration costs.
The WinTogether platform continued operating after the Operational Cessation, until all sweepstakes campaigns were completed and all prizes awarded. On March 29, 2023, the board of directors of WinTogether voted to suspend its relationship with the Company.
Current Operations
Despite the Operational Cessation, certain of the Company’s wholly-owned subsidiaries have continued to operate under the direction of the leadership teams that were in place prior to the Company’s acquisition of such companies. While the operational activities of these subsidiaries vary, from the Operational Cessation through the date of this Amended Report, each of TinBu, Aganar and JuegaLotto has decreased its expenses and has had its revenue remain consistent or decrease slightly from pre-Operational Cessation levels.
Data Services
In 2018, we acquired TinBu, LLC (“TinBu”), a digital publisher and provider of lottery data results, jackpots, results, and other data, as a wholly-owned subsidiary. Through TinBu, our Data Service delivers daily results of over 800 domestic and international lottery games from more than 40 countries, including the U.S., Canada, and the United Kingdom, to over 400 digital publishers and media organizations.
Our technology pulls real time primary source data, and, in some instances, we acquire data from dedicated data feeds from the lottery authorities. Our data is constantly monitored to ensure accuracy and timely delivery. We are not required to obtain licenses or approvals from the lottery authorities to pull this primary source data or to acquire the data from such dedicated feeds. Commercial acquirers of our Data Service pay a subscription for access to the Data Service and, for acquisition of certain large data sets, an additional per record fee.
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We additionally enter into multi-year contracts pursuant to which we sell proprietary, anonymized transaction data pursuant to multi-year agreements and in accordance with our Terms of Service in consideration of a fee and in other instances provide the Data Service within a bundle of provided services.
Aganar and JuegaLotto
On June 30, 2021, we acquired 100% of the equity of Global Gaming Enterprises, Inc., a Delaware corporation (“Global Gaming”), which holds 80% of the equity of each of Medios Electronicos y de Comunicacion, S.A.P.I de C.V. (“Aganar”) and JuegaLotto, S.A. de C.V. (“JuegaLotto”). JuegaLotto is federally licensed by the Mexican regulatory authorities with jurisdiction over the ability to commercialize lottery games in Mexico through an authorized federal gaming portal and to commercialize games of chance in other countries throughout Latin America. Aganar has been operating in the licensed Online Lottery market in Mexico since 2007 and has certain rights to sell Mexican National Lottery draw games, instant win tickets, and other games of chance online with access to a federally approved online casino and sportsbook gaming license and additionally issues a proprietary scratch lottery game in Mexico under the brand name Capalli.
Sports.com
In December 2021, we finalized the acquisition of the domain name https://sports.com and on November 15, 2022, we formed a wholly-owned subsidiary called Sports.com, Inc., a Texas corporation (“Sports.com”). Subsequently, Sports.com announced a partnership with the Saudi Motorsports Company, which enabled the Company to roll out the Sports.com brand at the FIFA World Cup decider at the end of November 2022. In December 2022, Sports.com signed an agreement with Data Sports Group, GmbH (“DSG”), which provides Sports.com the exclusive North American distribution rights for sports data products offered and maintained by DSG (the “DSG Data”). The DSG Data is being sold through the same sales resources and sales channels as the lottery data offered by TinBu. This relationship is in full effect now and the first signed contracts are expected in the second quarter of 2023.
Plans for Recommencement of Company Operations
As noted above, since the Operational Cessation, the Company has had minimal day-to-day operations and has primarily focused its operations on restarting certain of its core business. The Company has developed a three phase plan to recommence its operations, which plan is outlined below.
Phase 1 – Relaunch B2B API Platform. During the Operational Cessation, the Company maintained positive relationships with its ticket-printing and courier partners, as well as several distribution partners that have been found to be in compliance with local, state, and federal rules related to ticket procurement and distribution. These partners have implemented the Lottery.com API and have advised the Company that they expect to be ready to offer lottery games to their customers through their sales channels when the Company resumes operations. As such, the Company believes that it has sufficient demand to resume operation of its B2B API platform operations, assuming it is able to maintain the core employee team to manage the lottery ticket fulfillment process and access sufficient capital to relaunch Project Nexus, which was designed to, among other things, handle high levels of user traffic and transaction volume, while maintaining expediency, security, and reliability in the administrative and back-office functionality required by the B2B API. Our B2B API Platform resumed limited operations in April 2023.
