Business context and reporting period
This Form 10-Q is for the quarter and nine months ended September 30, 2021. The filing is for Trident Acquisitions Corp., which was renamed Lottery.com Inc. in connection with its October 29, 2021 business combination with AutoLotto, Inc. The reported-period financial statements reflect the pre-combination blank-check company, not AutoLotto’s lottery business; the filing reports no operating revenue through September 30.
Financial results and position
| Metric | Three months ended September 30, 2021 | Nine months ended September 30, 2021 |
|---|---|---|
| Revenue | None | None |
| Operating costs | $590,217 | $2,027,974 |
| Operating loss | $(590,217) | $(2,027,974) |
| Net income | $4,294,488 | $1,780,407 |
| Net income per share | $0.36 | $0.15 |
- Reported net income principally reflected noncash gains from changes in the fair value of derivative liabilities: $4.8 million for the quarter and $3.6 million for the nine-month period. The filing therefore does not present operating profitability or revenue-based margins for the period.
- Nine-month net cash used in operating activities was $1,158,455, versus $1,603,006 in 2020. Cash was $65,264 outside the Trust Account at September 30; Trust Account securities were $63,535,992, restricted for a business combination or related redemptions and obligations.
- Current liabilities were $6,626,647, including $5,455,000 of related-party promissory notes. Total liabilities were $14,769,397. The related-party notes were repaid upon the October 29 business-combination closing. The filing reports no long-term debt.
- Stockholders’ deficit was $14,186,066. Common stock subject to possible redemption was reported separately as temporary equity at $63,478,179.
Changes versus the prior comparable period
- For the third quarter, the company moved from a $362,526 net loss in 2020 to $4,294,488 net income in 2021, primarily because of the 2021 derivative fair-value gain. For the first nine months, it moved from a $618,464 net loss to $1,780,407 net income for the same main reason.
- Nine-month operating costs rose to $2,027,974 from approximately $1.13 million in 2020; the filing’s statements and MD&A give slightly different 2020 figures.
- The financial statements were revised for an error in accounting for shares subject to possible redemption, including reclassification between temporary and permanent equity and revised earnings-per-share presentation. The filing also discusses a material weakness related to warrant accounting and a prior financial-statement restatement.
Business combination, outlook, and risks
- The October 29, 2021 business combination exchanged AutoLotto shares for consideration based on 40 million shares, subject to the agreement’s terms. Sellers and specified founders may earn up to 6 million and 4 million additional shares, respectively, if stated share-price or transaction thresholds are met.
- Management stated that combined-company cash resources, business-combination proceeds, and anticipated operating cash generation were expected to fund operations and obligations for at least 12 months after September 30, 2021. No revenue or earnings guidance is provided.
- At September 30, the company had a $1,008,064 adjusted working-capital deficit as described in the notes and depended on related-party loans to fund transaction and working-capital needs. Management’s post-closing liquidity expectation is forward-looking.
- Management said COVID-19 could negatively affect financial position, operations, or the target search, but that the impact was not readily determinable. Disclosure controls were deemed ineffective as of September 30 due to the identified material weakness; management described planned remediation but gave no assurance of success.
- Contingent and transaction-related items included a $5,031,250 deferred underwriting fee and service-provider fees. The filing says the business-combination closing included payment of the deferred underwriting fee and other amounts; some service-provider fees remained deferred.
Most important facts to verify
- Confirm the filing entity and period: the supplied filing is Lottery.com Inc. (formerly Trident Acquisitions Corp.), not Sports Entertainment Gaming Global Corp.
- Review the October 29 closing statements and subsequent filings for actual transaction proceeds, redemptions, closing costs, debt repayment, and post-combination cash and liquidity.
- Assess the effects of the redemption-accounting revision and warrant-related material weakness, including whether remediation was completed and controls improved.
- Verify the nature and realization of the derivative fair-value gains and distinguish them from recurring operating performance.
- Track earnout conditions, warrant dilution and exercise terms, deferred fees, and other post-closing obligations.