0001104659-23-060938 | 10-Q | XBRL Viewer

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

3 Months Ended

Mar. 31, 2023

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company’s revenue includes the publishing of software games delivered digitally and through physical discs (e.g., packaged goods). The Company’s digital games may include additional downloadable content that are new feature releases to digital full-game downloads. Revenue also includes sales of mobile in-app purchases that require the Company’s hosting support in order to utilize the game or related content. Such games include virtual goods that can be purchased by the end users, as desired. When control of the promised products and services is transferred to the customers, the Company recognizes revenue in the amount that reflects the consideration it expects to receive in exchange for these products and services. Revenue from delivery of products is recognized at a point in time when the end consumers download the games and the control of the license is transferred to them.

The Company recognizes revenue using the following five steps as provided by Accounting Standards Codification (“ASC”) Topic 606 Revenue from Contracts with Customers: 1) identify the contract(s) with the customer; 2) identify the performance obligations in each contract; 3) determine the transaction price; 4) allocate the transaction price to the performance obligations; and 5) recognize revenue when, or as, the entity satisfies a performance obligation. The Company’s terms and conditions vary by customers and typically provide net 30 to 75 days terms.

Principal vs Agent Consideration

The Company offers certain software products via third-party digital storefronts, such as Microsoft’s Xbox Live, Sony’s PlayStation Network, Valve’s Steam, Epic Games Store, My Nintendo Store, Apple’s App Store, the Google Play Store, and retail distributors. For sales of our software products via third-party digital storefronts and retail distributor, the Company determines whether or not it is acting as the principal in the sale to the end user, which the Company considers in determining if revenue should be reported based on the gross transaction price to the end user or based on the transaction price net of fees retained by the third-party digital storefront. An entity is the principal if it controls a good or service before it is transferred to the customer. Key indicators that the Company uses in evaluating these sales transactions include, but are not limited to, the following:

●

The underlying contract terms and conditions between the various parties to the transaction;

●

Which party is primarily responsible for fulfilling the promise to provide the specified good or service; and

●

Which party has discretion in establishing the price for the specified good or service.

Based on our evaluation of the above indicators, for sales arrangements via Microsoft’s Xbox Live, Sony’s PlayStation Network, Valve’s Steam, Epic Games Store, and retail distributor, the digital platforms and distributors have discretion in establishing the price for the specified good or service and the Company has determined it is the agent in the sales transaction to the end user and therefore the Company reports revenue on a net basis based on the consideration received from the digital storefront. For sales arrangements via Apple’s App Store and the Google Play Store, the Company has discretion in establishing the price for the specified good or service and it has determined that the Company is the principal to the end user and thus reports revenue on a gross basis and mobile platform fees charged by these digital storefronts are expensed as incurred and reported within cost of revenues.

Contract Balance

The Company records deferred revenue when cash payments are received or due in advance of its performance, even if amounts are refundable.

Deferred revenue is comprised of the transaction price allocable to the Company’s performance obligation on technical support and the sale of virtual goods available for in-app purchases, and payments received from customers prior to launching the games on the platforms. The Company categorizes the virtual goods as either “consumable” or “durable.” Consumable virtual goods represent goods that can be consumed by a specific player action; accordingly, the Company recognizes revenues from the sale of consumable virtual goods as the goods are consumed and the performance obligation is satisfied. Durable virtual goods represent goods that are accessible to the players over an extended period of time; accordingly, the Company recognize revenues from the sale of durable virtual goods ratably over the period of time the goods are available to the player and the performance obligation is satisfied, which is generally the estimated service period, 30 to 90 days from date of activation.

The Company has a long-term title license agreement with a platform. The agreement was initially made between the parties in November 2018 and valid through December 31, 2021. The agreement was subsequently amended in June 2020 to extend the ARK 1 availability on the platform perpetually, effective January 1, 2022 and to put ARK 2 on the platform for three years upon release. The Company recognized $2.5 million in revenue related to ARK 1 perpetual license during the three months ended March 31, 2022 and deferred $2.3 million related to ARK 2 that is included in the long-term portion of deferred revenue.

In November 2021, the Company entered an agreement with a platform to make ARK 1 available on a platform for a period of 5 weeks in exchange for $3.5 million. The platform launched the 5-week program on March 1, 2022 and the Company recognized the full amount of revenue from this contract during the period ended March 31, 2022, as the significant performance obligation of making the game available on the platform was met on the first day of the contract period.

Estimated Service Period

For certain performance obligations satisfied over time, the Company has determined that the estimated service period is the time period in which an average user plays our software products (“user life”) which most faithfully depicts the timing of satisfying our performance obligation.

Shipping, Handling and Value Added Taxes (“VAT”)

The distributor, as the principal, is responsible for the shipping of the game discs to the retail stores and incurring the shipping and VAT costs. The Company is paid the net sales amount after deducting shipping costs, VAT and other related expenses by the distributor.

Cost of Revenues

Cost of revenues include software license royalty fees, merchant fees, server and database center costs, game localization costs, game licenses, engine fees and amortization costs. Cost of revenues for the three months ended March 31, 2023 and 2022 were comprised of the following:


	2023		2022
Software license royalties - related parties	$	2,863,013	$	6,521,178
Software license royalties		352,439		—
License and amortization - related parties		5,195,651		6,350,979
License and amortization		201		150,224
Merchant fees		459,471		657,536
Engine fees		424,227		713,993
Internet, server and data center		496,150		495,107
Costs related to advertising revenue		25,245		—
Total:	$	9,816,397	$	14,889,017

General and Administrative Costs

General and administrative costs include rents, salaries, stock-based compensation, legal and professional expenses, internet and server, contractor costs, insurance expense, licenses and permits, other taxes and travel expenses. These costs are expensed as they are incurred. For the three months ended March 31, 2023 and 2022, general and administrative expenses totaled $5,570,291 and $5,620,010, respectively. Stock-based compensation of $152,595 was incurred during the three months ended March 31, 2023; no such compensation was incurred in the three months ended March 31, 2022.

Advertising and Marketing Costs

The Company expenses advertising costs as incurred. For the three months ended March 31, 2023 and 2022, advertising expenses totaled $104,549 and $158,670, respectively.

Research and Development

Research and development costs are expensed as incurred. Research and development costs include travel, payroll, and other general expenses specific to research and development activities. Research and development costs for the three months ended March 31, 2023 and 2022 were $1,373,797 and $183,956, respectively.

Non-controlling Interests

Non-controlling interests on the condensed consolidated balance sheets and condensed consolidated statements of operations and comprehensive income (loss) include the equity allocated to non-controlling interest holders. As of March 31, 2023 and December 31, 2022, there were non-controlling interests with the following subsidiaries:


Subsidiary Name	Equity % Owned		Non-Controlling %
Snail Innovative Institute	70	%	30	%
BTBX.IO, LLC	70	%	30	%
Donkey Crew, LLC	99	%	1	%

Cash and Restricted Cash and Cash Equivalents

Cash is available for use in current operations or other activities such as capital expenditures and business combinations. Restricted cash and cash equivalents are time deposits, that are currently provided as security to our debts with a financial institution and the issuance of a standby letter of credit to landlords.

Restricted Escrow Deposits

Our restricted deposits held in escrow are to provide a source of funding for certain indemnification obligations of Snail, Inc. to our underwriters in connection with our IPO. The deposit and related interest earnings are restricted for one year from the IPO date.

Accounts Receivable

The Company generally records a receivable related to revenue when it has an unconditional right to invoice and receive payment. Accounts receivable are carried at original invoice amount less a allowance made for credit losses. The Company uses a combination of quantitative and qualitative factors to estimate the allowance, including an analysis of the customers’ creditworthiness, historical experience, age of current accounts receivable balances, changes in financial condition or payment terms of our customers, and reasonable forecasts of the collectability of the accounts receivable. The Company evaluates the allowance for credit losses on a periodic basis and adjusts it as necessary based on the risk factors mentioned above. Any increase in the provision for credit losses is recorded as a charge to general and administrative expense in the current period. Any amounts deemed uncollectible are written off against the allowance for credit losses. Management judgment is required to estimate our allowance for credit losses in any accounting period. The amount and timing of our credit losses and cash collection could change significantly because of a change in any of the risk factors mentioned above.

Fair Value Measurements

The Company follows FASB ASC Topic 820, Fair Value Measurements. ASC 820 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants.

ASC 820 establishes a hierarchy of valuation inputs based on the extent to which the inputs are observable in the marketplace. Observable inputs reflect market data obtained from sources independent of the reporting entity and unobservable inputs reflect the entity’s own assumptions about how market participants would value an asset or liability based on the best information available. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value.

The following describes the hierarchy of inputs used to measure fair value and the primary valuation methodologies used by the Company for financial instruments measured at fair value.

The three levels of inputs are as follows:

●

Level 1: Quoted prices in active markets for identical assets or liabilities that the Company has an ability to access as of the measurement date.

●

Level 2: Inputs that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the same term of the assets or liabilities.

●

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Our financial instruments include cash and cash equivalents, restricted cash and cash equivalents, short-term financial instruments, short-term loans, accounts receivable, accounts payable and current liabilities. The carrying values of these financial instruments approximate their fair value due to their short maturities. The carrying amount of our debt approximates fair value because the interest rates on these instruments approximate the interest rate on debt with similar terms available to us for a similar duration with the exception of the Company’s promissory note which has a fixed rate for 5 years, then a floating rate that approximates

the Wall Street Journal Prime Rate plus 0.50%. The Company considers the carrying amount of the loan to approximate fair value as the discounted cost in comparison to market rates would not be materially different than the cost to acquire a loan with similar terms. The Company does not have any other assets or liabilities measured at fair value on a recurring or non-recurring basis as of March 31, 2023 and December 31, 2022.

Amortizable Intangibles and Other Long-lived Assets

The Company’s long-lived assets and other assets consisting of property, plant and equipment and purchased intangible assets, are reviewed for impairment in accordance with the guidance of Financial Accounting Standards Board (“FASB”) Topic ASC 360, Property, Plant, and Equipment. Intangible assets subject to amortization are carried at cost less accumulated amortization and amortized over the estimated useful life in proportion to the economic benefits received. The Company evaluates the recoverability of definite-lived intangible assets and other long-lived assets in accordance with ASC Subtopic 360-10, which generally requires the assessment of these assets for recoverability when events or circumstances indicate a potential impairment exists. The Company considers certain events and circumstances in determining whether the carrying value of identifiable intangible assets and other long-lived assets, other than indefinite lived intangible assets, may not be recoverable including, but not limited to: significant changes in performance relative to expected operating results; significant changes in the use of the assets; significant negative industry or economic trends; and changes in the Company’s business strategy. If the Company determines that the carrying value may not be recoverable, the Company estimates the undiscounted cash flows to be generated from the use and ultimate disposition of the asset group to determine whether an impairment exists. If an impairment is indicated based on a comparison of the asset groups’ carrying values and the undiscounted cash flows, the impairment loss is measured as the amount by which the carrying amount of the asset group exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. There can be no assurance, however, that market conditions will not change or demand for the Company’s products under development will continue. Either of these could result in future impairment of long-lived assets. Actual useful lives and cash flows could be different from those estimated by management which could have a material effect on our consolidated reporting results and financial positions.

Income Taxes

Income taxes are provided for the tax effects of transactions reported in the condensed consolidated financial statements and consisted of taxes currently due and deferred taxes. Deferred taxes are recognized for the differences between the basis of assets and liabilities for financial statement and income tax purposes.

The Company follows FASB Topic ASC 740, Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the condensed consolidated financial statements or tax returns.

Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates, applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

FASB ASC 740-10-25 provides criteria for the recognition, measurement, presentation, and disclosure of uncertain tax positions. The Company must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the condensed consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The Company recognizes liabilities for uncertain tax positions pursuant to FASB ASC 740-10-25. Such amounts are included in the current and long-term accrued expenses on the accompanying condensed consolidated balance sheets in the amount of $457,024 as of March 31, 2023 and December 31, 2022. The Company accrues and recognizes interest and penalties related to unrecognized tax benefits in operating expenses.

Concentration of Credit Risk and Significant Customers

The Company maintains cash balances at several major financial institutions. While the Company attempts to limit credit exposure with any single institution, balances often exceed insurable amounts. As of March 31, 2023 and December 31, 2022, the Company had

deposits of $9,443,584 and $17,929,308, respectively, that were not insured by the Federal Deposit Insurance Corporation and are included in the cash and cash equivalents, restricted escrow deposit and restricted cash and cash equivalents, in the accompanying condensed consolidated balance sheets.

The Company extends credit to various digital resellers and partners. Collection of trade receivables may be affected by changes in economic or other industry conditions and may, accordingly, impact our overall credit risk. The Company performs ongoing credit evaluations of customers and maintains reserves for potentially uncollectible accounts. As of March 31, 2023 and December 31, 2022, the Company had three customers who accounted for approximately 71% and two customers who accounted for approximately 57% of consolidated gross receivables, respectively. Among the three customers as of March 31, 2023 and two customers as of December 31, 2022, each customer accounted for 30%, 23% and 18% as of March 31, 2023, and 29% and 28% as of December 31, 2022 of the consolidated gross receivables outstanding. During the three months ended March 31, 2023 and 2022, approximately 60% and 61%, respectively, of net revenue was derived from these customers. The loss of these customers or declines in the forecasts of their accounts receivable collectability would have a significant impact on the Company’s financial performance.

As of March 31, 2023 and December 31, 2022, the Company had two vendors who accounted for approximately 67% and two vendors who accounted for approximately 55% of consolidated gross payables, respectively. Among the two vendors as of March 31, 2023 and December 31, 2022, each vendor accounted for 55% and 12% as of March 31, 2023, and 43% and 12% as of December 31, 2022 of our consolidated gross payables outstanding. The loss of these vendors could have a significant impact on the Company’s financial performance and regulatory compliance.

The Company had one vendor, SDE Inc. (“SDE”), a related party, that accounted for 58% and 53% of the Company’s combined cost of revenues and operating expenses during the three months ended March 31, 2023 and 2022, respectively. Amounts payable to SDE are netted with receivables from them and presented as accounts receivable - related party in the condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022. The loss of SDE as a vendor would significantly and adversely affect the Company’s core business.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses, which replaces the incurred loss impairment methodology in current US GAAP with a methodology that requires the reflection of expected credit losses and also requires consideration of a broader range of reasonable and supportable information to determine credit loss estimates. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. For most financial instruments, the standard requires the use of a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses, which generally results in the earlier recognition of credit losses on financial instruments. The Company adopted ASC 2016-13 on January 1, 2023. The impact of adopting the new standard did not have a material impact on the Company’s condensed consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, Contracts in Entity’s Own Equity (Subtopic 815-40) – Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, to simplify the application of GAAP for certain financial instruments with characteristics of liabilities and equity. The FASB decided to eliminate certain accounting models to simplify the accounting for convertible instruments, reduce complexity for preparers and practitioners, and improve the decision usefulness and relevance of the information provided to financial statement users. The GASB also amended the guidance for derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusion and amended the related earnings per share guidance. The Company has elected to delay implementation of this standard until January 1, 2024 based on its emerging growth status. The impact of adopting the new accounting standard is being evaluated.

Employee Savings Plans

The Company maintains a 401(k) for its United States based employees. The plan is offered to all eligible employees to make voluntary contributions. Employer contributions to the plan are reported under general and administrative costs in the amounts of $26,619 and $13,182 for the three months ended March 31, 2023 and 2022.

Stock-Based Compensation

The Company recognizes compensation cost for stock-based awards to employees based on the awards’ estimated grant-date fair value using a straight-line approach over the service period for which such awards are expected to vest. The Company accounts for forfeitures as they occur. The Company issued restricted stock units (“Restricted Stock Units” or “restricted stock units”) during the year ended December 31, 2022. The fair value of Restricted Stock Units is determined based on the quoted market price of our common stock on the date of grant.

