Item 1. Business
Item
1. Business.
Overview
and Recent Developments
We
were originally formed as Trident Acquisition Corp., a Delaware corporation on March 17, 2016, for the purpose of effecting a merger,
share exchange, asset acquisition, stock purchase, reorganization, recapitalization or other similar business combination with one or
more businesses. 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. Unless
the context requires otherwise, references to the “Company,” “we,” “us,” “our,” “Lottery.com”
and “Lottery.com Inc.” refer to Lottery.com Inc. and its consolidated subsidiaries.
On
July 6, 2022, the Company announced that the Audit Committee (the “Audit Committee”) of the board of directors of the
Company (the “Board”) had retained outside counsel to conduct an independent investigation that revealed instances of
non-compliance with state and federal laws concerning the states in which lottery tickets were procured as well as order
fulfillment. The investigation also identified issues pertaining to the Company’s internal accounting controls (the
“Internal Investigation”). Following a report on the filings of the Internal Investigation, effective July 1, 2022, the
Board terminated the employment of Ryan Dickinson as the Company’s President, Treasurer and Chief Financial Officer. Subsequently, the Company initiated a review of its cash balances and related disclosures as well as its revenue
recognition processes and other internal accounting controls.
On
July 20, 2022, Armanino LLP (“Armanino”), the Company’s registered independent public accountant for the fiscal years
ended December 31, 2021 and 2022, advised the Company that its audited financial statements of for the year ended December 31, 2021 (the
“2021 Audit”) and the unaudited financial statements for the quarter ended March 31, 2022 (the “March 2022 Financials”),
should no longer be relied upon. Armanino advised that it had determined, subsequent to the 2021 Audit and review of the March 2022 Financials,
that the Company had entered into a line of credit in January 2022 that was not disclosed in the footnotes to the 2021 Audit and was
not properly recorded in the March 2022 Financials (see Note 3 to the consolidated financial statements included herein for more details).
On
July 28, 2022, the Board determined that the Company did not have sufficient financial resources to fund its operations or pay certain
existing obligations, including its payroll and related obligations, due to a significant misstatement of our cash balances.
The following day, on July 29, 2022, the Company effectively ceased operations
(the “Operational Cessation”), when it furloughed the majority of its employees and generally suspended its lottery game sales.
The Company’s remaining employees were retained at the discretion of the Company’s then Chief Operating Officer and Chief
Legal Officer were to provide the minimal business functions needed to address the Company’s legal and compliance issues and to
secure necessary funding to resume the Company’s operations. Less than twenty percent of these non-furloughed employees remain active
in the efforts to restore Company operations and as of December 31, 2023, approximately $3.85 million in outstanding payroll and $1.0
million in outstanding director compensation obligations was unpaid.
Effective
September 27, 2022, Armanino resigned as the independent registered public accounting firm of the Company.
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On
October 7, 2022, the Audit Committee approved the engagement of Yusufali & Associates, LLC, (“Yusufali”) as the Company’s
new independent registered public accounting firm.
Since
the Operational Cessation, the Company has had minimal day-to-day operations and has primarily focused its operations on restarting certain
of its core businesses (as described in more detail under “ Plans for Recommencement of Company Operations ” below),
completing the restatements of the Company’s 2021 Audit and March 2022 Financials and preparing and filing the Company’s
delinquent periodic reports, including Amendment No. 1 to the Company’s Annual Report on Form 10-K/A for the year ended December
31, 2021, which the Company filed on May 10, 2023, Amendment No. 1 to the Company’s Quarterly Report on Form 10-Q/A for the three
months ended March 31, 2022, which the Company filed on May 15, 2023, the Company’s Quarterly Reports on Form 10-Q for the three
months ended June 30, 2022 and September 30, 2022, which the Company filed on May 22 and 24, 2023, respectively, filing the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, which the Company filed
on June 15, 2023, the Company’s
Quarterly Report on Form 10-Q for the three months ended March 31, 2023, June 30, 2023, September 30, 2023, filed on June 16, 2023, August
22, 2023, and November 30, 2023 respectively, filing the Company’s Annual Report on Form 10-K for the year ended
December 31, 2023, which the Company filed on April 3, 2024, Amendment No. 1 to the Company’s Annual Report on Form 10-K/A for the year ended December 31,2023 and this Amended Report.
Nasdaq
Listing
On
March 23, 2023, the Company requested a hearing before the Nasdaq Hearings Panel (the “Panel”) to appeal a determination
by the Listing Qualifications department (the “Staff”) of Nasdaq dated February 23, 2023, to delist the Company’s
securities from Nasdaq. The Company was non-complaint with Nasdaq Listing Requirements 5550(a)(2) (the “Bid Price
Requirement”) and 5250(c)(1) (the “Timely Filing Requirement.”) At the hearing before the Panel on April 24, 2023,
the Company presented its plan to complete the restatement of its financial statements for the fiscal year ended December 31, 2021,
and the subsequent quarter ended March 31, 2022, and to file the amended periodic reports and all subsequent required filings with
the SEC. The Company requested the continued listing of its securities on Nasdaq pending the completion of its compliance
plan.
