SEC Filing — Snail, Inc

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-41556

SNAIL, INC.

(Exact name of registrant as specified in its charter)

Delaware		88-4146991
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

12049 Jefferson Blvd

Culver City, CA 90230

(Address of principal executive offices) (zip code)

+1 (310) 988-0643

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading symbol		Name of each exchange on which registered
Class A Common Stock, par value $0.0001 per share		SNAL		The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐

Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES ☒ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller reporting company	☒

Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

Class of Common Stock		Outstanding Shares as of August 10, 2023
Class A Common Stock, par value $0.0001 per share		7,901,145
Class B Common Stock, par value $0.0001 per share		28,748,580

SNAIL, INC. AND SUBSIDIARIES

Form 10-Q

For the Quarter Ended June 30, 2023

Table of Contents

		Page
	Cautionary Statement	ii

PART I. FINANCIAL INFORMATION		F-1

Item 1.	Condensed Consolidated Financial Statements (Unaudited)	F-1

	Snail, Inc. and Subsidiaries Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022 (Unaudited)	F-1

	Snail, Inc. and Subsidiaries Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and six months ended June 30, 2023 and 2022 (Unaudited)	F-2

	Snail, Inc. and Subsidiaries Condensed Consolidated Statements of Equity for the three and six months ended June 30, 2023 and 2022 (Unaudited)	F-3

	Snail, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022 (Unaudited)	F-4

	Snail, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited)	F-5

Item 2.	Management’s Discussion and Analysis of the Results of Operations	26

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	39

Item 4.	Controls and Procedures	39

PART II. OTHER INFORMATION		40

Item 1.	Legal Proceedings	40

Item 1A.	Risk Factors	40

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	64

Item 3.	Defaults Upon Senior Securities	65

Item 4.	Mine Safety Disclosures	65

Item 5.	Other Information	65

Item 6.	Exhibits	65

Signatures		66

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (the “Quarterly Report”) contains statements that constitute forward-looking statements. Many of the forward-looking statements contained in this Quarterly Report can be identified by the use of forward-looking words such as “anticipate,” “believe,” “could,” “expect,” “should,” “plan,” “intend,” “may,” “predict,” “continue,” “estimate” and “potential,” or the negative of these terms or other similar expressions.

Forward-looking statements appear in a number of places in this Quarterly Report and include, but are not limited to, statements regarding our intent, belief or current expectations. These forward-looking statements include information about possible or assumed future results of our business, financial condition, results of operations, liquidity, plans and objectives. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. Such statements are subject to risks and uncertainties, and actual results may differ materially from those expressed or implied in the forward-looking statements due to various factors, including, but not limited to, those identified described in “Part II, Item 1A. – Risk Factors,” of this Quarterly Report. The statements we make regarding the following matters are forward-looking by their nature:

	●	our ability to re-establish profitable operations, raise additional capital or renegotiate our debt arrangements;

	●	our growth prospects and strategies;

	●	launching new games and additional functionality to games that are commercially successful;

	●	our expectations regarding significant drivers of our future growth;

	●	our ability to retain and increase our player base and develop new video games and enhance our existing games;

	●	competition from companies in a number of industries, including other casual game developers and publishers and both large and small, public and private multimedia companies;

	●	our ability to attract and retain a qualified management team and other team members while controlling our labor costs;

	●	our relationships with third-party platforms such as Xbox Live and Game Pass, PlayStation Network, Steam, Epic Games Store, the Apple App Store, the Google Play Store, My Nintendo Store and the Amazon Appstore;

	●	our ability to successfully enter new markets and manage our international expansion;

	●	protecting and developing our brand and intellectual property portfolio;

	●	costs associated with defending intellectual property infringement and other claims;

	●	our future business development, results of operations and financial condition;

	●	rulings by courts or other governmental authorities;

	●	our Share Repurchase Program (as defined below), including expectations regarding the timing and manner of repurchases made under the Share Repurchase Program;

	●	our plans to pursue and successfully integrate strategic acquisitions;

	●	other risks and uncertainties described in this Quarterly Report, including those described in Item 1A of Part II, “Risk Factors”; and

	●	assumptions underlying any of the foregoing.

Further information on risks, uncertainties and other factors that could affect our financial results are included in our filings with the Securities and Exchange Commission (the “SEC”) from time to time, including in Item 1A of Part II, “Risk Factors,” of this Quarterly Report and other periodic reports on Form 10-K and 10-Q filed or to be filed with the SEC. You should not rely on these forward-looking statements, as actual outcomes and results may differ materially from those expressed or implied in the forward-looking statements as a result of such risks and uncertainties. All forward-looking statements in this Quarterly Report are based on management’s beliefs and assumptions and on information currently available to us, and we do not assume any obligation to update the forward-looking statements provided to reflect events that occur or circumstances that exist after the date on which they were made.

PART I

Item 1. Condensed Consolidated Financial Statements.

