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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark

One)

☒ANNUAL

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

For

the fiscal year ended December 31, 2021

☐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)

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including

area code: (512)592-2451

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, par value $0.001 per share LTRY The Nasdaq Stock Market LLC

Securities

registered pursuant to Section 12(g) of the Act: None

Indicate

by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐ NO ☒

Indicate

by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. YES ☐ NO ☒

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 ☒

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 has filed a report on and attestation to its management’s assessment of the effectiveness

of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered

public accounting firm that prepared or issued its audit report. ☐

Indicate

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

The

aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant as of June 30, 2021, the last business

day of the registrant’s most recently completed second fiscal quarter, was approximately $73 million, calculated by using the closing

price of the registrant’s common stock on such date on The Nasdaq Stock Market LLC of $12.63.

of March 25, 2022, there were 50,700,683 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive

proxy statement relating to its 2022 Annual Meeting of Stockholders, to be filed within 120 days after the end of the fiscal year covered

by this Annual Report on Form 10-K, are incorporated by reference into Part III herein.

Table of Contents

Page

PART I 1

Item 1. Business. 1

Item 1A. Risk Factors. 22

Item 1B. Unresolved Staff Comments. 62

Item 2. Properties. 62

Item 3. Legal Proceedings. 62

Item 4. Mine Safety Disclosures. 62

Item 6. [Reserved]. 63

Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 77

Item 8. Financial Statements and Supplementary Data. 77

Item 9A. Controls and Procedures. 77

Item 9B. Other Information. 79

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. 79

PART III 80

Item 10. Directors, Executive Officers and Corporate Governance. 80

Item 11. Executive Compensation. 80

Item 14. Principal Accounting Fees and Services. 80

Item 15. Exhibits, Financial Statement Schedules. 81

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

AND RISK FACTOR SUMMARY

This Annual Report on Form

10-K (this “Annual 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 Annual Report, including, without limitation, under the headings in Part I, “Item 1. Business,”

“Item 1A. Risk Factors,” and in Part II, “Item 7. 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 public filings made with the

Securities and Exchange Commission (the “SEC”) by Lottery.com, as well as the following:

● Failure to offer high-quality user support.

● Limited liquidity and trading of our securities.

The risks described under

the heading “Item 1A. Risk Factors” are not exhaustive. Other sections of this Annual Report describe additional factors

that could adversely affect the business, financial condition or results of operations of Lottery.com. 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 Lottery.com or persons acting on its behalf are

expressly qualified in their entirety by the foregoing cautionary statements. Lottery.com undertakes 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.

iii

PART I

Item 1. Business.

Our Company

Overview

We were originally formed

as a Delaware corporation on March 17, 2016, for the purpose of effecting a merger, share exchange, asset acquisition, stock purchase,

reorganization, recapitalization or other similar business combination with one or more businesses. On October 29, 2021, we consummated

a business combination (the “Business Combination”) with AutoLotto, Inc. (“AutoLotto”). Following the closing

of the Business Combination (the “Closing”) we changed our name from “Trident Acquisitions Corp.” to “Lottery.com

Inc.” and the business of AutoLotto became our business. Tony DiMatteo and Matt Clemenson, the co-founders of AutoLotto, continue

to lead our Company as Chief Executive Officer and Chief Revenue Officer, respectively.

We are a leading provider

of domestic and international lottery products and services. As an independent third-party lottery game service, we offer a platform that

we architected, developed, and operate to enable the remote purchase of legally sanctioned lottery games in the U.S. and abroad (the

“Platform”). Our revenue generating activities consist of (i) offering the Platform via our Lottery.com app and our websites

to users located in the U.S. and international jurisdictions where the sale of lottery games is legal and our services are enabled

for the remote purchase of sanctioned lottery games (our “B2C Platform”); (ii) selling credits (“LotteryLink Credits”)

that can be exchanged for flexible promotion packages that include our marketing collateral, prepaid advertising, development services,

account management, and prepaid lottery games for use in promotions to our third-party master affiliate marketing partners for use by

them and by their sub-affiliates in undertaking affiliate marketing activities and promoting our B2C Platform (“LotteryLink”);

(iii) offering an internally developed, created, and operated business-to-business application programming interface (“API”)

of the Platform to enable our commercial partners, in permitted U.S. and international jurisdictions, to purchase certain legally

operated lottery games from us and to resell them to users located within their respective jurisdictions (“B2B API”); and

(iv) delivering global lottery data, such as winning numbers and results, and subscriptions to data sets of our proprietary, anonymized

transaction data pursuant to multi-year contracts to commercial digital subscribers (“Data Service”).

