UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM ~~10-Q/A~~10-Q

~~Amendment No. 1~~

(Mark One)

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

For the quarterly period ended ~~March 31,~~September 30, ~~2021~~2022

☐	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)

(~~702~~(833)) ~~964-5777~~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
Ordinary shares, ~~(Par Value $0.01)~~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	☒	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 ~~May 3, 2021,~~November 7, 2022, there were ~~42,007,600~~42,590,012 ordinary shares outstanding.

~~EXPLANATORY NOTE~~

GAN Ltd, (the “Company”) is filing this Amendment No. 1 on Form 10-Q/A (this “Amendment No. 1”) to amend its Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021, filed with the Securities and Exchange Commission (the “SEC”) on May 17, 2021 (the “Original Form 10-Q”). The purpose of this Amendment No. 1 is to restate our previously issued unaudited interim condensed consolidated financial statements for the three months ended March 31, 2021, contained in the Original Form 10-Q (the “Restatement”).

~~Restatement Background~~

In connection with the preparation of the Company’s financial statements for the year ended December 31, 2021, the Company performed reviews of various process and the Company identified errors in the accounting for capitalized software development costs, as well as errors relating to the recognition of revenue associated with certain contractual deliverables. Based on this review, the Company determined that it improperly included employee costs for individuals that were not performing development activities within the capitalization process, and determined that a portion of the initial revenue recognized at the onset of certain customer contracts should instead have been recognized over the full term of the contract as the performance obligations were not complete during the periods at which such revenues were recognized. The effects of the error resulted in an overstatement of capitalized software development costs and revenue, resulting in an increase of previously reported net loss by $1.1 million for the three months ended March 31, 2021. See Note 2 — Restatement of Prior Financial Information, for additional information.

The Company’s management and the Audit Committee of the Company’s Board of Directors determined that a material weakness existed in the Company’s internal control over financial reporting due to the lack of precision of management review controls that would prevent or detect material misstatements. This material weakness in the Company’s internal control over financial reporting resulted in the overstatement of capitalized software development costs and accelerated recognition of revenues during the period. As such, Item 4 of Part I has been amended for our assessment of the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(b) under the Exchange Act. Refer to ~~Controls and Procedures in Part I, Item 4.~~

~~Items Amended in this Amendment No. 1~~

~~The Amendment sets forth the information in the Original Filing in its entirety, as adjusted for the effects of the Restatement. The following items have been amended to reflect the Restatement:~~

�� ~~Part I, Item 1, Financial Statements~~

● ~~Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

● ~~Part I, Item 4, Controls and Procedures~~

~~● Part II, Item 1A, Risk Factors~~

~~● Part II, Item 6, Exhibits~~

Except as described above, this Amendment No. 1 does not amend, update or change any other disclosures in the Original Form 10-Q. In addition, the information contained in this Amendment No. 1 does not reflect events occurring after the Original Form 10-Q and does not modify or update the disclosures therein, except to reflect the effects of the Restatement.

This Amendment includes new certifications from the Company’s Chief Executive Officer and Chief Financial Officer dated as of the date of filing of this Amendment, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002.

GAN LIMITED

FORM ~~10-Q/A~~10-Q

INDEX

		Page
	PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited) ~~(Restated)~~	3
	Condensed Consolidated Balance Sheets as of ~~March 31, 2021 (Restated)~~September 30, 2022 and December 31, ~~2020~~2021	43
	Condensed Consolidated Statements of Operations for the three and nine months ended ~~March 31,~~September 30, 2022 and 2021 ~~(Restated) and 2020~~	54
	Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended ~~March 31,~~September 30, 2022 and 2021 ~~(Restated) and 2020~~	65
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended ~~March 31,~~September 30, 2022 and 2021 ~~(Restated) and 2020~~	76
	Condensed Consolidated Statements of Cash Flows for the ~~three~~nine months ended ~~March 31,~~September 30, 2022 and 2021 ~~(Restated) and 2020~~	8
	Notes to Condensed Consolidated Financial Statements ~~(Restated)~~	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations ~~(Restated)~~	2732
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3846
Item 4.	Controls and Procedures ~~(Restated)~~	3846
	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	4048
Item 1A.	Risk Factors	4048
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4049
Item 6.	Exhibits	4149
	SIGNATURES	4250

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements ~~(Restated)~~

GAN LIMITED

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Inin thousands, except share and per share amounts)

~~(Unaudited)~~

	March 31, 2021			December 31, 2020
	(Restated)						September 30, 2022			December 31, 2021
ASSETS
Current assets
Cash	$	52,185		$	152,654		$	41,788		$	39,477
Accounts receivable, net of allowance for doubtful accounts of $178 and $100 at March 31, 2021 and December 31, 2020, respectively		12,170			6,818
Accounts receivable, net of allowance for doubtful accounts of $81 and $120 at September 30, 2022 and December 2021, respectively								13,137			8,110
Prepaid expenses		2,800			1,912			4,432			3,498
Other current assets		3,423			2,112			3,503			3,337
Total current assets		70,578			163,496			62,860			54,422

Capitalized software development costs, net		7,715			6,648			16,089			14,430
Goodwill		152,734			—			99,086			146,142
Intangible assets, net		43,855			468			47,734			35,893
Other assets		3,926			2,634			4,336			10,023
Total assets	$	278,808		$	173,246		$	230,105		$	260,910

LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	4,329		$	4,926		$	6,331		$	5,268
Accrued compensation and benefits		6,127			4,956			5,927			10,961
Accrued expenses		4,414			3,363			2,674			4,669
Liabilities to users		6,916			—			8,946			8,984
Other current liabilities		3,733			4,067			2,793			3,151
Total current liabilities		25,519			17,312			26,671			33,033

Deferred income taxes		2,167			—			2,087			1,791
Other noncurrent liabilities		1,719			370
Long-term debt								27,855			—
Content licensing liabilities								19,612			—
Other liabilities								1,517			2,049
Total liabilities		29,405			17,682			77,742			36,873

Stockholders’ equity
Ordinary shares, $0.01 par value, 100,000,000 shares authorized, 42,004,100 and 36,635,362 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively		419			365
Commitments and contingencies (Note 16)
Shareholders’ equity
Ordinary shares, $0.01 par value, 100,000,000 shares authorized, 42,559,977 and 42,250,743 shares issued and outstanding at September 30, 2022 and December 2021, respectively								425			422
Additional paid-in capital		312,715			203,842			327,327			319,551
Accumulated deficit		(51,376	)		(45,766	)		(127,152	)		(76,360	)
Accumulated other comprehensive loss		(12,355	)		(2,877	)		(48,237	)		(19,576	)
Total stockholders’ equity		249,403			155,564
Total liabilities and stockholders’ equity	$	278,808		$	173,246
Total shareholders’ equity								152,363			224,037
Total liabilities and shareholders’ equity							$	230,105		$	260,910

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

GAN LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(Inin thousands, except share and per share amounts)

~~(Unaudited)~~

	2022			2021			2022			2021
	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021

Revenue	$	32,120		$	32,268		$	104,581		$	93,736

Operating costs and expenses
Cost of revenue⁽¹⁾		9,435			10,801			31,598			29,876
Sales and marketing		6,757			5,657			20,122			15,238
Product and technology		4,998			5,492			19,140			15,564
General and administrative⁽¹⁾		10,185			12,888			33,265			35,217
Impairment		—			—			28,861			—
Restructuring		—			—			1,771			—
Depreciation and amortization		5,893			4,560			16,862			12,686
Total operating costs and expenses		37,268			39,398			151,619			108,581
Operating loss		(5,148	)		(7,130	)		(47,038	)		(14,845	)
Interest expense, net		1,450			—			2,521			1
Other income		(13	)		—			(283	)		—
Loss before income taxes		(6,585	)		(7,130	)		(49,276	)		(14,846	)
Income tax expense		356			1,548			513			3,201
Net loss	$	(6,941	)	$	(8,678	)	$	(49,789	)	$	(18,047	)

Loss per share, basic and diluted	$	(0.16	)	$	(0.21	)	$	(1.18	)	$	(0.43	)

Weighted average ordinary shares outstanding, basic and diluted		42,237,226			42,061,396			42,263,462			41,962,535

2021 2020
Three Months Ended
March 31,
2021 2020
(Restated)
Revenues $ 27,118 $ 7,670

Operating costs and expenses
Cost of revenues ⁽¹⁾ 8,719 1,692
Sales and marketing 4,101 863
Product and technology 5,243 1,024
General and administrative ⁽¹⁾ 10,009 2,391
Depreciation and amortization 3,994 853
Total operating costs and expenses 32,066 6,823
Operating income (loss) (4,948 ) 847
Interest expense, net 1 8
Income (loss) before income taxes (4,949 ) 839
Income tax provision 661 145
Net income (loss) $ (5,610 ) $ 694

Income (loss) per share
Basic $ (0.13 ) $ 0.03
Diluted $ (0.13 ) $ 0.03

Weighted average ordinary shares outstanding
Basic 41,986,083 21,512,225
Diluted 41,986,083 23,040,345

⁽¹⁾	Excludes depreciation and amortization expense

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

GAN LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)

(in thousands)

	2022			2021			2022			2021
	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021

Net loss	$	(6,941	)	$	(8,678	)	$	(49,789	)	$	(18,047	)
Other comprehensive loss, net of tax
Foreign currency translation adjustments		(12,201	)		(4,904	)		(28,661	)		(11,939	)
Comprehensive loss	$	(19,142	)	$	(13,582	)	$	(78,450	)	$	(29,986	)

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

GAN LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF ~~COMPREHENSIVE LOSS~~CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

(~~In thousands)~~

~~(Unaudited)~~in thousands, except share amounts)

2021 2020
Three Months Ended
March 31,
2021 2020
(Restated)
Net income (loss) $ (5,610 ) $ 694
Other comprehensive loss, net of tax
Foreign currency translation adjustments (9,478 ) (1,320 )
Comprehensive loss $ (15,088 ) $ (626 )

	Shares			Amount			Capital			Shares			Deficit			Loss			Equity
	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
Net loss		—			—			—			—			(6,941	)		—			(6,941	)
Foreign currency translation adjustments		—			—			—			—			—			(12,201	)		(12,201	)
Share-based compensation		—			—			2,140			—			—			—			2,140
Restricted share activity		159,859			2			(137	)		—			—			—			(135	)
Issuance of ordinary shares upon exercise of share options		250,000			2			323			—			—			—			325
Issuance of ordinary shares upon ESPP purchases		74,707			1			168			—			—			—			169
Balance at September 30, 2022		42,559,977		$	425		$	327,327		$	—		$	(127,152	)	$	(48,237	)	$	152,363

	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
Net loss		—		—		—			—		(8,678	)		—			(8,678	)
Foreign currency translation adjustments		—		—		—			—		—			(4,904	)		(4,904	)
Share-based compensation		—		—		1,823			—		—			—			1,823
Restricted share activity		2,590		—		—			—		—			—			—
Issuance of ordinary shares upon exercise of share options		164,510		2		489			—		—			—			491
Balance at September 30, 2021		42,182,774	$	422	$	317,367		$	—	$	(63,813)		$	(14,816)		$	239,160

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

GAN LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF ~~CHANGES IN STOCKHOLDERS’ EQUITY~~CASH FLOWS (UNAUDITED)

(I~~n thousands, except share amounts)~~in thousands)

~~(Unaudited)~~

Shares Amount Capital Deficit Loss Equity
Ordinary Shares Additional Paid-in Accumulated Accumulated Other Comprehensive Total Stockholders’
Shares Amount Capital Deficit Loss Equity
Balance at December 31, 2020 36,635,362 $ 365 $ 203,842 $ (45,766 ) $ (2,877 ) $ 155,564
Net loss (Restated) — — — (5,610 ) — (5,610 )
Share-based compensation expense — — 1,632 — — 1,632
Issuance of ordinary shares upon exercise of stock options 108,222 1 314 — — 315
Issuance of ordinary shares as partial consideration in Coolbet acquisition (Note 5) 5,260,516 53 106,630 — — 106,683
Fair value of replacement equity awards issued as consideration in Coolbet acquisition (Note 5) — — 297 — — 297
Foreign currency translation adjustments — — — — (9,478 ) (9,478 )
Balance at March 31, 2021 42,004,100 $ 419 $ 312,715 $ (51,376 ) $ (12,355 ) $ 249,403

Ordinary Shares Additional Paid-in Accumulated Accumulated Other Comprehensive Total Stockholders’
Shares Amount Capital Deficit Loss Equity
Balance at December 31, 2019 21,486,059 $ 215 $ 40,862 $ (23,024 ) $ (2,908 ) $ 15,145
Net income — — — 694 — 694
Share-based compensation expense — — 295 — — 295
Issuance of ordinary shares upon exercise of stock options 64,908 1 86 — — 87
Foreign currency translation adjustments — — — — (1,320 ) (1,320 )
Balance at March 31, 2020 21,550,967 $ 216 $ 41,243 $ (22,330 ) $ (4,228 ) $ 14,901

	2022			2021
	Nine Months Ended September 30,
	2022			2021
Cash Flows From Operating Activities
Net loss	$	(49,789	)	$	(18,047	)
Adjustments to reconcile net loss to net cash (used in) from operating activities:
Amortization of software and intangible assets		15,837			11,888
Depreciation on property and equipment and finance lease right-of-use assets		1,025			798
Amortization of debt discount and debt issuance costs		280			—
Share-based compensation expense		5,671			5,774
Impairment of goodwill		28,861			—
Deferred income tax		541			—
Other		(22	)		432
Changes in operating assets and liabilities, net of acquisitions:		��
Accounts receivable		(5,189	)		(483	)
Prepaid expenses		(1,226	)		272
Other current assets		(265	)		226
Other assets		2,552			(9,123	)
Accounts payable		1,730			(1,255	)
Accrued compensation and benefits		(4,174	)		3,370
Accrued expenses		(1,689	)		3,906
Liabilities to users		1,296			2,847
Other current liabilities		(387	)		(460	)
Other liabilities		1,389			1,205
Net cash (used in) provided by operating activities		(3,559	)		1,350

Cash Flows From Investing Activities
Cash paid for acquisition, net of cash acquired		—			(92,454	)
Expenditures for capitalized software development costs		(9,242	)		(8,483	)
Payments for content licensing arrangements		(5,500	)		—
Purchases of gaming licenses		(1,115	)		(215	)
Purchases of property and equipment		(1,657	)		(1,478	)
Net cash used in investing activities		(17,514	)		(102,630	)

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		720			828
Proceeds from issuance of ordinary shares upon ESPP purchase		169			—
Principal payments on finance leases		—			(83	)
Repurchases of ordinary shares		(1,006	)		—
Payment of debt issuance costs		(2,425	)		—
Net cash provided by financing activities		27,458			141

Effect of foreign exchange rates on cash		(4,074	)		(1,210	)

Net increase (decrease) in cash		2,311			(102,349	)
Cash and cash equivalents, beginning of period		39,477			152,654
Cash and cash equivalents, end of period	$	41,788		$	50,305

Supplemental Disclosure of Noncash Investing and Financing Activities:
Intangible assets acquired in business acquisition included in current and long-term liabilities	$	26,244		$	—
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

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

GAN LIMITED

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(In thousands)~~

~~(Unaudited)~~

2021 2020
Three Months Ended
March 31,
2021 2020
(Restated)
Cash Flows From Operating Activities
Net income (loss) $ (5,610 ) $ 694
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Amortization of software and intangible assets 3,755 792
Depreciation on property and equipment and finance lease right-of-use assets 239 61
Share-based compensation expense 1,632 295
Other 99 31
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable (5,334 ) (3,047 )
Prepaid expenses and other current assets (919 ) (386 )
Other assets 97 1,055
Accounts payable (2,093 ) (567 )
Accrued compensation and benefits (43 ) 598
Accrued expenses 1,528 (64 )
Liabilities to users 1,808 —
Other liabilities 305 (901 )
Net cash used in operating activities (4,536 ) (1,439 )

Cash Flows From Investing Activities
Cash paid for acquisition, net of cash acquired (92,404 ) —
Expenditures for capitalized software development costs (1,762 ) (534 )
Purchases of gaming licenses (34 ) —
Purchases of property and equipment (426 ) (437 )
Net cash used in investing activities (94,626 ) (971 )

Cash Flows From Financing Activities
Payments of offering costs (604 ) (909 )
Proceeds from exercise of stock options 315 87
Principal payments on finance leases — (44 )
Net cash used in financing activities (289 ) (866 )

Effect of foreign exchange rates on cash (1,018 ) (850 )

Net decrease in cash (100,469 ) (4,126 )
Cash, beginning of period 152,654 10,279
Cash, end of period $ 52,185 $ 6,153

Supplemental Disclosure of Noncash Investing and Financing Activities:
Ordinary shares issued as partial consideration to acquire all the outstanding shares of Coolbet (Note 5) $ 106,683 $ —
Issuance of unvested stock options in exchange for unvested stock options of Coolbet (Note 5) 297 —
Right-of-use asset obtained in exchange for new operating lease liabilities 188 —

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

‌

~~GAN LIMITED~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(~~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. In May 2020, pursuant to a statutory Scheme of Arrangement under Part 26 of U.K Companies Act of 2006 (“Scheme of Arrangement”) approved by the shareholders of GAN plc, the shareholders of GAN plc exchanged their shares in GAN plc for shares in the Parent, thereby migrating the Company’s jurisdiction of organization from the U.K. to Bermuda. Thereafter, GAN Limited became the parent company of GAN plc. GAN plc was renamed GAN (UK) Limited (“GAN UK”).

~~The Company operates in~~ 2 operating segments – business-to-business (“B2B”) and business-to-consumer (“B2C”). The Company’s B2B segment is involved in the design, development and licensing of sports betting and casino gaming software to land-based casino operators. The Company’s B2C segment provides users with access to its sportsbook, casino games and poker products.

The Company is a B2B supplier of Internet gambling Software-as-a-Service solutions predominately to the U.S. land-based casino industry. The Company has developed a proprietary Internet gambling enterprise software system, GameSTACK™ (“GameSTACK”), which it licenses to land-based casino operators as a turnkey technology solution for regulated real money Internet gambling (“RMiG”), Internet sports gaming, and virtual simulated gaming (“SIM”).

On January 1, 2021, the Company ~~completed~~acquired all of the ~~acquisition of all~~ outstanding shares of Vincent Group p.l.c. (“Vincent Group”), a Malta public limited company doing business as ~~Coolbet (Note 5)~~“Coolbet”. Coolbet is a developer and operator of an online sports betting and casino ~~platform. Coolbet operates a B2C casino and sports-betting~~ platform that is accessible through its website in ~~eight national~~ markets across Northern Europe, ~~(Estonia, Finland, Iceland, Norway and Sweden),~~ Latin America ~~(Chile~~ and ~~Peru)~~Canada.

The Company is a business-to-business (“B2B”) supplier of a proprietary gaming system, GameSTACK™ (“GameSTACK”), which is used predominately in 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 ~~North America (Canada)~~virtual simulated gaming (“SIM”). The Company is also a business-to-consumer (“B2C”) developer and operator of an online sports betting and casino platform, providing international users with access through www.coolbet.com to its sportsbook, casino games and poker products. The Company operates in two operating segments – B2B and B2C.

NOTE 2 — ~~RESTATEMENT OF PRIOR FINANCIAL INFORMATION~~

In connection with the preparation of the Company’s consolidated financial statements as of December 31, 2021, the Company has identified errors made in the Company’s historical condensed consolidated financial statements for the three months ended March 31, 2021. The errors primarily relate to (i) improperly capitalized costs for non-developers that did not meet the criteria of development activities in accordance with the applicable guidance and (ii) significant customization services provided during the set-up of RMiG instances, previously recognized at a point in time, which are only provided by the company and are not distinct. The related consideration should be allocated to the separately identifiable performance obligation consisting of access to the SaaS platform, recognized over time as the Company provides services to its customer in its delivery of services to the player end user. The impact of correcting the improperly capitalized costs is to reverse the capitalized costs and related amortization expense and recognize the expense within product and technology expense. The impact of correcting the revenues improperly recognized at a point in time is to reverse the revenues and recognize contract liabilities, as well as a pro-rata portion of the fixed fees as revenues for the period of the contract completed to date.

