Sports Entertainment Gaming Global Corp 10-K/A

Item 8. Financial Statements and Supplementary Data. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Yusufali & Associates, LLC, Independent Registered Public Accounting Firm (PCAOB ID: 3313 ) F-2 Consolidated Balance Sheets as of December 31, 2023 and 2022 (as restated) F-3 Consolidated Statements of Operations and Comprehensive Loss for the Years ended December 31, 2023 and 2022 (as restated) F-4 Consolidated Statements of Equity for the Years ended December 31, 2023 and 2022 (as restated) F-5 Consolidated Statements of Cash Flows for the Years ended December 31, 2023 and 2022 (as restated) F-6 Notes to Consolidated Financial Statements (as restated) F-7 F- 1 Yusufali & Associates, LLC Certified Public Accountants & IT Consultants AICPA, HITRUST, PCAOB, PCIDSS, & ISC2 Registered 55 Addison Drive, Short Hills, NJ 07078 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Lottery.com Inc. Spicewood, Texas Opinion on the Consolidated Financial Statements We have audited the accompanying restated consolidated balance sheets of Lottery.com Inc. (the “Company”) as of December 31, 2023, and 2022, and the related consolidated statements of operations and comprehensive loss, equity, and cash flows for each of the years in the two-year period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, except for the effects of the Company having not filed its 2023 and 2022 United States federal and state corporate income tax returns as described in Note 14 of the financial statements, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and 2022, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has stockholder’s deficit, net losses, and negative working capital. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion The Company’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters : The management listed the critical audit matters in the notes on accounts as they relate to the current period audit of the financial statements, specifically to (1) Note 2 revenue recognition as the core basis for the restatement of the Financial Statements (2) relate to accounts or disclosures that are material to the financial statements and (3) involved especially challenging, subjective, or complex judgments. These critical audit matters do not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by referring the critical audit matters, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Yusufali Musaji Managing Partner Yusufali & Associates, LLC Short Hills, NJ PCAOB registration # 3313 We have served as the company’s auditor since 2022 F- 2 LOTTERY.COM INC. LOTTERY.COM, INC. CONSOLIDATED BALANCE SHEETS (RESTATED) December 31, December 31, 2023 2022 ASSETS (As Restated) Current assets: Cash $ 359,826 $ 102,766 Restricted cash - - Accounts receivable 24,241 208,647 Prepaid expenses 19,020,159 19,409,323 Other current assets 907,632 718,550 Total current assets 20,311,858 20,439,286 Notes receivable 2,000,000 2,000,000 Investments 250,000 250,000 Goodwill 11,227,491 19,590,758 Intangible assets, net 17,681,874 23,982,445 Property and equipment, net 21,309 108,078 Other long-term assets 12,884,686 13,009,686 Total assets $ 64,377,218 $ 79,380,253 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Trade payables $ 7,991,802 $ 7,607,633 Deferred revenue 357,143 464,286 Notes payable - current 6,026,669 3,755,676 Accrued interest 858,875 484,172 Accrued and other expenses 11,359,616 4,626,973 Other liabilities 1,167,111 625,028 Total current liabilities 27,761,216 17,563,768 Long-term liabilities: Convertible debt, net - noncurrent - - Other long-term liabilities - - Total long-term liabilities - - Commitments and contingencies (Note 13) - - Total liabilities 27,761,216 17,563,768 Equity Controlling Interest Equity Controlling Interest Preferred Stock, par value $ 0.001 , 1,000,000 shares authorized, no ne issued and outstanding - - Common stock, par value $ 0.001 , 500,000,000 shares authorized, 2,877,045 and 2,527,045 issued and outstanding as of December 31, 2023 and December 31, 2022, respectively 2,877 2,527 Additional paid-in capital 269,690,569 267,597,370 Accumulated other comprehensive loss ( 91,667 ) 3,622 Accumulated deficit ( 235,106,206 ) ( 208,187,210 ) Total Lottery.com Inc. stockholders’ equity 34,495,573 59,416,309 Noncontrolling interest 2,120,429 2,400,176 Total Equity 36,616,002 61,816,485 Total liabilities and stockholders’ equity $ 64,377,218 $ 79,380,253 The accompanying notes are an integral part of these restated consolidated financial statements. F- 3 LOTTERY.COM INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (RESTATED) Years Ended December 31, 2023 2022 (As Restated) Revenue $ 6,987,474 $ 6,779,057 Cost of revenue 5,666,544 4,310,750 Gross profit 1,320,930 2,468,307 Operating expenses: Personnel costs 4,570,206 37,114,485 Professional fees 6,741,837 6,613,546 General and administrative 9,484,681 9,012,673 Depreciation and amortization 5,691,322 5,601,374 Total operating expenses 26,488,046 58,261,086 Loss from operations ( 25,167,116 ) ( 55,873,771 ) Other expenses Interest expense 376,110 764,839 Other expense 136,429 3,721,291 Total other expenses, net 512,539 4,486,130 Net loss before income tax ( 25,679,655 ) ( 60,359,901 ) Income tax expense (benefit) 60,000 23,364 Net loss ( 25,739,655 ) ( 60,383,265 ) Other comprehensive loss Foreign currency translation adjustment, net ( 70,273 ) 4,277 Comprehensive loss ( 25,809,928 ) ( 60,378,988 ) Net income attributable to noncontrolling interest 272,613 379,916 Net loss attributable to Lottery.com Inc. $ ( 25,537,315 ) $ ( 59,999,072 ) Net loss per common share Basic and diluted $ ( 9.84 ) $ ( 23.79 ) Weighted average common shares outstanding Basic and diluted recheck WA shares 2,596,493 2,522,175 The accompanying notes are an integral part of these restated consolidated financial statements. F- 4 LOTTERY.COM INC. CONSOLIDATED STATEMENTS OF EQUITY FOR THE YEAR ENDING DECEMBER 31, 2023 and 2022 ( RESTATED ) Common Stock Additional Paid-In Accumulated Accumulated Other Comprehensive Total AutoLotto Inc. Stockholders’ Noncontrolling Total Stockholder’s Shares Amount Capital Deficit Income Equity Interest Equity Balance as of December 31, 2021 2,512,816 2,513 239,406,387 ( 148,188,138 ) ( 655 ) 91,220,107 2,780,092 94,000,253 Issuance of common stock upon stock option exercise 3,006 3 ( 57 ) - - ( 54 ) - ( 54 ) Issuance of common stock for legal settlement 3,000 3 241,737 - - 241,740 - 241,740 Stock based compensation 8,224 8 27,949,249 - - 27,949,257 - 27,949,257 Other comprehensive loss - - - - 4,277 4,277 - 4,277 Comprehensive loss - - - ( 59,999,072 ) - ( 59,999,072 ) ( 379,916 ) ( 60,378,988 ) Balance as of December 31, 2022 2,527,045 $ 2,527 $ 267,597,370 $ ( 208,187,210 ) $ 3,622 $ 59,416,309 $ 2,400,176 $ 61,816,485 Balance 2,527,045 $ 2,527 $ 267,597,370 $ ( 208,187,210 ) $ 3,622 $ 59,416,309 $ 2,400,176 $ 61,816,485 Stock based compensation 350,000 $ 350 $ 2,093199 - - $ 2,093,549 - $ 2,093,549 Other comprehensive loss - - - - ( 70,273 ) ( 70,273 ) - ( 70,273 ) Prior period adjustments made to accumulated deficit ( 1,381,681 ) ( 25,016 ) ( 1,406,413 ) ( 7,135 ) ( 1,413,548 ) Comprehensive loss - - - ( 25,537,315 ) - ( 25,537,315 ) ( 272,612 ) ( 25,809,928 ) Balance as of December 31, 2023 $ 2,877,045 $ 2,877 $ 269,690,569 $ ( 235,106,206 ) $ ( 91,667 ) $ 34,495,573 $ 2,120,429 $ 36,616,002 Balance $ 2,877,045 $ 2,877 $ 269,690,569 $ ( 235,106,206 ) $ ( 91,667 ) $ 34,495,573 $ 2,120,429 $ 36,616,002 The accompanying notes are an integral part of these restated consolidated financial statements. F- 5 LOTTERY.COM INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (RESTATED) Years Ended December 31, 2023 2022 (As Restated) Cash flow from operating activities Net loss attributable to Lottery.com Inc. $ ( 25,537,315 ) $ ( 59,999,072 ) Adjustments to reconcile net loss to net cash used in operating activities: Net income attributable to noncontrolling interest 279,747 ( 379,916 ) Depreciation and amortization 5,691,379 5,601,374 Stock-based compensation expense 2,093,199 27,949,257 Loss on impairment of goodwill and intangibles 6,710,200 412,450 Issuance of common stock for legal settlement - 214,740 Changes in assets & liabilities: Accounts receivable 184,406 ( 129,465 ) Prepaid expenses 389,164 3,487,315 Notes Receivable - ( 2,000,000 ) Other current assets ( 189,082 ) ( 492,351 ) Trade payables 384,169 6,601,098 Deferred revenue ( 107,143 ) ( 698,049 ) Accrued interest 374,703 307,912 Accrued and other expenses 6,982,419 210,805 Other liabilities 542,083 625,028 Other long-term assets 125,000 ( 13,009,686 ) Other long-term liabilities - ( 1,169 ) Prior period adjustments to Accumulated Deficit ( 32,151 ) - Net cash used by operating activities ( 2,109,222 ) ( 31,272,729 ) Cash flow from investing activities Purchases of property and equipment - ( 127,265 ) Purchases of intangible assets - ( 1,124,823 ) Net cash used in investing activities - ( 1,252,088 ) Cash flow from financing activities Proceeds from issuance of notes payable 2,270,993 - Payments on notes payable - related parties - ( 15,664 ) Net cash provided by financing activities 2,270,993 ( 15,664 ) Effect of exchange rate changes on cash 95,289 4,277 Net change in net cash and restricted cash 257,060 ( 32,536,204 ) Cash and restricted cash at beginning of period 102,766 32,638,970 Cash and restricted cash at end of period $ 359,826 $ 102,766 Supplemental Disclosure of Cash Flow Information: Interest paid in cash $ - $ 483,582 Taxes paid in cash $ - $ - The accompanying notes are an integral part of these restated consolidated financial statements. F- 6 LOTTERY.COM INC. NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS Note 1. Nature of Operations Description of Business During FY 2023, the Company addressed legacy issues while successfully regaining full compliance with Nasdaq’s continued listing rules and restarting operations in order to stage Lottery.com for growth in FY 2024. The cornerstone of the Company’s operational progress for FY 2024 will be driven by technology, product and service/capability enhancements. This Amended Report is reflective of the Company’s commitment to transparency, integrity, and responsible corporate governance. 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 Management’s capability to resume core lottery and gaming operations, monetize the Sports.com brand, and expand all the Company’s brands across the globe. 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”). 