By
letter dated May 8, 2023, the Panel granted the Company’s request for continued listing, on an interim basis, subject to the Company
submitting financial projections for fiscal 2023 and filing the restated financial statements for the fiscal year ended December 31,
2021, and quarter ended March 31, 2022, with the SEC by May 15, 2023. The Company satisfied these conditions and the Panel indicated
that it would review the filings, along with the updated projections, and thereafter determine whether to afford the Company additional
time to complete the compliance plan presented at the hearing.
By
letter dated May 24, 2023, the Panel notified the Company that it had determined to suspend trading and otherwise move to delist the
Company’s securities from Nasdaq effective with the open of the market on May 26, 2023. The Company’s securities were suspended
from trading on that date, but the securities were not delisted because the Company thereafter requested that the Panel reconsider its
determination to delist the Company’s securities from Nasdaq based upon what the Company believed to be mistakes of material fact
upon which the Panel had based its decision.
On
June 8, 2023, the Panel notified the Company that it had determined to reverse its prior decision and grant the Company’s request
for continued listing subject to the Company’s timely compliance with a number of conditions ultimately expiring on August 17,
2023, on or before which date the Company must satisfy all applicable criteria for continued listing on Nasdaq (the “June 8 th
Decision”). As a result of the foregoing, the suspension from trading ceased and the Company’s securities were reinstated
for trading on Nasdaq effective with the open of the market on June 15, 2023.
Loan
Agreement with Woodford
On
December 7, 2022, the Company entered into a loan agreement with Woodford Eurasia Assets, Ltd. (“Woodford”), (the “Woodford
Loan Agreement”), pursuant to which Woodford agreed to provide the Company with up to $52.5 million, subject to certain conditions
and requirements. Pursuant to such Woodford Loan Agreement the Company received $798,351 by December 31, 2023. Woodford failed to meet
its obligations under the Woodford Loan Agreement and the Company removed itself from any further obligation under Agreement or association
with Woodford. Woodford subsequently filed a complaint in the High Court of Justice in London chancery Division. October 16, 2023, The
High Court of Justice in London Chancery Division (“the Court”) dismissed an application for injunctive relief initiated
by Woodford against the Company. (Case: FL-2023-000023. Woodford Eurasia Assets Limited v Lottery.com Inc.) The Court characterized Woodford’s
application as “fundamentally misconceived” and ordered Woodford to pay the Company’s legal costs. Woodford subsequently,
on the Judges’ recommendation, withdrew the proceedings.
Woodford
filed an additional action in the United States District Court for the District of Delaware on November 16, 2023 in Case No. 23-1317-GBW
seeking a temporary restraining order, preliminary injunction and expedited discovery against Lottery.com and its directors. The Court
entered an order the next day denying the relief sought by Woodford. On February 14, 2024, Woodford filed a Notice of Voluntary Dismissal
Without Prejudice, which stated that Woodford provides notice of dismissal of all claims without prejudice against Defendants Lotttery.com
and its directors.
With
the dismissal of this lawsuit by Woodford, no further action is required by Lottery.com or its directors at this time. The Company is
determining its next course of action in resolving any further matters regarding Woodford.
Amounts
borrowed pursuant to the Woodford Loan Agreement are convertible, at Woodford’s option, into shares of the Company’s
common stock, par value $0.001 per share (the “common stock”), beginning 60 days after the first loan date at the rate of
80% of the lowest publicly available price per share of common stock within 10 business days of the date of the Loan Agreement (which
was equal to $5.60 per share after the 1:20 reverse split which occurred on August 9, 2023), subject to a 4.99% beneficial ownership
limitation which can be waived on 60 days notice and a separate limitation preventing Woodford from holding more than 19.99% of the issued
and outstanding common stock of the Company, without the Company obtaining shareholder approval for such issuance above this amount.
Proceeds
of the loans can only be used by the Company to restart its operations and for general corporate purposes agreed to by Woodford.
The
Woodford Loan Agreement includes confidentiality obligations, representations, warranties, covenants, and events of default, all of which
are customary for a transaction of this size and nature.
The
Company also agreed to grant warrants to purchase shares of common stock to Woodford (the “Woodford Warrants”) in an amount
equal to 15% of the Company’s 50,925,271 then issued and outstanding shares of common stock (the quantity of stock then issued
and outstanding prior to the 1:20 reverse stock split of August 9, 2023). Each Woodford Warrant has an exercise price equal to the average
of the closing price of the Company’s common stock for each of the ten days prior to the first amount being debited from the bank
account of Woodford, which equates to an exercise price of $5.60 per share after the 1:20 reverse split that occurred on August 9, 2023.
In the event the Company fails to repay the amounts borrowed when due or Woodford fails to convert the amount owed into shares, the exercise
price of the warrants may be offset by amounts owed to Woodford, and in such case, the exercise price of the warrants will be subject
to a further 25% discount (i.e., will equal $4.20 per share).
In
connection with our entry into the Woodford Loan Agreement, the Company also entered into a Loan Agreement Deed, Debenture Deed and Securitization,
with Woodford (the “Security Agreement”), which provides Woodford with a first floating charge security interest over all
present and future assets of the Company in order to secure the repayment of amounts owed under the Woodford Loan Agreement.
