| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis
of Presentation and Principles of Consolidation The
condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United
States of America (“U.S. GAAP”) and include the results of the Parent and its wholly owned subsidiaries. All intercompany
accounts and transactions have been eliminated in consolidation. The unaudited condensed consolidated financial statements have been
prepared on the same basis as the annual consolidated financial statements and reflect all adjustments, in the opinion of management,
of a normal recurring nature that are necessary for a fair presentation of the financial position, results of operations and cash flows
for the periods presented. The financial data and other financial information disclosed in these notes to the condensed consolidated
financial statements related to these periods are also unaudited. The results of operations for the three and nine months ended September
30, 2024, are not necessarily indicative of the results that may be expected for the year ended December 31, 2024, or for any future
annual or interim period. The condensed consolidated balance sheet as of December 31, 2023, included herein was derived from the audited
consolidated financial statements as of that date. The accompanying unaudited condensed consolidated financial statements and notes thereto
should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2023. Liquidity The
accompanying condensed consolidated financial statements have been prepared on a going concern basis. As of September 30, 2024, the
Company had an accumulated deficit of $ 313.1 36.5 10.1 2.1 3.8 0.1 30.0 27.6 Additionally,
the Company’s current financial condition, liquidity resources, and planned near-term cash flows from operations are sensitive
to changes in macro-economic conditions, and the substantial variability inherent in the Company’s wager-based revenues streams.
These factors, when considered together with potential covenant breaches under the Company’s Credit Facility indicate uncertainty
related to the ability of the Company to meet its current obligations as they come due. On
April 13, 2023, a subsidiary of the Company executed agreements to amend the Credit Facility and increase the principal balance from
$ 30.0 42.0 10.0 To
the extent that the Company’s current resources, including its ability to generate operating cash flows, are insufficient to satisfy
its cash requirements, the Company may seek additional equity or debt financing. The Company’s ability to do so depends on prevailing
economic conditions and other factors, many of which are beyond management’s control. The Company does not currently have any such
credit facilities or similar debt arrangements in place, outside of the Amended Credit Facility described above, and cannot provide any
assurance as to the availability or terms of any additional future financing that it may require to support its operations. If the needed
financing is not available, or if the terms of financing are less desirable than expected, the Company may be forced to decrease its
level of investment in new products and technologies, discontinue further expansion of the business, or scale back its existing operations,
any of which could have an adverse impact on the Company and its financial prospects. Use
of Estimates The
preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date
of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Due
to the inherent uncertainties involved in making estimates, actual results could differ from the original estimates, and may require
significant adjustments to these reported balances in future periods. Foreign
Currency Translation and Transactions The
Company’s reporting currency is the U.S. Dollar while the Company’s foreign subsidiaries use their local currencies as their
functional currencies. The assets and liabilities of foreign subsidiaries are translated to U.S. Dollars based on the current exchange
rate prevailing at each reporting period. Revenue and expenses are translated into U.S. Dollars using the average exchange rates prevailing
for each period presented. Translation adjustments that arise from translating a foreign subsidiary’s financial statements from
their functional currency to U.S. Dollars are reported as a separate component of accumulated other comprehensive loss in shareholders’
equity (deficit). Gains
and losses arising from transactions denominated in a currency other than the functional currency are included in general and administrative
expense in the condensed consolidated statements of operations as incurred. Foreign currency transaction and remeasurement gains and
losses were a net loss of $ 485 and $ 155 for the three months ended September 30, 2024
and 2023, respectively, and $ 1,542
and $ 1,169 GAN
LIMITED NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (in
thousands, except share and per share amounts) Concentration
of Credit Risk Financial
instruments that potentially subject the Company to concentration of credit risk consist primarily of its cash and trade receivables.