The Company’s 2022 Omnibus Incentive Plan (the “2022 Plan”) became effective upon the consummation of the IPO. The 2022 Omnibus Incentive allows us to grant options to purchase our common stock and to grant stock options, stock appreciation rights, restricted stock, restricted stock units and performance awards and other cash-based awards and other stock-based awards to our employees, officers, and directors, up to a maximum of 5,718,000 shares. Stock options may be granted to employees and officers and non-qualified options may be granted to employees, officers, and directors, at not less than the fair market value on the date of grant. The number of shares of common stock available for issuance under the 2022 Plan will be increased annually on the first day of each fiscal year during the term of the 2022 Plan, beginning with the 2023 fiscal year, by an amount equal to the lesser of (a) 5,718,000 shares, (b) 1% of the shares of the Company’s Class B common stock outstanding (on a fully diluted basis) on the final day of the immediately preceding calendar year or (c) such smaller number of shares as determined by the Company’s board of directors. As of March 31, 2023, there were 4,498,666 shares reserved for issuance under the 2022 Plan.

Restricted Stock Units

The Company granted restricted stock units under our 2022 Omnibus Incentive Plan to employees and directors. Restricted stock units are unfunded, unsecured rights to receive common stock upon the satisfaction of certain vesting criteria. Upon vesting, a number of shares of common stock equivalent to the number of restricted stock units is typically issued net of required tax withholding requirements, if any. Restricted stock units are subject to forfeiture and transfer restrictions.

Warrants

In connection with the IPO, offering costs related to legal, accounting, and underwriting costs were net with the proceeds and recorded as a reduction in additional paid in capital, in the stockholders’ equity section of the condensed consolidated balance sheets. The Company also issued Underwriters Warrants (as defined below) for services provided during the IPO to purchase 120,000 shares of Class A common stock. The Underwriters Warrants are accounted for as equity instruments and are included in the stockholders’ equity section of the condensed consolidated balance sheets. The fair value of the Underwriters Warrants has been estimated using the Black-Scholes option pricing model.

Share Repurchase Program

On November 10, 2022, the Company’s board of directors authorized a share repurchase program under which the Company may repurchase up to $5 million of outstanding shares of Class A common stock of the Company, subject to ongoing compliance with the Nasdaq listing rules. The program does not have a fixed expiration date. Repurchased shares are accounted for at cost and reported as a reduction of equity in the condensed consolidated balance sheets under treasury stock. No treasury stock was sold during the three months ended March 31, 2023. As of March 31, 2023, 1,350,275 shares of Class A common stock were repurchased pursuant to the Share Repurchase Program for an aggregate purchase price of approximately $3.7 million. The average price paid per share was $2.72 and approximately $1.3 million aggregate amount of shares of Class A common stock remain available for repurchase under the Share Repurchase Program.

Earnings (Loss) Per Share

Earnings (loss) per share (“EPS”) is calculated by dividing the net income (loss) that is applicable to the common stockholders for the period by the weighted average number of shares of common stock during that period. The diluted EPS for the period is calculated by dividing the net income (loss) applicable to common stockholders for the period by the weighted average number of shares of common stock and common stock equivalents outstanding during the period. The Company’s common stock equivalents are measured using the treasury stock method and represent unvested restricted stock units and warrants. The Company issues two classes of common stock

with differing voting rights, and as such, reports EPS using the dual class method. For comparative purposes the Company has presented EPS for the three months ended March 31, 2022 using the number of shares exchanged in the reorganization of the Company as the denominator. For more information see Note 19 – Earnings (Loss) Per Share.

Dividend Restrictions

Our ability to pay cash dividends is currently restricted by the terms of our credit facilities.

ACCOUNTS RECEIVABLE - RELATED PARTY (Details) - USD ($)	3 Months Ended
ACCOUNTS RECEIVABLE - RELATED PARTY (Details) - USD ($)	Mar. 31, 2023	Dec. 31, 2022
Statements
Accounts receivable - related party	$ 13,519,409	$ 13,519,409
Less: Accounts payable - related party	(2,222,969)	(2,175,225)
Accounts receivable - related party, net	$ 11,296,440	$ 11,344,184
Immediate family member of management or principal owner
Statements
Ownership percentage (as percent)	100.00%

Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss) (Parenthetical) - USD ($)	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss)
Stock-based compensation expense	$ 152,595	$ 0

PRESENTATION AND NATURE OF OPERATIONS - Reorganization Transaction and IPO (Details) - USD ($)		1 Months Ended
	Nov. 09, 2022	Nov. 30, 2022	Mar. 31, 2023	Dec. 31, 2022
PRESENTATION AND NATURE OF OPERATIONS
Net proceeds from shares issued in IPO		$ 12,000,000.0
Amount deposited in escrow account			$ 1,013,678	$ 1,003,804
IPO
PRESENTATION AND NATURE OF OPERATIONS
Offering costs		3,000,000.0
Amount deposited in escrow account		$ 1,000,000.0
Period amount in escrow is restricted		12 months
Snail Games Usa Stockholders
PRESENTATION AND NATURE OF OPERATIONS
Number of Snail Games USA shares transferred in exchange for Class A common stock	500,000
Class A common stock
PRESENTATION AND NATURE OF OPERATIONS
Number of shares of common stock issued as per agreement	6,251,420
Class A common stock \| IPO
PRESENTATION AND NATURE OF OPERATIONS
Number of shares of common stock issued as per agreement	3,000,000	3,000,000
Number of shares of common stock issued as per agreement (in dollars per share)		$ 5.00
Class B common stock
PRESENTATION AND NATURE OF OPERATIONS
Number of shares of common stock issued as per agreement	28,748,580

REVOLVING LOAN, SHORT TERM NOTE AND LONG -TERM DEBT

3 Months Ended

Mar. 31, 2023

REVOLVING LOAN, SHORT TERM NOTE AND LONG-TERM DEBT

REVOLVING LOAN, SHORT TERM NOTE AND LONG - TERM DEBT

NOTE 15 – REVOLVING LOAN, SHORT TERM NOTE AND LONG - TERM DEBT


	March 31,		December 31,
	2022		2021
2021 Revolving Loan - On June 17, 2021, the Company amended its revolving loan agreement (“amended revolver”) and increased the maximum balance to $9,000,000. The amended revolver matures on December 31, 2023 and has an annual interest rate equal to the prime rate less 0.25%. At March 31, 2023, the interest rate on this loan was 7.75%. The revolver is secured by the certificate of deposit accounts held with the financial institution, and reported as restricted cash, in the amount of $5,267,819 and $5,262,627 as of March 31, 2023, and December 31, 2022, respectively. Debt covenants of this loan require the Company to maintain a minimum debt service coverage ratio of at least 1.5 to 1.	$	9,000,000	$	9,000,000
2021 Promissory Note - On June 17, 2021, the Company amended its loan agreement to reduce the principal amount with financial institution for 10 years, annual interest rate of 3.5% for the first 5 years, and then floating at Wall Street Journal rate from years 6 to 10, the loan is secured by the Company’s building and matures on June 30, 2031. The note is subject to a prepayment penalty. Debt covenants of this loan require the Company to maintain a minimum debt service coverage ratio of at least 1.5 to 1.		2,865,317		2,891,820
2022 Short Term Note - On January 26, 2022, the Company amended its revolving loan and long-term debt agreements to obtain an additional note with a principal balance of $10,000,000 which was originally set to mature on January 26, 2023. Interest shall be equal to the higher of 3.75% or the Wall Street Journal Prime Rate plus 0.50%. The loan is secured by the Company’s assets. In the event of a default, all outstanding amounts under the note will bear interest at a default rate equal to 5% over the note rate. Debt covenants of this loan require the Company to maintain a minimum debt service coverage ratio of at least 1.5 to 1 and will be measured quarterly. In November 2022, the maturity was extended to January 26, 2024 and the interest rate amended to the higher of the Wall Street Journal Prime Rate plus 0.25%, or 5.75%. At March 31, 2023, the interest rate on this loan was 7.75%.		4,166,667		5,833,333
Total		16,031,984		17,725,153
Less: current portion of long-term debt		80,568		86,524
Less: revolving loan		9,000,000		9,000,000
Less: current portion of short term note		4,166,667		5,416,666
Total long-term debt	$	2,784,749	$	3,221,963

Total interest expense for above debt and revolver loan amounted to $294,245 and $166,055 for the three months ended March 31, 2023 and 2022, respectively. Amortization of loan origination expenses of $8,911 and $5,966 are included as part of interest expense for the three months ended March 31, 2023 and 2022, respectively. The Company is in compliance with, or received waivers for, its debt covenants as of March 31, 2023 and December 31, 2022.

The following table provides future minimum payments of its long-term debt as of December 31:


Years ending December 31,	Amount
Remainder of 2023	$	12,810,021
2024		499,414
2025		86,013
2026		89,115
2027		92,329
Thereafter		2,455,092
	$	16,031,984

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

+ References

Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-URI https://asc.fasb.org/topic&trid=2208564

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 20
-Section 50
-Paragraph 1B
-Subparagraph (h)
-URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495323-112611

Reference 3: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 20
-Section 50
-Paragraph 1C
-Subparagraph (c)
-URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495334-112611

Reference 4: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 20
-Section 50
-Paragraph 1I
-Subparagraph (a)
-URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495371-112611

Reference 5: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 20
-Section 50
-Paragraph 1I
-Subparagraph (d)
-URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495371-112611

Reference 6: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 235
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.4-08(c))
-URI https://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690

Reference 7: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 20
-Section 50
-Paragraph 1B
-Subparagraph (g)
-URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495323-112611

Reference 8: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 20
-Section 50
-Paragraph 1C
-Subparagraph (b)
-URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495334-112611

Reference 9: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
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-SubTopic 20
-Section 50
-Paragraph 1C
-Subparagraph (a)
-URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495334-112611

Reference 10: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 20
-Section 50
-Paragraph 1E
-Subparagraph (b)
-URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495348-112611

Reference 11: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 20
-Section 50
-Paragraph 1B
-URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495323-112611

Reference 12: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 20
-Section 50
-Paragraph 1I
-Subparagraph (b)
-URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495371-112611

Reference 13: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 20
-Section 50
-Paragraph 1B
-Subparagraph (i)
-URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495323-112611

+ Details

REVOLVING LOAN, SHORT TERM NOTE AND LONG-TERM DEBT - Schedule Table (Details) - USD ($)			1 Months Ended	3 Months Ended
	Jan. 26, 2022	Jun. 17, 2021	Nov. 30, 2022	Mar. 31, 2023	Dec. 31, 2022
REVOLVING LOAN, SHORT TERM NOTE AND LONG-TERM DEBT
Total				$ 16,031,984	$ 17,725,153
Less: current portion of long-term debt				80,568	86,524
Less: revolving loan				9,000,000	9,000,000
Less: current portion of short term note				4,166,667	5,416,666
Total long-term debt				$ 2,784,749	3,221,963
Interest rate				7.75%
Restricted cash and cash equivalents				$ 6,380,657	6,374,368
2021 Revolving Loan
REVOLVING LOAN, SHORT TERM NOTE AND LONG-TERM DEBT
Total				$ 9,000,000	9,000,000
Maximum borrowing capacity		$ 9,000,000
Interest rate				7.75%
Restricted cash and cash equivalents				$ 5,267,819	5,262,627
Debt service coverage ratio		1.5
2021 Revolving Loan \| Prime Rate
REVOLVING LOAN, SHORT TERM NOTE AND LONG-TERM DEBT
Percentage reduction from prime rate		0.25%
2021 Promissory Note
REVOLVING LOAN, SHORT TERM NOTE AND LONG-TERM DEBT
Total				$ 2,865,317	2,891,820
Debt service coverage ratio		1.5
Debt term		10 years
2021 Promissory Note \| For first 5 years
REVOLVING LOAN, SHORT TERM NOTE AND LONG-TERM DEBT
Interest rate		3.50%
Debt instrument, interest rate, stated percentage, period		5 years
2021 Promissory Note \| Wall Street Journal Prime Rate
REVOLVING LOAN, SHORT TERM NOTE AND LONG-TERM DEBT
Debt instrument, interest rate, stated percentage, period				5 years
Annual interest rate, basis spread				0.50%
2021 Promissory Note \| Wall Street Journal Prime Rate \| From Six To 10 Years [Member]
REVOLVING LOAN, SHORT TERM NOTE AND LONG-TERM DEBT
Annual interest rate, basis spread		0.00%
2022 Short Term Note
REVOLVING LOAN, SHORT TERM NOTE AND LONG-TERM DEBT
Total				$ 4,166,667	$ 5,833,333
Interest rate			5.75%
Debt service coverage ratio	1.5
Principal payment of loan	$ 10,000,000
Annual interest rate, basis spread	3.75%
Default interest rate	5.00%
2022 Short Term Note \| Wall Street Journal Prime Rate
REVOLVING LOAN, SHORT TERM NOTE AND LONG-TERM DEBT
Annual interest rate, basis spread	0.50%		0.25%

INCOME TAXES

3 Months Ended

Mar. 31, 2023

INCOME TAXES

INCOME TAXES

NOTE 16 – INCOME TAXES

The Company recognized an income tax benefit of $805,818 and an income tax expense of $1,529,651 for the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023 and 2022, the Company’s effective tax rate did not differ from the federal statutory rate of 21%

The Company has assessed all positive and negative evidence of whether sufficient future taxable income will be generated to realize the deferred tax assets, including the level of historical taxable income and projections of future taxable income over the periods during which the deferred tax assets are deductible. The Company has a history of significant book income and taxable income for the three most recent years – with a three-year cumulative pre-tax book income of $49.2 million and three-year cumulative taxable income of $71.7 million. Therefore management believes it is more likely than not that the Company will realize the benefits of these deductible differences.

The Company and its subsidiaries currently file tax returns in the United States (federal and state) and Poland. The statute of limitations for its consolidated federal income tax returns are open for tax years ended December 31, 2019 and after. The statute of limitations for its consolidated state income tax returns are open for tax years ended December 31, 2018 and after. All tax periods for its Polish subsidiary are currently subject to examination since its inception in 2018. While the Company has historically only filed a state tax return in California, the management has accrued income tax liabilities for additional states as of March 31, 2023 and December 31, 2022, respectively and is also undergoing the Voluntary Disclosure Agreement process in additional states.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-SubTopic 10
-Section 50
-Paragraph 21
-URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32857-109319

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-SubTopic 10
-Section S99
-Paragraph 2
-Subparagraph (SAB Topic 11.C)
-URI https://asc.fasb.org/extlink&oid=122134291&loc=d3e330215-122817

Reference 3: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-SubTopic 10
-Section 50
-Paragraph 17
-Subparagraph (b)
-URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32809-109319

Reference 4: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SAB TOPIC 6.I.5.Q1)
-URI https://asc.fasb.org/extlink&oid=122134291&loc=d3e330036-122817

Reference 5: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-SubTopic 10
-Section 50
-Paragraph 14
-URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32705-109319

Reference 6: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-SubTopic 270
-Section 50
-Paragraph 1
-URI https://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338

Reference 7: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-URI https://asc.fasb.org/topic&trid=2144680

Reference 8: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-SubTopic 30
-Section 50
-Paragraph 2
-Subparagraph (a)
-URI https://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331

Reference 9: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 235
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.4-08(h)(2))
-URI https://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690

+ Details

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

3 Months Ended

Mar. 31, 2023

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Schedule of Cost of revenues


	2023		2022
Software license royalties - related parties	$	2,863,013	$	6,521,178
Software license royalties		352,439		—
License and amortization - related parties		5,195,651		6,350,979
License and amortization		201		150,224
Merchant fees		459,471		657,536
Engine fees		424,227		713,993
Internet, server and data center		496,150		495,107
Costs related to advertising revenue		25,245		—
Total:	$	9,816,397	$	14,889,017

Schedule of Equity interest and Non controlling interest in subsidiaries


Subsidiary Name	Equity % Owned		Non-Controlling %
Snail Innovative Institute	70	%	30	%
BTBX.IO, LLC	70	%	30	%
Donkey Crew, LLC	99	%	1	%

REVENUE FROM CONTRACTS WITH CUSTOMERS - Activity (Details) - USD ($)	3 Months Ended	12 Months Ended
	Mar. 31, 2023	Dec. 31, 2022
REVENUE FROM CONTRACTS WITH CUSTOMERS
Deferred revenue, beginning balance in advance of revenue recognition billing	$ 9,551,446	$ 20,280,934
Revenue recognized	(453,223)	(18,832,396)
Revenue deferred	302,094	8,102,908
Deferred revenue, ending balance	9,400,317	9,551,446
Less: short term portion	(4,517,573)	(4,335,404)
Deferred revenue, long term	$ 4,882,744	$ 5,216,042

