PART I – FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis Item 1. Consolidated Financial Statements This section presents the unaudited condensed consolidated financial statements for Lottery.com Inc Condensed Consolidated Balance Sheets This statement presents the company's financial position, including assets, liabilities, and equity, as of specific dates Condensed Consolidated Balance Sheets | ASSETS | September 30, 2024 (UNAUDITED) | December 31, 2023 (AUDITED) | | :-------------------------- | :----------------------------- | :-------------------------- | | Cash | $ 60,466 | $ 359,826 | | Accounts receivable | 434,457 | 24,241 | | Prepaid expenses | 19,248,357 | 19,020,159 | | Other current assets | 770,666 | 907,632 | | Total current assets | 20,513,946 | 20,311,858 | | Notes receivable | 2,000,000 | 2,000,000 | | Investments | 250,000 | 250,000 | | Goodwill | 7,746,491 | 11,227,491 | | Intangible assets, net | 14,994,949 | 17,681,874 | | Property and equipment, net | 13,817 | 21,309 | | Other long-term assets | 12,884,686 | 12,884,686 | | Total assets | $ 58,403,889 | $ 64,377,218 | | | | | | LIABILITIES AND EQUITY | | | | Trade payables | $ 8,231,152 | $ 7,991,802 | | Deferred revenue | 276,786 | 357,143 | | Notes payable - current | 6,412,127 | 6,026,669 | | Accrued interest | 1,096,101 | 858,875 | | Accrued and other expenses | 12,696,559 | 11,359,616 | | Other liabilities | 2,017,111 | 1,167,111 | | Total current liabilities | 30,729,836 | 27,761,216 | | Total liabilities | 30,729,836 | 27,761,216 | | Total Equity | 27,674,053 | 36,616,002 | | Total liabilities and stockholders' equity | $ 58,403,889 | $ 64,377,218 | - Total assets decreased by approximately $5.97 million from December 31, 2023, to September 30, 2024, primarily due to a reduction in goodwill and intangible assets46 - Total current liabilities increased by approximately $2.97 million, while total equity decreased by approximately $8.94 million during the nine-month period46 Condensed Consolidated Statements of Operations and Comprehensive Loss This statement details the company's revenues, expenses, and net loss for the reported periods Condensed Consolidated Statements of Operations and Comprehensive Loss | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenue | $ 200,655 | $ 285,523 | $ 716,972 | $ 1,561,096 | | Cost of revenue | 83,829 | 72,171 | 213,186 | 203,001 | | Gross profit | 116,826 | 213,352 | 503,786 | 1,358,095 | | Total operating expenses | 3,746,442 | 3,367,440 | 15,617,925 | 11,882,587 | | Loss from operations | (3,629,616) | (3,154,088) | (15,114,139) | (10,524,492) | | Loss on impairment of intangibles & goodwill | 4,298,002 | - | 4,298,002 | - | | Net loss before income tax | (8,033,940) | (3,400,617) | (19,751,178) | (10,870,658) | | Net loss | (8,046,754) | (3,400,617) | (19,772,292) | (10,870,658) | | Net loss attributable to Lottery.com Inc. | (7,984,874) | (3,362,646) | (19,772,840) | (10,841,171) | | Net loss per common share (Basic and diluted) | $ (1.46) | $ (1.33) | $ (4.48) | $ (5.38) | - Revenue for the three months ended September 30, 2024, decreased by 30% YoY to $201 thousand, and for the nine months, it decreased by 54% YoY to $717 thousand49329347 - Net loss significantly widened for both the three-month and nine-month periods ended September 30, 2024, primarily due to a $4.3 million loss on impairment of intangibles and goodwill49343361 Condensed Consolidated Statements of Equity This statement outlines changes in the company's equity components over the reporting periods Condensed Consolidated Statements of Equity | Equity Component | Balance as of Dec 31, 2023 | Balance as of Sep 30, 2024 | | :-------------------------------- | :------------------------- | :------------------------- | | Common Shares | 2,877,045 | 10,123,682 | | Stock Amount | 2,877 | 10,124 | | Additional Paid-In Capital | 269,690,569 | 280,307,750 | | Accumulated Deficit | (235,106,206) | (254,879,047) | | Accumulated Other Comprehensive Income | (91,667) | 243,980 | | Total Lottery.com Inc. Stockholders' Equity | 34,495,573 | 25,682,807 | | Noncontrolling Interest | 2,120,429 | 1,991,246 | | Total Stockholders' Equity | 36,616,002 | 27,674,053 | - Total stockholders' equity decreased from $36.6 million at December 31, 2023, to $27.7 million at September 30, 2024, primarily due to an increased accumulated deficit51 - Common shares outstanding increased significantly from 2,877,045 to 10,123,682, largely due to stock-based compensation and conversion of debt to stock51175176 Condensed Consolidated Statements of Cash Flows This statement summarizes cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows | Cash Flow Activity | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :---------------------------------- | :----------------------------- | :----------------------------- | | Net