We currently derive substantially

all of our revenue from service fees paid to us by users of our B2C Platform, the sale of our LotteryLink Credits, revenue share arrangements

with commercial partners participating in our B2B API, and subscription fees from users of our Data Service. We intend to pursue growth

through the implementation of new products and features within our B2C Platform services, expansion of our B2C Platform offering into

new domestic and international jurisdictions, expansion of our LotteryLink program and the sale of additional LotteryLink Credits, entry

into additional agreements with new commercial partners for our B2B API, execution of strategic acquisitions and other synergistic opportunities,

including gaining access to complementary and new technology through such acquisitions, and investment in and development of new technology,

and enhancement of our existing technology in each of our business lines, including distributed ledger technology. In December 2021, we

finalized the acquisition of the domain name https://sports.com and are exploring opportunities for the intended strategic entry into

legal sports gaming verticals, which may include the distribution of sports lottery games. We also expect to grow our brand and commitment

to social awareness through our affiliation with WinTogether, a registered 501(c)(3) charitable trust (“WinTogether”).

As a provider of lottery products

and services we are required to comply with, and our business is subject to, regulation in each jurisdiction in which we offer or market

our B2C Platform, or a commercial partner offers users access to lottery games through the B2B API. In addition, we must also comply

with the requirements of federal and other domestic and foreign regulatory bodies and governmental authorities in jurisdictions in which

we operate or with authority over our business. For example, currently, in the U.S., users of our B2C Platform are required to be physically

located, at the time of purchase, in the state or jurisdiction of the lottery authority offering the lottery game that they purchase on

our Platform. We verify their location through geofencing technology integrated into our Platform. A user physically located in one U.S. jurisdiction

may not purchase a lottery game sold by a lottery authority in another U.S. jurisdiction. Internationally, we operate our B2C Platform

in jurisdictions in which such service is lawful through commercial agreements with operators who have obtained approvals from the relevant

government regulators, if and as required, and users may only access lottery games if they are physically located in the jurisdiction

of the commercial partner at the time of purchase, as verified by geofencing technology. Our business is additionally subject to multiple

other domestic and international laws, including those relating to the transmission of information, privacy, security, data retention,

and other consumer focused laws, and, as such, may be impacted by changes in such laws or changes in how such laws are interpreted. For

more information, see “Item 1. Business — Regulation and Compliance” below.

B2C Platform

Our B2C Platform operates

independently from any lottery authority, operator, or other provider of lottery games and enables users to purchase draw lottery games

remotely from a mobile device or computer. As of December 31, 2021, our B2C Platform was available to users in 12 U.S. jurisdictions

and multiple international jurisdictions.

To use our B2C Platform, a

user must first create an account and respond to several compliance questions to confirm they are eligible to play. The requirements are

designed to be a low friction experience for the user. Once they complete the registration process, a user can begin playing the draw

lottery games offered in their jurisdiction, including choosing the number of plays, and whether to select their own numbers or to play

randomly selected draw numbers. Following the completion of payment, the purchase is immediately confirmed, and the user receives a digital

representation of their draw lottery game in their app or web-based account, including confirmation of their draw numbers. The confirmation

is not delayed by our subsequent acquisition of the physical lottery game from the lottery authority. At this point, we fulfill the purchase

of the physical lottery game ticket by either employing couriers to directly acquire the draw lottery game ticket from brick-and-mortar

retailers for delivery to us, or by utilizing electronic lottery terminals licensed by us (or by our affiliates or retail partners, as

applicable) from the relevant lottery authority pursuant to official retail lottery licenses issued by such lottery authorities. As described

in further detail below, in either event, prior to the applicable draw, we securely hold the physical lottery game ticket on the user’s

behalf.

If a user elects to play randomly

selected draw numbers, such draw numbers are immediately assigned by us and not by the lottery authority, to ensure that the user receives

immediate confirmation of their actual lottery game, without the delay that would otherwise be necessitated if the random draw numbers

were assigned by the lottery authority. To generate these numbers, we deploy a pseudo random number generator (“pRNG”), being

an algorithm that uses mathematical formulas to produce sequences of random numbers. We rely on the Cryptographic Module Validation Program

to validate the cryptographic modules of its pRNG. The Cryptographic Module Validation Program is a joint effort between the National

Institute of Standards and Technology under the Department of Commerce and the Canadian Centre for Cyber Security, a branch of the Communications

Security Establishment, to promote the use of validated cryptographic modules and to validate cryptographic modules to Federal Information

Processing Standard 140-2 and 140-3, as tested by third party laboratories. The use of the validated pRNG ensures that the randomly

selected draw numbers are truly random.

