GAN blamed the delay in releasing the annual report on two deals that closed near to the 31 March filing date, causing GAN to request regulatory relief from the SEC. The business issued the document to the public on 14 April – within the 15-day extension it had been seeking from the financial regulator.
As previously reported, GAN recorded revenue of $141.5m (£113.8m/€129.1m) for full-year 2022, up by 14%.
Net loss for the year was $197.5m, a considerable increase from a loss of $30.5m in 2021.
Weaknesses with financial reporting
In the risk section of its annual report, GAN – which operates on both a B2B and B2C basis – outlined a previously announced “material weakness” in relation to its internal control over financial reporting.
“Specifically, certain time and functions previously reported as attributable to software development were not applied consistently with applicable accounting principles,” said the business.
Additionally, the company said that there were issues evaluating the accounting for revenue with customers that included significant customisation services. More problems came from deficiencies in the design of its control since, where GAN did not have effective risk assessment over segregation of duties.
This manifested with certain finance users granted “super user” access and security administration rights to the business’ financial reporting systems. The activity of these users was “not actively monitored”, and no segregation of duties over journal entry preparation and approval existed at all within its B2C operations.
“The effects of the capitalised software development and revenue recognition errors resulted in an overstatement of capitalised software development costs, net, and an overstatement of development revenues resulting in a restatement of our quarterly reports on Form 10-Q for each of the periods ended 31 March 2021, 30 June 2021 and 30 September 2021,” read the report.
Continuing problems in B2C segment
In 2022, the business implemented a number of measures to improve its internal controls to fix the weaknesses in its reporting pipeline. GAN said that these reforms were sufficiently successful so that the “capitalised software development costs, and segregation of duties within our B2B segment existing as of 31 December 2021 has been remediated”.
“However, the material weakness related to the segregation of duties over journal entry preparation and approval within the B2C segment has not been remediated,” said the business.
“While we are designing and implementing measures to remediate the remaining material weakness in the B2C segment, we cannot predict the success of such measures or the outcome of our assessment of these measures at that time.”