cash (used in) provided by operating activities | $ 952,753 | $ (766,532) | | Net cash used in investing activities | (884,906) | - | | Net cash (used in) provided by financing activities | (31,560) | 870,976 | | Net effect of exchange rate changes on Cash | (335,647) | (143,475) | | NET CHANGE IN NET CASH AND RESTRICTED CASH | (299,360) | (39,031) | | CASH AND RESTRICTED CASH - END OF PERIOD | $ 60,466 | $ 63,735 | - Net cash provided by operating activities improved significantly to $953 thousand for the nine months ended September 30, 2024, compared to a net cash outflow of $767 thousand in the prior year56370 - Net cash used in investing activities was $885 thousand in 2024, primarily due to the purchase of intangibles, compared to no investing activities in the prior period56370 - Net cash provided by financing activities decreased substantially from $871 thousand in 2023 to a net cash outflow of $32 thousand in 202456371 Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements Note 1. Nature of Operations Lottery.com Inc. offers lottery products and services, ceased operations in July 2022, and resumed limited sales in April 2023 - Lottery.com Inc. offers a platform for remote purchase of legally sanctioned lottery games (B2C Platform), a business-to-business API for commercial partners (B2B API), and global lottery/sports data services (Data Service)59 - The company acquired interests in Mexican iLottery operators Aganar and JuegaLotto on June 30, 202161 - Operations effectively ceased on July 28, 2022, due to insufficient financial resources, with limited ticket sales resuming on April 25, 2023, as part of recommencement plans6263 Note 2. Significant Accounting Policies This note details significant accounting policies, including basis of presentation, going concern, revenue recognition, and impairment - The company's financial statements are prepared on a going concern basis, but recurring net losses and negative working capital raise substantial doubt about its ability to continue as a going concern666870 - The October 29, 2021 Business Combination with Trident Acquisition Corp. was accounted for as a reverse recapitalization, with AutoLotto identified as the accounting acquirer7274 - Revenue is recognized when performance obligations are satisfied, primarily from lottery game sales (B2C/B2B) and data services, with gross presentation deemed appropriate due to the company's principal role9899100 - Goodwill and other intangibles are evaluated for impairment annually or when circumstances indicate, using discounted cash flow methodologies97151152 Note 3. Business Combination This note details business combinations, including the TDAC reverse recapitalization and acquisitions of Global Gaming and S&MI Ltd - The TDAC Business Combination on October 29, 2021, was a reverse recapitalization, with AutoLotto as the accounting acquirer, resulting in $42.79 million gross proceeds and $9.46 million transaction costs124127129 - The acquisition of Global Gaming Enterprises, Inc. on June 30, 2021, for $10.99 million (cash and stock) included $8.59 million in intangible assets (gaming licenses, trade names, technology, customer relationships) and $4.94 million in goodwill131134136 - On September 30, 2024, the company acquired S&MI Ltd. for $1 million in an all-stock purchase, which provides a streaming and multimedia platform137139 Note 4. Property and Equipment, net Net property and equipment decreased from $21,309 to $13,817, with reduced depreciation expense Property and Equipment, net | Category | September 30, 2024 | December 31, 2023 | | :------------------------ | :----------------- | :---------------- | | Computers and equipment | $ 124,678 | $ 124,199 | | Furniture and fixtures | 16,898 | 16,898 | | Software | 2,026,201 | 2,026,200 | | Property and equipment | 2,167,777 | 2,167,297 | | Accumulated depreciation | (2,153,960) | (2,145,988) | | Property and equipment, net | $ 13,817 | $ 21,309 | - Depreciation expense for the three months ended September 30, 2024, was $2,095, a significant decrease from $7,772 for the same period in 2023141 Note 5. Prepaid Expenses Prepaid expenses, primarily advertising credits, increased slightly and are expected to be utilized by end of 2025 - Prepaid expenses consist mainly of advertising credits from two top-tier media organizations, obtained in return for warrants, common stock, and preferred stock142 - The company expects to begin utilizing these credits in Q1 2025 and fully utilize them by the end of 2025, hence their classification as current assets142 Prepaid Expenses | Metric | September 30, 2024 | December 31, 2023 | | :--------------- | :----------------- | :---------------- | | Prepaid expenses | $ 19,248,357 | $ 19,020,159 | Note 6. Notes Receivable A $2 million