The Company holds cash deposits in foreign countries, primarily in Northern Europe and Latin America, of approximately $ 28.1 1.9 The
Company maintains an allowance for potential credit losses, but historically has not experienced any significant losses related to individual
customers or groups of customers in any particular geographic area. Risks
and Uncertainties Macroeconomic
conditions can materially adversely affect the Company’s business, results of operations and financial condition. Recent adverse
macroeconomic conditions, including inflation, higher interest rates, slower growth or recession, the strengthening of the U.S. dollar,
and corresponding currency fluctuations can have an adverse material impact on the Company’s future results of operations, cash
flows, and financial condition, particularly with respect to foreign currency adjustments relating to our international operations. Such
conditions may also affect consumers’ willingness to make discretionary purchases, and therefore the Company, along with its casino
operator customers, may experience a decline in wagering. A downturn in the economic environment can also lead to increased credit and
collectability risk on the Company’s trade receivables, limitations on the Company’s ability to issue new debt, and reduced
liquidity. Revenue
Recognition Revenue
from B2B Operations The
Company’s revenue from its B2B operations are primarily from its internet gaming Software-as-a-Service (“SaaS”) platform,
GameSTACK, that its customers use to provide RMiG, online sports gaming and SIM services to its end users. The Company enters into contracts
with its customers that generally range from three to five years and include renewal provisions. These contracts generally include provision
of the internet gaming platform, content consisting of proprietary and third-party games, development services and support and marketing
services. In certain cases, the contract may include computer hardware to be procured on behalf of the customer. The customers cannot
take possession of the hosted GameSTACK software, and the Company does not sell or license the GameSTACK software. The
Company charges fees as consideration for use of its internet gaming system, game content, support and marketing services based on a
fixed percentage of the casino operator’s net gaming revenue or net sportsbook win, at the time of settlement of an event for RMiG
contracts, considered usage-based fees, or at the time of purchase for in-game virtual credit for SIM contracts. The determination of
the fee charged to its customers is negotiated and varies significantly. Certain of these RMiG contracts provide the Company with a minimum
monthly revenue guarantee in relation to the Company’s share of the casino operator’s net gaming revenue or net sportsbook
win. At September 30, 2024 the remaining unsatisfied performance obligations related to fixed minimum guaranteed revenue totaled $ 41.9 the Company expects to satisfy $30.1 million within the next five year period, and the remaining over a ten year period. The
Company’s promise to provide the RMiG SaaS platform and content licensing services on the hosted software is a single performance
obligation. This performance obligation is recognized over time, as the Company provides services to its customers in its delivery of
services to the player end user. The Company’s customers simultaneously receive and consume the benefits provided by the Company
as it delivers services to its customers. Usage based fees are considered variable consideration as the service is to provide unlimited
continuous access to its hosted application and usage of the hosted system is primarily controlled by the player end user. The transaction
price includes fixed and variable consideration and is billed monthly with the amount due generally thirty days from the date of the
invoice. Variable consideration is allocated entirely to the period in which consideration is earned as the variable amounts relate specifically
to the customer’s usage of the platform that day and allocating the usage-based fees to each day is consistent with the allocation
objective, primarily that the change in amounts reflect the changing value to the customer. The Company’s internet gaming system,
game content, support and marketing services are provided equally throughout the term of the contract. These services are made up of
a daily requirement to provide access and use of the internet gaming system and optional support and marketing services to the customer
over the same period of time. The series of distinct services represents a single performance obligation that is satisfied over time. Purchases
of virtual credits within a transaction period on the SIM platform, generally a monthly convention, are earned over time, and are typically
billed monthly upon the close of the respective period as the credit has no monetary value, cannot be redeemed, exchanged, transferred
or withdrawn, represents solely a device for tracking game play during the month, does not obligate the Company to provide future services
and the arrangements with the customer and player end user have no substantive termination penalty. In certain service agreements with
its SIM customers, the fees collected by the Company from third-party payment processors for the purchases of in-game virtual credits
made by end-users include the SIM customer’s portion. The Company records the SIM customer’s portion as a liability as cash
is collected and remits payment to the SIM customer for their share of the SIM revenues monthly. At September 30, 2024 and December 31,
2023, the Company recorded a liability due to its customers for their share of the fees of $ 1,913 1,994 GAN
LIMITED NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (in
thousands, except share and per share amounts) The
Company uses third-party content providers in supplying game content in its performance of providing game content on its platform to
its customers. A customer has access to the Company’s propriety and licensed game content and additionally, the customer can direct
the Company to procure third-party game content on its behalf. The Company has determined it acts as the principal for providing the
game content when the Company controls the game content, and therefore presents the revenue on a gross basis in the condensed consolidated
statements of operations. When the customer directs the Company to procure third-party game content, the Company determined it is deemed
an agent for providing such game content, and therefore, records the revenue, net of the costs of content license fees, in the condensed
consolidated statements of operations. The
Company also provides ongoing development services involving updates to the RMiG platforms for enhanced functionality or customization.