Whether selected by the user

or at random, the user’s draw lottery game numbers are securely retained in the Platform and queued for fulfillment by us with the

lottery authority via the electronic lottery terminals or deployment of couriers. The original draw lottery game tickets are generally

considered “bearer instruments” under relevant law, meaning that the individual that holds, or “bears”, the lottery

game ticket, or “instrument”, is deemed the owner, as there is no other process to prove or designate ownership, and accordingly,

their safe keeping on behalf of the user is of the utmost importance. We secure the original draw lottery game tickets in our physical,

restricted entry safes; the original draw lottery game tickets do not leave the jurisdiction of original sale and are physically delivered

to a user only for the claims and redemption process. We monitor all lottery games that our users play and automatically notify a user

by push notification and/or email if they are a winner.

For a user who wins a prize

less than $600, subject to applicable laws in each jurisdiction, we are able to instantly deposit the prize amount into the user’s

account and subsequently redeem the winning lottery game ticket on behalf of the user. In accordance with Federal tax reporting requirements,

for a user who wins a prize of $600 or more, we provide the user with the original lottery game ticket for their direct claim and redemption.

Unless otherwise required by law, we charge a service fee on all lottery games purchased on our B2C Platform but do not take a commission

from our user’s prizes.

We currently hold a retail

lottery license issued by the Texas Lottery Commission.

For more information, see

“Item 1. Business — Our Services — B2C Platform.”

LotteryLink

In the third quarter of 2021,

the Company launched its affiliate marketing program, which it has branded LotteryLink.

In general, affiliate marketing

is a cost-effective advertising model in which a B2C vendor compensates independent third-party marketers for successfully generating

new consumers to the B2C vendor’s online platforms and converting them to users. The independent third-party marketers are referred

to as “Affiliates”; the Affiliate with the direct relationship with the B2C vendor is referred to as the “Master Affiliate”

and any Affiliates that only have a direct relationship with the Master Affiliate, and not directly with the B2C vendor, are referred

to as “Sub-Affiliates”. In an effort to ensure that their products reach a broad array of potential customers, B2C vendors

work directly and indirectly with Affiliates across multiple industries and marketing channels who undertake promotional and marketing

initiatives and activities to direct consumers to our B2C Platform. The B2C vendor pays the Affiliates a commission to incentivize their

promotional activities. Affiliates purchase promotional materials from the B2C vendor for such promotional activities and are otherwise

generally limited in the type and scope of marketing materials and collateral that they may use in their promotional activities.

As part of LotteryLink, we

pay each of our Affiliates a percentage of the revenues derived from each new customer they refer to us and, if such customer is located

in a jurisdiction in which they may lawfully use our B2C Platform, is converted to a user. These commissions are paid for a contractually

specified duration of such user’s activity on the B2C Platform.

In support of their promotional

activities, our Master Affiliates purchase credits, referred to as a LotteryLink Credit, from the Company that can be redeemed for flexible

promotion packages, consisting of marketing collateral, prepaid advertising, development services, account management, and prepaid lottery

games that can be used in promotions. The Company may introduce additional redemption opportunities for LotteryLink Credits in the future.

A Master Affiliate may allocate its LotteryLink Credits to its Sub-Affiliates for such Sub-Affiliate’s redemption from the Company.

The LotteryLink Credits are intended to help our Affiliates reach new customers and convert such customers to users of our B2C Platform.

B2B API

Our B2B API provides a secure

distribution interface through which our authorized third-party omni-channel and multi-product commercial partners acquire access through

our Platform to certain legally operated lottery games by integrating our B2B API into their existing back-office functionality and user

facing websites and applications to enable our commercial partners to purchase such draw lottery games from us for resale to users within

their permitted jurisdictions. Our B2B API is enabled in the U.S. and internationally.

Each time a commercial partner,

on behalf of a user, requests a play from us via the B2B API, such commercial partner acquires the rights to the number of requested plays,

and is provided with either pre-selected numbers as requested by the commercial partner’s user, or is randomly assigned numbers

by the pRNG that is communicated via the B2B API to the commercial partner. In either event, the commercial partner automatically receives

a digital representation of the purchased draw lottery games, including draw numbers, without delay for the subsequent acquisition of

the physical lottery game by us.

We fulfill the acquisition

of the draw lottery games by utilizing the electronic lottery terminals installed in our, or our affiliate’s or retail partner’s

locations under the authority of the applicable lottery authority pursuant to official retail licenses from such lottery authorities.