secured promissory note, bearing 3.1% annual interest, was outstanding for development work - A $2,000,000 secured promissory note, bearing 3.1% annual interest, was outstanding as of September 30, 2024, and December 31, 2023143 - The note was received as consideration for development work performed for a borrower intending to launch an online game outside the U.S144 Note 7. Write-Off of Goodwill and Intangibles (as of Dec 31, 2023) Significant impairment charges of $6.71 million for goodwill and $800 thousand for intangibles were recognized - Goodwill impairment charges for the year ended December 31, 2023, totaled $6.71 million, comprising $5.65 million for TinBu and $1.06 million for Global Gaming147 - Intangible asset impairment charges for the year ended December 31, 2023, totaled $800 thousand, including $488 thousand for trade names/trademarks and $312 thousand for technology acquired from Global Gaming147 - A $1.65 million goodwill increase related to Global Gaming from 2021 was reversed due to improper accounting for deferred tax liabilities148149 Note 8. Write-Off of Goodwill and Intangibles (as of Sep 30, 2024) Additional goodwill impairment of $3.48 million and intangible asset impairment of $817 thousand were recognized - Goodwill impairment charges for the three months ended September 30, 2024, totaled $3.48 million, with $1.57 million for TinBu and $1.91 million for Global Gaming153 - Intangible asset impairment charges for the three months ended September 30, 2024, totaled $817 thousand, including $548 thousand for trade name, $150 thousand for customer relationships, and $119 thousand for technology acquired from Global Gaming153 Note 9. Intangible assets, net Net intangible assets decreased to $14.99 million due to amortization and impairment charges Intangible assets, net | Category | Useful Life | Gross Carrying Amount (Sep 30, 2024) | Accumulated Amortization (Sep 30, 2024) | Net (Sep 30, 2024) | | :---------------------------- | :---------- | :----------------------------------- | :-------------------------------------- | :----------------- | | Customer relationships | 6 years | $ 1,350,000 | $ (1,312,417) | $ 37,583 | | Trade name | 6 years | 2,550,000 | (1,828,867) | 721,133 | | Technology | 6 years | 3,935,177 | (2,372,040) | 1,563,137 | | Software agreements | 6 years | 14,450,000 | (10,608,332) | 3,841,668 | | Gaming license | 6 years | 4,020,000 | (2,177,500) | 1,842,500 | | Internally developed software | 2 - 10 years| 2,904,473 | (949,712) | 1,954,761 | | Domain name | 15 years | 6,935,000 | (1,900,833) | 5,034,167 | | Total Intangibles | | $ 36,144,650 | $ (21,149,701) | $ 14,994,949 | - Amortization expense for intangible assets totaled $1,205,819 for the three months ended September 30, 2024, and $2,610,050 for the nine months ended September 30, 2024154 - Impairment charges to goodwill and intangible assets for the three months ended September 30, 2024, totaled $3,481,000 and $817,002, respectively154 Note 10. Notes Payable and Convertible Debt This note details various debt instruments, many of which are in technical default due to non-repayment - Outstanding Series A notes payable totaled $771,500 as of September 30, 2024, with $318,909 in accrued interest, and these notes have matured and not been repaid160 - Outstanding Series B notes payable totaled $185,095 as of December 31, 2023, with $75,915 in accrued interest as of September 30, 2024, and these notes have also matured and not been repaid164 - Notes payable related to the TinBu acquisition totaled $2,336,081 as of September 30, 2024, with $323,273 in accrued interest, and are in technical default168169 Note 11. Stockholders' Equity This note covers the 1-for-20 reverse stock split, increased common shares outstanding, and details on public warrants - A 1-for-20 reverse stock split was implemented on August 9, 2023, affecting all issued and outstanding common stock170 - Common stock outstanding increased from 2,877,045 shares at December 31, 2023, to 10,123,682 shares at September 30, 2024, driven by stock for compensation and debt conversion175176 - Public Warrants for 1,006,250 shares of common stock were outstanding as of September 30, 2024, exercisable at $230.00 per share, expiring five years after October 29, 20212177181 - All potential earnout shares from the TDAC Combination were forfeited as of December 31, 2022, as conditions were not met130186 Note 12. Stock-based Compensation This note details stock incentive plans and significant restricted stock awards granted in lieu of cash payments - The company has three stock incentive plans: the 2015 Plan, the 2021 Plan (616,518 shares initially reserved, annual increases), and the 2023 Plan (500,000 shares initially reserved)187188189 - No new stock options were issued in the quarter ended September 30, 