UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June 30,~~March 31, ~~2022~~2023

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File No. 001-39274

GAN Limited

(Exact name of registrant as specified in its charter)

Bermuda

Not Applicable

(State or other jurisdiction

of incorporation or organization)

(I.R.S. Employer

Identification No.)

400 Spectrum Center Drive, Suite 1900, Irvine, California		92618
(Address of principal executive offices)		(Zip Code)

(833) 565-0550

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered~~registered~~
Ordinary shares, par value $0.01		GAN		The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐
~~Non-accelerated filer~~	☒	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

At ~~August 10, 2022,~~May 8, 2023, there were ~~42,075,411~~44,683,390 ordinary shares outstanding.

Table of Contents

GAN LIMITED

FORM 10-Q

INDEX

			Page
	PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)		3
	Condensed Consolidated Balance Sheets as of ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022		3
	Condensed Consolidated Statements of Operations for the three ~~and six~~ months ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~		4
	Condensed Consolidated Statements of Comprehensive Loss for the three ~~and six~~ months ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~		5
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three ~~and six~~ months ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~		6
	Condensed Consolidated Statements of Cash Flows for the ~~six~~three months ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~		7
	Notes to Condensed Consolidated Financial Statements		8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		3127
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		4537
Item 4.	Controls and Procedures	46	37
	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings		4839
Item 1A.	Risk Factors		4839
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49	40
Item 6.	Exhibits		5040
	SIGNATURES		5141

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

GAN LIMITED

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except share and per share amounts)


							March 31,			December 31,
	June 30, 2022			December 31, 2021			2023			2022
ASSETS
Current assets
Cash	$	49,075		$	39,477		$	40,755		$	45,920
Accounts receivable, net of allowance for doubtful accounts of $116 and $120 at June 30, 2022 and December 2021, respectively		11,233			8,110
Accounts receivable, net of allowance for doubtful accounts of $119 and $250 at March 31, 2023 and December 31, 2022, respectively								13,873			13,808
Prepaid expenses		4,468			3,498			5,333			4,861
Other current assets		2,574			3,337			3,111			3,041
Total current assets		67,350			54,422			63,072			67,630

Capitalized software development costs, net		16,047			14,430			7,756			6,749
Goodwill		105,737			146,142
Intangible assets, net		52,370			35,893			22,167			24,955
Other assets		4,514			10,023			3,642			3,746
Total assets	$	246,018		$	260,910		$	96,637		$	103,080

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	6,268		$	5,268		$	5,603		$	6,437
Accrued compensation and benefits		7,198			10,961			8,864			8,750
Accrued expenses		3,343			4,669
Accrued content license fees								1,748			2,214
Liabilities to users		7,754			8,984			9,663			10,683
Other current liabilities		2,870			3,151			5,115			4,448
Total current liabilities		27,433			33,033			30,993			32,532

Deferred income taxes		1,397			1,791			4,107			4,218
Long-term debt		27,670			—			28,483			28,157
Content licensing liabilities		19,158			—			6,389			15,280
Other liabilities		1,354			2,049			2,058			2,125
Total liabilities		77,012			36,873			72,030			82,312
Commitments and contingencies (Note 17)		-			-
Commitments and contingencies (Note 14)								-			-
Shareholders’ equity
Ordinary shares, $0.01 par value, 100,000,000 shares authorized, 42,075,411 and 42,250,743 shares issued and outstanding at June 30, 2022 and December 2021, respectively		420			422
Ordinary shares, $0.01 par value, 100,000,000 shares authorized, 43,280,958 and 42,894,211 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively								433			429
Additional paid-in capital		324,833			319,551			330,366			328,998
Accumulated deficit		(120,211	)		(76,360	)		(273,360	)		(274,861	)
Accumulated other comprehensive loss		(36,036	)		(19,576	)		(32,832	)		(33,798	)
Total shareholders’ equity		169,006			224,037			24,607			20,768
Total liabilities and shareholders’ equity	$	246,018		$	260,910		$	96,637		$	103,080

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

GAN LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands, except share and per share amounts)

Three Months Ended
June 30, Six Months Ended
June 30,
2022 2021 2022 2021

Revenue $ 34,967 $ 34,350 $ 72,461 $ 61,468

Operating costs and expenses
Cost of revenue⁽¹⁾ 10,463 10,356 22,163 19,075
Sales and marketing 7,267 5,480 13,365 9,581
Product and technology 5,188 4,829 14,142 10,072
General and administrative⁽¹⁾ 13,688 12,320 23,080 22,329
Impairment 28,861 — 28,861 —
Restructuring 712 — 1,771 —
Depreciation and amortization 6,556 4,132 10,969 8,126
Total operating costs and expenses 72,735 37,117 114,351 69,183
Operating loss (37,768 ) (2,767 ) (41,890 ) (7,715 )
Interest expense, net 1,080 — 1,071 1
Other income
(270
) — (270 )
—

Loss before income taxes (38,578 ) (2,767 ) (42,691 ) (7,716 )
Income tax (benefit) expense (229 ) 992 157 1,653
Net loss $ (38,349 ) $ (3,759 ) $ (42,848 ) $ (9,369 )

Loss per share, basic and diluted $ (0.91 ) $ (0.09 ) $ (1.01 ) $ (0.22 )

Weighted average ordinary shares outstanding, basic and diluted 42,300,668 41,931,948 42,276,798 41,912,285
2023 2022
Three Months Ended
March 31,
2023 2022

Revenue $ 35,129 $ 37,494

Operating costs and expenses
Cost of revenue ⁽¹⁾ 10,161 11,700
Sales and marketing 7,184 6,098
Product and technology 9,578 8,954
General and administrative ⁽¹⁾ 10,006 9,392
Restructuring — 1,059
Depreciation and amortization 4,201 4,413
Total operating costs and expenses 41,130 41,616
Operating loss (6,001 ) (4,122 )
Interest expense (income), net 1,716 (9 )
Other income, net (9,292 ) —
Income (loss) before income taxes 1,575 (4,113 )
Income tax expense 74 386
Net income (loss) $ 1,501 $ (4,499 )

Earnings (loss) per share, basic and diluted $ 0.03 $ (0.11 )

Weighted average ordinary shares outstanding
Basic 42,982,255 42,252,661
Diluted 47,200,182 42,252,661

⁽¹⁾ Excludes depreciation and amortization expense
The accompanying notes are an integral part of these condensed consolidated financial statements.

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GAN LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)
(in thousands)

Three Months Ended
June 30, Six Months Ended
June 30,
2022 2021 2022 2021

Net loss $ (38,349 ) $ (3,759 ) $ (42,848 ) $ (9,369 )
Other comprehensive (loss) income, net of tax
Foreign currency translation adjustments (12,196 ) 2,443 (16,460 ) (7,035 )
Comprehensive loss $ (50,545 ) $ (1,316 ) $ (59,308 ) $ (16,404 )
2023 2022
Three Months Ended
March 31,
2023 2022

Net income (loss) $ 1,501 $ (4,499 )
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments 966 (4,264 )
Comprehensive income (loss) $ 2,467 $ (8,763 )

The accompanying notes are an integral part of these condensed consolidated financial statements.

5
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GAN LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN ~~STOCKHOLDERS’~~ STOCKHOLDERS’ EQUITY (UNAUDITED)
(in thousands, except share amounts)

Ordinary Shares

Additional
Paid-in
Treasury
Accumulated

Accumulated
Other
Comprehensive

Total
Shareholders’

Shares
Amount Capital
Shares
Deficit
Loss

Equity

Balance at January 1, 2022 42,250,743 $ 422 $ 319,551 $ — $ (76,360 ) $ (19,576 ) $ 224,037
Net loss — — — — (4,499 ) — (4,499 )
Foreign currency translation adjustments — — — — — (4,264 ) (4,264 )
Share-based compensation — — 1,316 — — — 1,316
Accrued liability settled through issuance of shares — — 444 — — — 444
Restricted share activity 2,365 — — — — — —
Balance at March 31, 2022 42,253,108 $ 422 $ 321,311 $ — $ (80,859 ) $ (23,840 ) $ 217,034
Net loss — — — — (38,349 ) — (38,349 )
Foreign currency translation adjustments — — — — — (12,196 ) (12,196 )
Share-based compensation — — 2,659 — — — 2,659
Accrued liability settled through issuance of shares — — 469 — — — 469
Repurchases of ordinary shares (303,113 ) — — (1,006 ) — — (1,006 )
Ordinary share retirement — (3 ) — 1,006 (1,003 ) — —
Issuance of ordinary shares upon exercise of share options 125,416 1 394 — — — 395
Balance at June 30, 2022 42,075,411 $ 420 $ 324,833 $ — $ (120,211 ) $ (36,036 ) $ 169,006

Ordinary Shares

Additional
Paid-in
Treasury
Accumulated

Accumulated
Other
Comprehensive

Total
Shareholders’

Shares
Amount Capital
Shares
Deficit
Loss

Equity

Balance at January 1, 2021 36,635,362 $ 365 $ 203,842 $ — $ (45,766 ) $ (2,877 ) $ 155,564
Net loss — — — — (5,610 ) — (5,610 )
Foreign currency translation adjustments — — — — — (9,478 ) (9,478 )
Share-based compensation — — 1,632 — — — 1,632
Issuance of ordinary shares as partial consideration in Coolbet acquisition 5,260,516 53 106,630 — — — 106,683
Fair value of replacement equity awards issued as consideration in Coolbet acquisition — — 297 — — — 297
Issuance of ordinary shares upon exercise of share options 108,222 1 314 — — — 315
Balance at March 31, 2021 42,004,100 $ 419 $ 312,715 $ — $ (51,376 ) $ (12,355 ) $ 249,403
Net loss — — — — (3,759 ) — (3,759 )
Foreign currency translation adjustments — — — — — 2,443 2,443
Share-based compensation — — 2,319 — — — 2,319
Restricted share activity 5,178 1 (1 ) — — — —
Issuance of ordinary shares upon exercise of share options 6,396 — 22 — — — 22
Balance at June 30, 2021 42,015,674 $ 420 $ 315,055 $ — $ (55,135 ) $ (9,912 ) $ 250,428
Shares Amount Capital Deficit Loss Equity
Accumulated
Additional Other Total
Ordinary Shares Paid-in Accumulated Comprehensive Shareholders’
Shares Amount Capital Deficit Loss Equity

Balance at January 1, 2023 42,894,211 $ 429 $ 328,998 $ (274,861 ) $ (33,798 ) $ 20,768
Balance 42,894,211 $ 429 $ 328,998 $ (274,861 ) $ (33,798 ) $ 20,768
Net income — — — 1,501 — 1,501
Foreign currency translation adjustments — — — — 966 966
Share-based compensation — — 1,382 — — 1,382
Restricted share activity 377,944 4 — — —
4

Repurchase of restricted shares to pay tax liability (Note 7) (49,157 ) (1 ) (78 ) — — (79 )
Issuance of ordinary shares upon ESPP purchases 57,960 1 64 — — 65
Balance at March 31, 2023 43,280,958 $ 433 $ 330,366 $ (273,360 ) $ (32,832 ) $ 24,607
Balance 43,280,958 $ 433 $ 330,366 $ (273,360 ) $ (32,832 ) $ 24,607
Accumulated
Additional Other Total
Ordinary Shares Paid-in Accumulated Comprehensive Shareholders’
Shares Amount Capital Deficit Loss Equity

Balance at January 1, 2022 42,250,743 $ 422 $ 319,551 $ (76,360 ) $ (19,576 ) $ 224,037
Balance 42,250,743 $ 422 $ 319,551 $ (76,360 ) $ (19,576 ) $ 224,037
Net loss — — — (4,499 ) — (4,499 )
Net income (loss) — — — (4,499 ) — (4,499 )
Foreign currency translation adjustments — — — — (4,264 ) (4,264 )
Share-based compensation — — 1,316 — — 1,316
Accrued liability settled through issuance of shares — — 444 — — 444
Restricted share activity 2,365 — — — — —
Balance at March 31, 2022 42,253,108 $ 422 $ 321,311 $ (80,859 ) $ (23,840 ) $ 217,034
Balance 42,253,108 $ 422 $ 321,311 $ (80,859 ) $ (23,840 ) $ 217,034

The accompanying notes are an integral part of these condensed consolidated financial statements.
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GAN LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)

Three Months Ended
Six Months Ended
June 30, March 31,
2022 2021 2023 2022
Cash Flows From Operating Activities
Net loss $ (42,848 ) $ (9,369 )
Adjustments to reconcile net loss to net cash (used in) from operating activities:
Net income (loss) $ 1,501 $ (4,499 )
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Amortization of software and intangible assets 10,265 7,624 3,835 4,082
Depreciation on property and equipment and finance lease right-of-use assets 704 502 365 331
Amortization of debt discount and debt issuance costs 95 — 326 —
Share-based compensation expense 3,678 3,951 1,362 1,222
Impairment of goodwill 28,861 —
Gain on extinguishment of content liability (9,292 ) —
Deferred income tax
(253
) — (194 ) —
Other (101 ) 139 (181 ) —
Changes in operating assets and liabilities, net of acquisitions:
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable (3,110 ) (5,354 ) 143 237
Prepaid expenses (1,029 ) 342 (404 ) (670 )
Other current assets 529 573 (32 ) (267 )
Other assets 2,363 97 39 238
Accounts payable 1,203 (2,094 ) (916 ) 591
Accrued compensation and benefits (3,251 ) 1,804 (7 ) (2,885 )
Accrued expenses (1,147 ) 2,500
Accrued content license fees (498 ) —
Liabilities to users (546 ) 2,204 (1,213 ) 22
Other current liabilities (359 ) (959 ) 660 (183 )
Other liabilities 759 1,177 331 (243 )
Net cash (used in) from operating activities (4,187 ) 3,137
Net cash used in operating activities (4,175 ) (2,024 )

Cash Flows From Investing Activities
Cash paid for acquisition, net of cash acquired — (92,404 )
Expenditures for capitalized software development costs (6,302 ) (5,320 ) (1,343 ) (3,543 )
Payments for content licensing arrangements (5,500 ) (3,500 )
Purchases of gaming licenses (16 ) (207 ) (165 ) (16 )
Purchases of property and equipment (692 ) (1,093 ) (254 ) (429 )
Net cash used in investing activities (12,510 ) (102,524 ) (1,762 ) (3,988 )

Cash Flows From Financing Activities
Proceeds from issuance of long-term debt 30,000 —
Payments of offering costs — (604 )
Proceeds from exercise of share options 396 337
Principal payments on finance leases — (54 )
Repurchases of ordinary shares (1,006 ) —
Payment of debt issuance costs (2,425 ) —
Net cash provided by (used in) financing activities 26,965 (321 )
Proceeds from issuance of ordinary shares upon ESPP purchase 65 —
Repurchase of restricted shares to pay tax liability (112 ) —
Net cash used in financing activities (47 ) —

Effect of foreign exchange rates on cash (670 ) (860 ) 819 118

Net increase (decrease) in cash 9,598 (100,568 )
Cash and cash equivalents, beginning of period 39,477 152,654
Cash and cash equivalents, end of period $ 49,075 $ 52,086
Net decrease in cash (5,165 ) (5,894 )
Cash, beginning of period 45,920 39,477
Cash, end of period $ 40,755 $ 33,583

Supplemental Disclosure of Noncash Investing and Financing Activities:
Supplemental Cash Flow Information
Cash paid for:
Interest $ 1,068 $ 2,444
Income taxes 36 728
Intangible assets acquired in business acquisition included in current and long-term liabilities $ 26,244 $ — — 24,876
Ordinary shares issued as partial consideration to acquire all the outstanding shares of Coolbet — 106,683
Issuance of unvested share options in exchange for unvested share options of Coolbet — 297
Accrued liability settled through issuance of shares — 913

The accompanying notes are an integral part of these condensed consolidated financial statements.

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GAN LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except share and per share amounts)

NOTE 1 — NATURE OF OPERATIONS

GAN Limited (the “Parent,” and with its subsidiaries, collectively the “Company”) is an exempted company limited by shares, incorporated and registered in Bermuda. GAN plc, the previous parent, began its operations in the United Kingdom (“U.K.”) in 2002 and listed its ordinary shares on the AIM, the London Stock Exchange’s market for smaller companies, in 2013.
On January 1, 2021, the Company acquired all of the outstanding shares of Vincent Group p.l.c. (“Vincent Group”), a Malta public limited company doing business as “Coolbet”. Coolbet is a developer and operator of an online sports betting and casino platform that is accessible through its website in markets across Northern Europe, Latin America and Canada.

The Company is a business-to-business (“B2B”) supplier of a proprietary gaming system, GameSTACK™ (“GameSTACK”), which is used predominately inby the U.S. land-based casino industry. For its B2B customers, GameSTACK is a turnkey technology solution for regulated real money internet gambling (“real money iGaming” or “RMiG”), online sports gaming, and virtual simulated gaming (“SIM”). In addition, the Company’s B2B segment offers GAN Sports, an in-house online and retail sports betting technology platform, through internet connected self-service kiosks deployed at casino properties and mobile solutions. The Company is also a business-to-consumer (“B2C”) developer and operator of an online sports betting and casino platform under its “Coolbet” brand, providing international users with access through www.coolbet.com to its sportsbook, casino games and poker products. The Company operates its B2C segment in 2 ~~operating segments – B2B~~markets across Northern Europe, Latin America, and ~~B2C.~~Canada.

NOTE 2 — ~~BASIS~~SUMMARY OF ~~PRESENTATION~~SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation
The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). and include the results of the Parent and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The unaudited condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and reflect all adjustments, in the opinion of management, of a normal recurring nature that are necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented. The financial data and other financial information disclosed in these notes to the condensed consolidated financial statements related to these periods are also unaudited. The results of operations for the three ~~and six~~ months ended ~~June 30, 2022~~March 31, 2023 are not necessarily indicative of the results that may be expected for the year ended December 31, ~~2022~~2023 or for any future annual or interim period. The condensed consolidated balance sheet as of December 31, ~~2021~~2022 included herein was derived from the audited consolidated financial statements as of that date. The accompanying unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

~~NOTE 3 —~~ ~~SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES~~
The Company’s significant accounting policies are included in “Note 3 – Summary of Significant Accounting Policies” of its 2021 Form 10-K. In addition to repeating some of these significant accounting policies, the Company has added certain new significant accounting policies during the six months ended June 30, 2022, as described below.
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GAN LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except share and per share amounts)
Liquidity
The accompanying condensed consolidated financial statements have been prepared on a going concern basis. As of March 31, 2023, the Company had an accumulated deficit of $273.4 million, with cash of $40.8 million and liabilities to users of $9,663. The Company had historically operated with net losses and has not generated positive cash flows. Additionally, the Company’s current financial condition, liquidity resources, and planned near-term cash flows from operations are sensitive to changes in macro-economic conditions and the substantial variability inherent in the Company’s wager-based revenues streams. These factors indicate uncertainty related to the ability of the Company to meet its current obligations as they come due.
In the fourth quarter of 2022, the Company initiated plans to address its liquidity needs and improve its operations and cash position primarily by (i) reducing and deferring personnel and operational costs for non-strategic initiatives, (ii) amending the Credit Facility to reduce cash interest obligations and amend financial covenants, (iii) identifying sources of additional capital, (iv) continuing investment in the growth areas of the Company’s consolidated operations, (v) continuing cost saving initiatives first implemented during the year ended December 31, 2022, and (vi) initiating a strategic review process to assess a range of strategic alternatives.
On April 13, 2023, a subsidiary of the Company executed agreements to amend its existing credit facility to waive all events of default, amend certain financial covenants, assign the rights to the credit facility from its existing lender to a third party, and increase the principal balance from $30.0 million to $42.0 million with accrued paid in-kind (“PIK”) interest of 8.0% per year (together, forming the “Amended Credit Facility”). The Amended Credit Facility became effective upon cash settlement of payments initiated on April 13, 2023, occurred on April 14, 2023 and represented a cure of any events of default under the Credit Facility and thereby prevent any amounts from becoming due and payable under the Credit Facility’s subjective acceleration clause. The Amended Credit Facility contains a financial covenant, among other covenants, requiring minimum liquidity of $10.0 million. Refer to Note 15 – Subsequent Events for further detail. Management believes the executed Amended Credit Facility and intent and ability to complete the remaining cost mitigation plans alleviate uncertainty regarding the ability to meet its current obligations as they come due.
To the extent that the Company’s current resources, including its ability to generate operating cash flows, are insufficient to satisfy its cash requirements, the Company may seek additional equity or debt financing. The Company’s ability to do so depends on prevailing economic conditions and other factors, many of which are beyond management’s control. The Company does not currently have any such credit facilities or similar debt arrangements in place, outside of the Amended Credit Facility as described above, and cannot provide any assurance as to the availability or terms of any future financing that it may require to support its operations. If the needed financing is not available, or if the terms of financing are less desirable than expected, the Company may be forced to decrease its level of investment in new products and technologies, discontinue further expansion of the business, scale back its existing operations, or divest of assets, any of which could have an adverse impact on the Company and its financial prospects.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Due to the inherent uncertainties involved in making estimates, actual results could differ from the original estimates, and may require significant adjustments to these reported balances in future periods.
~~Principles of Consolidation~~
~~The~~ ~~condensed~~ ~~consolidated financial statements~~ ~~include the results of the Parent and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.~~

Foreign Currency Translation and Transactions

The Company’s reporting currency is the U.S. Dollar while the Company’s foreign subsidiaries use their local currencies as their functional currencies. The assets and liabilities of foreign subsidiaries are translated to U.S. Dollars based on the current exchange rate prevailing at each reporting period. Revenue and expenses are translated into U.S. Dollars using the average exchange rates prevailing for each period presented. Translation adjustments that arise from translating a foreign subsidiary’s financial statements from their functional currency to U.S. Dollars are reported as a separate component of accumulated other comprehensive loss in shareholders’ equity.

