Filed Pursuant to Rule 424(b)(4)

Registration No. 333-251163

 

6,238,658 Ordinary Shares

 

 

GAN Limited

 

GAN Limited, a Bermuda exempted company limited by shares, is offering 5,855,158 ordinary shares, par value $0.01 per share (“ordinary shares”), and the selling shareholders identified in this prospectus are offering an additional 383,500 ordinary shares.

 

The public offering price of our ordinary shares is $15.50 per ordinary share. Our ordinary shares are listed on The Nasdaq Capital Market under the symbol “GAN.” The last reported sale price of our ordinary shares as reported on the NASDAQ on December 16, 2020 was $16.69.

 

Before buying any ordinary shares, you should carefully consider the risk factors described in “Risk Factors” beginning on page 20.

 

We are an “emerging growth company” as defined under the federal securities laws and, as such, may elect to comply with certain reduced public company reporting requirements.

 

Neither the United States Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

    Per
Share
    Total  
Public Offering Price   $ 15.50     $ 96,699,199  
Underwriting Discounts and Commissions (1)   $ 0.81735     $ 5,076,708  
Proceeds, Before Expenses, to the Company   $ 14.68265     $ 85,990,314  
Proceeds to Selling Shareholders   $ 14.68265     $ 5,632,177  

 

(1) See “Underwriting” beginning on page 155 for disclosure regarding compensation payable to the underwriter.

 

The underwriter may also purchase up to an additional 935,798 ordinary shares from us at the public offering price, less the underwriting discounts and commissions, within 30 days from the date of this prospectus to cover over-allotments, if any.

 

The underwriter expects to deliver the ordinary shares on or about December 21, 2020.

 

B. Riley Securities

 

The date of this prospectus is December 16, 2020.

 

     
     

 

TABLE OF CONTENTS

 

PROSPECTUS SUMMARY 1
RISK FACTORS 20
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS 49
USE OF PROCEEDS 50
DIVIDENDS AND DIVIDEND POLICY 51
CAPITALIZATION 52
DILUTION 53
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA 54
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION 56
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 65
BUSINESS 93
PROPOSED ACQUISITION OF COOLBET 110
COOLBET OVERVIEW 112
MANAGEMENT 115
PRINCIPAL AND SELLING SHAREHOLDERS 128
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS 130
DESCRIPTION OF SHARE CAPITAL 131
SHARES ELIGIBLE FOR FUTURE SALE 145
TAX CONSIDERATIONS 146
CAUTIONARY STATEMENT ON SERVICE OF PROCESS AND THE ENFORCEMENT OF CIVIL LIABILITIES 154
UNDERWRITING 155
EXPENSES RELATED TO THIS OFFERING 166
LEGAL MATTERS 166
EXPERTS 166
WHERE YOU CAN FIND ADDITIONAL INFORMATION 167
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS F-1

 

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PROSPECTUS SUMMARY

 

This summary highlights information contained in this prospectus. It does not contain all of the information that you should consider in making your investment decision. Before investing in our ordinary shares, you should read this entire prospectus carefully, including the sections entitled “Risk Factors,” “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes for a more complete understanding of our business and this offering. Except as otherwise required by the context, references to “GAN,” “the Company,” “we,” “us” and “our” are to (1) GAN (UK) Limited, a private limited company organized under the laws of England and Wales (formerly GAN plc, a public limited company organized under the laws of the England and Wales), and its subsidiaries, for all periods prior to the completion of the May 2020 reorganization and share exchange, and (2) GAN Limited, a Bermuda exempted company limited by shares, and its subsidiaries, or GAN Limited, for all periods after the completion of the May 2020 reorganization and share exchange. References to “Coolbet” are to Vincent Group p.l.c., a Malta public limited company and its subsidiaries.

 

Company Overview

 

GAN Limited is a Bermuda exempted holding company, and, through its subsidiaries, is an award-winning 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. Our technology platform, which we market as the GameSTACK™ Internet gaming ecosystem platform (“GameSTACK”), has been deployed in both Europe and the U.S. However, we are primarily focused on enabling the U.S. casino industry’s ongoing digital transformation, which is accelerating following the repeal of a federal ban on sports betting in May 2018. Our customers rely on our software to run their online casinos and sportsbooks legally, profitably and with engaging content.

 

Our customer base in the U.S. includes larger regional operators as well as individual tribal casino operators. At September 30, 2020 our customers operated 101 retail casino properties, racetracks and online sportsbooks. With recent customer wins, the number of retail outlets operated by our customers is now 104. Our customers outside of the states of regulated markets generally operate on our social casino or simulated gambling applications. The largest portion of our U.S. business is in real money Internet gambling with operators in the states where both Internet casino gaming and sports betting are permitted by regulation.

 

Our GameSTACK platform and related managed services are designed to help our customers rapidly launch and scale their iGaming and online sportsbook operations. Our iGaming offerings support both social, or “freemium,” simulated online casino gaming (“Simulated Gaming”) as well as real money online casino gaming (“real money iGaming”) for deployment in regulated markets. Like real money iGaming, Simulated Gaming is a revenue center for our customers in non-regulated markets. Real money iGaming accounted for 77% of our revenues in 2019 and 75% of our revenues for the first nine months of 2020. Both our real money iGaming and Simulated Gaming offerings incorporate powerful loyalty and marketing features aimed at maximizing player engagement. We measure the level of player engagement through key performance measures including Active Daily Users, Gross Operator Revenue, and Average Revenue Per Daily Active User, which we track for both Simulated Gaming and real money iGaming operations.

 

GameSTACK forms the technical hub of our customers’ online gaming presence. The platform provides the foundational technology and back-office tools necessary for a successful consumer experience, including intuitive player account activation, sophisticated payment services, geolocation, marketing, loyalty management and real-time analytics and reporting. With the addition of Coolbet (see “Proposed Acquisition of Coolbet”), GAN’s capabilities will expand to include modern, nimble and powerful turnkey solutions optimized for the US online sports betting market. Once integrated into our platform offering, we believe that the acquisition of Coolbet will position GAN as the one of the most complete B2B vendors specialized in the US digital casino market. Our vision is to enable our customers to deliver highly differentiated end user entertainment experiences presently unachievable through third-party solutions.

 

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The core of the GameSTACK platform is its player account management system, in which highly sensitive customer and player activity data is stored and processed. This is the layer of any casino operator’s online technology deployment that becomes the focal point of regulatory licensure since it is the fortified vault of player data and privacy. We are the trusted custodian of player transactional data and have direct visibility into wagering activity, which allows us to deploy proprietary models to help our customers predict and identify, over time, their highest-value players. Our customers rely on our data models to best direct their retention marketing investments towards specific customer profiles, thereby optimizing player loyalty and player value.

 

GameSTACK also relies on a flexible integration services layer in order to integrate easily with other essential third-party systems, such as casino management systems, remote gaming servers and sports betting engines. We believe that GameSTACK has integrated all major casino management systems deployed by retail casino operators to manage their retail gaming operations in the U.S., including those offered by third party equipment manufacturers Aristocrat, IGT, Scientific Games and KONAMI. Additionally, as of September 30, 2020, GameSTACK has integrated eight remote gaming servers for operation in the U.S., each of which contains a selection of casino games that we distribute to our customers’ end users via websites and apps. Remote gaming servers integrated for the U.S. include IGT, NET Entertainment, Evolution Gaming (live dealer), Scientific Games, Everi, AGS, KONAMI and Spin Games. Additional integrations with High 5 remote gaming servers are currently underway, and we anticipate this content will be available for U.S. distribution in the near future. Finally, with respect to sports betting engines, GameSTACK has successfully integrated with IGT Sports, KAMBI and Amelco. We intend to offer our inhouse sports betting engine and risk management solution as an optional alternative to these third-party integrations upon integration of Coolbet’s technology into GameSTACK.

 

Between May 2018 and November 2020, 21 U.S. states enacted and approved some form of real money gaming legislation, with 14 of those states approving online sports betting or iGaming. Each state has unique regulatory and licensure requirements, and our ability to rapidly customize deployments and submit expeditiously for individual state gaming licensure has been a vital contributor to our success in the U.S. market. We enable our customers to deploy iGaming and online sportsbook offerings to their end users quickly, capturing valuable early-mover advantages in their relevant markets, such as for the anticipated launch in Michigan. We are presently licensed or approved to operate our real money iGaming platform in New Jersey, Pennsylvania, Indiana, West Virginia and Colorado, with licensing submissions completed in Michigan and Tennessee. Following the November 2020 election, three additional states (Louisiana, Maryland, South Dakota) legalized online sports betting and the Company is monitoring several additional states (Ohio, Massachusetts, New York) that currently have some legislative momentum for possible legalization in 2021. We plan to pursue licensure in these additional states in 2021 and beyond.

 

In addition to our growth opportunity within our existing core markets, we see a large and growing universe of additional potential new customers for GameSTACK in selected U.S. states that have formally passed online sports betting but have not yet implemented a regulatory framework for governing online real money iGaming in their states. For instance, we believe we have a significant opportunity to expand our installed base into states which have passed mobile-friendly sports betting laws and, in select cases such as Michigan, real money iGaming laws as well.

 

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GameSTACK may also be configured as a “super” remote gaming server, or “Super RGS,” and deployed on behalf of existing Internet casino operators (for example, in states such as New Jersey, Pennsylvania and Michigan) that are operating on their own proprietary or third party platform. Super RGS provides these operators with access to all of GAN’s current (and all future) remote gaming server integrations, as well as GAN’s proprietary library of more than 800 Internet casino games. Super RGS is significant because it creates a technical and commercial vehicle for us to deliver our proprietary casino content across the entirety of the relevant U.S. intrastate markets, and not just to the websites and mobile applications of GameSTACK clients. We believe that Super RGS will be particularly compelling for new market entrants seeking a single technical integration to be in position to launch a complete casino gaming content portfolio, in order to compete with major operators. When successfully commercialized, we believe that Super RGS will develop additional Gross Operator Revenue, as well as generate high margin content licensing revenues.

 

Because GameSTACK incorporates a range of proprietary technologies that we have purpose-built and optimized, over many years, for the U.S. market, we believe we are well positioned to capitalize on this market opportunity. Our vision is to become the preeminent infrastructure software vendor for iGaming and online sportsbooks focused on the U.S. market.

 

Proposed Acquisition of Coolbet

 

On November 15, 2020, we entered into a Share Exchange Agreement with Vincent Group p.l.c., a Malta public limited company doing business as “Coolbet.” Under the terms of the Share Exchange Agreement, we will acquire all of the outstanding equity in Coolbet in exchange for €149.1 million (approximately $175.9 million), which is expected to be paid in a combination of €80 million (approximately $94.4 million) in cash and €69.1 million (approximately $81.5 million) in GAN Limited ordinary shares, subject to adjustment as provided in the Share Exchange Agreement. The acquisition is expected to close in the first quarter of 2021, subject to regulatory review and the satisfaction of certain closing conditions.

 

Coolbet is an award-winning developer and operator of a legal online sports betting and casino platform which offers customers a digital portal for engaging in sports betting, online casino games and peer-to-peer poker. Coolbet operates a B2C (business to consumer) casino and sports-betting platform that is accessible for legal gambling via its website Coolbet.com in eight national markets across Northern Europe (Estonia, Finland, Iceland, Norway and Sweden), Latin America (Chile and Peru) and North America (Canada). Coolbet.com launched May 2016 and as of September 2020, had over 335,000 registered customers. Coolbet holds gambling licenses in Estonia, Malta and Sweden. Coolbet is headquartered in Tallinn, Estonia with approximately 175 employees worldwide.

 

Coolbet has won numerous awards since its founding, including from the International Gaming Association, which awarded them Start-Up of the year in 2017, Mobile Sports Product of the Year in 2018 and 2019. Additionally, they were awarded Best Bookmaker of the year in 2018 and 2019 from TIPS magazine, Norway’s oldest betting industry magazine.

 

We intend to take advantage of Coolbet’s award winning user interface and proprietary technical platform, to quickly integrate and offer a proprietary sportsbook offering to our land-based casino operators in the United States. GAN intends to continue to operate in the United States solely as a B2B provider to casino and other operators. The addition of a proprietary sports betting engine will give GAN the ability to offer a “one-stop” solution to its U.S. retail casino operators, while at the same time preserving the flexibility to incorporate third party solutions when specified.

 

The comprehensive product offering covering is expected to make GAN’s offering more competitive in the United States as it looks to secure new customers in established and newly opening markets. In instances where GAN will operate its proprietary sportsbook there is an opportunity to capture enhanced revenue shares, improving gross margins.

 

Similarly, we expect that our GameSTACK technology platform and expansive library of proprietary and third party gaming content will to add additional casino gaming content and platform support for Coolbet’s B2C (business to consumer) offering in Europe and Latin America.

 

iGaming and Online Sportsbook Industry Background

 

Our GameSTACK platform and related managed services are geared towards casino operators, with an emphasis on land-based commercial and tribal casinos in the U.S., although we have deployed our solutions in other geographies such as the U.K., Italy, and Australia. We also market our platform technology to gaming ecosystem partners, such as online sportsbooks and gaming content developers, who provide us with an indirect channel into casino operators.

 

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As of December 31, 2019, there were 989 casino operators in the U.S., of which 465 were commercial casinos and 524 were tribal casinos. According to the American Gaming Association, commercial casinos generated record gross operator revenue in 2019, reaching $43.6 billion, up 3.7% year-over-year compared to 2018.

 

On May 14, 2018, the Supreme Court of the United States overturned the Professional and Amateur Sports Protection Act (“PASPA”), which since 1992 had prevented U.S. states, aside from Nevada, Delaware and Oregon, from engaging in the regulation and taxation of sports betting activities at the intrastate level. The ruling paved the way for states to elect individually whether to allow for regulated sports betting and, by extension, real money iGaming within their borders. Prior to the Supreme Court of the United Sates overturning PASPA, U.S. casino operators were largely limited to retail slot and table gaming operations and, in the online channel, to simulated gaming operations offering no prospect for real money winnings. Between May 14, 2018 and November 20, 2020, 21 U.S. states, the District of Columbia and Puerto Rico enacted laws legalizing some form of retail and/or online sports betting. Four of these states also legalized real money iGaming, joining Nevada and Delaware, which were the only states with full scale online gambling regulations in place prior to May 2018.

 

Online sports betting deployment models can vary widely due to state-specific regulatory and licensing mandates. However, licensed casino operators with land-based retail facilities tend to partner with online sportsbook operators in order to accelerate online customer acquisition. These operators generally rely on a technology platform, such as GameSTACK, for player onboarding, player account management, payment processing and various back-office tools designed to maintain regulatory compliance and real-time reporting. Additionally, the technology ecosystem for online sportsbooks incorporates a sports betting engine for pricing, trade execution and risk management. iGaming implementations, whether real money or simulated, further necessitate a gaming content engine to dynamically serve casino gaming content such as digital slot and table games.

 

Online sports betting in the U.S. has experienced strong growth in the post-PASPA era. According to Eilers & Krejcik, the reported online sports betting handle in regulated states has grown from $2.1 billion in 2018 to $7.7 billion in 2019 and $8.6 billion in the nine months ended September 30, 2020. The total online sports betting handle for the three months ended September 30, 2020 was $4.8 billion, indicating that the full year 2020 will surpass $10.0 billion. Certain states with full-scale retail and internet (mobile and desktop) sports betting strategies, such as Pennsylvania, have exhibited particularly robust sports betting growth. For instance, Pennsylvania’s online handle has grown from $1.1 billion in its first year of regulation in 2019 to $1.8 billion in the nine months ended September 30, 2020, already growing 72% vs. the prior year period with the fourth quarter yet remaining. States with curtailed online sports betting regulations (e.g., requiring in-person registration or limiting online betting to on-premise only), are exhibiting more muted growth in sports betting handle.

 

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Real money iGaming in the U.S., while less pervasive than sports betting, is similarly demonstrating robust growth trends in post-PASPA deployments. Gross operator revenue from real money iGaming has grown from $301.3 million in 2018 to $525.6 million in 2019, a year-over-year growth rate of 74.4%. More recently, gross operator revenue of $1.3 billion for the nine-month period ending September 30, 2020 has already demonstrated 152.5% year over year growth, with the soon-to-be-closed fourth quarter expected to compound this growth even further. Prior to the COVID-19 pandemic, land-based casino gross operator revenue in the U.S. was growing in the low single-digit percentages. Now, as the U.S. continues to navigate the effects of the pandemic on the retail casino industry, we have observed both an acceleration of regulation of Internet gaming, such as demonstrated in the most recent November 2020 election, as well as a structural shift in the retail casino Industry, where the advent of Internet sports betting and the associated strong cross-sell into casino iGaming has positively altered the growth potential and is now ameliorating the decline in land-based casino revenue. In New Jersey, for example, total online sports betting and iGaming is on a growth path to exceed pre-COVID monthly retail casino gaming revenues within the 2021-2022 timeframe.

 

According to Eilers & Krejcik Gaming, the global Simulated Gaming market, defined as players who log in and use value of any kind in their account (simulated credits or real money), to play simulated casino games online for entertainment purposes only (as opposed to playing for the opportunity to win real money) is estimated to grow 17.4%, from $5.6 billion in 2019 to $6.6 billion in 2020. Simulated Gaming is more readily accessible nationwide than real money iGaming, which is presently restricted to states with legalized online gambling regulatory frameworks. Additionally, Simulated Gaming experienced a lift in 2020 as a result of the COVID-19 pandemic, with customers of the land-based casino industry migrating into related Simulated Gaming offerings. We estimate the U.S. market represents approximately 10% of the global Simulated Gaming market.

 

In order to monetize players both online and offline in a coherent manner, casino operators pursue omni-channel marketing strategies necessitating deep integration of hardware and software elements, including computing infrastructure, CRM, casino management system and loyalty program management. Because of the complexity in deploying and maintaining iGaming and online sports betting infrastructures, casino operators may rely on third-party managed service providers to stand up, operate and maintain all or part of the technology infrastructure.

 

With the acquisition of Coolbet, our scope of business will expand to include Nordic and Latin American B2C markets, which were estimated to be $3.2 billion and $2.0 billion in size in 2019, respectively. GAN will pursue several integration opportunities in those markets, including deploying its proprietary player account management technology and game library in support of Coolbet’s B2C operations, resulting in margin recapture opportunities.

 

Market Trends

 

States with full-scale online models and competitive markets are capturing the most revenue from sports betting

 

While sports betting has been rapidly adopted since PASPA was repealed, there is significant state-by-state variance in how sports betting is implemented and regulated. Some states (e.g. New York, Montana, Arkansas, and Mississippi) have legalized retail-based sports betting only, requiring betters to be physically present within operators’ facilities in order to wager on sports. Others (e.g., Iowa) have taken a progressive approach to statewide mobile betting, requiring bettors to physically register in-person at an operator facility before allowing online bets. Full-scale online models (e.g. New Jersey, Pennsylvania, Indiana, West Virginia, and Michigan) accept all account registration and funding requirements to be completed online and therefore allow bettors to place bets online anywhere and anytime within state borders. Friction points such as geofencing and in-person registration requirements are proving stifling to player engagement and ultimately, gaming tax revenue.

 

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States have also opened their local sports betting industries to varying degrees. At one end of the continuum (e.g. Oregon), state lotteries control the sports betting experience, operating their own sportsbooks and customer acquisition strategies; at the other end (e.g. New Jersey, and Pennsylvania), states are inviting open competition amongst casino operators, online sportsbooks and other participants. Open, competitive markets are demonstrating the highest sports handle growth rates.

 

We purpose-built GameSTACK to form the foundational layer of any U.S. full-scale iGaming and online sports betting deployment. We believe that, over time, states will recognize the inherent advantages of full-scale online models, driving greater adoption of that approach and therefore increasing the market opportunity for GameSTACK.

 

Consumers are displaying a strong preference for mobile engagement

 

A corollary to the success of the full-scale online sports betting model is bettors’ strong preference for mobile forms of engagement. In New Jersey, Illinois and Pennsylvania, over 90% of sports betting handle for the month of October 2020 originated on a digital consumer device. This is in stark contrast to mobile engagement levels in states requiring in-person registration, such as Rhode Island, where the share of online wagering is amongst the lowest in the country at approximately 30%.

 

In most of our deployments, we design our customers’ consumer-facing website and mobile applications. These front ends are the gateway to GameSTACK, which in addition to powering platform services for online sports betting, acts as a content management system serving compelling slot and table games in iGaming implementations.

