Half-year Report

LONDON STOCK EXCHANGE (LSE): GAN | IRISH STOCK EXCHANGE (ISE): GAME

2017 Half Year Report

Maiden Positive H1 clean EBITDA for the Period ended June 30, 2017

LSE: GAN ISE: GAME

London & Dublin | September 28, 2017: GAN plc ("GAN" or the "Group"), a leading B2B supplier of Internet gaming enterprise software-as-a-service solutions to the US land-based casino Industry, announces its results for the six months ended June 30, 2017.

GAN is pleased to report its maiden positive clean EBITDA1 during a half-year period as a public company with trading for the remainder of the current financial year ahead of management expectations.

Financial Overview

· 17% increase in gross income to £18.6m (H1 2016: £15.9m)

· Group Net Revenue of £4.1m (H1 2016: £3.9m), an increase of 6%

o Recurring revenues grew by 24% YoY and now account for 86% of Net Revenue

o The US and Italy accounted for 63% and 31% of Net Revenue respectively

· Maiden positive H1 clean EBITDA1 of £24,000 (H1 2016: loss of £0.5m)

· Loss after tax of £2.0m (H1 2016: Loss after tax of £2.3m)

· Basic loss per share of £0.03 (H1 2016: loss per share £0.04)

· Cash and cash equivalents at June 30, 2017 of £3.3m (£3.2m at December 31, 2016)

o Successfully completed Company's first debt issuance, raising gross proceeds of £2.0m in Q2 2017, positioning the Group for further growth

· Net Assets at June 30, 2017 of £9.0m (H1 2016: £10.5m)

Operational Overview and Current Developments

· Launched Simulated Gaming for five (5) new clients in the US during H1 2017 bringing total portfolio of live US casino operator clients to 13 as on June 30, 2017 (as on June 30, 2016: 5)

· Executed definitive agreements to launch a real money Overseas Internet Casino for a major US casino operator to launch in Q4 2017

· Signed second client for real money Regulated Gaming in New Jersey expected to launch in H1 2018 subject to customary regulatory consents

· Won prestigious Internet gaming industry award in the US - eGaming Review North America's 'Freeplay Gaming Supplier of the Year' for Simulated Gaming™

· Post-period end, rapid increase in engineering support team in Bulgaria in order to increase availability of development resources

· Post-period end, received in aggregate £2.2m in cash payments relating to the Overseas Internet Casino and 2016 claim relating to on-going research and development activity

· Post-period end, established wholly-owned subsidiary in Tel Aviv, Israel to support user acquisition marketing worldwide for diverse GAN clients

Dermot Smurfit, CEO of GAN commented:

"The Group generated positive clean EBITDA1 in H1 2017 following a substantial multi-year period of investment focused on the US land-based casino Industry. We anticipate this favourable EBITDA trend to continue throughout H2 2017.

The first half of 2017 saw continued growth in recurring revenues driven by the launch of five new clients of Simulated Gaming and strong growth in real money Regulated Gaming markets in the US and Europe.

We remain encouraged by the growth characteristics of Simulated Gaming and have already seen a major uplift in player activity as we begin to experience the onset of the seasonally strong Autumn/Fall period.

GAN's Overseas Internet Casino for one of the largest casino operating groups in the US represents the culmination of GAN's long-term mission to move land-based US casinos online in domestic US intra-State markets or selected International regulated markets. This represents an exciting new B2B business for GAN, which will benefit greatly from the client's material marketing investment.

As the numbers illustrate our Group has now moved into sustainable profitability at the clean EBITDA1 level. Growth prospects for Simulated Gaming™ and real money Regulated Gaming continue to offer the Company a viable path to creating significant incremental shareholder value."

Notes

1. Clean EBITDA is a non GAAP company specific measure and excludes interest, tax, depreciation, amortisation, share based payment expense and other items which the directors consider to be non-recurring and one time in nature

Note regarding forward-looking statements

This announcement includes forward-looking statements, including statements concerning current expectations about future financial performance and economic and market conditions which GAN believes are reasonable. However, these statements are neither promises nor guarantees, but are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated.

Half-Year Results | Conference Call Details

The GAN management team will host a conference call for analysts & institutional investors at 4pm BST (11am EST / 8am PST).

Please use the following dial in numbers:

UK Participants: 0800 756 3429

US & Canada Participants: 877-407-8629

International Participants: 201-493-6715

The Half Year Results Press Release and Presentation is available to download from the website, www.GAN.com

Half-Year Results | Webcast

The call will also be simultaneously webcast over the Internet via the following link:

http://gan.equisolvewebcast.com/h1-results 

and such link will also be made available in the "Results and Presentations" section of GAN's website www.GAN.com/investors/results-and-presentations 

GAN plc

FINANCIAL REVIEW

Summary

Net revenue for the six months ended 30 June 2017 was £4.1m compared to £3.9m for the six months ended 30 June 2016. Clean EBITDA of £24,000 is £0.6m favourable to the prior year period clean EBITDA loss of £0.5m. Loss after taxation of £2.0m for the current period compared to a loss before and after taxation of £2.3m in the comparative period.