The original lottery game tickets are securely stored by us in physical, restricted entry safes located in the jurisdiction of original

sale. The original lottery game ticket does not leave the jurisdiction of original sale and is only physically delivered to a winning

user if and when such user is required to present such original lottery game ticket for the claims and redemption process. Neither we

nor our commercial partners ever take a commission from our users’ prizes. Our commercial partners charge a service fee and, in

international jurisdictions, a mark-up, on their purchase price of the lottery game to their users. We receive a share of our commercial

partners’ revenue on each lottery game purchased.

For more information, see

“Item 1. Business — Our Services — B2B API.”

Data Service

We deliver daily results of

domestic and international lottery games from more than 40 countries to over 400 digital publishers and media organizations, pulled from

real time primary source data. In some instances, we charge a subscription fee or per-record fee to use our Data Service, and in other

instances, the Data Service is included within a bundle of other provided services, such as affiliate marketing agreements. We additionally

rely on this information to make winning lottery numbers and results for all U.S. in-state and multi-state games available through

our websites, apps, and APIs. We additionally enter into commercial agreements pursuant to which in consideration of pre-paid fees we

provide data sets of our proprietary, anonymized transaction data pursuant to multi-year contracts and in accordance with the requirements

of our Terms of Service.

For more information, see

“Item 1. Business — Our Services — Data Service.”

The WinTogether Platform

We are affiliated with WinTogether,

which supports charitable, educational, and scientific causes. We operate https://wintogether.org (the “WinTogether Platform”)

on behalf of WinTogether, which offers sweepstakes that support charitable causes selected by the trustees of WinTogether and incentivizes

participants to donate to those chosen causes by entering donors into sweepstakes for the chance to win cash prizes, luxury items, and

exceptional experiences. In exchange for operating the WinTogether Platform and the sweepstakes on behalf of WinTogether, we receive a

fee from the gross donations from each sweepstakes. While the revenue received from our services relating to the WinTogether Platform

are currently nominal, we believe that this may be a scalable source of revenue in the future, as well as a mechanism to increase our

brand reputation and recognition by sweepstake participants, which could result in the acquisition and monetization of new users to our

B2C Platform.

For more information, see

“Item 1. Business — Our Services — The WinTogether Platform.”

Our Industry

Lottery Market Size

According to the World Lottery

Association, in 2020, the global lottery game market was valued at $318 billion in worldwide gross sales in 2020, and global Gross

Gaming Revenue (“GGR”), or the difference between gross sales and the amount paid out in winnings, totaled $105 billion. Technavio,

a market research company, forecasted the global lottery market to grow to more than $550 billion in worldwide gross sales in 2025.

Historically, governmental agencies have operated lotteries under a mandate to generate funds to support or fund social causes from the

net proceeds from such lotteries. The social causes may include educational initiatives, cultural undertakings, sports and leisure, and

other social or environmental causes. Alternatively, the net proceeds from lotteries may be directed to governmental treasuries for general

disbursement. According to the World Lottery Association, the total amount of money that global lottery members of the World Lottery Association

paid a total of $84.3 billion to social causes and to governmental treasuries in 2020. This amount represents 26.6 cents for every dollar

of sales.

Lottery Market Segmentation

The global lottery game market

is generally divided into three main categories of products (i) draw, or terminal-based, games; (ii) instant win, or “scratcher”

games; and (iii) sports lottery games. In addition to the three main categories, the regulatory authorities that license lottery

games may also offer other forms of games of chance and casino-style games.

Draw Games

Draw, or terminal-based, games

are the oldest and most common forms of lottery games. Some of the popular domestic and international draw games include Mega Millions®,

Powerball®, Il Gioco del Lotto®,

elGordo®, Euro Jackpot®, and €uro-Millions®.

In the U.S., prices for such draw games typically begin at $1 per game and additional options, including bonus plays, extra draws, and

second chance draws, are generally available for an additional cost.

When a player plays a draw

game, they acquire a set of numbers, letters, symbols, or a combination thereof; the goal is to match those numbers, letters, and symbols

to those drawn by the lottery authority on a specified date and time. Depending on the rules of the draw game, the numbers, letters, and

symbols may be designated by the player or selected by a random number generator. Draw games are sold by officially licensed retailers

with valid agreements with the applicable lottery authority and transacted through electronic terminals installed by such lottery authority

for the purpose of selling the lottery game and printing the lottery game ticket, validating sold lottery game tickets, and performing

other administrative functions.