Phase 2 – Resume B2C Platform Operations. The Company believes that it will be in a position to relaunch its B2C Platform in the third quarter of 2023. As of the date of this Amended Report, the Company expects that it will initially relaunch its B2C Platform to customers in Texas for a period of time before rolling it out to other jurisdictions. If the Texas Bill is enacted into law as drafted, the Company may elect to accelerate the relaunch of its Platform to customers in another state. The Company plans to limit the rollout in order to give it additional time to properly vet and confirm compliance with local, state and federal rules related to ticket procurement and distribution. The Company has also maintained various pre-paid media credits that it expects to use to launch and maintain promotional campaigns geared towards encouraging prior customers to return to the Platform and to acquire new customers.
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Phase 3 – Restore Other Business Lines and Projects. Assuming the success of Phase 1 and Phase 2, the Company expects to restore other products it used to offer, such as supplying lottery tickets to consumers in approved domestic jurisdictions, partnering with licensed providers in international jurisdictions to supply legitimate domestic lottery games, and reviving other products and services that were under development when the Operational Cessation occurred.
As of the date of this Amended Report, the current estimated cash balance of the Company and subsidiaries is approximately $366,600. The Company believes that this cash on hand, along with future borrowings, will be sufficient for the Company to pay its service providers to complete and file its deficient periodic reports, including this Amended Report, the Quarterly Reports on Form 10-Q for the periods ending June 30, 2022 and September 30, 2022, and the Annual Report on Form 10-K for the year ended December 31, 2022.
As of the date of this Amended Report, our common stock and warrants are traded on The Nasdaq Stock Market LLC (“Nasdaq”) under the ticker symbols “LTRY” and “LTRYW,” respectively. As of the date of this Amended Report, we are not in compliance with Nasdaq’s continued listing requirements (the “Listing Rules”) and have presented a plan to regain compliance with the Listing Rules that was recently conditionally accepted by a hearing panel. Additionally, under its new management, the Company continues to work to improve its disclosure and reporting controls, and plans to overhaul its systems of internal control over financial reporting and invest in additional legal, accounting, and financial resources.
Even if the Company’s three phase plan to recommence its operations is successful, there can be no assurance that the Company will be able to regain compliance with the applicable Listing Rules, or that the hearings panel will stay the delisting of the Company’s securities from Nasdaq. If the Company’s securities are delisted from Nasdaq, it could be more difficult to buy or sell the Company’s common stock and warrants or to obtain accurate quotations, and the price of the Company’s common stock and warrants could suffer a material decline. Delisting could also impair the Company’s ability to raise additional capital needed to funds its operations and/or trigger defaults and penalties under outstanding agreements or securities of the Company.
There can be no assurance that we will have sufficient capital to support our operations and pay expenses, repay our debt, or that additional funds will be available on favorable terms, if at all. We may not be able to restart our operations and/or generate sufficient funding to support such operations in the future. The Company’s ability to continue its current operations, prepare and refile deficient and restated reports, and restart its prior operations, is dependent upon obtaining new financing. Future financing options available to the Company include equity financings, debt financings or other capital sources, including collaborations with other companies or other strategic transactions. Equity financings may include sales of common stock. Such financing may not be available on terms favorable to the Company or at all. The terms of any financing may adversely affect the holdings or rights of the Company’s stockholders and may cause significant dilution to existing stockholders. There can be no assurance that the Company will be successful in obtaining sufficient funding on terms acceptable to the Company, if at all, which would have a material adverse effect on its business, financial condition and results of operations, and it could ultimately be forced to discontinue its operations and liquidate. These matters, when considered in the aggregate, raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time, which is defined as within one year after the date that the financial statements are issued. The accompanying financial statements do not contain any adjustments to reflect the possible future effects on the classification of assets or the amounts and classification of liabilities that might result from the outcome of this uncertainty.
Performance Measures
In managing our business and assessing financial performance, we supplement the information provided by our financial statements with other operating metrics. We use these metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate projections and make strategic decisions. The primary operating metrics we use are:
| ● | transactions per user; |
| ● | tickets per transaction; |
| ● | gross revenue per transaction; |
| ● | gross profit per transaction; and |
| ● | gross margin per transaction. |
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These metrics help enable us to evaluate pricing, cost and customer profitability. We believe it is useful to provide investors with the same metrics that we use internally to make comparisons of our historical operating results, identify trends in our operating results and evaluate our business. These metrics track our B2C business and exclude users who were referred by an affiliate or who made purchases through an API partner.
