UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
OR
| 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
(Exact name of Registrant as specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip code) |
Registrant’s
telephone number, including area code: +1
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol (s) | Name of each exchange on which registered | ||
The
(Nasdaq Capital Market) |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. YES ☐ NO ☒
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. ☒ NO ☐
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Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions 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 | ☐ |
| ☒ | 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.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
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by check mark whether the 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 12, 2024 | |
| Class A Common Stock, par value $ per share | ||
| Class B Common Stock, par value $ per share |
SNAIL, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended June 30, 2024
Table of Contents
| i |
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 failure to comply or regain compliance with the continued listing requirements of the Nasdaq Capital Market; | |
| ● | 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 United States 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 as of the date of this filing, 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.
| ii |
PART I
Item 1. Condensed Consolidated Financial Statement (Unaudited)
Snail, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023
| June 30, 2024 | December 31, 2023 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net of allowances for credit losses of $ | ||||||||
| Accounts receivable - related party | ||||||||
| Loan and interest receivable - related party | ||||||||
| Prepaid expenses - related party | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Prepaid taxes | ||||||||
| Total current assets | ||||||||
| Restricted cash and cash equivalents | ||||||||
| Accounts receivable – related party, net of current portion | ||||||||
| Prepaid expenses - related party, net of current portion | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net - other | ||||||||
| Deferred income taxes | ||||||||
| Other noncurrent assets | ||||||||
| Operating lease right-of-use assets, net | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES, NONCONTROLLING INTERESTS AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accounts payable - related parties | ||||||||
| Accrued expenses and other liabilities | ||||||||
| Interest payable - related parties | ||||||||
| Revolving loan | ||||||||
| Notes payable | ||||||||
| Convertible notes, net of discount | ||||||||
| Current portion of long-term promissory note | ||||||||
| Current portion of deferred revenue | ||||||||
| Current portion of operating lease liabilities | ||||||||
| Total current liabilities | ||||||||
| Accrued expenses | ||||||||
| Deferred revenue, net of current portion | ||||||||
| Operating lease liabilities, net of current portion | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ Equity: | ||||||||
| Class A common stock, $ par value, shares authorized; shares issued and shares outstanding as of June 30, 2024, and shares issued and shares outstanding as of December 31, 2023 | ||||||||
| Class B common stock, $ par value, shares authorized; shares issued and outstanding as of June 30, 2024 and December 31, 2023. | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Treasury stock at cost ( shares as of June 30, 2024 and December 31, 2023) | ( | ) | ( | ) | ||||
| Total Snail, Inc. equity | ||||||||
| Noncontrolling interests | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities, noncontrolling interests and stockholders’ equity | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements (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, 2024 and 2023
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenues, net | $ | $ | $ | $ | ||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Research and development | ||||||||||||||||
| Advertising and marketing | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Income (loss) from operations | ( | ) | ( | ) | ||||||||||||
| Other income (expense): | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest income - related parties | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income | ||||||||||||||||
| Foreign currency transaction gain (loss) | ( | ) | ( | ) | ||||||||||||
| Total other income (expense), net | ( | ) | ( | ) | ||||||||||||
| Income (loss) before provision for (benefit from) income taxes | ( | ) | ( | ) | ||||||||||||
| Provision for (benefit from) income taxes | ( | ) | ( | ) | ||||||||||||
| Net income (loss) | ( | ) | ( | ) | ||||||||||||
| Net loss attributable to non-controlling interests | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income (loss) attributable to Snail, Inc. | ( | ) | ( | ) | ||||||||||||
| Comprehensive income (loss) statement: | ||||||||||||||||
| Net income (loss) | ( | ) | ( | ) | ||||||||||||
| Other comprehensive income (loss) related to foreign currency translation adjustments, net of tax | ( | ) | ( | ) | ||||||||||||
| Total comprehensive income (loss) | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Net income (loss) attributable to Class A common stockholders: | ||||||||||||||||
