The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
(Unaudited)
NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS
OPERATIONS
Lottery.com Inc. (the “Company”,
the “Combined Company” or “Lottery.com”), formerly known as Trident Acquisitions Corp. ( “TDAC”),
was a blank check company incorporated in Delaware on March 17, 2016. The Company was formed for the purpose of effecting a merger, share
exchange, asset acquisition, stock purchase, recapitalization, reorganization or similar business combination with one or more businesses.
Business Combination
On October 29, 2021 (the
“Closing Date”), the Company consummated its previously announced business combination (the “Closing”) pursuant
to the terms of the Business Combination Agreement, dated as of February 21, 2021 (the “Business Combination Agreement”),
by and among TDAC, Trident Merger Sub II Corp., a wholly-owned subsidiary of TDAC (“Merger Sub”), and AutoLotto, Inc. (“AutoLotto”).
Pursuant to the terms of the Business Combination Agreement, Merger Sub merged with and into AutoLotto with AutoLotto surviving the merger
as a wholly owned subsidiary of TDAC, which was renamed “Lottery.com Inc.” immediately prior to the Closing (the “Merger”
and, together with the other transactions contemplated by the Business Combination Agreement, the “Business Combination”).
In accordance with the terms
and subject to the conditions set forth in the Business Combination Agreement, each share of preferred stock of AutoLotto that was issued
and outstanding immediately prior to the Effective Time converted into shares of AutoLotto’s common stock (each an “AutoLotto
Share”) immediately prior to the Effective Time. At the Effective Time, by virtue of the Merger and without any action on the part
of any other person, each AutoLotto Share issued and outstanding as of immediately prior to the Effective Time (including the shares of
preferred stock of AutoLotto that were converted in AutoLotto Shares but not including any treasury shares or dissenting shares) was cancelled
and converted into the right to receive the Per Share Merger Consideration. “Per Share Merger Consideration” means the quotient
obtained by dividing (a) 40,000,000 shares of TDAC’s Common Stock, par value $0.001 per share (“Common Stock”) as adjusted
in accordance with the terms of the Business Combination Agreement by (b) the aggregate number of AutoLotto Shares (including shares issued
or issuable upon the conversion or exercise of certain AutoLotto convertible securities) issued and outstanding as of immediately prior
to the Effective Time, or 13,307,477 AutoLotto Shares. With respect to any AutoLotto Shares that were unvested immediately prior to the
Effective Time, the shares of Common Stock issued as Per Share Merger Consideration upon the cancellation and conversion of such AutoLotto
Shares remain subject to the same vesting and termination-related provisions as that applied to such AutoLotto Shares immediately
prior to the Effective Time.
At the Effective Time, each
option to purchase AutoLotto Shares (an “AutoLotto Option”) that was outstanding as of immediately prior to the Effective
Time was assumed by TDAC, and continues to have, and remains subject to, the same terms and conditions (including vesting terms and, to
the extent applicable, holding period restrictions) as applied to such AutoLotto Option immediately prior to the Effective Time, subject
to certain exceptions (each, an “Assumed Option”) with such adjustments to the number of shares underlying and the exercise
price of such Assumed Option as provided for under the Business Combination Agreement.
At the Effective Time, by
virtue of the Merger and without any action on the part of any person, each warrant to purchase AutoLotto Shares (each, an “AutoLotto
Warrant”) that was issued and outstanding immediately prior to the Effective Time and was not automatically terminated pursuant
to its terms became a warrant exercisable for shares of Common Stock (a “Trident Consideration Warrant”) on the same terms
and conditions as applied to the AutoLotto Warrants, with adjustments to the number of shares underlying the warrant and the exercise
price as were set forth in the Business Combination Agreement.
Each convertible promissory
note issued by AutoLotto that was issued and outstanding immediately prior to the Effective Time automatically converted or was terminated
pursuant to its terms, as applicable, in connection with the Closing.
Earn-Out Shares
In addition, the holders
of issued and outstanding AutoLotto Shares immediately prior to the Closing (the “Sellers”) are entitled to receive up to
6,000,000 additional shares of Common Stock (the “Seller Earnout Shares”) and Vadim Komissarov, Ilya Ponomarev and Marat Rosenberg
(collectively the “Founder Holders”) will also be entitled to receive up to 4,000,000 additional shares of Common Stock (the
“Founder Holders Earnout Shares”), in each case, that may be issuable from time to time after the Closing as set forth below.
LOTTERY.COM INC.
(FORMERLY KNOWN AS TRIDENT ACQUISITIONS CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
(Unaudited)
If,
at any time on or prior to December 31, 2021, (i) the dollar volume-weighted average price of shares of Common Stock equals
or exceeds $13.00 per share for 20 of any 30 consecutive trading days commencing after the Closing, or (ii) if Lottery.com consummates
a transaction which results in the stockholders of Lottery.com having the right to exchange their shares for cash, securities or other
property having a value equaling or exceeding $13.00 per share, each Seller shall receive its pro rata portion of 3,000,000 Seller Earnout
Shares and each Founder Holder shall receive one-third of 2,000,000 Founder Holders Earnout Shares. The Seller Earnout Shares then
earned and issuable shall be issued to each Seller on a pro-rata basis based on the percentage of the aggregate Per Share Merger
Consideration received, or entitled to be received, by such Seller as of immediately following the Closing.
If,
at any time on or prior to December 31, 2022, (i) the dollar volume-weighted average price of shares of Common Stock equals
or exceeds $16.00 per share for 20 of any 30 consecutive trading days commencing after the Closing, or (ii) if Lottery.com consummates
a transaction which results in the stockholders of Lottery.com having the right to exchange their shares for cash, securities or other
property having a value equaling or exceeding $16.00 per share, each Seller shall receive its pro rata portion of 3,000,000 Seller Earnout
Shares and each Founder Holder shall receive one-third of 2,000,000 Founder Holders Earnout Shares.
Business Prior to the Business Combination
Prior to the Business Combination,
the Company had one subsidiary, Trident Merger Sub II Corp., a majority-owned subsidiary of the Company incorporated in Delaware on February
9, 2021.
All activity through September
30, 2021 related to the Company’s formation, its public offering (“Initial Public Offering”), which is described below,
and identifying a target for an initial business combination and activities in connection with the acquisition of AutoLotto.
