Lottery.com Inc. (LTRY) — Form 10-Q Summary
Entity and period: The filing identifies the registrant as Lottery.com Inc., not Sports Entertainment Gaming Global Corp. It covers the unaudited quarter and nine months ended September 30, 2022, and was signed May 24, 2023.
Business context and reporting period
Lottery.com provides lottery products and services through consumer (B2C) and partner (B2B API) platforms, and lottery data services. The company reports one operating segment. After an internal investigation identified legal-compliance and accounting-control issues, the company furloughed most employees and generally suspended lottery sales effective July 29, 2022. It had minimal operations thereafter.
Financial performance and position
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Revenue, 2022 | $711,477 | $6,227,340 |
| Revenue, 2021 comparator | $1,695,292 | $14,035,328 |
| Gross profit (loss), 2022 | $440,212 | $1,994,094 |
| Operating loss, 2022 | $(6,065,055) | $(52,348,407) |
| Net loss, 2022 | $(6,092,990) | $(56,439,389) |
- Revenue declined 58% in the quarter and 56% year to date versus the reported 2021 comparators; management attributed the declines mainly to nonrecurring partner project revenue in 2021.
- Gross margin was approximately 61.9% for the quarter and 32.0% year to date, compared with approximately negative 12.9% and 57.8%, respectively, in 2021.
- Nine-month operating expenses rose to $54.3 million from $18.6 million. Personnel costs included $27.8 million of stock-based compensation; the company also recorded a $412,450 impairment of an abandoned project.
- At September 30, cash was $119,362 and restricted cash was $30.0 million. Current assets were $50.3 million and current liabilities $14.9 million; management reported working capital of approximately $5.4 million. The restricted funds secured a $30 million business loan and were taken by the lender in October 2022 to extinguish the business partner’s debt.
- Balance-sheet notes payable classified as current totaled $3.29 million. Certain notes were in default. The balance sheet also included a $30 million contingent liability associated with the secured loan arrangement.
- For the nine months, net cash used in operating activities was $0.8 million, investing activities used $1.25 million, and financing activities used $0.48 million. Ending cash and restricted cash totaled $30.12 million, most of which was restricted.
Material changes versus the prior comparable period
- Nine-month net loss increased to $56.4 million from $21.4 million, largely reflecting higher operating expenses, including substantial stock compensation, while lower reported interest expense partly offset the increase.
- Quarterly net loss narrowed to $6.1 million from $11.6 million, in part because 2021 included much higher interest and other expense.
- The company disclosed that 2021 annual revenue had been restated from $68.5 million to $16.4 million, a reduction of $52.1 million, due to revenue-recognition issues. The filing’s comparative-period figures should be read with this restatement context.
Outlook, risks, contingencies, and unusual items
- Management stated that recurring losses, negative operating cash flows, limited available cash, and the need for additional financing raise substantial doubt about the company’s ability to continue as a going concern. The financial statements contain no adjustments for a possible failure to continue as a going concern.
- After the reporting date, Woodford agreed to provide up to $2.5 million subject to conditions; approximately $1.25 million had been received and $1.25 million remained available on request. Any increase to as much as $52.5 million required mutual agreement. The loan bears 12% interest, rises to 22% upon default, is secured by substantially all assets, and is convertible at a discounted price. Related warrants and conversion terms could materially dilute shareholders.
- The company said B2B API operations resumed on a limited basis in April 2023 and anticipated a B2C relaunch in the third quarter of 2023. It expected operating costs to exceed revenue over the following 12 months and said the resulting funding gap depended on debt or equity financing, with no assurance financing would be available.
- The filing reported Nasdaq continued-listing noncompliance and ineffective disclosure controls, including material weaknesses in the financial close and reporting process. A 2021 revenue misstatement arose from inadequate controls over non-routine revenue transactions; remediation was ongoing.
- Material legal matters include a judgment against J. Streicher Financial for $16.5 million plus attorney fees, with only partial payments reported; a securities class action; and a TinBu-related complaint seeking more than $4.6 million. Collection and litigation outcomes remain uncertain.
- The filing describes an internal investigation into compliance with laws governing ticket procurement and fulfillment, late SEC filings, unpaid payroll obligations, and operational disruption. It also notes the resignation of the prior auditor and subsequent appointment of a new auditor.
Important facts for investors to verify
- Confirm the issuer’s identity: this filing is for Lottery.com Inc. (LTRY), notwithstanding the company name in the request metadata.
- Review the 2021 revenue restatement and reconcile the filing’s comparative revenue figures and disclosures.
- Verify available, unrestricted liquidity after the $30 million collateral was taken, and the status and conditions of Woodford funding.
- Assess the company’s ability to restart operations, meet obligations, regain Nasdaq compliance, and remediate control weaknesses.
- Check the reported nine-month 2021 loss per share: the statement displays positive $0.88 despite reporting a net loss, an apparent inconsistency that should be reconciled against the filed financial statements.
- Track collection of the Streicher judgment, the securities and TinBu litigation, and any resulting liabilities or cash recoveries.