Snail Inc

Previous wording

Our mission is to provide high-quality entertainment experiences to audiences around the world. We are a leading, global independent developer and publisher of interactive digital entertainment for consumers around the world. We have built a premier portfolio of premium games designed for use on a variety of platforms, including consoles, PCs, and mobile devices.ARK: Survival Evolved has been a top-25 selling game on the Steam platform by gross revenue in each year we released anARK DLC. Our expertise in technology, in-game ecosystems and monetization of online multiplayer games has enabled us to assemble a broad portfolio of intellectual property across multiple media formats and technology platforms. Our flagship franchise from which we generate the substantial majority of our revenues,ARK, is a leader within the sandbox survival genre with 92.7 million console and PC installs through June 30, 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. In the three and six months ended June 30, 2024,ARK: Survival Evolved andARK: Survival Ascendedcombined for an average total of 218,241 and 213,691 daily active users (“DAUs”) on the Steam and Epic platforms, respectively, as compared to 240,522 and 258,245 in the three and six months ended June 30, 2023, respectively. We define “daily active users” as the number of unique users who play any given game on any given day. For the three months ended June 30, 2024 and 2023, we generated 77.2% and 83.0%, respectively, of our revenues from theARKfranchise. For the six months ended June 30, 2024 and 2023, we generated 77.7% and 87.1%, respectively, of our revenues from theARKfranchise.

Current wording

Our mission is to provide high-quality entertainment experiences to audiences around the world. We are a leading, global independent developer and publisher of interactive digital entertainment for consumers around the world. We have built a premier portfolio of premium games designed for use on a variety of platforms, including consoles, PCs, and mobile devices.ARK: Survival Evolved has been a top-25 selling game on the Steam platform by gross revenue in each year we released anARK DLC. Our expertise in technology, in-game ecosystems and monetization of online multiplayer games has enabled us to assemble a broad portfolio of intellectual property across multiple media formats and technology platforms. Our flagship franchise from which we generate the substantial majority of our revenues,ARK, is a leader within the sandbox survival genre with 93.7 million console and PC installs through September 30, 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. In the three and nine months ended September 30, 2024,ARK: Survival Evolved andARK: Survival Ascendedcombined for an average total of 210,000 and 212,000 daily active users (“DAUs”) on the Steam and Epic platforms, respectively, as compared to 231,000 and 249,000 in the three and nine months ended September 30, 2023, respectively. We define “daily active users” as the number of unique users who play any given game on any given day. For the three months ended September 30, 2024 and 2023, we generated 88.7% and 86.4%, respectively, of our revenues from theARKfranchise. For the nine months ended September 30, 2024 and 2023, we generated 82.0% and 86.9%, respectively, of our revenues from theARKfranchise.

Previous wording

Our dedication to providing audiences with high-quality entertainment experiences utilizing the latest gaming technology has produced strong user engagement, continued revenue growth, and increased cash flows. Through June 30, 2024, ourARK franchise game has been played for 3.7 billion hours with an average playing time per user of 161 hours and with the top 21.1% of all players spending over 100 hours in the game, according to data from the Steam platform. For the three months ended June 30, 2024 and 2023, our net revenue was $21.6 million and $9.9 million, respectively. For the six months ended June 30, 2024 and 2023, our net revenue was $35.7 million and $23.4 million, respectively. During the three months ended June 30, 2024, approximately 38.6% of our revenue came from consoles, 54.7% from PC and 5.2% from mobile platforms as compared to 36.7% from consoles, 34.0% from PC and 15.2% from mobile platforms during the three months ended June 30, 2023. During the six months ended June 30, 2024, approximately 40.1% of our revenue came from consoles, 47.4% from PC and 5.9% from mobile platforms as compared to 40.3% from consoles, 35.9% from PC and 13.8% from mobile platforms during the six months ended June 30, 2023. We had a net income of $2.3 and a net loss of $4.1 million, for the three months ended June 30, 2024 and 2023, respectively. For the six months ended June 30, 2024 we had a net income of $0.5 million, as compared to net loss of $7.1 million for the six months ended June 30, 2023.