 

Real money iGaming and online sportsbooks are proving synergistic in full-scale online deployments

 

GameSTACK supports real money iGaming and online sports betting in a unified environment, from a single Internet gaming account. In states authorizing both real money iGaming and online sports betting, casino operators leverage our platform to enable their players to fund a single account for both gaming avenues. According to our transactional data, we estimate that approximately 10% of players who initially sign up for a real money iGaming account subsequently use that same account to place bets on sports events with the same operator. Conversely, we are observing that approximately 30% of players who initially open online sports betting accounts subsequently use that same account to place wagers on casino games with the same operator.

 

We believe that growing adoption of online sports betting is driving incremental online casino gaming activity for casino operators, greatly increasing lifetime value of players. We further believe that our heritage in powering iGaming properties and our proven ability to scale up online sportsbooks are our most powerful differentiators.

 

Online sportsbooks from DFS leagues are dominating sports betting handle in states with online sports betting

 

Daily Fantasy Sports (“DFS”) leagues made substantial investments in building out player databases prior to the elimination of PASPA. Leading DFS companies have since launched branded online sportsbooks that leverage their existing DFS subscriber bases to acquire online sports betting customers. This customer acquisition strategy is giving DFS-related online sportsbooks a significant competitive advantage in capturing and retaining sports wagering market share. DraftKings Sportsbook and FanDuel Sportsbook, for instance, collectively control a dominant market share of sports wagers in nearly all jurisdictions in which they participate.

 

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A significant number of non-legacy DFS sportsbooks have entered or are planning on entering regulated markets in the US. These entrants are relying on various retail customer acquisition strategies to compete with the likes of DraftKings and FanDuel, generally leveraging media partnerships aimed at raising brand awareness and mitigating rising customer acquisition costs via long-term agreements. As a result, larger US regulated markets such as New Jersey, Pennsylvania and Colorado and others are characterized by highly fragmented sportsbook options albeit with a concentration of market share with the DFS-related sportsbooks.

 

In the US market, GAN will remain positioned as an independent B2B technology vendor capable of supporting a variety of iGaming and online sportsbook operators with an end-to-end platform. We believe the rapid entry of casino operators and online sportsbooks is favorable to GAN’s B2B strategy in the US. The Company has no plans to launch a B2C offering in the US subsequent to the acquisition of Coolbet.

 

Simulating iGaming remains strategically important in the U.S. in spite of the emergence of real money iGaming

 

In unregulated U.S. markets, Simulated Gaming provides casino operators with an alternative online monetization opportunity in anticipation of potential regulated real money iGaming and online sports betting approvals. In Simulated Gaming deployments, players buy time online for the entertainment value of playing casino games, without the opportunity to win real money. This is a ‘freemium’ business model, akin to myriad casual online videogames, wherein casino gaming enthusiasts purchase virtual chips/coins in order to virtually play traditional casino games such as slots and blackjack for the entertainment experience. These virtual casinos feature social gameplay, offering enthusiasts a way of playing their favorite casino games online while simultaneously allowing casino operators to lay the groundwork for their real money gaming presence.

 

In addition to providing immediate revenue generation opportunities for casino operators, Simulated Gaming acts as a powerful marketing vehicle for enhancing customer loyalty in retail casino properties. Casino patrons who also engage online with Simulated Gaming increase their visits to the retail casino as a consequence of also playing online. Simulated Gaming is a subset of our real money iGaming technology, leveraging a common code base with our real money iGaming offering. This allows us to pursue a land-and-expand strategy wherein we seek to deploy Simulated Gaming instances of GameSTACK prior to upgrading customers to real money iGaming and online sports betting.

 

The COVID pandemic has bolstered demand for the nascent U.S. online casino industry and Simulated Gaming.

 

iGaming and Simulated Gaming experienced substantial growth since the COVID outbreak began disrupting retail casino operations and the sports betting calendar in March 2020. Per Eilers & Krejcik the total U.S. online casino and poker gross gaming revenue (“GGR”) hit an all-time monthly high in October 2020 and is on course to generate 2020 run-rate GGR of $1.6 billion. In the March through May period, operators shifted promotional spend away from a negatively impacted online sports betting market to online casino and Simulated Gaming. A moderate downturn beginning in June coincides with the beginnings of sports betting normalization and resumption of land-based casino operations. As those markets further recover from their COVID-induced interruptions, the major boosts seen in iGaming and Simulated Gaming has started to subside, though record levels of revenue continue to be achieved. The U.S. is currently experiencing increased cases of COVID, and the disruptions seen earlier in the year may occur again as various states are starting to implement stay-at-home orders and other measures to contain the spread of the virus.

 

Our Platform and Services

 

Our overarching product strategy for GameSTACK is to provide a unified, flexible and highly scalable platform that can be rapidly licensed and deployed for Simulated Gaming, real money iGaming and online sports betting. In addition to our platform, we offer a range of professional and managed services designed to fast-track deployments and provide ongoing operational support following commercial launch.

 

Our Simulated Gaming and real money iGaming offerings share a common code base and user interface within GameSTACK, providing our Simulated Gaming customers with a readily accessible upgrade path to real money iGaming. In developing GameSTACK, we remained fully committed to building an evergreen and agile software architecture forged from a single code base, ensuring that developments in metagame mechanics, new back-office functionalities and integrations with leading third-party software could be used by our customers across all gameplay modalities. Importantly, we developed our code to operate in multiple jurisdictions and under different regulatory requirements, giving us the ability to leverage quickly different configurations to comply with newly regulated markets.

 

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Simulated Gaming

 

For Simulated Gaming implementations, we design the casino operator’s mobile application and website with a branded experience that is consistent with the casino operator’s brand and market positioning and streamlines player registration and account funding. We generally host our customers’ Simulated Gaming operations on a combination of proprietary and cloud servers. GameSTACK features a gaming content engine that serves both internally developed slot and table games as well as third-party gaming content via a technical ‘abstraction layer’ that permits third party games to be published to end user players via GameSTACK. Simulated Gaming deployments of GameSTACK allow casino operators to put their offers, games and unique brand experience in their players’ hands around the clock. GameSTACK incorporates our proprietary iSight Back Office tool (“iSight”), which captures online player activity, giving marketers the equivalent visibility of 100% rated play.

 

While engaging online through our Simulated Gaming offering, players receive “white glove” treatment using tools such as online chat hosts. The content management system within GameSTACK emphasizes social gameplay, while promoting slot and table game classics alongside new games from major slot machine manufacturers. While visiting our customers’ offline retail properties, players can be treated to exclusive rewards, loyalty points and in-casino amenities based on their online purchasing and activity within simulating iGaming (e.g. sign in 10 days in a row and make any online purchase in order to receive $25 worth of loyalty points redeemable in-casino). GameSTACK enables these omni-channel marketing strategies using our proprietary iBridge Framework (“iBridge”), which verifies whether a player is part of the existing loyalty database and, if the player does hold an operator’s club card, enables that player to see their in-casino comps, loyalty points and other offers via the online gaming website or mobile app which are stored in the casino management system and enabled by iBridge. The marketing costs associated with these player promotions redeemable on-property are borne in full by the retail casino operator.

 

In September 2020, the Company substantially augmented the Simulated Gaming deployment by adding a ‘simulated sports betting’ capability, launched on PlayJACK.com for JACK Entertainment, a leading casino operator in Ohio. With real money regulated Internet sports betting anticipated in 2021, this added product experience of sports betting, offered alongside simulated Internet casino gaming, has enabled JACK Entertainment to engage with sports betting enthusiasts online in Ohio substantially in advance of real money Internet sports betting being made available. Simulated sports betting is relevant to all clients of Simulated Gaming and will be rolled-out to additional clients in 2021 and beyond, as a demonstrable vehicle for acquiring sports betting enthusiasts online information substantially in advance of regulation of real money Internet sports betting.

 

Real Money iGaming

 

Our real money iGaming instances of GameSTACK augment our Simulated Gaming product to further incorporate more comprehensive player registration, account funding and back-office accounting and management tools. In the United States, real money iGaming applications must comply with the Unlawful Internet Gambling Enforcement Act of 2006 and with the federal Wire Act of 1961. Consequently, our real money iGaming customers must physically deploy our platform within their state’s borders, typically inside their retail casino premises in order to comply with intrastate regulatory mandates. Our customers generally procure the hardware computing resources on which our software is deployed inside of our customers’ data centers. Payment aggregation services within GameSTACK integrate with a wide range of third-party payment processors while simultaneously allowing operators to accept cash deposits onsite within their retail casino properties which are credited to the players online account.

 

GameSTACK provides operators with a high degree of flexibility to pursue the business model best aligned with their strategic priorities and regulatory environment. For instance, GameSTACK can accommodate geofencing in order to restricting online gaming activity to exclude players present within a customer’s physical retail casino premises (as required by regulation in Pennsylvania, for example).

 

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Online Sportsbook

 

For online sports betting applications, we integrate our real money iGaming version of GameSTACK with third-party services such as sports betting engines and the sportsbook operator’s user interface and user experience. To date, the Company has integrated sports betting engines for customers at their request, including IGT Sports, KAMBI and Amelco. The revenue from these services are recorded as part of real money iGaming revenue share.

 

Commencing in the fourth quarter of 2020, a technical integration between the sports betting engine of Coolbet and GameSTACK was commenced, with a view to offering Coolbet’s sports betting engine, at customer request, as an alternate to the existing engines already integrated by us. This new sports betting engine product offering will be made available to all existing customers operating Internet sports betting in existing operational States, as well as future States into which existing customers seek to expand.

 

Managed Services

 

We provide a range of term-based operational services to support our customers’ online gaming activities. Our tailored managed services include player customer support across email, phone and live chat, marketing agency services and network management with 24/7 uptime guarantee. We also provide custom game theme development services in select engagements where customers seek to differentiate with gaming content unique to a customer’s branded experience.

 

Non-US B2C

 

Upon closing of our acquisition of Coolbet, we will operate the B2C gaming site www.coolbet.com, which currently operates in selected Nordic and Latin American markets. The site offers sports betting, poker, casino, live casino and virtual sports. Coolbet.com is built on proprietary software, including a proprietary sportsbook engine and risk management tools, enabling Coolbet to offer a highly differentiated entertainment experience when compared to other B2C vendors who rely on third-party technology stacks. Because Coolbet predominantly relies on inhouse technology, Coolbet can rapidly enter new international markets with deeply local and tailormade content.

 

We believe Coolbet offers a differentiated B2C offering in those markets by compiling and offering superior betting odds and betting props, providing superior customer service and offering a user-friendly, data-driven online gaming site with a compelling user interface and user experience. Because Coolbet operates an affiliate-free customer acquisition model, we believe Coolbet has superior long-term profitability potential than generic B2C operators who rely heavily on affiliate programs featuring revenue share models. We believe this is borne out in Coolbet’s industry-leading retention rates, which exceed 80% historically, as well as attractive net gaming revenue return on marketing spend. Coolbet has received multiple awards, including the “2019 Mobile Sports Product of the Year” award from International Gaming Awards.

 

Super RGS

 

In August 2020, GAN soft-launched a new product offering branded ‘Super RGS’. This product delivers our market-leading portfolio of proprietary casino games, which includes both third party casino games developed inherently within our platform as well as aggregated content from multiple RGS providers, to internet gambling companies operating on a proprietary platform or a competing third-party platform. Super RGS is significant because it creates a technical and commercial vehicle for us to deliver our proprietary casino content across the entirety of the relevant U.S. intrastate markets, and not just to the websites and mobile applications of GameSTACK clients. The Super RGS includes GAN’s content library of over 800 casino games, is currently available in New Jersey and Pennsylvania and is being prepared for launch in Michigan upon commencement of that market.

 

Our Business Model

 

We designed our business model to align our incentives with those of our operator partners. During the implementation phase of a new deployment, we bill our customers for professional services provided. We may occasionally source and bill customers for third-party hardware in deployments where the hardware is either not directly procured by the customer or not preinstalled within the customer’s data center. Upon the successful deployment of GameSTACK, we generally provide ongoing managed services pursuant to term-based agreements. Unlike traditional on-premise enterprise software deployments, which feature licenses and maintenance contracts, we retain exclusive access to our source code and provide software updates on a continuing basis.

 

  -9-  

 

 

In addition to professional service fees, GAN (UK) Limited enters into revenue share agreements with our customers wherein we receive a percentage of the operator’s net gaming revenue generated on our platform. This percentage varies based on a range of factors, including the source of the operator revenue (iGaming versus online sports betting) and the source of the gaming content served to players on our platform (internally developed versus licensed from a third-party gaming developer).

 

Our Competitive Strengths

 

We believe we compete on the following bases:

 

  Optimized for the U.S. iGaming and Online Sportsbook Market: Since 2013, we have invested significant resources designing GameSTACK with a focus on serving the U.S. market for iGaming and online sports betting, including developing thousands of software optimizations for account management and U.S. payment aggregation. We believe our platform’s suitability for the U.S. market is evidenced by our market-leading transaction volumes in New Jersey and Pennsylvania, the two states at the forefront of the online betting industry in the U.S.

 

  Powerful turnkey capabilities delivering the most complete pure play B2B offering: We believe that the acquisition of Coolbet (see “Proposed Acquisition of Coolbet”), will expand GAN’s capabilities to provide a best-in-class turnkey solution for the U.S. online sports betting market. Once integrated into our platform offering, Coolbet will position GAN as one of the most complete B2B vendors specialized in the U.S. digital casino market. Our vision is to enable our customers to deliver highly differentiated end user entertainment experiences presently unachievable through third-party solutions. GAN also intends to remain a pure play B2B software provider in the U.S. market, and will not compete with its customers.
     
  Proven Track Record of Compliance with State-Specific Regulatory Mandates: In the U.S., we are licensed to operate GameSTACK in New Jersey, Pennsylvania, Indiana, West Virginia and Colorado, with licensing submissions completed in Michigan and Tennessee. We developed our code base to operate in multiple jurisdictions and under different regulatory requirements. Our code’s flexibility gives us the ability to refactor efficiently our software in order to adapt to the requirements of newly regulated markets. We intend to maintain our steadfast commitments to probity, compliance, strong regulatory relations and systems innovations in order to preserve this competitive advantage. In turn, we believe that our regulatory efforts help position our customers for success by enabling them to get to market rapidly with differentiated iGaming and online sportsbook offerings. In addition to our technological emphasis on compliance, we believe that our experienced management team, with years of experience navigating the U.S. regulatory landscape, is an important source of differentiation when engaging with potential new customers.

 

  Patent Protected Intellectual Property and Superior Data Analytics: We believe we are the only SaaS vendor capable of unifying our customers’ existing retail loyalty programs across online, as well as offline gameplay, by leveraging our patented iBridge technology. iBridge enables casino operators to treat patrons of their retail gambling establishments to exclusive rewards, loyalty points and other complimentary offers based on their online gaming activity on GameSTACK. We believe that this value proposition is a central consideration for any land-based casino operator concerned with maximizing the lifetime value of their players across both online and retail channels. Further to this, during the initial deployment phases of GameSTACK, we provide data analytics services to our customer’s marketing team in order to assist in early identification of the highest-value cohort of players. We believe that our transactional data lake, accumulated over a multi-year period in the U.S., represents a substantial long-term asset.

 

  iGaming content publishing and distribution: We believe that our ability to service real money iGaming markets with a mature gaming content engine is an important differentiator of our platform. Additionally, because we control the gaming content served on our platform, we have visibility into the slot and table games garnering the highest levels of engagement from players. We leverage these insights to inform our in-house game development decisions as well as our third-party game licensing decisions. We believe that our role as a distribution channel for iGaming content positions us well when seeking to maximize player engagement on behalf of our customers.

 

  -10-  

 

 

  Management Bench Strength: GAN has invested a portion of the IPO proceeds in expanding its leadership team. The recent additions of Chief Operating Officer, Don Ryan, Chief Legal Officer, Todd McTavish, and Senior Vice President of Sales, Marcus Yoder, adds extensive experience in the gaming industry as well as mergers and acquisitions. We believe the expanded team strengthens GAN’s ability to execute on its growth strategy.

 

Our Growth Strategy

 

    Key elements of our growth strategy include:
     
  Supporting our existing customers as they continue to scale up their respective iGaming and online sportsbook operations. Gross operator revenue generated on our technology platform in 2019 increased by 171.5% year-over-year to $315.8 million, up from $116.3 million in 2018, and by 112% to $413.2 million period-over-period for the first nine months of 2020, up from $194.9 million in 2019.As our customers’ online businesses continue to grow, we intend to deploy the necessary internal resources to support their evolving requirements. We will, for instance, continue to invest in the GameSTACK platform’s functionality by expanding our gaming content library and third-party integrations, and will move expeditiously to obtain regulatory approvals to operate in new states our existing customers do not yet operate in. Furthermore, we will continue to engage our Simulated Gaming installed base in pursuit of opportunities to upgrade these customers to real money iGaming customers as the regulatory environment develops.
     
  Securing new casino operator customers in existing and new regulated markets. We continuously engage with casino operators in states that have yet to adopt regulated forms of real money iGaming and online sports betting. We intend to engage these new customers with our Simulated Gaming offering, creating a path to real money iGaming deployments over time. In states with regulated online gambling markets, we are investing in sales and marketing initiatives to aggressively pursue new deployment opportunities, including the Super RGS content offering. This offering creates a technical and commercial vehicle for us to deliver our proprietary casino content across the entirety of the relevant U.S. intrastate markets, and not just to the websites and mobile applications of GameSTACK clients. When successfully commercialized, we believe that Super RGS will develop additional Gross Operator Revenue, as well as generate high margin content licensing revenues.
     
  Expanding our gaming content development capabilities. In addition to distributing online facsimiles of third-party physical machine-based slots and table games via GameSTACK, we publish proprietary casino games that we display in both our simulated and real money iGaming online environments. Our margin retention rates generated from proprietary content are higher than margin retention rates from third-party content. We will invest in our gaming development capabilities in order to expand our library of high-quality, in-house content, which we will strategically serve within GameSTACK to optimize our margin profile.
     
  Growing our international business. In addition to our focus on the U.S. market through B2B opportunities, we intend to expand in regulated markets primarily in Europe, Latin America and Australia through both B2B and B2C opportunities. The pending acquisition of Coolbet, which has been operating a B2C model at scale in Northern Europe and Latin America, provides us with a fast-growing international strategy, incremental to our existing international market activity. We currently provide our GameSTACK platform and services in relation to real money iGaming in Italy, which comprised 14.1% of total revenues for the nine months ended September 30, 2020. We expect our Italian business to continue to grow as we onboard additional operators and through our existing revenue share agreements. We also deliver Simulated Gaming to an operator in Australia as a precursor to potential legalization of Australian real money iGaming. Additionally, we are exploring selected Latin American regulated markets for potential expansion. With the addition of Coolbet’s Nordic and Latin American B2C activities, we expect to continue to grow our international business.

 

  -11-  

 

 

  Selective merger & acquisition and commercial licensing strategy. We intend to pursue a prudent inorganic growth strategy aimed at strengthening and expanding our competitive position in the markets where we compete. The proposed Coolbet acquisition will substantially complete the U.S. B2B offering. However, we will continue to pursue opportunities to acquire selective elements of the iGaming ecosystem as well as a myriad of content assets to bolster our product offerings, both through commercial licensing as well as acquisition.

 

Risk Factor Summary

 

Our business is subject to a number of risks of which you should be aware before making an investment decision. You should carefully consider all of the information set forth in this prospectus and, in particular, should evaluate the specific factors set forth under “Risk Factors” in deciding whether to invest in our shares. Among these important risks are the following:

 

Risks Related to the GAN Business

 

  Changes in Regulations: Laws, regulations and taxation in the gambling sector are complex, inconsistent and evolving. We license our products to operators in the online gaming industry whose ability to operate in any jurisdiction may be impacted by changes in regulations. Even in markets where we are currently licensed, there can be no guarantee that a jurisdiction will not change its licensing requirements nor that revenue streams that currently do not require a license will continue without additional regulations or additional taxation or that further states will regulate online real money iGaming. In addition, new tax legislation in any of the markets in which we operate could negatively impact our results.
     
  Licensing Requirements: In newly regulated markets, new licensing regimes may impose licensing conditions, such as the requirement to locate significant technical infrastructure within the relevant territory or establish real-time data interfaces with the regulator, which may present operational challenges or may stop our customers from being able to offer the full range of our products. Additionally, we hold a number of licenses for our activities from regulators. The loss of all or any of these licenses may adversely impact our revenues and/or reputation.
     