2024; 17,283 stock awards remain outstanding with a weighted average exercise price of $8.20191 - During the quarters ended June 30, 2024, and September 30, 2024, 2,669,932 and 2,654,281 restricted shares, respectively, were granted and immediately vested, largely in lieu of cash payments for accrued liabilities and consulting services194 Note 13. Income Taxes Income taxes are accounted for using the asset and liability method, with a valuation allowance for deferred tax assets - Income taxes are accounted for using the asset and liability method, recognizing deferred tax assets and liabilities for future tax consequences of temporary differences112196 - A valuation allowance is established for deferred tax assets when it is more likely than not that the related benefit will not be realized112196 - Federal tax years 2020-2023 and state tax years 2019-2023 are generally open for examination by tax authorities114 Note 14. Commitments and Contingencies This note outlines commitments and contingencies, including indemnification, lease obligations, and ongoing legal proceedings - The company has indemnification agreements with business partners, customers, landlords, and lenders, with maximum potential future payments being unlimited, but estimated fair value is minimal197 - Digital Securities holders have a pro rata right to 7% of LDC Crypto Universal Public Company Limited's net raffle revenue; no obligations were incurred in 2022-2023, but $5,632 was incurred in 2021 and remains unpaid198 Lease Commitments | Years ending December 31, | Amount | | :------------------------ | :---------- | | 2024 | $ 7,302 | | 2025 | 175,000 | | Thereafter | - | | Total | $ 182,302 | - The company is involved in several material legal proceedings, including lawsuits with J. Streicher, Preston Million (class action), TinBu, Global Gaming Data, Woodford Eurasia Assets, Ltd., McTurk, and Honey Tree. The company generally does not believe additional liability is probable or estimable beyond what is already recorded202203204205208210211217218 Note 15. Related Party Transactions The company engaged in borrowing arrangements with founders and the CFO, and terminated a services agreement - Outstanding borrowing arrangements with individual founders totaled $13,000 as of September 30, 2024221 - A services agreement with Master Goblin Games (owned by a former officer) was terminated in January 2023, with a $53,000 payment settling $316,919 in outstanding obligations222225 - The company entered into a zero-interest borrowing arrangement with its CFO, Robert Stubblefield, for $57,682 during Q3 2024, expected to be repaid by December 31, 2024226 Note 16. Subsequent Events Key subsequent events include SEC S-1 effectiveness, new accounting firm approval, and a $100 million stock purchase agreement - The SEC declared the company's Form S-1 Registration Statement effective on October 16, 2024, covering 50 million shares of Common Stock at $3.00 per share for public resale227 - Boladale Lawal & Co was approved as the new independent registered public accounting firm on December 10, 2024228 - On November 21, 2024, the company signed a Stock Purchase Agreement with Generating Alpha Ltd. for up to $100 million in common stock, allowing the company to request 'Puts' at 90% of the average VWAP over 20 trading days229 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition, operational results, Nasdaq compliance, loan agreements, and strategic initiatives Internal Investigation and Operational Cessation This section details internal investigation findings, operational cessation in July 2022, and efforts to restart core businesses - An internal investigation in July 2022 revealed non-compliance with state/federal laws regarding lottery ticket procurement and fulfillment, and issues with internal accounting controls, leading to the termination of the CFO233 - The company effectively ceased operations on July 29, 2022, furloughing most employees, due to insufficient financial resources and a significant misstatement of cash balances235236 - Since the cessation, the company has focused on restarting core businesses and filing delinquent periodic reports, including restatements of 2021 and Q1 2022 financials239 Nasdaq Listing This section discusses the company's Nasdaq listing status, compliance efforts, and ongoing risks of delisting - The company faced delisting from Nasdaq in February 2023 but was granted continued listing on an interim basis, with trading reinstated on June 15, 2023240243 - Nasdaq notified the company on November 29, 2023, of non-compliance with the $5 million Market Value of Publicly Held Shares (MVPHS) requirement, but compliance was regained by April 10, 2024244245 - As of the report date, the company is not in full compliance with Nasdaq's continued listing standards, specifically