Current wording

Our dedication to providing audiences with high-quality entertainment experiences utilizing the latest gaming technology has produced strong user engagement, continued revenue growth, and increased cash flows. Through September 30, 2024, ourARK franchise game has been played for 3.8 billion hours with an average playing time per user of 162 hours and with the top 21.2% of all players spending over 100 hours in the game, according to data from the Steam platform. For the three months ended September 30, 2024 and 2023, our net revenue was $22.5 million and $9.0 million, respectively. For the nine months ended September 30, 2024 and 2023, our net revenue was $58.3 million and $32.3 million, respectively. During the three months ended September 30, 2024, approximately 44.3% of our revenue came from consoles, 45.6% from PC and 10.1% from mobile and other platforms as compared to 43.5% from consoles, 41.4% from PC and 15.1% from mobile and other platforms during the three months ended September 30, 2023. During the nine months ended September 30, 2024, approximately 41.7% of our revenue came from consoles, 46.7% from PC and 11.6% from mobile and other platforms as compared to 41.1% from consoles, 37.4% from PC and 21.4% from mobile and other platforms during the nine months ended September 30, 2023. We had a net income of $0.2 million and a net loss of $4.4 million, for the three months ended September 30, 2024 and 2023, respectively. For the nine months ended September 30, 2024 we had a net income of $0.7 million, as compared to net loss of $11.5 million for the nine months ended September 30, 2023.

Previous wording

We have experienced significant growth in our number of downloads over the last several years. We have sold 47.6 million units between January 1, 2016 and June 30, 2024. During the three months ended June 30, 2024, we sold 1.3 million units compared to 1.0 million in the three months ended June 30, 2023. During the six months ended June 30, 2024, we sold 2.4 million units compared to 2.7 million in the six months ended June 30, 2023. Our video games provide highly engaging, differentiated entertainment experiences where the combination of challenge and progress drives player engagement, high average player times, and long-term franchise value. The success of our franchise hinges on our ability to keep our current players engaged while also growing our user base by innovating our platform and monetizing new offerings. The degree to which gamers are willing to engage with our platform is driven by our ability to create interactive and unique content that will enhance the game-play experience. We sell DLCs which are supplementary to our master games and expand the gaming universe to continuously evolve the game and retain players. Our master games are the base versions of a specific title, for example,ARK: Survival Evolved is our master game andARK: Genesis is a DLC.

Current wording

We have experienced significant growth in our number of downloads over the last several years. We have sold 48.7 million units between January 1, 2016 and September 30, 2024. During the three months ended September 30, 2024, we sold 1.1 million units compared to 1.2 million in the three months ended September 30, 2023. During the nine months ended September 30, 2024, we sold 3.5 million units compared to 3.9 million in the nine months ended September 30, 2023. Our video games provide highly engaging, differentiated entertainment experiences where the combination of challenge and progress drives player engagement, high average player times, and long-term franchise value. The success of our franchise hinges on our ability to keep our current players engaged while also growing our user base by innovating our platform and monetizing new offerings. The degree to which gamers are willing to engage with our platform is driven by our ability to create interactive and unique content that will enhance the game-play experience. We sell DLCs which are supplementary to our master games and expand the gaming universe to continuously evolve the game and retain players. Our master games are the base versions of a specific title, for example,ARK: Survival Evolved is our master game andARK: Genesis is a DLC.

Previous wording

On June 27, 2024, we received a deficiency letter from the Listing Qualifications Department (the “Staff”) of the Nasdaq Stock Market (“Nasdaq”) notifying us that, for the last thirty (30) consecutive business days (From May 10, 2024 to June 26, 2024), the bid price for our common stock had closed below the minimum $1.00 per share requirement for continued inclusion on the Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Rule”). In accordance with Nasdaq rules, we were provided an initial period of 180 calendar days, or until December 24, 2024 (the “Compliance Date”), to regain compliance with the Bid Price Rule. If, at any time before the Compliance Date, the bid price for the common stock closes at $1.00 or more for a minimum of ten (10) consecutive business days, the Staff will provide written notification to the Company that it complies with the Bid Price Rule and the matter will be closed.

