Snail, Inc.

Previous wording

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. Our actual results could differ materially from those discussed in these statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report, particularly under “Risk Factors,” in Part I, Item 1A of this Annual Report, and the “Cautionary Statement Regarding Forward-Looking Statements” section of this Annual Report.

Current wording

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. Our actual results could differ materially from those discussed in these statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report, particularly under “Risk Factors,” in Part I, Item 1A of this Annual Report, and the “Cautionary Statement Regarding Forward-Looking Statements” section of this Annual Report.

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 90.7 million console and PC installs through December 31, 2023 and repeated releases within the top-25 selling games on the Steam platform. 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 andARK: Survival Ascendedcombined 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. 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 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 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. During the fiscal year ended December 31, 2024,ARK: Survival Evolved andARK: Survival Ascendedcombined 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. 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 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 December 31, 2023, ourARK 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. 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. 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.

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 December 31, 2024, ourARK 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. For the years ended December 31, 2024 and 2023, our net revenue was $84.5 million and $60.9 million, respectively. 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. 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.

Previous wording

We continuously evaluate and invest in content strategy to improve and innovate our games and features and to develop current technological platforms. 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.

Current wording

We continuously evaluate and invest in content strategy to improve and innovate our games and features and to develop current technological platforms. 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. This division will focus on creating content in the vertical short film segment of the digital entertainment market. The mobile application has already soft launched on iOS and Android platforms. We have released thirty-one short film dramas to date and expect a consistent roll out of new short film dramas.

Previous wording

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. 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 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. 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

We are focused on innovation and technology leadership in order to maintain our competitive advantage. We spend a portion of our capital on our research and development platform to continuously improve our technological offerings and gaming platform. Our proprietary video game technology includes a versatile game engine, development pipeline tools, advanced rendering technology and advanced server and network operations. Continued investment in improving the technology behind our existing gaming platforms as well as developing new software tools for new product offerings is important to maintaining our strategic goals, developer and creator talent, and financial objectives. For us to continue providing cutting-edge technology to our users and bringing digital interactive entertainment to market, we must also continue to invest in developmental and creative resources. For our users, we regularly invest in user-friendly features and enhance user experience in our games and platforms. 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.

Current wording

We are focused on innovation and technology leadership in order to maintain our competitive advantage. We spend a portion of our capital on our research and development platform to continuously improve our technological offerings and gaming platform. Our proprietary video game technology includes a versatile game engine, development pipeline tools, advanced rendering technology and advanced server and network operations. Continued investment in improving the technology behind our existing gaming platforms as well as developing new software tools for new product offerings is important to maintaining our strategic goals, developer and creator talent, and financial objectives. For us to continue providing cutting-edge technology to our users and bringing digital interactive entertainment to market, we must also continue to invest in developmental and creative resources. For our users, we regularly invest in user-friendly features and enhance user experience in our games and platforms. 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. To accompany our entry into the vertical short film market, we have developed a distribution platform, theSalty TV mobile application that allows users to access the content on demand.

Previous wording

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 Policiesto our audited consolidated financial statements included in this Annual Report. We generally expect cost of revenues to fluctuate proportionately with revenues.

Current wording

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 Policiesto our consolidated financial statements included in this Annual Report. We generally expect cost of revenues to fluctuate proportionately with revenues.

Previous wording

General and administrative expenses include rent expense, salaries, stock-based compensation, legal and professional expenses, administrative internet and server expenses, contract costs, insurance expenses, license and permits, other taxes and travel expenses. 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 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.

Current wording

General and administrative expenses include rent expense, salaries, stock-based compensation, legal and professional expenses, administrative internet and server expenses, contract costs, insurance expenses, license and permits, other taxes and travel expenses. 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. 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.

Previous wording

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. We expect our research and development to increase as we develop new content, games or technologies.

Current wording

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. We expect our research and development to increase as we develop new content, games or technologies.

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 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.

Current wording

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. 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.

Previous wording

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 inArksales.

Current wording

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 toARKfranchise, 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.

Previous wording

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. 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.

Current wording

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. 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.

Previous wording

Research and development expenses for the year ended December 31, 2023 increased by $2.2 million, or 71.1%, compared to the year ended December 31, 2022. The increase in research and development expenses was due to additional development ofARK: Survival Ascended, Atlas, Last Oasis, Bellwright, Survivor Mercs and Agarthatitles in 2023.