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 the Company moved its headquarters from New York, New York to Spicewood, Texas. The Company is a leading provider of domestic and international lottery products and services. As an independent third-party lottery game service, the Company offers a platform that it developed and operates to enable the remote purchase of legally sanctioned lottery games in the U.S. and abroad (the “Platform”). The Company’s 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 the Company and resell them to users located within their respective jurisdictions (“B2B API”); and (iii) delivering global lottery data, such as winning numbers and results, and sports data, such as scores and statistics, to commercial digital subscribers and provide access to other proprietary, anonymized transaction data pursuant to multi-year contracts (“Data Service”). As a provider of lottery products and services, the Company is required to comply with, and its business is subject to, regulation in each jurisdiction in which the Company offers the B2C Platform, or a commercial partner offers users access to lottery games through the B2B API. In addition, it must also comply with the requirements of federal and other domestic and foreign regulatory bodies and governmental authorities in jurisdictions in which the Company operates or with authority over its business. The Company’s business is additionally 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, the Company 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 has been operating 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 licensed 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 businesses (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 on a limited basis to support its affiliate partners through its Texas retail network. F- 7 Note 2. Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“ GAAP ”) and include the accounts of the Company and its wholly owned operating subsidiaries. Any reference in these notes to applicable guidance is meant to refer to the authoritative United States generally accepted accounting principles as found in the Accounting Standards Codification (“ ASC ”) and Accounting Standards Update (“ ASU ”) of the Financial Accounting Standards Board (“ FASB ”). All intercompany accounts and transactions have been eliminated in consolidation. 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 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. In connection with 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 $ 235.1 million and working capital of approximately negative $ 7.5 million on December 31, 2023. For the year ending December 31, 2023, the Company sustained a net loss of $ 25.5 million. The Company sustained a loss from operations of $ 55.9 million and $ 53.0 million for the years ending December 31, 2022 and 2021, respectively. Subsequently, the Company sustained additional operating losses and anticipates additional operating losses for the next twelve months. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The Company has historically funded its activities 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 United Capital Investments Ltd. (“UCIL”) on July 21, 2023, 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 the business plan for the relaunch of its core business, the successful monetization of Sports.com, and keep expenditures in line with available operating capital. Such conditions raise substantial doubt about the Company’s ability to continue as a going concern. F- 8 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 Trident Acquisition Corp. (“TDAC”) as the accounting acquiree. This determination was primarily based on: ● former AutoLotto stockholders having the largest voting interest in Lottery.com Inc. (“Lottery.com”); ● the board of directors of Lottery.com having 7 members, and AutoLotto’s former stockholders having the ability to nominate the majority of the members of the board of directors; ● AutoLotto management continuing to hold executive management roles for the post-combination company and being responsible for the day-to-day operations; ● the post-combination company assuming the Lottery.com name; ● 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 as 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 consolidated financial statements reflect (i) the historical operating results of AutoLotto prior to the Business Combination; (ii) the combined results of the Company and AutoLotto following the closing of the Business Combination; (iii) the assets and liabilities of AutoLotto at their historical cost; and (iv) the Company’s 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 the Company’s 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. Non-controlling Interest Non-controlling interest represents 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 the chief operating decision maker in deciding how to allocate resources and in assessing operating performance. Under the provisions of ASC 280, Segment Reporting, the Company is not organized around specific services or geographic regions. The Company operates in one service line, providing lottery products and services. F- 9 We determined that our Chief Financial Officer is the Chief Operating Decision Maker and he 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 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 $ 13,356 at May 22, 2024 are held in foreign banks. Management believes the risk of loss in connection with these accounts is minimal. 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. The Company evaluates its estimates on an ongoing basis and prepares its estimates on historical experience and other assumptions the Company believes to be reasonable under the circumstances. Reclassifications Certain balances have been reclassified in the accompanying consolidated financial statements to conform to the current year presentation. These reclassifications had no effect on the balances of current or total assets and prior year’s net loss or accumulated deficit. Foreign currency translation Assets and liabilities of subsidiaries operating outside the United States with a functional currency other than U.S. Dollars are translated into U.S. Dollars using year-end exchange rates. Sales, costs and expenses are translated at the average exchange rates in effect during the year. Foreign currency translation gains and losses are included as a component of accumulated other comprehensive income (loss). Cash and Restricted Cash As of December 31, 2023 and 2022, cash was comprised of cash deposits, and 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 the Company is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships. The Company had no marketable securities as of December 31, 2023 and December 31, 2022. As of December 31, 2022, the restricted cash balance was $ 0 as the bank took the collateral in the restricted account during October of 2022 in order to satisfy the amount owed under the Line of Credit. (See Subsequent Events - In January of 2022, the Company pledged $ 30,000,000 for a line of credit which was subsequently claimed for settlement of such line of credit). F- 10 Accounts Receivable The Company through its various merchant providers pre-authorizes forms of payment prior to the sale of digital representation of lottery games to minimize exposure to losses related to uncollected payments and does not extend credit to the user of the B2C Platform or the commercial partner of the B2B API, which are its customers, in the normal course of business. The Company estimates its bad debt exposure each period and records a bad debt provision for accounts receivable it believes it may not collect in full. The Company increased its allowance for uncollectible receivables as of December 31, 2023 by $ 10,000 . At December 31, 2023 and December 31, 2022 the allowance for uncollectible receivables was $ 84,520 . 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 (“Prepaid advertising credits”). The Company expenses the service as it is performed by the third party. The value of the services provided were used to value these contracts, except for the year ended December 31, 2021 the Company reserved for potential inability to realize $ 2,000,000 of prepaid advertising credits in future periods. The current portion of prepaid expenses is included in current assets on the consolidated balance sheets. The Company has remaining prepaid expenses of $ 19,020,159 and $ 19,409,323 for the years ended December 31, 2023 and 2022, respectively. Investments On August 2, 2018, AutoLotto purchased 186,666 shares of Class A-1 common stock of a third-party business development partner representing 4 % of the total outstanding shares of the company. As this investment resulted in less than 20 % ownership, it was accounted for using the cost basis method. 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 three to five years. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the asset. Routine maintenance and repair costs are expensed as incurred. The costs of major additions, replacements and improvements are capitalized. Gains and losses realized on the sale or disposal of property and equipment are recognized or charged to other expense in the consolidated statement of operations. 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 3 years Furniture and fixtures 5 years Software 3 years 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). F- 11 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. Goodwill and Other Intangible Assets Goodwill represents the excess of the cost of assets acquired over the fair value of the net assets at the date of acquisition. Intangible assets represent the fair value of separately recognizable intangible assets acquired in connection with the Company’s business combinations. The Company evaluates its goodwill and other intangibles for impairment on an annual basis or whenever events or circumstances indicate that an impairment may have occurred in accordance with the provisions of ASC 350, “ Goodwill and Other Intangible Assets ”. Revenue Recognition Under the new standard, Accounting Standards Update (“ASU”) 2014-09, “ Revenue from Contracts with Customers (Topic 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, are recognized at a point in time. The Company receives consideration for lottery game sales at the time of delivery to the customer, which may be 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 Accounting Standards Codification (“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 services before they are transferred to the customer. The Company also assesses if it is primarily responsible for fulfilling the promise to provide the goods or services, 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 would be responsible for any potential winnings related to lost or unredeemable tickets at the time of redemption. Finally, while states have the authority to establish lottery game sales prices, the Company can add service fees to ticket prices evidencing its ability to establish the ultimate price of the lottery tickets being sold. F- 12 Other associated revenue The Company’s performance obligations in agreements with certain customers are to provide a license of intellectual property related to the use of the Company’s tradename for marketing purposes by partners of the Company. Customers pay a license fee up front. The transaction price is deemed to be the license issue fee stated in the contract. The license offered by the Company represents a symbolic license which provides the customer with the right to use the Company’s intellectual property on an ongoing basis with continued support throughout the term of the contract in the form of ongoing maintenance of the underlying intellectual property. There is no variable consideration related to these performance obligations. 