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Transactions Per User (annualized) | 12.58 | 9.46 | ||||||
| Tickets Per Transaction | 3.68 | 4.09 | ||||||
| Gross Revenue Per Transaction | $ | 8.75 | $ | 10.16 | ||||
| Gross Profit Per Transaction | $ | 1.30 | $ | 1.48 | ||||
| Gross Margin per Transaction | 14.9 | % | 14.6 | % | ||||
Transactions Per User
Transactions per user is the average number of individual transactions per user in a given period. An individual transaction is defined as the placement of an order by a user on our Platform. We use this measure to determine the overall performance of our products on a per user basis. When considered with the other operating metrics, transactions per user provides insight into user stickiness and buying patterns and is a useful tool to identify our most active users, which enables us to deploy more targeted marketing and other strategic initiatives. This metric also gives us the ability to categorize users based on their performance and determine where to expend marketing and/or operational resources. Transactions per user may be subject to variables that are outside of our control, for instance the size and popularity of a particular lottery game.
Tickets Per Transaction
Tickets per transaction is the average number of lottery game tickets purchased by a user per transaction. We use this measure to analyze the impact of product performance with our customers on the number of tickets sold in one transaction. We believe this metric is useful for our investors because it gives insight into the buying habits of our users. Similar to transactions per user, tickets per transaction may be subject to variables that are outside of our control, for instance the size and popularity of a particular lottery game.
Gross Revenue Per Transaction
Gross revenue per transaction is the average gross amount of revenue per transaction. We use this measure to determine how our top line revenue is performing on a per transaction basis, which helps us to identify and evaluate pricing trends. We believe this metric is useful for our investors because it provides insight into our revenue growth potential on a per transaction basis.
Gross Profit Per Transaction
Gross profit per transaction is our average gross profit per transaction, calculated as gross revenue less the cost of the lottery game ticket and any processing fees, including labor, printing and payment processing, per transaction. We believe this metric to be useful to evaluate and analyze our costs and fee structure across product offerings and user cohorts, and additionally, helps our investors because it provides insight into our profit growth potential on a per transaction basis.
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Gross Margin Per Transaction
Gross margin per transaction is calculated by dividing gross profit per transaction by gross revenue per transaction. We consider this metric to be a measure of overall performance that provides useful information about the profitability of our B2C Platform.
Components of Our Results of Operations (Prior to the Operational Cessation)
Our Revenue
Revenue from B2C Platform. Our revenue is the retail value of the acquired lottery game and the service fee charged to the user, which we impose on each lottery game purchased from our B2C Platform. The amount of the service fee is based upon several factors, including the retail value of the lottery game purchased by a user, the number of lottery games purchased by a user, and whether such user is located within the U.S. or internationally. Currently, in the U.S, the minimum service fee is $0.50 for the purchase of a $1 lottery game and $1 for the purchase of a $2 lottery game; the service fee for additional lottery games purchased in the same transaction is 6% of the face value of all lottery games purchased.
Internationally, B2C sales in jurisdictions where we do not have direct or indirect authority generate an immaterial amount of revenue, and we are assessing our operations in these jurisdictions.
Revenue from B2B API. Together with our third-party commercial partner, we agree on the amount of the mark-up on the cost to be imposed on the sale of each lottery game purchased through the B2B API, if any, together with a service fee to be charged to the user; we receive up to 50% of the net revenues from such mark-up and service fee pursuant to our commercial agreement with each commercial partner. In the U.S., the Company’s average gross revenue per such lottery game sale was $2.00 in the three months ended March 31, 2022. We currently do not charge our commercial partners a fee for the use of the B2B API.
Data Services. Commercial acquirers of our Data Service pay a subscription for access to the Data Service and, for acquisition of certain large data sets, an additional per record fee. The Company additionally enters into multi-year contracts pursuant to which it sells proprietary, anonymized transaction data pursuant to multi-year agreements and in accordance with our Terms of Service in consideration of a fee.
Our Operating Costs and Expenses
Personnel Costs. Personnel costs include salaries, payroll taxes, health insurance, worker’s compensation and other benefits for management and office personnel.