Current wording

On June 27, 2024, we received a deficiency letter from the Listing Qualifications Department (the “Staff”) of the Nasdaq Stock Market (“Nasdaq”) notifying us that, for the last thirty (30) consecutive business days (From May 10, 2024 to June 26, 2024), the bid price for our Class A common stock had closed below the minimum $1.00 per share requirement for continued inclusion on the Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Rule”). In accordance with Nasdaq rules, we were provided an initial period of 180 calendar days, or until December 24, 2024 (the “Compliance Date”), to regain compliance with the Bid Price Rule. If, at any time before the Compliance Date, the bid price for the Class A common stock closed at $1.00 or more for a minimum of ten (10) consecutive business days, the Staff would provide written notification to the Company that it complied with the Bid Price Rule and the matter will be closed.

Previous wording

Units sold increased during the three months ended June 30, 2024, as compared to the three months ended June 30, 2023, by 0.3 million units, or 33.5%. The Company’s units sold increased primarily due to an increase inARKunits sold of 0.1 million units, a result of the release ofARK: Survival AscendedandBob’s Tall Tales, and 0.2 million units from the release ofBellwrightduring the three months ended June 30, 2024. Units sold decreased during the six months ended June 30, 2024, as compared to the six months ended June 30, 2023, by 0.3 million units, or 9.9%. Units sold ofARK: Survival Evolved decreased by 1.5 million units*,partially offset by an increase inARK: Survival Ascendedunits sold of 1.0 million and an increase inBellwright*sales of 0.2 million units.

Current wording

Units sold decreased during the three months ended September 30, 2024, as compared to the three months ended September 30, 2023, by 0.1 million units, or 13.8%. The Company’s units sold decreased due to a decrease in in sales ofARK: Survival Evolvedof 0.6 million units*,* offset by an increase in sales ofARK: Survival Ascendedof 0.4 million units and 0.1 million units from sales ofBellwrightduring the three months ended September 30, 2024. Units sold decreased during the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023, by 0.4 million units, or 11.1%. Units sold ofARK: Survival Evolved decreased by 2.0 million units*,partially offset by an increase inARK: Survival Ascendedunits sold of 1.3 million and an increase inBellwright*sales of 0.3 million units.

Previous wording

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. Below is a reconciliation of total net revenue to Bookings, the closest GAAP financial measure.

Current wording

Bookings is a key operating metric in assessing our financial performance. 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. 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.

Previous wording

For the six months ended June 30, 2024, bookings increased by $19.8 million, or 88.0%, compared to the six months ended June 30, 2023, because of the release ofARK: Survival Ascendedin the fourth quarter of 2023, and the release ofBobs Tall TalesandBellwrightalong with theARK: Survival AscendedDLC,Scorched Earth in April 2024. In addition to increased sales of the aforementioned titles*,the Company deferred approximately $12.7 million in revenues during the six months ended June 30, 2024 for theARK: Survival AscendedDLC’s and parts ofBobs Tall Tales* which have not yet released; partially offset by the recognition of $5.6 million for the release ofScorched Earth.

Current wording

For the three months ended September 30, 2024, bookings increased by $5.6 million, or 53.6%, compared to the three months ended September 30, 2023, because of the release ofARK: Survival Ascendedin the fourth quarter of 2023, and the releases ofBobs Tall TalesandBellwrightin the first half of 2024, along with theARK: Survival AscendedDLCAberration in September 2024. In addition to increased sales of the aforementioned titles*,bookings decreased because the Company recognized deferred revenues of approximately $8.2 million during the three months ended September 30, 2024 for the release ofAberrationand part II ofBobs Tall Tales*; partially offset by the deferral of $2.6 million in revenues for sales ofARK: Survival AscendedDLC’s and the remaining part ofBobs Tall Taleswhich have not yet launched. During the three months ended September 30, 2023 the Company deferred $1.8 million in prepaid royalties forARK: Survival AscendedandARK II.

Previous wording

For the three months ended June 30, 2024, bookings increased by $13.6 million, or 146.7%, compared to the three months ended June 30, 2023, because of the release ofARK: Survival Ascendedin the fourth quarter of 2023, and the release ofBobs Tall TalesandBellwrightalong with theARK: Survival AscendedDLC,Scorched Earth in April 2024. In addition to increased sales of the aforementioned titles*,the Company deferred approximately $7.1 million in revenues during the three months ended June 30, 2024 for theARK: Survival AscendedDLC’s and parts ofBobs Tall Tales* which have not yet released; partially offset by the recognition of $5.6 million for the release ofScorched Earth.