Gains and losses arising from transactions denominated in a currency other than the functional currency are included in general and administrative expense in the condensed consolidated statements of operations as incurred. Foreign currency transaction and remeasurement gains and losses were a net loss of $~~311~~624 and $~~126~~867 for the three months ended ~~June 30,~~March 31, 2023 and 2022, ~~and 2021, respectively, and $1,178~~ ~~and $172~~ ~~for the six months ended June 30, 2022 and 2021,~~ respectively.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of its cash and trade receivables. ~~At June 30, 2022, the~~The Company ~~held~~holds cash deposits in foreign countries, primarily in Northern Europe and Latin America, of approximately $~~39.7~~36.9 million, which are subject to local banking laws and may bear higher or lower risk than cash deposited in the United States. Cash held in the United States is maintained in a major financial institution in excess of federally insured limits. As part of our cash management processes, the Company performs periodic evaluations of the credit standing of the financial institutions and we have not sustained any credit losses from instruments held at these financial institutions. Additionally, the Company maintains an allowance for potential credit losses, but historically has not experienced any significant losses related to individual customers or groups of customers in any particular geographic area.
~~Risks and Uncertainties – COVID-19~~
The coronavirus disease 2019 (“COVID-19”) pandemic, which was declared a national emergency in the United States in March 2020, significantly impacted the economic conditions and financial markets around the world. Although more normalized activities have resumed, the ultimate impact of the pandemic on the Company’s future operating results is unknown and will depend, in part, on the length of time COVID-19 disruptions exist and the subsequent behavior of players after restrictions are fully lifted. A recurrence of COVID-19 cases or an emergence of additional variants could adversely impact the Company’s future financial results if suspension or cancellation of sporting events or closure of land-based casinos were to follow. The Company has considered the impact of COVID-19 on its accounting policies, judgments and estimates as part of the preparation of these condensed consolidated financial statements and has not identified additional items to disclose as a result.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except share and per share amounts)
Risks and Uncertainties

~~Additionally, management~~Macroeconomic conditions can materially adversely affect the Company’s business, results of operations and financial condition. Recent adverse macroeconomic conditions, including inflation, higher interest rates, slower growth or recession, the ~~Board~~strengthening of ~~Directors are monitoring~~ the ~~impacts of COVID-19~~U.S. dollar, and corresponding currency fluctuations can have an adverse material impact on the Company’s future results of operations, cash flows, and ~~have not identified any major operational challenges through~~financial condition, particularly with respect to foreign currency adjustments relating to our international operations. Such conditions may also affect consumers’ willingness to make discretionary purchases, and therefore the ~~date of issuance of these condensed consolidated financial statements.~~Company, along with its casino operator customers, may experience a decline in wagering. A downturn in the economic environment can also lead to increased credit and collectibility risk on the Company’s trade receivables, limitations on the Company’s ability to issue new debt, and reduced liquidity.

Revenue Recognition

Revenue from B2B Operations

The Company’s revenue from its B2B operations are primarily from its internet gaming Software-as-a-Service platform (“SaaS”), GameSTACK, that its customers use to provide ~~real money internet gambling (“RMiG”),~~RMiG, online sports gaming and ~~simulated internet gaming (“SIM”)~~SIM services to its end users. The Company enters into contracts with its customers that generally range from three to five years and include renewal provisions. These contracts generally include provision of the internet gaming platform, content consisting of proprietary and third-party games, development services and support and marketing services. In certain cases, the contract may include computer hardware to be procured on behalf of the customer. The customers cannot take possession of the hosted GameSTACK software and the Company does not sell or license the GameSTACK software.

The Company charges fees as consideration for it use of its internet gaming system, game content, support and marketing services based on a fixed percentage of the casino operator’s net gaming revenue or net sportsbook win, at the time of settlement of an event for RMiG contracts, considered usage-based fees, or at the time of purchase for in-game virtual credit for SIM contracts. The determination of the fee charged to its customers is negotiated and varies significantly. Certain of these RMiG contracts provide the Company with a minimum monthly revenue guarantee in relation to the Company’s share of the casino operator’s net gaming revenue or net sportsbook win. At ~~June 30, 2022~~March 31, 2023 the remaining unsatisfied performance obligations related to fixed minimum guaranteed revenue totaled ~~$0.9~~$9.7 million.

The Company’s promise to provide the RMiG SaaS platform and content licensing services on the hosted software is a single performance obligation. This performance obligation is recognized over time, as the Company provides services to its ~~customer~~customers in its delivery of services to the player end user. The Company’s customers simultaneously receive and consume the benefits provided by the Company as it delivers services to its customers. Usage based fees are considered variable consideration as the service is to provide unlimited continuous access to its hosted application and usage of the hosted system is primarily controlled by the player end user. The transaction price includes fixed and variable consideration and is billed monthly with the amount due generally thirty days from the date of the invoice. Variable consideration is allocated entirely to the period in which consideration is earned as the variable amounts relate specifically to the customer’s usage of the platform that day and allocating the usage-based fees to each day is consistent with the allocation objective, primarily that the change in amounts reflect the changing value to the customer. The Company’s internet gaming system, game content, support and marketing services are provided equally throughout the term of the contract. These services are made up of a daily requirement to provide access and use of the internet gaming system and optional support and marketing services to the customer over athe same period of time, ~~as well as to provide marketing services,~~ and not a specified amount of services. The series of distinct services represents a single performance obligation that is satisfied over time.

Purchases of virtual credits within a transaction period on the SIM platform, generally a monthly convention, are earned over time, and are typically billed monthly upon the close of the respective period as the credit has no monetary value, cannot be redeemed, exchanged, transferred or withdrawn, represents solely a device for tracking game play during the month, does not obligate the Company to provide future services and the arrangements with the customer and player end user have no substantive termination penalty. In certain service agreements with its SIM customers, the fees collected by the Company ~~receives fees~~from third-party payment processors for the purchases of in-game virtual ~~credit~~credits made by end-users include the SIM customer’s portion. The Company records the SIM customer’s portion as a liability as cash is collected and remits payment to the SIM customer for their share of the SIM ~~revenues.~~revenues monthly. At ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the Company has recorded a liability due to its customers for their share of the fees of $~~968~~1,582 and $~~2,171~~1,628, respectively, within other current liabilities in the condensed consolidated balance sheets.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except share and per share amounts)

The Company uses third-party content providers in supplying game content in its performance of providing game content on its platform to its customers. A customer has access to the Company’s propriety and licensed game ~~content and additionally,~~content. Additionally, the customer can direct the Company to procure third-party game content on its behalf. The Company has determined it acts as the principal for providing the game content when the Company controls the game content, and therefore presents the revenue on a gross basis in the condensed consolidated statements of operations. When the customer directs the Company to procure third-party game content, the Company determined it is deemed an agent for providing such game content, and therefore, records the revenue, net of the costs of content license fees, in the condensed consolidated statements of operations.
The Company also provides ongoing development services involving updates to the RMiG platforms for enhanced functionality or customization. Ongoing development services are typically billed monthly, at a daily rate, for services performed. Revenue from RMiG platform development services that are identified as distinct performance obligations and ~~relate either to~~enhance or create an asset the customer controls ~~or from which~~as the ~~customer receives value~~Company performs the services are recognized over ~~the period the~~time as services are performed. This revenue is measured using an input method based on effort expended, which uses direct labor hours incurred. AsThese services have primarily related to post-launch development of third-party application integration software in the ~~performance obligation relates to~~customer’s environment. Separately, the ~~provision of development services over time, this method reflects the transfer of control as the Company performs the services. Separately,~~ revenue generated from customers for development services that are ~~not identified as~~ distinct performance obligations and the customer benefits from the integrated SaaS offering are deferred over the license service term. These services have primarily related to enhancements to the Company’s platforms that do not enhance or create an asset the customer controls. In customer contracts that require a portion of the consideration to be received in advance or at the commencement of the contract, such amounts are recorded as a contract liability.

Other services include the resale of a third-party computer hardware, such as servers and other related hardware devices, upon which the GameSTACK software is installed for its customers. These products are not required to be purchased in order to access the GameSTACK platform but are sold as a convenience to the customer. The Company procures the computer hardware on the customer’s behalf for a fee determined based on cost of the computer hardware plus a markup. The Company charges a hardware deployment fee which is a one-time fee for installation, testing and certification of the computer hardware at the gaming hosting facility. Revenue is recognized at the point in time when control of the hardware transfers to the customer. Control is transferred after the hardware has been procured, delivered, installed at the customer’s premises and configured to allow for remote access.

The Company has determined that it is acting as the principal in providing computer hardware and related services as it assumes responsibility for procuring, delivering, installing and configuring the hardware at the customer’s location and takes control of the hardware, prior to transfer. Revenue is presented at the gross amount of consideration to which it is entitled from the customer in exchange for the computer hardware and related services.

The Company generates revenue from time to time from the licensing of its U.S. patent, which governs the linkage of on-property reward cards to their counterpart internet gaming accounts together with bilateral transmission of reward points between the internet gaming technology system and the land-based casino management system present in all U.S. casino properties. The nature of the promise in transferring the license is to provide a right to use the patent as it exists. The Company does not have to undertake activities to change the functionality of the patent during the license period and the license has significant stand-alone functionality. Therefore, the Company recognizes the revenue from the license of the patent at the point in time when control of the license is transferred to the customer. Control is determined to transfer at the point in time the customer is able to use and benefit from the license.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except share and per share amounts)

Contracts with Multiple Performance Obligations

For customer contracts that have more than one performance obligation, the transaction price is allocated to the performance obligations in an amount that depicts the relative stand-alone selling prices of each performance obligation. Judgment is required in determining the stand-alone selling price for each performance obligation. In determining the allocation of the transaction price, an entity is required to maximize the use of observable inputs. When the stand-alone selling price of a good or service is not directly observable, an entity is required to estimate the stand-alone selling price. Contracts with its customers may include platform and licensing of game content services, as well as development services and computer hardware services. The variable consideration generated from the platform and the licensing of game content is allocated entirely to the performance ~~obligation~~obligations for platform and licensing of game content services and the remaining fixed fees for development services and computer hardware would be allocated to each of the remaining performance obligation based on their relative stand-alone selling prices. The variable consideration relates entirely to the effort to satisfy the platform and licensing game content services and the fixed consideration relates to the remaining performance obligations which is consistent with the allocation objective.

Revenue from Gaming Operations

The Company operates the B2C gaming site www.coolbet.com outside of the U.S., which contains proprietary software and includes the following product offerings: sportsbook, poker, casino, live casino and virtual sports.

The Company manages an online sportsbook allowing users to place various types of wagers on the outcome of sporting events conducted around the world. The Company operates as the bookmaker and offers fixed odds wagering on such events. When a user’s wager wins, the Company pays the user a pre-determined amount known as fixed odds. Revenue from online sportsbook is reported net after deduction of player winnings and bonuses. Revenue from wagers is recognized when the outcome of the event is known.

The Company offers live casino through its digital online casino offering in select markets, allowing users to place a wager and play games virtually at retail casinos. The Company offers users a catalog of over ~~3,100~~4,700 third-party iGaming products such as digital slot machines and table games such as blackjack and roulette. Revenue from casino games is reported net after deduction of winnings, jackpot contribution and customer bonuses.

Peer-to-peer poker offerings allow users to play poker against one another on the Company’s online poker platform for prize money. Revenue is recognized as a percentage of the reported rake. Additionally, the Company offers tournament poker which allows users to buy-in for a fixed price for prize money. For tournament play, revenue is recognized for the difference between the entry fees collected and the amounts paid out to users as prizes and winnings.

In each of the online gaming products, a single performance obligation exists at the time a wager is made to operate the games and award prizes or payouts to users based on a particular outcome. Revenue is recognized at the conclusion of each contest, wager, or wagering game hand. Additionally, certain incentives given to users, for example, that allow the user to make an additional wager at a reduced price, may provide the user with a material right which gives rise to a separate performance obligation.

The Company allocates a portion of the user’s wager to incentives that create material rights that are redeemed or expired in the future. The allocated revenue for gaming wagers is primarily recognized when the wagers occur because all such wagers settle immediately.

The Company applies a practical expedient by accounting for revenue from gaming on a portfolio basis because such wagers have similar characteristics, and the Company reasonably expects the effects on the financial statements of applying the revenue recognition guidance to the portfolio to not differ materially from that which would result if applying the guidance to an individual wagering contract.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except share and per share amounts)
Cost of Revenue
Cost of revenue consists primarily of variable costs. These include mainly (i) content license fees, (ii) payment processing fees and chargebacks, (iii) platform technology, software, and connectivity costs directly associated with revenue generating activities, (iv) gaming duties, and (v) sportsbook feed / provider services. The Company incurs payment processing fees on B2C user deposits, withdrawals, and deposit reversals from payment processors. Cost of revenue excludes depreciation of the servers on which the Company’s gaming platforms reside as well as amortization of intangible assets including internally developed software.
Sales and Marketing

Sales and marketing expense primarily consists of general marketing and advertising costs, B2C user acquisition expenses and personnel costs within our sales and marketing functions. Sales and marketing costs are expensed as incurred.
Product and Technology
Product and technology expenses consist primarily of personnel costs associated with development and maintenance activities that are not capitalized. These costs primarily represent employee expenses (including but not limited to, salaries, bonus, employee benefits, employer tax expenses, and share-based compensation) for personnel and contractors involved in the design, development, and project management of our proprietary technologies as well as developed and licensed content.
General and Administrative
General and administrative expenses consist of costs, including gaming operations costs, not related to sales and marketing, product and technology or revenue. General and administrative costs include professional services (including legal, regulatory and compliance, audit, and consulting expenses), rent contingencies, insurance, allowance for credit losses, foreign currency transaction gains and losses, and costs related to the compensation of executive and non-executive personnel, including share-based compensation.

Content Licensing Fees

Content licensing fees are paid to third parties for gaming content which are expensed as incurred. Content licensing fees are calculated as a percentage of net gaming revenues in respect of the third-party games, as stipulated in the third-party agreements.

Share-based Compensation

Share-based compensation expense is recognized for share options and restricted shares issued to employees and non-employee members of the Company’s Board of Directors. The Company’s issued share options and restricted shares, which are primarily considered equity awards and include only service conditions, are valued based on the fair value of these awards on the date of grant. The fair value of the share options is estimated using a Black-Scholes option pricing model and the fair value of the restricted shares (restricted share awards and restricted share units) is based on the market price of the Company’s shares on the date of grant.

Certain restricted share units awards issued to non-employee members of the Company’s Board of Directors permit shares upon vesting to be withheld, as a means of meeting the non-employee director’s tax withholding requirements, and paid in cash to the non-employee director. The Company additionally incurs share-based compensation expense under compensation arrangements with certain of its employees under which the Company will settle bonuses for a fixed dollar amount by issuing a variable number of shares based on the Company’s share price on the settlement date. These awards are classified as liability-based awards which are measured based on the fair value of the award at the end of each reporting period until settled. Related compensation expense is recognized based on changes to the fair value over the applicable service ~~period~~period.

Share-based compensation is recorded over the requisite service period, generally defined as the vesting period. For awards with graded vesting and only service conditions, compensation cost is recorded on a straight-line basis over the requisite service period of the entire award. Forfeitures are recorded in the period in which they occur.

~~Loss~~Earnings Per Share, Basic and Diluted

Basic ~~loss~~earnings per share is calculated by dividing ~~the net loss~~earnings by the weighted average number of ordinary shares outstanding during the year. In periods of loss, basic and diluted per share information are the same.

Cash

Cash is comprised of cash held at the bank and third-party service providers. The Company is required to maintain compensating cash balances to satisfy its liabilities to users. Such balances are included within cash in the condensed consolidated balance sheets and are not subject to creditor claims. At ~~June 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the related liabilities to users ~~was~~were $~~7,754~~9,663 and $~~8,984~~10,683, respectively.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except share and per share amounts)
~~Property and Equipment, net~~
Property and equipment are stated at cost less accumulated depreciation. Depreciation is generally computed on a straight-line basis over the estimated useful lives of the assets. Maintenance and repairs are charged to expense in the period they are incurred. When items of property or equipment are sold or retired, the related cost and accumulated depreciation are removed from the accounts, and any gain or loss is included in the statement of operations.
Capitalized Software Development Costs, net

The Company capitalizes certain development costs related to its internet gaming platforms during the application development stage. Costs associated with preliminary project activities, training, maintenance and all other post implementation stage activities are expensed as incurred. Software development costs are capitalized when application development begins, it is probable that the project will be completed, and the software will be used as intended. The Company capitalizes certain costs related to specific upgrades and enhancements when it is probable that expenditures will result in additional functionality of the platform to its customers. The capitalization policy provides for the capitalization of certain payroll and payroll related costs for employees who spent time directly associated with development and enhancements of the platform.

Capitalized software development costs are amortized on a straight-line basis over their estimated useful lives, which generally ranges from three to five years,, and are included within depreciation and amortization expense in the condensed consolidated statements of operations.

~~Goodwill~~
Goodwill represents the excess of the fair value of the consideration transferred over the estimated fair values of the identifiable assets acquired and liabilities assumed on the acquisition date. The Company has recorded goodwill primarily from its acquisition of Coolbet in January 2021. Goodwill is not amortized, but rather is reviewed for impairment annually (as of October 1st) or more frequently if facts or circumstances indicate that it is more-likely-than-not the fair value of a reporting unit may be below its carrying amount.
The Company has determined that it has two reporting units: B2C and B2B. In its goodwill impairment testing, the Company has the option to perform a qualitative assessment to determine whether it is more-likely-than-not that the fair value of the reporting unit, including goodwill, is less than its carrying amount prior to performing the quantitative impairment test. The qualitative assessment evaluates various events and circumstances, such as macro-economic conditions, industry and market conditions, cost factors, relevant events and financial trends that may impact a reporting unit’s fair value. If it is determined that the estimated fair value of the reporting unit is more-likely-than not less than its carrying amount, including goodwill, the quantitative goodwill impairment test is required. Otherwise, no further analysis would be required.
If the quantitative impairment test for goodwill is deemed necessary, this quantitative impairment analysis compares the fair value of the Company’s reporting unit to its related carrying value. If the fair value of the reporting unit is less than its carrying amount, goodwill is written down to the fair value and an impairment loss is recognized. If the fair value of the reporting unit exceeds its carrying amount, no further analysis is required. Fair value of the reporting unit is determined using valuation techniques, primarily discounted cash flow analysis.
ASC Topic 350 requires that goodwill be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company performed a qualitative assessment to determine whether events or circumstances such as those described in ASC 350-20-35-3C existed and concluded that, due to the significant and sustained decline in share price and market capitalization of the Company since the Coolbet acquisition, such triggers existed during the interim period; therefore, an interim quantitative impairment test was performed. As a result of the quantitative impairment test performed, the Company recorded an impairment to goodwill of $~~28.9~~ ~~million during the three and six months ended June 30, 2022.~~
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~~GAN LIMITED~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~
~~(in thousands, except share and per share amounts)~~
Long-lived Assets

Long-lived assets, except goodwill, consist of property and equipment, and finite lived acquired intangible assets, such as developed software, gaming licenses, trademarks, trade names and customer relationships. Intangible assets are amortized on a straight-line basis over their estimated useful lives. The Company considers the period of expected cash flows and underlying data used to measure the fair value of the intangible assets when selecting the estimated useful lives.

Gaming licenses include license applications fees and market access payments in connection with agreements that the Company enters into with strategic partners. The market access arrangements authorize the Company to offer online gaming and online sports betting in certain regulated markets. These costs are capitalized and amortized on a straight-line basis over their estimated useful lives, beginning with the commencement of operations.
The fair value of the acquired intangible assets is primarily determined using the income approach. In performing these valuations, the Company’s key underlying assumptions used in the discounted cash flows were projected revenue, gross margin expectations and operating cost estimates. There are inherent uncertainties and management judgment is required in these valuations.
Acquired in-process developed technology consists of a proprietary technical platform. The Company reviews the in-process developed technology for impairment at least annually or more frequently if an event occurs creating the potential for impairment, until such time as the in-process developed technology efforts are completed. When completed, the developed technology will be amortized over its estimated useful life based on an amortization method that reflects the pattern in which the economic benefits of the intangible assets are consumed or otherwise realized. The integrated technology is expected to be completed in the fourth quarter of 2022.

Long-lived assets, except goodwill, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group to be tested for possible impairment, the Company compares the undiscounted cash flows expected to be generated by that asset or asset group to their carrying amount. If the carrying amount of the long-lived asset or asset group are not recoverable on an undiscounted cash flow basis, an impairment charge is recognized to the extent that the carrying amount exceeds fair value. Fair value is determined through various techniques, such as discounted cash flow models using probability weighted estimated future cash flows and the use of valuation specialists. During the three months ended ~~June 30, 2022,~~March 31, 2023, there was no triggering event that would cause the Company to believe the value of its long-lived assets should be impaired.

Liabilities to Users

The Company records liabilities for user account balances. User account balances consist of user deposits, promotional awards and user winnings less user withdrawals and user ~~losses~~.losses.

Legal Contingencies and Litigation Accruals

On a quarterly basis, the Company assesses potential losses in relation to pending or threatened legal matters. If a loss is considered probable and the amount can be reasonably estimated, the Company recognizes an expense for the estimated loss. Estimates of any such loss are subjective in nature and require the evaluation of numerous facts and assumptions as to future events, including the application of legal precedent which may be conflicting. To the extent these estimates are more or less than the actual liability resulting from the resolution of these matters, the Company’s financial results will increase or decrease accordingly.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except share and per share amounts)

Debt

Debt issuance costs incurred in connection with the issuance of new debt are recorded as a reduction to the long-term debt balance on the condensed consolidated balance sheets, and amortized over the term of the loan commitment as interest expense onin the accompanying condensed consolidated statements of operations. The Company calculates amortization expense on capitalized debt issuance costs using the effective interest method in accordance with Accounting Standards Codification (“ASC”) 470, ~~Debt~~.Debt.

Fair Value of Financial Instruments

The Company applies the provisions of ASC 820, Fair Value Measurements and Disclosures, which provides a single authoritative definition of fair value, sets out a framework for measuring fair value and expands on required disclosures about fair value measurement. Fair value represents the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company uses the following hierarchy in measuring the fair value of the Company’s assets and liabilities, focusing on the most observable inputs when available:

● Level 1 Quoted prices in active markets for identical assets or liabilities.

● Level 2 Observable inputs other than Level 1 quoted prices, such as quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active for identical or similar assets and liabilities, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

● Level 3 Valuations are based on the inputs that are unobservable and significant to the overall fair value measurement of the assets or liabilities. Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

Valuation techniques used to measure the fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

The following table summarizes the Company’s assets and liabilities that are measured at fair value on a recurring basis as required by ASC 820, by level, within the fair value hierarchy as of June 30, 2022:Company does not hold any significant Level 2 or Level 3 financial instruments.
~~SCHEDULE OF FAIR VALUE OF ASSETS AND LIABILITIES ON RECURRING BASIS~~
Fair Value Level 1 Level 2 Level 3
June 30, 2022
Fair Value Level 1 Level 2 Level 3
Liability
Contingent content liability $ 4,369 $ — $ — $ 4,369

The contingent content liability represents additional amounts which the Company expects to pay to Ainsworth Game Technology, a third-party gaming content provider (“the Content Provider”) if the Company’s total revenue generated from its content licensing arrangement with the Content Provider exceeds certain stipulated annual
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except share and cumulative thresholds during the contract term. The fair value of the contingent content liability is determined using Level 3 inputs, since estimating the fair value of this contingent content liability requires the use of significant and subjective inputs that may and are likely to change over the duration of the liability with related changes in internally generated anticipated games revenue as well as external market factors. The contingent content liability was valued using a Monte Carlo simulation based on management’s anticipated annual games revenue forecasts. The fair value of the contingent content liability was initially recognized during the three months ended June 30, 2022 in connection with its modified arrangement with the Content Provider on April 5, 2022 and is recorded within Content licensing liabilities within the condensed consolidated balance sheets. Refer to Note 4 – Acquisition for further detail.per share amounts)

Income Taxes

The Company is subject to income taxes in the United States, U.K., Bulgaria, Israel, Canada, Estonia, Malta, and ~~Malta.~~Mexico. The Company records an income tax ~~(benefit)~~ expense for the anticipated tax consequences of the reported results of operations using the asset and liability method. Under this method, deferred income tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as for loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled. The effect on deferred income tax of a change in tax rates are recorded in the period of the enactment. Deferred tax assets are reduced, through a valuation allowance, if necessary, by the amount of such benefits that are not expected to be realized based on current available evidence. In evaluating the Company’s ability to recover deferred tax assets in the jurisdiction from which they arise, all available positive and negative evidence is considered, including results of recent operations, scheduled reversals of deferred tax liabilities, projected future taxable income, and tax-planning strategies. The Company records a valuation allowance to reduce its deferred tax assets to the net amount that it believes is more likely than not to be realized.

