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What changed in Snail, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Snail, Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+491 added−504 removedSource: 10-K (2025-03-26) vs 10-K (2024-04-01)

Top changes in Snail, Inc.'s 2024 10-K

491 paragraphs added · 504 removed · 349 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

170 edited+63 added−91 removed100 unchanged
Biggest changeNon controlling Total Shares Amount Shares Amount Capital Loss Deficit Shares Amount Equity interests Equity Balance at December 31, 2022 9,251,420 $ 925 28,748,580 $ 2,875 $ 23,436,942 $ (307,200 ) $ (4,863,250 ) (1,197,649 ) $ (3,414,713 ) $ 14,855,579 $ (5,490,895 ) $ 9,364,684 Balance, value 9,251,420 $ 925 28,748,580 $ 2,875 $ 23,436,942 $ (307,200 ) $ (4,863,250 ) (1,197,649 ) $ (3,414,713 ) $ 14,855,579 $ (5,490,895 ) $ 9,364,684 Return of dividend distribution tax withholding payment - - - - 1,886,600 - - - - 1,886,600 - 1,886,600 Stock based compensation related to restricted stock units - - - - 848,035 - - - - 848,035 - 848,035 Common stock issued for service 24,000 2 - - (2 ) - - - - - - - Repurchase of common stock - - - - - - - (152,626 ) (257,093 ) (257,093 ) - (257,093 ) Foreign currency translation - - - - - 52,817 - - - 52,817 - 52,817 Net loss - - - - - - (9,086,075 ) - - (9,086,075 ) (8,349 ) (9,094,424 ) Net income (loss) - - - - - - (9,086,075 ) - - (9,086,075 ) (8,349 ) (9,094,424 ) Balance at December 31, 2023 9,275,420 $ 927 28,748,580 $ 2,875 $ 26,171,575 $ (254,383 ) $ (13,949,325 ) (1,350,275 ) $ (3,671,806 ) $ 8,299,863 $ (5,499,244 ) $ 2,800,619 Balance, value 9,275,420 $ 927 28,748,580 $ 2,875 $ 26,171,575 $ (254,383 ) $ (13,949,325 ) (1,350,275 ) $ (3,671,806 ) $ 8,299,863 $ (5,499,244 ) $ 2,800,619 See accompanying notes to consolidated financial statements F-5 Snail, Inc. and Subsidiaries Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022 2023 2022 Cash flows from operating activities: Net (loss) income $ (9,094,424 ) $ 994,178 Adjustments to reconcile net (loss) income to net cash used in operating activities: Amortization - intangible assets - license - 250,000 Amortization - intangible assets - license, related parties 1,384,058 7,403,918 Amortization - intangible assets - other 804 3,751 Amortization - intangible assets Amortization - loan origination fees and debt discounts 124,595 26,514 Accretion – convertible notes 306,664 - Depreciation and amortization - property and equipment 432,306 565,906 Stock-based compensation expense 848,035 223,250 Gain on lease termination - (122,533 ) Gain on paycheck protection program and economic injury disaster loan forgiveness - (174,436 ) Loss (gain) on disposal of fixed assets 427 (17,067 ) Interest income from shareholder loan - (580,878 ) Interest income from restricted escrow deposit - (3,804 ) Credit losses 581,498 - Deferred taxes, net (2,644,964 ) 588,478 Changes in assets and liabilities: Accounts receivable (18,939,465 ) 5,486,716 Accounts receivable - related party 3,824,775 (2,908,361 ) Prepaid expenses - related party (8,245,966 ) (2,437,500 ) Prepaid expenses and other current assets 501,104 (1,875,919 ) Other noncurrent assets - (26,052 ) Accounts payable 2,992,856 4,976,192 Accounts payable - related parties 3,176,177 (3,815,313 ) Accrued expenses and other liabilities 659,647 (1,039,927 ) Interest receivable - related party (2,000 ) - Interest payable - related parties - 986 Lease liabilities (205,520 ) (145,949 ) Deferred revenue 24,765,261 (10,729,488 ) Net cash provided by (used in) operating activities 465,868 (3,357,338 ) Cash flows from investing activities: Repayment on loan provided by related party - (300,000 ) Purchases of property and equipment - (5,256 ) Proceeds from sale of property and equipment - 19,500 Repayment on Pound Sand note - 1,496,063 Net cash provided by investing activities - 1,210,307 Cash flows from financing activities: Repayments on promissory note (79,897 ) (70,961 ) Repayments on notes payable (6,500,000 ) (4,166,667 ) Repayments on revolving loan (3,000,000 ) - Borrowings on notes payable 3,000,000 - Borrowings on short-term note - 10,000,000 Proceeds from issuance of convertible notes 847,500 - Refund of dividend withholding tax overpayment 1,886,600 - Payments on paycheck protection program and economic injury disaster loan - (90,198 ) Refund of payments on paycheck protection program and economic injury disaster loan - 48,305 Cash dividend declared and paid - (8,200,000 ) Purchase of treasury stock (257,093 ) (3,414,713 ) Proceeds from initial public offering, net of offering costs - 11,791,705 Warrants issued to underwriters - 193,927 Payments of capitalized offering costs - (1,247,567 ) Payments of offering costs in accounts payable (342,318 ) - Release of restricted escrow deposit 1,003,804 - Net cash (used in) provided by financing activities (3,441,404 ) 4,843,831 Effect of foreign currency translation on cash and cash equivalents 51,670 (12,730 ) Net (decrease) increase in cash and cash equivalents, and restricted cash and cash equivalents (2,923,866 ) 2,684,070 Cash and cash equivalents, and restricted cash and cash equivalents - beginning of the year 19,238,185 16,554,115 Cash and cash equivalents, and restricted cash and cash equivalents – end of the year $ 16,314,319 $ 19,238,185 Supplemental disclosures of cash flow information Cash paid during the year for: Interest $ 934,523 $ 788,063 Income taxes $ 248,388 $ 888,303 Noncash transactions during the year for: Loan and interest payable - related parties $ - $ 103,890 Loan and interest receivable - related parties $ - $ (103,890 ) Loan and interest from shareholder $ - $ 94,934,400 Dividend distribution $ - $ (94,934,400 ) Noncash finance activity during the year for: Issuance of warrants in connection with the equity line of credit $ (105,411 ) $ - Gain on paycheck protection program and economic injury disaster loan forgiveness $ - $ (174,436 ) Snail Games USA common stock transferred due to reorganization $ - $ (5,000 ) Snail, Inc. common stock and additional paid-in capital transferred due to reorganization $ - $ 5,000 Offering costs included in accounts payable $ - $ 605,295 Funding of the escrow deposit $ - $ (1,000,000 ) See accompanying notes to consolidated financial statements F-6 Snail Inc. and Subsidiaries Notes to Consolidated Financial Statements NOTE 1 – PRESENTATION AND NATURE OF OPERATIONS Snail, Inc. was incorporated under the laws of Delaware in January 2022.
Biggest changeNon controlling Total Shares Amount Shares Amount Capital Loss Deficit Shares Amount Equity interests Equity Balance at December 31, 2023 9,275,420 $ 927 28,748,580 $ 2,875 $ 26,171,575 $ (254,383 ) $ (13,949,325 ) (1,350,275 ) $ (3,671,806 ) $ 8,299,863 $ (5,499,244 ) $ 2,800,619 Balance 9,275,420 $ 927 28,748,580 $ 2,875 $ 26,171,575 $ (254,383 ) $ (13,949,325 ) (1,350,275 ) $ (3,671,806 ) $ 8,299,863 $ (5,499,244 ) $ 2,800,619 Conversion of notes payable 71,460 7 - - 59,993 - - - - 60,000 - 60,000 Exercise of warrants 235,712 24 - - 396,726 - - - - 396,750 - 396,750 Stock based compensation related to restricted stock units - - - - (890,208 ) - - - - (890,208 ) - (890,208 ) Common stock issued for service 43,478 4 - - (4 ) - - - - - - - Foreign currency translation - - - - - (25,074 ) - - - (25,074 ) - (25,074 ) Net income (loss) - - - - - - 1,831,940 - - 1,831,940 (4,865 ) 1,827,075 Net income (loss) - - - - - - 1,831,940 - - 1,831,940 (4,865 ) 1,827,075 Balance at December 31, 2024 9,626,070 $ 962 28,748,580 $ 2,875 $ 25,738,082 $ (279,457 ) $ (12,117,385 ) (1,350,275 ) $ (3,671,806 ) $ 9,673,271 $ (5,504,109 ) $ 4,169,162 Balance 9,626,070 $ 962 28,748,580 $ 2,875 $ 25,738,082 $ (279,457 ) $ (12,117,385 ) (1,350,275 ) $ (3,671,806 ) $ 9,673,271 $ (5,504,109 ) $ 4,169,162 See accompanying notes to the consolidated financial statements F-6 Snail, Inc. and Subsidiaries Consolidated Statements of Cash Flows for the Years Ended December 31, 2024 and 2023 2024 2023 Cash flows from operating activities: Net income (loss) $ 1,827,075 $ (9,094,424 ) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Amortization - intangible assets, net 7,804 1,384,862 Amortization - loan origination fees and debt discounts 62,855 124,595 Accretion – convertible notes 222,628 306,664 Loss on change in fair value of warrant liabilities 1,332,815 32,883 Depreciation - property and equipment 303,714 432,306 Stock-based compensation expense (income) (890,208 ) 848,035 Loss on disposal of fixed assets - 427 Credit losses - 581,498 Deferred taxes, net (569,601 ) (2,644,964 ) Changes in assets and liabilities: Accounts receivable 15,319,987 (18,939,465 ) Accounts receivable - related party 3,663,726 3,824,775 Prepaid expenses - related party 1,928,581 (8,245,966 ) Prepaid expenses and other current assets (1,206,331 ) 501,104 Prepaid taxes 2,211,331 - Other noncurrent assets (1,523,065 ) - Accounts payable (7,183,648 ) 2,992,856 Accounts payable - related parties (8,001,265 ) 3,176,177 Accrued expenses and other liabilities 46,542 626,764 Interest receivable - related parties (2,005 ) (2,000 ) Lease liabilities (266,800 ) (205,520 ) Deferred revenue (8,849,259 ) 24,765,261 Net cash provided by (used in) operating activities (1,565,124 ) 465,868 Cash flows from financing activities: Repayments on promissory note (89,374 ) (79,897 ) Repayments on notes payable (2,333,333 ) (6,500,000 ) Repayments on convertible notes (1,020,000 ) - Repayments on revolving loan (3,000,000 ) (3,000,000 ) Borrowings on notes payable - 3,000,000 Proceeds from issuance of convertible notes - 847,500 Cash proceeds from exercise of warrants 220,000 - Refund of dividend withholding tax overpayment - 1,886,600 Purchase of treasury stock - (257,093 ) Payments of offering costs in accounts payable (262,914 ) (342,318 ) Release of escrow deposit - 1,003,804 Net cash used in financing activities (6,485,621 ) (3,441,404 ) Effect of foreign currency translation on cash and cash equivalents (24,630 ) 51,670 Net decrease in cash and cash equivalents, and restricted cash and cash equivalents (8,075,375 ) (2,923,866 ) Cash and cash equivalents, and restricted cash and cash equivalents - beginning of the period 16,314,319 19,238,185 Cash and cash equivalents, and restricted cash and cash equivalents – end of the period $ 8,238,944 $ 16,314,319 Supplemental disclosures of cash flow information Cash paid during the period for: Interest $ 467,188 $ 934,523 Income taxes $ (1,100,302 ) $ 248,388 Noncash transactions during the period for: Issuance of warrants in connection with the equity line of credit $ - $ (105,411 ) Debt converted to equity $ (60,000 ) $ - Right-of-use assets obtained in exchange for a lease liability $ (85,588 ) $ - Liabilities converted to equity upon exercise of warrants $ 176,750 $ - Acquisition of software in accounts payable – related parties $ 290,000 - Acquisition of license rights in accrued expenses and other liabilities $ 420,000 See accompanying notes to the consolidated financial statements F-7 Snail Inc. and Subsidiaries Notes to Consolidated Financial Statements NOTE 1 – PRESENTATION AND NATURE OF OPERATIONS Snail, Inc. was incorporated under the laws of Delaware in January 2022.
Convertible Note Warrants The convertible note warrants allow the Investors to purchase an aggregate of 714,285 shares of the Company’s Class A common stock at an exercise price of $ 1.89 .
The convertible note warrants allow the Investors to purchase an aggregate of 714,285 shares of the Company’s Class A common stock at an exercise price of $ 1.89 .
F-13 Snail Inc. and Subsidiaries Notes to Consolidated Financial Statements A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Our financial instruments include cash and cash equivalents, restricted cash and cash equivalents, short-term financial instruments, derivative instruments, short-term loans, accounts receivable and accounts payable.
F-13 Snail Inc. and Subsidiaries Notes to Consolidated Financial Statements A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Our financial instruments include cash and cash equivalents, restricted cash and cash equivalents, short-term financial instruments, short-term loans, accounts receivable and accounts payable.
The Company uses a combination of quantitative and qualitative factors to estimate the allowance, including an analysis of the customers’ creditworthiness, historical experience, age of current accounts receivable balances, changes in financial condition or payment terms of our customers, and reasonable forecasts of the collectability of the accounts receivable.
The Company uses a combination of quantitative and qualitative risk factors to estimate the allowance, including an analysis of the customers’ creditworthiness, historical experience, age of current accounts receivable balances, changes in financial condition or payment terms of our customers, and reasonable forecasts of the collectability of the accounts receivable.
Amortizable Intangibles and Other Long-lived Assets The Company’s long-lived assets and other assets consisting of property, plant and equipment and purchased intangible assets, are reviewed for impairment in accordance with the guidance of FASB Topic ASC 360, Property, Plant, and Equipment.
Amortizable Intangibles and Other Long-lived Assets The Company’s long-lived assets and other assets consisting of property and equipment and purchased intangible assets, are reviewed for impairment in accordance with the guidance of FASB Topic ASC 360, Property and Equipment.
Subject to certain ownership limitations, starting three months after their issuance, the Convertible Notes can be converted at the option of the holder at any time into shares of the Company’s Class A common, at a conversion price equal to 90% (85% in case of an event of default) of the average of the three the lowest daily volume weighted average price (“VWAP”) of the Class A common stock during the ten (10) trading days period prior the receipt of the notice of conversion.
Subject to certain ownership limitations, starting three months after their issuance, the Convertible Notes could be converted at the option of the holder at any time into shares of the Company’s Class A common, at a conversion price equal to 90% (85% in case of an event of default) of the average of the three the lowest daily volume weighted average price (“VWAP”) of the Class A common stock during the ten (10) trading days period prior the receipt of the notice of conversion.
On the date of issuance, the Company allocated the proceeds between the instruments issued using fair value for the derivative liability with the residual amounts allocated to the convertible notes and warrants using relative fair value as follows: SCHEDULE OF PROCEEDS BETWEEN THE INSTRUMENTS Convertible notes $ 554,246 Derivative liability - Warrants 445,754 Total proceeds $ 1,000,000 F-28 Snail Inc. and Subsidiaries Notes to Consolidated Financial Statements The difference of $ 525,754 between the allocated proceeds to the Convertible Notes and the aggregate principal amount will be accreted during the life of the notes.
On the date of issuance, the Company allocated the proceeds between the instruments issued using fair value for the derivative liability with the residual amounts allocated to the convertible notes and warrants using relative fair value as follows: SCHEDULE OF PROCEEDS BETWEEN INSTRUMENTS ISSUED Convertible notes $ 554,246 Derivative liability - Warrants 445,754 Total proceeds $ 1,000,000 F-29 Snail Inc. and Subsidiaries Notes to Consolidated Financial Statements The difference of $ 525,754 between the allocated proceeds to the Convertible Notes and the aggregate principal amount will be accreted during the life of the notes.
F-29 Snail Inc. and Subsidiaries Notes to Consolidated Financial Statements Equity Line Purchase Agreement On August 24, 2023, the Company entered into a common stock purchase agreement (the “Equity Line Purchase Agreement”) and a registration rights agreement (the “Registration Rights Agreement”) with an investor, pursuant to which the investor has committed to purchase up to $ 5,000,000 in shares of the Company’s Class A common stock, subject to certain limitations and conditions set forth in the Equity Line Purchase Agreement.
F-30 Snail Inc. and Subsidiaries Notes to Consolidated Financial Statements Equity Line Purchase Agreement On August 24, 2023, the Company entered into a common stock purchase agreement (the “Equity Line Purchase Agreement”) and a registration rights agreement (the “Registration Rights Agreement”) with an investor, pursuant to which the investor has committed to purchase up to $ 5,000,000 in shares of the Company’s Class A common stock, subject to certain limitations and conditions set forth in the Equity Line Purchase Agreement.
Restricted Stock Units (“RSUs”) RSUs granted to directors vest based on the directors’ continued employment with us through each applicable vest date, which is generally over one year . If the vesting conditions are not met, unvested RSUs will be forfeited. The following table summarizes our RSU units activity with directors for the years ended December 31, 2023 and 2022.
Restricted Stock Units (“RSUs”) RSUs granted to directors vest based on the directors’ continued employment with us through each applicable vest date, which is generally over one year . If the vesting conditions are not met, unvested RSUs will be forfeited. The following table summarizes our RSU units activity with directors for the years ended December 31, 2024 and 2023.
SCHEDULE OF RESTRICTED STOCK UNITS ACTIVITY Restricted Stock Units Weighted-Average Grant-Date Fair Values Outstanding as of January 1, 2023 24,000 $ 5.00 Granted 43,478 1.38 Vested (24,000 ) (5.00 ) Forfeited or cancelled — — Outstanding as of December 31, 2023 43,478 $ 1.38 Restricted Stock Units Weighted-Average Grant-Date Fair Values Outstanding as of January 1, 2022 — $ — Granted 24,000 5.00 Vested — — Forfeited or cancelled — — Outstanding as of December 31, 2022 24,000 $ 5.00 The grant date fair value of RSUs granted to directors is based on the quoted market price of our common stock on the date of grant.
SCHEDULE OF RESTRICTED STOCK UNITS ACTIVITY Restricted Stock Units Weighted- Average Grant-Date Fair Values Outstanding as of January 1, 2024 43,478 $ 1.38 Granted — — Vested (43,478 ) (1.38 ) Forfeited or cancelled — — Outstanding as of December 31, 2024 — $ - Restricted Stock Units Weighted- Average Grant-Date Fair Values Outstanding as of January 1, 2023 24,000 $ 5.00 Granted 43,478 1.38 Vested (24,000 ) (5.00 ) Forfeited or cancelled — — Outstanding as of December 31, 2023 43,478 $ 1.38 The grant date fair value of RSUs granted to directors is based on the quoted market price of our common stock on the date of grant.
Hai Shi, the Company’s Founder, Chief Strategy Officer, and Chairman, for breach of contract and related claims arising out of a commercial lease for premises located in Los Angeles County. Plaintiff alleges that the defendants exercised an option to extend the lease and was harmed when defendants instead terminated the lease and vacated the premises.
Hai Shi, the Company’s Founder, Co-Chief Executive Officer, Chief Strategy Officer, and Chairman, for breach of contract and related claims arising out of a commercial lease for premises located in Los Angeles County. Plaintiff alleges that the defendants exercised an option to extend the lease and was harmed when defendants instead terminated the lease and vacated the premises.
The loan bears 2.0 % per annum interest, interest and principal are due in February 2022. In February 2022, Suzhou Snail signed an agreement with this subsidiary and assumed the loan and related interest for a total of $ 203,890 . Subsequently, $ 103,890 was offset against the loan and interest payable owed to Suzhou Snail on a separate note.
The loan bears 2.0 % per annum interest, interest and principal were due in February 2022. In February 2022, Suzhou Snail signed an agreement with this subsidiary and assumed the loan and related interest for a total of $ 203,890 . Subsequently, $ 103,890 was offset against the loan and interest payable owed to Suzhou Snail on a separate note.