| Basic | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Diluted | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Net income (loss) attributable to Class B common stockholders: | ||||||||||||||||
| Basic | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Diluted | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Income (loss) per share attributable to Class A and B common stockholders: | ||||||||||||||||
| Basic | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Diluted | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Weighted-average shares used to compute income (loss) per share attributable to Class A common stockholders: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
| Weighted-average shares used to compute income (loss) per share attributable to Class B common stockholders: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
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, 2024 and 2023
Class A Common Stock | Class B Common Stock | Additional Paid-In- | Accumulated Other Comprehensive | Accumulated | Treasury Stock | Snail, Inc. Equity | Non controlling | Total Equity | ||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Loss | Deficit | Shares | Amount | (Deficit) | interests | (Deficit) | |||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||
| Stock based compensation related to restricted stock units | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock | - | - | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Foreign currency translation | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||
| Return of dividend distribution tax withholding payment | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Stock based compensation related to restricted stock units | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | - | ( | ) | ( | ) | ( | ||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||
Class A Common Stock | Class B Common Stock | Additional Paid-In- | Accumulated Other Comprehensive | Accumulated | Treasury Stock | Snail, Inc. Equity | Non controlling | Total Equity | ||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Loss | Deficit | Shares | Amount | (Deficit) | interests | (Deficit) | |||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||
| Conversion of notes payable | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Stock based compensation related to restricted stock units | - | - | ( | ) | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Common stock issued for service | - | ( | ) | - | ||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation | - | - | ( | ) | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||
| Stock based compensation related to restricted stock units | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for service | - | ( | ) | - | ||||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation | - | - | ( | ) | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Net income (loss) | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements (unaudited)
| F-3 |
Snail, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2024 and 2023
| 2024 | 2023 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||
| Amortization - intangible assets - license, related parties | ||||||||
| Amortization - intangible assets - other | ||||||||
| Amortization - loan origination fees and debt discounts | ||||||||
| Accretion – convertible notes | ||||||||
| Depreciation and amortization - property and equipment | ||||||||
| Stock-based compensation expense | ( | ) | ||||||
| Interest income from restricted escrow deposit | ( | ) | ||||||
| Deferred taxes, net | ( | ) | ||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Accounts receivable - related party | ( | ) | ||||||
| Prepaid expenses - related party | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Prepaid taxes | ( | ) | ||||||
| Other noncurrent assets | ( | ) | ||||||
| Accounts payable | ( | ) | ( | ) | ||||
| Accounts payable - related parties | ( | ) | ( | ) | ||||
| Accrued expenses and other liabilities | ( | ) | ||||||
| Interest receivable - related party | ( | ) | ( | ) | ||||
| Lease liabilities | ( | ) | ( | ) | ||||
| Deferred revenue | ( | ) | ||||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||
| Repayments on promissory note | ( | ) | ( | ) | ||||
| Repayments on notes payable | ( | ) | ( | ) | ||||
| Repayments on convertible notes | ( | ) | ||||||
| Repayments on revolving loan | ( | ) | ( | ) | ||||
| Purchase of treasury stock | ( | ) | ||||||
| Payments of capitalized offering costs | ( | ) | ||||||
| Payments of offering costs in accounts payable | ( | ) | ||||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Effect of foreign currency translation on cash and cash equivalents | ( | ) | ||||||
| Net increase (decrease) in cash and cash equivalents, and restricted cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents, and restricted cash and cash equivalents - beginning of the period | ||||||||
| Cash and cash equivalents, and restricted cash and cash equivalents – end of the period | $ | $ | ||||||
| Supplemental disclosures of cash flow information | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| Noncash finance activity during the period for: | ||||||||
| Refund of dividend withholding tax overpayment | $ | $ | ||||||
| Debt converted to equity | $ | ( | ) | $ | ||||
See accompanying notes to condensed consolidated financial statements (unaudited)
| F-4 |
Snail Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
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 Company 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.