Ongoing development services are typically billed monthly, at a daily rate, for services performed. Revenue from RMiG platform development
services that are identified as distinct performance obligations and enhance or create an asset the customer controls as the Company
performs the services are recognized over time as services are performed. This revenue is measured using an input method based on effort
expended, which uses direct labor hours incurred. These services have primarily related to post-launch development of third-party application
integration software in the customer’s environment. Separately, the revenue generated from customers for development services that
are distinct performance obligations and the customer benefits from the integrated SaaS offering are deferred over the license service
term. These services have primarily related to enhancements to the Company’s platforms that do not enhance or create an asset the
customer controls. In customer contracts that require a portion of the consideration to be received in advance or at the commencement
of the contract, such amounts are recorded as a contract liability. Other
services include the resale of third-party computer hardware, such as servers and other related hardware devices, upon which the GameSTACK
software is installed for its customers. These products are not required to be purchased to access the GameSTACK platform but are sold
as a convenience to the customer. The Company procures the computer hardware on the customer’s behalf for a fee determined based
on the cost of the computer hardware plus a markup. The Company charges a hardware deployment fee which is a one-time fee for installation,
testing and certification of the computer hardware at the gaming hosting facility. Revenue is recognized at the point in time when control
of the hardware transfers to the customer. Control is transferred after the hardware has been procured, delivered, installed at the customer’s
premises and configured to allow for remote access. The
Company has determined that it is acting as the principal in providing computer hardware and related services as it assumes responsibility
for procuring, delivering, installing and configuring the hardware at the customer’s location and takes control of the hardware,
prior to transfer. Revenue is presented at the gross amount of consideration to which it is entitled from the customer in exchange for
the computer hardware and related services. GAN
LIMITED NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (in
thousands, except share and per share amounts) Contracts
with Multiple Performance Obligations For
customer contracts that have more than one performance obligation, the transaction price is allocated to the performance obligations
in an amount that depicts the relative stand-alone selling prices of each performance obligation. Judgment is required in determining
the stand-alone selling price for each performance obligation. In determining the allocation of the transaction price, an entity is required
to maximize the use of observable inputs. When the stand-alone selling price of a good or service is not directly observable, an entity
is required to estimate the stand-alone selling price. Contracts with its customers may include platform and licensing of game content
services, as well as development services and computer hardware services. The variable consideration generated from the platform and
the licensing of game content is allocated entirely to the performance obligations for platform and licensing of game content services
and the remaining fixed fees for development services and computer hardware would be allocated to each of the remaining performance obligation
based on their relative stand-alone selling prices. The variable consideration relates entirely to the effort to satisfy the platform
and licensing game content services and the fixed consideration relates to the remaining performance obligations which is consistent
with the allocation objective. Revenue
from B2C Gaming Operations The
Company operates the B2C gaming site www.coolbet.com outside of the U.S., which contains proprietary software and includes the following
product offerings: sportsbook, poker, casino, live casino and virtual sports. The
Company manages an online sportsbook allowing users to place various types of wagers on the outcome of sporting events conducted around
the world. The Company operates as the bookmaker and offers fixed odds wagering on such events. When a user’s wager wins, the Company
pays the user a pre-determined amount known as fixed odds. Revenue from online sportsbook is reported net after deduction of player winnings
and bonuses. Revenue from wagers is recognized when the outcome of the event is known. The
Company offers live casino through its digital online casino offering in select markets, allowing users to place a wager and play games
virtually at retail casinos. The Company offers users a catalog of over 8,100 third-party iGaming products such as digital slot machines
and table games such as blackjack and roulette. Revenue from casino games is reported net after deduction of winnings, jackpot contribution
and customer bonuses. Peer-to-peer
poker offerings allow users to play poker against one another on the Company’s online poker platform for prize money. Revenue is
recognized as a percentage of the reported rake. Additionally, the Company offers tournament poker which allows users to buy-in for a
fixed price for prize money. For tournament play, revenue is recognized for the difference between the entry fees collected and the amounts
paid out to users as prizes and winnings. In
each of the online gaming products, a single performance obligation exists at the time a wager is made to operate the games and award
prizes or payouts to users based on a particular outcome. Revenue is recognized at the conclusion of each contest, wager, or wagering
game hand. Additionally, certain incentives given to users, for example, that allow the user to make an additional wager at a reduced
price, may provide the user with a material right which gives rise to a separate performance obligation. The
Company allocates a portion of the user’s wager to incentives that create material rights that are redeemed or expired in the future.
