Item 1A. Risk Factors.
We have identified the following
risks and uncertainties that may have a material adverse effect on our business, financial condition, results of operations or reputation.
The risks described below are not the only risks we face. Additional risks not presently known to us or that we currently believe are
not material may also significantly affect our business, financial condition, results of operations or reputation. Our business could
be harmed by any of these risks. The risk factors described below should be read together with the other information set forth in this
Annual Report, including our consolidated financial statements and the related notes, as well as in other documents that we file with
the SEC.
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Risks Related to Our Business
Business, Market & Economic Risks
Competition within the global entertainment
and gaming industries is intense and if we fail to compete effectively, our existing and potential users may be attracted to our competitors
or to competing forms of entertainment including those on mobile devices and web applications, such as streaming, online gaming, esports,
and online sports betting. If our offerings do not continue to be popular, we could experience price reductions, reduced margins, loss
of market share, and our business, financial condition, and results of operations could be harmed.
We operate in the global entertainment
and gaming industries with our B2C Platform and WinTogether offerings. Our users have a vast array of entertainment choices, including
television, movies, sporting events, in-person lottery gaming, real money gaming, and sports betting, all of which are more established
and may be perceived by our users to offer greater variety, affordability, interactivity, and enjoyment than our offerings. We compete
with these and other forms of entertainment for our users’ discretionary time and income. If we are unable to sustain sufficient
interest in our product offerings in comparison to other forms of entertainment, including new and emerging forms of entertainment available
on mobile devices and web applications, such as streaming, online gaming, esports, and online sports betting, our business model may not
continue to be viable.
In addition, the specific
industries in which we operate are characterized by dynamic consumer demand and technological advances, and there is intense competition
amongst providers to the lottery, online gaming, sports betting, sweepstakes and promotions industries. Specifically, a number of established,
well-financed third-party lottery application companies, online gaming providers, sports betting, and interactive entertainment companies
compete with our offerings, and other well-capitalized companies may introduce competitive services that achieve greater market acceptance.
Such competitors may spend more money and time on developing and testing products, services, and systems, undertake more extensive marketing
campaigns, adopt more aggressive pricing or promotional policies, or otherwise develop more commercially successful products, services,
or systems than ours, which could negatively impact our business. Furthermore, new competitors may enter the mobile lottery industry,
and government lottery operators may introduce forms of Online Lottery gaming that compete with our services. There has also been, and
continues to be, considerable consolidation among competitors in the entertainment, gaming, and lottery industries, and such consolidation,
and future consolidation, could result in the formation of larger competitors with increased financial resources and altered cost structures,
which may enable them to offer more competitive products, gain a larger market share, expand offerings, and broaden their geographic scope
of operations. If we are not able to maintain or improve our market share, or if our offerings do not continue to be popular, or if we
are not able to continue to provide competitive products, our business, financial condition, and results of operations could be harmed.
Economic downturns, inflation, and political
and market conditions beyond our control could adversely affect our business, financial condition, and results of operations.
Our financial performance
is subject to U.S. and global economic conditions and their impact on levels of spending by users and customers of our Platform and
acquirers of our Data Service. Economic recessions, or other economic conditions such as inflation, have had, and may continue to have,
far reaching adverse consequences across many industries, including the global entertainment, lottery, sweepstakes and promotions, and
gaming industries, which may adversely affect our business, financial condition, and results of operations. Tepid growth was experienced
in the U.S. and globally following the financial crisis in 2008 through 2009, and there appears to be an increasing risk of a recession
or inflationary economic impacts due to international trade and monetary policy, the global COVID-19 pandemic, acts or threats of acts
of war, and other economic changes. If the national and international economic recovery slows or stalls, these economies experience another
recession, or any of the relevant regional or local economies suffers a downturn, or if inflationary effects accelerate, we may experience
a material adverse effect on our business, financial condition, or results of operations.
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In addition, changes in general
market, economic, and political conditions in domestic and foreign economies or financial markets, including those resulting from, for
example: the COVID-19 pandemic; potential future government shutdowns or restrictions; geopolitical challenges, including global security
concerns and the possibility of retaliatory actions or various measures taken in response to Russia’s recent invasion of Ukraine;
financial and credit market fluctuations or the unavailability of credit; and fluctuation in stock markets resulting from, among other
things, trends in the economy as a whole, may reduce users’, customers’, or subscribers’ disposable income and corporate
budgets. Any one of these changes could have a material adverse effect on our business, financial condition, or results of operations.
Reductions in discretionary consumer spending
could have an adverse effect on our business, financial condition, and results of operations.
Our business is particularly
sensitive to reductions from time to time in discretionary consumer spending. Demand for entertainment and leisure activities, including
lottery play and entry into sweepstakes, can be affected by changes in the economy and consumer tastes, both of which are difficult to
predict and beyond our control. Unfavorable changes in general economic conditions, including recessions, economic slowdowns, sustained
high levels of unemployment, and rising prices and inflation, or the perception by consumers of weak or weakening economic conditions,
may reduce our users’ disposable income or result in fewer individuals engaging in entertainment and leisure activities, such as
purchasing lottery games through remote channels and participating in online sweepstakes. For example, the outbreak of COVID-19 has negatively
affected and may continue to negatively impact economic conditions in the jurisdictions where we operate. Several factors relating to
this economic downturn, including reductions in discretionary income due to changes in employment conditions, as well as customer preferences
regarding discretionary spending habits, have caused and will likely continue to cause a reduction in consumer spending. As a result,
fewer individuals may engage in gaming and lottery activities. The ultimate duration of the COVID-19 pandemic, including current and any
new variants that develop and spread, is uncertain at this time, and therefore we cannot predict the full impact that it may have on our
markets and our operations. The effect of a decrease in consumer spending on entertainment and leisure activities due to unfavorable market
conditions could reduce the Company’s cash flows and revenues, and therefore have a material and adverse impact on our results of
operations. As a result, we cannot ensure that demand for our offerings will remain constant or achieve our anticipated growth.