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. Other non-variable costs included in cost of revenue include affiliate marketing credits acquired on a per-contract basis. Stock-based Compensation 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, Stock Compensation . 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. Advertising Costs Advertising costs are charged to operations when incurred. Advertising costs for the years ended December 31, 2023 and 2022 were approximately $ 377,000 and $ 1,261,000 respectively. F- 13 Income Taxes For both financial accounting and tax reporting purposes, the Company reports income and expenses based on the accrual method of accounting. For federal and state income tax purposes, the Company reports income or loss from their investments in limited liability companies on the consolidated income tax returns. As such, all taxable income and available tax credits are passed from the limited liability companies to the individual members. It is the responsibility of the individual members to report the taxable income and tax credits, and to pay any resulting income taxes. Therefore, the income and losses incurred by the limited liability companies have been consolidated in the Company’s tax return and provision based upon its relative ownership. Income taxes are accounted for in accordance with ASC 740, “ Income Taxes ” (“ASC 740”), using the asset and liability method. Under this method, deferred income tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which these temporary differences 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 provided for those deferred tax assets for which it is more likely than not that the related benefit will not be realized. The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (i) the Company determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position; and (ii) for those tax positions that meet the more likely than not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. The Company’s policy is to recognize interest and penalties related to the underpayment of income taxes as a component of income tax expense or benefit. To date, there have been no interest or penalties charged in relation to the unrecognized tax benefits. Generally, the taxing authorities can audit the previous three years of tax returns and in certain situations audit additional years. For federal tax purposes, the Company’s 2020 through 2023 tax years generally remain open for examination by the tax authorities under the normal three-year statute of limitations. For state tax purposes, the Company’s 2019 through 2023 tax years remain open for examination by the tax authorities under the normal four-year statute of limitations. Fair Value of Financial Instruments The Company determines the fair value of its financial instruments in accordance with the provisions of ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) , which establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC 820 are described below: ● Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities ● Level 2 - Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability ● Level 3 - Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect our own estimates of assumptions that market participants would use in pricing the asset or liability. Determination of fair value and the resulting hierarchy requires the use of observable market data whenever available. F- 14 The classification of an asset or liability in the hierarchy is based upon the lowest level of input that is significant to the measurement of fair value. Fair value of stock options and warrants Management uses the Black-Scholes option-pricing model to calculate the fair value of stock options and warrants. Use of this method requires management to make assumptions and estimates about the expected life of options and warrants, anticipated forfeitures, the risk-free rate, and the volatility of the Company’s share price. In making these assumptions and estimates, management relies on historical market data. Recent Accounting Pronouncements In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and other (Topic 350) (“ASU 2017-04”). ASU 2017-04 simplifies the accounting for goodwill impairment and removes Step 2 of the goodwill impairment test. Goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value limited to the total amount of goodwill allocated to that reporting unit. Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. The same one-step impairment test will be applied to goodwill at all reporting units, even those with zero or negative carrying amounts. The amendments in this ASU are effective for goodwill impairment tests in fiscal years beginning after December 15, 2021, and early adoption is permitted. The Company is currently evaluating this new standard and management does not currently believe it will have a material impact on its consolidated financial statements, depending on the outcome of future goodwill impairment tests. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) : Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Adoption of ASU 2016-13 will require the Company to use forward-looking information to formulate its credit loss estimates. ASU 2016-13 is effective for annual reporting periods beginning after December 15, 2022, and early adoption is permitted. The Company is currently evaluating this new standard and currently does not expect it to have a significant impact on the Company’s consolidated financial statements. In December 2019, the FASB issued ASU No 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ( “ASU2019-12” ) . ASU 2019-12 removes certain exceptions to the general principles in Topic 740 in Generally Accepted Accounting Principles. ASU 2019-12 is effective for annual reporting periods beginning after December 15, 2021, and early adoption is permitted. The Company is currently evaluating this new standard and currently does not expect it to have a significant impact on the Company’s consolidated financial statements. In October 2020, the FASB issued ASU No. 2020-09, Debt (Topic 470) (“ASU 2020-09”). ASU 2020-09 amendments to SEC paragraphs pursuant to SEC release NO. 33-10762 amends terms related to Debt Guarantors and Issuers of Guaranteed Securities Registered or to be Registered with the SEC. The Company is currently evaluating the timing of adoption and impact of the updated guidance on its financial statements. Note 3. Restatement of Financial Statements Management of the Company re-evaluated its accounting for year ending December 31, 2023, the Company determined to restate its previously issued financial statements as of December 31, 2023 to correct accounting errors related to goodwill, current assets, revenue, and equity. The following tables summarize the effect of the restatements on the specific items presented in our previously reported financial statements: LOTTERY.COM INC. CONSOLIDATED BALANCE SHEETS (RESTATED) Schedule of Restatements on Previously Reported Financial Statements Reported Impacts Restated Fiscal Year Ended December 31, 2023 As Previously As Reported Adjustments Restated ASSETS Cash $ 359,826 $ - $ 359,826 Accounts receivable 24,241 - 24,241 Prepaid expenses 19,020,159 - 19,020,159 Other current assets 825,948 81,684 (1) (1) 907,632 Notes receivable 2,000,000 - 2,000,000 Investments 250,000 - 250,000 Goodwill 12,880,558 ( 1,653,067 (2) ) (2) 11,227,491 Intangible assets, net 17,681,874 - 17,681,874 Property and equipment, net 21,309 - 21,309 Other long term assets 12,884,686 - 12,884,686 Total Assets $ 65,948,601 $ ( 1,571,383 (1)(2) ) (1)(2) $ 64,377,218 LIABILITIES AND STOCKHOLDERS’ EQUITY Trade payables 8,009,534 ( 17,732 (3) ) (3) 7,991,802 Deferred revenue 357,143 - 357,143 Notes payable – current 6,075,594 ( 48,925 (4) ) (4) 6,026,669 Accrued interest 867,236 ( 8,361 ) 858,875 Accrued and other expenses 11,519,474 ( 160,426 (5) ) (5) 11,359,048 Other liabilities 1,070,233 96,878 (6) (6) 1,167,111 Total current liabilities 27,899,214 ( 138,566 ) 27,760,648 Total liabilities 27,899,214 ( 138,566 (3) to (6) ) (3) to (6) 27,760,648 Common Stock 2,877 - 2,877 Additional paid in capital 269,690,569 - 269,690,569 Accumulated other comprehensive loss ( 144,729 ) 53,062 (7e) ( 91,667 ) Accumulated deficit ( 233,759,640 ) 1,346,566 (1) to (7) (1) to (7) ( 235,106,206 ) Noncontrolling interest 2,260,310 ( 139,881 ) (7f) 2,120,429 Total Lottery.com Inc. stockholders’ equity 38,049,387 1,432,817 (1) to (7) (1) to (7) 36,616,002 Total liabilities and stockholders’ equity $ 65,948,601 $ ( 1,571,383 ) $ 64,377,218 The accompanying notes are an integral part of these consolidated financial statements. F- 15 LOTTERY.COM INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (RESTATED) 2023 Adjustments 2023 Year Ended December 31, 2023 2023 (As Previously Reported) Adjustments (As Restated) Revenue $ 6,482,638 504,836 (7a) $ 6,987,474 Cost of revenue 5,545,531 121,013 (7b) 5,666,544 Gross margin 937,107 383,823 (7c) 1,320,930 Operating expenses: 25,119,831 1,368,215 (7) 26,488,046 Loss from operations ( 24,182,724 ) ( 984,382 ) (7) $ ( 25,167,116 ) Net loss before income tax $ ( 24,702,722 ) - $ ( 25,679,655 ) Income tax expense (benefit) - 60,000 (8) 60,000 Net Loss $ ( 24,702,722 ) - $ ( 25,739,655 ) Other comprehensive loss - Foreign currency translation adjustment, net ( 34,256 ) 36,017 (7g) ( 70,273 ) Comprehensive loss ( 24,736,978 ) - ( 25,809,928 ) Net income attributable to noncontrolling interest 72,227 200,386 (7h) 272,613 Net loss attributable to Lottery.com Inc. ( 24,664,751 ) - ( 25,537,315 ) Net