Professional Fees. Professional fees include fees paid for legal and financial advisors, accountants and other professionals related to the Business Combination and other transactions.
General and Administrative. General and administrative expenses include marketing and advertising, expenses, office and facilities lease payments, travel expenses, bank fees, software dues and subscriptions, expensed research and development (“R&D”) costs and other fees and expenses.
Depreciation and Amortization. Depreciation and amortization expenses include depreciation and amortization expenses on real property and other assets.
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Key Trends and Factors Affecting Our Results
The following describes the trends associated with our business prior to the Operational Cessation that have impacted, and which we expect will continue to impact, our business and results of operations in a material way:
International operations. We face challenges related to expanding our footprint globally and the related process of obtaining the licenses and regulatory approvals necessary to provide services and products within new and emerging markets. Largely as a result of the COVID-19 pandemic, the international jurisdictions where we operate and seek to expand have been subject to increasing foreign currency fluctuations against the U.S. dollar, soaring inflation and political and economic instability. We expect these trends to continue during fiscal 2022 and believe they are likely to cause a material decrease in consumer spending, which could have a material impact on our revenues. We expect that it will take a longer period of time to achieve revenue gains or generate cash in the new regions or any new international jurisdictions in which we expand, outside of our domestic geographies.
Introduction of a new gaming platform. We have developed a proprietary, blockchain-enabled gaming platform, which we have named Project Nexus. Project Nexus is designed to handle high levels of user traffic and transaction volume, while maintaining expediency, security, and reliability in processing lottery game sales, the retail requirements of the B2C Platform, the administrative and back-office functionality required by the B2B API, and the claims and redemption process. We expect to utilize this platform to launch new products, including any proprietary products we may introduce. The introduction of new technology like Project Nexus is subject to risks including, for example, implementation delays, issues successfully integrating the technology into our solutions, or the possibility that the technology does not produce the expected benefits.
Our growth plans and the competitive landscape. Our direct competitors operate in the global entertainment and gaming industries and, like us, seek to expand their product and service offerings with integrated products and solutions. Our short-to-medium term focus is on increasing our penetration in our existing U.S. jurisdiction by increasing direct to consumer marketing campaigns, introducing our B2C Platform into new U.S. and international jurisdictions, and acquiring synergistic regulated and sports betting enterprises domestically and abroad. Competition in the sale of online lottery games has significantly increased in recent years, is currently characterized by intense price-based competition, and is subject to changing technology, shifting needs and frequent introductions of new games, development platforms and services. To maintain our competitive edge alongside other established industry players (many of which have more resources, or capital), we expect to incur greater operating expenses in the short-term, such as increased marketing expenses, increased compliance expenses, increased personnel and advisory expenses associated with being a public company, additional operational expenses and salaries for personnel to support expected growth, additional expenses associated with our ability to execute on our strategic initiatives including our aim to undertake merger and acquisition activities, as well as additional capital expenditures associated with the ongoing development and implementation of Project Nexus.
Current Plan of Operations
As of the date of this Amended Report, the Company’s primary revenue drivers are the resumption of its B2B API platform and the launch of Sports.com. It is anticipated that operational costs for the next 12 months through April 30, 2024 will be greater than revenues. It is anticipated that the liquidity gap will be satisfied by equity or debt raised, of which there is no assurance.
Beyond the next 12 months, the Company plans to re-launch its B2C Platform and continue to expand in domestic and international jurisdictions. The Company plans to enhance its mobile application to include pool plays, tickets subscriptions, loyalty programs and various gamification modules.
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Results of Operations
Our consolidated financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation. We expect we will require additional capital to meet our long-term operating requirements. We expect to raise additional capital through, among other things, the sale of equity or debt securities.
Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021
The following table summarizes our results of operations for the three month ended March 31, 2022 and March 31, 2021, respectively.
| Three Months Ended March 31, | ||||||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||||
| Revenue | $ | 3,630,692 | $ | 5,461,539 | (1,830,847 | ) | (0.34 | )% | ||||||||
| Cost of revenue | 2,384,742 | 2,946,981 | (562,239 | ) | (0.19 | )% | ||||||||||
| Gross profit | 1,245,950 | 2,514,558 | (1,268,608 | ) | (0.50 | )% | ||||||||||
| Total operating expenses | 31,926,918 | 5,266,824 | 26,660,094 | 5.06 | % | |||||||||||
| Loss from operations | (30,680,968 | ) | $ | (2,752,266 | ) | (27,928,702 | ) | 10.15 | % | |||||||
| Other expenses | ||||||||||||||||
| Interest expense | 3,981 | 2,472,048 | (2,468,067 | ) | (1.00 | )% | ||||||||||
| Other expense | 4,189,144 | 231,720 | 3,957,424 | 17.08 | % | |||||||||||
| Total other expenses, net | 4,193,125 | 2,703,768 | 1,489,357 | 0.55 | % | |||||||||||
| Net loss before income tax | $ | (34,874,093 | ) | (5,456,034 | ) | (29,418,059 | ) | 5.39 | % | |||||||
| Income tax expense (benefit) | 23,364 | - | 23,364 | 100.00 | % | |||||||||||
| Net loss | (34,897,457 | ) | (5,456,034 | ) | (29,441,423 | ) | 5.40 | % | ||||||||
| Other comprehensive loss | ||||||||||||||||
| Foreign currency translation adjustment, net | (1,064 | ) | - | (1,064 | ) | |||||||||||
| Comprehensive loss | (34,898,521 | ) | (5,456,034 | ) | (29,442,487 | ) | ||||||||||
| Net income attributable to noncontrolling interest | 147,557 | - | ||||||||||||||
| Net loss attributable to Lottery.com Inc. | (34,750,964 | ) | (5,456,034 | ) | ||||||||||||
| Net loss per common share | ||||||||||||||||
| Basic and diluted | $ | (0.69 | ) | $ | (0.24 | ) | ||||||||||
| Weighted average common shares outstanding | ||||||||||||||||
| Basic and diluted | 50,376,433 | 22,888,700 | ||||||||||||||
Revenue.
Revenue. Revenue for the three months ended March 31, 2022 was $3.6 million, a decrease of $1.8 million, or 34%, compared to revenue of $5.4 million for the three months ended March 31, 2021. The decrease in revenue is because $1.5 million of project related revenue from business partners in the three months ended March 31, 2021 was not recurring revenue.
Cost of Revenue. Cost of revenue for the three months ended March 31, 2022 was $2.4 million, a decrease of $0.6 million, or 19%, compared to cost of revenue of $2.9 million for the three months ended March 31, 2021. The decrease in the cost of revenue was driven by costs incurred for outside contractors in connection with a project for a business partner in a new jurisdiction in 2021 that were not recurring.
Gross Profit. Gross profit for the three months ended March 31, 2022 was $1.2 million compared to $2.5 million for the three months ended March 31, 2021, a decrease of $1.3 million, or 50%. This decrease was primarily due to the decrease in revenue because project related revenue from business partners was not recurring in 2022.
Operating Costs and Expenses.
| Three Months Ended March 31, | ||||||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||||
| Operating expenses | ||||||||||||||||
| Personnel costs | $ | 24,402,866 | $ | 1,095,793 | $ | 23,307,073 | 2,127 | % | ||||||||
| Professional fees | 3,137,950 | 2,415,198 | 722,752 | 30 | % | |||||||||||
| Sales & marketing | 1,887,870 | 313,442 | 1,574,428 | 502 | % | |||||||||||
| General and Administrative | 1,124,307 | 1,075,132 | 49,175 | 5 | % | |||||||||||
| Depreciation and amortization | 1,373,925 | 367,259 | 1,006,666 | 274 | % | |||||||||||
| Total operating expenses | $ | 31,926,918 | $ | 5,266,824 | $ | 26,661,159 | 506 | % | ||||||||
Operating expenses for the three months ended March 31, 2022 were $31.9 million, an increase of $26.6 million, or 506%, compared to $5.3 million for the three months ended March 31, 2021. The increase was primarily driven by increased personnel expenses incurred from $20.7 million of stock compensation expense and increased general and administrative expenses from public company expenses, increased headcount to support the Company’s growth, increased marketing spends resulting from the use of Gatehouse Media credits, which we received several years ago in exchange for warrants, and increased amortization expenses driven by acquisitions made during the 2021 fiscal year
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Personnel Costs. Personnel costs increased by $23.3 million, from $1.1 million for the three months ended March 31, 2021, to $24.4 million for the three months ended March 31, 2022. The increase was due primarily to an increase of $20.7 million in stock compensation expense as a result of equity grants that were valued at the share price soon after the Business Combination.