The allocated revenue for gaming wagers is primarily recognized when the wagers occur because all such wagers settle immediately. The
Company applies a practical expedient by accounting for revenue from gaming on a portfolio basis because such wagers have similar characteristics,
and the Company reasonably expects the effects on the financial statements of applying the revenue recognition guidance to the portfolio
to not differ materially from that which would result if applying the guidance to an individual wagering contract. GAN
LIMITED NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (in
thousands, except share and per share amounts) Cost
of Revenue Cost
of revenue consists primarily of variable costs. These include mainly (i) content license fees, (ii) payment processing fees and chargebacks,
(iii) platform technology, software, and connectivity costs directly associated with revenue generating activities, (iv) gaming duties,
and (v) sportsbook feed / provider services. The Company incurs payment processing fees on B2C user deposits, withdrawals, and deposit
reversals from payment processors. Cost of revenue excludes depreciation of the servers on which the Company’s gaming platforms
reside as well as amortization of intangible assets including internally developed software. Sales
and Marketing Sales
and marketing expenses consist primarily of general marketing and advertising costs, B2C user acquisition expenses and personnel costs
within our sales and marketing functions. Sales and marketing costs are expensed as incurred. Product
and Technology Product
and technology expenses consist primarily of personnel costs associated with development and maintenance activities that are not capitalized.
These costs primarily represent employee expenses (including but not limited to, salaries, bonus, employee benefits, employer tax expenses,
and share-based compensation) for personnel and contractors involved in the design, development, and project management of our proprietary
technologies as well as developed and licensed content. General
and Administrative General
and administrative expenses consist of costs, including gaming operations costs, not related to sales and marketing, product and technology
or revenue. General and administrative costs include professional services (including legal, regulatory and compliance, audit, and consulting
expenses), rent contingencies, insurance, allowance for credit losses, foreign currency transaction gains and losses, and costs related
to the compensation of executive and non-executive personnel, including share-based compensation. Content
Licensing Fees Content
licensing fees are paid to third parties for gaming content which are expensed as incurred. Content licensing fees are calculated as
a percentage of net gaming revenues in respect of the third-party games, as stipulated in the third-party agreements. Share-based
Compensation Share-based
compensation expense is recognized for share options and restricted shares issued to employees and non-employee members of the Company’s
Board of Directors. The Company’s issued share options and restricted shares, which are primarily considered equity awards and
include only service conditions, are valued based on the fair value of these awards on the date of grant. The fair value of the share
options is estimated using a Black-Scholes option pricing model and the fair value of the restricted shares (restricted share awards
and restricted share units) is based on the market price of the Company’s shares on the date of grant. Certain
restricted share unit awards issued to non-employee members of the Company’s Board of Directors permit shares upon vesting to be
withheld, as a means of meeting the non-employee director’s tax withholding requirements and paid in cash to the non-employee director.
The Company additionally incurs share-based compensation expense under compensation arrangements with certain of its employees under
which the Company will settle bonuses for a fixed dollar amount by issuing a variable number of shares based on the Company’s share
price on the settlement date. These awards are classified as liability-based awards which are measured based on the fair value of the
award at the end of each reporting period until settled. Related compensation expense is recognized based on changes to the fair value
over the applicable service period. Share-based
compensation is recorded over the requisite service period, generally defined as the vesting period. For awards with graded vesting and
only service conditions, compensation cost is recorded on a straight-line basis over the requisite service period of the entire award.
Forfeitures are recorded in the period in which they occur. Earnings
Per Share, Basic and Diluted Basic
earnings per share is calculated by dividing earnings by the weighted average number of ordinary shares outstanding during the year.
In periods of loss, basic and diluted per share information are the same. In periods of income, diluted net income per share is calculated by dividing net income by the weighted average number
of ordinary shares outstanding during the period plus dilutive shares. Dilutive shares includes stock options with a strike price less
than the current market price during the period and unvested restricted share units assumed to be vested and issued under the treasury
stock method. Stock options and restricted stock units that are anti-dilutive are excluded from the calculation. GAN
LIMITED NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (in
thousands, except share and per share amounts) Cash Cash
is comprised of cash held at banks and third-party service providers (“PSPs”). Certain PSPs require rolling reserves on daily
cash deposits that have varying short term durations, not exceeding six months, which are generally available to satisfy potential chargebacks.