~~GAN LIMITED~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited, in thousands, except share and per share amounts)~~

~~The following table summarizes the effect of the Restatement on the condensed consolidated balance sheet as of March 31, 2021:~~

~~SCHEDULE OF ERROR CORRECTIONS AND PRIOR PERIOD ADJUSTMENTS~~

As Reported Adjustment As Restated
Accounts receivable, net of allowance for doubtful accounts of $178 at March 31, 2021 $ 11,945 $ 225 $ 12,170
Capitalized software development costs, net 8,134 (419 ) 7,715
Total assets 279,002 (194 ) 278,808
Other current liabilities 3,944 (211 ) 3,733
Other noncurrent liabilities 559 1,160 1,719
Total liabilities 28,456 949 29,405
Accumulated deficit (50,230 ) (1,146 ) (51,376 )
Accumulated other comprehensive loss (12,358 ) 3 (12,355 )
Total stockholders’ equity 250,546 (1,143 ) 249,403
Total liabilities and stockholders’ equity 279,002 (194 ) 278,808

~~The following table summarizes the effect of the Restatement on the condensed consolidated statement of operations for the three months ended March 31, 2021:~~

As Reported Adjustment As Restated
Revenue $ 27,842 $ (724 ) $ 27,118
Product and technology 4,850 393 5,243
General and administrative ⁽¹⁾ 10,011 (2 ) 10,009
Depreciation and amortization 3,963 31 3,994
Total operating costs and expenses 31,644 422 32,066
Operating loss (3,802 ) (1,146 ) (4,948 )
Loss before income taxes (3,803 ) (1,146 ) (4,949 )
Net loss (4,464 ) (1,146 ) (5,610 )
Loss per share, basic and diluted $ (0.11 ) $ (0.02 ) $ (0.13 )

⁽¹⁾	~~Excludes depreciation and amortization~~

~~The following table summarizes the effect of the Restatement on the condensed consolidated statement of cash flows for the three months ended March 31, 2021:~~

As Reported Adjustment As Restated
Net loss $ (4,464 ) $ (1,146 ) $ (5,610 )
Amortization of software and intangible assets 3,724 31 3,755
Accounts receivable (5,109 ) (225 ) (5,334 )
Other liabilities (644 ) 949 305
Net cash used in operating activities (4,145 ) (391 ) (4,536 )
Expenditures for capitalized software development costs (2,153 ) 391 (1,762 )
Net cash used in investing activities (95,017 ) 391 (94,626 )

~~GAN LIMITED~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited, in thousands, except share and per share amounts)~~

~~NOTE 3~~ — BASIS OF PRESENTATION

Basis of Presentation

The ~~accompanying unaudited~~ condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) ~~and the rules and regulations of the Securities and Exchange Commission for interim reporting.~~. 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 nine months ended ~~March 31, 2021~~September 30, 2022 are not necessarily indicative of the results that may be expected for the year ended December 31, ~~2021~~2022 or for any future annual or interim period. The condensed consolidated balance sheet as of December 31, ~~2020~~2021 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, ~~2020.~~

~~Share Exchange and Reorganization~~

On May 5, 2020, GAN Limited completed a share exchange and reorganization pursuant to a Scheme of Arrangement, whereby the shareholders of GAN plc agreed to exchange their ordinary shares on a basis of 4 ~~ordinary shares to one ordinary share, for shares of GAN Limited, plus a pro rata portion of an aggregate of $2,525~~ (£~~2,004~~ or ~~2.32~~ pence per share) in cash (“Share Exchange”). Immediately subsequent to the Share Exchange, the shareholders of GAN Limited held the same economic interest as they had in GAN plc prior to the Share Exchange. Holders of share options in GAN plc also received reciprocal share options as applicable, in GAN Limited. The condensed consolidated financial statements have been prepared as if GAN Limited had been the parent entity for the periods presented. All share and per share amounts prior to the date of the share exchange and reorganization in these condensed consolidated financial statements have been retroactively adjusted to give effect to the Share Exchange.2021.

NOTE 43 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company’s significant accounting policies are included in “Note 3 – Summary of Significant Accounting Policies” of its ~~Annual Report on~~2021 Form ~~10-K for the year ended December 31, 2020.~~10-K. In addition to repeating some of these significant accounting policies, the Company has added certain new significant accounting policies during the ~~three~~nine months ended ~~March 31, 2021~~September 30, 2022, as described below.

GAN LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except share and per share amounts)

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with ~~accounting principles generally accepted in the United States (“~~U.S. ~~GAAP”)~~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 ~~the~~ 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 ~~stockholders’~~shareholders’ equity.

~~GAN LIMITED~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited, in thousands, except share and per share amounts)~~

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~~gain (loss) of $~~9,478~~684 and $~~1,320~~(589) for the three months ended ~~March 31,~~September 30, 2022 and 2021, respectively, and ~~2020,~~$(494) and $(761) for the nine months ended September 30, 2022 and 2021, respectively.

~~Risks and Uncertainties – COVID-19~~Concentration of Credit Risk

~~The novel coronavirus (“COVID-19”) pandemic,~~Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of its cash and trade receivables. At September 30, 2022, the Company held cash deposits in foreign countries, primarily in Northern Europe and Latin America, of approximately $33.0 million, which ~~was declared a national emergency~~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 ~~March 2020, continues to create extensive disruptions to~~a major financial institution in excess of federally insured limits. As part of our cash management processes, the United States and global economic conditions and financial markets and to businesses and the lives of individuals throughout the world. Federal and state governments have taken, and continue to take, unprecedented actions to contain the spreadCompany performs periodic evaluations of the ~~disease, including quarantines, travel bans, shelter-in-place orders, closures~~credit standing of ~~businesses~~the financial institutions and ~~schools, fiscal stimulus, and legislation designed~~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 ~~deliver monetary aid and other relief for businesses and individuals impacted by the pandemic.~~individual customers or groups of customers in any particular geographic area.

~~Although~~

Risks and Uncertainties

Macroeconomic conditions can materially adversely affect the Company’s business, ~~has proven resilient during~~results of operations and financial condition. Recent adverse macroeconomic conditions, including inflation, higher interest rates, slower growth or recession, the ~~pandemic (for example, with closures~~strengthening of ~~land-based casinos shifting increased revenue to~~the U.S. dollar, and corresponding currency fluctuations can have an adverse material impact on the Company’s ~~online iGaming offerings), it is uncertain whether this trend will continue, as the economic disruption~~future results of operations, cash flows, and ~~uncertainty caused by COVID-19~~financial condition, particularly with respect to foreign currency adjustments relating to our international operations. Such conditions may ~~cause a general decline in iGaming and gambling in general over time~~also affect consumers’ willingness to make discretionary purchases, and therefore the ~~impact of COVID-19~~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 business is ongoing. The cancellation of certain sporting events has reduced sports betting transactions and it is uncertain when the number of live sporting events will return to pre-pandemic levels. Any of these consequences may adversely impact player activitytrade receivables, limitations on the Company’s platforms, which would negatively impact the business. As part of the preparation of these condensed consolidated financial statements, the Company has considered the impact of COVID-19 on the accounting policies and judgments and estimates.

Significant uncertainties exist concerning the magnitude of impact and duration of the COVID-19 pandemic. Management and the Board of Directors are monitoring the impacts of COVID-19 on the Company’s operations and have not identified any major operational challenges through the date of issuance of these condensed consolidated financial statements. The Company has not experienced significant impacts to its liquidity to date as a result of COVID-19. COVID-19 may impact the Company’s ability to ~~access capital to the extent it effects the U.S capital markets. The Company has assessed the extent to which the COVID-19 has impacted events after the reporting date~~issue new debt, and ~~has not identified additional items to disclose as a result.~~reduced liquidity.

GAN LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except share and per share amounts)

Revenue Recognition

~~Platform and Content Fees~~Revenue from B2B Operations

The Company’s ~~platform and content revenues~~revenue from its B2B operations are ~~generated~~ primarily from its ~~Internet gambling~~internet gaming Software-as-a-Service ~~(“SaaS”)~~ platform, GameSTACK, that its customers use to provide real money internet gambling (“RMiG”), online sports gaming and simulated ~~Internet~~internet gaming ~~and online sports betting.~~(“SIM”) to its end users. The Company enters into ~~service agreements~~contracts with its customers that generally range from three to five years, and ~~includes~~include renewal ~~provisions, under which it~~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 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 ~~sports~~sportsbook win, at the time of settlement of an event for ~~real money gaming,~~RMiG contracts, considered usage-based fees, or at the time of purchase for in-game virtual credit for ~~simulated gaming. Further,~~SIM contracts. The determination of the fee charged to its customers is negotiated and varies significantly. Certain of these RMiG contracts provide the Company ~~generates revenues from~~with a minimum monthly revenue guarantee in relation to the ~~licensing~~Company’s share of ~~proprietary and third-party branded games (collectively “content licensing services”) hosted on~~ the ~~platform.~~casino operator’s net gaming revenue or net sportsbook win. At September 30, 2022 the remaining unsatisfied performance obligations related to fixed minimum guaranteed revenue totaled $0.5 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 ~~due~~ 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 support services to the customer over a 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 ~~at a point in~~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 Company receives ~~the~~ fees for the purchases of in-game virtual credit ~~purchases~~ made by ~~end-user players~~end-users and remits payment to the SIM ~~casino operator (customer)~~customer for their share of the SIM ~~revenues generated from the Company’s platform.~~revenues. At ~~March 31, 2021~~September 30, 2022 and December 31, ~~2020,~~2021, the Company has recorded a liability ~~of $2,486~~ ~~and $2,520, respectively,~~due to its customers for ~~its customers’~~their share of the fees of $1,362 and $2,171, respectively, within other current liabilities in the condensed consolidated balance sheets.

The Company’s RMiG and SIM enterprise software platform offerings include iGaming content licensing services. The GameSTACK platform is capable of supporting, and is available to the customer, for both proprietary and third-party licensed gaming content. The customer, in this case the casino operator, generally controls the determination of which gaming content will be offered in their online casinos.

1210

GAN LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(~~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 ~~can utilize~~has access to the Company’s ~~proprietary or~~propriety and licensed ~~gaming~~game content ~~or a~~and additionally, the customer can direct the Company to procure third-party ~~gaming~~game content on its behalf. The Company has determined it acts as the principal for providing the game content ~~licensing services~~ when the Company controls the ~~gaming~~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 ~~gaming~~game content, the Company determined it is deemed an agent for providing ~~the~~such game content, ~~licensing services,~~ and therefore, records the revenue, net of ~~licensing~~the costs ~~paid to~~of content license fees, in the ~~suppliers of that gaming content, in the~~condensed consolidated statements of operations.

~~Gaming~~

The Company operates the B2C gaming site www.Coolbet.com outside of the United States, which is built on 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 multiple odds-scenarios-based wagering on events. When a user’s wager wins, the Company pays the user a pre-determined amount known as fixed odds. Revenue from 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 ~~1,600~~ 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 from poker is reported at rake, less tournament costs and customer bonuses.

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. Such user incentives are recognized as revenue upon redemption or when the incentive expires.

~~Development Services~~

~~Gaming Development Services~~

Revenue is generated from fees for development of games for use on its RMiG and SIM platforms. The development revenue is recognized at the point in time when control of the game is transferred, typically the earlier of the customer’s acceptance or upon receipt of the certification of the game.

~~Platform Development Services~~

~~Platform development services consist of fees charged for~~also provides ongoing development services ~~to provide~~involving updates to the RMiG platforms for enhanced functionality or customization. Ongoing ~~platform~~ development services are typically billed monthly, at a daily rate, for services performed. Revenue from RMiG platform development services that are ~~considered additional~~identified as distinct ~~promises~~performance obligations and relate either to an asset the customer ~~as they access~~controls or from which the ~~platform in a single-tenant architecture, the added features provide new, discrete capabilities independent of the original features and provide independent~~customer receives value ~~to the customer. Revenue is~~are recognized over ~~time as~~ the ~~Company performs~~period the ~~services. For development~~ services ~~charged at a daily rate,~~are performed. This revenue is measured using an input method based on effort expended, which uses direct labor hours incurred. As the performance ~~obligations in these instances relate~~obligation relates to the provision of development services over time, this method ~~best~~ reflects the transfer of control as the Company ~~performs.~~performs the services. Separately, revenue generated from customers for development services that are not identified as distinct performance obligations are deferred over the license service term. In customer contracts that require a portion of the consideration to be received in advance or at the commencement of the contract, such ~~advance payment is initially~~amounts are recorded as a contract liability.

~~GAN LIMITED~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited, in thousands, except share and per share amounts)~~

~~Computer Hardware Sales~~

~~The Company resells~~Other services include the resale of a third-party computer hardware, such as ~~computing~~ servers and other ~~technical~~related hardware devices, upon which the GameSTACK software ~~platform~~ 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 ~~client’s~~customer’s premises and configured to allow for remote access.

The Company has determined that it is acting as the principal in ~~these transactions~~providing computer hardware and related services as it ~~takes~~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 ~~hardware.~~

~~Patent Licensing Revenue~~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 gambling~~internet gaming accounts together with bilateral transmission of reward points between the ~~Internet gambling~~internet gaming technology system and the land-based casino management system present in all ~~U.S~~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.

GAN LIMITED

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. ~~Customer contracts can~~Contracts with its customers may include platform and licensing of game content services, as well as development services orand computer hardware ~~sales.~~services. The variable consideration generated from the platform and the licensing of game content is allocated entirely to the performance obligation for platform and licensing of game content services asand 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 ~~is allocable specifically~~relates entirely to the ~~delivery of~~effort to satisfy the platform and licensing game content services ~~in the period~~ and the ~~allocation~~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 3,200 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.

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.

GAN LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except share and per share amounts)

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.

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

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 Per Share, Basic and Diluted

Basic loss per share is calculated by dividing the net loss 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 onin the condensed consolidated balance sheets and are not subject to creditor claims. At ~~March~~September 30, 2022 and December 31, 2021, the related liabilities to users was $~~6,916~~8,946 and $8,984, respectively.

GAN LIMITED

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. ~~As disclosed in Note 5, the~~The Company has recorded goodwill ~~in connection with the~~primarily from its acquisition of Coolbet onin January 1, 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 ~~value may not be recoverable.~~

~~GAN LIMITED~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited, in thousands, except share and per share amounts)~~amount.

The Company has determined that ~~there are~~ 2it 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 ~~using~~ discounted cash flow analysis.

~~The Company will perform its~~ASC Topic 350 requires that goodwill be tested for impairment between annual ~~impairment review of goodwill as of October 1~~^st ~~and when events~~tests if an event occurs or circumstances change ~~between annual impairment tests~~ that ~~may indicate that it is~~would more likely than not reduce the fair value of a reporting unit ~~may be~~ below its carrying amount. The Company performed a qualitative and quantitative impairment test as of June 30, 2022 which resulted in an impairment to goodwill of $28.9 million. The Company performed an additional qualitative assessment as of September 30, 2022 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 current interim period; therefore, an interim quantitative impairment test was performed. The Company did not recognize an additional impairment to goodwill as a result of its interim impairment test as of September 30, 2022.

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 technology consists of a proprietary technical platform. The Company reviews the in-process 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 technology efforts are completed. When completed, the developed technology will be amortized over its estimated useful life based on and using amortization methods that reflect the pattern in which the economic benefits of the intangible assets are consumed or otherwise realized. The technology is expected to be completed in the latter part of 2021.

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.

~~Capitalized Software Development Costs, net~~

~~The~~ During the three and nine months ended September 30, 2022, there was no triggering event that would cause the Company ~~capitalizes certain development costs related~~ to believe the value of its software 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 willlong-lived assets should 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 software platform.

~~GAN LIMITED~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited, in thousands, except share and per share amounts)~~

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

~~Share-based Compensation~~Legal Contingencies and Litigation Accruals

~~Share-based compensation~~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 ~~is recognized~~ for ~~equity-settled stock options~~the estimated loss. Estimates of any such loss are subjective in nature and ~~restricted stock issued~~require the evaluation of numerous facts and assumptions as to ~~employees and non-employee members~~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 Board of Directors based on the fair value of these awards on the date of grant. The fair value of the stock options is estimated using a Black-Scholes option pricing model and the fair value of the restricted stock awards (restricted stock and restricted stock units) is based on the market price of the Company’s stock on the date of grant.

~~Income (Loss) Per Share, Basic and Diluted~~

Basic income (loss) per share is calculated by dividing net income (loss) by the weighted average number of ordinary shares outstanding during the year. In periods of income, diluted income per share is calculated by dividing net income by the weighted average number of ordinary shares outstanding during the year plus the assumed conversion of all potential dilutive ordinary shares. The Company determines the potentially dilutive ordinary shares using the treasury stock method. In periods of a net loss, basic and dilutive ordinary shares would be anti-dilutive.

~~Reclassifications of Prior Period Amounts~~

Certain prior period amounts have been reclassified to conform to the current period presentation. Specifically, the due to the Coolbet acquisition in 2021, the Company has reclassified certain balances that were previously presented in separate balance sheet captions to other current and noncurrent assets, other accrued expenses, and other current and noncurrent liabilities in the condensed consolidated balance sheet as of December 31, 2020. These reclassifications had no impact on previously disclosed current assets, current liabilities, total assets and total liabilities.financial results will increase or decrease accordingly.

1615

GAN LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(~~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 on the 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.

~~NOTE 5 —~~ ~~ACQUISITION OF VINCENT GROUP P.L.C.~~Fair Value of Financial Instruments

On January 1, 2021, the Company completed the acquisition of all outstanding shares of Vincent Group p.l.c. (“Coolbet”). Coolbet is a developer and operator of an online sports betting and casino platform. Coolbet operates a B2C casino and sports-betting platform that is accessible through its website in eight national markets across Northern Europe (Estonia, Finland, Iceland, Norway and Sweden), Latin America (Chile and Peru) and North America (Canada). The Company ~~acquired Coolbet~~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 ~~take advantage of Coolbet’s user interface and proprietary technical platform, to quickly integrate and offer~~transfer a ~~proprietary sportsbook offering to land-based casino operators~~liability in the ~~United States.~~principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company ~~intends to continue to operate~~uses the following hierarchy in measuring the United States solely as a B2B provider to casinos and other operators. The addition of a proprietary sports betting engine will give the Company the ability to offer a “one-stop” solution to U.S. retail casino operators, while at the same time preserving the flexibility to incorporate third-party solutions when specified. The Company expects that its technology platform and expansive library of proprietary and third-party gaming content should enable it to add additional casino gaming content and platform support for the Company’s B2C offering in Europe and Latin America. The following table summarizes the consideration transferred and the recognized amounts of identifiable assets acquired and liabilities assumed at the acquisition date:

~~Fair~~fair value of the ~~consideration transferred:~~Company’s assets and liabilities, focusing on the most observable inputs when available:

~~SUMMARY OF CONSIDERATION TRANSFERRED~~

Cash paid to Vincent Group shareholders $ 111,118
Restricted ordinary shares issued to Vincent Group shareholders ⁽¹⁾ 106,683
Replacement equity-based awards to holders of Vincent Group equity-based awards ⁽²⁾ 297
Total $ 218,098

⁽¹⁾● ~~The share consideration represents~~ ~~5,260,516~~ ~~ordinary shares issued to the Vincent Group shareholders multiplied by the Company’s share price of $20.28~~ ~~on the acquisition date. These unregistered shares were issued subject to a contractual lock-up period that further restricts the ability of these shares to be transferred~~Level 1 Quoted prices in active markets for identical assets or ~~sold.~~
⁽²⁾ ~~The replacement equity-based awards consist of options to purchase~~ ~~67,830~~ shares of the Company’s ordinary shares. In accordance with the applicable accounting guidance, the fair value of replacement equity-based awards attributable to pre-combination service is recorded as part of the consideration transferred in the acquisition, while the fair value of the replacement equity-based awards attributable to post-combination service is recorded separately from the business combination and recognized as compensation cost in the post-acquisition period over the remaining service period. The fair value of the replacement awards was estimated using the Black-Scholes option pricing model utilizing various assumptions. The vesting terms and conditions of the unvested options were replaced with terms identical to those of the original awards.
~~Recognized amounts of identifiable assets acquired and liabilities assumed at fair value:~~
~~SUMMARY OF FAIR VALUES OF ASSETS ACQUIRED AND LIABILITIES ASSUMED~~
~~Cash~~ $ ~~18,714~~ liabilities.
~~Prepaid expenses and other current assets~~
~~1,512~~● 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.
~~Property and equipment~~
~~343~~●
~~Operating lease right-of-use~~Level 3 Valuations are based on the inputs that are unobservable and significant to the overall fair value measurement of the assets ~~416~~
~~Intangible assets~~ ~~48,370~~
~~Other noncurrent assets~~ 73
~~Accounts payable~~ ~~(1,182~~ )
~~Liabilities~~ 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 ~~users~~ ~~(5,373~~ )
~~Other current liabilities~~ ~~(1,797~~ )
~~Operating lease liabilities~~ ~~(167~~ )
~~Deferred income taxes~~ ~~(2,265~~ )
~~Noncurrent operating lease liabilities~~ ~~(231~~ )
~~Total identifiable net assets~~ ~~58,413~~
~~Goodwill~~ ~~159,685~~
~~Total identifiable assets acquired~~the risk inherent in the valuation technique and ~~liabilities assumed including goodwill, net~~ $ ~~218,098~~ the risk inherent in the inputs to the model.