Repurchase Activity All share repurchases settled in the year ended December 31, 2023 were open market transactions. As of December 31, 2023, 1,350,275 shares of Class A common stock were repurchased pursuant to the Share Repurchase Program for an aggregate purchase price of approximately $ 3.7 million.
Repurchase Activity All share repurchases settled in the year ended December 31, 2023 were open market transactions. As of December 31, 2024 and 2023, 1,350,275 shares of Class A common stock were repurchased pursuant to the Share Repurchase Program for an aggregate purchase price of approximately $ 3.7 million.
Accounts receivable — related party is non-interest bearing and due on demand. The related party, SDE Inc. (“SDE”), is 100 % owned and controlled by the wife of the Founder, Chief Strategy Officer and Chairman of the Company. In January 2024, the Company entered into an offset agreement with SDE.
Accounts receivable — related party is non-interest bearing and due on demand. The related party, SDE Inc. (“SDE”), is 100 % owned and controlled by the wife of the Founder, Co-Chief Executive Officer, Chief Strategy Officer and Chairman of the Company. In January 2024, the Company entered into an offset agreement with SDE.
The diluted EPS for the period is calculated by dividing the net income (loss) applicable to common stockholders for the period by the weighted average number of shares of common stock and common stock equivalents outstanding during the period. The Company’s common stock equivalents are measured using the treasury stock method and represent unvested restricted stock units and warrants.
The diluted EPS for the period is calculated by dividing the net earnings (loss) applicable to common stockholders for the period by the weighted average number of shares of common stock and common stock equivalents outstanding during the period. The Company’s common stock equivalents are measured using the treasury stock method and represent unvested restricted stock units and warrants.
During the year ended December 31, 2023, the Company prepaid $ 2.5 million for exclusive license rights for an ARK: Survival Ascended DLC to SDE and $ 5.5 million in prepaid royalties related to ARK: Survival Ascended DLC’s which have not yet been released.
During the year ended December 31, 2023, the Company prepaid $ 2.5 million for exclusive license rights for an ARK: Survival Ascended DLC to SDE and $ 5.5 million in prepaid royalties related to ARK: Survival Ascended DLC’s which had not yet been released.
As of December 31, 2023, 1,350,275 shares of Class A common stock were repurchased pursuant to the Share Repurchase Program for an aggregate purchase price of approximately $ 3.7 million.
As of December 31, 2024 and 2023, 1,350,275 shares of Class A common stock were repurchased pursuant to the Share Repurchase Program for an aggregate purchase price of approximately $ 3.7 million.
The Company recognizes revenue from the sale of durable virtual items ratably over the estimated service period for the applicable game (i.e., over time), which represents our best estimate of the average life of the durable virtual item.
The Company recognizes revenue from the sale of durable virtual items ratably over the estimated service period for the applicable game (i.e., over time), which represents our best estimate of the average life of the durable virtual item or the life of the user.
As of December 31, 2023 and 2022, there were non-controlling interests with the following subsidiaries: SCHEDULE OF EQUITY INTEREST AND NON CONTROLLING INTEREST IN SUBSIDIARIES Subsidiary Name Equity % Owned Non-Controlling % Snail Innovative Institute 70 % 30 % BTBX.IO, LLC 70 % 30 % Donkey Crew, LLC 99 % 1 % F-12 Snail Inc. and Subsidiaries Notes to Consolidated Financial Statements Cash and Cash Equivalents and Restricted Cash and Cash Equivalents Cash is available for use in current operations or other activities such as capital expenditures and business combinations.
As of December 31, 2024 and 2023, there were non-controlling interests with the following subsidiaries: SCHEDULE OF EQUITY INTEREST AND NON CONTROLLING INTEREST IN SUBSIDIARIES Subsidiary Name Equity % Owned Non-Controlling % Snail Innovative Institute 70 % 30 % BTBX.IO, LLC 70 % 30 % Donkey Crew, LLC 99 % 1 % F-12 Snail Inc. and Subsidiaries Notes to Consolidated Financial Statements Cash and Cash Equivalents and Restricted Cash and Cash Equivalents Cash is available for use in current operations or other activities such as capital expenditures.
On August 24, 2023, the Company issued a warrant to an investor (the “Equity Line Warrant”) for the purchase of 367,647 shares of Class A common stock in consideration of the investor’s commitment to purchase Class A common stock.
Equity Line Warrants On August 24, 2023, the Company issued a warrant to an investor (the “Equity Line Warrant”) for the purchase of 367,647 shares of Class A common stock in consideration of the investor’s commitment to purchase Class A common stock.
The Company considers a variety of data points when determining and subsequently reassessing the estimated service period for players of our software games. Primarily, the Company reviews the weighted average number of days between players’ first day play online or the subscription trend. The Company also considers publicly available online trends.
The Company considers a variety of data points when determining and subsequently reassessing the estimated service period for players of our software games. Primarily, the Company reviews the weighted average number of days between players’ first and last day playing online or the subscription trend. The Company also considers publicly available online trends.
Additionally, the Company concludes that the Underwriters Warrants meet all requirements for equity classification. Because the Underwriters Warrants are issued to the Underwriters for their services and can be exercised immediately (subject to certain transfer conditions) they will be measured at their fair value on their date of issuance and recorded within stockholders’ equity.
Additionally, the Company concludes that the Underwriters Warrants meet all requirements for equity classification. Because the Underwriters Warrants were issued to the Underwriters for their services and can be exercised immediately (subject to certain transfer conditions) they were measured at their fair value on their date of issuance and recorded within stockholders’ equity.
The following table summarizes our PSU activity with employees, presented with the maximum number of shares that could potentially vest, for the years ended December 31, 2023 and 2022.
The following table summarizes our PSU activity with employees, presented with the maximum number of shares that could potentially vest, for the years ended December 31, 2024 and 2023.
The remaining $ 3.8 million of current non-refundable deferred revenues and $ 2.7 million of long term non-refundable deferred revenue will be recognized as revenue primarily on a straight-line basis over the next 60 months, based on our estimates of technical support obligations, the usage of consumable virtual goods and estimated period of time an end user will play the game.
The remaining $ 3.9 million of current non-refundable deferred revenues and $ 2.6 million of long term non-refundable deferred revenue will be recognized as revenue primarily on a straight-line basis over the next 60 months, based on our estimates of technical support obligations, the usage of consumable virtual goods and estimated period of time an end user will play the game.
For DLC’s, the Company plans to release during the term of the agreement, the Company will now have the option to pay the $ 5.0 million DLC payment in whole or in part, when paid in advance; or in full, upon the DLC release. No payment for any DLC under this agreement will exceed $ 5.0 million.
For DLC’s, the Company plans to release during the term of the agreement, the Company has the option to pay the $ 5.0 million DLC payment in whole or in part, when paid in advance; or in full, upon the DLC release. No payment for any DLC under this agreement will exceed $ 5.0 million.
There was an additional $ 77,928 recognized as credit losses due to the bankruptcy of the Company’s related party, INDIEV, Inc. (“INDIEV”) during the year ended December 31, 2023. There were no credit losses recognized in the year ended December 31, 2022. Property, Plant and Equipment, Net Property, plant and equipment, net, are stated at cost.
There was an additional $ 77,928 recognized as credit losses due to the bankruptcy of the Company’s related party, INDIEV, Inc. (“INDIEV”) during the year ended December 31, 2023. Property, Plant and Equipment, Net Property, plant and equipment, net, are stated at cost.
These amounts are included in cost of revenues in the accompanying consolidated statements of operations and comprehensive income (loss). The weighted average remaining useful life for which amortization expense will be recognized is 1.0 years as of December 31, 2023.
These amounts are included in cost of revenues in the accompanying consolidated statements of operations and comprehensive income (loss). The weighted average remaining useful life for which amortization expense will be recognized is 3.0 years as of December 31, 2024.
F-24 Snail Inc. and Subsidiaries Notes to Consolidated Financial Statements NOTE 17 – OPERATING LEASE RIGHT-OF-USE ASSETS The Company’s right-of-use assets represent arrangements related primarily to office facilities used in the ordinary business operations of the Company and its subsidiaries.
F-25 Snail Inc. and Subsidiaries Notes to Consolidated Financial Statements NOTE 14 – OPERATING LEASE RIGHT-OF-USE ASSETS The Company’s right-of-use assets represent arrangements related primarily to office facilities used in the ordinary business operations of the Company and its subsidiaries.
The following is a summary of the Convertible Notes as of December 31, 2023: SCHEDULE OF CONVERTIBLE NOTES Fair value Principal Amount Unamortized debt discount and issuance costs Net carrying amount Amount Levelling Convertible Notes $ 860,910 $ (63,549 ) $ 797,361 $ 536,170 Level 3 The debt discount is being amortized to interest expense over the maturity period using the effective interest method at a rate of 109.7 %.
The following is a summary of the Convertible Notes as of December 31, 2023: SCHEDULE OF CONVERTIBLE NOTES Principal Unamortized debt discount and issuance Net carrying Fair value Amount costs amount Amount Levelling Convertible Notes $ 860,910 $ (63,549 ) $ 797,361 $ 536,170 Level 3 The debt discount was amortized to interest expense over the maturity period using the effective interest method at a rate of 103.4 %.
Amounts payable to SDE are included in accounts payable - related parties in the consolidated balance sheets as of December 31, 2023 and 2022. The loss of SDE as a vendor would significantly and adversely affect the Company’s core business. Leases The Company has a lease relating primarily to office facilities.
Amounts payable to SDE are included in accounts receivable – related party and accounts payable - related parties in the consolidated balance sheets as of December 31, 2024 and 2023, respectively. The loss of SDE as a vendor would significantly and adversely affect the Company’s core business. Leases The Company has a lease relating primarily to office facilities.
The allocation of earnings between Class A and Class B shares is based on their respective economic rights to the undistributed earnings of the Company. Basic EPS is computed as net income (loss) divided by the weighted-average number of common shares outstanding for the period.
The following table summarizes the computations of basic EPS and diluted EPS. The allocation of earnings between Class A and Class B shares is based on their respective economic rights to the undistributed earnings of the Company. Basic EPS is computed as net income (loss) divided by the weighted-average number of common shares outstanding for the period.
Stock-based compensation expense resulting from PSUs of $ 48,080 and $ 0 are recorded under research and development expenses included in our consolidated statements of operations and comprehensive income (loss) for the years ended December 31, 2023 and 2022, respectively.
Stock-based compensation expense (income) resulting from PSUs of ($ 61,713 ) and $ 48,080 are recorded under research and development expenses included in our consolidated statements of operations and comprehensive income (loss) for the years ended December 31, 2024 and 2023, respectively.
As of December 31, 2023, there were 4,485,275 shares reserved for issuance under the 2022 Plan. Restricted Stock Units The Company granted restricted stock units under our 2022 Omnibus Incentive Plan to employees and directors. Restricted stock units are unfunded, unsecured rights to receive common stock upon the satisfaction of certain vesting criteria.
As of December 31, 2024 there were 4,508,239 shares reserved for issuance under the 2022 Plan. Restricted Stock Units The Company granted restricted stock units under our 2022 Omnibus Incentive Plan to employees and directors. Restricted stock units are unfunded, unsecured rights to receive common stock upon the satisfaction of certain vesting criteria.
Such amounts are included in the long-term accrued expenses on the accompanying consolidated balance sheets in the amount of $ 254,731 and $ 457,024 as of December 31, 2023 and 2022, respectively. The Company accrues and recognizes interest and penalties related to unrecognized tax benefits in operating expenses.
Such amounts are included in the long-term accrued expenses on the accompanying consolidated balance sheets in the amount of $ 265,251 and $ 254,731 , as of December 31, 2024 and 2023, respectively. The Company accrues and recognizes interest and penalties related to unrecognized tax benefits in operating expenses.
Interest shall be equal to the higher of 3.75 % or the Wall Street Journal Prime Rate plus 0.50 %. The loan is secured by the Company’s assets. In the event of a default, all outstanding amounts under the note will bear interest at a default rate equal to 5 % over the note rate.
Interest was equal to the higher of 3.75 % or the Wall Street Journal Prime Rate plus 0.50 %. The loan was secured by the Company’s assets. In the event of a default, all outstanding amounts under the note would bear interest at a default rate equal to 5 % over the note rate.
Stock-Based Compensation Expense Stock-based compensation expense resulting from RSUs and PSUs of $ 799,955 and $ 223,250 are recorded under general and administrative expenses included in our consolidated statements of operations and comprehensive income (loss) for the years ended December 31, 2023 and 2022, respectively.
Stock-based compensation expense (income) resulting from RSUs and PSUs of ($ 828,495 ) and 799,955 are recorded under general and administrative expenses included in our consolidated statements of operations and comprehensive income (loss) for the years ended December 31, 2024 and 2023, respectively.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Revenue Recognition The Company’s revenue is generated from the publishing of software games sold digitally and through physical discs (e.g., packaged goods), the publishing of separate downloadable content that are new feature releases to existing digital full-game downloads, and in-app purchases of virtual goods used by players of its free-to-play mobile games.
F-9 Snail Inc. and Subsidiaries Notes to Consolidated Financial Statements NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Revenue Recognition The Company’s revenue is generated from the publishing of software games sold digitally and through physical discs (e.g., packaged goods), the publishing of separate downloadable content that are new feature releases to existing digital full-game downloads that are sold digitally, and in-app purchases of virtual goods used by players of its free-to-play mobile games.
The Company has the option to prepay the notes at any time and the note holders have the option to convert the notes, in whole or in part, at any time.
The Company had the option to prepay the notes at any time and the note holders had the option to convert the notes, in whole or in part, at any time.
The change in fair value during the year ended December 31, 2023, was not significant and as such, was not recorded.
The change in fair value during the years ended December 31, 2024 and 2023, was not significant and as such, was not recorded.
The notes have an interest rate of 7.5 %, will be paid in consecutive monthly installments beginning February 24, 2024 and will mature on May 24, 2024 . In the event of a default the interest rate will be increased to the lower of 16 % per annum or the highest amount permitted by applicable law.
The notes had an interest rate of 7.5 %, were paid in consecutive monthly installments beginning February 24, 2024 and matured on May 24, 2024 . In the event of a default the interest rate was to be increased to the lower of 16 % per annum or the highest amount permitted by applicable law.
During the year ended December 31, 2023, the Company made cash payments to SDE in the amount of $ 33.1 million and anticipates continuing to make cash payment to SDE in future years.
During the years ended December 31, 2024 and 2023, the Company made cash payments to SDE in the amount of $ 43.5 million and $ 33.1 million, respectively and anticipates continuing to make cash payment to SDE in future years.
For the sale of consumable virtual items, the Company recognizes revenue as the items are consumed (i.e., over time) . ● Durable: d urable virtual items represent items that are accessible to the player over an extended period of time.
For the sale of consumable virtual items, the Company recognizes revenue ratably over the estimated service period, or as items are consumed, as applicable to the game (i.e., over time) . ● Durable: d urable virtual items represent items that are accessible to the player over an extended period of time.
These estimates generally involve complex issues and require management to make judgments, involve analysis of historical and future trends that can require extended periods of time to resolve, and are subject to change from period to period. In all cases, actual results could differ materially from estimates. Segment Reporting The Company has one operating and reportable segment.
These estimates generally involve complex issues and require management to make judgments, involve analysis of historical and future trends that can require extended periods of time to resolve, and are subject to change from period to period. In all cases, actual results could differ materially from estimates.
SCHEDULE OF RESTRICTED STOCK UNITS ACTIVITY Restricted Stock Units Weighted-Average Grant-Date Fair Values Outstanding as of January 1, 2023 1,197,552 $ 5.00 Granted — — Vested — — Forfeited or cancelled (32,305 ) 5.00 Outstanding as of December 31, 2023 1,165,247 $ 5.00 Restricted Stock Units Weighted-Average Grant-Date Fair Values Outstanding as of January 1, 2022 — $ — Granted 1,200,960 5.00 Vested — — Forfeited or cancelled (3,408 ) — Outstanding as of December 31, 2022 1,197,552 $ 5.00 The grant date fair value of PSUs granted to employees is based on the quoted market price of our common stock on the date of grant.
SCHEDULE OF RESTRICTED STOCK UNITS ACTIVITY Restricted Stock Units Weighted- Average Grant-Date Fair Values Outstanding as of January 1, 2024 1,165,247 $ 5.00 Granted — — Vested — — Forfeited or cancelled (22,963 ) (5.00 ) Outstanding as of December 31, 2024 1,142,284 $ 5.00 Restricted Stock Units Weighted- Average Grant-Date Fair Values Outstanding as of January 1, 2023 1,197,552 $ 5.00 Granted — — Vested — — Forfeited or cancelled (32,305 ) (5.00 ) Outstanding as of December 31, 2023 1,165,247 $ 5.00 The grant date fair value of PSUs granted to employees is based on the quoted market price of our common stock on the date of grant.
Accretion of the convertible notes and amortization of loan origination expenses and loan discounts of $ 462,284 and $ 26,514 are included as part of interest expense for the years ended December 31, 2023 and 2022, respectively.
Accretion of the convertible notes and amortization of loan origination expenses and loan discounts of $ 345,837 and $ 462,284 are included as part of interest expense for the years ended December 31, 2024 and 2023, respectively.
The Company issued restricted stock units (“Restricted Stock Units” or “restricted stock units”) during the years ended December 31, 2023, and 2022. The fair value of Restricted Stock Units is determined based on the quoted market price of our common stock on the date of grant.
The Company did not issue any restricted stock units (“Restricted Stock Units” or “restricted stock units”) during the years ended December 31, 2024, and 2023. The fair value of Restricted Stock Units is determined based on the quoted market price of our common stock on the date of grant.
The Company maintained a total valuation allowance of $ 5,143,802 and $ 5,005,195 as of December 31, 2023 and 2022, respectively, the valuation allowance relates primarily to the NOL of the non-includable entities mentioned above, which have had historical losses, and which management has assessed are not more likely than not to be able to realize those NOLs.
The Company maintained a total valuation allowance of $ 5,429,353 and $ 5,143,802 as of December 31, 2024 and 2023, respectively, the valuation allowance relates primarily to the net operating loss (“NOL”) of the non-includable entities mentioned above, which have had historical losses, and which management has assessed are not more likely than not to be able to realize those NOLs.
The note is subject to a prepayment penalty. Debt covenants of this loan require the Company to maintain a minimum debt service coverage ratio of at least 1.5 to 1 .
Debt covenants of this loan require the Company to maintain a minimum debt service coverage ratio of at least 1.5 to 1 .
The following table summarizes the components of the Company’s cash and cash equivalents, and restricted cash and cash equivalents as of December 31, 2023 and 2022: SUMMARY OF COMPONENTS OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AND CASH EQUIVALENTS 2023 2022 Cash and cash equivalents $ 15,198,123 $ 12,863,817 Restricted cash and cash equivalents 1,116,196 6,374,368 Cash and cash equivalents, and restricted cash and cash equivalents $ 16,314,319 $ 19,238,185 NOTE 5 – ACCOUNTS RECEIVABLE (PAYABLE) – RELATED PARTY Accounts receivable — related party represents receivables in the ordinary course of business attributable to certain mobile game revenues that, for administrative reasons, were collected by a related party and that the related party has not yet remitted back to the Company.
The following table summarizes the components of the Company’s cash and cash equivalents, and restricted cash and cash equivalents as of December 31, 2024 and 2023: SUMMARY OF COMPONENTS OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AND CASH EQUIVALENTS 2024 2023 Cash and cash equivalents $ 7,303,944 $ 15,198,123 Restricted cash and cash equivalents 935,000 1,116,196 Cash and cash equivalents, and restricted cash and cash equivalents $ 8,238,944 $ 16,314,319 NOTE 5 – ACCOUNTS RECEIVABLE (PAYABLE) – RELATED PARTY Accounts receivable — related party represents receivables in the ordinary course of business attributable to certain mobile game revenues that, for administrative reasons, were collected by a related party and that the related party has not yet remitted back to the Company.