On
June 12, 2023, the Company entered into an amendment of the Woodford Loan Agreement with Woodford (the “Woodford Loan Agreement
Amendment”), which provides that Woodford shall henceforth be able to convert, in whole or in part, the outstanding balance of
its loan into the conversion shares at a conversion price that represents a further 25% discount to the original conversion price of
20%. The validity and application of the Woodford Loan Agreement Amendment is disputed by the Company.
Despite
requests from the Company, Woodford has repeatedly amongst other things: failed to prove the amounts borrowed by the Company or claimed
to have been advanced by Woodford to the Company; failed to indicate if it would accept accelerated payment of those verified amounts;
failed to provide an anti-money laundering acceptable account to which payment could be made by the Company and failed to explain failure
to respond to requests for other funding to be accepted in the context of the Woodford Loan Agreement; failed to respond to requests
for funding under the accordion facility of the Woodford Loan Agreement; and failed to respond to allegations of money laundering and
conspiracy to defraud the Company and others.
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Loan Agreement with United Capital Investments London Limited
The Company entered into a credit
facility (the “UCIL Credit Facility”), which is represented by a loan agreement, which was initially entered into on July
26, 2023, and was amended and restated on August 8, 2023, and subsequently amended on August 18, 2023 (as so amended, the “UCIL
Loan Agreement”). The UCIL Loan Agreement is with United Capital Investments London Limited (“UCIL”), an entity in which
each of Matthew McGahan, the Company’s Chief Executive Officer and Chairman of the Company’s Board, and Barney Battles, a
member of the Board, have a direct or indirect interest. The decision by the Company to enter into the UCIL Loan Agreement followed, amongst other things, an
acknowledgment by the Company that it had not received the requisite funding on a timely basis that it expected from Woodford, despite
the Company making several requests to Woodford for said funding under the Woodford Loan Agreement. Moreover, the Board of Directors determined
that it was in the best interest of the Company and its stockholders to enter into the UCIL Loan Agreement with UCIL, as an alternative
lender to Woodford, upon receiving an event of default notice on July 21, 2023 (the “Default Notice”) and an event of default
and crystallization notice on July 25, 2023 (the “Crystallization Notice”) from Woodford under the Woodford Loan Agreement.
Neither McGahan or Battles participated in the vote on the UCIL agreement to ensure proper independence and correct corporate governance.
On July 24, 2023, the Company responded to the Default Notice disputing that an event of default had occurred given the Company’s
earlier announcement that UCIL had agreed to enter into a funding arrangement with the Company. On July 27, 2023, the Company replied
to the Crystallization Notice denying that an event of default occurred or continued, and further asserted that Woodford’s attempt
for crystallization was inappropriate and unlawful under the Woodford Loan Agreement. Given the uncertainty of the continued financing
under the Woodford Loan Agreement, the Board of Directors sought to secure and formalize the Company’s alternative funding by entering
into the UCIL Loan Agreement.
Placement Agent Agreement with Univest Securities, LLC
As
reported on form 8-K filed with the SEC on February 6, 2024, on December 6, 2023 ,
the Company entered into a placement agent agreement (the “Placement Agent Agreement”) with Univest Securities, LLC (the “Placement
Agent”), whereby the Placement Agent agreed to act as placement agent in connection with the Company’s offering (“Offering”)
of units (“Units”) up to $1,000,000; each Unit consisting of a convertible promissory note (each, a “Convertible Note”
or collectively, the “Convertible Notes”), and a common stock purchase warrant (each, a “Warrant”, or collectively,
the “Warrants”) in order for investors placed by it to purchase shares of common stock of the Company, par value $0.001 per
share (the “Common Stock”). Each Unit under the Offering includes specific registration rights (“Registration Rights”),
for each investor obtained through the Placement Agent.
On February 1, 2024, the parties agreed to increase the Offering amount
from $1,000,000 to $5,000,000. All other terms and conditions of the Offering remain the same. The Securities shall be offered and sold
pursuant to Section 4(a)(2) under the Securities Act of 1933, as amended (the “Securities Act”).
Operations
Prior to Operational Cessation
Prior
to the Operational Cessation, and it is our intention to become again, the Company was a provider of domestic and international
lottery products and services. As an independent third-party lottery game service, we offered a platform that we developed and
operated to enable the remote purchase of legally sanctioned lottery games in the U.S. and abroad (the “Platform”). Our
revenue generating activities included (i) offering the Platform via our Lottery.com app and our websites to users located in the
U.S. and international jurisdictions where the sale of lottery games was legal and our services were enabled for the remote purchase
of legally sanctioned lottery games (our “B2C Platform”); (ii) offering an internally developed, created and operated
business-to-business application programming interface (“API”) of the Platform, which enabled our commercial partners,
in permitted U.S. and international jurisdictions, to purchase certain legally operated lottery games from us and to resell them to
users located within their respective jurisdictions (“B2B API”); and (iii) delivering global lottery data, such as
winning numbers and results, and subscriptions to data sets of our proprietary, anonymized transaction data pursuant to multi-year
contracts to commercial digital subscribers (“Data Service”).