~~Identifiable intangible assets acquired as part~~Valuation techniques used to measure the fair value must maximize the use of observable inputs and minimize the ~~acquisition, including their respective expected useful lives, were as follows:~~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 September 30, 2022:
~~SUMMARY~~SCHEDULE OF ~~INTANGIBLE~~FAIR VALUE OF ASSETS ~~ACQUIRED~~AND LIABILITIES ON RECURRING BASIS

Estimated
useful life
(in years)
Fair Value
Trade names and trademarks 10.0 $ 5,800
Developed technology 3.0 28,100
In-process developed technology — 8,400
Customer relationships 3.0 5,600
Licenses various 470
$ 48,370
Fair Value Level 1 Level 2 Level 3
September 30, 2022
Fair Value Level 1 Level 2 Level 3
Liability
Contingent content liability $ 4,369 $ — $ — $ 4,369

1716

GAN LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(~~Unaudited,~~ in thousands, except share and per share amounts)
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 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 in April 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. Contingent consideration is revalued at each reporting period. There were no significant changes to the value through September 30, 2022. Refer to Note 4 – Acquisition for further detail.
Income Taxes

The Company is subject to income taxes in the United States, U.K., Bulgaria, Israel, Canada, and Malta. The Company records an income tax 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.
Segments
The Company operates in two 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 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 the amended guidance on a prospective basis to business combinations that occur on or after January 1, 2023.
17
GAN LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except share and per share amounts)
NOTE 4 — ACQUISITION
Content licensing agreement with Ainsworth Game Technology
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 nine months ended September 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.
The following table summarizes the fair value of the consideration transferred:
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.
18
GAN LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except share and per share amounts)
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. The above cash consideration is subject~~acquired, weighted average cost of capital assumptions, and certain Level 3 inputs used in the Monte Carlo simulation used to ~~adjustment for~~value the final working capital adjustment. Additionally, the Company is continuing to evaluate the tax impacts related to the acquisition. Accordingly, the purchase price allocation shown above could change materially. The Company recorded a net deferred income tax liability of $~~2,265~~ ~~associated with the~~contingent consideration. Identifiable intangible assets, ~~recorded in the acquisition accounting.~~including their respective expected useful lives, and liabilities assumed were as follows:

~~The Company accounted for~~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 entered into with the ~~acquisition~~Content Provider valued at approximately $1.4 million which will be expensed over the service period of Coolbet using the acquisition method. The acquisition is treated as a stock purchase for accounting purposes. The goodwill is primarily attributable to the expected incremental revenue and profit to be derived from the Company’s introduction of Coolbet’s sports betting engine technology and intellectual technology to B2B customers in the United States and the assembled workforce of Coolbet. The Company intends to offer the Coolbet sports betting engine and associated capability to existing and new customers alongside its existing platform and Internet casino capability, as a complete turnkey solution or as an alternative sports betting engine to those currently relied upon by customers. Goodwill is not amortized, but is reviewed for impairment at least annually or if an event occurs or circumstances change that would more likely than not indicate the goodwill could be impaired. Goodwill recognized in the acquisition is not deductible for tax purposes. Goodwill arising from the acquisition has been preliminary assigned as of the acquisition date to the Company’s B2C and B2B segments in the amounts of $approximately ~~92,138~~five years ~~and $67,547, respectively, since they are expected to benefit from the synergies of the combination. The B2C and B2B segments are also the reporting units.~~.

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

Estimated
Useful Life

September 30,
2022

December 31,
2021

Fixtures, fittings and equipment 3-5 years $ 3,791 $ 2,935
Platform hardware 5 years 1,651 2,054
Total property and equipment, cost 5,442 4,989
Less: accumulated depreciation (2,894 ) (2,444 )
Total $ 2,548 $ 2,545
Depreciation expense related to property and equipment was $~~1,309~~312 ~~of acquisition-related costs in total, of which~~and $~~290~~ 260~~were recorded during~~ for the three months ended ~~March 31,~~September 30, 2022 and 2021, respectively, and ~~the remaining costs were incurred in 2020. Following the acquisition, Coolbet entirely comprises the Company’s B2C segment. Refer to Note 13~~$926 and $717 for the ~~revenue~~nine months ended September 30, 2022 and ~~segment results of Coolbet since the acquisition date.~~2021, respectively.

~~Pro Forma Operating Results~~
19

The operating results of Coolbet have been included in the condensed consolidated financial statements, beginning on January 1, 2021. The following unaudited pro forma information presents consolidated financial information as if the Coolbet acquisition had occurred on January 1, 2020. The unaudited pro forma results reflect certain adjustments related to the acquisition, such as amortization expense resulting from the intangible assets acquired, share-based compensation related to unvested replacement awards and an adjustment to reflect the Company’s income tax rate. Acquisition costs of $~~1,309~~ are also included as a nonrecurring charge. Such pro forma operating results were prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the acquisition been made as of January 1, 2020 or of the results that may occur in the future.GAN LIMITED
~~PRO FORMA OPERATING RESULTS~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Three Months Ended
March 31, 2020
Revenues $ 14,815
Net loss $ (2,811 )
Loss per share – basic and diluted $ (0.10 )
(in thousands, except share and per share amounts)

NOTE 6 — CAPITALIZED SOFTWARE DEVELOPMENT COSTS, NET
Capitalized software development costs, net at ~~March 31, 2021~~September 30, 2022 and December 31, ~~2020~~2021 consisted of the following:
SCHEDULE OF CAPITALIZED COMPUTER SOFTWARE COSTS, NET
March 31, 2021 December 31, 2020
(Restated)
September 30,
2022

December 31,
2021

Capitalized software development costs $ 27,074 $ 26,507 $ 32,059 $ 26,127
Development in progress 3,127 2,641 2,528 5,910
Total capitalized software development costs 30,201 29,148
Total capitalized software development, cost 34,587 32,037
Less: accumulated amortization (22,486 ) (22,500 ) (18,498 ) (17,607 )
Total $ 7,715 $ 6,648 $ 16,089 $ 14,430

At ~~March 31, 2021,~~September 30, 2022, development in progress primarily represents costs associated with new proprietary content and enhancements to the B2B software ~~platform, as well as integration of Coolbet’s sportsbook into the B2B platform, which are expected to be fully placed in service by the end of 2021.~~platform.

Amortization expense related to capitalized software development costs was $~~760~~1,438 and $~~756~~908 for the three months ended ~~March 31,~~September 30, 2022 and 2021, respectively, and ~~2020,~~$4,552 and $2,569 for the nine months ended September 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 ~~three~~nine months ended ~~March 31, 2021~~September 30, 2022 were as follows:
SCHEDULE OF GOODWILL
B2B B2C Total
Balance at December 31, 2020 $ — $ — $ —
Goodwill acquired in Coolbet acquisition 67,547 92,138 159,685
Effect of foreign currency translation (2,941 ) (4,010 ) (6,951 )
Balance at March 31, 2021 $ 64,606 $ 88,128 $ 152,734
B2B B2C Total
Balance at January 1, 2022 $ 72,230 $ 73,912 $ 146,142
Impairment (28,861 ) — (28,861 )
Effect of foreign currency translation (8,082 ) (10,113 ) (18,195 )
Balance at September 30, 2022 $ 35,287 $ 63,799 $ 99,086

~~Intangible Assets~~
~~Definite-lived intangible assets, net consisted~~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 of the ~~following:~~Company since the Coolbet acquisition, interim quantitative goodwill impairment assessments were performed as of June 30, 2022 and September 30, 2022.
~~SCHEDULE OF FINITE - LIVED INTANGIBLE ASSETS~~
March 31, 2021
Weighted Average Amortization Period Gross Carrying Amount Accumulated Amortization Net Carrying Amount
Developed technology 3.0 years $ 26,877 $ (2,240 ) $ 24,637
In-process technology — 8,034 — 8,034
Customer relationships 3.0 years 5,356 (446 ) 4,910
Trade names and trademarks 10.0 years 5,898 (486 ) 5,412
Licenses 6.7 years 1,860 (998 ) 862
$ 48,025 $ (4,170 ) $ 43,855
December 31, 2020
Weighted Average Amortization Period Gross Carrying Amount Accumulated Amortization Net Carrying Amount
Trade names and trademarks 3.0 years $ 343 $ (343 ) $ —
Licenses 5.3 years 1,366 (898 ) 468
$ 1,709 $ (1,241 ) $ 468

~~Amortization expense related~~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 ~~intangible assets was~~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 performed as of June 30, 2022, the Company recognized an impairment to goodwill of $~~2,995~~28.9 ~~and $~~36 ~~for the three months ended March 31, 2021 and 2020, respectively.~~million. The ~~estimated amortization expense for the next five years is~~Company did not recognize an additional impairment to goodwill as ~~follows: $8,636~~ ~~for 2021; $11,500~~ ~~for 2022; $11,481~~ ~~for 2023; $639~~ ~~for 2024; $625~~ ~~for 2025.~~a result of its interim impairment test as of September 30, 2022.

1920
GAN LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(~~Unaudited,~~ in thousands, except share and per share amounts)
Intangible Assets
Definite-lived intangible assets, net consisted of the following:
SCHEDULE OF FINITE-LIVED INTANGIBLE ASSETS

Amortization Period
Gross Carrying Amount Accumulated Amortization Net Carrying Amount
Weighted Average September 30, 2022

Amortization Period
Gross Carrying Amount Accumulated Amortization Net Carrying Amount
Developed technology 3.8 years $ 30,671 $ (13,792 ) $ 16,879
Third-party content licenses 4.6 years 22,938 (2,502 ) 20,436
Customer relationships 3.6 years 8,019 (3,162 ) 4,857
Trade names and trademarks 10.0 years 4,887 (1,089 ) 3,798
Gaming licenses 7.3 years 3,008 (1,244 ) 1,764
$ 69,523 $ (21,789 ) $ 47,734

Amortization Period
Gross Carrying Amount Accumulated Amortization Net Carrying Amount
Weighted Average December 31, 2021
Amortization Period Gross Carrying Amount Accumulated Amortization Net Carrying 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
Acquired in-process technology consisted of a proprietary technical platform which was under development at the time of acquisition up 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 $4,135 and $3,356 for the three months ended September 30, 2022 and 2021, respectively, and $11,285 and $9,319 for the nine months ended September 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 $ 4,369
2023 17,611
2024 8,005
2025 7,996
2026 2,330
Thereafter 7,423
21
GAN LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except share and per share amounts)

NOTE 8 — ACCRUED EXPENSES

Accrued expenses consisted of the following:
SCHEDULE OF ACCRUED EXPENSES
March 31, 2021 December 31, 2020
Content licensing fees $ 2,103 $ 1,984
Sales taxes 929 756
Income taxes 890 17
Other 492 606
Total $ 4,414 $ 3,363

September 30,
2022

December 31,
2021

Content license fees $ 1,480 $ 2,402
Other 1,194 2,267
Total $ 2,674 $ 4,669

NOTE 9 — ~~OTHER CURRENT LIABILITIES~~DEBT
~~Other current liabilities consisted~~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 nine months ended September 30, 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 affirmative and negative covenants, including certain financial covenants associated with the Company’s financial results. The negative covenants include 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 September 30, 2022.
The Credit Facility contains 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 and is not cured within any applicable grace period or is not waived, the administrative agent and the lender are entitled to take various actions, including, without limitation, the acceleration of all amounts due and the termination of commitments under the Credit Facility.
The carrying values of the Company’s long-term debt consist of the following:
SCHEDULE OF ~~OTHER CURRENT LIABILITIES~~LONG TERM DEBT
March 31, 2021 December 31, 2020
(Restated)
Revenue share due to SIM customers $ 2,486 $ 2,520
Contract liabilities 680 1,083
Operating lease liabilities 465 262
Other 102 202
Total $ 3,733 $ 4,067
Effective Interest Rate
As of
September 30, 2022

Credit Facility:
Principal 13.28 % $ 30,000
Less unamortized debt issuance costs (2,145 )
Long-term debt, net $ 27,855

~~Revenue~~During the three and nine months ended September 30, 2022 the Company incurred $1,071 and $1,735, respectively, in interest expense, of which $185 and $280, respectively, relates to the amortization of debt issuance costs.
22
GAN LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except share ~~due to SIM customers represents the fees collected for in-game virtual credit purchases made by end-user players due to SIM casino operator customers for their~~and per share ~~of the SIM revenues generated from the Company’s platform.~~amounts)

NOTE 10 — 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^st or as determined by the Board of Directors, for ordinary shares, incentive ~~stock~~share options, nonqualified ~~stock~~share options, ~~stock~~share appreciation rights, restricted ~~stock~~share grants, ~~stock~~share units, and other equity awards for issuance to employees, ~~consultant~~consultants or non-employee directors. ~~The share-based awards are issued at no less than fair market value~~At September 30, 2022, the 2020 Plan provided for grants of anup to 7,559,574 ordinary ~~share on the date of grant. At March 31, 2021,~~shares and there were ~~726,581~~508,173 ordinary shares ~~remaining~~ available for future issuance under the 2020 Plan.

~~Stock~~Share Options

~~Stock option awards are granted with an exercise price equal to the fair market value, as determined under the 2020 Plan,~~A summary of the ~~Company’s ordinary shares on~~share option activity as of and for the ~~date~~nine months ended September 30, 2022 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
Outstanding at December 31, 2021 4,138,215 $ 13.05 8.05 $ 11,229
Granted 947,002 0.03
Exercised (375,416 ) 1.93
Forfeited/expired or cancelled (998,942 ) 15.29
Outstanding at September 30, 2022 3,710,859 $ 10.25 7.6 $ 1,756
Options exercisable at September 30, 2022 2,271,058 $ 8.44 6.97 $ 672
The Company recorded share-based compensation expense related to share options of ~~grant. Stock~~$948 and $1,693 for the three months ended September 30, 2022 and 2021, respectively, and $2,596 and $4,639 for the nine months ended September 30, 2022 and 2021, respectively. Such share-based compensation expense was recorded net of capitalized software development costs of $87 and $65 for the three months ended September 30, 2022 and 2021, and $226 and $170 for the nine months ended September 30, 2022 and 2021, respectively. At September 30, 2022, there was total unrecognized compensation cost of $11,401 related to nonvested share options. The unrecognized compensation cost is expected to be recognized over a weighted-average period of 2.7 years.
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.
During the ~~three~~nine months ended ~~March 31, 2021,~~September 30, 2022, the Board of Directors approved the issuance of options to purchase ~~1,148,310~~947,002 ordinary shares to employees ~~including executives and certain long-standing employees~~ under the 2020 ~~Plan.~~Plan, including 944,002 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. The weighted average grant date fair value of options granted was $0.13 and $8.00 for the three months ended September 30, 2022 and 2021, respectively, and $4.13 and $11.49 for the nine months ended September 30, 2022 and 2021, respectively.

~~In addition, in accordance with~~Restricted Share Units
Restricted share units are issued to non-employee directors and employees. For equity-classified restricted share units, the ~~acquisition agreement, the Company issued~~ ~~67,830~~ ~~replacement stock option awards to continuing employees of Coolbet. The~~ fair value of restricted share units is based on fair market value of the ~~replacement stock options will be recognized ratably~~Company’s ordinary shares on the date of grant and is amortized on a straight-line basis over the ~~remaining service period, ranging from~~ ~~one~~ to ~~three years~~.vesting period.

2023

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

~~A summary~~In January 2022, 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 ~~stock option activity as~~grant date. The terms of ~~and~~the awards stipulate that the vesting of any outstanding restricted share units will be pro-rated for employees if their employment terminates after the ~~three months ended March 31, 2021 is as follows:~~first anniversary of the grant date.
~~SCHEDULE OF SHARE-BASED COMPENSATION, OPTION ACTIVITY~~
Number of Shares Weighted Average Exercise Price Weighted Average Contractual Term Aggregate Intrinsic Value
Outstanding at December 31, 2020 3,061,859 $ 8.06 8.5 $ 37,410
Granted 1,216,140 24.35
Exercised (108,222 ) 2.40
Forfeited/expired or cancelled (3,080 ) 18.53
Outstanding at March 31, 2021 4,166,697 $ 12.96 9.2 $ 21,840
Options exercisable at March 31, 2021 1,820,667 $ 3.08 7.7 $ 27,524
In March 2022, the Board of Directors approved the issuance of 1,117,437 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. 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.
In August 2022, the Board of Directors approved the issuance of 34,659 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.
In September 2022, the Board of Directors approved the issuance of 50,317 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 non-employee directors upon vesting in order to remit a cash payment to the directors equal to their tax expense. At September 30, 2022, the Company recognized a liability for outstanding and nonvested restricted share units held by non-employee directors of $148. The liabilities are recorded in accrued compensation and benefits in the condensed consolidated balance sheets.

