GAN Ltd (Form: 10-Q, Received: 11/09/2023 17:30:06)

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

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.

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 ☒

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

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

		Page
	PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022	3
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and 2022	4
	Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2023 and 2022	5
	Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three and nine months ended September 30, 2023 and 2022	6
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	48
Item 4.	Controls and Procedures	48
	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	50
Item 1A.	Risk Factors	50
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
Item 6.	Exhibits	51
	SIGNATURES	52

	September 30,			December 31,
	2023			2022
ASSETS
Current assets
Cash	$	39,212		$	45,920
Accounts receivable, net of allowance for doubtful accounts of $146 and $250 at September 30, 2023 and December 31, 2022, respectively		9,168			13,808
Prepaid expenses		3,302			4,861
Other current assets		4,086			3,041
Total current assets		55,768			67,630

Capitalized software development costs, net		7,972			6,749
Intangible assets, net		15,293			24,955
Operating lease right-of-use assets		4,438			234
Other assets		5,189			3,512
Total assets	$	88,660		$	103,080

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	5,449		$	6,437
Accrued compensation and benefits		9,570			8,750
Accrued content license fees		1,577			2,214
Liabilities to users		9,467			10,683
Current operating lease liabilities		751			195
Other current liabilities		5,659			4,253
Total current liabilities		32,473			32,532

Deferred income taxes		4,073			4,218
Long-term debt		41,056			28,157
Content licensing liabilities		2,800			15,280
Non-current operating lease liabilities		3,730			—
Other liabilities		2,508			2,125
Total liabilities		86,640			82,312
Commitments and contingencies (Note 16)		-			-
Shareholders’ equity
Ordinary shares, $0.01 par value, 100,000,000 shares authorized, 44,698,931 and 42,894,211 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively		447			429
Additional paid-in capital		335,321			328,998
Accumulated deficit		(299,929	)		(274,861	)
Accumulated other comprehensive loss		(33,819	)		(33,798	)
Total shareholders’ equity		2,020			20,768
Total liabilities and shareholders’ equity	$	88,660		$	103,080

	2023			2022			2023			2022
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2023			2022			2023			2022

Revenue	$	29,817		$	32,120		$	98,704		$	104,581

Operating costs and expenses
Cost of revenue ⁽¹⁾		9,242			9,435			28,888			31,598
Sales and marketing		7,196			6,781			21,704			20,292
Product and technology		9,150			7,571			29,966			24,928
General and administrative ⁽¹⁾		7,060			7,588			27,095			27,307
Impairment		—			—			—			28,861
Restructuring		—			—			—			1,771
Depreciation and amortization		4,339			5,893			12,783			16,862
Total operating costs and expenses		36,987			37,268			120,436			151,619
Operating loss		(7,170	)		(5,148	)		(21,732	)		(47,038	)
Interest expense		1,264			1,450			3,885			2,521
Other income, net		—			(13	)		(934	)		(283	)
Loss before income taxes		(8,434	)		(6,585	)		(24,683	)		(49,276	)
Income tax (benefit) expense		(274	)		356			385			513
Net loss	$	(8,160	)	$	(6,941	)	$	(25,068	)	$	(49,789	)

Loss per share, basic and diluted	$	(0.18	)	$	(0.16	)	$	(0.57	)	$	(1.18	)

Weighted average ordinary shares outstanding, basic and diluted		44,699,951			42,237,226			43,949,594			42,263,462

