Filing Summary: Lottery.com Inc. Form 10-Q
Period ended June 30, 2022. The supplied filing identifies the registrant as Lottery.com Inc., not Sports Entertainment Gaming Global Corp. It was signed May 22, 2023, and reports that the company had not filed all required reports on time.
Business context and financial performance
Lottery.com operated lottery ticket sales through consumer and business-partner platforms, alongside lottery data services. Its Mexican subsidiaries also sold lottery products. The results below compare the three and six months ended June 30, 2022 with the same 2021 periods.
| Metric | Three months 2022 | Three months 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $1.89 million | $9.88 million | $5.52 million | $15.34 million |
| Gross profit | $0.31 million | $8.82 million | $1.55 million | $11.33 million |
| Gross margin | 16.3% | 89.2% | 28.2% | 73.8% |
| Operating loss | $15.60 million | $1.07 million income | $46.28 million | $1.68 million |
| Net loss | $15.45 million | $1.42 million | $50.35 million | $6.87 million |
- Revenue fell 81% in the quarter and 64% for the half year. Management attributed the decline mainly to nonrecurring business-partner project revenue in 2021.
- Personnel costs were $9.51 million for the quarter and $33.92 million for the half year, including $27.59 million of stock-based compensation in the six-month period. Total operating expenses increased to $15.91 million for the quarter and $47.84 million for the half year.
- Cash used in operating activities was $0.60 million in the first half, versus $4.33 million used in the prior-year period. Investing activities used $1.18 million; financing activities used $0.48 million.
Balance sheet, debt and liquidity
- At June 30, 2022, cash was $369,322 and restricted cash was $30.0 million. The restricted funds secured a $30.0 million loan benefiting a business partner; the filing says the lender took the collateral in October 2022.
- Total assets were $113.63 million; total liabilities were $42.17 million, including $12.17 million of current liabilities and a separately presented $30.0 million contingent liability. The filing states working capital of approximately $9.3 million.
- Current notes payable were $3.29 million. The filing identifies certain notes as in default, including Series A notes and notes related to the TinBu acquisition. It reports no convertible debt outstanding at June 30, 2022.
- The company recorded a $2.0 million secured note receivable, plus accrued interest, in March 2022. Collection and repayment terms should be checked against the note documentation.
- Management cited recurring losses and negative operating cash flows, an accumulated deficit of approximately $198 million, and substantial doubt about the company’s ability to continue as a going concern. The statements do not include adjustments that might result if the company cannot continue operations.
Material changes, outlook and risks
- After the reporting period, the company determined it lacked resources to meet obligations, furloughed most employees and suspended most lottery sales effective July 2022. As of March 31, 2023, it reported about $1.4 million in unpaid payroll obligations.
- Management described a staged restart: limited B2B API operations resumed in April 2023, and B2C relaunch was anticipated in the third quarter of 2023. Ticket sales through the Texas retail network resumed in April 2023. The filing gives no earnings or revenue guidance; it expects operating costs to exceed revenues over the following 12 months and says the funding gap would need to be met through financing.
- As of the report date, management estimated cash of approximately $366,600. A December 2022 Woodford loan agreement provided for up to $2.5 million subject to conditions; approximately $1.25 million had been received and $1.25 million remained available. Further funding up to $52.5 million would require mutual agreement. Borrowings carry 12% interest, rising to 22% after default, and are secured by a first-priority interest over company assets. The agreement also provides for conversion into shares and warrants, creating potential dilution.
- The company was not in compliance with Nasdaq continued-listing requirements. Management said a compliance plan had been conditionally accepted, but continued listing was not assured. Disclosure controls were deemed ineffective due to material weaknesses in financial close and reporting, staffing, review procedures and segregation of duties.
- The filing describes an internal investigation that found instances of noncompliance related to lottery ticket procurement and order fulfillment, as well as accounting-control issues. The company restated 2021 financial statements after identifying approximately $52.1 million of overstated revenue. It also disclosed that its auditor had advised that the 2021 audit and first-quarter 2022 financials should no longer be relied upon due to an undisclosed and improperly recorded credit line.
- Legal and recovery risks include a $16.5 million judgment against J. Streicher Financial plus a $397,037 fee award, of which only $125,000 in partial payments were reported by February 2023; the company’s prior law firm asserted a $3.02 million charging lien. A securities class action and a TinBu-related lawsuit alleging damages over $4.6 million were also disclosed.
Key facts for investors to verify
- Reconcile the $30 million restricted cash, loan and contingent-liability presentation, including the October 2022 foreclosure and its effects on subsequent liquidity.
- Confirm current cash, unpaid payroll and other obligations, and the actual availability and terms of Woodford funding; assess the secured lender’s remedies and potential dilution.
- Check whether operations have restarted as described, whether B2C relaunch occurred, and whether resumed activities generate sufficient revenue to cover costs.
- Review the status of Nasdaq listing compliance, delinquent filings, the revenue restatement and remediation of material weaknesses in financial reporting controls.
- Assess collectability of the Streicher judgment and exposure from the charging-lien dispute, securities class action and TinBu litigation.