The registration statement
for the Company’s Initial Public Offering was declared effective on May 29, 2018. On June 1, 2018, the Company consummated the Initial
Public Offering of 17,500,000 units (the “Units”) at $10.00 per unit, generating gross proceeds of $175,000,000, which is
described in Note 4.
Simultaneously with the
closing of the Initial Public Offering, the Company consummated the sale of 1,150,000 units (the “Private Units”), at a price
of $10.00 per unit in a private placement to certain of the Company’s affiliates and stockholders (the “Insiders”),
generating gross proceeds of $11,500,000, which is described in Note 5. The Private Units were forfeited for no consideration upon consummation
of the Business Combination (see Note 7).
Following the closing of
the Initial Public Offering on June 1, 2018, an amount of $178,500,000 ($10.20 per Unit) from the net proceeds of the sale of the Units
in the Initial Public Offering and the Private Units was placed in a trust account (“Trust Account”) and invested in U.S.
government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment
Company Act”), with a maturity of 180 days or less or in any open-ended investment company that holds itself out as a money market
fund selected by the Company meeting the conditions of Rule 2a-7 of the Investment Company Act, as determined by the Company, until the
earlier of: (i) the consummation of an initial business combination or (ii) the distribution of the Trust Account, as described below.
On June 5, 2018, in connection
with the underwriters’ exercise of their over-allotment option in full, the Company consummated the sale of an additional 2,625,000
Units at $10.00 per unit, generating total gross proceeds of $26,250,000. Simultaneously with the sale of the additional Units, the Company
deposited an aggregate of $1,181,250 into the Trust Account from funds previously held outside of the Trust Account. A total of $26,775,000
was deposited in the Trust Account, bringing the aggregate proceeds held in the Trust Account to $205,275,000.
Transaction costs amounted
to $11,101,864, consisting of $5,031,250 of underwriting fees, $5,031,250 of deferred underwriting fees and $1,039,364 of other costs.
As of September 30, 2021, cash of $65,264 was held outside of the Trust Account and was available for working capital purposes.
LOTTERY.COM INC.
(FORMERLY KNOWN AS TRIDENT ACQUISITIONS CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
(Unaudited)
Liquidity and Going Concern
As of September 30, 2021, the Company had $65,264 in its operating
bank accounts, $63,535,992 in marketable securities held in the Trust Account to be used for an initial business combination or to repurchase
or redeem shares in connection therewith and an adjusted working capital deficit of $1,008,064, which excluded franchise taxes of $70,000
and prepaid income taxes of $12,186, of which such amounts were paid from interest earned on the Trust Account prior to the Closing, and
promissory notes in the amount of $5,455,000 which were repaid upon the consummation of a Business Combination and not from the working
capital of the Company. As of September 30, 2021, approximately $1,379,000 of the amount on deposit in the Trust Account represented interest
income, which was available to pay the Company’s tax obligations. Through September 30, 2021, the Company has withdrawn $1,721,135
of interest earned from the Trust Account in order to pay its taxes, of which $160,250 was withdrawn during the nine months ended September
30, 2021.
On December 17, 2019, Viktoria
Group, LLC, a company owned by Vadim Komissarov, the Company’s former President and Chief Financial Officer, loaned the Company
$180,000 in order to fund working capital requirements and finance transaction expenses in connection with an initial business combination.
The loan was non-interest bearing and was repaid on June 18, 2020.
On January 30, 2020, VK
Consulting, Inc., a company owned by Mr. Komissarov, loaned the Company $425,000 in order to fund working capital requirements and finance
transaction expenses in connection with an initial business combination. This loan was repaid in full on January 5, 2021.
On February 7, 2020, May
15, 2020 and August 27, 2020, BGV Group Limited, an affiliate of one of the Company’s stockholders, loaned the Company $800,000,
$1,500,000 and $1,100,000, respectively, for an aggregate of $3,400,000 to be used to finance transaction costs in connection with an
initial business combination. The loans are non-interest bearing and currently due on demand.
On November 27, 2020, an
affiliate of the Company loaned the Company an aggregate of $150,000 to fund the Company’s working capital requirements and finance
transaction expenses in connection with a Business Combination. The loans were non-interest bearing.
On November 30, 2020 and
December 28, 2020, an affiliate of the Company loaned the Company an aggregate of $1,100,000 to fund the Company’s working capital
requirements and finance transaction expenses in connection with an initial business combination Business Combination. The loans were
non-interest bearing.
On May 26, 2021, VK Consulting, Inc., a company owned by Mr. Komissarov,
loaned the Company $425,000 in order to fund working capital requirements and finance transaction expenses in connection with a Business
Combination. The loans were non-interest bearing.
On August 30, 2021, September
1, 2021 and September 9, 2021, Viktoria Group, LLC, a company owned by Mr. Komissarov, loaned the Company an aggregate of $492,000 in
order to fund working capital requirements and finance transaction expenses in connection with an initial business combination. The loans
were non-interest bearing and were payable on or before December 1, 2021. Repayments totaling $112,000 were made during the three months
ended September 30, 2021.
On October 29, 2021, the
Closing by and among TDAC, Merger Sub and AutoLotto, Inc. was consummated. As of the date of these financial statements, the Combined
Company’s cash resources, net proceeds from the Business Combination, and cash to be generated from future operation, are anticipated
to be sufficient to fund the Company’s operating activities, including our anticipated operating, debt and capital expense requirements,
for at least 12 months after September 30, 2021.
LOTTERY.COM INC.
(FORMERLY KNOWN AS TRIDENT ACQUISITIONS
CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
(Unaudited)
NOTE 2. REVISION OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
In connection with the preparation
of the Company’s financial statements as of September 30, 2021, management identified errors made in its historical financial statements
where, at the closing of the Company’s Initial Public Offering, the Company improperly valued its common stock subject to possible
redemption. The Company previously determined the common stock subject to possible redemption to be equal to the redemption value, while
also taking into consideration a redemption cannot result in net tangible assets being less than $5,000,001. Management determined that
the common stock issued during the Initial Public Offering can be redeemed or become redeemable subject to the occurrence of future events
considered outside the Company’s control. Therefore, management concluded that the redemption value should include all shares of
common stock subject to possible redemption, resulting in the common stock subject to possible redemption being equal to their redemption
value. As a result, management has noted a reclassification error related to temporary equity and permanent equity. This resulted in an
adjustment to the initial carrying value of the common stock subject to possible redemption with the offset recorded to additional paid-in
capital (to the extent available), accumulated deficit and common stock.