The Company recognizes tax benefits from uncertain tax positions only if management believes that it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. Although the Company believes that it has adequately provided for uncertain tax positions, no assurance can be given that the final tax outcome of these matters would not be materially different. Adjustments are made when facts and circumstances change, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences would affect the provision for income taxes in the period in which such determination is made and could have a material impact on the Company’s financial condition and operating results. The Company recognizes penalties and interest related to income tax matters in income tax expense.
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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~
~~(in thousands, except share and per share amounts)~~

Segments
The Company operates in 2two operating segments, B2B and B2C. Operating segments are defined as components of an enterprise where separate financial information is evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and assess the Company’s performance. The Company’s CODM is the Chief Executive Officer. The CODM allocates resources and assesses performance based upon discrete financial information at the operating segment level.
Recently ~~Issued~~Adopted Accounting Pronouncements

In October 2021, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. ASU 2021-08 requires an acquirer to measure and recognize contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, Revenue from Contracts with Customers, rather than using fair value on the acquisition date. This amendment is effective for fiscal years beginning after December 15, 2022, including interim periods within those annual periods, and should be applied prospectively to business combinations occurring on or after the effective date. ~~Early adoption is permitted.~~ The Company ~~will apply~~adopted the amended guidance on ~~a prospective basis to business combinations that occur on or after~~ January 1, ~~2023.~~2023, and such adoption did not materially impact the financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except share and per share amounts)
NOTE 3 — PROPERTY AND EQUIPMENT, NET
Property and equipment, net is recorded in other assets in the condensed consolidated balance sheets at March 31, 2023 and December 31, 2022 and consisted of the following:
SCHEDULE OF PROPERTY AND EQUIPMENT
Life (in years) 2023 2022
Estimated Useful March 31, December 31,
Life (in years) 2023 2022
Fixtures, fittings and equipment 3 - 5 $ 4,460 $ 4,136
Platform hardware 5 2,333 2,313
Total property and equipment, cost 6,793 6,449
Less: accumulated depreciation (4,012 ) (3,599 )
Total $ 2,781 $ 2,850
Depreciation expense related to property and equipment was $365 and $310 for the three months ended March 31, 2023 and 2022, respectively.

NOTE 4 — ~~ACQUISITION~~CAPITALIZED SOFTWARE DEVELOPMENT COSTS, NET

~~Content licensing agreement with Ainsworth Game Technology~~Capitalized software development costs, net at March 31, 2023 and December 31, 2022 consisted of the following:
SCHEDULE OF CAPITALIZED COMPUTER SOFTWARE COSTS, NET
In the second quarter of 2021, the Company entered into a Content Licensing Agreement (the “Agreement”) with Ainsworth Game Technology, a third-party gaming content provider (the “Content Provider”) specializing in developing and licensing interactive games. The Agreement grants the Company exclusive rights to use and distribute the online gaming content in North America, and the Content Provider is committed to developing a minimum number of games for the Company’s exclusive use over a five-year term, subject to extensions.
On April 5, 2022, the Company amended and restated the Agreement. In accordance with the restated arrangement, the Company amended certain commercial terms, which included obtaining the contractual right to lease the remote gaming servers, taking possession of the related software, and obtaining a service contract from the Content Provider for the duration of the arrangement. The total fixed fees remaining under the amended arrangement totaled $~~25.0~~ ~~million, of which $5.5~~ ~~million was paid during the six months ended June 30, 2022 with the remaining $4.5~~ ~~million due in 2022, and $5.0~~ million in each of the years 2023 through 2025. Fixed fee payments are presented in the condensed consolidated statements of cash flows as payments for content licensing arrangements within cash flows from investing activities. Additional payments could be required if the Company’s total revenue generated from the arrangement exceed certain stipulated annual and cumulative thresholds during the contract term.
The amended and restated Agreement is accounted for as a business combination as the assets acquired and the liabilities assumed under the arrangement constitute a business in accordance with ASC 805, Business Combinations. Consideration transferred is comprised of the present value of the Company’s total expected fixed payments under the Agreement, the net assets recognized under the original agreement, as well as a contingent consideration.

March 31, December 31,
2023 2022
Capitalized software development costs $ 8,588 $ 6,857
Development in progress 514 732
Total capitalized software development, cost 9,102 7,589
Less: accumulated amortization (1,346 ) (840 )
Total $ 7,756 $ 6,749

~~The following table summarizes~~At March 31, 2023, development in progress primarily represents costs associated with GAN Sports, costs associated with its newer GameSTACK technology, and enhancements to the ~~consideration transferred and the recognized amounts of identifiable assets acquired and liabilities assumed at the acquisition date:~~Company’s proprietary B2C software platform.

~~Fair value of~~Amortization expense related to capitalized software development costs was $486 and $1,162 for the ~~consideration transferred:~~three months ended March 31, 2023 and 2022, respectively.
~~SUMMARY OF CONSIDERATION TRANSFERRED~~

Present value of future fixed fee payments
$ 18,808
Net assets recognized under original agreement 3,067
Contingent consideration 4,369
Total $ 26,244
The contingent consideration represents additional amounts which the Company expects to pay to the Content Provider if the Company’s total revenue generated from the arrangement exceed certain stipulated annual and cumulative thresholds during the contract term. The maximum amount of the payment is unlimited as it is determined based on the Company’s performance over the related games revenue over the arrangement term. The fair value of the contingent consideration is determined using Level 3 inputs, since estimating the fair value of this contingent consideration requires the use of significant and subjective inputs that may and are likely to change over the duration of the liability with related changes in internally generated anticipated games revenue as well as external market factors. The contingent consideration was valued using a Monte Carlo simulation based on management’s anticipated annual games revenue forecasts.
~~Identifiable assets and liabilities assumed at fair value were entirely comprised of~~ intangible assets acquired as part of the content licensing arrangement. The fair values of intangible assets were estimated using inputs classified as Level 3 under the income approach using either the royalty income method (content licenses) or the multi-period excess earnings method (customer relationships). The Company has not yet finalized the purchase price allocation, which is pending further analysis of the net assets acquired, weighted average cost of capital assumptions, and certain Level 3 inputs used in the Monte Carlo simulation used to value the contingent consideration. Identifiable intangible assets , including their respective expected useful lives, were as follows:
~~SUMMARY OF INTANGIBLE ASSETS ACQUIRED~~

Estimated useful life
(in years)
Fair Value
Content licenses intangible asset 4.6 $ 22,938
Customer relationships intangible asset 4.0 3,306
Acquired right of use lease asset 4.6 116
Acquired right of use lease liability
4.6 (116 )
Total identifiable net assets $ 26,244

~~In addition to these assets acquired, a service contract was acquired with total expected future expenses of $1.4 million.~~
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except share and per share amounts)

NOTE 5 — ~~PROPERTY AND EQUIPMENT, NET~~
~~Property and equipment, net is recorded in other assets in the condensed consolidated balance sheets at June 30, 2022 and December 31, 2021 and consisted of the following:~~
~~SCHEDULE OF PROPERTY AND EQUIPMENT~~

Estimated
Useful Life

June 30,
2022

December 31,
2021

Fixtures, fittings and equipment 3-5 years $ 3,283 $ 2,935
Platform hardware 5 years 1,952 2,054
Total property and equipment, cost 5,235 4,989
Less: accumulated depreciation (2,802 ) (2,444 )
Total $ 2,433 $ 2,545
~~Depreciation expense related to property and equipment was $303~~ ~~and $239~~ ~~for the three months ended June 30, 2022 and 2021, respectively, and $614~~ ~~and $457~~ ~~for the six months ended June 30, 2022 and 2021, respectively.~~
~~NOTE 6 —~~ ~~CAPITALIZED SOFTWARE DEVELOPMENT COSTS, NET~~
~~Capitalized software development costs, net at June 30, 2022 and December 31, 2021 consisted of the following:~~
~~SCHEDULE OF CAPITALIZED COMPUTER SOFTWARE COSTS, NET~~

June 30,
2022

December 31,
2021

Capitalized software development costs $ 29,543 $ 26,127
Development in progress 5,281 5,910
Total capitalized software development, cost 34,824 32,037
Less: accumulated amortization (18,777 ) (17,607 )
Total $ 16,047 $ 14,430
At June 30, 2022, development in progress primarily represents costs associated with new proprietary content, enhancements to the B2B software platform, and the development of GAN Sports. The GAN Sports B2B sportsbook technology is expected to be placed in service in the fourth quarter of 2022.
~~Amortization expense related to capitalized software development costs was $1,953~~ ~~and $901~~ ~~for the three months ended June 30, 2022 and 2021, respectively, and $3,115~~ ~~and $1,661~~ ~~for the six months ended June 30, 2022 and 2021, respectively.~~
18
~~GAN LIMITED~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~
~~(in thousands, except share and per share amounts)~~
~~NOTE 7 —~~ ~~GOODWILL AND~~ INTANGIBLE ASSETS
~~Goodwill~~
~~The changes in the carrying amount of goodwill, by segment, for the six months ended June 30, 2022 were as follows:~~
~~SCHEDULE OF GOODWILL~~
B2B B2C Total
Balance at January 1, 2022 $ 72,230 $ 73,912 $ 146,142
Impairment (28,861 ) — (28,861 )
Effect of foreign currency translation (5,709 ) (5,835 ) (11,544 )
Balance at June 30, 2022 $ 37,660 $ 68,077 $ 105,737
The Company performs its annual goodwill impairment test as of October 1 and monitors for interim triggering events on an ongoing basis as events occur or circumstances change that would more likely than not reduce the fair value below its carrying amount. Goodwill is reviewed for impairment utilizing either a qualitative assessment or a quantitative goodwill impairment test. Due to the significant and sustained decline in share price and market capitalization since the Coolbet acquisition, an interim quantitative goodwill impairment test was performed.
The Company estimated the fair value of all reporting units utilizing both a market approach and an income approach (discounted cash flow) and the significant assumptions used to measure fair value include discount rate, terminal value factors, revenue and EBITDA multiples, and control premiums. The Company confirmed the reasonableness of the estimated reporting unit fair values by reconciling those fair values to its enterprise value and market capitalization. As a result of its interim impairment test, the Company recognized an impairment to goodwill of $~~28.9~~ ~~million.~~

Intangible Assets

Definite-lived intangible assets, net consisted of the following:
SCHEDULE OF ~~FINITE-LIVED~~FINITE -LIVED INTANGIBLE ASSETS
1 2 3 Period (in years) Amount Amortization Amount
Weighted
June 30, 2022
Weighted March 31, 2023

Average

Gross
Net Average Gross

Amortization

Carrying

Accumulated
Carrying Amortization Carrying Accumulated Net Carrying

Period

Amount

Amortization
Amount Period (in years) Amount Amortization Amount
Developed technology 3.0 years $ 25,228 $ (12,614 ) $ 12,614 4.0 $ 34,103 $ (20,498 ) $ 13,605
Third-party content licenses 4.6 years 22,938 (1,251 ) 21,687
In-process technology — 7,499 — 7,499
Customer relationships 3.6 years 8,335 (2,721 ) 5,614 3.1 6,890 (4,057 ) 2,833
Trade names and trademarks 10.0 years 5,243 (1,059 ) 4,184 10.0 5,455 (1,469 ) 3,986
Gaming licenses 7.3 years 1,978 (1,206 ) 772 6.6 3,361 (1,618 ) 1,743
$ 71,221 $ (18,851 ) $ 52,370 $ 49,809 $ (27,642 ) $ 22,167

Period (in years) Amount Amortization Amount
Weighted December 31, 2022
Average Gross
Amortization Carrying Accumulated Net Carrying
Period (in years) Amount Amortization Amount
Developed technology 3.9 $ 33,443 $ (17,570 ) $ 15,873
Customer relationships 3.1 6,788 (3,426 ) 3,362
Trade names and trademarks 10.0 5,347 (1,312 ) 4,035
Gaming licenses 6.7 3,149 (1,464 ) 1,685
$ 48,727 $ (23,772 ) $ 24,955
Acquired in-process technology consisted of a proprietary technical platform which was under development at the time of acquisition until its completion in September 2022. Following its completion and the launch of GAN Sports, the developed technology was placed in service and is currently being amortized over an estimated useful life of 5 years.
Amortization expense related to intangible assets was $3,349 and $2,920 for the three months ended March 31, 2023 and 2022, respectively.
Estimated amortization expense for the next five years is as follows:
SCHEDULE OF FINITE -LIVED INTANGIBLE ASSETS, AMORTIZATION EXPENSE
Amount
Remainder of 2023 $ 10,351
2024 3,072
2025 2,921
2026 2,490
2027 1,709
Thereafter 1,624
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except share and per share amounts)

Amortization

Carrying

Accumulated
Carrying
Weighted
December 31, 2021

Average

Gross
Net

Amortization

Carrying

Accumulated
Carrying

Period

Amount

Amortization
Amount
Developed technology 3.0 years $ 27,390 $ (9,130 ) $ 18,260
In-process technology — 8,142 — 8,142
Customer relationships 3.0 years 5,460 (1,820 ) 3,640
Trade names and trademarks 10.0 years 5,699 (882 ) 4,817
Gaming licenses 6.4 years 2,219 (1,185 ) 1,034
$ 48,910 $ (13,017 ) $ 35,893
~~Amortization expense related to intangible assets was $4,230 and $2,968~~ ~~for the three months ended June 30, 2022 and 2021, respectively, and $7,150~~ ~~and $5,963~~ ~~for the six months ended June 30, 2022 and 2021, respectively.~~
~~Estimated amortization expense for the next five years is as follows:~~
~~SCHEDULE OF FINITE-LIVED INTANGIBLE ASSETS, FUTURE AMORTIZATION EXPENSE~~
Amount
Remainder of 2022 $ 8,341
2023 16,666
2024 6,437
2025 6,425
2026 4,924
Thereafter 9,577
~~NOTE 8 —~~ ~~ACCRUED EXPENSES~~
~~Accrued expenses consisted of the following:~~
~~SCHEDULE OF ACCRUED EXPENSES~~

June 30,
2022

December 31,
2021

Content license fees $ 1,603 $ 2,402
Sales taxes 838 1,400
Income taxes 240 245
Other 662 622
Total $ 3,343 $ 4,669
~~NOTE 9 —~~ ~~OTHER CURRENT LIABILITIES~~
~~Other current liabilities consisted of the following:~~
~~SCHEDULE OF OTHER CURRENT LIABILITIES~~

June 30,
2022

December 31,
2021

Revenue share due to SIM customers $ 968 $ 2,171
Operating lease liabilities 415 472
Contract liabilities 570 261
Other 917 247
Total $ 2,870 $ 3,151
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~~GAN LIMITED~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~
~~(in thousands, except share and per share amounts)~~
Revenue share due to SIM customers represents the fees collected for in-game virtual purchases made by end-user players which are due to the customers for their share of the SIM revenues generated from the Company’s platform.

NOTE 10 6 — DEBT

On April 26, 2022, a subsidiary of the Company entered into a fixed term credit facility (the “Credit Facility”) which provides for $30.0 million in aggregate principal amount of secured term loans with a floating interest rate of 3-month SOFR (subject to a 1% floor) + 9.5%. The Credit Facility matures on October 26, 2026 and is fully guaranteed by the Company. There are no scheduled principal payments due under the Credit Facility until maturity. Interest payments are payable in arrears on the last business day of each calendar quarter and at the maturity date.

The Company incurred $2.4 million in debt issuance costs during the three ~~and six months~~year ended ~~June 30,~~December 31, 2022 in connection with the Credit Facility, which have been recorded as a direct reduction against the debt and amortized over the life of the associated debt as a component of interest expense using the effective interest method. The net funds received from the Credit Facility, after deducting debt issuance costs, was $27.6 million.

Debt Covenants

The Credit Facility ~~contains~~contained affirmative and negative covenants, including certain financial covenants associated with the Company’s financial results. The negative covenants ~~include~~included restrictions regarding the incurrence of liens and indebtedness, certain merger and acquisition transactions, asset sales and other dispositions, other investments, dividends, share purchases and payments affecting subsidiaries, changes in nature of business, fiscal year or organizational documents, transactions with affiliates, and other matters.

The ~~Company was in compliance with all financial covenants as of June 30, 2022.~~
~~The~~ Credit Facility ~~contains~~contained customary events of default, including, among others: non-payments of principal and interest; breach of representations and warranties; covenant defaults; the existence of bankruptcy or insolvency proceedings; certain events under ERISA; gaming license revocations in material jurisdictions; material judgments; and a change of control. If an event of default ~~occurs~~occurred and iswas not cured within any applicable grace period or iswas not waived, the administrative agent and the lender ~~are~~were entitled to take various actions, including, without limitation, the acceleration of all amounts due and the termination of commitments under the Credit Facility. As of March 31, 2023, the Company was in compliance with or obtained waivers for all covenants related to the Credit Facility.
Subsequent Amendment
On April 13, 2023, a subsidiary of the Company executed agreements to amend the Credit Facility to waive all events of default, amend certain financial covenants, assign the rights to the Credit Facility from its existing lender to a third party, and increase the principal balance from $30.0 million to $42.0 million with accrued paid in-kind (“PIK”) interest of 8.0% per year (together, forming the “Amended Credit Facility”). The Amended Credit Facility became effective upon cash settlement of payments initiated on April 13, 2023, which occur on April 14, 2023, and represented a cure of any events of default under the Credit Facility and thereby prevent any amounts from becoming due and payable under the Credit Facility’s subjective acceleration clause. Refer to Note 15 – Subsequent Events for further detail of the Amended Credit Facility.

The carrying values of the Company’s long-term debt consist of the following:
SCHEDULE OF LONG TERM DEBT

Effective Interest
Rate

As of
June 30, 2022
Effective Interest Rate As of March 31, 2023
Credit Facility:
Credit Facility
Principal 13.87% $ 30,000 15.46 % $ 30,000
Less unamortized debt issuance costs (2,330 ) (1,517 )
Long-term debt, net $ 27,670 $ 28,483

During the three ~~and six~~ months ended ~~June 30, 2022~~March 31, 2023, the Company incurred $~~664~~1,394 in interest expense, of which $95326 relates to the amortization of debt issuance costs.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except share and per share amounts)
NOTE 11 7 — SHARE-BASED COMPENSATION

In April 2020, the Board of Directors established the GAN Limited 2020 Equity Incentive Plan (“2020 Plan”) which has been approved by the Company’s shareholders. The 2020 Plan initially provides for grants of up to 4,400,000 ordinary shares, which then increases through 2029, by the lesser of 4% of the previous year’s total outstanding ordinary shares on December 31^st31st or as determined by the Board of Directors, for ordinary shares, incentive share options, nonqualified share options, share appreciation rights, restricted share grants, share units, and other equity awards for issuance to employees, consultants or non-employee directors. At ~~June 30, 2022,~~March 31, 2023, the 2020 Plan provided for grants of up to ~~7,559,574~~9,275,342 ordinary shares and there were ~~404,069~~1,468,604 ordinary shares available for future issuance under the 2020 Plan.

Share Options

A summary of the share option activity as of and for the ~~six~~three months ended ~~June 30, 2022~~March 31, 2023 is as follows:
SCHEDULE OF SHARE-BASED COMPENSATION, STOCK OPTION ACTIVITY
Number of Shares
Weighted
Average
Exercise
Price

Weighted Average Contractual
Term
Aggregate Intrinsic Value Weighted Weighted
Outstanding at December 31, 2021 4,138,215 $ 13.05 8.05 $ 11,229
Average Average Aggregate
Number of Exercise Contractual Intrinsic
Shares Price Term Value
Outstanding at December 31, 2022 3,447,155 $ 9.12 6.59 $ 1,139
Granted 910,563 0.03 367,870 0.01
Exercised (125,416 ) 3.29 — —
Forfeited/expired or cancelled (763,061 ) 17.71 (245,151 ) 14.31
Outstanding at June 30, 2022 4,160,301 $ 9.87 7.79 $ 3,203
Options exercisable at June 30, 2022 2,370,373 $ 7.47 7.47 $ 1,565
Outstanding at March 31, 2023 3,569,874 $ 7.83 6.86 $ 1,356
Options exercisable at March 31, 2023 2,402,269 $ 7.87 5.95 $ 436

The Company recorded share-based compensation expense related to share options of $~~1,265~~655 and $~~1,807~~383 for the three months ended ~~June 30,~~March 31, 2023 and 2022, ~~and 2021, respectively, and $1,648~~ ~~and $2,946~~ ~~for the six months ended June 30, 2022 and 2021, respectively. Such share-based compensation expense was recorded net of capitalized software development costs of $139~~ ~~and $~~57 ~~for the three months ended June 30, 2022 and 2021, and $139~~ ~~and $105~~ ~~for the six months ended June 30, 2022 and 2021,~~ respectively. At ~~June 30, 2022,~~March 31, 2023, there was total unrecognized compensation cost of $~~13,459~~279 related to nonvested share options. The unrecognized compensation cost is expected to be recognized over a weighted-average period of 2.8years.