ACCOUNTS PAYABLE - RELATED PARTY (Details) - USD ($)	3 Months Ended
ACCOUNTS PAYABLE - RELATED PARTY (Details) - USD ($)	Mar. 31, 2023	Mar. 31, 2022	Dec. 31, 2022
LOAN PAYABLE AND INTEREST PAYABLE - RELATED PARTY
Accounts payable to parent	$ 19,540,783		$ 19,918,259
Parent
LOAN PAYABLE AND INTEREST PAYABLE - RELATED PARTY
License costs to related party	72,524	$ 126,460
Royalty payments	$ 450,000	$ 444,263

OPERATING LEASE RIGHT-OF-USE ASSETS - Lease cost (Details) - USD ($)	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Operating lease
Operating lease costs	$ 397,562	$ 391,860
Total operating lease costs	$ 397,562	$ 391,860

PROPERTY, PLANT AND EQUIPMENT, NET (Details) - USD ($)	Mar. 31, 2023	Dec. 31, 2022
PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, gross	$ 9,534,357	$ 9,534,357
Accumulated depreciation	(4,534,618)	(4,419,558)
Property, plant and equipment, net	4,999,739	5,114,799
Building
PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, gross	1,874,049	1,874,049
Land
PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, gross	2,700,000	2,700,000
Building improvements
PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, gross	1,010,218	1,010,218
Leasehold improvements
PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, gross	1,537,775	1,537,775
Autos and trucks
PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, gross	178,695	178,695
Computer and equipment
PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, gross	1,821,819	1,821,819
Furniture and fixtures
PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, gross	$ 411,801	$ 411,801

PREPAID EXPENSES - RELATED PARTY (Tables)

3 Months Ended

Mar. 31, 2023

PREPAID EXPENSES - RELATED PARTY

Schedule of prepaid expenses - related party


	2023		2022
Prepaid royalties	$	582,500	$	582,500
Prepaid licenses		7,500,000		5,000,000
Prepaid expenses - related party, ending balance		8,082,500		5,582,500
Less: short-term portion		(2,500,000)		—
Total prepaid expenses - related party, long-term	$	5,582,500	$	5,582,500

ACCOUNTS RECEIVABLE - RELATED PARTY (Tables)

3 Months Ended

Mar. 31, 2023

ACCOUNTS RECEIVABLE - RELATED PARTY

Schedule of outstanding balance of net accounts receivable from related party


	2023		2022
Accounts receivable - related party	$	13,519,409	$	13,519,409
Less: Accounts payable - related party		(2,222,969)		(2,175,225)
Accounts receivable - related party, net	$	11,296,440	$	11,344,184

EARNINGS (LOSS) PER SHARE

3 Months Ended

Mar. 31, 2023

EARNINGS (LOSS) PER SHARE

EARNINGS (LOSS) PER SHARE

NOTE 19 – EARNINGS (LOSS) PER SHARE

The Company uses the two class method to compute its basic earnings (loss) per share (“Basic EPS”) and diluted earnings per share (“Diluted EPS”). The following table summarizes the computations of basic EPS and diluted EPS. The allocation of earnings between Class A and Class B shares is based on their respective economic rights to the undistributed earnings of the Company. Basic EPS is computed as net income (loss) divided by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock-based compensation plans including restricted stock units using the treasury stock method. The restricted stock units were excluded from the treasury stock method computation of diluted shares as their inclusion would have had an antidilutive effect for the three months ended March 31, 2023. There were no such exclusions made in the 2022 calculation. For the three months ended March 31, 2022, the Company has used the number of shares transferred in the reorganization transaction for the denominator in the EPS calculation. The following table provides a reconciliation of the weighted average number of shares used in the calculation of basic and diluted EPS.


	2023		2022
Basic Earnings Per Share:
Net income (loss) attributable to Class A common stockholders	$	(642,340)	$	5,811,057
Net income (loss) attributable to Class B common stockholders		(2,329,038)		—
Total net income (loss) attributable to Snail Inc and Snail Games USA Inc.	$	(2,971,378)	$	5,811,057
Class A weighted average shares outstanding - basic		7,928,742		35,000,000
Class B weighted average shares outstanding - basic		28,748,580		—
Class A and B basic earnings per share	$	(0.08)	$	0.17

Diluted Earnings Per Share:
Net income (loss) attributable to Class A common stockholders	$	(642,340)	$	5,811,057
Net income (loss) attributable to Class B common stockholders	$	(2,329,038)	$	—
Class A weighted average shares outstanding - basic		7,928,742		35,000,000
Dilutive effects of common stock equivalents		—		—
Class A weighted average shares outstanding - diluted		7,928,742		35,000,000
Class B weighted average shares outstanding - basic		28,748,580		—
Dilutive effects of common stock equivalents		—		—
Class B weighted average shares outstanding - diluted		28,748,580		—
Diluted earnings (loss) per Class A and B share	$	(0.08)	$	0.17

OPERATING LEASE RIGHT-OF-USE ASSETS - Lease payments (Details)	Mar. 31, 2023 USD ($)
Future lease payments
Remainder of 2023, Future lease payments	$ 1,163,636
2024, Future lease payments	1,610,844
2025, Future lease payments	1,453,785
Total future lease payments	4,228,265
Imputed Interest
Remainder of 2023, Imputed Interest	126,885
2024, Imputed Interest	105,810
2025, Imputed Interest	28,290
Total Imputed Interest	260,985
Lease Liabilities
Remainder of 2023, Lease Liabilities	1,036,751
2024, Lease Liabilities	1,505,034
2025, Lease Liabilities	1,425,495
Total Lease Liabilities	$ 3,967,280

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Revenue Recognition (Details)	3 Months Ended
	Mar. 31, 2023
Minimum
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Typical customer terms	30 days
Maximum
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Typical customer terms	75 days

PRESENTATION AND NATURE OF OPERATIONS (Tables)

3 Months Ended

Mar. 31, 2023

PRESENTATION AND NATURE OF OPERATIONS

Schedule of subsidiaries included in the consolidated financial statements


	Equity %
Subsidiary Name	Owned
Snail Games USA Inc.	100	%
Snail Innovation Institute	70	%
Frostkeep Studios, Inc.	100	%
Eminence Corp	100	%
Wandering Wizard, LLC	100	%
Donkey Crew, LLC	99	%
Interactive Films, LLC	100	%
Project AWK Productions, LLC	100	%
BTBX.IO, LLC	70	%

EQUITY (Tables)

3 Months Ended

Mar. 31, 2023

Directors

EQUITY

Schedule of restricted stock units activity


	Restricted Stock	Weighted-Average
	Units	Grant-Date Fair Values
Outstanding as of January 1, 2023	24,000	$	5.00
Granted	—		—
Vested	—		—
Forfeited or cancelled	—		—
Outstanding as of March 31, 2023	24,000	$	5.00

Employees

EQUITY

Schedule of restricted stock units activity


	Restricted Stock	Weighted-Average
	Units	Grant-Date Fair Values
Outstanding as of January 1, 2023	1,197,552	$	5.00
Granted	—		—
Vested	—		—
Forfeited or cancelled	(2,218)		5.00
Outstanding as of March 31, 2023	1,195,334	$	5.00

INTANGIBLE ASSETS (Tables)

3 Months Ended

Mar. 31, 2023

INTANGIBLE ASSETS

Schedule of intangible assets


	March 31, 2023
	Gross								Weighted
	Carrying		Accumulated		Impairment		Net Book		Average
	Amount		Amortization		Loss		Value		Useful Life
License rights from related parties	$	136,665,000	$	(135,976,594)	$	—	$	688,406	3 - 5 years
License rights	$	3,000,000	$	(3,000,000)	$	—	$	—	5 years
Intangible assets - other:
Software	$	51,784	$	(51,784)	$	—	$	—	3 years
Trademark		10,745		(9,311)		—		1,434	12 years
In-progress patent		270,886		—		—		270,886
Total:	$	333,415	$	(61,095)	$	—	$	272,320


	December 31, 2022
	Gross								Weighted
	Carrying		Accumulated		Impairment		Net Book		Average
	Amount		Amortization		Loss		Value		Useful Life
License rights from related parties	$	136,665,000	$	(135,280,942)	$	—	$	1,384,058	3 - 5 years
License rights	$	3,000,000	$	(3,000,000)	$	—	$	—	5 years
Intangible assets - other:
Software	$	51,784	$	(51,784)	$	—	$	—	3 years
Trademark		10,745		(9,110)		—		1,635	12 years
In-progress patent		270,886		—		—		270,886
Total:	$	333,415	$	(60,894)	$	—	$	272,521

Schedule of future amortization expense of intangible assets


Years ending December 31,	Amount
Remainder of 2023	$	689,009
2024		804
2025		27
2026		—
2027		—
Thereafter		270,886
	$	960,726

ACCOUNTS PAYABLE - RELATED PARTY

3 Months Ended

Mar. 31, 2023

ACCOUNTS PAYABLE - RELATED PARTY

ACCOUNTS PAYABLE - RELATED PARTY

NOTE 12 – ACCOUNTS PAYABLE — RELATED PARTY

Accounts payable due to related party represents payables in the ordinary course of business primarily for purchases of game distribution licenses and also the royalties due to Suzhou Snail. As of March 31, 2023 and December 31, 2022, the Company had $19,540,783 and $19,918,259, respectively, as accounts payable due to Suzhou Snail. During the three months ended March 31, 2023 and 2022, the

Company incurred $72,524 and $126,460, respectively as license costs due to Suzhou Snail. During the three months ended March 31, 2023 and 2022, respectively, there were $450,000 and $444,263 in payments to Suzhou Snail for royalties.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Stock Based Compensation (Details) - Omnibus Incentive Plan (Twenty Twenty-Two Plan)	Mar. 31, 2023 shares
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Number of shares available for issuance	5,718,000
Minimum
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Number of shares available for issuance	4,498,666
Class B common stock
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Annual increase in shares reserve for issuance (as a percent)	1.00%

Condensed Consolidated Balance Sheets - USD ($)	Mar. 31, 2023	Dec. 31, 2022
Current Assets:
Cash and cash equivalents	$ 4,108,251	$ 12,863,817
Restricted escrow deposit	1,013,678	1,003,804
Accounts receivable, net of allowances for credit losses of $19,929 and $31,525, respectively	6,988,909	6,758,024
Accounts receivable - related party, net	11,296,440	11,344,184
Loan and interest receivable - related party	102,247	101,753
Prepaid expenses - related party	2,500,000
Prepaid expenses and other current assets	11,197,381	10,565,141
Total current assets	37,206,906	42,636,723
Restricted cash and cash equivalents	6,380,657	6,374,368
Prepaid expenses - related party	5,582,500	5,582,500
Property, plant and equipment, net	4,999,739	5,114,799
Deferred income taxes	7,602,536	7,602,536
Other noncurrent assets	190,005	198,668
Operating lease right-of-use assets, net	3,321,332	3,606,398
Total assets	66,244,401	72,772,571
Current Liabilities:
Accounts payable	8,111,718	9,452,391
Accounts payable - related party	19,540,783	19,918,259
Accrued expenses and other liabilities	1,990,490	1,474,088
Interest payable - related parties	527,770	527,770
Revolving loan	9,000,000	9,000,000
Short term note	4,166,667	5,416,666
Current portion of long-term debt	80,568	86,524
Current portion of deferred revenue	4,517,573	4,335,404
Current portion of operating lease liabilities	1,403,978	1,371,227
Total current liabilities	49,339,547	51,582,329
Accrued expenses	384,150	457,024
Long-term debt, net of current portion	2,784,749	3,221,963
Deferred revenue, net of current portion	4,882,744	5,216,042
Operating lease liabilities, net of current portion	2,563,302	2,930,529
Total liabilities	59,954,492	63,407,887
Commitments and contingencies
Stockholders' Equity:
Additional paid-in capital	23,589,537	23,436,942
Accumulated other comprehensive loss	(304,880)	(307,200)
Accumulated deficit	(7,834,628)	(4,863,250)
Stockholders' Equity	15,453,829	18,270,292
Treasury stock at cost (1,350,275 and 1,197,649 shares, respectively)	(3,671,806)	(3,414,713)
Total Snail, Inc. equity	11,782,023	14,855,579
Noncontrolling interests	(5,492,114)	(5,490,895)
Total stockholders' equity	6,289,909	9,364,684
Total liabilities, noncontrolling interests and stockholders' equity	66,244,401	72,772,571
Class A Common Stock
Stockholders' Equity:
Common stock	925	925
Class B Common Stock
Stockholders' Equity:
Common stock	2,875	2,875
License rights from related parties
Current Assets:
Intangible assets, net	688,406	1,384,058
Other
Current Assets:
Intangible assets, net	$ 272,320	$ 272,521

SUBSEQUENT EVENTS

3 Months Ended

Mar. 31, 2023

SUBSEQUENT EVENTS

SUBSEQUENT EVENTS

NOTE 21 – SUBSEQUENT EVENTS

In April 2023, Snail Games USA Inc. entered into an indemnity and reimbursement agreement with INDIEV pursuant to which INDIEV agreed to assume all obligations and liabilities pursuant to the lease with Bel Air Soto, LLC and indemnify and reimburse Snail Games USA Inc. for any amounts, damages, expenses, costs or other liability incurred by it arising under or pursuant to the lease or relating to the premises. See Note 18 — Commitments and Contingencies for additional information.

Condensed Consolidated Statements of Equity - USD ($)	Snail Games USA Common Stock	Common Stock Class A Common Stock	Common Stock Class B Common Stock	Additional Paid-In-Capital	Due from Shareholder Loan and Interest Receivable	Accumulated Other Comprehensive Loss	Retained Earnings	Treasury Stock	Snail Games USA Inc./Snail Inc. Equity	Non controlling Interests	Class A Common Stock	Total
Balance at Dec. 31, 2021	$ 5,000			$ 94,159,167	$ (94,353,522)	$ (266,557)	$ 16,045,231		$ 15,589,319	$ (5,537,266)		$ 10,052,053
Balance (in shares) at Dec. 31, 2021	500,000
Increase (Decrease) in Stockholders' Equity
Loan to shareholder					(450,681)				(450,681)			(450,681)
Foreign currency translation						(51,203)			(51,203)			(51,203)
Net income (loss)							5,811,057		5,811,057	(7,290)		5,803,767
Balance at Mar. 31, 2022	$ 5,000			94,159,167	$ (94,804,203)	(317,760)	21,856,288		20,898,492	(5,544,556)		15,353,936
Balance (in shares) at Mar. 31, 2022	500,000
Balance at Dec. 31, 2022		$ 925	$ 2,875	23,436,942		(307,200)	(4,863,250)	$ (3,414,713)	14,855,579	(5,490,895)		9,364,684
Balance (in shares) at Dec. 31, 2022		9,251,420	28,748,580					(1,197,649)
Increase (Decrease) in Stockholders' Equity
Foreign currency translation						2,320			2,320			2,320
Stock based compensation related to restricted stock units				152,595					152,595			152,595
Repurchase of common stock								$ (257,093)	(257,093)		$ (3,700,000)	(257,093)
Repurchase of common stock (in shares)								(152,626)			1,350,275
Net income (loss)							(2,971,378)		(2,971,378)	(1,219)		(2,972,597)
Balance at Mar. 31, 2023		$ 925	$ 2,875	$ 23,589,537		$ (304,880)	$ (7,834,628)	$ (3,671,806)	$ 11,782,023	$ (5,492,114)		$ 6,289,909
Balance (in shares) at Mar. 31, 2023		9,251,420	28,748,580					(1,350,275)

- Definition

The consolidated profit or loss for the period, net of income taxes, including the portion attributable to the noncontrolling interest.

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- Definition

Amount of stockholders' equity (deficit), net of receivables from officers, directors, owners, and affiliates of the entity, attributable to both the parent and noncontrolling interests. Amount excludes temporary equity. Alternate caption for the concept is permanent equity.