loss per common share Basic and diluted $ ( 9.12 ) $ ( 9.84 ) Weighted average common shares outstanding Basic and diluted 2,704,032 2,596,493 The accompanying notes are an integral part of these consolidated financial statements. F- 16 LOTTERY.COM INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2023 2023 (As Previously Reported) Adjustments (As Restated) Cash flow from operating activities Net loss attributable to Lottery.com Inc. $ ( 24,664,751 ) $ ( 872,564 ) (7a) to (7c) $ ( 25,537,315 ) Adjustments to reconcile net loss to net cash used in operating activities: Net income attributable to noncontrolling interest ( 72,227 ) 351,974 (7h) 279,747 Depreciation and amortization 4,498,477 1,192,902 (7) 5,691,379 Stock-based compensation expense 2,093,199 - 2,093,199 Loss on impairment of intangibles 7,510,000 ( 799,800 ) (2) 6,710,200 Changes in assets & liabilities: Accounts receivable 184,406 - 184,406 Prepaid expenses 389,164 - 389,164 Other current assets ( 107,398 ) ( 81,684 ) (1) ( 189,082 ) Trade payables 401,901 ( 17,732 ) (3) 384,169 Deferred revenue ( 107,143 ) - ( 107,143 ) Accrued interest 383,064 ( 8,361 ) 374,703 Accrued and other expenses 6,892,501 89,918 (5) 6,982,419 Other liabilities 445,205 96,878 (6) 542,083 Other long term assets 125,000 - 125,000 Prior period adjustments to Accumulated Deficit (8) 0 32,151 (8) ( 32,151 ) Net cash provided by operating activities ( 2,028,602 ) 80,620 ( 2,109,222 ) Cash flow from investing activities Net cash used in investing activities - - - Cash flow from financing activities Proceeds from issuance of notes payable 2,319,918 48,925 (4) 2,270,993 Net cash provided by financing activities 2,319,918 - (7g) 2,270,993 Effect of exchange rate changes on cash ( 34,256 ) 129,545 95,289 Net change in net cash and restricted cash 257,060 - 257,060 Cash and restricted cash at beginning of period 102,766 - 102,766 Cash and restricted cash at end of period 359,826 - 359,826 The specific explanations for the items noted above in the restated financial statements are as follows: 1. After reexamination of funding provided by UCIL, it was determined that payments made by UCIL for deposits toward the acquisition of Nook had not been recorded by the Company. Such payments have been recorded as an asset for deposits for acquisition and as an increase to the balance of the convertible note owed to UCIL. 2. In connection with completion of the tax provision for 2023, a transaction which had been recorded in 2021 was reevaluated and a decision was made that it should not have been recorded and should be reversed. Specifically, at the end of 2021, a decision was made to increase goodwill related to the acquisition of Global Gaming Enterprises, Inc. due to an incorrect conclusion that “an adjustment should be made to goodwill for the recording of related deferred tax liabilities as the Company released $ 1.6 million of valuation allowance since the additional deferred tax liabilities represent a future source of taxable income”. This approach improperly accelerated the effects of future amortization of intangible assets related to Global Gaming, resulting in inappropriately releasing part of a valuation allowance for deferred taxes which is not in compliance with GAAP. At that time, the Company recorded an increase to goodwill for Global Gaming and an income tax benefit each in the amount of $ 1,653,067 . We have reversed this transaction by reducing goodwill for Global Gaming by $ 1,653,067 and have increased accumulated deficit to remove the income tax benefit which was incorrectly recorded for year ended December 31, 2021. 3. In connection with a review of UCIL, it was also determined that UCIL had paid the open balance owed to two vendors. The correction recorded was a decrease to accounts payable and an increase to the loan from UCIL. 4. Woodford Debt a. a. Upon further review of amounts recorded as convertible debt from Woodford during the first half of 2023 a determination was made that certain amounts had been incorrectly credited to Woodford, and inadvertently recorded as additional operating expenses. This was corrected by reducing the balance for convertible debt from Woodford and reducing operating expenses. b. The item described in (1) above resulted in an increase to convertible debt from UCIL by $ 81,464 . c. The net effect of these corrections was an increase in Convertible debt by $ 48,925 5. In connection with additional review of balance sheet accounts, it was determined that certain items had been over accrued. As a result, we reduced accrued and other expenses. 6. Further review of funding amounts received from third parties in the first half of 2023 resulted in certain reclassifications that increased other liabilities. 7. After the 10-K for the year ended December 31, 2023 was filed, it was determined that an error had occurred in consolidating results of operations such that only the fourth quarter of 2023 had been included for Global Gaming and the first through third quarters for Global Gaming were inadvertently omitted. It was also determined that there were some issues with calculations and exchange rates and related to non-controlling interest. These issues were corrected by: a. Increasing revenue to include the first through third quarters of 2023 for Global Gaming. b. Increasing cost of revenue to include the first through third quarters of 2023 for Global Gaming. c. The effect of 7.a. and 7.b was a net increase to gross margin d. Increasing operating expenses to include the first through third quarters of 2023 for Global Gaming. e. A correction was made to accumulated and other comprehensive loss in connection with the changes described here in item 7. f. A correction was made to non-controlling interest in connection with the changes described here in item 7. g. A correction was made to foreign currency translation adjustment, net in connection with the changes described here in item 7. h. A correction was made to net income attributable to non-controlling interest in connection with the changes described here in item 7. 8. In connection with completion of the tax provision for the year ended December 31, 2023, it was determined that: there would be state taxes owed to Texas in connection with the lottery ticket sales that occurred in April; there may be taxes owed to other states; the existence of multiple legal entities appears to result in state taxes being owed by more than one entity from a consolidated perspective. As a result, we recorded an estimate of $ 60,000 as an expense for state taxes and as an addition to accrued taxes payable. Note 4. Business Combination TDAC Combination On October 29, 2021, the Company and AutoLotto consummated the transactions contemplated by the Merger 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 Merger (other than excluded shares as contemplated by the Merger Agreement) was cancelled and converted into the right to receive approximately 3.0058 shares (the “Exchange Ratio”) of Lottery.com. common stock. F- 17 The Merger closing was a triggering event for the Series B convertible notes, of which $ 63.8 million was converted into 164,426 shares of AutoLotto that were then converted into 488,225 shares of Lottery.com common stock using the Exchange Ratio. 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 Merger 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 2, Summary of 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 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 Business Combination. Upon the closing of the transaction, AutoLotto received total gross proceeds of approximately $ 42,794,000 , from TDAC’s trust and operating accounts. Total transaction costs were approximately $ 9,460,000 , which principally consisted of advisory, legal and other professional fees and were recorded in additional paid in capital. Cumulative debt repayments of approximately $ 11,068,000 , inclusive of accrued but unpaid interest, were paid in conjunction with the close, which included approximately $ 5,475,000 repayment of notes payable to related parties, and approximately $ 5,593,000 payment of accrued underwriter fees. Pursuant to the terms of the Business Combination Agreement, the holders of issued and outstanding shares of AutoLotto immediately prior to the Closing (the “Sellers”) were entitled to receive up to 300,000 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 200,000 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. 150,000 of the Seller Earnout Shares and 100,000 TDAC Founder Earnout Shares were still eligible Earnout Shares until December 31, 2022. Conditions for the earnout were not met and the potential earnout shares were forfeited on December 31, 2022. Global Gaming Acquisition On June 30, 2021, the Company completed its acquisition of 100 percent of 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 Mexico regulatory authorities with jurisdiction over the ability to sell international lottery games in Mexico through an authorized federal gaming portal and is licensed for games of chance in other countries throughout Latin America. Aganar has been operating in the licensed Lottery market in Mexico since 2007 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 and additionally issues a proprietary scratch lottery game in Mexico under the brand name Capalli. The opening balance of the acquirees have been included in our consolidated balance sheet since the date of the acquisition. Since the acquirees’ financial statements were denominated in Mexican pesos, the exchange rate of 22.0848 pesos per dollar was used to translate the balances. 