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

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

Balance at January 1, 2023		42,894,211		$	429		$	328,998		$	—	$	(274,861	)	$	(33,798	)	$	20,768
Net income		—			—			—			—		1,501			—			1,501
Foreign currency translation adjustments		—			—			—			—		—			966			966
Share-based compensation		—			—			1,382			—		—			—			1,382
Restricted share activity		377,944			4			—			—		—			—			4
Repurchase of restricted shares to pay tax liability (Note 7)		(49,157	)		(1	)		(78	)		—		—			—			(79	)
Issuance of ordinary shares upon ESPP purchases		57,960			1			64			—		—			—			65
Balance at March 31, 2023		43,280,958		$	433		$	330,366		$	—	$	(273,360	)	$	(32,832	)	$	24,607
Net loss		—			—			—			—		(18,409	)		—			(18,409	)
Foreign currency translation adjustments		—			—			—			—		—			155			155
Share-based compensation		—			—			1,621			—		—			—			1,621
Restricted share activity		148,080			1			1			—		—			—			2
Repurchase of restricted shares to pay tax liability (Note 7)		(952	)		—			—			—		—			—			—
Issuance of ordinary shares upon exercise of stock options		5,129			—			—			—		—			—			—
Issuance of ordinary shares in connection with Content Provider Agreement		1,250,000			13			1,950			—		—			—			1,963
Balance at June 30, 2023		44,683,215			447			333,938			—		(291,769	)		(32,677	)	$	9,939
Net loss		—			—			—			—		(8,160	)		—			(8,160	)
Foreign currency translation adjustments		—			—			—			—		—			(1,142	)		(1,142	)
Share-based compensation		—			—			1,386			—		—			—			1,386
Restricted share activity		17,839			—			(3	)		—		—			—			(3	)
Repurchase of restricted shares to pay tax liability (Note 7)		(2,123	)		—			—			—		—			—			—
Balance at September 30, 2023	$	44,698,931		$	447		$	335,321		$	—	$	(299,929	)	$	(33,819	)	$	2,020

	2023			2022
	Nine Months Ended
	September 30,
	2023			2022
Cash Flows From Operating Activities
Net loss	$	(25,068	)	$	(49,789	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of software and intangible assets		11,594			15,837
Depreciation on property and equipment and finance lease right-of-use assets		1,188			1,025
Non-cash interest and amortization of debt discount and debt issuance costs		2,845			280
Share-based compensation expense		4,699			5,671
Gain on extinguishment of content liability		(9,717	)		—
Loss on extinguishment of debt		8,784			—
Impairment of goodwill		—			28,861
Deferred income tax		(117	)		541
Change in fair value of synthetic equity		(288	)		—
Other		(102	)		(22	)
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable		4,791			(5,189	)
Prepaid expenses		1,560			(1,226	)
Other current assets		(1,053	)		(265	)
Other assets		(4,452	)		2,552
Accounts payable		(996	)		1,730
Accrued compensation and benefits		859			(4,174	)
Accrued content license fees		(645	)		(1,689	)
Liabilities to users		(1,158	)		1,296
Other current liabilities		2,043			(387	)
Other liabilities		1,593			1,389
Net cash used in operating activities		(3,640	)		(3,559	)

Cash Flows From Investing Activities
Expenditures for capitalized software development costs		(2,753	)		(9,242	)
Payments for content licensing arrangements		—			(5,500	)
Purchases of gaming licenses		(412	)		(1,115	)
Purchases of property and equipment		(1,607	)		(1,657	)
Net cash used in investing activities		(4,772	)		(17,514	)

Cash Flows From Financing Activities
Proceeds from issuance of long-term debt		—			30,000
Proceeds from exercise of share options		—			720
Proceeds from issuance of ordinary shares under ESPP		66			169
Repurchase of restricted shares to pay tax liability		(409	)		—
Repurchase of ordinary shares		—			(1,006	)
Proceeds from issuance of long-term debt		4,733			—
Payment of debt issuance costs		(3,137	)		(2,425	)
Net cash provided by financing activities		1,253			27,458

Effect of foreign exchange rates on cash		451			(4,074	)

Net (decrease) increase in cash		(6,708	)		2,311
Cash, beginning of period		45,920			39,477
Cash, end of period	$	39,212		$	41,788

Supplemental Cash Flow Information
Cash paid for:
Interest	$	1,068		$	—
Income taxes		184			690
Intangible assets acquired in business acquisition included in current and long-term liabilities		—			26,244
Right-of-use asset obtained in exchange for new operating lease liability		4,471			—
Contract asset and contingent liability related to synthetic equity		1,143			—