In connection with the change
in presentation for the common stock subject to redemption, the Company also revised its income (loss) per ordinary share calculation
to allocate net income (loss) evenly to redeemable and non-redeemable common stock. This presentation contemplates an initial business
combination as the most likely outcome, in which case, both redeemable and non-redeemable shares of common stock share pro rata in the
income (loss) of the Company.
The impact of the revision on the Company’s
financial statements is reflected in the following table.
Balance Sheet as of December 31, 2020 (audited)
|
|
As Previously
Reported
|
|
|
Adjustment
|
|
|
As Restated
|
|
Common stock subject to possible redemption
|
|
$
|
42,512,961
|
|
|
$
|
20,864,511
|
|
|
$
|
63,377,472
|
|
Common stock
|
|
$
|
8,086
|
|
|
$
|
(1,905
|
)
|
|
$
|
6,181
|
|
Additional paid-in capital
|
|
$
|
4,223,633
|
|
|
$
|
(4,223,633
|
)
|
|
$
|
—
|
|
Retained earnings (Accumulated Deficit)
|
|
$
|
768,284
|
|
|
$
|
(16,638,973
|
)
|
|
$
|
(15,870,689
|
)
|
Total Stockholders’ Equity (Deficit)
|
|
$
|
5,000,003
|
|
|
$
|
(20,864,511
|
)
|
|
$
|
(15,864,508
|
)
|
Number of shares of common stock subject to possible redemption
|
|
|
3,881,505
|
|
|
|
1,904,965
|
|
|
|
5,786,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Operations for the Three Months Ended September 30, 2020 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted weighted average shares outstanding, Class A Common stock
|
|
|
7,292,117
|
|
|
|
5,100,193
|
|
|
|
12,392,310
|
|
Basic and diluted net (loss) income per share, Class A common stock
subject to possible redemption
|
|
$
|
(0.05
|
)
|
|
$
|
0.02
|
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Operations for the Nine Months Ended September 30, 2020 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted weighted average shares outstanding, Common stock subject to possible redemption
|
|
|
7,216,093
|
|
|
|
5,653,674
|
|
|
|
12,869,767
|
|
Basic and diluted net (loss) income per share, Common stock subject
to possible redemption
|
|
$
|
(0.12
|
)
|
|
$
|
0.07
|
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Cash Flows for the Nine Months Ended September 30, 2020 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in value of common stock subject to possible redemption
|
|
|
618,465
|
|
|
|
2,378,133
|
|
|
|
2,996,598
|
|
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited
condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United
States of America (“US GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article
8 of Regulation S-X of the SEC. Certain information or footnote disclosures normally included in financial statements prepared in accordance
with US GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly,
they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations,
or cash flows. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments,
consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and
cash flows for the periods presented.
The accompanying unaudited
condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K, as amended,
for the year ended December 31, 2020 as filed with the SEC on March 30, 2021 and as amended on June 25, 2021, which contains the audited
financial statements and notes thereto. The interim results for the three and nine months ended September 30, 2021 are not necessarily
indicative of the results to be expected for the year ending December 31, 2021 or for any future interim periods.
LOTTERY.COM INC.
(FORMERLY KNOWN AS TRIDENT ACQUISITIONS CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
(Unaudited)
Principles of Consolidation
The accompanying unaudited
condensed consolidated financial statements include the accounts of the Company and its majority owned subsidiary where the Company has
the ability to exercise control. All significant intercompany balances and transactions have been eliminated in consolidation. Activities
in relation to the noncontrolling interest are not considered to be significant and are, therefore, not presented in the accompanying
unaudited condensed consolidated financial statements.
Risks and Uncertainties
Management continues to
evaluate the impact of the COVID-19 pandemic and has concluded that while it is reasonably possible that the virus could have a negative
effect on the Company’s financial position, results of its operations and/or search for a target company, the specific impact is
not readily determinable as of the date of these condensed consolidated financial statements. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Emerging Growth Company
The Company is an “emerging
growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012
(the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable
to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the
auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation
in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive
compensation and stockholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1)
of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until
private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class
of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS
Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging
growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period
which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company,
as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.
This may make comparison of the Company’s balance sheet with another public company which is neither an emerging growth company
nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential
differences in accounting standards used.
Use of Estimates
The preparation of condensed
consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial
statements and the reported amounts of revenues and expenses during the reporting period.
Making estimates requires
management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation
or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate,
could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly
from those estimates.
Cash and Cash Equivalents
The Company considers all
short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company did not have
any cash equivalents as of September 30, 2021 and December 31, 2020.
Marketable Securities Held in Trust Account
At September 30, 2021 and
December 31, 2020, substantially all of the assets held in the Trust Account were held in money market funds, which are invested primarily
in U.S. Treasury securities. All of the Company’s investments held in the Trust Account are classified as trading securities. Trading
securities are presented on the balance sheet at fair value at the end of each reporting period. Gains and losses resulting from the change
in fair value of investments held in Trust Account are included in interest earned on marketable securities held in Trust Account in the
accompanying condensed statements of operations. The estimated fair values of investments held in Trust Account are determined using available
market information. Through September 30, 2021, the Company has withdrawn $1,721,135 of interest earned from the Trust Account in order
to pay its taxes, of which $160,250 was withdrawn during the nine months ended September 30, 2021.
LOTTERY.COM INC.
(FORMERLY KNOWN AS TRIDENT ACQUISITIONS CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
(Unaudited)
Derivative Financial Instruments
The Company evaluates
its financial instruments (including its UPO Warrants (as defined in Note 8)) to determine if such instruments are derivatives or
contain features that qualify as embedded derivatives in accordance with ASC Topic 815, “Derivatives and Hedging”. For
derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair
value on the grant date and is then re-valued at each reporting date, with changes in the fair value reported in the statements of
operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as
equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in the condensed consolidated
balance sheets as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be
required within 12 months of the balance sheet date. See Note 8 for a further discussion of the Company’s derivatives.