Adverse developments affecting
economies throughout the world, including a general tightening of availability of credit, decreased liquidity in certain financial markets,
increased interest rates, foreign exchange fluctuations, increased energy costs, acts or perceived threats of war or terrorism, transportation
disruptions, natural disasters, declining consumer confidence, sustained high levels of unemployment, or significant declines in stock
markets, natural disasters, as well as concerns regarding pandemics, epidemics, and the spread of contagious diseases, could lead to a
further reduction in discretionary spending on entertainment and leisure activities, such as lottery play and participation in sweepstakes.
Any significant or prolonged decrease in consumer spending on entertainment or leisure activities could adversely affect the demand for
our offerings, reducing our cash flows and revenues, and thereby materially harming our business, financial condition, and results of
operations.
Negative events or negative media coverage
relating to, or a declining popularity of, the lottery or lottery games in general, or other negative coverage relating to lottery, forms
of online gaming or betting, or the gaming industry, may adversely impact our ability to retain or attract users, which could have an
adverse impact on our business, financial condition, and results of operations.
Public opinion can significantly
influence our business. Unfavorable publicity regarding, for example, us, our technology, our implementation of upgrades and changes to
our technology, the quality of our Platform and its interfaces, our product offerings, our other services and systems, actual or threatened
litigation or regulatory activity, the actions of third parties with whom we have relationships, or the conduct of the lottery authorities
and the products they offer, including declining popularity of a particular lottery game or lottery games in general, could seriously
harm our reputation. In addition, a negative shift in the perception of lottery games by the public or by politicians, lobbyists, or others
could affect future legislation regarding the mobile purchase of lottery games from third-party providers, including with respect to the
regulation or licensure of couriers, or with respect to the legalization of Online Lottery, either of which may impact our operations.
Negative public perception could also lead to new restrictions on or to the prohibition of mobile lottery play in jurisdictions in which
we currently operate. Such negative publicity could also adversely affect the size, demographics, engagement, and loyalty of our new players
and established user base, and it could result in decreased revenue or slower user growth rates, which could seriously harm our business,
financial condition, and results of operations.
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Our growth will depend on our ability to
attract players and retain users, and the loss of our users, failure to attract new users in a cost-effective manner, or failure to effectively
manage our growth could adversely affect our business, financial condition, and results of operations.
Our ability to achieve growth
in revenue in the future will depend, in large part, upon our ability to attract new players to our offerings, retain existing users of
our offerings, and reactivate users in a cost-effective manner. Achieving growth in our community of users may require us to increasingly
engage in sophisticated and costly sales and marketing efforts, which may not make sense in terms of return on investment. We have used
and expect to continue to use a variety of free and paid marketing channels, in combination with the promotional activity of in-state
and multi-state issued lottery games, to achieve our objectives. In addition, we expect to organically attract players to our B2C Platform
through our WinTogether promotions. For paid marketing, we intend to leverage a broad array of advertising channels, which may include
a combination of radio and social media platforms, such as Facebook, Instagram, and Twitter, affiliate marketing, paid and organic search
engines, and other digital channels, such as mobile display. If the search engines on which we rely modify their algorithms, change their
terms around gaming and lottery, or if the prices at which we may purchase listings increase, then our costs could increase, and fewer
users may click through to our websites or download our application. If links to our websites or application are not displayed prominently
in online search results, if fewer users click through to our websites or application, if our other digital marketing campaigns are not
effective, or if the costs of attracting users using any of our current methods significantly increase, then our ability to efficiently
attract new users could be reduced, our revenue could decline, and our business, financial condition, and results of operations could
be harmed.
In addition, our ability to
increase the number of users of our offerings will depend on continued user adoption of playing lottery games remotely via a third-party
application. Growth in the mobile and online lottery industry and the level of demand for and market acceptance of our product offerings
will be subject to a high degree of uncertainty. We cannot assure that player adoption of our product offerings will continue or exceed
current growth rates, or that the industry will achieve more widespread acceptance.
Additionally, as technological
or regulatory standards change and we modify our offerings to comply with those standards, we may need users to take certain actions to
continue playing, such as performing age verification and location checks or accepting new terms and conditions, including those regarding
responsible gaming. Users may stop using our offerings at any time, including if the quality of the user experience or our support capabilities
in the event of a user concern, does not meet their expectations or keep pace with the quality of the customer experience generally offered
by competitive offerings. This could seriously harm our business, financial condition, and results of operations.
Internet search engines drive traffic to
our B2C Platform and our new user growth could decline and our business, financial condition, and results of operations would be adversely
affected if we fail to appear prominently in search results.
Our success depends in part
on our ability to attract users through unpaid Internet search results on search engines like Google, Yahoo!, and Bing. In 2021, approximately
47% of the web sessions on our websites were driven by organic searches, compared to directly entered URL traffic of 38%. The number of
users we attract to our B2C Platform from search engines is due, in large part, to how and where our website ranks in unpaid search results.
These rankings can be affected by a number of factors, many of which are not under our direct control and may change frequently. For example,
a search engine may change its ranking algorithms, methodologies, or design layouts. As a result, links to our web-based properties may
not be prominent enough to drive traffic, and we may not know how or otherwise be in a position to influence the results. In some instances,
search engine companies may change these rankings in a way that promotes their own competing products or services or the products or services
of one or more of our competitors. Search engines may also adopt a more aggressive auction-pricing system for keywords that would cause
us to incur higher advertising costs or reduce our market visibility to prospective players. Our websites have experienced fluctuations
in search result rankings in the past, and we anticipate similar fluctuations in the future. Any reduction in the number of users directed
to our B2C Platform could adversely affect our business, financial condition, and results of operations.