The Group continues to benefit from focusing on building its recurring revenue base in both of its primary markets, the US and Italy, while accelerating measures to reduce the underlying cost base of the business without compromising product or customer delivery. Overall B2B and B2C recurring revenues have grown by 24% year on year and now represent 86% of total net revenue compared to 76% in the comparative half year period. The US remains the Group's principal market and net revenue of £2.6m increased by £0.1m over the comparative period and accounts for 63% of total net revenue. Real money gaming revenue from the Italian market has increased by 33% and now represents 31% of total net revenue. The group has continued to rationalise its cost base principally through the expansion of its technical development office in Bulgaria.

On 28 April, 2017, the Group announced that it had raised gross proceeds of £2.0m through the successful placing of a 9% unsecured convertible loan note issue. The new capital will enable the Group to take advantage of expected real money regulated gaming opportunities in the US as well as for working capital and general business development opportunities.

Cash and cash equivalents at the end of the period was £3.3m compared to £4.0m at 30 June 2016 and £3.2m at 31 December 2016. Net Assets at 30 June 2017 of £9.0m compared to £10.5m at 30 June 2016 and £10.9m for the year ended 31 December 2016.

Revenue

Gross income of £18.6m for the six months ended 30 June 2017 represents an increase of £2.7m compared to the period ended 30 June 2016. Net revenue for the period of £4.1m is £0.2m higher than the comparative six month period primarily due to increased revenue share from both the Italian and US markets. B2B net revenue of £3.9m is £0.2m, 5% higher than the comparative period while B2C net revenue of £0.2m is consistent with the prior year period.

The Group categorises B2B net revenue into two distinct revenue streams; revenue share and other revenue (recurring in nature) and game and platform development (one time and primarily non-recurring in nature). Recurring revenues are principally generated in the real money gaming markets of Italy in Europe and New Jersey in the US and by Simulated GamingTM markets in the US and Australia. B2B recurring revenues have increased by 26% from £2.7m in the prior year comparative period to £3.4m for the six months ended June 30 2017 and account for 82% of overall Group net revenue. This growth has been due to increases in both Simulated GamingTM and real money gaming revenues from the US and Italian markets. Game and platform development revenue has decreased to £0.6m from £1.0m in the first half of 2016 as a result of reduced non-recurring real money gaming platform development fees in the US market.

Expenses

Distribution costs include royalties payable to third parties, B2B and B2C direct marketing expenditure, the direct costs of operating the hardware platforms deployed across the business, and depreciation and amortisation, which in total have increased from £3.4m in the comparative period to £3.6m for the six months ended 30 June 2017. The increase is due primarily to amortisation of intangible assets of £1.9m (2016 HY: £1.4m), an increase of £0.5m, as a result of our substantial investment in product and system development and also due to increased royalties payable to providers of third party games content in Italy for real money gaming and in the US for Simulated GamingTM consequent to increased revenues. Expenditure on B2B marketing and technology infrastructure has reduced significantly, partially offsetting the increased amortisation and royalty expenditure, as the Group continues to benefit from prior period investment in these areas.

Administration expenses include the costs of personnel and related expenditure for the London, Las Vegas and Sofia offices. Total administrative expenses have increased slightly from £2.8m in the prior year comparative period to £2.9m for the six months ended 30 June 2017. Reduced ongoing expenditure on personnel and related expenditure as

GAN plc

FINANCIAL REVIEW (Continued)

a result of a headcount restructuring earlier in the period has been offset by the impact of redundancy costs and unfavourable foreign exchange movements.

EBITDA

Clean EBITDA is a non GAAP company specific measure and excludes interest, tax, depreciation, amortisation, share based payment expense and other items which the directors consider to be non-recurring and one time in nature. The directors regard Clean EBITDA as a reliable measure of profits that is not unduly subjective.

Clean EBITDA for the six month period ended 30 June 2017 of £24,000 is £0.6m better than the comparative figure (2016 Clean EBITDA loss of £0.5m), primarily due to increased B2B net revenue of £0.2m and reduced distribution and administration expenses before depreciation, amortisation and exceptional items of £0.4m.

Cashflow

The cash balance at 30 June 2017 was £3.3m representing an increase of £0.1m from 31 December 2016 (£3.2m). During the six month period, the Group has continued to invest in its Internet Gaming System deployment capability and product enhancement however cash has increased by £0.1m from the year-end balance at 31 December 2016 (£3.2m) as a result of the 9% unsecured convertible loan note issue in April 2017 which generated £2.0m in gross proceeds.