These balances are included within cash on the accompanying condensed consolidated balance sheets. The rolling reserve balances were
$ 4.0 3.6 The
Company is required to maintain compensating cash balances to satisfy its liabilities to users. Such balances are included within cash
in the condensed consolidated balance sheets and are not subject to creditor claims. At September 30, 2024 and December 31, 2023, the
related liabilities to users were $ 10,108 10,185 Capitalized
Software Development Costs, net The
Company capitalizes certain development costs related to its internet gaming platforms during the application development stage. Costs
associated with preliminary project activities, training, maintenance and all other post implementation stage activities are expensed
as incurred. Software development costs are capitalized when application development begins, it is probable that the project will be
completed, and the software will be used as intended. The Company capitalizes certain costs related to specific upgrades and enhancements
when it is probable that expenditures will result in additional functionality of the platform to its customers. The capitalization policy
provides for the capitalization of certain payroll and payroll related costs for employees who spent time directly associated with development
and enhancements of the platform. Capitalized
software development costs are amortized on a straight-line basis over their estimated useful lives, which generally ranges from three five years Long-lived
Assets Long-lived
assets, except goodwill, consist of property and equipment, and finite lived acquired intangible assets, such as developed software,
gaming licenses, trademarks, trade names and customer relationships. Intangible assets are amortized on a straight-line basis over their
estimated useful lives. The Company considers the period of expected cash flows and underlying data used to measure the fair value of
the intangible assets when selecting the estimated useful lives. Gaming
licenses include license applications fees and market access payments in connection with agreements that the Company enters with strategic
partners. The market access arrangements authorize the Company to offer online gaming and online sports betting in certain regulated
markets. These costs are capitalized and amortized on a straight-line basis over their estimated useful lives, beginning with the commencement
of operations. The
fair value of acquired intangible assets are primarily determined using the income approach. In performing these valuations, the Company’s
key underlying assumptions used in the discounted cash flows were projected revenue, gross margin expectations and operating cost estimates.
There are inherent uncertainties and management judgment is required in these valuations. Long-lived
assets, except goodwill, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. If circumstances require a long-lived asset or asset group to be tested for possible impairment, the
Company compares the undiscounted cash flows expected to be generated by that asset or asset group to their carrying amount. If the carrying
amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment charge is recognized
to the extent that the carrying amount exceeds fair value. Fair value is determined through various techniques, such as discounted cash
flow models using probability weighted estimated future cash flows and the use of valuation specialists. During the three and nine months
ended September 30, 2024, there was no triggering event that would cause the Company to believe the value of its long-lived assets should
be impaired. Liabilities
to Users The
Company records liabilities for user account balances. User account balances consist of user deposits, promotional awards and user winnings
less user withdrawals and user losses. Legal
Contingencies and Litigation Accruals On
a quarterly basis, the Company assesses potential losses in relation to pending or threatened legal matters. If a loss is considered
probable and the amount can be reasonably estimated, the Company recognizes an expense for the estimated loss. Estimates of any such
loss are subjective in nature and require the evaluation of numerous facts and assumptions as to future events, including the application
of legal precedent which may be conflicting. To the extent these estimates are more or less than the actual liability resulting from
the resolution of these matters, the Company’s financial results will increase or decrease accordingly. Legal costs associated
with loss contingencies are expensed as incurred. GAN
LIMITED NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (in
thousands, except share and per share amounts) Debt Debt
issuance costs incurred in connection with the issuance of new debt are recorded as a reduction to the long-term debt balance on the
condensed consolidated balance sheets and amortized over the term of the loan commitment as interest expense in the accompanying condensed
consolidated statements of operations. The Company calculates amortization expense on capitalized debt issuance costs using the effective
interest method in accordance with Accounting Standards Codification (“ASC”) 470, Debt. Leases The
Company determines if an arrangement is a lease and classifies as operating or finance lease at the lease commencement date. A lease
is defined as a contract, or part of a contract, that conveys the right to control the use of an asset for a time period in exchange
for consideration. In accordance with ASC 842, Leases, the Company recognizes for all leases, except short-term leases, at the commencement
date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted
basis; and (2) a right-of-use (“ROU”) asset, which is an asset that represents the lessee’s right to use, or control
the use of, a specified asset for the lease term. The Company accounts for the lease and non-lease components of its leases as a single
lease component. Operating leases are included in operating lease ROU assets and operating lease liabilities, current and noncurrent,
on the condensed consolidated balance sheets. Lease expense is recognized on a straight-line basis based on the total contractually required
lease payments, over the term of the lease. Fair
Value of Financial Instruments The
Company applies the provisions of ASC 820, Fair Value Measurements and Disclosures, which provides a single authoritative definition
of fair value, sets out a framework for measuring fair value and expands on required disclosures about fair value measurement. Fair value
represents the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous
market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company uses the
following hierarchy in measuring the fair value of the Company’s assets and liabilities, focusing on the most observable inputs
when available:
● Level
1 Quoted prices in active markets for identical assets or liabilities.
● Level
2 Observable inputs other than Level 1 quoted prices, such as quoted prices for similar assets and liabilities in active markets,
quoted prices in markets that are not active for identical or similar assets and liabilities, or other inputs that are observable
or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
● Level
3 Valuations are based on the inputs that are unobservable and significant to the overall fair value measurement of the assets or
liabilities. Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability
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