The update does not change how a public entity identifies its operating segments, aggregates those operating segments, or applied the quantitative thresholds to determine its reportable segments. The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods beginning after December 15, 2024.
The update does not change how a public entity identifies its operating segments, aggregates those operating segments, or applied the quantitative thresholds to determine its reportable segments. The amendments in this update are effective for fiscal years beginning after December 15, 2023, and the Company has adopted this standard as of the effective date.
F-27 Snail Inc. and Subsidiaries Notes to Consolidated Financial Statements The Underwriters Warrants and Over-Allotment Option are legally detachable and separately exercisable from each other and from the Firm Shares; therefore, they meet the definition of freestanding and are not considered embedded in the Firm Shares. The Underwriters Warrants are considered indexed to the Company’s own stock.
F-28 Snail Inc. and Subsidiaries Notes to Consolidated Financial Statements The Underwriters Warrants are legally detachable and separately exercisable from the Class A common stock; therefore, they meet the definition of freestanding and are not considered embedded in the Firm Shares. The Underwriters Warrants are considered indexed to the Company’s own stock.
Repurchased shares are accounted for at cost and reported as a reduction of equity in the consolidated balance sheets under treasury stock. No treasury stock was sold during the years ended December 31, 2023 and 2022.
The program does not have a fixed expiration date. Repurchased shares are accounted for at cost and reported as a reduction of equity in the consolidated balance sheets under treasury stock. No treasury stock was sold during the years ended December 31, 2024 and 2023.
Our operations involve similar products and customers worldwide. Revenue earned is primarily derived from the sale of software titles, which are developed internally or licensed from related parties. Financial information about our segment and geographic regions is included in Note 3 – Revenue from Contracts with Customers .
Revenue earned is primarily derived from the sale of software titles, which are developed internally or licensed from related and third parties. Financial information about our geographic regions is included in Note 3 – Revenue from Contracts with Customers and information about our reportable operating segment is included in Note 18 – Operating Segments .
For the ARK: Survival Ascended DLC’s that have not yet launched and been reported in deferred revenue in the consolidated balance sheets, the Company has used the adjusted market assessment approach per ASC 606-10-32-34 to assign a value for the Company’s remaining performance obligation.
For the ARK: Survival Ascended and Bob’s Tall Tales games that were sold in a bundle with downloadable content (“DLC”) that have not yet been launched and been reported in deferred revenue in the consolidated balance sheets, the Company has used the adjusted market assessment approach per ASC 606-10-32-34 to assign a value for the Company’s remaining performance obligation.
Employer contributions to the plan are reported under general and administrative costs in the amounts of $ 88,756 and $ 65,908 for the years ended December 31, 2023 and 2022.
Employer contributions to the plan are reported under general and administrative costs in the amounts of $ 102,406 and $ 88,756 for the years ended December 31, 2024 and 2023, respectively.
The Convertible Notes carry an original issue discount of approximately 7.4 %, bear interest at a rate of 7.5 % per annum ( 16 % per annum in case of an event of default), are repayable in equal consecutive monthly installments beginning February 24, 2024 and mature on May 24, 2024 (the “Maturity Date”).
The Convertible Notes carried an original issue discount of approximately 7.4 %, bear interest at a rate of 7.5 % per annum ( 16 % per annum in case of an event of default), and were repaid in equal consecutive monthly installments that began in February 2024 and matured on May 24, 2024 (the “Maturity Date”).
Accounts payable – related parties consisted of the following as of December 31, 2023, and 2022: SCHEDULE OF ACCOUNTS PAYABLE- RELATED PARTIES 2023 2022 Accounts payable - Suzhou $ 55,762,870 $ 57,533,171 Less: accounts receivable - Suzhou (37,614,912 ) (37,614,912 ) Accounts payable - SDE 4,946,478 - Total accounts payable – related parties $ 23,094,436 $ 19,918,259 NOTE 13 – LOAN AND INTEREST RECEIVABLE — RELATED PARTY In February 2021, the Company loaned $ 200,000 to a wholly owned subsidiary of Suzhou Snail.
Accounts payable – related parties consisted of the following as of December 31, 2024 and 2023: SCHEDULE OF ACCOUNTS PAYABLE- RELATED PARTIES 2024 2023 Accounts payable - Suzhou $ 52,998,084 $ 55,762,870 Less: accounts receivable - Suzhou (37,614,913 ) (37,614,912 ) Accounts payable - SDE - 4,946,478 Accounts payable - 4,946,478 Total accounts payable – related parties $ 15,383,171 $ 23,094,436 NOTE 11 – LOAN AND INTEREST RECEIVABLE — RELATED PARTY In February 2021, the Company loaned $ 200,000 to a wholly owned subsidiary of Suzhou Snail.
As of December 31, 2023 and 2022, the Company’s net operating lease right-of-use assets amounted to $ 2,440,690 and $ 3,606,398 , respectively. The Company had variable lease payments of approximately $ 125,207 and $ 77,385 during the years ended December 31, 2023 and 2022, respectively, which consisted primarily of common area maintenance charges and administrative fees.
As of December 31, 2024 and 2023, the Company’s net operating lease right-of-use assets amounted to $ 1,279,330 and $ 2,440,690 , respectively. The Company had variable lease payments of approximately $ 129,752 and $ 125,207 during the years ended December 31, 2024 and 2023, respectively, which consisted primarily of common area maintenance charges and administrative fees.
Management judgment is required to estimate our allowance for credit losses in any accounting period. The amount and timing of our credit losses and cash collection could change significantly because of a change in any of the risk factors mentioned above.
Management judgment is required to estimate our allowance for credit losses in any accounting period. The amount and timing of our credit losses and cash collection could change significantly because of a change in any of the risk factors mentioned above. There were no credit losses recognized during the year ended December 31, 2024.
Such estimates include revenue recognition, see Note 2 – Revenue Recognition , provisions for credit losses, deferred income tax assets and associated valuation allowances, deferred revenue, income taxes, valuation of intangibles, including those with related parties, impairment of intangible assets, stock-based compensation and fair value of warrants.
Such estimates include revenue recognition, see Note 2 – Revenue Recognition , provisions for credit losses, deferred income tax assets and associated valuation allowances, deferred revenue, stock-based compensation and fair value of warrants.
The Company recognized a discount of $ 678,254 on the notes to account for the stated discount, the fair value of the warrants issued in connection with the notes and the costs of issuance.
The Company recognized a discount of $ 678,254 on the notes to account for the stated discount, the fair value of the warrants issued in connection with the notes and the costs of issuance. The discount was amortized using the effective interest rate of 103.4 %.
Future amortization expense of intangible assets is as follows: SCHEDULE OF FUTURE AMORTIZATION EXPENSE OF INTANGIBLE ASSETS Years ending December 31, Amount 2024 $ 804 2025 27 2026 — 2027 — 2028 — Thereafter 270,886 Total $ 271,717 NOTE 12 – ACCOUNTS PAYABLE — RELATED PARTIES Accounts payable due to related parties represents payables in the ordinary course of business primarily for purchases of game distribution licenses and also the royalties due to Suzhou Snail and SDE.
Future amortization expense of intangible assets is as follows: SCHEDULE OF FUTURE AMORTIZATION EXPENSE OF INTANGIBLE ASSETS Years ending December 31, Amount 2025 $ 142,028 2026 142,000 2027 142,000 2028 142,000 2029 135,000 Thereafter 270,886 Total $ 973,914 NOTE 10 – ACCOUNTS PAYABLE — RELATED PARTIES Accounts payable due to related parties represents payables in the ordinary course of business primarily for purchases of game distribution licenses, research and development costs and also the royalties due to Suzhou Snail and SDE.
During the years ended December 31, 2023 and 2022, the Company recognized approximately $ 185,432 and $ 48,678 respectively, of deferred income tax benefit related to our stock-based compensation expense.
During the twelve months ended December 31, 2024 and 2023, the Company recognized approximately $ 201,815 of deferred income tax expense, and $ 185,432 of deferred income tax benefit, respectively, related to our stock-based compensation expense.
NOTE 15 – REVOLVING LOAN, SHORT TERM NOTES AND LONG - TERM DEBT SCHEDULE OF LONG TERM DEBT December 31, 2023 December 31, 2022 2021 Revolving Loan - On June 21, 2023, the Company amended its revolving loan agreement (“amended revolver”) and decreased the maximum balance from $ 9,000,000 to $ 6,000,000 .
F-22 Snail Inc. and Subsidiaries Notes to Consolidated Financial Statements NOTE 12 – REVOLVING LOAN, SHORT TERM NOTES AND LONG - TERM DEBT SCHEDULE OF LONG TERM DEBT December 31, 2024 December 31, 2023 2021 Revolving Loan - On June 21, 2023, the Company amended its revolving loan agreement (“amended revolver”) and decreased the maximum balance from $ 9,000,000 to $ 6,000,000 .
NOTE 3 – REVENUE FROM CONTRACTS WITH CUSTOMERS Disaggregation of revenue Timing of recognition The Company recognizes revenue at a point in time for performance obligations that are met at the time of sale or over a period based on the estimated service period of the product, additional performance obligations, or timing of releases.
NOTE 3 – REVENUE FROM CONTRACTS WITH CUSTOMERS Disaggregation of revenue Timing of recognition The Company recognizes revenue at a point in time for performance obligations that are met at the time of sale or at the time of a release.
During the year ended December 31, 2022, 1,197,649 shares of Class A common stock were repurchased pursuant to the Share Repurchase Program for an aggregate purchase price of approximately $ 3.4 million. The average price paid per share during fiscal year 2022 was $ 2.85 .
During the year ended December 31, 2023, 152,626 shares of Class A common stock were repurchased pursuant to the Share Repurchase Program for an aggregate purchase price of approximately $ 0.3 million. The average price paid per share during the year ended December 31, 2023 was $ 1.68 .
The non-includable entities had a valuation allowance of $ 4,022,729 and $ 4,057,479 as of December 31, 2023 and 2022. The Company’s consolidated tax filing group had a domestic valuation allowance of $ 686,808 and $ 683,552 as of December 31, 2023 and 2022, respectively.
The non-includable entities had a valuation allowance of $ 4,024,497 and $ 4,022,729 as of December 31, 2024 and 2023. The Company’s consolidated tax filing group had a domestic valuation allowance of $ 673,049 and $ 686,808 as of December 31, 2024 and 2023, respectively.
The Company had three customers in the year ended December 31, 2023, and three customers in the year ended December 31, 2022, that accounted for 42 %, 18 %, and 11 %, and 30 %, 23 % and 12 % of the Company’s net revenue, respectively.
The Company had four customers in the year ended December 31, 2024, and three customers in the year ended December 31, 2023, that accounted for 46 %, 15 %, 14 %, 11 %, and 42 %, 18 %, and 11 % of the Company’s net revenue, respectively.
The average price paid per share was $ 2.72 and approximately $ 1.3 million aggregate amount of shares of Class A common stock remain available for repurchase under the Share Repurchase Program.
The average price paid per share was $ 2.72 and approximately $ 1.3 million aggregate amount of shares of Class A common stock remain available for repurchase under the Share Repurchase Program. There were no share repurchases made during the year ended December 31, 2024.
The following table reflects changes in gross unrecognized tax benefits for the years ended December 31, 2023 and 2022: SCHEDULE OF UNRECOGNIZED TAX BENEFITS 2023 2022 Unrecognized tax benefits at beginning of year $ 696,895 $ 693,913 Gross Increases – current year positions — — Gross Increases – prior year positions — 72,177 Gross Decreases – expiration of statute of limitation (37,550 ) — Gross Decreases – settlements (171,737 ) (69,195 ) Unrecognized tax benefits at end of year $ 487,608 $ 696,895 As of December 31, 2023 and 2022, the Company had $ 295,428 and $ 497,720 , respectively, of unrecognized tax benefits that if recognized would impact the Company’s effective tax rate.
The following table reflects changes in gross unrecognized tax benefits for the years ended December 31, 2024 and 2023: SCHEDULE OF UNRECOGNIZED TAX BENEFITS 2024 2023 Unrecognized tax benefits at beginning of year $ 487,608 $ 696,895 Gross Increases – current year positions — — Gross Increases – prior year positions 219,128 — Gross Decreases – prior year positions (33,831 ) — Gross Decreases – expiration of statute of limitations (160,550 ) (37,550 ) Gross Decreases – settlements — (171,737 ) Unrecognized tax benefits at end of year $ 512,355 $ 487,608 As of December 31, 2024 and 2023, the Company had $ 265,251 and $ 295,428 , respectively, of unrecognized tax benefits that if recognized would impact the Company’s effective tax rate.
The Company accrued and recognized interest and penalties related to unrecognized tax benefits in operating expense. As of December 31, 2023 and 2022, the Company had accrued $ 0 of interest and penalties, respectively. The Company does not expect the amount to change within 12 months and is currently not under audit by any taxing jurisdictions.
The Company accrued and recognized interest and penalties related to unrecognized tax benefits in operating expense. As of December 31, 2024 and 2023, the Company had accrued $ 143,020 and $ 0 of interest and penalties, respectively. The Company does not expect the amount to change materially within 12 months.
The following tables reflect all the intangible assets presented on the consolidated balance sheets as of December 31, 2023 and 2022: SCHEDULE OF INTANGIBLE ASSETS December 31, 2023 Gross Weighted Carrying Accumulated Impairment Net Book Average Amount Amortization Loss Value Useful Life License rights from related parties $ 136,665,000 $ (136,665,000 ) $ — $ — 3 - 5 years License rights $ 3,000,000 $ (3,000,000 ) $ — $ — 5 years Intangible assets - other: Software $ 51,784 $ (51,784 ) $ — $ — 3 years Trademark 10,745 (9,914 ) — 831 12 years In-progress patent 270,886 — — 270,886 Total: $ 333,415 $ (61,698 ) $ — $ 271,717 F-20 Snail Inc. and Subsidiaries Notes to Consolidated Financial Statements December 31, 2022 Gross Weighted Carrying Accumulated Impairment Net Book Average Amount Amortization Loss Value Useful Life License rights from related parties $ 136,665,000 $ (135,280,942 ) $ — $ 1,384,058 3 - 5 years License rights $ 3,000,000 $ (3,000,000 ) $ — $ — 5 years Intangible assets - other: Software $ 51,784 $ (51,784 ) $ — $ — 3 years Trademark 10,745 (9,110 ) — 1,635 12 years In-progress patent 270,886 — — 270,886 Total: $ 333,415 $ (60,894 ) $ — $ 272,521 Amortization expense was $ 1,384,862 and $ 7,657,669 for the years ended December 31, 2023 and 2022, respectively.
The following tables reflect all the intangible assets presented on the consolidated balance sheets as of December 31, 2024 and 2023: SCHEDULE OF INTANGIBLE ASSETS December 31, 2024 Gross Weighted Carrying Accumulated Impairment Net Book Average Amount Amortization Loss Value Useful Life Software and license rights from related parties $ 136,955,000 $ (136,665,000 ) $ — $ 290,000 3 - 5 years License rights 3,420,000 (3,007,000 ) — 413,000 5 years Software 51,784 (51,784 ) — - 3 - 5 years Trademark 10,745 (10,717 ) — 28 12 years In-progress patent 270,886 — — 270,886 Total: $ 140,708,415 $ (139,734,501 ) $ — $ 973,914 F-21 Snail Inc. and Subsidiaries Notes to Consolidated Financial Statements December 31, 2023 Gross Weighted Carrying Accumulated Impairment Net Book Average Amount Amortization Loss Value Useful Life Software and license rights from related parties $ 136,665,000 $ (136,665,000 ) $ — $ — 3 - 5 years License rights 3,000,000 (3,000,000 ) — — 5 years Software 51,784 (51,784 ) — — 3 - 5 years Trademark 10,745 (9,914 ) — 831 12 years In-progress patent 270,886 — — 270,886 Total: $ 139,998,415 $ (139,726,698 ) $ — $ 271,717 Amortization expense was $ 7,804 and $ 1,384,862 for the years ended December 31, 2024 and 2023, respectively.
Among the four customers as of December 31, 2023, and two customers as of December 31, 2022, each customer accounted for 43 %, 20 %, 16 % and 16 % as of December 31, 2023, and 29 % and 28 % as of December 31, 2022 of the consolidated gross receivables outstanding.
Among four customers as of December 31, 2024 and 2023, each customer accounted for 42 %, 19 %, 14 % and 10 % as of December 31, 2024, and 43 %, 20 %, 16 % and 16 % as of December 31, 2023 of the consolidated gross receivables outstanding.
The Company extends credit to various digital resellers and partners. Collection of trade receivables may be affected by changes in economic or other industry conditions and may, accordingly, impact our overall credit risk. The Company does not require collateral or other security to support financial instruments subject to credit risk.
Collection of trade receivables may be affected by changes in economic or other industry conditions and may, accordingly, impact our overall credit risk. The Company does not require collateral or other security to support financial instruments subject to credit risk. The Company performs ongoing credit evaluations of customers and maintains reserves for potentially uncollectible accounts.
Activities in the Company’s deferred revenue as of December 31, 2023 and 2022 were as follows: SCHEDULE OF DEFERRED REVENUE 2023 2022 Deferred revenue, beginning balance in advance of revenue recognition billing $ 9,551,446 $ 20,280,934 Revenue recognized (6,437,618 ) (18,832,396 ) Revenue deferred 31,202,878 8,102,908 Deferred revenue, ending balance 34,316,706 9,551,446 Less: current portion (19,252,628 ) (4,335,404 ) Deferred revenue, long term $ 15,064,078 $ 5,216,042 NOTE 4 – CASH AND CASH EQUIVALENTS, AND RESTRICTED CASH AND CASH EQUIVALENTS Cash equivalents are valued using quoted market prices or other readily available market information.
Activities in the Company’s deferred revenue as of December 31, 2024 and 2023 were as follows: SCHEDULE OF DEFERRED REVENUE 2024 2023 Deferred revenue, beginning balance in advance of revenue recognition billing $ 34,316,706 $ 9,551,446 Revenue recognized (18,506,635 ) (6,437,618 ) Revenue deferred 9,657,376 31,202,878 Deferred revenue, ending balance 25,467,447 34,316,706 Less: current portion (3,947,559 ) (19,252,628 ) Deferred revenue, long term $ 21,519,888 $ 15,064,078 NOTE 4 – CASH AND CASH EQUIVALENTS, AND RESTRICTED CASH AND CASH EQUIVALENTS Cash equivalents are valued using quoted market prices or other readily available market information.
Prepaid expenses — related party consisted of the following as of December 31, 2023 and 2022: SCHEDULE OF PREPAID EXPENSES - RELATED PARTY 2023 2022 Prepaid royalties $ 6,086,406 $ 582,500 Prepaid licenses 7,500,000 5,000,000 Other prepaids 242,060 - Prepaid expenses - related party, ending balance 13,828,466 5,582,500 Less: short-term portion (6,044,404 ) — Total prepaid expenses - related party, long-term $ 7,784,062 $ 5,582,500 The amount classified as short-term, as of December 31, 2023, includes the prepaid license for the ARK: Survival Ascended DLC that the Company expects to release in the next twelve months, prepaid royalties for ARK: Survival Ascended DLC’s which have not yet been released and various operational software licenses obtained through SDE.
Prepaid expenses — related party consisted of the following as of December 31, 2024 and 2023: SCHEDULE OF PREPAID EXPENSES - RELATED PARTY 2024 2023 Prepaid royalties $ 4,378,594 $ 6,086,406 Prepaid licenses 7,500,000 7,500,000 Other prepaids 21,291 242,060 Prepaid expenses - related party, ending balance 11,899,885 13,828,466 Less: short-term portion (2,521,291 ) (6,044,404 ) Total prepaid expenses - related party, long-term $ 9,378,594 $ 7,784,062 The amount classified as short-term, as of December 31, 2024, and 2023, includes prepaid royalties for ARK: Survival Evolved DLC’s which have not yet been released and various operational software licenses obtained through SDE.
