UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _________________

Commission File Number: 001-38508

Lottery.com Inc.

(Exact name of registrant as specified in its charter)

Delaware		81-1996183
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

20808 State Hwy 71 W, Unit B, Spicewood, Texas		78669
(Address of principal executive offices)		(zip code)

(737) 309-4500

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.001 par value	LTRY	The Nasdaq Stock Market LLC
Warrants to purchase one share of common stock, each at an exercise price of $230.00	LTRYW	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☒
	Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐Yes ☒ No

As of August 21, 2023, 2,546,264 shares of common stock, par value $0.001 per share were issued and outstanding.

TABLE OF CONTENTS

	Page
Part I. Financial Information
Item 1. Consolidated Financial Statements	1
Condensed Consolidated Balance Sheets as of June 30, 2023 (unaudited) and December 31, 2022	F-1
Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2023 and 2022 (unaudited)	F-2
Condensed Consolidated Statements of Equity for the three and six months ended June 30, 2023 and 2022 (unaudited)	F-3
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022 (unaudited)	F-4
Notes to Condensed Consolidated Financial Statements (unaudited)	F-5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	2
Item 3. Quantitative and Qualitative Disclosures about Market Risk	15
Item 4. Controls and Procedures	15
Part II. Other Information
Item 1. Legal Proceedings	17
Item 1A. Risk Factors	18
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	18
Item 3. Defaults Upon Senior Securities	18
Item 4. Mine Safety Disclosures	18
Item 5. Other Information	18
Item 6. Exhibits	18

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including statements about the financial condition, results of operations, earnings outlook and prospects of Lottery.com Inc. (“Lottery.com”, the “Company”, “we” or “us”). Forward-looking statements appear in a number of places in this Report, including, without limitation, under the heading in Part I, “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. Forward-looking statements are typically identified by words such as “plan,” “believe,” “expect,” “anticipate,” “intend,” “outlook,” “estimate,” “forecast,” “project,” “continue,” “could,” “may,” “might,” “possible,” “potential,” “predict,” “should,” “would” and other similar words and expressions, but the absence of these words does not mean that a statement is not forward-looking.

Forward-looking statements are based on the current expectations of the management of Lottery.com and are inherently subject to uncertainties and changes in circumstances and their potential effects and speak only as of the date of such statement. There can be no assurance that future developments will be those that have been anticipated. These forward-looking statements involve a number of risks, uncertainties or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors discussed and identified in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 (the “Annual Report”) and in this Report, as such factors may be updated in our periodic reports filed with the Securities and Exchange Commission (the “SEC”), as well as the following:

	●	The findings of the previously disclosed Internal Investigation (as defined herein) and other matters have exposed us to a number of legal proceedings, investigations and inquiries, resulted in significant legal and other expenses, required significant time and attention from our senior management, among other adverse impacts.

	●	We and certain of our former officers are, and in the future, we or our officers and directors may become, the subject of legal proceedings, investigations and inquiries by governmental agencies with respect to the findings of the Internal Investigation and other matters, which could have a material adverse effect on our reputation, business, financial condition, cash flows and results of operations, and could result in additional claims and material liabilities.

	●	We have been named as a defendant in a number of lawsuits filed by purchasers of our securities, including class action lawsuits that could have a material adverse impact on our business, financial condition, results of operation and cash flows, and our reputation.

	●	Matters relating to or arising from the restatement and the Internal Investigation, including adverse publicity and potential concerns from our users, customers or others with whom we do business, have had and could continue to have an adverse effect on our business and financial condition.

	●	In July 2022, we furloughed the majority of our employees and suspended our lottery game sales operations after determining that we did not have sufficient financial resources to fund our operations or pay certain existing obligations, including our payroll and related obligations. As a result, we may not be able to continue as a going concern.

	●	We need additional capital to, among other things, support and restart our operations, re-hire employees and pay our expenses. Such capital may not be available on commercially acceptable terms, if at all. If we do not receive the additional capital, we may be forced to curtail or abandon our plans to recommence our operations and we may need to permanently cease our operations.

	●	If we fail to implement and maintain an effective system of internal controls, we may be unable to accurately report our results of operations, meet our reporting obligations or prevent fraud, and investor confidence and the trading price of our common stock and warrants may be materially and adversely affected.

	●	The circumstances that led to the failure to file our annual report and quarterly reports on time, and our efforts to investigate, assess and remediate those matters have caused and may continue to cause substantial delays in our SEC filings.