Draw games have historically

been purchased in person directly from traditional licensed brick-and-mortar retail locations, such as convenience stores, tabletop games

retailers, or gas stations. According to Technavio, purchases from these retailers contributed over 93.7% to the overall draw game lottery

market in 2019, and 93.3% in 2020. These retailers process the transaction via the electronic terminals and provide the player with bearer

documentation evidencing their purchase. Alternatively, in jurisdictions in which online lottery game sales — or iLottery — is

legal, the player may alternatively complete the entire transaction remotely from their mobile device or computer (“Online Lottery”).

Online Lottery requires state legislative and regulatory approval for the account funding, acquisition, and play of lottery games to be

managed online, without the requirement to physically be in or near a brick-and-mortar retail seller of lottery games. For more information,

see “Item 1. Business — Our Industry — Global Market Trends.”

According to industry forecasts

by Technavio, sales of draw lottery games comprised 54.5% of the overall global lottery market in 2020 and are anticipated to grow at

approximately 9.0% CAGR between 2020 and 2025, forecasting an increase of approximately 54% in worldwide legal gross sales, from $194 billion

in worldwide legal gross sales in 2020 to nearly $300 billion in worldwide legal gross sales in 2025. In the U.S., draw lottery

games are offered in all 46 states and 3 territories in which lottery games are legal.

Instant Win Games

Instant win, or “scratch”

lottery games are designed to be quick and easy to play. These games have the numbers, letters, symbols, or a combination thereof concealed

on a scratch card. To play, the player removes or scratches off the covering to instantly reveal their winning status. Games are often

thematically linked to popular interests, such as sporting events, specific board games, or other specialized interests or activities.

Popular titles include Crossword Connect®, Deuces Wild®,

and Monopoly Millionaires’ Club®. In the U.S., prices for scratch lottery games

typically range from $1 to as much as $50 per scratch card. Scratch lottery games are sold by licensed retail outlets and are additionally

available for online play in jurisdictions that authorize Online Lottery. Online scratch lottery games typically have all the elements

of a physical scratch lottery game, but in digitized form, and often with additional visual and entertainment elements.

The market for this game-type

has experienced growth attributed to the relatively low retail price of scratch lottery games and the opportunity to instantly win prizes.

Sales of scratch lottery games comprised 26.6% of the overall global lottery market in 2020; according to industry forecasts by Technavio,

the scratch lottery games market is expected to increase approximately 58%, from $95 billion in worldwide legal gross sales in 2020

to $150 billion in worldwide legal gross sales in 2025. In the U.S., scratch games are offered in all but two jurisdictions — North

Dakota and Wyoming — in which lottery games are legal.

According to Eilers &

Krejcik, a global gaming industry research firm, in the U.S., in 2021, instant ticket sales increased to $17.5 billion, or by 9%, as compared

to 2020, due to a unique combination of strong discretionary income growth from real wage growth and U.S. federal and state income support,

relatively restricted competing entertainment and gaming options, and stable growth trends leading into the COVID-19 pandemic.

We are not currently engaged

in the deployment of scratch lottery games through the B2C Platform.

Sports Lotteries

Sports lotteries are a variant

of pari-mutuel betting, in which users pay a fixed price to select a sporting event’s outcome and the users with the most accurate

prediction of such outcome win prizes.

Sales of sports lottery games

comprised 18.9% of the overall global lottery market in 2020; according to industry forecasts by Technavio, the sports lotteries market

is expected to increase approximately 51%, from $67 billion in worldwide legal gross sales in 2020 to $101 billion in worldwide

legal gross sales in 2025.

We are not currently engaged

in the deployment of sports lottery games. In December 2021, we finalized the acquisition of https://sports.com and are exploring opportunities

for the intended strategic entry into legal sports gaming verticals, which may include the distribution of sports lottery games.

Geographic Distribution

Legalized lottery products

are operated by national, state, provincial, or municipal governmental authorities and their licensees in more than 100 countries under

separate, regulated regimes. In North America, in-state and multi-state sanctioned lottery products are offered in 46 U.S. states

and 3 U.S. jurisdictions, including the District of Columbia, Puerto Rico, and the U.S. Virgin Islands, as well as every Canadian

province and Mexico.