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Mobile
Lottery Game Platform Services
Both
our B2C Platform and our B2B API provided users with the ability to purchase legally sanctioned draw lottery games via a mobile device
or computer, securely maintain their acquired lottery game, automatically redeem a winning lottery game, as applicable, and receive support,
if required, for the claims and redemption process. Our registration and user interfaces were designed to be easy to use, provide for
the creation of an account and purchase of a lottery game with minimum friction and without the creation of a mobile wallet or requirement
to pre-load minimum funds and - importantly - to provide instant confirmation of the user’s lottery game numbers, whether selected
at random or picked by the user. Users of our B2C Platform services paid a service fee and, in certain non-U.S. jurisdictions, a mark-up
on the purchase price. Prior to the Operational Cessation, we generated revenue from this service fee and mark-up. Our B2B API Platform
resumed limited operations in April 2023. As of the date of this Amended Report, our B2C Platform is not currently operational. We anticipate
that our B2C Platform will become operational by the summer of 2024.
The
WinTogether Platform
Prior
to the Operational Cessation, we operated and administered all sweepstakes offered by WinTogether, a U.S. registered 501(c)(3) charitable
organization (“WinTogether”), which was formed in April 2020 to support charitable, educational, and scientific causes. In
consideration of our operation of the WinTogether platform and administration of sweepstakes, we received a percentage of the gross donations
to a campaign, from which we paid certain dividends and all administration costs.
The
WinTogether platform continued operating after the Operational Cessation, until all sweepstakes campaigns were completed and all prizes
awarded. On March 29, 2023, the board of directors of WinTogether voted to suspend its relationship with the Company. On
December 5, 2023, the board of WinTogether voted to reinstate the business relationship with the Company.
Current
Operations
Despite
the Operational Cessation, certain of the Company’s wholly-owned subsidiaries have continued to operate under the direction of
the leadership teams that were in place prior to the Company’s acquisition of such companies. While the operational activities
of these subsidiaries vary, from the Operational Cessation through the date of this Amended Report, each of TinBu, Aganar and JuegaLotto has
decreased its expenses and has had its revenue remain consistent or decrease slightly from pre-Operational Cessation levels.
Data
Services
In
2018, we acquired TinBu, LLC (“TinBu”), a digital publisher and provider of lottery data results, jackpots, results, and
other data, as a wholly-owned subsidiary. Through TinBu, our Data Service delivers daily results of over 800 domestic and international
lottery games from more than 40 countries, including the U.S., Canada, and the United Kingdom, to over 400 digital publishers and media
organizations. See “ Item 1A. Risk Factors – We are party to pending litigation and investigations in various jurisdictions
and with various plaintiffs and we may be subject to future litigation or investigations in the operation of our business. An adverse
outcome in one or more proceedings could adversely affect our business, financial condition, and results of operations ”. Also,
see Item 3, “Legal Proceedings”, “TinBu Complaint”.
Our
technology pulls real time primary source data, and, in some instances, we acquire data from dedicated data feeds from the lottery authorities.
Our data is constantly monitored to ensure accuracy and timely delivery. We are not required to obtain licenses or approvals from the
lottery authorities to pull this primary source data or to acquire the data from such dedicated feeds. Commercial acquirers of our Data
Service pay a subscription for access to the Data Service and, for acquisition of certain large data sets, an additional per record fee.
We
additionally had entered into multi-year contracts pursuant to which we sell proprietary, anonymized transaction data pursuant to multi-year
agreements and in accordance with our Terms of Service in consideration of a fee and in other instances provide the Data Service within
a bundle of provided services.
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Aganar
and JuegaLotto
On
June 30, 2021, we acquired 100% of the equity of Global Gaming Enterprises, Inc., a Delaware corporation (“Global Gaming”),
which holds 80% of the equity of each of Medios Electronicos y de Comunicacion, S.A.P.I de C.V. (“Aganar”) and JuegaLotto,
S.A. de C.V. (“JuegaLotto”). JuegaLotto is federally licensed by the Mexican regulatory authorities with jurisdiction over
the ability to commercialize lottery games in Mexico through an authorized federal gaming portal and to commercialize games of chance
in other countries throughout Latin America. Aganar has been operating in the licensed Online Lottery market in Mexico since 2007 and
has certain rights to sell Mexican National Lottery draw games, instant win tickets, and other games of chance online with access to
a federally approved online casino and sportsbook gaming license and additionally issues a proprietary scratch lottery game in Mexico
under the brand name Capalli. See “ Item 1A. Risk Factors – We need additional capital to, among other things, support
and restart our operations, re-hire employees and pay our expenses. Such capital may not be available on commercially acceptable terms,
if at all. If we do not receive the additional capital, we may be forced to curtail or abandon our plans to recommence our operations
and we may need to permanently cease our operations” for additional information.
Sports.com
In
December 2021, we finalized the acquisition of the domain name https://sports.com and on November 15, 2022, we formed a wholly-owned
subsidiary called Sports.com, Inc., a Texas corporation (“Sports.com”). Subsequently, Sports.com announced a partnership
with the Saudi Motorsports Company, which enabled the Company to roll out the Sports.com brand at the IFA World Cup decider at the end
of November 2022. In December 2022, Sports.com signed an agreement with Data Sports Group, GmbH (“ DSG ”), which provides
Sports.com the exclusive North American distribution rights for sports data products offered and maintained by DSG (the “DSG Data”).