Current wording

For the nine months ended September 30, 2024, bookings increased by $25.6 million, or 77.1%, compared to the nine months ended September 30, 2023, because of the release ofARK: Survival Ascendedin the fourth quarter of 2023, and the release ofBobs Tall TalesandBellwrightalong with theARK: Survival AscendedDLCs,Scorched Earth in April 2024 andAberrationin September 2024. In addition to increased sales of the aforementioned titles*,additionally, the Company deferred $15.3 million in revenues during the nine months ended September 30, 2024 for theARK: Survival AscendedDLC’s and parts ofBobs Tall Tales* which have not yet released, partially offset by the recognition of $14.4 million from deferred revenue upon the release ofScorched Earth, Aberrationand the first two parts ofBobs Tall Tales.

Previous wording

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. Bookings and EBITDA, as used in this Quarterly Report on Form 10-Q, 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.

Current wording

In addition to our financial results determined in accordance with U.S. generally accepted accounting principles (“U.S. GAAP” or “GAAP”), we believe EBITDA, as a non-GAAP measure, is useful in evaluating our operating performance. EBITDA, as used in this Quarterly Report on Form 10-Q, 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.

Previous wording

Below is a reconciliation of net loss to EBITDA, the closest GAAP financial measure.

Current wording

Below is a reconciliation of net income (loss) to EBITDA, the closest GAAP financial measure.

Previous wording

For the three months ended June 30, 2024, EBITDA increased by $7.9 million, or 162.8%, compared to the three months ended June 30, 2023, primarily because of an increase in net income of $6.4 million and a decrease in the benefit from income taxes of $1.7 million.

Current wording

For the three months ended September 30, 2024, EBITDA increased by $5.6 million, or 109.7%, compared to the three months ended September 30, 2023, primarily because of an increase in net income of $4.6 million and a decrease in the benefit from income taxes of $1.4 million, partially offset by a decrease in interest expense and interest expense – related parties of $0.3 million.

Previous wording

For the six months ended June 30, 2024, EBITDA increased by $9.5 million, or 113.7%, compared to the six months ended June 30, 2023, primarily because of an increase in net income of $7.6 million and a decrease in the benefit from income taxes of $2.0 million.

Current wording

For the nine months ended September 30, 2024, EBITDA increased by $14.9 million, or 112.2%, compared to the nine months ended September 30, 2023, primarily because of an increase in net income of $12.2 million and a decrease in the benefit from income taxes of $3.3 million, partially offset by a decrease in interest expense and interest expense – related parties of $0.4 million.

Previous wording

Our net revenues through our current period top four platform providers as a proportion of our total net revenue for the three and six months ended June 30, 2024 and 2023 were as follows:

Current wording

Our net revenues through our current period top four platform providers as a proportion of our total net revenue for the three and nine months ended September 30, 2024 and 2023 were as follows:

Previous wording

We expect changes in revenue to correlate with trends in the use and purchase of our games. The increase in net revenues of Platforms 1, 2 and 3 during the three and six months ended June 30, 2024 from 2023 was due to increased sales from the release ofARK: Survival Ascended,Scorched Earth, BellwrightandMyth of Empires. The decrease in net revenues of Platform 4 was due toARK: Survival Ascendednot yet being launched on Platform 4 as of June 30, 2024.

Current wording

We expect changes in revenue to correlate with trends in the use and purchase of our games. The increase in net revenues of Platforms 1, 2 and 3 during the three and nine months ended September 30, 2024 from 2023 was due to increased sales from the release ofARK: Survival Ascended,Scorched Earth, Aberration, Bobs Tall Tales, BellwrightandMyth of Empires. The decrease in net revenues of Platform 4 during the nine months ended September 30, 2024 from 2023 was due toARK: Survival Ascendednot yet being launched on Platform 4 as of September 30, 2024. The increase in net revenues of Platform 4 during the three months ended September 30, 2024 from 2023 was due to the release of anARK: Survival EvolvedDLC on the platform.

Previous wording

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. Under current U.S. tax law, the federal statutory tax rate applicable to corporations is 21%. Our effective tax rate of 19% differed from the federal statutory rate of 21% due to permanent differences and state taxes.

Current wording

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. Under current U.S. tax law, the federal statutory tax rate applicable to corporations is 21%. Our effective tax rate of 28% differed from the federal statutory rate of 21% due to permanent differences, foreign withholding taxes and state taxes.

