Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Sep. 30, 2022 | Dec. 14, 2022 | |
Document Information | ||
Document Type | 10-Q | |
Document Quarterly Report | true | |
Document Transition Report | false | |
Document Period End Date | Sep. 30, 2022 | |
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 $0.0001 per share | |
Trading Symbol | SNAL | |
Security Exchange Name | NASDAQ | |
Entity Current Reporting Status | Yes | |
Entity Interactive Data Current | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Small Business | true | |
Entity Emerging Growth Company | true | |
Entity Ex Transition Period | false | |
Entity Shell Company | false | |
Entity Central Index Key | 0001886894 | |
Current Fiscal Year End Date | --12-31 | |
Document Fiscal Year Focus | 2022 | |
Document Fiscal Period Focus | Q3 | |
Amendment Flag | false | |
Class A Common Stock | ||
Document Information | ||
Entity Common Stock, Shares Outstanding | 8,157,443 | |
Class B Common Stock | ||
Document Information | ||
Entity Common Stock, Shares Outstanding | 28,748,580 |
Balance Sheet - Snail Inc
Balance Sheet - Snail Inc | Sep. 30, 2022 USD ($) |
ASSETS | |
Cash and cash equivalents | $ 9,044,666 |
Assets, Current | 39,186,555 |
Assets | 73,102,889 |
SHAREHOLDER'S EQUITY | |
Common Stock, Value, Issued | 5,000 |
Additional paid-in capital | 12,881,055 |
Total shareholder's equity | 9,949,743 |
Snail Inc | |
ASSETS | |
Cash and cash equivalents | 100 |
Assets, Current | 100 |
Assets | 100 |
SHAREHOLDER'S EQUITY | |
Additional paid-in capital | 100 |
Total shareholder's equity | $ 100 |
Balance Sheet - Snail Inc (Pare
Balance Sheet - Snail Inc (Parenthetical) | Sep. 30, 2022 $ / shares shares |
Common stock, par value (per share) | $ / shares | $ 0.01 |
Common Stock, Shares Authorized | 1,000,000 |
Common stock, shares issued | 500,000 |
Common stock, shares outstanding | 500,000 |
Snail Inc | |
Common stock, par value (per share) | $ / shares | $ 0.001 |
Common Stock, Shares Authorized | 1,000 |
Common stock, shares issued | 100 |
Common stock, shares outstanding | 100 |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets - USD ($) | Sep. 30, 2022 | Dec. 31, 2021 |
Current Assets: | ||
Cash | $ 9,044,666 | $ 10,164,338 |
Accounts receivable, net of allowances for doubtful accounts of $19,929 and $31,525, respectively | 4,596,313 | 12,244,785 |
Accounts receivable - related party, net | 12,239,430 | 8,435,823 |
Loan and interest receivable - related party | 101,249 | 203,408 |
Prepaid expenses - related party, net of long-term portion | 1,500,000 | 3,145,000 |
Prepaid expenses and other current assets | 11,704,897 | 11,017,007 |
Total current assets | 39,186,555 | 45,210,361 |
Restricted cash and cash equivalents | 6,368,016 | 6,389,777 |
Prepaid expenses - related party | 6,520,000 | |
Property, plant and equipment, net | 5,245,271 | 5,678,701 |
Deferred income taxes | 8,191,051 | 8,191,051 |
Other noncurrent assets | 194,032 | 199,919 |
Operating lease right-of-use assets, net | 3,887,326 | 5,100,912 |
Total assets | 73,102,889 | 80,085,845 |
Current Liabilities: | ||
Accounts payable | 6,765,934 | 3,871,510 |
Accounts payable - related party | 22,330,781 | 23,733,572 |
Accrued expenses and other liabilities | 2,375,610 | 2,975,475 |
Loan payable-related parties | 0 | 400,000 |
Interest payable-related parties | 527,770 | 528,439 |
Revolving loan | 9,000,000 | 9,000,000 |
Short term note | 6,666,667 | |
Notes payable | 216,329 | |
Current portion of long-term debt | 79,425 | 77,348 |
Current portion of deferred revenue | 3,934,693 | 11,005,517 |
Current portion of operating lease liabilities | 1,339,172 | 1,688,965 |
Total current liabilities | 53,020,052 | 53,497,155 |
Accrued expenses | 454,438 | |
Long-term debt, net of current portion | 2,825,390 | 2,885,434 |
Deferred revenue, net of current portion | 9,048,505 | 9,275,417 |
Operating lease liabilities, net of current portion | 3,285,679 | 4,375,786 |
Total liabilities | 68,634,064 | 70,033,792 |
Commitments and contingencies | ||
Equity: | ||
Common stock, $0.01 par value, 1,000,000 shares authorized, 500,000 shares issued and outstanding | 5,000 | 5,000 |
Additional paid-in capital | 12,881,055 | 94,159,167 |
Due from shareholder - loan receivable | (91,388,176) | |
Due from shareholder - interest receivable | (2,965,346) | |
Accumulated other comprehensive loss | (343,277) | (266,557) |
Retained earnings (accumulated deficit) | (2,593,035) | 16,045,231 |
Total Snail Games USA Inc. equity | 9,949,743 | 15,589,319 |
Noncontrolling interests | 5,480,918 | 5,537,266 |
Total equity | 4,468,825 | 10,052,053 |
Total liabilities, noncontrolling interests and equity | 73,102,889 | 80,085,845 |
License rights from related parties | ||
Current Assets: | ||
Intangible assets, net | 3,235,038 | 8,787,976 |
License rights | ||
Current Assets: | ||
Intangible assets, net | 250,000 | |
Other | ||
Current Assets: | ||
Intangible assets, net | $ 275,600 | $ 277,148 |
Condensed Consolidated Balanc_2
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) | Sep. 30, 2022 | Dec. 31, 2021 |
Balance Sheets | ||
Accounts receivable, net of allowances for doubtful accounts | $ 19,929 | $ 31,525 |
Common stock, par value (per share) | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 1,000,000 | 1,000,000 |
Common stock, shares issued | 500,000 | 500,000 |
Common stock, shares outstanding | 500,000 | 500,000 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2022 | Sep. 30, 2021 | Sep. 30, 2022 | Sep. 30, 2021 | |
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) | ||||
Revenues, net | $ 15,614,171 | $ 24,361,019 | $ 59,132,284 | $ 83,200,198 |
Cost of revenues | 11,468,961 | 15,478,327 | 37,744,863 | 48,381,061 |
Gross profit | 4,145,210 | 8,882,692 | 21,387,421 | 34,819,137 |
Operating expenses: | ||||
General and administrative | 5,434,013 | 3,997,917 | 16,177,534 | 13,053,478 |
Research and development | 116,624 | 216,798 | 479,630 | 588,207 |
Advertising and marketing | 198,417 | 148,752 | 569,127 | 265,812 |
Depreciation and amortization | 128,536 | 208,896 | 435,644 | 638,659 |
Total operating expenses | 5,877,590 | 4,572,363 | 17,661,935 | 14,546,156 |
Income (loss) from operations | (1,732,380) | 4,310,329 | 3,725,486 | 20,272,981 |
Other income (expense): | ||||
Interest income | 12,712 | 21,230 | 45,789 | 71,857 |
Interest income-related parties | 505 | 420,164 | 582,128 | 1,128,397 |
Interest expense | (261,070) | (114,447) | (613,338) | (304,918) |
Interest expense - related parties | (2,016) | (3,222) | (5,983) | |
Other income | 19,500 | 31,247 | 319,153 | 482,790 |
Foreign currency transaction gain (loss) | 16,169 | (15,987) | 21,679 | (80,755) |
Equity in loss of unconsolidated entity | (314,515) | |||
Total other income (expense), net | (212,184) | 340,191 | 352,189 | 976,873 |
Income (loss) before provision for income taxes | (1,944,564) | 4,650,520 | 4,077,675 | 21,249,854 |
Income tax provision (benefit) | (398,998) | 891,538 | 803,305 | 4,214,245 |
Net income (loss) | (1,545,566) | 3,758,982 | 3,274,370 | 17,035,609 |
Net gain (loss) attributable to non-controlling interests | (6,828) | (125,881) | 56,348 | (489,499) |
Net income (loss) attributable to Snail Games USA Inc. | (1,538,738) | 3,884,863 | 3,218,022 | 17,525,108 |
Comprehensive income statement: | ||||
Other comprehensive income (loss) | 5,682 | 382,088 | (76,720) | 421,048 |
Total other comprehensive income (loss) | $ (1,533,056) | $ 4,266,951 | $ 3,141,302 | $ 17,946,156 |
Condensed Consolidated Statem_2
Condensed Consolidated Statements of Equity - USD ($) | Common Stock | Additional Paid-In-Capital | Due from Shareholder Loan and Interest Receivable | Accumulated Other Comprehensive Loss | Retained Earnings (Accumulated Deficit) | Snail Games USA Inc.Equity | Non controlling Interests | Total |
Balance at the beginning at Dec. 31, 2020 | $ 5,000 | $ 94,159,167 | $ (62,186,331) | $ (197,174) | $ 7,576,835 | $ 39,357,497 | $ (5,017,741) | $ 34,339,756 |
Balance at the beginning (in shares) at Dec. 31, 2020 | 500,000 | |||||||
Increase (Decrease) in Stockholders' Equity | ||||||||
Loan to shareholder | $ 0 | 0 | (9,169,393) | 0 | 0 | (9,169,393) | 0 | (9,169,393) |
Foreign currency translation | 33,332 | 33,332 | 33,332 | |||||
Net income (loss) | 6,178,607 | 6,178,607 | (168,008) | 6,010,599 | ||||
Balance at the end at Mar. 31, 2021 | $ 5,000 | 94,159,167 | (71,355,724) | (163,842) | 13,755,442 | 36,400,043 | (5,185,749) | 31,214,294 |
Balance at the end (in shares) at Mar. 31, 2021 | 500,000 | |||||||
Balance at the beginning at Dec. 31, 2020 | $ 5,000 | 94,159,167 | (62,186,331) | (197,174) | 7,576,835 | 39,357,497 | (5,017,741) | 34,339,756 |
Balance at the beginning (in shares) at Dec. 31, 2020 | 500,000 | |||||||
Increase (Decrease) in Stockholders' Equity | ||||||||
Net income (loss) | 17,035,609 | |||||||
Balance at the end at Sep. 30, 2021 | $ 5,000 | 94,159,167 | (87,767,533) | 223,874 | 25,101,943 | 31,722,451 | (5,467,900) | 26,254,551 |
Balance at the end (in shares) at Sep. 30, 2021 | 500,000 | |||||||
Balance at the beginning at Mar. 31, 2021 | $ 5,000 | 94,159,167 | (71,355,724) | (163,842) | 13,755,442 | 36,400,043 | (5,185,749) | 31,214,294 |
Balance at the beginning (in shares) at Mar. 31, 2021 | 500,000 | |||||||
Increase (Decrease) in Stockholders' Equity | ||||||||
Loan to shareholder | $ 0 | 0 | (7,058,648) | 0 | 0 | (7,058,648) | 0 | (7,058,648) |
Foreign currency translation | 5,628 | 5,628 | 5,628 | |||||
Dissolution of subsidiary | 39,340 | 39,340 | ||||||
Net income (loss) | 7,461,638 | 7,461,638 | (195,610) | 7,266,028 | ||||
Balance at the end at Jun. 30, 2021 | $ 5,000 | 94,159,167 | (78,414,372) | (158,214) | 21,217,080 | 36,808,661 | (5,342,019) | 31,466,642 |
Balance at the end (in shares) at Jun. 30, 2021 | 500,000 | |||||||
Increase (Decrease) in Stockholders' Equity | ||||||||
Loan to shareholder | $ 0 | 0 | (9,353,161) | 0 | 0 | (9,353,161) | 0 | (9,353,161) |
Foreign currency translation | 382,088 | 382,088 | 382,088 | |||||
Net income (loss) | 3,884,863 | 3,884,863 | (125,881) | 3,758,982 | ||||
Balance at the end at Sep. 30, 2021 | $ 5,000 | 94,159,167 | (87,767,533) | 223,874 | 25,101,943 | 31,722,451 | (5,467,900) | 26,254,551 |
Balance at the end (in shares) at Sep. 30, 2021 | 500,000 | |||||||
Balance at the beginning 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 at the beginning (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 the end 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 at the end (in shares) at Mar. 31, 2022 | 500,000 | |||||||
Balance at the beginning 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 at the beginning (in shares) at Dec. 31, 2021 | 500,000 | |||||||
Increase (Decrease) in Stockholders' Equity | ||||||||
Net income (loss) | 3,274,370 | |||||||
Balance at the end at Sep. 30, 2022 | $ 5,000 | 12,881,055 | (343,277) | (2,593,035) | 9,949,743 | (5,480,918) | 4,468,825 | |
Balance at the end (in shares) at Sep. 30, 2022 | 500,000 | |||||||
Balance at the beginning 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 at the beginning (in shares) at Mar. 31, 2022 | 500,000 | |||||||
Increase (Decrease) in Stockholders' Equity | ||||||||
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 income (loss) | (1,054,297) | (1,054,297) | 70,466 | (983,831) | ||||
Balance at the end at Jun. 30, 2022 | $ 5,000 | 12,881,055 | (348,959) | (1,054,297) | 11,482,799 | (5,474,090) | 6,008,709 | |
Balance at the end (in shares) at Jun. 30, 2022 | 500,000 | |||||||
Increase (Decrease) in Stockholders' Equity | ||||||||
Foreign currency translation | 5,682 | 5,682 | 5,682 | |||||
Net income (loss) | (1,538,738) | (1,538,738) | (6,828) | (1,545,566) | ||||
Balance at the end at Sep. 30, 2022 | $ 5,000 | $ 12,881,055 | $ (343,277) | $ (2,593,035) | $ 9,949,743 | $ (5,480,918) | $ 4,468,825 | |
Balance at the end (in shares) at Sep. 30, 2022 | 500,000 |
Condensed Consolidated Statem_3
Condensed Consolidated Statements of Cash Flows - USD ($) | 9 Months Ended | |
Sep. 30, 2022 | Sep. 30, 2021 | |
Cash flows from operating activities: | ||
Net income | $ 3,274,370 | $ 17,035,609 |
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | ||
Amortization - intangible assets | 5,803,610 | 11,131,342 |
Amortization - loan origination fees | 19,149 | 22,388 |
Depreciation and amortization - property and equipment | 435,644 | 638,659 |
Gain on lease termination | (122,533) | |
Gain on paycheck protection program and economic injury disaster loan forgiveness | (174,436) | (392,200) |
Gain on disposal of fixed assets | (17,067) | |
Interest income from shareholder loan | (580,878) | (1,074,881) |
Deferred taxes | 2,682 | |
Decrease in non-controlling interest - dissolution of subsidiary | 39,340 | |