The Company recorded share-based compensation expense related to ~~stock-options~~restricted share units of $~~1,139~~ 958and $~~295~~ 65for the three months ended ~~March 31,~~September 30, 2022 and 2021, respectively, and ~~2020,~~$3,151 and $195 for the nine months ended September 30, 2022 and 2021, respectively. Such share-based compensation expense iswas recorded net of capitalized software development costs of $48 67~~and $~~23 ~~during~~ for the three and nine months ended ~~March 31, 2021 and 2020,~~September 30, 2022, respectively. At ~~March 31, 2021,~~September 30, 2022, there was $~~22,945~~ of total unrecognized compensation cost of $6,785related to nonvested ~~stock options granted under the 2020 Plan.~~restricted share units. The unrecognized compensation cost is expected to be recognized over a weighted-average period of ~~3.6~~ 3.2 years.
~~years.~~
24
GAN LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except share and per share amounts)

~~The grant date fair value~~A summary of ~~each stock option grant was determined using~~ the ~~following weighted average assumptions:~~restricted share unit activity as of and for the nine months ended September 30, 2022 is as follows:
SCHEDULE OF ~~SHARE-~~SHARE BASED COMPENSATION, ~~FAIR VALUE ASSUMPTIONS~~RESTRICTED STOCK UNIT ACTIVITY
Three Months Ended
March 31,
2021 2020
Expected stock price volatility 61.50 % 67.60 %
Expected term (in years) 4.95 5.00
Risk-free interest rate 0.72 % 0.44 %
Dividend yield 0 % 0 %

Number of
Shares
Weighted Average Grant Date Fair Value
Outstanding at December 31, 2021 369,140 $ 10.78
Granted 1,413,333 5.23
Vested (213,245 ) 9.53
Forfeited or cancelled (73,622 ) 7.84
Outstanding at September 30, 2022 1,495,606 $ 5.86

~~The weighted average grant date fair value of options granted was $12.86~~ ~~and $4.72~~ for the three months ended March 31, 2021 and 2020, respectively. The fair value of each stock 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 stock 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 stock options and the date on which share-based compensation will be settled.Restricted Share Awards

~~Expected volatility is determined by reference to volatility of certain identified peer group~~Restricted share ~~trading information and stock prices on the Nasdaq. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant.~~
For the three months ended March 31, 2020 (prior to the Company’s initial public offering in May 2020), expected volatility was determined by reference to the historic volatility of GAN UK’s share price on the AIM, the London Stock Exchange. The risk-free interest rate for the expected term of the option was based on the U.K. Gilt yield curve in effect at the time of grant. The expected term of the options is based on historical data and represents the period of time that options grantedawards are ~~expected to be outstanding.~~
In addition, in 2020, the Company recorded a liability for social taxes and income taxes related to certain unexercised legacy U.K. Enterprise Management Incentive regime options. The Company is accounting for the required cash payment as a cash-settled share-based compensation transaction. The company recorded a decrease of $93 ~~in the liability related to these options during the three months ended March 31, 2021.~~
~~Restricted Stock Units~~
~~On March 9, 2021, the Board of Directors approved the issuance of~~ ~~15,537~~ ~~restricted stock units~~issued to non-employee ~~directors. The restricted stock units vest over~~ ~~one year~~ ~~from the date of grant with~~ 25~~% vesting per quarter.~~directors and certain key employees. The value of a restricted stock ~~units~~award is based on the market value of the Company’s ordinary shares at the date of ~~grant. The restricted stock units were issued with a grant date fair value of $25.10~~ ~~per share. The Company recorded share-based compensation expense related to~~ the ~~restricted stock units of $~~25 ~~for the three months ended March 31, 2021. At March 31, 2021, there was $365~~ ~~of total unrecognized compensation cost related to nonvested restricted stock units. The remaining cost is expected to be recognized during the next twelve months.~~
21
~~GAN LIMITED~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Unaudited, in thousands, except share and per share amounts)~~grant.

~~Restricted Stock Awards~~
~~On June 15, 2020,~~In December 2021, the ~~Board of Directors approved the issuance of~~Company issued ~~93,680~~51,654 restricted ~~stock awards~~ordinary shares to the ~~chief executive officer and non-employee directors.~~selling shareholders of Silverback Gaming. The restricted ~~stock~~share awards vest ~~one year~~ ~~from the date of grant. The value of restricted stock is based~~one-third on the ~~market value of~~acquisition date and one-third on each the ~~Company’s ordinary shares at the date of grant.~~first and second anniversary dates. The restricted ~~stock~~share awards were issued with a grant date fair value of $~~18.19~~9.68 per share.
The Company recorded share-based compensation expense related to the restricted ~~stock~~share awards of $~~420~~41 for the three months ended ~~March 31, 2021.~~September 30, 2022, and $125 and $770 for the nine months ended September 30, 2022 and 2021, respectively. At ~~March 31, 2021,~~September 30, 2022, there was $~~350~~ of total unrecognized compensation cost of $194 related to the nonvested ~~restricted stock awards.~~shares granted. The ~~remaining~~ cost is expected to be recognized over a weighted average period of 1.2 years. There were no restricted share awards that vested during the nine months ended September 30, 2022.
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 nine months ended September 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.
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.
25
GAN LIMITED
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, one purchase period is included within each offering period. The Company’s first offering period commenced on June 1, 2022 and concluded on August 31, 2022 with its first purchase occurring on August 31, 2022. The Company issued 74,707 shares under the ESPP as of September 30, 2022. During the three and nine months ended September 30, 2022 the Company recognized share-based compensation expense of $64 and $86, respectively, related to the ESPP.

NOTE 11 — ~~INCOME (LOSS)~~LOSS PER SHARE
~~Basic income (loss)~~Loss per ordinary share, isbasic and diluted, are computed by dividing net ~~income (loss)~~loss by the weighted average number of ordinary shares outstanding during the period. ~~Diluted income per ordinary~~Potentially dilutive securities consisting of certain share further includes any ordinary shares available to be issued upon the exercise of outstanding stock option and restricted stock awards if such inclusions would be dilutive. The Company determines the potentially dilutive ordinary shares using the treasury stock method. The following table sets forth the computation of basic and diluted income (loss) per share for the three months ended March 31, 2021 and 2020:
~~SCHEDULE OF THE COMPUTATION OF EARNINGS PER SHARE BASIC AND DILUTED~~
2021 2020

Three Months Ended
March 31,

2021 2020
(Restated)
Numerator:
Net income (loss) $ (5,610 ) $ 694
Denominator:
Weighted average ordinary shares outstanding, basic 41,986,083 21,512,225
Weighted average effect of potentially dilutive ordinary shares:
Stock options — 1,528,120
Restricted stock awards — —
Restricted stock units — —
Weighted average ordinary shares outstanding, diluted 41,986,083 23,040,345

Income (loss) per share:
Basic $ (0.13 ) $ 0.03
Diluted $ (0.13 ) $ 0.03
~~Certain stock~~ options, nonvested restricted ~~stock awards~~shares and restricted ~~stock~~share units were excluded from the computation of diluted weighted average ordinary shares outstanding as inclusion would be anti-dilutive, are summarized as follows:
SCHEDULE OF ANTI-DILUTIVE STOCK EXCLUDED FROM COMPUTATION OF DILUTED EARNINGS PER SHARE
2021 2020

Three Months Ended
March 31,

2021 2020
Stock options 4,166,697 —
Restricted stock awards 93,680 —
Restricted stock units 15,537 —
Total 4,275,914 —
2022 2021 2022 2021
Three Months Ended
September 30, Nine Months Ended
September 30,
2022 2021 2022 2021
Share options 3,710,859 4,268,981 3,710,859 4,268,981
Restricted shares 34,436 — 34,436 —
Restricted share units 1,495,606 2,590 1,495,606 2,590
Total 5,240,901 4,271,571 5,240,901 4,271,571

22
~~GAN LIMITED~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Unaudited, in thousands, except share and per share amounts)~~
NOTE 12 — ~~REVENUES~~REVENUE
The following table reflects ~~revenues~~revenue recognized for the three and nine months ended ~~March 31,~~September 30, 2022 and 2021 ~~and 2020~~ in line with the timing of transfer of services:
SCHEDULE OF REVENUE RECOGNIZED IN LINE WITH THE TIMING OF TRANSFER OF SERVICES
2021 2020

Three Months Ended
March 31,

2021 2020
(Restated)
Revenues from services delivered at a point in time $ 17,312 $ —
Revenues from services delivered over time 9,806 7,670
Total $ 27,118 $ 7,670

2022 2021 2022 2021
Three Months Ended
September 30, Nine Months Ended
September 30,
2022 2021 2022 2021
Revenue from services delivered at a point in time $ 19,435 $ 22,621 $ 65,468 $ 64,030
Revenue from services delivered over time 12,685 9,647 39,113 29,706
Total $ 32,120 $ 32,268 $ 104,581 $ 93,736
~~During the three months ended March 31, 2021, revenues recognized at a point in time was $17,312, of which $14,312~~ ~~related to gaming revenues and $3,000~~ ~~related to development services and other revenues.~~
~~During the three months ended March 31, 2021, the Company had two customers which individually generated revenue greater than~~ ~~10%~~ ~~of the Company’s total revenue. These customers generated revenue of $3,995~~ ~~and $3,633, respectively and represented a combined~~ ~~28.1% of total revenues, all of which related to the B2B segment. During the three months ended March 31, 2020, the Company had revenue from one customer of $4,348, or~~ ~~56.7% of total revenue, all of which related to the B2B segment.~~
~~Costs to Obtain a Contract~~
The Company defers contract costs that are recoverable and incremental to obtaining sales contracts with its customers. Contract costs, consisting primarily of sales commissions, are amortized on a systemic basis that is consistent with the transfer to the customer of the services to which the asset relates. Contract costs are periodically reviewed for impairment. An impairment exists if the carrying amount of the asset exceeds the amount of the consideration the entity expects to receive in exchange for providing the services, less the remaining costs that relate directly to providing those services. Deferred contract costs are recorded in other current assets and other assets in the condensed consolidated balance sheets. The following table reflects the activity in deferred contract costs for the periods presented:
~~SCHEDULE OF ACTIVITY IN CONTRACT LIABILITIES~~
2021 2020

Three Months Ended
March 31,

2021 2020
Balance at the beginning of the period $ 353 $ 86
Capitalized expenditures for the period 52 0
Amortization (22 ) (2 )
Effect of foreign currency translation 2 (6 )
Balance at the end of the period $ 385 $ 78
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 ~~contributions~~contributed to ~~jackpot. Contract-related~~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~~liabilities to ~~Users~~users and ~~Other Current Liabilities on~~other current liabilities in the condensed consolidated balance sheets.

2326

GAN LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(~~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

Three Months Ended
March 31,
2022 2021 2022 2021
2021 2020 Three Months Ended
September 30, Nine Months Ended
September 30,
(Restated) 2022 2021 2022 2021
Contract liabilities from advance customer payments, beginning of the period $ 1,083 $ 3,023 $ 459 $ 1,811 $ 1,874 $ 1,083
Contract liabilities from advance customer payments, end of the period(1) 1,840 2,095 1,467 1,808 1,467 1,808
Revenue recognized from amounts included in contract liabilities from advance customer payments at the beginning of the period 57 777 250 179 775 121

⁽¹⁾ Contract liabilities from advance customer payments, end of period consisted of $479 and $740 recorded in other current liabilities in the condensed consolidated balance sheets at September 30, 2022 and 2021, respectively and $989 and $1,067 recorded in other liabilities in the condensed consolidated balance sheet at September 30, 2022 and 2021, respectively.
~~At March 31, 2021, the Company recorded contract liabilities from advance customer payments of $680~~ ~~and $1,160~~ ~~in other current liabilities and other liabilities, respectively, in the condensed consolidated balance sheet.~~
NOTE 13 — SEGMENT REPORTING
~~Prior~~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 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, ~~the Company operated~~develops and operates a B2C online sports betting and casino platform that is accessible through its ~~business~~website in markets across Northern Europe, Latin America and reported its results through two segments - RMiG and SIM. With the acquisition of Coolbet on January 1, 2021, the Company changed the way it operates its business and now reports its results through two segments: B2C and B2B. The financial information for the three months ended March 31, 2020 has been recast to conform to the new segment presentation.Canada.

Information reported to the Company’s ~~chief executive officer,~~Chief Executive Officer, the ~~chief operating decision maker (“CODM”),~~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. Segment gross profit represents the gross profit 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. ~~A description of each reportable segment is as follows:~~
B2B Segment – This segment develops, markets and sells instances of iSight Back Office and GameSTACK technology that incorporates comprehensive player registration, account funding and back-office accounting and management tools that enable the casino operator customers to efficiently, confidently and effectively extend their presence online in places that have permitted online real money gambling. Where certain jurisdictions have not yet permitted any form of online real money gambling, these B2B technologies provide simulated gambling solutions for the Company’s casino operator customers as a way to bring their retail brand online and create a new Internet gaming experience to their players while leveraging their on-property rewards program.
B2C Segment – This segment develops and operates a B2C online sports betting and casino platform accessible through its website in eight national markets across Northern Europe (Estonia, Finland, Iceland, Norway and Sweden), Latin America (Chile and Peru) and North America (Canada).

Summarized financial information by reportable segments for the three months ended ~~March 31,~~September 30, 2022 and 2021 ~~and 2020~~ is as follows:
SCHEDULE OF FINANCIAL INFORMATION FOR REPORTABLE SEGMENTS
B2B B2C Total B2B B2C Total
Three Months Ended September 30,
2022 2021
B2B B2C Total B2B B2C Total
Revenue $ 12,685 $ 19,435 $ 32,120 $ 11,175 $ 21,093 $ 32,268
Cost of revenue⁽¹⁾ 2,173 7,262 9,435 3,583 7,218 10,801
Segment gross profit $ 10,512 $ 12,173 $ 22,685 $ 7,592 $ 13,875 $ 21,467

Three Months Ended March 31, 2021 Three Months Ended March 31, 2020
B2B B2C Total B2B B2C Total
(Restated) (Restated)
Revenues $ 12,806 $ 14,312 $ 27,118 $ 7,670 $ — $ 7,670
Cost of revenues ⁽¹⁾ 2,742 5,977 8,719 1,692 — 1,692
Segment gross profit ⁽¹⁾ $ 10,064 $ 8,335 $ 18,399 $ 5,978 $ — $ 5,978
⁽¹⁾ Excludes depreciation and amortization expense

2427
GAN LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(~~Unaudited,~~ in thousands, except share and per share amounts)

During the three months ended September 30, 2022 and 2021, one customer in the B2B segment individually accounted for 22.5% and 14.7% of total revenue, respectively.
Summarized financial information by reportable segments for the nine months ended September 30, 2022 and 2021 is as follows:
B2B B2C Total B2B B2C Total
Nine Months Ended September 30,
2022 2021
B2B B2C Total B2B B2C Total
Revenue $ 39,905 $ 64,676 $ 104,581 $ 34,349 $ 59,387 $ 93,736
Cost of revenue⁽¹⁾ 9,015 22,583 31,598 8,632 21,244 29,876
Segment gross profit $ 30,890 $ 42,093 $ 72,983 $ 25,717 $ 38,143 $ 63,860
During the nine months ended September 30, 2022 and 2021, one customer in the B2B segment individually accounted for 20.2% and 13.5% of total revenue, respectively.
The following table presents a reconciliation of segment gross profit to the consolidated ~~income (loss)~~loss before income taxes for the three and nine months ended ~~March 31, 2021~~September 30, 2022 and ~~2020:~~2021:
~~SCHEDULE OF~~ RECONCILIATION OF CONSOLIDATED SEGMENT PROFIT TO CONSOLIDATED INCOME (LOSS) BEFORE INCOME TAXES

Three Months Ended
March 31,
2022 2021 2022 2021
2021 2020 Three Months Ended
September 30, Nine Months Ended
September 30,
(Restated) 2022 2021 2022 2021
Segment gross profit ⁽¹⁾ $ 18,399 $ 5,978 $ 22,685 $ 21,467 $ 72,983 $ 63,860
Sales and marketing 4,101 863 6,757 5,657 20,122 15,238
Product and technology 5,243 1,024 4,998 5,492 19,140 15,564
General and administrative ⁽¹⁾ 10,009 2,391 10,185 12,888 33,265 35,217
Impairment — — 28,861 —
Restructuring — — 1,771 —
Depreciation and amortization 3,994 853 5,893 4,560 16,862 12,686
Interest expense, net 1 8 1,450 — 2,521 1
Income (loss) before income taxes $ (4,949 ) $ 839
Other income (13 ) — (283 ) —
Loss before income taxes $ (6,585 ) $ (7,130 ) $ (49,276 ) $ (14,846 )
⁽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.

28
GAN LIMITED
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

Three Months Ended
March 31,
2022 2021 2022 2021
2021 2020 Three Months Ended
September 30, Nine Months Ended
September 30,
(Restated) 2022 2021 2022 2021
B2B:
Platform and content fees $ 9,184 $ 5,933
Platform and content license fees $ 9,988 $ 8,743 $ 31,208 $ 27,252
Development services and other 3,622 1,737 2,697 2,432 8,697 7,097
Total B2B $ 12,806 $ 7,670
Total B2B revenue $ 12,685 $ 11,175 $ 39,905 $ 34,349

B2C:
Sportsbook $ 7,151 $ — $ 7,763 $ 7,886 $ 28,023 $ 27,794
Casino 6,471 — 11,093 12,323 34,924 29,306
Poker 690 — 579 884 1,729 2,287
Total B2C $ 14,312 $ —

Total revenues $ 27,118 $ 7,670
Total B2C revenue 19,435 21,093 64,676 59,387
Total revenue $ 32,120 $ 32,268 $ 104,581 $ 93,736

Revenue by location of the customer for the three and nine months ended ~~March 31,~~September 30, 2022 and 2021 ~~and 2020 was~~is as follows:
SCHEDULE ~~OF DISAGGREGATION~~ OF REVENUE BY LOCATION OF THE CUSTOMER

Three Months Ended
March 31,

2021 2020

(Restated)

United States $ 10,749 $ 6,251
Europe 11,064 1,410
Latin America 3,603 —
Rest of the world 1,702 9
Total $ 27,118 $ 7,670

25
2022 2021 2022 2021
Three Months Ended
September 30, Nine Months Ended
September 30,
2022 2021 2022 2021
United States $ 10,320 $ 9,107 $ 33,531 $ 28,186
Europe 10,574 11,598 33,343 36,855
Latin America 9,492 9,854 32,910 23,711
Rest of the world 1,734 1,709 4,797 4,984
Total revenue $ 32,120 $ 32,268 $ 104,581 $ 93,736
~~GAN LIMITED~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Unaudited, in thousands, except share and per share amounts)~~
NOTE 14 — INCOME TAXES
~~The provision for income taxes for the three months ended March 31, 2021 and 2020 consisted of the following:~~
~~SCHEDULE OF INCOME TAX PROVISION~~

Three Months Ended
March 31,

2021 2020
Domestic (Bermuda) $ — $ —
Foreign (Non-Bermuda) 661 145
Total $ 661 $ 145

The Company’s effective income tax rate was ~~(13.4)~~(5.4)%% and ~~17.3~~(21.7)%% for the three months ended ~~March 31,~~September 30, 2022 and 2021, respectively, and ~~2020,~~(1.0)% and (21.6)% for the nine months ended September 30, 2022 and 2021, respectively. ~~The Company uses an estimated annual effective tax rate to determine the quarterly income tax provision, which is adjusted each quarter based on information available at the end of that quarter.~~

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 ~~the statutory~~this 0% tax rate of 0~~% in Bermuda, the Company’s country of domicile,~~ and the effective income tax rate for the three and nine months ended ~~March 31,~~September 30, 2022 and 2021 was due primarily to a mix of earnings in foreign jurisdictions that are subject to current ~~tax.~~tax and loss carryforwards in certain jurisdictions that are not expected to be recognized.