Share option awards generally vest 25% after one year and then monthly over the next 36 months thereafter and have a maximum term of ten ~~years.~~years. During the ~~six~~three months ended ~~June 30, 2022,~~March 31, 2023, the Board of Directors approved the issuance of options to purchase ~~910,563~~367,870 ordinary shares to employees under the 2020 Plan, ~~including~~ ~~907,563~~all of which were share options granted with an exercise price of $0.01 per share to certain European-based employees in lieu of restricted share units. The value of these options are based on the market value of the Company’s ordinary shares at the date of the grant. As all of these options are in-the-money, the Company determined that utilizing an option pricing model to estimate the fair value of these options was not necessary. The weighted average grant date fair value of options granted was $~~3.89~~1.70 and $~~9.17~~6.12 for the three months ended ~~June 30,~~March 31, 2023 and 2022, respectively.
SCHEDULE OF SHARE-BASED COMPENSATION, FAIR VALUE ASSUMPTIONS
2022
Three Months Ended
March 31, 2022
Expected share price volatility 61.20 %
Expected term (in years) 5.00
Risk-free interest rate 1.74 %
Dividend yield 0 %
For options granted during the three months ended March 31, 2023, the fair value of each share option award is estimated on the date of grant using the Black-Scholes option pricing model that uses the assumptions noted above. Estimating the grant date fair values for employee share options requires management to make assumptions regarding expected volatility of the value of those underlying shares, the risk-free rate of the expected life of the share options and ~~2021, respectively,~~the date on which share-based compensation is expected to be settled.
Expected volatility is determined by reference to volatility of certain identified peer group share trading information and $~~4.55~~ ~~and $12.10~~share prices on the Nasdaq stock exchange. The risk-free interest rate for the ~~six months ended June 30, 2022~~expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The expected term of the options is based on historical data and ~~2021, respectively.~~represents the period of time that options granted are expected to be outstanding.

Restricted Share Units
Restricted share units are issued to non-employee directors and employees. For equity-classified restricted share units, the fair value of restricted share units is valued based on fair market value of the Company’s ordinary shares on the date of grant and is amortized on a straight-line basis over the vesting period.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except share and per share amounts)
In ~~January 2022,~~March 2023, the Board of Directors approved the issuance of ~~108,720~~ ~~restricted share units to employees. The restricted share units vest over~~ ~~four years~~ ~~from the date of grant with~~ 25% vesting per year on the anniversary of the grant date. The terms of the awards stipulate that the vesting of any outstanding restricted share units will be pro-rated for employees if their employment terminates after the first anniversary of the grant date.
~~In March 2022, the Board of Directors approved the issuance of~~ ~~1,117,437~~1,009,086 restricted share units to its employees. The restricted share units vest over four years from the date of ~~grant with~~ 25~~% vesting per year on the anniversary of the grant date.~~grant. The terms of the awards stipulate that ~~the vesting of any outstanding restricted share units will be pro-rated for employees if their employment terminates after the first anniversary of the grant date. Additionally,~~ ~~73,446~~ ~~restricted share units were granted to its non-employee directors which vest on December 31, 2022.~~
~~In June 2022, the Board of Directors approved the issuance of~~ ~~28,754~~ ~~restricted share units to its employees. The restricted share units vest over~~ ~~four years~~ ~~from the date of grant with~~ 25~~% vesting per year on the anniversary of the grant date. The terms of the awards stipulate that the~~ vesting of any outstanding restricted share units will be pro-rated for employees if their employment terminates after the first anniversary of the grant date.

The Company withholds a portion of the restricted share units granted to its officers and non-employee directors upon vesting in order to remit a cash payment to the officers and directors equal to their tax expense. ~~At June 30, 2022, the Company recognized a liability for outstanding and nonvested restricted share units held by non-employee directors of $116~~. The liabilities are recorded in accrued compensation and benefits in the condensed consolidated balance sheets. During the three months ended March 31, 2023, 149,801 restricted share units held by the Company’s officers and non-employee directors vested and the Company repurchased 49,157 of the shares to cover the tax expense incurred by the officers and non-employee directors.

The Company recorded share-based compensation expense related to restricted share units of $~~1,269~~647 and $~~105~~924 for the three months ended ~~June 30,~~March 31, 2023 and 2022, ~~and 2021, respectively, and~~respectively. Such share-based compensation expense was recorded net of capitalized software development costs of $~~2,193~~58 ~~and $130~~for the ~~six~~three months ended ~~June 30, 2022 and 2021, respectively.~~March 31, 2023. At ~~June 30, 2022,~~March 31, 2023, there was total unrecognized compensation cost of $~~7,810~~428 related to ~~nonvested~~non-vested restricted share ~~units~~units. The unrecognized compensation cost is expected to be recognized over a weighted-average period of ~~3.3~~3.4 years.

A summary of the restricted share unit activity as of and for the ~~six~~three months ended ~~June 30, 2022~~March 31, 2023 is as follows:
SCHEDULE OF SHARE BASED COMPENSATION, RESTRICTED STOCK UNIT ACTIVITY

Number of
Shares

Weighted
Average
Grant Date
Fair Value

Outstanding at December 31, 2021 369,140 $ 10.78
Granted 1,328,357 5.34
Vested (2,365 ) 9.53
Forfeited or cancelled (54,068 ) 8.75
Outstanding at June 30, 2022 1,641,064 $ 6.48
Weighted
Average
Number of Grant Date
Shares Fair Value
Outstanding at December 31, 2022 1,171,371 $ 5.43
Granted 1,009,086 1.50
Vested (328,787 ) 4.72
Forfeited/expired or cancelled (21,962 ) 5.47
Outstanding at March 31, 2023 1,829,708 $ 3.51

23
~~GAN LIMITED~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~
~~(in thousands, except share and per share amounts)~~
Restricted Share Awards

Restricted share awards are issued to non-employee directors and certain key employees. The value of a restricted stock award is based on the market value of the Company’s ordinary shares at the date of the grant.

~~In December 2021, the Company issued~~ ~~51,654~~ restricted ordinary shares to the selling shareholders of Silverback Gaming. The restricted share awards vest one-third on the acquisition date and one-third on each the first and second anniversary dates. The restricted share awards were issued with a grant date fair value of $~~9.68~~ ~~per share.~~
The Company recorded share-based compensation expense related to the restricted share awards of $42 ~~and $350~~for the three months ended ~~June 30, 2022 and 2021, respectively, and $~~84 ~~and $770~~ ~~for the six months ended June 30, 2022 and 2021, respectively.~~March 31, 2023. At ~~June 30, 2022,~~March 31, 2023, there was total unrecognized compensation cost of $~~236~~111 related to the nonvested shares granted. The cost is expected to be recognized over a weighted average period of ~~1.7~~0.7 years. There were no restricted share awards that vested during the ~~six~~three months ended ~~June 30, 2022.~~March 31, 2023.

~~Employee Bonuses Issued in Shares~~
In 2021, the Company entered into agreements with certain executive employees which allowed for a portion, or all, of their annual bonus for the year ended December 31, 2021 to be paid in the form of the Company’s shares. During the six months ended June 30, 2022 the Company settled $~~913~~ ~~of the total bonus by issuing~~ ~~189,959~~ ~~vested options with an exercise price of $0.01~~ ~~per share.~~
The Company additionally expects to pay a portion, or all, of certain employee annual bonuses for the year ended December 31, 2022 in the form of the Company’s shares. The Company expects to settle these bonuses in the first quarter of 2023. The liability and related employer taxes of $~~658~~ ~~are recorded in accrued compensation and benefits in the condensed consolidated balance sheet at June 30, 2022.~~
2020 Employee Stock Purchase Plan
The Board of Directors established the 2020 Employee Stock Purchase Plan, or the ESPP, which was approved by the Company’s shareholders in July 2021. The ESPP is intended to qualify under Section 423 of the U.S. Internal Revenue Service Code of 1986, as amended. The ESPP provides initially for 300,000 ordinary shares to be sold and increases on February 1, 2022 and on each subsequent February 1 through and including February 1, 2030, equal to the lesser of (i) 0.25 percent of the number of ordinary shares issued and outstanding on the immediately preceding December 31, or (ii) 100,000 ordinary shares, or (iii) such number of ordinary shares as determined by the Board of Directors.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except share and per share amounts)

The ESPP is designed to allow eligible employees to purchase ordinary shares, at quarterly intervals, with their accumulated payroll deductions. The participants are offered the option to purchase ordinary shares at a discount during a series of successive offering periods. The option purchase price may be the lower of 85% of the closing trading price per share of the Company’s ordinary shares on the first trading date of an offering period in which a participant is enrolled or 85% of the closing trading price per share on the purchase date, which will occur on the last trading day of each offering period. An offering period is defined as a three-month duration commencing on or about March, June, September and December of each ~~year. Also,~~year, and one purchase period is included within each offering period. The Company’s first offering period commenced on June 1, ~~2022 and will conclude on August~~2022. The Company issued 57,960 shares under the ESPP during the three months ended March 31, ~~2022 with its first purchase expected to occur on August 31, 2022.~~2023. During the three ~~and six~~ months ended ~~June 30, 2022~~March 31, 2023 the Company recognized share-based compensation ~~expenses~~expense of $2218 related to the ESPP.

24
Content Provider Issuance
On March 29, 2023, the Company amended and restated its commercial agreement with a content provider. In conjunction with this agreement, the Company entered into a Subscription Agreement with the content provider, under which the content provider has subscribed to 1,250,000 of the Company’s ordinary shares. Refer to Note 14 – Commitment and Contingencies for further details.

~~GAN LIMITED~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~
~~(in thousands, except share and per share amounts)~~
NOTE 12 8 — ~~LOSS PER SHARE~~DEFINED CONTRIBUTION PLANS

~~Loss~~U.S. employees and non-U.S. employees are eligible to participate in defined contribution plans by contributing a portion of their compensation, which provides for certain matching contributions by the Company. Matching contributions for the U.S. defined contribution plan are 50% of up to 4% of an employee’s salary contribution. Most often, non-U.S. matching contributions are statutory amounts required by law. The Company’s contributions to the retirement plans were $178 and $173 for the three months ended March 31, 2023 and 2022, respectively.
NOTE 9 — EARNINGS PER SHARE
Earnings per ~~ordinary~~ share ~~basic and diluted, are~~is computed by dividing ~~net loss~~earnings by the weighted average number of ordinary shares outstanding during the period. ~~Potentially dilutive securities consisting of certain~~Basic and diluted earnings per share options, nonvested restricted shares and restricted share units were excluded from the computation of diluted weighted average ordinary shares outstanding as inclusion would be anti-dilutive, are summarizedis calculated as follows:
SCHEDULE OF ~~ANTI-DILUTIVE STOCK EXCLUDED FROM COMPUTATION~~WEIGHTED AVERAGE NUMBER OF ~~DILUTED EARNINGS PER SHARE~~ORDINARY SHARES OUTSTANDING
2023 2022
Three Months Ended
March 31,
2023 2022
Numerator–basic and diluted:
Net income (loss) $ 1,501 $ (4,499 )

Denominator
Basic weighted average ordinary shares outstanding 42,982,255 42,252,661
Effect of dilutive securities ⁽¹⁾
Share options outstanding⁽¹⁾ 1,121,001 —
Ordinary shares issued in connection with Content Provider Agreement⁽¹⁾ 1,250,000 —
Restricted shares⁽¹⁾ 1,829,708 —
Restricted share units⁽¹⁾ 17,218 —
Diluted weighted average ordinary shares 47,200,182 42,252,661

Basic earnings (loss) per share $ 0.03 $ (0.11 )
Diluted earnings (loss) per share $ 0.03 $ (0.11 )

2022 2021 2022 2021
Three Months Ended
June 30, Six Months Ended
June 30,
2022 2021 2022 2021
Share options 4,160,301 4,415,491 4,160,301 4,415,491
Restricted shares 34,436 — 34,436 —
Restricted share units 1,641,064 5,180 1,641,064 5,180
Total 5,835,801 4,420,671 5,835,801 4,420,671
⁽¹⁾ For the three months ended March 31, 2023, 2,448,873 share options with an exercise prices greater than the market price of the Company’s ordinary shares were excluded from the computation of diluted weighted average ordinary shares outstanding. Additionally, for the three months ended March 31, 2022, potentially dilutive securities consisting of certain share options, nonvested restricted shares and restricted share units totaling 5,649,593 shares were excluded from the computation of diluted weighted average ordinary shares outstanding as inclusion would be anti-dilutive due to the Company incurring a net loss during the three months ended March 31, 2022.

NOTE 13 10 — REVENUE

The following table reflects revenue recognized for the three ~~and six~~ months ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~ in line with the timing of transfer of services:
SCHEDULE OF REVENUE RECOGNIZED IN LINE WITH THE TIMING OF TRANSFER OF SERVICES
2023 2022
2022 2021 2022 2021 Three Months Ended
Three Months Ended
June 30, Six Months Ended
June 30, March 31,
2022 2021 2022 2021 2023 2022
Revenue from services delivered at a point in time $ 21,609 $ 24,097 $ 46,033 $ 41,409 $ 23,895 $ 24,424
Revenue from services delivered over time 13,358 10,253 26,428 20,059 11,234 13,070
Total $ 34,967 $ 34,350 $ 72,461 $ 61,468 $ 35,129 $ 37,494
Contract and Contract-Related Liabilities
The Company has four types of liabilities related to contracts with customers: (i) cash consideration received in advance from customers related to development services not yet performed or hardware deliveries not yet completed, (ii) incentive program obligations, which represents the deferred allocation of revenue relating to incentives in the online gaming operations, (iii) user balances, which are funds deposited by customers before gaming play occurs and (iv) unpaid winnings and wagers contributed to jackpots. Contract related liabilities are expected to be recognized as revenue within one year of being purchased, earned or deposited. Such liabilities are recorded in liabilities to users and other current liabilities in the condensed consolidated balance sheets.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except share and per share amounts)

The following table reflects contract liabilities arising from cash consideration received in advance from customers for the periods presented:
SCHEDULE OF CONTRACT WITH CUSTOMERS
2023 2022
2022 2021 2022 2021 Three Months Ended
Three Months Ended
June 30, Six Months Ended
June 30, March 31,
2022 2021 2022 2021 2023 2022
Contract liabilities from advance customer payments, beginning of the period $ 2,095 $ 1,840 $ 1,874 $ 1,083 $ 2,117 $ 1,874
Contract liabilities from advance customer payments, end of the period ⁽¹⁾ 1,421 1,811 1,421 1,811 2,655 2,095
Revenue recognized from amounts included in contract liabilities from advance customer payments at the beginning of the period 459 103 635 89 223 296
⁽¹⁾ Contract liabilities from advance customer payments, end of period consisted of $~~570~~1,599 and $~~725~~720 recorded in other current liabilities in the condensed consolidated balance sheets at ~~June 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively and $~~851~~1,056 and $~~1,086~~1,375 recorded in other liabilities in the condensed consolidated balance sheet at ~~June 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively.
NOTE 14 11 — SEGMENT REPORTING
The Company’s reportable segments are B2B and B2C. The B2B segment develops, markets and sells instances of GameSTACK, GAN Sports, and iSight Back Office ~~and GameSTACK~~technology that incorporates comprehensive player registration, account funding and back-office accounting and management tools that enable the casino operators to efficiently, confidently and effectively extend their presence online in places that have permitted online real money gaming. The B2C segment, which includes the operations of Coolbet, ~~since January 1, 2021,~~ develops and operates a B2C online sports betting and casino platform that is accessible through its website in markets across Northern Europe, Latin America and Canada.

Information reported to the Company’s Chief Executive Officer, the CODM, for the purpose of resource allocation and assessment of the Company’s segmental performance is primarily focused on the origination of the revenue streams. The CODM evaluates performance and allocates resources based on the segment’s revenue and ~~gross profit.~~contribution. Segment ~~gross profit~~contribution represents the ~~gross profit~~amounts earned by each segment without allocation of each segment’s share of depreciation and amortization expense, sales and marketing expense, product and technology expense, general and administrative expense, interest costs and income taxes.
Summarized financial information by reportable segments for the three months ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~ is as follows:
SCHEDULE OF FINANCIAL INFORMATION FOR REPORTABLE SEGMENTS
B2B B2C Total B2B B2C Total
Three Months Ended June 30,
2022 2021
B2B B2C Total B2B B2C Total
Revenue $ 14,150 $ 20,817 $ 34,967 $ 10,368 $ 23,982 $ 34,350
Cost of revenue⁽¹⁾ 2,939 7,524 10,463 2,307 8,049 10,356
Segment gross profit $ 11,211 $ 13,293 $ 24,504 $ 8,061 $ 15,933 $ 23,994
B2B B2C Total B2B B2C Total
Three Months Ended
2023 2022
B2B B2C Total B2B B2C Total
Revenue $ 11,279 $ 23,850 $ 35,129 $ 13,070 $ 24,424 $ 37,494
Cost of revenue ⁽¹⁾ 1,995 8,166 10,161 3,903 7,797 11,700
Segment contribution $ 9,284 $ 15,684 $ 24,968 $ 9,167 $ 16,627 $ 25,794
⁽¹⁾ Excludes depreciation and amortization expense

During the three months ended March 31, 2023 and 2022, one customer in the B2B segment individually accounted for 16.1% and 16.6% of total revenue, respectively.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except share and per share amounts)
~~During the three months ended June 30, 2022 and 2021, one customer in the B2B segment individually accounted for~~ ~~22.0% and~~ ~~11.4% of total revenue, respectively.~~
~~Summarized financial information by reportable segments for the six months ended June 30, 2022 and 2021 is as follows:~~
B2B B2C Total B2B B2C Total
Six Months Ended June 30,
2022 2021
B2B B2C Total B2B B2C Total
Revenue $ 27,220 $ 45,241 $ 72,461 $ 23,174 $ 38,294 $ 61,468
Cost of revenue⁽¹⁾ 6,842 �� 15,321 22,163 5,049 14,026 19,075
Segment gross profit $ 20,378 $ 29,920 $ 50,298 $ 18,125 $ 24,268 $ 42,393
~~During the six months ended June 30, 2022 and 2021, one customer in the B2B segment individually accounted for~~ ~~19.2% and~~ ~~12.9% of total revenue, respectively.~~

The following table presents a reconciliation of segment gross profit to the consolidated loss before income taxes for the ~~six~~three months ended ~~June 30, 2022~~March 31, 2023 and ~~2021:~~2022:
RECONCILIATION OF CONSOLIDATED SEGMENT ~~PROFIT~~CONTRIBUTION TO CONSOLIDATED INCOME (LOSS) BEFORE INCOME TAXES
2022 2021 2022 2021
Three Months Ended
June 30, Six Months Ended
June 30,
2022 2021 2022 2021
Segment gross profit ⁽¹⁾ $ 24,504 $ 23,994 $ 50,298 $ 42,393
Sales and marketing 7,267 5,480 13,365 9,581
Product and technology 5,188 4,829 14,142 10,072
General and administrative⁽¹⁾ 13,688 12,320 23,080 22,329
Impairment
28,861

—

28,861

—

Restructuring 712 — 1,771 —
Depreciation and amortization 6,556 4,132 10,969 8,126
Interest expense, net 1,080 — 1,071 1
Other income
(270
)
—
(270 )
—

Loss before income taxes $ (38,578 ) $ (2,767 ) $ (42,691 ) $ (7,716 )
2023 2022
Three Months Ended
March 31,
2023 2022
Segment contribution ⁽¹⁾ $ 24,968 $ 25,794
Sales and marketing 7,184 6,098
Product and technology 9,578 8,954
General and administrative ⁽¹⁾ 10,006 9,392
Restructuring — 1,059
Depreciation and amortization 4,201 4,413
Interest expense (income), net 1,716 (9 )
Other income, net (9,292 ) —
Income (loss) before income taxes $ 1,575 $ (4,113 )
⁽¹⁾ Excludes depreciation and amortization expense

Assets and liabilities are not separately analyzed or reported to the CODM and are not used to assist in decisions surrounding resource allocation and assessment of segment performance. As such, an analysis of segment assets and liabilities has not been included in this financial information.
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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~
~~(in thousands, except share and per share amounts)~~

The following table disaggregates total revenue by product and services for each segment:
SCHEDULE OF DISAGGREGATION OF REVENUE BY PRODUCTS AND SERVICES FOR EACH SEGMENT
2023 2022
2022 2021 2022 2021 Three Months Ended
Three Months Ended
June 30, Six Months Ended
June 30, March 31,
2022 2021 2022 2021 2023 2022
B2B:
Platform and content license fees $ 10,518 $ 9,325 $ 21,220 $ 18,509 $ 8,627 $ 10,702
Development services and other 3,632 1,043 6,000 4,665 2,652 2,368
Total B2B revenue $ 14,150 $ 10,368 $ 27,220 $ 23,174 11,279 13,070

B2C:
Sportsbook $ 9,076 $ 12,757 $ 20,260 $ 19,908 9,967 11,184
Casino 11,252 10,512 23,831 16,983 13,189 12,579
Poker 489 713 1,150 1,403 694 661
Total B2C revenue 20,817 23,982 45,241 38,294 23,850 24,424
Total revenue $ 34,967 $ 34,350 $ 72,461 $ 61,468 $ 35,129 $ 37,494

Revenue by location of the customer for the three ~~and six~~ months ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~ is as follows:
SCHEDULE OF REVENUE BY LOCATION OF THE CUSTOMER
2023 2022
2022 2021 2022 2021 Three Months Ended
Three Months Ended
June 30, Six Months Ended
June 30, March 31,
2022 2021 2022 2021 2023 2022
United States $ 11,720 $ 8,330 $ 23,211 $ 19,079 $ 8,516 $ 11,491
Europe 10,205 14,193 22,769 25,257 12,677 12,564
Latin America 11,193 10,254 23,418 13,857 11,270 12,225
Rest of the world 1,849 1,573 3,063 3,275 2,666 1,214
Total revenue $ 34,967 $ 34,350 $ 72,461 $ 61,468 $ 35,129 $ 37,494

NOTE 15 12 — INCOME TAXES

The Company’s effective income tax rate was ~~0.6~~4.7% and ~~(35.9)~~(9.4)% for the three months ended ~~June 30,~~March 31, 2023 and 2022, ~~and 2021, respectively, and~~ ~~(0.4)% and~~ ~~(21.4)% for the six months ended June 30, 2022 and 2021,~~ respectively.

Our country of domicile is Bermuda, which effectively has a 0% statutory tax rate as it does not impose taxes on profits, income, dividends, or capital gains. The difference between this 0% tax rate and the effective income tax rate for the three ~~and six~~ months ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~ was due primarily to a mix of earnings in foreign jurisdictions that are subject to current tax ~~taking into account foreign~~and loss carryforwards in certain jurisdictions that are not expected to be ~~recognized, and limitations on the deductibility of U.S. compensation under Internal Revenue Code Section 162(m).~~recognized.

