SHARE-BASED COMPENSATION

6 Months Ended

Jun. 30, 2024

Share-Based Payment Arrangement [Abstract]

SHARE-BASED COMPENSATION

NOTE 7 — SHARE-BASED COMPENSATION

In April 2020, the Board of Directors established the GAN Limited 2020 Equity Incentive Plan (“2020 Plan”) which has been approved by the Company’s shareholders. The 2020 Plan initially provides for grants of up to 4,400,000 ordinary shares, which then increases through 2029, by the lesser of 4% of the previous year’s total outstanding ordinary shares on December 31^st or as determined by the Board of Directors, for ordinary shares, incentive share options, nonqualified share options, share appreciation rights, restricted share grants, share units, and other equity awards for issuance to employees, consultants or non-employee directors. At June 30, 2024, the 2020 Plan provided for grants of up to 11,075,190 ordinary shares and there were 3,356,755 ordinary shares available for future issuance under the 2020 Plan.

Share Options

A summary of the share option activity as of and for the six months ended June 30, 2024 is as follows:

				Weighted		Weighted
				Average		Average		Aggregate
	Number of			Exercise		Contractual		Intrinsic
	Shares			Price		Term		Value
Outstanding at December 31, 2023		2,680,190		$	5.69		6.43	$	1,877
Granted		50,000			0.01
Exercised		(8,012	)		0.01
Forfeited/expired or cancelled		(274,841	)		5.15
Outstanding at June 30, 2024		2,447,337		$	5.66		6.13	$	1,899
Options exercisable at June 30, 2024		1,786,821		$	6.92		5.29	$	986

The Company recorded share-based compensation expense related to share options of $403 and $879 for the three months ended June 30, 2024 and 2023, respectively, and $819 and $1,535 for the six months ended June 30, 2024 and 2023, respectively. Share-based compensation expense was recorded net of capitalized software development costs of $38 and $58 for the six months ended June 30, 2024 and 2023, respectively. At June 30, 2024, there was a total unrecognized compensation cost of $2,077 related to non-vested share options. The unrecognized compensation cost is expected to be recognized over a weighted-average period of 2.3 years.

Share option awards generally vest 25% after one year and then monthly over the next 36 months thereafter and have a maximum term of ten years. During the six months ended June 30, 2024, the Board of Directors approved the issuance of options to purchase 50,000 ordinary shares to employees under the 2020 Plan, all of which were share options granted with an exercise price of $0.01 per share to certain European-based employees in lieu of restricted share units. The value of these options are based on the market value of the Company’s ordinary shares at the date of the grant. As all such options are in-the-money, the Company determined that utilizing an option pricing model to estimate the fair value of these options was not necessary. The weighted average grant date fair value of options granted was $1.55 and $0.00 for the three months ended June 30, 2024 and 2023, respectively, and $1.55 and $1.70 for the six months ended June 30, 2024 and 2023, respectively.

For options granted during the six months ended June 30, 2024, the fair value of each share option award is estimated on the date of grant using the Black-Scholes option pricing model that uses the assumptions noted above. Estimating the grant date fair values for employee share options requires management to make assumptions regarding expected volatility of the value of those underlying shares, the risk-free rate of the expected life of the share options and the date on which share-based compensation is expected to be settled. Expected volatility is determined by reference to volatility of certain identified peer group share trading information and share prices on the Nasdaq stock exchange. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The expected term of the options is based on historical data and represents the period of time that options granted are expected to be outstanding. For the three and six months ended June 30, 2024 and 2023, volatility, term, and risk-free interest rate were not meaningful inputs as all outstanding options were $0.01 per share for the Company’s European based employees.

Restricted Share Units

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

GAN LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except share and per share amounts)

During the first and second quarter of 2024, there were no issuances of restricted share units to its non-employee directors or employees.

The Company withholds a portion of the restricted share units granted to its officers and non-employee directors upon vesting in order to remit a cash payment to the officers and directors equal to their tax expense. The liabilities are recorded in accrued compensation and benefits in the condensed consolidated balance sheets. During the three months ended June 30, 2024, 3,890 restricted share units held by the Company’s officers and non-employee directors vested and the Company repurchased 912 of the shares to cover the tax expense incurred by the officers and non-employee directors.

The Company recorded share-based compensation expense related to restricted share units of $386 and $749 for the three months ended June 30, 2024 and 2023, respectively, $822 and $1,396 for the six months ended June 30, 2024 and 2023, respectively. At June 30, 2024, there was a total unrecognized compensation cost of $3,407 related to non-vested restricted share units. The unrecognized compensation cost is expected to be recognized over a weighted-average period of 2.61 years.

GAN LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except share and per share amounts)

A summary of the restricted share unit activity as of and for the six months ended June 30, 2024 is as follows:

				Weighted
				Average
	Number of			Grant Date
	Shares			Fair Value
Outstanding at December 31, 2023		2,212,244		$	2.49
Granted		—			—
Vested		(484,614	)		2.68
Forfeited/expired or cancelled		(46,918	)		3.11
Outstanding at June 30, 2024		1,680,712		$	2.42

Restricted Share Awards

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

The Company recorded share-based compensation expense related to the restricted share awards of $41 for the three months ended June 30, 2023 and $83 for the six months ended June 30, 2023. There was no share-based compensation expense related to restricted share awards in the current year. As of December 31, 2023, all awards were vested and there were no additional issuances in the current year.

2020 Employee Stock Purchase Plan

The Board of Directors established the 2020 Employee Stock Purchase Plan, or the ESPP, which was approved by the Company’s shareholders in July 2021. The ESPP is intended to qualify under Section 423 of the U.S. Internal Revenue Service Code of 1986, as amended. The ESPP provides initially for 300,000 ordinary shares to be sold and increases on February 1, 2022, and on each subsequent February 1 through and including February 1, 2030, equal to the lesser of (i) 0.25 percent of the number of ordinary shares issued and outstanding on the immediately preceding December 31, or (ii) 100,000 ordinary shares, or (iii) such number of ordinary shares as determined by the Board of Directors.

GAN LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except share and per share amounts)

The ESPP is designed to allow eligible employees to purchase ordinary shares, at quarterly intervals, with their accumulated payroll deductions. The participants are offered the option to purchase ordinary shares at a discount during a series of successive offering periods. The option purchase price may be the lower of 85% of the closing trading price per share of the Company’s ordinary shares on the first trading date of an offering period in which a participant is enrolled or 85% of the closing trading price per share on the purchase date, which will occur on the last trading day of each offering period. An offering period is defined as a three-month duration commencing on or about March, June, September and December of each year, and one purchase period is included within each offering period. The Company’s first offering period commenced on June 1, 2022. The Company suspended its ESPP in February 2023. The Company issued 57,960 shares under the ESPP and recognized share-based compensation expense of $18 related to the ESPP during the six months ended June 30, 2023. During the three and six months ended June 30, 2024, the Company did not issue shares under the ESPP or recognize share-based compensation expense related to the ESPP.

Content Provider Issuance

On March 29, 2023, the Company amended and restated its commercial agreement with a content provider. In conjunction with this agreement, the Company entered into a Subscription Agreement with the content provider, under which the content provider has subscribed to 1,250,000 of the Company’s ordinary shares. These shares were issued on April 25, 2023. On May 8, 2023, the Company registered the shares in connection with an S-1 resale registration statement. Refer to Note 15 – Commitments and Contingencies for further details.