Changes in assets and liabilities: | ||
Accounts receivable | 7,648,432 | 5,049,456 |
Accounts receivable - related party | (3,803,606) | 2,542,956 |
Prepaid expenses - related party | (4,875,000) | |
Prepaid expenses and other current assets | (2,232,406) | (5,689,750) |
Other noncurrent assets | (15,228) | 241,422 |
Accounts payable | 2,905,024 | (390,331) |
Accounts payable - related party | (1,402,791) | 311,024 |
Accrued expenses | (127,993) | 700,163 |
Interest payable - related parties | 1,490 | 5,983 |
Lease liabilities | (103,782) | (130,090) |
Deferred revenue | (7,297,736) | (11,389,985) |
Net cash (used in) provided by operating activities | (665,737) | 18,653,787 |
Cash flows from investing activities: | ||
Loan provided to related party | (24,506,321) | |
Repayment on loan provided by related party | (300,000) | |
Acquisition of license rights - related party | (5,000,000) | |
Purchases of property and equipment | (5,256) | (3,403) |
Proceeds from sale of property and equipment | 19,500 | |
Repayment on Pound Sand note | 1,496,063 | |
Investment at cost | (895) | |
Net cash provided by (used in) investing activities | 1,210,307 | (29,510,619) |
Cash flows from financing activities: | ||
Repayments on long-term debt | (57,967) | (6,731,666) |
Repayments on short-term note | (3,333,333) | |
Borrowings on long-term debt | 2,904,815 | |
Borrowings on short-term note | 10,000,000 | |
Payments on paycheck protection program and economic injury disaster loan | (90,198) | |
Refund of payments on paycheck protection program and economic injury disaster loan | 48,305 | |
Borrowings on revolving loan | 6,500,000 | |
Cash dividend declared and paid | (8,200,000) | |
Net cash (used in) provided by financing activities | (1,633,193) | 2,673,149 |
Effect of currency translation on cash and cash equivalents | (52,810) | 380,403 |
Net decrease in cash, and restricted cash and cash equivalents | (1,141,433) | (7,803,280) |
Cash, and restricted cash and cash equivalents - beginning of period | 16,554,115 | 33,902,707 |
Cash, and restricted cash and cash equivalents - end of period | 15,412,682 | 26,099,427 |
Cash paid during the period for: | ||
Interest | 594,189 | 105,577 |
Income taxes | 831,400 | 3,300,000 |
Noncash transactions during the period for: | ||
Loan and interest payable - related parties | 103,890 | |
Loan and interest receivable - related parties | (103,890) | |
Loan and interest from shareholder | 94,934,400 | |
Dividend distribution | (94,934,400) | |
Noncash financing activity during the period: | ||
Gain on paycheck protection program and economic injury disaster loan forgiveness | (174,436) | (392,200) |
License rights from related parties | ||
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | ||
Amortization - intangible assets | 250,000 | 450,000 |
License rights | ||
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | ||
Amortization - intangible assets | 5,552,938 | 10,675,193 |
Other | ||
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | ||
Amortization - intangible assets | $ 672 | $ 6,149 |
ORGANIZATION
ORGANIZATION | 9 Months Ended |
Sep. 30, 2022 | |
ORGANIZATION | |
ORGANIZATION | NOTE 1 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 terms “Snail Games USA,” “we,” “our” and the “Company” are used to refer collectively to Snail Games USA Inc. and its subsidiaries. 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. The Company was founded in 2009 as a wholly owned subsidiary of Suzhou Snail Digital Technology Co., Ltd. (“Suzhou Snail”) located in Suzhou, China. 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 transaction described in Note 19 - Subsequent Events Basis of Presentation and Consolidation The accompanying condensed consolidated financial statements have been prepared in accordance with 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 condensed 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 condensed consolidated financial statements and notes thereto for the year ended December 31, 2021. 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 condensed consolidated financial statements include the accounts of Snail Games USA Inc. and the following subsidiaries: Equity % Subsidiary Name Owned Snail Innovation Institute 70 % Frostkeep Studios, Inc. 100 % Eminence Corp 100 % Wandering Wizard, LLC 100 % Donkey Crew Limited Liability Company 99 % Interactive Films, LLC 100 % Project AWK Productions, LLC 100 % BTBX.IO, LLC 70 % Elephant Snail, LLC (through April 15, 2021) 51 % All intercompany accounts, transactions, and profits have been eliminated upon consolidation. Use of Estimates The preparation of condensed consolidated financial statements in conformity with 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 doubtful accounts, deferred income tax assets and associated valuation allowances, deferred revenue, income taxes, valuation of intangibles, including those with related parties and impairment of intangible assets. 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 Revenue from Contracts with Customers COVID-19 Since the start of the coronavirus pandemic early in 2020, the Company has made sustained efforts to ensure the health and safety of the workforce while ensuring continuity of the business. In the workplace, the Company has designed and implemented protocols for social distancing, made provisions for the workforce to work remotely where possible, and established quarantine policies for those who present COVID-like symptoms or may have been in contact with those who have. Further, the Company keeps current with local, state, federal and international laws and restrictions that could affect the business and provide real-time information to the workforce. The Company has its own policies relating to health and is committed to compliance with COVID-19 policies. As has been the case with many other employers, since the start of 2021, the Company has encouraged its workforce to receive vaccinations against COVID-19 through various means, including incentive programs. However, new variants, particularly the Delta and Omicron variants, have engendered a resurgence of the virus in many regions particularly among the unvaccinated. In-the-midst of changing conditions, the Company has nevertheless been able to manage its business with minimal impact during the three and nine month periods ended September 30, 2022 and 2021. |
Snail Inc | |
ORGANIZATION | |
ORGANIZATION | NOTE 1 ORGANIZATION Snail, Inc. was incorporated under the laws of Delaware in January 2022. The Registrant’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 and its subsidiaries. On November 14, 2022, in connection with the IPO, Snail, Inc. became the holding company of Snail Games USA and its subsidiaries through the exchange of common stock of Snail Games USA for common stock of Snail, Inc, and will control the business and affairs of Snail Games USA and its subsidiaries. |
SUMMARY OF SIGNIFICANT ACCOUNTI
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 9 Months Ended |
Sep. 30, 2022 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 2 Revenue Recognition 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 ASC Topic 606 Revenue from Contracts with Customers 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, Apple’s App Store, the Google Play Store, and retail distributor. For sales of our software products via third-party digital storefronts and retail distributor, we determine whether or not we are acting as the principal in the sale to the end user, which we consider 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 we use 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 we have determined we are the agent in the sales transaction to the end user and therefore we report 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, we have discretion in establishing the price for the specified good or service and we have determined that we are the principal to the end user and thus report 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. The Company also has a long-term title license agreement with a platform for a period of three years. The Company recognizes deferred revenue and amortizes this revenue according to the terms of the relevant agreement. 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 ARK 2 ARK 1 ARK 2 In November 2021, the Company entered an agreement with a platform to make ARK 1 The Company entered into a non-exclusive license agreement with a platform in February 2020 to make ARK 1 ARK 1 Estimated Service Period For certain performance obligations satisfied over time, we have 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. We consider a variety of data points when determining and subsequently reassessing the estimated service period for players of our software products. Primarily, we review the weighted average number of days between players’ first and last days played online. When a new game is launched and no history of online player data is available, we consider other factors to determine the user life, such as the estimated service period of other games actively being sold with similar characteristics. We also consider known online trends, the service periods of our previously released software products, and, to the extent publicly available, the service periods of our competitors’ software products that are similar in nature to ours. We believe this provides a reasonable depiction of the use of games by our customers, as it is the best representation of the period during which our customers play our software products. 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 virtual goods are generally approximately 30 to 100 days. Shipping and Handling The distributor, as the principal, is responsible for the shipping of the game discs to the retail stores and incurring the shipping costs. The Company is paid the net sales amount after deducting shipping costs 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 and amortization costs. Cost of revenues for the three and nine month periods ended September 30, 2022 and 2021 were comprised of the following: Three months ended Nine months ended September 30, September 30, 2022 2021 2022 2021 Software license royalties - related parties $ 3,428,231 $ 4,954,040 $ 13,314,258 $ 17,046,875 Software license royalties 47,020 — 47,020 — License and amortization - related parties 6,350,979 8,483,182 19,052,938 24,169,714 License and amortization 224 155,701 250,672 456,149 Game localization 840 5,727 840 47,100 Merchant fees 602,814 847,610 1,856,371 2,878,020 Engine fees 359,263 552,913 1,575,942 2,453,533 Internet, server and data center 535,399 479,154 1,502,631 1,329,670 Costs related to advertising revenue 144,191 — 144,191 — Total: $ 11,468,961 $ 15,478,327 $ 37,744,863 $ 48,381,061 Advertising and Marketing Costs The Company expenses advertising costs as incurred. For the three months ended September 30, 2022 and 2021, advertising expense totaled $198,417 and $148,752, respectively. For the nine months ended September 30, 2022 and 2021, advertising expenses totaled $569,127 and $265,812, 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 September 30, 2022 and 2021 were $116,624 and $216,798, respectively. Research and development costs for the nine months ended September 30, 2022 and 2021 were $479,630 and $588,207, 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 September 30, 2022 and December 31, 2021, 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 % 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 re-measured the fair value of one of its intangible assets, Atlas Intangible Assets 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 September 30, 2022 and December 31, 2021, the Company had deposits of $14,037,412 and $15,135,863, respectively, that were not insured by the Federal Deposit Insurance Corporation. 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. At September 30, 2022 and December 31, 2021, the Company had two customers who accounted for approximately 58% and four customers who accounted for approximately 86% of consolidated gross receivables, respectively. Among the two customers as of September 30, 2022 and four customers as of December 31, 2021, each customer accounted for 30% and 28% as of September 30, 2022, and 29%, 28%, 17%, and 12% as of December 31, 2021 of the consolidated gross receivables outstanding. During the three months ended September 30, 2022 and 2021, approximately 43% and 57%, respectively, of net revenue was derived from these customers. During the nine months ended September 30, 2022 and 2021, approximately 56% and 73%, respectively, of net revenue was derived from these customers. In January 2022, the Company received approximately $1,500,000 from Pound Sand, LLC in connection with the Company’s sale of its membership interest in Pound Sand, LLC on December 3, 2020; this amount was included as a receivable in the other current assets as of December 31, 2021 in the accompanying condensed consolidated balance sheets. Leases The Company has several leases relating primarily to office facilities. The Company determines if an arrangement is or contains a lease at contract inception. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The lease liability is measured as the present value of the unpaid lease payments, and the right-of-use asset value is derived from the calculation of the lease liability. Lease payments include fixed and in-substance fixed payments, variable payments based on an index or rate, reasonably certain purchase options, and termination penalties. Variable lease payments are recognized as lease expenses as incurred, and generally relate to variable payments made based on the level of services provided by the landlords of our leases. For leased assets with similar lease terms and asset types, we applied a portfolio approach in determining a single incremental borrowing rate for the leased assets. The Company uses its estimated incremental borrowing rate, which is derived from information available at the lease commencement date, in determining the present value of lease payments because the Company does not have the information necessary to determine the rate implicit in the lease. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term. The Company’s lease term includes any option to extend the lease when it is reasonably certain to be exercised based on considering all relevant factors. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheets and we recognize lease expense for these leases on a straight-line basis over the lease term. Operating leases are included in operating lease right-of-use assets, net, current portion of operating lease liabilities, and operating lease liabilities, net of current portion on the consolidated balance sheets. Recently Issued Accounting Pronouncements In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832) – Disclosures by Business Entities about Government Assistance Revolving Loan, Short Term Note and Long-Term Debt Earnings Per Share The Company analyzed the calculation of net income (loss) per share for the three and nine month periods ended September 30, 2022, and 2021 and determined that it resulted in values that would not be meaningful to the users of these condensed consolidated financial statements given the impact of the exchange of shares in connection with the IPO, see Note 19 – Subsequent Events . Therefore, net income (loss) per share information has not been presented for the three and nine months presented. CARES Act On March 27, 2020, President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act.” The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property, the Company did not result in a material cash benefit as a result of these provision. The CARES Act is a stimulus package that provides various forms of relief through, among other things, grants, loans and tax incentives to certain businesses and individuals. In particular, the CARES Act created an emergency lending facility known as the PPP, which is administered by the U.S. Small Business Administration (“SBA”) and provides federally insured and, in some cases, forgivable loans to certain eligible businesses so that those businesses can continue to cover certain of their near-term operating expenses and retain employees. See Note 15 – Revolving Loan, Short Term Note, and Long-Term Debt Dividend Restrictions Our ability to pay cash dividends is currently restricted by the terms of our credit facilities. |
Snail Inc | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The balance sheet has been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Separate Statements of Income, Stockholder’s Equity and Cash Flows have not been presented as there have been no operating activities by this entity during the period ended September 30, 2022. |
STOCKHOLDERS' EQUITY
STOCKHOLDERS' EQUITY | 9 Months Ended |
Sep. 30, 2022 | |
Snail Inc | |
STOCKHOLDERS' EQUITY | |
STOCKHOLDERS' EQUITY | NOTE 3 STOCKHOLDER’S EQUITY Mr. Hai Shi is the Founder and Chairman of the Registrant and was the sole shareholder as of September 30, 2022. He contributed the $100 to the Registrant on January 14, 2022 to purchase 100 shares of the Registrants common stock. |
SUBSEQUENT EVENTS
SUBSEQUENT EVENTS | 9 Months Ended |
Sep. 30, 2022 | |
SUBSEQUENT EVENTS | |
SUBSEQUENT EVENTS | NOTE 19 – SUBSEQUENT EVENTS ● On September 16, 2022, the Company’s parent, Snail, Inc., filed a Form S-1 Registration Statement with the United States Securities and Exchange Commission in connection with its IPO. On November 9, 2022, effective with the IPO pricing, the Company’s existing shareholders transferred their 500,000 shares of common stock of the Company 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. On November 9, 2022 the Company’s parent, Snail, Inc., priced its IPO, and on November 10, 2022, Snail, Inc.’s Class A common stock began trading on The Nasdaq Capital Market exchange under the ticker symbol SNAL. In the IPO, Snail, Inc. issued 3,000,000 shares of Class A common stock and net proceeds from the IPO were distributed to the Company in November 2022 in the amount of approximately $12.0 million. In connection with the IPO, $1.0 million of 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 will be reported as restricted cash 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. In the IPO, Snail, Inc. also issued to the underwriters warrants to purchase 120,000 shares of Class A common stock at 125% of the IPO price, or $6.25 per share. The warrants are exercisable for three years from the effective date of registration. The underwriters were also granted an option to purchase up to an additional 450,000 shares of Class A common stock that expires on December 19, 2022, and the underwriters have not exercised the option. ● The Company’s 2022 Omnibus Incentive Plan (the “2022 Plan”) became effective upon the consummation of the IPO. The 2022 Plan is administered by the compensation committee of the board of directors. The maximum number of shares available for issuance under the 2022 Plan is 5,718,000 . The 2022 Plan permits the grant of restricted stock units (“RSUs”). RSU grants of shares of Class A common stock are subject to certain vesting conditions and restrictions specified in the applicable RSU award agreement. Any employee, non-employee director or consultant is eligible to receive equity-based compensation in the form of RSUs pursuant to the 2022 Plan. In November 2022, employees were granted 1,200,960 RSUs at a value of $6.0 million and non-employee directors were granted 24,000 RSUs at a value of $0.1 million. ● In November 2022, the Company received a $2.5 million refund of prior year California income tax relating to the Company’s implementation of California’s adopted market-based sourcing rules in income years open for refund. Subsequent years’ returns have been filed using the same methodology on which these refund claims were granted following California Franchise Tax Board review. ● On November 10, 2022, the Snail, Inc. board of directors approved and established a new share repurchase program (the “Share Repurchase Program”) to reacquire shares of Snail, Inc.’s Class A common stock. The maximum aggregate value of the shares repurchased shall not exceed $5.0 million, and there is no fixed expiration date on the Share Repurchase Program. The exact number of shares of Class A common stock and timing and method of the repurchase are at the discretion of the CEO, CFO and Treasurer. As of December 13, 2022, 1,090,877 shares of Class A common stock were repurchased pursuant to the Share Repurchase Program and the average price paid per share was $2.98 . ● In December 2022, the Company extended the maturity of its term loan from January 26, 2023 to January 26, 2024 for the remaining balance outstanding at the time of the extension, which was $5.8 million. The rate has also been amended to the higher of the Wall Street Journal Prime Rate less 0.25% or 5.75% . A modification fee of $9,375 was paid in connection with the maturity extension. ● In December 2022, the Company amended its exclusive license agreement relating to ARK 1 . The license fee has been restructured so that the Company will pay 45% of total revenue of ARK 1 as a royalty instead of the $1.5 million monthly fee plus 25% of the total ARK 1 revenue once the sequel, ARK 2 , is publicly released. |
Snail Inc | |
SUBSEQUENT EVENTS | |
SUBSEQUENT EVENTS | NOTE 4 SUBSEQUENT EVENTS Refer to Note 19 – Subsequent Events, in the Snail Games USA and Subsidiaries condensed consolidated financial statements for information regarding the IPO, reorganization transaction, and other subsequent events. |
PRESENTATION AND NATURE OF OPER
PRESENTATION AND NATURE OF OPERATIONS | 9 Months Ended |
Sep. 30, 2022 | |
PRESENTATION AND NATURE OF OPERATIONS | |
PRESENTATION AND NATURE OF OPERATIONS | NOTE 1 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 terms “Snail Games USA,” “we,” “our” and the “Company” are used to refer collectively to Snail Games USA Inc. and its subsidiaries. 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. The Company was founded in 2009 as a wholly owned subsidiary of Suzhou Snail Digital Technology Co., Ltd. (“Suzhou Snail”) located in Suzhou, China. 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 transaction described in Note 19 - Subsequent Events Basis of Presentation and Consolidation The accompanying condensed consolidated financial statements have been prepared in accordance with 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 condensed 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 condensed consolidated financial statements and notes thereto for the year ended December 31, 2021. 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 condensed consolidated financial statements include the accounts of Snail Games USA Inc. and the following subsidiaries: Equity % Subsidiary Name Owned Snail Innovation Institute 70 % Frostkeep Studios, Inc. 100 % Eminence Corp 100 % Wandering Wizard, LLC 100 % Donkey Crew Limited Liability Company 99 % Interactive Films, LLC 100 % Project AWK Productions, LLC 100 % BTBX.IO, LLC 70 % Elephant Snail, LLC (through April 15, 2021) 51 % All intercompany accounts, transactions, and profits have been eliminated upon consolidation. Use of Estimates The preparation of condensed consolidated financial statements in conformity with 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 doubtful accounts, deferred income tax assets and associated valuation allowances, deferred revenue, income taxes, valuation of intangibles, including those with related parties and impairment of intangible assets. 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 Revenue from Contracts with Customers COVID-19 Since the start of the coronavirus pandemic early in 2020, the Company has made sustained efforts to ensure the health and safety of the workforce while ensuring continuity of the business. In the workplace, the Company has designed and implemented protocols for social distancing, made provisions for the workforce to work remotely where possible, and established quarantine policies for those who present COVID-like symptoms or may have been in contact with those who have. Further, the Company keeps current with local, state, federal and international laws and restrictions that could affect the business and provide real-time information to the workforce. The Company has its own policies relating to health and is committed to compliance with COVID-19 policies. As has been the case with many other employers, since the start of 2021, the Company has encouraged its workforce to receive vaccinations against COVID-19 through various means, including incentive programs. However, new variants, particularly the Delta and Omicron variants, have engendered a resurgence of the virus in many regions particularly among the unvaccinated. In-the-midst of changing conditions, the Company has nevertheless been able to manage its business with minimal impact during the three and nine month periods ended September 30, 2022 and 2021. |
SUMMARY OF SIGNIFICANT ACCOUN_2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 9 Months Ended |