NOTE 16 13 — RESTRUCTURING

In January 2022, wethe Company implemented a strategic reduction of ~~our~~its existing worldwide global workforce to simplify and streamline our organization and strengthen the overall competitiveness of ~~our~~its B2B segment. As a result of this initiative, wethe Company incurred $~~0.7~~1.1 ~~million and $1.8~~ million in restructuring charges related to this plan during the three ~~and six~~ months ended ~~June 30,~~March 31, 2022, ~~respectively,~~ which ~~are~~were primarily related to employee severance pay and related costs. ~~As of June 30, 2022, the~~The Company ~~had~~ completed its restructuring plan in 2022 and there were no unpaid restructuring charges.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except share and per share amounts)
NOTE 17 14 — COMMITMENTS AND CONTINGENCIES

Legal Proceedings

The Company may be subject to legal actions and claims arising from contracts or other matters from time to time in the ordinary course of business. Management is not aware of any pending or threatened litigation, which are considered other than routine legal proceedings. The Company believes the ultimate disposition or resolution of its routine legal proceedings will not have a material adverse effect on its financial position, results of operations or liquidity.

Content Licensing Agreements

In the second quarter of 2021, the Company entered into Content Licensing Agreements (the “Agreements”) with two third-party gaming content providers (“Content Providers”) specializing in developing and licensing interactive games. The Agreements ~~grant~~granted the Company exclusive rights to use and distribute the online gaming content in North America. Each of the Content Providers is committed to developing a minimum number of games for the Company’s exclusive use over the five-year term, subject to extensions, of the respective Agreement. In exchange, the Company iswas required to pay fixed fees, totaling $48.5 million, of which $8.5 million were due upon execution of the Agreements, and the remaining fixed fees ~~are~~were to be paid systematically over the initial five-year terms. Additional payments could behave been required if the Company’s total revenue generated from the licensed content exceed certain stipulated annual and cumulative thresholds during the contract ~~term.~~terms. Under the terms of the Agreements, the Content Providers ~~are~~were to remit the cash flows from the online gaming content with its existing customers to the Company during the exclusivity period.

On January 27, 2022, the Company served a termination notice, for cause, to a Content Provider as certain conditions precedent associated with the completion of contractual obligations had not been satisfied by the agreed upon period in 2021. In accordance with the agreement, termination for cause results in a return of the initial payment of $3.5 million. In response to the Company’s termination notice, the Content Provider responded ~~in February 2022~~by alleging the Content Provider had met its contractual obligations, thereby obligating the Company to make ~~an additional~~the next, scheduled $3.0 million payment. In March, the Content Provider served the Company a ~~demand~~notice of default letter notifying the Company of its alleged material breach of the agreement, and disputing the validity of the termination. On April 25, 2022, the Content Provider ~~served~~attempted to serve formal notice of termination of the agreement, reaffirming the $3.0 million obligation. The Company ~~asserts~~continues to assert that all contractual obligations to the Content Provider have been relieved as a result of the Company’s initial termination notice and will vigorously defend any claims made by the Content Provider. The Company further recognized an impairment loss related to the initial payment of $3.5 million in the condensed statement of operations for the year ended December 31, ~~2021.~~2022.

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~~GAN LIMITED~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~
~~(in thousands, except share and per share amounts)~~
On April 5, 2022, the Agreement with the remaining Content Provider was amended and restated. Prior to the amendment, the Company accounted for the hosting arrangement as a service contract and expensed service fees of $1.5 million to cost of revenue induring the ~~condensed consolidated statement of operations for the six months~~year ended ~~June 30,~~December 31, 2022. In accordance with the restated arrangement, the Company amended certain commercial terms, which included obtaining the contractual right to lease the remote gaming servers, taking possession of the related software, and obtaining a service contract from the Content Provider for the duration of the arrangement. ~~The total fixed fees remaining under the amended arrangement totaled $25.0~~ ~~million, of which $5.5~~ ~~million was paid during the six months ended June 30, 2022 with the remaining $4.5~~ ~~million due in 2022, and $5.0~~ million in each of the years 2023 through 2025. Fixed fee payments are presented in the condensed consolidated statements of cash flows as payments for content licensing arrangements within cash flows from investing activities. Additional payments could be required if the Company’s total revenue generated from the arrangement exceed certain stipulated annual and cumulative thresholds during the contract term.

The amended and restated Agreement iswas accounted for as a business combination. The consideration transferred in exchange for the identifiable intangible assets iswas comprised of the present value of the Company’s total expected fixed payments under the Agreement, the net assets recognized under the original agreement, as well as a contingent consideration. The contingent consideration represents additional amounts which the Company ~~expects~~expected to pay to the Content Provider if the Company’s total revenue generated from the arrangement exceeds certain stipulated annual and cumulative thresholds during the contract term. ~~The~~In December 2022, the Company revised its 2023 budget and long-term plan as a result of material reductions in its expected future cash flows from its B2B segment, a strategic decision not to pursue and invest further in its original content strategy. Based on this update, as of December 31, 2022, the Company determined that the intangible assets associated with the Agreement with a carrying amount of $18.4 million were no longer recoverable and wrote them off in full. Additionally, the Company determined that the related customer relationships intangible assets with a carrying amount of $2.3 million were no longer recoverable and wrote them down to their estimated fair value of $1.6 million. Fair value was based on the ~~contingent liability is determined~~expected future cash flows using Level 3 inputs since estimating the fair value of this contingent liability requires the use of significant and subjective inputs that may and are likely to change over the duration of the liability with related changes in internally generated anticipated games revenueunder ASC 820 as well as ~~external~~expected contract term. The cash flows are those expected to be generated by the market ~~factors. The contingent consideration was valued using a Monte Carlo simulation based on management’s anticipated annual games revenue forecasts. The fair value~~participants, discounted at the risk-free rate of interest. Because negotiations have not yet concluded, it is reasonably possible that the estimate of the ~~contingent~~expected future cash flows may change in the near term resulting in the need to adjust the determination of fair value.
On March 29, 2023, the Company amended and restated its Content Licensing Agreement (the “Amended Agreement”) with the Content Provider which resulted in a reduced contract term ending March 31, 2024 and a reduction in the fixed fees payable under the arrangement by $15.0 million. Under the Amended Agreement, the fixed fee payment schedule was adjusted such that the remaining $4.0 million payable is due in equal installments of $0.2 million per calendar month, with the first installment being due in April 2023. The remaining $1.6 million outstanding at the expiration of the Amended Agreement will be reconciled against amounts payable by the Content Provider to the Company for revenue generated from the Company’s distribution of the content. In consideration ~~was initially recognized upon~~for the execution of the ~~amendment~~Amended Agreement, in March 2023 the Company entered into a Subscription Agreement with the Content Provider, under which the Content Provider has subscribed to 1,250,000 of the Company’s ordinary shares. The stock subscription represents a liability as of March 31, 2023 until such time as the additional shares are registered and issued to the ~~Agreement and is~~Content Provider. The Company recorded ~~within content licensing liabilities within the condensed consolidated balance sheet at June 30, 2022. Refer to Note 4 – Acquisition for further detail.~~
~~At June 30, 2022 the present value of the remaining fixed fee payments remaining under the agreement~~a gain of $~~14.8~~9.3 ~~million and the contingent content liability of $4.4~~ million are recorded in content licensing liabilities in the condensed consolidated balance sheet. During the three and six months ended June 30, 2022 the Company recognized imputed interest expense of $~~0.4~~million related to the ~~content licensing liabilities~~extinguishment of the fixed fees recognized in other ~~loss, net. in~~income, net during the three months ended March 31, 2023, net of the value of the stock subscription obligation recorded within accrued liabilities on the accompanying condensed consolidated ~~statement~~balance sheets as of ~~operations.~~March 31, 2023. In the second quarter of 2023, the Company issued and registered the shares in connection with an S-1 resale registration statement.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except share and per share amounts)

Chile VAT

Coolbet’s B2C casino and sports-betting platform is accessible in Chile. Since June 1, 2020, foreign digital service suppliers that provide services to individuals in Chile have been required to register for value-added tax (“VAT”) purposes. On September 20, 2021, the Company submitted an inquiry to the Chilean ~~Tax Administration~~Internal Revenue Service (“~~CTA”~~SII”) for clarification on the basis to apply VAT. In December 2021, the ~~CTA~~SII issued a general resolution as a response to another iGaming platform operator stating the Tax Administration’s position that fees paid by users for entertainment services provided through online gaming and betting platforms are subject to VAT in Chile. The ~~CTA~~SII clarified its interpretation that the VAT tax rate of 19% shall be applied to “fees paid by the users”, specifically gross customer deposits on the iGaming platform. This was further reiterated by the CTA in June 2022 through a public response to an unnamed ruling request on the matter.

On May 13, 2022, the ~~CTA~~SII issued a resolution stating that unregistered foreign digital service providers will be subject to ~~19%~~19% withholding on payments through enforcement to issuers of credit cards, debit cards, and other forms of payment, effective August 1, 2022. ~~On June 1, 2022 the CTA~~The SII issued ~~the first non-compliant~~this noncompliant list of unregistered foreign digital ~~services~~service providers to enact enforcement of this ~~withholding; Coolbet was not named~~withholding on ~~this list.~~a quarterly basis, with the most recent list issued on December 28, 2022. As of ~~June 30, 2022~~March 31, 2023 and through the date of filing, the Company has not registered for the Chilean VAT but has not been listed on the SII’s list for which this withholding should be applied, and the Company has not received formal notification of any VAT liability due to the ~~CTA.~~SII.

~~Comprehensive legislation~~On March 14, 2023, the SII issued a resolution stating that, although the SII lacks the power to qualify an activity as legal or illegal (which had been noted in previous SII resolutions), the SII is not empowered to register taxpayers for the simplified VAT regime who carry out activities that have been declared illegal by other State authorities that do have the power to qualify an activity as legal or illegal. It then notes that the SII has been informed by the Superintendency of Gambling Casinos that the offering of games of chance is only expressly authorized in certain instances under Chilean law, and thus taxpayers without domicile or residence in Chile that offer them are doing so illegally. As a result, the SII has excluded these taxpayers from the simplified VAT regime, effectively contradicting past guidance that stated the digital VAT law must be applied to online ~~gambling was filed in draft form to Chile’s Chamber of Deputies on March 7, 2022, which would allow for an unlimited number of licenses to be granted by Chile’s national casino~~ gaming ~~authority~~ and ~~establish a tax with a rate of~~ 20~~% applied over the gross income of an online~~ betting platform. Registration as a licensee under the proposed legislation would require operators to establish legal entities within Chile and would restrict foreign service providers from operating within the country.platforms.

~~Due to~~The Company does not believe its activities in Chile are illegal based on external legal opinions obtained in previous years, and updated external legal opinions supporting the ~~obligation being established by~~Company’s assertions. The Company had previously not registered for the ~~governing law, a liability appears to be probable. However,~~Chilean VAT on digital service providers as the Company ~~believes~~believed the application of VAT on gross customer deposits, as previously clarified by the ~~CTA, does~~SII, prior to the March 2023 resolution, did not represent a reasonable application of the law to the economic substance of the Company’s ~~services. VAT calculated as currently contemplated~~services; this previous application would ~~result in liabilities far in excess of actual earned revenues and would result~~have resulted in a material loss to the Company. The Company ~~intends~~believes that Chilean tax laws and regulations support that only the fees directly charged by the Company’s platform, primarily poker fees, should be the taxable base for the Chilean digital VAT and has obtained an external legal opinion supporting this position, the application of which would not have a material impact to ~~engage outside counsel to formally approach~~ the ~~CTA on behalf~~Company’s financial statements. However, as a result of the ~~Company in the second half of 2022 to attempt to agree upon a more reasonable application of the VAT law, taking into account~~SII excluding the Company’s ~~specific facts and circumstances. If any agreement is reached with~~activities from the ~~CTA, it is possible that the application would be applied retroactively to Coolbet’s Chilean activity as of June 1, 2020. As~~digital VAT registration, we no ~~formal discussions with the CTA occurred, and no agreement on a different application has been reached, as of June 30, 2022 the Company has determined that~~longer believe a liability is ~~not reasonably estimable~~probable for the past activities as of ~~June 30, 2022. However, if~~December 31, 2022 as the Company is now effectively prevented from complying with the digital VAT law. However, there is uncertainty as to the regulated environment, what amounts may be ultimately due on our previous activities and the ~~CTA are able~~ability to ~~agree on an application other than deposits,~~operate in this ~~could~~jurisdiction until the SII resolves the position. Resolution of this matter may result in fines, penalties, additional expenses or require us to exit the market. Revenues from Chile represented 29% and 31% of total consolidated revenue for the three months ended March 31, 2023 and 2022, respectively.
Synthetic Equity
Pursuant to the binding term sheet previously entered into with Red Rock Resorts, Inc., the Company entered into the Master Gaming Services Agreement with Station Casinos LLC (“Station”) on March 30, 2023, to launch GameSTACK and GAN Sports RMiG and sportsbook solutions at its properties through self-service kiosks as well as through on-premises and statewide mobile versions in Nevada, subject to applicable licensure. As an additional incentive for Station to support the commercial success of the launch in Nevada, the Master Gaming Services Agreement includes a ~~material loss when considering~~Synthetic Equity Addendum which would require that the ~~retroactive application.~~Company make a payment to Station in the event of a change of control in the Company (the “Change of Control Payment”), subject to certain conditions outlined in the Synthetic Equity Addendum. The Change of Control Payment is payable only in the event that a change of control occurs during the period as specified by the Synthetic Equity Addendum and that the Company’s market capitalization has increased during that time, calculated as proscribed by the Synthetic Equity Addendum, which the amount of such payment ranging from 2.5% to 5% of such increase in market capitalization over approximately $2.00 per share, depending on whether certain minimum revenue conditions are met over the next five years. The payment represents an equity-linked financial instrument containing service, performance and market conditions and is measured and classified in accordance with stock-based compensation guidance. The initial grant date value represents an upfront payment to a customer which will be attributed as contra revenue over the initial contract term as revenue is recognized under the arrangement such that revenue is recognized at an amount for which it is probable a significant reversal in the amount of cumulative revenue recognized will not occur once the uncertainty about payments to customers is resolved. The initial grant date liability will be marked to market at each reporting period through operating income (loss). The initial grant date value was not significant to the financial statements as of March 31, 2023.

NOTE 15 — SUBSEQUENT EVENTS
Amended Credit Facility
On April 13, 2023, a subsidiary of the Company executed the Amended Credit Facility to amend its existing Credit Facility to waive all events of default, amend certain financial covenants, assign the rights to the Credit Facility from its existing lender to a third party, and increase the principal balance from $30.0 million to $42.0 million with accrued PIK interest of 8.0% per year. The Amended Credit Facility became effective upon cash settlement of payments which completed on April 14, 2023.
The Amended Credit Facility matures on the third anniversary of its effective date and is fully guaranteed by the Company. There are no scheduled principal payments due under the Amended Credit Facility until maturity. The principal balance, accrued PIK interest, and an exit fee of 2.5% are due at maturity. The Amended Credit Facility stipulates that outstanding amounts will mature and be due and payable on the third anniversary of its effective date, or in the event of a change in control transaction. The Company incurred an estimated $3.1 million in debt issuance costs in connection with the Amended Credit Facility. The Amended Credit Facility contains customary negative covenants, a financial covenant requiring minimum liquidity of $10.0 million, as well as other financial covenants to be tested solely in the event the Company raises junior debt during the term of the Amended Credit Facility.
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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~
~~(in thousands, except share and per share amounts)~~
Item 2. ~~Management’s~~Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following management’s discussion and analysis of financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements, related notes, and other financial information appearing elsewhere in this Quarterly Report on Form 10-Q and the consolidated financial statements and related notes included in our ~~2021~~2022 Form 10-K.
Critical Accounting Policies and Estimates
For a discussion of our critical accounting policies and the means by which we develop estimates, refer to “Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of Operations” on our ~~2021~~2022 Annual Report on Form 10-K. There have been no material changes during the periods covered by this Quarterly Report on Form 10-Q from the critical policies described in our Form 10-K.
Forward-Looking Statements

This section and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements reflect our current expectations and views of future events based on certain assumptions, and include any statement that does not directly relate to a historical fact. For example, statements in this Quarterly Report on Form 10-Q may include the potential impact of the expected timing of government approvals or opening of new regulated markets for online gaming, our financial guidance and expectations or targets for our operations, anticipated revenue growth or operating synergies related to our acquisition of Coolbet, and expectations about our ability to effectively execute our business strategy and expansion goals. These forward-looking statements can be identified by words or phrases such as “may,” “will,” “expect,” “should,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “is/are likely to,” or other similar expressions.

Although we believe that we have a reasonable basis for each forward-looking statement, forward-looking statements are not guarantees of future performance and our actual results could differ significantly from the results discussed or implied in these forward-looking statements. Factors that might cause such differences are described in “Item 1A. Risk Factors” in our ~~2021~~2022 Form 10-K and in this Quarterly Report on Form 10-Q.

All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. These forward-looking statements speak only as of the date on which they are made. We do not assume any obligation to update these forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Overview

GAN Limited is a Bermuda exempted holding company and through its subsidiaries, operates in two lines of business. We are a business-to-business (“B2B”) supplier of enterprise Software-as-a-Service (“SaaS”) solutions for online casino gaming, commonly referred to as iGaming, and online sports betting applications. Beginning with our January 2021 acquisition of Vincent Group p.l.c., a Malta public limited company (“Coolbet”), we are also a business-to-consumer (“B2C”) developer and operator of an online sports betting and casino platform, which offers consumers in select markets in Northern Europe, Latin America and Canada a digital portal for engaging in sports betting, online casino games and poker. These two lines of business are also the Company’s reportable segments.

The B2B segment develops, markets and sells instances of ~~and~~ GameSTACK, ~~technology~~GAN Sports, and iSight Back Office technology that incorporates comprehensive player registration, account funding and back-office accounting and management tools that enable casino operators to efficiently, confidently and effectively extend their online presence. In 2021, we won three prestigious industry awards from EGR North America – Best Freeplay Gaming Supplier, Best Full-Service Platform Provider and Best White Label Partner of the Year – in recognition of our expertise and commitment for delivering industry-leading gaming solutions to land-based casinos. GAN Sports, our newest product offering following the acquisition of Coolbet, aims to provide a best-in-class B2B sports betting product in the U.S. and Canada. In July 2022 GAN was named “Rising Star in Sports Betting” for the SBC North America Awards 2022.

The B2C segment includes the operations of Coolbet. Coolbet develops and operates an online sports betting and casino platform that is accessible through its website in markets across Northern Europe, Latin America and Canada. In April of 2022, Coolbet won a prestigious award at the International Gaming Awards in London – Mobile Operator of the Year – in recognition of our user-friendly mobile site and available innovative product features.

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To meet ~~this~~ demand and serve our growing number of U.S. casino operator clients, we continue to invest in our software engineering capabilities and expand our operational support. The most significant component of our operating costs generally relate to our employee salary ~~costs~~ and ~~benefits.~~benefits costs. Also, operating costs include technology and corporate infrastructure related-costs, as well as marketing expenditures with a focus on increasing and retaining B2C end-users.
Our net ~~loss~~income (loss) was ~~$38.3~~$1.5 million and ~~$3.8~~($4.5) million for the three months ended ~~June 30,~~March 31, 2023 and 2022, ~~and 2021, respectively, and $42.8 million and $9.4 million for the six months ended June 30, 2022 and 2021,~~ respectively.

We believe that our current technology is highly scalable and can support the launch of our product offerings for new customers and in new jurisdictions. We expect to achieve profitability through increased revenues from:

● organic growth of our existing casino operators,
●● expansion into newly regulated jurisdictions with existing and new customers,
● margin expansion driven by the integration of Coolbet’s sports betting technology in our B2B product offerings,
● strategically reducing our existing worldwide global workforce to simplify and streamline our organization and strengthen the overall competitiveness of our B2B segment,
● revenue expansion from the roll-out of our Super RGS content offering to B2C operators who are not already clients, and
● organic growth of our B2C business in existing and new jurisdictions.

We hold a strategic U.S. patent, which governs the linkage of on-property reward cards to their counterpart internet gambling accounts together with bilateral transmission of reward points between the internet gaming technology system and the land-based casino management system present in all U.S. casino properties. In February 2021, we reached an agreement to license our U.S. patent to a second major U.S. casino operator group and we may license our patent to other major U.S. internet gaming operators in the future.

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Consolidated Results of Operations

Three Months Ended ~~June 30, 2022~~March 31, 2023 Compared to Three Months Ended ~~June 30, 2021~~March 31, 2022

The following table sets forth our consolidated results of operations for the periods indicated:

Three Months Ended
Three Months Ended
June 30, Change March 31, Change
2022 2021 Amount Percent 2023 2022 Amount Percent
(dollars in thousands)
Revenue $ 34,967 $ 34,350 $ 617 1.8 % $ 35,129 $ 37,494 $ (2,365 ) (6.3) %
Operating costs and expenses
Cost of revenue⁽¹⁾ 10,463 10,356 107 1.0 % 10,161 11,700 (1,539 ) (13.2) %
Sales and marketing 7,267 5,480 1,787 32.6 % 7,184 6,098 1,086 17.8 %
Product and technology 5,188 4,829 359 7.4 % 9,578 8,954 624 7.0 %
General and administrative⁽¹⁾ 13,688 12,320 1,368 11.1 % 10,006 9,392 614 6.5 %
Impairment 28,861 — 28,861 n.m.
Restructuring 712 — 712 n.m. — 1,059 (1,059 ) (100.0) %
Depreciation and amortization 6,556 4,132 2,424 58.7 % 4,201 4,413 (212 ) (4.8) %
Total operating costs and expenses 72,735 37,117 35,618 96.0 % 41,130 41,616 (486 ) (1.2) %
Operating loss (37,768 ) (2,767 ) (35,001 ) n.m. (6,001 ) (4,122 ) (1,879 ) 45.6 %
Interest expense, net
1,080

—

1,080

n.m.