the $1.00 minimum trading price requirement breached on July 30, 2024, risking future delisting246248 AutoLotto $30,000,000 Business Loan This section details AutoLotto's $30 million business loan from bank prov, its default, and foreclosure on restricted cash - On January 4, 2022, AutoLotto secured a $30 million business loan from bank prov, with a 2.750% annual interest rate and a maturity date of January 4, 2024252 - The loan was secured by $30 million in restricted cash, which bank prov foreclosed on October 12, 2022, after AutoLotto defaulted on its obligations253 Loan Agreement with Woodford This section outlines the loan agreement with Woodford Eurasia Assets, Ltd., including conversion options and ongoing disputes - On December 7, 2022, the company entered into a loan agreement with Woodford Eurasia Assets, Ltd. for up to $52.5 million, with $798,351 received by December 31, 2023, accruing 12% annual interest254 - Amounts borrowed are convertible into common stock at Woodford's option, at 80% of the lowest publicly available price ($5.60 per share), subject to ownership limitations255 - The company disputes the validity of a June 12, 2023, amendment that would allow conversion at a further 25% discount and has referred allegations of money laundering and conspiracy to defraud to legal counsel261262263 Loan Agreement with United Capital Investments London Limited This section describes the credit facility with UCIL, its relation to Woodford funding, and debt-to-equity conversions - The company entered into a credit facility with United Capital Investments London Limited (UCIL) in July 2023, an entity with direct or indirect interest from the CEO and a former board member266 - The UCIL loan was pursued as an alternative to Woodford funding, following default and crystallization notices from Woodford, which the company disputed266 - A total of $697,000 has been received from UCIL, with $682,000 converted from debt to equity, leaving a balance of $15,000 as of September 30, 2024267 Placement Agent Agreement with Univest Securities, LLC This section details the placement agent agreement with Univest Securities for convertible debt and warrant coverage - On December 6, 2023, the company entered into a placement agent agreement with Univest Securities, LLC for an offering of convertible debt with warrant coverage, initially up to $1 million, later increased to $5 million268269 - A total of $1.625 million was received from investors placed by Univest, with $415,000 converted to equity, leaving a balance of $1.21 million as of September 30, 2024269 Business Combination This section summarizes the reverse recapitalization with TDAC and the forfeiture of earnout shares - The Business Combination with Trident Acquisitions Corp. (TDAC) on October 29, 2021, resulted in AutoLotto becoming a wholly-owned subsidiary of the renamed Lottery.com Inc270 - The aggregate consideration paid to AutoLotto stockholders was approximately $440 million, consisting of 2 million shares valued at $220.00 per share270 - All potential earnout shares for sellers and founder holders were forfeited as conditions were not met270 Board of Directors This section reports changes to the Board of Directors, including new appointments and resignations - Mr. Warren Macal was added to the Board of Directors on April 29, 2024, following an $18 million investment commitment from Prosperity Investment Management271 - Mark Bernard Battles resigned from the Board, effective June 30, 2024, due to early retirement, with no disagreements cited272 Reverse Stock Split This section details the 1-for-20 reverse stock split implemented on August 9, 2023 - A 1-for-20 reverse stock split was implemented on August 9, 2023, combining every 20 shares into one, with proportionate adjustments to equity awards and warrants274 International Expansion This section discusses international expansion through acquisitions like Global Gaming, targeting Latin American markets - The acquisition of Global Gaming in June 2021, including Aganar and JuegaLotto, provides access to the Mexican and broader Latin American online lottery market, projected to grow at 6.05% CAGR through 2028276 - These acquisitions are expected to drive growth in international operations by expanding the product portfolio and reaching new markets276 Operations Prior to Operational Cessation This section describes the company's B2C, B2B, and Data Services operations before cessation, and new initiatives - Prior to cessation, the company offered B2C Platform services (remote lottery ticket purchase with service fees/mark-ups), B2B API services (technology usage fees and service fee revenue share), and Data Services (subscriptions and per-record fees for lottery/sports data)278279311313314 - The WinTogether platform, which administered