Net revenue by timing of recognition during the years ended December 31, 2023 and 2022 were as follows: SCHEDULE OF DISAGGREGATION OF REVENUE 2023 2022 Over time $ 6,437,618 $ 18,832,396 Point in time 54,464,480 55,611,745 Total revenue from contracts with customers: $ 60,902,098 $ 74,444,141 Geography The Company attributes net revenue to geographic regions based on customer location.
Net revenue by timing of recognition during the years ended December 31, 2024 and 2023 were as follows: SCHEDULE OF DISAGGREGATION OF REVENUE 2024 2023 Over time $ 4,520,499 $ 6,437,618 Point in time 79,946,548 54,464,480 Total revenue from contracts with customers: $ 84,467,047 $ 60,902,098 Geography The Company attributes net revenue to geographic regions based on platform location.
As of December 31, 2023 and 2022, the Company had deposits of $ 14,716,652 and $ 17,929,308 , respectively, that were not insured by the Federal Deposit Insurance Corporation and are included in the cash and cash equivalents, restricted escrow deposit and restricted cash and cash equivalents, in the accompanying consolidated balance sheets.
As of December 31, 2024 and 2023, the Company had deposits of $ 6,610,066 and $ 14,716,652 , respectively, that were not insured by the Federal Deposit Insurance Corporation and are included in the cash and cash equivalents, and restricted cash and cash equivalents, in the accompanying consolidated balance sheets. The Company extends credit to various digital resellers and partners.
Adopting the new standard did not have a material impact on the Company’s consolidated financial statements. In August 2020, the FASB issued ASU 2020-06, Contracts in Entity’s Own Equity (Subtopic 815-40) – Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity , to simplify the application of GAAP for certain financial instruments with characteristics of liabilities and equity.
Recently Adopted Accounting Pronouncements In August 2020, the FASB issued ASU 2020-06, Contracts in Entity’s Own Equity (Subtopic 815-40) – Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity , to simplify the application of GAAP for certain financial instruments with characteristics of liabilities and equity.
The fair value of the Equity Line Warrant is recorded as a warrant liability and is included in the accrued expenses and other liabilities in the Company’s consolidated balance sheets. The fair value of the Equity Line Warrants has been estimated using the Monte-Carlo pricing model using level 3 inputs.
The fair value of the Equity Line Warrant is recorded as a warrant liability and is included in the accrued expenses and other liabilities in the Company’s consolidated balance sheets.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeWere it determined that our use was not in compliance with a particular license, we may be required to release our proprietary source code, pay damages for breach of contract, re-engineer our games or products, discontinue distribution in the event re-engineering cannot be accomplished on a timely basis, or take other remedial action that may divert resources away from our game development efforts, any of which could negatively impact our business.
Biggest changeWere it determined that our use was not in compliance with a particular license, we may be required to release our proprietary source code, pay damages for breach of contract, re-engineer our games or products, discontinue distribution in the event re-engineering cannot be accomplished on a timely basis, or take other remedial action that may divert resources away from our game development efforts, any of which could negatively impact our business. 27 Risks Related to Legal or Regulatory Compliance Changing data privacy and security laws and regulations in the jurisdictions in which we or our consumers do business could increase the cost of our operations and subject us to possible sanctions, civil lawsuits (including class action or similar representative lawsuits) and other penalties; such laws and regulations are continually evolving.
If we were to lose functionality in any of these areas for any reason, our business may be negatively impacted. ● We may be unable to effectively manage the continued growth and the scope and complexity of our business, including our expansion into new business models that are untested and into adjacent business opportunities with large, established competitors. ● The interactive entertainment software industry is highly competitive. ● We are subject to product development risks, which could result in delays and additional costs, and often times we must adapt to changes in software technologies. 11 ● Our business is subject to our ability to develop commercially successful products for the current video game platforms, which may not generate immediate or near-term revenues, and as a result, our business and operating results may be more volatile and difficult to predict during console transitions than during other times. ● Our results of operations or reputation may be harmed as a result of objectionable consumer- or other third party-created content, or if our distributors, retailers, development, and licensing partners, or other third parties with whom we are affiliated, act in ways that put our brand at risk. ● The products or services we release may contain defects, bugs or errors. ● External game developers may not meet product development schedules or otherwise fulfill their contractual obligations. ● Any cybersecurity-related attack, significant data breach, or disruption of the information technology systems or networks on which we rely could negatively impact our business. ● If we do not successfully invest in, establish and maintain awareness of our brand and games or if we incur excessive expenses promoting and maintaining our brand or our games, our business, financial condition, results of operations or reputation could be harmed. ● Our operating results may fluctuate from quarter to quarter, which makes our future results difficult to predict. ● We have experienced rapid growth and expect to invest in our growth for the foreseeable future.
If we were to lose functionality in any of these areas for any reason, our business may be negatively impacted. 10 ● We may be unable to effectively manage the continued growth and the scope and complexity of our business, including our expansion into new business models that are untested and into adjacent business opportunities with large, established competitors. ● The interactive entertainment software industry is highly competitive. ● We are subject to product development risks, which could result in delays and additional costs, and often times we must adapt to changes in software technologies. ● Our business is subject to our ability to develop commercially successful products for the current video game platforms, which may not generate immediate or near-term revenues, and as a result, our business and operating results may be more volatile and difficult to predict during console transitions than during other times. ● Our results of operations or reputation may be harmed as a result of objectionable consumer, or other third party-created content, or if our distributors, retailers, development, and licensing partners, or other third parties with whom we are affiliated, act in ways that put our brand at risk. ● The products or services we release may contain defects, bugs or errors. ● External game developers may not meet product development schedules or otherwise fulfill their contractual obligations. ● Any cybersecurity-related attack, significant data breach, or disruption of the information technology systems or networks on which we rely could negatively impact our business. ● If we do not successfully invest in, establish and maintain awareness of our brand and games or if we incur excessive expenses promoting and maintaining our brand or our games, our business, financial condition, results of operations or reputation could be harmed. ● Our operating results may fluctuate from quarter to quarter, which makes our future results difficult to predict. ● We have experienced rapid growth and expect to invest in our growth for the foreseeable future.
This may lead to lost revenues from paying consumers or increased cost of developing technological measures to respond to these vulnerabilities, either of which could negatively affect our business. If we infringe, misappropriate, or otherwise violate or are alleged to infringe, misappropriate or otherwise violate the intellectual property rights of third parties, our business could be adversely affected.
This may lead to lost revenues from paying consumers or increased cost of developing technological measures to respond to these vulnerabilities, either of which could negatively affect our business. 24 If we infringe, misappropriate, or otherwise violate or are alleged to infringe, misappropriate or otherwise violate the intellectual property rights of third parties, our business could be adversely affected.
We also cannot be certain that existing intellectual property laws will provide adequate protection for our products in connection with emerging technologies or that we will be able to effectively protect our intellectual property through litigation and other means. Financial and Economic Risks If general economic conditions decline, demand for our games could decline.
We also cannot be certain that existing intellectual property laws will provide adequate protection for our products in connection with emerging technologies or that we will be able to effectively protect our intellectual property through litigation and other means. 30 Financial and Economic Risks If general economic conditions decline, demand for our games could decline.
Any of the foregoing could harm our competitive position, business, financial condition, results of operations and prospects. For more information, see Item 3 of Part I, “Legal Proceedings.” We or our licensors may not be able to enforce our intellectual property rights throughout the world.
Any of the foregoing could harm our competitive position, business, financial condition, results of operations and prospects. For more information, see Item 3 of Part I, “Legal Proceedings.” 26 We or our licensors may not be able to enforce our intellectual property rights throughout the world.
These potential changes could have a material impact on our effective tax rate, long-term tax planning and financial results. 27 The realization of the Company’s deferred tax assets is contingent upon the Company’s upcoming new game releases to generate sufficient taxable income.
These potential changes could have a material impact on our effective tax rate, long-term tax planning and financial results. The realization of the Company’s deferred tax assets is contingent upon the Company’s upcoming new game releases to generate sufficient taxable income.
Shi were to control less than a majority of our voting power, he may be able to influence the outcome of corporate actions so long as he controls a significant portion of our voting power. Our stockholders are not able to affect the outcome of any stockholder vote while Mr.
Shi were to control less than a majority of our voting power, he may be able to influence the outcome of corporate actions so long as he controls a significant portion of our voting power. 33 Our stockholders are not able to affect the outcome of any stockholder vote while Mr.
In addition, natural disasters, cyber-attacks, escalation of geopolitical tensions, including as a result of escalations in the ongoing conflict between Russia and Ukraine or Israel and Hamas, acts of terrorism, public health crises, such as pandemics and epidemics, or other catastrophic events could cause disruptions in our or our customers’ businesses, national economies or the world economy as a whole. 15 Our industry is subject to rapid technological change, and if we do not adapt to, and appropriately allocate our resources among, emerging technologies and business models, our business may be negatively impacted.
In addition, natural disasters, cyber-attacks, escalation of geopolitical tensions, including as a result of escalations in the ongoing conflict between Russia and Ukraine or Israel and Hamas, acts of terrorism, public health crises, such as pandemics and epidemics, or other catastrophic events could cause disruptions in our or our customers’ businesses, national economies or the world economy as a whole. 14 Our industry is subject to rapid technological change, and if we do not adapt to, and appropriately allocate our resources among, emerging technologies and business models, our business may be negatively impacted.
Should the financing we require to sustain our working capital needs be unavailable or prohibitively expensive when we require it, the consequences could be a material adverse effect on our business, operating results, financial condition, and prospects. 37
Should the financing we require to sustain our working capital needs be unavailable or prohibitively expensive when we require it, the consequences could be a material adverse effect on our business, operating results, financial condition, and prospects.
We continue to assess the impact this new regulation may have on our results of operations however, at this time, the impact of this new regulation remains uncertain. 26 Changes in government regulations relating to the Internet could have a negative impact on our business.
We continue to assess the impact this new regulation may have on our results of operations however, at this time, the impact of this new regulation remains uncertain. Changes in government regulations relating to the Internet could have a negative impact on our business.
Such legislation may add complexity, variation in requirements, restrictions and potential legal risk, require additional investment in resources to compliance programs, and could impact strategies and availability of previously useful data and could result in increased compliance costs and/or changes in business practices and policies. 25 Many of the other jurisdictions where we or our customers do business, including the EU, also have restrictive laws and regulations dealing with the processing of personal information.
Such legislation may add complexity, variation in requirements, restrictions and potential legal risk, require additional investment in resources to compliance programs, and could impact strategies and availability of previously useful data and could result in increased compliance costs and/or changes in business practices and policies. 28 Many of the other jurisdictions where we or our customers do business, including the EU, also have restrictive laws and regulations dealing with the processing of personal information.
If we do not effectively remediate the material weaknesses or if we otherwise fail to maintain effective internal control over financial reporting, we may not be able to accurately and timely report our financial results, which could cause our reported financial results to be materially misstated, result in the loss of investor confidence and cause the market price of our Class A common stock to decline.
If we do not effectively remediate the material weakness or if we otherwise fail to maintain effective internal control over financial reporting, we may not be able to accurately and timely report our financial results, which could cause our reported financial results to be materially misstated, result in the loss of investor confidence and cause the market price of our Class A common stock to decline.
Since we elected to rely on the exemptions available to a “controlled company,” you do not have the same protections afforded to stockholders of companies that are subject to such corporate governance requirements. Our controlling stockholder, Founder, Chief Strategy Officer and Chairman, Mr. Shi, controls a majority of our outstanding common stock.
Since we elected to rely on the exemptions available to a “controlled company,” you do not have the same protections afforded to stockholders of companies that are subject to such corporate governance requirements. Our controlling stockholder, Founder, Co-Chief Executive Officer, Chief Strategy Officer and Chairman, Mr. Shi, controls a majority of our outstanding common stock.
The increased importance of DLC to our business amplifies these risks, as DLC for poorly-received games typically generates lower-than-expected sales. The increased demand for consistent enhancements to our products also requires a greater allocation of financial resources to those products. 13 Additionally, consumer expectations regarding the quality, performance and integrity of our products and services are high.
The increased importance of DLC to our business amplifies these risks, as DLC for poorly-received games typically generates lower-than-expected sales. The increased demand for consistent enhancements to our products also requires a greater allocation of financial resources to those products. 12 Additionally, consumer expectations regarding the quality, performance and integrity of our products and services are high.
Accordingly, you do not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the Nasdaq rules. Mr. Shi, our Founder, Chief Strategy Officer and Chairman, controls us, and his ownership of our common stock prevents you and other stockholders from influencing significant decisions. Mr.
Accordingly, you do not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the Nasdaq rules. Mr. Shi, our Founder, Co-Chief Executive Officer, Chief Strategy Officer and Chairman, controls us, and his ownership of our common stock prevents you and other stockholders from influencing significant decisions. Mr.
As such, the Company may need to record a valuation allowance to reflect the likelihood that the deferred tax assets will not be realized, which could have a material impact on our financial position. See Note 16 - Income Taxes to our audited consolidated financial statements included in this Annual Report .
As such, the Company may need to record a valuation allowance to reflect the likelihood that the deferred tax assets will not be realized, which could have a material impact on our financial position. See Note 13 - Income Taxes to our audited consolidated financial statements included in this Annual Report.
Our amended and restated certificate of incorporation also provides that the federal district courts of the United States of America is the exclusive forum for the resolution of any complaint asserting a cause of action against us or any of our directors, officers, employees or agents and arising under the Securities Act of 1933, as amended, or the Securities Act.
Our amended and restated certificate of incorporation also provides that the federal district courts of the United States of America is the exclusive forum for the resolution of any complaint asserting a cause of action against us or any of our directors, officers, employees or agents and arising under the Securities Act of 1933, as amended (the “Securities Act”).
The timing, pricing, and size of share repurchases will depend on a number of factors, including, but not limited to, price, corporate and regulatory requirements, and general market and economic conditions. As of December 31, 2023, approximately $1.3 million of the Share Repurchase Program remains available for future repurchases.
The timing, pricing, and size of share repurchases will depend on a number of factors, including, but not limited to, price, corporate and regulatory requirements, and general market and economic conditions. As of December 31, 2024, approximately $1.3 million of the Share Repurchase Program remains available for future repurchases.
Ongoing investments and research in AI are expected to yield new capabilities and efficiencies, aligning with our long-term vision for innovation and growth. 21 In addition, regulation of AI is rapidly evolving worldwide as legislators and regulators are increasingly focused on these powerful emerging technologies.
Ongoing investments and research in AI are expected to yield new capabilities and efficiencies, aligning with our long-term vision for innovation and growth. 23 In addition, regulation of AI is rapidly evolving worldwide as legislators and regulators are increasingly focused on these powerful emerging technologies.
Shi’s interests may differ from ours or from those of our other stockholders, actions that he takes with respect to us, as our controlling stockholder, may not be favorable to us or to you or our other stockholders. Mr. Shi, our Founder, Chief Strategy Officer and Chairman, is a Chinese national.
Shi’s interests may differ from ours or from those of our other stockholders, actions that he takes with respect to us, as our controlling stockholder, may not be favorable to us or to you or our other stockholders. Mr. Shi, our Founder, Co-Chief Executive Officer, Chief Strategy Officer and Chairman, is a Chinese national.
In particular, we license intellectual property rights related to our ARK franchise from SDE, the parent company of Studio Wildcard, which is also an entity that is owned and controlled by the spouse of our Founder, Chief Strategy Officer and Chairman, Mr. Shi.
In particular, we license intellectual property rights related to our ARK franchise from SDE, the parent company of Studio Wildcard, which is also an entity that is owned and controlled by the spouse of our Founder, Co-Chief Executive Officer, Chief Strategy Officer and Chairman, Mr. Shi.
Shi controls, subject to applicable law, the composition of our board of directors, which in turn controls all matters affecting us, including, among other things: ● any determination with respect to our business direction and policies, including the appointment and removal of officers and, in the event of a vacancy on our board of directors, additional or replacement directors; ● any determinations with respect to mergers, business combinations or dispositions of assets; ● determination of our management policies; ● determination of the composition of the committees on our board of directors; ● our financing policy; ● our compensation and benefit programs and other human resources policy decisions; ● changes to any other agreements that may adversely affect us; ● the payment of dividends on our common stock; and ● determinations with respect to our tax returns. 29 In addition, the concentration of Mr.
Shi controls, subject to applicable law, the composition of our board of directors, which in turn controls all matters affecting us, including, among other things: ● any determination with respect to our business direction and policies, including the appointment and removal of officers and, in the event of a vacancy on our board of directors, additional or replacement directors; ● any determinations with respect to mergers, business combinations or dispositions of assets; ● determination of our management policies; ● determination of the composition of the committees on our board of directors; ● our financing policy; ● our compensation and benefit programs and other human resources policy decisions; ● changes to any other agreements that may adversely affect us; ● the payment of dividends on our common stock; and ● determinations with respect to our tax returns.
For additional information concerning our license arrangements, including licensing agreements with affiliated third parties, see Item 1 of Part I, “Business — Intellectual Property,” included in this Annual Report for the fiscal year ended December 31, 2023. 14 Failure to maintain or renew our existing material licenses or to obtain additional licenses could impair our ability to introduce new games and new content or to continue to offer our current games, which could materially harm our business, results of operations and financial condition.
For additional information concerning our license arrangements, including licensing agreements with affiliated third parties, see Item 1 of Part I, “Business—Intellectual Property,” included in this Annual Report for the fiscal year ended December 31, 2024. 13 Failure to maintain or renew our existing material licenses or to obtain additional licenses could impair our ability to introduce new games and new content or to continue to offer our current games, which could materially harm our business, results of operations and financial condition.
See Note 15 – Revolving Loan, Short Term Note and Long-Term Debt to our audited consolidated financial statements included in this Annual Report. 28 Risks Related to Our Corporate Structure We are a “controlled company” under the corporate governance rules of Nasdaq and, as a result, qualify for and rely on exemptions from certain corporate governance requirements.
See Note 12 - Revolving Loan, Short Term Note and Long-Term Debt to our audited consolidated financial statements included in this Annual Report. Risks Related to Our Corporate Structure We are a “controlled company” under the corporate governance rules of Nasdaq and, as a result, qualify for and rely on exemptions from certain corporate governance requirements.
Additionally, we compete with other forms of entertainment and leisure activities. While we monitor general market conditions, significant shifts in consumer demand that could materially alter public preferences for different forms of entertainment and leisure activities are difficult to predict. Failure to adequately identify and adapt to these competitive pressures could have a negative impact on our business.
While we monitor general market conditions, significant shifts in consumer demand that could materially alter public preferences for different forms of entertainment and leisure activities are difficult to predict. Failure to adequately identify and adapt to these competitive pressures could have a negative impact on our business.
In such an event, the market price of our common stock could decline, and you could lose all or part of your investment. 10 Risk Factors Summary Our business is subject to numerous risks and uncertainties, including those highlighted in this section titled Item 1A.
In such an event, the market price of our common stock could decline, and you could lose all or part of your investment. Our business is subject to numerous risks and uncertainties, including those highlighted in this section titled Item 1A.
Substantially all of the games, DLC and in-game virtual items that we sell are purchased using the payment processing systems of these platforms and, for the year ended December 31, 2023, 89.7% of our revenues were generated through Xbox Live and Game Pass, PlayStation Network, Steam, Epic Games Store, My Nintendo Store, the Apple App Store, the Google Play Store, and the Amazon Appstore.
Substantially all of the games, DLC and in-game virtual items that we sell are purchased using the payment processing systems of these platforms and, for the year ended December 31, 2024, 94.6% of our revenues were generated through Xbox Live and Game Pass, PlayStation Network, Steam, Epic Games Store, My Nintendo Store, the Apple App Store, the Google Play Store, and the Amazon Appstore.