The DSG Data is being sold through the same sales resources and sales channels as the lottery data offered by TinBu. On July 23,
2023, DSG exercised its right to terminate the exclusive distribution rights due to Sports.com not meeting its contractual obligations.
Plans
for Recommencement of Company Operations
As
noted above, since the Operational Cessation, the Company has had minimal day-to-day operations and has primarily focused on restarting certain of its core businesses. The Company has developed a three-phase plan to recommence its operations, which plan is
outlined below.
Phase
1 - Relaunch B2B API Platform . During the Operational Cessation, the Company maintained positive relationships with its ticket-printing
and courier partners, as well as several distribution partners that have been found to be in compliance with local, state, and federal
rules related to ticket procurement and distribution. These partners have implemented the Lottery.com API and have advised the Company
that they expect to be ready to offer lottery games to their customers through their sales channels when the Company resumes operations.
As such, the Company believes that it has sufficient demand to resume operation of its B2B API platform operations, assuming it is able
to maintain the core employee team to manage the lottery ticket fulfillment process and access sufficient capital to relaunch Project
Nexus, which was designed to, among other things, handle high levels of user traffic and transaction volume, while maintaining expediency,
security, and reliability in the administrative and back-office functionality required by the B2B API. Our B2B API Platform resumed limited
operations in April 2023. The B2B platform is currently offline to migrate it to the Company’s new platform, NEXUS.
Phase
2 - Resume B2C Platform Operations. The Company believes that it will be in a position to relaunch its B2C Platform by the
summer of 2024. As of the date of this Amended Report, the Company expects that it will initially relaunch its B2C Platform to customers in
Texas for a period of time before rolling it out to other jurisdictions. The Company plans to limit the rollout in order to give it
additional time to properly vet and confirm compliance with local, state and federal rules related to ticket procurement and
distribution. For more information, see “ Item 1A. Risk Factors - Regulatory and Compliance Risks - A jurisdiction may
enact, amend, or reinterpret laws and regulations governing our operations in ways that impair our revenues, cause us to incur
additional legal and compliance costs and other operating expenses, or are otherwise not favorable to our existing operations or
planned growth, all of which may have a material adverse effect on us or our results of operations, cash flow, or financial
condition .” The Company has also maintained various pre-paid media credits that it expects to use to launch and maintain
promotional campaigns for both lottery and sweepstakes sales geared towards encouraging prior customers to return to the Platform
and to acquire new customers. The Company relaunched its sweepstakes business in April 2024.
5
Phase
3 - Restore Other Business Lines and Projects. Assuming the success of Phase 1 and Phase 2, the Company expects to restore other
products it previously offered, such as supplying lottery tickets to consumers in approved domestic jurisdictions, partnering with licensed
providers in international jurisdictions to supply legitimate domestic lottery games, and reviving other products and services that were
under development when the Operational Cessation occurred.
As
of the date of this Amended Report, the current estimated cash balance of the Company and subsidiaries is approximately $36,799. The Company
believes that this cash on hand, along with future borrowings, will be sufficient for the Company to resume core operations.
As
of the date of this Amended Report, our common stock and warrants are traded on The Nasdaq Stock Market LLC (“Nasdaq”) under the
ticker symbols “LTRY” and “LTRYW,” respectively. As of the date of this Amended Report, we are in compliance with Nasdaq’s
continued listing requirements (the “Listing Rules”). Additionally, under its new management, the Company continues to work
to improve its disclosure and reporting controls, and plans to overhaul its systems of internal control over financial reporting and
invest in additional legal, accounting, and financial resources.
Even
if the Company’s three phase plan to recommence its operations is successful, there can be no assurance that the Company will be
able to maintain compliance with the applicable Listing Rules, or that the hearings panel will continue to stay the delisting of the
Company’s securities from Nasdaq. If the Company’s securities are delisted from Nasdaq, it could be more difficult to buy
or sell the Company’s common stock and warrants or to obtain accurate quotations, and the price of the Company’s common stock
and warrants could suffer a material decline. Delisting could also impair the Company’s ability to raise additional capital needed
to fund its operations and/or trigger defaults and penalties under outstanding agreements or securities of the Company.
There
can be no assurance that we will have sufficient capital to support our operations and pay expenses, repay our debt, or that additional
funds will be available on favorable terms, if at all. We may not be able to restart our operations and/or generate sufficient funding
to support such operations in the future. The Company’s ability to continue its current operations, prepare and file its periodic
reports, and restart its prior operations, is dependent upon obtaining new financing. Future financing options available to the Company
include equity financings, debt financings or other capital sources, including collaborations with other companies or other strategic
transactions. Equity financings may include sales of common stock. Such financing may not be available on terms favorable to the Company
or at all. The terms of any financing may adversely affect the holdings or rights of the Company’s stockholders and may cause significant
dilution to existing stockholders. There can be no assurance that the Company will be successful in obtaining sufficient funding on terms
acceptable to the Company, if at all, which would have a material adverse effect on its business, financial condition and results of
operations, and it could ultimately be forced to discontinue its operations and liquidate. These matters, when considered in the aggregate,
raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time which is defined
as within one year after the date that its current financial statements are issued. The accompanying financial statements do not contain
any adjustments to reflect the possible future effects on the classification of assets or the amounts and classification of liabilities
that might result from the outcome of this uncertainty. For more information, see the risk factors in Item 1A of this Amended Report under the
heading “Risks Relating to the Internal Investigation, Restatement of our Consolidated Financial Statements, Our Ability to Continue
as a Going Concern, Our Internal Controls and Related Matters.”
