Business context and reporting period
This unaudited Form 10-Q is for the quarter and six months ended June 30, 2023. The registrant is Lottery.com Inc. (Nasdaq: LTRY, LTRYW), which operates lottery products and services through consumer and business-to-business platforms and lottery data services. The filing also describes its Sports.com subsidiary and plans.
Operations remained substantially curtailed following the July 2022 operational cessation. Limited B2B API activity resumed in April 2023, and the company resumed ticket sales in support of an affiliate through its Texas retail network. The B2C platform was not operational as of the report date.
Financial performance and condition
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $655,344 | $1,885,171 | $1,275,573 | $5,515,863 |
| Gross profit | $559,661 | $307,932 | $1,144,743 | $1,553,882 |
| Gross margin | 85.4% | 16.3% | 89.7% | 28.2% |
| Operating loss | $(4,215,316) | $(15,625,748) | $(7,370,404) | $(46,330,080) |
| Net loss | $(4,256,059) | $(15,448,942) | $(7,470,041) | $(50,346,399) |
Revenue declined 65% in Q2 and 77% for the first six months year over year, reflecting the operational cessation and lower lottery activity; six-month revenue also lacked $1.8 million of prior-year project revenue. Lower ticket-related costs lifted Q2 gross profit despite the revenue decline. Operating expenses fell sharply, primarily from reduced staffing and stock-based compensation, but losses continued.
At June 30, cash was $54,359; current assets were $20.4 million, including $19.4 million of prepaid expenses, and current liabilities were $21.6 million. The company reported approximately $1.3 million of negative working capital, an accumulated deficit of approximately $216 million, and total liabilities of $21.6 million. Current notes payable were $4.43 million; the filing also describes other debt and financing obligations. Cash used in operations was $576,000 for the six months; investing cash flow was zero and financing provided $676,000. Cash decreased from $102,766 at year-end 2022 to $54,359.
No income tax expense or cash interest paid was reported for the periods shown. Depreciation and amortization was $2.80 million for the six months. The filing does not provide a clear, reconciled total for all debt obligations.
Material changes versus prior comparable periods
- Six-month revenue and gross profit declined, while operating and net losses narrowed substantially. The reduction in expenses reflects the post-cessation downsizing and, for the prior-year comparison, unusually large stock-based compensation and other expenses.
- Q2 gross margin rose to 85.4% from 16.3%, mainly as commissions and payment-processing costs fell; this occurred alongside much lower sales volume and should not be read as evidence of a return to prior scale.
- Cash remained extremely limited, and current liabilities exceeded current assets. The company continued to depend on external financing.
- A 1-for-20 reverse stock split became effective August 9, 2023, after quarter-end; the filing states its effects are reflected in all periods presented.
Outlook, risks, contingencies and unusual items
- Going concern: Management says substantial doubt exists about the company’s ability to continue as a going concern for the next 12 months. It expects operating costs to exceed revenues over that period and needs additional financing; there is no assurance funding will be available or sufficient.
- Operations: Management anticipated relaunching the B2C platform in Q4 2023, initially with a limited geographic rollout. The company’s three-phase plan depends on financing, staffing, compliance, and successful execution. Sports.com was also identified as a revenue initiative, but its exclusive North American sports-data distribution agreement was terminated by the provider in July 2023.
- Financing: The December 2022 Woodford facility was expected to provide up to $2.5 million, with possible expansion by agreement, but the company reported delays and received Woodford default and crystallization notices in July 2023, which it disputed. After quarter-end, it entered a related-party UCIL facility, with 10% interest, conversion rights and warrant provisions; the filing says $340,000 had been funded and describes an additional $49 million accordion subject to UCIL’s discretion. The initial-loan amounts are not consistent across the filing, so terms require verification. Woodford debt is secured by a first-priority interest in substantially all company assets, and conversion or warrant issuance could dilute shareholders.
- Controls and reporting: Disclosure controls were deemed ineffective due to material weaknesses in financial-statement closing and reporting. A prior restatement addressed an approximately $52.1 million revenue overstatement for 2021. Remediation efforts are ongoing; the company warns they may not prevent future reporting errors.
- Legal matters: A securities class action is pending. TinBu plaintiffs allege damages exceeding $4.6 million; the company and subsidiary answered, but their counsel withdrew after quarter-end and new counsel was to be retained. The company holds a $16.5 million judgment plus a $397,037 fee award against Streicher, but had collected only $125,000 in disclosed partial payments and continued collection efforts. Approximately $1.86 million in payroll obligations remained unpaid at June 30.
- Listing and business risks: The company reported noncompliance with Nasdaq continued-listing standards and warned of possible delisting, reduced liquidity, and further difficulty raising capital. Additional risks include regulatory compliance, investigations and litigation, limited operations, customer concentration, and dependence on third-party partners.
Important facts for investors to verify
- Reconcile the company’s actual debt balances, maturities, defaults, collateral, and the differing Woodford funding figures and UCIL initial-loan amounts disclosed in the filing.
- Confirm cash availability, financing received and remaining funding commitments, including whether UCIL’s discretionary accordion becomes available and on what conditions.
- Track operating progress, actual revenue generation, and whether the stated B2C relaunch and Sports.com plans were achieved.
- Assess remediation of material weaknesses, the accuracy and timeliness of subsequent SEC reports, and the status of Nasdaq listing compliance.
- Monitor litigation developments, Streicher collections, unpaid payroll, and potential dilution from convertible debt, warrants, and equity financing.