We derive most of our revenue from publishing video games on third-party platform providers, such as Xbox Live and Game Pass, PlayStation Network, Steam, Epic Games Store, the Apple App Store, the Google Play Store, My Nintendo Store and the Amazon Appstore, which, in the aggregate, comprised 89.7% of our net revenue by product platform for the year ended December 31, 2023.
We derive most of our revenue from publishing video games on third-party platform providers, such as Xbox Live and Game Pass, PlayStation Network, Steam, Epic Games Store, the Apple App Store, the Google Play Store, My Nintendo Store and the Amazon Appstore, which, in the aggregate, comprised 94.6% of our net revenue by product platform for the year ended December 31, 2024.
The terms of our license agreements with SDE may differ from those terms which would be negotiated with independent parties. In addition, we may have disputes with SDE that may impact our business, results of operations, financial condition and/or prospects. The ARK franchise contributed 87.8% of our net revenue for the year ended December 31, 2023.
The terms of our license agreements with SDE may differ from those terms which would be negotiated with independent parties. In addition, we may have disputes with SDE that may impact our business, results of operations, financial condition and/or prospects. The ARK franchise contributed 85.1% of our net revenue for the year ended December 31, 2024.
As such, our business would be harmed if: ● the platform providers discontinue or limit our access to their platforms; ● governments or private parties, such as internet providers, impose bandwidth restrictions, increase charges or restrict or prohibit access to those platforms; ● the platforms increase the fees they charge us; ● the platforms modify their algorithms, communication channels available to developers, respective terms of service or other policies; ● the platforms decline in popularity; ● the platforms adopt changes or updates to their technology that impede integration with other software systems or otherwise require us to modify our technology or update our games in order to ensure players can continue to access our games and content with ease; ● the platforms elect or are required to change how they label free-to-play games or take payment for in-game purchases; ● the platforms block or limit access to the genres of games that we provide in any jurisdiction; ● the platform experiences a bankruptcy or other form of insolvency event; or ● we are unable to comply with the platform providers’ terms of service. 16 Moreover, if our platform providers do not perform their obligations in accordance with our platform agreements or otherwise meet our business requirements, we could be adversely impacted.
As such, our business would be harmed if: ● the platform providers discontinue or limit our access to their platforms; ● governments or private parties, such as internet providers, impose bandwidth restrictions, increase charges or restrict or prohibit access to those platforms; 15 ● the platforms increase the fees they charge us; ● the platforms modify their algorithms, communication channels available to developers, respective terms of service or other policies; ● the platforms decline in popularity; ● the platforms adopt changes or updates to their technology that impede integration with other software systems or otherwise require us to modify our technology or update our games in order to ensure players can continue to access our games and content with ease; ● the platforms elect or are required to change how they label free-to-play games or take payment for in-game purchases; ● the platforms block or limit access to the genres of games that we provide in any jurisdiction; ● the platform experiences a bankruptcy or other form of insolvency event; or ● we are unable to comply with the platform providers’ terms of service.
Further, in such proceedings, the defendant could counterclaim that our intellectual property is invalid or unenforceable and the court may agree, in which case we could lose valuable intellectual property rights.
Further, in such proceedings, the defendant could counterclaim that our intellectual property is invalid or unenforceable and the court may agree, in which case we could lose valuable intellectual property rights. The outcome in any such lawsuit is unpredictable.
As a public company, we are required to provide an annual management report on the effectiveness of our internal control over financial reporting commencing with our second Annual Report on Form 10-K. 34 Our independent registered public accounting firm is not required to formally attest to the effectiveness of our internal control over financial reporting until the later of (1) our second Annual Report on Form 10-K or (2) the Annual Report on Form 10-K for the first year we no longer qualify as an emerging growth company.
Our independent registered public accounting firm is not required to formally attest to the effectiveness of our internal control over financial reporting until the later of (1) our second Annual Report on Form 10-K or (2) the Annual Report on Form 10-K for the first year we no longer qualify as an emerging growth company.
However, our efforts to remediate the material weaknesses may not be effective in preventing a future material weakness or significant deficiency in our internal control over financial reporting.
However, our efforts to remediate the material weakness may not be effective in preventing a future material weakness in our internal control over financial reporting.
We have a credit facility that we may draw on to finance our operations and other corporate purposes. If we default on these credit obligations, our lenders may accelerate the debt and/or foreclose on property securing the debt.
If we default on our credit obligations, our operations may be interrupted, and our business could be seriously harmed. We have a credit facility that we may draw on to finance our operations and other corporate purposes. If we default on these credit obligations, our lenders may accelerate the debt and/or foreclose on property securing the debt.
Shi’s ownership could also discourage others from making tender offers, which could prevent holders from receiving a premium for their common stock. Because Mr.
In addition, the concentration of Mr. Shi’s ownership could also discourage others from making tender offers, which could prevent holders from receiving a premium for their common stock. Because Mr.
The outcome in any such lawsuit is unpredictable. 23 Litigation or other legal proceedings relating to intellectual property claims, even if resolved in our favor, may cause us to incur significant expenses and could distract our technical and management personnel from their normal responsibilities.
Litigation or other legal proceedings relating to intellectual property claims, even if resolved in our favor, may cause us to incur significant expenses and could distract our technical and management personnel from their normal responsibilities.
For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
For the fiscal year ended December 31, 2024, our total net revenue was $84.5 million. 39 For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Tax law or tax rate changes could affect our effective tax rate and future profitability. Our effective tax rate was 20.9% for the year ended December 31, 2023 and 168.5% for the year ended December 31, 2022.
Tax law or tax rate changes could affect our effective tax rate and future profitability. Our effective tax rate was 25.7% for the year ended December 31, 2024 and 20.9% for the year ended December 31, 2023.
The Committee on Foreign Investment in the United States may modify, delay or prevent our future acquisition or investment activities. For so long as Mr. Shi retains a material ownership interest in us, we will be deemed a “foreign person” under the regulations relating to the Committee on Foreign Investment in the United States (“CFIUS”).
For so long as Mr. Shi retains a material ownership interest in us, we will be deemed a “foreign person” under the regulations relating to the Committee on Foreign Investment in the United States (“CFIUS”).
As we enhance, expand and diversify our business and product offerings, the application of existing or future financial accounting standards, particularly those relating to the way we account for revenues and income taxes, could have a significant impact on our reported net revenues, net income and earnings per share under generally accepted accounting principles in the United States in any given period.
As we enhance, expand and diversify our business and product offerings, the application of existing or future financial accounting standards, particularly those relating to the way we account for revenues and income taxes, could have a significant impact on our reported net revenues, net income and earnings per share under generally accepted accounting principles in the United States in any given period. 32 The Company has debt obligations with short term durations that are coming due within one year.
If we fail to manage our growth effectively, then our business, operating results and financial condition would be adversely affected. ● We utilize artificial intelligence (“AI”), which could expose us to liability or adversely affect our business. ● If we are unable to protect the intellectual property relating to our material software, the commercial value of our products will be adversely affected, and our competitive position could be harmed. ● If we infringe, misappropriate, or otherwise violate or are alleged to infringe, misappropriate or otherwise violate the intellectual property rights of third parties, our business could be adversely affected. ● The Company has debt obligations with short term durations that are coming due within one year. ● We are a “controlled company” under the corporate governance rules of Nasdaq and, as a result, qualify for and rely on exemptions from certain corporate governance requirements.
In addition, our business is vulnerable to changing economic conditions and to other factors that adversely affect the gaming industry, which could negatively impact our business. ● General economic factors, domestically and internationally, may adversely affect our business, financial condition, and results of operations. ● We utilize artificial intelligence (“AI”), which could expose us to liability or adversely affect our business. ● If we are unable to protect the intellectual property relating to our material software, the commercial value of our products will be adversely affected, and our competitive position could be harmed. ● If we infringe, misappropriate, or otherwise violate or are alleged to infringe, misappropriate or otherwise violate the intellectual property rights of third parties, our business could be adversely affected. ● The Company has debt obligations with short term durations that are coming due within one year. 11 ● We are a “controlled company” under the corporate governance rules of Nasdaq and, as a result, qualify for and rely on exemptions from certain corporate governance requirements.
Our results of operations or reputation may be harmed as a result of objectionable consumer- or other third party-created content, or if our distributors, retailers, development and licensing partners, or other third parties with whom we are affiliated, act in ways that put our brand at risk.
As a result, our business and operating results may be more volatile and difficult to predict during console transitions than during other times. 18 Our results of operations or reputation may be harmed as a result of objectionable consumer, or other third party-created content, or if our distributors, retailers, development and licensing partners, or other third parties with whom we are affiliated, act in ways that put our brand at risk.
While we anticipate growth in these areas of our business, consumer demand is difficult to predict as a result of a number of factors, including satisfaction with our products and services, our ability to provide engaging products and services, reliability of our infrastructure and the infrastructure of our partners, pricing, the actual or perceived security of our and our partners’ information technology systems and reductions in consumer spending levels. 17 We do not know to what extent these and any future expansions into new business models will be successful.
While we anticipate growth in these areas of our business, consumer demand is difficult to predict as a result of a number of factors, including satisfaction with our products and services, our ability to provide engaging products and services, reliability of our infrastructure and the infrastructure of our partners, pricing, the actual or perceived security of our and our partners’ information technology systems and reductions in consumer spending levels.
Our titles also compete with other forms of entertainment, such as social media and casual games, in addition to film, television and audio and video products featuring similar themes, online computer programs and other entertainment, which may be less expensive or provide other advantages to consumers.
Our titles also compete with other forms of entertainment, such as social media and casual games, in addition to film, television and audio and video products featuring similar themes, online computer programs and other entertainment, which may be less expensive or provide other advantages to consumers. 17 A number of software publishers who compete with us have developed and commercialized or are currently developing online games.
The Share Repurchase Program does not obligate us to repurchase any dollar amount or number of shares, and the program may be suspended or discontinued at any time, which may result in a decrease in the price of our Class A common stock. 32 Repurchases under our Share Repurchase Program will decrease the number of outstanding shares of our Class A common stock and therefore could affect the price of our Class A common stock and increase its volatility.
The Share Repurchase Program does not obligate us to repurchase any dollar amount or number of shares, and the program may be suspended or discontinued at any time, which may result in a decrease in the price of our Class A common stock.
In addition, while it is our policy to require our employees, consultants and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who, in fact, conceives, develops and/or reduces to practice intellectual property that we regard as our own.
Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management. 25 In addition, while it is our policy to require our employees, consultants and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who, in fact, conceives, develops and/or reduces to practice intellectual property that we regard as our own.
We also rely on platforms and networks operated by third parties, such as Xbox Live and Game Pass, PlayStation Network, Steam, My Nintendo Store and Epic Games Store for the sale and digital delivery of downloadable console and PC game content, the functionality of our games with online features.
Conversely, if we overestimate the amount of server capacity required by our business, we may incur additional operating costs. 16 We also rely on platforms and networks operated by third parties, such as Xbox Live and Game Pass, PlayStation Network, Steam, My Nintendo Store and Epic Games Store for the sale and digital delivery of downloadable console and PC game content, the functionality of our games with online features.
In addition, various equity-based research organizations have published reports on Chinese companies after examining their corporate governance practices, related party transactions, sales practices and financial statements, and these reports have led to special investigations and listing suspensions on U.S. national exchanges.
Additionally, the federal government has recently proposed legislation intended to protect American investments in Chinese companies. President In addition, various equity-based research organizations have published reports on Chinese companies after examining their corporate governance practices, related party transactions, sales practices and financial statements, and these reports have led to special investigations and listing suspensions on U.S. national exchanges.
In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have expended, and anticipate that we will continue to expend, significant resources, including accounting-related costs and significant management oversight.
In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have expended, and anticipate that we will continue to expend, significant resources, including accounting-related costs and significant management oversight. 37 Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business.
Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business. In addition, changes in accounting principles or interpretations could also challenge our internal controls and require that we establish new business processes, systems and controls to accommodate such changes.
In addition, changes in accounting principles or interpretations could also challenge our internal controls and require that we establish new business processes, systems and controls to accommodate such changes.
Over-reliance by analysts or investors on any particular metric to forecast our future results may lead to forecasts that differ significantly from our own. 31 If our estimates or judgments relating to our critical accounting policies are based on assumptions that change or prove to be incorrect, our results of operations could fall below our publicly announced guidance or the expectations of securities analysts and investors, resulting in a decline in the market price of our Class A common stock.
If our estimates or judgments relating to our critical accounting policies are based on assumptions that change or prove to be incorrect, our results of operations could fall below our publicly announced guidance or the expectations of securities analysts and investors, resulting in a decline in the market price of our Class A common stock.
Further, insufficient server capacity, in particular during times of peak player activity corresponding with the release of new games or DLC, could affect our ability to provide game services, which could negatively impact our business. Conversely, if we overestimate the amount of server capacity required by our business, we may incur additional operating costs.
Further, insufficient server capacity, in particular during times of peak player activity corresponding with the release of new games or DLC, could affect our ability to provide game services, which could negatively impact our business.
The ARK franchise contributed 87.8% of our net revenue for the year ended December 31, 2023, and our five best-selling franchises (including ARK ), which may change year over year, in the aggregate accounted for 91.9% of our net revenue for the year ended December 31, 2023.
The ARK franchise contributed 85.1% of our net revenue for the year ended December 31, 2024, and our five best-selling franchises (including ARK ), which may change year over year, in the aggregate accounted for 94.0% of our net revenue for the year ended December 31, 2024.
Additionally, should we be the subject of or indirectly covered by new legislation or executive orders addressed at protecting American investments in Chinese or Chinese-owned companies, our revenues and profitability would be materially reduced, and our business and results of operations would be seriously harmed.
Additionally, should we be the subject of or indirectly covered by new legislation or executive orders addressed at protecting American investments in Chinese or Chinese-owned companies, our revenues and profitability would be materially reduced, and our business and results of operations would be seriously harmed. 34 The Committee on Foreign Investment in the United States may modify, delay or prevent our future acquisition or investment activities.
Our continued success will depend to a significant extent on our senior management team and maintaining positive relationships with our games’ developers, including Studio Wildcard, and the product development personnel responsible for content creation and development of our ARK franchise. We are also highly dependent on the expertise, skill and knowledge of Mr.
Our continued success will depend to a significant extent on our senior management team and maintaining positive relationships with our games’ developers, including Studio Wildcard, and the product development personnel responsible for content creation and development of our ARK franchise. On April 15, 2024, Jim S.
Shi, our Founder, Chief Strategy Officer and Chairman, controls us, and his ownership of our common stock prevents you and other stockholders from influencing significant decisions. ● We cannot guarantee that our Share Repurchase Program will be fully implemented, nor that it will enhance stockholder value, and share repurchases could affect the price of our Class A common stock. ● The realization of the Company’s deferred tax assets is contingent upon the Company’s upcoming new game releases to generate sufficient taxable income. 12 Risks Related to Our Business and Industry We are dependent on the future success of our ARK franchise, and we must continue to publish “hit” titles or sequels to such “hit” titles in order to compete successfully in our industry.
Shi, our Founder, Co-Chief Executive Officer, Chief Strategy Officer and Chairman, controls us, and his ownership of our common stock prevents you and other stockholders from influencing significant decisions. ● We cannot guarantee that our Share Repurchase Program will be fully implemented, nor that it will enhance stockholder value, and share repurchases could affect the price of our Class A common stock. ● The realization of the Company’s deferred tax assets is contingent upon the Company’s upcoming new game releases to generate sufficient taxable income.
These include reliance on complex algorithms, potential biases in AI decision-making, cybersecurity threats, and regulatory changes. If the AI tools that we use are deficient, inaccurate or controversial, we could incur operational inefficiencies, competitive harm, legal liability, brand or reputational harm, or other adverse impacts on our business and financial results.
If the AI tools that we use are deficient, inaccurate or controversial, we could incur operational inefficiencies, competitive harm, legal liability, brand or reputational harm, or other adverse impacts on our business and financial results.
We can give no assurance that the measures we have taken or plans to take in the future will remediate the material weaknesses identified or that any additional material weaknesses or restatements of financial results will not arise in the future due to a failure to implement and maintain adequate internal control over financial reporting or circumvention of these controls. 35 Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, another State court in Delaware or the U.S.
We can give no assurance that the measures we have taken or plans to take in the future will remediate the material weakness identified or that any additional material weakness or restatements of financial results will not arise in the future due to a failure to implement and maintain adequate internal control over financial reporting or circumvention of these controls.
We have integrated, or are in the process of integrating, artificial intelligence (“AI”) into various aspects of our business operations. These include, but are not limited to, customer service automation, data analytics, game development, and generation of resources. We evaluate and adapt our AI strategies to optimize operational efficiency and enhance customer experiences.
We utilize artificial intelligence (“AI”), which could expose us to liability or adversely affect our business. We have integrated, or are in the process of integrating, artificial intelligence (“AI”) into various aspects of our business operations. These include, but are not limited to, customer service automation, data analytics, game development, and generation of resources.
Any prolonged or significant decrease in consumer spending on entertainment activities could result in reduced play levels and decreased spending on our games, and could adversely impact our results of operations, cash flows and financial condition. Changes in tax laws or tax rulings, or the examination of our tax positions, could materially affect our financial condition and results of operations.
Any prolonged or significant decrease in consumer spending on entertainment activities could result in reduced play levels and decreased spending on our games, and could adversely impact our results of operations, cash flows and financial condition. General economic factors, domestically and internationally, may adversely affect our business, financial condition, and results of operations.
Our business and products are subject to potential legislation and other governmental restrictions. The adoption of such proposed legislation and restrictions could limit the retail market for our products. Several proposals have been made for federal legislation to regulate our industry. Such proposals seek to prohibit the sale of products containing certain content included in some of our games.
Several proposals have been made for federal legislation to regulate our industry. Such proposals seek to prohibit the sale of products containing certain content included in some of our games.
A number of software publishers who compete with us have developed and commercialized or are currently developing online games. As technological advances significantly increase the availability of online games and as consumer acceptance of online gaming grows substantially, it could result in a decline in our platform-based software sales and negatively affect sales of such products.
As technological advances significantly increase the availability of online games and as consumer acceptance of online gaming grows substantially, it could result in a decline in our platform-based software sales and negatively affect sales of such products. Additionally, we compete with other forms of entertainment and leisure activities.
The extent we rely on the Equity Line Investor as a source of funding will depend on a number of factors including the prevailing market price of our Class A common stock and the extent to which we are able to secure working capital from other sources.
In addition, any amounts we sell under the Equity Line Purchase Agreement may not satisfy all of our funding needs, even if we are able and choose to sell and issue all of our Class A common stock currently registered. 40 The extent we rely on the Equity Line Investor as a source of funding will depend on a number of factors including the prevailing market price of our Class A common stock and the extent to which we are able to secure working capital from other sources.
Shi, our Founder, Chief Strategy Officer and Chairman, Mr. Jim Tsai, our Chief Executive Officer, and Mr. Peter Kang, our Chief Operating Officer. The loss of the services of our executive officers, including Messrs. Shi, Tsai or Kang or certain key product development personnel, including those employed by studio partners, such as Studio Wildcard, could significantly harm our business.
Tian, our other Co-Chief Executive Officer, and Mr. Peter Kang, our Vice President and Director of Business Development and Operations. The loss of the services of any or all of these executive officers, or certain key product development personnel, including those employed by studio partners, such as Studio Wildcard, could significantly harm our business.
We have made and expect to continue to make investments in AI, including software acquisitions, development of proprietary algorithms, and talent recruitment. These investments are expected to drive innovation, improve operational efficiencies, and contribute to long-term growth. While AI presents substantial opportunities, it also poses certain risks.
We evaluate and adapt our AI strategies to optimize operational efficiency and enhance customer experiences. We have made and expect to continue to make investments in AI, including software acquisitions, development of proprietary algorithms, and talent recruitment. These investments are expected to drive innovation, improve operational efficiencies, and contribute to long-term growth.