  Dependence on Technology: Our operations are highly dependent on technology and advanced information systems and there is a risk that such technology or systems could fail. We may be adversely affected by activities such as system intrusions, denial of service attacks, virus spreading and phishing. Technological failures can affect our reputation with our operator customers, players, as well as regulators in the various markets in which we operate.
     
  Competition: The online gambling market is highly competitive. The ability to gain new end users and retain them as loyal, active customers can prove difficult in an industry with such wide competition. Failure to compete effectively for customers may result in a decrease in market share as well as a loss of licensees and also the inability to attract new licensees.
     
  Fraud: We experience efforts to conduct fraud using customer accounts such as deposits from stolen credit cards and debit cards. Fraudulent activity can damage our Company’s reputation, our product’s reputation, as well as increase our liability if we do not have sufficient procedures in place to reduce and limit these occurrences. Any damage to our reputation can affect our ability to obtain licenses and regulatory approvals in our existing markets, as well our ability to expand into new markets.

 

  Operating Results: Since our inception, we have typically operated at a loss. At September 30, 2020 we had an accumulated deficit of $32.1 million. For the year ended December 31, 2018 we incurred a net loss of $7.7 million. The year ended December 31, 2019 was the first time in recent years that our revenues were sufficient to meet our operating expenses, and we generated net income of $1.8 million. For the first nine months of 2020, our net loss was $12.4 million, primarily due to costs associated with the IPO, as well as investments in product, technology, infrastructure and U.S. public company compliance. If we incur a significant reduction in revenue, or continue to invest at current levels without experiencing revenue growth, we could continue to operate at a loss.

 

  -12-  

 

 

  Key Personnel: Our future success depends on the continued service of senior management and key technical personnel, the retention of whom cannot be guaranteed. Loss of these individuals could negatively affect our reputation and ability expand in new markets and to new customers. In addition, the loss of key personnel could result in additional operating losses or regulatory issues if not properly addressed.
     
 

COVID 19: The impact of COVID-19 on the business remains uncertain. The closing of casinos could drive more revenue to online iGaming offerings. However, the economic disruption or uncertainty caused by COVID-19 and a possible reduction in consumer discretionary spending may cause a general decline in gambling and iGaming. In addition, the cancellation of sporting events as result of COVID-19 restrictions may reduce sporting events and hence sports betting transaction volumes and sports related revenue. The reduction of sporting events in particular may have a material adverse impact on their operating results as would a general decline in consumer discretionary spending should COVID-19 lead to widespread economic challenges in the countries where Coolbet operates.

 

Risks Related to the Coolbet Acquisition

 

 

Synergies and Integration: We may not obtain all of the benefits or recognize all of the synergies we anticipate from the Coolbet acquisition. We are acquiring Coolbet because we believe that the combination of our companies will result in a stronger competitive company with diversified revenue streams and a more complete platform offering for our customers. However, we may encounter unanticipated events which could keep us from recognizing the benefits we anticipate from the acquisition. We plan to integrate our technical platforms, including the addition of the Coolbet sports betting engine into our GameSTACK platform. We may encounter unanticipated difficulties in that integration work, which could result in unanticipated costs of integration, delays in releasing products or limitations on product performance, any of which could harm our business. We intend to retain the Coolbet management, engineering and sales teams. However, we cannot be certain that we will be able to retain key management and employee resources following the closing of the acquisition. Coolbet’s operations are divided in multiple offices, with employees of diverse backgrounds and business cultures, and we cannot be assured that all of the employees be integrated effectively and that we can operate as effectively across a larger geographic and human scale. The loss of management and employee talent could result in a loss of collective knowledge and experience in our business, increase our operating costs as we seek to replace that talent, and adversely affect our ability to successfully conduct our business.

     
  Increased Regulatory Exposure: The Coolbet acquisition will result in operations in a number of additional jurisdictions and will greatly expand the combined company’s regulatory compliance obligations. We currently operate under gaming licenses with various states in the United States as well as in the U.K. Coolbet holds gaming licenses in Malta, Estonia and Sweden. Coolbet also operates in a number of currently unregulated jurisdictions. The acquisition will significantly expand both the regulated markets and unregulated markets where we conduct operations.

 

  B2C Business Model: Coolbet operates a B2C business model, and the integration of the new business, may make it more difficult for us to forecast our financial results, and may negatively impact how investors review our results or prospects. GAN’s revenues are driven by its simulated and real money iGaming revenues generated on a B2B basis with casino operators, primarily in the United States. Coolbet’s revenues are generated primarily from its B2C sportsbook operations primarily in Northern Europe.  Following the consummation of the Coolbet acquisition, we have a new business model, and new offerings, including a sports betting technology platform, and an expanded base of customers and markets. Accordingly, it will be more difficult for us to forecast our future financial results.
     
 

No assurance the Coolbet acquisition will be Consummated: We may fail to consummate the Coolbet acquisition or may not consummate it on the terms described herein. We intend to consummate the Coolbet acquisition as soon as practical and in no event later than March 15, 2021. The closing of the acquisition is subject to the receipt of regulatory approvals and other customary closing conditions. Additionally, if we don’t complete this offering or an alternative financing transaction, we would have to pay a termination fee of €2.0 million ($2.4 million) and we will be required to pay costs relating to the acquisition, such as legal, accounting, financial advisory and printing fees, whether or not the acquisition is consummated. Finally, time and resources committed by our management to matters relating to the acquisition could have otherwise have been devoted to pursuing other beneficial opportunities.

 

Risks Related to the Coolbet Business

 

  Presence in Unregulated Markets: Coolbet currently generates a significant portion of its revenues in markets that are currently unregulated including Norway and Latin America.  Those markets, or other markets where Coolbet may operate in the future could adopt regulations requiring registration and regulatory compliance, which may increase costs, reduce net gaming revenue or require Coolbet to cease operations depending on the range of unforeseen possible changes to the statutes governing online gambling in the international markets in which Coolbet currently operates.
     
  Regulatory Compliance, including Malta License: During 2020, Coolbet shifted its licensing arrangements so that it uses the Malta license in connection with its operations in otherwise unregulated markets. Accordingly for the three-month period ended September 30, 2020, 87% of Coolbet’s revenues were generated on the Malta license.  If the Malta Gaming Authority were to suspend, limit or terminate the Coolbet’s gaming license it could have a substantial negative impact on Coolbet’s revenues and financial position. Coolbet secured its gaming licenses from the Malta Gaming Authority in 2019. Coolbet’s regulatory compliance systems and procedures were audited in connection with the issuance of the gaming license.  However, no subsequent compliance audits have been conducted. Because of the relatively short period of time that Coolbet has held the Malta gaming license and the limited review of its operations, there may be an increased possibility that any upcoming compliance audits would identify regulatory compliance violations within the ongoing operations covered by the Maltese license.

 

Regulatory compliance with gaming authorities is a complex and expensive process. Due to the increased number of jurisdictions in which we will operate, as well as additional jurisdictions which may pass laws authorizing and requiring licensure to operate iGaming or sports betting, we may experience delays in the licensing application and approval process due to the volume of application materials we will be required to prepare and submit and the number of jurisdictions for which information is required.

 

May 2020 Completion of U.S. IPO and Reorganization with GAN plc

 

On May 5, 2020, GAN Limited completed a share exchange and reorganization pursuant to a scheme of arrangement whereby the shareholders of the previous parent, GAN plc agreed to exchange their shares, on a basis of four ordinary shares to one ordinary share, for shares in GAN Limited, plus a pro rata portion of an aggregate £2 million or 2.32 pence per share in cash. After the reorganization, GAN plc was renamed GAN (UK) Limited and became a wholly-owned subsidiary of GAN Limited.

 

On May 7, 2020, GAN Limited completed its U.S. IPO under which it sold an aggregate of 7,337,000 ordinary shares at a price per share to the public of $8.50 and raised gross proceeds of $62.4 million (net proceeds of $55.3 million).

 

Corporate Information

 

Our principal executive offices are located at 400 Spectrum Center Drive, Suite 1900, Irvine, CA 92618. Our web address is www.GAN.com. We do not incorporate the information on our website into this prospectus and you should not consider any such information that can be accessed through our website as part of this prospectus.

 

Emerging Growth Company

 

We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and the requirement to present only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations in the registration statement of which this prospectus forms a part. We are currently utilizing or intend to utilize both of these exemptions. We have not made a decision whether to take advantage of any other exemptions available to emerging growth companies. We do not know if some investors will find our ordinary shares less attractive as a result of our utilization of these or other exemptions. The result may be a less active trading market for our ordinary shares and our share price may be more volatile.

 

  -13-  

 

 

In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards if its financial statements are prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). In other words, such an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We prepare our consolidated financial statements in accordance with International Financial Reporting Standards and International Accounting Standards and Interpretations as issued by the International Accounting Standards Board, which do not have separate provisions for publicly traded and private companies. However, when we become a U.S. domestic registrant, beginning on January 1, 2021, and required to report in U.S. GAAP, while we are still an “emerging growth company”, we may take advantage of the benefits of this extended transition period.

 

We will remain an “emerging growth company” until the earliest of (a) the last day of the first fiscal year in which our annual gross revenues exceed $1.07 billion, (b) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our ordinary shares that are held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, (c) the date on which we have issued more than $1.0 billion in nonconvertible debt during the preceding three-year period or (d) the last day of our fiscal year containing the fifth anniversary of the date on which our shares become publicly traded in the United States (i.e., December 31, 2025).

 

  -14-  

 

 

THE OFFERING

 

The following summary is provided solely for convenience and is not intended to be complete. You should read the full text and more specific details contained elsewhere in this prospectus.

 

Ordinary shares offered by us

5,855,158 ordinary shares

 

Ordinary shares offered by selling shareholders

 

383,500 ordinary shares

 

Underwriter’s over-allotment option

We have granted to the underwriter an option to purchase up to an additional 935,798 ordinary shares to cover over-allotments, which is exercisable at any time within 30 days after the date of this prospectus.

 

Ordinary shares to be outstanding

after this offering

35,689,668 ordinary shares, or 36,625,466 ordinary shares if the underwriter exercises its over-allotment option, in full.*
   
Use of proceeds

We estimate that the net proceeds from the sale of ordinary shares in this offering will be approximately $85.1 million (or approximately $98.8 million if the underwriter exercise its over-allotment option in full), based on the public offering price of $15.50 per share, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

 

 

We intend to use the net proceeds from this offering to fund the cash portion of the purchase price payable to the Coolbet shareholders pursuant to the Share Exchange Agreement with Coolbet, and if any remaining for related transaction fees and expenses, and then for working capital and general corporate purposes, including sales and marketing activities, product development and capital expenditures. For a more complete discussion of our intended use of the net proceeds of this offering, see “Use of Proceeds” and “Proposed Acquisition of Coolbet.”

 

 

We will not receive any proceeds from the sale of shares by the selling shareholders.

 

Lock-up agreements

We and the selling shareholders have agreed with the underwriter, subject to certain exceptions, not to offer, sell, or dispose of any of our ordinary shares or securities convertible into or exchangeable or exercisable for any of our ordinary shares during the 90-day period following the date of this prospectus, subject to certain exceptions. Members of our Board of Directors and our executive officers, have agreed to substantially similar lock-up provisions, subject to certain exceptions.

 

Risk factors

Investing in our ordinary shares involves a high degree of risk. See “Risk Factors” in this prospectus for a discussion of factors you should carefully consider before investing in our ordinary shares.

 

Nasdaq Capital Market symbol “GAN”

 

*The number of ordinary shares shown above to be outstanding after this offering is based on 29,671,010 shares outstanding as of September 30, 2020, and includes 163,500 ordinary shares to be issued upon the exercise by selling shareholders of options at the closing of this offering. This number of ordinary shares excludes:

 

  2,976,151 ordinary shares issuable upon the exercise of outstanding options, with a weighted average exercise price of $7.79 per share; and
     
 

139,055 ordinary shares available for future issuance under our 2020 Equity Incentive Plan as of September 30, 2020.

 

Except as otherwise indicated in this prospectus, information in this prospectus assumes no exercise by the underwriter of its option to purchase additional shares in this offering.

 

  -15-  

 

 

SUMMARY HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA

  

You should read the following information together with the more detailed information contained in “Selected Historical Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the accompanying notes thereto appearing elsewhere in this prospectus. The following tables set forth our summary historical consolidated financial data as of the dates and for the periods indicated below. The summary historical consolidated financial data as of and for the years ended December 31, 2019 and 2018 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The summary historical consolidated financial data as of September 30, 2020 and for the nine months ended September 30, 2020 and 2019 have been derived from our unaudited consolidated financial statements included elsewhere in this prospectus. In the opinion of our management, the unaudited consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements and include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of our financial information set forth in those statements. Results for the interim period are not necessarily indicative of results that should be expected for the full year or any other period. The historical results presented below are not necessarily indicative of financial results to be achieved in future periods.

 

    Nine Months Ended
September 30,
    Year Ended
December 31,
 
    2020     2019     2019     2018  
   

(Unaudited)

   

 

 
    (dollars in thousands, except per share data)  
Consolidated statements of operations data:                                
Revenue   $ 26,259     $ 19,280     $ 29,971     $ 14,023  
Cost of revenue     9,338       10,177       11,356       11,894  
Impairment of intangible assets     -       -       626       -  
Gross profit     16,921       9,103       17,989       2,129  
Administrative expenses     28,553       9,860       15,091       10,230  
Impairment of financial assets     (13 )     286       424       95  
Total operating expenses     28,540       10,146       15,515       10,325  
Operating income (loss)     (11,619 )     (1,043 )     2,474       (8,196 )
Net finance costs     454       93       112       440  
Income (loss) before taxes     (12,073 )     (1,136 )     2,362       (8,636 )
Income tax expense (benefit)     312       409       574       (934 )
Net Income (loss) attributable to equity holders   $ (12,385 )   $ (1,545 )   $ 1,788     $ (7,702 )
Net Income (loss) per share attributable to ordinary shareholders, basic and diluted(1)   $ (0.48 )   $ (0.07 )   $ 0.08     $ (0.39 )
Weighted average shares attributable to ordinary shareholders, basic(1)     25,782,776       21,349,572       21,367,948       19,646,502  
Weighted average shares attributable to ordinary shareholders, diluted(1)     25,782,776       21,349,572       23,420,361       19,646,502  

 

  -16-  

 

 

    At September 30,     At December 31,  
    2020     2019     2018  
   

(Unaudited)

 

 

 

 
    (dollars in thousands)  
Consolidated statements of financial position data:                        
Cash and cash equivalents   $ 57,489     $ 10,098     $ 6,967  
Working capital (2)     54,997       8,777       4,113  
Total assets     78,019       26,112       22,613  
Total liabilities     15,573       11,010       10,648  
Total equity     62,446       15,102       11,965  

 

(1) All share amounts and per share amounts have been adjusted to give effect to the share exchange. Refer to Note 2 to our audited consolidated financial statements and Note 12 to our unaudited condensed consolidated financial statements
   
(2)  Working capital is defined as total current assets minus total current liabilities.

 

Non-IFRS Measures

 

Our management uses several financial measures, both IFRS and non-IFRS (adjusted EBITDA), in analyzing and assessing the overall performance of the business and for making operational decisions. Our annual financial plan is prepared on both an IFRS and adjusted EBITDA basis, both of which are approved by our Board of Directors. Our management and the Board of Directors utilize both our IFRS and adjusted EBITDA measures in a number of ways, including: to facilitate our determination of our allocation of resources, to measure our actual performance against budgeted and forecasted financial plans and to establish and measure management’s compensation. We believe that adjusted EBITDA is also useful to investors and other users of our consolidated financial statements in evaluating our performance because adjusted EBITDA may be used as an additional tool to compare business performance across peer companies and across periods.

 

While we use adjusted EBITDA as a tool to enhance our understanding of certain aspects of our financial performance, we do not believe that adjusted EBITDA is a substitute for, or is superior to, the information provided by IFRS results. As such, the presentation of adjusted EBITDA is not intended to be considered in isolation or as a substitute for any measure prepared in accordance with IFRS. The primary limitations associated with the use of adjusted EBITDA as compared to IFRS results are that adjusted EBITDA may not be comparable to similarly titled measures used by other companies in our industry and that adjusted EBITDA may exclude financial information that some investors may consider important in evaluating our performance. We compensate for these limitations by providing disclosure of the differences between adjusted EBITDA and IFRS results, including providing a reconciliation of adjusted EBITDA to IFRS results, in order to enable investors to perform their own analysis of our operating results.

 

  -17-  

 

 

Adjusted EBITDA

 

Adjusted EBITDA is a non-IFRS Company specific measure which reflects our net income (loss) attributable to equity holders before finance costs, taxes, depreciation, and amortization (“EBITDA”) as well as, share-based payment expenses and related expense, impairment of intangible assets, IPO-related costs and other items which our Board of Directors considers to be infrequent or unusual in nature. We believe Adjusted EBITDA is useful to our management as a measure of comparative operating performance from period to period as it is reflective of changes in operating performance, and it removes the effect of items not directly resulting from our core operations. Our management also uses Adjusted EBITDA as a means of assessing our core business performance against other in the industries, because it eliminates some of the effects that are generated by differences in capital structure, depreciation, tax effects and infrequent or unusual events. We caution that amounts presented in accordance with our definitions of Adjusted EBITDA may not be comparable to similar measures disclosed by other companies, because not all companies and analysts calculate Adjusted EBITDA in the same manner. Below is a reconciliation of net income (loss) attributable to equity holders to Adjusted EBITDA as presented in the Consolidated Statements of Comprehensive Income (Loss) for periods indicated:

 

    Nine Months Ended September 30,     Year Ended
December 31,
 
    2020     2019     2019     2018  
   

(Unaudited)
(dollars in thousands)

 
Net income (loss) attributable to equity holders   $ (12,385 )   $ (1,545 )   $ 1,788     $ (7,702 )
Add Back:                                
Net finance costs     454       93       112       440  
Income tax expense (benefit)     312       409       574       (934 )
Depreciation expense     610       627       638       1,062  
Amortization expense     2,166       3,264       4,105       5,126  
EBITDA   $ (8,843 )   $ 2,848     $ 7,217     $ (2,008 )
Share-based payment and related expense     9,503       392       551       346  
Impairment of intangible assets     -       -       626       -  
IPO transaction related     2,831       -       -       -  
Tax related provisions     939       -       -       -  
Adjusted EBITDA   $ 4,430     $ 3,240     $ 8,394     $ (1,662 )

 

Key Performance Indicators

 

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

 

   

Nine Months Ended

September 30,

    Year Ended
December 31,
 
    2020     2019     2019     2018  
                               
Active Player - Days     22,142,718       15,472,429       24,472,179       14,342,219  
Gross Operator Revenue   $ 413,330,689     $ 194,923,054     $ 315,757,701     $ 116,330,350  
Average Revenue per Daily Active User (US$)   $ 18.67     $ 12.60     $ 12.90     $ 8.11  

 

Active Player – Days

 

We define Active Player-Days as unique individuals who log on and wager each day (either wagering with real money or ‘playing’ with virtual credits used in simulated iGaming, aggregated during the respective period. By way of illustrative example: One (1) unique individual logging in and wagering each day in a single calendar year would, in aggregate, represent 365 Active Player-Days. Active Player - Days provides an indicator of consistent and daily interaction that individuals have with our platforms. Active Player – Days allows management and users to understand not only total users who interact with the platform but gives an idea of the frequency to which users are interacting with the platform, as someone who logs on and gambles multiple days are weighted heavier during the period than the user who only logs on and wagers one day.

 

  -18-  

 

 

Gross operator revenue

 

We define gross operator revenue as the sum of our corporate customers’ gross revenue from simulated iGaming, gross gaming revenue from real money regulated iGaming, and gross sports win from real money regulated sports betting. Gross operator revenue, which is not comparable to financial information in conformity with IFRS, gives management and users an indication of the extent of transactions that have passed through their platforms and allows management to understand the extent of activity that the company’s platform is processing.

 

Average Revenue per Daily Active User

 

We define Average Revenue per Daily Active User (“ARPDAU”) as gross operator revenue divided by the identified number of Active Player - Days. This measure 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 the Company’s platforms.