Snail, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)


	June 30, 2023			December 31, 2022

ASSETS

Current Assets:
Cash and cash equivalents	$	2,960,160		$	12,863,817
Restricted escrow deposit		1,025,193			1,003,804
Accounts receivable, net of allowances for credit losses of $19,929 and $31,525, respectively		4,963,566			6,758,024
Accounts receivable - related party, net		11,733,226			11,344,184
Loan and interest receivable - related party		102,745			101,753
Prepaid expenses - related party		2,500,000			-
Prepaid expenses and other current assets		12,216,801			10,565,141
Total current assets		35,501,691			42,636,723

Restricted cash and cash equivalents		1,113,960			6,374,368
Prepaid expenses - related party		5,582,500			5,582,500
Property, plant and equipment, net		4,881,629			5,114,799
Intangible assets, net - license - related parties		326,087			1,384,058
Intangible assets, net - other		272,119			272,521
Deferred income taxes		9,490,241			7,602,536
Other noncurrent assets		180,778			198,668
Operating lease right-of-use assets, net		3,032,069			3,606,398
Total assets	$	60,381,074		$	72,772,571

LIABILITIES, NONCONTROLLING INTERESTS AND STOCKHOLDERS’ EQUITY

Current Liabilities:
Accounts payable	$	8,658,585		$	9,452,391
Accounts payable - related party		19,611,207			19,918,259
Accrued expenses and other liabilities		2,678,848			1,474,088
Interest payable - related parties		527,770			527,770
Revolving loan		6,000,000			9,000,000
Short term note		2,916,667			5,416,666
Current portion of promissory note		2,845,303			86,524
Current portion of deferred revenue		4,125,505			4,335,404
Current portion of operating lease liabilities		1,437,140			1,371,227
Total current liabilities		48,801,025			51,582,329

Accrued expenses		384,150			457,024
Promissory note, net of current portion		-			3,221,963
Deferred revenue, net of current portion		4,660,343			5,216,042
Operating lease liabilities, net of current portion		2,191,465			2,930,529
Total liabilities		56,036,983			63,407,887

Commitments and contingencies		-			-

Stockholders’ Equity:
Class A common stock, $0.0001 par value, 500,000,000 shares authorized; 9,251,420 shares issued, 7,901,145 and 8,053,771 shares outstanding as of June 30, 2023 and December 31, 2022, respectively		925			925
Class B common stock, $0.0001 par value, 100,000,000 shares authorized; 28,748,580 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively		2,875			2,875
Common stock, value		2,875			2,875
Additional paid-in capital		25,708,907			23,436,942
Accumulated other comprehensive loss		(286,173	)		(307,200	)
Accumulated deficit		(11,914,059	)		(4,863,250	)
		13,512,475			18,270,292
Treasury stock at cost (1,350,275 and 1,197,649 shares as of June 30, 2023 and December 31, 2022, respectively)		(3,671,806	)		(3,414,713	)
Total Snail, Inc. equity		9,840,669			14,855,579
Noncontrolling interests		(5,496,578	)		(5,490,895	)
Total stockholders’ equity		4,344,091			9,364,684
Total liabilities, noncontrolling interests and stockholders’ equity	$	60,381,074		$	72,772,571

See accompanying notes to condensed consolidated financial statements (unaudited).

F-1

Snail, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(Unaudited)


	Three months ended June 30,						Six months ended June 30,
	2023			2022			2023			2022

Revenues, net	$	9,892,253		$	15,463,522		$	23,350,741		$	43,518,113
Cost of revenues		9,335,765			12,259,514			20,196,702			27,973,329

Gross profit		556,488			3,204,008			3,154,039			15,544,784

Operating expenses:
General and administrative		3,937,234			4,250,882			8,462,985			9,046,094
Research and development		1,200,842			179,050			2,574,639			363,006
Advertising and marketing		168,292			212,039			272,841			370,710
Depreciation and amortization		118,110			138,791			233,170			307,108
Total operating expenses		5,424,478			4,780,762			11,543,635			10,086,918

(Loss) income from operations		(4,867,990	)		(1,576,754	)		(8,389,596	)		5,457,866

Other income (expense):
Interest income		19,791			17,705			51,264			33,077
Interest income - related parties		499			130,695			992			581,623
Interest expense		(296,237	)		(186,213	)		(590,820	)		(352,268	)
Interest expense - related parties		-			(1,496	)		-			(3,222	)
Other income		-			296,969			8,175			299,653
Foreign currency transaction (loss) gain		(21,845	)		7,916			(24,212	)		5,510
Total other (expense) income, net		(297,792	)		265,576			(554,601	)		564,373

(Loss) income before (benefit from) provision for income taxes		(5,165,782	)		(1,311,178	)		(8,944,197	)		6,022,239

(Benefit from) provision for income taxes		(1,081,887	)		(327,347	)		(1,887,705	)		1,202,303

Net (loss) income		(4,083,895	)		(983,831	)		(7,056,492	)		4,819,936

Net (loss) income attributable to non-controlling interests		(4,464	)		70,466			(5,683	)		63,176