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We may be unable to continue to use the
domain names that we use in our business or prevent third parties from acquiring and using domain names that infringe on, are similar
to, or otherwise decrease the value of our brand, trademarks, or service marks.
We have registered domain
names that we use in, or are related to, our business, most importantly www.lottery.com. We believe our easily identifiable and
definitional brand and domain name is one of our competitive strengths. If we lose the ability to use our domain names, especially www.lottery.com,
whether due to trademark claims, failure to renew applicable registrations, or any other cause, we may be forced to incur significant
expense in order to attempt to purchase rights to the domain name in question, the failure of which would require us to market the relevant
offerings under a new domain name, and we may be required to change our brand, which could cause us substantial harm and expense, and
could negatively impact our business, financial condition, and results of operations. We may not be able to obtain preferred domain names
outside the U.S. due to a variety of reasons. In addition, our competitors and others could attempt to capitalize on our brand recognition
by using domain names similar to ours. We may be unable to prevent third parties from acquiring and using domain names that infringe on,
are similar to, or otherwise decrease the value of our brand or our trademarks or service marks. Protecting, maintaining, and enforcing
our rights in our domain names may require litigation, which could result in substantial costs and diversion of resources, all of which
could, in turn, adversely affect our business, financial condition, and results of operations.
We face risks related to health epidemics
and other widespread outbreaks of contagious disease, which could disrupt our operations and impact our operating results.
Significant outbreaks of contagious
diseases, and other adverse public health developments, could have a material impact on our business operations and operating results.
The
impact of the COVID-19 pandemic on our business is ongoing. Our business has proven and will likely continue to prove resilient during
the pandemic. For example, as a result of physical distancing, travel restrictions and other efforts to reduce the spread of COVID-19
and its variants, customers have increasingly demonstrated a preference to purchase lottery games through mobile alternatives rather than
at traditional brick-and-mortar locations. However, it is uncertain whether this trend will continue, as the economic disruption and financial
uncertainty caused by the COVID-19 pandemic could eventually continue to a general decline in lottery gaming and gaming in general over
time, particularly if customers reduce their discretionary spending as a result of any sustained economic downturn or inflationary pressure.
Any of these consequences or any prolonged deviations from normal daily operations or any delays in obtaining any required governmental
licenses, findings of suitability, registrations, permits, and approvals as a result of COVID-19 impacts may adversely impact user activity
on our Platform, anticipated domestic or international expansion, required employment activities, or other strategic objectives, any of
which would negatively impact our business, financial condition, and results of operations. We continue to monitor the global spread of
COVID-19, including its variants, and we will put in place such measures as appropriate and necessary for our ongoing business
operations. For a description of the impact of the COVID-19 pandemic on the Company, see “Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of Operations—Recent Developments—Impacts of COVID-19.”
We are subject to risks related to corporate
social responsibility, responsible gaming, reputation, and ethical conduct.
Many factors influence our
reputation and the value of our brands, including the perception held by our users, customers, business partners, investors, regulatory
authorities, other key stakeholders, and the communities in which we operate, such as our social responsibility, corporate governance,
and responsible gaming practices. We have faced, and will likely continue to face, increased scrutiny related to social, governance and
responsible gaming activities, and our reputation and the value of our brands can be materially adversely harmed if we fail to act responsibly
in a number of areas, such as diversity and inclusion, workplace conduct, responsible gaming, human rights, philanthropy, and support
for local communities. Any harm to our reputation could impact employee engagement and retention, and the willingness of users, customers
and partners to do business with us, which could have a materially adverse effect on our business, financial condition, and results of
operations.
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We believe that our reputation
is critical to our role as a leader in the lottery industry, and it will be critical to our success as a publicly traded company. Our
management is heavily focused on the integrity of our directors, officers, senior management, employees, other personnel, and third-party
suppliers and partners. Our board of directors (our “Board”) has adopted a Code of Conduct as well as other related policies
and procedures. Illegal, unethical or fraudulent activities perpetrated by any of such individuals, users, customers, or partners for
personal gain could expose us to potential reputational damage and financial loss, which would negatively impact our business, financial
condition, and results of operations.
General Operational Risks
We have incurred net losses in the past
with negative cash flows and may not be able to generate and sustain profitability.
We have a history of incurring
net losses, and we may not achieve or maintain profitability in the future. We experienced net losses of approximately $9.30 million
for the year ended December 31, 2021, and experienced net losses of approximately $5.81 million and $10.77 million for the years
ended December 31, 2020 and December 31, 2019, respectively. As of December 31, 2021, we had an accumulated deficit of
approximately $104.44 million. While we have experienced significant growth in revenue in recent periods, we cannot predict when or
whether we will reach profitability.
We also expect our operating
expenses to increase in the future as we continue to invest for our future growth, which will negatively affect our results of operations
if our total revenue does not increase. We cannot ensure that these investments will result in substantial increases in our total revenue
or improvements in our results of operations. In addition to the anticipated costs to grow our business, we also expect to incur significant
additional legal, accounting, and other expenses as a newly public company. Any failure to increase our revenue as we invest in our business
or to manage our costs could prevent us from achieving or maintaining profitability or positive cash flow.
The Online Lottery market is still in relatively
early stages of growth, and if such market does not continue to grow, grows slower than we expect, or fails to grow as we forecast, our
business, financial condition, and results of operations could be adversely affected.