 

  -19-  

 

 

RISK FACTORS

 

Investing in our ordinary shares involves a high degree of risk. You should carefully consider the risks and information below and elsewhere in this prospectus, including our consolidated financial statements and the related notes thereto, before making an investment decision. We describe below risks that we currently believe are the material risks of our business, our industry, this offering, and our ordinary shares. These are not the only risks we face; we are subject to risks that are currently unknown to us, or that we may currently believe are remote or immaterial. If any of these risks or events occurs, our business, financial condition and operating results could be harmed. In that case, the trading price of our ordinary shares could decline, and you might lose all or part of your investment in our ordinary shares.

 

Risks Related to Our Business

 

We have incurred net losses in the past with negative cash flows and may not be able to generate and sustain profitability.

 

Since our inception, we have typically operated at a loss. At September 30, 2020 we had an accumulated deficit of $32.1 million. For the year ended December 31, 2018 we incurred a net loss of $7.7 million. The year ended December 31, 2019 was the first time in recent years that our revenues were sufficient to meet our operating expenses, and we generated net income of $1.8 million. For the nine months ended September 30, 2020, we incurred a net loss of $12.4 million (including $2.8 million in expenses associated with our initial public offering in the United States which closed in May 2020).

 

A significant portion of our operating expenses are fixed. We anticipate, due to increased administrative expenses associated with our US listing and related regulations, as well as our planned acquisition of Coolbet we will again operate at a loss. Additional losses would impair our liquidity and may require us to raise additional capital or to curtail certain of our operations in an effort to preserve capital. Incurring additional losses could also erode investor confidence in our ability to manage our business effectively and result in a decline in the price of our ordinary shares.

 

Our sales cycles require significant time and effort and are therefore difficult to predict accurately.

 

Our sales efforts to attract new customers requires substantial time and effort, and we cannot assure you that we will be successful in establishing new relationships or maintaining or advancing our current relationships. Many of our customers typically require one or more internal levels of approval before they can purchase our products and services. As a result, during our sales efforts, we must identify multiple people involved in the purchasing decision and devote a sufficient amount of time to presenting our products and services to those individuals. The breadth of our offerings often requires us to spend substantial time and effort assisting potential customers in evaluating our products and services, including providing demonstrations and benchmarking against other available offerings. This process can be costly and time consuming, and we often do not know if any given sales efforts will be successful until the latter stages of those efforts. Additionally, if we are unable to forecast market demand and conditions, we may not be able to expand our sales efforts at appropriate times and our revenue and related results of operations could be materially adversely affected.

 

We operate in a rapidly evolving industry and if we fail to successfully develop, market or sell new products or adopt new technology platforms, it could materially adversely affect our results of operations and financial condition.

 

Our GameSTACK platform and other software products compete in a market characterized by rapid technological advances, evolving standards in software technology and frequent new product introductions and enhancements that may render existing products and services obsolete. Competitors are continuously upgrading their product offerings with new features, functions and gaming content. In addition, we continuously refine our software and technology platform to address regulatory changes in the markets in which we operate or plan to operate. In order to remain competitive, we will need to continuously modify and enhance our technology platform and service offerings.

 

We cannot assure you that we will be able to respond to rapid technological changes in our industry. In addition, the introduction of new products or updated versions of existing products has inherent risks, including, but not limited to, risks concerning:

 

  product quality, including the possibility of software defects, which could result in claims against us or the inability to sell our software products;
     
  the accuracy of our estimates of customer demand, and the fit of the new products and features with a customer’s needs;
     
  the need to educate our sales, marketing and services personnel to work with the new products and features, which may strain our resources and lengthen sales cycles;
     
  market acceptance of initial product releases; and
     
  competitor product introductions or regulatory changes that render our new products obsolete.

 

We cannot assure you that we will be successful in making the transition to new technology platforms for our products in the future. We may encounter errors resulting from a significant rewrite of the software code for our products or may be unable to complete the transition in a timely manner. In addition, as we transition to newer technology platforms for our products, our customers may encounter difficulties in the upgrade process, which could cause them to lose revenue or review their alternatives with a competing supplier.

 

Because we commit substantial resources to developing new software products and services, if the markets for these new products or services do not develop as anticipated, or demand for our products and services in these markets does not materialize or materializes later than we expect, we will have expended substantial resources and capital without realizing sufficient offsetting or resulting revenue, and our business and operating results could be materially adversely affected. Developing, enhancing and localizing software is expensive, and the investment in product development may involve a long payback cycle. Our future plans include significant additional investments in development of our software and other intellectual property. We believe that we must continue to dedicate a significant amount of resources to our development efforts to maintain our competitive position. However, we may not receive significant revenue from these investments for several years, if at all. In addition, as we or our competitors introduce new or enhanced products, the demand for our products, particularly older versions of our products may decline.

 

  -20-  

 

 

We have historically relied on a small number of customers for a substantial portion of our revenues.

 

For the year ended December 31, 2019, our largest customer, FanDuel Group, Inc. (“FanDuel”) accounted for 46.3% of our revenue. A second customer, WinStar Casino (“WinStar”), represented 19.8% of our 2019 revenue. For the nine months ended September 30, 2020, FanDuel and WinStar represented 45.0% and 5.2% of our revenues, respectively.

 

Our business strategy encompasses securing a diverse customer base including attempting to expand the amount of business with our current customers and expand into new customer accounts as we enter new geographic markets, particularly in the U.S. However, we operate in a dynamic industry, in which regulatory restrictions and enabling technologies are changing rapidly. As such, certain of our customers may experience more rapid growth than other customers, resulting in a concentration of revenue from time to time in one or a few significant customers. The risk of customer concentration will be more pronounced as we look to expand our revenues from a smaller base. This risk is further increased with the current macroeconomic event driven by the COVID-19 virus.

 

At any time that we experience significant customer concentration, the loss of a key customer, for any reason, would have a significant impact on our revenues, our ability to fund operating expenses, and our financial position. In addition, the loss of a material customers could significantly decrease our market share and harm our reputation which could affect our ability to grow and take advantage of new markets, access resulting data from such markets, and secure funding to invest into development of new products.

 

In 2020, FanDuel provided notice to us that it was deploying its own proprietary digital wallet for its sports gaming business, and therefore was migrating away from our digital wallet technology. Accordingly, sports gaming revenues from FanDuel ceased on August 31, 2020. For the year ended December 31, 2019 and for the nine months ended September 30, 2020, GAN derived revenues of $3.0 million and $2.6 million from FanDuel’s sports betting operations, respectively.

 

FanDuel’s migration of its sports betting operations does not affect our revenue share of FanDuel’s real money iGaming operations. Our agreement with FanDuel provides that we will be the exclusive provider of their casino gaming operations for the initial three years following a launch date. Following that exclusivity period, FanDuel will have the right to use other casino gaming solutions, subject to a requirement to pay us revenue share of a minimum percentage of their net gaming revenue from real money iGaming operations.

 

The online gaming industry is highly competitive, and if we fail to compete effectively we could experience price reductions, reduced margins or loss of market share.

 

The online gaming industry is highly competitive. A number of companies offer products that are similar to our products and target the same markets as we do. Certain of our current and potential competitors have longer operating histories, significantly greater financial, technical and marketing resources, greater name recognition, broader or more integrated product offerings, larger technical staffs and a larger installed customer base than we do. These competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements, develop superior products, and devote greater resources to the development, promotion and sale of their products than we can.

 

  -21-  

 

 

Because of the rapid growth of our industry, and the relatively low capital barriers to entry in the software industry, we expect additional competition from other established and emerging companies. Some of our customers are land-based casinos that use our GameSTACK platform for rapid access to the online iGaming and sports betting markets. As these customers become more experienced or successful they may look to develop their own proprietary solutions or may look more aggressively at competing platforms. Additionally, our competitors could combine or merge to become more formidable competitors or may adapt more quickly than we can to new technologies, evolving industry trends and changing customer requirements. If we fail to compete effectively, (a) we could be compelled to reduce prices in order to be competitive, which could reduce margins and profitability, or (b) we would lose market shares any of which could materially adversely affect our strategy, our business, results of operations and financial condition.

 

Our revenue share model is predicated on customers continuing to license our products. If existing customers do not continue, or expand, the use of our products or services, our results of operations could be materially adversely affected.

 

We generate revenues under contracts with our customers that contemplate ongoing revenue sharing arrangements. The success of our business depends on our ability to retain our existing installed base of customers and to increase the scale of gaming and transactions that they run on our platform. We may experience the loss of a customer if the customer determines to close its operations, elects to develop its own online platform, or elects to contract with one of our competitors.

 

If our customers terminate their license agreements with us, we will incur a reduction in revenues unless we are able to secure new customers in amounts sufficient to offset the loss. The sales cycle for our platform can be long, and there are no assurances that we will be able to rapidly replace the loss of a significant customer. A substantial portion of our expenses are fixed, and a loss of revenue would have a material adverse impact on our profitability and our financial position.

 

A reduction in discretionary consumer spending, from an economic downturn or disruption of financial markets or other factors, could negatively impact our financial performance.

 

We generate the majority of our revenues based on revenue sharing arrangements with the casino operators that license our GameSTACK and other iGaming and sports betting products. In addition, we earn revenue from commission charged or tournament entry fees where the player has concluded his or her participation in a tournament. This aligns our interests in helping our casino operators increase their revenues, giving us an incentive in converting new customers and retaining existing customers to ensure that total revenue earned through our platform continues to grow for both parties.

 

  -22-  

 

 

Gaming and other leisure activities that our customers offer represent discretionary expenditures and players’ participation in those activities may decline if discretionary consumer spending declines, including during economic downturns, when consumers generally earn less disposable income. Changes in discretionary consumer spending or consumer preferences are driven by factors beyond our control, such as:

 

  perceived or actual general economic conditions;
     
  fears of recession and changes in consumer confidence in the economy;
     
  high energy, fuel and other commodity costs;
     
  the potential for bank failures or other financial crises;
     
  a soft job market;
     
  an actual or perceived decrease in disposable consumer income and wealth;
     
  increases in taxes, including gaming taxes or fees; and
     
  terrorist attacks or other global events.

 

During periods of economic contraction, our revenues may decrease while most of our costs remain fixed and some costs even increase, resulting in decreased earnings.

 

We face the risk of fraud, theft, and cheating.

 

We face the risk that players may attempt or commit fraud or theft or cheat in order to increase winnings. Such risks include stolen credit or charge cards and hacked or stolen customer accounts. Failure to discover such acts or schemes in a timely manner could result in losses in our operations. Negative publicity related to such acts or schemes could have an adverse effect on our reputation, potentially causing a material adverse effect on our business.

 

We face cyber security risks that could result in damage to our reputation and/or subject us to fines, payment of damages, lawsuits and restrictions on our use of data.

 

We rely extensively on computer systems to process transactions, maintain information and manage our businesses. In addition, our business involves the collection, storage, processing, and transmission of end users’ personal data, including financial information and information about how they interact with our games and platform. We have built our reputation, in part, on the sophistication and security of our payment and financial processing.

 

Our information systems and data, including those we maintain with our third-party service providers, may be subject to cyber security breaches in the future. Computer programmers and hackers may be able to penetrate our network security and misappropriate, copy or pirate our confidential information or that of third parties, create system disruptions or cause interruptions or shutdowns of our internal systems and services. Our website may become subject to denial of service attacks, where a website is bombarded with information requests eventually causing the website to overload, resulting in a delay or disruption of service. Computer programmers and hackers also may be able to develop and deploy viruses, worms and other malicious software programs that attack our products or otherwise exploit any security vulnerabilities of our products. Also, there is a growing trend of advanced persistent threats being launched by organized and coordinated groups against corporate networks to breach security for malicious purposes.

 

  -23-  

 

 

The techniques used to obtain unauthorized, improper, or illegal access to our systems, our data or customers’ data, disable or degrade service, or sabotage systems are constantly evolving and have become increasingly complex and sophisticated, may be difficult to detect quickly, and often are not recognized or detected until after they have been launched. Although we have developed systems and processes designed to protect our data and customer data and to prevent data loss and other security breaches and expect to continue to expend significant resources to bolster these protections, there can be no assurance that these security measures will provide absolute security.

 

Disruptions in the availability of our computer systems, through cyber-attacks or otherwise, could damage our computer or telecommunications systems, impact our ability to service our customers, adversely affect our operations and the results of operations, and have an adverse effect on our reputation. The costs to us to eliminate or alleviate security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant, and the efforts to address these problems could result in interruptions, delays, cessation of service and loss of existing or potential customers and may impede our sales, distribution and other critical functions. We may also be subject regulatory penalties and litigation by customers and other parties whose information has been compromised, all of which could have a material adverse effect on our business, results of operations and cash flows.

 

Systems failures and resulting interruptions in the availability of our websites, applications, products, or services could harm our business.

 

Our systems may experience service interruptions or degradation because of hardware and software defects or malfunctions, distributed denial-of-service and other cyberattacks, human error, earthquakes, hurricanes, floods, fires, and other natural disasters, power losses, disruptions in telecommunications services, fraud, military or political conflicts, terrorist attacks, computer viruses or other malware, or other events. Some of our systems are not fully redundant, and our disaster recovery planning may not be sufficient for all eventualities. In addition, as a provider of payments solutions, we are subject to heightened scrutiny by regulators that may require specific business continuity, resiliency and disaster recovery plans, and more rigorous testing of such plans, which may be costly and time-consuming and may divert our resources from other business priorities.

 

A prolonged interruption in the availability or reduction in the availability, speed, or functionality of our products and services will result in a loss of revenue and could materially harm our business. Frequent or persistent interruptions in our services could cause current or potential customers to believe that our systems are unreliable, leading them to switch to our competitors or to avoid or reduce the use of our products and services, and could permanently harm our reputation and brands. Moreover, if any system failure or similar event results in damages to our customers or their business partners, these customers or partners could seek significant compensation or contractual penalties from us for their losses, and those claims, even if unsuccessful, would likely be time-consuming and costly for us to address.

 

The full-time availability and expeditious delivery of our products and services is a critical part of our solution offering to our consumers. We continually refine our GameSTACK platform, implementing system upgrades and re-platforming efforts designed to improve our reliability and speed. Despite network security, disaster recovery and systems management measures in place, we may encounter unexpected general systems outages or failures that may affect our ability to conduct development activities, provide maintenance services for our products, manage our contractual arrangements, accurately and efficiently maintain our books and records, record our transactions, provide critical information to our management and prepare our consolidated financial statements. Additionally, these unexpected systems outages or failures may require additional personnel and financial resources, disrupt our business or cause delays in the reporting of our financial results. We may also be required to modify, enhance, upgrade or implement new systems, procedures and controls to reflect changes in our business or technological advancements, which could cause us to incur additional costs and require additional management attention, placing burdens on our internal resources.

 

  -24-  

 

 

We also rely on facilities, components, and services supplied by third parties, including data center facilities and cloud storage services. If these third parties cease to provide the facilities or services, experience operational interference or disruptions, breach their agreements with us, fail to perform their obligations and meet our expectations, or experience a cybersecurity incident, our operations could be disrupted or otherwise negatively affected, which could result in customer dissatisfaction and damage to our reputation and brands, and materially and adversely affect our business. We do not carry business interruption insurance sufficient to compensate us for all losses that may result from interruptions in our service as a result of systems failures and similar events.

 

Our business strategy anticipates substantial growth, and if we fail to adequately scale product offerings and manage our entry into new territories, our business and reputation may be harmed.

 

A core element of our business strategy is to grow with our existing customer base, attempting to capture a larger share of a dynamic and growing iGaming and sports betting market. We will be required to add infrastructure, expand our systems and harden our control processes to accommodate this increased scale. In addition, we intend to expand our operations into new markets in the United States as they implement regulations approving iGaming and sports betting. That geographic expansion will require us to comply with additional regulatory regimes, secure licenses and permits, build additional equipment and maintain human resources to service customers in those markets.

 

Our growth has placed, and is expected to continue to place, a significant strain on our managerial, administrative, operational and financial resources and our infrastructure. Our future success will depend, in part, upon the ability of our senior management to manage growth effectively. This will require us to, among other things:

 

  implement additional management information systems;
     
  further develop our operating, administrative, legal, financial and accounting systems and controls;
     
  hire additional personnel;
     
  develop additional levels of management within our company;
     
  locate additional office space in various countries; and
     
  maintain close coordination among our engineering, operations, legal, finance, sales and marketing and customer service and support organizations.

 

Failure to accomplish any of these requirements could adversely affect our ability to deliver our product and service offerings in a timely fashion, fulfill existing customer commitments or attract and retain new customers.

 

Our business plan includes the evaluation and potential integration of acquisitions, which if not done successfully could adversely affect our operating results and result in charges to earnings, impairing our financial condition.

 

We may look to acquire additional software technologies, platforms or gaming content through strategic transactions. Acquisitions involve numerous risks, any of which could harm our business, including:

 

  difficulties in integrating the operations, technologies, services and personnel of acquired businesses;
     
  cultural challenges associated with integrating employees from an acquired company into our organization;

 

  -25-  

 

 

  ineffectiveness or incompatibility of acquired technologies or services;
     
  additional financing required to complete acquisitions;
     
  potential loss of key employees of acquired businesses;
     
  inability to maintain the key business relationships and the reputations of acquired businesses;
     
  diversion of management’s attention from other business concerns;
     
  inability to maintain our standards, controls, procedures and policies;
     
  litigation for activities of the acquired company, including claims from terminated employees, customers, former shareholders or other third parties;
     
  in the case of acquisitions made across multiple geographic areas, the need to integrate operations across different cultures and languages and to address the particular economic, currency, political and regulatory risks associated with specific countries;
     
  failure to successfully further develop the acquired technology; and
     
  increased fixed costs.

 

We will incur costs in connection with executing any acquisition strategy, including the time of our management and employees as wells as amounts to professional service firms and advisers during the evaluation of possible acquisition targets. All fees relating to our acquisition strategy are expensed as incurred, whether or not we complete the acquisition. We may also record a significant amount of other charges to our operating results that are directly related to our acquisitions, including those acquisitions that are deemed to be operationally or strategically successful, including: the amortization of intangible assets acquired; charges to our operating results due to the accounting for contingent payments made in connection with acquisitions; costs incurred to combine the operations of companies we acquire, such as employee retention, redeployment or relocation expenses; charges to our operating results to eliminate certain duplicative pre-acquisition activities, to restructure our combined operations or to reduce our cost structure; charges to our operating results due to changes in deferred tax asset valuation allowances and liabilities related to uncertain tax positions after the measurement period of any given acquisition has ended; and charges to our operating results due to the expensing of certain equity awards assumed in an acquisition.

 

The accounting for acquisitions requires consideration paid, assets, and liabilities to be stated at their acquisition date fair value, which generally results in an increase being recorded to the historic value of net assets, including recording the fair value of acquired assets such as identified intangible assets and goodwill, and also including a reduction in the value of acquired deferred revenue. The increased value of net assets generally results in lower post-acquisition earnings when compared to the pre-acquisition earnings of the acquired businesses as a result of the increased amortization costs. These costs, when and if recorded, could be material and could differ substantially from similar costs recorded in prior years. In addition, intangible assets and goodwill periodically required to be evaluated for impairment which can result in charges against earnings.

 

For more information regarding risk factors related to the probable acquisition of Coolbet, see “- Risks Related to Probable Acquisition” and “- Risks Related to the Coolbet Business” below.

 

  -26-  

 

 

We rely on relationships with third party content partners for a significant portion of our revenue.

 

We currently license intellectual property rights from third-party software providers for inclusion in our online games and content offerings. We license these rights to provide our customers with access to online version of popular casino-based games, reduce our development costs, to expand our content offerings and to shorten our time to market with new products and solutions. Our business model is predicated on sharing revenue with our casino operators. If we were to lose access to popular game titles and content, our casino operators may experience a decline in wagering, reducing their revenue and ours. We could be compelled to pay higher prices for licenses, or increased expenses in an effort our own proprietary content, but there are no guarantees that we would be successful in either approach. The loss of compelling content could also make our solution and product offering less competitive, and our operator customers may look for alternative vendors with access to different content.

 

In addition, a significant portion of customers are introduced to us by our network of content manufacturer partners. These content manufacturer partners include casino equipment manufacturers and casino gaming content designers which do not manufacture physical gaming equipment. We may experience difficulty in maintaining or establishing third-party relationships with our content manufacturer partners. If we are unable to maintain good relations with our content manufacturer partners, our ability to organically grow our business could be harmed, which may materially adversely affect operating results and financial condition. Additionally, we are exposed to the risk that the content manufacturer partners through which we indirectly promote our products and services will not devote sufficient time, attention and resources to learning our products, markets and potential customers and may promote and sell competing products and services.