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. F- 18 The total purchase price of $ 10,989,691 , consisting of cash of $ 10,530,000 and 687,439 shares of common stock of AutoLotto at $ 0.67 per share. The total consideration transferred was approximately $ 10,055,214 , reflecting the purchase price, net of cash on hand at Global Gaming and the principal amount of certain loans acquired. The purchase price is for an 80 % ownership interest and is therefore grossed up to $ 13,215,842 to reflect the 20 % minority interest in the acquirees. The purchase price was allocated to the identified tangible and intangible assets acquired based on their estimated fair values at the acquisition date as follows: Schedule of Identified Tangible and Intangible Asset Acquired Cash $ 517,460 Accounts receivable, net 34,134 Prepaids 5,024 Property and equipment, net 2,440 Other assets, net 65,349 Intangible assets 8,590,000 Goodwill 4,940,643 Total assets $ 14,155,050 Accounts payable and other liabilities $ ( 387,484 ) Customer deposits ( 134,707 ) Related party loan ( 417,017 ) Total liabilities $ ( 939,208 ) Total net assets of Acquirees $ 13,215,842 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. Following are details of the purchase price allocated to the intangible assets acquired. Schedule of Intangible Assets Acquired Category Fair Value Customer relationships $ 410,000 Gaming licensees 4,020,000 Trade names and trademarks 2,540,000 Technology 1,620,000 Total Intangibles $ 8,590,000 Note 5. Property and Equipment, net Property and equipment, net as of December 31, 2023 and 2022, consisted of the following: Schedule of Property and Equipment December 31, December 31, 2023 2022 Computers and equipment $ 124,199 $ 124,199 Furniture and fixtures 16,898 16,898 Software 2,026,200 2,026,200 Property and equipment 2,167,297 2,167,297 Accumulated depreciation ( 2,145,988 ) ( 2,059,219 ) Property and equipment, net $ 21,309 $ 108,078 Depreciation expense for the years ended December 31, 2023 and 2022 amounted to $ 90,744 and $ 160,466 , respectively. F- 19 Note 6. Prepaid Expenses Prepaid expenses consist primarily of advertising credits from two top tier media organizations that operate in the United States. The advertising credits were obtained in return for warrants, shares of common stock and shares of preferred stock. The agreements do not specify a time period for utilizing these credits and there is no requirement to provide cash or other consideration in connection with utilizing them. The balance can be utilized at any time at the mutual consent of the parties. The Company expects to begin utilizing these credits in the second quarter of 2024 and anticipates fully utilizing all of them by the end of 2024. Accordingly, they are presented as current assets. Note 7. Notes Receivable On March 22, 2022, the Company entered into a three -year secured promissory note agreement with a principal amount of $ 2,000,000 . The note bears simple interest at the rate of approximately 3.1 % annually, due upon maturity of the note. The note is secured by all assets, accounts, and tangible and intangible property of the borrower and can be prepaid any time prior to its maturity date. As of September 30, 2023, the entire $ 2,000,000 in principle was outstanding. This note was received in consideration for a portion of the development work that the Company performed for the borrower who had intended 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. Note 8. Write-Off of Goodwill and Intangibles As required by ASC 350 Intangibles – Goodwill and Other Impairment and ASC 360 – Impairment Testing: Long-Lived Assets, in connection with preparing the consolidated financial statements for the period ended December 31, 2023, management conducted a review as to whether there are conditions or circumstances that may indicate the impairment of its long-lived assets, goodwill and other indefinite-lived intangible assets. The Company reviewed the goodwill and intangibles acquired in the acquisitions of TinBu, LLC and Global Gaming Enterprises, Inc., the domain names and software purchased from third parties, and software developed in-house. Each of TinBu, Global Gaming, and Lottery.com is considered a reporting unit for application of the annual review for potential impairment. The company performed a valuation of each of the reporting units described above, using discounted cash flow methodologies and estimates of fair market value. Given the results of the quantitative assessment, the company determined that the goodwill for the TinBu and Global Gaming reporting units was impaired. For the year ended December 31, 2023, the company recognized goodwill impairment charges of $ 5.65 million for the TinBu reporting unit and $ 1.06 million for the Global Gaming reporting unit. The total impairment charges related to goodwill were $ 6.71 million. In addition, it was determined that there was an impairment of certain intangible assets related to Global Gaming. For the year ended December 31, 2023, the Company recorded impairment charges of $ 488 thousand to trade names and trademarks and $ 312 thousand to technology acquired from Global Gaming. The total impairment charges to intangible assets were $ 800 thousand. Additionally, in connection with completion of the tax provision for 2023, a transaction which had been recorded for the year ended December 31, 2021 was reevaluated and a decision was made that it should not have been recorded and should be reversed. Specifically, at the end of 2021, a decision was made to increase goodwill related to the acquisition of Global Gaming Enterprises, Inc. due to an incorrect conclusion that “an adjustment should be made to goodwill for the recording of related deferred tax liabilities as the Company released $ 1.6 million of valuation allowance since the additional deferred tax liabilities represent a future source of taxable income”. This approach improperly accelerated the effects of future amortization of intangible assets related to Global Gaming, resulting in inappropriately releasing part of a valuation allowance for deferred taxes which is not in compliance with GAAP. At that time, the Company recorded an increase to goodwill for Global Gaming and an income tax benefit each in the amount of $ 1,653,067 . We have reversed this transaction by reducing goodwill for Global Gaming by $ 1,653,067 and have increased accumulated deficit to remove the income tax benefit which was incorrectly recorded for year ended December 31, 2021. Note 9. Intangible assets, net Gross carrying values and accumulated amortization of intangible assets: Schedule of Finite Lived Intangible Assets Amortization Expenses December 31, 2023 December 31, 2022 Useful Life Gross Carrying Amount Accumulated Amortization Net Gross Carrying Amount Accumulated Amortization Net Amortizing intangible assets Customer relationships 6 years $ 1,350,000 $ ( 1,006,389 ) $ 343,611 $ 1,350,000 $ ( 781,385 ) $ 568,615 Trade name 6 years 2,550,000 ( 1,555,925 ) 994,075 2,550,000 ( 642,222 ) 1,907,778 Technology 6 years 3,050,000 ( 2,257,205 ) 792,795 3,050,000 ( 1,437,778 ) 1,612,222 Software agreements 6 years 14,450,000 ( 8,791,944 ) 5,658,056 14,450,000 ( 5,968,611 ) 8,481,389 Gaming license 6 years 4,020,000 ( 1,675,000 ) 2,345,000 4,020,000 ( 1,005,000 ) 3,015,000 Internally developed software 2 - 10 years 2,904,473 ( 737,053 ) 2,167,420 2,192,050 ( 350,232 ) 2,554,241 Domain name 15 years 6,935,000 ( 1,554,083 ) 5,380,917 6,935,000 ( 1,091,750 ) 5,843,250 $ 35,259,473 $ ( 17,577,599 ) $ 17,681,874 $ 34,547,050 $ ( 11,276,978 ) $ 23,982,495 Amortization expense with respect to intangible assets for the year ended December 31, 2023 and 2022 totaled $ 5,550,882 and $ 5,440,908 , respectively, which is included in depreciation and amortization in the Statements of Operations. The Company determined that there was an impairment of long-lived assets of $ 412,450 during the year ended December 31, 2022, which relates to a project no longer being pursued by the Company. In connection with the annual review of goodwill and intangibles, the Company determined that it was necessary to write down goodwill by $ 5,650,000 for TinBu and $ 1,060,200 for Global Gaming. The total impairment charges related to goodwill were $ 6,710,200 for the year ended December 31, 2023. It was also determined that there was impairment of certain intangible assets related to Global Gaming. As a result, the Company recorded impairment charges of $ 488,300 to trade names and trademarks and $ 311,500 to technology acquired from Global Gaming. The total impairment charges to intangible assets for the year ended December 31, 2023 were $ 798,800 . Estimated amortization expense for years of useful life remaining is as follows: double check future amortization. Schedule of Estimated Amortization Expense Years ending December 31, Amount 2024 $ 4,829,655 2025 4,509,655 2026 2,642,155 2027 1,245,517 Thereafter 4,454,892 Total $ 17,681,874 The Company had software development costs of $ 476,850 related to projects not placed in service as of both December 31, 2023 and December 31, 2022, which is included in intangible assets in the Company’s consolidated balance sheets. Amortization will be calculated using the straight-line method over the appropriate estimated useful life when the assets are put into service. F- 20 Note 10. Notes Payable and Convertible Debt Secured Convertible Note In connection with the Lottery.com domain purchase, the Company issued a secured convertible promissory note (“Secured Convertible Note”) with a fair value of $ 935,000 that matured in March 2021. The Company used the fair value of the Secured Convertible Note to value the debt instrument issued. In March 2021, the Secured Convertible Note was fully converted into 69,910 share of the Company’s common stock. (see Note 11). 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 $ 821,500 . The notes bear interest at 10 % per year, are unsecured, and were due and payable on June 30, 2019. The parties verbally agreed to extend the maturity of the notes to December 31, 2021 . As of both December 31, 2023 and December 31, 2022, the balance due on these notes was $ 771,500 . The Company cannot prepay the loan without consent from the noteholders. As of December 31, 2021, there were no Qualified Financing events, that trigger conversion, this included the TDAC combination. As of December 31, 2022, the remaining outstanding balance of $ 771,500 relates to notes that are no longer convertible which have been reclassified to Notes Payable as per the agreement. Accrued interest on the Series A notes payable was $ 318,909 on December 31, 2023. 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 $ 8,802,828 . The notes bear interest at 8 % per year, are unsecured, and were due and payable on dates ranging from December 2020 to December 2021. For those notes maturing on or before December 31, 2020, the parties entered into amendments in February 2021 to extend the maturity of the notes to December 21, 2021 . The Company cannot prepay the loans without consent from the noteholders. During the year ended December 31, 2021, the Company entered into multiple Convertible Promissory Note agreements with unaffiliated investors for an aggregate amount of $ 38,893,733 . The notes bear interest at 8 % per year, are unsecured, and are due and payable on dates ranging from December 2021 to December 2022. The Company cannot prepay these loans without consent from the noteholders. As of December 31, 2021, the Series B Convertible Notes had a balance of $ 0 . 