Professional Fees. Professional fees increased by $0.7 million, or 30%, from $2.4 million for the three months ended March 31, 2021 to $3.1 million for the three months ended March 31, 2022. The increase was driven primarily by public company legal and professional fees including 60,000 shares of common stock issued of at a fair value of approximately $241,740 at $4.03 per share.
Sales and Marketing. Sales and marketing expenses for the three months ended March 31, 2022 were approximately $1.8 million, compared to $0.3 million for the three months ended March 31, 2021, an increase of $1.6 million, or 502%. This increase was due primarily to an increase in media credits used during the current period.
General and Administrative. General and administrative expenses increased $1.0 million, or 5%, from $1.08 million for the three months ended March 31, 2021 to $1.1 million for the three months ended March 31, 2022. These costs increased in general is mainly attributed to travel costs, development opportunities, increased business licensing, bank fees, and insurance.
Depreciation and Amortization. Depreciation and amortization increased $1.0 million, or 274%, from $0.4 million for the three months ended March 31, 2021 to $1.4 million for the three months ended March 31, 2022. The increase was driven by the acquisition of the sports.com domain name in 2021 as well as the intangibles created through the purchase of Global Gaming.
Other (Income) Expense, Net.
| Three Months Ended March 31, | ||||||||||||||||
| 2022 | 2021 | $ Change | % Change | |||||||||||||
| Other expenses | ||||||||||||||||
| Interest expense | 3,981 | 2,472,048 | (2,468,067 | ) | (100 | )% | ||||||||||
| Other (income) expense | 4,189,144 | 231,720 | 3,957,4243 | 1708 | % | |||||||||||
| Total other (income) expense, net | $ | 4,193,125 | $ | 2,703,768 | 1,489,357 | 55 | % | |||||||||
Interest Expense. We had minimal interest expenses for the three months ended March 31, 2022, compared to interest expense of $2.5 million for the three months ended March 31, 2021. This change was driven by lower debt levels as a result of debt that converted into equity at the time of the Business Combination or settled in cash following the Closing.
Other Expense. Other expense for the three months ended March 31, 2022 is related to an expense recorded to reflect a discount on a long term asset that will be received by the Company over time.
Liquidity and Capital Resources
Prior to the Operational Cessation, our primary need for liquidity was to fund working capital requirements of our business, growth, capital expenditures and for general corporate purposes. Our primary source of liquidity had historically been funds generated by financing activities. Upon the Closing on October 29, 2021, we received net proceeds of approximately $42.8 million in cash.
Following the Operational Cessation, our primary need for liquidity has been to fund the restart of our business operations, re-hire employees and pay our expenses. As of the date of this Amended Report, our sole source of liquidity is the funds provided to us under the Loan Agreement with Woodford, of which $1.25 million remains available to us under such agreement. We expect that the most likely source of such future funding presently available to us is through additional borrowings under the Loan Agreement or through the issuance of equity or debt securities. If Woodford does not advance us amounts owed under the Loan Agreement or we are otherwise not able to secure the necessary capital to restart our operations, hire new employees, and obtain funding sufficient to support and restart our operations, we may be forced to permanently cease our operations, sell off our assets and operations, and/or seek bankruptcy protection, which could cause the value of our securities to become worthless.
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These conditions, along with our current lack of material revenue producing activities, and significant debt, raise substantial doubt about our ability to continue as a going concern for the next 12 months. For more information, see Note 2 – Liquidity and Going Concern to the consolidated financial statements included herein.
Convertible Debt Obligations
Prior to the Closing, we funded our operations through the issuance of convertible promissory notes.
From August to October 2017, the Company entered into seven Convertible Promissory Note Agreements with unaffiliated investors for an aggregate amount of $821,500. The notes bore interest at 10% per year, were unsecured, and were due and payable on June 30, 2019. The Company and the noteholders executed amendments in February 2021 to extend the maturity date to December 21, 2021. As of both March 31, 2022 and December 31, 2021, the balance of these notes was $771,500.