Sep. 30, 2022 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 2 Revenue Recognition 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 ASC Topic 606 Revenue from Contracts with Customers 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, Apple’s App Store, the Google Play Store, and retail distributor. For sales of our software products via third-party digital storefronts and retail distributor, we determine whether or not we are acting as the principal in the sale to the end user, which we consider 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 we use 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 we have determined we are the agent in the sales transaction to the end user and therefore we report 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, we have discretion in establishing the price for the specified good or service and we have determined that we are the principal to the end user and thus report 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. The Company also has a long-term title license agreement with a platform for a period of three years. The Company recognizes deferred revenue and amortizes this revenue according to the terms of the relevant agreement. 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 ARK 2 ARK 1 ARK 2 In November 2021, the Company entered an agreement with a platform to make ARK 1 The Company entered into a non-exclusive license agreement with a platform in February 2020 to make ARK 1 ARK 1 Estimated Service Period For certain performance obligations satisfied over time, we have 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. We consider a variety of data points when determining and subsequently reassessing the estimated service period for players of our software products. Primarily, we review the weighted average number of days between players’ first and last days played online. When a new game is launched and no history of online player data is available, we consider other factors to determine the user life, such as the estimated service period of other games actively being sold with similar characteristics. We also consider known online trends, the service periods of our previously released software products, and, to the extent publicly available, the service periods of our competitors’ software products that are similar in nature to ours. We believe this provides a reasonable depiction of the use of games by our customers, as it is the best representation of the period during which our customers play our software products. 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 virtual goods are generally approximately 30 to 100 days. Shipping and Handling The distributor, as the principal, is responsible for the shipping of the game discs to the retail stores and incurring the shipping costs. The Company is paid the net sales amount after deducting shipping costs 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 and amortization costs. Cost of revenues for the three and nine month periods ended September 30, 2022 and 2021 were comprised of the following: Three months ended Nine months ended September 30, September 30, 2022 2021 2022 2021 Software license royalties - related parties $ 3,428,231 $ 4,954,040 $ 13,314,258 $ 17,046,875 Software license royalties 47,020 — 47,020 — License and amortization - related parties 6,350,979 8,483,182 19,052,938 24,169,714 License and amortization 224 155,701 250,672 456,149 Game localization 840 5,727 840 47,100 Merchant fees 602,814 847,610 1,856,371 2,878,020 Engine fees 359,263 552,913 1,575,942 2,453,533 Internet, server and data center 535,399 479,154 1,502,631 1,329,670 Costs related to advertising revenue 144,191 — 144,191 — Total: $ 11,468,961 $ 15,478,327 $ 37,744,863 $ 48,381,061 Advertising and Marketing Costs The Company expenses advertising costs as incurred. For the three months ended September 30, 2022 and 2021, advertising expense totaled $198,417 and $148,752, respectively. For the nine months ended September 30, 2022 and 2021, advertising expenses totaled $569,127 and $265,812, 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 September 30, 2022 and 2021 were $116,624 and $216,798, respectively. Research and development costs for the nine months ended September 30, 2022 and 2021 were $479,630 and $588,207, 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 September 30, 2022 and December 31, 2021, 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 % 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 re-measured the fair value of one of its intangible assets, Atlas Intangible Assets 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 September 30, 2022 and December 31, 2021, the Company had deposits of $14,037,412 and $15,135,863, respectively, that were not insured by the Federal Deposit Insurance Corporation. 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. At September 30, 2022 and December 31, 2021, the Company had two customers who accounted for approximately 58% and four customers who accounted for approximately 86% of consolidated gross receivables, respectively. Among the two customers as of September 30, 2022 and four customers as of December 31, 2021, each customer accounted for 30% and 28% as of September 30, 2022, and 29%, 28%, 17%, and 12% as of December 31, 2021 of the consolidated gross receivables outstanding. During the three months ended September 30, 2022 and 2021, approximately 43% and 57%, respectively, of net revenue was derived from these customers. During the nine months ended September 30, 2022 and 2021, approximately 56% and 73%, respectively, of net revenue was derived from these customers. In January 2022, the Company received approximately $1,500,000 from Pound Sand, LLC in connection with the Company’s sale of its membership interest in Pound Sand, LLC on December 3, 2020; this amount was included as a receivable in the other current assets as of December 31, 2021 in the accompanying condensed consolidated balance sheets. Leases The Company has several leases relating primarily to office facilities. The Company determines if an arrangement is or contains a lease at contract inception. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The lease liability is measured as the present value of the unpaid lease payments, and the right-of-use asset value is derived from the calculation of the lease liability. Lease payments include fixed and in-substance fixed payments, variable payments based on an index or rate, reasonably certain purchase options, and termination penalties. Variable lease payments are recognized as lease expenses as incurred, and generally relate to variable payments made based on the level of services provided by the landlords of our leases. For leased assets with similar lease terms and asset types, we applied a portfolio approach in determining a single incremental borrowing rate for the leased assets. The Company uses its estimated incremental borrowing rate, which is derived from information available at the lease commencement date, in determining the present value of lease payments because the Company does not have the information necessary to determine the rate implicit in the lease. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term. The Company’s lease term includes any option to extend the lease when it is reasonably certain to be exercised based on considering all relevant factors. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheets and we recognize lease expense for these leases on a straight-line basis over the lease term. Operating leases are included in operating lease right-of-use assets, net, current portion of operating lease liabilities, and operating lease liabilities, net of current portion on the consolidated balance sheets. Recently Issued Accounting Pronouncements In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832) – Disclosures by Business Entities about Government Assistance Revolving Loan, Short Term Note and Long-Term Debt Earnings Per Share The Company analyzed the calculation of net income (loss) per share for the three and nine month periods ended September 30, 2022, and 2021 and determined that it resulted in values that would not be meaningful to the users of these condensed consolidated financial statements given the impact of the exchange of shares in connection with the IPO, see Note 19 – Subsequent Events . Therefore, net income (loss) per share information has not been presented for the three and nine months presented. CARES Act On March 27, 2020, President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act.” The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property, the Company did not result in a material cash benefit as a result of these provision. The CARES Act is a stimulus package that provides various forms of relief through, among other things, grants, loans and tax incentives to certain businesses and individuals. In particular, the CARES Act created an emergency lending facility known as the PPP, which is administered by the U.S. Small Business Administration (“SBA”) and provides federally insured and, in some cases, forgivable loans to certain eligible businesses so that those businesses can continue to cover certain of their near-term operating expenses and retain employees. See Note 15 – Revolving Loan, Short Term Note, and Long-Term Debt Dividend Restrictions Our ability to pay cash dividends is currently restricted by the terms of our credit facilities. |
REVENUE FROM CONTRACTS WITH CUS
REVENUE FROM CONTRACTS WITH CUSTOMERS | 9 Months Ended |
Sep. 30, 2022 | |
REVENUE FROM CONTRACTS WITH CUSTOMERS | |
REVENUE FROM CONTRACTS WITH CUSTOMERS | NOTE 3 Disaggregation of revenue Geography We attribute net revenue to geographic regions based on customer location. Net revenue by geographic region for the three and nine month periods ended September 30, 2022 and 2021 were as follows: Three months ended Nine months ended September 30, September 30, 2022 2021 2022 2021 United States $ 14,767,182 $ 22,226,122 $ 55,025,810 $ 73,482,250 International 846,989 2,134,897 4,106,474 9,717,948 Total revenue from contracts with customers: $ 15,614,171 $ 24,361,019 $ 59,132,284 $ 83,200,198 Platform Net revenue by platform for the three and nine month periods ended September 30, 2022 and 2021 were as follows: Three months ended Nine months ended September 30, September 30, 2022 2021 2022 2021 Console $ 3,750,029 $ 8,979,422 $ 27,157,380 $ 36,441,184 PC 9,315,721 11,886,422 22,943,193 34,623,623 Mobile 2,161,624 3,116,517 7,346,822 10,046,412 Other 386,797 378,658 1,684,889 2,088,979 Total revenue from contracts with customers: $ 15,614,171 $ 24,361,019 $ 59,132,284 $ 83,200,198 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 nine month periods ended September 30, 2022 and 2021 was as follows: Three months ended Nine months ended September 30, September 30, 2022 2021 2022 2021 Digital $ 13,065,750 $ 20,865,844 $ 50,100,573 $ 71,064,807 Mobile 2,161,624 3,116,517 7,346,822 10,046,412 Physical retail and other 386,797 378,658 1,684,889 2,088,979 Total revenue from contracts with customers: $ 15,614,171 $ 24,361,019 $ 59,132,284 $ 83,200,198 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 due primarily to the recognition of revenue upon fulfillment of our performance obligations, which were in the ordinary course of business. Activities in the Company’s deferred revenue as of September 30, 2022 and December 31, 2021 were as follows: September 30, December 31, 2022 2021 Deferred revenue, beginning balance in advance of revenue recognition billing $ 20,280,934 $ 34,529,335 Revenue recognized (13,039,126) (26,478,997) Revenue deferred 5,741,390 12,230,596 Deferred revenue, ending balance 12,983,198 20,280,934 Less: short term portion 3,934,693 11,005,517 Deferred revenue, long term $ 9,048,505 $ 9,275,417 |
CASH, AND RESTRICTED CASH AND C
CASH, AND RESTRICTED CASH AND CASH EQUIVALENTS | 9 Months Ended |
Sep. 30, 2022 | |
CASH, AND RESTRICTED CASH AND CASH EQUIVALENTS | |
CASH, AND RESTRICTED CASH AND CASH EQUIVALENTS | NOTE 4 Cash equivalents are valued using quoted market prices or other readily available market information. The Company has $6,368,016 and $6,389,777 as of September 30, 2022 and December 31, 2021, respectively, as security for the debt with a financial institution (see Note 15 — Revolving Loan, Short Term Note, and Long-Term Debt 2022 2021 Cash $ 9,044,666 $ 19,716,853 Restricted cash and cash equivalents 6,368,016 6,382,574 Cash, and restricted cash and cash equivalents $ 15,412,682 $ 26,099,427 |
ACCOUNTS RECEIVABLE - RELATED P
ACCOUNTS RECEIVABLE - RELATED PARTY | 9 Months Ended |
Sep. 30, 2022 | |
ACCOUNTS RECEIVABLE - RELATED PARTY | |
ACCOUNTS RECEIVABLE - RELATED PARTY | NOTE 5 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 and Chairman of the Company. As of September 30, 2022 and December 31, 2021, the outstanding balance of net accounts receivable from related party was as follows: 2022 2021 Accounts receivable - related party $ 13,519,409 $ 13,519,409 Less: Accounts payable - related party (1,279,979) (5,083,586) Accounts receivable - related party, net $ 12,239,430 $ 8,435,823 |