sweepstakes for charitable causes, resumed its offerings on April 1, 2024, through a partnership with WinTogether.org foundation280281282 - Subsidiaries TinBu, Aganar, and JuegaLotto continued operations post-cessation, but with decreased expenses and revenue283 - The company acquired the Sports.com domain in December 2021, formed Sports.com, Inc. in November 2022, and launched the Sports.com App in March 2024 to connect sports content with global audiences290296 - Sports.com secured rights to live stream the Frazier Clarke vs. Fabio Wardley heavyweight title fight in Africa on March 31, 2024, via local telecom partners, aiming to provide content to underserved markets298299300 Plans for Recommencement of Company Operations This section outlines the phased plan to relaunch B2B and B2C platforms, and the critical need for new financing - Phase 1 involves relaunching the B2B API Platform, leveraging existing partnerships and Project Nexus technology, with limited operations resumed in April 2023302 - Phase 2 aims to resume B2C Platform operations in early 2025, initially in Texas, with a cautious rollout to ensure compliance and utilizing prepaid media credits for promotional campaigns303 - Phase 3 focuses on restoring other business lines and projects, including supplying lottery tickets in approved domestic jurisdictions and partnering internationally304 - The company's ability to execute these plans and continue as a going concern is dependent on obtaining new financing, as current cash balance is approximately $16,845306309 Results of Operations This section analyzes the company's financial performance for the three and nine months ended September 30, 2024, versus 2023 Three Months Ended September 30, 2024 vs 2023 | Metric | Sep 30, 2024 | Sep 30, 2023 | $ Change | % Change | | :--------------------------------------- | :----------- | :----------- | :--------- | :------- | | Revenue | $ 200,655 | $ 285,523 | (84,868) | -30% | | Cost of revenue | 83,829 | 72,171 | 11,658 | 16% | | Gross profit | 116,826 | 213,352 | (96,526) | -45% | | Personnel costs | 679,346 | 1,289,893 | (610,547) | -47% | | Professional fees | 1,447,403 | 400,837 | 1,046,566 | 261% | | General and administrative | 411,779 | 255,441 | 156,338 | 61% | | Depreciation and amortization | 1,207,914 | 1,421,269 | (213,355) | -15% | | Total operating expenses | 3,746,442 | 3,367,440 | 379,002 | 11% | | Loss from operations | (3,629,616) | (3,154,088) | (475,528) | 15% | | Interest expense | 126,753 | 243,424 | (116,671) | -48% | | Other (income) expense | (20,431) | 3,105 | (23,536) | -758% | | Loss on impairment of intangibles & goodwill | 4,298,002 | - | 4,298,002 | N/A | | Net loss before income tax | (8,033,940) | (3,400,617) | (4,633,323)| 136% | | Income tax expense (benefit) | 12,814 | - | 12,814 | N/A | | Net loss | (8,046,754) | (3,400,617) | (4,646,137)| 137% | Nine Months Ended September 30, 2024 vs 2023 | Metric | Sep 30, 2024 | Sep 30, 2023 | $ Change | % Change | | :--------------------------------------- | :----------- | :----------- | :---------- | :------- | | Revenue | $ 716,972 | $ 1,561,096 | (844,124) | -54% | | Cost of revenue | 213,186 | 203,001 | 10,185 | 5% | | Gross profit | 503,786 | 1,358,095 | (854,309) | -63% | | Personnel costs | 3,454,011 | 3,606,841 | (152,830) | -4% | | Professional fees | 6,957,299 | 2,499,568 | 4,457,731 | 178% | | General and administrative | 1,382,973 | 1,557,271 | (174,298) | -11% | | Depreciation and amortization | 3,823,642 | 4,218,907 | (395,265) | -9% | | Total operating expenses | 15,617,925 | 11,882,587 | 3,735,338 | 31% | | Loss from operations | (15,114,139) | (10,524,492) | (4,589,647) | 44% | | Interest expense | 350,784 | 284,589 | 66,195 | 23% | | Other expense | (11,747) | 61,577 | (73,324) | -119% | | Loss on impairment of intangibles & goodwill | 4,298,002 | - | 4,298,002 | N/A | | Net loss before income tax | (19,751,178) | (10,870,658) | (8,880,520) | 82% | | Income tax expense (benefit) | 21,114 | - | 21,114 | N/A | | Net loss | (19,772,292) | (10,870,658) | (8,901,634) | 82% | - Revenue decreased by 30% for Q3 2024 and 54% for the nine months, primarily due to reduced Global Gaming revenue and no core Lottery business revenue in 2024329347 - Professional fees increased significantly by 261% in Q3 2024 and 178% for the nine months, driven by increased expenses for outside attorneys, consultants, and directors336354 - A $4.3 million loss on impairment of intangibles and goodwill was recognized in Q3 2024, significantly contributing to the increased net loss343361 Liquidity and Capital Resources This section discusses the company's liquidity needs, funding sources, and going concern considerations - The company's primary liquidity need is to fund business restart, rehire employees, and pay expenses, with historical