Warrant Liabilities
The Company accounts for
warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms
and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”).
The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability
pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether
the warrants are indexed to the Company’s own common shares and whether the warrant holders could potentially require “net
cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This
assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly
period end date while the warrants are outstanding.
For issued or modified warrants
that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in
capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants
are required to be recorded as a liability at their initial fair value on the date of issuance, and each balance sheet date thereafter.
Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations. The fair
value of the Private Warrants and UPO Warrants were estimated using a Black-Scholes Option pricing model (see Note 10).
Fair Value of Financial Instruments
The fair value of the Company’s
assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurement,” approximates
the carrying amounts represented in the accompanying condensed consolidated balance sheets, primarily due to their short-term nature,
except for warrant liabilities (see Note 10).
The fair value of cash,
prepaid expenses, accounts payable and accrued expenses are estimated to approximate the carrying values as of September 30, 2021 and
December 31, 2020, due to their short maturities of such instruments.
See Note 10 for additional
information on assets and liabilities measured at fair value.
Common Stock Subject to Possible Redemption
The Company accounts for
its common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”)
Topic 480 “Distinguishing Liabilities from Equity.” Common stock subject to mandatory redemption is classified as a liability
instrument and is measured at fair value. Conditionally redeemable common stock (including common stock that features redemption rights
that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the
Company’s control) is classified as temporary equity. At all other times, common stock is classified as stockholders’ equity.
The Company’s common stock features certain redemption rights that are considered to be outside of the Company’s control and
subject to occurrence of uncertain future events. Accordingly, common stock subject to possible redemption is presented at redemption
value as temporary equity, outside of the stockholders’ equity section of the Company’s condensed consolidated balance sheets.
The Company recognizes changes
in redemption value immediately as they occur and adjusts the carrying value of redeemable shares of common stock to equal the redemption
value at the end of each reporting period. Immediately upon the closing of the Initial Public Offering, the Company recognized the remeasurement
from initial book value to redemption amount value. The change in the carrying value of redeemable shares of common stock resulted in
charges against additional paid-in capital and accumulated deficit.
LOTTERY.COM INC.
(FORMERLY KNOWN AS TRIDENT ACQUISITIONS CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
(Unaudited)
At September 30, 2021,
the common stock subject to redemption reflected in the condensed consolidated balance sheets is reconciled in the following table:
|
|
|
|
Gross proceeds
|
|
$
|
201,250,000
|
|
Less:
|
|
|
|
|
Redemption of common stock
|
|
|
(150,580,368
|
)
|
Common stock issuance costs
|
|
|
(11,101,864
|
)
|
Plus:
|
|
|
|
|
Remeasurement of carrying value to redemption value
|
|
|
23,910,411
|
|
|
|
|
|
|
Common stock subject to possible redemption
|
|
$
|
63,478,179
|
|
Income Taxes
The Company complies with
the accounting and reporting requirements of ASC Topic 740, “Income Taxes,” which requires an asset and liability approach
to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between
the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted
tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The deferred tax assets of the Company
are primarily attributable to net operating loss carryforwards.
ASC Topic 740 prescribes
a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or
expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained
upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as
income tax expense. As of September 30, 2021 and December 31, 2020, there were no unrecognized tax benefits and no amounts accrued for
interest and penalties. The Company is currently not aware of any issues under review that could result in significant payments, accruals
or material deviation from its position.
The Company may be subject
to potential examination by federal or state taxing authorities in the areas of income taxes. These potential examinations may include
questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with federal and state
tax laws. All tax years remain subject to potential examination.
The Company's effective tax rate can vary from period to period
primarily due to the change in fair value of the warrant liability and expenses incurred related to the Company's initial business combination,
among other factors.
On March 27, 2020, the CARES
Act was enacted in response to COVID-19 pandemic. Under ASC 740, the effects of changes in tax rates and laws are recognized in the period
which the new legislation is enacted. The CARES Act made various tax law changes including among other things (i) increasing the limitation
under Section 163(j) of the Internal Revenue Code of 1986, as amended (the “IRC”) for 2019 and 2020 to permit additional expensing
of interest (ii) enacting a technical correction so that qualified improvement property can be immediately expensed under IRC Section
168(k), (iii) making modifications to the federal net operating loss rules including permitting federal net operating losses incurred
in 2018, 2019, and 2020 to be carried back to the five preceding taxable years in order to generate a refund of previously paid income
taxes and (iv) enhancing the recoverability of alternative minimum tax credits. The enactment of the CARES Act did not have a significant
impact on the Company’s income tax accounts for the three and nine months ended September 30, 2021.
Net Income (Loss) Per Common Share
The Company complies with
accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share”. Net income (loss) per common share is
computed by dividing net income (loss) by the weighted average number of common stock outstanding for the period. Accretion associated
with the redeemable shares of common stock is excluded from income (loss) per common share as the redemption value approximates fair value.
The calculation of diluted
income (loss) per common share does not consider the effect of the warrants issued in connection with the (i) Initial Public Offering,
and (ii) the private placement that convert into 20,025,000 ordinary shares since the conversion of the warrants is contingent upon
the occurrence of future events. As of September 30, 2021, the Company did not have any dilutive securities or other contracts that
could, potentially, be exercised or converted into shares of common stock and then share in the earnings of the Company. As a result,
diluted net income (loss) per common share is the same as basic net income (loss) per common share for the periods presented.
LOTTERY.COM INC.
(FORMERLY KNOWN AS TRIDENT ACQUISITIONS CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
(Unaudited)
Concentration of Credit Risk
Financial instruments that
potentially subject the Company to concentration of credit risk consist of cash accounts in a financial institution, which, at times may
exceed the Federal depository insurance coverage limit of $250,000. The Company has not experienced losses on these accounts.
Fair Value Measurements
The Company follows the guidance in ASC Topic 820 for its financial
assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities
that are re-measured and reported at fair value at least annually.