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 $ 3,552,114 . The amendments were accounted for as a debt extinguishment, whereby the old debt was derecognized and the new debt was recorded at fair value. The Company recorded loss on extinguishment of $ 71,812 as a result of the amendment which was mapped in “Other expenses” on the consolidated statements of operations and comprehensive loss. As of October 29, 2021, all except $ 185,095 of the series B convertible notes were converted into 488,226 shares of Lottery.com common stock after accounting for the 20:1 reverse stock split that took place on August 9, 2023. As of December 31, 2023, the remaining notes comprising the outstanding balance of $ 185,095 are no longer convertible and have been reclassified to notes payable. See Note 11. Accrued interest on this note payable as of December 31, 2023 and 2022 was $ 64,799 and $ 49,992 , respectively. F- 21 PPP Loan On May 1, 2020, the Company entered into a Promissory Note with Cross River Bank, which provided for a loan in the aggregate amount of $493,225, pursuant to the Paycheck Protection Program, (“PPP”). The PPP, established under Division A, Title I of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) enacted on March 27, 2020, provided for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The loans and accrued interest were forgivable after eight weeks as long as the borrower utilized the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities (“Qualified Expenses”), and maintained its payroll levels. On August 24, 2021, the PPP loan and accrued interest was forgiven by the U.S. Small Business Administration (“SBA”) in full. The Company recorded the full amount related to the forgiveness of the PPP loan as a gain on extinguishment of debt during the third quarter of fiscal year 2021. Short term loans On June 29, 2020, the Company entered into a Promissory Note with the U.S. Small Business Administration (“SBA”) for $ 150,000 . The loan has a thirty-year term and bears interest at a rate of 3.75 % per annum. Monthly principal and interest payments are deferred for twelve months after the date of disbursement. The loan may be prepaid at any time prior to maturity with no prepayment penalties. The Promissory Note contains events of default and other provisions customary for a loan of this type. As of December 31, 2023 and 2022, the balance of the loan was $ 150,000 . As of December 31, 2023 and December 31, 2022, the accrued interest on this note was $ 5,253 and $ 3,764 respectively. In August 2020, the Company entered into three separate note payable agreements with three individuals for an aggregate amount of $ 37,199 . The notes bear interest at a variable rate, are unsecured, and the parties have verbally agreed the notes will be due upon a qualifying financing event. As of December 30, 2023 and 2022, the balance of the loans totaled $ 13,000 , respectively. Notes payable On August 28, 2018, in connection with the purchase of the entire membership interest of TinBu, the Company entered into several notes payable for $ 12,674,635 with the sellers of the TinBu and a broker involved in the transaction. The notes had an interest rate of 0 %, and original maturity date of January 25, 2022. The notes payable were modified during 2021 to extend the maturity to June 30, 2022 and change the interest rate to include simple interest of 4.1 % per annum effective October 1, 2021. Each of the amendments were evaluated and determined to be loan modifications and accounted for accordingly. As of both December 30, 2023 and December 31, 2022, the balance of the notes was $ 2,601,370 . Accrued interest on these notes was $ 242,381 on December 31, 2023 and $ 164,846 on December 31, 2022, respectively. Note 11. Stockholders’ Equity Reverse Split On August 9, 2023, the Company amended its Charter to implement, effective at 5:30 p.m., Eastern time, a 1-for-20 Reverse Stock Split. At the effective time of the Reverse Stock Split, every 20 shares of common stock either issued and outstanding or held as treasury stock were automatically combined into one issued and outstanding share of common stock, without any change in the par value per share . Stockholders who would have otherwise been entitled to fractional shares of common stock as a result of the Reverse Stock Split received a cash payment in lieu of receiving fractional shares. In addition, as a result of the Reverse Stock Split, proportionate adjustments will be made to the number of shares of common stock underlying the Company’s outstanding equity awards, the number of shares issuable upon the exercise of the Company’s outstanding warrants and the number of shares issuable under the Company’s equity incentive plans and certain existing agreements, as well as the exercise, grant and acquisition prices of such equity awards and warrants, as applicable. The Reverse Stock Split was approved by the Company’s stockholders at the Company’s 2023 Annual Meeting of Stockholders on August 7, 2023 and was subsequently approved by the Board of Directors on August 7, 2023. The effects of the Reverse Stock Split were reflected in the Quarterly Report on Form 10-Q for the period ended September 30, 2023 and in all subsequent reports for all periods presented. Preferred Stock Pursuant to the Company’s charter, the Company is authorized to issue 1,000,000 shares of preferred stock, par value $ 0.001 per share. Our board of directors has the authority without action by the stockholders, to designate and issue shares of preferred stock in one or more classes or series, and the number of shares constituting any such class or series, and to fix the voting powers, designations, preferences, limitations, restrictions and relative rights of each class or series of preferred stock, including, without limitation, dividend rights, conversion rights, redemption privileges and liquidation preferences, which rights may be greater than the rights of the holders of the common stock. As of December 31, 2023, there were no shares of preferred stock issued and outstanding. F- 22 Common Stock Our Charter authorizes the issuance of an aggregate of 500,000,000 shares of Common Stock, par value $ 0.001 per share. The shares of Common Stock are duly authorized, validly 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 an uncertificated form. Holders of our Common Stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders . The holders of Common Stock do not have cumulative voting rights in the election of directors. Upon our liquidation, dissolution or winding up and after payment in full of all amounts required to be paid to creditors and to the holders of preferred stock having liquidation preferences, if any, the holders of our Common Stock will be entitled to receive pro rata our remaining assets available for distribution. As of December 31, 2023 and December 31, 2022, 2,877,045 and 2 , 52 7 ,045 shares of Common Stock, post reverse stock split, respectively, were outstanding. During the year ended December 31, 2022, the Company issued the following shares of common stock. No similar issuances occurred in 2023. Schedule of Common Stock As of December 31, 2021 2,512,815 Issuance of Common Stock for legal settlement 3,000 Exercise of options (Note 11) 3,006 Restricted stock award 8,224 As of December 31, 2022 2,527,045 Issuance of common stock 350,000 As of December 31, 2023 2,877,045 Public Warrants The Public Warrants became exercisable 30 days after the Closing; 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 $ 0.01 per warrant; ● upon a minimum of 30 days’ prior written notice of redemption; ● if, and only if, the last sale price of the Company’s common stock equals or exceeds $ 320.00 per share for any 20 trading days within a 30 -trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders; and ● 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 30 -day trading period referred to above and continuing each day thereafter until the date of redemption. F- 23 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. After giving effect to the Business Combination, as of December 31, 2023 there were Public Warrants outstanding for the issuance of 1,006,250 shares of common stock of the Company, which total includes previously issued warrants of AutoLotto, now warrants of Lottery.com Inc., which are exercisable for the purchase of an aggregate of 19,784 shares of common stock of the Company. 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 $ 100 , an option to purchase up to a total of 87,500 Units exercisable at $ 240.00 per Unit (or an aggregate exercise price of $ 21,000,000 ) commencing on the consummation of the Business Combination. The 87,500 Units represents the right to purchase 87,500 shares of common stock and 87,500 warrants to purchase 87,500 shares of common stock. The unit purchase option, which was exercisable for cash or on a cashless basis, at the holder’s option, expired on May 29, 2023. The Units issuable upon exercise of this option were identical to those offered by Lottery.com. The Company accounted for the unit purchase option, inclusive of the receipt of $ 100 cash payment, as an expense of the Business Combination resulting in a charge directly to stockholders’ equity. As of December 31, 2023 all of the 87,500 Units have been forfeit. Common Stock Warrants The Company did not issue any warrants during the years ended December 31, 2023 and 2022. All 24,415 outstanding warrants are fully vested and have a weighted average remaining contractual life of 2.7 years. The Company did not incur any expense for the year ended December 31, 2023 and 2022. Schedule of Common Stock Warrant Weighted Weighted Average Average Remaining Aggregate Number of Exercise Contractual Intrinsic Shares Price Life (years) Value Outstanding at December 31, 2021 19,784 $ 2.20 4.0 $ 272,638 Granted 4,631 151.20 3.8 0 Exercised - - - Forfeited/cancelled - - - Outstanding at December 31, 2022 24,415 0.11 2.8 1,200,387 Granted - - - Exercised - - - Forfeited/cancelled - - - Outstanding at December 31, 2023 24,415 $ 0.11 1.8 $ 1,200,387 F- 24 Beneficial Conversion Feature - Convertible Debt As detailed in Note 10 - 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 $ 8,480,697 as additional paid in capital and a corresponding debt discount of $ 2,795,000 . This additional paid in capital is reflected in the accompanying consolidated Statements of Equity. Earnout Shares As detailed in Note 4 - as part of the TDAC Combination as of December 31, 2021 a total of 5,000,000 Earnout Shares were eligible for issuance until December 31, 2022. Conditions for the earnout were not met and the potential earnout shares were forfeited on December 31, 2022. Note 12. Stock-based Compensation Expense 2015 Stock Option Plan Prior to the closing of the Business Combination, AutoLotto had the AutoLotto, Inc. 2015 Stock Option/Stock Issuance Plan (the “2015 Plan”) in place. Under the 2015 Plan, incentive stock options may be granted at a price not less than fair market value of the common stock (110% of fair value to holders of 10% or more of voting stock). If the Common Stock is at the time of grant listed on any Stock Exchange, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question on the Stock Exchange, as such price is officially quoted in the composite tape of transactions on such exchange and published in The Wall Street Journal. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists. If the Common Stock is at the time neither listed on any Stock Exchange, then the Fair Market Value shall 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. The maximum number of shares of Common Stock which may be issued over the term of the Plan shall not exceed Twenty-Two Thousand Five Hundred (22,500). Options are exercisable over periods not to exceed 10 years (five years for incentive stock options granted to holders of 10% or more of voting stock) from the date of grant . Shares of Common Stock issued under the Stock Issuance Program may, in the discretion of the Plan Administrator, be fully and immediately vested upon issuance or may vest in one or more instalments over the Participant’s period of Service or upon attainment of specified performance objectives. The Plan Administrator may not impose a vesting schedule upon any option grant or the shares of Common Stock subject to that option which is more restrictive than twenty percent ( 20 %) per year vesting, with the initial vesting to occur not later than one ( 1 ) year after the option grant date. However, such limitation shall not be applicable to any option grants made to individuals who are officers of the Corporation, non-employee Board members or independent consultants. 2021 Equity Incentive Plan In connection with the Business Combination, our board of directors adopted, and our stockholders approved, the Lottery.com 2021 Incentive Award Plan (the “2021 Plan”) under which 616,518 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 five percent ( 5 %) of the total outstanding shares of Company common stock on the last day of the prior calendar year. 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. As of December 31, 2023, the Company has not granted awards under the 2021 Plan. 2023 Equity Incentive Plan On October 10, 2023, the Board adopted the Lottery.com 2023 Employees’ Directors’ and Consultants Stock Issuance and Option Plan (the “2023 Plan”) under which 500,000 shares of Class A common stock were initially reserved for issuance. The 2023 Plan allows for the issuance of incentive and non-qualified stock options, and restricted stock. As of December 31, 2023, the Company had awarded 350,000 shares under the 2023 Plan. F- 25 Stock Options The Company did not issue any new stock options during the years ended December 31, 2023 and 2022. The following table shows stock option activity for the years ended December 31, 2023 and 2022: Schedule of Stock Option Activity Weighted Weighted Average Shares Outstanding Average Remaining Aggregate Available Stock Exercise Contractual Intrinsic for Grant Awards Price Life (years) Value Outstanding at December 31, 2021 13,461 17,283 $ 19.40 4.4 $ 2,061,303 Granted - - - - Exercised - ( 3,006 ) ( 13.40 ) - Forfeited/cancelled ( 3,006 ) 3,006 13.40 - Outstanding at December 31, 2022 10,455 17,283 8.20 3.4 944,544 Granted - - - - Exercised - - - - Forfeited/cancelled (uncancelled) - - - - Outstanding at December 31, 2023 10,455 17,283 $ 8.20 2.4 $ 944,544 Stock-based compensation expense related to the employee options was $ 0 for the year ended December 31, 2023, and 2022. Restricted awards The Company awarded restricted stock to employees on October 28, 2021, which were granted with various vesting terms including immediate vesting, 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 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 191,622 shares with vesting to begin April 2022. For the year ended December 31, 2022, the Company recognized $ 27,137,991 of stock compensation expense related to the employee restricted stock grants. As of December 31, 2023, unrecognized stock-based compensation associated with the restricted stock awards is $ 0 . The Company had restricted stock activity summarized as follows: Schedule of Restricted Stock Awards Activity Weighted Average Number of Grant Shares Fair Value Outstanding at December 31, 2021 191,622 $ 295.00 Granted - - Vested - - Forfeited/cancelled - - Restricted shares unvested at December 31, 2022 191,622 $ 295.00 Outstanding at December 31, 2022 191,622 $ 295.00 Granted 350,000 2.91 Vested 398,590 2.91 Forfeited/cancelled ( 143,032 ) - Restricted shares unvested at December 31, 2023 - $ - F- 26 Note 13. Loss Per Share The following table sets forth the computation of basic and diluted net loss per share: Schedule of Basic and Diluted Net Income Loss Per Share Year ended December 31, 2022 2023 2022 Comprehensive net loss attributable to stockholders $ ( 25,537,315 ) $ ( 59,999,072 ) Weighted average common shares outstanding Basic and diluted 2,596,493 2,522,175 Net loss per common share Basic and diluted $ ( 9.84 ) $ ( 23.79 ) As of December 31, 2023, the Company excluded 10,456 stock options, 23,417 restricted awards, 24,415 warrants, 250,000 earn out shares and 87,500 unit purchase options from the calculation of diluted net loss per share with the effect being anti-dilutive. As of December 31, 2023, the Company excluded 17,283 stock options, 100,639 convertible debt into common shares, 191,622 restricted awards, 193,465 warrants, 86,301 earn out shares and 30,206 unit purchase options from the calculation of diluted net loss per share with the effect being anti-dilutive. Note 14. Income Taxes The Company’s pre-tax income (loss) by jurisdiction was as follows for the years ending December 31, 2023 and December 31, 2022: Schedule of Pre-tax Income (Loss) by Jurisdiction 2023 2022 Year ended December 31, 2022 2023 2022 Domestic $ ( 25,683,200 ) $ ( 13,525,998 ) Foreign 3,545 ( 1,899,580 ) Total ( 25,679,655 ) ( 15,425,578 ) The provision for income taxes for continuing operations for the year ended December 31, 2023 and 2022 consist of the following Schedule of Income Tax for Continuing Operations 2023 2022 Year ended December 31, 2022 2023 2022 Current Income Taxes Federal $ 0 $ 0 State 60,000 23,364 Foreign 0 0 Total current income taxes 60,000 23,364 Deferred Income Taxes Federal - - State - - Foreign - - Total deferred income taxes - - Total Income Tax Expense (benefit) $ 60,000 $ 23,364 A reconciliation between the amount of reported income tax expense (benefit) and the amount computed by multiplying income from continuing operations before income taxes by the statutory federal income tax rate is shown below. Income tax expense for the year ended December 31, 2023 includes state minimum taxes, permanent differences, and deferred tax assets for which a full valuation allowance has been placed. Schedule of Increase in the Valuation Allowance 2023 2022 Year ended December 31, 2022 2023 2022 Tax Expense at statutory federal rate of 21 % $ ( 5,392,727 ) $ ( 3,239,371 ) State income taxes, net of federal income tax benefit 60,000 23,364 Foreign Rate Differential 318 - Permanent Differences 1,203,361 37,919 Other - Misc. Change in Valuation Allowance 4,189,048 3,201,452 Income tax expense (benefit) 60,000 23,364 F- 27 Deferred income taxes reflect the tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amount used for income tax purposes. The following table discloses those significant components of our deferred tax assets and liabilities, including any valuation allowance: Schedule of Deferred Tax Assets and Liabilities 2023 2022 Long-term deferred tax assets: Federal Net Operating Loss Carryforwards $ 36,378,116 $ 20,145,126 Intangible Assets 1,492,426 ( 861,317 ) Accrued Compensation & Benefits 863,049 - Foreign Net Operating Loss Carryforwards 773,134 - Stock Compensation - - State Net Operating Loss Carryforwards - - Other 19,540 19,540 Total deferred tax assets before valuation allowance 39,526,265 29,214,108 - - Deferred tax liabilities: - - Fixed Assets 316 ( 46,035 ) Intangible Assets - - Total deferred tax liabilities 316 ( 46,035 ) Valuation Allowance ( 39,525,949 ) ( 29,260,143 ) Net deferred tax assets and liabilities $ - $ - For the year ended December 31, 2023, the valuation allowance increased by $ 10,265,807 . The Company believes a full valuation allowance against the net deferred tax asset is appropriate at this time. The Company will continue to evaluate the realizability of its deferred tax assets in future years. At December 31, 2023, our carryforwards available to offset future taxable income consisted of federal net operating loss (“NOL”) carryforwards of approximately $ 173,229,125 . Of this total $ 22,050149 expires between 2035 and 2037 and $ 151,178,976 of which has no expiration date. We account for uncertain tax positions in accordance with ASC 740-10-25, which prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. We have not recorded any unrecognized tax benefits as of December 31, 2023. Our practice is to recognize interest and penalties related to income tax matters in income tax expense in our consolidated statements of operations. The Company files U.S. federal and state returns. The Company’s foreign subsidiary also files a local tax return in their local jurisdiction. From a U.S. federal, state and Mexican perspective the years that remain open to examination are consistent with each jurisdiction’s statute of limitations. The Company has not filed its 2021, 2022 and 2023 U.S. federal and state corporate income tax returns. The Company’s foreign subsidiary in Mexico is current with the filing of its tax returns through 2022. The Company expects to file these documents as soon as possible. While the Company is in a net loss position and expects no income tax amounts to be due except for minimum state and local income taxes, the Company is at risk of penalties for failure to file. As of the date of this Amended Report, the Company has not been informed that such penalties have been assessed, therefore no accrual for such has been recorded in the Company’s financial statements. The Company’s federal income tax returns for the years 2020-2023 remain subject to examination by the Internal Revenue Service. The state returns for 2019-2023 are also open for exam. Note 15. 