Snail (SNAL) risk factors, FY2024 10-K

Risks Related to Our Business and Industry

1. 01We are dependent on the future success of our ARK franchise, and we must continue to publish “hit” titles or sequels to such “hit” titles in order to compete successfully in our industry
2. 02If we do not consistently deliver popular, high-quality content in a timely manner, if we are not successful in meaningfully expanding our existing franchise, or if consumers prefer products from our competitors, our business may be negatively impacted
3. 03Our continued success will depend to a significant extent on our senior management team and maintaining positive relationships with our games’ developers, including Studio Wildcard, and the product development personnel responsible for content creation and development of our ARK franchise
4. 04Our management team has limited experience managing a public company
5. 05Our business is subject to the risks of earthquakes, fire, floods, public health crises and other natural catastrophes and to interruption by man-made problems such as power disruptions, computer viruses, data security breaches or other incidents, war or terrorism
6. 06Our industry is subject to rapid technological change, and if we do not adapt to, and appropriately allocate our resources among, emerging technologies and business models, our business may be negatively impacted
7. 07We depend on servers and networks to operate our games with online features. If we were to lose functionality in any of these areas for any reason, our business may be negatively impacted
8. 08Risk of Service Disruptions Due to Large-Scale Distributed Denial-of-Service (DDoS) Attacks
9. 09We may be unable to effectively manage the continued growth and the scope and complexity of our business, including our expansion into new business models that are untested and into adjacent business opportunities with large, established competitors
10. 10The interactive entertainment software industry is highly competitive
11. 11We are subject to product development risks, which could result in delays and additional costs, and often times we must adapt to changes in software technologies
12. 12Our results of operations or reputation may be harmed as a result of objectionable consumer, or other third party-created content, or if our distributors, retailers, development and licensing partners, or other third parties with whom we are affiliated, act in ways that put our brand at risk
13. 13The products or services we release may contain defects, bugs or errors
14. 14External game developers may not meet product development schedules or otherwise fulfill their contractual obligations
15. 15Any cybersecurity-related attack, significant data breach or disruption of the information technology systems or networks on which we rely could negatively impact our business
16. 16If we do not successfully invest in, establish and maintain awareness of our brand and games or if we incur excessive expenses promoting and maintaining our brand or our games, our business, financial condition, results of operations or reputation could be harmed
17. 17Our operating results may fluctuate from quarter to quarter, which makes our future results difficult to predict
18. 18We have experienced rapid growth and expect to invest in our growth for the foreseeable future. If we fail to manage our growth effectively, then our business, operating results and financial condition would be adversely affected
19. 19User metrics and other estimates are subject to inherent challenges in measurement, and real or perceived inaccuracies in those metrics could harm our business, revenue and financial results
20. 20Expansion of the Company’s operations into new products, services and technologies, including content categories, is inherently risky and may subject it to additional business, legal, financial and competitive risks
21. 21If our efforts to attract and retain users are not successful, our business will be adversely affected
22. 22If we do not continuously provide value to our users, including making improvements to our service in a manner that is favorably received by them, our revenue, results of operations and business will be adversely affected
23. 23If we fail to grow and maintain our active user base, our business, financial condition and operating results may be materially and adversely affected
24. 24We utilize artificial intelligence (“AI”), which could expose us to liability or adversely affect our business
25. 25Failure to meet Nasdaq’s continued listing requirements could result in the delisting of our Class A common stock, negatively impact the price of our Class A common stock and negatively impact our ability to raise additional capital