The fair value of the Company’s financial
assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale
of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the
measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of
observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions
about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities
based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
|
Level 1:
|
|
Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
|
|
|
|
|
Level 2:
|
|
Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.
|
|
|
|
|
Level 3:
|
|
Unobservable inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability.
|
Recently Issued Accounting Standards
In August 2020, the FASB
issued Accounting Standards Update (“ASU”) 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives
and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) to simplify accounting for certain
financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion
features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts
in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments
that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including
the requirement to use the if-converted method for all convertible instruments. ASU 2020-06 is effective January 1, 2022 and should be
applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021. The Company is currently
assessing the impact, if any, that ASU 2020-06 would have on its financial position, results of operations or cash flows.
Management does not believe
that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the
Company’s condensed consolidated financial statements.
NOTE 4. INITIAL PUBLIC OFFERING
Pursuant to the Initial
Public Offering, the Company sold 20,125,000 Units at a purchase price of $10.00 per Unit, inclusive of 2,625,000 Units sold to the underwriters
upon the underwriters’ election to exercise their over-allotment option in full. Each Unit consists of one share of common stock
and one warrant (“Public Warrant”). Each Public Warrant entitles the holder to purchase one share of common stock at an exercise
price of $11.50 per share (see Note 8).
NOTE 5. PRIVATE PLACEMENT
Simultaneously with the
Initial Public Offering, the Insiders purchased an aggregate of 1,150,000 Private Units, at $10.00 per Private Unit for an aggregate purchase
price of $11,500,000. Each Private Unit consists of one share of common stock (“Private Share”) and one warrant (“Private
Warrant”). Each Private Warrant entitles the holder to purchase one share of common stock at an exercise price of $11.50 per share.
The proceeds from the sale of the Private Units were added to the proceeds from the Initial Public Offering held in the Trust Account.
The Private Units were forfeited for no consideration upon consummation of the Business Combination (see Note 7).
LOTTERY.COM INC.
(FORMERLY KNOWN AS TRIDENT ACQUISITIONS CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
(Unaudited)
NOTE 6. RELATED PARTY TRANSACTIONS
Insider Shares
In March 2016, the Company
issued 3,737,500 shares of common stock to the initial stockholders (the “insider shares”) for an aggregate purchase price
of $25,000. In February 2018, the Company sold an additional 1,293,750 insider shares for an aggregate purchase price of $8,654, resulting
in a total of 5,031,250 insider shares issued and outstanding. The 5,031,250 insider shares included an aggregate of up to 656,250 shares
subject to forfeiture by the initial stockholders to the extent that the underwriter’s over-allotment was not exercised in full
or in part, so that the initial stockholders would collectively own 20% of the Company’s issued and outstanding shares after the
Initial Public Offering, excluding shares in the Private Units (assuming the initial stockholders did not purchase any Public Shares in
the Initial Public Offering). On June 5, 2018, as a result of the underwriters’ election to exercise their over-allotment option
in full, 656,250 insider shares are no longer subject to forfeiture.
The initial stockholders
have agreed not to transfer, assign or sell any of the insider shares (except to certain permitted transferees) with respect to 50% of
the insider shares, until the earlier of (i) six months after the Closing Date and (ii) on the date on which the closing price of the
Company’s common stock equals or exceeds $12.50 per share for any 20 trading days within any 30-trading day period following the
Closing and, with respect to the remaining 50% of the insider shares, six months after the Closing Date, or if, subsequent to the Business
Combination, the Company consummates a subsequent liquidation, merger, stock exchange or other similar transaction which results in all
of the stockholders having the right to exchange their common stock for cash, securities or other property (the “Lock-Up Period”).
Promissory Notes — Related Parties
On December 17, 2019, Viktoria
Group, LLC, a company owned by Vadim Komissarov, the Company’s former President and Chief Financial Officer, loaned the Company
$180,000 under a promissory note to fund its working capital requirements and finance transaction expenses in connection with an initial
business combination. The promissory note was non-interest bearing and payable on December 2, 2020. The loan was non-interest bearing
and was repaid on June 18, 2020.
On January 30, 2020, VK
Consulting, Inc., a company owned by Mr. Komissarov, loaned the Company $425,000 under a promissory note to fund its working capital requirements
and finance transaction expenses in connection with an initial business combination. The promissory note was non-interest bearing and
was repaid on January 5, 2021.
On February 7, 2020, May
15, 2020 and August 27, 2020, BGV Group Limited, an affiliate of one of the Company’s stockholders, loaned the Company $800,000,
$1,500,000 and $1,100,000, respectively, for an aggregate of $3,400,000 under promissory notes to fund its working capital requirements
and finance transaction expenses in connection with an initial business combination. The promissory notes were non-interest.
On November 27, 2020, an
affiliate of the Company loaned the Company an aggregate of $150,000 to fund the Company’s working capital requirements and finance
transaction expenses in connection with an initial business combination. The loans were non-interest bearing.
On November 30, 2020 and
December 28, 2020, an affiliate of the Company loaned the Company an aggregate of $1,100,000 to fund the Company’s working capital
requirements and finance transaction expenses in connection with an initial business combination. The loans are non-interest bearing.
On May 26, 2021, VK Consulting,
Inc., a company owned by Mr. Komissarov, loaned the Company an aggregate of $425,000 in order to fund working capital requirements and
finance transaction expenses in connection with a Business Combination. The loans were non-interest bearing.
On August 30, 2021, September
1, 2021 and September 9, 2021, Viktoria Group, LLC, a company owned by Mr. Komissarov, loaned the Company an aggregate of $492,000 in
order to fund working capital requirements and finance transaction expenses in connection with an initial business combination. The loans
were non-interest bearing and were payable on or before December 1, 2021. Repayments totaling $112,000 were made during the three months
ended September 30, 2021.
As of September 30, 2021,
there was $5,455,000 outstanding under the promissory notes referenced above. The aforementioned promissory notes were repaid in full
upon consummation of the Business Combination on October 29, 2021.
LOTTERY.COM INC.
(FORMERLY KNOWN AS TRIDENT ACQUISITIONS CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
(Unaudited)
Administrative Services Agreement
The Company entered into
an agreement whereby, commencing on May 30, 2018 through the earlier of the Company’s consummation of a Business Combination and
its liquidation, the Company will pay VK Consulting, Inc. a monthly fee of $7,500 for office space and secretarial and administrative
services. For each of the three months ended September 30, 2021 and 2020, the Company incurred and paid $22,500 respectively, in fees
for these services. For the nine months ended September 30, 2021, the Company incurred $67,500 in fees for these services and paid $70,000
for these services. A total of $2,500 is included in prepaid expenses and other current assets as of September 30, 2021. For the nine
months ended September 30, 2020 the Company incurred and paid $67,500, in fees for these services. The administrative agreement was terminated
upon the consummation of the Business Combination.