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 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, 2023 included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on April 1, 2024. 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.
| F-5 |
Snail Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
The condensed consolidated financial statements include the accounts of Snail, Inc. and the following subsidiaries:
| Equity % | ||||
| Subsidiary Name | Owned | |||
| Snail Games USA Inc. | % | |||
| Snail Innovation Institute | % | |||
| Frostkeep Studios, Inc. | % | |||
| Eminence Corp | % | |||
| Wandering Wizard, LLC | % | |||
| Donkey Crew, LLC | % | |||
| Interactive Films, LLC | % | |||
| Project AWK Productions, LLC | % | |||
| BTBX.IO, LLC | % | |||
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 consolidated financial statements and the accompanying notes. Such estimates include revenue recognition, see Note 2 – Revenue Recognition, provisions for credit losses, deferred income tax assets and associated valuation allowances, deferred revenue, 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
| F-6 |
Snail Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Company’s revenue is generated from the publishing of software games sold digitally and through physical discs (e.g., packaged goods), the publishing of separate downloadable content that are new feature releases to existing digital full-game downloads that are sold digitally, and in-app purchases of virtual goods used by players of its free-to-play mobile games. When control of the promised products and services is transferred to the end users, 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 purchase the games, and the control of the license is transferred to them.
The virtual goods that the Company sells to players of our free-to-play mobile-games, include virtual currency or in-game purchases of additional game play functionality. For virtual goods, the satisfaction of our performance obligation is dependent on the nature of the virtual good purchased and as a result, the Company categorizes its virtual goods as follows:
| ● | Consumable: consumable virtual items represent items that can be consumed by a specific player action. Consumable virtual items do not result in a direct benefit that the player keeps or provide the player any continuing benefit following consumption, and they often enable a player to perform an in-game action immediately. For the sale of consumable virtual items, the Company recognizes revenue as the items are consumed (i.e., over time). | |
| ● | Durable: durable virtual items represent items that are accessible to the player over an extended period of time. The Company recognizes revenue from the sale of durable virtual items ratably over the estimated service period for the applicable game (i.e., over time), which represents our best estimate of the average life of the durable virtual item. |
For the ARK: Survival Ascended and Bob’s Tall Tales games that were sold in a bundle with DLC’s that have not yet been launched and been reported in deferred revenue in the condensed consolidated balance sheets, the Company has used the adjusted market assessment approach per ASC 606-10-32-34 to assign a value for the Company’s remaining performance obligation. The Company uses the following reasonably available information in developing the standalone selling prices of the performance obligations:
| ● | Reasonably available data points, including third party or industry pricing, and contractually stated prices. | |
| ● | Market conditions such as market demand, competition, market constraints, awareness of the product and market trends. | |
| ● | Entity-specific factors including pricing strategies and objectives, market share and pricing practices for bundled arrangements. |
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 payment terms of net
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. |
| F-7 |
Snail Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
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, My Nintendo Store, and our 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 purchase, and payments received from customers prior to launching the games on the platforms. The Company recognizes revenues from the sale of virtual goods ratably over their estimated service period. The Company’s estimated service period for players of our current software games is generally 30 to 100 days from the date of purchase.
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 II on the platform for three years upon release. The Company recognized
$
In
July 2023, the Company entered into a distribution agreement with its retail distribution partner for the distribution of ARK: Survival
Ascended and ARK II. The initial term is two years and will renew each subsequent year unless it is cancelled. Upon executing
the distribution agreement, the Company received $
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 games (“user life”) which most faithfully depicts the timing of satisfying our performance obligation. The Company considers a variety of data points when determining and subsequently reassessing the estimated service period for players of our software games. Primarily, the Company reviews the weighted average number of days between players’ first and last day playing online or the subscription trend. The Company also considers publicly available online trends.