 

We have business operations located in many countries and a significant level of operations outside of the U.S., which subjects us to additional costs and risks that could adversely affect our operating results.

 

A significant portion of our operations are located outside of the U.S. In addition to customer bases in Italy and Australia, we have software development centers in the United Kingdom and Bulgaria, which account for most of our software development personnel.

 

Compliance with international and U.S. laws and regulations that apply to our international operations increases our cost of doing business. As a result of our international operations, we are subject to a variety of risks and challenges in managing an organization operating in various countries, including those related to:

 

  challenges caused by distance as well as language and cultural differences;
     
  general economic conditions in each country or region;
     
  regulatory changes;
     
  political unrest, terrorism and the potential for other hostilities;
     
  public health risks, particularly in areas in which we have significant operations;
     
  longer payment cycles and difficulties in collecting accounts receivable;
     
  overlapping or changes in tax regimes;
     
  difficulties in transferring funds from certain countries;
     
  laws such as the U.K. Bribery Act 2010 and the U.S. Foreign Corrupt Practices Act, and local laws which also prohibit corrupt payments to governmental officials; and
     
  reduced protection for intellectual property rights in some countries.

 

  -27-  

 

 

If we are unable to expand or adequately staff and manage our existing development operations located outside of the U.S., we may not realize, in whole or in part, the anticipated benefits from these initiatives (including lower development expenses), which in turn could materially adversely affect our business, financial condition, and results of operations.

 

Our results of operations may be adversely affected by fluctuations in currency values.

 

The majority of our revenue is transacted in the U.S. Dollar and the Euro, and we incur the majority of our costs in the British Pound, U.S. Dollar, and the Euro, and to a lesser extent in other currencies. Changes in the relative value of major currencies, particularly the U.S. Dollar as compared to each of the Euro and the British pound, may significantly affect our operating results. In fiscal 2019, 69.5% and 15.3% of our revenue were transacted in U.S. Dollars and Euros, respectively; and in fiscal 2019, 47.2%, 34.0%, and 9.6% of our expenses were transacted in British Pounds, U.S. Dollars, and Euros, respectively. For the nine months ended September 30, 2020, 84.8% and 14.1% of our revenues were transacted in U.S. Dollars and Euros, respectively; and for the nine months ended September 30, 2020, 28.9%, 54.4%, and 7.4% of our expenses were transacted in British Pounds, U.S. Dollars, and Euros, respectively. We anticipate a relative increase in the percentage of our revenues transacted in currencies other than U.S. Dollars following our probable acquisition of Coolbet.

 

As we have a large amount of our Euro-denominated transactions associated with revenue, a devaluation of the euro relative to the U.S. Dollar would adversely affect our results of operations reported in U.S. Dollars. As the transactions in British pounds are primarily expenses, a decline of the U.S. Dollar relative to the British pound would negatively impact our results of operations reported in U.S. Dollars. We also maintain intercompany trade balances and cash balances that are subject to currency remeasurement, and for which a change in currency exchanges rates between U.S. Dollars, Euros, British Pounds, Bulgarian Lev, Israeli Shekel and Australian Dollar could result in an adverse charge being recorded to our income statement. Our currency remeasurement gains and losses are charged against earnings in the period incurred.

 

If we are unable to protect our intellectual property and proprietary rights, our competitive position and our business could be materially adversely affected.

 

We regard the protection of our developed technologies and intellectual property rights as an important element of our business operations and crucial to our success. In particular, we view our iBridge technology and the ability to allow our customers to link their customers online and casino-based loyalty programs as a competitive differentiation. Unauthorized use of our intellectual property and proprietary rights may reduce our revenue, devalue our brands and property and harm our reputation.

 

  -28-  

 

 

We rely primarily on a combination of patent laws, trademark laws, copyright laws, trade secrets, confidentiality procedures and contractual provisions to protect our proprietary technology. As of September 30, 2020, we held one issued U.S. patent (patent number 8,821,296 dated September 2, 2014) with multiple claims within that single patent. The failure of our patent, or our reliance upon copyright and trade secret laws to adequately protect our technology, might make it easier for our competitors to offer similar products or technologies. In addition, patents may not be issued for any of our current or any future applications.

 

We generally require our employees, consultants and advisors to enter into confidentiality agreements. These agreements provide that all confidential information developed or made known to the individual during the course of the individual’s relationship with us is to be kept confidential and not disclosed to third parties except under specific circumstances. In the case of our employees, the agreements provide that all of the technology which is conceived by the individual during the course of employment is our exclusive property. The development of our technology and many of our processes are dependent upon the knowledge, experience and skills of key technical personnel.

 

Monitoring unauthorized use of our intellectual property is difficult and costly. Our efforts to protect our proprietary rights may not be adequate to prevent misappropriation of our intellectual property. Further, we may not be able to detect unauthorized use of, or take appropriate steps to enforce, our intellectual property rights. The laws of many countries, including countries where we conduct business, do not protect our proprietary rights to as great an extent as do the laws of the United States and European countries. Further, the laws in the United States and elsewhere change rapidly, and any future changes could materially adversely affect us and our intellectual property.

 

We may in the future need to initiate infringement claims or litigation. Litigation, whether we are a plaintiff or a defendant, can be expensive, time-consuming and may divert the efforts of our technical staff and managerial personnel, which could harm our business, whether or not such litigation results in a determination favorable to us. In addition, litigation is inherently uncertain, and thus we may not be able to stop our competitors from infringing upon our intellectual property rights.

 

We face the risk that third parties will claim that we infringe on their intellectual property rights, which could result in costly license fees or expensive litigation.

 

The iGaming and sports betting industries are subject to rapid technological change and we and a number of our competitors are developing technology and intellectual property that we believe is unique and provides us with a commercial advantage. While we respect third parties’ intellectual property rights and have procedures designed to avoid the inadvertent use of third-party intellectual property, we may face claims in the future that the products or solutions that we develop, or those provided to us by third parties or used by our customers, infringe on third parties’ intellectual property rights.

 

We may face claims from our competitors that our products infringe upon their intellectual property rights. Some of our competitors have substantially greater resources than we do and are able to sustain the costs of complex intellectual property litigation to a greater degree and for longer periods of time than we could. In addition, patent holding companies that focus solely on extracting royalties and settlements by enforcing patent rights may target us.

 

Any such claim may seek to prohibit our use of the third party’s intellectual property rights or may require us to we obtain licenses from the holders of the patents or other intellectual property rights. We cannot assure you that we will be able to obtain any such licenses on commercially favorable terms, or at all. If we do not obtain such licenses, we could, for example, be required to cease or materially alter our product offerings and our business, operating results and financial condition could be materially adversely affected.

 

  -29-  

 

 

Future litigation may be necessary to defend ourselves, our customers or our partners by determining the scope, enforceability and validity of third-party proprietary rights or to establish our proprietary rights. Regardless of whether the infringement claims have any merit, defense of intellectual property litigation is time-consuming, costly to evaluate and defend, and could:

 

  adversely affect our relationships with our current or future customers or partners;
     
  cause delays or stoppages in providing new sales of our products;
     
  cause us to have to cease use of certain technology or products
     
  require technology changes that would cause us to incur substantial cost;
     
  require us to enter into royalty or licensing agreements on unfavorable terms; and
     
  divert management’s attention and resources.

 

In addition, many of our contracts provide our customers or partners with indemnification with respect to their use of our intellectual property. We cannot predict whether any existing or future third-party intellectual property rights would require us to alter our technologies, obtain licenses or cease certain activities.

 

  -30-  

 

 

We face risks related to health epidemics and other widespread outbreaks of contagious disease, which could disrupt our operations and impact our operating results.

 

Significant outbreaks of contagious diseases, and other adverse public health developments, could have a material impact on our business operations and operating results.

 

The impact of COVID-19 on our business is ongoing. Although our business has proven resilient during the pandemic (for example, with closures of land-based casinos driving more revenue to our online iGaming offerings), it is uncertain whether this trend will continue, as the economic disruption and uncertainty caused by COVID-19 may cause a general decline in gambling and iGaming over time. In addition, the cancellation of 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 activity on our platforms, which would negatively impact our business.

 

We continue to monitor the global spread of COVID-19 and have put in place and will continue to put in place measures as appropriate and necessary for our business. Any prolonged deviations from normal daily operations could negatively impact our business. Additionally, any prolonged disruption of our content providers, customers, players or regulatory reviewers could delay regulatory approvals or conclusions related to new products or the finalization of new contracts entered into by us.

 

Risks Related to Regulation

 

GAN’s offerings are part of new and evolving industries, which presents significant uncertainty and business risks.

 

The online gaming and interactive entertainment industries are relatively new and continue to evolve. Whether these industries grow and whether our business will ultimately succeed, will be affected by, among other things, developments in social networks, mobile platforms, legal and regulatory developments (such as passing new laws or regulations or extending existing laws or regulations to online gaming and related activities), taxation of gaming activities, data and information privacy, anti-money laundering and ‘know your customer’ laws and regulations, and payment processing laws and regulations, and other factors that we are unable to predict and which are beyond our control.

 

Given the dynamic evolution of these industries, it can be difficult to plan strategically, including as it relates to product launches in new or existing jurisdictions which may be delayed or denied, and it is possible that competitors will be more successful than GAN at adapting to change and pursuing business opportunities. Additionally, as the online gaming industry advances, including with respect to regulation in new and existing jurisdictions, we will become subject to additional compliance-related costs, including regulatory infractions, licensing and taxes. Consequently, we cannot provide assurance that our online and interactive offerings will grow at the rates expected or be successful in the long term. If our product offerings do not obtain popularity or maintain popularity, or if they fail to grow in a manner that meets our expectations, or if we cannot offer our product offerings in particular jurisdictions that may be material to our business, then our results of operations and financial condition could be harmed.

 

The online gaming industry is heavily regulated and GAN’s failure to obtain or maintain applicable licensure or approvals, or otherwise comply with applicable requirements, could be disruptive to our business and could adversely affect our operations.

 

Our company, officers, directors, major shareholders, key employees and business partners are generally subject to the laws and regulations relating to online gaming of the jurisdictions in which we conduct business, as well as the general laws and regulations that apply to all e-commerce businesses, such as those related to privacy and personal information, tax and consumer protection. These laws and regulations vary from one jurisdiction to another and future legislative and regulatory action, court decisions or other governmental action, which may be affected by, among other things, political pressures, attitudes and climates, as well as personal biases, may have a material impact on our operations and financial results. In particular, some jurisdictions have introduced regulations attempting to restrict or prohibit online gaming, while others have taken the position that online gaming should be licensed and regulated and have adopted or are in the process of considering legislation to enable that to happen. Even where a jurisdiction purports to license and regulate online gaming, the licensing and regulatory regimes can vary considerably in terms of their business-friendliness and at times may be intended to provide incumbent operators with advantages over new licensees. As such, some “liberalized” regulatory regimes are considerably more commercially attractive than others.

 

  -31-  

 

 

Regulatory regimes imposed upon gaming providers vary by jurisdiction. Typically, however, most regulatory regimes include the following elements:

 

  the opportunity to apply for one or more gaming licenses for one or more categories of products, whether as part of a general round of license issuance (for example, Spain) or as and when the applicant chooses to apply;
     
  a requirement for gaming license applicants to make detailed and extensive disclosures as to their beneficial ownership, their source of funds, the probity and integrity of certain persons associated with the applicant, the applicant’s management competence and structure and business plans, the applicant’s proposed geographical territories of operation and the applicant’s ability to operate a gaming business in a socially responsible manner in compliance with applicable laws and regulations;
     
  interviews and assessments by the relevant gaming authority intended to inform a regulatory determination of the suitability of applicants for gaming licenses;
     
 

assessments by the relevant gaming authority intended to inform a regulatory determination of the continued suitability of gaming license holders;

     
  ongoing reporting and disclosure obligations, both on a periodic and ad hoc basis in response to material issues affecting the business;
     
  the testing and certification of software and systems, generally designed to confirm such things as the fairness of the gaming products offered by the business, their genuine randomness and ability accurately to generate settlement instructions and recover from outages;
     
  the need to account for applicable gaming duties and other taxes and levies, such as fees or contributions to bodies that organize the sports on which bets are offered, as well as contributions to the prevention and treatment of problem gaming; and
     
  social responsibility obligations.

 

As previously disclosed, the U.K. Gambling Commission performed compliance assessment to our U.K. online, direct-to-consumer gaming operation in 2018 and 2019 and in January 2020 the Gambling Commission initiated a review of our U.K. operating license. The Gambling Commission determined the company failed to comply with certain license conditions and codes of practice. The review was concluded and the settlement with the Gambling Commission resulted in the imposition of additional license conditions and the company agreed to pay a total of £146,754 to National Strategy to Reduce Gambling Harms in connection with the resolution of the compliance assessment.

 

  -32-  

 

 

Although, we have taken, and will continue to take, steps to strengthen GAN’s compliance with its regulatory obligations in the U.K. and other jurisdictions globally, we cannot predict the outcome of any current or future regulatory review. The loss of a gaming license in one jurisdiction could trigger the loss of, or affect our eligibility for, a gaming license in another jurisdiction. Any such losses, or the potential for such loss, could cause us to have to cease offering some or all of our product offerings in the affected jurisdictions.

 

We may be unable to obtain or maintain all necessary registrations, licenses, permits or approvals, and could incur fines or experience delays related to the licensing process, and once a gaming license is granted violations of any gaming related requirements could result in the revocation of a gaming license, the imposition of fines, conditions, or limitations, all of which could adversely affect our operations and financial viability.

 

The determination of suitability process may be expensive and time-consuming. Our delay or failure to obtain gaming licenses in any jurisdiction may prevent us from distributing our product offerings, increasing our customer base and/or generating revenues. A gaming regulatory bodies have broad discretion in determining whether to grant, or not to grant, a gaming license and/or whether to impose conditions or limitations upon such gaming license.

 

Further, once the company has been granted a gaming license, it is necessary for the company to comply with the applicable statutory and/or regulatory requirements, policy directives, and license conditions and/or limitations. Failure to comply with any of such, could result in a gaming regulator bringing a disciplinary action against the company. Such disciplinary action could range from the imposition of fines, further conditions or limitations imposed upon the gaming license, to the revocation of previously granted gaming licenses. The imposition of any such disciplinary actions could adversely affect the company’s operations in that jurisdiction and its financial viability. Further, the disciplinary action in one jurisdiction could result in separate disciplinary action being brought by another gaming regulator, which could further adversely affect the company’s operations in those jurisdictions and its financial viability.

 

Our product offerings must be approved in most regulated jurisdictions in which they are offered; this process cannot be assured or guaranteed.

 

If we fail to obtain the necessary gaming license in a given jurisdiction, we would likely be prohibited from distributing and providing its product offerings in that particular jurisdiction altogether. If we fail to seek, do not receive, or receive a suspension or revocation of a license in a particular jurisdiction for our product offerings (including any related technology and software) then we cannot offer the same in that jurisdiction and our gaming licenses in other jurisdictions may be impacted. Furthermore, some jurisdictions require license holders to obtain government approval before engaging in some transactions, such as business combinations, reorganizations, stock offerings and repurchases. We may not be able to obtain all necessary gaming licenses in a timely manner, or at all. Delays in regulatory approvals or failure to obtain such approvals may also serve as a barrier to entry to the market for our product offerings. If we are unable to overcome the barriers to entry, it will materially affect our results of operations and future prospects.

 

  -33-  

 

 

To the extent new online gaming jurisdictions are established or expanded, we cannot guarantee we will be successful in penetrating such new jurisdictions or expanding our business or customer base in line with the growth of existing jurisdictions. As we directly or indirectly enter into new markets, we may encounter legal, regulatory and political challenges that are difficult or impossible to foresee and which could result in an unforeseen adverse impact on planned revenues or costs associated with the new market opportunity. If we are unable to effectively develop and operate directly or indirectly within these new markets or if our competitors are able to successfully penetrate geographic markets that we cannot access or where we face other restrictions, then our business, operating results and financial condition could be impaired. Our failure to obtain or maintain the necessary regulatory approvals in jurisdictions, whether individually or collectively, would have a material adverse effect on our business.

 

Compliance with evolving data privacy regulations may cause us to incur additional expenses, and any violation could result in damage to our reputation and/or subject us to fines, payment of damages, lawsuits and restrictions on our use of data.

 

We collect and process information relating to our employees, our customer operators, our customers’ end user players, and others for various business purposes, including payment processing, marketing and promotional purposes. The collection and use of personal data are governed by privacy laws and regulations enacted by the various states, the United States and other jurisdictions around the world. Privacy laws and regulations continue to evolve and on occasion may be inconsistent between jurisdictions. Various federal, state and foreign legislative or regulatory bodies may enact or adopt new or additional laws and regulations concerning privacy, data retention, data transfer, and data protection. For example, the European Union has adopted a data protection regulation known as the General Data Protection Regulation, which became fully enforceable in May 2018, that includes operational and compliance requirements with significant penalties for non-compliance. In addition, California has enacted a new privacy law, known as the California Consumer Privacy Act of 2018, which became effective in 2020 and provides some of the strongest privacy requirements in the United States.

 

We are subject to risks related to corporate social responsibility, responsible gaming, reputation and ethical conduct.

 

Many factors influence our reputation and the value of our brands, including the perception held by our customers, business partners, investors, other key stakeholders and the communities in which we operate, such as our social responsibility, corporate governance and responsible gaming practices. We have faced, and will likely continue to face, increased scrutiny related to social, governance and responsible gaming activities, and our reputation and the value of our brands can be materially adversely harmed if we fail to act responsibly in a number of areas, such as diversity and inclusion, workplace conduct, responsible gaming, human rights, philanthropy and support for local communities. Any harm to our reputation could impact employee engagement and retention, and the willingness of customers and partners to do business with us, which could have a materially adverse effect on our business, results of operations and cash flows.

 

We believe that our reputation is critical to our role as a leader in the online and gaming industries and as a publicly traded company. Our Board has adopted a Code of Business Conduct as well as other related policies and procedures, and management is heavily focused on the integrity of our directors, officers, senior management, employees, other personnel and third-party suppliers and partners. Illegal, unethical or fraudulent activities perpetrated by any of such individuals, suppliers or partners for personal gain could expose us to potential reputational damage and financial loss.

 

  -34-  

 

 

Compliance with applicable privacy laws and regulations may increase our operating costs and/or adversely impact our ability to provide and market our products, properties and services. In addition, non-compliance with applicable privacy laws and regulations by us (or in some circumstances non-compliance by third parties engaged by us), including accidental loss, inadvertent disclosure, unapproved dissemination or a breach of security on systems storing our data may result in damage to our reputation and/or subject us to fines, payment of damages, lawsuits or restrictions on our use or transfer of data. We rely on proprietary and commercially available systems, software, and tools to provide security for processing of customer and employee information, such as payment card and other confidential or proprietary information. Our data security measures are reviewed and evaluated regularly; however, they might not protect us against increasingly sophisticated and aggressive threats including, but not limited to, computer malware, viruses, hacking and phishing attacks by third parties.

 

Any violation of the Bank Secrecy Act or other similar anti-money laundering laws and regulations could have a negative impact on us.

 

Our operations are subject to various reporting and anti-money laundering (“AML”) regulations in various jurisdictions. In recent years, governmental authorities have been increasingly focused on AML policies and procedures, with a particular focus on the gaming industry. Any violation of AML laws or regulations by GAN could have a negative effect on our results of operations.

 

As a “foreign private issuer”, we are currently subject to different U.S. securities laws and rules than a domestic U.S. issuer, which may limit the information publicly available to our U.S. shareholders.

 

We are currently a foreign private issuer under applicable U.S. federal securities laws, and therefore, we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act applicable to a domestic U.S. issuer. As a result, we presently do not file the same reports that a U.S. domestic issuer would file with the SEC. Our officers, directors and principal shareholders are currently exempt from the reporting and short-swing profit recovery provisions of Section 16 of the Exchange Act. As a foreign private issuer, we are currently exempt from the proxy rules under the Exchange Act. In addition, as a foreign private issuer, we are currently exempt from many of the corporate governance requirements that apply to domestic U.S. issuers under applicable rules of The Nasdaq Capital Market, Inc., or Nasdaq. We will lose our foreign private issuer status at the end of 2020. See the risk factor entitled “We will cease to be a foreign private issuer on December 31, 2020, which will result in significant additional costs and expenses” below.