Regulation
and Compliance
We
are subject to a variety of laws in the U.S. and abroad that affect our business, including federal, state and territorial laws regarding
lotteries, gaming, sweepstakes, consumer protection, electronic marketing, data protection and privacy, competition, taxation, intellectual
property, export, and national security, all of which are continuously evolving. The scope and interpretation of the laws that are or
may be applicable to us are often evolving or new and uncertain and may conflict with each other, particularly those governing our international
operations.
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Lottery
and gaming laws are generally based upon declarations of public policy designed to protect consumers from fraud and other misdeeds and
the viability and integrity of the games, while raising revenues for the particular country, state, or other authorizing jurisdiction.
To accomplish these goals, stringent laws and regulations have been established per jurisdiction to ensure that participants in the industry
meet certain standards which may require participants to:
●
ensure
that games are conducted fairly and honestly;
●
establish
procedures designed to prevent cheating and fraudulent practices;
●
establish
and maintain anti-money laundering practices and procedures;
●
establish
and maintain responsible accounting practices and procedures;
●
ensure
that lottery games are sold only at the price and manner established by the applicable lottery regulator;
●
report
prizes awarded and withhold certain amounts for taxes and other specified liabilities;
●
file
periodic reports with regulators;
●
establish
programs to promote responsible gaming and comply with other social responsibility practices; and
●
enforce
gaming participant minimum age requirements.
State
and federal laws in the U.S. govern and, in some cases, limit our business practices. For example, the Interstate Wagering Amendment
to 18 U.S.C. § 1301 limits our ability to purchase lottery games for a user located in one state from a lottery authority located
in another state, except under certain limited circumstances, such as where the lottery authorities in the respective states allow such
sales. Therefore, when such offerings are operational, for our users located within the U.S., we only purchase lottery games for users
who at the time are physically situated within the U.S. state or jurisdiction where the lottery game they are purchasing is being conducted,
unless an exception were to be authorized by the applicable lottery authorities. For more information, see “Item 1A. Risk Factors
- Regulatory and Compliance Risks - If the Interstate Wagering Amendment is interpreted or applied to prohibit transmissions to foreign
countries, it could have a negative impact on our business, financial condition, and results of operations.”
In
addition, the U.S Wire Act of 1961 provides that anyone engaged in the business of betting or wagering that knowingly uses a wire
communication facility for the transmission in interstate or foreign commerce of bets or wagers or information assisting in the
placing of bets or wagers on any sporting event or contest, or for the transmission of a wire communication that entitles the
recipient to receive money or credit as a result of bets or wagers, or for information assisting in the placing of bets or wagers,
may be fined or imprisoned, or both. The Wire Act provides, however, that it shall not be construed to prevent the transmission in
interstate or foreign commerce of information for use in news reporting of sporting events or contests, or for the transmission of
information assisting in the placing of bets or wagers on a sporting event or contest from a state or foreign country where betting
on that sporting event or contest is legal into a state or foreign country in which such betting is legal. In late 2011, the Office
of Legal Counsel (the “OLC”) in the U.S. Department of Justice (the “DOJ”) issued an opinion that concluded
the conduct prohibited by the Wire Act was limited to sports gambling; however, in January 2019, the OLC issued a new opinion (the
“2019 Opinion”) that concluded that the restrictions in the Wire Act on the transmission in interstate or foreign
commerce of bets and wagers was not limited to sports gambling but applied to all bets and wagers, including those involving state
lotteries. Reinterpretation of the federal Wire Act by the OLC threatened certain online lottery sales, leading to litigation in
which the First Circuit Court of Appeals (the “First Circuit”) which determined that the Wire Act applies only to
interstate wire communications related to sporting events or contests and not lottery games. Finding that the declaratory judgment
was an adequate remedy at law, however, the First Circuit declined to set aside the 2019 Opinion under the Administrative Procedure
Act. In addition to the First Circuit’s decision, the U.S. Circuit Court of Appeals for the Fifth Circuit (the “Fifth
Circuit”) has previously held the Wire Act prohibitions apply only to sports gambling. Because many of the Company’s
operations occur outside the jurisdictions of the First Circuit and Fifth Circuit, and because the First Circuit did not set aside
the 2019 Opinion, we are still monitoring the potential impact of the 2019 Opinion on our business. For more information, see “Item
1A. Risk Factors - Regulatory and Compliance Risks - If there is a final determination on the applicability of the Wire Act to our
operations and it is determined or codified that the Wire Act extends to transmission of lottery games in interstate or foreign
commerce, certain of our operations that are not currently restricted by statute or practice to a state’s territorial
boundaries may be negatively impacted or eliminated, which may have a material adverse effect on our business, financial conditions,
and results of operations.”