	●	Our inability to compete with other forms of entertainment for consumers’ discretionary time and income.

	●	Economic downturns, inflation, geopolitical and political and market conditions beyond our control.

	●	Negative events or media coverage relating to our business, our management and directors, the lottery, lottery games or online gaming or betting.

	●	Our inability to attract and retain users, including as a result of failing to appear in Internet search engine results.

	●	Our continued ability to use domain names to promote and increase the value of our brand.

	●	Scrutiny by stakeholders with respect to responsible gaming and ethical conduct.

	●	Our ability to achieve profitability and growth in the newly-developed market for online lottery games.

	●	Our inability to profitably expand into new markets or capitalize on new gaming and lottery industry trends and changes, such as by developing successful new product offerings.

	●	The effectiveness of our marketing efforts in developing and maintaining our brand and reputation.

	●	Failure to offer high-quality user support.

	●	Adverse impacts to user relationships resulting from disruptions to our information technology.

	●	The vulnerability of our information systems to cyberattacks and disruptions caused with respect thereto, including an inability to securely maintain personal and other proprietary user information.

	●	Our inability to adapt to changes or updates in the Internet, mobile or personal devices, or new technology platforms or network infrastructures.

	●	The exposure of our online infrastructure to risks relating to new and untested distributed ledger technology.

	●	Our inability to comply with complex, ever-changing and multi-jurisdictional regulatory regimes and other legal requirements applicable to the gaming and lottery industries.

	●	Geopolitical shifts and changes in applicable laws or regulations or the manner in which they are interpreted.

	●	Our inability to successfully expand geographically and acquire and integrate new operations.

	●	Our dependence on third-party service providers to timely perform services or software component products for our gaming platforms, product offerings and the processing of user payments and withdrawals.

	●	Our inability to maintain successful relationships and/or agreements with lottery organizations and other third-party marketing or service provider affiliates.

iii

	●	Failure of third-party service providers to protect, enforce, or defend intellectual property rights required to fulfill contractual obligations required for the operation of our business.

	●	The effectiveness of our transition and compliance with the regulatory and other requirements of being a newly public company.

	●	We are currently not in compliance with the continued listing standards of Nasdaq and may not be able to regain compliance with Nasdaq’s continued listing standards in the future.

	●	Limited liquidity and trading of our securities.

	●	Woodford and/or UCIL may not loan us the amounts they agreed to under their Loan Agreement.

	●	Our obligations under the Woodford Loan Agreement (as defined herein) are secured by a first priority security interest in substantially all of our assets and if we were to default, they could force us to curtail or abandon our business plans and operations.

	●	The issuance and sale of common stock upon conversion of the amounts owed or upon exercise of the warrants issued to Woodford and UCIL (as defined herein) under the Loan Agreements may depress the market price of our common stock and cause substantial dilution

	●	We currently owe a significant amount of money under our Loan Agreements, which we may not be able to repay.

The risks described herein or in the “Risk Factors” sections of our other public filings referenced above are not exhaustive. Other sections of this Report describe additional factors that could adversely affect our business, financial condition or results of operations. New risk factors emerge from time to time and it is not possible to predict all such risk factors, nor can we assess the impact of all such risk factors on our business, or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. Forward-looking statements are not guarantees of performance. You should not put undue reliance on these statements, which speak only as of the date hereof. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing cautionary statements. We undertake no obligations to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

	Page
Condensed Consolidated Balance Sheets as of June 30, 2023 (unaudited) and December 31, 2022	F-1
Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2023 and 2022 (unaudited)	F-2
Condensed Consolidated Statements of Equity for the three and six months ended June 30, 2023 and 2022 (unaudited)	F-3
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022 (unaudited)	F-4
Notes to Condensed Consolidated Financial Statements (unaudited)	F-5

LOTTERY.COM INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30,			December 31,
	2023			2022
ASSETS

Current assets:
Cash	$	54,359		$	102,766
Restricted cash		-			-
Accounts receivable		169,482			208,647
Prepaid expenses		19,392,165			19,409,323
Other current assets		760,180			718,550
Total current assets		20,376,186			20,439,286

Notes receivable		2,000,000			2,000,000
Investments		250,000			250,000
Goodwill		19,590,758			19,590,758
Intangible assets, net		21,220,422			23,982,445
Property and equipment, net		73,583			108,078
Other long term assets		12,884,686			13,009,686
Total assets	$	76,395,635		$	79,380,253