 

We will cease to be a foreign private issuer on December 31, 2020, which will result in significant additional costs and expenses.

 

We determined that, as of June 30, 2020, we no longer qualify as a foreign private issuer. Accordingly, effective January 1, 2021, we will have to comply with all U.S. federal securities laws that apply to domestic U.S. companies, including enhanced periodic reporting, proxy requirements, and our officers, directors and principal shareholders will become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act. We will be required to file periodic reports and registration statements on U.S. domestic issuer forms containing financial statements prepared in accordance with U.S. GAAP, with the U.S. Securities and Exchange Commission, or SEC, which are more detailed and extensive than the forms available to a foreign private issuer. In addition, we will become subject to the Nasdaq corporate governance requirements, which are more strenuous than the corporate governance requirements under Bermuda law. As a result, we expect that our regulatory and compliance costs will be significantly higher beginning in 2021.

 

  -35-  

 

 

We identified a material weakness in connection with our internal control over financial reporting. Although we are taking steps to remediate this material weakness, we may not be successful in doing so in a timely manner, or at all, and we may identify other material weaknesses.

 

In connection with the audit of the consolidated financial statements included elsewhere in this prospectus, our management and independent registered public accounting firm concluded that we had a combination of control deficiencies in our internal control over financial reporting as of December 31, 2019 that comprised a material weakness, primarily relating to:

 

  the lack of a sufficient number of personnel with an appropriate level of knowledge and experience in the application of International Financial Reporting Standards and International Accounting Standards and Interpretations as issued by the International Accounting Standards Board (IASB), commensurate with our financial reporting requirements; and
     
  the design and operation of our accounting and financial reporting close functions, in which required policies and procedures either were not designed or were not operating effectively at period end, resulting in a number of adjustments to our consolidated financial statements during the course of the audit.

 

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 our annual or interim financial statements will not be prevented or detected on a timely basis.

 

We are currently not required to comply with Section 404 of the Sarbanes-Oxley Act, and are therefore not required to make an assessment of the effectiveness of our internal control over financial reporting. Further, our independent registered public accounting firm has not been engaged to express, nor have they expressed, an opinion on the effectiveness of our internal control over financial reporting. Had we and our independent registered public accounting firm performed an evaluation of our internal control over financial reporting in accordance with the provisions of the Sarbanes-Oxley Act, additional control deficiencies may have been identified by our management or independent registered public accounting firm, and those control deficiencies could have also represented one or more material weaknesses, which could negatively impact our business and reputation.

 

In 2020 we continued our investment in the finance organization to (i) meet the increased need from the business to support our rapid operational expansion and (ii) enhance our earnings release functions due to the faster cadence at which we now report our results as a US listed company. During the third quarter of 2020 our finance function developed more robust financial close processes and management has initiated a more rigorous month-end review process and review of quarter end financial reporting. In addition to our investment in knowledgeable staff and consultants, we have launched our new ERP which provides review and approval workflows as well as other controls over financial information expected to be present within an effective control environment. Lastly, we have engaged a technical advisory firm to assist management in our remediation efforts to ensure an effective controls environment exists as of December 31, 2020. We have completed the scoping exercise for the project and are in the process of identifying and designing controls which will enhance our control environment and result in a remediated material weakness. During the fourth quarter of 2020 certain controls are being implemented and evaluated to ensure they are both designed and operating effectively. Although we have implemented these additional measures and are working on remediating the material weakness and control deficiencies as of December 31, 2020, we may not be successful in achieving this milestone at that time.

 

  -36-  

 

 

A change in our tax residence could have a negative effect on our future profitability.

 

Although we are organized under the laws of Bermuda, a British overseas territory that is an island located off the coast of the United States, we are a resident in the United Kingdom for tax purposes. It is possible that in the future, whether as a result of a change in law or the practice of any relevant tax authority or as a result of any change in the conduct of our affairs following a review by our directors or for any other reason, we could become, or be regarded as having become, a resident in a jurisdiction other than the United Kingdom. Should we cease to be tax resident in the United Kingdom, we may have exposure related to unexpected tax liabilities, such as a charge of United Kingdom capital gains tax on a deemed disposal at market value of our assets and of unexpected tax charges in other jurisdictions on our income.

 

Similarly, if the tax residency of any of our subsidiaries were to change from their current jurisdiction for any of the reasons listed above, we may be subject to a charge of local capital gains tax on the assets. Furthermore, while we expect we and certain of our non-U.S. subsidiaries will qualify for the benefits of the Convention Between the United States of America and the United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation, etc., or the U.S.-U.K. Treaty, we have not sought or obtained a ruling from the IRS or an opinion of counsel addressing the issue, and there can be no assurances we or our non-U.S. subsidiaries will qualify for the benefits of the U.S.- U.K. Treaty.

 

Our business could suffer as a result of the uncertainty surrounding the U.K. withdrawal from the European Union and, if completed, the terms of such withdrawal.

 

The United Kingdom formally exited the European Union, commonly referred to as Brexit, on January 31, 2020. Under the terms of its departure, the United Kingdom will enter a transition period during which it will continue to follow all European Union rules and the trading relationship will remain the same. The transition period is scheduled to end on December 31, 2020. However, substantially uncertainty remains concerning which EU laws and regulations will continue to be implemented in the U.K. after Brexit (including financial laws and regulations, tax and free trade agreements, intellectual property rights, data protection laws, supply chain logistics, environmental, health and safety laws and regulations, immigration laws and employment laws).

 

The uncertainty concerning the U.K.’s legal, political and economic relationship with the EU after Brexit may negatively impact direct foreign investment in the U.K., increase costs, depress economic activity and restrict access to capital. It may also be a source of instability in the international markets, create significant currency fluctuations, and/or otherwise adversely affect trading agreements or similar cross-border cooperation arrangements (whether economic, tax, fiscal, legal, regulatory or otherwise) beyond the date of Brexit. We may also face new regulatory costs and challenges that could have an adverse effect on our operations. Depending on the terms of the U.K. withdrawal from the EU, the U.K. could lose the benefits of global trade agreements negotiated by the EU on behalf of its members, which may result in increased trade barriers that could make our doing business in the EU and the EEA more difficult.

 

  -37-  

 

 

Risks Related to this Offering and our Ordinary Shares

 

The trading price of our ordinary shares is volatile.

 

Since the completion of our initial public offering on May 7, 2020, the trading price of our ordinary shares on The Nasdaq Capital Market has ranged from a low of $10.60 to a high of $28.95. The following factors, in addition to other risks described in this prospectus, may have a significant effect on the market price of our ordinary shares:

 

  variations in our operating results;
     
  actual or anticipated changes in the estimates of our operating results;
     
  changes in stock market analyst recommendations regarding our ordinary shares, other comparable companies or our industry generally;
     
  macro-economic conditions in the numerous countries in which we do business;
     
  currency exchange fluctuations and the denominations in which we conduct business and hold our cash reserves;
     
  market conditions in our industry, the industries of our customers and the economy as a whole;
     
  actual or expected changes in our growth rates or our competitors’ growth rates;
     
  changes in the market valuation of similar companies;
     
  the trading volume of our shares on The Nasdaq Capital Market;
     
  sales of our ordinary shares by us or our shareholders; and
     
  the adoption or modification of regulations, policies, procedures or programs applicable to our business.

 

In addition, if the market for technology stocks or the stock market in general experiences a loss of investor confidence, the trading price of our ordinary shares could decline for reasons unrelated to our business, financial condition or operating results. The trading price of our ordinary shares might also decline in reaction to events that affect other companies in our industry, even if these events do not directly affect us. Each of these factors, among others, could harm the value of your investment in our ordinary shares. In the past, following periods of volatility in the market, securities class-action litigation has often been instituted against companies. Such litigation, if instituted against us, could result in substantial costs and diversion of management’s attention and resources, which could materially adversely affect our business, operating results and financial condition.

 

  -38-  

 

 

We may need to raise additional funds to support our business operations or to finance future acquisitions, including through the issuance of equity or debt securities, which could have a material adverse effect on our ability to grow our business.

 

If we do not generate sufficient cash from operations or do not otherwise have sufficient cash and cash equivalents to support our business operations or to finance future acquisitions, we may need raise addition capital through the issuance of debt or equity securities. We do not have any arrangements for any credit facility, or any other sources of capital. We may not be able to raise cash in future financing on terms acceptable to us, or at all.

 

Financings, if available, may be on terms that are dilutive to our shareholders, and the prices at which new investors would be willing to purchase our securities may be lower than the current price of our ordinary shares. The holders of new securities may also receive rights, preferences or privileges that are senior to those of existing holders of our ordinary shares. If new sources of financing are required but are insufficient or unavailable, we would be required to modify our plans to the extent of available funding, which could harm our ability to grow our business.

 

Our share price may decline due to the large number of shares eligible for future sale.

 

The market price of our ordinary shares could decline as a result of sales of a large number of ordinary shares in the market after the expiration of certain lock-up restrictions imposed on our shareholders in connection with this offering and in connection with the acquisition of Coolbet, or the perception that such sales could occur. All of our executive officers and directors are subject to lock-up agreements that restrict their ability to transfer shares of our capital stock for 90 days from the date of the underwriting agreement that will be executed in connection with this offering.

 

In connection with the acquisition of Coolbet, a portion of the purchase price will be paid through the delivery of newly issued ordinary shares valued at the lower of $17.11 per share or the price at which the ordinary shares are sold in this offering. As this offering was priced at $15.50, the closing of the Coolbet offering will result in an aggregate of 5,258,571 shares being issued to the Coolbet holders. The shares issued to the Coolbet holders are being issued in a cross-border exchange offer, exempt from registration pursuant to Rule 802 under the Securities Act. In connection with the Share Exchange Agreement each Coolbet holder has agreed with us to a contractual lock-up of ninety (90) days before the ordinary shares can transferred or sold. For certain executive management personnel, the lock up period is 180 days.

 

Future sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

 

Shareholders who are subject to any of the lock-up agreements described above may be permitted to sell shares prior to the expiration of the applicable lock-up agreement in certain circumstances, including as the result of the waiver or termination of such lock-up agreement.

 

  -39-  

 

 

Certain of our executive officers, directors and principal shareholders will continue to have significant influence over matters subject to shareholder approval.

 

The Smurfit family has a substantial ownership stake and management control over our company and will continue to do so after the offering. Sir Michael Smurfit Sr. is our largest stockholder. His son, Michael Smurfit Jr. is also a significant stockholder and is a member of our Board of Directors. Our Chief Executive Officer, Dermot S. Smurfit, is a nephew of Michael Smurfit Sr. and a first cousin of Michael Smurfit Jr. The Smurfit family beneficially owned approximately 21.4% of our outstanding ordinary shares as of September 30, 2020, and we expect that, upon completion of this offering, that same group will beneficially own at least 16.5% of the combined total of our outstanding ordinary shares after the offering, or 16.1% if the underwriter over-allotment option is exercised in full.

 

There is no formal arrangement among the members of the Smurfit family with respect to the voting or disposition of their ordinary shares. However, they comprise two of the five positions on our Board of Directors. In addition, if they act together, they will be able to exercise influence over all matters requiring shareholder approval, including the election of directors and approval of corporate transactions, such as a merger or sale of our Company or its assets, for the foreseeable future. This concentration of ownership could have the effect of delaying or preventing a change in our control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which in turn could have a material adverse effect on the market value of our ordinary shares. For information regarding the ownership of our outstanding ordinary shares by our executive officers and directors and their affiliates, please see the section entitled “Principal and Selling Shareholders.”

 

Ownership in our ordinary shares is restricted by gaming laws and our bye-laws, and persons found “unsuitable” may be required to dispose of their shares.

 

Gaming authorities have the right to investigate any individual or entity having a relationship to, or involvement with, our Company or any of its subsidiaries, to determine whether such individual or entity is suitable as a business associate of the Company. Many jurisdictions also require any person who acquires beneficial ownership of more than a certain percentage of voting securities of a gaming company and, in some jurisdictions, non-voting securities, sometimes 5%, to report the acquisition to gaming authorities, and gaming authorities may require such holders to apply for qualification or a finding of suitability, subject to limited exceptions for “institutional investors” that hold a company’s voting securities for investment purposes only.

 

  -40-  

 

 

Gaming authorities have very broad discretion in determining whether an applicant should be deemed suitable. Subject to certain administrative proceeding requirements, the gaming regulators have the authority to deny any application or limit, condition, restrict, revoke or suspend any license, registration, finding of suitability or approval, or fine any person licensed, registered or found suitable or approved, for any cause deemed reasonable by the gaming authorities.

 

Any person found unsuitable by a gaming authority may not hold directly or indirectly ownership of any voting security or the beneficial or record ownership of any nonvoting security or any debt security of any public corporation which is registered with the relevant gaming authority beyond the time prescribed by the relevant gaming authority.

 

Our bye-laws include certain provisions to ensure that we comply with applicable gaming laws. These provisions provide, among other things, that GAN Limited is prohibited from carrying on Gaming or Gaming Activities (as defined therein) itself and that our Board of Directors has the right to cause a forced sale of the ordinary shares held by an unsuitable person. Any such forced sale may negatively affect the trading price of our ordinary shares and may negatively affect the liquidity of the ordinary shares.

 

We do not anticipate paying dividends in the foreseeable future.

 

We do not currently pay dividends and do not anticipate paying any dividends for the foreseeable future. Any future determination to pay dividends will be made at the discretion of our Board of Directors, subject to compliance with applicable laws and covenants under any future credit facility, which may restrict or limit our ability to pay dividends. Payment of dividends will depend on our financial condition, operating results, capital requirements, general business conditions and other factors that our Board of Directors may deem relevant at that time. Unless and until we declare and pay dividends, any return on your investment will only occur if our share price appreciates.

 

We are a Bermuda company and it may be difficult for you to enforce judgments against us or certain of our directors or officers.

 

We are a Bermuda exempted company. As a result, the rights of holders of our ordinary shares will be governed by Bermuda law and our memorandum of association and bye-laws. The rights of shareholders under Bermuda law may differ from the rights of shareholders of companies incorporated in other jurisdictions. Bermuda legislation regarding companies is largely based on English corporate law principles. However, there can be no assurance that Bermuda law will not change in the future or that it will serve to protect investors in a similar fashion afforded under corporate law principles in the U.S., which could adversely affect the rights of investors. Most of our directors and some of the named experts referred to in this prospectus are not residents of the U.S., and a substantial portion of our assets are located outside the U.S. As a result, it may be difficult for investors to effect service of process on those persons in the U.S. or to enforce in the U.S. judgments obtained in U.S. courts against us or those persons based on the civil liability provisions of the U.S. securities laws. We have been advised by our special Bermuda counsel that uncertainty exists as to whether courts in Bermuda will enforce judgments obtained in other jurisdictions, including the U.S., or entertain action in Bermuda against us or our directors or officers.

 

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Furthermore, we have been advised by our special Bermuda counsel that Bermuda courts will not recognize or give effect to U.S. federal securities laws that such Bermuda courts consider to be procedural in nature, are revenue or penal laws or the application of which would be inconsistent with public policy in Bermuda. Certain remedies available under the laws of U.S. jurisdictions, including certain remedies under U.S. federal securities laws, will not be recognized or given effect to in any action brought before a court of competent jurisdiction in Bermuda where the application of such remedies would be inconsistent with public policy in Bermuda. Further, no claim may be brought in Bermuda against us or our directors and officers in the first instance for violations of U.S. federal securities laws because those laws do not have the force of law in Bermuda. A Bermuda court may, however, impose civil liability on us or our directors and officers if the facts alleged in a complaint constitute or give rise to a cause of action under Bermuda law.

 

Shareholders of a Bermuda company may have a cause of action against us or our directors for breach of any duty in the bye-laws or any shareholders’ agreement owed personally by us to the shareholder. Directors of a Bermuda company may be liable to the company for breach of their duties as directors to the company under the Bermuda Companies Act, and under common law. Such actions must, as a general rule, be brought by the company. Where the directors have carried on an act which is ultra vires or illegal, then the shareholder has the right, with leave of the court, to bring a derivative action to sue the directors on behalf of the company with any damages awarded going to the company itself. Shareholders are also able to take action against a company if the affairs of the company are being conducted in a manner which is oppressive or unfairly prejudicial to the shareholders or some number of them, and to seek either a winding-up order or an alternative remedy if a winding-up order would be unfairly prejudicial to them.

 

Our bye-laws restrict shareholders from bringing legal action against our officers and directors.

 

Our bye-laws contain a broad waiver by our shareholders of any claim or right of action, both individually and on our behalf, against any of our officers or directors. The waiver applies to any action taken by an officer or director, or the failure of an officer or director to take any action, in the performance of his or her duties, except with respect to any matter involving any fraud or dishonesty on the part of the officer or director or any claims of violations of the Securities Act of 1933 or the Securities Exchange Act of 1934 the waiver of which would be prohibited by Section 14 of the Securities Act and Section 29(a) of the Exchange Act. This waiver limits the right of shareholders to assert claims against our officers and directors unless the act or failure to act involves fraud or dishonesty.

 

We have provisions in our bye-laws that may discourage a change of control.

 

Our bye-laws contain provisions that could make it more difficult for a third party to acquire us without the consent of our Board of Directors. These provisions include, among others:

 

  restrictions on the time period in which directors may be nominated;
     
  the prohibition of cumulative voting in the election of directors;
     
  the requirement for shareholders wishing to propose a person for election as a director (other than persons proposed by our Board of Directors) to give advance written notice of nominations for the election of directors; and

 

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  certain provisions to ensure that we comply with applicable gaming laws, which provide, among other things, that our Board of Directors has the right to cause a forced sale of the ordinary shares held by an “unsuitable” person (see the risk factor above entitled “Ownership in our ordinary shares is restricted by gaming laws and our bye-laws, and persons found “unsuitable” may be required to dispose of their shares”).

 

These provisions could make it more difficult for a third party to acquire us, even if the third party’s offer may be considered beneficial by many shareholders. As a result, shareholders may be limited in their ability to obtain a premium for their shares. See “Description of Share Capital.”

 

U.S. Holders of our ordinary shares could be subject to material adverse tax consequences if we are considered a Passive Foreign Investment Company for U.S. federal income tax purposes.

 

There is a risk that we will be classified as a Passive Foreign Investment Company, or PFIC, for U.S. federal income tax purposes. Our status as a PFIC could result in a reduction in the after-tax return to U.S. Holders (as defined below under “Tax Considerations—United States Tax Consequences”) of our ordinary shares and may cause a reduction in the value of our ordinary shares. A corporation is classified as a PFIC for any taxable year in which either (i) at least 75% of its gross income is “passive income” or (ii) at least 50% of the average quarterly value of all its assets consists of assets that produce, or are held for the production of, passive income. For this purpose, passive income generally includes among other things, dividends, interest, certain rents and royalties, annuities, certain gains from the sale of stock and securities, and certain gains from commodities transactions.

 

Based on the projected composition of our income and valuation of our assets, we do not believe we were a PFIC in any previous taxable year, and we do not expect to become a PFIC in the foreseeable future, although there can be no assurance in this regard. The U.S. Internal Revenue Service or a U.S. court could determine that we are or were a PFIC in any past, current, or future taxable years. The determination of whether we are a PFIC is a fact-intensive determination made on an annual basis applying principles and methodologies which in some circumstances are unclear and subject to varying interpretation. If we were classified as a PFIC, U.S. Holders of our ordinary shares could be subject to greater U.S. income tax liability than might otherwise apply, imposition of U.S. income tax in advance of when tax would otherwise apply and detailed tax filing requirements that would not otherwise apply. The PFIC rules are complex and a U.S. holder of our ordinary shares is urged to consult such holder’s own tax advisors regarding the possible application of the PFIC rules to it in its particular circumstances. See “Tax Considerations—United States Taxation Consequences—Taxation of U.S. Holders—Passive Foreign Investment Company.”

 

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Risks Related to the Coolbet Acquisition

 

We may not obtain all of the benefits or recognize all of the synergies we anticipate from the Coolbet acquisition.

 

We are acquiring Coolbet because we believe that the combination of our companies will result in a stronger competitive company with diversified revenue streams and a more complete platform offering for our customers. However, we may encounter unanticipated events which could keep us from recognizing the benefits we anticipate from the acquisition.