The Online Lottery market
has grown rapidly since we launched our Platform in 2016, but it is still relatively new, and it is uncertain to what extent market acceptance
will continue to grow, if at all. Our success will depend to a substantial extent on the willingness of users to purchase Online Lottery
games, i.e., through mobile applications and web properties. If the public does not perceive these services as beneficial, or chooses
not to use them as a result of concerns regarding security, safety, affordability, or for other reasons, whether as a result of incidents
on our Platform or on our competitors’ applications or otherwise, or instead adopts alternative solutions that may arise, then the
market for our Platform may not further develop, may develop slower than we expect, or may not achieve the growth potential we expect,
any of which could adversely affect our business, financial condition, and results of operations.
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Our business may be materially adversely
affected if our existing and future products, technology, services, and solutions do not achieve and maintain broad market acceptance,
if we are unable to keep pace with or adapt to rapidly changing technology, evolving industry standards, and changing regulatory requirements,
or if we do not invest in product and systems development and provide services that are attractive to our users and customers.
Our future business and financial
success will depend on our ability to continue to anticipate the needs of current and potential users and customers, to achieve and maintain
broad market acceptance for our existing and future products, services, and systems, to successfully introduce new and upgraded products,
services, and systems, and to successfully implement our current and future geographic expansion plans. To be successful, we must be able
to quickly adapt to changes in technology, industry standards, and regulatory requirements by continually enhancing our technology, services,
and solutions. Developing new services and upgrades to services, as well as integrating and coordinating current services, imposes burdens
on our internal teams, including management, compliance, and product development. These processes are costly, and our efforts to develop,
integrate, and enhance our products, services, and systems may not be successful. In addition, successfully launching a new or upgraded
product or expanding into a new jurisdiction puts additional strain on our technology and marketing resources. Expanding into new markets
and investing resources towards increasing the depth of our coverage within existing markets impose additional burdens on our research,
systems development, sales, marketing, and general managerial resources. If we are unable to manage our expansion efforts effectively,
in obtaining greater market share or in obtaining widespread adoption of new or upgraded products, services, and systems, we may not be
able to offset the expenses associated with the launch and marketing of the new or upgraded products, services, and systems, which could
have a material adverse effect on our financial results. If we introduce new or expand existing offerings for our business, we may incur
losses or otherwise fail to enter these markets successfully. Our expansion into these markets will place us in competitive and regulatory
environments with which we are unfamiliar and involve various risks, including the need to invest significant resources and the possibility
that returns on such investments will not be achieved for several years, if at all.
If we are unable to develop
new or upgraded offerings or decide to combine, shift focus from, or phase out a service, then our users or customers may choose a competitive
offering over ours, our revenues may decline, and our profitability may be reduced. If we incur significant costs in developing new or
upgraded systems, products or services, or combining and maintaining existing systems, if we are not successful in marketing and selling
these new products or upgrades, or if our users or customers fail to accept these new or combined products, then there could be a material
adverse effect on our results of operations due to a decrease of our revenues and a reduction of our profitability. If we eliminate or
phase out a product and are not able to offer and successfully market and sell an alternative product, our revenue may decrease, which
could have a material adverse effect on our results of operations.
Our success depends on our
continued improvements to provide products, services, and systems that are attractive to our users and customers. As a result, we must
continually invest resources in product development and successfully incorporate and develop new technology. If we are unable to do so
or otherwise provide products, services, and systems that users and customers want, then our users or customers may become dissatisfied
and use competitors’ services. If we are unable to continue offering innovative products, services, and systems, we may be unable
to attract additional users or customers or retain our existing users or customers, which could harm our business, results of operations,
and financial condition.
Our results of operations may fluctuate
due to seasonality and other factors and, therefore, our periodic operating results will not be guarantees of future performance.
Although lottery games are
offered on a year-round basis, there is seasonality in lottery games purchasing that may impact our operations and operations of our customers.
The broad geographical mix of our user and customer base also impacts the effect of seasonality, as users and customers in different territories
will place differing importance on different lottery games and those games will often have different calendars. For example, some multi-state
games can have occasional increasingly high jackpot opportunities, which increase user attention and ticket purchases, which further increases
the jackpot. Such events may cause increases in our revenues. By contrast, low jackpot lottery games or periods in which there is little
promotional activity connected to lottery games in general may negatively impact the purchase of lottery games. Such fluctuations and
uncertainties may negatively impact our cash flows.
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We may not be able to capitalize on trends
and changes in the gaming and lottery industries, including due to the operational costs involved, the laws and regulations governing
these industries, and other factors.
We participate in new and
evolving aspects of the mobile gaming and lottery industries. Part of our strategy is to take advantage of the liberalization of regulations
covering these industries on a global basis. These industries involve significant risks and uncertainties, including legal, business,
and financial risks. The fast-changing environment in these industries can make it difficult to plan strategically and can provide opportunities
for competitors to grow their businesses at our expense. Consequently, our future results of operations, cash flows, and financial condition
are difficult to predict and may not grow at the rates we expect.
To the extent that we enter
into any business that is determined to be internet gaming, any jurisdiction in which our existing business is deemed to be internet gaming,
or our customers offer internet gaming, it is important to recognize that the laws relating to internet gaming are evolving. To varying
degrees, governments have taken steps to change the regulation of internet wagering through the implementation of new or revised licensing
and taxation regimes, including the possible imposition of sanctions on unlicensed providers. We cannot predict the timing, scope or terms
of the implementation or revision of any such state, federal or foreign laws or regulations, or the extent to which any such laws and
regulations may facilitate or hinder our strategy or be applicable to or impactful on our business, operations and financial condition.
In jurisdictions that authorize
internet gaming, we cannot assure that we will be successful in offering our technology, content, and services to internet gaming operators,
because we expect to face intense competition from our traditional competitors in the gaming and lottery industries, as well as a number
of other domestic and foreign competitors (and, in some cases, the operators themselves), many of which have substantially greater financial
resources or experience in this area than we do.