From November 2019 through October 28, 2021, we issued approximately $48.2 million in aggregate principal amount of Series B convertible promissory notes. The notes bear interest at 8% per year, were unsecured, and were due and payable on dates ranging from December 2020 to December 2022. For those promissory notes that would have matured on or before December 31, 2020, the parties extended the maturity date to December 21, 2021 through amendments executed in February 2021. The amendments also allowed for automatic conversion to equity as a result of the Business Combination. Nearly all of the aforementioned promissory notes automatically converted into shares of Common Stock or were terminated pursuant to their terms, as applicable, in connection with the Closing. Those that remain outstanding do not have conversion terms that were triggered by the Closing.
Immediately prior to the Closing, approximately $60.0 million of convertible debt was converted into equity of AutoLotto. As of March 31, 2022, we had no convertible debt outstanding.
See “—Recent Developments— Loan Agreement with Woodford” above for additional information on the terms of the Loan Agreement.
Cash Flows
Prior to the Operational Cessation, net cash provided by operating activities was $1.9 million for the three months ended March 31, 2022, compared to net cash provided by operating activities of $3.9 million for the three months ended March 31, 2021. Factors affecting changes in operating cash flows were decreased revenue from operations which were combined with increased expenses for professional fees, personnel costs, and sales and marketing activities in 2022 as compared to 2021. Net cash used in investing activities during the three months ended March 31, 2022 was $0, compared to $3.1 million for the prior year. The decrease was primarily the result of a decrease in spending on capitalized software development. Net cash used by financing activities was $.3 million for the three months ended March 31, 2022, compared to net cash provided of $14.5 million for the three months ended March 31, 2021. The decrease was primarily due convertible debt being issued in 2021 which did not repeat in 2022 as well as the repayment of principal repayments for $4.8 million of debt in 2022.
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Emerging Growth Company Accounting Election
Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can choose not to take advantage of the extended transition period and comply with the requirements that apply to non-emerging growth companies, and any such election to not take advantage of the extended transition period is irrevocable. We are an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended, and have elected to take advantage of the benefits of this extended transition period. We expect to remain an emerging growth company through the end of the 2023 fiscal year and we expect to continue to take advantage of the benefits of the extended transition period. This may make it difficult or impossible to compare the financial results with the financial results of another public company that is either not an emerging growth company or is an emerging growth company that has chosen not to take advantage of the extended transition period exemptions for emerging growth companies because of the potential differences in accounting standards used.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” This guidance requires recognition of most lease liabilities on the balance sheet to give investors, lenders, and other financial statement users a more comprehensive view of a company’s long-term financial obligations, as well as the assets it owns versus leases. ASU 2016-02 will be effective for fiscal years beginning after December 15, 2021, and for interim periods within annual periods after December 15, 2022. In July 2018, the FASB issued ASU 2018-11 making transition requirements less burdensome. The standard provides an option to apply the transition provisions of the new standard at its adoption date instead of at the earliest comparative period presented in the Company’s financial statements. We are currently evaluating the impact that this guidance will have on our financial statements as well as the expected adoption method. We do not believe the adoption of this standard will have a material impact on our financial statements.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments”, as additional guidance on the measurement of credit losses on financial instruments. The new guidance requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. In addition, the guidance amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The new guidance is effective for all public companies for interim and annual periods beginning after December 15, 2019, with early adoption permitted for interim and annual periods beginning after December 15, 2018. In October 2019, the FASB approved a proposal which grants smaller reporting companies additional time to implement FASB standards on current expected credit losses (CECL) to January 2023. As a smaller reporting company, we will defer adoption of ASU No. 2016-13 until January 2023. We are currently evaluating the impact this guidance will have on our condensed consolidated financial statements.
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Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
In connection with the filing of the Original Report on May 16, 2022, our management, with the participation of our then Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2022. Based on their evaluation, our then Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2022, our disclosure controls and procedures were not effective due to material weaknesses in our internal control over financial reporting with respect to our financial statement close and reporting process.
Subsequent to the evaluation made in connection with the filing of the Original Report on May 16, 2022, our management, with the participation of our Chief Executive Officer, reevaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2022. Our disclosure and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer, to allow timely decisions regarding required disclosures.
Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures. Based on such reevaluation, our Chief Executive Officer concluded that, as of the end of the period covered by this Amended Report, our disclosure controls and procedures were not effective due to the material weaknesses in our internal control over financial reporting with respect to our financial statement close and reporting process, as described further below. As a result of this conclusion, we retained third-party accounting consultants who performed additional analysis as deemed necessary to ensure that our financial statements were prepared in accordance with GAAP. Accordingly, management believes that the financial statements included in this Amended Report present fairly in all material respects our financial position, results of operations and cash flows for the periods presented.