DUE FROM SHAREHOLDER
DUE FROM SHAREHOLDER | 9 Months Ended |
Sep. 30, 2022 | |
DUE FROM SHAREHOLDER | |
DUE FROM SHAREHOLDER | NOTE 6 Other receivables from related party consisted of monies that the Company lent to the Company’s Founder and Chairman, who is also the majority shareholder of Suzhou Snail. The loan bore 2.0% per annum interest. Both the loan receivable and the interest receivable are presented as contra equity in our condensed consolidated statements of equity for a total of $94,353,522 as of December 31, 2021. 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 – – Dividend Distribution |
DIVIDEND DISTRIBUTION
DIVIDEND DISTRIBUTION | 9 Months Ended |
Sep. 30, 2022 | |
DIVIDEND DISTRIBUTION | |
DIVIDEND DISTRIBUTION | NOTE 7 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. |
PREPAID EXPENSES - RELATED PART
PREPAID EXPENSES - RELATED PARTY | 9 Months Ended |
Sep. 30, 2022 | |
PREPAID EXPENSES - RELATED PARTY | |
PREPAID EXPENSES - RELATED PARTY | NOTE 8 During the nine month period ended September 30, 2022 the Company prepaid $5,000,000 for exclusive license rights to ARK 2 2022 2021 Prepaid royalties $ 1,520,000 $ 3,145,000 Prepaid licenses 6,500,000 — Prepaid expenses - related party, ending balance 8,020,000 3,145,000 Less: short-term portion (1,500,000) (3,145,000) Total prepaid expenses - related party, long-term $ 6,520,000 $ — |
PREPAID EXPENSES AND OTHER CURR
PREPAID EXPENSES AND OTHER CURRENT ASSETS | 9 Months Ended |
Sep. 30, 2022 | |
PREPAID EXPENSES AND OTHER CURRENT ASSETS | |
PREPAID EXPENSES AND OTHER CURRENT ASSETS | NOTE 9 In January 2022, the Company received $1,500,000 from Pound Sand, LLC in connection with the Company’s sale of its membership interest in Pound Sand, LLC on December 3, 2020; this amount was included as a receivable in the prepaid expenses and other current assets as of December 31, 2021 in the accompanying condensed consolidated balance sheets. Prepaid expenses and other current assets consisted of the following as of September 30, 2022 and December 31, 2021: 2022 2021 Prepaid income taxes $ 9,076,317 $ 8,217,660 Other prepaids 2,404,370 861,332 Other current assets 224,210 1,938,015 Total prepaid expenses and other current assets $ 11,704,897 $ 11,017,007 |
PROPERTY, PLANT AND EQUIPMENT,
PROPERTY, PLANT AND EQUIPMENT, NET | 9 Months Ended |
Sep. 30, 2022 | |
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 September 30, 2022 and December 31, 2021: 2022 2021 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 178,695 267,093 Computer and equipment 1,821,819 1,830,949 Furniture and fixtures 411,801 411,801 9,534,357 9,631,885 Accumulated depreciation (4,289,086) (3,953,184) Property, plant and equipment, net $ 5,245,271 $ 5,678,701 Depreciation and amortization expense was $128,536 and $208,896 for the three months ended September 30, 2022 and 2021, respectively. Depreciation and amortization expense was $435,644 and $638,659 for the nine months ended September 30, 2022 and 2021, respectively. |
INTANGIBLE ASSETS
INTANGIBLE ASSETS | 9 Months Ended |
Sep. 30, 2022 | |
INTANGIBLE ASSETS | |
INTANGIBLE ASSETS | NOTE 11 – INTANGIBLE ASSETS Intangible assets of trademark and technology consist of game license software underlying intellectual property rights, game trademark name, logo, and other branding items. The Company amortizes the intangible assets over its useful life. During 2021, the Company impaired the Atlas September 30, 2022 Gross Weighted Carrying Accumulated Impairment Net Book Average Amount Amortization Loss Value Useful Life License rights from related parties $ 136,665,000 $ (133,429,962) $ — $ 3,235,038 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 (6,031) — 4,714 15 years In-progress patent 270,886 — — 270,886 Total: $ 333,415 $ (57,815) $ — $ 275,600 December 31, 2021 Gross Weighted Carrying Accumulated Impairment Net Book Average Amount Amortization Loss Value Useful Life License rights from related parties $ 152,990,000 $ (127,877,024) $ (16,325,000) $ 8,787,976 3 License rights $ 3,000,000 $ (2,750,000) $ — $ 250,000 5 years Intangible assets - other: Software $ 51,784 $ (50,908) $ — $ 876 3 years Trademark 10,745 (5,359) — 5,386 15 years In-progress patent 270,886 — — 270,886 Total: $ 333,415 $ (56,267) $ — $ 277,148 Amortization expense was $1,851,203 and $4,139,551 for the three months ended September 30, 2022 and 2021, respectively. Amortization expense was $5,803,610 and $11,131,342 for the nine months ended September 30, 2022 and 2021, respectively. These amounts are included in cost of revenues in the accompanying condensed consolidated statements of operations and comprehensive income (loss). Future amortization expense of intangible assets is as follows: Years ending December 31, Amount Remainder of 2022 $ 1,851,205 2023 1,384,927 2024 804 2025 803 2026 743 Thereafter 272,156 $ 3,510,638 |
ACCOUNTS PAYABLE RELATED PARTY
ACCOUNTS PAYABLE RELATED PARTY | 9 Months Ended |
Sep. 30, 2022 | |
ACCOUNTS PAYABLE RELATED PARTY | |
ACCOUNTS PAYABLE RELATED PARTY | NOTE 12 – ACCOUNTS PAYABLE — RELATED PARTY Accounts payable 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 September 30, 2022 and December 31, 2021, the Company had $22,330,781 and $23,733,572, respectively, as accounts payable due to Suzhou Snail. For the three months ended September 30, 2022 and 2021, the Company incurred $94,836 and $200,239, respectively as license costs due to Suzhou Snail. During the nine months ended September 30, 2022 and 2021, the Company incurred $316,869 and $592,262, respectively as license costs due to Suzhou Snail. During the nine months ended September 30, 2022, there was $1,719,660 paid to Suzhou Snail for royalties. There were no such payments made during the nine months ended September 30, 2021. |
LOAN AND INTEREST RECEIVABLE -
LOAN AND INTEREST RECEIVABLE - RELATED PARTY | 9 Months Ended |
Sep. 30, 2022 | |
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 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 |
LOAN PAYABLE AND INTEREST PAYAB
LOAN PAYABLE AND INTEREST PAYABLE - RELATED PARTIES | 9 Months Ended |
Sep. 30, 2022 | |
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 |
REVOLVING LOAN, SHORT TERM NOTE
REVOLVING LOAN, SHORT TERM NOTE AND LONG-TERM DEBT | 9 Months Ended |
Sep. 30, 2022 | |
Debt Disclosure [Abstract] | |
REVOLVING LOAN, SHORT TERM NOTE AND LONG-TERM DEBT | NOTE 15 – REVOLVING LOAN, SHORT TERM NOTE AND LONG-TERM DEBT September 30, December 31, 2022 2021 PPP Promissory Note - $ — $ 216,329 2021 Revolving Loan - 9,000,000 9,000,000 2021 Promissory Note - 2,904,815 2,962,782 2022 Short Term Note Subsequent Events. 6,666,667 — Total 18,571,482 12,179,111 Less: current portion 15,746,092 9,293,677 Total long-term debt $ 2,825,390 $ 2,885,434 Total interest expense for the above debt and revolver loan amounted to $254,480 and $105,577 for the three months ended, September 30, 2022 and 2021, respectively. Total interest expense for above debt and revolver loan amounted to $594,171 and $281,680 for the nine months ended September 30, 2022 and 2021, respectively. Amortization of loan origination expenses of $6,590 and $8,870 are included as part of interest expense for the three months ended September 30, 2022 and 2021, respectively. Amortization of loan origination expenses of $19,149 and $22,388 are included as part of interest expense for the nine months ended September 30, 2022 and 2021, respectively. The Company is in compliance with its debt covenants as of September 30, 2022 and December 31, 2021. The following table provides future minimum payments of its long-term debt as of December 31: Years ending December 31, Amount Remainder of 2022 $ 1,269,381 2023 14,496,804 2024 82,748 2025 86,013 2026 89,115 Thereafter 2,547,421 $ 18,571,482 |
INCOME TAXES
INCOME TAXES | 9 Months Ended |
Sep. 30, 2022 | |
INCOME TAXES | |
INCOME TAXES | NOTE 16 – INCOME TAXES 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, 2018 and after. The statute of limitations for its consolidated California income tax returns are open for tax years ended December 31, 2017 and after. All tax periods for its Polish subsidiary are currently subject to examination since its inception in 2018. The Company recognized an income tax benefit of $398,998 and expense of $891,538 for the three months ended September 30, 2022 and 2021, respectively, reflecting an effective tax rate of 20.5% and 19.2% for the three month periods ended September 30, 2022 and 2021, respectively. The income tax expense of $803,305 and $4,214,245 for the nine months ended September 30, 2022 and 2021, respectively, reflects an effective tax rate of 19.7% for the period ended September 30, 2022 and 19.8% for the period ended September 30, 2021. At September 30, 2022, the Company’s effective tax rate of 19.7% was less than the federal statutory rate of 21.0% primarily due to the impact of foreign taxes. |
OPERATING LEASE RIGHT-OF-USE AS
OPERATING LEASE RIGHT-OF-USE ASSETS | 9 Months Ended |
Sep. 30, 2022 | |
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 September 30, 2022 and December 31, 2021 the Company’s net operating lease right-of-use assets amounted to $3,887,326 and $5,100,912, respectively. During the nine months ended September 30, 2022, the Company terminated one of its lease contracts and had a second expire. One of the Company’s lease contracts resulted in a gain on the lease termination of $122,533. There were no such terminations during the year ended December 31, 2021. The effects of the termination and expiration of the Company’s lease contracts on the related lease asset and liability were as follows: Right of Use Accumulated Lease Liability Gain on Asset Amortization Current Long Term Termination Lease Terminations $ (1,301,571) $ 907,370 $ 442,704 $ 74,030 $ 122,533 |
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES | 9 Months Ended |
Sep. 30, 2022 | |
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, we 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. As of December 31, 2021, the Company had an estimated accrual of $1,330,000, as a result of a pending litigation settlement. Such amount is included in accrued expenses on the accompanying condensed consolidated balance sheets. The Company paid the balance of $1,330,000 during the nine month period ended September 30, 2022. 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 ARK: Survival Evolved Myth of Empires Myth of Empires Myth of Empires 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 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 ARK: Survival Evolved 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 have also retained their own experts to compare the code. The district court has set no discovery deadlines or a trial date. At this time, we are unable to quantify the magnitude of the potential loss should the plaintiffs’ lawsuit succeed. The Company has not recorded any accrual as the legal costs are borne by Studio Wildcard. |
SUBSEQUENT EVENTS_2
SUBSEQUENT EVENTS | 9 Months Ended |
Sep. 30, 2022 | |
SUBSEQUENT EVENTS | |