Previous wording

Net revenues for the three months ended June 30, 2024 increased by $11.7 million, or 118.4%, compared to the three months ended June 30, 2023. The increase in net revenues was due to an increase in total Ark sales of $10.0 million, an increase in sales of the Company’s other games of $3.9 million driven by the release ofBellwright, partially offset by a decrease in Ark Mobile sales of $0.3 million and an increase in deferred revenues of $1.9 million related to the Ark franchise.

Current wording

Net revenues for the three months ended September 30, 2024 increased by $13.5 million, or 150.9%, compared to the three months ended September 30, 2023. The increase in net revenues was due to an increase in total Ark sales of $5.9 million, an increase in sales of theBellwrightof $1.0 million, recognition of $8.2 million in revenue from the release ofAberrationand part II ofBobs Tall Tales,$1.2 million recognized for meeting the performance obligation of releasingGenesis IIandMyth of Empireson certain platforms, partially offset by a decrease in Ark Mobile sales of $0.3 million and an increase in deferred revenues of $2.6 million related to sales ofARK: Survival AscendedandBobs Tall TalesDLC’s which have not yet been released.

Previous wording

The increase in cost of revenues for the three months ended June 30, 2024 was due to an increase of $2.8 million in software license royalties – related parties, a result of increasedARKsales, an increase of $1.1 million in license and amortization – related parties due to the increased license fee paid to SDE partially offset by a lower depreciable base of intangible assets in 2024, an increase in engine fees of $1.0 million, partially offset by decreased internet, server and data center fees of $0.4 million and a decrease in software license royalties of $0.2 million.

Current wording

The increase in cost of revenues for the three months ended September 30, 2024 was due to an increase of $3.2 million in software license royalties – related parties, a result of increasedARKsales, an increase of $1.3 million in license and amortization – related parties due to the increased license fee paid to SDE partially offset by a lower depreciable base of intangible assets in 2024, an increase in engine fees of $0.6 million, partially offset by decreased internet, server and data center fees of $0.7 million and a decrease in software license royalties of $0.1million.

Previous wording

General and administrative expenses for the three months ended June 30, 2024 decreased by $1.2 million, or 29.0%, compared to the three months ended June 30, 2023. The decrease in general and administrative expenses was due to a decrease in legal and professional expenses of $0.4 million, a decrease in administrative internet and server costs of $0.1 million, a decrease in insurance expenses of $0.1 million, a decrease in salaries and wages of $0.3 million due to a lower amount of expensed stock based compensation, and a decrease in expenses of $0.2 million for SEC filing fees, investor relations, NASDAQ listing fees and compliance expenses.

Current wording

General and administrative expenses for the three months ended September 30, 2024 increased by $0.3 million, or 11.4%, compared to the three months ended September 30, 2023. The increase in general and administrative expenses was due to an increase in legal and professional expenses of $0.1 million, an increase in office related expenses of $0.1 million, an increase in travel expenses of $0.1 million, an increase in non-income related taxes of $0.2 million, partially offset by reduced salaries and wages of $0.1 million due to reduced stock-based compensation expenses.

Previous wording

Research and development expenses for the three months ended June 30, 2024 increased by $0.7 million, or 55.0%, compared to the three months ended June 30, 2023. The increase in research and development expenses was due to the outsourced development ofHermespaid through Suzhou Snail*.*

Current wording

Research and development expenses for the three months ended September 30, 2024 increased by $2.6 million, or 195.0%, compared to the three months ended September 30, 2023. The increase in research and development expenses was due to the outsourced development ofHermesandProject Aetherpaid through Suzhou Snail and an increase in internal research and development salaries as the Company continues to expand its in house development team*.*

Previous wording

Advertising and marketing expenses for the six months ended June 30, 2024 increased by $0.5 million, or 206.1%, compared to the six months ended June 30, 2023. The increase in advertising and marketing expenses was due to increased advertising campaigns for the launch ofARK: Survival Ascended,its DLC releaseScorched Earth,add-on contentBobs Tall Tales,andBellwright.

Current wording

Advertising and marketing expenses for the three months ended September 30, 2024 increased by $0.3 million, or 130.2%, compared to the three months ended September 30, 2023. The increase in advertising and marketing expenses was due to increased advertising campaigns forARK: Survival Ascended,its DLC releaseAberration,add-on contentBobs Tall Tales,andBellwright.