 

We plan to integrate our technical platforms, including the addition of the Coolbet sports betting engine into our GameSTACK platform. We may encounter unanticipated difficulties in that integration work, which could result in unanticipated costs of integration, delays in releasing products, or limitations on product performance, any of which could harm our business.

 

We intend to retain the Coolbet management, engineering and sales teams. However, we cannot be certain that we will be able to retain key management and employee resources following the closing of the acquisition. Coolbet’s operations are divided in multiple offices, with employees of diverse backgrounds and business cultures, and we cannot be assured that all of the employees be integrated effectively or that we can operate as effectively across a larger geographic and human scale. The loss of management and employee talent could result in a loss of collective knowledge and experience in our business, increase our operating costs as we seek to replace that talent, and adversely affect our ability to successfully conduct our business.

 

We anticipate that the addition of the Coolbet sports betting engine to GAN’s platform will make it a more compelling product and will help us secure additional market share with gaming operators in the United States. Similarly, we anticipate that the addition of our iBridge technology as well as gaming content can improve revenues for Coolbet in the markets where it operates. However, we cannot be certain that customers will find the product offerings compelling or that we will achieve the additional sales that we are anticipating.

 

If we experience difficulties with the integration of our tehcnologies, personnel or product offerings, we may not recognize the anticipated benefits of the Coolbet acquisition fully or at all, or they may take longer to realize than expected.

 

The work required to integrate GAN and Coolbet may divert management resources from operational matters and other strategic opportunities.

 

We expect that the successful integration of Coolbet’s operations, their sports betting platform, and their personnel will require substantial management time and attention. The amount of time that our management will be required to devote to the integration may divert their attention from the day to day operation of the business or other strategic opportunities. In addition, uncertainty regarding the acquisition, the integration process, and its impact on our customers, partners, employees, regulatory compliance may create additional demands on management’s time and resources. The trading price for our shares is predicated in part by investor expectations for our future growth, including organic growth and opportunities for growth through strategic acquisitions. If diversion of our management’s attention impairs our results of operations or our ability to identify and pursue strategic opportunities, our share price could be negatively impacted.

 

Coolbet operates a B2C business model, and the integration of the new business, may make it more difficult for us to forecast our financial results, and may negatively impact how investors review our results or prospects.

 

GAN’s revenues are driven by its simulated and real money iGaming revenues generated on a B2B basis with casino operators, primarily in the United States. Coolbet’s revenues are generated primarily from its B2C sportsbook operations in Northern Europe. Following the consummation of the Coolbet acquisition, we have a new business model, an enhanced technology platform, new product offerings and an expanded base of customers and markets. Accordingly, it may be more difficult for us to forecast our future financial results and there may be an increased risk that our actual results of operations may vary materially from any guidance that we provide. Our more complex business model and offerings may also make it more difficult for analysts to assess our future prospects. Should our future operating results fall below any future guidance that our management may issue or any third party analyst reports or consensus, it could negatively affect investors’ perceptions which could decrease demand for our ordinary shares or result in increased volatility in the trading price for our ordinary shares.

 

The Coolbet acquisition will result in operations in a number of additional jurisdictions and will greatly expand the combined company’s regulatory compliance obligations.

 

We currently operate under gaming licenses with various states in the United States as well as in the U.K. Coolbet holds gaming licenses in Malta, Estonia and Sweden. Coolbet also operates in a number of currently unregulated jurisdictions. The acquisition will significantly expand both the regulated markets and unregulated markets where we conduct operations.

 

Regulatory compliance with gaming authorities is a complex and expensive process. Due to the increased number of regulated jurisdictions in which we will operate, as well as additional jurisdictions which may pass laws authorizing and requiring licensure to operate iGaming or sports betting, we may experience delays in the licensing application and approval process due to the volume of application materials we will be required to prepare and submit and the number of jurisdictions for which information will be required. Many jurisdictions in which we are already licensed will require additional applications and disclosures as a result of the Coolbet acquisition, which may also contribute to delays in the licensing application and approval process in additional jurisdictions.

 

Failure to comply with regulatory requirements can result in fines, suspension or termination of a license. The loss of any of these licenses may have a material adverse impact on revenues, professional reputation and damage current and potential customers perception of Coolbet’s brand, both with other regulators as well as our customers.

 

The Coolbet acquisition will result in the combined company operating in a number of jurisdictions globally, increasing our exposure to international business risks.

 

We have focused our operations in the United States, with some operations in Italy, the U.K. and Australia. Coolbet’s principal markets are Northern Europe, Latin America and Canada. The acquisition will result in our operations in a number of additional jurisdictions worldwide exposing our business to additional risks related to:

 

  challenges caused by distance as well as language and cultural differences;
     
  general economic conditions in each country or region;
     
  political unrest, terrorism and the potential for other hostilities;
     
  complexities in compliance overlapping or changes in tax regimes;
     
  difficulties in transferring funds from certain countries;
     
  increased exposure to currency fluctuations; and
     
  increased compliance costs associated with local regulatory compliance.

 

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If we are unable to adequately manage our operations in these new markets, we could experience loss of market share, decreased revenues, and increased operating expenses, any of which could materially adversely affect our business, financial condition, and results of operations.

 

The expansion of our business, will subject us to taxation in a number of jurisdictions and changes in, or new interpretation of, tax laws, tax rulings or their application by tax authorities could result in additional tax liabilities and could materially affect our financial condition and results of operations.

 

We pay U.S. federal, state and international taxes due to the nature of our business. With the Coolbet acquisition, we will become subject to taxation in a number of additional international jurisdictions. The tax laws that will be applicable to our business will be myriad, and are subject to interpretation, and significant judgment will be required in determining our worldwide provision for income taxes. In the course of our business, there will be many transactions and calculations where the ultimate tax determination is uncertain. Consequently, our results may differ from previous estimates and may materially affect our consolidated financial statements.

 

The gaming industry represents a significant source of tax revenue to the jurisdictions in which we will operate. Gaming companies and business-to-business providers in the gaming industry (directly and/or indirectly by way of their commercial relationships with operators) are currently subject to significant taxes and fees in addition to normal corporate income taxes, and those taxes and fees are subject to increase at any time. In addition, any worsening of economic conditions and the large number of jurisdictions with significant current or projected budget deficits could intensify the efforts of governments to raise revenues through increases in gaming taxes and/or other taxes. It is not possible to determine with certainty the likelihood of changes in tax laws or in the administration or interpretation or enforcement of such laws. Any material increase, or the adoption of additional taxes or fees, could have a material adverse effect on our business, financial condition, results of operations and prospects.

 

We are subject to periodic review and audit by domestic and foreign tax authorities. Tax authorities may disagree with certain positions that GAN or Coolbet has taken or that we will take, and any adverse outcome of such a review or audit could have a negative effect on our business, financial condition and results of operations. Although we believe that our tax provisions, positions and estimates are reasonable and appropriate, tax authorities may disagree with certain positions we have taken. In addition, economic and political pressures to increase tax revenue in various jurisdictions may make resolving tax disputes favorably more difficult.

 

Coolbet’s business has historically operated outside the United States and will expose us to increased foreign currency transaction and translation risks, which could have positive or negative effects on our profit and financial position.

 

Coolbet’s global operations will expose us to additional foreign currency transaction and translation risks. Coolbet’s functional currency has been the euro. Its revenues are generated primarily in Northern Europe where the local currencies include the euro as well as Norwegian kroner, Swedish kroner and Icelandic Krona. Coolbet is also expanding its operations in Canada as well as Latin America. Coolbet’s operations and operating expenses are centered in Estonia where the functional currency is the euro.

 

Our functional currency is the U.S. dollar, and as a result, we will be subject to foreign currency fluctuation due to Coolbet’s global presence and the fact that a significant majority of its revenues, operating expenses and assets and liabilities are non-U.S. dollar denominated. For example, an increase in the value of non-U.S. dollar currencies against the U.S. dollar could increase costs for delivery of products, services and also increase cost of local operating expenses and procurement of materials or services that we must purchase in foreign currencies by increasing labor and other costs that are denominated in such local currencies. These risks related to exchange rate fluctuations may increase in future periods as our operations outside of the United States expand.

 

GAN has historically had revenues and operations in Europe denominated in euros and British pounds. Neither we nor Coolbet has historically hedged its foreign currency transaction or translation exposure, though we may consider doing so in the future. Foreign currency exchange rate volatility, as well as the cost of any hedging arrangements entered into in the future, may negatively affect our financial position and results of operations, and may adversely impact the comparability of results between periods.

 

We may fail to consummate the Coolbet acquisition or may not consummate it on the terms described herein.

 

We intend to consummate the Coolbet acquisition as soon as practical and in no event later than March 15, 2021. The closing of the acquisition is subject to the receipt of regulatory approvals and other customary closing conditions. As a result, the possible timing and likelihood of the completion of the Coolbet acquisition are uncertain, and, accordingly, there can be no assurance that such acquisition will be completed on the expected terms, anticipated schedule or at all.

 

In the event that we fail to consummate the Coolbet acquisition, we will have issued a significant number of additional ordinary shares and we will not have acquired the revenue generating assets that will be required to produce the earnings and cash flow we anticipated. If the Coolbet acquisition is not consummated, we could be subject to a number of risks that may adversely affect our business and the market price of our common stock, including:

 

· we will be required to pay costs relating to the acquisition, such as legal, accounting, financial advisory and printing fees, whether or not the acquisition is consummated;

 

· if we don’t complete this offering or an alternative financing transaction, we would have to pay a termination fee of €2.0 million ($2.4 million);

 

· time and resources committed by our management to matters relating to the acquisition could otherwise have been devoted to pursuing other beneficial opportunities;

 

· the market price of our common stock could decline to the extent that the current market price reflects a market assumption that the acquisition will be consummated; and

 

· we would not realize the benefits we expect to realize from consummating the acquisition.

 

We cannot provide any assurance that the acquisition will be consummated or that there will not be a delay in the consummation of the acquisition. If the acquisition is not consummated, our reputation in our industry and in the investment community could be damaged, and the market price of our common stock could decline.

 

The Coolbet acquisition is subject to the receipt of governmental approvals that could prevent or delay consummation of the Coolbet acquisition or impose conditions that could have an adverse effect on our subsequent operations.

 

Consummation of the Coolbet acquisition is conditioned, among other things, upon the receipt of gaming regulatory approvals, including, among others, in Estonia, Malta and Sweden. We have submitted applications to the gaming regulatory authorities in Estonia, Malta and Sweden, notifying them of our intended acquisition of Coolbet, and requesting approval for the resulting change in ownership of the licenses There can be no assurance that these approvals will be secured in a manner that allows us to complete the Coolbet acquisition within our expected time frame or at all.

 

Failure to obtain these regulatory approvals could result in fines or the loss of material licenses. In addition, the governmental authorities from which the regulatory approvals are required may impose conditions on the consummation of the acquisition or require changes to the terms of the acquisition or agreements to be entered into in connection with the acquisition. Such conditions or changes and the process of obtaining regulatory approvals could have the effect of delaying or impeding consummation of the acquisition or of imposing additional costs or limitations on us following consummation of the acquisition, any of which might have an adverse effect on our business, financial condition and results of operations.

 

We may elect to close the Coolbet acquisition before we have secured all regulatory approvals, which would subject us to a risk of losing the licenses or being required to discontinue a portion of the business after the closing

 

Under the terms of the Share Exchange Agreement, we are not required to complete the acquisition of Coolbet unless we have obtained the gaming licenses that would be necessary to continue to operate Coolbet’s business in substantially the same manner as it was operated prior to the closing. However, we have the option of waiving this requirement (and other closing conditions) and proceeding to complete the acquisition. Gaming regulatory approvals applications and licenses can be time consuming, and subject to delays. If we anticipate unforeseen delays, we could make a determination to proceed with the closing of the Coolbet acquisition, even prior to securing approvals of all of the appropriate gaming licenses.

 

If we elect to waive the closing conditions, and complete the acquisition of Coolbet before securing all of the gaming licenses, we would incur the risk that the transfer of the gaming license is never approved, or is approved with limitations that impair our ability to operate the license in the same manner that Coolbet currently operates under the license. The loss or limitation of any gaming license could impair the revenues the we can generate from the Coolbet business, or result in increased operating expenses in connection with the application or compliance with regulatory requirements.

 

Risks Related to the Coolbet Business

 

Coolbet must comply with a variety of regulations in order to obtain and maintain the licenses necessary to conduct its operations.

 

Coolbet operates in a heavily regulated industry. Coolbet offers legal online iGaming and sportsbook products based on its legal gambling licenses registered in Estonia, Malta and Sweden, and potential future regulatory or legal changes in the markets where it currently operates and could require registration in new markets, which may increase costs, reduce net gaming revenue or require Coolbet to cease operations, depending on possible changes to the statutes governing online gambling in the international markets in which Coolbet operates.

 

In Estonia, gambling operators need to obtain both an activity license and operating permits (depending on the type of gambling product). Operating permits are issued for a specified term and are not renewable. Therefore, new operating permits must be applied for at the expiry of one, and there will never be full certainty whether a new permit will be issued once the previously issued permits have expired.

 

In addition to the gambling licenses, Coolbet must adhere to a wide range of additional obligations, including ensuring compliance of gaming equipment with statutory requirements, ensuring fair rules of game and compliance with consumer protection and specific advertising regulations. Coolbet’s operations are also subject to anti-money laundering and regulations designed to counter the financing of terrorism. Licensure as a B2C gaming operator in Malta also subjects Coolbet to compliance with a variety of local law and regulations. Local regulations have been given increased attention by regulators, who have been imposing record fines and taking action on gaming operators that are deemed to be non-compliant.

 

Failure to meet regulatory requirements could result in Coolbet losing one, many or all of its current licenses which allow it to offer online gambling products. The loss of any of these licenses may have a material adverse impact on revenues, professional reputation and damage current and potential customers perception of the Coolbet brand.

 

Changes in Gaming Regulations could substantially impact Coolbet’s operations, potentially decreasing revenues and increasing compliance expenses.

 

Markets in which Coolbet currently operates, or which they may enter in the future, could become more strictly regulated, and new regulatory and licensing regimes may impose new conditions and costs on Coolbet’s operations in those countries. New licensing conditions, such as the requirement to locate significant technical infrastructure within the relevant territory or establish real-time data interfaces with the regulator, may present operational challenges, increase operating costs, or prevent Coolbet from being able to offer a full range of iGaming and sports betting products in those markets.

 

In July 2020 the Financial Intelligence Analysis Unit, in conjunction with Malta Gaming Authority, updated its Implementing Procedures, with an industry specific document (Implementing Procedures Parts 2 (“IPs2”)) for the B2C remote gaming sector. The changes were intended amendments to the Prevention of Money Laundering and Funding of Terrorism Regulations and other implementing procedures, as well as to reflect realities that Financial Intelligence Analysis Unit and Malta Gaming Authority officers have been encountering in the course of supervisory activities.

 

Coolbet will need to continue to update its platform to ensure that it is fully complaint with all newly adopted regulations for the territories in which it operates. Non-compliance would result in monetary fines and or administrative action including suspension of business operations. 

 

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Coolbet’s operating of a B2C sports betting operation exposes it to losses as a result of a failure to determine accurately the odds in relation to any particular event and/or any failure of its sports risk management processes.

 

Coolbet’s fixed-odds betting products involve betting where winnings are paid on the basis of the amount wagered and the odds quoted. Coolbet’s sports betting operation is designed to set odds at a level that will provide the bookmaker with an average return over a large number of events. However, there can be significant variation in gross win percentage for single event or fixed period of time.

 

Coolbet has systems and controls that seek to reduce the risk of daily losses occurring on a gross-win basis, but there can be no assurance that these will be effective in all situations, and consequently Coolbet’s faces exposure to risk relating to improperly setting accurate odds or managing its sports betting risk. Coolbet may experience significant losses with respect to individual events or betting outcomes, in particular if large individual bets are placed on an event or betting outcome or series of events or betting outcomes.

 

Odds compilers and risk managers are capable of human error, thus even allowing for the fact that a number of betting products are subject to capped pay-outs, significant volatility can occur. In addition, it is possible that there may be such a high volume of trading during any particular period that even automated systems would be unable to address and eradicate all risks. Any significant losses could have a material adverse effect on Coolbet’s business, financial condition and results of operations.

 

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

 

Coolbet currently generates a significant portion of its revenues in markets that are currently unregulated including Norway and Latin America. Those markets, or other markets where Coolbet may operate in the future could adopt regulations require registration and regulatory compliance, which may increase costs, reduce net gaming revenue or require Coolbet to cease operations depending on the range of unforeseen possible changes to the statutes governing online gambling in the international markets in which Coolbet currently operates.

 

Coolbet relies heavily on its Malta License and the loss or limitation of the Malta license would have a significant impact on revenues.

 

During 2020, Coolbet shifted its licensing arrangements so that it uses the Malta license in connection with its operations in otherwise unregulated markets. Accordingly, for the three-month period ended September 30, 2020, 87% of Coolbet’s revenues were generated on the Malta license. If the Malta Gaming Authority were to suspend, limit or terminate the Coolbet gaming license it could have a substantial negative impact on Coolbet’s revenues and financial position.

 

The Malta license was recently issued and accordingly Coolbet may face increased risk of violations in subsequent compliance audits.

 

Coolbet secured its gaming licenses from the Malta Gaming Authority in 2019. Coolbet’s regulatory compliance systems and procedures were audited in connection with the issuance of the gaming license. However, no subsequent compliance audits have been conducted. Because of the relatively short period of time that Coolbet has held the Malta gaming license and the limited review of its operations, there may be an increased possibility that any upcoming compliance audits would identify regulatory compliance violations within the ongoing operations covered by the Maltese license.

 

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General Risk Factors

 

We depend on the services of key personnel to execute our business strategy. If we lose the services of our key personnel or are unable to attract and retain other qualified personnel, we may be unable to operate our business effectively.

 

We believe that the future success of our business depends on the services of a number of key management and operating personnel. Some of these key employees have strong relationships with our customers and our business may be harmed if these employees leave us. In addition, our ability to manage our growth depends, in part, on our ability to identify, hire and retain additional qualified employees. We face intense competition for qualified individuals from numerous technologies, software and service companies. Competition for qualified personnel is particularly intense in many of the large, international metropolitan markets in which we have offices, including for example, London. Several positions require significant training and new hires may, in some cases, take more than a year before they achieve full productivity. Further, given the pace of our expansion to date, we may be unable to attract and retain suitably qualified individuals who are capable of meeting our growing operational and managerial requirements, or may be required to pay increased compensation in order to do so.

 

If we are unsuccessful in attracting and retaining these key management and operating personnel, our ability to operate our business effectively could be negatively impacted and our business, operating results and financial condition would be materially adversely affected.

 

We are an “emerging growth company” which may make our ordinary shares less attractive to investors.

 

We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

 

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In addition, an emerging growth company can take advantage of extended transition periods for adopting with new or revised accounting standards. We currently prepare our consolidated financial statements in accordance with IFRS, which do not have separate provisions for publicly traded and private companies. However, in the event we convert to U.S. GAAP while we are still an “emerging growth company”, we may be able to take advantage of the benefits of this extended transition period.

 

Because of the exemptions from various reporting requirements provided to us as an “emerging growth company” and because, if we convert to U.S. GAAP, we will have an extended transition period for complying with new or revised financial accounting standards, we may be less attractive to investors if they believe that our financial accounting is not as transparent as other companies in our industry. That may result in a decrease in our stock price and it may be difficult for us to raise additional capital as and when we need it. If we are unable to raise additional capital as and when we need it, our financial condition and results of operations may be materially and adversely affected.

 

As a public company in the United States, we are subject to additional financial and other reporting and corporate governance requirements that can be difficult for us to satisfy and may divert management attention away from the business.

 

As a public company in the United States, we are incurring significant legal, insurance, accounting and other expenses that we did not incur as an AIM listed company on the London Stock Exchange. The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, Nasdaq Capital Market listing requirements and other applicable securities rules and regulations impose various requirements on U.S. public companies. Our management and administrative staff will need to devote a substantial amount of time to compliance with these requirements.

 

We have invested, and plan to continue to invest, resources to comply with evolving laws, regulations and standards, and this investment will result in increased general and administrative expenses and may divert management’s time and attention away from product development and other commercial activities. If for any reason our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies, regulatory authorities may initiate legal proceedings against us and our business may be harmed.