If we are unable to establish or protect our trademarks and trade names, or if we are unable to build name recognition based on our owned or licensed trademarks and trade names, we may not be able to compete effectively, which could harm our competitive position, business, financial condition, results of operations and prospects. 24 We use open source software in connection with certain of our games and services, which may pose particular risks to our proprietary software, products, and services in a manner that could have a negative impact on our business.
If we are unable to establish or protect our trademarks and trade names, or if we are unable to build name recognition based on our owned or licensed trademarks and trade names, we may not be able to compete effectively, which could harm our competitive position, business, financial condition, results of operations and prospects.
The Company has debt obligations with short term durations that are coming due within one year. We have significant debt obligations coming due within one year. Our current revolving loan has a balance of $6.0 million as of December 31, 2023, and is due for repayment on December 31, 2024.
We have significant debt obligations coming due within one year. Our current revolving loan has a balance of $3.0 million as of December 31, 2024, and is due for repayment on June 30, 2025. The Company intends to extend the revolving loan and renew our short-term note debt arrangement and faces the risk that we will be unable to.
Further, the failure to pursue the development of new technology, platforms, or business models that obtain meaningful commercial success in a timely manner may negatively affect our business, resulting in increased production or development costs and more strenuous competition. 18 Our business is subject to our ability to develop commercially successful products for the current video game platforms, which may not generate immediate or near-term revenues, and as a result, our business and operating results may be more volatile and difficult to predict during console transitions than during other times.
Our business is subject to our ability to develop commercially successful products for the current video game platforms, which may not generate immediate or near-term revenues, and as a result, our business and operating results may be more volatile and difficult to predict during console transitions than during other times.
Provisions in our amended and restated certificate of incorporation and bylaws and under Delaware law could make an acquisition of us more difficult and may prevent attempts by our stockholders to replace or remove our current management.
Although our Share Repurchase Program is intended to enhance long-term stockholder value, short-term price fluctuations could reduce the program’s effectiveness. 36 Provisions in our amended and restated certificate of incorporation and bylaws and under Delaware law could make an acquisition of us more difficult and may prevent attempts by our stockholders to replace or remove our current management.
In general, any loss of trade secret protection or other unpatented proprietary rights could harm our business, financial condition, results of operations, and prospects. 22 We may be subject to claims that our employees, consultants or advisors have wrongfully used or disclosed alleged trade secrets of their current or former employers or claims asserting ownership of what we regard as our own intellectual property.
We may be subject to claims that our employees, consultants or advisors have wrongfully used or disclosed alleged trade secrets of their current or former employers or claims asserting ownership of what we regard as our own intellectual property.
Any failure to repurchase shares after we have announced our intention to do so may negatively impact our reputation and investor confidence in us and may negatively impact our Class A common stock price. Although our Share Repurchase Program is intended to enhance long-term stockholder value, short-term price fluctuations could reduce the program’s effectiveness.
Any failure to repurchase shares after we have announced our intention to do so may negatively impact our reputation and investor confidence in us and may negatively impact our Class A common stock price.
If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.
If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel.
We may be unable to effectively manage the continued growth and the scope and complexity of our business, including our expansion into new business models that are untested and into adjacent business opportunities with large, established competitors. In recent years, we have experienced significant growth in the scope and complexity of our business.
If such attacks persist or escalate, they could materially and adversely affect our business, financial condition, and results of operations. We may be unable to effectively manage the continued growth and the scope and complexity of our business, including our expansion into new business models that are untested and into adjacent business opportunities with large, established competitors.
Further, even if successful, our aspirations for growth in our core businesses and these adjacent businesses could create significant challenges for our management, operational, and financial resources.
We do not know to what extent these and any future expansions into new business models will be successful. Further, even if successful, our aspirations for growth in our core businesses and these adjacent businesses could create significant challenges for our management, operational, and financial resources.
If one or more of these analysts cease coverage of us or fail to publish reports covering us regularly, we could lose visibility in the market, which in turn could cause our stock price or trading volume to decline.
If one or more of these analysts cease coverage of us or fail to publish reports covering us regularly, we could lose visibility in the market, which in turn could cause our stock price or trading volume to decline. 35 Even if our Class A common stock is actively covered by analysts, we do not have any control over the analysts or the measures that analysts or investors may rely upon to forecast our future results.
If some investors find our Class A common stock less attractive as a result, there may be a less active trading market for our Class A common stock and the trading price of our Class A common stock may be more volatile. 36 Risks Related to Convertible Notes and Equity Line Credit Financing Investors who buy shares in the convertible notes and equity line credit financing offering at different times will likely pay different prices.
If some investors find our Class A common stock less attractive as a result, there may be a less active trading market for our Class A common stock and the trading price of our Class A common stock may be more volatile.
If any of our material trade secrets were to be disclosed to or independently developed by a competitor, our competitive position would be harmed.
If any of our material trade secrets were to be disclosed to or independently developed by a competitor, our competitive position would be harmed. In general, any loss of trade secret protection or other unpatented proprietary rights could harm our business, financial condition, results of operations, and prospects.
The type of challenges we face in the EU and U.K. will likely also arise in other jurisdictions that adopt regulatory frameworks of equivalent complexity. Accordingly, any actual or perceived failure to comply with these laws and regulations could harm our business, financial condition and results of operations.
The type of challenges we face in the EU and U.K. will likely also arise in other jurisdictions that adopt regulatory frameworks of equivalent complexity.
As a result, capital appreciation, if any, of our Class A common stock will be your sole source of gain for the foreseeable future.
As a result, capital appreciation, if any, of our Class A common stock will be your sole source of gain for the foreseeable future. See Part II, Item 5 “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities — Dividend Policy” for a more detailed description of our dividend policy.
See Item 9A, “Controls and Procedures,” in this Annual Report for information regarding the identified material weaknesses and our actions to date to remediate the material weaknesses. As a result of the material weaknesses, our management has concluded that our internal control over financial reporting were not effective as of December 31, 2023.
See Part II, Item 9A, “Controls and Procedures,” in this Annual Report for information regarding the identified material weaknesses and our actions to date to remediate the material weakness.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeCybersecurity Governance The Company’s executive management considers cybersecurity risk and other information technology risk as part of its risk oversight and has the ultimate responsibility for overseeing our cybersecurity strategy.
Biggest changeThe Company also maintains a comprehensive incident response plan to detect, respond to, assess the materiality of, and recover from cybersecurity incidents effectively. 41 Cybersecurity Governance The Company’s executive management considers cybersecurity risk and other information technology risk as part of its risk oversight and has the ultimate responsibility for overseeing our cybersecurity strategy.
Furthermore, during the year ended December 31, 2023 we have bolstered our Board of Directors through the appointment of a Director with an extensive history in cybersecurity and a deep understanding of cybersecurity threats which may have a material impact on our business and the video game industry as a whole.
Furthermore, during the year ended December 31, 2024, we have bolstered our Board of Directors through the appointment of a Director with an extensive history in cybersecurity and a deep understanding of cybersecurity threats which may have a material impact on our business and the video game industry as a whole.
There have been no cybersecurity threat events identified during the year ended December 31, 2023, which have resulted in a material incident, or are reasonably likely to result in a material impact on our business strategy, results of operations or financial condition.
There have been no cybersecurity threat events identified during the year ended December 31, 2024, which have resulted in a material incident, or are reasonably likely to result in a material impact on our business strategy, results of operations or financial condition.
The Company currently uses a variety of security controls, including but not limited to firewalls, intrusion detection systems, data encryption in transit and at rest, and multi-factor authentication. We provide annual training to our employees and educate them on cybersecurity best practices.
The Company currently uses a variety of security controls, including but not limited to firewalls, intrusion detection systems, data encryption in transit and at rest, and multi-factor authentication. We provide regular training to our employees and educate them on cybersecurity risks and best practices to mitigate these risks.
Cybersecurity Strategy We are working towards the implementation of relevant controls within the National Institute of Standards and Technology (“NIST”) Cybersecurity Framework to better address cybersecurity threats and are actively working to secure additional cybersecurity insurance. The Company has a risk management plan that outlines the processes and procedures we use to identify, assess, mitigate and respond to cybersecurity risks.
Cybersecurity Strategy We are working towards the implementation of relevant controls within the National Institute of Standards and Technology (“NIST”) Cybersecurity Framework to better address cybersecurity threats and we actively maintain a risk management plan that outlines the processes and procedures we use to identify, assess, mitigate and respond to cybersecurity risks.
The plan is designed to protect the Company’s assets and safeguard the confidentiality, integrity and availability of its data and operations. Our cybersecurity risk management plan is integrated into the Company’s overall risk management process and establishes a clear framework with roles and responsibilities for managing cybersecurity risks. We will also conduct periodic assessments using the NIST framework once implemented.
The plan is designed to protect the Company’s assets and safeguard the confidentiality, integrity and availability of its data and operations. Our cybersecurity risk management plan is integrated into the Company’s overall risk management process and establishes a clear framework with roles and responsibilities for managing cybersecurity risks.
Removed
The Company is also developing a comprehensive incident response plan to detect, respond to, assess the materiality of, and recover from cybersecurity incidents effectively which it expects to be fully implemented during the year ending December 31, 2024.
Added
Our Director of IT holds operational responsibility for cybersecurity and maintains a suite of industry-standard tools to consistent confidentiality, integrity and availability of Company systems and data. Suspicious activity within Company networks and systems are investigated and assessed by the Director of IT and then reported to the executive management team .
Removed
Our Director of IT has been with the Company for nine years, has fifteen years of IT experience and has the institutional knowledge to apply our risk management strategy and cybersecurity threat responses to our organization.
Added
Verified incidents are also communicated to the Board of Directors.
Removed
The Director of IT implements continuous monitoring mechanisms to track cybersecurity risks and controls in real time, utilizing an endpoint detection and response system (“EDR”).
Removed
Incidents reported by the EDR are assessed and responded to by the Director of IT, then reported to the CEO, who’s also the chairman of our corporate governance committee, for review and communicated to the Board of Directors.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties. As of December 31, 2023, we lease approximately 16,900 square feet of office space located in Beverly Hills, California under an operating lease that expires on November 13, 2025. We also own a two-story office building consisting of approximately 5,910 square feet of office space on 7,163 square feet of land in Culver City, California.
Biggest changeItem 2. Properties. As of December 31, 2024, we lease approximately 16,900 square feet of office space located in Beverly Hills, California under an operating lease that expires on November 13, 2025. We also own a two-story office building consisting of approximately 5,910 square feet of office space on 7,163 square feet of land in Culver City, California.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeOur ability to pay cash dividends on our capital stock in the future may also be limited by the terms of any preferred securities we may issue or agreements governing any additional indebtedness we may incur. 38 Stock Performance Graph As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.
Biggest changeIn addition, our ability to pay cash dividends is currently restricted by the terms of our credit facilities. Our ability to pay cash dividends on our capital stock in the future may also be limited by the terms of any preferred securities we may issue or agreements governing any additional indebtedness we may incur.
On November 14, 2022, concurrently with the initial public offering (“IPO”) and pursuant to the certain reorganization transactions, the pre-IPO stockholders of Snail Games USA collectively exchanged 500,000 shares of SGUSA common stock for 6,251,420 shares of our Class A common stock and 28,748,580 shares of our Class B common stock.
On November 14, 2022, concurrently with the initial public offering (“IPO”) of our Class A common stock, and pursuant to the certain reorganization transactions, the pre-IPO stockholders of Snail Games USA collectively exchanged 500,000 shares of SGUSA common stock for 6,251,420 shares of our Class A common stock and 28,748,580 shares of our Class B common stock.
The Company did not issue any securities that were not registered under the Securities Act during the year ended December 31, 2023. The foregoing transactions were exempt from registration under the Securities Act, in reliance on Section 4(a)(2) of the Act.
The Company did not issue any securities that were not registered under the Securities Act during the year ended December 31, 2024. The foregoing transactions were exempt from registration under the Securities Act, in reliance on Section 4(a)(2) of the Act.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased under the Plans or Programs In thousands, except per share amounts Period January 2023 153 $ 1.68 153 $ 1,333 February 2023 — — — — March 2023 — — — — April 2023 — — — — May 2023 — — — — June 2023 — — — — July 2023 — — — — August 2023 — — — — September 2023 — — — — October 2023 — — — — November 2023 — — — — December 2023 — — — — Total 153 $ 1.68 153 $ 1,333 On November 10, 2022, our board of directors authorized a Share Repurchase Program under which we may repurchase up to $5 million in outstanding shares of our Class A common stock, subject to ongoing compliance with Nasdaq listing rules.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased under the Plans or Programs In thousands, except per share amounts Period January 2024 — — — — February 2024 — — — — March 2024 — — — — April 2024 — — — — May 2024 — — — — June 2024 — — — — July 2024 — — — — August 2024 — — — — September 2024 — — — — October 2024 — — — — November 2024 — — — — December 2024 — — — — Total — $ — — $ — 43 On November 10, 2022, our board of directors authorized a Share Repurchase Program under which we may repurchase up to $5 million in outstanding shares of our Class A common stock, subject to ongoing compliance with Nasdaq listing rules.
The number of record holders of our Class B common stock as of March 24, 2023 was two. Dividend Policy We currently intend to retain all available funds and any future earnings, if any, to fund the development and expansion of our business and we do not anticipate paying any cash dividends in the foreseeable future.
The number of record holders of our Class B common stock as of March 20, 2025 was two. Dividend Policy We currently intend to retain all available funds and any future earnings, if any, to fund the development and expansion of our business and we do not anticipate paying any cash dividends in the foreseeable future.
All share repurchases settled in the fiscal year ended December 31, 2023 were open market transactions. As of December 31, 2023, 1,350,275 shares of Class A common stock were repurchased pursuant to the Share Repurchase Program for an aggregate purchase price of approximately $3.7 million.
All share repurchases settled in the fiscal years ended December 31, 2024 and 2023 were open market transactions. As of December 31, 2024, 1,350,275 shares of Class A common stock were repurchased pursuant to the Share Repurchase Program for an aggregate purchase price of approximately $3.7 million.
Prior to that, there was no public market for our stock. Holders of Record The approximate number of record holders of our Class A common stock as of March 24, 2023 was five, including Equiniti Trust Company, LLC, which holds shares of our Class A common stock on behalf of an indeterminate number of beneficial owners.
Prior to that, there was no public market for our Class A common stock. 42 Holders of Record The approximate number of record holders of our Class A common stock as of March 20, 2025 was three, including Equiniti Trust Company, LLC, which holds shares of our Class A common stock on behalf of an indeterminate number of beneficial owners.
For more information regarding the Share Repurchase Program refer to Note 2 - Summary of Significant Accounting Policies to our consolidated financial statements included in this Annual Report. 39 Item 6. [Reserved.]
The average price paid per share was $2.72 and approximately $1.3 million aggregate amount of shares of Class A common stock remain available for repurchase under the Share Repurchase Program. For more information regarding the Share Repurchase Program refer to Note 2— Summary of Significant Accounting Policies to our consolidated financial statements included in this Annual Report. Item 6. [Reserved.]
Unregistered Sales of Equity Securities and Use of Proceeds We issued the following securities that were not registered under the Securities Act.
Stock Performance Graph As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide this information. Unregistered Sales of Equity Securities and Use of Proceeds We issued the following securities that were not registered under the Securities Act.
Removed
In addition, our ability to pay cash dividends is currently restricted by the terms of our credit facilities.
Removed
The average price paid per share was $2.72 and approximately $1.3 million aggregate amount of shares of Class A common stock remain available for repurchase under the Share Repurchase Program.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

77 edited+21 added−38 removed61 unchanged
Biggest changeCost of revenues for the years ended December 31, 2023 and 2022 comprised the following: Fiscal years ended December 31, 2023 2022 $ Change % Change (in millions) Software license royalties - related parties $ 14.4 $ 17.0 $ (2.6 ) (15.1 )% Software license royalties 1.1 0.1 1.0 678 % License and amortization - related parties 20.5 25.4 (4.9 ) (19.3 )% License and amortization - 0.2 (0.2 ) (99.7 )% Merchant fees 1.4 2.4 (1.0 ) (43.5 )% Engine fees 4.3 2.0 2.3 118.1 % Internet, server and data center 6.5 5.8 0.7 12.0 % Costs related to advertising revenue 0.1 0.2 (0.1 ) (24.9 )% Total: $ 48.3 $ 53.1 $ (4.8 ) (9.1 )% The decrease in cost of revenues for the year ended December 31, 2023 was due to a decrease of $4.9 million in license and amortization – related parties, a result of a lower amortizable base of intangible assets in 2023, and a decrease in software license royalties – related parties of $2.6 million; partially offset by increased engine fees of $2.3 million resulting from an increase in Ark sales.
Biggest changeCost of revenues for the years ended December 31, 2024 and 2023 comprised the following: Years ended December 31, 2024 2023 $ Change % Change (in millions) Software license royalties - related parties $ 19.9 $ 14.4 $ 5.5 38.3 % Software license royalties 0.6 1.1 (0.5 ) (49.1 )% License and amortization - related parties 24.0 20.5 3.5 17.1 % Merchant fees 0.9 1.4 (0.5 ) (34.9 )% Engine fees 3.8 4.3 (0.5 ) (11.1 )% Internet, server and data center 4.9 6.5 (1.6 ) (23.3 )% Costs related to other revenues 0.1 0.1 - (56.5 )% Total: $ 54.2 $ 48.3 $ 5.9 12.3 % The increase in cost of revenues for the year ended December 31, 2024 was due to an increase of $5.5 million in software license royalties – related parties, a result of increased deferred royalty recognition related to ARK franchise, an increase of $3.5 million in license and amortization – related parties due to the increased license fee paid to SDE partially offset by lower amortization expense due to a lower depreciable base of intangible assets in 2024, a decrease in engine fees of $0.5 million, decrease in internet, server and data center fees of $1.6 million, a decrease in merchant fees of $0.5 million and a decrease in software license royalties of $0.5 million.
The Company’s ability to comply with the covenants, or receive waivers for the covenants, can lead to the acceleration of payments due under the debt facilities with the lender, cause the lender to cease making advances under the revolving agreement, or allow the lender take possession of collateral.
The Company’s ability to comply with the covenants, or receive waivers for the covenants, can lead to the acceleration of payments due under the debt facilities with the lender, cause the lender to cease making advances under the revolving agreement, or allow the lender to take possession of collateral.
Cost of revenues Cost of revenues includes license royalty fees, merchant fees, engine fees, server and database cost centers, game licenses and license right amortization. For a description of our licensing arrangements, please see Note 2 - Summary of Significant Accounting Policies to our audited consolidated financial statements included in this Annual Report.
Cost of revenues Cost of revenues includes license royalty fees, merchant fees, engine fees, server and database cost centers, game licenses and license right amortization. For a description of our licensing arrangements, please see Note 2 - Summary of Significant Accounting Policies to our consolidated financial statements included in this Annual Report.
As a result, the information that we provide to our stockholders may be different than you might receive from other public reporting companies in which you hold equity interests. 54 In addition, an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards.
As a result, the information that we provide to our stockholders may be different than you might receive from other public reporting companies in which you hold equity interests. 57 In addition, an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards.
In October 2023, we filed a Form S-1 Registration Statement with the SEC in connection with our issuance of convertible note, equity line of credit and warrants related to each financing as noted below. 51 Capital resources We fund our operations from our net cash flows provided by operating activities.
In October 2023, we filed a Form S-1 Registration Statement with the SEC in connection with our issuance of convertible note, equity line of credit and warrants related to each financing as noted below. 54 Capital resources We fund our operations from our net cash flows provided by operating activities.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. This discussion and analysis contains forward-looking statements that involve certain risks and uncertainties.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K (the “Annual Report”). This discussion and analysis contains forward-looking statements that involve certain risks and uncertainties.
As of December 31, 2023 and 2022, the net outstanding balances of receivables due from SDE were $13.5 million and $13.5 million, respectively. We expect accounts receivables owed to us by SDE will be repaid within the next two fiscal years and intend to exercise all legally available means of collection.