	As previously		Impact of operating expense			As currently
	Three Months Ended September 30, 2022
	As previously		Impact of operating expense			As currently
	reported		reclassification			reported
Operating expenses
Sales and marketing	$	6,757	$	24		$	6,781
Product and technology		4,998		2,573			7,571
General and administrative ⁽¹⁾		10,185		(2,597	)		7,588
Total operating expenses	$	21,940	$	—		$	21,940

	As previously		Impact of operating expense			As currently
	Nine Months Ended September 30, 2022
	As previously		Impact of operating expense			As currently
	reported		reclassification			reported
Operating expenses
Sales and marketing	$	20,122	$	170		$	20,292
Product and technology		19,140		5,788			24,928
General and administrative ⁽¹⁾		33,265		(5,958	)		27,307
Total operating expenses	$	72,527	$	—		$	72,527

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

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

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

	Estimated Useful	September 30,			December 31,
	Life (in years)	2023			2022
Fixtures, fittings and equipment	3 - 5	$	5,615		$	4,136
Platform hardware	5		2,374			2,313
Total property and equipment, cost			7,989			6,449
Less: accumulated depreciation			(4,972	)		(3,599	)
Total		$	3,017		$	2,850

	Period (in years)		Amount		Amortization			Amount
	Weighted		September 30, 2023
	Average		Gross
	Amortization		Carrying		Accumulated			Net Carrying
	Period (in years)		Amount		Amortization			Amount
Developed technology		4.5	$	33,203	$	(24,984	)	$	8,219
Customer relationships		3.2		6,751		(5,057	)		1,694
Trade names and trademarks		10.0		5,315		(1,685	)		3,630
Gaming licenses		5.6		3,577		(1,827	)		1,750
			$	48,846	$	(33,553	)	$	15,293

	Amount
Remainder of 2023	$	3,403
2024		2,989
2025		2,967
2026		2,512
2027		1,820
Thereafter		1,602
Total	$	15,293

	Effective Interest Rate			As of September 30, 2023
Credit Facility
Principal		10.22	%	$	43,754
Less unamortized debt issuance costs					(2,698	)
Long-term debt, net				$	41,056

				Weighted
				Average
	Number of			Grant Date
	Shares			Fair Value
Outstanding at December 31, 2022		1,171,371		$	5.43
Granted		2,010,949			1.63
Vested		(543,863	)		3.20
Forfeited/expired or cancelled		(313,490	)		4.74
Outstanding at September 30, 2023		2,324,967			2.75

⁽¹⁾		Includes gain on extinguishment of $9.7 million related to the Company amending its agreement with a content provider in March 2023 to relieve $15.0 million in fixed payments. Refer to Note 16 – Commitments and Contingencies for further details.
⁽²⁾		Includes loss on debt extinguishment of $8.8 million recognized during the second quarter of 2023 as a result of the Company entering into the Amended Credit Facility on April 13, 2023. Refer to Note 6 – Debt for further details.

	B2B		B2C		Total		B2B		B2C		Total
	Three Months Ended September 30,
	2023						2022
	B2B		B2C		Total		B2B		B2C		Total
Revenue	$	10,178	$	19,639	$	29,817	$	12,685	$	19,435	$	32,120
Cost of revenue ⁽¹⁾		2,055		7,187		9,242		2,173		7,262		9,435
Segment contribution	$	8,123	$	12,452	$	20,575	$	10,512	$	12,173	$	22,685

	B2B		B2C		Total		B2B		B2C		Total
	Nine Months Ended September 30,
	2023						2022
	B2B		B2C		Total		B2B		B2C		Total
Revenue	$	31,352	$	67,352	$	98,704	$	39,905	$	64,676	$	104,581
Cost of revenue ⁽¹⁾		6,129		22,759		28,888		9,015		22,583		31,598
Segment contribution	$	25,223	$	44,593	$	69,816	$	30,890	$	42,093	$	72,983

		As of
		September 30, 2023		December 31, 2022
Leases	Classification
Assets
Total operating leased assets, net	Operating lease right-of-use assets⁽¹⁾	$	4,438	$	234