Lotteries have varying degrees

of governmental and regulatory acceptance across the globe, with certain countries, states, provinces, territories or even municipalities

prohibiting lotteries, and other jurisdictions endorsing all or only certain forms of lotteries at the national or state, provincial,

territorial, or municipal level. According to Technavio, in 2020, the Asia-Pacific region comprised 37.1% market share of all lottery

sales, Europe comprised 31.9%, the Middle East and Africa region comprised 3.4%, South America comprised 2.3%, and North America comprised

more than 25% market share of all lottery sales. Lottery sales include all forms of lottery games, including draw, scratch, and sports

lottery games, as well as revenues from the sale, lease or license of lottery systems, terminals, or vending machines.

In the U.S., the Multi-State

Lottery Association (“MUSL”) is a non-profit association owned and operated by its U.S. state and territory member lottery

associations that, amongst other activities, assists its members in the development and issuance of multi-jurisdictional draw and scratch

lottery games, including Powerball®, MegaMillions®

and Monopoly Millionaires’ Club®. MUSL games are multi-jurisdictional — or

“multi-state” — meaning one type of lottery game may be offered for play in multiple jurisdictions, subject

to the applicable laws and regulations of each such jurisdiction, as opposed to in-state games, which are games developed for play by

a state lottery authority within its jurisdiction.

According to Eilers &

Krejcik, in 2021, total U.S. lottery sales increased to $106 billion, or by 17%, as compared to 2020, reflecting the largest amount on

record as a result of record sales of both instant ticket and draw-based sales. In 2021, in the U.S., instant ticket sales increased 13%

from 2020 to $72 billion, and draw-based sales increased by 24% to $33 billion as compared to 2020. These sales increases built on an

already impressive year for lottery sales during 2020, when spending on lottery games increased by 11% from 2019. Whereas the 10-year

average annual growth rate on lottery game spending between 2010 and 2019 was approximately 4%, the average annual lottery spending grew

by approximately 14% between 2019 and 2021.

In addition, Eilers &

Krejcik reported that, as of February 2022, 38% of adults in the U.S. have access to operational online sports lottery betting. The U.S.

total sports betting market, excluding tribal sports betting markets but including sports lottery betting, had total gross sales of $57.7

billion in 2021, which represents an increase of 167% from 2020. Total sports betting GGR in 2021 was $4.3 billion, or an increase of

178%, as compared to 2020. Total sports betting gross hold percentage, or the amount of total sales that are not paid out in winnings,

was 7.5% in 2021 as compared to 7.2% in 2020. Online sports lottery betting accounted for 87% of total sports betting gross sales and

83% of GGR in 2021, as compared to 80% and 73%, respectively, in 2020.

Global Market Trends

Many national, state, provincial,

territorial, and municipal governments rely on revenues from the sale of lottery games for a significant source of public program funding,

including recreational programs, educational programs, and environmental efforts. When under revenue pressure due to factors that may

include increased expenses, decreased access to general revenues, and other impacts to annual budgets and tax revenues, including events

such as the impact of the COVID-19 pandemic, these entities often look to revenue from gaming, including lottery game sales, as a continued

and potentially increased revenue opportunity for governmental authorities.

Traditionally, lottery games

have only been sold by government licensees at brick-and-mortar facilities, such as convenience stores, grocery stores, and small retailers,

which restricted players’ ability to purchase lottery games to those times when they were physically within the retailer’s

licensed location, and accordingly potentially restricted a player’s opportunities to play and the governmental authority’s

lottery derived revenues. However, as of December 31, 2021, Online Lottery had been authorized under regulations in 15 jurisdictions,

being Arizona, Connecticut, Georgia, Illinois, Kentucky, Michigan, New Hampshire, New York, North Carolina, North Dakota, Pennsylvania,

Rhode Island, South Dakota, Virginia, and the District of Columbia. Access to in-state or multi-state draw games are available in all

of these jurisdictions. Online versions of instant win, or “scratcher” tickets are authorized in eight of these jurisdictions.

In New York and Virginia, Online Lottery is available, but only through subscriptions in which a player must subscribe for automatic

purchase of games on a recurring basis for multiple weeks of play.

According to Eilers &

Krejcik Gaming, in 2021, Online Lottery gross sales in the U.S. increased more than 28% year-on-year to $5.1 billion, due to

improved same-store sales growth across most U.S. states and incremental growth from new jurisdictions that introduced Online Lotteries.

In 2021, Online Lotteries represented approximately 5% of total U.S. lottery game sales.

In jurisdictions in the U.S. in

which Online Lottery is legal, a player is required to undergo account verification requirements and to transfer funds from their payment

provider or linked bank account to their account, and then can only play the games that are available. There is typically a minimum amount

of funds that must be transferred to the player’s account, regardless of the amount that the player wishes to play. The player must

have an account with each lottery authority to play in that lottery authority’s jurisdiction. Winning players may be notified by

either an email or a push notification or both and, to the extent permitted by law and in accordance with Federal reporting requirements,

receive redemption of prizes less than $600 directly to their accounts.