As of December 31, 2024 and 2023, the net outstanding balances of receivables due from SDE were $7.5 million and $13.5 million, respectively. We expect accounts receivables owed to us by SDE will be repaid within the next two fiscal years and intend to exercise all legally available means of collection.
The difference of $525,754 between the proceeds allocated to the Convertible Notes and the aggregate principal amount will be accreted over the life of the notes and accounts for the fair value of the warrants and the stated discount. Additionally, $152,500 of transaction costs incurred by the Company were recorded as a debt discount.
The difference of $525,754 between the proceeds allocated to the Convertible Notes and the aggregate principal amount were accreted over the life of the notes and accounted for the fair value of the warrants and the stated discount. Additionally, $152,500 of transaction costs incurred by the Company were recorded as a debt discount.
We had a net loss of $9.1 million for the year ended December 31, 2023 as compared to net income of $1.0 million for the year ended December 31, 2022. 40 Key Factors Affecting Our Business There are a number of factors that affect the performance of our business, and the comparability of our results from period to period, including: Investments in our content strategy We continuously evaluate and invest in content strategy to improve and innovate our games and features and to develop current technological platforms.
For the year ended December 31, 2024 we had a net income of $1.8 million, as compared to net loss of $9.1 million for the year ended December 31, 2023. 44 Key Factors Affecting Our Business There are a number of factors that affect the performance of our business, and the comparability of our results from period to period, including: Investments in our content strategy We continuously evaluate and invest in content strategy to improve and innovate our games and features and to develop current technological platforms.
We define “daily active users” as the number of unique users who play any given game on any given day. For the years ended December 31, 2023 and 2022, we generated 87.8% and 90.8%, respectively, of our revenues from the ARK franchise.
We define “daily active users” as the number of unique users who play any given game on any given day. For the years ended December 31, 2024 and 2023, we generated 85.1% and 87.8%, respectively, of our revenues from the ARK franchise.
Research and development Research and development consists primarily of consulting expenses and salaries and wages devoted towards the development of new games and related technologies. We do not fund or enter into arrangements relating to the research and development activities from third-party developers from whom we license games.
Research and development Research and development consists primarily of consulting expenses and salaries and wages devoted towards the development of new games and related technologies and development costs outsourced through Suzhou Snail. We do not fund or enter into arrangements relating to the research and development activities from third-party developers from whom we license games.
Our current unrestricted cash position of approximately $15.2 million, and our expected revenue receipts will allow the Company to continue operations beyond the next 12 months and service its current debts.
Our current unrestricted cash position of approximately $7.3 million, and our expected revenue receipts will allow the Company to continue operations beyond the next 12 months and service its current debts.
The funds are to be repaid in monthly installments starting in November 2023 and are to be based on 20% of the gross monthly ARK: Survival Ascended revenues. The Company has imputed interest at 8.0% on draws made. As of December 31, 2023, we had borrowings of $1.5 million outstanding under the Note Payable.
The funds were repaid in monthly installments starting in November 2023 and were based on 20% of the gross monthly ARK: Survival Ascended revenues. The Company has imputed interest at 8.0% on draws made. As of December 31, 2024, we had repaid the remaining $1.5 million outstanding under the Note Payable.
The Term Loan, which was originally set to mature in June 2031, bears interest at a fixed rate of 3.5% for the first five years and then at a floating rate of the Wall Street Journal prime rate until maturity. The Term Loan is secured by our principal headquarters.
The Term Loan, which was originally set to mature in June 2031, bears interest at a fixed rate of 3.5% for the first five years and then at a floating rate of the Wall Street Journal prime rate until maturity.
Financing activities for the year ended December 31, 2023 included $9.5 million in debt payments, $0.3 million for the purchase of treasury stock, $0.3 million in payments of capitalized offering costs in accounts payable, partially offset by $3.0 million in borrowings on a term loan, $0.8 million in proceeds from the issuance of convertible notes, $1.9 million for the refund of a withholding tax overpayment and $1.0 million from the release of the Company’s restricted escrow deposit.
Financing activities for the year ended December 31, 2023 included debt repayments of $9.5 million, the purchases of treasury stock in the amount of $0.3 million, and $0.3 million in payments of capitalized offering costs partially offset by $3.0 million in borrowings on a term loan, $0.8 million for the issuance of convertible notes, $1.9 million received for the refund of a dividend withholding tax overpayment and $1.0 million from the release of the Company’s restricted escrow deposit.
In January 2022, we amended and restated our 2021 Revolving Loan and we executed a promissory note to obtain an additional long-term loan with a principal balance of $10.0 million which was set to mature on January 26, 2023 (the “2022 Short Term Note”). In November 2022, the maturity date was extended to January 26, 2024.
The Term Loan is secured by our principal headquarters. 2022 Short Term Note In January 2022, we amended and restated our 2021 Revolving Loan and we executed a promissory note to obtain an additional long-term loan with a principal balance of $10.0 million which was set to mature on January 26, 2023 (the “2022 Short Term Note”).
In January 2024, the Company completed the last payment obligation on the 2022 Short Term Note. Convertible Notes On August 24, 2023, the Company issued convertible notes at a 7.4% discount and a principal balance of $1,080,000.
The Company completed the last payment obligation on the 2022 Short Term Note during the year ended December 31, 2024. Convertible Notes On August 24, 2023, the Company issued convertible notes at a 7.4% discount and a principal balance of $1,080,000.
Through December 31, 2023, our ARK franchise game has been played for 3.5 billion hours with an average playing time per user of 163.7 hours and with the top 21.0% of all players spending over 100 hours in the game, according to data from the Steam platform.
Through December 31, 2024, our ARK franchise game has been played for 3.9 billion hours with an average playing time per user of 162.1 hours and with the top 21.3% of all players spending over 100 hours in the game, according to data from the Steam platform.
We are currently actively investing in expanding our gaming pipeline as well as developing media and eSports content related to our gaming intellectual property. We also continue to invest to grow our micro-influencer platform, NOIZ , by attracting new influencers and brand customers.
We are currently actively investing in expanding our gaming pipeline as well as developing media and eSports content related to our gaming intellectual property. We also continue to invest to grow our micro-influencer platform, NOIZ , by attracting new influencers and brand customers. We have established a new division internally under the Interactive Films brand.
The Company has registered shares for potential issuance on exercise of the warrants, or conversion of the note, on Form S-1 that was declared effective on October 30, 2023. As of December 31, 2023, the note holders have not exercised the warrants or the option to convert the notes.
The Company has registered shares for potential issuance on exercise of the warrants, or conversion of the note, on Form S-1 that was declared effective on October 30, 2023. As of December 31, 2024, the note holders have exercised 202,379 warrants.
Growth of user base We have experienced significant growth in our number of downloads over the last several years. We have sold 45.2 million units between January 1, 2016 and December 31, 2023. During the year ended December 31, 2023, we sold 6.3 million units compared to 5.8 million in the year ended December 31, 2022.
Growth of user base We have experienced significant growth in our number of downloads over the last several years. We have sold 49.9 million units between January 1, 2016 and December 31, 2024. During the year ended December 31, 2024, we sold 4.7 million units compared to 6.3 million in the year ended December 31, 2023.
As of December 31, 2023 the Company has not sold any Class A common stock under the Equity Line Purchase Agreement. 52 2023 Note Payable In July 2023, the Company entered into a cooperation agreement with its IDC vendor.
As of December 31, 2024 the Company has not sold any Class A common stock under the Equity Line Purchase Agreement and the investor has exercised 33,333 warrants. 55 2023 Note Payable In July 2023, the Company entered into a cooperation agreement with its IDC vendor.
In connection with the IPO, $1.0 million of the net proceeds were remitted to an escrow account which was held to provide a source of funding for our indemnification obligations to the underwriters.
In connection with the IPO, $1.0 million of the net proceeds were remitted to an escrow account which was held to provide a source of funding for our indemnification obligations to the underwriters. The amount in escrow was released to the Company’s unrestricted cash and cash equivalents in November 2023.
General and administrative expenses General and administrative expenses for the year ended December 31, 2023 decreased by $2.9 million, or 15.5%, compared to the year ended December 31, 2022.
General and administrative expenses General and administrative expenses for the year ended December 31, 2024 decreased by $2.9 million, or 18.6%, compared to the year ended December 31, 2023.
Non-cash reconciling items were $1.0 million and $8.2 million for the years ended December 31, 2023 and 2022, respectively, representing a decrease of $7.2 million.
Non-cash reconciling items were $0.5 million and $1.1 million for the years ended December 31, 2024 and 2023, respectively, representing a decrease of $0.6 million.
Fiscal years ended December 31, 2023 2022 Change % Change (in millions) Units Sold 6.3 5.8 0.5 8.8 % (1) Units include master games, DLCs, season pass and bundles and excludes skins, soundtracks and other items. 43 Units Sold increased during the year ended December 31, 2023, as compared to the year ended December 31, 2022, by 0.5 million units, or 8.8%.
Years ended December 31, 2024 2023 $ Change % Change (in millions) Units Sold (1) 4.7 6.3 (1.6 ) (25.3 )% (1) Units include master games, DLCs, season pass and bundles and excludes skins, soundtracks and other items. 50 Units sold decreased during the year ended December 31, 2024, as compared to the year ended December 31, 2023, by 1.6 million units, or 25.3%.
We also record legal settlement expenses as components of general and administrative expenses. We expect general and administrative expenses will increase in absolute dollars due to the additional administrative and regulatory burden of becoming and operating as a public company.
We expect general and administrative expenses will increase in absolute dollars due to the additional administrative and regulatory burden of becoming and operating as a public company and the inflationary pressures of recent years.
Cash flows The following tables present a summary of our cash flows for the periods indicated (in millions): Fiscal years ended December 31, 2023 2022 $ Change % Change (in millions) Net cash flows provided by (used in) operating activities $ 0.5 $ (3.4 ) $ 3.9 113.9 % Net cash flows provided by investing activities - 1.2 (1.2 ) (100.0 )% Net cash flows (used in) provided by financing activities (3. 4 ) 4.9 (8.3 ) (171.0 )% Net (decrease) increase in cash and cash equivalents and restricted cash and cash equivalents $ ( 2.9 ) $ 2.7 $ (5. 6 ) (210.3 )% Operating activities Net cash flows provided by operating activities for the year ended December 31, 2023 increased $3.9 million as compared to the year ended December 31, 2022, which resulted primarily from an increase in deferred revenues of $35.5 million, an increase in accounts payable and accounts payable – related parties of $5.0 million, an increase in accrued expenses of $1.7 million, partially offset by a decrease in net income of $10.1 million, a decrease in noncash reconciling items of $7.2 million, an increase in accounts receivable and accounts receivable - related party of $17.7 million and an increase in prepaids and related party prepaids of $3.4 million.
Cash flows The following tables present a summary of our cash flows for the periods indicated: Years ended December 31, 2024 2023 $ Change % Change (in millions) Net cash flows provided by (used in) operating activities $ (1.6 ) $ 0.5 $ (2.1 ) (436.0 )% Net cash flows used in financing activities (6.5 ) (3.4 ) (3.1 ) (88.5 )% Net decrease in cash and cash equivalents and restricted cash and cash equivalents $ (8.1 ) $ (2.9 ) $ (5.2 ) (170.6 )% Operating activities Net cash flows provided by (used in) operating activities for the year ended December 31, 2024 decreased $2.1 million as compared to the year ended December 31, 2023, which resulted primarily from a decrease in deferred revenues of $33.6 million, a decrease in accounts payable and accounts payable – related parties of $21.4 million, an increase in other noncurrent assets of $1.5 million, a decrease in accrued expenses of $0.6 million, a decrease in non-cash reconciling items of $0.6 million; partially offset by a decrease in accounts receivable and accounts receivable - related party of $34.1 million, increase in net income of $10.9 million, a decrease in prepaids expenses and prepaid expenses – related party of $8.5 million and an increase in prepaid taxes of $2.2 million.
Term Loan In June 2021, we entered into a loan agreement with a financial institution providing for a term loan in an aggregate principal amount of $3.0 million (the “Term Loan”).
As of December 31, 2024, we had borrowings of $3.0 million outstanding under our 2021 Revolving Loan. Term Loan In June 2021, we entered into a loan agreement with a financial institution providing for a term loan in an aggregate principal amount of $3.0 million (the “Term Loan”).
Benefit from income taxes The benefit from income taxes consists of current income taxes in the various jurisdictions where we are subject to taxation, primarily the United States, as well as deferred income taxes reflecting the net tax effects of temporary differences between the carrying amounts of assets and liabilities in each of these jurisdictions for financial reporting purposes and the amounts used for income tax purposes.
However, sales and marketing expenses may fluctuate as a percentage of revenues depending on the timing and efficiency of our marketing efforts. 47 Provision for (benefit from) income taxes The provision for income taxes consists of current income taxes in the various jurisdictions where we are subject to taxation, primarily the United States, as well as deferred income taxes reflecting the net tax effects of temporary differences between the carrying amounts of assets and liabilities in each of these jurisdictions for financial reporting purposes and the amounts used for income tax purposes.
Our flagship franchise from which we generate the substantial majority of our revenues, ARK , is a leader within the sandbox survival genre with 90.7 million console and PC installs through December 31, 2023 and repeated releases within the top-25 selling games on the Steam platform.
Our flagship franchise from which we generate the substantial majority of our revenues, ARK , is a leader within the sandbox survival genre with 94.8 million console and PC installs through December 31, 2024 and repeated releases within the top-25 selling games on the Steam platform. See below for discussion of key performance metrics and non-GAAP measures.
Fiscal years ended December 31, 2023 2022 $ Change % Change (in millions) Net (loss) income $ (9.1 ) $ 1.0 $ (10.1 ) (1,014.8 )% Interest income and interest income - related parties (0.1 ) (0.8 ) 0.7 (83.2 )% Interest expense and interest expense - related parties 1.5 0.9 0.6 65.5 % Benefit from income taxes (2.4 ) (2.4 ) - 1.9 % Depreciation and amortization expense 0.4 0.6 (0.2 ) (23.6 )% EBITDA $ (9.7 ) $ (0.7 ) $ (9.0 ) (1,198.1 )% For the year ended December 31, 2023, EBITDA decreased by $9.0 million, or 1,198.1%, compared to the year ended December 31, 2022, primarily as a result of a decrease in net income of $10.1 million, partially offset by a decrease in interest income of $0.7 million and an increase in interest expense of $0.6 million.
Years ended December 31, 2024 2023 $ Change % Change (in millions) Net income (loss) $ 1.8 $ (9.1 ) $ 10.9 120.1 % Interest income and interest income – related parties (0.3 ) (0.1 ) (0.2 ) 99.2 % Interest expense and interest expense – related parties 0.7 1.5 (0.8 ) (52.8 )% Provision for (benefit from) income taxes 0.6 (2.4 ) 3.0 (126.3 )% Depreciation expense 0.4 0.4 - (29.7 )% EBITDA $ 3.2 $ (9.7 ) $ 12.9 133.4 % For the year ended December 31, 2024, EBITDA increased by $12.9 million, or 133.4%, compared to the year ended December 31, 2023, primarily because of an increase in net income of $10.9 million and a decrease in the benefit from income taxes of $3.0 million, partially offset by a decrease in interest expense and interest expense – related parties of $0.8 million and an increase in interest income and interest income – related parties of $0.2 million.
Results of Operations Comparison of the year ended December 31, 2023 versus the year ended December 31, 2022 Fiscal years ended December 31, 2023 2022 $ Change % Change (in millions) Revenues, net $ 60.9 $ 74.4 $ (13.5 ) (18.2 )% Cost of revenues 48.3 53.1 (4.8 ) (9.1 )% Gross profit 12.6 21.3 (8.7 ) (40.9 )% Operating expenses: General and administrative 15.8 18.7 (2.9 ) (15.5 )% Research and development 5.1 2.9 2.2 71.1 % Advertising and marketing 1.6 0.7 0.9 121.5 % Depreciation and amortization 0.4 0.6 (0.2 ) (23.6 )% Total operating expenses 22.9 22.9 - (0.3 )% Loss from operations $ (10.3 ) $ (1.6) $ (8.7 ) 539.2 % 47 Revenues Net revenues for the year ended December 31, 2023 decreased by $13.5 million, or 18.2%, compared to the year ended December 31, 2022.
Results of Operations Comparison of the year ended December 31, 2024 versus the year ended December 31, 2023 Years ended December 31, 2024 2023 $ Change % Change (in millions) Revenues, net $ 84.5 $ 60.9 $ 23.6 38.7 % Cost of revenues 54.2 48.3 5.9 12.3 % Gross profit 30.3 12.6 17.7 140.0 % Operating expenses: General and administrative 12.9 15.8 (2.9 ) (18.6 )% Research and development 11.6 5.1 6.5 130.3 % Advertising and marketing 1.5 1.6 (0.1 ) (3.7 )% Depreciation 0.4 0.4 - (29.7 )% Total operating expenses 26.4 22.9 3.5 15.1 % Income (loss) from operations $ 3.9 $ (10.3 ) $ 14.2 137.8 % 48 Revenues Net revenues for the year ended December 31, 2024 increased by $23.6 million, or 38.7%, compared to the year ended December 31, 2023.
The decrease in general and administrative expenses was due to a decrease in legal and professional expenses of $5.0 million, a decrease in contractors expense of $0.4 million and a decrease in administrative internet and server costs of $0.4 million; partially offset by an increase in salaries and wages of $0.7 million, an increase in bad debts of $0.6 million, an increase in insurance expenses of $0.7 million and an increase in expenses of $0.9 million for SEC filing fees, investor relations, NASDAQ listing fees and compliance expenses.
The decrease in general and administrative expenses was due to a decrease in salaries and wages of $1.3 million due to the reversal of $0.9 million in previously expensed stock based compensation, a decrease in legal and professional expenses of $1.1 million, a decrease in bad debt expense of $0.6 million, a decrease in administrative internet and server costs of $0.4 million, and a decrease in expenses of $0.4 million for SEC filing fees, investor relations, NASDAQ listing fees and compliance expenses; partially offset by an increase in non-income related taxes of $0.4 million and general office expenses of $0.2 million.
Cash used for capital expenditures in the normal course of business is typically made available from cash flows generated by operating activities. We may also pursue acquisition opportunities for additional businesses or games that meet our strategic and return on investment criteria. Capital needs for investment opportunities are evaluated on an individual opportunity basis and may require significant capital commitments.
We may also pursue acquisition opportunities for additional businesses or games that meet our strategic and return on investment criteria. Capital needs for investment opportunities are evaluated on an individual opportunity basis and may require significant capital commitments. Liquidity Our primary sources of liquidity are the cash flows generated from our operations, that are currently available as unrestricted cash.
The Company’s deferred income tax assets reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
Deferred Income Taxes The Company’s deferred income tax assets reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Changes in tax laws or the level of future taxable income could affect the realizability of deferred income tax assets.
However, there is no guarantee that we will be able to renegotiate the terms of the 2021 Revolving Loan or obtain a new short term note with the lender at terms acceptable to us or at all. Currently, we expect that we will not be in compliance with its quarterly debt covenant for the three months ending March 31, 2024.
However, there is no guarantee that we will be able to renegotiate the terms of the 2021 Revolving Loan or obtain a new short term note with the lender at terms acceptable to us or at all.
In connection with the Convertible Notes the Company issued to the investors warrants to purchase an aggregate of 714,285 shares that were accounted for under the fair value method and allocated a value of $445,754.
The notes had an interest rate of 7.5%, were paid in consecutive monthly installments beginning February 24, 2024 and matured on May 24, 2024. In connection with the Convertible Notes the Company issued to the investors warrants to purchase an aggregate of 714,285 shares that were accounted for under the fair value method and allocated a value of $445,754.
The Company had a net loss of $9.1 million for the year ended December 31, 2023 and a net income of $1.0 million for the year ended December 31, 2022, representing a decrease of $10.1 million.
The Company had a net income of $1.8 million and a net loss of $9.1 million, for the years ended December 31, 2024 and 2023, respectively, representing an increase of $10.9 million.