Liabilities
Current	Operating lease liabilities	$	751	$	195
Non-current	Operating lease liabilities – non-current		3,730		—
Total lease liabilities		$	4,481	$	195

	Operating Leases

Remainder of 2023	$	281
2024		1,134
2025		1,143
2026		1,154
2027		1,165
Thereafter		671
Total lease payments		5,548
Less: future interest costs		1,068
Present value of lease liabilities	$	4,481

	●	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
	September 30,						Change
	2023			2022			Amount			Percent
(dollars in thousands)
Revenue	$	29,817		$	32,120		$	(2,303	)		(7.2	)%
Operating costs and expenses
Cost of revenue ⁽¹⁾		9,242			9,435			(193	)		(2.0	)%
Sales and marketing		7,196			6,781			415			6.1	%
Product and technology		9,150			7,571			1,579			20.9	%
General and administrative ⁽¹⁾		7,060			7,588			(528	)		(7.0	)%
Depreciation and amortization		4,339			5,893			(1,554	)		(26.4	)%
Total operating costs and expenses		36,987			37,268			(281	)		(0.8	)%
Operating loss		(7,170	)		(5,148	)		(2,022	)		39.3	%
Interest expense		1,264			1,450			(186	)		(12.8	)%
Other income, net		—			(13	)		13			(100.0	)%
Loss before income taxes		(8,434	)		(6,585	)		(1,849	)		28.1	%
Income tax (benefit) expense		(274	)		356			(630	)		n.m.
Net loss	$	(8,160	)	$	(6,941	)	$	(1,219	)		17.6	%

	Three Months Ended
	September 30,				Percentage of Revenue						Change
	2023		2022		2023			2022			Amount			Percent
(dollars in thousands)
United States	$	7,459	$	10,320		25.0	%		32.1	%	$	(2,861	)		(27.7	)%
Europe		10,890		10,574		36.5	%		32.9	%		316			3.0	%
Latin America		9,132		9,492		30.6	%		29.6	%		(360	)		(3.8	)%
Rest of the world		2,336		1,734		7.9	%		5.4	%		602			34.7	%
Total revenue	$	29,817	$	32,120		100.0	%		100.0	%	$	(2,303	)		(7.2	)%

	Three Months Ended				Percentage of Segment
	September 30,				Revenue						Change
	2023		2022		2023			2022			Amount			Percent
(dollars in thousands)
B2B
Revenue	$	10,178	$	12,685		100.0	%		100.0	%	$	(2,507	)		(19.8	)%
Cost of revenue ⁽¹⁾		2,055		2,173		20.2	%		17.1	%		(118	)		(5.4	)%
B2B segment contribution	$	8,123	$	10,512		79.8	%		82.9	%	$	(2,389	)		(22.7	)%
B2C
Revenue	$	19,639	$	19,435		100.0	%		100.0	%	$	204			1.0	%
Cost of revenue ⁽¹⁾		7,187		7,262		36.6	%		37.4	%		(75	)		(1.0	)%
B2C segment contribution	$	12,452	$	12,173		63.4	%		62.6	%	$	279			2.3	%

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.

	GAN Limited

Date: November 9, 2023	By:	/s/ SEAMUS MCGILL
		Seamus McGill
		Interim Chief Executive Officer
		(Principal Executive Officer)

		/s/ BRIAN CHANG
		Brian Chang
		Interim Chief Financial Officer
		(Principal Financial and Accounting Officer)

1.	I have reviewed this quarterly report on Form 10-Q of GAN Limited;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing similar functions):

	a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	/s/ SEAMUS MCGILL
	Seamus McGill
	Interim Chief Executive Officer
	(principal executive officer)

	/s/ BRIAN CHANG
	Brian Chang
	Interim Chief Financial Officer
	(principal financial officer)

	●	The Quarterly Report on Form 10-Q of GAN Limited (the “Company”) for the quarter ended September 30, 2023 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

	●	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.