The acquisition of Coolbet (Note 5) did not cause a material change in the effective tax rate for the three months ended March 31, 2021 from the Company’s annual effective tax rate for the year ended December 31, 2020 because the majority of Coolbet’s earnings were generated in lower rate jurisdictions at an effective tax rate ranging from 0~~% to~~ 5~~%. The Company recorded a net deferred tax liability of $2,265~~ ~~associated with Malta intangibles recorded in purchase accounting.~~
NOTE 15 — RESTRUCTURING
In January 2022, we implemented a strategic reduction of our existing worldwide global workforce to simplify and streamline our organization and strengthen the overall competitiveness of our B2B segment. As a result of this initiative, we incurred $1.8 million in restructuring charges related to this plan during the nine months ended September 30, 2022, which are primarily related to employee severance pay and related costs. As of September 30, 2022, the Company had completed its restructuring plan and there were no unpaid restructuring charges.
29
GAN LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except share and per share amounts)
NOTE 16 — 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 ~~that~~ 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 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 is 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 paid systematically over the initial five-year terms. Additional payments could be required if the Company’s total revenue generated from the licensed content exceed certain stipulated annual and cumulative thresholds during the contract term. Under the terms of the Agreements, the Content Providers are 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 by alleging the Content Provider had met its contractual obligations, thereby obligating the Company to make the next, scheduled $3.0 million payment. In March, the Content Provider served the Company a 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 attempted to serve formal notice of termination of the agreement, reaffirming the $3.0 million obligation. The Company 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.
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 in the condensed consolidated statement of operations for the nine months ended September 30, 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 nine months ended September 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.
2630
GAN LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except share and per share amounts)

The amended and restated Agreement is accounted for as a business combination. The consideration transferred in exchange for the identifiable intangible assets 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. 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 exceeds certain stipulated annual and cumulative thresholds during the contract term. The fair value of the contingent liability is determined 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 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. The fair value of the contingent consideration was initially recognized upon execution of the amendment to the Agreement and is recorded within content licensing liabilities within the condensed consolidated balance sheet at September 30, 2022. Refer to Note 4 – Acquisition for further detail.
At September 30, 2022 the present value of the remaining fixed fee payments remaining under the agreement of $15.2 million and the contingent content liability of $4.4 million are recorded in content licensing liabilities in the condensed consolidated balance sheet. The Company recognized imputed interest expense of $0.4 million and $0.8 million during the three and nine months ended September 30, 2022, respectively, related to the content licensing liabilities in other loss, net in the condensed consolidated statement of operations.
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 (“CTA”) for clarification on the basis to apply VAT. In December 2021, the CTA 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 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 issued a resolution stating that unregistered foreign digital service providers will be subject to 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 issued the first non-compliant list of unregistered foreign digital services providers to enact enforcement of this withholding; Coolbet was not named on this list. As of September 30, 2022 and through the date of filing, the Company has not received formal notification of any VAT liability due to the CTA.
Comprehensive legislation for 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.
Due to the obligation being established by the governing law, a liability appears to be probable. However, the Company believes the application of VAT on gross customer deposits, as clarified by the CTA, does not represent a reasonable application of the law to the economic substance of the Company’s services. VAT calculated as currently contemplated would result in liabilities far in excess of actual earned revenues and would result in a material loss to the Company. The Company has engaged outside counsel to formally approach the CTA on behalf of the Company to attempt to agree upon a more reasonable application of the VAT law, taking into account the Company’s specific facts and circumstances. If any agreement is reached with the CTA, it is possible that the application would be applied retroactively to Coolbet’s Chilean activity as of June 1, 2020. As of September 30, 2022, the Company has not yet formally agreed on any application of the VAT law with the CTA. As a result, the Company has determined that a liability is not reasonably estimable as of September 30, 2022. However, if the Company and the CTA are able to agree on an application other than deposits, this could result in a material loss when considering the retroactive application.
31
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations ~~(Restated)~~
The following management’s discussion and analysis of financial condition and results of operations ~~(“MD&A”)~~ should be read in conjunction with the unaudited condensed consolidated financial statements, related notes, and other financial information appearing elsewhere in this ~~Amendment No. 1~~Quarterly Report on Form ~~10-Q/A (“Amendment No. 1”)~~10-Q and the consolidated financial statements and related notes included in our ~~Annual Report on~~2021 Form ~~10-K for the year ended December 31, 2020, which was filed with the Securities and Exchange Commission on March 31, 2021.~~10-K.

~~This~~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 ~~Condition~~Conditions and Results of ~~Operations has~~Operations” on our 2021 Annual Report on Form 10-K. There have been ~~amended and restated to give effect to~~no material changes during the ~~restatement of our financial statements as more fully~~periods covered by this Quarterly Report on Form 10-Q from the critical policies described in the “Explanatory Note” and in Note 2 to the financial statements titled, “Restatement of Prior Financial Information” included in “Part I, Item I: Financial Statements (Unaudited) (Restated)” of this Amendment. For further details regarding the restatement adjustments, see also “Part I, Item 4: Controls and Procedures (Restated)” and “Part II, Item IA: Risk Factors (Restated)”.our Form 10-K.

~~Cautionary Note Concerning~~ Forward-Looking Statements
This ~~Amendment No. 1 contains certain statements that are, or may be deemed to be,~~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, that~~amended. These forward-looking statements reflect our current expectations and views of future ~~events.~~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”~~to,” or other similar expressions. These forward-looking statements include, among other things, statements relating to our goals and strategies, our competitive strengths, our expectations and targets for our results of operations, our business prospects and our expansion strategy. We have based these forward-looking statements largely on current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs.
Although we believe that we have a reasonable basis for each forward-looking statement, ~~we caution you that these~~forward-looking statements are ~~based on our projections~~not guarantees of ~~the~~ future ~~that are subject to known~~performance and ~~unknown risks and uncertainties and other factors that may cause~~ our actual results ~~level of activity or performance expressed or implied by these forward-looking statements, to differ.~~
~~The forward-looking statements are subject to risks, uncertainties and assumptions about our Company. Our actual results of operations may~~could differ ~~materially~~significantly from the results ~~expressed~~discussed or implied ~~by the~~in these forward-looking statements. ~~The forward looking statements in this report should be read in conjunction with other cautionary statements~~Factors that ~~rare included in the items set forth~~might cause such differences are described in “Item 1A. Risk Factors” in our ~~Annual~~2021 Form 10-K and in this Quarterly Report on Form ~~10-K, including, among other things:~~
● ~~our ability to successfully meet anticipated revenue levels from sales of our software licenses;~~
● ~~our ability to successfully develop, market or sell new products or adopt new technology platforms;~~
● ~~our ability to continue to grow through acquisitions or investments in other companies or technologies;~~
● ~~our ability to realize the anticipated benefits of our consummated acquisitions or investments in other companies, including our acquisition of Coolbet in January 2021;~~
● ~~risks related to Coolbet’s business;~~
● risks related to the continued uncertainty in the global financial markets and unfavorable global economic conditions, including as a result of the global outbreak of the novel coronavirus (“COVID-19”) pandemic;
● ~~our installed customer base continuing to license additional products, renew maintenance agreements and purchase additional services;~~
● ~~our ability to attract and retain qualified personnel;~~
● ~~our ability to adequately manage our growth;~~
● ~~risks related to competition;~~
● ~~our ability to maintain good relations with our channel partners;~~
● ~~risks associated with our international operations and fluctuations in currency values;~~
● ~~risks related to unanticipated performance problems or bugs in our software product offerings; and~~
● ~~our ability to protect our intellectual property and proprietary rights.~~
27
The foregoing factors should not be construed as an exhaustive list and should be read in conjunction with other cautionary statements that are included in the Annual Report on Form 10-K. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Moreover, we operate in an evolving environment and new risk factors emerge from time to time. It is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause our actual results to differ materially from those contained in any forward-looking statement.10-Q.

~~You should not rely upon forward-looking statements as predictions of future events.~~ All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by ~~the~~these cautionary statements. These forward-looking statements speak only as of the date on which ~~it is~~they are made. We do not ~~intend~~assume any obligation to update ~~or revise~~ these forward-looking statements, whether as a result of new information, future events or otherwise, ~~unless the securities laws require us to do so.~~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 GameSTACK, 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 2022, we won a prestigious industry award from EGR North America – Best Customer Onboarding Partner – 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, launched in September 2022 and aims to provide a best-in-class B2B sports betting product in the U.S. and Canada. In July 2022, GAN was named a “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. In September 2022, Coolbet won the Northern European Operator of the Year award at the SBC Awards 2022 in Barcelona.
32
To meet 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 and 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 was $6.9 million and $8.7 million for the three months ended September 30, 2022 and 2021, respectively, and $49.8 million and $18.0 million for the nine months ended September 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.
33
~~Consolidated Results of Operations~~
~~Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020~~
~~The following table sets forth our results of operations as reported for the three months ended March 31, 2021~~Critical Accounting Policies and ~~2020:~~

Three Months Ended
March 31,

Change
2020 to 2021

2021 2020 Amount %
(Restated)
(in thousands, except percentages)
Revenues $ 27,118 $ 7,670 $ 19,448 263.0 %
Operating costs and expenses
Cost of revenues ⁽¹⁾ 8,719 1,692 7,027 415.3 %
Sales and marketing 4,101 863 3,238 375.2 %
Product and technology 5,243 1,024 4,219 412.0 %
General and administrative ⁽¹⁾ 10,009 2,391 7,618 318.6 %
Depreciation and amortization 3,994 853 3,141 368.2 %
Total operating costs and expenses 32,066 6,823 25,243 370.0 %
Operating income (loss) (4,948 ) 847 (5,795 ) (684.2 )%
Interest expense, net 1 8 (7 ) (87.5 )%
Income (loss) before income taxes (4,949 ) 839 (5,788 ) (689.9 )%
Income tax provision 661 145 516 355.9 %
Net income (loss) $ (5,610 ) $ 694 $ (6,304 ) (908.4 )%
⁽¹⁾ ~~Excludes depreciation and amortization~~
~~n.m. = not meaningful~~
28
~~Geographic Information~~
Three Months Ended March 31,
As a
percentage of revenue

Change
2020 to 2021

2021 2020 2021 2020 Amount %
(Restated)
(in thousands, except percentages)
United States $ 10,749 $ 6,251 39.6 % 81.5 % $ 4,498 72.0 %
Europe 11,064 1,410 40.8 % 18.4 % 9,654 684.7 %
Latin America 3,603 — 13.3 % — % 3,603 n.m.
Rest of the world 1,702 9 6.3 % 0.1 % 1,693 n.m.
Total revenues $ 27,118 $ 7,670 100.0 % 100.0 % $ 19,448 253.6 %
~~n.m. = not meaningful~~
Revenues during the three months ended March 31, 2021 were $27.1 million, an increase of $19.4 million from $7.7 million for the three months ended March 31, 2020. This significant growth was achieved through organic growth and patent licensing in our B2B segment, with revenues increasing $5.1 million, coupled with the addition of Coolbet’s gaming revenues of $14.3 million in our B2C segment following the completion of our acquisition of Coolbet on January 1, 2021. During the three months ended March 31, 2021, revenues increased across each of our geographies when compared to the three months ended March 31, 2020, with increased revenues from the United States driven by strong growth in our B2B segment, combined with increases in our markets in Europe, Latin America, and the rest of the world due to the inclusion of Coolbet’s revenues within our reported results for the three months ended March 31, 2021.Estimates

~~Revenues~~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 Annual Report on Form 10-K. There have been no material changes during the ~~three months ended March 31, 2021 derived~~periods covered by this Quarterly Report on Form 10-Q from ~~customers~~the critical policies described in the United States increased $4.5 million, or 72.0%, compared to the three months ended March 31, 2020 driven primarily by patent licensing revenue and the legalization of RMiG and sports betting in additional U.S. states and our ~~launch of iGaming solutions for new and existing customers in those jurisdictions, the most recent of which was Michigan in January 2021.~~Form 10-K.

Revenues from customers in Europe increased $9.7 million compared to the prior year period, due primarily to the inclusion of B2C revenues in Northern Europe, coupled with slight increases in our B2B revenues from Italy.Forward-Looking Statements

~~Following~~This section and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements within the ~~closing~~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, ~~in January 2021,~~and expectations about our ~~revenue footprint expanded into Latin America with additional revenues in North America (Canada).~~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.

~~Cost~~Although we believe that we have a reasonable basis for each forward-looking statement, forward-looking statements are not guarantees of ~~Revenues~~
~~During~~future performance and our actual results could differ significantly from the three months ended March 31, 2021, cost of revenue increased $7.0 million compared to the prior period, of which the B2B and B2C segments contributed $1.0 million and $6.0 million, respectively. Increases to cost of B2B revenues were due to increased content license fees driven by the increaseresults discussed or implied in ~~related revenues while our B2C segment’s costs were included~~these forward-looking statements. Factors that might cause such differences are described in “Item 1A. Risk Factors” in our ~~results for the first time following the acquisition of Coolbet.~~2021 Form 10-K and in this Quarterly Report on Form 10-Q.

~~Operating Expenses~~
~~During the three months ended March 31, 2021, sales and marketing expenses increased~~All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by $3.2 million, or 375.2% compared to the three months ended March 31, 2020, of which the B2B and B2C segments contributed $0.6 million and $2.6 million, respectively. Increases to the sales and marketing expenses within the B2B segment were driven by increases in personnel expenses due to increased headcount within our sales and marketing functions following planned investments using the proceeds from our initial public offering for customer acquisitions and new jurisdictions served. Our B2C segment’s sales and marketing expenses were included in our results for the first time following the acquisition of Coolbet.
~~During the three months ended March 31, 2021, product and technology expenses increased by $4.2 million, or 412.0% compared to the prior year period. The increased costs were a result~~these cautionary statements. These forward-looking statements speak only as of the ~~developers, project managers, and product teams hired in order~~date on which they are made. We do not assume any obligation to ~~meet increased demand for our technology by new and existing customers in new jurisdictions.~~
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During the three months ended March 31, 2021, general and administrative expenses increased by $7.6 million, or 318.6% compared to the prior year period, of which the B2B and B2C segments contributed $5.0 million and $2.6 million, respectively. The increased cost within the B2B segment primarily attributable to (i) personnel and related costs increasing to meet customer demand, (ii) share-based compensation for directors and key personnel, and (iii) increased professional services related to corporate infrastructure and Coolbet integration projects, and (iv) additional compliance requirementsupdate these forward-looking statements, whether as a result of becoming a public company in the United States in May 2020. During the three months ended March 31, 2020, we incurred $0.6 million in expenses related to our initial public offering and did not have any related expenses during the three months ended March 31, 2021. Our B2C segment’s general and administrative expenses were included in our results for the first time following the acquisition of Coolbet.
~~During the three months ended March 31, 2021, depreciation and amortization expenses increased~~new information, future events or otherwise, except as required by ~~$3.1 million, or 368.2% compared to the three months ended March 31, 2020, including $2.9 million in amortization expense from intangible assets recognized in the acquisition of Coolbet.~~
~~Income Tax Expense~~
We recorded income tax expense of $0.7 million for the three months ended March 31, 2021, reflecting an effective tax rate of (13.4)%, compared to $0.1 million for the three months ended March 31, 2020, reflecting an effective tax rate of 17.3%.law.

Overview
GAN Limited is a Bermuda exempted holding company and through its subsidiaries, operates in two lines of business. We are ~~an award-winning provider~~a business-to-business (“B2B”) supplier of enterprise ~~software~~Software-as-a-Service (“SaaS”) solutions ~~designed~~for online casino gaming, commonly referred to ~~accelerate the casino industry’s digital transformation towards Internet casino gambling~~as iGaming, and online sports ~~betting.~~
~~With an emphasis on supporting land-based commercial and tribal casinos in the United States~~betting applications. Beginning with ~~their online sports betting and real money gambling operations, in~~our January 2021 we simultaneously launched three operator customers live in the state of Michigan. We anticipate that additional states such as Louisiana, Maryland, North Carolina, South Dakota, and Washington will allow for the operation of real money iGaming during 2021, which will further increase our total addressable market in the United States, along with other states that may regulate real money iGaming in the future.
~~On January 1, 2021, we completed the~~ acquisition ~~of all outstanding shares~~ of Vincent Group p.l.c., a Malta public limited company ~~doing business as “Coolbet.” Coolbet is~~(“Coolbet”), we are also a business-to-consumer (“B2C”) developer and operator of ~~a legal~~an online sports betting and casino ~~platform.~~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 GameSTACK, 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 2022, we won a prestigious industry award from EGR North America – Best Customer Onboarding Partner – 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, launched in September 2022 and aims to provide a best-in-class B2B sports betting product in the U.S. and Canada. In July 2022, GAN was named a “Rising Star in Sports Betting” for the SBC North America Awards 2022.
The B2C segment includes the operations of Coolbet. Coolbet develops and operates ~~a B2C~~an online sports betting and casino ~~and sports-betting~~ platform that is accessible through its website in ~~eight national~~ markets across Northern Europe, ~~(Estonia, Finland, Iceland, Norway and Sweden),~~ Latin America ~~(Chile~~ and ~~Peru)~~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 ~~North America (Canada). We acquired~~available innovative product features. In September 2022, Coolbet ~~primarily~~won the Northern European Operator of the Year award at the SBC Awards 2022 in Barcelona.
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To meet demand and serve our growing number of U.S. casino operator clients, we continue to ~~take advantage~~invest in our software engineering capabilities and expand our operational support. The most significant component of ~~Coolbet’s user interface and proprietary technical platform, to quickly integrate and offer a proprietary sportsbook offering~~our operating costs generally relate to our ~~land-based casino operators in~~employee salary and 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 was $6.9 million and $8.7 million for the ~~United States.~~three months ended September 30, 2022 and 2021, respectively, and $49.8 million and $18.0 million for the nine months ended September 30, 2022 and 2021, respectively.

We believe that our current technology is highly scalable ~~with relatively minimal capital investment required to~~and can support the launch of our product offerings for new customers and in new jurisdictions. We expect to ~~improve our~~achieve profitability through increased profits from organic growth of our casino operator customers in both existing and new jurisdictions, coupled with new margin expansion opportunities driven by the integration with Coolbet’s sports betting technology and our Super RGS content offering which is open to B2C operators who are not already clients of ours.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~~internet gambling accounts together with bilateral transmission of reward points between the ~~Internet gambling~~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 gambling~~internet gaming operators in the future.

~~We operate in two operating segments: B2B and B2C.~~
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Our B2B segment develops, markets and sells instances of iSight Back Office and GameSTACK technology that incorporates comprehensive player registration, account funding and back-office accounting and management tools that enable the casino operator customers to efficiently, confidently and effectively extend their presence online in places that have permitted online real money gambling. Where certain jurisdictions have not yet permitted any form of online real money gambling, these B2B technologies provide simulated gambling solutions for our casino operator customers as a way to bring their retail brand online and create a new Internet gaming experience to their players while leveraging their on-property rewards program.
~~Our B2C operating segment includes the B2C operations of Coolbet, which we acquired on January 1, 2021.~~
Critical Accounting Policies and Estimates
~~Our condensed consolidated financial statements are prepared in accordance with U.S. GAAP. Application~~For a discussion of ~~these principles requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. We base~~ our estimates on historical experience and on various other assumptions that we believe to be reasonable under current circumstances. These assumptions form the basis for our judgments about the carrying values of assets and liabilities that are not readily available from independent, objective sources. We evaluate our estimates on an ongoing basis. Use of alternative assumptions may have resulted in significantly different estimates. Actual results may differ from these estimates.
During the three months ended March 31, 2021, there were no material changes to our accounting policies that we believe are critical to an understanding of financial condition and results of operations, which critical accounting policies ~~are disclosed in our “Management’s~~and the means by which we develop estimates, refer to “Item 7. Management’s Discussion and Analysis of Financial ~~Condition~~Conditions and Results of Operations” ~~included in~~on our 2021 Annual Report on Form ~~10-K for~~10-K. There have been no material changes during the ~~year ended December 31, 2020, other than those~~periods covered by this Quarterly Report on Form 10-Q from the critical ~~accounting~~ policies ~~and estimates~~ described ~~below.~~in our Form 10-K.

~~Restatement~~Forward-Looking Statements

~~As discussed~~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 ~~Explanatory Note to this Amendment No. 1~~potential impact of the expected timing of government approvals or opening of new regulated markets for online gaming, our financial guidance and Note 2 - Restatement of Prior Financial Information, included in the interim financial statements. the Company has restated certain information contained in its previously issued unaudited interim condensed financial statementsexpectations or targets for ~~the three month period ended March 31, 2021,~~our operations, anticipated revenue growth or operating synergies related to ~~errors in the accounting for capitalized software development costs,~~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 ~~well as errors relating~~“may,” “will,” “expect,” “should,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “is/are likely to, the recognition of revenue associated with certain contractual deliverables. The Company determined that it improperly included employee costs for individuals that were not performing development activities within the capitalization process. The effects of the error resulted in an overstatement of capitalized software development costs and revenue, resulting in an increase of previously reported net loss by $1.1 million for the three months ended March 31, 2021. See Note 2 — Restatement of Prior Financial Information, for additional information. In addition, for further information regarding the matters leading to the Restatement and related findings with respect to the Company’s disclosure controls and procedures and internal control over financial reporting, refer to Item 4. Controls and Procedures in Part I of this Amendment No. 1.” or other similar expressions.

~~Business Combinations~~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 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 ~~account for business combinations in accordance with ASC 805, Business Combinations. This standard requires the acquiring entity in~~do not assume any obligation to update these forward-looking statements, whether as a ~~business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction and establishes the acquisition-date fair value~~result of new information, future events or otherwise, except as ~~the measurement objective for all assets acquired and liabilities assumed in a business combination.~~required by law.