SUBSEQUENT EVENTS | NOTE 19 – SUBSEQUENT EVENTS ● On September 16, 2022, the Company’s parent, Snail, Inc., filed a Form S-1 Registration Statement with the United States Securities and Exchange Commission in connection with its IPO. On November 9, 2022, effective with the IPO pricing, the Company’s existing shareholders transferred their 500,000 shares of common stock of the Company 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. On November 9, 2022 the Company’s parent, Snail, Inc., priced its IPO, and on November 10, 2022, Snail, Inc.’s Class A common stock began trading on The Nasdaq Capital Market exchange under the ticker symbol SNAL. In the IPO, Snail, Inc. issued 3,000,000 shares of Class A common stock and net proceeds from the IPO were distributed to the Company in November 2022 in the amount of approximately $12.0 million. In connection with the IPO, $1.0 million of 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 will be reported as restricted cash 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. In the IPO, Snail, Inc. also issued to the underwriters warrants to purchase 120,000 shares of Class A common stock at 125% of the IPO price, or $6.25 per share. The warrants are exercisable for three years from the effective date of registration. The underwriters were also granted an option to purchase up to an additional 450,000 shares of Class A common stock that expires on December 19, 2022, and the underwriters have not exercised the option. ● The Company’s 2022 Omnibus Incentive Plan (the “2022 Plan”) became effective upon the consummation of the IPO. The 2022 Plan is administered by the compensation committee of the board of directors. The maximum number of shares available for issuance under the 2022 Plan is 5,718,000 . The 2022 Plan permits the grant of restricted stock units (“RSUs”). RSU grants of shares of Class A common stock are subject to certain vesting conditions and restrictions specified in the applicable RSU award agreement. Any employee, non-employee director or consultant is eligible to receive equity-based compensation in the form of RSUs pursuant to the 2022 Plan. In November 2022, employees were granted 1,200,960 RSUs at a value of $6.0 million and non-employee directors were granted 24,000 RSUs at a value of $0.1 million. ● In November 2022, the Company received a $2.5 million refund of prior year California income tax relating to the Company’s implementation of California’s adopted market-based sourcing rules in income years open for refund. Subsequent years’ returns have been filed using the same methodology on which these refund claims were granted following California Franchise Tax Board review. ● On November 10, 2022, the Snail, Inc. board of directors approved and established a new share repurchase program (the “Share Repurchase Program”) to reacquire shares of Snail, Inc.’s Class A common stock. The maximum aggregate value of the shares repurchased shall not exceed $5.0 million, and there is no fixed expiration date on the Share Repurchase Program. The exact number of shares of Class A common stock and timing and method of the repurchase are at the discretion of the CEO, CFO and Treasurer. As of December 13, 2022, 1,090,877 shares of Class A common stock were repurchased pursuant to the Share Repurchase Program and the average price paid per share was $2.98 . ● In December 2022, the Company extended the maturity of its term loan from January 26, 2023 to January 26, 2024 for the remaining balance outstanding at the time of the extension, which was $5.8 million. The rate has also been amended to the higher of the Wall Street Journal Prime Rate less 0.25% or 5.75% . A modification fee of $9,375 was paid in connection with the maturity extension. ● In December 2022, the Company amended its exclusive license agreement relating to ARK 1 . The license fee has been restructured so that the Company will pay 45% of total revenue of ARK 1 as a royalty instead of the $1.5 million monthly fee plus 25% of the total ARK 1 revenue once the sequel, ARK 2 , is publicly released. |
SUMMARY OF SIGNIFICANT ACCOUN_3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 9 Months Ended |
Sep. 30, 2022 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
Revenue Recognition | Revenue Recognition 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 ASC Topic 606 Revenue from Contracts with Customers 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, Apple’s App Store, the Google Play Store, and retail distributor. For sales of our software products via third-party digital storefronts and retail distributor, we determine whether or not we are acting as the principal in the sale to the end user, which we consider 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 we use 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 we have determined we are the agent in the sales transaction to the end user and therefore we report 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, we have discretion in establishing the price for the specified good or service and we have determined that we are the principal to the end user and thus report 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. The Company also has a long-term title license agreement with a platform for a period of three years. The Company recognizes deferred revenue and amortizes this revenue according to the terms of the relevant agreement. 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 ARK 2 ARK 1 ARK 2 In November 2021, the Company entered an agreement with a platform to make ARK 1 The Company entered into a non-exclusive license agreement with a platform in February 2020 to make ARK 1 ARK 1 Estimated Service Period For certain performance obligations satisfied over time, we have 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. We consider a variety of data points when determining and subsequently reassessing the estimated service period for players of our software products. Primarily, we review the weighted average number of days between players’ first and last days played online. When a new game is launched and no history of online player data is available, we consider other factors to determine the user life, such as the estimated service period of other games actively being sold with similar characteristics. We also consider known online trends, the service periods of our previously released software products, and, to the extent publicly available, the service periods of our competitors’ software products that are similar in nature to ours. We believe this provides a reasonable depiction of the use of games by our customers, as it is the best representation of the period during which our customers play our software products. 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 virtual goods are generally approximately 30 to 100 days. Shipping and Handling The distributor, as the principal, is responsible for the shipping of the game discs to the retail stores and incurring the shipping costs. The Company is paid the net sales amount after deducting shipping costs and other related expenses by the distributor. |
Cost of Revenues | Cost of Revenues Cost of revenues include software license royalty fees, merchant fees, server and database center costs, game localization costs, game licenses and amortization costs. Cost of revenues for the three and nine month periods ended September 30, 2022 and 2021 were comprised of the following: Three months ended Nine months ended September 30, September 30, 2022 2021 2022 2021 Software license royalties - related parties $ 3,428,231 $ 4,954,040 $ 13,314,258 $ 17,046,875 Software license royalties 47,020 — 47,020 — License and amortization - related parties 6,350,979 8,483,182 19,052,938 24,169,714 License and amortization 224 155,701 250,672 456,149 Game localization 840 5,727 840 47,100 Merchant fees 602,814 847,610 1,856,371 2,878,020 Engine fees 359,263 552,913 1,575,942 2,453,533 Internet, server and data center 535,399 479,154 1,502,631 1,329,670 Costs related to advertising revenue 144,191 — 144,191 — Total: $ 11,468,961 $ 15,478,327 $ 37,744,863 $ 48,381,061 |
Advertising and Marketing Costs | Advertising and Marketing Costs The Company expenses advertising costs as incurred. For the three months ended September 30, 2022 and 2021, advertising expense totaled $198,417 and $148,752, respectively. For the nine months ended September 30, 2022 and 2021, advertising expenses totaled $569,127 and $265,812, respectively. |
Research and Development | 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 September 30, 2022 and 2021 were $116,624 and $216,798, respectively. Research and development costs for the nine months ended September 30, 2022 and 2021 were $479,630 and $588,207, respectively. |
Non-controlling Interests | 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 September 30, 2022 and December 31, 2021, 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 % |
Fair Value Measurements | 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 re-measured the fair value of one of its intangible assets, Atlas Intangible Assets |
Concentration of Credit Risk and Significant Customers | 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 September 30, 2022 and December 31, 2021, the Company had deposits of $14,037,412 and $15,135,863, respectively, that were not insured by the Federal Deposit Insurance Corporation. 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. At September 30, 2022 and December 31, 2021, the Company had two customers who accounted for approximately 58% and four customers who accounted for approximately 86% of consolidated gross receivables, respectively. Among the two customers as of September 30, 2022 and four customers as of December 31, 2021, each customer accounted for 30% and 28% as of September 30, 2022, and 29%, 28%, 17%, and 12% as of December 31, 2021 of the consolidated gross receivables outstanding. During the three months ended September 30, 2022 and 2021, approximately 43% and 57%, respectively, of net revenue was derived from these customers. During the nine months ended September 30, 2022 and 2021, approximately 56% and 73%, respectively, of net revenue was derived from these customers. In January 2022, the Company received approximately $1,500,000 from Pound Sand, LLC in connection with the Company’s sale of its membership interest in Pound Sand, LLC on December 3, 2020; this amount was included as a receivable in the other current assets as of December 31, 2021 in the accompanying condensed consolidated balance sheets. |
Leases | Leases The Company has several leases relating primarily to office facilities. The Company determines if an arrangement is or contains a lease at contract inception. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The lease liability is measured as the present value of the unpaid lease payments, and the right-of-use asset value is derived from the calculation of the lease liability. Lease payments include fixed and in-substance fixed payments, variable payments based on an index or rate, reasonably certain purchase options, and termination penalties. Variable lease payments are recognized as lease expenses as incurred, and generally relate to variable payments made based on the level of services provided by the landlords of our leases. For leased assets with similar lease terms and asset types, we applied a portfolio approach in determining a single incremental borrowing rate for the leased assets. The Company uses its estimated incremental borrowing rate, which is derived from information available at the lease commencement date, in determining the present value of lease payments because the Company does not have the information necessary to determine the rate implicit in the lease. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term. The Company’s lease term includes any option to extend the lease when it is reasonably certain to be exercised based on considering all relevant factors. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheets and we recognize lease expense for these leases on a straight-line basis over the lease term. Operating leases are included in operating lease right-of-use assets, net, current portion of operating lease liabilities, and operating lease liabilities, net of current portion on the consolidated balance sheets. |
Recently Issued Accounting Pronouncements | Recently Issued Accounting Pronouncements In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832) – Disclosures by Business Entities about Government Assistance Revolving Loan, Short Term Note and Long-Term Debt |
Earnings Per Share | Earnings Per Share The Company analyzed the calculation of net income (loss) per share for the three and nine month periods ended September 30, 2022, and 2021 and determined that it resulted in values that would not be meaningful to the users of these condensed consolidated financial statements given the impact of the exchange of shares in connection with the IPO, see Note 19 – Subsequent Events . Therefore, net income (loss) per share information has not been presented for the three and nine months presented. |
CARES Act | CARES Act On March 27, 2020, President Trump signed into law the “Coronavirus Aid, Relief, and Economic Security (CARES) Act.” The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property, the Company did not result in a material cash benefit as a result of these provision. The CARES Act is a stimulus package that provides various forms of relief through, among other things, grants, loans and tax incentives to certain businesses and individuals. In particular, the CARES Act created an emergency lending facility known as the PPP, which is administered by the U.S. Small Business Administration (“SBA”) and provides federally insured and, in some cases, forgivable loans to certain eligible businesses so that those businesses can continue to cover certain of their near-term operating expenses and retain employees. See Note 15 – Revolving Loan, Short Term Note, and Long-Term Debt |
Dividend Restrictions | Dividend Restrictions Our ability to pay cash dividends is currently restricted by the terms of our credit facilities. |
PRESENTATION AND NATURE OF OP_2
PRESENTATION AND NATURE OF OPERATIONS (Tables) | 9 Months Ended |
Sep. 30, 2022 | |
PRESENTATION AND NATURE OF OPERATIONS | |