Know-your-customer and geo-location
programs and technologies supplied by third parties are an important aspect of certain internet and mobile gaming products, services,
and systems, because they can confirm certain information with respect to players and prospective players, such as age, identity, and
location. Payment processing programs and technologies, typically provided by third parties, are also a necessary feature of interactive
and mobile wagering products, services, and systems. These programs and technologies are costly, and our use of them may have an adverse
impact on our results of operations, cash flows, and financial condition. Additionally, we cannot assure that products or services containing
these programs and technologies will be available to us on commercially reasonable terms, if at all, or that they will perform accurately
or otherwise in accordance with required specifications, all of which may have a negative impact on our business, results of operations,
and financial condition.
Branding and Reputational Risks
Our business depends on a strong brand,
and if we are not able to develop, maintain, and enhance our brand and reputation, including as a result of negative publicity, our business
and operating results may be harmed.
We believe that developing,
maintaining, and enhancing our brand and reputation is critical to achieving widespread acceptance of our products, services, and systems,
attracting new users and customers, retaining existing users and customers, persuading existing users and customers to adopt additional
products, services, and systems, and hiring and retaining our employees.
We believe that the importance
of our brand will increase as competition in the markets in which we participate further intensifies. Successful promotion of our brand
will depend on a number of factors, including the effectiveness of our marketing efforts, including thought leadership, our ability to
provide high-quality, reliable, and cost-effective products, services, and systems, the perceived value of our products, services, and
systems, and our ability to provide quality user and customer success and support experience. Brand promotion activities require us to
make substantial expenditures. To date, we have made significant investments in the promotion of our brand. The promotion of our brand,
however, may not generate user and customer awareness or increase revenue to the extent we anticipate, or at all, and any increase in
revenue may not offset the expenses we incur in building and maintaining our brand.
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We, our employees, our affiliates,
and others with whom we have contractual relationships also use social media to communicate externally. There is risk that this use of
social media to communicate about our business may give rise to liability or result in public exposure of personal information of our
employees, our users, or others, each of which could affect our revenue, business, results of operations, and financial condition.
We operate in a public-facing
industry where negative publicity, whether or not justified, can spread rapidly through, among other things, social media. To the extent
that we are unable to respond timely and appropriately to negative publicity, our reputation and brand could be harmed. Moreover, even
if we are able to respond in a timely and appropriate manner, we cannot be certain that it will be timely or sufficient to not cause us
to suffer reputational and brand damage, which could affect our revenue, business, results of operations, and financial condition.
Our marketing efforts to help grow our business
may not be effective.
Promoting awareness of our
Platform is important to our ability to grow our business and to attract new users and customers, which can be costly. We believe that
much of the growth in the number of users of our B2C Platform is attributable to our paid marketing initiatives. Our marketing efforts
currently may include a combination of bonus offerings, affiliate marketing programs, social media engagement, radio, video, podcasts,
search engine optimization, and keyword search campaigns. Our marketing initiatives may become increasingly expensive and generating a
meaningful return on these initiatives may become difficult. Even if we successfully increase revenue as a result of these marketing efforts,
it may not offset the additional marketing expenses we incur. If our marketing efforts intended to help grow our business are not effective,
we expect that our business, financial condition, and results of operations would be adversely affected.
If we fail to detect fraud or misappropriation
of proprietary information, including by our users, customers, and employees, our reputation and brand may suffer, which could negatively
impact our business, financial condition, and results of operations and can subject us to investigations and litigation.
We have in the past, and may
in the future, incur losses from various types of fraud, which may include the use of stolen or fraudulent payment card data, claims of
unauthorized payments by a user and attempted payments by users with insufficient funds, referral fraud by affiliates, fraud with respect
to background checks, fraud by employees, including our couriers, and account takeovers of user accounts by bad actors, or phishing. Bad
actors use increasingly sophisticated methods to engage in illegal activities involving personal information, such as unauthorized use
of another person’s identity, account information, or payment information and unauthorized acquisition or use of payment card details,
bank account information, and mobile phone numbers and accounts.
Acts of fraud may involve
various tactics, including collusion. Successful exploitation of our technology could have negative effects on our product offerings,
services, and user experience and could harm our reputation. Failure to discover such acts or schemes in a timely manner could result
in harm to our operations. In addition, negative publicity related to such schemes could have an adverse effect on our brand and reputation,
potentially causing a material adverse effect on our business, financial condition, and results of operations. In the event of the occurrence
of any such issues with our existing technology or product offerings, substantial engineering and marketing and other resources, and management
attention, may be diverted from other projects and requirements to correct these issues, which may delay other projects and the achievement
of our strategic objectives.
In addition, any misappropriation
of, or access to, users’ or other proprietary information or other breach of our information security could result in legal claims
or legal proceedings, including regulatory investigations and actions, or liability for failure to comply with privacy and information
security laws, including for failure to protect personal information or for misusing personal information, which could disrupt our operations,
force us to modify our business practices, require us to comply with costly remediation requirements, damage our brand and reputation,
and expose us to claims from our users, regulators, employees, and other parties, any of which could have an adverse effect on our business,
financial condition, and results of operations.
We may be liable for these
acts of fraud. For example, under current payment card industry practices, we may be liable for use of funds on our products with fraudulent
payment card data, even if the associated financial institution approved the transaction. Despite measures we have taken to detect and
reduce the occurrence of fraudulent or other malicious activity on our offerings, we cannot guarantee that any of our measures will be
effective or will scale efficiently with our business. Our failure to adequately detect or prevent fraudulent transactions could harm
our reputation or brand, result in litigation or regulatory action that may include fines and penalties, and lead to expenses, all of
which could adversely affect our business, financial condition, and results of operations.