The Company believes this provides a reasonable depiction of the transfer of our game related services to our players, as it is the best representation of the period during which our players play our software games. Determining the estimated service period is subjective and requires significant management judgment and estimates. Future usage patterns may differ from historical usage patterns, and therefore the estimated service period may change in the future. The estimated service periods for players of our current software games are generally between 30 and 100 days depending on the software games.
Shipping, Handling and Value Added Taxes (“VAT”)
The distributor, as the principal, is responsible for the shipping of the game discs to 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.
| F-8 |
Snail Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
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 and six months ended June 30, 2024 and 2023 were comprised of the following:
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Software license royalties – related parties | $ | $ | $ | $ | ||||||||||||
| Software license royalties | ||||||||||||||||
| License and amortization – related parties | ||||||||||||||||
| License and amortization | ||||||||||||||||
| Merchant fees | ||||||||||||||||
| Engine fees | ||||||||||||||||
| Internet, server and data center | ||||||||||||||||
| Costs related to advertising revenue | ||||||||||||||||
| Total: | $ | $ | $ | $ | ||||||||||||
General and Administrative Costs
General and administrative costs include rent, salaries, stock-based compensation, legal and professional expenses, administrative internet and server, contractor costs, insurance expense, licenses and permits, other taxes and travel expenses. These costs are expensed as they are incurred. Stock-based compensation of $and $was incurred during the three months ended June 30, 2024 and 2023, respectively. Stock-based compensation of and $was incurred during the six months ended June 30, 2024 and 2023, respectively.
Advertising and Marketing Costs
The Company expenses advertising and marketing costs as incurred.
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. Stock-based compensation of $and $was incurred during the three months ended June 30, 2024 and 2023, respectively. Stock-based compensation of and $was incurred during the six months ended June 30, 2024 and 2023, 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 June 30, 2024 and December 31, 2023, there were non-controlling interests with the following subsidiaries:
| Subsidiary Name | Equity % Owned | Non-Controlling % | ||||||
| Snail Innovative Institute | % | % | ||||||
| BTBX.IO, LLC | % | % | ||||||
| Donkey Crew, LLC | % | % | ||||||
| F-9 |
Snail Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Cash and Cash Equivalents 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 a standby letter of credit to landlords. The Company’s policy for determining whether an item is treated as cash, or a cash equivalent, is based on its original maturity, liquidity, and risk profile. Investments with maturities of three months or less, are highly liquid and have insignificant risk are considered to be cash equivalents.
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 were restricted for one year from the IPO date and were released from restrictions in November 2023.
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 an allowance made for credit losses. The Company uses a combination of quantitative
and qualitative risk 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. There
were no credit losses recognized during the three and six months ended June 30, 2024 and 2023. As of June 30, 2024 and December 31, 2023, the balance of our allowance for credit losses was $
Fair Value Measurements
The Company follows Financial Accounting Standards Board (“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. |
| F-10 |
Snail Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
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 and accounts payable. The carrying values of these financial instruments
approximate their fair value due to their short maturities or economic substance. The carrying amount of our revolving loan and notes
payable 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. The fair value of the Company’s promissory note which has a fixed rate for
Amortizable Intangibles and Other Long-lived Assets
The Company’s long-lived assets and other assets consisting of property and equipment and purchased intangible assets, are reviewed for impairment in accordance with the guidance of FASB Topic ASC 360, Property 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 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 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 long-term accrued expenses on the accompanying condensed consolidated balance sheets in the amount of $
| F-11 |
Snail Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
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 June 30, 2024 and December 31, 2023, the Company had deposits of $
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 does not require collateral
or other security to support financial instruments subject to credit risk. The Company performs ongoing credit evaluations of
customers and maintains reserves for potentially uncollectible accounts. The Company has four customers as of June 30, 2024 and
December 31, 2023, who accounted for approximately
As
of June 30, 2024 and December 31, 2023, the Company had one vendor who accounted for approximately
The
Company had one vendor, SDE, a related party, that accounted for
Recently Adopted Accounting Pronouncements
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 FASB 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 adopted this standard on January 1, 2024 and it did not have a material impact on the Company’s financial statements.
