Sports Entertainment Gaming Global (SEGG) risk factors, FY2024 10-K

Other

1. 01The findings of the previously disclosed Internal Investigation and other matters have exposed us to a number of legal proceedings, investigations and inquiries, resulted in significant legal and other expenses, required significant time and attention from our senior management, among other adverse impacts
2. 02As a consequence, on May 10, 2023 and May 15, 2023 respectively, the Company filed with the SEC as amended reports the required restatements of its year-end report for December 31, 2021 and for the quarter ended March 31, 2022
3. 03We cannot predict all impacts on the Company in connection with or arising from any of the foregoing. Any unknown or new risks might result in a material adverse effect on us
4. 04We have been named as a defendant in a number of lawsuits filed by purchasers of our securities, including class action lawsuits that could have a material adverse impact on our business, financial condition, results of operation and cash flows, and our reputation
5. 05As a result of the material weaknesses, management has concluded that our internal control over financial reporting remained ineffective as December 31, 2024
6. 06The circumstances that led to the failure to file our annual report and quarterly reports on time, and our efforts to investigate, assess and remediate those matters have caused and may continue to cause substantial delays in our SEC filings

Business, Market & Economic Risks

1. 07Economic downturns, inflation, and political and market conditions beyond our control could adversely affect our business, financial condition, and results of operations
2. 08Competition in the sports media market could impair our ability to generate revenue from Sports.com
3. 09Consumer trends in paying for streaming content may have an adverse impact on the Sports.com subscription service
4. 10Reductions in discretionary consumer spending could have an adverse effect on our business, financial condition, and results of operations
5. 11Our future growth will depend largely 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
6. 12We 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
7. 13We are subject to risks related to corporate social responsibility, responsible gaming, reputation, and ethical conduct

General Operational Risks

1. 14We have incurred net losses in the past with negative cash flows and suspended operations and may not be able to generate and sustain profitability
2. 15Our results of operations may fluctuate due to seasonality and other factors and, therefore, our periodic operating results will not be guarantees of future performance
3. 16We 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 in various jurisdictions, and other factors
4. 17Our 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
5. 18Our marketing efforts to help grow our business may not be effective
6. 19Any 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
7. 20Information Technology Risks
8. 21Our business could be adversely impacted by changes in the Internet and mobile device accessibility of users
9. 22We 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
10. 23We may not timely and effectively scale and adapt our technology and network infrastructure to ensure that our Platform is accessible, which would adversely affect our business, reputation, financial condition, and results of operations
11. 24Our Platform may be vulnerable to risks, both foreseen and unforeseen, arising from our application of distributed ledger technology

Regulatory and Compliance Risks

1. 25If the Interstate Wagering Amendment is interpreted or applied to prohibit transmissions to foreign countries, it could have a negative impact on our business, financial condition, and results of operations
2. 26We cannot ensure that our activities will remain in compliance or that we will continue to receive all licenses for which we apply. The failure to receive a license, could have a material adverse effect on us or on our business, financial condition, or results of operations
3. 27As a digital company operating within the U.S. and subject to the jurisdiction of various foreign governments and regulatory agencies, we are accordingly subject to domestic and foreign laws regarding anti-bribery, anti-corruption, economic and trade sanctions, anti-money laundering, and counter-terror financing
4. 28We are subject to domestic and foreign laws relating to processing certain financial transactions, including payment card transactions, and failure to comply with those laws, even if inadvertent, could have a material adverse effect on our business, financial condition, and results of operations

Human Capital Risks

1. 29If we do not succeed in attracting, hiring, and integrating excellent personnel, or retaining and motivating existing personnel, we may be unable to grow effectively and our business, financial condition and results of operations could be seriously harmed
2. 30Illegal, improper, or otherwise inappropriate activity of our couriers, whether or not occurring while performing their duties for us, could expose us to liability and adversely affect our business, reputation, brand, financial condition, and results of operations

Risks Relating to our Dependence on Third Parties

1. 31We rely on third-party providers for validation services regarding our users, and if such providers fail to perform adequately, provide inaccurate information, or we do not maintain business relationships with them, our business, financial condition, and results of operations could be adversely affected
2. 32We rely on third-party payment processors to process payments and withdrawals made by our users, and if we cannot manage our relationships with such third parties and other payment-related risks, our business, financial condition, and results of operations could be adversely affected
3. 33Our technology contains third-party open-source software components, and failure to comply with the terms of the underlying open-source software licenses could restrict our ability to provide our offerings
4. 34If we cannot license rights to use third-party technologies on reasonable terms, we may not be able to commercialize new products or services in the future