7
Separately,
some states prohibit the use of courier services and the sale of online lottery tickets, while other states limit the charges that we
can impose and collect. When such offerings are operational, we only purchase lottery games on behalf of our users and customers where
our services are permitted and in accordance with applicable laws. Per jurisdiction, the scope and interpretation of the laws that are
or may be applicable to our services and fees are subject to interpretation and may change. For example, in April 2023, the Texas State
Senate passed Senate Bill 1820 (the “Texas Bill”), which among other things, prohibits online lottery gaming and the
use of courier services in Texas. The Texas Bill was passed by the Texas legislature and became effective on September 1,
2023.
Our
compliance with federal, state, territorial and local laws is based on our interpretation of existing applicable laws regarding lottery
services such as ours. We have obtained legal advice and notified certain lottery authorities in U.S. jurisdictions where we do business
of the services that we offer, but in most cases, we have not received definitive determinations of the laws applicable to our services.
There is a risk that existing or future laws in the jurisdictions in which we operate may be interpreted in a manner that is in some
regards in conflict with our business model. Future laws that permit certain lottery services may be accompanied by restrictions or taxes
that make it impractical or less feasible to operate in certain jurisdictions. For more information, see “ Item 1A. Risk Factors
- Regulatory and Compliance Risks - A jurisdiction may enact, amend, or reinterpret laws and regulations governing our operations in
ways that impair our revenues, cause us to incur additional legal and compliance costs and other operating expenses, or are otherwise
not favorable to our existing operations or planned growth, all of which may have a material adverse effect on us or our results of operations,
cash flow, or financial condition. ”
Other
laws and regulations may be adopted or construed to apply to us that could restrict our business model, including privacy, taxation,
marketing, anti-money laundering, anti-corruption, copyright, currency exchange, export, antitrust and other laws, as well as laws governing
public companies.
The
growth of electronic commerce may prompt calls for stronger consumer protection laws that may impose additional burdens on companies
such as ours conducting business through the Internet and mobile devices. It is likely that scrutiny and regulation of our industry may
increase, and we will be required to devote additional resources to compliance with applicable regulations. While we believe that we
are currently in compliance in all material respects with all applicable laws and regulatory requirements, we cannot assure that our
activities or any of our users’ activities will not become the subject of any regulatory or law enforcement investigation, proceeding,
or other governmental or regulatory action or that any such investigation, proceeding, or action, as the case may be, would not have
a materially adverse impact on us or our business, financial condition or results of operations.
For
more information, see “Item 1A. Risk Factors - Regulatory and Compliance Risks - Our business model and the conduct of our operations
may have to vary in each U.S. jurisdiction where we do business to address the unique features of applicable law to ensure we remain
in compliance with that jurisdiction’s laws. Our failure to adequately do so may have an adverse impact on our business, financial
condition, and results of operations.”
Licensing
We
may determine or be required to secure licenses from regulatory authorities with jurisdiction over our operations in markets in which
we contemplate expansion. Such licensure may impose additional obligations on us and our operations, which may include continuous disclosure
to, and investigation by, the applicable regulatory authority into the financial stability, integrity, and business experience of the
Company, its affiliates, and their respective significant stockholders, directors, officers, and key employees. In markets in which we
have not previously operated or in newly regulated markets, licensing regimes may impose licensing requirements or conditions with which
we have not previously been required to comply, which may include locating technical infrastructure within the relevant territory, establishing
real-time data interfaces with the regulatory authority, implementing additional consumer protection and privacy measures, or additional
approvals or certifications of our technology, all of which may present operational challenges and material costs. Certain stockholders
may be required to be licensed.
8
To
the extent that any stockholder, director, officer, or key employee is required to submit to required background checks and provide disclosure,
and such individual fails to do so, or they or we do not successfully do so, this may jeopardize the grant of a license, provide grounds
for termination of an existing license, or result in the imposition of penalties. Generally, any person or entity who fails or refuses
to apply for a governmental license, finding of suitability, registration, permit, or approvals within the prescribed period after being
advised by a competent authority that they are required to do so may be denied or found unsuitable, as applicable, which may result in
our determining or being required to sever our relationship with such person or entity. Further, we may be subject to disciplinary action
or suffer revocation of licensure if, following notification that a person or entity is disqualified or unsuitable, we (a) pay them any
dividend or interest upon our shares; (b) allow them to exercise, directly or indirectly, any voting right conferred through the shares
they hold; (c) pay them remuneration in any form for services rendered or otherwise; or (d) if required, fail to pursue all lawful efforts
to require them to relinquish their shares.
Furthermore,
our Charter provides that any of our securities held by a person or entity that is disqualified or unsuitable, as such terms are defined
in our Charter, are subject to redemption by us as and to the extent required by a regulatory authority or deemed necessary or advisable
by our Board in its sole and absolute discretion. If a gaming authority requires the Company, or our Board deems it necessary or advisable,
to cause any such securities be subject to redemption, we will deliver a redemption notice (as described in the Charter) to such person
or entity or its affiliate(s) (as applicable) and we will purchase the number and type of securities specified in the redemption notice
for the redemption price determined in accordance with the Charter and set forth in the redemption notice.