Previous wording

Interest expense primarily related to our outstanding indebtedness with third-party lenders. Interest expense decreased by $0.2 million for the three months ended June 30, 2024 because of lower average debt during the three months ended June 30, 2024.

Current wording

Interest expense primarily related to our outstanding indebtedness with third-party lenders. Interest expense decreased by $0.3 million for the three months ended September 30, 2024 because of lower average debt during the three months ended September 30, 2024.

Previous wording

Other income increased by $0.2 million for the three months ended June 30, 2024, in comparison to the three months ended June 30, 2023. The increase is due to the recognition of $0.2 million in other income for the revaluation of the Company’s outstanding warrant liabilities.

Current wording

Other income decreased by $0.2 million for the three months ended September 30, 2024, in comparison to the three months ended September 30, 2023. The decrease is due to the recognition of $0.3 million in litigation income in the three months ended September 30, 2023.

Previous wording

The Company had an income tax provision of $0.6 million for the three months ended June 30, 2024 and a benefit of $1.1 million for the three months ended June 30, 2023. Our effective income tax rate was 21% during both periods.

Current wording

The Company had an income tax provision of $0.2 million for the three months ended September 30, 2024 and a benefit of $1.2 million for the three months ended September 30, 2023. Our effective income tax rate was 40% during the three months ended September 30, 2024 and 21% during the three months ended September 30, 2023.

Previous wording

Comparison of the six months ended June 30, 2024 versus the six months ended June 30, 2023

Current wording

Comparison of the nine months ended September 30, 2024 versus the nine months ended September 30, 2023

Previous wording

Net revenues for the six months ended June 30, 2024 increased by $12.3 million, or 53%, compared to the six months ended June 30, 2023. The increase in net revenues was due to an increase in total Ark sales of $15.1 million, an increase due to the recognition of $1.2 million payment related to the Angela Games settlement and recognized upon satisfaction of performance obligations included in the contract, an increase in sales of the Company’s other games of $4.5 million, partially offset by a decrease in Ark Mobile sales of $0.9 million and an increase in deferred revenues of $7.5 million related to the Ark franchise.

Current wording

Net revenues for the nine months ended September 30, 2024 increased by $26.0 million, or 80.2%, compared to the nine months ended September 30, 2023. The increase in net revenues was due to an increase in total Ark sales of $21.0 million, an increase due to the recognition of $1.2 million payment related to the Angela Games settlement and recognized upon satisfaction of performance obligations included in the contract, an increase in salesBellwright of $4.9 million, an increase in sales of the Company’s other games of $0.5 million, partially offset by a decrease in Ark Mobile sales of $1.2 million and an increase in deferred revenues of $0.4 million related to the Ark franchise.

Previous wording

Cost of revenues for the six months ended June 30, 2024 and 2023 comprised the following:

Current wording

Cost of revenues for the nine months ended September 30, 2024 and 2023 comprised the following:

Previous wording

The increase in cost of revenues for the six months ended June 30, 2024 was due to an increase of $3.1 million in software license royalties – related parties, a result of increasedARKsales, an increase of $1.9 million in license and amortization – related parties due to the increased license fee paid to SDE partially offset by a lower depreciable base of intangible assets in 2024, an increase in engine fees of $1.6 million, partially offset by decreased internet, server and data center fees of $0.6 million, a decrease in merchant fees of $0.3 million and a decrease in software license royalties of $0.4 million.

Current wording

The increase in cost of revenues for the nine months ended September 30, 2024 was due to an increase of $6.4 million in software license royalties – related parties, a result of increasedARKsales, an increase of $3.2 million in license and amortization – related parties due to the increased license fee paid to SDE partially offset by a lower depreciable base of intangible assets in 2024, an increase in engine fees of $2.2 million, partially offset by decreased internet, server and data center fees of $1.3 million, a decrease in merchant fees of $0.3 million and a decrease in software license royalties of $0.5 million.

Previous wording

General and administrative expenses for the six months ended June 30, 2024 decreased by $3.4 million, or 40.0%, compared to the six months ended June 30, 2023. The decrease in general and administrative expenses was due to a decrease in legal and professional expenses of $1.3 million, a decrease in administrative internet and server costs of $0.3 million, a decrease in salaries and wages of $1.3 million due to the reversal of previously expensed stock based compensation, and a decrease in expenses of $0.4 million for SEC filing fees, investor relations, NASDAQ listing fees and compliance expenses.