Current wording

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. The increase in research and development expenses was due to the outsourced development ofFor the Starsand projectAetherpaid through Suzhou Snail and increased internal research and development salaries as we continue to build our internal development team*.*

Previous wording

Interest expense primarily related to our outstanding indebtedness with third-party lenders. Interest expense increased by $0.6 million for the year ended December 31, 2023 as a result of rising interest charges on the Company’s floating rate debt and amortization of debt discounts which did not occur in the year ended December 31, 2022.

Current wording

Interest expense primarily related to our outstanding indebtedness with third-party lenders. Interest expense decreased by $0.8 million for the year ended December 31, 2024 because of the Company having a lower average debt balance during the year ended December 31, 2024.

Previous wording

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 change in our effective tax rate is due to the state refund received in fiscal year 2022.

Current wording

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. Our effective income tax rate was 25.7% and 20.9% during the years ended December 31, 2024 and 2023, respectively.

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

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 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.

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 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.

Previous wording

We define EBITDA as net income (loss) before (i) interest income, (ii) interest expense, (iii) (benefit from) provision for income taxes, and (iv) depreciation and amortization expense, property and equipment.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

Our primary sources of liquidity are the cash flows generated from our operations in the year ended December 31, 2023, that are currently available unrestricted cash. Our unrestricted cash was $15.2 million and $12.9 million as of December 31, 2023 and 2022, 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 $7.3 million and $15.2 million as of December 31, 2024 and 2023, respectively.

Previous wording

Our restricted cash and cash equivalents were $1.1 million and $6.4 million as of December 31, 2023 and 2022, 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.

Current wording

Our restricted cash and cash equivalents were $0.9 million and $1.1 million as of December 31, 2024 and 2023, 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.

Previous wording

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. On August 24, 2023, the Company issued convertible notes at a 7.4% discount and a principal balance of $1,080,000. In addition to the stated discount, the fair value of the Convertible Notes was allocated to warrants issued in connection with the debt giving rise to an additional discount in the amount of $445,754. The notes have an interest rate of 7.5%, will be paid in consecutive monthly installments beginning February 24, 2024 and if the note is not converted, it will mature on May 24, 2024. In February 2024, the Company made the first payments of principle and accrued interest in the amount of $312,075, and the convertible note holders converted 71,460 shares for an aggregate value of $60,000. The Company paid an additional $275,063 of accrued interest and principal on its convertible notes balance in April 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. Additionally, we have a short term note of $1.5 million as of December 31, 2023, that we have repaid in the first quarter of 2024. In January 2024, we also repaid $3.0 million of our outstanding revolving loan balance and the $0.8 million balance of our term note. 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 its quarterly debt covenant for the three months ending March 31, 2024. We are working with the lender to resolve the expected non-compliance with the debt covenant.

Current wording

As of December 31, 2024, our 2021 Revolving Loan has a balance of $3.0 million and is due in June 2025. 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 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 December 31, 2024, however it is probable that the Company will fail the covenants within the next 12 months. As such, the Company has classified the long-term portion of its promissory note as current. 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

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. We may need to raise additional capital and issue registered shares to draw on an equity line of credit if needed. The need for additional capital depends on many factors, including, among other things, whether we can successfully renegotiate the terms of our debt arrangements, the rate at which our business grows, demands for working capital, revenue generated from existing DLCs and game titles and launches of new DLCs and new game titles, and any acquisitions that we may pursue. From time to time, we could be required, or may otherwise attempt, to seek additional sources of capital, including, but not limited to, equity and/or debt financings. We cannot provide assurance that we will be able to successfully access any such equity or debt financings, that the required equity or debt financings would be available on terms acceptable to us, if at all, or that any such financings would not be dilutive to our stockholders.

Current wording

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. We may need to raise additional capital and issue registered shares to draw on an equity line of credit if needed. The need for additional capital depends on many factors, including, among other things, whether we can successfully renegotiate the terms of our debt arrangements, the rate at which our business grows, demands for working capital, revenue generated from existing DLCs and game titles and launches of new DLCs and new game titles, and any acquisitions that we may pursue. From time to time, we could be required, or may otherwise attempt, to seek additional sources of capital, including, but not limited to, equity and/or debt financings. We cannot provide assurance that we will be able to successfully access any such equity or debt financings, that the required equity or debt financings would be available on terms acceptable to us, if at all, or that any such financings would not be dilutive to our stockholders.