Determining the fair value of assets acquired and liabilities assumed requires management judgment and often involves the use of significant estimates and assumptions with respect to the timing and amounts of future cash inflows and outflows, discount rates, market prices and asset lives, among other items. These estimates are based on information obtained from management of the acquired company and historical experience and are generally made with the assistance of an independent valuation firm. These estimates can include, but are not limited to, the cash flows that an asset is expected to generate in the future, and the cost savings expected to be derived from acquiring an asset. Any changes in the underlying assumptions can impact the estimates of fair value by material amounts, which can in turn materially impact our results of operations. These estimates are inherently uncertain and unpredictable, and, if different estimates were used, the purchase price for the acquisition could be allocated to the acquired assets and liabilities differently from the allocation that we have made. In addition, unanticipated events and circumstances may occur which affect the accuracy or validity of such estimates, and, if such events occur, we may be required to record a charge against the value ascribed to an acquired asset or an increase in the amounts recorded for assumed liabilities.Overview

IfGAN 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 subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop these fair values, we may have to record impairment charges in the future. In addition, we have estimated the useful lives of certain acquired assets, and these lives are used to compute depreciation and amortization expense. If our estimates of the useful lives change, depreciation and amortization expense may be required to be accelerated or decelerated.
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~~Goodwill~~
Goodwill is reviewed for impairment annually during the fourth quarter, or more frequently if indicators of impairment exist. A significant amount of judgment is involved in determining if an indicator of goodwill impairment has occurred. Such indicators may include, among others: a significant decline in expected future cash flows; a significant adverse change in legal factors or in the business climate; unanticipated competition; and the testing for recoverability of a significant asset group within a reporting unit. Our goodwill impairment analysis also includes a comparison of the aggregate estimated fair value of all reporting units to our total market capitalization. Therefore, our stock may trade below our book value and a significant and sustained decline in our stock price and market capitalization could result in goodwill impairment charges. Any adverse change in these factors could have a significant impact on the recoverability of these assets and could have a material impact on our condensed consolidated financial statements.
Goodwill impairment testing involves a comparison of the estimated fair value of a reporting unit to its respective carrying amount, which may be performed utilizing either a qualitative or quantitative assessment. A reporting unit is defined as an operating segment or one level below an operating segment. 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 the carrying amount, including goodwill, a quantitative assessment is required. Otherwise, no further analysis is necessary.
In a quantitative assessment, the fair value of a reporting unit is determined and then compared to its carrying value. A reporting unit’s fair value is determined based upon consideration of various valuation methodologies, including the income approach, which utilizes projected future cash flows discounted at rates commensurate with the risks involved, and multiples of current and future earnings. If the fair value of a reporting unit is less than its carrying value, a goodwill impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized cannot exceed the total amount of goodwill allocated to that reporting unit.Company’s reportable segments.

The ~~income approach used~~B2B segment develops, markets and sells instances of GameSTACK, 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 ~~test~~efficiently, confidently and effectively extend their online presence. In 2022, we won a prestigious industry award from EGR North America – Best Customer Onboarding Partner – in recognition of our ~~reporting units includes~~expertise and commitment for delivering industry-leading gaming solutions to land-based casinos. GAN Sports, our newest product offering following the ~~projection~~acquisition of ~~estimated operating results~~Coolbet, launched in September 2022 and ~~cash flows, discounted using~~aims to provide a weighted-average cost of capital (“WACC”) that reflects current market conditions appropriate to each reporting unit. Such projections contain management’s best estimates of economic and market conditions over the projected period, including growth rates in revenues and costs and best estimates of future expected changes in operating margins and cash expenditures. Other significant assumptions and estimates usedbest-in-class B2B sports betting product in the ~~income approach include terminal value growth rates, future estimates of capital expenditures~~U.S. and ~~changes~~Canada. In July 2022, GAN was named a “Rising Star in ~~future working capital requirements. In addition,~~Sports Betting” for the WACC utilized to discount estimated future cash flows is sensitive to changes in interest rates and other market rates in place at the time the assessment is performed. Future changes in our estimates or assumptions or in interest rates could have a significant impact on the estimated fair value of reporting units and result in a goodwill impairment charge that could be material to our condensed consolidated financial statements.
~~Long-Lived Assets~~
Long-lived assets, such as capitalized software for internal use, property and equipment, and definite-lived intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. In assessing long-lived assets for impairment, assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. If circumstances require a long-lived asset or asset group to be tested for possible impairment, we compare the undiscounted cash flows expected to be generated by that asset or asset group to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment charge is recognized to the extent that the carrying amount exceeds its 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.SBC North America Awards 2022.

~~Comparability~~The B2C segment includes the operations of ~~Financial Results~~
~~On January 1, 2021, we completed~~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 ~~acquisition~~user-friendly mobile site and available innovative product features. In September 2022, Coolbet won the Northern European Operator of ~~Coolbet which was accounted for as a business combination under ASC 805, Business Combination. The acquisition resulted~~the Year award at the SBC Awards 2022 in among other things, goodwill and a considerable increase in amortizable intangible assets. The amortization of acquired intangibles has materially increased our total operating costs and expenses (and adversely affected our consolidated net income (loss) for periods after the acquisition and is expected to continue to do so for the foreseeable future.Barcelona.

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To meet 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 and 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 was $6.9 million and $8.7 million for the three months ended September 30, 2022 and 2021, respectively, and $49.8 million and $18.0 million for the nine months ended September 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 September 30, 2022 Compared to Three Months Ended September 30, 2021

The following ~~discussion of our results of operations for the three months ended March 31, 2021 includes the financial results of Coolbet for the entire period. Accordingly,~~table sets forth our consolidated results of operations for the periods indicated:
Three Months Ended
September 30, Change
2022 2021 Amount Percent
(dollars in thousands)
Revenue $ 32,120 $ 32,268 $ (148 ) (0.5 )%
Operating costs and expenses
Cost of revenue⁽¹⁾ 9,435 10,801 (1,366 ) (12.6 )%
Sales and marketing 6,757 5,657 1,100 19.4 %
Product and technology 4,998 5,492 (494 ) (9.0 )%
General and administrative⁽¹⁾ 10,185 12,888 (2,703 ) (21.0 )%
Depreciation and amortization 5,893 4,560 1,333 29.2 %
Total operating costs and expenses 37,268 39,398 (2,130 ) (5.4 )%
Operating loss (5,148 ) (7,130 ) 1,982 (27.8 )%
Interest expense, net 1,450 — 1,450 n.m.
Other income (13 ) — (13 ) n.m.
Loss before income taxes (6,585 ) (7,130 ) 545 (7.6 )%
Income tax expense 356 1,548 (1,192 ) (77.0 )%
Net loss $ (6,941 ) $ (8,678 ) $ 1,737 (20.0 )%
⁽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
September 30, Percentage of Revenue Change
2022 2021 2022 2021 Amount Percent
(dollars in thousands)
United States $ 10,320 $ 9,107 32.1 % 28.2 % $ 1,213 13.3 %
Europe 10,574 11,598 32.9 % 35.9 % (1,024 ) (8.8 )%
Latin America 9,492 9,854 29.6 % 30.5 % (362 ) (3.7 )%
Rest of the world 1,734 1,709 5.4 % 5.4 % 25 1.5 %
Total revenue $ 32,120 $ 32,268 100.0 % 100.0 % $ (148 ) (0.5 )%
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Revenue
Revenue was $32.1 million for the three months ended ~~March 31,~~September 30, 2022, a decrease of $0.1 million from the comparable period in 2021. The decrease was primarily attributable to decreases in B2C revenues of $1.7 million driven by unfavorable impacts of revenues derived from currencies which weakened relative to the U.S. Dollar. The decrease was offset by an increase in our B2B revenues of $1.5 million, driven by increases related to new content revenues and expansion into new markets, such as Ontario, Canada.
Revenue fluctuations across our international markets are primarily a result of our B2C operations, which accounted for $0.6 million of the decreased revenues in Europe and the full $0.4 million increase in Latin America. 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 $9.4 million for the three months ended September 30, 2022, a decrease of $1.4 million from the comparable period in 2021, which was primarily attributable to lower costs related to B2B hardware sales incurred in the prior period that did not recur in the current period.
Sales and Marketing
Sales and marketing expense was $6.8 million for the three months ended September 30, 2022, an increase of $1.1 million from the comparable period in 2021. The increase was primarily attributable to increased sales and marketing activities within our B2C operations to attract additional end-users.
Product and Technology
Product and technology expense was $5.0 million for the three months ended September 30, 2022, a decrease of $0.5 million from the comparable period in 2021, primarily due to the strengthening of the U.S. Dollar relative to compensation costs incurred in foreign currencies.
General and Administrative
General and administrative expense decreased $2.7 million of which $1.3 million was attributable to foreign exchange transaction gains primarily as a result of the strengthening of the U.S. Dollar relative to the British Pound. Additionally, personnel and office costs decreased $0.9 million and professional fees decreased $0.4 million as a result of our restructuring efforts and cost saving initiatives executed during the year.
Depreciation and Amortization
Depreciation and amortization expense was $5.9 million for three months ended September 30, 2022, an increase of $1.3 million from the comparable period in 2021. The increase was primarily due to the amortization expense recognized on acquired intangible assets related to the Company’s content licensing arrangement.
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Income Tax Expense
We recorded income tax expense of $0.4 million for the three months ended September 30, 2022, reflecting an effective tax rate of (5.4)%, compared to income tax expense of $1.5 million for the three months ended September 30, 2021, reflecting an effective tax rate of (21.7)%. 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 September 30, 2022 and 2021 was due primarily to a mix of earnings in foreign jurisdictions that are subject to current tax and loss carryforwards in certain jurisdictions that are not ~~comparable~~expected to be recognized.
Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021
The following table sets forth our consolidated results of operations for the ~~three~~periods indicated:
Nine Months Ended
September 30, Change
2022 2021 Amount Percent
(dollars in thousands)
Revenue $ 104,581 $ 93,736 $ 10,845 11.6 %
Operating costs and expenses
Cost of revenue⁽¹⁾ 31,598 29,876 1,722 5.8 %
Sales and marketing 20,122 15,238 4,884 32.1 %
Product and technology 19,140 15,564 3,576 23.0 %
General and administrative⁽¹⁾ 33,265 35,217 (1,952 ) (5.5 )%
Impairment 28,861 — 28,861 n.m.
Restructuring 1,771 — 1,771 n.m.
Depreciation and amortization 16,862 12,686 4,176 32.9 %
Total operating costs and expenses 151,619 108,581 43,038 39.6 %
Operating loss (47,038 ) (14,845 ) (32,193 ) n.m.
Interest expense, net 2,521 1 2,520 n.m.
Other income (283 ) — (283 ) n.m.
Loss before income taxes (49,276 ) (14,846 ) (34,430 ) n.m.
Income tax expense 513 3,201 (2,688 ) (84.0 )%
Net loss $ (49,789 ) $ (18,047 ) $ (31,742 ) n.m.
⁽¹⁾Excludes depreciation and amortization expense
n.m. = not meaningful
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Geographic Information
The following table sets forth our consolidated revenue by geographic region, for the periods indicated:
Nine Months Ended
September 30, Percentage of Revenue Change
2022 2021 2022 2021 Amount Percent
(dollars in thousands)
United States $ 33,531 $ 28,186 32.1 % 30.1 % $ 5,345 19.0 %
Europe 33,343 36,855 31.9 % 39.3 % (3,512 ) (9.5 )%
Latin America 32,910 23,711 31.5 % 25.3 % 9,199 38.8 %
Rest of the world 4,797 4,984 4.5 % 5.3 % (187 ) (3.8 )%
Total revenue $ 104,581 $ 93,736 100.0 % 100.0 % $ 10,845 11.6 %
Revenue
Revenue was $104.6 million for the nine months ended ~~March 31, 2020~~September 30, 2022, an increase of $10.8 million from the comparable period in 2021. The increase was attributable to an increase of $5.6 million in our B2B revenues, which was driven by the growth in existing customers and ~~may not be comparable with~~an increase in development revenues, and an increase of $5.3 million in our ~~consolidated results for future periods. Our~~B2C revenues attributable to active customer growth in Latin America.
In Europe, $3.6 million of the decreased revenue was attributable to our B2C revenues in Euros weakening relative to the U.S. Dollar, despite underlying increases in revenues denominated in Euros. The B2B segment ~~results, presented and discussed below, are GAN’s legacy operations and our reported consolidated results~~further experienced declines in its RMiG business in Europe that resulted in an additional $1.6 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 $31.6 million for the ~~three~~nine months ended ~~March 31, 2020.~~September 30, 2022, an increase of $1.7 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 gaming duties of $0.3 million and content license fees costs of $0.6 million as a result of increased revenues, and higher processing fees of $0.2 million due to increased deposit and withdrawal activity on www.coolbet.com. Within our B2B segment, the cost of revenue increase was primarily 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, offset by a $0.6 million decrease in cost of hardware sales recognized during the prior period that did not recur during the current period. Other decreases of $0.5 million in B2B cost of revenues were primarily the result of decreased content license fees costs that were driven by decreased revenues in Europe and the U.S. SIM business.
Sales and Marketing
Sales and marketing expense was $20.1 million for the nine months ended September 30, 2022, an increase of $4.9 million from the comparable period in 2021. Of the increase, $5.3 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 $0.6 million in share-based compensation expense related to personnel in our sales and marketing functions.
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Product and Technology
Product and technology expense was $19.1 million for the nine months ended September 30, 2022, an increase of $3.6 million from the comparable period in 2021, due to higher net salaries and related employee costs net of capitalized costs (which include an increase in related share-based compensation of $0.3 million), as we ramped up our development 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 $33.3 million for the nine months ended September 30, 2022, a decrease of $2.0 million from the comparable period in 2021. This decrease was due primarily to a decrease of $2.3 million attributable to a reduction in professional fees resulting in an ongoing effort to in-source our back-office and development functions, a decrease of $1.6 million in sales tax expense and a decrease of $0.2 million in bad debt expense. These decreases were offset by an increase in software and technology costs of $1.0 million and office and related expenses of $0.8 million as we made investments to streamline our operations.
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 interim quantitative goodwill impairment assessments as of June 30, 2022 and September 30, 2022. As a result of our impairment test as of June 30, 2022 we recognized an impairment of $28.9 million to goodwill within our B2B reporting segment. The interim quantitative impairment assessment as of September 30, 2022 did not result in an additional impairment to goodwill.
Restructuring Expenses
Restructuring expenses were $1.8 million for nine months ended September 30, 2022. These expenses 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 profitability of our B2B segment.
Depreciation and Amortization
Depreciation and amortization expense was $16.9 million for nine months ended September 30, 2022, an increase of $4.2 million from the comparable period in 2021. Of the increase, $2.9 million was due to the amortization expense recognized on acquired intangible assets related to the Company’s content licensing arrangement. The remaining increase was attributable to higher depreciation and amortization of new assets placed in-service as a result of product launches that occurred during the prior periods.
Income Tax Expense
We recorded income tax expense of $0.5 million for the nine months ended September 30, 2022, reflecting an effective tax rate of (1.0)%, compared to income tax expense of $3.2 million for the nine months ended September 30, 2021, reflecting an effective tax rate of (21.6)%. 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 nine months ended September 30, 2022 and 2021 was due primarily to a mix of earnings in foreign jurisdictions that are subject to current tax and loss carryforwards in certain jurisdictions that are not expected to be recognized.
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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,~~Chief Operating Decision Maker (“CODM”), who is our Chief Executive Officer, for making decisions and assessing performance of our reportable segments.

Three Months Ended ~~March 31, 2021~~September 30, 2022 Compared to Three Months Ended ~~March 31, 2020~~September 30, 2021
~~The following tables set forth our segment results as reported for the three months ended March 31, 2021 and 2020.~~

~~Revenue by Segment~~The following table sets forth our segment results for the periods indicated:
Three Months Ended
March 31,
As a
percentage of revenue

Change
2020 to 2021
Three Months Ended
September 30, Percentage of Segment Revenue Change
2021 2020 2021 2020 Amount % 2022 2021 2022 2021 Amount Percent
(Restated)
(in thousands, except percentages)
(dollars in thousands)
B2B $ 12,806 $ 7,670 47.2 % 100.0 % $ 5,136 67.0 %
Revenue $ 12,685 $ 11,175 100.0 % 100.0 % $ 1,510 13.5 %
Cost of revenue⁽¹⁾ 2,173 3,583 17.1 % 32.1 % (1,410 ) (39.4 )%
B2B segment gross profit $ 10,512 $ 7,592 82.9 % 67.9 % $ 2,920 38.5 %
B2C 14,312 — 52.8 % N/A 14,312 N/A
Total Revenues $ 27,118 $ 7,670 100.0 % 100.0 % $ 19,448 253.6 %
Revenue $ 19,435 $ 21,093 100.0 % 100.0 % $ (1,658 ) (7.9 )%
Cost of revenue⁽¹⁾ 7,262 7,218 37.4 % 34.2 % 44 0.6 %
B2C segment gross profit $ 12,173 $ 13,875 62.6 % 65.8 % $ (1,702 ) (12.3 )%
⁽¹⁾Excludes depreciation and amortization expense

B2B Segment

Three Months Ended
March 31,
As a
percentage of segment revenue

Change
2020 to 2021

2021 2020 2021 2020 Amount %
(Restated)
(in thousands, except percentages)
Revenues $ 12,806 $ 7,670 100.0 % 100.0 % $ 5,136 67.0 %
Cost of revenue ⁽¹⁾ 2,742 1,692 21.4 % 22.1 % 1,050 62.1 %
Segment gross profit ⁽¹⁾ $ 10,064 $ 5,978 78.6 % 77.9 % $ 4,086 68.4 %
~~(1) Excludes depreciation and amortization~~
~~Our~~ B2B ~~revenues~~revenue increased ~~$5.1~~$1.5 million ~~or 67.0% compared~~primarily due to the prior year period. B2B platform and content fee revenues contributed $3.3 million towards this increase, increasing 54.8% from $5.9 million during the three months ended March 31, 2020 to $9.2 million for the three months ended March 31, 2021. Thean increase in platform and content license fees ~~revenues was due to increases~~revenue of ~~$1.8~~$1.2 million ~~in real money iGaming as we doubled the size of our U.S. real money casino operator customer base in operation~~resulting from ~~three customers as of March 31, 2020 to six customers as of March 31, 2021. Similarly, simulated gaming revenues~~new content and organic growth within the ~~B2B segment increased $1.5~~U.S. RMiG business. Development and other services revenue contributed $0.3 million ~~compared~~ to the ~~prior year period due to our~~increase as a result of expansion ~~of our customer base from 12 customers in operation~~into new markets, such as of March 31, 2020 to 16 customers in operation as of March 31, 2021. In January 2021 we simultaneously launched FanDuel, Churchill Downs and Wynn Resorts online in Michigan which contributed towards the growth of our B2B platform and content fee revenues period over period.Ontario, Canada.
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B2B ~~development services and other revenues additionally increased $1.9~~cost of revenue decreased $1.4 million ~~compared~~primarily related to hardware sales recognized in the prior ~~comparable 2020~~ period ~~due to $3.0 million patent licensing fee revenue recognized during~~which did not recur in the ~~three months ended March 31, 2021, offset by a decrease of $1.1 in development service revenues.~~
Our B2B segment cost of revenues increased $1.1 million, or 62.1% compared to the three months ended March 31, 2020 as a result of our content licensing and processing fees increasing in in line with related revenues.current period.

Segment gross profit margin for B2B, which excludes depreciation and amortization expense, increased by 38.5% primarily driven by an increase in platform and iscontent license fees revenue of $1.2 million, related to organic growth within RMiG revenues and content license fees revenues related to an amended of a ~~measure~~content licensing arrangement that did not have related costs of ~~gross profit, was $10.1 million for~~revenue in the ~~three months ended March 31, 2021 (78.6% as a percentage of segment revenue), as compared to $6.0 million for~~current period and did not occur in the ~~three months ended March 31, 2020 (77.9% as a percentage of segment revenue).~~prior period.