Other income (270 ) — (270 ) n.m.
Loss before income taxes (38,578 ) (2,767 ) (35,811 ) n.m.
Income tax (benefit) expense (229 ) 992 (1,221 ) n.m.
Net loss $ (38,349 ) $ (3,759 ) $ (34,590 ) n.m.
Interest expense (income), net 1,716 (9 ) 1,725 n.m.
Other income, net (9,292 ) — (9,292 ) n.m.
Income (loss) before income taxes 1,575 (4,113 ) 5,688 n.m.
Income tax expense 74 386 (312 ) (80.8) %
Net income (loss) $ 1,501 $ (4,499 ) $ 6,000 n.m.
⁽¹⁾Excludes depreciation and amortization expense
n.m. = not meaningful
Geographic Information
The following table sets forth our consolidated revenue by geographic region, for the periods indicated:
Three Months Ended
Three Months Ended
June 30, Percentage of Revenue Change March 31, Percentage of Revenue Change
2022 2021 2022 2021 Amount Percent 2023 2022 2023 2022 Amount Percent
(dollars in thousands)
United States $ 11,720 $ 8,330 33.5 % 24.3 % $ 3,390 40.7 % $ 8,516 $ 11,491 24.2 % 30.6 % $ (2,975 ) (25.9 )%
Europe 10,205 14,193 29.2 % 41.3 % (3,988 ) (28.1 )% 12,677 12,564 36.1 % 33.5 % 113 0.9 %
Latin America 11,193 10,254 32.0 % 29.9 % 939 9.2 % 11,270 12,225 32.1 % 32.6 % (955 ) (7.8 )%
Rest of the world 1,849 1,573 5.3 % 4.5 %
276
17.5 % 2,666 1,214 7.6 % 3.3 % 1,452 119.6 %
Total revenue $ 34,967 $ 34,350 100.0 % 100.0 % $ 617 1.8 % $ 35,129 $ 37,494 100.0 % 100.0 % $ (2,365 ) (6.3 )%
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Revenue

Revenue was ~~$35.0~~$35.1 million for the three months ended ~~June 30, 2022, an increase~~March 31, 2023, a decrease of ~~$0.6~~$2.4 million from the comparable period in ~~2021.~~2022. The ~~increase~~decrease was primarily attributable to ~~an increase~~a decrease in our contractual revenue rates pursuant to the agreement regarding an exclusivity period with aB2B revenues of $3.8 million driven by a $2.1 million increase related to new content revenues, hardware sales, and expansion into new markets, such as Ontario, Canada. The remaining increase primarily relates to RMiG development revenues. These increases werecustomer, that was partially offset by ~~decreases~~overall growth in ~~B2C revenues~~the B2B segment due to strong performance of ~~$3.2 million driven by decreased sports and casino margins combined with unfavorable impacts of revenues derived from currencies which weakened relative to~~our B2B customers during the ~~U.S. Dollar.~~quarter.

Revenue fluctuations across our international markets are primarily a result of our B2C operations, which accounted for $4.0 million of the decreased revenues in Europe and the full $0.9 million increase in Latin America. The increase in revenue in the United States ~~as compared to the prior period was~~are the result of ~~increased~~decreased RMiG revenues ~~within~~in our B2B operations. The fluctuations in Europe were the result of declines in our B2B performance, offset by an improvement in our B2C operations. The decrease in Latin America was entirely attributable to our B2C operations. The increase in the rest of the world was driven primarily by growth in our Ontario operations in the B2B segment.

Cost of Revenue
Cost of revenue was ~~$10.5~~$10.2 million for the three months ended ~~June 30, 2022, an increase~~March 31, 2023, a decrease of ~~$0.1~~$1.5 million from the comparable period in ~~2021. Of this increase, $0.6 million~~2022 . The decrease was primarily attributable to ~~B2B hardware sales, offset by lower costs in~~recognition of service expense related to our ~~B2C segment of $0.5 million~~content licensing arrangements that was accounted for as a ~~result of lower revenues~~service contract in the ~~quarter.~~prior year.

Sales and Marketing
Sales and marketing expense was ~~$7.3~~$7.2 million for the three months ended ~~June 30, 2022,~~March 31, 2023, an increase of ~~$1.8~~$1.1 million from the comparable period in ~~2021.~~2022. The increase was primarily attributable to increased sales and marketing activities within our B2C operations ~~in order~~ to attract additional end-users.

Product and Technology
Product and technology expense was ~~$5.2~~$9.6 million for the three months ended ~~June 30, 2022,~~March 31, 2023, an increase of ~~$0.4~~$0.6 million from the comparable period in ~~2021,~~2022, primarily due to ~~increases~~the decrease in ~~net salaries and related employee~~capitalized development costs ~~of $0.3 million as we ramped up our team and invested~~ in ~~both~~ our B2B ~~and B2C platforms~~segment of $2.1 million. This increase was partially offset by decreases in personnel costs within the B2B segment as the Company continues to ~~serve our new and existing customers.~~assess its cost structure.

General and Administrative

General and administrative expense ~~increased $1.4~~was $10.0 million ~~of which $1.5 million was attributable to increased personnel costs, including~~for the three months ended March 31, 2023, an increase of ~~$0.7~~$0.6 million, ~~in share-based compensation expense. Software~~which related to increased salaries and ~~related technology expenses increased $0.5 million and unfavorable foreign exchange transaction losses, primarily due to~~wages resulting from the ~~movement~~Company expanding the participants of ~~the British Pound relative to the U.S. Dollar, contributed $0.2 million towards this increase. These increases were partially offset by~~its management incentive program as a ~~reduction in professional fees~~means of ~~$0.9 million resulting in an ongoing effort to in-source our back-office and development functions.~~retaining key contributors.
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~~Impairment~~
The stock trading price of our publicly traded shares and resulting market capitalization of our business has experienced a significant and sustained decline since our acquisition of Coolbet. As a result, we performed an interim quantitative impairment assessment of our goodwill as of June 30, 2022, which resulted in an impairment of $28.9 million to goodwill within our B2B reporting segment.
~~Restructuring Expenses~~
Restructuring expenses were $0.7 million for three months ended June 30, 2022 related to employee severance pay and related costs as a result of a restructuring plan we implemented in January 2022. The goal of the restructuring plan is to strategically reduce our existing B2B workforce to simplify and streamline our organization and strengthen the overall competitiveness of our B2B segment.
Depreciation and Amortization

Depreciation and amortization expense was ~~$6.6~~$4.2 million for three months ended ~~June 30, 2022, an increase~~March 31, 2023, a decrease of ~~$2.4~~$0.2 million from the comparable period in ~~2021.~~2022. The ~~increase~~decrease was primarily due to ~~the amortization expense recognized on acquired intangible~~ assets ~~related to the Company’s content licensing arrangement, and acceleration of amortization expense on capitalized development costs related to the expected exit of one of our customers~~fully amortizing in ~~the B2B segment from the online casino and sports betting business in the third quarter of 2022.~~prior periods.

Income Tax ~~(Benefit)~~ Expense

We recorded income tax ~~benefit~~expense of ~~$0.2~~$0.1 million for the three months ended ~~June 30,~~March 31, 2023, reflecting an effective tax rate of 4.7%, compared to income tax expense of $0.4 million for the three months ended March 31, 2022, reflecting an effective tax rate of ~~0.6%, compared to income tax expense of $1.0 million for the three months ended June 30, 2021, reflecting an effective tax rate of (35.9)~~(9.4)%. Our country of domicile is Bermuda, which effectively has a 0% statutory tax rate as it does not impose taxes on profits, income, dividends, or capital gains. The difference between this 0% tax rate and the effective income tax rate for three months ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021~~ was due primarily to a mix of earnings in foreign jurisdictions that are subject to current tax ~~taking into account foreign~~and loss carryforwards in certain jurisdictions that are not expected to be ~~recognized, and limitations on the deductibility of U.S. compensation under Internal Revenue Code Section 162(m).~~recognized.

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~~Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021~~
~~The following table sets forth our consolidated results of operations for the periods indicated:~~
Six Months Ended
June 30, Change
2022 2021 Amount Percent
(dollars in thousands)
Revenue $ 72,461 $ 61,468 $ 10,993 17.9 %
Operating costs and expenses
Cost of revenue⁽¹⁾ 22,163 19,075 3,088 16.2 %
Sales and marketing 13,365 9,581 3,784 39.5 %
Product and technology 14,142 10,072 4,070 40.4 %
General and administrative⁽¹⁾ 23,080 22,329 751 3.4 %
Impairment
28,861

—

28,861

n.m.

Restructuring 1,771 — 1,771 n.m.
Depreciation and amortization 10,969 8,126 2,843 35.0 %
Total operating costs and expenses 114,351 69,183 45,168 65.3 %
Operating loss (41,890 ) (7,715 ) (34,175 ) n.m.
Interest expense, net 1,071 1 1,070 n.m.
Other income
(270
)
—
(270 )
n.m.

Loss before income taxes (42,691 ) (7,716 ) (34,975 ) n.m.
Income tax expense 157 1,653 (1,496 ) (90.5 )%
Net loss $ (42,848 ) $ (9,369 ) $ (33,479 ) n.m.
⁽¹⁾~~Excludes depreciation and amortization expense~~
~~n.m. = not meaningful~~
~~Geographic Information~~
~~The following table sets forth our consolidated revenue by geographic region, for the periods indicated:~~
Six Months Ended
June 30, Percentage of Revenue Change
2022 2021 2022 2021 Amount Percent
(dollars in thousands)
United States $ 23,211 $ 19,079 32.0 % 31.0 % $ 4,132 21.7 %
Europe 22,769 25,257 31.4 % 41.1 % (2,488 ) (9.9 )%
Latin America 23,418 13,857 32.3 % 22.5 % 9,561 69.0 %
Rest of the world 3,063 3,275 4.3 % 5.4 % (212 ) (6.5 )%
Total revenue $ 72,461 $ 61,468 100.0 % 100.0 % $ 10,993 17.9 %
~~Revenue~~
Revenue was $72.5 million for the six months ended June 30, 2022, an increase of $11.0 million from the comparable period in 2021. The increase was attributable to active customer growth in Latin America that contributed towards the increase in our B2C revenues of $6.9 million, as well as an increase in the B2B revenues attributable to the growth in existing customers and the increase in development revenues.
36
In Europe, $2.0 million of the decreased revenue was attributable to the B2C operations revenues in Euros weakening relative to the U.S. Dollar, despite underlying increases in revenues denominated in Euros. The B2B segment further experienced declines in its RMiG business in Europe that resulted in an additional $1.1 million decrease in revenue.
~~The increase in revenue in the United States as compared to the prior period was the result of increased RMiG revenues within the B2B segment.~~
~~Cost of Revenue~~
Cost of revenue was $22.2 million for the six months ended June 30, 2022, an increase of $3.1 million from the comparable period in 2021. Of this increase, $1.3 million was attributable to our B2C operations’ cost of gaming revenues driven primarily by higher content fees of $0.7 million as a result of increased revenues, and $0.4 million increase in processing fees due to increased deposit and withdrawal activity on www.coolbet.com. Within our B2B segment, the cost of revenue increase was driven by a $1.5 million increase in service fees paid to a third-party content provider related to a content licensing agreement the Company entered into in the second quarter of 2021 and costs of hardware sales recognized during the second quarter of 2022 of $0.7 million.
~~Sales and Marketing~~
Sales and marketing expense was $13.4 million for the six months ended June 30, 2022, an increase of $3.8 million from the comparable period in 2021. Of the increase, $4.0 million was attributable to increased sales and marketing activities within our B2C operations in order to attract additional end-users. This increase was partially offset by a decrease of $0.4 million in share-based compensation expense related to personnel in our sales and marketing functions.
~~Product and Technology~~
Product and technology expense was $14.1 million for the six months ended June 30, 2022, an increase of $4.1 million from the comparable period in 2021, due to higher net salaries and related employee costs of $3.8 million (excluding a decrease in related share-based compensation of $0.1 million) as we ramped up our team and invested in both our B2B and B2C platforms to serve our new and existing customers.
~~General and Administrative~~
General and administrative expense was $23.1 million for the six months ended June 30, 2022, an increase of $0.8 million from the comparable period in 2021, of which unfavorable foreign exchange transaction losses contributed $1.0 million primarily due to the movement of the British Pound relative to the U.S. Dollar. Office and related expenses contributed $0.8 million towards this increase and software and technology expenses additionally increased $0.8 million. Share-based compensation for personnel in our general and administrative functions increased $0.3 million. These increases were primarily offset by a decrease of $2.0 million attributable to a reduction in professional fees resulting in an ongoing effort to in-source our back-office and development functions and a decrease of $0.9 million in sales tax expense.
37
~~Impairment~~
The stock trading price of our publicly traded shares and resulting market capitalization of our business has experienced a significant and sustained decline since our acquisition of Coolbet. As a result, we performed an interim quantitative impairment assessment of our goodwill as of June 30, 2022, which resulted in an impairment of $28.9 million to goodwill within our B2B reporting segment.
~~Restructuring Expenses~~
Restructuring expenses were $1.8 million for six months ended June 30, 2022 related to employee severance pay and related costs as a result of a restructuring plan we implemented in January 2022. The goal of the restructuring plan is to strategically reduce our existing B2B workforce to simplify and streamline our organization and strengthen the overall competitiveness of our B2B segment.
~~Depreciation and Amortization~~
Depreciation and amortization expense was $11.0 million for six months ended June 30, 2022, an increase of $2.8 million from the comparable period in 2021. The increase was due to the amortization expense recognized on acquired intangible assets related to the Company’s content licensing arrangement, and acceleration of amortization expense on capitalized software development costs related to the expected exit of one of our customers in the B2B segment from the online casino and sports betting business in the third quarter of 2022.
~~Income Tax Expense~~
We recorded income tax expense of $0.2 million for the six months ended June 30, 2022, reflecting an effective tax rate of (0.4)%, compared to income tax expense of $1.7 million for the six months ended June 30, 2021, reflecting an effective tax rate of (21.4)%. Our country of domicile is Bermuda, which effectively has a 0% statutory tax rate as it does not impose taxes on profits, income, dividends, or capital gains. The difference between this 0% tax rate and the effective income tax rate for six months ended June 30, 2022 and 2021 was due primarily to a mix of earnings in foreign jurisdictions that are subject to current tax, taking into account foreign loss carryforwards in certain jurisdictions that are not expected to be recognized, and limitations on the deductibility of U.S. compensation under Internal Revenue Code Section 162(m).

Segment Operating Results

We report our operating results by segment in accordance with the “management approach.” The management approach designates the internal reporting used by our Chief Operating Decision Maker (“CODM”), who is our Chief Executive Officer, for making decisions and assessing performance of our reportable segments.

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Three Months Ended ~~June 30, 2022~~March 31, 2023 Compared to Three Months Ended ~~June 30, 2021~~March 31, 2022

The following table sets forth our segment results for the periods indicated:

Three Months Ended Percentage of Segment
Three Months Ended
June 30, Percentage of
Segment Revenue Change March 31, Revenue Change
2022 2021 2022 2021 Amount Percent 2023 2022 2023 2022 Amount Percent
(dollars in thousands)
B2B
Revenue $ 14,150 $ 10,368 100.0 % 100.0 % $ 3,782 36.5 % $ 11,279 $ 13,070 100.0 % 100.0 % $ (1,791 ) (13.7 )%
Cost of revenue⁽¹⁾ 2,939 2,307 20.8 % 22.3 % 632 27.4 % 1,995 3,903 17.7 % 29.9 % (1,908 ) (48.9 )%
B2B segment gross profit $ 11,211 $ 8,061 79.2 % 77.7 % $ 3,150 39.1 %
B2B segment contribution $ 9,284 $ 9,167 82.3 % 70.1 % $ 117 1.3 %
B2C
Revenue $ 20,817 $ 23,982 100.0 % 100.0 % $ (3,165 ) (13.2 )% $ 23,850 $ 24,424 100.0 % 100.0 % $ (574 ) (2.4 )%
Cost of revenue⁽¹⁾ 7,524 8,049 36.1 % 33.6 % (525 ) (6.5 )% 8,166 7,797 34.2 % 31.9 % 369 4.7 %
B2C segment gross profit $ 13,293 $ 15,933 63.9 % 66.4 % $ (2,640 ) (16.6 )%
B2C segment contribution $ 15,684 $ 16,627 65.8 % 68.1 % $ (943 ) (5.7 )%
⁽¹⁾Excludes depreciation and amortization expense

B2B Segment
B2B revenue ~~increased $3.8~~decreased $1.8 million primarily due to a decrease in our contractual revenue rates pursuant to the agreement regarding an ~~increase~~exclusivity period with a B2B customer, that was partially offset by overall growth in development services and other revenue of $2.6 million. Of this increase, development revenues contributed $1.9 million, hardware sales for new RMiG customer launches contributed $0.7 million. The remaining increase was primarily a result ofthe B2B segment due to organic growth ~~within US RMiG revenues which increased $1.1 million.~~in the B2B segment due to strong performance of our B2B customers.

B2B cost of revenue ~~increased $0.6~~decreased $1.9 million primarily attributable to recognition of service expense of $1.5 million related to our content licensing arrangements that was accounted for as a service contract in the prior year. The additional decrease was primarily related to ~~hardware sales recognized~~a decrease in ~~the current quarter which did not occur~~royalties resulting from declines in ~~the prior period.~~our SIM revenues.

Segment ~~gross profit margin~~contribution for B2B, which excludes depreciation and amortization expense, increased marginally by ~~39.1% primarily driven by development~~1.3% and was relatively consistent as the declines in revenues described above were consistent with the decreases in cost of $1.3 million, and $0.6 million of licensing revenues related to an amended of a content licensing arrangement that did not have related costs of revenue in the current period and did not occur in the prior period.revenues.
B2C Segment
B2C revenue decreased ~~$3.2~~$0.6 million primarily due to ~~lower sports and casino margins and~~ the weakening of the currencies in which we derive our B2C operations’ revenues relative to the U.S. Dollar.
B2C cost of revenue ~~decreased $0.5~~increased $0.4 million ~~which was~~ primarily ~~attributable decreased revenues and the mix~~due to an increase in gaming duties as a result of ~~currencies in which we derive our B2C operations’ revenues which weakened relative to the U.S. Dollar.~~entering into new jurisdictions.
Segment ~~gross profit~~contribution for B2C, which excludes depreciation and amortization expense, decreased by ~~(16.6)%, which~~5.7%. This decrease was primarily driven by ~~a decrease in sports and casino margins for~~ the ~~three months ended June 30, 2022 and a~~ decrease in revenues ~~relative to certain fixed costs of revenue.~~as described above.

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~~Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021~~
~~The following table sets forth our segment results for the periods indicated:~~
Six Months Ended
June 30, Percentage of
Segment Revenue Change
2022 2021 2022 2021 Amount Percent
(dollars in thousands)
B2B
Revenue $ 27,220 $ 23,174 100.0 % 100.0 % $ 4,046 17.5 %
Cost of revenue⁽¹⁾ 6,842 5,049 25.1 % 21.8 % 1,793 35.5 %
B2B segment gross profit $ 20,378 $ 18,125 74.9 % 78.2 % $ 2,253 12.4 %
B2C
Revenue $ 45,241 $ 38,294 100.0 % 100.0 % $ 6,947 18.1 %
Cost of revenue⁽¹⁾ 15,321 14,026 33.9 % 36.6 % 1,295 9.2 %
B2C segment gross profit $ 29,920 $ 24,268 66.1 % 63.4 % $ 5,652 23.3 %
⁽¹⁾~~Excludes depreciation and amortization expense~~
~~B2B Segment~~
B2B revenue increased $4.0 million primarily due to an increase in platform and content fee revenue of $2.7 million. Of this increase, organic growth in existing U.S. customers contributed $3.7 million, partially offset by a decline in RMiG revenues in Italy and SIM revenues of $1.1 million and $0.5 million, respectively.
Additionally, B2B development services and other revenue increased $1.3 million, of which $2.5 million related to development and content licensing revenues, $1.1 million related to the accelerated recognition of deferred revenues related to expected exits of our customers, and $0.7 million recognized in connection with hardware sales. These increases were offset by a decrease of $3.0 million related to patent licensing fee revenue recognized during the six months ended June 30, 2021 which did not recur during the six months ended June 30, 2022.
B2B cost of revenue increased $1.8 million primarily related to a $2.7 million increase in platform and content license fees driven by a $1.5 million increase in service fees incurred related to the content licensing agreement the Company entered into in the second quarter of 2021 with a content provider, $0.7 million related to hardware sales, and a $0.3 million increase in game certification costs incurred in connection with launches of new RMiG customers in the year. This increase was partially offset by a $0.7 million decrease in royalties, primarily as a result of lower RMiG revenues in Italy.
~~Segment gross profit margin for B2B, which excludes depreciation and amortization expense, increased by 12.4% primarily driven by increased development and content licensing revenues.~~
40
~~B2C Segment~~
~~B2C revenue increased $6.9 million primarily due to growth in the number of active customers in our Latin American markets during the current period.~~
B2C cost of revenue increased $1.3 million driven by an increase in content fees of $0.7 million related to growth in casino revenues and higher processing fees of $0.4 million due to an increase in customer deposits of 29% and withdrawal activity on www.coolbet.com.
Segment gross profit for B2C, which excludes depreciation and amortization expense, increased by 23.3% primarily driven by an increase in gaming revenues and an increase in gross profit margin as a result of improved processing deals for the six months ended June 30, 2022.

Non-GAAP Financial Measures

Adjusted EBITDA

Management uses the non-GAAP measure of Adjusted EBITDA to measure its financial performance. Specifically, it uses Adjusted EBITDA (i) as a measure to compare our operating performance from period to period, as it removes the effect of items not directly resulting from our core operations, and (ii) as a means of assessing our core business performance against others in the industry, because it eliminates some of the effects that are generated by differences in capital structure, depreciation, tax effects and unusual and infrequent events.

We define Adjusted EBITDA as net ~~income (loss)~~loss before interest expense (income), net, income tax expense (benefit) ~~expense,~~, depreciation and amortization, impairments, share-based compensation expense and related expense, restructuring costs and other items which our Board of Directors considers to be infrequent or unusual in nature. The presentation of Adjusted EBITDA is not intended to be used in isolation or as a substitute for any measure prepared in accordance with U.S. GAAP and Adjusted EBITDA may exclude financial information that some investors may consider important in evaluating our performance. Because Adjusted EBITDA is not a U.S. GAAP measure, the way we define Adjusted EBITDA may not be comparable to similarly titled measures used by other companies in the industry.

Below is a reconciliation of Adjusted EBITDA to net loss, the most comparable U.S. GAAP measure, as presented in the condensed consolidated statements of operations for the periods specified:

Three Months Ended
June 30, Six Months Ended
June 30,
2022 2021 2022 2021
(in thousands)
Net loss $ (38,349 ) $ (3,759 ) $ (42,848 ) $ (9,369 )
Income tax (benefit) expense (229 ) 992 157 1,653
Interest expense, net 1,080 — 1,071 1
Depreciation and amortization 6,556 4,132 10,969 8,126
Share-based compensation and related expense⁽¹⁾ 2,715 2,174 4,336 3,665
Impairment 28,861 — 28,861 —
Restructuring 712 — 1,771 —
Adjusted EBITDA $ 1,346 $ 3,539 $ 4,317 $ 4,076
Three Months Ended
March 31,
2023 2022
(in thousands)
Net income (loss) $ 1,501 $ (4,499 )
Income tax expense 74 386
Interest expense (income), net 1,716 (9 )
Gain on amendment of Content Licensing Agreement ⁽¹⁾ (9,292 ) —
Depreciation and amortization 4,201 4,413
Share-based compensation and related expense ⁽²⁾ 1,839 1,621
Restructuring — 1,059
Adjusted EBITDA $ 39 $ 2,971
⁽¹⁾Includes $9.3 million gain related to the extinguishment of the fixed fees recognized in other income, net within the condensed consolidated statement of operations.
⁽¹⁾⁽²⁾Includes ~~$2.7~~$1.4 million and ~~$2.3~~$1.3 million in equity-classified expense for the three months ended ~~June 30,~~March 31, 2023 and 2022, ~~and 2021, respectively, and $4.0 million and $4.0 million for the six months ended June 30, 2022 and 2021,~~ respectively, and a benefit of ~~$0.1 million and~~ $0.1 million from liability-classified awards for the three months ended ~~June 30, 2022 and 2021, respectively, and a benefit of $0.2 million and $0.2 million for the six months ended June 30, 2022 and 2021, respectively.~~March 31, 2022. Such amounts excluded capitalized amounts. Additionally, share-based compensation and related expense ~~for the three and six months ended June 30, 2022~~ includes ~~$0.3~~$0.5 million and ~~$0.7~~$0.4 million of bonus expense, inclusive of employer taxes, ~~respectively,~~ which will be settled in ~~equity.~~equity, for the three months ended March 31, 2023 and 2022, respectively. Refer to Note ~~11.~~7. Share-based Compensation for further details.