Related Party Loans
In order to finance
transaction costs in connection with an initial business combination, certain of the Company’s initial stockholders, officers
and directors could, but were not obligated to, loan the Company funds as required (“Working Capital Loans”). These
Working Capital Loans were to be repaid out of the proceeds held in the Trust Account released to the Company in connection with the
closing of its initial business combination. Otherwise, the Working Capital Loans would be repaid only out of funds held outside the
Trust Account. Up to $200,000 of Working Capital Loans could be convertible upon consummation of the Business Combination into
Private Units at a price of $10.00 per unit at the option of the lender. Such Units would be identical to the Private Units. As of
September 30, 2021 and December 31, 2020, there were no amounts outstanding.
NOTE 7. COMMITMENTS AND CONTINGENCIES
Registration Rights
Pursuant to a registration
rights agreement entered into on May 29, 2018 (the “Registration Rights Agreement”), the holders of the insider shares, as
well as the holders of the Private Units (and any shares of common stock issuable upon exercise of the Private Warrants) and any shares
the initial stockholders, officers, directors or their affiliates may be issued in payment of the Working Capital Loans, were entitled
to registration rights. The holders of the majority of these securities were entitled to make up to two demands that the Company register
such securities. The holders of the majority of the insider shares could elect to exercise these registration rights at any time commencing
three months prior to the date on which these shares of common stock are to be released from escrow. The holders of a majority of the
Private Units or units issued in payment of Working Capital Loans made to the Company could elect to exercise these registration rights
at any time commencing on the date that the Company consummates an initial business combination. In addition, the holders had certain
“piggy-back” registration rights with respect to registration statements filed subsequent to the completion of an initial
business combination and rights to require the Company to register for resale such securities pursuant to Rule 415 under the Securities
Act. The Company agreed to bear the expenses incurred in connection with the filing of any such registration statements. As described
further below, in connection with the Closing, the Company entered into an investor rights agreement with the parties to the Registration
Rights Agreement, which among other things, terminated the Registration Rights Agreement.
Underwriting Agreement
The underwriter in the initial
Public Offering was entitled to a deferred fee of two and one-half percent (2.5%) of the gross proceeds of the Initial Public Offering,
or $5,031,250. The deferred fee was to be paid in cash upon the closing of an initial business combination from the amounts held in the
Trust Account, subject to the terms of the underwriting agreement. Upon consummation of the Business Combination, the Company paid an
aggregate of $5,583,955 which included a contingent financing fee of 5%.
Warrant Solicitation Fee
The Company agreed to pay
the underwriter a warrant solicitation fee of five percent (5%) of the exercise price of each Public Warrant exercised during the period
commencing thirty days after the consummation of the Business Combination, including warrants acquired by security holders in the open
market, but excluding warrants exercised during the 30 day period following notice of a proposed redemption. The warrant solicitation
fee will be payable in cash. There is no limitation on the maximum warrant solicitation fee payable to the underwriter, except to the
extent it is limited by the number of Public Warrants outstanding.
Initial Stockholder Forfeiture Agreement
Simultaneously with the
Closing, the initial stockholders of TDAC (the “Initial Stockholders”), TDAC and AutoLotto entered into an initial stockholder
forfeiture agreement (the “Initial Stockholder Forfeiture Agreement”). Pursuant to the Initial Stockholder Forfeiture Agreement,
the Initial Stockholders forfeited, for no consideration, and the Combined Company cancelled, 1,150,000 Private Warrants, which represented
all of TDAC’s outstanding Private Warrants, and an aggregate of 561,932 shares of common stock.
LOTTERY.COM INC.
(FORMERLY KNOWN AS TRIDENT ACQUISITIONS CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
(Unaudited)
Investor Rights Agreement
Simultaneously with the
Closing, Lottery.com, the Initial Stockholders and certain stockholders of AutoLotto (collectively, the “Stockholder Parties”)
entered into an investor rights agreement (the “Investor Rights Agreement”). Pursuant to the Investor Rights Agreement, such
parties agreed to vote or cause to be voted all shares owned by them or take such other necessary action to ensure that (i) the board
of directors of the Combined Company (the “Combined Company Board”) was made up of at least five directors at Closing, (ii) one
director nominated by the Initial Stockholders (the “Initial Stockholders Director”) and the remaining directors nominated
by the AutoLotto stockholders (the “AutoLotto Directors”) would be elected to the initial Combined Company Board, with the
Initial Stockholders Director designated as a Class II director, and (iii) following the nomination of the initial Combined Company Board,
neither the Initial Stockholders nor the AutoLotto Stockholders shall have ongoing nomination rights, except that in the event that a
vacancy is created on the Combined Company Board at any time by the death, disability, resignation or removal of the Initial Stockholders
Director or any AutoLotto Director during their initial term, then (x) the AutoLotto Stockholders, with respect to a vacancy created by
the death, disability, resignation or removal of an AutoLotto Director, or (y) the Initial Stockholders, with respect to a vacancy created
by the death, disability, resignation or removal of an Initial Stockholders Director, will be entitled to designate an individual to fill
the vacancy. In addition, the Investor Rights Agreement provides that the Combined Company will register for resale under the Securities
Act of 1933, as amended (the “Securities Act”), certain shares of Common Stock and other equity securities that are held by
the parties thereto from time to time as well as other customary registration rights for the parties thereto.
Indemnification Agreements
In connection with the consummation
of the Business Combination, the Combined Company entered into indemnification agreements with its directors and executive officers.
Each indemnification agreement
provides for indemnification and advancements by the Combined Company of certain expenses and costs relating to claims, suits or proceedings
arising from such officer or directors’ service to or on behalf of the Combined Company, as officers or directors to the maximum
extent permitted by applicable law.