funding from debt and equity financing362363 - As of September 30, 2024, $2,183,089 of convertible debt remains outstanding, with a portion matured and in theoretical default369 - Net cash provided by operating activities was $953 thousand for the nine months ended September 30, 2024, a significant improvement from a $767 thousand outflow in the prior year370 - The company's current cash balance of approximately $16,845, coupled with a lack of material revenue and significant debt, raises substantial doubt about its ability to continue as a going concern306364 Emerging Growth Company Accounting Election This section notes the company's status as an 'emerging growth company' and its accounting election - The company is an 'emerging growth company' and has elected to take advantage of the extended transition period for complying with new or revised financial accounting standards, expecting to remain so through the end of fiscal year 2026373 Critical Accounting Policies and Estimates This section reviews critical accounting policies and estimates, including the impact of new accounting pronouncements - No material changes to critical accounting policies were identified during the nine months ended September 30, 2024, from those discussed in the Amended 2023 Annual Report375 - The company is evaluating the impact of ASU 2016-02 (Leases) and ASU 2016-13 (Credit Losses), with the latter's adoption deferred until January 2023 as a smaller reporting company375376 Item 3. Quantitative and Qualitative Disclosures About Market Risk As a 'smaller reporting company,' Lottery.com Inc. is exempt from market risk disclosures - The company is not required to provide quantitative and qualitative disclosures about market risk due to its status as a 'smaller reporting company' under Rule 10(f)(1) of Regulation S-K377 Item 4. Controls and Procedures This section evaluates disclosure controls and internal control over financial reporting, noting material weaknesses and remediation Evaluation of Disclosure Controls and Procedures Disclosure controls and procedures were deemed ineffective due to material weaknesses in internal control over financial reporting - As of December 31, 2021, and re-evaluated by new management, disclosure controls and procedures were deemed ineffective due to material weaknesses in internal control over financial reporting378379 Material Weakness in Internal Control Over Financial Reporting Material weaknesses include insufficient personnel, ineffective review, and incomplete segregation of duties - Material weaknesses in internal control over financial reporting as of December 31, 2023, and 2022, include insufficient personnel with accounting expertise, ineffective review/monitoring procedures, inability to timely close financial books, and incomplete segregation of duties380 - A specific deficiency related to revenue recognition controls led to a $52.1 million overstatement of revenue in 2021, requiring a restatement381 - Remediation steps include adding accounting personnel, adopting more rigorous period-end review processes, improving period close processes, and clearly defining segregation of duties383 Changes in Internal Control Over Financial Reporting No material changes in internal control over financial reporting were identified during the quarter - No material changes in internal control over financial reporting were identified during the quarter ended September 30, 2024, except as described in the report386 PART II – OTHER INFORMATION This section details the company's legal proceedings, risk factors, and other required disclosures Item 1. Legal Proceedings This section details ongoing material legal proceedings, including contract disputes and class action lawsuits, with uncertain outcomes J. Streicher The company filed a complaint against J. Streicher, resulting in a $16.5 million judgment in the company's favor - The company filed a complaint against J. Streicher Financial, LLC for breach of contract, resulting in a $16.5 million judgment in the company's favor, plus $397,037 in attorney's fees390 - Efforts to collect on the judgment are ongoing, with partial payments of $75,000 and $50,000 received, but a subsequent $75,000 payment was missed390 Preston Million Class Action This section outlines the ongoing class action lawsuit alleging Federal Securities Law violations against the company - A class action lawsuit was filed against the company and former officers/directors alleging violations of Federal Securities Laws, specifically Sections 10(b) and 20(a) of the Exchange Act391 - The Southern District of New York (SDNY) granted the company's motion to dismiss the initial amended complaint on February 6, 2024, but plaintiffs filed a Third Amended Complaint on June 12, 2024, which the company is again moving to dismiss206391 TinBu