The States of New York and

New Jersey have introduced a licensed lottery courier program to register lottery couriers within such jurisdictions and govern the operation

of lottery couriers’ activities, regulated by the New York State Gaming Commission and the New Jersey Lottery Commission, respectively.

They are the only two jurisdictions with such privileged licensing regimes and we are not aware of any other jurisdiction introducing

a similar program. While such licensing creates an additional financial burden as well as a potential timing delay in advancing operations

in those jurisdictions, upon receipt of licensure, it provides certainty to the ability to operate in such jurisdiction. The Company intends

to apply for a lottery courier license in each of New York and New Jersey in 2022.

Our Services

B2C Platform

Our Platform, which deploys

distributed ledger technology to ensure data security, provides registered B2C Platform users with the ability to purchase in-state and

multi-state lottery draw games directly via a mobile device or computer, to securely maintain their acquired lottery game ticket(s), to

obtain comprehensive multi-jurisdiction lottery result information, and, to the extent allowed by applicable law, to automatically redeem

a winning lottery game of less than $600. The mobile application is offered for mobile devices that operate under iOS and Android and

can be downloaded for free from the Apple App Store and Google Play stores, respectively, and other mobile download sites. We publish

material updates of our mobile applications on an ongoing basis to provide new functionality and upgraded performance. In addition

to our mobile application, we offer our https://play.lottery.com site to users located within authorized and enabled U.S. and international

jurisdictions for the remote purchase of lottery games in permitted jurisdictions, and additionally maintain our https://lottery.com site

to support a variety of general functions and information delivery.

We offer our B2C Platform

to users located in California, Colorado, Georgia, Michigan, Minnesota, New Hampshire, Ohio, Oregon, Pennsylvania, Texas, Washington,

and the District of Columbia. We anticipate being able to offer this service in up to five additional jurisdictions by the end of 2022,

subject to regulatory approval in certain jurisdictions in which it is required. Additionally, our B2C Platform is available to users

in international jurisdictions.

To register on our B2C Platform

and purchase a lottery game, a user must create an account, be the greater of 18 years old or the age of majority in the jurisdiction

in which they are situated, and be physically located within such jurisdiction, as verified by internally and externally deployed geofencing

technology. Individuals that are not physically located within one of the jurisdictions where our services are offered, as verified by

geofencing technology, are not permitted to register to purchase a lottery game. In the U.S., a user may only purchase tickets offered

by the lottery authority of the jurisdiction in which such user is situated.

Our registration and user

interfaces are designed to be easy to use and provide for the creation of an account and purchase of a lottery game with minimum friction

and without the creation of a mobile wallet or requirement to pre-load minimum funds. Purchases may be completed on our B2C Platform in

the U.S. by use of major credit cards, linked financial institution accounts, other enabled payment providers, or credits from past

winnings, and internationally by use of certain major credit cards or credits from past winnings.

In accordance with the terms

of our Responsible Gaming Policy, users are limited to purchasing up to 50 lottery games per game. For more information, see “Item

1. Business — Regulation and Compliance — Responsible and Underage Gaming.”

Once a user of our B2C Platform

has created an account and completed several required, simple compliance requirements, they select the draw lottery game they would like

to play, whether they would select their own numbers or play randomly selected draw numbers, the number of games they would like to play,

and complete the payment processing requirements, following which the acquisition is immediately confirmed and the user receives a digital

representation of their draw lottery game, including their draw numbers, in their app or web-based account, without delay for our acquisition

of the physical lottery game. If a user elects to play randomly selected draw numbers, such draw numbers are immediately assigned by our

pRNG.

The user’s random or

pre-selected lottery game numbers are retained in the Platform and queued for fulfillment by us. We fulfill the acquisition of draw lottery

games by either employing couriers that directly acquire the draw lottery games from brick-and-mortar retailers, or by leveraging electronic

lottery terminals installed under the authority of the applicable lottery authority pursuant to a retail license received by us or a commercial

partner, which process lottery game sales in bulk, daily, for us.