Data
Protection and Privacy
Because
we handle, collect, store, receive, transmit, and otherwise process certain personal information of our users, customers, and employees,
we are also subject to federal, state, and international laws and regulations related to the privacy and protection of such data. Regulations
such as the General Data Protection Regulation of the European Union put into effect in 2018 and the California Consumer Privacy Act,
could affect our business, and the potential impact is still being determined. Other states are considering similar laws, which could
impact our business.
Responsible
and Underage Gaming
We
are committed to compliance with the underage and responsible gambling requirements set forth in applicable domestic and international
statutes and regulations governing our operations. We take our corporate responsibility to our users and the regulators with authority
over our business very seriously, and we are focused on maintaining a safe and responsible gaming environment. We support and are members
of the National Council on Problem Gaming, whose mission is to lead state and national stakeholders in the development of comprehensive
policy and programs for all those affected by problem gaming. We continue to evaluate and develop our technology to meet the statutory
requirements regarding responsible gaming and self-exclusion, as well as our own self-imposed objectives regarding corporate social responsibility.
All
of the U.S. jurisdictions and most of the international jurisdictions in which we operate prohibit sales of lottery tickets to persons
under 18 years of age. We have instituted know-your-customer requirements to aid our efforts in identifying minors and preventing them
from using our services.
Many
jurisdictions, especially international jurisdictions, are imposing more stringent rules with regard to underage and responsible gambling.
This trend could continue to spread, and both U.S. and international jurisdictions may strengthen underage and responsible gambling requirements.
Compliance
We
intend to continue to develop a comprehensive internal compliance program, which will ensure compliance with legal requirements imposed
in connection with our activities and with legal requirements generally applicable to publicly traded companies. While we are firmly
committed to full compliance with all applicable laws and regulations, we cannot ensure that our compliance program will prevent the
violation of one or more laws or regulations, or that a violation by us, an employee, a customer or other third-party will not result
in enforcement action, the imposition of a monetary fine or suspension or revocation of one or more of our licenses, which could have
a material adverse effect on us or on our results of operations, cash flow, or financial condition.
9
Because
we do business in international jurisdictions, our operations are subject to U.S. and foreign anti-corruption laws and regulations such
as the U.S. Foreign Corrupt Practices Act of 1977, the U.K. Bribery Act of 2010 and other anti-corruption laws that may apply where we
operate. As we continue to expand globally, we are likely to become subject to additional laws and regulations and restrictions, which
increases the risk that we or one of our subsidiaries will inadvertently violate one of such laws or regulations.
Governance
Changes
All
members of the Board and all principal executive officers who served in such positions at the time of the Operational Cessation have
resigned from such positions and are no longer serving in any capacity with the Company or its subsidiaries. Matthew McGahan is now
the sole director of Global Gaming and Gregory Potts was appointed to the boards of Juega Lotto and Aganar. Corporate governance for Tinbu, LLC remains the same with AutoLotto, Inc. being the sole managing member of the LLC.
Employees
As
of the date of this Amended Report, the Company has nine employees and 13 key contractors who remain active in the efforts
to restore Company operations.
Intellectual
Property
We
rely on a combination of trademark, copyright, and trade secret protection laws in the U.S. and other jurisdictions, as well as confidentiality
procedures and contractual provisions, to protect our intellectual property and our brand.
We have been using the LOTTERY.COM trademark since 2017; in February 2021, the LOTTERY.COM logo was registered on the Supplemental Register
of the U.S. Patent and Trademark Office. As of December 31, 2022, the registrations of our LOTTERY.COM, AUTOLOTTO and SPORTS.COM word
marks and SPORTS.COM logo were pending with the U.S. Patent and Trademark Office. In March 2023, the U.S. Patent and Trademark Office
denied the registration of the SPORTS.COM word mark and the appeal period has expired. The registration of the SPORTS.COM logo has also
been denied and the Company is currently considering whether to appeal such denial. We are also using and/or have common-law trademark
rights in the trademarks AUTOLOTTO, SPORTS.COM, and “TAP, TAP, TICKET.” We will continue to evaluate the filing of trademark
applications in the U.S. and select foreign markets, as appropriate.
While
we did not have any patent applications or own any issued patents as of December 31, 2023, we will continue to evaluate our technology
to determine whether it is appropriate to file patent applications in the U.S. or internationally.
We
seek to protect our intellectual property rights by implementing policies that require our employees and independent contractors involved
in development of intellectual property to enter into agreements acknowledging that all intellectual property generated or conceived
by them on our behalf are our property and assigning to us any rights that they may claim or otherwise have in those works or property,
to the extent allowable under applicable law.
Notwithstanding
our best efforts to protect our technology and proprietary rights through registrations, licenses, and contracts, unauthorized parties
may still seek to use our intellectual property and technology without rights thereto. We may also face allegations that we have infringed
the intellectual property rights of third parties, including our competitors.
Available
Information
Our
Internet address is www.lottery.com. Our website and the information contained therein or linked thereto are not part of this Amended Report.