10-K/A: Lottery.com Files Amended 10-K, Outlines Path to Operational Restart and Growth

Lottery.com files an amended 10-K report, addressing past accounting issues and detailing a three-phase plan to resume operations and pursue growth in 2024.

Summary

• Lottery.com has filed an amended 10-K report to address accounting errors and restate previous financial statements.
• The company is implementing a three-phase plan to restart operations, focusing on its B2B API platform, B2C platform, and other business lines.
• The company has secured investment commitments from United Investments Capital London and investors placed by Univest Securities LLC.
• The company's operational progress for FY 2024 will be driven by technology, product and service/capability enhancements.
• The company's current cash balance is approximately $36,799.
• The company is working to improve its disclosure and reporting controls and overhaul its systems of internal control over financial reporting.
• The company has identified material weaknesses in its internal control over financial reporting as of December 31, 2023.
• The company is subject to various legal proceedings, investigations and inquiries related to past non-compliance issues.

Sentiment

Score: 4

Explanation: The document presents a mixed picture. While there are positive developments such as the investment commitments and plans for operational restart, the company's history of losses, ongoing legal issues, and material weaknesses in internal controls raise significant concerns. The overall sentiment is cautiously optimistic but with a high degree of risk.

Positives

• The company has regained full compliance with Nasdaq's continued listing rules.
• The company has maintained positive relationships with its ticket-printing and courier partners.
• The company has maintained relationships with several distribution partners that have implemented the Lottery.com API.
• The company has maintained various pre-paid media credits that it expects to use to launch and maintain promotional campaigns.
• The company relaunched its sweepstakes business in April 2024.

Negatives

• The company has a history of net losses and negative cash flows.
• The company has suspended operations since July 2022.
• The company has outstanding payroll obligations of approximately $3.85 million and director compensation obligations of $1.0 million as of December 31, 2023.
• The company has identified material weaknesses in its internal control over financial reporting as of December 31, 2023.
• The company is subject to various legal proceedings, investigations and inquiries related to past non-compliance issues.
• The company has had difficulties in obtaining desirable insurance coverage, or any insurance coverage, regarding legal proceedings, investigations and inquiries.

Risks

• The company may not be able to continue as a going concern if it cannot secure additional funding.
• The company may be forced to curtail or abandon its plans to recommence operations if it does not receive additional capital.
• The company may not be able to maintain compliance with Nasdaq's continued listing standards.
• The company's obligations under certain loan agreements are secured by a first priority security interest in substantially all of its assets.
• The issuance and sale of common stock upon conversion of debt or exercise of warrants may depress the market price of the company's common stock and cause substantial dilution.
• The company may not be able to repay its debt obligations.
• The company is subject to risks related to corporate social responsibility, responsible gaming, reputation, and ethical conduct.
• The company's information technology and infrastructure may be vulnerable to cyberattacks.
• The company may be unable to comply with complex, ever-changing and multi-jurisdictional regulatory regimes.
• The company is dependent on third-party service providers to timely perform services or provide software component products for its gaming platforms.

Future Outlook

The company plans to resume core operations, monetize the Sports.com brand, and expand all the company's brands across the globe. The company expects to relaunch its B2C platform by the summer of 2024.

Management Comments

• The investment commitments from United Investments Capital London, including Prosperity Investment Management and others, and investors placed by Univest Securities LLC, outlined in this report are evidence of investor belief in Managements capability to resume core lottery and gaming operations, monetize the Sports.com brand, and expand all the Companys brands across the globe.
• During FY 2023, the Company addressed legacy issues while successfully regaining full compliance with Nasdaqs continued listing rules and restarting operations in order to stage Lottery.com for growth in FY 2024.
• The cornerstone of the Companys operational progress for FY 2024 will be driven by technology, product and service/capability enhancements.
• This Amended Report is reflective of the Companys commitment to transparency, integrity, and responsible corporate governance.

Industry Context

The document highlights the challenges and opportunities in the online lottery and gaming industry, including competition, regulatory changes, and the need for technological innovation. The company is positioning itself to capitalize on the growing market for online lottery and gaming services.

Comparison to Industry Standards

• The document does not provide specific comparisons to industry standards, but it does mention that the company competes with established, well-financed third-party lottery application companies, online gaming providers, sports betting, and interactive entertainment companies.
• The company's financial results are not compared to specific competitors or industry benchmarks, but the document does note that the company has a history of net losses and negative cash flows, which may be a concern compared to more established and profitable companies in the industry.
• The company's focus on technology, product, and service enhancements is consistent with industry trends, as companies in the online gaming and lottery space are increasingly relying on technology to improve user experience and expand their reach.
• The company's efforts to comply with regulatory requirements and improve its internal controls are also consistent with industry best practices, as companies in this space are subject to complex and evolving regulations.

Management Changes

Legal Proceedings

• The company and certain of its former officers are the subject of a number of legal proceedings, investigations and inquiries with respect to cited issues and have been named as a defendant in a number of lawsuits, including class action lawsuits.
• The company is involved in litigation with J. Streicher Financial, LLC, seeking to recover $16.5 million.
• The company is involved in a class action lawsuit filed by purchasers of its securities.
• The company is involved in a lawsuit with TinBu Plaintiffs for breach of contract and misrepresentation.
• The company is involved in a lawsuit with Global Gaming Data, LLC for violations of the Federal Defend Trade Secrets Act, the Florida Uniform Trade Secrets Act and the Florida Deceptive and Unfair Trade Practices Act, and for breaches of contract and fiduciary duties.
• The company is involved in litigation with Woodford Eurasia Assets Limited.

Related Party Transactions

• The company entered into a credit facility with United Capital Investments London Limited, an entity in which each of Matthew McGahan, the Companys Chief Executive Officer and Chairman of the Companys Board, and Barney Battles, a member of the Board, have a direct or indirect interest.

Stakeholder Impact

• Shareholders face the risk of dilution and potential loss of investment due to the company's need for additional capital and the potential for delisting from Nasdaq.
• Employees have been impacted by the furlough and the company's inability to pay outstanding payroll obligations.
• Customers may be affected by the company's operational disruptions and the uncertainty surrounding its future.
• Suppliers and creditors may be impacted by the company's financial difficulties and its ability to meet its obligations.
• The company's reputation and brand have been damaged by the internal investigation and restatement of financial statements.

Next Steps

• The company plans to relaunch its B2B API platform.
• The company plans to resume B2C platform operations by the summer of 2024.
• The company plans to restore other business lines and projects.
• The company plans to continue to improve its disclosure and reporting controls.
• The company plans to overhaul its systems of internal control over financial reporting and invest in additional legal, accounting, and financial resources.

Key Dates

Keywords

Lottery.com, stock issuance, option plan, equity, incentive, compensation, employees, directors, consultants, stock options, shares, internal controls, financial reporting, restatement, going concern, legal proceedings, operational restart, B2B API, B2C platform, data services, sports.com, UCIL, Univest, Woodford