Company: LTRYW
Filing Date: 2025-11-20
Form Type: 10-Q
Source: 0001493152-25-024384
Chunk: 109

Company: Lottery.com Inc.
Filing Date: 2025-11-20
Form: 10-Q
Item: Part I, Item 8
Chunk 109
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 the cost of procurement of lottery games, minus
winnings to users, additional expenses related to the sale of lottery games, including, commissions, affiliate fees and revenue shares;
and (ii) payment processing fees on user fees, including chargebacks imposed on the Company. Other non-variable costs included in cost
of revenue include affiliate marketing credits acquired on a per-contract basis.

For
Non-Lottery Operations. Cost of revenue consists of (i) fixed direct costs and/or variable costs incurred for content or services provided
by third parties in connection with generating revenue; and (ii) payment processing fees on user fees, including chargebacks imposed
on the Company. Other variable costs include underlying costs of tickets for events and sweepstakes prizes.

Stock-based
Compensation

Effective
October 1, 2019, the Company adopted ASU 2018-07, Compensation - “Stock Compensation (Topic 718): Improvements to Nonemployee
Share-based Payment Accounting” (“ASC 718”), which addresses aspects of the accounting for nonemployee share-based
payment transactions and accounts for share-based awards to employees in accordance with ASC 718, Stock Compensation. Under this
guidance, stock compensation expense is measured at the grant date, based on the fair value of the award, and is recognized as an expense
over the estimated service period (generally the vesting period) on the straight-line attribute method.

     F-11 

Income
Taxes

For
both financial accounting and tax reporting purposes, the Company reports income and expenses based on the accrual method of accounting.

For
federal and state income tax purposes, the Company reports income or loss from their investments in limited liability companies on the
consolidated income tax returns. As such, all taxable income and available tax credits are passed from the limited liability companies
to the individual members. It is the responsibility of the individual members to report the taxable income and tax credits, and to pay
any resulting income taxes. Therefore, the income and losses incurred by the limited liability companies have been consolidated in the
Company’s tax return and provision based upon its relative ownership.

Income
taxes are accounted for in accordance with ASC 740, “Income Taxes” (“ASC 740”), using the asset and liability
method. Under this method, deferred income tax assets and liabilities are recognized for the future tax consequences attributable to
temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
Deferred income tax assets and