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Our growth prospects may suffer if we are
unable to develop successful offerings or if we fail to pursue additional offerings. In addition, if we fail to make the right investment
decisions in our offerings and technology, we may not attract and retain key users and customers and our revenue, business, financial
condition, and results of operations may decline.
The industry in which we operate
is subject to rapid and frequent changes in standards, technologies, products, and service offerings, as well as in consumer demands and
expectations and regulations. We must continuously make decisions regarding which offerings and technology we should invest in to meet
user and consumer demand in compliance with evolving industry standards and regulatory requirements, and we must continually introduce
and successfully market new and innovative technologies, offerings, and enhancements to remain competitive and effectively stimulate user
and customer demand, acceptance, and engagement. Our ability to engage, retain, and increase our user and customer base and to increase
our revenue will depend heavily on our ability to successfully create new offerings, both independently and together with third parties.
We may introduce significant changes to our existing technology and offerings or develop and introduce new and unproven products, services,
and systems, including but not limited to the continued integration of distributed ledger technology in our Platform, any of which we
may have little or no prior development or operating experience. The process of developing new offerings and systems is inherently complex
and uncertain, and new offerings may not be well received by users, even if well-reviewed and of high quality. If we are unable to develop
technology and products, services, and systems that address users’ needs or enhance and improve our existing technology and offerings
in a timely manner, it could have a material adverse effect on our business, financial condition, and results of operations.
Although we intend to continue
investing in our research and development efforts, if new or enhanced offerings fail to engage our users or customers, we may fail to
attract or retain users or customers or to generate sufficient revenue, operating margin, or other value to justify our investments, any
of which may seriously harm our business. In addition, management may not properly ascertain or assess the risks of new initiatives, and
subsequent events may alter the risks that were evaluated at the time we decided to execute any new initiative. Creating additional offerings
can also divert our management’s attention from other business issues and opportunities. Even if our new offerings attain market
acceptance, those new offerings could exploit the market share of our existing product offerings or share of our users’ wallets
in a manner that could negatively impact such offerings. Furthermore, such expansion of our business increases the complexity of our business
and places an additional burden on our management, operations, technical systems, and financial resources, and we may not recover the
often-substantial up-front costs of developing and marketing new offerings or recover the opportunity cost of diverting management and
financial resources away from other offerings. In the event of continued growth of our operations, products, or in the number of third-party
relationships, we may not have adequate resources, operationally, technologically, or otherwise, to support such growth and the quality
of our technology, offerings, or our relationships with third parties could suffer. In addition, failure to effectively identify, pursue,
and execute new business initiatives, or to efficiently adapt our processes and infrastructure to meet the needs of our innovations, may
adversely affect our business, financial condition, and results of operations. Any new offerings may also require our users to utilize
new skills to use our offerings. This could create a lag in adoption of new offerings and new user additions related to any new offerings.
To date, new offerings and enhancements of our existing technology have not hindered our user growth or engagement, but that may be the
result of a large portion of our user base being in a younger demographic and more willing to invest the time to learn to use our products
most effectively. To the extent that future users, including those in older demographics, are less willing to invest the time to learn
to use our products, and if we are unable to make our products, services, and systems easier to learn to use, our user growth or engagement
could be affected, and our business could be harmed. We may develop new products, services and systems that increase user engagement and
costs without increasing revenue.
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Additionally, we may make
bad or unprofitable decisions regarding these investments. If new or existing competitors offer more attractive offerings, we may lose
users or users may decrease their spending on our offerings. New player demands, superior competitive offerings, new industry standards,
or changes in the regulatory environment could render our existing offerings unattractive, unmarketable, or obsolete and require us to
make substantial unanticipated changes to our technology or business model. Our failure to adapt to a rapidly changing market or evolving
user and customer demands could harm our business, financial condition, and results of operations.
Any failure to offer high-quality user support
may harm our relationships with users and could adversely affect our reputation, brand, business, financial condition, and results of
operations.
Our ability to attract and
retain qualified support personnel is dependent in part on the ease and reliability of our offerings, including our ability to provide
high-quality support. Users on our Platform depend on our support organization to resolve any issues relating to our offerings, such as
technical questions around how to use our app and web-based properties or information regarding our Data Services. Our ability to provide
effective and timely support is largely dependent on our ability to attract and retain service providers who are qualified to support
users and sufficiently knowledgeable regarding our offerings. As we continue to grow our business and improve our offerings, we will face
challenges related to providing quality support services at scale. As users in new domestic and international jurisdictions acquire our
services, our support organization will face additional challenges, including those associated with delivering support in languages other
than English. As a result of the COVID-19 pandemic and other market conditions, the employment market is challenging, which may impact
the availability of service providers and as a result, our ability to provide effective and timely support and an increase in response
time. Any failure to provide efficient user support, or a market perception that we do not maintain high-quality support, could adversely
affect our reputation, brand, business, financial condition, and results of operations.
Information Technology Risks
We rely on information technology and other
systems and services, and any failures, errors, defects, or disruptions in our systems or the availability of our services could diminish
our brand and reputation, subject us to liability, disrupt our business, affect our ability to scale our technical infrastructure, and
adversely affect our operating results and growth prospects. Our software applications and systems, and the third-party platforms upon
which they are made available, could contain undetected errors.
Our technology infrastructure
is critical to the performance of our offerings and to user and customer satisfaction. We devote significant resources to network and
data security to protect our systems and data and aim to make our operations and our solutions more streamlined, automated, and cost-effective
by using advanced technologies, including distributed ledger technology. The application of these technologies in our solutions is still
under development. However, our systems may not be adequately designed with the necessary reliability and redundancy to avoid performance
delays or outages that could be harmful to our business. We cannot assure you that the measures we take to prevent or hinder cyber-attacks
and protect our systems, data, and user and customer information and to prevent outages, data, or information loss, fraud, and to prevent
or detect security breaches, including a disaster recovery strategy for server and equipment failure and back-office systems and the use
of third parties for certain cybersecurity services, will provide absolute security. We have experienced, and we may in the future experience,
website disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes, human or software
errors and capacity constraints. Such disruptions have not had a material impact on us; however, future disruptions from unauthorized
access to, fraudulent manipulation of, or tampering with our computer systems and technological infrastructure, or those of third parties,
could result in a wide range of negative outcomes, each of which could materially adversely affect our business, financial condition,
results of operations and prospects.