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+ Details

REVENUE FROM CONTRACTS WITH CUSTOMERS - Disaggregation of revenue (Details) - USD ($)	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
REVENUE FROM CONTRACTS WITH CUSTOMERS
Total revenue from contracts with customers:	$ 13,458,488	$ 28,054,591
Digital
REVENUE FROM CONTRACTS WITH CUSTOMERS
Total revenue from contracts with customers:	10,785,770	24,676,015
Mobile
REVENUE FROM CONTRACTS WITH CUSTOMERS
Total revenue from contracts with customers:	1,718,032	2,791,320
Physical retail and other
REVENUE FROM CONTRACTS WITH CUSTOMERS
Total revenue from contracts with customers:	954,686	587,256
Console
REVENUE FROM CONTRACTS WITH CUSTOMERS
Total revenue from contracts with customers:	5,773,590	17,991,579
PC
REVENUE FROM CONTRACTS WITH CUSTOMERS
Total revenue from contracts with customers:	5,012,180	6,684,436
Mobile
REVENUE FROM CONTRACTS WITH CUSTOMERS
Total revenue from contracts with customers:	1,718,032	2,791,320
Other
REVENUE FROM CONTRACTS WITH CUSTOMERS
Total revenue from contracts with customers:	954,686	587,256
United States
REVENUE FROM CONTRACTS WITH CUSTOMERS
Total revenue from contracts with customers:	11,777,874	26,286,796
International
REVENUE FROM CONTRACTS WITH CUSTOMERS
Total revenue from contracts with customers:	$ 1,680,614	$ 1,767,795

REVENUE FROM CONTRACTS WITH CUSTOMERS

3 Months Ended

Mar. 31, 2023

REVENUE FROM CONTRACTS WITH CUSTOMERS

REVENUE FROM CONTRACTS WITH CUSTOMERS

NOTE 3 – REVENUE FROM CONTRACTS WITH CUSTOMERS

Disaggregation of revenue

Geography

The Company attributes net revenue to geographic regions based on customer location. Net revenue by geographic region for the three months ended March 31, 2023 and 2022 were as follows:


	2023		2022
United States	$	11,777,874	$	26,286,796
International		1,680,614		1,767,795
Total revenue from contracts with customers:	$	13,458,488	$	28,054,591

Platform

Net revenue by platform for the three months ended March 31, 2023 and 2022 were as follows:


	2023		2022
Console	$	5,773,590	$	17,991,579
PC		5,012,180		6,684,436
Mobile		1,718,032		2,791,320
Other		954,686		587,256
Total revenue from contracts with customers:	$	13,458,488	$	28,054,591

Distribution channel

Our products are delivered through digital online services (digital download, online platforms, and cloud streaming), mobile, and retail distribution and other. Net revenue by distribution channel for the three months ended March 31, 2023 and 2022 was as follows:


	2023		2022
Digital	$	10,785,770	$	24,676,015
Mobile		1,718,032		2,791,320
Physical retail and other		954,686		587,256
Total revenue from contracts with customers:	$	13,458,488	$	28,054,591

Deferred Revenue

The Company records deferred revenue when payments are due or received in advance of the fulfillment of our associated performance obligations; reductions to deferred revenue balance were primarily due to the recognition of revenue upon fulfillment of our performance obligations, which were in the ordinary course of business. As of March 31, 2023, the balance of deferred revenue was $9,400,317, of which $3.0 million is due to non-refundable payments. The Company is expecting to recognize $0.7 million of the $3.0 million in the next 12 months through the platform releases of certain DLCs and the remaining $2.3 million in the next 24 months through the release of ARK 2. The Company expects to recognize $4.5 million of current deferred revenues and $4.9 million of long term deferred revenue as revenue over the next 12 to 60 months. The revenue will be recognized primarily on a straight-line basis, based on our estimates of

technical support obligations and activation of durable virtual goods. Activities in the Company’s deferred revenue as of March 31, 2023 and December 31, 2022 were as follows:


	2023		2022
Deferred revenue, beginning balance in advance of revenue recognition billing	$	9,551,446	$	20,280,934
Revenue recognized		(453,223)		(18,832,396)
Revenue deferred		302,094		8,102,908
Deferred revenue, ending balance		9,400,317		9,551,446
Less: short term portion		(4,517,573)		(4,335,404)
Deferred revenue, long term	$	4,882,744	$	5,216,042

- Definition

The entire disclosure of revenue from contract with customer to transfer good or service and to transfer nonfinancial asset. Includes, but is not limited to, disaggregation of revenue, credit loss recognized from contract with customer, judgment and change in judgment related to contract with customer, and asset recognized from cost incurred to obtain or fulfill contract with customer. Excludes insurance and lease contracts.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-URI https://asc.fasb.org/topic&trid=49130388

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-SubTopic 10
-Section 50
-Paragraph 10
-URI https://asc.fasb.org/extlink&oid=126920106&loc=SL49130551-203045

Reference 3: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-SubTopic 10
-Section 50
-Paragraph 13
-Subparagraph (b)(2)
-URI https://asc.fasb.org/extlink&oid=126920106&loc=SL49130556-203045

Reference 4: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-SubTopic 10
-Section 50
-Paragraph 12
-Subparagraph (b)
-URI https://asc.fasb.org/extlink&oid=126920106&loc=SL49130554-203045

Reference 5: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-SubTopic 10
-Section 50
-Paragraph 9
-URI https://asc.fasb.org/extlink&oid=126920106&loc=SL49130550-203045

Reference 6: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-SubTopic 10
-Section 50
-Paragraph 12
-Subparagraph (e)
-URI https://asc.fasb.org/extlink&oid=126920106&loc=SL49130554-203045

Reference 7: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-SubTopic 10
-Section 50
-Paragraph 12
-Subparagraph (a)
-URI https://asc.fasb.org/extlink&oid=126920106&loc=SL49130554-203045

Reference 8: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-SubTopic 10
-Section 50
-Paragraph 12
-Subparagraph (d)
-URI https://asc.fasb.org/extlink&oid=126920106&loc=SL49130554-203045

Reference 9: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-SubTopic 10
-Section 50
-Paragraph 15
-URI https://asc.fasb.org/extlink&oid=126920106&loc=SL49130558-203045

Reference 10: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-SubTopic 10
-Section 50
-Paragraph 12
-Subparagraph (c)
-URI https://asc.fasb.org/extlink&oid=126920106&loc=SL49130554-203045

+ Details

COMMITMENTS AND CONTINGENCIES (Details) - USD ($)		3 Months Ended
COMMITMENTS AND CONTINGENCIES (Details) - USD ($)	Feb. 27, 2023	Mar. 31, 2023
COMMITMENTS AND CONTINGENCIES
Amount of bond to support an award of costs and fees	$ 3,000,000.0
Amount of bond		$ 750,000

EARNINGS PER SHARE (Details) - USD ($)	3 Months Ended
EARNINGS PER SHARE (Details) - USD ($)	Mar. 31, 2023	Mar. 31, 2022
Basic Earnings Per Share:
Total net income (loss) attributable to Snail Inc and Snail Games USA Inc	$ (2,971,378)	$ 5,811,057
Basic earnings per share	$ (0.08)	$ 0.17
Diluted Earnings Per Share:
Diluted earnings (loss) per share	$ (0.08)	$ 0.17
Class A common stock
Basic Earnings Per Share:
Net income (loss) attributable to common stockholders, Basic	$ (642,340)	$ 5,811,057
Weighted average shares outstanding - basic	7,928,742	35,000,000
Basic earnings per share	$ (0.08)	$ 0.17
Diluted Earnings Per Share:
Net income (loss) attributable to common stockholders, Diluted	$ (642,340)	$ 5,811,057
Weighted average shares outstanding - basic	7,928,742	35,000,000
Weighted average shares outstanding - diluted	7,928,742	35,000,000
Diluted earnings (loss) per share	$ (0.08)	$ 0.17
Class B common stock
Basic Earnings Per Share:
Net income (loss) attributable to common stockholders, Basic	$ (2,329,038)
Weighted average shares outstanding - basic	28,748,580
Basic earnings per share	$ (0.08)	0.17
Diluted Earnings Per Share:
Net income (loss) attributable to common stockholders, Diluted	$ (2,329,038)
Weighted average shares outstanding - basic	28,748,580
Weighted average shares outstanding - diluted	28,748,580
Diluted earnings (loss) per share	$ (0.08)	$ 0.17

DUE FROM SHAREHOLDER (Details) - USD ($)		3 Months Ended
DUE FROM SHAREHOLDER (Details) - USD ($)	Apr. 26, 2022	Mar. 31, 2023	Mar. 31, 2022	Dec. 31, 2022	Dec. 31, 2021
Statements
Equity		$ 6,289,909	$ 15,353,936	$ 9,364,684	$ 10,052,053
Other receivables-related party				$ 0
Loan accrued interest		$ 0	$ 450,681
Snail Digital Technology Co. Ltd.
Statements
Due from shareholder and interest assigned	$ 94,934,400
Paid in-kind dividend	$ 94,934,400
Receivables from stockholder
Statements
Interest rate per annum		2.00%

- Definition

+ References

+ Details

OPERATING LEASE RIGHT-OF-USE ASSETS - Leases (Details) - USD ($)	1 Months Ended	3 Months Ended
	Apr. 30, 2018	Mar. 31, 2023	Mar. 31, 2022	Dec. 31, 2022
OPERATING LEASE RIGHT-OF-USE ASSETS
Variable lease payments		$ 24,510	$ 18,333
Operating lease right-of-use assets		$ 3,321,332		$ 3,606,398
Standby Letters of Credit
OPERATING LEASE RIGHT-OF-USE ASSETS
Maximum borrowing capacity	$ 1,075,000
Letter of credit term	1 year

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Employee Savings Plan (Details) - USD ($)	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Employer contributions to the plan	$ 26,619	$ 13,182

- Definition

Amount of contribution received by defined benefit plan from employer which increases plan assets.

+ References + Details

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Income Taxes (Details)	Mar. 31, 2023 USD ($)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Liabilities for uncertain tax positions included in current and long term accrued expenses	$ 457,024

REVOLVING LOAN, SHORT TERM NOTE AND LONG-TERM DEBT (Tables)

3 Months Ended

Mar. 31, 2023

REVOLVING LOAN, SHORT TERM NOTE AND LONG-TERM DEBT

Schedule of long-term debt


	March 31,		December 31,
	2022		2021
2021 Revolving Loan - On June 17, 2021, the Company amended its revolving loan agreement (“amended revolver”) and increased the maximum balance to $9,000,000. The amended revolver matures on December 31, 2023 and has an annual interest rate equal to the prime rate less 0.25%. At March 31, 2023, the interest rate on this loan was 7.75%. The revolver is secured by the certificate of deposit accounts held with the financial institution, and reported as restricted cash, in the amount of $5,267,819 and $5,262,627 as of March 31, 2023, and December 31, 2022, respectively. Debt covenants of this loan require the Company to maintain a minimum debt service coverage ratio of at least 1.5 to 1.	$	9,000,000	$	9,000,000
2021 Promissory Note - On June 17, 2021, the Company amended its loan agreement to reduce the principal amount with financial institution for 10 years, annual interest rate of 3.5% for the first 5 years, and then floating at Wall Street Journal rate from years 6 to 10, the loan is secured by the Company’s building and matures on June 30, 2031. The note is subject to a prepayment penalty. Debt covenants of this loan require the Company to maintain a minimum debt service coverage ratio of at least 1.5 to 1.		2,865,317		2,891,820
2022 Short Term Note - On January 26, 2022, the Company amended its revolving loan and long-term debt agreements to obtain an additional note with a principal balance of $10,000,000 which was originally set to mature on January 26, 2023. Interest shall be equal to the higher of 3.75% or the Wall Street Journal Prime Rate plus 0.50%. The loan is secured by the Company’s assets. In the event of a default, all outstanding amounts under the note will bear interest at a default rate equal to 5% over the note rate. Debt covenants of this loan require the Company to maintain a minimum debt service coverage ratio of at least 1.5 to 1 and will be measured quarterly. In November 2022, the maturity was extended to January 26, 2024 and the interest rate amended to the higher of the Wall Street Journal Prime Rate plus 0.25%, or 5.75%. At March 31, 2023, the interest rate on this loan was 7.75%.		4,166,667		5,833,333
Total		16,031,984		17,725,153
Less: current portion of long-term debt		80,568		86,524
Less: revolving loan		9,000,000		9,000,000
Less: current portion of short term note		4,166,667		5,416,666
Total long-term debt	$	2,784,749	$	3,221,963

Schedule of future minimum payments of its long-term debt


Years ending December 31,	Amount
Remainder of 2023	$	12,810,021
2024		499,414
2025		86,013
2026		89,115
2027		92,329
Thereafter		2,455,092
	$	16,031,984

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Warrants (Details)	Mar. 31, 2023 shares
Class A Common Stock
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Number of warrants issued to purchase common stock	120,000

Document and Entity Information - shares	3 Months Ended
Document and Entity Information - shares	Mar. 31, 2023	May 10, 2023
Document and Entity Information
Document Type	10-Q
Document Quarterly Report	true
Document Transition Report	false
Document Period End Date	Mar. 31, 2023
Entity File Number	001-41556
Entity Registrant Name	SNAIL, INC.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	88-4146991
Entity Address, Address Line One	12049 Jefferson Blvd
Entity Address, City or Town	Culver City
Entity Address State Or Province	CA
Entity Address, Postal Zip Code	90230
City Area Code	310
Local Phone Number	988-0643
Title of 12(b) Security	Class A Common Stock, par value $0.0001 per share
Trading Symbol	SNAL
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	true
Entity Ex Transition Period	false
Entity Shell Company	false
Entity Central Index Key	0001886894
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2023
Document Fiscal Period Focus	Q1
Amendment Flag	false
Class A Common Stock
Document and Entity Information
Entity Common Stock, Shares Outstanding		7,901,145
Class B Common Stock
Document and Entity Information
Entity Common Stock, Shares Outstanding		28,748,580

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Cost of Revenues (Details) - USD ($)	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Software license royalties - related parties	$ 2,863,013	$ 6,521,178
Software license royalties	352,439
License and amortization - related parties	5,195,651	6,350,979
License and amortization	201	150,224
Merchant fees	459,471	657,536
Engine fees	424,227	713,993
Internet, server and data center	496,150	495,107
Costs related to advertising revenue	25,245
Total:	$ 9,816,397	$ 14,889,017

PREPAID EXPENSES AND OTHER CURRENT ASSETS

3 Months Ended

Mar. 31, 2023

PREPAID EXPENSES AND OTHER CURRENT ASSETS

PREPAID EXPENSES AND OTHER CURRENT ASSETS

NOTE 9 – PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consisted of the following as of March 31, 2023 and December 31, 2022:


	2023		2022
Prepaid income taxes	$	10,637,171	$	9,822,603
Other prepaids		51,753		80,271
Other current assets		508,457		662,267
Total prepaid expenses and other current assets	$	11,197,381	$	10,565,141

INTANGIBLE ASSETS (Details) - USD ($)	3 Months Ended	12 Months Ended
INTANGIBLE ASSETS (Details) - USD ($)	Mar. 31, 2023	Dec. 31, 2022
INTANGIBLE ASSETS
Net Book Value	$ 960,726
License rights from related parties
INTANGIBLE ASSETS
Gross Carrying Amount	136,665,000	$ 136,665,000
Accumulated Amortization	(135,976,594)	(135,280,942)
Net Book Value	$ 688,406	$ 1,384,058
License rights from related parties \| Minimum
INTANGIBLE ASSETS
Weighted Average Useful Life	3 years	3 years
License rights from related parties \| Maximum
INTANGIBLE ASSETS
Weighted Average Useful Life		5 years
License rights
INTANGIBLE ASSETS
Gross Carrying Amount	$ 3,000,000	$ 3,000,000
Accumulated Amortization	$ (3,000,000)	$ (3,000,000)
Weighted Average Useful Life	5 years	5 years
Software
INTANGIBLE ASSETS
Gross Carrying Amount	$ 51,784	$ 51,784
Accumulated Amortization	$ (51,784)	$ (51,784)
Weighted Average Useful Life	3 years	3 years
Trademark
INTANGIBLE ASSETS
Gross Carrying Amount	$ 10,745	$ 10,745
Accumulated Amortization	(9,311)	(9,110)
Net Book Value	$ 1,434	$ 1,635
Weighted Average Useful Life	12 years	12 years
In-progress patent
INTANGIBLE ASSETS
Gross Carrying Amount	$ 270,886	$ 270,886
Net Book Value	270,886	270,886
Other
INTANGIBLE ASSETS
Gross Carrying Amount	333,415	333,415
Accumulated Amortization	(61,095)	(60,894)
Net Book Value	$ 272,320	$ 272,521

REVOLVING LOAN, SHORT TERM NOTE AND LONG-TERM DEBT - Future minimum payments (Details)	Mar. 31, 2023 USD ($)
REVOLVING LOAN, SHORT TERM NOTE AND LONG-TERM DEBT
Remainder of 2023	$ 12,810,021
2024	499,414
2025	86,013
2026	89,115
2027	92,329
Thereafter	2,455,092
Long term debt	$ 16,031,984

- Definition

Amount, excluding unamortized premium (discount) and debt issuance cost, of long-term debt. Excludes lease obligation.