B2C Segment

Three Months Ended
March 31,
As a
percentage of segment revenue

Change
2020 to 2021

2021 2020 2021 2020 Amount %
(in thousands, except percentages)
Revenues $ 14,312 $ — 100.0 % n/a $ 14,312 n/a
Cost of revenue ⁽¹⁾ 5,977 — 41.8 % n/a 5,977 n/a
Segment gross profit ⁽¹⁾ $ 8,335 $ — 58.2 % n/a 8,335 n/a
B2C revenue decreased $1.7 million primarily due to the weakening of the currencies in which we derive our B2C operations’ revenues relative to the U.S. Dollar.
~~(1) Excludes depreciation and amortization~~
B2C cost of revenue stayed relatively consistent as the increase in gaming duties of $0.3 million, due to entering into new jurisdictions, was offset by a decrease in content license fees costs of $0.3 million.

Segment gross profit for B2C, which excludes depreciation and amortization ~~and is entirely comprised of Coolbet’s operations and is~~expense, decreased by 12.3%. This decrease was primarily driven by a ~~measure of gross profit, was $8.3 million, or 58.2%~~decrease in revenues as ~~a percentage of segment revenue, for the three months ended March 31, 2021. Prior year revenue and costs of revenue are not included in our financial results due~~described above.
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Nine Months Ended September 30, 2022 Compared to ~~the timing of the acquisition, which closed January 1, 2021.~~Nine Months Ended September 30, 2021

The following table sets forth our segment results for the periods indicated:
Nine Months Ended
September 30, Percentage of Segment Revenue Change
2022 2021 2022 2021 Amount Percent
(dollars in thousands)
B2B
Revenue $ 39,905 $ 34,349 100.0 % 100.0 % $ 5,556 16.2 %
Cost of revenue⁽¹⁾ 9,015 8,632 22.6 % 25.1 % 383 4.4 %
B2B segment gross profit $ 30,890 $ 25,717 77.4 % 74.9 % $ 5,173 20.1 %
B2C
Revenue $ 64,676 $ 59,387 100.0 % 100.0 % $ 5,289 8.9 %
Cost of revenue⁽¹⁾ 22,583 21,244 34.9 % 35.8 % 1,339 6.3 %
B2C segment gross profit $ 42,093 $ 38,143 65.1 % 64.2 % $ 3,950 10.4 %
⁽¹⁾Excludes depreciation and amortization expense
B2B Segment
B2B revenue increased $5.6 million primarily due to an increase in platform and content license fees revenue of $4.0 million resulting from organic growth in existing U.S. customers.
Additionally, B2B development services and other revenue increased $1.6 million, driven by expansion into new markets, such as Ontario, Canada.
B2B cost of revenue increased $0.4 million, primarily 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. This increase was offset by a decrease of $0.6 million related to hardware sales that occurred during the prior period which did not recur during the current period, and a decrease of $0.4 million in other B2B cost of revenue, primarily attributable to decreased content license fees costs resulting from lower RMiG revenues in Italy.
Segment gross profit margin for B2B, which excludes depreciation and amortization expense, increased by 20.1%, which was primarily driven by increased development and content license fees revenues and decreased revenues and related cost of revenue related to hardware sales that occurred during the prior period which did not recur during the current period.
B2C Segment
B2C revenue increased $5.3 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 license fees of $0.6 million and $0.3 million in gaming duties, both resulting from increased revenues, and higher processing fees of $0.2 million due to increased deposit and withdrawal activity on www.coolbet.com.
Segment gross profit for B2C, which excludes depreciation and amortization expense, increased by 10.4%, which was primarily driven by an increase in gaming revenues and an increase in gross profit margin as a result of improved processing deals for the nine months ended September 30, 2022.
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Non-GAAP Financial Measures
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure that is provided as supplemental disclosure, which is defined as net income (loss) before interest expense, net, income taxes, depreciation and amortization, impairments, share-based compensation expense and related expense, initial public offering related costs and other items which our Board of Directors considers to be infrequent or unusual in nature.

Management uses the non-GAAP measure of Adjusted EBITDA to measure its financial performance. Specifically, it uses Adjusted EBITDA ~~(1)~~(i) as a measure to compare ~~its~~our operating performance from period to period, as it removes the effect of items not directly resulting from our core operations, and ~~(2)~~(ii) as a means of assessing ~~its~~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 loss before interest expense, net, income tax 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. Adjusted EBITDA, as defined, may not be comparable to similarly titled measures used by other companies in the industry,~~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.
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Below is a reconciliation toof Adjusted EBITDA ~~from~~to net ~~income (loss)~~loss, the most comparable U.S. GAAP measure, as presented in the condensed consolidated statements of operations for the ~~three months ended March 31, 2021 and 2020:~~periods specified:

Three Months Ended
March 31,

2021 2020 Three Months Ended
September 30, Nine Months Ended
September 30,
(Restated) 2022 2021 2022 2021
(in thousands)
Net income (loss) $ (5,610 ) $ 694
Income tax provision 661 145
Net loss $ (6,941 ) $ (8,678 ) $ (49,789 ) $ (18,047 )
Income tax expense 356 1,548 513 3,201
Interest expense, net 1 8 1,450 — 2,521 1
Depreciation and amortization 3,994 853 5,893 4,560 16,862 12,686
Share-based compensation and related expense 1,491 295
Initial public offering transaction related — 554
Share-based compensation and related expense⁽¹⁾ 1,335 1,700 5,671 5,365
Impairment — — 28,861 —
Restructuring — — 1,771 —
Adjusted EBITDA $ 537 $ 2,549 $ 2,093 $ (870 ) $ 6,410 $ 3,206

~~Adjusted EBITDA decreased by $2.0~~⁽¹⁾Includes $2.1 million ~~or 79%, to $0.5 million from $2.5~~and $1.8 million in the prior period. The decrease was attributable to (i) personnel and related costs increasing to meet customer demand, (ii) increased professional services related to corporate infrastructure and Coolbet integration projects, and (iii) additional compliance requirements as a result of becoming a public company in the United States in May 2020, partly offset by an increase in revenues through organic growth in our B2B segment, coupled with the addition of Coolbet’s gaming revenues in our B2C segment following the completion of our acquisition of Coolbet on January 1, 2021.
~~Depreciation and amortization~~equity-classified expense ~~increased by $3.1 million during~~for the three months ended ~~March 31,~~September 30, 2022 and 2021, ~~compared to~~respectively, and $6.1 million and $5.8 million for the nine months ended September 30, 2022 and 2021, respectively, a benefit of $0.1 million from liability-classified awards for the three months ended ~~March 31, 2020, mainly due~~September 30, 2021, and a benefit of $0.2 million and $0.2 million for the nine months ended September 30, 2022 and 2021, respectively. Such amounts excluded capitalized amounts. Refer to ~~amortization of intangible assets ($2.9 million) recognized in the acquisition of Coolbet.~~Note 10. Share-based Compensation for further details.

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Share-based compensation and related expense increased $1.2 million during the three months ended March 31, 2021 compared to the three months ended March 31, 2020, driven by additional grants made after our initial public offering in May 2020, plus the use of different grant date fair value inputs such as peer group expected volatility and risk-free interest rate, among others.
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 ~~our~~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” ~~in our Annual Report on Form 10-K~~ for further risks associated with our business which would affect these KPIs.

Three Months Ended
March 31,

Change

2020 to 2021

2021 2020 Amount %
B2B Gross Operator Revenue (in millions) $ 214.2 $ 141.9 $ 72.3 51.0 %
B2B Active Player-Days (days, in millions) 9.5 9.0 0.5 5.6 %
B2B ARPDAU $ 22.48 $ 15.72 $ 6.76 43.0 %
B2C Active Customers 111,566 N/A N/A N/A
B2C Marketing Spend Ratio 14 % N/A N/A N/A
Three Months Ended
September 30, Nine Months Ended
September 30,
2022 2021 2022 2021
B2B Gross Operator Revenue (in millions) $ 277.8 $ 214.8 $ 858.6 $ 650.5
B2B Take Rate 4.6 % 5.2 % 4.6 % 5.3 %
B2C Active Customers (in thousands) 261 199 435 306
B2C Marketing Spend Ratio 23 % 15 % 21 % 14 %
B2C Sports Margin 6.6 % 6.8 % 7.0 % 7.9 %

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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 from ~~real money regulated sports betting.~~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 itour platform is processing.

The increase in ~~gross operator revenue~~Gross Operator Revenue for the three and nine months ended ~~March 31, 2021,~~September 30, 2022, as compared to the three and nine months ended ~~March 31, 2020,~~September 30, 2021, was driven primarily ~~attributable to the acquisition of Coolbet in January 2021 and continued~~by expansion of existing clients into new jurisdictions, such as Connecticut and ~~new U.S. customers and business,~~Ontario, Canada, coupled with ~~a shift towards~~our launch of RMiG ~~and SIM, which experienced substantial growth since the COVID-19 outbreak began disrupting retail casino operations and the sports betting calendar.~~
~~Expansion of existing and~~solutions for new customers in ~~Pennsylvania combined with an annualized impact~~existing jurisdictions, such as Michigan. Additionally, customer launches which occurred mid-2021 have now been fully included within the comparable periods of ~~our prior expansion into~~2022 and increases in Michigan, New Jersey, ~~contributed towards increases in RMiG gross operator revenues, while new customers~~ and ~~optimization of our platform since the COVID-19 outbreak drove~~Pennsylvania were driven by organic growth ~~in SIM gross operator revenues.~~from existing customers.

B2B ~~Active Player-Days~~Take Rate

We define B2B ~~Active Player-Days~~Take Rate as ~~unique individuals who log on and wager each day (either wagering with real money or playing with virtual credits used in SIM), aggregated during~~a quotient of B2B segment revenue retained by the ~~respective period. By way of an illustrative example: one (1) unique individual logging in and wagering each day in a single calendar year would, in aggregate, represent 365~~Company over the total Gross Operator Revenue generated by our B2B ~~Active Player-Days.~~corporate customers. B2B ~~Active Player-Days provides an indicator of consistent and daily interaction that individuals have with our platforms. B2B Active Player-Days allows~~Take Rate gives management and users ~~to understand not only total users who interact with the platform but gives~~of our financial statements an ~~idea~~indication of the ~~frequency to which users are interacting with~~impact of the ~~platform, as someone who logs~~statutory terms and the efficiency of the commercial terms on ~~and wagers multiple days are weighted heavier during~~ the ~~period than the user who only logs on and wagers one day.~~business.

The ~~increase~~decrease in B2B ~~Active Player-Days~~Take Rate for the three months ended ~~March 31, 2021,~~September 30, 2022 as compared to the three months ended ~~March 31, 2020,~~September 30, 2021 was primarily ~~attributable~~driven by a growth in development services and other revenue of 11%, which are considered in addition to Gross Operator Revenue. Development and other services revenue increased as a result of expansion into new markets, such as Ontario, Canada. This increase in Take Rate was slightly offset by changes to the ~~continued expansion~~mix of existing and new U.S. customers and business, coupled with a shift towards RMiG and SIM, which experienced substantial growth since the COVID-19 outbreak began disrupting retail casino operations and the sports betting calendar. As those markets further recover from their COVID-induced interruptions, the major boosts seen in RMiG and SIM has started to subside, though we are still achieving strong levels of revenue from these markets.
revenues within our B2B ~~Average Revenue per Daily Active User~~
We define B2B Average Revenue per Daily Active User (“ARPDAU”) as B2B Gross Operator Revenue divided by the identified number of B2B Active Player-Days. This metric allows management to measure the value per daily user and track user interaction with the platforms, which helps both management and users of financial statements understand the value per user that is driven by marketing efforts and data analysis obtained from our platforms.
~~The increase in B2B ARPDAU in~~segment during the three months ended ~~March 31, 2021, as~~September 30, 2022 compared to the three months ended ~~March 31, 2020, was primarily the result of~~September 30, 2021, including higher ~~growth in revenue in our highest-yield segment,~~RMiG revenues relative to historical performance, which ~~is U.S. RMiG platform,~~typically experience a lower Take Rate when compared to ~~growth in our SIM platform revenues. Additionally, the increase~~other revenue streams.
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The decrease in B2B ~~ARPDAU~~Take Rate for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021, was ~~the result of improved marketing efforts, which increased the amount of money paid~~driven by ~~players. Both B2B Active Player-Days and~~a growth in Gross Operator Revenue ~~expanded during~~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 ~~period, but~~transfer of the patent and not derived from Gross Operator Revenue, ~~expanded quicker than Active Player-Days. Based on expanded data obtained from~~recognized during the ~~platform, we were able to adjust our product offerings to provide more popular and in-demand gaming content driving up~~nine months ended September 30, 2021 that did not recur in the ~~average value per player as the players were more satisfied with the product provided.~~current period.

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.

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The increase in B2C Active Customers for the three and nine months ended September 30, 2022 was primarily driven by customer acquisition in Latin America and high customer retention during the current period.
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 and~~period. Additionally, this metric allows management to compare across ~~jurisdictions. Management~~jurisdictions and ~~the users of the financial statements can use this metric~~other subsets, as ~~a comparison to peers and track the success of marketing costs over time versus revenue level, plus use as~~ an additional indication of return on marketing investment.
The increase in B2C Marking Spend Ratio for the three and nine months ended September 30, 2022 was primarily driven by increased marketing spend in Latin America, and Ontario, Canada and higher customer acquisition costs as a result of entering into the Ontario market, and several marketing and sponsorship in Latin American to develop greater brand 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 nine months ended September 30, 2022 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

We measure liquidity in terms of our ability to fund the cash requirements of our business operations, including working capital and capital expenditure needs, contractual obligations and other commitments, with cash flows from operations and other sources of funding. Our current working capital needs relate mainly to the expansion of our operations and the normal operation of our business. Our ability to meet these working capital needs and grow our business will depend on many factors, including our future working capital needs, the evolution of our operating cash flows and our ability to secure additional sources of financing. We have primarily funded our operations through cash on hand, cash generated from operations and through the sale of our ordinary shares in our initial public offering and follow-on offering.Material Cash Commitments

AsOur primary uses of ~~March~~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.
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During the year ended December 31, 2021, we ~~had an accumulated deficit~~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 ~~$51.4~~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, ~~as a result~~ of ~~incurred losses from operations~~which $5.0 million was due upon execution of the Agreement, and ~~net operating cash outflows in prior years. We believe cash on hand and cash~~the remaining fixed fees are paid systematically over the initial five-year term. Additional payments could be required if our total revenue generated from ~~operations will be sufficient to meet our liquidity needs for~~ the ~~next 12 months. Our primary requirements for liquidity~~licensed content exceeds certain stipulated annual and capital are to finance working capital, capital expenditures and general corporate purposes. Our capital expenditure consists primarily of technology development costs, computer equipment, and costs to enter contracts.cumulative thresholds during the contract term. In the event that ~~we are unable to sustain positive~~the Agreement is terminated, actual cash ~~flow from operations and/or raise adequate financing, future operations may need to~~outlays could be scaled back by delaying hiring or reducing headcount. Our success will depend in part on our ability to continue to attract new customers, retain existing customers, and market our products and services. There can be no assurance that we will be able to achieve any or all of these success factors.less than currently contemplated.

We expect our capital expenditures ~~and working capital requirements~~ to continue to increase in the immediate future, as we seek to expand our business through organic growth and potential business acquisitions. Specifically, 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 launch of the integrated B2B sportsbook technology solution in North America in September 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.
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. ToIn April 2022, we successfully completed a $30.0 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 nine months ended September 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.
We utilized cash in investing activities of $17.5 million and $102.6 million for the nine months ended September 30, 2022 and 2021, respectively. Of these activities, $92.4 million related to the acquisition of Coolbet for the nine months ended September 30, 2021. We made payments during the nine months ended September 30, 2022 related to content licensing fees of $5.5 million. Expenditures related to internally developed capitalized software represented $9.2 million and $8.5 million, respectively, property and equipment (including licenses for internal use software) represented $1.7 million and $1.5 million, respectively.
Sources of Liquidity
We have primarily funded our operations through cash generated from operations, financing activities, 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.
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. The Company incurred $2.4 million in debt issuance costs in connection with the Credit Facility.
Our primary source of liquidity for our working capital is cash flows generated from operations and our cash on hand of $41.8 million at September 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 to enhance our competitive position through additional complementary acquisitions in both existing and new markets. Therefore, from time to time, we may access the equity or debt markets to raise additional funds to finance potential acquisitions.
In the longer term, to the extent that our current resources, including our ability to generate operating cash flows, are insufficient to satisfy our cash requirements, we may ~~need to~~ 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 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.

As of March 31, 2021, we had cash of $52.2 million compared to $152.7 million as of December 31, 2020. On January 1, 2021, we acquired Coolbet for a purchase price of $218.1 million, which included cash consideration, net of cash acquired of $92.4 million.
Cash Flow Analysis
A summary of our operating, investing and financing activities is shown in the following table:

Three Months Ended
March 31,
Change 2020 to 2021
(in thousands, except percentages) 2021 2020 Amount %
(Restated)
Net cash used in operating activities $ (4,536 ) $ (1,439 ) $ (3,097 ) (215.2 )%
Net cash used in investing activities (94,626 ) (971 ) (93,655 ) n.m.
Net cash used in financing activities (289 ) (866 ) 577 66.6 %
Effect of foreign exchange rates on cash (1,018 ) (850 ) (168 ) (19.8 )%
Net decrease in cash $ (100,469 ) $ (4,126 ) $ (96,343 ) n.m.
Nine Months Ended
September 30, Change
(dollars in thousands) 2022 2021 Amount Percent
Net cash (used in) provided by operating activities $ (3,559 ) $ 1,350 $ (4,909 )
n.m.
Net cash used in investing activities (17,514 ) (102,630 ) 85,116 (82.9 )%
Net cash provided by financing activities 27,458 141 27,317 n.m.
Effect of foreign exchange rates on cash (4,074 ) (1,210 ) (2,864 ) n.m.
Net increase (decrease) in cash $ 2,311 $ (102,349 ) $ 104,660
n.m.
n.m. = not meaningful
37
~~Net Cash Used in~~ Operating ~~Activities~~
Net cash used in operating activities increased $3.1 million, or (215.2)%, from $1.4 million net outflow during the three months ended March 31, 2020 to $4.5 million net outflow for the three months ended March 31, 2021. The increase in net cash used in operating activities is primarily the result of the net loss for the current period and changes in operating assets and liabilities.
~~Net Cash Used in Investing Activities~~
Net cash used in investing activities increased $93.7 million, from $1.0 million net outflow during the three months ended March 31, 2020 to $94.6 million net outflow for the three months ended March 31, 2021. The increase is the result of $92.4 million cash paid for the acquisition of Coolbet, net of cash acquired and a $1.2 million increase in capitalized software development costs associated with new customer launches and future launches.
~~Net Cash Used in Financing~~ Activities

Net cash used in ~~financing~~operating activities ~~decreased $0.6~~increased $4.9 million, primarily resulting from an unfavorable fluctuation in working capital of $6.5 million. These amounts were offset by a ~~$0.9 million~~decrease in net ~~outflow during the three months ended March 31, 2020~~loss after adjustments to ~~a $0.3 million~~reconcile net ~~outflow for the three months ended March 31, 2021. The decrease is mainly the result~~loss to cash flows from operations of ~~lower payments of offering costs and higher proceeds from exercise of stock options during the current period.~~$1.6 million.
~~Capital Resources~~Investing Activities

~~We do not currently have any credit facilities or similar debt arrangements~~Net cash used in ~~place. We believe~~investing activities decreased $85.1 million primarily as a result of $92.5 million cash ~~on hand and cash generated from operations will be sufficient to meet our liquidity needs~~paid for the ~~next 12 months. To~~acquisition of Coolbet during the ~~extent that we are unable~~nine months ended September 30, 2021, net of cash acquired. This decrease was primarily offset by increases of $5.5 million in cash payments to ~~sustain positive~~third-party gambling content providers for the rights to use and distribute their online gaming content in North America, and an increase of $0.9 million in cash ~~flow from operations, we expect~~payments for gaming licenses in anticipation of new jurisdictional launches, and $0.8 million in spend for capitalized software development costs primarily related to ~~raise additional capital through~~product enhancements, and new features for both the ~~sale~~B2B and B2C platforms.
45
Financing Activities
Net cash provided by financing activities increased by $27.3 million primarily due to $27.6 million net cash proceeds associated with the Credit Facility, net of ~~debt or equity securities. There are no arrangements~~issuance costs, as well as $0.6 million in ~~place for any such financing at this time. We cannot provide any assurance as~~offering cost payments made in the prior period related to our acquisition of Coolbet which did not occur in the ~~availability or terms~~current period. These amounts were partially offset by our use of ~~any future financing that we may require~~$1.0 million related to ~~support~~ our ~~operations.~~share repurchase program during the current period.