Risks Relating to Future Growth

1. 35Our strategy anticipates substantial growth, and if we fail to adequately scale product offerings and manage our entry into new territories, our business and reputation may be harmed
2. 36We may face difficulties as we expand our operations into new markets in which we have limited or no prior operating experience

International Operations Risks

1. 37The international scope of our operations may expose us to increased legal and regulatory risks, and our international operations and corporate and financing structure may expose us to potentially adverse tax consequences
2. 38Fluctuating foreign currency and exchange rates may negatively impact our business, results of operations, and financial position
3. 39If we are unable to protect our intellectual property and proprietary rights or prevent its unauthorized use by third parties, our ability to compete in the market or our business, financial condition, and results of operations may be harmed

Legal Proceedings Risks

1. 40We may not recover amounts owed to us from J. Streicher Financial, LLC
2. 41Public Company Operating Risks
3. 42The requirements of being a public company may strain our resources and divert management’s attention, and the increases in legal, accounting and compliance expenses may be greater than we anticipate

Risks Relating to Our Charter Documents and Delaware Law

1. 43Our Charter includes certain redemption rights which may negatively affect the value our common stock and other securities or result in the redemption of shares of common stock or other securities held by certain holders
2. 44A court may find that part or all of the provisions included in our Charter pertaining to the redemption right with respect to capital stock held by any stockholders who are deemed to be “disqualified” or “unsuitable” holders is not enforceable, either in general or as to a particular fact situation
3. 45Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us
4. 46The exclusive forum provision in our Charter may have the effect of discouraging lawsuits against our directors and officers
5. 47Anti-takeover provisions contained in our Charter and Bylaws, as well as provisions of Delaware law, could impair a takeover attempt

Risks Related to Our Common Stock and Warrants

1. 48Although we are currently in full compliance with the continued listing standards of Nasdaq, we may not be able to remain in full compliance with Nasdaq’s continued listing standards in the future
2. 49Our common stock and warrants trade on The Nasdaq Global Market under the symbols “LTRY” and “LTRYW,” respectively. Our failure to remain in full compliance with these requirements may result in our securities being delisted from Nasdaq
3. 50Furthermore, the requirement that we maintain a majority of independent directors and at least three members on our audit committee are Nasdaq requirements that we currently meet but have not met from time to time
4. 51An active trading market for our common stock and warrants may never develop or be sustained, which may make it difficult to sell the shares of common stock and warrants
5. 52The market price of our common stock and warrants could be highly volatile, and you may lose some or all of your investment
6. 53If securities or industry analysts do not publish research or reports about the Company, or publish negative reports, the Company’s stock price and trading volume could decline
7. 54Because the Company does not anticipate paying any cash dividends in the foreseeable future, capital appreciation, if any, would be your sole source of gain

Risks Related to Our Loan Agreements and Loan Agreement Warrants

1. 55Pursuant to the Woodford Amended and Restated Loan Agreement, Woodford agreed to fund up to $52.5 million, subject to certain conditions and requirements, of which, per our books and records, $798,351 was received by us through December 31, 2024
2. 56We are subject to certain covenants while amounts are outstanding under the loan agreements which may restrict our ability to undertake future activities, including issuing additional shares of common stock
3. 57Our obligations under the loan agreements are secured by a first priority security interest in substantially all of our assets and if we were to default, they could force us to curtail or abandon our business plans and operations
4. 58The issuance and sale of common stock upon conversion of the amounts owed or upon exercise of the warrants issued to either Woodford or UCIL under each’s loan agreement may depress the market price of our common stock and cause substantial dilution
5. 59Additionally, the issuance of common stock upon conversion of the amounts owed under either loan agreement or the exercise of warrants will result in immediate and substantial dilution to the interests of other stockholders
6. 60We currently owe a significant amount of money under our Loan Agreements which we may not be able to repay
7. 61Our insurance coverage is not adequate to cover all possible losses that we could suffer, and our insurance costs may increase
8. 62Our cash and cash equivalents may be exposed to failure of our banking institutions