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Key Performance Indicators

Our management uses the following key performance indicators (“KPIs”) as indicators of trends and results of the business. These KPIs give our management an indication of the level of engagement between the player and the Company’s platforms. No estimation is necessary in quantifying these KPIs, nor do they represent U.S. GAAP based measurements. These KPIs are subject to various risks such as customer concentration, competition, licensing and regulation, and macroeconomic conditions. Refer to “Item 1A. Risk Factors” for further risks associated with our business which would affect these KPIs.

Three Months Ended
June 30, Six Months Ended
June 30,
2022 2021 2022 2021
B2B Gross Operator Revenue (in millions) $ 283.0 $ 221.4 $ 580.8 $ 435.6
B2B Take Rate 5.0 % 4.7 % 4.7 % 5.3 %
B2C Active Customers (in thousands) 260 187 347 225
B2C Marketing Spend Ratio 22 % 12 % 20 % 13 %
B2C Sports Margin 7.1 % 9.7 % 7.2 % 8.4 %
~~n.m. = not meaningful~~
Three Months Ended
March 31, Change
2023 2022 Amount Percent
B2B Gross Operator Revenue (in millions) $ 422.8 $ 297.8 $ 125.0 42.0 %
B2B Take Rate 2.7 % 4.4 % (1.7 )% N/A
B2C Active Customers (in thousands) 257 230 27 11.7 %
B2C Marketing Spend Ratio 21 % 19 % 2.0 % N/A
B2C Sports Margin 7.1 % 7.2 % (0.1 )% N/A

B2B Gross Operator Revenue

We define B2B Gross Operator Revenue as the sum of our B2B corporate customers’ gross revenue from SIM, gross gaming revenue from RMiG, and gross sports ~~win~~wins from sportsbook offerings. B2B Gross Operator Revenue, which is not comparable to financial information presented in conformity with U.S. GAAP, gives management and users of our financial statements an indication of the extent of transactions processed through our B2B corporate customers’ platforms and allows management to understand the extent of activity that our platform is processing.

The increase in Gross Operator Revenue for the three ~~and six~~ months ended ~~June 30, 2022,~~March 31, 2023, as compared to the three ~~and six~~ months ended ~~June 30, 2021,~~March 31, 2022, was driven primarily by organic growth in Michigan, New Jersey, and existing customers in Pennsylvania. Additional growth resulted from expansion of new and existing clients into new jurisdictions, such as ~~Connecticut~~Arkansas and Ontario, ~~Canada, coupled with our~~ launch of ~~RMiG solutions~~retail sportsbook solution for new and existing customers in ~~existing~~new jurisdictions such as ~~Michigan. Additionally, customer launches which occurred mid-2021 have now been fully included within the comparable periods of 2022~~Mississippi and ~~increases in Michigan, New Jersey, and Pennsylvania were driven by organic growth from existing customers.~~Massachusetts.

B2B Take Rate

We define B2B Take Rate as a quotient of B2B segment revenue retained by the Company over the total Gross Operator Revenue generated by our B2B corporate customers. B2B Take Rate gives management and users of our financial statements an indication of the impact of the statutory terms and the efficiency of the commercial terms on the business.

The ~~increase~~decrease in B2B Take Rate for the three months ended ~~June 30, 2022~~March 31, 2023 as compared to the three months ended ~~June 30, 2021~~March 31, 2022 was primarily driven by a ~~growth~~decrease in ~~development services and other~~our contractual revenue ~~of 248%, which are considered in addition to Gross Operator Revenue. Development services and other revenue increased as a result of content licensing revenues, acceleration~~rates pursuant to the recognition of deferred revenues related to expected exits of our customers, and hardware sales recognized in the three months ended June 30, 2022 that did not occur in the prior period. This increase in Take Rate was slightly offset by changes to the mix of revenues within ouragreement regarding an exclusivity period with a B2B segment during the three months ended June 30, 2022 compared to the three months ended June 30, 2021, including higher RMiG revenues relative to historical performance, which typically experience a lower Take Rate when compared to other revenue streams.
~~The decrease~~ in B2B Take Rate for the six months ended June 30, 2022, as compared to the six months ended June 30, 2021, was driven by a growth in Gross Operator Revenue without a proportional growth in net segment revenue due to a larger portion of B2B revenues coming from lower Take Rate revenue streams which have outpaced historical performance. This was driven by patent revenue, which is earned based on the transfer of the patent and not derived from Gross Operator Revenue, recognized during the six months ended June 30, 2021 that did not recur in the current period.customer.

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B2C Active Customers

We define B2C Active Customers as a user that places a wager during the period. This metric allows management to monitor the customer segmentation, growth drivers, and ultimately creates opportunities to identify and add value to the user experience. This metric allows management and users of the financial statements to measure the platform traffic and track related trends.

The increase in B2C Active Customers for the three ~~and six~~ months ended ~~June 30, 2022~~March 31, 2023 was primarily driven by ~~increased~~ customer acquisition in Latin ~~America and higher customer retention during the current period.~~America.

B2C Marketing Spend Ratio

We define B2C Marketing Spend Ratio as the total B2C direct marketing expense for the period divided by the total B2C revenues. This metric allows management to measure the success of marketing costs during a given period. Additionally, this metric allows management to compare across jurisdictions and other subsets, as an additional indication of return on marketing investment.

The increase in B2C ~~Marking~~Marketing Spend Ratio for the three ~~and six~~ months ended ~~June 30, 2022~~March 31, 2023 was primarily driven by increased marketing spend in Latin America, and higher customer acquisition costs as a result of ~~entering into~~regulatory updates in Northern Europe, and several marketing and sponsorship in Latin American to develop greater brand ~~building initiatives~~awareness during the current period.

B2C Sports Margin

We define B2C Sports Margin as the ratio of wagers minus winnings to total amount wagered, adjusted for open wagers at period end. Sports betting involves a user placing a bet on the outcome of a sporting event with the chance to win a pre-determined amount, often referred to as fixed odds. Our B2C sportsbook revenue is generated by setting odds that are intended to provide a built-in theoretical margin in each sports bet offered to our users. This metric allows management to measure sportsbook performance against its expected outcome.

The decrease in B2C Sports Margin for three ~~and six~~ months ended ~~June 30, 2022~~March 31, 2023 was primarily attributable to more favorable outcomes in the prior ~~period related to large sporting events, such as the Copa America Championship and European Football Championship, which occurred in the prior period and did not recur during the current~~ period.
Liquidity and Capital Resources

Material Cash Commitments

Our primary uses of cash include funding our ongoing working capital needs, content licensing discussed below, and developing and maintaining our proprietary software platforms. Such capital allocations are contemplated while considering other opportunities we may have to deploy our ~~capital including share repurchases under our share repurchase program.~~capital.
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During the year ended December 31, ~~2021,~~2022, we entered into a Content Licensing Agreement (the “Agreement”) with a third-party gambling content provider specializing in developing and licensing interactive games which was amended and restated on April 5, 2022. The Agreement grants us exclusive right to use and distribute the online gaming content in North America. The content provider is committed to developing a minimum number of games for our exclusive use over the five-year term, subject to extensions. In exchange, we are required to pay fixed fees, totaling $30.0 million, of which $5.0 million was due upon execution of the Agreement, and the remaining fixed fees are paid systematically over the initial five-year term. Additional payments could be required if our total revenue generated from the licensed content exceeds certain stipulated annual and cumulative thresholds during the contract term. In March 2023, the ~~event that~~Company amended and restated its Content Licensing Agreement with the ~~Agreement is terminated, actual cash outlays could be less than currently contemplated.~~
~~We expect our capital expenditures to continue to increase~~Content Provider, which resulted in a reduced contract term and a reduction in the ~~immediate future, as we seek to expand our business through organic growth and potential business acquisitions. Specifically,~~fixed fees payable under the key elements of our growth strategy include, but are not limited to, the expansion of our gaming content on our platform, primarily through the Agreements, our anticipated launch of the integrated B2B sportsbook technology solution in North America in the fourth quarter of 2022, the continued integration of Coolbet’s sports betting technology and international B2C operations, the launch of regulated gaming in new U.S. states and potential business acquisitions.arrangement by $15 million.

The execution of our growth strategy will require continued significant capital expenditures, and we expect to continue investing in our products and technologies as we seek to scale our business. In April 2022, we successfully completed a $30 million term loan with net proceeds, of which $27.6 million provides us additional flexibility to execute our balanced capital allocation plan centered around the aforementioned investments and our share repurchase program. During the three months ended June 30, 2022 we repurchased $1.0 million of our own shares as we believed our share price was undervalued and did not reflect the long-term opportunities ahead of us.
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We utilized cash in investing activities of ~~$12.5~~$1.8 million and ~~$102.5~~$4.0 million for the ~~six~~three months ended ~~June 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively. Of these activities, $92.4 million related to the acquisition of Coolbet for the six months ended June 30, 2021. We made payments during the six months ended June 30, 2022 and 2021 related to content licensing fees of $5.5 million and $3.5 million, respectively. Expendituresexpenditures related to internally developed capitalized software represented ~~$6.3~~$1.3 million and ~~$5.3~~$3.5 million, respectively, and property and equipment (including licenses for internal use software) represented ~~$0.7~~$0.4 million ~~and $1 million, respectively.~~for both periods.

Sources of Liquidity

WeSince our inception, we have primarily funded our operations through cash generated from operations, cash generated from financing activities including our U.S. initial public offering and term credit facility, and cash on hand. In May 2020, we completed our U.S. initial public offering under which we sold an aggregate of 7,337,000 ordinary shares for net proceeds of $57.4 million and in December 2020, we conducted a follow-on offering under which we sold 6,790,956 ordinary shares for net proceeds of $98.5 million. In January 2021, we completed the acquisition of Coolbet for a purchase price of $218.1 million, including the issuance of 5,260,516 ordinary shares, replacement equity-based awards valued at $0.3 million and cash of $111.1 million, which was funded from the follow-on offering proceeds and available cash on hand. During the year ended December 31, 2022, we repurchased $1.0 million of our own shares as we believed our share price was undervalued and did not reflect the long-term opportunities ahead of us.
In April 2022, we entered into a $30.0 million term credit facility with net proceeds of $27.6 million (the “Credit Facility”). The Credit Facility contains affirmative and negative covenants, including certain financial covenants associated with our financial results. The financial covenants test periods began on March 31, 2023. We obtained waivers for all financial covenants as of March 31, 2023.

On April ~~26, 2022,~~13, 2023, we executed agreements to amend the Credit Facility to waive all events of default, amend certain financial covenants, assign the rights to the Credit Facility from our existing lender to a ~~subsidiary of~~third party, and increase the ~~Company entered into a fixed term credit facility (the “Credit Facility”) which provides for~~principal balance from $30.0 million ~~in aggregate principal amount~~to $42.0 million with accrued paid in-kind (“PIK”) interest of ~~secured term loans with a floating interest rate of 3-month SOFR (subject to a 1% floor) + 9.5%~~8.0% per year (together, forming the “Amended Credit Facility”). The Amended Credit Facility ~~matures~~becomes effective upon cash settlement of payments initiated on ~~October 26, 2026~~April 13, 2023, which is probable to occur within one week of initiation and ~~is fully guaranteed by the Company. There are no scheduled principal payments due~~would represent a cure of any events of default under the Credit ~~Facility.~~Facility and thereby prevent any amounts from becoming due and payable under the Credit Facility’s subjective acceleration clause. The ~~Company incurred $2.4 million~~Amended Credit Facility contains a financial covenant, among other covenants, requiring minimum liquidity of $10.0 million. Refer to Note 15 – Subsequent Events in ~~debt issuance costs in connection~~the accompanying condensed consolidated financial statements for further detail with respect to the Amended Credit Facility.

Our primary source of liquidity for our working capital is cash flows generated from operations and our cash on hand of $49.1 million at June 30, 2022, including the funds received in relation to the Credit Facility.
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We believe cash generated from operations and cash on hand will be sufficient to meet our working capital and capital expenditure requirements for at least the next twelve months. We ~~may also seek~~are actively addressing internal costs to ~~enhance~~conserve cash and executing these programs will be critical to our ~~competitive position through additional complementary acquisitions in both existing and new markets. Therefore, from time~~ability to ~~time, we may access~~continue funding our operations for at least the ~~equity or debt markets to raise additional funds to finance potential acquisitions.~~next twelve months.

~~In the longer term, to~~To the extent that our current resources, including our ability to generate operating cash flows, are insufficient to satisfy our cash requirements, we may seek additional equity or debt financing. Our ability to do so depends on prevailing economic conditions and other factors, many of which are beyond our control.

We do not currently have any such credit facilities or similar debt arrangements in place, outside of the Amended Credit Facility as described above, and cannot provide any assurance as to the availability or terms of any additional future financing that we may require to support our operations. If the needed financing is not available, or if the terms of financing are less desirable than we expect, we may be forced to decrease our level of investment in new products and technologies, discontinue further expansion of our business, or scale back our existing operations, any of which could have an adverse impact on our business and financial prospects.

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Cash Flow Analysis

A summary of our operating, investing and financing activities is shown in the following table:

Three Months Ended
Six Months Ended
June 30, Change March 31, Change
(dollars in thousands) 2022 2021 Amount Percent 2023 2022 Amount Percent
Net cash (used in) from operating activities $ (4,187 ) $ 3,137 $ (7,324 ) (233.5 )%
Net cash used in operating activities $ (4,175 ) $ (2,024 ) (2,151 ) n.m.
Net cash used in investing activities (12,510 ) (102,524 ) 90,014 (87.8 )% (1,762 ) (3,988 ) 2,226 (55.8 )%
Net cash provided by (used in) financing activities 26,965 (321 ) 27,286 n.m.
Net cash used in financing activities (47 ) — (47 ) — %
Effect of foreign exchange rates on cash (670 ) (860 ) 190 (22.1 )% 819 118 701 n.m.
Net increase (decrease) in cash $ 9,598 $ (100,568 ) $ 110,166 (109.5 )%
Net decrease in cash $ (5,165 ) $ (5,894 ) $ 729 (12.4) %

n.m. = not meaningful

Operating Activities

Net ~~cash(~~cash used ~~in) from~~in operating activities ~~decreased $(7.3)~~increased $2.2 million, primarily resulting from ~~an increase~~a decrease in ~~net loss~~earnings after adjustments to reconcile net ~~loss~~income (loss) to cash flows from operations of ~~$(2.4)~~$3.4 million. The ~~remaining decrease in cash used in operating activities was a result of~~amounts were offset by favorable fluctuations in working capital ~~due to timing~~ of ~~payments of liabilities and collections of receivables.~~1.3 million.

Investing Activities

Net cash used in investing activities ~~increased $90.0~~decreased $2.2 million primarily asdue to a ~~result~~reduction of $92.4 million cash paid for the acquisition of Coolbet during the six months ended June 30, 2021, net of cash acquired. This decrease was primarily offset by increases of $2.0 million in cash payments to third-party gambling content providers for the rights to use and distribute their online gaming content in North America, and an increase of $1.0 million in spend for capitalized ~~software~~ development ~~costs primarily related to product enhancements, and new features for both~~within the B2B ~~and B2C platforms.~~segment.
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Financing Activities

Net cash ~~provided by (used in) financing~~used in investing activities increased by $27.3 million primarily due to $27.6 million net cash proceeds associated with the Credit Facility, net of issuance costs, as well as $0.6 million in offering cost payments made in the prior period related to our acquisition of Coolbet which did not occur in the current period. These amounts were partially offset by our use of $1.0 million related to our share repurchase programwas relatively consistent during the ~~current period.~~three months ended March 31, 2023 compared to the three months ended March 31, 2022.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

As a smaller reporting company, we are not required to provide the information required by this Item.
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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including our chief executive officer and chief financial officer (together, the “Certifying Officers”), as appropriate, to allow for timely decisions regarding required disclosure.

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance, not absolute assurance, of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements will not occur or that all control issues, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple ~~error~~errors or ~~mistake.~~mistakes. The design of any system of controls is based, in part, upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of our management, including the Certifying Officers, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, the Certifying Officers concluded that our disclosure controls and procedures were not effective at the reasonable assurance level as of ~~June 30, 2022.~~March 31, 2023. The Certifying Officers based their conclusion on the fact that the Company has identified material weaknesses in controls over financial reporting, detailed below. In light of this fact, our management has performed additional analyses, reconciliations, and other procedures and have concluded that, notwithstanding the material weaknesses in our internal control over financial reporting, the condensed consolidated financial statements for the periods covered by and included in this Form 10-Q fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with GAAP.

Material Weakness in Internal Control Over Financial Reporting

As previously disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, material weaknesses were identified in the Company’s internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s interim or annual condensed consolidated financial statements will not be prevented or detected on a timely basis.
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During the course of management’s year-end procedures, the Company examined employee costs attributed to capitalized software development costs, net and concluded that certain time previously evaluated as capitalizable was not a direct cost of software development and accounted for inconsistently with applicable accounting principles. In addition, the Company evaluated the accounting for revenue from contracts with customers that include significant customization services, previously recognized upon launch, that only the Company can perform and are necessary for the set-up of instances of the RMiG platform, concluding the services are not distinct and the related contract consideration should be allocated to the single performance obligation consisting of the right to access the SaaS platform, recognized over time during the estimated term of the arrangement. The Company also identified deficiencies in the design of the control environment whereby certain finance users were granted “super user” access and security administration rights to the financial reporting systems, the activity of these users with elevated access were not actively monitored, and no segregation of duties over journal entry preparation and approval within the B2C segment existed.

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The Company’s management and audit committee of the board of directors determined that material weaknesses exist related to the design and operating effectiveness of internal controls over the completeness and accuracy of accounting for, and disclosure of, capitalized software development costs, net and revenue recognition. Specifically, the Company did not (i) design appropriate management review controls to properly identify the appropriate costs of employee time allocated to capitalized software development costs, net, and (ii) did not have sufficiently formalized policies and procedures with respect to the capitalized software development process. In addition, the Company (i) did not design adequate procedures for customer contract reviews, (ii) had inadequate controls to appropriately apply the revenue recognition policy and (iii) had inadequate resources to properly evaluate technical aspects of revenue recognition, in each case with respect to contracts with customers.
The Company’s management and audit committee of the board of directors also determined that the fact that the Company did not design appropriate controls to evaluate risks to the entity from improper segregation of duties, review user access rights, monitor activities of finance users with elevated rights within the financial reporting system, and maintain manual controls at a level of precision to mitigate potential misstatements that could be present through the lack of segregation of journal entry preparation and approval within certain financial reporting systems constituted an additional material weakness. While the Company has actively begun to implement controls to remediate the material weaknesses, these weaknesses have not been resolved as of ~~June 30, 2022.~~March 31, 2023.

Remediation Plans

We continue to evaluate measures to remediate the identified material weaknesses. These measures include ~~formalizing and documenting its policies and procedures surrounding capitalized software development costs and revenue recognition, designing and~~ implementing training for the employees whose roles and activities may qualify for capitalization, instituting monthly meetings with the development leadership team to assess the status of all projects, formalizing the customer contract review process and enhancing the scrutiny and precision of the management review controls over the capitalization of software development and revenue recognition process. We also have begun to implement appropriate controls to segregate journal entry preparation and approvals and to actively monitor finance users with elevated rights.

We intend to continue to take steps to remediate the material weakness described above and further evolving our accounting processes, controls, and reviews. The Company plans to continue to assess its internal controls and procedures and intends to take further action as necessary or appropriate to address any other matters it identifies or are brought to its attention. We will not be able to fully remediate this material weakness until these steps have been completed and have been operating effectively for a sufficient period of time.

The actions that we are taking are subject to ongoing senior management review, as well as audit committee oversight. We will not be able to conclude whether the steps we are taking will fully remediate the material weakness in our internal control over financial reporting until we have completed our remediation efforts and subsequent evaluation of their effectiveness. We may also conclude that additional measures may be required to remediate the material weakness in our internal control over financial reporting, which may necessitate further action.

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Changes in Internal Controls Over Financial Reporting

Except for the remediation efforts described above, there was no change in our internal control over financial reporting that occurred during the quarter covered by this Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION
Item 1.Legal Proceedings

We are subject to legal proceedings that have not been fully resolved and that have arisen in the ordinary course of business. We are not currently a party to any legal proceedings that, in the opinion of our management, are likely to have a material adverse effect on our business.

The outcome of litigation is inherently uncertain. If one or more matters were resolved against the Company in a reporting period for amounts above management’s expectations, the Company’s financial condition and operating results for that reporting period could be materially adversely affected. Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

Item 1A. Risk Factors

Our business, financial condition and operating results can be affected by a number of factors, both known and unknown, including those described below and in Part I, Item 1A of our ~~2021~~2022 Form 10-K under the heading “Risk Factors,” any of which, alone or in combination with other, could cause our actual operating results and financial condition to vary materially from past, or from anticipated future operating results or financial condition.

Our B2C operations generate a significant portion of its revenues from ~~“unregulated”~~ “unregulated” markets and changes in regulation in those markets could result in us losing business in those markets or incurring additional expenses in order to comply with any new regulatory scheme.

Our B2C operations currently generate a significant portion of its revenues in markets that currently do not have a local licensing scheme, including Latin America and Northern Europe. Certain of those markets, or other markets where we may operate in the future, are in the process of developing regulations that require registration and regulatory compliance or could do so in the near term. The adoption of regulations and licensing requirements may increase costs, reduce net gaming revenue or require us to cease operations depending on the range of unforeseen ~~possible changes to the statutes~~developments in proposed rules and regulations governing online gaming in the international markets in which we currently operate.

Our B2C operations generate a significant portion of our revenue in markets where tax regulations are evolving, and could result in additional tax liabilities that could materially affect our financial condition and results of operations.