 

Due to the high cost, we have opted not to obtain directors’ and officers’ liability insurance coverage, though we may obtain such insurance coverage in the future. A lack of D&O liability insurance coverage could also make it more difficult for us to attract and retain qualified executive officers and qualified members of our board of directors, particularly to serve on our audit committee and compensation committee.

 

We are not currently required to comply with the SEC’s rules that implement Section 404 of the Sarbanes-Oxley Act, and are therefore not yet required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. Upon becoming a public company, we will be required to comply with certain of these rules, which will require management to certify financial and other information in our annual reports and provide an annual management report on the effectiveness of our internal control over financial reporting commencing with our second annual report. This assessment will need to include the disclosure of any material weaknesses in our internal control over financial reporting identified by our management or our independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, we will be engaged in a costly and challenging process to document and evaluate our internal control over financial reporting. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of our internal control over financial reporting. We will also need to continue to improve our control processes as appropriate, validate through testing that our controls are functioning as documented and implement a continuous reporting and improvement process for our internal control over financial reporting. Despite our efforts, there is a risk that we will not be able to conclude, within the prescribed timeframe or at all, that our internal control over financial reporting is effective as required by Section 404.

 

We have identified a material weakness in our internal control of our financial reporting as of December 31, 2019. See the risk factor entitled “We identified a material weakness…” above. Any material weakness could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our consolidated financial statements. Our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over financial reporting until the later of our second annual report or the first annual report required to be filed with the SEC following the date we are no longer an “emerging growth company” as defined in the JOBS Act. We cannot assure you that there will not be additional material weaknesses or significant deficiencies in our internal controls in the future.

 

  -48-  

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus contains forward-looking statements that reflect our current expectations and views of future events. 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. 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 contained in this prospectus, we caution you that these statements are based on our projections of the future that are subject to known 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 included in the prospectus are subject to risks, uncertainties and assumptions about our company. Our actual results of operations may differ materially from the forward-looking statements as a result of risk factors described under “Risk Factors” and elsewhere in this prospectus, 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, included our proposed acquisition of Coolbet;
     
  risks related to the proposed acquisition of Coolbet and the Coolbet 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 COVID-19 pandemic;
     
  our installed customer base continuing to license additional products, renew maintenance agreements and purchase additional professional 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.

 

These risks are not exhaustive. Other sections of this prospectus include additional factors that could adversely impact our business and financial performance. 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.

 

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 cautionary statements included in this prospectus. These forward-looking statements speak only as of the date of this prospectus. We do not intend 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.

 

  -49-  

 

 

USE OF PROCEEDS

 

We estimate that the net proceeds to us from this offering, after deducting underwriting discounts and commissions, and the estimated offering expenses payable by us, will be approximately $85.1  million (or approximately $98.8 million if the underwriter’s over-allotment option is exercised in full). Actual amounts may differ from these estimates. We will not receive any proceeds from the sale of ordinary shares in the offering by the selling shareholders.

 

We intend to use the net proceeds from this offering to fund a portion of the purchase price payable under the Share Exchange Agreement, and if any remaining for related transaction fees and expenses, and then for working capital and general corporate purposes, including sales and marketing activities, product development and capital expenditures. This offering is not contingent on consummation of the Coolbet acquisition. If the Coolbet acquisition is not consummated, we intend to use the net proceeds from this offering for general corporate purposes, including sales and marketing activities, product development and capital expenditures.

 

Pursuant to the Share Exchange Agreement, we have agreed to use commercially reasonable efforts to secure an equity or debt financing to provide additional capital to complete the exchange offer and to fund the operations of the combined company. We are pursuing this offering in fulfillment of that commitment. If Coolbet terminates the Share Exchange Agreement because we fail to complete this offering or secure alternative financing sufficient to complete the acquisition and fund the operations of the combined company, then we will pay Coolbet a termination fee of €2.0 million ($2.4 million).

 

The following sources and uses table outlines the sources and uses of funds for the acquisition of Coolbet, assuming the underwriter does not exercise its over-allotment option. The table is presented as if the acquisition of Coolbet and this offering are completed simultaneously. All amounts in the table are in U.S. dollars and are estimated. See “Capitalization” and “Unaudited Pro Forma Condensed Combined Financial Information” for additional information.

 

Sources and Uses

 

Sources   Amount     Uses   Amount  
Cash proceeds from offering   $ 90,754,949     Consideration for the Acquisition   $ 85,104,548  
Cash proceeds from option exercises by selling shareholders   $ 214,234     Estimated transaction fees and expenses(2)   $

5,864,635

 
                     
Total Sources   $ 90,969,183     Total Uses   $ 90,969,183  

 

(1)

In addition to the cash above, we will issue ordinary shares to the Coolbet shareholders at the closing. See “Proposed Acquisition of Coolbet” for more information.

 

(2) Includes estimated legal, accounting and other fees and expenses associated with the issuance of the shares in connection with this offering, including the underwriter’s discounts and fees.

 

  -50-  

 

 

DIVIDENDS AND DIVIDEND POLICY

 

Our Board of Directors has discretion as to whether we will pay dividends in the future, subject to restrictions under the Bermuda Companies Act and in accordance with our bye-laws. Under the Bermuda Companies Act, we may not declare or pay dividends if there are reasonable grounds for believing that either we are, or would after the payment be, unable to pay our liabilities as they become due, or that the realizable value of our assets would thereby be less than our liabilities. See “Description of Share Capital.”

 

We do not currently pay dividends. Accordingly, we may, but do not anticipate, declaring or paying any dividends for the foreseeable future.

 

  -51-  

 

 

CAPITALIZATION

 

The following table sets forth our capitalization as of September 30, 2020, (i) on an actual basis and (ii) on an “as adjusted” basis giving effect to:

 

●  the consummation of the Coolbet acquisition, including the issuance of 5,258,751 shares of ordinary shares to the Coolbet shareholders as consideration for the acquisition as if it occurred on September 30, 2020; and
     

the sale of 5,855,158 ordinary shares by us in this offering at a public offering price of $15.50 per share, after deducting the underwriting discount and estimated offering expenses of $1.1 million payable by us (assuming no exercise of the underwriter’s option to purchase additional shares), and the exercise of options by certain selling shareholders to obtain ordinary shares they are selling in this offering as if such transactions occurred on September 30, 2020. The aggregate proceeds to us as a result of such exercise are estimated to be $214,200 and the number of shares of ordinary shares outstanding is estimated to increase by 163,500 shares.

 

    As of September 30, 2020
    Actual   As Adjusted
    (Unaudited)
(dollars in thousands)
Lease liabilities, current and noncurrent   $ 654     $ 1,074  
Equity              
Share capital     295       408  
Share premium     97,111       271,167  
Foreign currency translation reserve     (2,813 )     (2,813 )
Accumulated deficit     (32,147 )     (33,168 )
Total equity     62,446       235,594  
Total capitalization   $ 63,100     $ 236,668  

 

If the underwriters’ option to purchase additional ordinary shares is exercised in full, the as adjusted, amount of each of total equity and total capitalization would be $249.3 million and $250.4 million, respectively, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

 

  -52-  

 

 

DILUTION

 

At September 30, 2020, we had net tangible book value of approximately $56.4 million, or $1.90 per ordinary share. Net tangible book value per share represents total tangible assets (total assets less intangibles assets) less total liabilities divided by the total number of ordinary shares outstanding.

 

After giving effect to (i) the sale of 5,855,158 shares by us in this offering at $15.50 per share, after deducting underwriting discounts and estimated offering expenses payable by us of $1.1 million (assuming no exercise of the underwriter’s option to purchase additional shares), (ii) the consummation of the Coolbet acquisition, including the issuance of shares to Coolbet shareholders as consideration in the acquisition and (iii) the exercise of options by certain selling shareholders that will sell their ordinary shares in this offering, our as adjusted net tangible book value as of September 30, 2020 would have been $47.7 million, or $1.17 per ordinary share. This represents an immediate decrease in net tangible book value of $0.73 per share to existing shareholders and an immediate dilution of $14.33 per share to new investors in our ordinary shares in this offering. The following table illustrates this dilution on a per share basis:

 

Public offering price per share           $ 15.50  
     Net tangible book value per ordinary share as of September 30, 2020   $ 1.90          
Decrease in as adjusted net tangible book value per share attributable to new investors in this offering   $  (.73 )         
As adjusted, net tangible book value per share immediately after this offering and the consummation of the Coolbet acquisition           $  1.17  
Dilution per ordinary share to new investors in this offering           $ 14.33  

 

If the underwriters’ exercise their over-allotment option in full in this offering, the as adjusted, net tangible book value after the offering would be $1.47 per share, the decrease in the as adjusted, net tangible book value per share to existing shareholders would be $0.43 and the dilution in net tangible book value per share to new investors would be $14.03 per share, in each case assuming a public offering of $15.50 per share.

 

The following table shows, as of September 30, 2020, on an as adjusted basis, described above, the difference between existing shareholders and new investors with respect to the number of shares purchased from us, the total consideration paid to us and the average price paid per share by existing shareholders and by investors purchasing shares in this offering, and before deducting the underwriting discounts and commissions and estimated offering expenses payable by us (dollars in thousands, except per share date):

 

    Shares Purchased   Total Consideration   Average Price
    Number   Percent   Amount   Percent   Per Share
Existing shareholders (1)     29,671,010       83.5 %   $ 99,561       52.3 %   $ 3.36  
New investors (1)     5,855,158       16.5 %   $ 90,755       47.7 %     15.50  
Total     35,526,168       100.0 %   $ 190,316       100.0 %        

 

(1) The number of shares purchased by existing shareholders includes shares being sold by the selling shareholders in this offering. The number of shares purchased by new investors does not include shares being sold by selling shareholders in this offering. Also the table above excludes 163,500 shares held under options that will be exercised and sold in this offering and will be outstanding after this offering.

 

If the underwriters’ exercise their over-allotment option, our existing shareholders would own 81.4% and our new investors would own 18.6% of the total number of ordinary shares outstanding after this offering.

 

  -53-  

 

 

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

 

The following tables set forth our selected historical consolidated financial data as of the dates and for the periods indicated. The selected historical consolidated financial data as of and for the years ended December 31, 2019 and 2018 were derived from our audited consolidated financial statements and related notes thereto included elsewhere in this prospectus. We have derived the selected historical consolidated financial data as of September 30, 2020 and for the nine months ended September 30, 2020 and 2019 from the unaudited consolidated financial statements included elsewhere in this prospectus. In the opinion of our management, the unaudited consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements and include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of our financial information set forth in those statements. Results for the interim period are not necessarily indicative of the results to be expected for the full year or any other period. Our historical results are not necessarily indicative of the results that should be expected for any future period. You should read the following selected historical consolidated financial data together with the consolidated financial statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this prospectus.

 

  -54-  

 

 

    Nine Months Ended
 September 30,
    Year Ended
December 31,
 
    2020     2019     2019     2018  
   

(Unaudited)

     
      (dollars in thousands, except per share data)  
Consolidated statements of operations data:                                
Revenue   $ 26,259     $ 19,280     $ 29,971     $ 14,023  
Cost of revenue     9,338       10,177       11,356       11,894  
Impairment of intangible assets     -       -       626       -  
Gross profit     16,921       9,103       17,989       2,129  
Administrative expenses     28,553       9,860       15,091       10,230  
Impairment of trade receivables     (13 )     286       424       95  
Total operating expenses     28,540       10,146       15,515       10,325  
Operating income (loss)     (11,619 )     (1,043 )     2,474       (8,196 )
Net finance costs     454       93       112       440  
Income (loss) before taxes     (12,073 )     (1,136 )     2,362       (8,636 )
Income tax expense (benefit)     312       409       574       (934 )
Net Income (loss) attributable to equity holders   $ (12,385 )   $ (1,545 )   $ 1,788     $ (7,702 )
Net Income (loss) per share attributable to ordinary shareholders, basic and diluted(1)   $ (0.48 )   $ (0.07 )   $ 0.08     $ (0.39 )
Weighted average shares attributable to ordinary shareholders, basic(1)     25,782,776       21,349,572       21,367,948       19,646,502  
Weighted average shares attributable to ordinary shareholders, diluted(1)     25,782,776       21,349,572       23,420,361       19,646,502  

 

    At September 30,     At December 31,  
    2020     2019     2018  
    (Unaudited)              
   

(dollars in thousands)

 
Consolidated statements of financial position data:                        
Cash and cash equivalents   $ 57,489     $ 10,098     $ 6,967  
Working capital (2)     54,997       8,777       4,113  
Total assets     78,019       26,112       22,613  
Total liabilities     15,573       11,010       10,648  
Total equity     62,446       15,102       11,965  

 

(1)

All share amounts and per share amounts have been adjusted to give effect to the share exchange. Refer to Note 2 to our audited consolidated financial statements and Note 12 to our unaudited consolidated financial statements.

 

(2) Working capital is defined as total current assets minus total current liabilities.

 

  -55-  

 

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

On November 15, 2020, we entered into a definitive Share Exchange Agreement (“Agreement”) to offer to acquire all of the outstanding equity of Vincent Group p.l.c. (referred to as “Coolbet”). Coolbet is an operator of online sports betting and casino platform, which offers its customers a digital portal for engaging in sports betting, online casino games and poker. Coolbet holds gambling licenses in Estonia, Malta and Sweden and its casino and sports betting platform is accessible for wagering through its website Coolbet.com across Northern Europe (Estonia, Finland, Iceland, Norway and Sweden), Latin America (Chile and Peru) and North America (Canada). We plan to acquire Coolbet primarily to further expand our sports betting engine technology and intellectual capital required for servicing our current and future customers in the United States. See “Proposed Acquisition of Coolbet”, “Coolbet Overview” and “Anticipated Benefits of the Coolbet Acquisition” for additional information.

 

Under the terms of the Agreement, we will purchase all of the outstanding equity of Coolbet for a total consideration of approximately €149.1 million ($175.9 million), consisting of €80 million ($94.4 million) in cash and €69.1 million ($81.5 million) of ordinary shares to be issued to the shareholders of Coolbet. The acquisition is expected to close shortly after the completion of this offering, subject to regulatory review and the satisfaction of certain closing conditions.

 

We intend to use the proceeds from this offering and cash on hand to fund our contemplated acquisition of Coolbet. Additionally, certain holders of our ordinary shares and holders of vested options to purchase ordinary shares have agreed to sell their shares in this offering. We will receive proceeds from the exercise of such vested options (payment of exercise price) but we will not receive any proceeds from the sale of these ordinary shares.

 

The unaudited pro forma condensed combined statement of financial position at September 30, 2020 gives effect to (i) the probable acquisition of Coolbet and (ii) the offering transaction as if they had occurred on September 30, 2020. The unaudited pro forma condensed combined income statements for the nine months ended September 30, 2020 and the year ended December 31, 2019 are presented as if the probable Coolbet acquisition and offering transaction were consummated on January 1, 2019.

 

The unaudited pro forma condensed combined financial information is based on the historical consolidated financial statements of the Company and Coolbet’s historical consolidated financial statements. The unaudited proforma condensed combined financial information should be read in conjunction with “Use of Proceeds,” “Selected Historical Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical consolidated financial statements and related notes of the Company and Coolbet included in this prospectus.

 

The unaudited pro forma condensed combined financial information was prepared in accordance with Article 11 of Regulation S-X. The pro forma adjustments are based on available information and assumptions that we believe are reasonable. Included in the pro forma condensed combined financial information is an allocation of the estimated purchase price we will pay for Coolbet which is based on preliminary estimates and assumptions. These estimates and assumptions could change significantly as we finalize our assessment of the allocation and fair value of the net tangible and intangible assets we acquire, some of which are dependent on the completion of valuations being performed by independent valuation specialists. The unaudited pro forma combined financial information does not include adjustments to reflect any synergies or dis-synergies, any future operating efficiencies, associated costs savings or any possible integration costs that may occur related to the probable Coolbet acquisition. Actual results may be materially different than the pro forma information presented herein.

 

The historical statement of financial position and income statements of Coolbet have been prepared in accordance with IFRS. Certain adjustments have been made to the historical income statements of Coolbet to reflect reclassifications to conform with the Company’s presentation under IFRS. Additionally, the historical statement of financial position and income statements of Coolbet were presented in Euros. The unaudited pro forma condensed combined financial statements are presented in U.S. dollars consistent with the reporting currency of the Company. In this regard, the historical condensed consolidated income statements of Coolbet have been translated from Euros to U.S. dollars at the average daily exchange rate of 1.125 U.S. dollars to Euro for the nine months ended September 30, 2020 and 1.119 U.S. dollars to Euro for the year ended December 31, 2019. The historical condensed consolidated financial position of Coolbet has been translated from Euros to U.S. dollars at the period/year-end spot exchange rate of 1.172 U.S. dollars to Euro at September 30, 2020.

 

The unaudited pro forma condensed combined financial information is provided for informational purposes only and is not intended to represent or be indicative of the consolidated financial position or results of operations that would have been reported had the probable Coolbet acquisition and the offering transaction been completed as of the dates presented, and should not be taken as representative of the future consolidated financial position or results of operations.

 

  -56-  

 

 

Unaudited Pro Forma Condensed Combined Statement of Financial Position

As of September 30, 2020

(dollars in thousands)

 

    GAN Limited Historical     Vincent
Group p.l.c. Historical
    Pro Forma Adjustments     Notes   GAN Limited
Pro Forma
 
            (Note 7)                      
ASSETS                                    
Non-current assets                                    
Goodwill   $       $       $ 135,554     (a)   $ 135,554  
Intangible assets   6,008     673     45,618     (b)   52,299  
Property, plant and equipment     655       212       -           867  
Right-of-use assets     782       439        -           1,221  
Lease deposits     68       -        -           68  
Contract costs     291       -        -           291  
Other non-current assets     -       50        -           50  
Total non-current assets     7,804       1,374       181,172           190,350  
Current assets                                    
Cash and cash equivalents     57,489       15,187       (1,021 )   (c)     63,564  
                      565   (d)    
                      85,104     (f)      
                      (93,760 )   (f)        
Trade and other receivables     9,079       18       -           9,097  
Inventory     416       -        -           416  
Prepayments     3,099       1,492        -           4,591  
Lease deposits     77       -        -           77  
Contract costs     55       -        -           55  
Total current assets     70,215       16,697       (9,112 )         77,800  
Total assets     78,019       18,071       172,060           268,150  
LIABILITIES                                    
Current liabilities                                    
Trade and other payables     13,358       7,768        -           21,126  
Contract liabilities     1,561       -        -           1,561  
Current portion of lease liabilities     299       159        -           458  
Total current liabilities     15,218       7,927        -           23,145  
Non-current liabilities                                    
Deferred tax liabilities     -        -        8,795     (b)      8,795  
Lease liabilities     355       261        -           616  
Total liabilities     15,573       8,188       8,795           32,556  
EQUITY                                    
Share capital     295       260       (260   (d)     408  
                      53   (e)        
                      60     (f)        
 Share premium     97,111       23,018       (23,583   (d)     271,167  
                      565   (d)        
                      88,820     (e)        
                      192     (e)        
                     

85,044

    (f)        
Foreign exchange translation reserve     (2,813 )     -       -           (2,813 )
Other equity reserves     -       18,213       (18,213 )   (d)     -  
Accumulated deficit     (32,147 )     (31,608 )     (1,021   (c)     (33,168 )
                      31,608   (d)        
Total equity     62,446       9,883       163,265           235,594  
Total liabilities and equity   $ 78,019     $ 18,071     $ 172,060         $ 268,150  

 

See notes to unaudited pro forma condensed combined financial information.

 

  -57-  

 

 

Unaudited Pro Forma Condensed Combined Income Statement

Nine Months Ended September 30, 2020

(dollars in thousands, except share and per share amounts)

 

    GAN Limited Historical     Vincent Group p.l.c. Historical     Pro Forma Adjustments     Notes     GAN Limited Pro Forma  
          (Note 7)                    
Revenue   $ 26,259     $ 20,922     $                $ 47,181  
Cost of revenue     9,338       7,375       8,536       (a)       25,363  
                      114       (c)          
Gross profit     16,921       13,547       (8,650 )             21,818  
Administrative expenses     28,553       13,322       58       (b)       41,819  
                      (114 )     (c)          
Impairment of financial assets     (13 )     -       -               (13 )
Total operating expenses     28,540       13,322