Previous wording

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.

Current wording

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.

Previous wording

The following tables present a summary of our cash flows for the periods indicated (in millions):

Current wording

The following tables present a summary of our cash flows for the periods indicated:

Previous wording

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.

Current wording

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.

Previous wording

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 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.

Current wording

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. 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.

Previous wording

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. 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.

Current wording

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. 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.

Previous wording

Our accounts receivable - related party represent revenues attributable to certain mobile games that, for administrative reasons, were collected on our behalf by SDE Inc. (“SDE”), an affiliated entity, from fiscal year 2018 through 2021. SDE no longer collects such payments on our behalf; all such payments are received directly from the platforms through which we offer the relevant games. 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. The Company and SDE have entered into an agreement to offset uncollected amounts against monthly payments due to SDE for operating expenses and costs of revenue. See Note 5-Accounts Receivable - Related Party to our audited consolidated financial statements included in this Annual Report.

Current wording

Our accounts receivable - related party represent revenues attributable to certain mobile games that, for administrative reasons, were collected on our behalf by SDE Inc. (“SDE”), an affiliated entity, from fiscal year 2018 through 2021. SDE no longer collects such payments on our behalf; all such payments are received directly from the platforms through which we offer the relevant games. 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 Company and SDE have entered into an agreement to offset uncollected amounts against monthly payments due to SDE for operating expenses and costs of revenue. See Note 5-Accounts Receivable - Related Party to our consolidated financial statements included in this Annual Report.

Previous wording

Net cash flows used in financing activities for the year ended December 31, 2023 were $3.4 million compared to net cash flows provided by financing activities of $4.8 million for the year ended December 31, 2022. 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, 2022 included $10.0 million on a short term note, partially offset by repayments on the short-term note of $4.2 million, a cash dividend that was declared and paid of $8.2 million, net proceeds from the IPO of $12.0 million that was partially offset by $3.4 million spent on the open market purchase of treasury stock pursuant to our Share Repurchase Program and $1.2 million to pay capitalized offering costs.

Current wording

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. Financing activities for the year ended December 31, 2024 included $6.4 million in debt payments, $0.3 million in payments of capitalized offering costs in accounts payable and proceeds of $0.2 million resulting from the exercise of liability classified warrants. 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.

Previous wording

In the IPO, we issued 3,000,000 shares of our Class A common stock and net proceeds from the issuance were distributed to Snail Games USA in November 2022 in the amount of $12.0 million. 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 in November 2023 and is reported as part of unrestricted cash and cash equivalents as of December 31, 2023, and as a restricted escrow deposit as of December 31, 2022.

Current wording

In the IPO, we issued 3,000,000 shares of our Class A common stock and net proceeds from the issuance were distributed to Snail Games USA in November 2022 in the amount of $12.0 million. 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.

Previous wording

In December 2018, we entered into a revolving loan and security agreement with a financial institution for a revolving note in the amount of $5.5 million. 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%. Interest is due and payable under the 2021 Revolving Loan on a monthly basis. The 2021 Revolving Loan was partially secured by the certificate of deposit accounts held with the financial institution, and reported as restricted cash, in the amounts of $5.3 million as of December 31, 2022. In June 2023, the Company amended its revolving loan and the certificate of deposit accounts securing the loan were released. The Company then amended the revolving loan agreement in December 2023, to extend the 2021 Revolving Loan maturity date to December 31, 2024. As of December 31, 2023, we had borrowings of $6.0 million outstanding under our 2021 Revolving Loan. We intend to extend the 2021 Revolving Loan prior to its maturity date in December 2024. There is no guarantee that we will be able to extend the 2021 Revolving Loan on terms acceptable to us in the future, or at all.

Current wording

In December 2018, we entered into a revolving loan and security agreement with a financial institution for a revolving note in the amount of $5.5 million. 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%. As of December 31, 2024, we had borrowings of $3.0 million outstanding under our 2021 Revolving Loan.

Previous wording

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. 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 January 2024, the Company completed the last payment obligation on the 2022 Short Term Note.

Current wording

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. 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 Company completed the last payment obligation on the 2022 Short Term Note during the year ended December 31, 2024.