Net (loss) income attributable to Snail, Inc. and Snail Games USA Inc.		(4,079,431	)		(1,054,297	)		(7,050,809	)		4,756,760

Comprehensive income statement:

Other comprehensive income (loss) related to currency translation adjustments, net of tax		18,707			(31,199	)		21,027			(82,402	)

Total comprehensive (loss) income	$	(4,060,724	)	$	(1,085,496	)	$	(7,029,782	)	$	4,674,358

Net (loss) income attributable to Class A common stockholders:
Basic	$	(879,665	)	$	(1,054,297	)	$	(1,522,005	)	$	4,756,760
Diluted	$	(879,665	)	$	(1,054,297	)	$	(1,522,005	)	$	4,756,760

Net loss attributable to Class B common stockholders:
Basic	$	(3,199,766	)	$	-		$	(5,528,804	)	$	-
Diluted	$	(3,199,766	)	$	-		$	(5,528,804	)	$	-

(Loss) income per share attributable to Class A and B common stockholders:
Basic	$	(0.11	)	$	(0.03	)	$	(0.19	)	$	0.14
Diluted	$	(0.11	)	$	(0.03	)	$	(0.19	)	$	0.14

Weighted-average shares used to compute income per share attributable to Class A common stockholders⁽¹⁾:
Basic ⁽¹⁾		7,901,145			35,000,000			7,914,096			35,000,000
Diluted⁽¹⁾		7,901,145			35,000,000			7,914,096			35,000,000

Weighted-average shares used to compute income per share attributable to Class B common stockholders:
Basic		28,748,580			-			28,748,580			-
Diluted		28,748,580			-			28,748,580			-

(1)

The shares used for the denominator in the calculation of EPS are the number of shares transferred in the reorganization transaction for comparative purposes. Snail Games USA Inc. did not have Class A common stock as of June 30, 2022.

See accompanying notes to condensed consolidated financial statements (unaudited).

F-2

Snail, Inc. and Subsidiaries

Condensed Consolidated Statements of Equity for the Three and Six Months Ended June 30, 2023 and 2022

(Unaudited)


	Common Stock - Snail Games USA Inc.				Class A Common Stock				Class B Common Stock				Additional Paid-In-			Due from Shareholder Loan and Interest			Accumulated Other Comprehensive			Retained			Treasury Stock				Snail Games USA Inc.			Non controlling			Total
	Shares		Amount		Shares		Amount		Shares		Amount		Capital			Receivable			Loss			Earnings			Shares		Amount		Equity			interests			Equity

Balance at December 31, 2021		500,000	$	5,000		-	$	-		-	$	-	$	94,159,167		$	(94,353,522	)	$	(266,557	)	$	16,045,231			-	$	-	$	15,589,319		$	(5,537,266	)	$	10,052,053

Loan to shareholder				-		-		-		-		-		-			(450,681	)		-			-			-		-		(450,681	)		-			(450,681	)
Stock based compensation related to restricted stock units
Repurchase of common stock				-																						-
Return of dividend distribution tax withholding payment

Foreign currency translation						-		-		-		-		-			-			(51,203	)		-			-		-		(51,203	)		-			(51,203	)

Net income						-		-		-		-		-			-			-			5,811,057			-		-		5,811,057			(7,290	)		5,803,767

Balance at March 31, 2022		500,000	$	5,000		-	$	-		-	$	-	$	94,159,167		$	(94,804,203	)	$	(317,760	)	$	21,856,288			-	$	-	$	20,898,492		$	(5,544,556	)	$	15,353,936

Loan to shareholder		-		-		-		-		-		-		-			(130,197	)		-			-			-		-		(130,197	)		-			(130,197	)

Dividend distribution		-		-		-		-		-		-		(81,278,112	)		94,934,400			-			(21,856,288	)		-		-		(8,200,000	)		-			(8,200,000	)

Foreign currency translation		-		-		-		-		-		-		-			-			(31,199	)		-			-		-		(31,199	)		-			(31,199	)

Net loss		-		-		-		-		-		-		-			-			-			(1,054,297	)		-		-		(1,054,297	)		70,466			(983,831	)

Balance at June 30, 2022		500,000	$	5,000		-	$	-		-	$	-	$	12,881,055		$	-		$	(348,959	)	$	(1,054,297	)		-	$	-	$	11,482,799		$	(5,474,090	)	$	6,008,709


	Class A Common Stock				Class B Common Stock				Additional Paid-In-		Accumulated Other Comprehensive			Accumulated			Treasury Stock						Snail, Inc.		Non controlling			Total
	Shares		Amount		Shares		Amount		Capital		Loss			Deficit			Shares			Amount			Equity		interests			Equity

Balance at December 31, 2022		9,251,420	$	925		28,748,580	$	2,875	$	23,436,942	$	(307,200	)	$	(4,863,250	)		(1,197,649	)	$	(3,414,713	)	$	14,855,579	$	(5,490,895	)	$	9,364,684