Current wording

General and administrative expenses for the nine months ended September 30, 2024 decreased by $2.9 million, or 25.1%, compared to the nine months ended September 30, 2023. The decrease in general and administrative expenses was due to a decrease in legal and professional expenses of $1.2 million, a decrease in administrative internet and server costs of $0.3 million, a decrease in salaries and wages of $1.4 million due to the reversal of previously expensed stock based compensation, 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 $0.3 million.

Previous wording

Research and development expenses for the six months ended June 30, 2024 increased by $1.0 million, or 41.3%, compared to the six months ended June 30, 2023. The increase in research and development expenses was due to the outsourced development ofHermespaid through Suzhou Snail*.*

Current wording

Research and development expenses for the nine months ended September 30, 2024 increased by $3.6 million, or 93.3%, compared to the nine months ended September 30, 2023. The increase in research and development expenses was due to the outsourced development ofHermesandAetherpaid through Suzhou Snail and increased internal research and development salaries as we continue to build our internal development team*.*

Previous wording

Advertising and marketing expenses for the three months ended June 30, 2024 increased by $0.5 million, or 312.5%, compared to the three months ended June 30, 2023. The increase in advertising and marketing expenses was due to increased advertising campaigns for the launch ofARK: Survival Ascended,its DLC releaseScorched Earth,add-on contentBobs Tall Tales,andBellwright.

Current wording

Advertising and marketing expenses for the nine months ended September 30, 2024 increased by $0.8 million, or 172.6%, compared to the nine months ended September 30, 2023. The increase in advertising and marketing expenses was due to increased advertising campaigns for the launch ofARK: Survival Ascended,its DLC releasesScorched Earth andAberration,add-on contentBobs Tall Tales,andBellwright.

Previous wording

Interest income was $0.2 million and $0.1 million for the six months ended June 30, 2024 and 2023, respectively. The increase was due to the balance of the of our cash deposits being higher on average during the six months ended June 30, 2024.

Current wording

Interest income was $0.2 million and $0.0 million for the nine months ended September 30, 2024 and 2023, respectively. The increase was due to the balance of the of our cash deposits being higher on average during the nine months ended September 30, 2024.

Previous wording

Interest expense primarily related to our outstanding indebtedness with third-party lenders. Interest expense decreased by $0.1 million for the six months ended June 30, 2024 because of the Company having a lower average debt balance during the six months ended June 30, 2024.

Current wording

Interest expense primarily related to our outstanding indebtedness with third-party lenders. Interest expense decreased by $0.4 million for the nine months ended September 30, 2024 because of the Company having a lower average debt balance during the nine months ended September 30, 2024.

Previous wording

Other income increased by $0.5 million for the six months ended June 30, 2024, in comparison to the six months ended June 30, 2023. The increase is due to the recognition of litigation revenues due to a revenue share agreement that was the result of the litigation settlement and revaluation of the Company’s outstanding warrant liabilities.

Current wording

Other income increased by $0.2 million for the nine months ended September 30, 2024, in comparison to the nine months ended September 30, 2023. The increase is due to the recognition of litigation revenues due to a revenue share agreement that was the result of the litigation settlement and revaluation of the Company’s outstanding warrant liabilities.

Previous wording

The Company had an income tax provision of $0.1 million for the six months ended June 30, 2024 and a benefit of $1.9 million for the six months ended June 30, 2023. Our effective income tax rate was 19% and 21% during the six months ended June 30, 2024 and 2023, respectively.

Current wording

The Company had an income tax provision of $0.3 million for the nine months ended September 30, 2024 and a benefit of ($3.0) million for the nine months ended September 30, 2023. Our effective income tax rate was 28% and 21% during the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

Our primary sources of liquidity are the cash flows generated from our operations, that are currently available as unrestricted cash. Our unrestricted cash was $15.5 million and $15.2 million as of June 30, 2024 and December 31, 2023, respectively.

Current wording

Our primary sources of liquidity are the cash flows generated from our operations, that are currently available as unrestricted cash. Our unrestricted cash was $10.6 million and $15.2 million as of September 30, 2024 and December 31, 2023, respectively.