Previous wording

On August 24, 2023, the Company issued convertible notes at a 7.4% discount and a principal balance of $1,080,000. 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 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, any time after November 24, 2023. 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 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 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 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.

Current wording

On August 24, 2023, the Company issued convertible notes at a 7.4% discount and a principal balance of $1,080,000. 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 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. 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. 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. During the year ended December 31, 2024, prior to repayment, the noteholders exercised the option to convert $60,000 in principal of the notes to 71,460 shares of the Company’s Class A common stock.

Previous wording

Under the terms of the Equity Line Purchase Agreement, the Company has the right, but not the obligation, to sell to the investor, shares of Class A common stock over the period commencing on the execution date of the Equity Line Purchase Agreement and ending on the earlier of (i) December 31, 2025, or (ii) the date on which the investor shall have purchased Securities pursuant to the Equity Line Purchase Agreement for an aggregate purchase price of the $5,000,000, provided that a registration statement covering the resale of shares of Class A common stock that have been and may be issued under the Equity Line Purchase Agreement is declared effective by the SEC. The Company has registered shares for potential issuance on exercise of the warrants, or drawing of the equity line, on Form S-1 that was declared effective on October 30, 2023. As of December 31, 2023 the Company has not sold any Class A common stock under the Equity Line Purchase Agreement.

Current wording

Under the terms of the Equity Line Purchase Agreement, the Company has the right, but not the obligation, to sell to the investor, shares of Class A common stock over the period commencing on the execution date of the Equity Line Purchase Agreement and ending on the earlier of (i) December 31, 2025, or (ii) the date on which the investor shall have purchased Securities pursuant to the Equity Line Purchase Agreement for an aggregate purchase price of the $5,000,000, provided that a registration statement covering the resale of shares of Class A common stock that have been and may be issued under the Equity Line Purchase Agreement is declared effective by the SEC. The Company has registered shares for potential issuance on exercise of the warrants, or drawing of the equity line, on Form S-1 that was declared effective on October 30, 2023. 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.

Previous wording

In July 2023, the Company entered into a cooperation agreement with its IDC vendor. The Company agreed to make the vendor the official server host ofArk: Survival Evolved and future iterations and sequels of the game for a period of 7 years. In return, the vendor has agreed to provide the Company with funds in cash of up to $3.0 million without discount and free of charges and costs to the Company. The funds are to be repaid in monthly installments starting in November 2023 and are to be based on 20% of the gross monthlyARK: 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.

Current wording

In July 2023, the Company entered into a cooperation agreement with its IDC vendor. The Company agreed to make the vendor the official server host ofARK: Survival Evolved and future iterations and sequels of the game for a period of 7 years. In return, the vendor has agreed to provide the Company with funds in cash of up to $3.0 million without discount and free of charges and costs to the Company. The funds were repaid in monthly installments starting in November 2023 and were based on 20% of the gross monthlyARK: Survival Ascendedrevenues. 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.

Previous wording

The 2021 Revolving Loan, Term Loan and the 2022 Short Term Note require us to maintain a minimum debt service coverage ratio of 1.5 to 1.0. Additionally, the 2021 Revolving Loan requires us to maintain an outstanding principal balance of no more than $3.0 million for 30 consecutive days during any twelve-month period. For the year ended December 31, 2023, our debt service coverage ratio was 0.0, we had balances on the revolving loan greater than $3.0 million for more than 30 days, and we received waivers for all covenants under our debt facilities as of 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. 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.

Current wording

The 2021 Revolving Loan, Term Loan and the 2022 Short Term Note require us to maintain a minimum debt service coverage ratio of 1.5 to 1.0. Additionally, the 2021 Revolving Loan requires us to maintain an outstanding principal balance of no more than $3.0 million for 30 consecutive days during any twelve-month period. 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. 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. Due to the projected failure to comply with the debt covenant within the next twelve months, the Company classifies its long term debt as current.

Previous wording

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’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. 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.

Current wording

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. The Company recognizes deferred income taxes based on estimates of future taxable income and the utilization of tax loss carryforwards. In evaluating the realizability of deferred taxes, the Company evaluates all available positive and negative evidence of whether sufficient future taxable income will be generated to realize the deferred tax assets, including the results of recent operations and projections of future taxable income. 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.