Business Context and Reporting Period
This Form 8-K is a current report filed by Lottery.com Inc. (trading symbol: LTRY) on September 9, 2022, covering events occurring between September 2 and September 9, 2022. The filing details a material definitive agreement for financing, a mass resignation of the Board of Directors, the departure of key executive officers, and a subsequent notice of non-compliance with Nasdaq listing standards.
Key Financial Metrics and Capital Structure
The filing does not provide standard operating financial metrics such as revenue, profit, cash flow, or margins for a specific reporting period. However, it discloses the following capital-related terms:
- Initial Loan: A $2.5 million convertible loan from Woodford Eurasia Assets Ltd.
- Expansion Capital: An accordion provision for up to $50.0 million in additional convertible loans or investment instruments, subject to due diligence and definitive terms.
- Warrant Issuance: In lieu of interest, the Company will issue warrants equal to 15% of issued and outstanding equity at a strike price with a 25% discount to the average closing price of the prior ten trading days.
Material Changes and Corporate Governance
The Company experienced significant changes in its governance structure and executive leadership:
- Board Resignations: On September 2, 2022, Lisa M. Borders, Steven M. Cohen, and William C. Thompson, Jr. resigned. On September 8, 2022, Lawrence Anthony DiMatteo III resigned. These resignations reduced the Board size from five members to one (Richard Kivel).
- Executive Departures: Kathryn Lever resigned as Chief Legal Officer, Chief Operating Officer, and Secretary on September 5, 2022.
- Reason for Resignations: The departing directors cited "recent Board practices" in their resignation letters. Mr. DiMatteo's resignation was pursuant to the terms of the financing Term Sheet.
- Nasdaq Non-Compliance: Due to the resignations, the Company notified Nasdaq on September 9, 2022, that it no longer complies with Rule 5605(b)(1) (majority independent directors) and Rule 5605(c)(2) (Audit Committee composition).
Outlook, Risks, and Contingencies
Management and the filing highlight several critical risks and forward-looking uncertainties:
- Going Concern: The Company explicitly cites risks regarding its ability to continue as a going concern and its ability to secure additional capital resources.
- Internal Controls: There are ongoing reviews of the Company's internal accounting controls, with preliminary conclusions under examination.
- Listing Status: The Company faces the risk of delisting if it cannot regain compliance with Nasdaq Listing Rules, specifically regarding the appointment of new independent directors and Audit Committee members.
- SEC Reporting: There is a noted risk regarding the Company's ability to become current with its SEC reports.
- Management Transition: The new Board is tasked with appointing an interim Chief Executive Officer and a new Audit Committee chair.
Investor Verification Checklist
- Verify the status of the $2.5 million Initial Loan funding and the conditions precedent (Director Resignations and new Board appointments).
- Confirm the timeline for appointing new independent directors to regain Nasdaq compliance.
- Review the "Borders," "Cohen," and "Thompson" Resignation Letters (Exhibits 17.1, 17.2, 17.3) for specific details on the "recent Board practices" cited.
- Assess the progress of the internal accounting controls review and any potential restatements of prior financials.
- Monitor the appointment of the new interim CEO and the status of the $50 million Expansion Capital negotiations.