Complaint This section describes the TinBu complaint for breach of contract and misrepresentation, currently in arbitration appeal - TinBu Plaintiffs filed a complaint alleging breach of contract and misrepresentation with damages exceeding $4.6 million392 - The court granted the defendants' motion to compel arbitration in Texas, which the TinBu Plaintiffs have appealed208393 - On July 19, 2024, the TinBu Plaintiffs voluntarily dismissed their claims without prejudice in Florida State Court, and their motion for attorney's fees and costs was denied209394 Global Gaming Data This section details the company's lawsuit against Global Gaming Data for trade secret violations and contract breaches - The company and its subsidiary TinBu, LLC filed a complaint against John J. Brier, Jr., Bin Tu, and Global Gaming Data, LLC for violations of trade secret acts and breaches of contract/fiduciary duties396 - The company's request for a Temporary Restraining Order was denied in February 2024, and the plaintiffs' motion to dismiss counterclaims was denied in June 2024396 - A trial is set for October 2025, with court-ordered mediation scheduled for December 5, 2024396 Woodford Eurasia Assets, Ltd. This section covers legal disputes with Woodford Eurasia Assets, Ltd., including dismissed injunctions and loan agreement validity - Woodford's application for injunctive relief against the company in London was dismissed as 'fundamentally misconceived' on October 16, 2023, and Woodford was ordered to pay legal costs397 - Woodford voluntarily dismissed without prejudice an additional action filed in the U.S. District Court for the District of Delaware on February 14, 2024398 - The company disputes the validity of the Woodford Loan Agreement Amendment and has referred allegations of money laundering and conspiracy to defraud to legal counsel400401 McTurk This section outlines the state court complaint against the company and Matthew McGahan for misrepresentation and conspiracy - A state court complaint alleging fraudulent/negligent misrepresentation, aiding and abetting, and conspiracy was filed against the company and Matthew McGahan402 - Defendants filed motions to dismiss for lack of personal jurisdiction and failure to state a claim, and the court denied their motion to stay discovery on October 29, 2024402 Honey Tree This section details Honey Tree Trading's complaint alleging breach of contract and fiduciary duties, with claims dismissed against some defendants - Honey Tree Trading, LLC filed a complaint in Delaware Chancery Court alleging breach of contract regarding notes and warrants, and breach of fiduciary duties by individual directors403 - Honey Tree's counsel admitted that Honey Tree sold its shares prior to filing the amended complaint and only repurchased them after a hearing, leading to the dismissal of claims against two individual defendants403 Item 1A. Risk Factors This section updates risk factors, focusing on Nasdaq non-compliance, delisting risks, competition in sports media, and unfiled tax returns - The company is not in full compliance with Nasdaq's continued listing standards, specifically the $1.00 minimum trading price requirement, risking delisting405406 - Delisting from Nasdaq could impair the company's ability to raise capital, trigger defaults, negatively impact stock liquidity and price, and result in additional costs407408 - Competition from traditional media companies entering the sports content industry and changing consumer trends in streaming content pose risks to Sports.com's ability to acquire streaming rights and attract/retain subscribers409411 - The company has not filed its 2021, 2022, and 2023 U.S. federal and state income and franchise tax returns, risking penalties and interest410 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds were reported - No unregistered sales of equity securities or use of proceeds were reported414 Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported - No defaults upon senior securities were reported416 Item 4. Mine Safety Disclosures Mine safety disclosures are not applicable - Mine safety disclosures are not applicable418 Item 5. Other Information No other information was reported - No other information was reported420 Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including various agreements, plans, and certifications - Exhibits include loan agreements (Woodford, UCIL), stock purchase agreements (Nook Holdings, SM&I, Generating Alpha Ltd.), equity incentive plans, and certifications (302, 906 Sarbanes-Oxley Act)421 - XBRL (eXtensible Business Reporting Language) documents are included for the instance document, taxonomy extension schema, calculation linkbase, definition linkbase, label linkbase, presentation linkbase, and cover page421
Lottery(LTRY) - 2024 Q3 - Quarterly Report