Additionally, our application
and web-based products may contain errors, bugs, flaws, or corrupted data, and these defects may only become apparent after their launch.
If a particular product offering is unavailable when users or customers attempt to access it or navigation through our offerings is slower
than they expect, users may be unable to timely acquire their lottery games and may be less likely to use our Platform again, if at all.
Furthermore, programming errors, defects, and data corruption could disrupt our operations, adversely affect the experience of our users
or customers, harm our reputation, cause our users to stop utilizing our offerings, divert our resources, and delay market acceptance
of our offerings, any of which could result in liability to us or harm our business, financial condition, and results of operations.
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If our user and customer base
and engagement continue to grow, and the amount and types of offerings continue to grow and evolve, we will need an increasing amount
of technical infrastructure, including network capacity and computing power, to continue to satisfy our users’ and customers’
needs. Such infrastructure expansion may be complex, and unanticipated delays in completing these projects or availability of components
may lead to increased project costs, operational inefficiencies, or interruptions in the delivery or degradation of the quality of our
offerings. In addition, there may be issues related to this infrastructure that are not identified during the testing phases of design
and implementation, which may only become evident after we have started to fully use the underlying equipment or software, that could
further degrade the user or customer experience or increase our costs. As such, we could fail to continue to effectively scale and grow
our technical infrastructure to accommodate increased demands. In addition, our business may be subject to interruptions, delays or failures
resulting from adverse weather conditions, other natural disasters, power loss, terrorism, cyber-attacks, public health emergencies (such
as the COVID-19 pandemic), or other catastrophic events.
We believe that if our users
or customers have a negative experience with our offerings, or if our brand or reputation is negatively affected, users and customers
may be less inclined to continue or resume utilizing our products and services or to recommend our offerings to other potential users
and customers. As such, a failure or significant interruption in our service could harm our reputation, business, financial condition,
and operating results.
Despite our security measures, our information
technology and infrastructure may be vulnerable to attacks by hackers, breached due to employee error, malfeasance, or other cybersecurity
risks or disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed,
lost or stolen. Any such access, disclosure, or other loss of information could result in legal claims or proceedings, liability under
laws that protect the privacy of personal information, and regulatory penalties, fines, and the payment of damages, restrictions on our
ability to use data, disruption of our operations and the services we provide to users, damage to our reputation, and a loss of confidence
in our products, services, and systems, which could adversely affect our business.
The secure maintenance and
transmission of personally identifiable information of our users is a critical element of our operations. Our information technology and
other systems that maintain and transmit user information, or those of our customers, service providers, business partners, or employees
may be compromised by a malicious third-party penetration of our network security, or that of a third-party service provider or business
partner or impacted by intentional or unintentional actions or inactions by our employees, or those of a third-party service provider
or business partner. As a result, our users’ information may be lost, disclosed, accessed, or taken without our users’ consent.
We have experienced attempts to breach our systems and other similar incidents in the past and anticipate that it may occur in the future.
For example, we expect that we will be subject to attempts to gain unauthorized access to or through our information systems, whether
by our employees or third parties, including cyber-attacks by computer programmers and hackers who may develop and deploy viruses, worms
or other malicious software programs. To date, attempts to breach our systems have not had a material impact on our business, operations,
or financial results, but we cannot provide assurance that they will not have a material impact in the future.
We rely on encryption and
authentication technology licensed from third parties in an effort to securely transmit confidential and sensitive information, including
payment card information. Advances in computer capabilities, new technological discoveries, or other developments may result in the whole
or partial failure of this technology to protect transaction data or other confidential and sensitive information from being breached
or compromised. In addition, apps and websites are often attacked through compromised credentials, including those obtained through phishing
and credential stuffing. Our security measures, and those of our third-party service providers, may not detect or prevent all attempts
to breach our systems, denial-of-service attacks, viruses, malicious software, break-ins, phishing attacks, social engineering, security
breaches, or other attacks and similar disruptions that may jeopardize the security of information stored in or transmitted by our apps,
websites, networks, and systems or that we or such third parties otherwise maintain, including payment card systems, which may subject
us to fines or higher transaction fees or limit or terminate our access to certain payment methods. We and such third parties may not
anticipate or prevent all types of attacks until after they have already been launched. Further, techniques used to obtain unauthorized
access to or sabotage systems change frequently and may not be known until launched against us or our third-party service providers.
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In addition, distributed ledger
technology is an emerging technology that offers new capabilities that are not fully proven in use. As with other novel software products,
the computer code underpinning the distributed ledger technology used in our Platform may contain errors, or function in unexpected ways
and may cause the software to break or function incorrectly.
Furthermore, security breaches
can also occur as a result of non-technical issues, including intentional or inadvertent breaches by our employees or by third parties.