Risks Related to Intellectual Property

1. 26If we are unable to protect the intellectual property relating to our material software, the commercial value of our products will be adversely affected, and our competitive position could be harmed
2. 27If we infringe, misappropriate, or otherwise violate or are alleged to infringe, misappropriate or otherwise violate the intellectual property rights of third parties, our business could be adversely affected
3. 28If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed
4. 29We may be subject to claims that our employees, consultants or advisors have wrongfully used or disclosed alleged trade secrets of their current or former employers or claims asserting ownership of what we regard as our own intellectual property
5. 30We may become involved in lawsuits to protect or enforce our intellectual property, which could be expensive, time-consuming and unsuccessful
6. 31We or our licensors may not be able to enforce our intellectual property rights throughout the world
7. 32If our trademarks and trade names are not adequately protected, we may not be able to build name recognition in our markets of interest and our competitive position may be harmed
8. 33We use open source software in connection with certain of our games and services, which may pose particular risks to our proprietary software, products, and services in a manner that could have a negative impact on our business

Risks Related to Legal or Regulatory Compliance

1. 34Our business and products are subject to potential legislation and other governmental restrictions. The adoption of such proposed legislation and restrictions could limit the retail market for our products
2. 35Changes in government regulations relating to the Internet could have a negative impact on our business
3. 36We may be involved in legal proceedings that have a negative impact on our business

Financial and Economic Risks

1. 37If general economic conditions decline, demand for our games could decline. In addition, our business is vulnerable to changing economic conditions and to other factors that adversely affect the gaming industry, which could negatively impact our business
2. 38General economic factors, domestically and internationally, may adversely affect our business, financial condition, and results of operations
3. 39Tariffs may cause cost increases and disruptions in technical R&D operations
4. 40Changes in tax laws or tax rulings, or the examination of our tax positions, could materially affect our financial condition and results of operations
5. 41Tax law or tax rate changes could affect our effective tax rate and future profitability
6. 42The realization of the Company’s deferred tax assets is contingent upon the Company’s upcoming new game releases to generate sufficient taxable income
7. 43Our reported financial results could be significantly impacted by changes in financial accounting standards or by the application of existing or future accounting standards to our business as it evolves
8. 44The Company has debt obligations with short term durations that are coming due within one year

Risks Related to Our Corporate Structure

1. 45Mr. Shi, our Founder, Co-Chief Executive Officer, Chief Strategy Officer and Chairman, controls us, and his ownership of our common stock prevents you and other stockholders from influencing significant decisions
2. 46The Committee on Foreign Investment in the United States may modify, delay or prevent our future acquisition or investment activities
3. 47We are subject to risks related to corporate and social responsibility and reputation
4. 48We cannot predict the impact our dual class structure may have on the market price of our Class A common stock
5. 49Securities analysts may not publish favorable research or reports about our business or may publish no information at all, which could cause our stock price or trading volume to decline
6. 50We cannot guarantee that our share repurchase program will be fully implemented or it will enhance stockholder value, and share repurchases could affect the price of our Class A common stock
7. 51Provisions in our amended and restated certificate of incorporation and bylaws and under Delaware law could make an acquisition of us more difficult and may prevent attempts by our stockholders to replace or remove our current management
8. 52Because we do not anticipate paying any cash dividends on our capital stock in the foreseeable future, capital appreciation, if any, will be your sole source of gain
9. 53We have a credit facility that we may draw on to finance our operations and other corporate purposes. If we default on these credit obligations, our lenders may accelerate the debt and/or foreclose on property securing the debt
10. 54If we fail to maintain effective internal control over financial reporting, as well as required disclosure controls and procedures, our ability to produce timely and accurate consolidated financial statements or comply with applicable regulations could be impaired
11. 55We are an “emerging growth company,” and the reduced disclosure requirements applicable to emerging growth companies may make our Class A common stock less attractive to investors

Risks Related to Convertible Notes and Equity Line Credit Financing

1. 56Investors who buy shares in the convertible notes and equity line credit financing offering at different times will likely pay different prices
2. 57Our management will have broad discretion over the use of the net proceeds from our sale of shares of common stock to the Equity Line Investor, and you may not agree with how we use the proceeds and the proceeds may not be invested successfully
3. 58We may direct the Equity Line Investor to purchase up to $5,000,000 worth of shares of our Class A common stock under the Equity Line Purchase Agreement until December 31, 2025, in amounts up to $1,000,000 in shares of our Class A common stock depending on market prices