The original draw lottery

game tickets are considered bearer instruments and, accordingly, their safekeeping is of the utmost importance. We store and safeguard

original draw lottery game tickets in physical, restricted entry safes; they do not leave the jurisdiction of their original sale and

are only physically delivered to a user, if required, for the claims and redemption process. Unlike purchases from traditional brick-and-mortar

lottery retailers, in which lottery game tickets are susceptible to being lost, damaged, stolen or — as a bearer instrument — claimed

by a person other than the purchaser, lottery games purchased through our B2C Platform are securely maintained and linked to the user

using rigorous technical requirements. The importance of this safekeeping cannot be understated. In 2021, a winner of a $26 million

dollar California Lottery prize advised that they destroyed the winning draw lottery game ticket in the laundry; according to California

Lottery officials, if someone loses a ticket, they must provide evidence of ownership, such as a photograph or digital representation

of the front and back of the ticket, otherwise their claim will fail. Our Platform, with its secure maintenance of the original lottery

ticket, which safeguards against destruction, loss or theft, is designed to prevent events such as this.

We monitor all lottery games

that our users play and automatically notify a user by push notification and email if they are a winner. We monitor all draws and notify

users via the app or their web-based account of winning lottery games. In the event a user wins a prize in an amount that is less than

$600, subject to applicable laws in each jurisdiction, we are able to distribute a payout of the prize amount to the user’s account

immediately following public announcement of the draw, which funds may then be deployed by the user to purchase additional lottery games

or be transferred by the user from their account to their linked financial institution. We then redeem the winning game from the lottery

authority on the user’s behalf. In the event that a user wins a prize of $600 or more, we provide the user their original lottery

game ticket for their direct claim and redemption directly from the lottery authority. Under federal U.S. law, lottery prizes of

$600 or more are subject to certain federal and applicable tax withholdings as reported on a Form W-2G, and the residency of the

prize winner must be reported on federal and applicable state income tax returns, which is the basis for the prizes over this threshold

being collected directly from the lottery authority.

We do not take any portion

of a user’s winnings. Our revenue is the retail value of the acquired lottery game and the service fee charged to the user, which

we impose on each lottery game purchased from our B2C Platform. The amount of the service fee is based upon several factors, including

the retail value of the lottery game purchased by a user, the number of lottery games purchased by a user, and whether such user is located

within the U.S. or internationally.

Currently, in the U.S., the

minimum service fee is $0.50 for the purchase of a $1 lottery game and $1 for the purchase of a $2 lottery game; the service fee for additional

lottery games purchased in the same transaction is 6% of the face value of all lottery games purchased. For example, the service fee for

the purchase of five $2 tickets is $1.60, being the $1 base service fee, plus 6% of the aggregate value of the face value of all lottery

games purchased. In 2021, our domestic B2C Platform users purchased an average of 3.9 lottery games per transaction at an average service

fee of $0.37 per lottery game. In 2021, we had an average gross profit per domestic B2C Platform user of approximately $26.64. We did

not incur any expenses on digital marketing in 2021. In 2020, the average customer acquisition cost was $4.01 per new user. Our average

customer acquisition costs per new user include digital marketing costs but exclude non-digital marketing costs and any new users who

are referred to us by an Affiliate. Between 2020 and 2021, we had a year-over-year retention rate of domestic B2C Platform users of 72%,

excluding any users acquired from an Affiliate or the API, which resulted in an average lifetime user value of $95.14, which was calculated

as the quotient of the average gross profit per user divided by the difference of one less the retention rate.

Internationally, we impose

a mark-up on the cost imposed on the sale of each lottery game together with a service fee charged to the user. In 2021, our international

B2C Platform users purchased an average of 2.1 lottery games per transaction at an average service fee of $2.30 per lottery game. We typically

charge a higher service fee on lottery games in our international jurisdictions, and, as a result, in 2021, the annual gross profit on

these sales was 97% higher as compared to domestic sales. In 2021, our average gross profit per international user of our B2C Platform

was $31.77. The Company did not incur any expenses on digital marketing in 2021, and accordingly the average customer acquisition cost

during 2021 remained $4.26 per new user, unchanged from 2020. The year-over-year retention rate on the B2C Platform was slightly lower

internationally, at 69%, resulting in a user lifetime value of $102.48. Although revenues from our international jurisdictions currently

comprise approximately 10% of our total revenues in 2021, we are focused on the growth of this business organically and through the pursuit

of strategic acquisitions and other synergistic opportunities.

In 2021, we delivered approximately

2.6 million lottery games to users of our B2C Platform worldwide, our B2C Platform hosted approximately 37,000 daily average users, including

approximately 11,000 daily average repeat users.

LotteryLink

Our success relies, in part,

on our ability to attract new customers to our B2C Platform and convert such customers to ongoing users of the B2C Platform. To further

this objective, in the third quarter of 2021, we launched our global affiliate marketing program, LotteryLink.