Summary of subsidiaries included in the condensed consolidated financial statements | Equity % Subsidiary Name Owned Snail Innovation Institute 70 % Frostkeep Studios, Inc. 100 % Eminence Corp 100 % Wandering Wizard, LLC 100 % Donkey Crew Limited Liability Company 99 % Interactive Films, LLC 100 % Project AWK Productions, LLC 100 % BTBX.IO, LLC 70 % Elephant Snail, LLC (through April 15, 2021) 51 % |
SUMMARY OF SIGNIFICANT ACCOUN_4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) | 9 Months Ended |
Sep. 30, 2022 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
Schedule of Cost of revenues | Three months ended Nine months ended September 30, September 30, 2022 2021 2022 2021 Software license royalties - related parties $ 3,428,231 $ 4,954,040 $ 13,314,258 $ 17,046,875 Software license royalties 47,020 — 47,020 — License and amortization - related parties 6,350,979 8,483,182 19,052,938 24,169,714 License and amortization 224 155,701 250,672 456,149 Game localization 840 5,727 840 47,100 Merchant fees 602,814 847,610 1,856,371 2,878,020 Engine fees 359,263 552,913 1,575,942 2,453,533 Internet, server and data center 535,399 479,154 1,502,631 1,329,670 Costs related to advertising revenue 144,191 — 144,191 — Total: $ 11,468,961 $ 15,478,327 $ 37,744,863 $ 48,381,061 |
Schedule of Equity interest and Non controlling interest in subsidiaries | As of September 30, 2022 and December 31, 2021, 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 % |
REVENUE FROM CONTRACTS WITH C_2
REVENUE FROM CONTRACTS WITH CUSTOMERS (Tables) | 9 Months Ended |
Sep. 30, 2022 | |
REVENUE FROM CONTRACTS WITH CUSTOMERS | |
Schedule of disaggregation of revenue | Three months ended Nine months ended September 30, September 30, 2022 2021 2022 2021 United States $ 14,767,182 $ 22,226,122 $ 55,025,810 $ 73,482,250 International 846,989 2,134,897 4,106,474 9,717,948 Total revenue from contracts with customers: $ 15,614,171 $ 24,361,019 $ 59,132,284 $ 83,200,198 Three months ended Nine months ended September 30, September 30, 2022 2021 2022 2021 Console $ 3,750,029 $ 8,979,422 $ 27,157,380 $ 36,441,184 PC 9,315,721 11,886,422 22,943,193 34,623,623 Mobile 2,161,624 3,116,517 7,346,822 10,046,412 Other 386,797 378,658 1,684,889 2,088,979 Total revenue from contracts with customers: $ 15,614,171 $ 24,361,019 $ 59,132,284 $ 83,200,198 Three months ended Nine months ended September 30, September 30, 2022 2021 2022 2021 Digital $ 13,065,750 $ 20,865,844 $ 50,100,573 $ 71,064,807 Mobile 2,161,624 3,116,517 7,346,822 10,046,412 Physical retail and other 386,797 378,658 1,684,889 2,088,979 Total revenue from contracts with customers: $ 15,614,171 $ 24,361,019 $ 59,132,284 $ 83,200,198 |
Schedule of deferred Revenue | September 30, December 31, 2022 2021 Deferred revenue, beginning balance in advance of revenue recognition billing $ 20,280,934 $ 34,529,335 Revenue recognized (13,039,126) (26,478,997) Revenue deferred 5,741,390 12,230,596 Deferred revenue, ending balance 12,983,198 20,280,934 Less: short term portion 3,934,693 11,005,517 Deferred revenue, long term $ 9,048,505 $ 9,275,417 |
CASH, AND RESTRICTED CASH AND_2
CASH, AND RESTRICTED CASH AND CASH EQUIVALENTS (Tables) | 9 Months Ended |
Sep. 30, 2022 | |
CASH, AND RESTRICTED CASH AND CASH EQUIVALENTS | |
Components of the Company's cash, and restricted cash and cash equivalents | 2022 2021 Cash $ 9,044,666 $ 19,716,853 Restricted cash and cash equivalents 6,368,016 6,382,574 Cash, and restricted cash and cash equivalents $ 15,412,682 $ 26,099,427 |
ACCOUNTS RECEIVABLE - RELATED_2
ACCOUNTS RECEIVABLE - RELATED PARTY (Tables) | 9 Months Ended |
Sep. 30, 2022 | |
ACCOUNTS RECEIVABLE - RELATED PARTY | |
Schedule of outstanding balance of net accounts receivable from related party | 2022 2021 Accounts receivable - related party $ 13,519,409 $ 13,519,409 Less: Accounts payable - related party (1,279,979) (5,083,586) Accounts receivable - related party, net $ 12,239,430 $ 8,435,823 |
PREPAID EXPENSES - RELATED PA_2
PREPAID EXPENSES - RELATED PARTY (Tables) | 9 Months Ended |
Sep. 30, 2022 | |
PREPAID EXPENSES - RELATED PARTY | |
Schedule of prepaid expenses - related party | 2022 2021 Prepaid royalties $ 1,520,000 $ 3,145,000 Prepaid licenses 6,500,000 — Prepaid expenses - related party, ending balance 8,020,000 3,145,000 Less: short-term portion (1,500,000) (3,145,000) Total prepaid expenses - related party, long-term $ 6,520,000 $ — |
PREPAID EXPENSES AND OTHER CU_2
PREPAID EXPENSES AND OTHER CURRENT ASSETS (Tables) | 9 Months Ended |
Sep. 30, 2022 | |
PREPAID EXPENSES AND OTHER CURRENT ASSETS | |
Schedule of prepaid expenses and other current assets | 2022 2021 Prepaid income taxes $ 9,076,317 $ 8,217,660 Other prepaids 2,404,370 861,332 Other current assets 224,210 1,938,015 Total prepaid expenses and other current assets $ 11,704,897 $ 11,017,007 |
PROPERTY, PLANT AND EQUIPMENT_2
PROPERTY, PLANT AND EQUIPMENT, NET (Tables) | 9 Months Ended |
Sep. 30, 2022 | |
PROPERTY, PLANT AND EQUIPMENT, NET | |
Schedule of property, plant and equipment, net | 2022 2021 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 178,695 267,093 Computer and equipment 1,821,819 1,830,949 Furniture and fixtures 411,801 411,801 9,534,357 9,631,885 Accumulated depreciation (4,289,086) (3,953,184) Property, plant and equipment, net $ 5,245,271 $ 5,678,701 |
INTANGIBLE ASSETS (Tables)
INTANGIBLE ASSETS (Tables) | 9 Months Ended |
Sep. 30, 2022 | |
INTANGIBLE ASSETS | |
Schedule of intangible assets | September 30, 2022 Gross Weighted Carrying Accumulated Impairment Net Book Average Amount Amortization Loss Value Useful Life License rights from related parties $ 136,665,000 $ (133,429,962) $ — $ 3,235,038 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 (6,031) — 4,714 15 years In-progress patent 270,886 — — 270,886 Total: $ 333,415 $ (57,815) $ — $ 275,600 December 31, 2021 Gross Weighted Carrying Accumulated Impairment Net Book Average Amount Amortization Loss Value Useful Life License rights from related parties $ 152,990,000 $ (127,877,024) $ (16,325,000) $ 8,787,976 3 License rights $ 3,000,000 $ (2,750,000) $ — $ 250,000 5 years Intangible assets - other: Software $ 51,784 $ (50,908) $ — $ 876 3 years Trademark 10,745 (5,359) — 5,386 15 years In-progress patent 270,886 — — 270,886 Total: $ 333,415 $ (56,267) $ — $ 277,148 |
Schedule of future amortization expense of intangible assets | Years ending December 31, Amount Remainder of 2022 $ 1,851,205 2023 1,384,927 2024 804 2025 803 2026 743 Thereafter 272,156 $ 3,510,638 |
REVOLVING LOAN, SHORT TERM NO_2
REVOLVING LOAN, SHORT TERM NOTE AND LONG-TERM DEBT (Tables) | 9 Months Ended |
Sep. 30, 2022 | |
Debt Disclosure [Abstract] | |
Summary of debt | September 30, December 31, 2022 2021 PPP Promissory Note - $ — $ 216,329 2021 Revolving Loan - 9,000,000 9,000,000 2021 Promissory Note - 2,904,815 2,962,782 2022 Short Term Note Subsequent Events. 6,666,667 — Total 18,571,482 12,179,111 Less: current portion 15,746,092 9,293,677 Total long-term debt $ 2,825,390 $ 2,885,434 |
Summary of future minimum payments of its long-term debt | Years ending December 31, Amount Remainder of 2022 $ 1,269,381 2023 14,496,804 2024 82,748 2025 86,013 2026 89,115 Thereafter 2,547,421 $ 18,571,482 |
OPERATING LEASE RIGHT-OF-USE _2
OPERATING LEASE RIGHT-OF-USE ASSETS (Tables) | 9 Months Ended |
Sep. 30, 2022 | |
OPERATING LEASE RIGHT-OF-USE ASSETS | |
Schedule of the effects of the termination and expiration of lease contracts on the related lease asset and liability | Right of Use Accumulated Lease Liability Gain on Asset Amortization Current Long Term Termination Lease Terminations $ (1,301,571) $ 907,370 $ 442,704 $ 74,030 $ 122,533 |
STOCKHOLDERS' EQUITY (Details)
STOCKHOLDERS' EQUITY (Details) - Snail Inc - Mr. Hai Shi, the Founder and Chairman of Registrant | Jan. 14, 2022 USD ($) shares |
STOCKHOLDERS' EQUITY | |
Value of shares contributed by Registrant | $ | $ 100 |
Shares contributed by Registrant | shares | 100 |
PRESENTATION AND NATURE OF OP_3
PRESENTATION AND NATURE OF OPERATIONS - Paragraphs (Details) | 9 Months Ended | |
Jul. 13, 2022 shares | Sep. 30, 2022 segment | |
PRESENTATION AND NATURE OF OPERATIONS | ||
Number of operating segments | 1 | |
Number of reportable segments | 1 | |
Suzhou Snail | Snail Technology | ||
PRESENTATION AND NATURE OF OPERATIONS | ||
Number of shares of common stock issued as per agreement | shares | 500,000 |
PRESENTATION AND NATURE OF OP_4
PRESENTATION AND NATURE OF OPERATIONS - Subsidiaries (Details) | Sep. 30, 2022 |
Snail Innovation Institute | |
PRESENTATION AND NATURE OF OPERATIONS | |
Equity interest owned by the company | 70% |
Donkey Crew Limited Liability Company | |
PRESENTATION AND NATURE OF OPERATIONS | |
Equity interest owned by the company | 99% |
BTBX.IO, LLC | |
PRESENTATION AND NATURE OF OPERATIONS | |
Equity interest owned by the company | 70% |
Subsidiaries | Snail Innovation Institute | |
PRESENTATION AND NATURE OF OPERATIONS | |
Equity interest owned by the company | 70% |
Subsidiaries | Frostkeep Studios, Inc. | |
PRESENTATION AND NATURE OF OPERATIONS | |
Equity interest owned by the company | 100% |
Subsidiaries | Eminence Corp | |
PRESENTATION AND NATURE OF OPERATIONS | |
Equity interest owned by the company | 100% |
Subsidiaries | Wandering Wizard, LLC | |
PRESENTATION AND NATURE OF OPERATIONS | |
Equity interest owned by the company | 100% |
Subsidiaries | Donkey Crew Limited Liability Company | |
PRESENTATION AND NATURE OF OPERATIONS | |
Equity interest owned by the company | 99% |
Subsidiaries | Interactive Films, LLC | |
PRESENTATION AND NATURE OF OPERATIONS | |
Equity interest owned by the company | 100% |
Subsidiaries | Project AWK Productions, LLC | |
PRESENTATION AND NATURE OF OPERATIONS | |
Equity interest owned by the company | 100% |
Subsidiaries | BTBX.IO, LLC | |
PRESENTATION AND NATURE OF OPERATIONS | |
Equity interest owned by the company | 70% |
Subsidiaries | Elephant Snail, LLC (through April 15, 2021) | |
PRESENTATION AND NATURE OF OPERATIONS | |
Equity interest owned by the company | 51% |
SUMMARY OF SIGNIFICANT ACCOUN_5
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Contract Balance and Service Period (Details) - USD ($) | 1 Months Ended | 9 Months Ended | 12 Months Ended | ||||
Nov. 30, 2021 | Jun. 30, 2020 | Feb. 29, 2020 | Nov. 30, 2018 | Sep. 30, 2022 | Dec. 31, 2020 | Dec. 31, 2021 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |||||||
Deferred revenue | $ 12,983,198 | $ 34,529,335 | $ 20,280,934 | ||||
Minimum | |||||||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |||||||
Estimated service period for goods | 30 days | ||||||
Maximum | |||||||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |||||||
Estimated service period for goods | 100 days | ||||||
Long-term title license agreement with platform | |||||||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |||||||
Period of agreement | 3 years | ||||||
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 1 | Non-exclusive license agreement with platform | |||||||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |||||||
Period of agreement | 14 days | ||||||
Proceeds from agreement with customers | $ 8,000,000 | ||||||
Revenue recognized | 4,000,000 | $ 4,000,000 | |||||
ARK 2 | Long-term title license agreement with platform | |||||||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |||||||
Period of agreement | 3 years | ||||||
Deferred revenue | $ 2,300,000 |
SUMMARY OF SIGNIFICANT ACCOUN_6
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Cost of revenues (Details) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2022 | Sep. 30, 2021 | Sep. 30, 2022 | Sep. 30, 2021 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | ||||
Software license royalties - related parties | $ 3,428,231 | $ 4,954,040 | $ 13,314,258 | $ 17,046,875 |
Software license royalties | 47,020 | 47,020 | ||
License and amortization - related parties | 6,350,979 | 8,483,182 | 19,052,938 | 24,169,714 |
License and amortization | 224 | 155,701 | 250,672 | 456,149 |
Game localization | 840 | 5,727 | 840 | 47,100 |
Merchant fees | 602,814 | 847,610 | 1,856,371 | 2,878,020 |
Engine fees | 359,263 | 552,913 | 1,575,942 | 2,453,533 |
Internet, server and data center | 535,399 | 479,154 | 1,502,631 | 1,329,670 |
Costs related to advertising revenue | 144,191 | 144,191 | ||
Total: | $ 11,468,961 | $ 15,478,327 | $ 37,744,863 | $ 48,381,061 |
SUMMARY OF SIGNIFICANT ACCOUN_7
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Advertising and Marketing Costs (Details) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2022 | Sep. 30, 2021 | Sep. 30, 2022 | Sep. 30, 2021 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | ||||
Advertising expense | $ 198,417 | $ 148,752 | $ 569,127 | $ 265,812 |
SUMMARY OF SIGNIFICANT ACCOUN_8