These risks may increase over time as the complexity and number of technical systems and applications we use also increases. Breaches
of our security measures or those of our third-party service providers or cybersecurity incidents could result in unauthorized access
to our sites, networks, and systems; unauthorized access to and misappropriation of user information, including users’ personally
identifiable information, or other confidential or proprietary information of ourselves or third parties; viruses, worms, spyware, or
other malware being served from our sites, networks, or systems; deletion or modification of content or the display of unauthorized content
on our sites; interruption, disruption, or malfunction of operations; costs relating to breach remediation, deployment of additional personnel
and protection technologies, response to governmental investigations, and media inquiries and coverage; engagement of third-party experts
and consultants; or litigation, regulatory action, and other potential liabilities. In the past, we have experienced social engineering,
phishing, malware, and similar attacks and threats of denial-of-service attacks, none of which to date has been material to our business;
however, such attacks could in the future have a material adverse effect on our operations, business, and financial condition. If any
of these breaches of security should occur and be material, our reputation and brand could be damaged, our business may suffer, we could
be required to expend significant capital and other resources to alleviate problems caused by such breaches, and we could be exposed to
a risk of loss, litigation, or regulatory action and possible liability. We cannot guarantee that recovery protocols and backup systems
will be sufficient to prevent data loss. Actual or anticipated attacks may cause us to incur increasing costs, including costs to deploy
additional personnel and protection technologies, train employees, and engage third-party experts and consultants.
In addition, any party who
is able to illicitly obtain access to a user’s account could access the user’s transaction data or personal information, resulting
in the perception that our systems are insecure. Any compromise or breach of our security measures, or those of our third-party service
providers, could violate applicable privacy, data protection, data security, network, and information systems security and other laws
and cause significant legal and financial exposure, adverse publicity, negative impact to our brand and reputation, and a loss of confidence
in our security measures, which could have a material adverse effect on our business, financial condition, and results of operations.
We continue to devote significant resources to protect against security breaches or we may need to in the future to address problems caused
by breaches, including notifying affected users in accordance with regulatory requirements and responding to any resulting litigation,
which in turn, diverts resources from the growth and expansion of our business.
Because we maintain certain information
about our users, we are subject to various privacy laws both in the U.S. and internationally. Our failure to comply with such laws
could expose us to penalties, fines, and litigation, and it could adversely impact our reputation and brand, any of which could adversely
affect our business.
We are subject to various
privacy laws in the U.S. and internationally. In California, for example, the California Consumer Privacy Act (the “CCPA”)
has created rights for California citizens to request reports of how their information is collected and used, to request copies of their
information, and to request, with some limitations, for their information to be deleted. The CCPA also requires companies to give Californians
the ability to opt out of the sale of their personal information and creates potential liability for companies that fail to take adequate
steps to protect personal information where that failure results in a data breach. Virginia and other states have enacted, or are considering,
data privacy laws similar to the CCPA.
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In the European Union, the
General Data Protection Regulation (the “GDPR”) significantly expanded the rules on using personal data and increased the
risks of processing personal data. Some of the new requirements include:
● constraints on using data to profile users;
Other international jurisdictions
in which the Company operates, or its services are available, have implemented, or are considering implementing, data privacy laws similar
to the GDPR. Our policies and procedures for compliance with data privacy laws, may not be implemented correctly or our management,
employees or agents may not comply with the new procedures. Failure to comply with data privacy laws may have serious financial consequences.
We could face significant sanctions, statutory damages, and damage to our reputation resulting in a material adverse effect on our results
of operations, business, or financial condition.
Our business could be adversely impacted
by changes in the Internet and mobile device accessibility of users.
Our business depends on users’
access to our Platform via a mobile device or personal computer and the Internet. We may operate in jurisdictions that provide limited
data or Internet connectivity, particularly as we expand internationally. Internet access and access to a mobile device or personal computer
are frequently provided by companies with significant market power that could take actions that degrade, disrupt, or increase the cost
of consumers’ ability to access our Platform. In addition, the Internet infrastructure that we and users of our Platform rely on
in any particular geographic area may be unable to support the demands placed upon it and could interfere with the speed and availability
of our Platform. Any such failure in Internet or mobile device or computer accessibility, even for a short period of time, could adversely
affect our results of business, financial condition, and results of operations.
We operate in a rapidly evolving industry
and if we fail to successfully develop, market, or sell new products or adopt new technology platforms, it could materially adversely
affect our business, results of operations, and financial condition.
Our Platform and other software
products compete in a market characterized by rapid technological advances, evolving standards in software and hardware technology, and
frequent new product introductions and enhancements that may render existing products, services, and systems obsolete. Competitors are
continuously upgrading their product offerings with new features, functions, and content. In addition, we continuously refine our software
and technology platform to address regulatory changes in the markets in which we operate or plan to operate. In order to remain competitive,
we will need to continuously modify and enhance our technology platform and service offerings.
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We cannot assure you that
we will be able to respond to rapid technological or regulatory changes in our industry. In addition, the introduction of new products
or updated versions of existing products and the underlying technology that supports such products has inherent risks, including, but
not limited to, risks concerning:
● market acceptance of initial product releases; and
Because we commit substantial
resources to developing new offerings and services, if the markets for these new offerings or services do not develop as anticipated,
or demand for our products, services and systems in these markets does not materialize or materializes later than we expect, we will have
expended substantial resources and capital without realizing sufficient offsetting or resulting revenue, and our business, financial condition,
and operating results could be materially adversely affected. Developing, enhancing and localizing software is expensive, and the investment
in product development may involve a long payback cycle. Our future plans include significant additional investments in development of
our software, hardware, and other proprietary and intellectual property required for our technology. We believe that we must continue
to dedicate a significant amount of resources to our development efforts to maintain our competitive position. However, we may not receive
significant revenue from these investments for several years, if at all. In addition, as we or our competitors introduce new or enhanced
offerings, the demand for our offerings, may decline.
We may not timely and effectively scale
and adapt our existing technology and network infrastructure to ensure that our Platform is accessible, which would adversely affect our
business, reputation, financial condition, and results of operations.
We expect to continue to make
significant investments to maintain and improve the availability of our Platform and to enable rapid releases of new features and services.
However, it may become increasingly difficult to maintain and improve the availability of our Platform, especially during peak usage times