In addition to operating cash outflow before movements in working capital and taxation of £0.3m, cash outflows during the period include £1.7m in incremental investment in intangible fixed assets primarily related to the capitalisation of internal development time and working capital movement of £0.1m offset by cash generated from financing activities of £2.0m following the issue of the convertible loan note in April of this period. Net cash generated during the period of £0.1m resulted in an increased cash balance at 30 June 2017 of £3.3m.

Outlook

B2B revenue share and other revenue is expected to show continued growth for the second half of the year. In the US market, revenues from the 13 US based Simulated GamingTM casino operators at 30 June 2017 are expected to benefit from the seasonally strong autumn period and the impact of full year revenues for operators launched during the first half of the year. The Group began the year with nine Simulated GamingTM operators, including one operator in Australia, and launched five new casino operators during the period; Turning Stone Resort Casino in March and a further four operators in May including Winstar World Casino and Resort. The Group expects to experience significant growth in Simulated GamingTM revenues in the second half of the year as a result of these new launches and from further product development expected to generate incremental revenues for both new and existing operators. In addition, the strong revenue growth from Italian real money gaming operators realised in the six months ended 30 June 2017 is expected to persist for the remainder of the year.

B2B game and platform development revenues are expected to increase in the second half of the year primarily due to development revenues to be recognised upon the launch of a new real money gaming website and mobile application as a result of an extension of an existing partnership with a major US casino operator.

The Group expects distribution costs to increase due to increased royalties payable to third parties as a result of increased Italian real money gaming revenues and US Simulated GamingTM revenues. Administrative expenses before foreign exchange movements are expected to remain stable in the second half of the year as the Group continues to expand its technical development office in the lower cost market of Bulgaria.

The Group has raised gross proceeds year to date of £2.0m in order to take advantage of expected real money regulated gaming opportunities in the US as well as for working capital and general business development opportunities.

FINANCIAL REVIEW (Continued)

KEY PERFORMANCE INDICATORS

The performance of the Group during the period demonstrates the Group's strategy to grow recurring revenues through both its real money gaming business in the US and Italy and its Simulated GamingTM business in the US and Australia. The directors regard clean earnings before interest, tax, depreciation, amortisation, share based payment expense and other items ("Clean EBITDA") as a reliable measure of profits and the Group's key performance indicators are set out below:

The Board also monitor customer related KPIs, including number of active players, revenue by partner, business segment profitability and geographic split of turnover.

GAN plc

For the period ended 30 June 2017

Consolidated statement of comprehensive income

Clean EBITDA is a non GAAP company specific measure and excludes interest, tax, depreciation, amortisation, share based payment expenses and other items which the directors consider to be non-recurring and one time in nature. Where not explicitly mentioned, EBITDA refers to EBITDA from continuing operations.

GAN plc

For the period ended 30 June 2017

Consolidated statement of financial position

GAN plc

For the period ended 30 June 2017

Consolidated statement of changes in equity

The following describes the nature and purpose of each reserve within equity:

GAN plc

For the period ended 30 June 2017

Consolidated statement of cash flows

GAN plc

For the period ended 30 June 2017

Notes to the financial statements

1. Basis of preparation and accounting policies

The financial information in this document has been prepared in accordance with the recognition and measurement requirements of International Financial Reporting Standards, International Accounting Standards and interpretations (collectively, "IFRS") issued by the International Accounting Standards Board (IASB) as adopted by the European Union ("adopted IFRSs").

The financial information for the period ended 30 June 2017 does not constitute the full statutory accounts for that period. The Annual Report and Financial Statements for 2016 have been filed with the Registrar of Companies. The Independent Auditors' Report on the Annual Report and Financial Statements for 2016 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

This interim report, which has neither been audited nor reviewed by independent auditors, was approved by the board of directors on 28 September 2017. The financial information in this interim report has been prepared in accordance with the recognition and measurement requirements of International Financial Reporting Standards as adopted for use in the EU (IFRSs). The accounting policies applied by the Group in this financial information are the same as those applied by the Group in its financial statements for the year ended 31 December 2016, with the addition of a new accounting policy to reflect the issue of a convertible loan note during the year. The loan note will be treated as debt, without any equity component, in line with management judgement, including annual interest accrued on a straight line basis. These accounting policies will form the basis of the 2017 financial statements.

Adoption of new and revised standards

In the current period the Group has adopted all of the new and revised standards and interpretations issued by the IASB and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB, as they have been adopted by the European Union, that are relevant to its operations and effective for accounting years beginning on 1 January 2017. None of the new standards adopted had a material impact on the Financial Statements of the Group.

