It’s been a tough few months for the online lottery messaging service lottery.com and in a short time, the situation could go from bad to worse. However, the company has begun to address an issue that could significantly impact its future.
Lottery.com has identified two potential new members of its board of directors, preparing to avoid the sanctions of NASDAQ In the process. While the appointments could help solve this problem, others still weigh on the company in worrying ways.
Online lottery service appoints two pending board members
On September 21, Lottery.com filed a case with the United States Securities and Exchange Commission which announced that it failed to comply with a crucial NASDAQ rule. NASDAQ rules require every company on its list to have:
- an audit committee of the board of directors composed of at least three members, each of whom is not employed by the company or holds a material interest
- a Competition Committee of the Board of Directors composed of at least two members, both of whom are also independent
On September 8, Lottery.com decided to partially meet this requirement. An 8-K filing with that date announced that the company had identified two potential board members pending background checks. The filing does not specify what roles these individuals would fill if confirmed in the potential positions.
The Sept. 21 filing says the NASDAQ gave Lottery.com until Wednesday 5 October submit a plan to bring its board into compliance. If NASDAQ accepts the plan before then, it could give Lottery.com up to 180 days to fill those spots.
The biggest problem is that Lottery.com has recently been in hot water not only with NASDAQ but also with shareholders.
Troubled Times on Lottery.com
The September 8 file reveals more of the backstory behind this situation. Among the details are the appointment of a new CEO and the resignation of former members of its board.
The September 8 filing essentially covers all of Lottery.com’s leadership moves during the month. It is said that on September 6, board members Lisa Borders, Steven Cohen and William C. Thompson, Jr. have resigned from their positions on the company’s board of directors. It also indicates that two days later, Lawrence Anthony DiMatteo also quit.
This left Richard Kivel, the chairman of the board, as the sole member of the board. Finally, the company named Sohail S. Quraeshi as interim CEO on September 12. DiMatteo had held the position before his resignation. The resigning board members outlined their reasons for leaving in another 8-K filed Sept. 2.
For example, Borders cited “opaque and contrived processes, singular relationships and a dysfunctional board environment” as factors behind its decision. Cohen listed a meeting that members excluded from the board to discuss a company financing proposal, calling it “the reluctance of some directors to deliberate and consult in an open and reasoned manner”.
This internal conflict was likely aggravated by an ongoing class action lawsuit. The company’s shareholders allege the company’s former executives, including DiMatteo, deceived them and gross mismanagement led to losses in the market.
At the time the lawsuit was filed, the company was also facing a possible delisting from NASDAQ. It did not comply with another rule that requires companies to file their quarterly earnings reports with the stock exchange by June 30. The company has since met that requirement, but more issues could arise next week.
Could the end be near for Lottery.com?
The Sept. 21 filing features Lottery.com indicating that it plans to comply with the NASDAQ rule governing board membership.
“While the company cannot provide any assurance as to the timing, the company plans to identify new independent members of the audit committee and compensation committee as soon as possible to regain compliance with Nasdaq listing rules. “
This statement does not imply that the company will meet the October 5 deadline. It is unclear at this time how the NASDAQ might react if this were the case. Again, Lottery.com does not need to fill any open spots by Wednesday, simply present an acceptable plan to do it.
Radiation (withdrawal from the market) is a drastic measure, but for a company which, in July, doubted that it had enough money to pay its bills, drastic measures might be appropriate. The NASDAQ allows delisted companies to appeal, and the SEC also has its own appeals process, which could save the company more time.
As NASDAQ itself points out, however, delisting is not necessarily a death sentence in itself. It is possible for companies to regain a place in the market even after being delisted. However, given the tumultuous state of Lottery.com, a delisting at this time could dampen any interest in the investment it badly needs. October 5 could be a watershed day for the company and its remaining shareholders.