Recently Issued Accounting Pronouncements
In October 2023, the FASB issued ASU 2023-06, Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative, to clarify or improve disclosure and presentation requirements of a variety of topics. Certain of the amendments represent clarifications to or technical corrections of the current requirements. Many of the amendments allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the SEC’s requirements. ASU 2023-06 is effective for companies subject to the SEC’s disclosure requirements. The effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effected. For all other entities the amendments will be effective two years. The Company expects the implementation of this standard to require modification of certain disclosures and we do not expect the standard to have a material impact on the Company’s financial statements.
In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segment Disclosure (Topic 280), to improve financial reporting by requiring disclosure of incremental segment information on an annual and interim basis for all public entities. The update does not change how a public entity identifies its operating segments, aggregates those operating segments, or applied the quantitative thresholds to determine its reportable segments. The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods beginning after December 15, 2024. The Company is evaluating the impact of adopting the new standard.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, to improve the transparency of income tax disclosures requiring consistent categories and greater disaggregation of information in the rate reconciliation and income taxes paid disaggregated by jurisdiction. The amendments in the update requires that public business entities, on an annual basis, disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. The amendments in this update are effective for annual periods beginning after December 15, 2024. The Company is evaluating the impact of adopting the new standard.
In March 2024, the FASB issued ASU 2024-02, Codification Improvements to amend a variety of topics in the accounting codification by removing references to various FASB concept statements. This accounting standard is effective for fiscal years beginning after December 15, 2024, and early adoption is permitted. The Company is evaluating the impact of adopting the new standard.
| F-12 |
Snail Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
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 $
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 did not issue any restricted stock units (“Restricted Stock Units” or “restricted stock units”) during the three and six months ended June 30, 2024, and 2023. 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 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) shares, (b) % 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 June 30, 2024 there were 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 consolidated balance sheets. The Company
also issued Underwriters Warrants (as defined below) for services provided during the IPO to purchase
On August 24, 2023, the Company issued warrants in connection with its convertible debt for the purchase of shares (the “Convertible Note Warrants”). The Convertible Note Warrants are accounted for as a liability and are included in the accrued expenses and other liabilities in the condensed consolidated balance sheets. The Convertible Note Warrants may require partial cash settlement in the future, include various adjustment provisions, meet the definition of a derivative and are classified as a liability, as such the warrants are measured at fair value in accordance with ASC 815 – “Derivatives and Hedging”. The fair value of the Convertible Note Warrants has been estimated using the Monte-Carlo pricing model. For more information regarding convertible notes and related warrants see Note 16 - Equity.
On
August 24, 2023, the Company issued a warrant to an investor (the “Equity Line Warrant”) for the purchase of
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 $ 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. treasury stock was sold during the three or six months ended June 30, 2024 and 2023. As of June 30, 2024 and December 31, 2023, shares of Class A common stock were repurchased pursuant to the Share Repurchase Program for an aggregate purchase price of approximately $ million. The average price paid per share was $ and approximately $ million aggregate amount of shares of Class A common stock remain available for repurchase under the Share Repurchase Program.
| F-13 |
Snail Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
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 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 more information see Note 15 –Loss Per Share.
Dividend Restrictions
Our ability to pay cash dividends is currently restricted by the terms of our credit facilities.