Service Provider Agreements
From time to time the Company
has entered into agreements with various services providers and advisors, including investment banks, to help identify targets, negotiate
terms of potential business combinations, consummate an initial business combination and/or provide other services. In connection with
these agreements, the Company may be required to pay such service providers and advisors fees in connection with their services to the
extent that certain conditions, including the closing of an initial business combination, are met. If a Business Combination did not occur,
the Company would be required to pay these contingent fees. Aggregate contingent fees payable to service providers upon consummation of
the initial business combination were $4,900,000 of which $4,400,000 was paid upon consummation of the initial business combination. Fees
aggregating $500,000 are deferred and payable one-year after consummation of the initial business combination.
NOTE 8. STOCKHOLDERS’ DEFICIT
Preferred Stock —
On May 29, 2018, the Company filed an Amended and Restated Certificate of Incorporation such that the Company is authorized to issue 1,000,000
shares of preferred stock with a par value of $0.001 per share with such designation, rights and preferences as may be determined from
time to time by the Company’s Board of Directors. At September 30, 2021 and December 31, 2020, there were no shares of preferred
stock issued or outstanding.
Common Stock
— On May 29, 2018, the Company filed an Amended and Restated Certificate of Incorporation such that the Company is authorized to
issue 100,000,000 shares of common stock with a par value of $0.001 per share. Holders of the Company’s common stock are entitled
to one vote for each share. At September 30, 2021 and December 31, 2020, there were 6,181,250 shares of common stock issued and outstanding,
excluding 5,786,355 and 5,786,470 shares, respectively, of common stock subject to possible redemption which are presented as temporary
equity.
Public Warrants
The Public Warrants will
become exercisable 30 days after the Closing provided that the Company has an effective registration statement under the Securities Act
covering the shares of common stock issuable upon exercise of the Public Warrants and a current prospectus relating to them is available
(or the Company permits holders to exercise their Public Warrants on a cashless basis and such cashless exercise is exempt from registration
under the Securities Act). The Company agreed that as soon as practicable, but in no event later than 30 days, after the closing of the
Business Combination, the Company will use its best efforts to file with the SEC a registration statement for the registration, under
the Securities Act, of the shares of common stock issuable upon exercise of the Public Warrants. The Company will use its best efforts
to cause the same to become effective and to maintain the effectiveness of such registration statement, and a current prospectus relating
thereto, until the expiration of the Public Warrants in accordance with the provisions of the warrant agreement. Notwithstanding the foregoing,
if a registration statement covering the common stock issuable upon the exercise of the Public Warrants is not effective within 90 days
from the consummation of a Business Combination, the holders may, until such time as there is an effective registration statement and
during any period when the Company shall have failed to maintain an effective registration statement, exercise the Public Warrants on
a cashless basis pursuant to an available exemption from registration under the Securities Act. The Public Warrants will expire five years
after the completion of a Business Combination or earlier upon redemption or liquidation.
LOTTERY.COM INC.
(FORMERLY KNOWN AS TRIDENT ACQUISITIONS CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
(Unaudited)
The Company may redeem the
Public Warrants:
|
●
|
in whole and not in part;
|
|
●
|
at a price of $0.01 per warrant;
|
|
●
|
upon a minimum of 30 days’ prior written notice of redemption;
|
|
●
|
if, and only if, the last sale price of the Company’s common stock equals or exceeds $16.00 per share for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders; and
|
|
●
|
if, and only if, there is a current registration statement in effect with respect to the shares of common stock underlying such warrants at the time of redemption and for the entire 30-day trading period referred to above and continuing each day thereafter until the date of redemption.
|
If the Company calls the
Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do
so on a “cashless basis,” as described in the warrant agreement.
As of September 30, 2021,
there were 20,125,000 Public Warrants outstanding. Immediately after giving effect to the Business Combination, Lottery.com had 20,125,0002
warrants to purchase share of Common stock outstanding, 20,125,000 of which are public warrants and two of which were previously warrants
of AutoLotto, which are now warrants of Lottery.com and are exercisable to purchase an aggregate of 395,675 shares of common stock.
NOTE 9. DERIVATIVE LIABILITIES
Unit Purchase Option
On June 1, 2018, the Company
sold to the underwriter (and its designees), for $100, an option to purchase up to a total of 1,750,000 Units exercisable at $12.00 per
Unit (or an aggregate exercise price of $21,000,000) commencing on the consummation of the Business Combination. The option represents
the right to purchase 1,750,000 shares of common stock (the “UPO Warrants”) and 1,750,000 warrants to purchase 1,750,000 shares
of common stock. The unit purchase option may be exercised for cash or on a cashless basis, at the holder’s option, and expires
on May 29, 2023. The Units issuable upon exercise of this option are identical to those offered in the Initial Public Offering. The Company
accounted for the unit purchase option, inclusive of the receipt of $100 cash payment, as an expense of the Initial Public Offering resulting
in a charge directly to stockholders’ equity.
For reporting periods subsequent
to the Initial Public Offering, when the fair value of the Company’s stock price exceeds the value of the UPO Warrants, the Company
classified the UPO Warrants as a liability as it is a freestanding marked-to-market derivative instrument that is precluded from being
classified in stockholders’ equity. The UPO Warrants are marked-to-market each reporting period with the change in fair value recorded
to other income (expense) in the accompanying consolidated statements of operations until the UPO Warrants are exercised or expired or
other facts and circumstances lead the UPO Warrants to be reclassified to stockholders’ equity. The fair value of the liability
recorded for the UPO Warrants is estimated using a Black-Scholes option-pricing model within a Monte Carlo simulation model framework.
The option and the 1,750,000 Units, as well as the 1,750,000 shares of common stock and 1,750,000 warrants underlying such Units, and
1,750,000 shares of common stock underlying such warrants, that may be issued upon exercise of the option, have been deemed compensation
by Financial Industry Regulatory Authority, Inc. (“FINRA”) and are therefore subject to a 180-day lock-up pursuant to Rule
5110(g)(1) of FINRA’s NASD Conduct Rules. Additionally, the option may not be sold, transferred, assigned, pledged or hypothecated
for 180 days following the effective date of Initial Public Offering except to any underwriter and selected dealer participating in the
Initial Public Offering and their bona fide officers or partners, nor may the option, nor the securities underlying the option, be the
subject of any hedging, short sale, derivative, put or call transaction that would result in the effective economic disposition for such
period. The option grants to holders demand and “piggyback” rights for periods of five and seven years, respectively, from
the effective date of the registration statement with respect to the registration under the Securities Act of the securities directly
and indirectly issuable upon exercise of the option. The Company will bear all fees and expenses attendant to registering the securities,
other than underwriting commissions which will be paid for by the holders themselves. The exercise price and number of units issuable
upon exercise of the option may be adjusted in certain circumstances including in the event of a share dividend, or the Company’s
recapitalization, reorganization, merger or consolidation. However, the option will not be adjusted for issuances of common stock at a
price below its exercise price.