Our B2C operations currently generate a significant portion of its revenues in markets that have evolving tax legislation, including Latin America and Canada. Those markets, or other markets where we may operate in the future are actively considering or could adopt regulations that adversely affect our operations. The adoption of tax regulations may increase costs, reduce net gaming revenue or require us to cease operations depending on the range of unforeseen possible changes to the statutes governing online gaming in the international markets in which we currently operate.

Macroeconomic conditions can materially adversely affect the Company’s business, results of operations and financial condition.
Recent adverse macroeconomic conditions, including inflation, higher interest rates, slower growth or recession, the strengthening of the U.S. dollar, and corresponding currency fluctuations can have an adverse material impact on the Company’s future results of operations, cash flows, and financial condition, particularly with respect to foreign currency adjustments relating to our international operations. Such conditions may also affect consumers’ willingness to make discretionary purchases, and therefore the Company, along with its casino operator customers, may experience a decline in wagering. A downturn in the economic environment can also lead to increased credit and collectibility risk on the Company’s trade receivables, limitations on the Company’s ability to issue new debt, and reduced liquidity.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On May 31, 2022, the Board of Directors re-authorized and extended the share repurchase program initially authorized on November 30, 2021, which permits the Company to purchase up to $5.0 million of the Company’s outstanding ordinary shares on the Nasdaq Stock Market. The extension was publicly announced on June 13, 2022. Repurchases are executed through open market purchases or privately negotiated transactions. The Company may purchase the ordinary shares at the prevailing market price at the time of purchase. The Company is not obligated to acquire any particular number of shares and repurchases may be suspended or terminated at any time. The share repurchase program ~~expires~~expired on November 3, 2022.
~~The following table provides certain information with respect to our purchases of shares of the Company’s ordinary shares, as of the settlement date, during~~During the three months ended ~~June 30, 2022:~~March 31, 2023, the Company had no share repurchases under this program. The approximate dollar value of shares that may yet be purchased under the plan was $4.0 million as of March 31, 2023.
Issuer Purchases of Equity Securities
Period
Total Number
of Shares
Repurchased
(in thousands)
Weighted Average
Price Paid
per Share⁽¹⁾
Total Number of
Shares
Purchased as
Part of Publicly
Announced Plans
(in thousands)

Approximate
Dollar Value of
Shares that May
Yet Be Purchased
Under the Plans
(in thousands)

April 1 - April 30, 2022 — $ — — $ 5,000
May 1 - May 31, 2022 — $ — — $ 5,000
June 1 - June 30, 2022 303 $ 3.32 303 $ 4,000
Total 303 $ 3.32 303
⁽¹⁾~~Includes commissions and fees~~
49

Item 6.Exhibits

Exhibit Number Description of Document Form Exhibit Number Date Filed
3.1 Memorandum of Association of GAN Limited F-1 3.1 April 17, 2020
3.2 By-Laws of GAN Limited F-1 3.2 April 17, 2020
10.1* Credit Agreement dated as of April 25, 2022, by and among the Company, BPC Lending I, LLC and Alter Domus (US) LLC as agent
31.1* Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2* Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1** Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *
32.2** Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *
101* Inline XBRL Document set for the condensed consolidated financial statements and accompanying notes in Part I, Item 1, “Financial Statements” of the Quarterly Report on Form 10-Q.
104* Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
* Filed herewith.
** Furnished herewith.
+ Indicates management contract or compensatory plan or arrangement
Exhibit Number Description of Document Form Exhibit Number Date Filed
3.1 Memorandum of Association of GAN Limited F-1 3.1 April 17, 2020
3.2 By-Laws of GAN Limited F-1 3.2 April 17, 2020
31.1* Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2* Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1** Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *
32.2** Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *
101* Inline XBRL Document set for the condensed consolidated financial statements and accompanying notes in Part I, Item 1, “Financial Statements” of the Quarterly Report on Form 10-Q.
104* Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
* Filed herewith.
** Furnished herewith.
+ Indicates management contract or compensatory plan or arrangement

5040
Table of Contents
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

GAN Limited

Date: ~~August 15, 2022~~May 10, 2023 By:By: /s/ DERMOT S. SMURFIT
Dermot S. Smurfit
Chief Executive Officer
(Principal Executive Officer)

/s/ ~~KAREN E. FLORES~~BRIAN CHANG
~~Karen E. Flores~~Brian Chang
Interim Chief Financial Officer
(Principal Financial and Accounting Officer)
5141



	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021

Revenue	$	34,967		$	34,350		$	72,461		$	61,468

Operating costs and expenses
Cost of revenue⁽¹⁾		10,463			10,356			22,163			19,075
Sales and marketing		7,267			5,480			13,365			9,581
Product and technology		5,188			4,829			14,142			10,072
General and administrative⁽¹⁾		13,688			12,320			23,080			22,329
Impairment		28,861			—			28,861			—
Restructuring		712			—			1,771			—
Depreciation and amortization		6,556			4,132			10,969			8,126
Total operating costs and expenses		72,735			37,117			114,351			69,183
Operating loss		(37,768	)		(2,767	)		(41,890	)		(7,715	)
Interest expense, net		1,080			—			1,071			1
Other income		(270	)		—			(270	)		—
Loss before income taxes		(38,578	)		(2,767	)		(42,691	)		(7,716	)
Income tax (benefit) expense		(229	)		992			157			1,653
Net loss	$	(38,349	)	$	(3,759	)	$	(42,848	)	$	(9,369	)

Loss per share, basic and diluted	$	(0.91	)	$	(0.09	)	$	(1.01	)	$	(0.22	)

Weighted average ordinary shares outstanding, basic and diluted		42,300,668			41,931,948			42,276,798			41,912,285

	2023			2022
	Three Months Ended
	March 31,
	2023			2022

Revenue	$	35,129		$	37,494

Operating costs and expenses
Cost of revenue ⁽¹⁾		10,161			11,700
Sales and marketing		7,184			6,098
Product and technology		9,578			8,954
General and administrative ⁽¹⁾		10,006			9,392
Restructuring		—			1,059
Depreciation and amortization		4,201			4,413
Total operating costs and expenses		41,130			41,616
Operating loss		(6,001	)		(4,122	)
Interest expense (income), net		1,716			(9	)
Other income, net		(9,292	)		—
Income (loss) before income taxes		1,575			(4,113	)
Income tax expense		74			386
Net income (loss)	$	1,501		$	(4,499	)

Earnings (loss) per share, basic and diluted	$	0.03		$	(0.11	)

Weighted average ordinary shares outstanding
Basic		42,982,255			42,252,661
Diluted		47,200,182			42,252,661


	Ordinary Shares						Additional Paid-in		Treasury			Accumulated			Accumulated Other Comprehensive			Total Shareholders’
	Shares			Amount			Capital		Shares			Deficit			Loss			Equity

Balance at January 1, 2022	42,250,743		$	422		$	319,551	$	—		$	(76,360	)	$	(19,576	)	$	224,037
Net loss	—			—			—		—			(4,499	)		—			(4,499	)
Foreign currency translation adjustments	—			—			—		—			—			(4,264	)		(4,264	)
Share-based compensation	—			—			1,316		—			—			—			1,316
Accrued liability settled through issuance of shares	—			—			444		—			—			—			444
Restricted share activity	2,365			—			—		—			—			—			—
Balance at March 31, 2022	42,253,108		$	422		$	321,311	$	—		$	(80,859	)	$	(23,840	)	$	217,034
Net loss	—			—			—		—			(38,349	)		—			(38,349	)
Foreign currency translation adjustments	—			—			—		—			—			(12,196	)		(12,196	)
Share-based compensation	—			—			2,659		—			—			—			2,659
Accrued liability settled through issuance of shares	—			—			469		—			—			—			469
Repurchases of ordinary shares	(303,113	)		—			—		(1,006	)		—			—			(1,006	)
Ordinary share retirement	—			(3	)		—		1,006			(1,003	)		—			—
Issuance of ordinary shares upon exercise of share options	125,416			1			394		—			—			—			395
Balance at June 30, 2022	42,075,411		$	420		$	324,833	$	—		$	(120,211	)	$	(36,036	)	$	169,006

	Shares			Amount			Capital			Deficit			Loss			Equity
													Accumulated
							Additional						Other			Total
	Ordinary Shares						Paid-in			Accumulated			Comprehensive			Shareholders’
	Shares			Amount			Capital			Deficit			Loss			Equity

Balance at January 1, 2023		42,894,211		$	429		$	328,998		$	(274,861	)	$	(33,798	)	$	20,768
Balance		42,894,211		$	429		$	328,998		$	(274,861	)	$	(33,798	)	$	20,768
Net income		—			—			—			1,501			—			1,501
Foreign currency translation adjustments		—			—			—			—			966			966
Share-based compensation		—			—			1,382			—			—			1,382
Restricted share activity		377,944			4			—			—			—			4
Repurchase of restricted shares to pay tax liability (Note 7)		(49,157	)		(1	)		(78	)		—			—			(79	)
Issuance of ordinary shares upon ESPP purchases		57,960			1			64			—			—			65
Balance at March 31, 2023		43,280,958		$	433		$	330,366		$	(273,360	)	$	(32,832	)	$	24,607
Balance		43,280,958		$	433		$	330,366		$	(273,360	)	$	(32,832	)	$	24,607

	Fair Value		Level 1		Level 2		Level 3
	June 30, 2022
	Fair Value		Level 1		Level 2		Level 3
Liability
Contingent content liability	$	4,369	$	—	$	—	$	4,369

	Life (in years)	2023			2022
	Estimated Useful	March 31,			December 31,
	Life (in years)	2023			2022
Fixtures, fittings and equipment	3 - 5	$	4,460		$	4,136
Platform hardware	5		2,333			2,313
Total property and equipment, cost			6,793			6,449
Less: accumulated depreciation			(4,012	)		(3,599	)
Total		$	2,781		$	2,850


Present value of future fixed fee payments	$	18,808
Net assets recognized under original agreement		3,067
Contingent consideration		4,369
Total	$	26,244

	Estimated useful life (in years)		Fair Value
Content licenses intangible asset		4.6	$	22,938
Customer relationships intangible asset		4.0		3,306
Acquired right of use lease asset		4.6		116
Acquired right of use lease liability		4.6		(116	)
Total identifiable net assets			$	26,244

	Estimated Useful Life	June 30, 2022			December 31, 2021

Fixtures, fittings and equipment	3-5 years	$	3,283		$	2,935
Platform hardware	5 years		1,952			2,054
Total property and equipment, cost			5,235			4,989
Less: accumulated depreciation			(2,802	)		(2,444	)
Total		$	2,433		$	2,545


	June 30, 2022			December 31, 2021
Capitalized software development costs	$	29,543		$	26,127
Development in progress		5,281			5,910
Total capitalized software development, cost		34,824			32,037
Less: accumulated amortization		(18,777	)		(17,607	)
Total	$	16,047		$	14,430

	B2B			B2C			Total
Balance at January 1, 2022	$	72,230		$	73,912		$	146,142
Impairment		(28,861	)		—			(28,861	)
Effect of foreign currency translation		(5,709	)		(5,835	)		(11,544	)
Balance at June 30, 2022	$	37,660		$	68,077		$	105,737

			1		2			3	Period (in years)		Amount		Amortization			Amount
	Weighted		June 30, 2022						Weighted		March 31, 2023
	Average		Gross					Net	Average		Gross
	Amortization		Carrying		Accumulated			Carrying	Amortization		Carrying		Accumulated			Net Carrying
	Period		Amount		Amortization			Amount	Period (in years)		Amount		Amortization			Amount
Developed technology	3.0 years	$	25,228	$	(12,614	)	$	12,614		4.0	$	34,103	$	(20,498	)	$	13,605
Third-party content licenses	4.6 years		22,938		(1,251	)		21,687
In-process technology	—		7,499		—			7,499
Customer relationships	3.6 years		8,335		(2,721	)		5,614		3.1		6,890		(4,057	)		2,833
Trade names and trademarks	10.0 years		5,243		(1,059	)		4,184		10.0		5,455		(1,469	)		3,986
Gaming licenses	7.3 years		1,978		(1,206	)		772		6.6		3,361		(1,618	)		1,743
		$	71,221	$	(18,851	)	$	52,370			$	49,809	$	(27,642	)	$	22,167

	Amount
Remainder of 2023	$	10,351
2024		3,072
2025		2,921
2026		2,490
2027		1,709
Thereafter		1,624

	Amount
Remainder of 2022	$	8,341
2023		16,666
2024		6,437
2025		6,425
2026		4,924
Thereafter		9,577

	June 30, 2022		December 31, 2021
Content license fees	$	1,603	$	2,402
Sales taxes		838		1,400
Income taxes		240		245
Other		662		622
Total	$	3,343	$	4,669

	June 30, 2022		December 31, 2021
Revenue share due to SIM customers	$	968	$	2,171
Operating lease liabilities		415		472
Contract liabilities		570		261
Other		917		247
Total	$	2,870	$	3,151

	Effective Interest Rate		As of June 30, 2022			Effective Interest Rate			As of March 31, 2023
Credit Facility:
Credit Facility
Principal		13.87%	$	30,000			15.46	%	$	30,000
Less unamortized debt issuance costs				(2,330	)					(1,517	)
Long-term debt, net			$	27,670					$	28,483

	Number of Shares			Weighted Average Exercise Price		Weighted Average Contractual Term		Aggregate Intrinsic Value					Weighted		Weighted
Outstanding at December 31, 2021		4,138,215		$	13.05		8.05	$	11,229
													Average		Average		Aggregate
										Number of			Exercise		Contractual		Intrinsic
										Shares			Price		Term		Value
Outstanding at December 31, 2022											3,447,155		$	9.12		6.59	$	1,139
Granted		910,563			0.03						367,870			0.01
Exercised		(125,416	)		3.29						—			—
Forfeited/expired or cancelled		(763,061	)		17.71						(245,151	)		14.31
Outstanding at June 30, 2022		4,160,301		$	9.87		7.79	$	3,203
Options exercisable at June 30, 2022		2,370,373		$	7.47		7.47	$	1,565
Outstanding at March 31, 2023											3,569,874		$	7.83		6.86	$	1,356
Options exercisable at March 31, 2023											2,402,269		$	7.87		5.95	$	436

	2022
	Three Months Ended
	March 31, 2022
Expected share price volatility		61.20	%
Expected term (in years)		5.00
Risk-free interest rate		1.74	%
Dividend yield		0	%

	Number of Shares			Weighted Average Grant Date Fair Value
Outstanding at December 31, 2021		369,140		$	10.78
Granted		1,328,357			5.34
Vested		(2,365	)		9.53
Forfeited or cancelled		(54,068	)		8.75
Outstanding at June 30, 2022		1,641,064		$	6.48

									2023		2022
	2022		2021		2022		2021		Three Months Ended
	Three Months Ended June 30,				Six Months Ended June 30,				March 31,
	2022		2021		2022		2021		2023		2022
Revenue from services delivered at a point in time	$	21,609	$	24,097	$	46,033	$	41,409	$	23,895	$	24,424
Revenue from services delivered over time		13,358		10,253		26,428		20,059		11,234		13,070
Total	$	34,967	$	34,350	$	72,461	$	61,468	$	35,129	$	37,494

	B2B		B2C		Total		B2B		B2C		Total
	Three Months Ended June 30,
	2022						2021
	B2B		B2C		Total		B2B		B2C		Total
Revenue	$	14,150	$	20,817	$	34,967	$	10,368	$	23,982	$	34,350
Cost of revenue⁽¹⁾		2,939		7,524		10,463		2,307		8,049		10,356
Segment gross profit	$	11,211	$	13,293	$	24,504	$	8,061	$	15,933	$	23,994

	B2B			B2C		Total		B2B		B2C		Total
	Six Months Ended June 30,
	2022							2021
	B2B			B2C		Total		B2B		B2C		Total
Revenue	$	27,220		$	45,241	$	72,461	$	23,174	$	38,294	$	61,468
Cost of revenue⁽¹⁾		6,842	��		15,321		22,163		5,049		14,026		19,075
Segment gross profit	$	20,378		$	29,920	$	50,298	$	18,125	$	24,268	$	42,393

	●	organic growth of our existing casino operators,
	●●	expansion into newly regulated jurisdictions with existing and new customers,
	●	margin expansion driven by the integration of Coolbet’s sports betting technology in our B2B product offerings,
	●	strategically reducing our existing worldwide global workforce to simplify and streamline our organization and strengthen the overall competitiveness of our B2B segment,
	●	revenue expansion from the roll-out of our Super RGS content offering to B2C operators who are not already clients, and
	●	organic growth of our B2C business in existing and new jurisdictions.

													Three Months Ended
	Three Months Ended June 30,						Change						March 31,						Change
	2022			2021			Amount			Percent			2023			2022			Amount			Percent
(dollars in thousands)
Revenue	$	34,967		$	34,350		$	617			1.8	%	$	35,129		$	37,494		$	(2,365	)		(6.3)	%
Operating costs and expenses
Cost of revenue⁽¹⁾		10,463			10,356			107			1.0	%		10,161			11,700			(1,539	)		(13.2)	%
Sales and marketing		7,267			5,480			1,787			32.6	%		7,184			6,098			1,086			17.8	%
Product and technology		5,188			4,829			359			7.4	%		9,578			8,954			624			7.0	%
General and administrative⁽¹⁾		13,688			12,320			1,368			11.1	%		10,006			9,392			614			6.5	%
Impairment		28,861			—			28,861			n.m.
Restructuring		712			—			712			n.m.			—			1,059			(1,059	)		(100.0)	%
Depreciation and amortization		6,556			4,132			2,424			58.7	%		4,201			4,413			(212	)		(4.8)	%
Total operating costs and expenses		72,735			37,117			35,618			96.0	%		41,130			41,616			(486	)		(1.2)	%
Operating loss		(37,768	)		(2,767	)		(35,001	)		n.m.			(6,001	)		(4,122	)		(1,879	)		45.6	%
Interest expense, net		1,080			—			1,080			n.m.
Other income		(270	)		—			(270	)		n.m.
Loss before income taxes		(38,578	)		(2,767	)		(35,811	)		n.m.
Income tax (benefit) expense		(229	)		992			(1,221	)		n.m.
Net loss	$	(38,349	)	$	(3,759	)	$	(34,590	)		n.m.
Interest expense (income), net														1,716			(9	)		1,725			n.m.
Other income, net														(9,292	)		—			(9,292	)		n.m.
Income (loss) before income taxes														1,575			(4,113	)		5,688			n.m.
Income tax expense														74			386			(312	)		(80.8)	%
Net income (loss)													$	1,501		$	(4,499	)	$	6,000			n.m.

																	Three Months Ended
	Three Months Ended June 30,				Percentage of Revenue						Change						March 31,				Percentage of Revenue						Change
	2022		2021		2022			2021			Amount			Percent			2023		2022		2023			2022			Amount			Percent
(dollars in thousands)
United States	$	11,720	$	8,330		33.5	%		24.3	%	$	3,390			40.7	%	$	8,516	$	11,491		24.2	%		30.6	%	$	(2,975	)		(25.9	)%
Europe		10,205		14,193		29.2	%		41.3	%		(3,988	)		(28.1	)%		12,677		12,564		36.1	%		33.5	%		113			0.9	%
Latin America		11,193		10,254		32.0	%		29.9	%		939			9.2	%		11,270		12,225		32.1	%		32.6	%		(955	)		(7.8	)%
Rest of the world		1,849		1,573		5.3	%		4.5	%		276			17.5	%		2,666		1,214		7.6	%		3.3	%		1,452			119.6	%
Total revenue	$	34,967	$	34,350		100.0	%		100.0	%	$	617			1.8	%	$	35,129	$	37,494		100.0	%		100.0	%	$	(2,365	)		(6.3	)%

																	Three Months Ended				Percentage of Segment
	Three Months Ended June 30,				Percentage of Segment Revenue						Change						March 31,				Revenue						Change
	2022		2021		2022			2021			Amount			Percent			2023		2022		2023			2022			Amount			Percent
(dollars in thousands)
B2B
Revenue	$	14,150	$	10,368		100.0	%		100.0	%	$	3,782			36.5	%	$	11,279	$	13,070		100.0	%		100.0	%	$	(1,791	)		(13.7	)%
Cost of revenue⁽¹⁾		2,939		2,307		20.8	%		22.3	%		632			27.4	%		1,995		3,903		17.7	%		29.9	%		(1,908	)		(48.9	)%
B2B segment gross profit	$	11,211	$	8,061		79.2	%		77.7	%	$	3,150			39.1	%
B2B segment contribution																	$	9,284	$	9,167		82.3	%		70.1	%	$	117			1.3	%
B2C
Revenue	$	20,817	$	23,982		100.0	%		100.0	%	$	(3,165	)		(13.2	)%	$	23,850	$	24,424		100.0	%		100.0	%	$	(574	)		(2.4	)%
Cost of revenue⁽¹⁾		7,524		8,049		36.1	%		33.6	%		(525	)		(6.5	)%		8,166		7,797		34.2	%		31.9	%		369			4.7	%
B2C segment gross profit	$	13,293	$	15,933		63.9	%		66.4	%	$	(2,640	)		(16.6	)%
B2C segment contribution																	$	15,684	$	16,627		65.8	%		68.1	%	$	(943	)		(5.7	)%

	Issuer Purchases of Equity Securities
Period	Total Number of Shares Repurchased (in thousands)		Weighted Average Price Paid per Share⁽¹⁾		Total Number of Shares Purchased as Part of Publicly Announced Plans (in thousands)		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans (in thousands)
April 1 - April 30, 2022		—	$	—		—	$	5,000
May 1 - May 31, 2022		—	$	—		—	$	5,000
June 1 - June 30, 2022		303	$	3.32		303	$	4,000
Total		303	$	3.32		303

Exhibit Number	Description of Document	Form	Exhibit Number	Date Filed
3.1	Memorandum of Association of GAN Limited	F-1	3.1	April 17, 2020
3.2	By-Laws of GAN Limited	F-1	3.2	April 17, 2020
10.1*	Credit Agreement dated as of April 25, 2022, by and among the Company, BPC Lending I, LLC and Alter Domus (US) LLC as agent
31.1*	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**	Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *
32.2**	Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *
101*	Inline XBRL Document set for the condensed consolidated financial statements and accompanying notes in Part I, Item 1, “Financial Statements” of the Quarterly Report on Form 10-Q.
104*	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
*	Filed herewith.
**	Furnished herewith.
+	Indicates management contract or compensatory plan or arrangement

	GAN Limited

Date: ~~August 15, 2022~~May 10, 2023	By:By:	/s/ DERMOT S. SMURFIT
		Dermot S. Smurfit
		Chief Executive Officer
		(Principal Executive Officer)

		/s/ ~~KAREN E. FLORES~~BRIAN CHANG
		~~Karen E. Flores~~Brian Chang
		Interim Chief Financial Officer
		(Principal Financial and Accounting Officer)