NOTE 3 – REVENUE FROM CONTRACTS WITH CUSTOMERS
Disaggregation of revenue
Timing of recognition
The Company recognizes revenue at a point in time for performance obligations that are met at the time of sale or at the time of a release. The Company recognizes revenue over a period based on the estimated service period of the product and additional performance obligations met over time for technical support. Net revenue by timing of recognition during the three and six months ended June 30, 2024 and 2023 were as follows:
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Over time | $ | $ | $ | $ | ||||||||||||
| Point in time | ||||||||||||||||
| Total revenue from contracts with customers: | $ | $ | $ | $ | ||||||||||||
Geography
The Company attributes net revenue to geographic regions based on customer location. Net revenue by geographic region for the three and six months ended June 30, 2024 and 2023 were as follows:
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| United States | $ | $ | $ | $ | ||||||||||||
| International | ||||||||||||||||
| Total revenue from contracts with customers: | $ | $ | $ | $ | ||||||||||||
Platform
Net revenue by platform for the three and six months ended June 30, 2024 and 2023 were as follows:
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Console | $ | $ | $ | $ | ||||||||||||
| PC | ||||||||||||||||
| Mobile | ||||||||||||||||
| Other | ||||||||||||||||
| Total revenue from contracts with customers: | $ | $ | $ | $ | ||||||||||||
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 and six months ended June 30, 2024 and 2023 was as follows:
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Digital | $ | $ | $ | $ | ||||||||||||
| Mobile | ||||||||||||||||
| Physical retail and other | ||||||||||||||||
| Total revenue from contracts with customers: | $ | $ | $ | $ | ||||||||||||
Other Revenues
As
discussed in Note 14, the Company recognized the $
| F-14 |
Snail Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
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 its performance obligations,
which were in the ordinary course of business. As of June 30, 2024, the balance of deferred revenue was $
| 2024 | 2023 | |||||||
| Deferred revenue, beginning balance in advance of revenue recognition billing | $ | $ | ||||||
| Revenue recognized | ( | ) | ( | ) | ||||
| Revenue deferred | ||||||||
| Deferred revenue, ending balance | ||||||||
| Less: current portion | ( | ) | ( | ) | ||||
| Deferred revenue, long term | $ | $ | ||||||
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 restricted cash and
cash equivalents of $
| 2024 | 2023 | |||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash and cash equivalents | ||||||||
| Cash and cash equivalents, and restricted cash and cash equivalents | $ | $ | ||||||
NOTE 5 – ACCOUNTS RECEIVABLE (PAYABLE) – RELATED PARTY
Accounts
receivable — related party represents receivables in the ordinary course of business attributable to certain mobile game revenues
that, for administrative reasons, were collected by a related party and that the related party has not yet remitted back to the Company.
Accounts receivable — related party is non-interest bearing and due on demand. The related party, SDE Inc. (“SDE”),
is
| 2024 | 2023 | |||||||
| Accounts receivable – related party | $ | $ | ||||||
| Less: accounts payable – related party – SDE | ( | ) | ( | ) | ||||
| Net accounts receivable, related party - SDE | ||||||||
| Less: accounts receivable – related party, net of current portion | ||||||||
| Net accounts receivable (payable), related party, current - SDE | $ | $ | ( | ) | ||||
| F-15 |
Snail Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
NOTE 6 – 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 has the option to pay the $
During
the six months ended June 30, 2024, the Company made $
| 2024 | 2023 | |||||||
| Prepaid royalties | $ | $ | ||||||
| Prepaid licenses | ||||||||
| Other prepaids | ||||||||
| Prepaid expenses - related party, ending balance | ||||||||
| Less: short-term portion | ( | ) | ( | ) | ||||
| Total prepaid expenses - related party, long-term | $ | $ | ||||||
The amount classified as short-term, as of June 30, 2024, includes prepaid royalties for ARK: Survival Ascended DLC’s which have not yet been released and various operational software licenses obtained through SDE.
NOTE 7 – PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following as of June 30, 2024 and December 31, 2023:
| 2024 | 2023 | |||||||
| Other receivables | $ | $ | ||||||
| Deferred offering costs | ||||||||
| Other prepaids | ||||||||
| Other current assets | ||||||||
| Total prepaid expenses and other current assets | $ | $ | ||||||
Other receivables consist of receivables related to Myth of Empires.
| F-16 |
Snail Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
NOTE 8 – PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following as of June 30, 2024 and December 31, 2023:
| 2024 | 2023 | |||||||
| Building | $ | $ | ||||||
| Land | ||||||||