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 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 December 31, 2023 and 2022. Digital Securities In 2018, the Company commenced a sale offering and issuance (the “LDC Offering”) of 285 million revenue participation interests (the “Digital Securities”) of the net raffle revenue of LDC Crypto Universal Public Company Limited (“LDC”). The Digital Securities do not have any voting rights, redemption rights, or liquidation rights, nor are they tied in any way to other equity securities of LDC or the Company nor do they otherwise hold any rights that a holder of equity securities of LDC or the Company may have or that a holder of traditional equity securities or capital stock may have. Rather, each of the holders of the Digital Securities has a pro rata right to receive 7 % of the net raffle revenue. If the net raffle revenue is zero for a given period, holders of the Digital Securities are not eligible to receive any cash distributions from any raffle sweepstakes of LDC for such period. For the years ended December 31, 2023 and December 31, 2022, the company did not incur any obligations to the holders of the outstanding Digital Securities. For the year ended December 31, 2021, the Company incurred an obligation to pay an aggregate amount of approximately $ 5,632 to holders of the outstanding Digital Securities. The Company did not satisfy any of those obligations during the years ended December 31, 2021, 2022, or 2023. F- 28 Leases The Company leased office space in Spicewood, Texas which expired January 31, 2024 and has continued to utilize that facility on a month to month basis with monthly rent of $ 1,669 per month. Additionally, the Company has leased retail space in Waco , TX which expires on December 31, 2024 with monthly rent of $ 2,434 . For the year ended December 31, 2023, the Company’s total rent expense was approximately $ 61,960 . As of December 31, 2023, future minimum rent payments due under non-cancellable leases with initial are as follows: Schedule of Future Minimum Rent Payments Due Under Non-Cancellable Leases Years ending December 31, Amount 2024 30,880 Thereafter - Total $ 30,880 Litigation and Other Loss Contingencies As of December 31, 2023, 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 Part II, Item 1 for additional information. Note 16. 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 $ 4,700 during 2021 and the outstanding balance was $ 13,000 on December 31, 2023 and December 31, 2022. During the years ended December 31, 2021 and 2020, the Company entered into a services agreement with Master Goblin Games, LLC (“Master Goblin Games”), an entity owned by Ryan Dickinson, a former officer of the Company, to facilitate the establishment of receipt of retail lottery licenses in certain jurisdictions. As of December 31, 2023, the Company had no outstanding related party payables. Pursuant to the Service Agreement, Master Goblin was authorized and approved by the Company to incur up to $ 100,000 in initial expenses per location for the commencement of operations at each location, including, without limitation, tenant improvements, furniture, inventory, fixtures and equipment, security and lease deposits, and licensing and filing fees. Similarly, pursuant to the Service Agreement, during each month of operation, Master Goblin was authorized to submit to the Company for reimbursement on-going expenses of up to $ 5,000 per location for actually incurred lease expenses. The initial expenses were submitted by Master Goblin to the Company upon Master Goblin securing a lease and leases were only secured by Master Goblin in any location upon request of the Company. Such initial expenses were recorded by the Company as lease obligations. On-going expenses were submitted by Master Goblin to the Company on a monthly basis, subject to offset, and were recorded by the Company as an expense. To the extent Master Goblin had a positive net income in any month, exclusive of the sale of lottery games, such net income reduced or eliminated such reimbursable expenses for that month. F- 29 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 Subsequent Events). As of the date of this Amended Report, no definitive documentation for this transaction has been signed. The Company paid Master Goblin an aggregate of approximately $ 53,000 and $ 440,000 , including expense reimbursements under the Service Agreement and additional reimbursable expenses, during the years ended December 31, 2023 and 2022, respectively. In January of 2023, the company paid $ 53,000 to Master Goblin Games for settlement of outstanding obligations of $ 316,919 and the parties mutually agreed to terminate the business relationship. Note 17. Subsequent Events As reported on form 8-K filed with the SEC on February 9, 2024, on February 5, 2024, the Company entered into a Memorandum of Understanding (the “MOU”) with WA Technology Group Limited (“WATG”), whereby the Company has agreed to pay WATG a total of $ 500,000 US dollars in restricted common stock at a price of $ 3.00 per share. A second payment by Lottery.com to WATG shall be due in five years and 2 months from the date of the definitive agreement to be signed by the parties at a later date. The total consideration for the second payment is the equivalent of $ 500,000 US dollars in restricted common stock at market value on the date the second payment is due. In addition, the Company will nominate an individual (at a later date) from WATG to act as a dedicated consultant to the Company for the purpose of expanding its brand, ticket sales and global operations. In exchange, the Company shall own a non-exclusive perpetual single use license for WATG’s Lottery Player & Account Management Software (“PAM”) and WATG shall provide its full spectrum of iGaming solutions to the Company to manage its global growth strategy. The parties shall co-operate and collaborate with one another’s businesses and shall enter a more definitive agreement at a later date. As reported on form 8-K filed with the SEC on February 21, 2024, on February 15, 2024, the Company entered into a Memorandum of Understanding (the “MOU”) with S&MI Ltd. (“SportLocker.com”), whereby it agreed to pay the shareholders of S&MI Ltd. a total of $ 1,000,000 in restricted common stock at a valuation of $ 3.00 per share. The first payment of $150,000 in restricted common stock (50,000 shares) of the Company is due and payable not later than June 15, 2024. The remaining payments in restricted common stock to the shareholders of S&MI Ltd. by the Company will be made as follows: (i) a second payment of $212,500 (70,833 shares) due on or before August 14, 2024; (ii) a third payment, of $212,500 (70,833 shares) due on or before November 12, 2024; (iii) a fourth payment of $212,500 (70,833 shares) due on or before February 10, 2025; and (vi) a final and fifth payment of $212,500 (70,834 shares) due on or before May 16, 2025. The terms and conditions set forth in the MOU shall be incorporated into a definitive agreement to be entered into by the parties with a Closing Date on or before June 30, 2024 or at a date agreeable to both parties. In addition, the Company has agreed to make available to the business of SportLocker.com, cash, media credits or combination thereof over the twelve months following the Closing Date as additional capital investment into the business plan, to facilitate brand awareness, user acquisition and general performance marketing and promotion, influencer and subscription campaigns and branding activities of S&MI’s streaming and social engagement, subject to the Company successfully raising a minimum of new capital. On March 7, 2024, Sports.com, a wholly-owned subsidiary of the Company, announced by press release that it has launched the “Sports.com App”. The App (which is available for download for free from all major app stores) connects sports content with audiences worldwide. By uniting a diverse community of sports enthusiasts across various genres, demographics, and countries, Sports.com plans to eliminate multiple cultural barriers and foster a global sports community. On March 28, 2024, Sports.com, a wholly-owned subsidiary of the Company, announced by press release that it has obtained the rights to live stream the March 31, 2024 heavyweight title fight between Frazier Clarke and Fabio Wardley. The live stream was available to view for free for millions of sports fans in Africa, via the Sports.com website. The live streaming event is the result of a partnership between Sports.com, BOXXER, the fast-growing UK boxing promotional company, and Sky Sports in the UK and Ireland. Sports.com had entered into an agreement with BOXXER to provide live coverage through the Sports.com platform in Africa, via local telecom partners such as Vodacom, which will provide free access to millions of viewers. This partnership underscores Sports.com’s commitment to bringing inclusivity, innovation, and entertainment to sports. To view the live streaming event on Sports.com, African-based sports fans were able to sign up via local mobile operators to watch the fight on the Sports.com platform. Sports.com’s strategic intent is to provide more such content to sports fans in underserved markets including those in the Middle East and Africa. On April 1, 2024, Lottery.com resumed its sweepstakes offerings through its partnership with the WinTogether.org foundation (DBA: DonateTo.Win). The initial sweepstakes will be active until at least September 30, 2024. On April 22, 2024, the Company, by and through its outside legal counsel, issued a cease and desist notice to PR Fire Limited, a U.K. based firm and Mr. Samuel Allcock, its CEO, for unlawful attempts to manipulate the public markets by disseminating false and misleading statements about the Company, its current officers and directors in certain articles caused to be published by PR Fire Limited. The Company’s outside legal counsel reported the matter to the proper authorities. On April 24, 2024, the Company, by and through its outside legal counsel, issued a cease and desist notice to certain individuals and entities in participation with a common scheme and acting in concert to financial harm to the Company by privately and publicly disseminating false and misleading statements about the Company, its current officers and directors. The Company’s outside legal counsel reported the matter to the proper authorities. On April 29, 2024, the Board of Directors of the Company approved the addition of Mr. Warren Macal as a member of the Company’s Board of Directors. Macal’s nomination follows the December 2023 $ 18 million investment commitment from Prosperity Investment Management subject to due diligence. F- 30 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. See “ Item 14. Principal Accounting Fees and Services. ”