New standards, amendments to standards and interpretations have been issued but are not effective (and in some cases had not yet been adopted by the EU) for the financial year beginning 1 January 2017. These have not been early adopted and the Directors are still considering the potential impact of IFRS9: Financial Instruments, IFRS15: Revenue from Contracts with customers and IFRS 16: Leases.

2. Judgements and estimates

The preparation of interim financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates.

In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were consistent with those that applied to the consolidated financial statements as at and for the year ended 31 December 2016. In issuing the convertible loan note during the year, management have made judgement that the interest rate of the loan reflects the fair value of the debt and therefore there is no equity component to be recognised.

The risks and uncertainties and significant estimates and judgements faced by the Group have not changed significantly since the 2016 Annual Report was published and are not expected to change significantly during the remaining six months of the financial year.

GAN plc

For the period ended 30 June 2017

Notes to the financial statements (continued)

 3. Net revenue

4. Segmental information

Information reported to the Group's Chief Executive, the strategic chief operating decision‑maker, for the purposes of resource allocation and assessment of the Group's segmental performance is primarily focused on the origination of the revenue stream. The Group's reportable segment under IFRS 8 is Business to business ("B2B").

In the prior year the Group reported principal segments of "B2B and "B2C". The current distinction between segments has been agreed by the Board in light of the continued strategic move toward a B2B only market, the relative insignificance of the B2C operations, and reflects the management reporting to the chief operating decision maker. The category 'Other' reflects the group's B2C operations, which the Board consider is no longer a reportable segment.

Segment revenues and results

The following is an analysis of the Group's revenue and results by reportable segment.

GAN plc

For the period ended 30 June 2017

Notes to the financial statements (continued)

The accounting policies of the reportable segments follow the same policies as described in note 1. Segment result represents the gross profit earned by each segment without allocation of the share of administration costs including Directors' salaries, finance costs and income tax expense. This is the measure reported to the Group's Chief Executive for the purpose of resource allocation and assessment of segment performance.

Administration expenses comprise principally the employment and office costs incurred by the Group.

Segment assets and liabilities

Assets and liabilities are not separately analysed or reported to the Group's Chief Executive and are not used to assist in decisions surrounding resource allocation and assessment of segment performance. As such, an analysis of segment and liabilities has not been included in this financial information.

GAN plc

For the period ended 30 June 2017

Notes to the financial statements (continued)

Geographical analysis of revenues

This analysis is determined based upon the location of the legal entity of the customer.

Geographical analysis of non‑current assets

5. Exceptional costs

GAN plc

For the period ended 30 June 2017

Notes to the financial statements (continued)

6. Trade and other receivables

Other receivables include amounts due from payment service providers and VAT recoverable.

Non‑current assets

Non-current assets relate to the deposits provided in respect of leased office space. The amount is repayable in accordance with the terms of the agreement.

7. Trade and other payables

GAN plc

For the period ended 30 June 2017

Notes to the financial statements (continued)

7. Trade and other payables (continued)

Non‑current liabilities

Long term loan

In April 2017, the Group raised £2m following issue of 2,001,483 £1 Convertible Unsecured loan notes.

The loan notes have an interest rate of 9% payable quarterly in arrears from 1 January 2018, with redemption in April 2022. During the period interest of £30,000 was accrued in relation to the loan notes.

The loan notes can be converted into Ordinary shares at a conversion price of 45.5p per Ordinary share, provided noteholders pass a special resolution resolving to convert them.

The directors do not believe there is any equity component of the convertible loan as the interest rate reflects the fair value of the debt and therefore the loan note is treated as a liability.

8. Share capital

Issue of shares

(i) 9,331,888 ordinary shares of 1p each were issued at a premium of 27p during the year ended 31December 2016 generating gross proceeds of £2,612,929.

(ii) 1,500,000 ordinary share of 1p each were issued at a premium of 29p during the year ended 31December 2016 generating gross proceeds of £450,000.

(iii) 3,250,000 ordinary share of 1p each were issued at a premium of 39p during the year ended 31December 2016 generating gross proceeds of £1,300,000.

GAN plc

For the period ended 30 June 2017

Notes to the financial statements (continued)

9. Earnings per share

Basic earnings per share is calculated by dividing the profit/(loss) attributable to equity shareholders of the company by the weighted average number of ordinary shares in issue during the period.

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The company has issued share options and a calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average market share price for the period) based on the monetary value of the subscription rights attached to the outstanding share options. All share options are anti-dilutive at the current and prior year reporting dates and the number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options.

10. Related party transactions

The offer of a 9% Convertible Loan Note for a consideration of £2million in April 2017 was in part accepted by Roger Kendrick for £94,822, who is a director, Michael Smurfit Jnr for £3,988, who is a director and Sir Michael Smurfit for £1,854,154, who is a related party to Michael Smurfit Jnr.