Material Weaknesses in Internal Control Over Financial Reporting (as restated)
In connection with the audit of our condensed consolidated financial statements included in our Amended Annual Report, our management has identified material weaknesses in our internal control over financial reporting as of December 31, 2021 and 2020 relating to deficiencies in the design and operation of the procedures relating to the closing of our financial statements. These include: (i) our lack of a sufficient number of personnel with an appropriate level of knowledge and experience in accounting for complex or non-routine transactions, (ii) the fact that our policies and procedures with respect to the review, supervision and monitoring of our accounting and reporting functions were either not designed and in place or not operating effectively; (iii) our inability to complete the timely closing of financial books at the quarter and fiscal year end, and (iv) incomplete segregation of duties in certain types of transactions and processes.
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Specifically, management did not design and maintain sufficient procedures and controls related to revenue recognition including those related to ensuring accuracy of revenue recognized from non-routine transactions such as the sales of LotteryLink Credits, which resulted in an overstatement of revenue of approximately $52.1 million during the year ended December 31, 2021, which required a restatement of our previously issued financial statements for the year ended December 31, 2021 contained in the Amended Annual Report.
We have implemented remediation steps to improve our internal control over financial reporting and to remediate the identified material weaknesses, including (i) adding personnel with sufficient accounting knowledge; (ii) adopting a more rigorous period-end review process for financial reporting; (iii) adopting improved period close processes and accounting processes, and (iv) clearly defining and documenting the segregation of duties for certain transactions and processes. Management has expanded and will continue to enhance our system of identifying transactions and evaluating and implementing the accounting standards that apply to our financial statements, including through enhanced analyses by our personnel and third-party professionals with whom we consult regarding complex accounting applications. We intend to continue take steps to remediate the material weaknesses described above and further continue re-assessing the design of controls, the testing of controls and modifying processes designed to improve our internal control over financial reporting. The Company plans to continue to assess its internal controls and procedures and intends to take further action as necessary or appropriate to address any other matters it identifies or are brought to its attention. We will not be able to fully remediate these material weaknesses until these steps have been completed and have been operating effectively for a sufficient period of time. The implementation of our remediation will be ongoing and will require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles. We may also conclude that additional measures may be required to remediate the material weaknesses in our internal control over financial reporting.
We cannot assure you that the measures we take will be sufficient to remediate the material weaknesses we identified or avoid the identification of additional material weaknesses in the future. If the steps we take do not remediate the material weaknesses in a timely manner, there could continue to be a reasonable possibility that this control deficiency or others could result in another material misstatement of our annual or interim financial statements that would not be prevented or detected on a timely basis.
Changes in Internal Control Over Financial Reporting
Except as otherwise described herein, there was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended March 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 6. Exhibits.
| * | Filed herewith. |
| ** | Furnished herewith. |
| *** | Filed with the Original Report. |
| + | Certain portions of this exhibit have been omitted pursuant to Regulation S-K Item 601(b)(10)(iv). The Registrant agrees to furnish an unredacted copy of the exhibit to the SEC upon its request. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Lottery.com Inc. | ||
| By: | /s/ Mark Gustavson | |
| Name: | Mark Gustavson | |
| Title: | Chief Executive Officer (Principal Executive Officer and Principal Financial/Accounting Officer) |
|
Dated: May 15, 2023
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Exhibit 31.1
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Mark Gustavson, certify that:
| 1. | I have reviewed this Amended Report on Form 10-Q/A of Lottery.com Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 15, 2023
| /s/ Mark Gustavson | |
| Mark Gustavson | |
| Chief Executive Officer | |
| (Principal Executive Officer and Principal Financial/Accounting Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Lottery.com Inc. (the “Registrant”) on Form 10-Q/A for the quarter ended March 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Mark Gustavson, Principal Executive Officer and Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.
May 15, 2023
| /s/ Mark Gustavson | |
| Mark Gustavson | |
Chief Executive Officer (Principal Executive Officer and Principal Financial/Accounting Officer) |
The foregoing certification is not deemed filed with the Securities and Exchange Commission for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (“Exchange Act”), and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof, regardless of any general incorporation language in such filing. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.