Previous wording

As of June 30, 2024, our 2021 Revolving Loan has a balance of $3.0 million and is due in December 2024. 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 six months ended June 30, 2024. 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. 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. 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 our quarterly debt covenant for the three months ending September 30, 2024. We are working with the lender to resolve the expected non-compliance with the debt covenant.

Current wording

As of September 30, 2024, our 2021 Revolving Loan has a balance of $3.0 million and is due in December 2024. 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 nine months ended September 30, 2024. 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. 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. 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. The Company was in compliance with its debt covenants related to the 2021 Revolving Note and 2021 Promissory note for the trailing twelve months ended September 30, 2024, however it is probable that the Company will fail the covenants within the next 12 months. There is no guarantee that the Company will receive a waiver from the lender if the covenants of the loans are breached in the future. In the event of a future breach of the debt covenants the lender has the right, but not the obligation, to declare all or any part of the debt as due immediately and cease making any advances or extend any further credit to the Company.

Previous wording

Our current unrestricted cash position of approximately $15.5 million, and our expected revenue receipts will allow the Company to continue operations beyond the next 12 months and service its current debts.

Current wording

Our current unrestricted cash position of approximately $10.6 million, and our expected revenue receipts will allow the Company to continue operations beyond the next 12 months and service its current debts.

Previous wording

Net cash flows provided by (used in) operating activities for the six months ended June 30, 2024 increased $15.9 million as compared to the six months ended June 30, 2023, which resulted primarily from an increase in deferred revenues of $6.8 million, a decrease in accounts receivable and accounts receivable - related party of $15.8 million, an increase in net income of $7.6 million, partially offset by a decrease in accounts payable and accounts payable – related parties of $12.2 million, a decrease in accrued expenses of $1.9 million, and a decrease in noncash reconciling items of $0.2 million.

Current wording

Net cash flows provided by (used in) operating activities for the nine months ended September 30, 2024 increased $12.8 million as compared to the nine months ended September 30, 2023, which resulted primarily from an increase in net income of $12.2 million, a decrease in accounts receivable and accounts receivable - related party of $17.4 million, a decrease in prepaids expenses and prepaid expenses – related party of $1.5 million, partially offset by a decrease in accounts payable and accounts payable – related parties of $15.9 million, a decrease in accrued expenses of $0.3 million, an increase in capitalized film costs of $0.4 million and a decrease in deferred revenues of $1.8 million.

Previous wording

The Company had a net income of $0.5 million, and a net loss of $7.1 million, for the six months ended June 30, 2024 and 2023, respectively, representing an increase of $7.6 million. The increase was primarily due to an increase in net revenue of $12.4 million, decreased general and administrative expenses of $3.4 million, an increase in other income of $0.5 million, an increase in interest income of $0.1 million, partially offset by increased research and development costs of $1.1 million, increased costs of revenues of $5.1 million, increased interest expenses of $0.1 million, and a decrease in income tax benefit of $2.0 million.

Current wording

The Company had a net income of $0.7 million, and a net loss of $11.5 million, for the nine months ended September 30, 2024 and 2023, respectively, representing an increase of $12.2 million. The increase was primarily due to an increase in net revenue of $26.0 million, decreased general and administrative expenses of $2.9 million, partially offset by increased research and development costs of $3.6 million, increased costs of revenues of $9.7 million, and an increase in advertising and marketing expenses of $0.8 million, and a decrease in income tax benefit of $3.3 million.

Previous wording

Non-cash reconciling items were ($0.4) million and ($0.2) million for the six months ended June 30, 2024 and 2023, respectively, representing a decrease of $0.2 million. The decrease in the non-cash reconciling items was due to a decrease in amortization of intangible assets of $1.1 million, a decrease in stock based compensation expense of $1.3 million, partially offset by an increase in deferred taxes of $1.9 million, and an increase in accretion expense of $0.2 million.

Current wording

Non-cash reconciling items were ($0.4) million and ($0.7) million for the nine months ended September 30, 2024 and 2023, respectively, representing a decrease of $0.3 million. The decrease in the non-cash reconciling items was due to a decrease in amortization of intangible assets of $1.3 million, a decrease in stock based compensation expense of $1.5 million, partially offset by an increase in deferred taxes of $3.0 million, and an increase in accretion expense of $0.2 million.