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Trade payables	$	7,794,292		$	7,607,633
Deferred revenue		410,714			464,286
Notes payable - current		4,431,582			3,755,676
Accrued interest		483,644			484,172
Accrued and other expenses		7,266,377			4,626,973
Other liabilities		1,242,584			625,028
Total current liabilities		21,629,193			17,563,768

Long-term liabilities:
Convertible debt, net - non current		-			-
Other long term liabilities		-			-
Total long-term liabilities		-			-
Commitments and contingencies (Note 13)		-			-
Total liabilities		21,629,193			17,563,768

Equity
Controlling Interest
Preferred Stock, par value $0.001, 1,000,000 shares authorized, none issued and outstanding		-			-
Common stock, par value $0.001, 500,000,000 shares authorized, 2,527,045 issued and outstanding as of June 30, 2023 and December 31, 2022, respectively		2,527			2,527
Additional paid-in capital		268,314,069			267,597,370
Accumulated other comprehensive loss		(144,729	)		3,622
Accumulated deficit		(215,665,735	)		(208,187,210	)
Total Lottery.com Inc. stockholders’ equity		52,506,132			59,416,309
Noncontrolling interest		2,260,310			2,400,176
Total Equity		54,766,442			61,816,485

Total liabilities and stockholders’ equity	$	76,395,635		$	79,380,253

The accompanying notes are an integral part of these condensed consolidated financial statements.

F-1

LOTTERY.COM INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)

	2023			2022			2023			2022
	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022

Revenue	$	655,344		$	1,885,171		$	1,275,573		$	5,515,863
Cost of revenue		95,683			1,577,239			130,830			3,961,981
Gross profit		559,661			307,932			1,144,743			1,553,882

Operating expenses:
Personnel costs		1,306,007			9,512,356			2,563,441			33,915,222
Professional fees		1,112,310			1,219,509			1,852,238			4,357,459
General and administrative		964,502			3,904,421			1,301,830			6,939,962
Depreciation and amortization		1,392,158			1,297,394			2,797,638			2,671,319
Total operating expenses		4,774,977			15,933,680			8,515,147			47,883,962
Income (loss) from operations		(4,215,316	)	$	(15,625,748	)		(7,370,404	)	$	(46,330,080	)

Other expenses
Interest (income) expense		41,142			71,045			41,165			75,026
Other (income) expense		(399	)		(247,851	)		58,472			3,941,293
Total other expenses (income), net		40,743			(176,806	)		99,637			4,016,319

Net loss before income tax	$	(4,256,059	)	$	(15,448,942	)	$	(7,470,041	)	$	(50,346,399	)
Income tax expense (benefit)		-			-			-			-
Net loss		(4,256,059	)		(15,448,942	)		(7,470,041	)		(50,346,399	)

Other comprehensive loss
Foreign currency translation adjustment, net		(34,256	)		(10,001	)		(148,351	)		(11,065	)
Comprehensive loss		(4,290,315	)		(15,458,943	)		(7,618,392	)		(50,357,464	)

Net income attributable to noncontrolling interest		72,227			102,520			139,867			250,777
Net loss attributable to Lottery.com Inc.		(4,218,088	)		(15,356,423	)		(7,478,525	)		(50,107,387	)

Net loss per common share
Basic and diluted	$	(1.67	)	$	(6.09	)	$	(2.97	)	$	(19.90	)

Weighted average common shares outstanding
Basic and diluted		2,518,822			2,520,649			2,518,822			2,517,332

The accompanying notes are an integral part of these condensed consolidated financial statements.

F-2

LOTTERY.COM INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

For the Six Months Ended June 30, 2023 and 2022

	Shares		Amount		Capital		Deficit		Income		Equity		Interest		Equity
	Common Stock				Additional Paid-In		Accumulated		Accumulated Other Comprehensive		Total AutoLotto Inc. Stockholders’		Noncontrolling		Total Stockholders’
	Shares		Amount		Capital		Deficit		Income		Equity		Interest		Equity
Balance as of December 31, 2021		50,256,317	$	50,256	$	239,358,644	$	-148,188,138	$	-655	$	91,220,107	$	2,780,092	$	94,000,199
Issuance of common stock upon stock option exercise		60,116		60		-60		-		-		-		-

SEC Form 10-Q filed by Lottery.com Inc.