LOTTERY.COM INC.
(FORMERLY KNOWN AS TRIDENT ACQUISITIONS CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
(Unaudited)
Private Warrants
The Private Warrants are
identical to the Public Warrants (see Note 7) underlying the Units sold in the Initial Public Offering, except that the Private Warrants
are non-redeemable so long as they are held by the initial purchasers or such purchasers’ permitted transferees. If the Private
Warrants are held by holders other than the initial purchasers or any of their permitted transferees, the Private Warrants will be redeemable
by the Company and exercisable by the holders on the same basis as the Public Warrants.
The exercise price and number
of shares of common stock issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a
stock dividend, or recapitalization, reorganization, merger or consolidation. However, the warrants will not be adjusted for issuance
of common stock at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the warrants
stock. If the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates the funds
held in the Trust Account, holders of warrants will not receive any of such funds with respect to their warrants, nor will they receive
any distribution from the Company’s assets held outside of the Trust Account with the respect to such warrants. Accordingly, the
warrants may expire worthless.
As of September 30, 2021 there were 1,150,000 Private Warrants outstanding. Effective upon the closing the Business Combination, TDAC
forfeited for no consideration all of the 1,150,000 Private Warrants as specified in the Initial Stockholder Forfeiture Agreement (see
Note 7).
NOTE 10. FAIR VALUE MEASUREMENTS
The following table presents
information about the Company’s assets and liabilities that are measured at fair value on a recurring basis at September 30, 2021
and December 31, 2020, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
Description
|
|
Level
|
|
September 30,
2021
|
|
|
December 31,
2020
|
|
Assets:
|
|
|
|
|
|
|
|
|
Marketable securities held in Trust Account
|
|
1
|
|
$
|
63,535,992
|
|
|
$
|
63,405,336
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Derivative Liability – Private Warrants
|
|
3
|
|
|
241,500
|
|
|
|
2,725,500
|
|
Derivative Liability – UPO Warrants
|
|
3
|
|
|
2,870,000
|
|
|
|
3,990,000
|
|
The Company utilizes a
Black-Scholes option-pricing model within a Monte Carlo simulation model framework to value the Private Warrants and UPO Warrants at
each reporting period, with changes in fair value recognized in the Statements of Operations. The estimated fair value of the
derivative liabilities is determined using Level 3 inputs. Inherent in a Black Scholes Option pricing model are assumptions related to
expected share-price volatility, expected life, risk-free interest rate and dividend yield. The Company estimates the volatility of
its common stock based on historical volatility that matches the expected remaining life of the derivatives. The Company estimates the appropriate volatility based on the implied volatility of the publicly traded warrant using a Monte Carlo simulation
framework. The risk-free interest
rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life
of the derivatives. The expected life of the derivatives is assumed to be equivalent to their remaining contractual term. The
dividend rate is based on the historical rate, which the Company anticipates to remain at zero.
The key
inputs used in the Black Scholes Option pricing model to measure the derivative liabilities that are categorized within Level 3 of the fair value hierarchy
are as follows:
|
|
As of
September 30,
2021
|
|
|
As of
December 31,
2020
|
|
Stock price
|
|
$
|
11.60
|
|
|
$
|
11.96
|
|
Strike price – Private Warrants
|
|
$
|
11.50
|
|
|
$
|
11.50
|
|
Strike price – UPO Warrants
|
|
$
|
12.00
|
|
|
$
|
12.00
|
|
Term (in years)
|
|
|
5.17
|
|
|
|
5.50
|
|
Volatility
|
|
|
17.0
|
%
|
|
|
18.40
|
%
|
Risk-free rate – Private Warrants
|
|
|
1.00
|
%
|
|
|
0.43
|
%
|
Risk-free rate – UPO Warrants
|
|
|
0.05
|
%
|
|
|
0.43
|
%
|
Dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Fair value – Private Warrants
|
|
$
|
0.21
|
|
|
$
|
2.37
|
|
Fair value – UPO Warrants
|
|
$
|
1.64
|
|
|
$
|
2.28
|
|
LOTTERY.COM INC.
(FORMERLY KNOWN AS TRIDENT ACQUISITIONS CORP.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021 AND 2020
(Unaudited)
The following table provides
a summary of the changes in fair value of the Company’s Level 3 financial instruments that are measured at fair value on a recurring
basis:
|
|
Derivative
Liabilities
|
|
Fair value as of December 31, 2020
|
|
$
|
6,715,500
|
|
Change in valuation of derivative liabilities
|
|
|
(853,000
|
)
|
Fair value as of March 31, 2021
|
|
|
5,862,500
|
|
Change in valuation of derivative liabilities
|
|
|
2,060,500
|
|
Fair value as of June 30, 2021
|
|
|
7,923,000
|
|
Change in valuation of derivative liabilities
|
|
|
(4,811,500
|
)
|
Fair value as of September 30, 2021
|
|
$
|
3,111,500
|
|
There were no transfers
between Levels 1, 2 or 3 during the three and nine months ended September 30, 2021.
NOTE 11. SUBSEQUENT EVENTS
The Company evaluated subsequent
events and transactions that occurred after the condensed consolidated balance sheet date up to the date that the condensed consolidated
financial statements were issued. Based upon this review, other than as described within these financial statements or below, the Company
did not identify any subsequent events that would have required adjustment or disclosure in the condensed consolidated financial statements.
On October 13, 2021, Viktoria
Group, LLC, a company owned by Vadim Komissarov, the Company’s former President and Chief Financial Officer, loaned the Company
$20,000 in order to fund working capital requirements and finance transaction expenses in connection with an initial business combination.
The loan was non-interest bearing was repaid in full upon consummation of the Business Combination.
As described in Note 1,
the Company consummated the previously announced Business Combination on October 29, 2021.