Lottery.com Inc. defaults on the Loan

Woodford Eurasia expresses deep concern over recent misleading statements published by Lottery.com Inc., which falsely imply the conclusion of their ongoing legal dispute. Contrary to these claims, Woodford asserts that the dispute is far from resolved, especially given Lottery.com‘s default on the loan agreement in December.

Woodford entered into a loan agreement with Lottery in December 2022 and provided over $2 million in the form of a convertible loan, with the option to provide another $50 million facility. Woodford’s Loan Agreement with Lottery allows Woodford to convert the loan at any point to Lottery shares at a fixed price and gives Woodford the option to purchase Sports.com, a URL owned by Lottery, at a fixed price of $6 million. The loan agreement was filed with the SEC, and these provisions are therefore publicly available. Here is the link to the filed loan agreement: (Page 51, Exhibit 10.1)

https://ir.lottery.com/static-files/0ea308ba-a43f-4a2b-8584-b5cb1a83696a#page51

The debt provided under the loan agreement is secured by a debenture over all the assets of Lottery. So, the default under the loan entitles Woodford to appoint a receiver to liquidate Lottery.

By June 2023, Woodford had provided over $2,159,838.15 to Lottery under the loan agreement, and this amount was acknowledged by Lottery in Clause 4.2 of the filed Amended and Restated Loan Agreement. These funds were used to restate the company’s financial reporting, bring it into compliance with Nasdaq and SEC requirements, and create a robust business development strategy. As a result, in June 2023, the Nasdaq hearing panel granted Lottery permission to continue trading on the exchange. This marked the end of a long period of distress in Lottery’s history since the founders, Antony DiMatteo, Matt Clemenson, and Ryan Dickinson, and former management of the company were accused of overstating revenues and became the subject of an SEC and DOJ investigation.

Lottery Breaches the Loan Agreement

In July 2023, soon after the Nasdaq decision was made in Lottery’s favour, the Board of Directors informed Woodford that Lottery unilaterally replaced Woodford with another creditor. It transpired that this company was UCIL, a company owned by Lottery’s supposedly independent directors, Matthew McGahan and Barney Battles. We think this move was a reckless violation of SEC and Nasdaq rules. The signing of the new loan agreement with UCIL (which simply duplicated the terms of the Woodford loan agreement) was also a flagrant breach of the terms of the Woodford loan agreement.

Lottery committed further breaches of the Woodford Loan Agreement by replacing transactional CEO and public company re-organisation specialist Mark Gustavson when he uncovered and exposed irregular activities by various board members. In an effort to conceal their wrongful actions, Matthew McGahan assumed the positions of CEO, President, Secretary, and Chairman, while Barney Battles is still Head of the Audit Committee. A simple background check on actor Tamer Hassan and the other board members shows a clear association and prior business relationship between them all and fails to satisfy the independence requirements for these directors, leaving Lottery out of compliance with the Nasdaq Majority Independent Board rule.

Lottery began rapidly losing market cap as the share value tanked from 3.3$ in late August to 1.3$ in early November. Woodford issued a notice to convert part of its loan into shares (in accordance with the loan agreement). This notice was ignored. Instead, the board announced the issuance of large blocks of company shares to the directors (and their advisers) without disclosing exact names, amounts, or terms.

Proxy Vote and Shareholder Dilution

In November, Lottery announced a proxy vote to issue shares and warrants to a value of $200 million, resulting in a change of control and a significant dilution of all existing shareholders.

Woodford and its subsidiaries filed a lawsuit in Delaware court as an attempt to prevent the issuance of shares pursuant to a proxy vote that was not conducted correctly. The judge declined to prevent the proxy vote from going ahead, even though some shareholders were not given either the means or opportunity to vote. We believe that the judge simply did not have time to consider all the relevant facts and circumstances, as we had to file at the last minute as the proxy vote was deliberately rushed through by the board.

Woodford declined to proceed with the Delaware action because there is now a payment default under the loan agreement, and enforcing the debt will provide more direct and swifter relief. However, Woodford and its subsidiaries, as shareholders, retain the ability to refile the Delaware action if matters change. In our opinion, there is no doubt that the proxy vote was not properly conducted.

Woodford Recourse and Exercise of Sports.com Option

Woodford made several attempts to mediate and settle the dispute with Lottery. A proposal to invest $10 million in lottery was made and ignored. Woodford also submitted the notice to exercise the option to purchase Sports.Com as per clause 12 of the loan agreement; this was also ignored. However, the notice was validly executed, and Woodford has a contractual right to Sports.Com, which can be enforced through the courts if necessary.

In December, Lottery defaulted on its repayment obligation under the loan agreement, and a notice of default was served by Woodford. The security granted to Woodford over all of the assets of Lottery is now enforceable. Woodford is currently taking advice as to the best means to enforce security.

Directors award new shares to themselves and their advisers.

In February 2024, Lottery finally disclosed the names of people who had been awarded shares since the UCIL announcement was made, and it became clear that the Lottery board members had awarded themselves shares, including 9.9% to McGahan and 4.9% to Battles. All existing shareholders were hugely diluted.

It was shocking to see that 6.1% was awarded to Mr. Andrey Ryjenko, who now hides behind his wife’s surname of Nikitin and is publicly disclosed to be a consultant to the Board. We believe that Mr. Ryjenko is the only person on (or near) the Lottery Board with any real top-level business experience and used to work at a senior level at the European Bank of Reconstruction and Development until he was convicted of fraud in 2017 and served 3 years of a 6-year jail sentence. We do not think that he should be anywhere near the board of a Nasdaq-listed company.

The disclosure in February 2024 revealed that Lottery.com board members awarded themselves in total over 40% of company shares, resulting in substantial dilution for existing shareholders. Woodford alleges that such actions amount to corporate raiding.

On January 5, 2024, in a court hearing in U.S. Federal Court in Tampa, Florida, current Chief Operating Officer Greg Potts testified under oath that he had received shares in the company for a “retention bonus” and for “past due salary.”

To this day, Lottery has no known legitimate staff on payroll, and the company has no ongoing business operations or revenue generation outside of TinBu, LLC, a company lottery.com fraudulently acquired and has never paid for as promised. The TinBu founders are currently suing Lottery for $20,000,000 for fraud.

“We have tried many times to mediate or settle this dispute in an amicable way. We are shareholders of this company and are committed to supporting it all the way through. It is unfortunate that Lottery management keeps making false accusations, issuing incorrect news releases and announcements, abusing legal processes, and manipulating, so we now have no choice but to enforce our security, which will undoubtedly cause disruption of business and further loss of value for Lottery. It is unfortunate that the actions of individuals in their own interest can lead to such damage to a corporation, and we are surprised how a publicly traded company can lack independent oversight and compliance.”

“What Matthew McGahan and Barney Battles are trying to do is wrongful on so many levels. Now they have teamed up with Andrey Ryjenko, who is a convicted fraudster, and together they are trying to complete this corporate raid by awarding themselves shares and lining their pockets with cash at the expense of all Lottery shareholders. Historically, lottery investors have suffered from mismanagement and larceny. Enough is enough, and we now have all the means necessary to put an end to this outrage.” Woodford Spokesperson