Our restricted cash primarily consists of time deposits and is used as security for certain of our debt instruments and to secure standby letters of credit with certain of our landlords. 49 As of December 31, 2023, our 2021 Revolving Loan and 2022 Short Term Note of $6.0 million and $0.8 million are due in December 2024 and January 2024, respectively.
Our restricted cash primarily consists of time deposits and is used as security for certain of our debt instruments and to secure standby letters of credit with certain of our landlords. 52 As of December 31, 2024, our 2021 Revolving Loan has a balance of $3.0 million and is due in June 2025.
The decrease in the non-cash reconciling items was due to a decrease in amortization of intangible assets of $6.3 million and a decrease in deferred taxes of $3.2 million, partially offset by an increase in accretion expense of $0.3 million, an increase in stock based compensation of $0.6 million, reduced interest income from the shareholder loan of $0.6 million, and an increase in credit losses of $0.6 million.
The decrease in the non-cash reconciling items was due to a decrease in amortization of intangible assets of $1.4 million, a decrease in stock based compensation expense of $1.7 million, a decrease in allowance for credit losses of $0.6 million, partially offset by an increase on the loss in fair value of warrant liabilities of $1.3 million, and an increase in deferred taxes of $2.1 million.
Deferred Income Taxes The Company recognizes deferred income taxes based on estimates of future taxable income and the utilization of tax loss carryforwards. Changes in tax laws or the level of future taxable income could affect the realizability of deferred income tax assets.
The Company recognizes deferred income taxes based on estimates of future taxable income and the utilization of tax loss carryforwards.
We may also incur expenses that are the same, or similar to, some of the adjustments in this presentation. Below is a reconciliation of net income (loss) to EBITDA, the closest GAAP financial measure.
Our presentation of EBITDA should not be construed as an inference that our future results will be unaffected by unusual or unexpected items. We may also incur expenses that are the same, or similar to, some of the adjustments in this presentation. Below is a reconciliation of net income (loss) to EBITDA, the closest GAAP financial measure.
The Company raised additional capital during the year ended December 31, 2023 in the form of the convertible notes, short term financing arrangement with the Company’s internet and data center (“IDC”) vendor, and the distribution agreement entered into with our retail partner which provided advanced royalties.
The Company has raised capital through the issuance of the convertible notes, equity line of credit, a short term financing arrangement with the Company’s internet and data center (“IDC”) vendor, and the distribution agreement entered into with our retail partner which provided advanced royalties.
For the years ended December 31, 2023 and 2022, our net revenue was $60.9 million and $74.4 million, respectively. During fiscal year 2023, approximately 43.7% of our revenue came from consoles, 43.4% from PC and 9.6% from mobile platforms as compared to 43.5% from consoles, 42.4% from PC and 12.8% from mobile platforms during fiscal year 2022.
During the year ended December 31, 2024, approximately 42.4% of our revenue came from consoles, 48.1% from PC and 5.5% from mobile platforms as compared to 43.7% from consoles, 43.4% from PC and 9.6% from mobile platforms during the year ended December 31, 2023.
Bookings and EBITDA, as used in this Annual Report on Form 10-K, are non-GAAP financial measures that are presented as supplemental disclosures and should not be construed as alternatives to net income (loss) or revenue as indicators of operating performance, as determined in accordance with GAAP.
EBITDA, as used in this Annual Report on Form 10-K, is a non-GAAP financial measure that is presented as supplemental disclosures and should not be construed as an alternative to net income (loss) or any other GAAP measure as an indicator of operating performance.
We expect salaries and wages to increase in a manner that is proportional with the added expenses and expertise of operating as a public company. We also expect salaries and wages to increase as we increase headcount as we expand our product offerings. Stock-based compensation will be recorded within research and development and general and administrative expense.
We expect salaries and wages to increase as we increase headcount as we expand our product offerings. Stock-based compensation will be recorded within research and development and general and administrative expense. We also record legal settlement expenses as components of general and administrative expenses.
Cost of revenues Cost of revenues for the year ended December 31, 2023 decreased by $4.8 million, or 9.1%, compared to the year ended December 31, 2022.
Cost of revenues Cost of revenues for the year ended December 31, 2024 increased by $5.9 million, or 12.3%, compared to the year ended December 31, 2023.
The decrease was primarily due to decreased net revenues of $13.5 million, increased research and development costs of $2.2 million, increased advertising and marketing costs of $0.9 million, increased interest expenses of $0.6 million, decreased interest income – related party of $0.6 million, partially offset by a decrease in cost of revenues of $4.8 million, and a decrease in general and administrative expenses of $2.9 million.
The increase was primarily due to an increase in net revenue of $23.6 million, decreased general and administrative expenses of $2.9 million, partially offset by increased research and development costs of $6.5 million, increased costs of revenues of $5.9 million, an increase in expenses related to the revaluation of outstanding and exercised warrants of $1.2 million and a decrease in income tax benefit of $3.0 million.
For additional information regarding our indebtedness, see Note 15, Revolving Loan, Short Term Note and Long-Term Debt to our consolidated financial statements included in this Annual Report. Critical Accounting Policies and Estimates Our discussion and analysis of results of operations, financial condition, and liquidity are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP.
Critical Accounting Policies and Estimates Our discussion and analysis of results of operations, financial condition, and liquidity are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP.
The discount is amortized using the effective interest rate of 109.7%. The effective interest rate is based on the principal balance discounted by stated interest, debt issuance costs and fair value allocated to the related warrants. As of December 31, 2023, we had borrowings of $1,080,000, net of a $282,639 discount under the Convertible Notes.
The discount was amortized using the effective interest rate of 103.4%. The effective interest rate is based on the principal balance discounted by stated interest, debt issuance costs and fair value allocated to the related warrants. As of December 31, 2024, the Convertible Notes have been repaid.
Selling Prices of Performance Obligations The Company uses the following reasonably available information in developing the standalone selling prices of the pe rformance obligations: ● Reasonably available data points, including third party or industry pricing, and contractually stated prices. ● Market conditions such as market demand, competition, market constraints, awareness of the product and market trends. ● Entity-specific factors including pricing strategies and objectives, market share and pricing practices for bundled arrangements.
Changes in estimates of our release schedule may affect the classification of short and long term deferred revenues and the rate at which deferred revenue is recognized, which could have a material impact on the Company’s Consolidated Financial Statements. 56 Selling Prices of Performance Obligations The Company uses the following reasonably available information in developing the standalone selling prices of the performance obligations: ● Reasonably available data points, including third party or industry pricing, and contractually stated prices. ● Market conditions such as market demand, competition, market constraints, awareness of the product and market trends. ● Entity-specific factors including pricing strategies and objectives, market share and pricing practices for bundled arrangements.
Components of Results of Operations Revenues We primarily derive revenue from the sale of our games through various gaming platforms. Through these platforms, users can download our games and, for certain games, purchase virtual items to enhance their game-playing experience.
Through these platforms, users can download our games and, for certain games, purchase virtual items to enhance their game-playing experience.
Other Factors Affecting Net Income (Loss) Fiscal years ended December 31, 2023 2022 $ Change % Change (in millions) Interest income $ 0.1 $ 0.2 $ (0.1 ) (35.4 )% Interest income - related parties - 0.6 (0.6 ) (99.7 )% Interest expense (1.5 ) (0.9 ) (0.6 ) (66.1 )% Other income 0.3 0.3 - (16.8 )% Income tax benefit 2.4 2.4 - (1.9 )% Interest income Interest income - related parties was $0.0 million and $0.6 million for the years ended December 31, 2023 and 2022, respectively.
Advertising and marketing expenses Advertising and marketing expenses for the year ended December 31, 2024 decreased by $0.1 million, or 3.7%, compared to the year ended December 31, 2023. 49 Other Factors Affecting Net Income (Loss) Years ended December 31, 2024 2023 $ Change % Change (in millions) Interest income $ 0.3 $ 0.1 $ 0.2 100.7 % Interest expense (0.7 ) (1.5 ) 0.8 (52.8 )% Other income (expense) (1.0 ) 0.3 (1.3 ) (468.9 )% Income tax (provision) benefit (0.6 ) 2.4 (3.0 ) (126.3 )% Interest income Interest income was $0.3 million and $0.1 million for the year ended December 31, 2024 and 2023, respectively.
Fiscal years ended December 31, 2023 2022 $ Change % Change (in millions) Total net revenue $ 60.9 $ 74.4 $ (13.5 ) (18.2 )% Change in deferred net revenue 24.8 (10.7 ) 35.5 330.8 % Bookings $ 85.7 $ 63.7 $ 22.0 34.5 % For the year ended December 31, 2023, bookings increased by $22.0 million, or 34.5%, compared to the year ended December 31, 2022, because of the release of ARK: Survival Ascended in the fourth quarter of 2023.
Years ended December 31, 2024 2023 $ Change % Change (in millions) Total net revenue $ 84.5 $ 60.9 $ 23.6 38.7 % Change in deferred net revenue (8.8 ) 24.8 (33.6 ) (135.7 )% Bookings $ 75.7 $ 85.7 $ (10.0 ) (11.7 )% For the year ended December 31, 2024, bookings decreased by $10.0 million, or 11.7%, compared to the year ended December 31, 2023, because of increased sales at a higher ASP driven by the release of ARK: Survival Ascended in the fourth quarter of 2023.
Under current U.S. tax law, the federal statutory tax rate applicable to corporations is 21%. Our effective tax rate of 20.9% differed from the federal statutory rate of 21% primarily as a result of decreases in uncertain tax positions, changes in the valuation allowance on deferred tax assets, and foreign research and development deductions.
Under current U.S. tax law, the federal statutory tax rate applicable to corporations is 21%. Our effective tax rate of 25.7% differed from the federal statutory rate of 21% primarily due to the foreign research and development deduction, permanent differences, change in valuation allowance, and change in warrant valuation.
Advertising and marketing expenses Advertising and marketing expenses for the year ended December 31, 2023 increased by $0.9 million, or 121.5%, compared to the year ended December 31, 2022.
Research and development expenses Research and development expenses for the year ended December 31, 2024 increased by $6.5 million, or 130.3%, compared to the year ended December 31, 2023.
We intend to renegotiate with the lender to extend the maturity date of the 2021 Revolving Loan and to negotiate a new Short Term Note.
The Company has the right, but not the obligation, to sell up to $5.0 million in Class A common stock to the investor. We intend to renegotiate with the lender to extend the maturity date of the 2021 Revolving Loan and to negotiate a new Short Term Note.
Interest is equal to the higher of 5.75% and the Wall Street Journal prime rate plus 0.50%. The 2022 Short Term Note is secured and collateralized by our existing assets. As of December 31, 2023, we had borrowings of $0.8 million outstanding under the 2022 Short Term Note.
In November 2022, the maturity date was extended to January 26, 2024. Interest was equal to the higher of 3.75% and the Wall Street Journal prime rate plus 0.50%. The 2022 Short Term Note is secured and collateralized by our existing assets.
The change in our effective tax rate is due to the state refund received in fiscal year 2022. Liquidity and Capital Resources Capital spending We incur capital expenditures in the normal course of business and perform ongoing enhancements and updates to our social and mobile games to maintain their quality standards.
Liquidity and Capital Resources Capital spending We incur capital expenditures in the normal course of business and perform ongoing enhancements and updates to our social and mobile games to maintain their quality standards. Cash used for capital expenditures in the normal course of business is typically made available from cash flows generated by operating activities.
Mobile platform fees charged by these digital storefronts are expensed as incurred and reported within cost of revenue as merchant fees.
Mobile platform fees charged by these digital storefronts are expensed as incurred and reported within cost of revenue as merchant fees. We record deferred revenue when payments are due or received in advance of the fulfillment of our associated performance obligations.
As our industry moves towards increased use of cloud gaming and gaming as a service technology, our ability to bring interactive technologies to market will be an increasingly important part of our business. 41 Ability to release content, market effectively through cross media and expand the gaming group Establishing and maintaining a loyal network of players for our premium games is vital for our business and drives revenue growth.
As our industry moves towards increased use of cloud gaming and gaming as a service technology, our ability to bring interactive technologies to market will be an increasingly important part of our business.
Our restricted cash and cash equivalents were $1.1 million and $6.4 million as of December 31, 2023 and 2022, respectively.
Our unrestricted cash was $7.3 million and $15.2 million as of December 31, 2024 and 2023, respectively. Our restricted cash and cash equivalents were $0.9 million and $1.1 million as of December 31, 2024 and 2023, respectively.
See Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Key Performance Metrics and Non-GAAP Measures.” In the year ended December 31, 2023, ARK: Survival Evolved and ARK: Survival Ascended combined for an average total of 416,479 daily active users (“DAUs”) on the Steam and Epic platforms, as compared to 305,376 in the year ended December 31, 2022.
During the fiscal year ended December 31, 2024, ARK: Survival Evolved and ARK: Survival Ascended combined for an average total of 213,000 daily active users (“DAUs”) on the Steam and Epic platforms, as compared to 416,479 in the fiscal year ended December 31, 2023.
The waiver is applicable to all debt facilities with the lender and will waive the covenants for the fiscal year ended December 31, 2023. The Company repaid the $0.8 million term note that was one of three debt facilities with the lender, in January 2024.
For the trailing twelve months ended December 31, 2024, the Company met the minimum debt service coverage ratio required by its debt covenants. The Company repaid the $0.8 million term note that was one of three debt facilities with the lender, in January 2024.
See Note 5- Accounts Receivable - Related Party to our audited consolidated financial statements included in this Annual Report. 50 Investing activities Cash provided by investing activities for the year ended December 31, 2023 decreased $1.2 million compared to the year ended December 31, 2022 due to a $1.5 million repayment received on a note receivable, partially offset by loan repayments of $0.3 million made to a related party in 2022.
See Note 5- Accounts Receivable - Related Party to our consolidated financial statements included in this Annual Report. 53 Financing activities Net cash flows used in financing activities for the year ended December 31, 2024 were $6.5 million compared to $3.4 million for the year ended December 31, 2023.
The decrease in net revenues was due to a decrease in Ark Mobile sales of $2.9 million, a decrease in one time deferred revenue from contracts recognized in 2022 of $10.3 million, one time payments in 2022 of $8.5 million related to free download promotions and releases of DLC’s, that did not occur in 2023 and an increase in deferred revenues of $25.2 million related to Ark ; partially offset by an increase in Ark sales of $32.7 million.
The increase in net revenues was due to an increase in recognition of deferred revenues of $32.2 million related to the Ark franchise, an increase in sales Bellwright of $5.9 million, partially offset by a decrease in total Ark sales of $13.0 million, a decrease in Ark Mobile sales of $1.0 million and a decrease in the Company’s other titles of $0.7 million.
Bookings and EBITDA should not be considered as alternatives to net income (loss), as measures of financial performance or any other performance measure derived in accordance with GAAP. Bookings Bookings is defined as the net amount of products and services sold digitally or physically in the period. Bookings is equal to revenues excluding the impact from deferrals.
Bookings is used by management to understand sales trends and assess the volume of our sales activity over time. Bookings should not be considered as alternatives to net income (loss), as measures of financial performance or any other performance measure derived in accordance with GAAP. Below is a reconciliation of total net revenue to Bookings, the closest GAAP financial measure.
Benefit from income taxes The Company had an income tax benefit of $2.4 million for the year ended December 31, 2023 and a benefit of $2.4 million for the year ended December 31, 2022. Our effective income tax rate was 20.9% and 168.5% for the years ended December 31, 2023 and 2022, respectively.
The decrease is due to the revaluation of the Company’s outstanding warrant liabilities and exercised warrant contracts. Provision for (benefit from) income taxes The Company had an income tax provision of $0.6 million for the year ended December 31, 2024 and a benefit of ($2.4) million for the year ended December 31, 2023.
The Company’s estimates of deferred income taxes are based on its assessment of the likelihood of realizing the benefits of the tax assets and are reviewed annually. Changes in these estimates may have a material impact on the Company’s consolidated financial statements.
The weighting of positive and negative evidence and the projection of future taxable income requires significant judgment and estimates. In addition, changes in these estimates may have a material impact on the Company’s consolidated financial statements.
EBITDA as calculated herein may not be comparable to similarly titled measures reported by other companies within the industry and is not determined in accordance with GAAP. Our presentation of EBITDA should not be construed as an inference that our future results will be unaffected by unusual or unexpected items.
EBITDA We define EBITDA as net income (loss) before (i) interest income, (ii) interest expense, (iii) (benefit from) provision for income taxes, and (iv) depreciation expense, property and equipment. EBITDA as calculated herein may not be comparable to similarly titled measures reported by other companies within the industry and is not determined in accordance with GAAP.
In concurrence with the registration of the convertible notes shares the Company registered shares for distribution in an equity line of credit. The Company has the right, but not the obligation, to sell up to $5.0 million in Class A common stock to the investor.
The Company has repaid its Convertible Notes balance of $1.1 million, its $1.5 million financing arrangement, and the remaining $0.8 million of its short term notes balance during the twelve months ended December 31, 2024. In concurrence with the registration of the convertible notes shares the Company registered shares for distribution in an equity line of credit.
The decrease was due to the distribution of the Shareholder Loan to Suzhou Snail in April 2022. Interest expense Interest expense primarily related to our outstanding indebtedness with third-party lenders.
The increase was due to the balance of our cash deposits being higher on average during the year ended December 31, 2024. Interest expense Interest expense primarily related to our outstanding indebtedness with third-party lenders.
We supplementally present Bookings and EBITDA because they are key operating measures used by our management to assess our financial performance. Bookings adjusts for the impact of deferrals and, we believe, provides a useful indicator of sales in a given period.
Bookings adjusts for the impact of deferrals and, we believe, provides a useful indicator of sales in a given period. It reflects the net amount of products and services sold digitally or physically in a given period, excluding the impact of revenue deferrals.
Management uses Bookings and EBITDA to supplement GAAP measures of performance in the evaluation of the effectiveness of our business strategies, to make budgeting decisions, and to compare our performance against other peer companies using similar measures.
We present EBITDA because it is used by management to assess our financial performance, excluding certain expenses that management believes do not reflect the ongoing operating performance of the business. Management uses EBITDA to supplement GAAP measures of performance when evaluating our business strategies, making budgeting decisions and comparing performance against peer companies.
Seasonality in our revenue also tends to coincide with promotional cycles on platforms, typically on a quarterly basis. 42 Key Performance Metrics and Non-GAAP Measures Units Sold We monitor Units Sold as a key performance metric in evaluating the performance of our console and PC game business.
Our effective income tax rate was 25.7% and 20.9% during the years ended December 31, 2024 and 2023, respectively. Key Performance Metrics Units Sold We monitor Units Sold as a key performance metric in evaluating the performance of our console and PC game business.
On June 17, 2021, we amended and restated our revolving loan and security agreement (the “2021 Revolving Loan”) to increase our revolving line of credit to $9.0 million. As amended, the 2021 Revolving Loan matured on December 31, 2023 and bore interest at a rate equal to the prime rate less 0.25%.
On June 21, 2023, the Company amended its revolving loan agreement (“amended revolver”) and decreased the maximum balance from $9,000,000 to $6,000,000. The revolving maturity date of revolving loan is extended to June 30, 2025 and has an annual interest rate equal to the prime rate less 0.25%. At December 31, 2024, the interest rate on this loan was 7.25%.
Removed
The Company was able to increase unit sales across fiscal years due to the release of ARK: Survival Ascended . Bookings & EBITDA In addition to our financial results determined in accordance with U.S. generally accepted accounting principles (“U.S. GAAP” or “GAAP”), we believe Bookings and EBITDA, as non-GAAP measures, are useful in evaluating our operating performance.
Added
For the years ended December 31, 2024 and 2023, our net revenue was $84.5 million and $60.9 million, respectively.
Removed
Management believes Bookings and EBITDA are useful to investors and analysts in highlighting trends in our operating performance, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which we operate and capital investments.

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