+ References + Details

PROPERTY, PLANT AND EQUIPMENT, NET

3 Months Ended

Mar. 31, 2023

PROPERTY, PLANT AND EQUIPMENT, NET

PROPERTY, PLANT AND EQUIPMENT, NET

NOTE 10 – PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net consisted of the following as of March 31, 2023 and December 31, 2022:


	2023		2022
Building	$	1,874,049	$	1,874,049
Land		2,700,000		2,700,000
Building improvements		1,010,218		1,010,218
Leasehold improvements		1,537,775		1,537,775
Autos and trucks		178,695		178,695
Computer and equipment		1,821,819		1,821,819
Furniture and fixtures		411,801		411,801
		9,534,357		9,534,357
Accumulated depreciation		(4,534,618)		(4,419,558)
Property, plant and equipment, net	$	4,999,739	$	5,114,799

Depreciation and amortization expense was $115,060 and $168,317 for the three months ended March 31, 2023 and 2022, respectively. The Company did not have any disposals during the three months ended March 31, 2023. During the three months ended March 31, 2022, the Company disposed of $11,615 in computer equipment with an accumulated depreciation of $9,182. The total loss resulting

from the disposal of the assets amounted to $2,433. The Company’s subsidiary, Donkey Crew, LLC, held net property, plant and equipment outside of the United States in the amount of $9,751 and $13,569, as of March 31, 2023 and December 31, 2022, respectively.

Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)	Mar. 31, 2023	Dec. 31, 2022
Accounts receivable, net of allowances for doubtful accounts	$ 19,929	$ 31,525
Treasury Stock, Shares	1,350,275	1,197,649
Class A Common Stock
Common stock, par value (per share)	$ 0.0001	$ 0.0001
Common stock, shares authorized	500,000,000	500,000,000
Common stock, shares issued	9,251,420	9,251,420
Common stock, shares outstanding	7,901,145	8,053,771
Class B Common Stock
Common stock, par value (per share)	$ 0.0001	$ 0.0001
Common stock, shares authorized	100,000,000	100,000,000
Common stock, shares issued	28,748,580	28,748,580
Common stock, shares outstanding	28,748,580	28,748,580

ACCOUNTS RECEIVABLE - RELATED PARTY

3 Months Ended

Mar. 31, 2023

ACCOUNTS RECEIVABLE - RELATED PARTY

ACCOUNTS RECEIVABLE - RELATED PARTY

NOTE 5 – ACCOUNTS RECEIVABLE – RELATED PARTY

Accounts receivable — related party represents receivables in the ordinary course of business attributable to certain mobile game revenues that, for administrative reasons, are collected by a related party and that the related party has not remitted back to the Company. The accounts receivable is offset by payables due to the related party for royalties, internet data center (“IDC”) and marketing costs. Accounts receivable — related party is non-interest bearing and due on demand. The related party is 100% owned and controlled by the wife of the Founder, Chief Strategy Officer and Chairman of the Company. As of March 31, 2023 and December 31, 2022, the outstanding balance of net accounts receivable from related party was as follows:


	2023		2022
Accounts receivable - related party	$	13,519,409	$	13,519,409
Less: Accounts payable - related party		(2,222,969)		(2,175,225)
Accounts receivable - related party, net	$	11,296,440	$	11,344,184

PREPAID EXPENSES - RELATED PARTY

3 Months Ended

Mar. 31, 2023

PREPAID EXPENSES - RELATED PARTY

PREPAID EXPENSES - RELATED PARTY

NOTE 8 – PREPAID EXPENSES - RELATED PARTY

On March 10, 2023, the Company amended its exclusive software license agreement with SDE relating to the ARK franchise. For DLC’s, the Company plans to release during the term of the agreement, the Company will now have the option to pay the $5.0 million DLC payment in whole or in part, when paid in advance; or in full, upon the DLC release. No payment for any DLC under this agreement will exceed $5.0 million.

During the three months ended March 31, 2023, the Company prepaid $2,500,000 for exclusive license rights for an ARK 1 DLC to SDE. During the year ended December 31, 2022, the Company prepaid $5,000,000 for exclusive license rights to ARK 2 to SDE. Prepaid expenses — related party consisted of the following as of March 31, 2023 and December 31, 2022:


	2023		2022
Prepaid royalties	$	582,500	$	582,500
Prepaid licenses		7,500,000		5,000,000
Prepaid expenses - related party, ending balance		8,082,500		5,582,500
Less: short-term portion		(2,500,000)		—
Total prepaid expenses - related party, long-term	$	5,582,500	$	5,582,500

PRESENTATION AND NATURE OF OPERATIONS - Liquidity (Details) - USD ($)	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022	Dec. 31, 2022
PRESENTATION AND NATURE OF OPERATIONS
Net loss	$ (2,972,597)	$ 5,803,767
Negative cash flows	6,708,770	$ (4,995,518)
Cash and cash equivalents	4,108,251		$ 12,863,817
Restricted cash	7,300,000
Current debt	13,200,000
Revolving loan	9,000,000		$ 9,000,000
Term debt	$ 4,200,000

- Definition

The consolidated profit or loss for the period, net of income taxes, including the portion attributable to the noncontrolling interest.

+ References

+ Details

EQUITY - Restricted Stock Units (Details) - $ / shares	3 Months Ended	12 Months Ended
EQUITY - Restricted Stock Units (Details) - $ / shares	Mar. 31, 2023	Dec. 31, 2022
RSU's \| Directors
EQUITY
Vesting period	1 year
Restricted Stock Units
Outstanding as of January 1, 2023	24,000
Outstanding as of March 31, 2023	24,000	24,000
Weighted-Average Grant Date Fair Value
Outstanding as of January 1, 2023	$ 5.00
Outstanding as of March 31, 2023	$ 5.00	$ 5.00
Performance-based restricted stock units \| Employees
EQUITY
Vesting period	5 years	5 years
Restricted Stock Units
Outstanding as of January 1, 2023	1,197,552
Forfeited or cancelled	(2,218)
Outstanding as of March 31, 2023	1,195,334	1,197,552
Weighted-Average Grant Date Fair Value
Outstanding as of January 1, 2023	$ 5.00
Forfeited or cancelled	5.00
Outstanding as of March 31, 2023	$ 5.00	$ 5.00

INTANGIBLE ASSETS - Amortization (Details) - USD ($)	3 Months Ended
INTANGIBLE ASSETS - Amortization (Details) - USD ($)	Mar. 31, 2023	Mar. 31, 2022
INTANGIBLE ASSETS
Amortization expense	$ 695,853	$ 2,001,203
Remaining useful life - Amortization expense	9 months 18 days
Future amortization expense
Remainder of 2023	$ 689,009
2024	804
2025	27
Thereafter	270,886
Total	$ 960,726

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Research and Development (Details) - USD ($)	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Research and development expense	$ 1,373,797	$ 183,956

INCOME TAXES - Components of income tax (Details) - USD ($)	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
INCOME TAXES
Income tax expense (benefit)	$ (805,818)	$ 1,529,651
Federal statutory income tax rate	21.00%
Three-year cumulative pre-tax book income	$ 49,200,000
Three-year cumulative taxable income	$ 71,700,000

- Definition

Amount of current income tax expense (benefit) and deferred income tax expense (benefit) pertaining to continuing operations.

+ References + Details

PROPERTY, PLANT AND EQUIPMENT, NET (Tables)

3 Months Ended

Mar. 31, 2023

PROPERTY, PLANT AND EQUIPMENT, NET

Schedule of property, plant and equipment, net


	2023		2022
Building	$	1,874,049	$	1,874,049
Land		2,700,000		2,700,000
Building improvements		1,010,218		1,010,218
Leasehold improvements		1,537,775		1,537,775
Autos and trucks		178,695		178,695
Computer and equipment		1,821,819		1,821,819
Furniture and fixtures		411,801		411,801
		9,534,357		9,534,357
Accumulated depreciation		(4,534,618)		(4,419,558)
Property, plant and equipment, net	$	4,999,739	$	5,114,799

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Concentration of Credit Risk (Details)	3 Months Ended		12 Months Ended
	Mar. 31, 2023 USD ($) customer item	Mar. 31, 2022 item	Dec. 31, 2022 USD ($) customer item
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Deposits not insured by FDIC \| $	$ 9,443,584		$ 17,929,308
Customer concentration risk \| Gross receivables
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Number of customers \| customer	3		2
Customer concentration risk \| Gross receivables \| Customers
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Concentration percentage	71.00%		57.00%
Customer concentration risk \| Gross receivables \| Customer One
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Concentration percentage	30.00%		29.00%
Customer concentration risk \| Gross receivables \| Customer Two
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Concentration percentage	23.00%		28.00%
Customer concentration risk \| Gross receivables \| Customer Three
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Concentration percentage	18.00%
Customer concentration risk \| Revenues \| Customers
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Concentration percentage	60.00%	61.00%
Supplier Concentration Risk [Member] \| Gross payables
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Number of vendors	2		2
Supplier Concentration Risk [Member] \| Gross payables \| Major Vendors [Member]
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Concentration percentage	67.00%		55.00%
Supplier Concentration Risk [Member] \| Gross payables \| Major Vendor One [Member]
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Concentration percentage	55.00%		43.00%
Supplier Concentration Risk [Member] \| Gross payables \| Major Vendor Two [Member]
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Concentration percentage	12.00%		12.00%
Supplier Concentration Risk [Member] \| Combined gross cost of revenues and operating expenses
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Number of vendors	1	1
Supplier Concentration Risk [Member] \| Combined gross cost of revenues and operating expenses \| Major Vendors [Member]
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Concentration percentage	58.00%	53.00%

EQUITY (Details)		1 Months Ended	3 Months Ended
EQUITY (Details)	Nov. 09, 2022 $ / shares shares	Nov. 30, 2022 $ / shares shares	Mar. 31, 2023 class Vote shares
EQUITY
Number of classes of common stock \| class			2
IPO
EQUITY
Period amount in escrow is restricted		12 months
Class A common stock
EQUITY
Number of votes per share \| Vote			1
Number of shares of common stock issued as per agreement	6,251,420
Class A common stock \| Over-Allotment Option
EQUITY
Number of shares of common stock issued as per agreement	450,000
Price per share \| $ / shares	$ 4.675
Class A common stock \| IPO
EQUITY
Number of shares of common stock issued as per agreement	3,000,000	3,000,000
Price per share \| $ / shares	$ 4.675
Price per share \| $ / shares		$ 5.00
Class A common stock \| Underwriting agreement
EQUITY
Percentage of warrants issued	4.00%
Number of warrants issued to purchase common stock	120,000
Warrants term	3 years
Weighted average expected volatility (in percent)			53.00%
Discount rate (in percent)			4.49%
Remaining term (in years)			3 years
Class A common stock \| Snail Inc
EQUITY
Percent of issue price at IPO price	125.00%
Issue price per share \| $ / shares	$ 6.25
Class B common stock
EQUITY
Number of votes per share \| Vote			10
Number of Class A share issuable upon conversion			1
Number of shares of common stock issued as per agreement	28,748,580

Condensed Consolidated Statements of Cash Flows - USD ($)	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Cash flows from operating activities:
Net income (loss)	$ (2,972,597)	$ 5,803,767
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Amortization - intangible assets - license	695,853	2,001,203
Amortization - loan origination fees	8,911	5,966
Depreciation and amortization - property and equipment	115,060	168,317
Stock-based compensation expense	152,595
Loss on disposal of fixed assets		2,433
Interest income from shareholder loan		(450,681)
Interest income from restricted escrow deposit	(9,874)
Changes in assets and liabilities:
Accounts receivable	(230,885)	1,240,699
Accounts receivable - related party	47,744	(1,792,450)
Prepaid expenses - related party	(2,500,000)	(1,375,000)
Prepaid expenses and other current assets	(632,240)	(208,180)
Other noncurrent assets		(9,035)
Accounts payable	(1,248,355)	1,665,542
Accounts payable - related party	(377,476)	(317,976)
Accrued expenses	443,528	930,942
Interest receivable - related parties	(493)	(247)
Interest payable - related parties		1,244
Lease liabilities	(49,411)	(34,595)
Deferred revenue	(151,130)	(2,636,431)
Net cash (used in) provided by operating activities	(6,708,770)	4,995,518
Cash flows from investing activities:
Purchases of property and equipment		(5,256)
Repayment on Pound Sand note		1,496,063
Net cash provided by investing activities		1,490,807
Cash flows from financing activities:
Repayments on long-term debt	(26,503)	(19,438)
Repayments on short-term note	(1,666,667)	(833,333)
Borrowings on short-term note		10,000,000
Payments on paycheck protection program and economic injury disaster loan		(90,198)
Purchase of treasury stock	(257,093)
Payments of offering costs in accounts payable	(92,318)
Net cash (used in) provided by financing activities	(2,042,581)	9,057,031
Effect of currency translation on cash and cash equivalents	2,074	(40,485)
Net increase (decrease) in cash and cash equivalents, and restricted cash and cash equivalents	(8,749,277)	15,502,871
Cash and cash equivalents, and restricted cash and cash equivalents - beginning of period	19,238,185	16,554,115
Cash and cash equivalents, and restricted cash and cash equivalents - end of period	10,488,908	32,056,986
Cash paid during the period for:
Interest	285,672	160,089
Income taxes	182,387	94,421
Noncash transactions during the period for:
Loan and interest payable - related parties		103,890
Loan and interest receivable - related parties		(103,890)
License, related parties
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Amortization - intangible assets - license		150,000
License rights
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Amortization - intangible assets - license	695,652	1,850,979
Other
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Amortization - intangible assets - license	$ 201	$ 224

EQUITY - Stock-Based Compensation Expense (Details) - USD ($)	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
EQUITY
Stock-based compensation expense	$ 152,595	$ 0
Deferred income tax benefit related to our stock-based compensation expense	32,045	0
RSU's
EQUITY
Stock-based compensation expense	152,595	$ 0
Total unrecognized compensation cost	$ 1,800,000
Total unrecognized compensation cost expected to be recognized over a weighted-average service period	3 years 1 month 6 days

EARNINGS (LOSS) PER SHARE (Tables)

3 Months Ended

Mar. 31, 2023

EARNINGS (LOSS) PER SHARE

Schedule of earnings per share


	2023		2022
Basic Earnings Per Share:
Net income (loss) attributable to Class A common stockholders	$	(642,340)	$	5,811,057
Net income (loss) attributable to Class B common stockholders		(2,329,038)		—
Total net income (loss) attributable to Snail Inc and Snail Games USA Inc.	$	(2,971,378)	$	5,811,057
Class A weighted average shares outstanding - basic		7,928,742		35,000,000
Class B weighted average shares outstanding - basic		28,748,580		—
Class A and B basic earnings per share	$	(0.08)	$	0.17

Diluted Earnings Per Share:
Net income (loss) attributable to Class A common stockholders	$	(642,340)	$	5,811,057
Net income (loss) attributable to Class B common stockholders	$	(2,329,038)	$	—
Class A weighted average shares outstanding - basic		7,928,742		35,000,000
Dilutive effects of common stock equivalents		—		—
Class A weighted average shares outstanding - diluted		7,928,742		35,000,000
Class B weighted average shares outstanding - basic		28,748,580		—
Dilutive effects of common stock equivalents		—		—
Class B weighted average shares outstanding - diluted		28,748,580		—
Diluted earnings (loss) per Class A and B share	$	(0.08)	$	0.17

DIVIDEND DISTRIBUTION

3 Months Ended

Mar. 31, 2023

DIVIDEND DISTRIBUTION

DIVIDEND DISTRIBUTION

NOTE 7 – DIVIDEND DISTRIBUTION

On April 26, 2022, the Company declared an in-kind dividend of $94,934,400 for the assignment of the due from shareholder and a cash dividend of $8,200,000 to pay the related withholding taxes; see Note 6 – Due from Shareholder. There were no such distributions during the three months ended March 31, 2023 and 2022.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Non controlling interest in subsidiaries (Details)	Mar. 31, 2023
Snail Innovation Institute
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Equity interest owned by the company	70.00%
Non controlling interest held in a subsidiary	30.00%
BTBX.IO, LLC
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Equity interest owned by the company	70.00%
Non controlling interest held in a subsidiary	30.00%
Donkey Crew, LLC
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Equity interest owned by the company	99.00%
Non controlling interest held in a subsidiary	1.00%

EQUITY

3 Months Ended

Mar. 31, 2023

EQUITY

EQUITY

NOTE 20 – EQUITY

The Company has authorized two classes of common stock, Class A and Class B. The rights of the holders of both Class A and Class B common stock will be identical, except with respect to voting, conversion and transfer restrictions applicable to the Class B common stock. Each share of Class A common stock will be entitled to one vote. Each share of Class B common stock will be entitled to ten votes and will be convertible into one share of Class A common stock automatically upon transfer, subject to certain exceptions. Holders of Class A common stock and Class B common stock will vote together as a single class on all matters unless otherwise required by law.