Item 3. Quantitative and Qualitative Disclosures about Market Risk
As a smaller reporting company, ~~as defined by Item 10 of Regulation S-K,~~ we are not required to provide the information required by this Item.

Item 4. Controls and Procedures ~~(Restated)~~

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 or mistake. 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.

38
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. At the time of our Original Filing on May 17, 2021, the Certifying Officers concluded that, as of March 31, 2021, our disclosure controls and procedures were effective. Subsequent to the evaluation made in connection with our Original Filing, as described below, material weaknesses were identified in our internal control over financial reporting. Based on the foregoing, the Certifying Officers concluded that our disclosure controls and procedures were not effective at the reasonable assurance level as of ~~March 31, 2021.~~September 30, 2022. The Certifying Officers based their conclusion on the fact that the Company has identified a material ~~weakness~~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 ~~weakness~~weaknesses in our internal control over financial reporting, the condensed consolidated ~~interim~~ financial statements for the periods covered by and included in this ~~Amendment No. 1~~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 ~~this report elsewhere, a~~our Annual Report on Form 10-K for the year ended December 31, 2021, material ~~weakness was~~weaknesses were identified in the Company’s internal control over financial ~~reporting for the period ended March 31, 2021.~~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.
46
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. ~~Accordingly, management undertook a review~~The Company also identified deficiencies in the design of the ~~cost capitalization~~control environment whereby certain finance users were granted “super user” access and revenue recognition errors. The effects of this error resulted in an overstatement of capitalized software development costs, net, and an overstatement of development revenue resulting in an increase of previously reported net loss by $1.1 million forsecurity administration rights to the ~~three months ended March 31, 2021. Management determined that~~financial reporting systems, the ~~aggregate effect~~activity of these ~~individual errors was material~~users with elevated access were not actively monitored, and ~~resulted in a restatement to~~no segregation of duties over journal entry preparation and approval within the ~~unaudited condensed consolidated financial statements for the quarter ended March 31, 2021.~~B2C segment existed.

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 September 30, 2022.

Remediation Plans

We ~~are evaluating~~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 ~~weaknesses~~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.

47
Changes in Internal ~~Control over~~Controls Over Financial Reporting

Except ~~as otherwise~~for the remediation efforts described ~~herein,~~above, there was no change in our internal control over financial reporting that occurred during the ~~period~~quarter covered by this ~~Amendment No. 1~~Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
39
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

~~Other than~~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 Form 10-K under the heading “Risk Factors,” any of which, alone or in combination with ~~respect~~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” 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 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 ~~weakness described herein, which could further amplify our previously disclosed risks,~~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 ~~consequences of~~Company, along with its casino operator customers, may experience a ~~material weakness~~decline in ~~internal control over financial reporting, there are no material changes from~~wagering. A downturn in the economic environment can also lead to increased credit and collectibility risk ~~factors as disclosed in our Annual Report~~ on ~~Form 10-K for~~ the ~~year ended December 31, 2020 filed with~~Company’s trade receivables, limitations on the ~~SEC on March 31, 2021.~~Company’s ability to issue new debt, and reduced liquidity.

48
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

~~The Registration Statement~~On May 31, 2022, the Board of Directors re-authorized and extended the share repurchase program initially authorized on ~~Form S-1 (File No. 333-237372) for~~November 30, 2021, which permits the ~~initial public offering~~Company to purchase up to $5.0 million of ~~our~~the Company’s outstanding ordinary shares on the Nasdaq Stock Market. The extension was ~~declared effective by~~publicly announced on June 13, 2022. Repurchases are executed through open market purchases or privately negotiated transactions. The Company may purchase the ~~Securities~~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 ~~Exchange Commission~~repurchases may be suspended or terminated at any time. The share repurchase program expires on May 4, 2020. The net proceeds from our initial public offering have been used for working capital purposes since the date of our initial public offering, in accordance with the planned use of proceeds set forth in our final prospectus filed with the Securities and Exchange Commission on May 4, 2020 pursuant to Rule 424(b)(4).November 3, 2022.
40
During the three months ended September 30, 2022, 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 September 30, 2022.
Item 6. Exhibits

~~A list of exhibits to this Amendment No. 1 to the Form 10-Q/A is set forth in the Exhibit Index below.~~
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

Incorporation by Reference
Exhibit
Number
Description of Document Filed Herewith + Form Exhibit Number Date Filed
3.1 Memorandum of Association of GAN Limited F-1 3.1 April 17, 2020
3.2 Bye-Laws of GAN Limited F-1 3.2 April 27, 2020
4.1 Specimen certificate evidencing ordinary shares F-1 4.1 April 27, 2020
4.3 Description of Securities 10-K 4.3 March 31, 2021
10.1 Employment Agreement with Dermot S. Smurfit 10-K 10.6 March 31, 2021
10.2 Employment Agreement with Karen Flores 10-K 10.7 March 31, 2021
10.3 Employment Agreement with Todd McTavish 10-K 10.8 March 31, 2021
10.4 Employment Agreement with Simon Knock 10-K 10.9 March 31, 2021
10.5 Employment Agreement with Jeffrey Berman 10-K 10.10 March 31, 2021
10.6 Employment Agreement with Donald Ryan 10-K 10.11 March 31, 2021
31.1 Certification of Chief Executive Officer of Periodic Report Pursuant to Rule 13a-14(a) and Rule 15d-14(a). X
31.2 Certification of Chief Financial Officer of Periodic Report Pursuant to Rule 13a-14(a) and Rule 15d-14(a). X
32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350. * X
32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350. * X
101.INS** Inline XBRL Instance Document
101.SCH*** Inline XBRL Taxonomy Extension Schema Document. X
101.CAL*** Inline XBRL Taxonomy Extension Calculation Linkbase Document. X
101.DEF*** Inline XBRL Taxonomy Extension Definition Linkbase Document. X
101.LAB*** Inline XBRL Taxonomy Extension Label Linkbase Document. X
101.PRE*** Inline XBRL Taxonomy Extension Presentation Linkbase Document. X
104*** The cover page from this Amendment No. 1 to the Form 10-Q/A for the quarter ended March 31, 2021, has been formatted in Inline XBRL. X
* Furnished herewith.
** The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
*** Furnished herewith. Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act, are deemed not filed for purposes of Section 18 of the Exchange Act and otherwise are not subject to liability under those sections.
+ Filed herewith unless otherwise indicated as furnished herewith.
4149

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: ~~April 15,~~November 14, 2022 By: /s/ DERMOT S. SMURFIT
Dermot S. Smurfit
Chief Executive Officer
(Principal Executive Officer)

~~Date: April 15, 2022~~ /s/ KAREN E. FLORES
Karen E. Flores
Chief Financial Officer
(Principal Financial and Accounting Officer)

4250

	2021			2020
	Three Months Ended March 31,
	2021			2020
	(Restated)
Revenues	$	27,118		$	7,670

Operating costs and expenses
Cost of revenues ⁽¹⁾		8,719			1,692
Sales and marketing		4,101			863
Product and technology		5,243			1,024
General and administrative ⁽¹⁾		10,009			2,391
Depreciation and amortization		3,994			853
Total operating costs and expenses		32,066			6,823
Operating income (loss)		(4,948	)		847
Interest expense, net		1			8
Income (loss) before income taxes		(4,949	)		839
Income tax provision		661			145
Net income (loss)	$	(5,610	)	$	694

Income (loss) per share
Basic	$	(0.13	)	$	0.03
Diluted	$	(0.13	)	$	0.03

Weighted average ordinary shares outstanding
Basic		41,986,083			21,512,225
Diluted		41,986,083			23,040,345

	Ordinary Shares				Additional Paid-in		Accumulated			Accumulated Other Comprehensive			Total Stockholders’
	Shares		Amount		Capital		Deficit			Loss			Equity
Balance at December 31, 2019		21,486,059	$	215	$	40,862	$	(23,024	)	$	(2,908	)	$	15,145
Net income		—		—		—		694			—			694
Share-based compensation expense		—		—		295		—			—			295
Issuance of ordinary shares upon exercise of stock options		64,908		1		86		—			—			87
Foreign currency translation adjustments		—		—		—		—			(1,320	)		(1,320	)
Balance at March 31, 2020		21,550,967	$	216	$	41,243	$	(22,330	)	$	(4,228	)	$	14,901

	As Reported			Adjustment			As Restated
Accounts receivable, net of allowance for doubtful accounts of $178 at March 31, 2021	$	11,945		$	225		$	12,170
Capitalized software development costs, net		8,134			(419	)		7,715
Total assets		279,002			(194	)		278,808
Other current liabilities		3,944			(211	)		3,733
Other noncurrent liabilities		559			1,160			1,719
Total liabilities		28,456			949			29,405
Accumulated deficit		(50,230	)		(1,146	)		(51,376	)
Accumulated other comprehensive loss		(12,358	)		3			(12,355	)
Total stockholders’ equity		250,546			(1,143	)		249,403
Total liabilities and stockholders’ equity		279,002			(194	)		278,808

Cash paid to Vincent Group shareholders	$	111,118
Restricted ordinary shares issued to Vincent Group shareholders ⁽¹⁾		106,683
Replacement equity-based awards to holders of Vincent Group equity-based awards ⁽²⁾		297
Total	$	218,098


~~Cash~~		$	~~18,714~~	liabilities.
~~Prepaid expenses and other current assets~~
	~~1,512~~●	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.
~~Property and equipment~~
	~~343~~●
~~Operating lease right-of-use~~Level 3 Valuations are based on the inputs that are unobservable and significant to the overall fair value measurement of the assets			~~416~~
~~Intangible assets~~			~~48,370~~
~~Other noncurrent assets~~			73
~~Accounts payable~~			~~(1,182~~	)
~~Liabilities~~ 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 ~~users~~			~~(5,373~~	)
~~Other current liabilities~~			~~(1,797~~	)
~~Operating lease liabilities~~			~~(167~~	)
~~Deferred income taxes~~			~~(2,265~~	)
~~Noncurrent operating lease liabilities~~			~~(231~~	)
~~Total identifiable net assets~~			~~58,413~~
~~Goodwill~~			~~159,685~~
~~Total identifiable assets acquired~~the risk inherent in the valuation technique and ~~liabilities assumed including goodwill, net~~		$	~~218,098~~	the risk inherent in the inputs to the model.

	Estimated useful life (in years)		Fair Value
Trade names and trademarks		10.0	$	5,800
Developed technology		3.0		28,100
In-process developed technology		—		8,400
Customer relationships		3.0		5,600
Licenses		various		470
			$	48,370

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


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	September 30, 2022			December 31, 2021

Fixtures, fittings and equipment	3-5 years	$	3,791		$	2,935
Platform hardware	5 years		1,651			2,054
Total property and equipment, cost			5,442			4,989
Less: accumulated depreciation			(2,894	)		(2,444	)
Total		$	2,548		$	2,545

	Three Months Ended March 31, 2020
Revenues	$	14,815
Net loss	$	(2,811	)
Loss per share – basic and diluted	$	(0.10	)

	March 31, 2021			December 31, 2020
		(Restated)					September 30, 2022			December 31, 2021
Capitalized software development costs	$	27,074		$	26,507		$	32,059		$	26,127
Development in progress		3,127			2,641			2,528			5,910
Total capitalized software development costs		30,201			29,148
Total capitalized software development, cost								34,587			32,037
Less: accumulated amortization		(22,486	)		(22,500	)		(18,498	)		(17,607	)
Total	$	7,715		$	6,648		$	16,089		$	14,430

	B2B			B2C			Total
Balance at December 31, 2020	$	—		$	—		$	—
Goodwill acquired in Coolbet acquisition		67,547			92,138			159,685
Effect of foreign currency translation		(2,941	)		(4,010	)		(6,951	)
Balance at March 31, 2021	$	64,606		$	88,128		$	152,734

	B2B			B2C			Total
Balance at January 1, 2022	$	72,230		$	73,912		$	146,142
Impairment		(28,861	)		—			(28,861	)
Effect of foreign currency translation		(8,082	)		(10,113	)		(18,195	)
Balance at September 30, 2022	$	35,287		$	63,799		$	99,086

			March 31, 2021
	Weighted Average Amortization Period		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Developed technology		3.0 years	$	26,877	$	(2,240	)	$	24,637
In-process technology		—		8,034		—			8,034
Customer relationships		3.0 years		5,356		(446	)		4,910
Trade names and trademarks		10.0 years		5,898		(486	)		5,412
Licenses		6.7 years		1,860		(998	)		862
			$	48,025	$	(4,170	)	$	43,855

	Amortization Period		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
	Weighted Average		September 30, 2022
	Amortization Period		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Developed technology		3.8 years	$	30,671	$	(13,792	)	$	16,879
Third-party content licenses		4.6 years		22,938		(2,502	)		20,436
Customer relationships		3.6 years		8,019		(3,162	)		4,857
Trade names and trademarks		10.0 years		4,887		(1,089	)		3,798
Gaming licenses		7.3 years		3,008		(1,244	)		1,764
			$	69,523	$	(21,789	)	$	47,734

	Amount
Remainder of 2022	$	4,369
2023		17,611
2024		8,005
2025		7,996
2026		2,330
Thereafter		7,423

	March 31, 2021		December 31, 2020
Content licensing fees	$	2,103	$	1,984
Sales taxes		929		756
Income taxes		890		17
Other		492		606
Total	$	4,414	$	3,363

	September 30, 2022		December 31, 2021
Content license fees	$	1,480	$	2,402
Other		1,194		2,267
Total	$	2,674	$	4,669

	Effective Interest Rate			As of September 30, 2022
Credit Facility:
Principal		13.28	%	$	30,000
Less unamortized debt issuance costs					(2,145	)
Long-term debt, net				$	27,855

	Number of Shares			Weighted Average Exercise Price		Weighted Average Contractual Term		Aggregate Intrinsic Value
Outstanding at December 31, 2021		4,138,215		$	13.05		8.05	$	11,229
Granted		947,002			0.03
Exercised		(375,416	)		1.93
Forfeited/expired or cancelled		(998,942	)		15.29
Outstanding at September 30, 2022		3,710,859		$	10.25		7.6	$	1,756
Options exercisable at September 30, 2022		2,271,058		$	8.44		6.97	$	672

	Number of Shares			Weighted Average Exercise Price		Weighted Average Contractual Term		Aggregate Intrinsic Value
Outstanding at December 31, 2020		3,061,859		$	8.06		8.5	$	37,410
Granted		1,216,140			24.35
Exercised		(108,222	)		2.40
Forfeited/expired or cancelled		(3,080	)		18.53
Outstanding at March 31, 2021		4,166,697		$	12.96		9.2	$	21,840
Options exercisable at March 31, 2021		1,820,667		$	3.08		7.7	$	27,524

	Number of Shares			Weighted Average Grant Date Fair Value
Outstanding at December 31, 2021		369,140		$	10.78
Granted		1,413,333			5.23
Vested		(213,245	)		9.53
Forfeited or cancelled		(73,622	)		7.84
Outstanding at September 30, 2022		1,495,606		$	5.86

	2021			2020
	Three Months Ended March 31,
	2021			2020
	(Restated)
Numerator:
Net income (loss)	$	(5,610	)	$	694
Denominator:
Weighted average ordinary shares outstanding, basic		41,986,083			21,512,225
Weighted average effect of potentially dilutive ordinary shares:
Stock options		—			1,528,120
Restricted stock awards		—			—
Restricted stock units		—			—
Weighted average ordinary shares outstanding, diluted		41,986,083			23,040,345

Income (loss) per share:
Basic	$	(0.13	)	$	0.03
Diluted	$	(0.13	)	$	0.03

	B2B		B2C		Total		B2B		B2C		Total
	Three Months Ended September 30,
	2022						2021
	B2B		B2C		Total		B2B		B2C		Total
Revenue	$	12,685	$	19,435	$	32,120	$	11,175	$	21,093	$	32,268
Cost of revenue⁽¹⁾		2,173		7,262		9,435		3,583		7,218		10,801
Segment gross profit	$	10,512	$	12,173	$	22,685	$	7,592	$	13,875	$	21,467


	Three Months Ended March 31, 2021						Three Months Ended March 31, 2020
	B2B		B2C		Total		B2B		B2C		Total
	(Restated)				(Restated)
Revenues	$	12,806	$	14,312	$	27,118	$	7,670	$	—	$	7,670
Cost of revenues ⁽¹⁾		2,742		5,977		8,719		1,692		—		1,692
Segment gross profit ⁽¹⁾	$	10,064	$	8,335	$	18,399	$	5,978	$	—	$	5,978

	B2B		B2C		Total		B2B		B2C		Total
	Nine Months Ended September 30,
	2022						2021
	B2B		B2C		Total		B2B		B2C		Total
Revenue	$	39,905	$	64,676	$	104,581	$	34,349	$	59,387	$	93,736
Cost of revenue⁽¹⁾		9,015		22,583		31,598		8,632		21,244		29,876
Segment gross profit	$	30,890	$	42,093	$	72,983	$	25,717	$	38,143	$	63,860

	●	~~our ability to successfully meet anticipated revenue levels from sales of our software licenses;~~

	●	~~our ability to successfully develop, market or sell new products or adopt new technology platforms;~~

	●	~~our ability to continue to grow through acquisitions or investments in other companies or technologies;~~

	●	~~our ability to realize the anticipated benefits of our consummated acquisitions or investments in other companies, including our acquisition of Coolbet in January 2021;~~

	●	~~risks related to Coolbet’s business;~~

	●	risks related to the continued uncertainty in the global financial markets and unfavorable global economic conditions, including as a result of the global outbreak of the novel coronavirus (“COVID-19”) pandemic;

	●	~~our installed customer base continuing to license additional products, renew maintenance agreements and purchase additional services;~~

	●	~~our ability to attract and retain qualified personnel;~~

	●	~~our ability to adequately manage our growth;~~

	●	~~risks related to competition;~~

	●	~~our ability to maintain good relations with our channel partners;~~

	●	~~risks associated with our international operations and fluctuations in currency values;~~

	●	~~risks related to unanticipated performance problems or bugs in our software product offerings; and~~

	●	~~our ability to protect our intellectual property and proprietary rights.~~

	●	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 March 31,					Change 2020 to 2021
	2021			2020		Amount			%
	(Restated)
(in thousands, except percentages)
Revenues	$	27,118		$	7,670	$	19,448			263.0	%
Operating costs and expenses
Cost of revenues ⁽¹⁾		8,719			1,692		7,027			415.3	%
Sales and marketing		4,101			863		3,238			375.2	%
Product and technology		5,243			1,024		4,219			412.0	%
General and administrative ⁽¹⁾		10,009			2,391		7,618			318.6	%
Depreciation and amortization		3,994			853		3,141			368.2	%
Total operating costs and expenses		32,066			6,823		25,243			370.0	%
Operating income (loss)		(4,948	)		847		(5,795	)		(684.2	)%
Interest expense, net		1			8		(7	)		(87.5	)%
Income (loss) before income taxes		(4,949	)		839		(5,788	)		(689.9	)%
Income tax provision		661			145		516			355.9	%
Net income (loss)	$	(5,610	)	$	694	$	(6,304	)		(908.4	)%