On November 9, 2022, in connection with the IPO, the Company entered into an underwriting agreement (the “Underwriting Agreement” with the underwriters (the “Underwriters”), pursuant to which the Company agreed to issue and sell 3,000,000 shares of Class A common stock (the “Firm Shares”) at a purchase price of $4.675 per share to the Underwriters and granted the Underwriters an option (the “Over-Allotment Option”) to purchase up to 450,000 additional shares of Class A common stock (the “Option Shares”) at a purchase price of

$4.675 per share. The Underwriters may exercise the Over-Allotment Option at any time in whole, or from time to time in part, on or before the forty-fifth day following the effectiveness of the IPO. The Over-Allotment Option was not exercised by the Underwriters prior to its expiration.

In connection with the Underwriting Agreement, on November 9, 2022, the Company also issued to the Underwriters warrants to purchase such number of shares of the Company’s Class A common stock in an amount equal to four percent of the total number of shares of Class A common stock sold in the IPO, or 120,000 shares of Class A common stock (the “Underwriters Warrants”). The Underwriters Warrants may be exercised at a price per share equal to 125% of the IPO price, or $6.25 per share. The Underwriters Warrants are exercisable, in whole or in part, commencing on November 9, 2022, and expiring on the three-year anniversary thereof. The Underwriters Warrants have not been exercised as of the filing of this Quarterly Report.

The Underwriters Warrants and Over-Allotment Option are legally detachable and separately exercisable from each other and from the Firm Shares; therefore, they meet the definition of freestanding and are not considered embedded in the Firm Shares.

The Underwriters Warrants are considered indexed to the Company’s own stock. Additionally, the Company concludes that the Underwriters Warrants meet all requirements for equity classification. Because the Underwriters Warrants are issued to the Underwriters for their services and can be exercised immediately (subject to certain transfer conditions) they will be measured at their fair value on their date of issuance and recorded within stockholders’ equity. As long as the Underwriters Warrants remain classified as equity, they shall not be revalued. The fair value of the Underwriters Warrants was determined using the Black-Scholes model. The key assumptions used in the valuation were a average expected volatility of 53%, discount rate of 4.49% and remaining term of 3 years.

The Company allocates all the issuance costs to the firm shares as a reduction of proceeds.

Restricted Stock Units

Vesting for restricted stock units granted to directors vest based on the directors’ continued employment with us through each applicable vest date, which is generally over one year. If the vesting conditions are not met, unvested restricted stock units will be forfeited. The following table summarizes our restricted stock units activity with directors for the three months ended March 31, 2023. There were no activities during the three months ended March 31, 2022.


	Restricted Stock	Weighted-Average
	Units	Grant-Date Fair Values
Outstanding as of January 1, 2023	24,000	$	5.00
Granted	—		—
Vested	—		—
Forfeited or cancelled	—		—
Outstanding as of March 31, 2023	24,000	$	5.00

The grant date fair value of restricted stock units granted to directors is based on the quoted market price of our common stock on the date of grant.

Our restricted stock units granted to employees vest upon the achievement of pre-determined performance-based milestones as well as service conditions. The pre-determined performance-based milestones are based on specified percentages of the restricted stock units that would vest at each of the first five anniversaries of the IPO date if the Company’s average annual growth rate (“AAGR”) is calculated to be at a target percentage or above during the period between the Company’s IPO Date and the annual revenue for each of the anniversary year. If these performance-based milestones are not met but service conditions are met, the performance-based restricted stock units will not vest, in which case any compensation expense the Company has recognized to date will be reversed. Generally, the total aggregate measurement period of our performance-based restricted stock units is 5 years, with awards cliff-vesting after each annual measurement period during the total aggregate measurement period.

Each quarter, the Company updates our assessment of the probability that the performance milestones will be achieved. The Company amortizes the fair values of performance-based restricted stock units over the requisite service period. Each performance-based milestone is weighted evenly and the number of shares that vest based on each performance-based milestone is independent from the other.

The following table summarizes our restricted stock unit activity with employees, presented with the maximum number of shares that could potentially vest, for the three months ended March 31, 2023. There were no activities during the three months ended March 31, 2022.


	Restricted Stock	Weighted-Average
	Units	Grant-Date Fair Values
Outstanding as of January 1, 2023	1,197,552	$	5.00
Granted	—		—
Vested	—		—
Forfeited or cancelled	(2,218)		5.00
Outstanding as of March 31, 2023	1,195,334	$	5.00

The grant date fair value of restricted stock units granted to employees is based on the quoted market price of our common stock on the date of grant.

Repurchase Activity

All share repurchases settled in the three months ended March 31, 2023 were open market transactions. As of March 31, 2023, 1,350,275 shares of Class A common stock were repurchased pursuant to the Share Repurchase Program for an aggregate purchase price of approximately $3.7 million. The average price paid per share was $2.72 and approximately $1.3 million aggregate amount of shares of Class A common stock remain available for repurchase under the Share Repurchase Program.

Stock-Based Compensation Expense

Stock-based compensation expense resulting from restricted stock units and performance-based restricted stock units of $152,595 and $0 are recorded under General and Administrative expenses included in our condensed consolidated statements of operations and comprehensive income (loss) for the three months ended March 31, 2023 and 2022, respectively.

During the three months ended March 31, 2023 and 2022, the Company recognized approximately $32,045 and $0 respectively, of deferred income tax benefit related to our stock-based compensation expense.

As of March 31, 2023, our total unrecognized compensation cost related to restricted stock units was approximately $1.8 million and is expected to be recognized over a weighted-average service period of 3.1 years.

- Definition

The entire disclosure for shareholders' equity comprised of portions attributable to the parent entity and noncontrolling interest, including other comprehensive income. Includes, but is not limited to, balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings, accumulated balance for each classification of other comprehensive income and amount of comprehensive income.

+ References

Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef
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Reference 3: http://www.xbrl.org/2003/role/disclosureRef
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Reference 4: http://www.xbrl.org/2003/role/disclosureRef
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Reference 5: http://www.xbrl.org/2003/role/disclosureRef
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Reference 6: http://www.xbrl.org/2003/role/disclosureRef
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Reference 7: http://www.xbrl.org/2003/role/disclosureRef
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Reference 8: http://www.xbrl.org/2003/role/disclosureRef
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Reference 9: http://www.xbrl.org/2003/role/disclosureRef
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Reference 10: http://www.xbrl.org/2003/role/disclosureRef
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-Name Accounting Standards Codification
-Topic 505
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Reference 13: http://www.xbrl.org/2003/role/disclosureRef
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-Name Accounting Standards Codification
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Reference 14: http://www.xbrl.org/2003/role/disclosureRef
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Reference 15: http://www.xbrl.org/2003/role/disclosureRef
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+ Details

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - General and Administrative (Details) - USD ($)	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General and administrative expenses	$ 5,570,291	$ 5,620,010
Stock based compensation	$ 152,595	$ 0

REVOLVING LOAN, SHORT TERM NOTE AND LONG-TERM DEBT - Paragraph (Details) - USD ($)	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
REVOLVING LOAN, SHORT TERM NOTE AND LONG-TERM DEBT
Interest expense	$ 294,583	$ 166,055
Amortization of loan origination expenses	8,911	5,966
Revolver
REVOLVING LOAN, SHORT TERM NOTE AND LONG-TERM DEBT
Interest expense	$ 294,245	$ 166,055

PREPAID EXPENSES - RELATED PARTY (Details) - USD ($)	Mar. 10, 2023	Mar. 31, 2023	Dec. 31, 2022
DLC amount prepaid	$ 5,000,000.0
Maximum DLC amount payable under the exclusive software license agreement with SDE	$ 5,000,000.0
Prepaid royalties		$ 582,500	$ 582,500
Prepaid licenses		7,500,000	5,000,000
Prepaid expenses - related party, ending balance		8,082,500	5,582,500
Less: short-term portion		(2,500,000)
Total prepaid expenses - related party, long-term		5,582,500	5,582,500
ARK 1
Prepaid licenses		$ 2,500,000
ARK 2
Prepaid licenses			$ 5,000,000

OPERATING LEASE RIGHT-OF-USE ASSETS (Tables)

3 Months Ended

Mar. 31, 2023

OPERATING LEASE RIGHT-OF-USE ASSETS

Schedule of operating lease costs


	2023		2022
Operating lease costs	$	397,562	$	391,860
Short term lease costs		—		—
Total operating lease costs	$	397,562	$	391,860

Schedule of supplemental information related to operating leases


	2023			2022
Cash paid for amounts included in the measurement of lease liabilities	$	385,254		$	378,010
Weighted average remaining lease term		2.7 years			2.9 years
Weighted average discount rate		5.00	%		5.00	%

Schedule of future undiscounted lease payments for operating leases and reconciliation of these payments to our operating lease liabilities

Future undiscounted lease payments for operating leases and a reconciliation of these payments to our operating lease liabilities as of March 31, 2023 are as follows:


	Future lease payments		Imputed Interest		Lease Liabilities

Years ending December 31,	Amount
Remainder of 2023	$	1,163,636	$	126,885	$	1,036,751
2024		1,610,844		105,810		1,505,034
2025		1,453,785		28,290		1,425,495
Thereafter		—		—		—
Total future lease payments	$	4,228,265	$	260,985	$	3,967,280

Condensed Consolidated Statements of Operations and Comprehensive Income/(Loss) - USD ($)	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Revenues, net	$ 13,458,488	$ 28,054,591
Cost of revenues	9,816,397	14,889,017
Gross profit	3,642,091	13,165,574
Operating expenses:
General and administrative (including stock-based compensation expense of $152,595 and $0, respectively)	5,570,291	5,620,010
Research and development	1,373,797	183,956
Advertising and marketing	104,549	158,670
Depreciation and amortization	115,060	168,317
Total operating expenses	7,163,697	6,130,953
Income (loss) from operations	(3,521,606)	7,034,621
Other income (expense):
Interest income	31,473	15,372
Interest income - related parties	493	450,928
Interest expense	(294,583)	(166,055)
Interest expense - related parties	0	(1,726)
Other income	8,175	2,684
Foreign currency transaction loss	(2,367)	(2,406)
Total other income, net	(256,809)	298,797
Income (loss) before (benefit from) provision for income taxes	(3,778,415)	7,333,418
(Benefit from) provision for income taxes	(805,818)	1,529,651
Net income (loss)	(2,972,597)	5,803,767
Net (loss) attributable to non-controlling interests	(1,219)	(7,290)
Net income (loss) attributable to Snail, Inc. and Snail Games USA Inc	(2,971,378)	5,811,057
Comprehensive income statement:
Other comprehensive income (loss) related to currency translation adjustments, net of tax	2,320	(51,203)
Total comprehensive income (loss)	$ (2,969,058)	$ 5,759,854
Income per share attributable to:
Basic	$ (0.08)	$ 0.17
Diluted	$ (0.08)	$ 0.17
Class A common stock
Net income (loss) attributable to:
Basic	$ (642,340)	$ 5,811,057
Diluted	$ (642,340)	$ 5,811,057
Income per share attributable to:
Basic	$ (0.08)	$ 0.17
Diluted	$ (0.08)	$ 0.17
Weighted-average shares used to compute income per share:
Basic	7,928,742	35,000,000
Diluted	7,928,742	35,000,000
Class B common stock
Net income (loss) attributable to:
Basic	$ (2,329,038)
Diluted	$ (2,329,038)
Income per share attributable to:
Basic	$ (0.08)	$ 0.17
Diluted	$ (0.08)	$ 0.17
Weighted-average shares used to compute income per share:
Basic	28,748,580
Diluted	28,748,580

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Fair Value Measurements (Details) - 2021 Promissory Note - Wall Street Journal Prime Rate	3 Months Ended
	Mar. 31, 2023
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Debt instrument, interest rate, stated percentage, period	5 years
Floating prime rate	0.50%

EQUITY - Repurchase Activity (Details) - Class A Common Stock $ / shares in Units, $ in Millions	3 Months Ended
	Mar. 31, 2023 USD ($) $ / shares shares
EQUITY
Number of share repurchased \| shares	1,350,275
Aggregate purchase price	$ 3.7
Average price paid per share \| $ / shares	$ 2.72
Aggregate amount of stock remain available for repurchase	$ 1.3

OPERATING LEASE RIGHT-OF-USE ASSETS

3 Months Ended

Mar. 31, 2023

OPERATING LEASE RIGHT-OF-USE ASSETS

OPERATING LEASE RIGHT-OF-USE ASSETS

NOTE 17 – OPERATING LEASE RIGHT-OF-USE ASSETS

The Company’s right-of-use assets represent arrangements related primarily to office facilities used in the ordinary business operations of the Company and its subsidiaries. In April, 2018, a commercial bank issued an irrevocable standby letter of credit on behalf of the Company to the landlord for $1,075,000 to lease office space. The standby letter of credit was valid for a one-year term and was amended in January 2021 to extend to January 31, 2026. As of March 31, 2023 and December 31, 2022, the Company’s net operating lease right-of-use assets amounted to $3,321,332 and $3,606,398, respectively. The Company had variable lease payments of approximately $24,510 and $18,333 during the three months ended March 31, 2023 and 2022, respectively; which consisted primarily of common area maintenance charges and administrative fees. Operating lease costs for the three months ended March 31, 2023 and 2022 are as follows:


	2023		2022
Operating lease costs	$	397,562	$	391,860
Short term lease costs		—		—
Total operating lease costs	$	397,562	$	391,860

Supplemental information related to operating leases is as follows for lease liabilities as of March 31, 2023 and December 31, 2022:


	2023			2022
Cash paid for amounts included in the measurement of lease liabilities	$	385,254		$	378,010
Weighted average remaining lease term		2.7 years			2.9 years
Weighted average discount rate		5.00	%		5.00	%

Future undiscounted lease payments for operating leases and a reconciliation of these payments to our operating lease liabilities as of March 31, 2023 are as follows:


	Future lease payments		Imputed Interest		Lease Liabilities

Years ending December 31,	Amount
Remainder of 2023	$	1,163,636	$	126,885	$	1,036,751
2024		1,610,844		105,810		1,505,034
2025		1,453,785		28,290		1,425,495
Thereafter		—		—		—
Total future lease payments	$	4,228,265	$	260,985	$	3,967,280

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Advertising Costs (Details) - USD ($)	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Advertising expense	$ 104,549	$ 158,670

OPERATING LEASE RIGHT-OF-USE ASSETS - Supplemental information (Details) - USD ($)	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Operating lease
Cash paid for amounts included in the measurement of lease liabilities	$ 385,254	$ 378,010
Weighted average remaining lease term	2 years 8 months 12 days	2 years 10 months 24 days
Weighted average discount rate	5.00%	5.00%

CASH AND CASH EQUIVALENTS, AND RESTRICTED CASH AND CASH EQUIVALENTS

3 Months Ended

Mar. 31, 2023

CASH AND CASH EQUIVALENTS, AND RESTRICTED CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS, AND RESTRICTED CASH AND CASH EQUIVALENTS

NOTE 4 – CASH AND CASH EQUIVALENTS, AND RESTRICTED CASH AND CASH EQUIVALENTS

Cash equivalents are valued using quoted market prices or other readily available market information. The Company has $6,380,657 and $6,374,368 as of March 31, 2023 and December 31, 2022, respectively, as security for the debt with a financial institution (see Note 15 — Revolving Loan, Short Term Note, and Long-Term Debt) and to secure standby letters of credit with landlords. The following table summarizes the components of the Company’s cash and cash equivalents, and restricted cash and cash equivalents as of March 31, 2023 and December 31, 2022:


	2023		2022
Cash and cash equivalents	$	4,108,251	$	12,863,817
Restricted cash and cash equivalents		6,380,657		6,374,368
Cash and cash equivalents, and restricted cash and cash equivalents	$	10,488,908	$	19,238,185

REVENUE FROM CONTRACTS WITH CUSTOMERS - Deferred Revenue (Details) - USD ($)	Mar. 31, 2023	Dec. 31, 2022
REVENUE FROM CONTRACTS WITH CUSTOMERS
Deferred revenue	$ 9,400,317
Deferred revenue, non-refundable amount	3,000,000.0
Current portion of deferred revenue	4,517,573	$ 4,335,404
Deferred revenue, long term	$ 4,882,744	$ 5,216,042
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2023-01-01 \| Minimum
REVENUE FROM CONTRACTS WITH CUSTOMERS
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period	12 months
Current portion of deferred revenue	$ 4,500,000
Deferred revenue, long term	$ 4,900,000
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2023-01-01 \| Maximum
REVENUE FROM CONTRACTS WITH CUSTOMERS
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period	60 months
Current portion of deferred revenue	$ 4,500,000
Deferred revenue, long term	4,900,000
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2023-01-01 \| ARK 1
REVENUE FROM CONTRACTS WITH CUSTOMERS
Deferred revenue	700,000
Deferred revenue, non-refundable amount	$ 3,000,000.0
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period	12 months
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2023-01-01 \| ARK 2
REVENUE FROM CONTRACTS WITH CUSTOMERS
Deferred revenue	$ 2,300,000
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period	24 months

LOAN PAYABLE AND INTEREST PAYABLE - RELATED PARTIES (Details) - USD ($)	1 Months Ended	3 Months Ended		12 Months Ended
	Jul. 31, 2022	Mar. 31, 2023	Mar. 31, 2022	Dec. 31, 2022	Feb. 28, 2022
LOAN PAYABLE AND INTEREST PAYABLE - RELATED PARTY
Loan payable - related parties		$ 0		$ 0
Interest payable - related parties		527,770		527,770
Interest expense-related parties		$ 0	$ 1,726	1,726
Loan Payable
LOAN PAYABLE AND INTEREST PAYABLE - RELATED PARTY
Loan payable - related parties				$ 400,000
Interest rate per annum				2.00%
A Subsidiary of Suzhou Snail \| Loan from related party due in June 2022
LOAN PAYABLE AND INTEREST PAYABLE - RELATED PARTY
Loan payable - related parties				$ 300,000
Payment of related party debt	$ 300,000
Snail Digital Technology Co. Ltd. \| Loan from related party due in December 2023
LOAN PAYABLE AND INTEREST PAYABLE - RELATED PARTY
Loan payable - related parties				$ 100,000
Loans payable offset against receivable					$ 100,000
Amount of interest payable offset by interest receivable					$ 3,890

LOAN AND INTEREST RECEIVABLE - RELATED PARTY

3 Months Ended

Mar. 31, 2023

LOAN AND INTEREST RECEIVABLE - RELATED PARTY

LOAN AND INTEREST RECEIVABLE - RELATED PARTY

NOTE 13 – LOAN AND INTEREST RECEIVABLE — RELATED PARTY

In February 2021, the Company lent $200,000 to a wholly owned subsidiary of Suzhou Snail, the loan bears 2.0% per annum interest, interest and principal are due in February 2022. In February 2022, Suzhou Snail signed an agreement with this subsidiary and assumed the loan and related interest for a total of $203,890. Subsequently, $103,890 was offset against the loan and interest payable owed to Suzhou Snail on a separate note. Please refer to Note 14 — Loan Payable and Interest Payable — Related Parties. The total amount of loan and interest receivable — related parties was $102,247 and $101,753, as of March 31, 2023 and December 31, 2022, respectively. The Company earned $493 and $247 in interest on the related party loans receivable during the three months ended March 31, 2023 and 2022, respectively.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Share Repurchase Program (Details) - USD ($)	3 Months Ended
	Mar. 31, 2023	Nov. 10, 2022
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Number of treasury stock sold	0
Aggregate purchase price of shares repurchased	$ 257,093
Class A Common Stock
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Shares authorized to repurchase		$ 5,000,000
Number of shares repurchased	1,350,275
Aggregate purchase price of shares repurchased	$ 3,700,000
Average price paid per share for repurchase of shares	$ 2.72
Shares remain available for repurchase	$ 1,300,000

LOAN AND INTEREST RECEIVABLE - RELATED PARTY (Details) - USD ($)	1 Months Ended		3 Months Ended
	Feb. 28, 2022	Feb. 28, 2021	Mar. 31, 2023	Mar. 31, 2022	Dec. 31, 2022
LOAN PAYABLE AND INTEREST PAYABLE - RELATED PARTY
Loan and interest receivable - related party			$ 102,247		$ 101,753
Interest income earned			493	$ 450,928
A Subsidiary of Suzhou Snail
LOAN PAYABLE AND INTEREST PAYABLE - RELATED PARTY
Loan to related party		$ 200,000
Interest rate per annum		2.00%
Interest income earned			$ 493	$ 247
Suzhou Snail [Member]
LOAN PAYABLE AND INTEREST PAYABLE - RELATED PARTY
Amount of loan and interest receivable offset	$ 103,890
Snail Digital Technology Co. Ltd. \| Suzhou Snail [Member]
LOAN PAYABLE AND INTEREST PAYABLE - RELATED PARTY
Loan amount and interest assumed	$ 203,890

DUE FROM SHAREHOLDER

3 Months Ended

Mar. 31, 2023

DUE FROM SHAREHOLDER

DUE FROM SHAREHOLDER

NOTE 6 – DUE FROM SHAREHOLDER

Other receivables from related party consisted of monies that the Company lent to the Company’s Founder, Chief Strategy Officer and Chairman, who is also the majority shareholder of Suzhou Snail. The loan bore 2.0% per annum interest. On April 26, 2022, the Company, with approval from its Board of Directors and in accordance with applicable laws and regulations, assigned the other receivables – related party (“due from shareholder” or the “Shi Loan”) of $94,934,400 outstanding including interest, to Suzhou Snail, which assumed the loan as creditor. Simultaneously, the Company declared and paid Suzhou Snail an in-kind dividend with an aggregate amount equal to $94,934,400 on April 26, 2022; see Note 7 – Dividend Distribution. As of December 31, 2022, the other receivable was $0 and no longer reflected on the Company’s consolidated balance sheets. The loan accrued interest of $0 and $450,681 during the three months ended March 31, 2023 and 2022 respectively. The earned interest is reported in interest income – related parties in the Company’s condensed consolidated statements of operations and comprehensive income (loss).

PROPERTY, PLANT AND EQUIPMENT, NET- Disposal (Details) - USD ($)	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022	Dec. 31, 2022
PROPERTY, PLANT AND EQUIPMENT, NET
Depreciation and amortization - property and equipment	$ 115,060	$ 168,317
Property, plant and equipment, net	4,999,739		$ 5,114,799
Property, plant and equipment disposed		11,615
Accumulated depreciation for property, plant and equipment disposed		9,182
Gain on disposal of fixed assets		$ (2,433)
Donkey Crew Limited Liability Company \| Outside US
PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net	$ 9,751		$ 13,569

PREPAID EXPENSES AND OTHER CURRENT ASSETS (Details) - USD ($)	Mar. 31, 2023	Dec. 31, 2022
PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid income taxes	$ 10,637,171	$ 9,822,603
Other prepaids	51,753	80,271
Other current assets	508,457	662,267
Total prepaid expenses and other current assets	$ 11,197,381	$ 10,565,141

CASH AND CASH EQUIVALENTS, AND RESTRICTED CASH AND CASH EQUIVALENTS (Tables)

3 Months Ended

Mar. 31, 2023

CASH AND CASH EQUIVALENTS, AND RESTRICTED CASH AND CASH EQUIVALENTS

Summary of components of the company's cash and cash equivalents, and restricted cash and cash equivalents


	2023		2022
Cash and cash equivalents	$	4,108,251	$	12,863,817
Restricted cash and cash equivalents		6,380,657		6,374,368
Cash and cash equivalents, and restricted cash and cash equivalents	$	10,488,908	$	19,238,185

PRESENTATION AND NATURE OF OPERATIONS

3 Months Ended

Mar. 31, 2023

PRESENTATION AND NATURE OF OPERATIONS

PRESENTATION AND NATURE OF OPERATIONS

NOTE 1 – PRESENTATION AND NATURE OF OPERATIONS

Snail, Inc. was incorporated under the laws of Delaware in January 2022. The terms “Snail, Inc,” “Snail Games,” “our” and the “Company” are used to refer collectively to Snail, Inc. and its subsidiaries. The Company’s fiscal year end is December 31. The Registrant was formed for the purpose of completing an initial public offering (“IPO”) and related transactions to carry on the business of Snail Games USA Inc. and its subsidiaries. Snail Games USA Inc. was founded in 2009 as a wholly owned subsidiary of Suzhou Snail Digital Technology Co., Ltd. (“Suzhou Snail”) located in Suzhou, China and is the operating entity that continues post IPO. Snail Games USA Inc. is devoted to researching, developing, marketing, publishing, and distributing games, content and support that can be played on a variety of platforms including game consoles, PCs, mobile phones and tablets. The Company is a global developer and publisher of interactive entertainment content and support on video game consoles, personal computers, mobile devices, and other platforms.

On July 13, 2022, Suzhou Snail transferred all of its right, title, and interest to all of the 500,000 shares of common stock of the Company (“Shares”) to Snail Technology (HK) Limited (“Snail Technology”), an entity organized under the laws of Hong Kong, pursuant to the certain Share Transfer Agreement dated July 13, 2022 between Suzhou Snail and Snail Technology. Subsequently, Snail Technology transferred all of its right, title, and interest in the shares to certain individuals per the Share Transfer Agreement. In connection with the reorganization transaction described below the individuals contributed their interest in the Company to Snail, Inc. in return for common stock of Snail, Inc in connection with Snail, Inc.’s IPO. Because the Company and Suzhou Snail are owned by the same shareholders, Suzhou Snail is considered a related party to the Company.

Reorganization Transaction and IPO

On September 16, 2022, Snail, Inc., filed a Registration Statement on Form S-1 with the United States Securities and Exchange Commission in connection with its IPO. On November 9, 2022, effective as of the IPO pricing, Snail Games USA Inc.’s existing shareholders transferred their 500,000 shares of common stock of Snail Games USA Inc. to Snail, Inc. in exchange for 6,251,420 shares of Class A common stock and 28,748,580 shares of Class B common stock of Snail, Inc., and Snail, Inc. became the parent of Snail Games USA Inc. Because the reorganization transaction was considered a transaction between entities under common control, the financial statements for periods prior to the reorganization transaction and the IPO have been adjusted to combine the previously separate entities for presentation purposes. On November 9, 2022, Snail, Inc. priced its IPO, and on November 10, 2022, Snail, Inc.’s Class A common stock began trading on The Nasdaq Capital Market under the ticker symbol SNAL. In the IPO, Snail, Inc. issued 3,000,000 shares of Class A common stock at $5.00 per share and net proceeds from the IPO were distributed to Snail Games USA Inc. in November 2022 in the amount of approximately $12.0 million, net of the underwriting discount and offering costs of $3.0 million. In connection with the IPO, $1.0 million of the IPO proceeds were remitted to an escrow account which is held to provide a source of funding for certain indemnification obligations of Snail, Inc. to the underwriters. The amount in escrow is reported as a restricted escrow deposit in the consolidated balance sheets for 12 months from the date of the offering, at which time the restrictions will be removed and the balance will be reverted to unrestricted cash.

Basis of Presentation and Consolidation

The accompanying condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the SEC and generally accepted accounting principles as promulgated in the United States of America (“U.S. GAAP”) for interim reporting. Accordingly, certain notes or other information that are normally required by U.S. GAAP have been condensed or omitted if they substantially duplicate the disclosures contained in our annual audited consolidated financial statements. Additionally, the year-end condensed consolidated balance sheet data was derived from audited consolidated financial statements but does not include all disclosures required by U.S. GAAP. Accordingly, the unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed on March 29, 2023. The condensed consolidated results of operations for any interim period are not necessarily indicative of the results to be expected for the full year or for any other future annual or interim period.

In the opinion of management, all adjustments considered necessary for the fair presentation of the Company’s financial position and its results of operations in accordance with U.S. GAAP (consisting of normal recurring adjustments) have been included in the accompanying unaudited condensed consolidated financial statements.

Certain comparative amounts have been reclassified to conform with the current period presentation. The common stock of Snail Games USA Inc., as of March 31, 2022, has been reclassified as Class A common stock as the stockholders of the Snail Games USA Inc. common stock had their shares converted to Class A shares of Snail Inc. during the reorganization transaction that occurred amongst a common controlled group. For more information regarding the reorganization transaction see Note 20 - Equity.

The condensed consolidated financial statements include the accounts of Snail, Inc. and the following subsidiaries:


	Equity %
Subsidiary Name	Owned
Snail Games USA Inc.	100	%
Snail Innovation Institute	70	%
Frostkeep Studios, Inc.	100	%
Eminence Corp	100	%
Wandering Wizard, LLC	100	%
Donkey Crew, LLC	99	%
Interactive Films, LLC	100	%
Project AWK Productions, LLC	100	%
BTBX.IO, LLC	70	%

All intercompany accounts, transactions, and profits have been eliminated upon consolidation.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect the amounts reported in our condensed consolidated financial statements and the accompanying notes. Such estimates include revenue recognition, provisions for credit losses, deferred income tax assets and associated valuation allowances, deferred revenue, income taxes, valuation of intangibles, including those with related parties, impairment of intangible assets, stock-based compensation and fair value of warrants. These estimates generally involve complex issues and require management to make judgments, involve analysis of historical and future trends that can require extended periods of time to resolve, and are subject to change from period to period. In all cases, actual results could differ materially from estimates.

Segment Reporting

The Company has one operating and reportable segment. Our operations involve similar products and customers worldwide. Revenue earned is primarily derived from the sale of software titles, which are developed internally or licensed from related parties. Financial information about our segment and geographic regions is included in Note 3 – Revenue from Contracts with Customers.

Liquidity and Going Concern

The Company incurred a net loss of $3.0 million and negative cash flows of $6.7 million for the three months ended March 31, 2023. As of March 31, 2023, the Company had cash and cash equivalents of $4.1 million, restricted cash of $7.3 million and current debt of $13.2 million.

As of March 31, 2023, the Company’s 2021 Revolving Loan (as defined below) and 2022 Short Term Note (as defined below) of $9.0 million and $4.2 million are due in December 2023 and January 2024, respectively. Management intends to renegotiate with the lender to extend the maturity date of the 2021 Revolving Loan. However, there is no guarantee that management will be able to renegotiate the terms of the 2021 Revolving Loan with its lender at terms acceptable to the Company or at all. Additionally, management plans to repay the outstanding amounts under the 2022 Short Term Note pursuant to the terms of the 2022 Short Term Note agreement and to secure an additional debt arrangement. Currently, management expects that the Company will not be in compliance with its quarterly debt covenant for the three months ending June 30, 2023. Management is working with the lender to resolve the expected non-compliance with the debt covenant.

The Company may need to raise additional capital. The need for additional capital depends on many factors, including, among other things, whether the Company can successfully renegotiate the terms of its debt arrangements, the rate at which the Company’s 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 the Company may pursue. From time to time, the Company could be required, or may otherwise attempt, to seek additional sources of capital, including, but not limited to, equity and/or debt financings. The Company cannot provide assurance that it will be able to successfully access any such equity or debt financings or that the required equity or debt financings would be available on terms acceptable to the Company, if at all, or that any such financings would not be dilutive to its stockholders.

The Company’s recent net loss, level of cash used in operations, debt obligations coming due in less than 12 months, potential need for additional capital, and the uncertainties surrounding its ability to raise additional capital and renegotiate its debt arrangements raise substantial doubt about its ability to continue as a going concern. The unaudited condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

In order for the Company to continue operations beyond the next 12 months and be able to discharge its liabilities and commitments in the normal course of business, the Company must re-establish profitable operations in order to generate cash from operations by increasing revenue or controlling or potentially reducing expenses, renegotiate the terms of its debt arrangements, or obtain additional funds when needed.

REVENUE FROM CONTRACTS WITH CUSTOMERS (Tables)

3 Months Ended

Mar. 31, 2023

REVENUE FROM CONTRACTS WITH CUSTOMERS

Schedule of disaggregation of revenue


	2023		2022
United States	$	11,777,874	$	26,286,796
International		1,680,614		1,767,795
Total revenue from contracts with customers:	$	13,458,488	$	28,054,591


	2023		2022
Console	$	5,773,590	$	17,991,579
PC		5,012,180		6,684,436
Mobile		1,718,032		2,791,320
Other		954,686		587,256
Total revenue from contracts with customers:	$	13,458,488	$	28,054,591


	2023		2022
Digital	$	10,785,770	$	24,676,015
Mobile		1,718,032		2,791,320
Physical retail and other		954,686		587,256
Total revenue from contracts with customers:	$	13,458,488	$	28,054,591

Schedule of deferred Revenue


	2023		2022
Deferred revenue, beginning balance in advance of revenue recognition billing	$	9,551,446	$	20,280,934
Revenue recognized		(453,223)		(18,832,396)
Revenue deferred		302,094		8,102,908
Deferred revenue, ending balance		9,400,317		9,551,446
Less: short term portion		(4,517,573)		(4,335,404)
Deferred revenue, long term	$	4,882,744	$	5,216,042

CASH AND CASH EQUIVALENTS, AND RESTRICTED CASH AND CASH EQUIVALENTS (Details) - USD ($)	Mar. 31, 2023	Dec. 31, 2022	Mar. 31, 2022	Dec. 31, 2021
CASH AND CASH EQUIVALENTS, AND RESTRICTED CASH AND CASH EQUIVALENTS
Cash and cash equivalents	$ 4,108,251	$ 12,863,817
Restricted cash and cash equivalents	6,380,657	6,374,368
Cash and cash equivalents, and restricted cash and cash equivalents	$ 10,488,908	$ 19,238,185	$ 32,056,986	$ 16,554,115

LOAN PAYABLE AND INTEREST PAYABLE - RELATED PARTIES

3 Months Ended

Mar. 31, 2023

LOAN PAYABLE AND INTEREST PAYABLE - RELATED PARTIES

LOAN PAYABLE AND INTEREST PAYABLE - RELATED PARTIES

NOTE 14 – LOAN PAYABLE AND INTEREST PAYABLE — RELATED PARTIES

The Company had a loan amount due to related parties of $400,000 bearing 2.00% per annum interest. $300,000 of the loan is from a wholly owned subsidiary of Suzhou Snail and due in June 2022, and $100,000 is from Suzhou Snail and due in December 2023. The $100,000 loan along with $3,890 interest payable to Suzhou Snail was offset by the loan receivable Suzhou Snail assumed in February 2022. Please refer to Note 13 — Loan and Interest Receivable — Related Party. In July 2022, the Company paid off the outstanding principal balance of $300,000. As of March 31, 2023 and December 31, 2022, the total loan payable — related parties amounted to $0 and total unpaid interest amounted to $527,770, as of March 31, 2023 and December 31, 2022. Interest expenses for the loans payable to related parties were $0 and $1,726 during the three months ended March 31, 2023 and 2022, respectively.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Mar. 31, 2023

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition

Principal vs Agent Consideration

●

The underlying contract terms and conditions between the various parties to the transaction;

●

Which party is primarily responsible for fulfilling the promise to provide the specified good or service; and

●

Which party has discretion in establishing the price for the specified good or service.

Contract Balance

The Company records deferred revenue when cash payments are received or due in advance of its performance, even if amounts are refundable.

Estimated Service Period

Shipping, Handling and Value Added Taxes (“VAT”)

Cost of Revenues


	2023		2022
Software license royalties - related parties	$	2,863,013	$	6,521,178
Software license royalties		352,439		—
License and amortization - related parties		5,195,651		6,350,979
License and amortization		201		150,224
Merchant fees		459,471		657,536
Engine fees		424,227		713,993
Internet, server and data center		496,150		495,107
Costs related to advertising revenue		25,245		—
Total:	$	9,816,397	$	14,889,017

General and Administrative Costs

Advertising and Marketing Costs

The Company expenses advertising costs as incurred. For the three months ended March 31, 2023 and 2022, advertising expenses totaled $104,549 and $158,670, respectively.

Research and Development

Non-controlling Interests


Subsidiary Name	Equity % Owned		Non-Controlling %
Snail Innovative Institute	70	%	30	%
BTBX.IO, LLC	70	%	30	%
Donkey Crew, LLC	99	%	1	%

Cash and Restricted Cash and Cash Equivalents

Restricted Escrow Deposits

Accounts Receivable

Fair Value Measurements

The following describes the hierarchy of inputs used to measure fair value and the primary valuation methodologies used by the Company for financial instruments measured at fair value.

The three levels of inputs are as follows:

●

Level 1: Quoted prices in active markets for identical assets or liabilities that the Company has an ability to access as of the measurement date.

●

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Amortizable Intangibles and Other Long-lived Assets

Income Taxes

Concentration of Credit Risk and Significant Customers

Recently Issued Accounting Pronouncements

Employee Savings Plans

Stock-Based Compensation

Restricted Stock Units

Warrants

Share Repurchase Program

Earnings (Loss) Per Share

Dividend Restrictions

Our ability to pay cash dividends is currently restricted by the terms of our credit facilities.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Restricted Escrow Deposits (Details)	3 Months Ended
	Mar. 31, 2023
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Escrow deposit period from IPO date	1 year

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Contract Balance (Details) - USD ($)	1 Months Ended	3 Months Ended
	Nov. 30, 2021	Mar. 31, 2023	Mar. 31, 2022	Dec. 31, 2022
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Long term deferred revenue		$ 4,882,744		$ 5,216,042
Employer contributions to the plan		$ 26,619	$ 13,182
ARK 1 \| Long-term title license agreement with platform
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue recognized			$ 2,500,000
ARK 1 \| Agreement with platform
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Period of agreement	35 days
Proceeds from agreement with customers	$ 3,500,000
ARK 2 \| Long-term title license agreement with platform
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Period of agreement		3 years
Long term deferred revenue		$ 2,300,000

INTANGIBLE ASSETS

3 Months Ended

Mar. 31, 2023

INTANGIBLE ASSETS

INTANGIBLE ASSETS

NOTE 11 – INTANGIBLE ASSETS

Intangible assets consist of game licenses, game software underlying intellectual property rights, game trademarks and other branding items. The Company amortizes the intangible assets over its useful life.

The following tables reflect all the intangible assets presented on the condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022:


	March 31, 2023
	Gross								Weighted
	Carrying		Accumulated		Impairment		Net Book		Average
	Amount		Amortization		Loss		Value		Useful Life
License rights from related parties	$	136,665,000	$	(135,976,594)	$	—	$	688,406	3 - 5 years
License rights	$	3,000,000	$	(3,000,000)	$	—	$	—	5 years
Intangible assets - other:
Software	$	51,784	$	(51,784)	$	—	$	—	3 years
Trademark		10,745		(9,311)		—		1,434	12 years
In-progress patent		270,886		—		—		270,886
Total:	$	333,415	$	(61,095)	$	—	$	272,320


	December 31, 2022
	Gross								Weighted
	Carrying		Accumulated		Impairment		Net Book		Average
	Amount		Amortization		Loss		Value		Useful Life
License rights from related parties	$	136,665,000	$	(135,280,942)	$	—	$	1,384,058	3 - 5 years
License rights	$	3,000,000	$	(3,000,000)	$	—	$	—	5 years
Intangible assets - other:
Software	$	51,784	$	(51,784)	$	—	$	—	3 years
Trademark		10,745		(9,110)		—		1,635	12 years
In-progress patent		270,886		—		—		270,886
Total:	$	333,415	$	(60,894)	$	—	$	272,521

Amortization expense was $695,853 and $2,001,203 for the three months ended March 31, 2023 and 2022, respectively. These amounts are included in cost of revenues in the accompanying condensed consolidated statements of operations and comprehensive income (loss). The weighted average remaining useful life for which amortization expense will be recognized is 0.8 years as of March 31, 2023. Future amortization expense of intangible assets is as follows:


Years ending December 31,	Amount
Remainder of 2023	$	689,009
2024		804
2025		27
2026		—
2027		—
Thereafter		270,886
	$	960,726

PREPAID EXPENSES AND OTHER CURRENT ASSETS (Tables)

3 Months Ended

Mar. 31, 2023

PREPAID EXPENSES AND OTHER CURRENT ASSETS

Schedule of prepaid expenses and other current assets


	2023		2022
Prepaid income taxes	$	10,637,171	$	9,822,603
Other prepaids		51,753		80,271
Other current assets		508,457		662,267
Total prepaid expenses and other current assets	$	11,197,381	$	10,565,141

DIVIDEND DISTRIBUTION (Details) - Snail Digital Technology Co. Ltd.	Apr. 26, 2022 USD ($)
DIVIDEND DISTRIBUTION
Paid in-kind dividend	$ 94,934,400
Payment, Tax Withholding, Share-Based Payment Arrangement	$ 8,200,000

COMMITMENTS AND CONTINGENCIES

3 Months Ended

Mar. 31, 2023

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

NOTE 18 – COMMITMENTS AND CONTINGENCIES

Litigation

The Company is subject to claims and contingencies related to lawsuits and other matters arising out of the normal course of business. In addition, the Company may receive notifications alleging infringement of patent or other intellectual property rights. The Company has elected to expense legal costs associated with legal contingencies as incurred.

On December 1, 2021, the Company and Studio Wildcard sent a notice of claimed infringement (the “DCMA Takedown Notice”) to Valve Corporation, which operates the Steam platform, pursuant to the Digital Millennium Copyright Act (“DCMA”). The DCMA Takedown Notice concerns a videogame titled Myth of Empires, which was developed by Suzhou Angela Online Game Technology Co., Ltd. (“Angela Game”) and published by Imperium Interactive Entertainment Limited (“Imperium”). The DCMA Takedown Notice alleges that Angela Game and Imperium misappropriated the copyrighted source code of ARK: Survival Evolved and used it to develop the game Myth of Empires. The DCMA Takedown Notice requested that Steam cease distributing Myth of Empires and remove the game from the Steam platform. Steam complied with the DCMA Takedown Notice and removed Myth of Empires from its platform. The DCMA Takedown Notice was also sent to Tencent Cloud LLC (“Tencent”), which hosts the United States servers for users who downloaded the game before it was removed from Steam, but Tencent has not complied with the DCMA Takedown Notice.

On December 9, 2021, Angela Game and Imperium filed a complaint against the Company and Studio Wildcard in the United States District Court for the Central District of California (the “District Court”) in response to the DCMA Takedown Notice. The lawsuit seeks a declaratory judgment on non-liability for copyright infringement and non-liability for trade secret misappropriation, as well as unspecified damages for alleged misrepresentations in the DCMA Takedown Notice. Angela Game and Imperium also filed an application for a temporary restraining order asking the court to order us and Studio Wildcard to rescind the DCMA Takedown Notice so that Steam could once again reinstate Myth of Empires for download. On December 20, 2021, the Company and Studio Wildcard filed an answer to the complaint, which included counterclaims against Angela Game and Imperium and a third-party complaint against Tencent seeking unspecified damages resulting from the alleged copyright infringement and misappropriation of trade secrets in connection with the ARK: Survival Evolved source code. On December 23, 2021 the court denied the application for a temporary restraining order and issued an order to show cause as to why a preliminary injunction should not be issued. On January 31, 2022, a hearing was held on the order to show cause, and the court issued an order denying the preliminary injunction.

On February 3, 2022, Angela Game and Imperium appealed the order to the Ninth Circuit Court of Appeals (“Ninth Circuit”), claiming that the District Court judge abused her discretion in denying the injunction. On October 6, 2022, the Ninth Circuit issued an order affirming the District Court’s denial of the injunction.

Meanwhile, the District Court has appointed a neutral expert to compare the parties’ computer code and issue a report about the extent of similarities. The parties also retained their own experts to compare the code. The expert served his report and in it detailed the basis for his conclusion that Angela copied substantial portions of the ARK: Survival Evolved source code and made extensive efforts to hide its copying. Angela Game moved the District Court to strike the expert reports. The hearing occurred on February 27, 2023 and the District Court denied Angela Game’s motion to strike the expert reports. Also on that date, the District Court heard the Company’s motion to require that Angela Game file a $3.0 million bond to support an award of costs and fees if the Company prevails on Angela Game’s claims. The District Court granted the Company’s motion for a bond and ordered Angela Game to post a bond in the amount of $750,000.

As of May 9, 2023, both parties are in the midst of fact discovery, and anticipate beginning the exchange of electronically stored information in the near future. Fact discovery is expected to end around June 2023 and the District Court has set a January 2024 trial date.

At this time, the Company is unable to quantify the magnitude of the potential loss should the plaintiffs’ lawsuit succeed.

On March 14, 2023, Bel Air Soto, LLC (“Plaintiff”) filed suit in the Superior Court of California, County of Los Angeles, against Snail Games USA Inc. and INDIEV, Inc. (“INDIEV”), an affiliate company that is owned by Mr. Hai Shi, the Company’s Founder, Chief Strategy Officer, and Chairman, for breach of contract and related claims arising out of a commercial lease for premises located in Los Angeles County. Plaintiff alleges that the defendants exercised an option to extend the lease and was harmed when defendants instead terminated the lease and vacated the premises. The complaint seeks damages in excess of $3 million. Snail Games USA Inc. disputes the allegations and the amount of damages. Snail Games USA Inc. has not yet responded to the complaint or otherwise appeared in the action, but does intend to vigorously defend against the claims asserted.

On April 21, 2023, Snail Games USA Inc. entered into an indemnity and reimbursement agreement with INDIEV, dated as of April 1, 2023, pursuant to which INDIEV agrees to assume all obligations and liabilities pursuant to the lease and indemnify and reimburse Snail Games USA Inc. for any amounts, damages, expenses, costs or other liability incurred by Snail Games USA Inc. arising under or pursuant to the lease or relating to the premises.

At this time, the Company is unable to quantify the magnitude of the potential loss should the plaintiffs’ lawsuit succeed.

PRESENTATION AND NATURE OF OPERATIONS - (Details)		3 Months Ended
PRESENTATION AND NATURE OF OPERATIONS - (Details)	Jul. 13, 2022 shares	Mar. 31, 2023 segment
PRESENTATION AND NATURE OF OPERATIONS
Number of operating segments		1
Number of reportable segments		1
Snail Innovation Institute
PRESENTATION AND NATURE OF OPERATIONS
Equity interest owned by the company		70.00%
Donkey Crew, LLC
PRESENTATION AND NATURE OF OPERATIONS
Equity interest owned by the company		99.00%
BTBX.IO, LLC
PRESENTATION AND NATURE OF OPERATIONS
Equity interest owned by the company		70.00%
Snail Technology
PRESENTATION AND NATURE OF OPERATIONS
Number of shares of common stock issued as per agreement \| shares	500,000
Snail Games USA \| Snail Games USA Inc
PRESENTATION AND NATURE OF OPERATIONS
Equity interest owned by the company		100.00%
Snail Games USA \| Snail Innovation Institute
PRESENTATION AND NATURE OF OPERATIONS
Equity interest owned by the company		70.00%
Snail Games USA \| Frostkeep Studios, Inc.
PRESENTATION AND NATURE OF OPERATIONS
Equity interest owned by the company		100.00%
Snail Games USA \| Eminence Corp
PRESENTATION AND NATURE OF OPERATIONS
Equity interest owned by the company		100.00%
Snail Games USA \| Wandering Wizard, LLC
PRESENTATION AND NATURE OF OPERATIONS
Equity interest owned by the company		100.00%
Snail Games USA \| Donkey Crew, LLC
PRESENTATION AND NATURE OF OPERATIONS
Equity interest owned by the company		99.00%
Snail Games USA \| Interactive Films, LLC
PRESENTATION AND NATURE OF OPERATIONS
Equity interest owned by the company		100.00%
Snail Games USA \| Project AWK Productions, LLC
PRESENTATION AND NATURE OF OPERATIONS
Equity interest owned by the company		100.00%
Snail Games USA \| BTBX.IO, LLC
PRESENTATION AND NATURE OF OPERATIONS
Equity interest owned by the company		70.00%