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Research and Development (Details) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2022 | Sep. 30, 2021 | Sep. 30, 2022 | Sep. 30, 2021 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | ||||
Research and development expense | $ 116,624 | $ 216,798 | $ 479,630 | $ 588,207 |
SUMMARY OF SIGNIFICANT ACCOUN_9
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Non controlling interest in subsidiaries (Details) | Sep. 30, 2022 |
Snail Innovation Institute [Member] | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
Equity interest owned by the company | 70% |
Non controlling interest held in a subsidiary | 30% |
B T B X.io, LLC [Member] | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
Equity interest owned by the company | 70% |
Non controlling interest held in a subsidiary | 30% |
Donkey Crew Limited Liability Company [Member] | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
Equity interest owned by the company | 99% |
Non controlling interest held in a subsidiary | 1% |
SUMMARY OF SIGNIFICANT ACCOU_10
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Fair Value Measurements (Details) - Promissory Note 2021 [Member] | 9 Months Ended | |
Jun. 17, 2021 | Sep. 30, 2022 | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | ||
Debt instrument, interest rate, stated percentage, period | 5 years | |
Wall Street Journal Prime Rate | ||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | ||
Debt instrument, interest rate, stated percentage, period | 5 years | |
Floating prime rate | 0.50% |
SUMMARY OF SIGNIFICANT ACCOU_11
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Concentration of Credit Risk (Details) | 1 Months Ended | 3 Months Ended | 9 Months Ended | 12 Months Ended | ||
Jan. 31, 2022 USD ($) | Sep. 30, 2022 USD ($) | Sep. 30, 2021 | Sep. 30, 2022 USD ($) customer | Sep. 30, 2021 | Dec. 31, 2021 USD ($) customer | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | ||||||
Deposits not insured by FDIC | $ 14,037,412 | $ 14,037,412 | $ 15,135,863 | |||
Pound Sand LLC [Member] | ||||||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | ||||||
Proceeds received from sale of membership interest | $ 1,500,000 | |||||
Customer concentration risk | Gross receivables | ||||||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | ||||||
Number of customers | customer | 2 | 4 | ||||
Customer concentration risk | Gross receivables | Customers | ||||||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | ||||||
Concentration percentage | 58% | 86% | ||||
Customer concentration risk | Gross receivables | Customer One | ||||||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | ||||||
Concentration percentage | 30% | 29% | ||||
Customer concentration risk | Gross receivables | Customer Two | ||||||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | ||||||
Concentration percentage | 28% | 28% | ||||
Customer concentration risk | Gross receivables | Customer Three | ||||||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | ||||||
Concentration percentage | 17% | |||||
Customer concentration risk | Gross receivables | Customer Four | ||||||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | ||||||
Concentration percentage | 12% | |||||
Customer concentration risk | Revenues | Customers | ||||||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | ||||||
Concentration percentage | 43% | 57% | 56% | 73% |
REVENUE FROM CONTRACTS WITH C_3
REVENUE FROM CONTRACTS WITH CUSTOMERS - Disaggregation of revenue (Details) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2022 | Sep. 30, 2021 | Sep. 30, 2022 | Sep. 30, 2021 | |
REVENUE FROM CONTRACTS WITH CUSTOMERS | ||||
Total revenue from contracts with customers | $ 15,614,171 | $ 24,361,019 | $ 59,132,284 | $ 83,200,198 |
Digital | ||||
REVENUE FROM CONTRACTS WITH CUSTOMERS | ||||
Total revenue from contracts with customers | 13,065,750 | 20,865,844 | 50,100,573 | 71,064,807 |
Mobile | ||||
REVENUE FROM CONTRACTS WITH CUSTOMERS | ||||
Total revenue from contracts with customers | 2,161,624 | 3,116,517 | 7,346,822 | 10,046,412 |
Physical retail and other | ||||
REVENUE FROM CONTRACTS WITH CUSTOMERS | ||||
Total revenue from contracts with customers | 386,797 | 378,658 | 1,684,889 | 2,088,979 |
Console | ||||
REVENUE FROM CONTRACTS WITH CUSTOMERS | ||||
Total revenue from contracts with customers | 3,750,029 | 8,979,422 | 27,157,380 | 36,441,184 |
PC | ||||
REVENUE FROM CONTRACTS WITH CUSTOMERS | ||||
Total revenue from contracts with customers | 9,315,721 | 11,886,422 | 22,943,193 | 34,623,623 |
Mobile | ||||
REVENUE FROM CONTRACTS WITH CUSTOMERS | ||||
Total revenue from contracts with customers | 2,161,624 | 3,116,517 | 7,346,822 | 10,046,412 |
Other | ||||
REVENUE FROM CONTRACTS WITH CUSTOMERS | ||||
Total revenue from contracts with customers | 386,797 | 378,658 | 1,684,889 | 2,088,979 |
United States | ||||
REVENUE FROM CONTRACTS WITH CUSTOMERS | ||||
Total revenue from contracts with customers | 14,767,182 | 22,226,122 | 55,025,810 | 73,482,250 |
International | ||||
REVENUE FROM CONTRACTS WITH CUSTOMERS | ||||
Total revenue from contracts with customers | $ 846,989 | $ 2,134,897 | $ 4,106,474 | $ 9,717,948 |
REVENUE FROM CONTRACTS WITH C_4
REVENUE FROM CONTRACTS WITH CUSTOMERS - Deferred Revenue (Details) - USD ($) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2022 | Dec. 31, 2021 | |
REVENUE FROM CONTRACTS WITH CUSTOMERS | ||
Deferred revenue, beginning balance in advance of revenue recognition billing | $ 20,280,934 | $ 34,529,335 |
Revenue recognized | (13,039,126) | (26,478,997) |
Revenue deferred | 5,741,390 | 12,230,596 |
Deferred revenue, ending balance | 12,983,198 | 20,280,934 |
Less: short term portion | 3,934,693 | 11,005,517 |
Deferred revenue, long term | $ 9,048,505 | $ 9,275,417 |
CASH, AND RESTRICTED CASH AND_3
CASH, AND RESTRICTED CASH AND CASH EQUIVALENTS (Details) - USD ($) | Sep. 30, 2022 | Dec. 31, 2021 | Sep. 30, 2021 | Dec. 31, 2020 |
CASH, AND RESTRICTED CASH AND CASH EQUIVALENTS | ||||
Cash | $ 9,044,666 | $ 10,164,338 | $ 19,716,853 | |
Restricted cash and cash equivalents | 6,368,016 | 6,389,777 | 6,382,574 | |
Cash, and restricted cash and cash equivalents | $ 15,412,682 | $ 16,554,115 | $ 26,099,427 | $ 33,902,707 |
ACCOUNTS RECEIVABLE - RELATED_3
ACCOUNTS RECEIVABLE - RELATED PARTY (Details) - USD ($) | 9 Months Ended | |
Sep. 30, 2022 | Dec. 31, 2021 | |
Related Party Transaction | ||
Accounts receivable - related party | $ 13,519,409 | $ 13,519,409 |
Less: Accounts payable - related party | (1,279,979) | (5,083,586) |
Accounts receivable - related party, net | $ 12,239,430 | $ 8,435,823 |
Immediate family member of management or principal owner | ||
Related Party Transaction | ||
Ownership percentage (as percent) | 100% |
DUE FROM SHAREHOLDER (Details)
DUE FROM SHAREHOLDER (Details) - USD ($) | 12 Months Ended | ||||||||
Apr. 26, 2022 | Dec. 31, 2021 | Sep. 30, 2022 | Jun. 30, 2022 | Mar. 31, 2022 | Sep. 30, 2021 | Jun. 30, 2021 | Mar. 31, 2021 | Dec. 31, 2020 | |
Related Party Transaction | |||||||||
Equity | $ 10,052,053 | $ 4,468,825 | $ 6,008,709 | $ 15,353,936 | $ 26,254,551 | $ 31,466,642 | $ 31,214,294 | $ 34,339,756 | |
Other receivables-related party | $ 0 | ||||||||
Snail Digital Technology Co., Ltd. [Member] | |||||||||
Related Party Transaction | |||||||||
Due from shareholder and interest assigned | $ 94,934,400 | ||||||||
Paid in-kind dividend | $ 94,934,400 | ||||||||
Receivables from stockholder | |||||||||
Related Party Transaction | |||||||||
Interest rate per annum | 2% | ||||||||
Equity | $ 94,353,522 |
DIVIDEND DISTRIBUTION (Details)
DIVIDEND DISTRIBUTION (Details) - Snail Digital Technology Co., Ltd. [Member] | Apr. 26, 2022 USD ($) |
DIVIDEND DISTRIBUTION | |
Paid in-kind dividend | $ 94,934,400 |
Cash dividend to pay related withholding taxes | $ 8,200,000 |
PREPAID EXPENSES - RELATED PA_3
PREPAID EXPENSES - RELATED PARTY (Details) - USD ($) | Sep. 30, 2022 | Dec. 31, 2021 |
Prepaid royalties | $ 1,520,000 | $ 3,145,000 |
Prepaid licenses | 6,500,000 | |
Prepaid expenses - related party, ending balance | 8,020,000 | 3,145,000 |
Less: short term portion | 1,500,000 | $ 3,145,000 |
Total prepaid expenses - related party, long-term | 6,520,000 | |
ARK 2 | ||
Prepaid licenses | $ 5,000,000 |
PREPAID EXPENSES AND OTHER CU_3
PREPAID EXPENSES AND OTHER CURRENT ASSETS - (Details) - USD ($) | 1 Months Ended | ||
Jan. 31, 2022 | Sep. 30, 2022 | Dec. 31, 2021 | |
Sale of membership interests | |||
Prepaid income taxes | $ 9,076,317 | $ 8,217,660 | |
Other prepaids | 2,404,370 | 861,332 | |
Other current assets | 224,210 | 1,938,015 | |
Total prepaid expenses and other current assets | $ 11,704,897 | $ 11,017,007 | |
Pound Sand LLC [Member] | |||
Sale of membership interests | |||
Proceeds received from sale of membership interest | $ 1,500,000 |
PROPERTY, PLANT AND EQUIPMENT_3
PROPERTY, PLANT AND EQUIPMENT, NET (Details) - USD ($) | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2022 | Sep. 30, 2021 | Sep. 30, 2022 | Sep. 30, 2021 | Dec. 31, 2021 | |
PROPERTY, PLANT AND EQUIPMENT, NET | |||||
Property, plant and equipment, gross | $ 9,534,357 | $ 9,534,357 | $ 9,631,885 | ||
Accumulated depreciation | (4,289,086) | (4,289,086) | (3,953,184) | ||
Property, plant and equipment, net | 5,245,271 | 5,245,271 | 5,678,701 | ||
Depreciation and amortization - property and equipment | 128,536 | $ 208,896 | 435,644 | $ 638,659 | |
Building | |||||
PROPERTY, PLANT AND EQUIPMENT, NET | |||||
Property, plant and equipment, gross | 1,874,049 | 1,874,049 | 1,874,049 | ||
Land | |||||
PROPERTY, PLANT AND EQUIPMENT, NET | |||||
Property, plant and equipment, gross | 2,700,000 | 2,700,000 | 2,700,000 | ||
Building improvements | |||||
PROPERTY, PLANT AND EQUIPMENT, NET | |||||
Property, plant and equipment, gross | 1,010,218 | 1,010,218 | 1,010,218 | ||
Leasehold improvements | |||||
PROPERTY, PLANT AND EQUIPMENT, NET | |||||
Property, plant and equipment, gross | 1,537,775 | 1,537,775 | 1,537,775 | ||
Autos and trucks | |||||
PROPERTY, PLANT AND EQUIPMENT, NET | |||||
Property, plant and equipment, gross | 178,695 | 178,695 | 267,093 | ||
Computer and equipment | |||||
PROPERTY, PLANT AND EQUIPMENT, NET | |||||
Property, plant and equipment, gross | 1,821,819 | 1,821,819 | 1,830,949 | ||
Furniture and fixtures | |||||
PROPERTY, PLANT AND EQUIPMENT, NET | |||||
Property, plant and equipment, gross | $ 411,801 | $ 411,801 | $ 411,801 |
INTANGIBLE ASSETS (Details)
INTANGIBLE ASSETS (Details) - USD ($) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2022 | Dec. 31, 2021 | |
Finite-Lived Intangible Assets [Line Items] | ||
Net Book Value | $ 3,510,638 | |
License rights from related parties | ||
Finite-Lived Intangible Assets [Line Items] | ||
Impairment Loss | $ 16,325,000 | |
Gross Carrying Amount | 136,665,000 | 152,990,000 |
Accumulated Amortization | (133,429,962) | (127,877,024) |
Impairment Loss | (16,325,000) | |
Net Book Value | $ 3,235,038 | $ 8,787,976 |
Discount rate | 10% | |
License rights from related parties | Minimum | ||
Finite-Lived Intangible Assets [Line Items] | ||
Weighted Average Useful Life | 3 years | 3 years |
License rights from related parties | Maximum | ||
Finite-Lived Intangible Assets [Line Items] | ||
Weighted Average Useful Life | 5 years | 5 years |
License rights | ||
Finite-Lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | $ 3,000,000 | $ 3,000,000 |
Accumulated Amortization | $ (3,000,000) | (2,750,000) |
Net Book Value | $ 250,000 | |
Weighted Average Useful Life | 5 years | 5 years |
Software | ||
Finite-Lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | $ 51,784 | $ 51,784 |
Accumulated Amortization | $ (51,784) | (50,908) |
Net Book Value | $ 876 | |
Weighted Average Useful Life | 3 years | 3 years |
Trademark | ||
Finite-Lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | $ 10,745 | $ 10,745 |
Accumulated Amortization | (6,031) | (5,359) |
Net Book Value | $ 4,714 | $ 5,386 |
Weighted Average Useful Life | 15 years | 15 years |
In-progress patent | ||
Finite-Lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | $ 270,886 | $ 270,886 |
Net Book Value | 270,886 | 270,886 |
Other Intangible Assets [Member] | ||
Finite-Lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | 333,415 | 333,415 |
Accumulated Amortization | (57,815) | (56,267) |
Net Book Value | $ 275,600 | $ 277,148 |
INTANGIBLE ASSETS - Amortizatio
INTANGIBLE ASSETS - Amortization (Details) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2022 | Sep. 30, 2021 | Sep. 30, 2022 | Sep. 30, 2021 | |
INTANGIBLE ASSETS | ||||
Amortization expense | $ 1,851,203 | $ 4,139,551 | $ 5,803,610 | $ 11,131,342 |
Future amortization expense | ||||
Remainder of 2022 | 1,851,205 | 1,851,205 | ||
2023 | 1,384,927 | 1,384,927 | ||
2024 | 804 | 804 | ||
2025 | 803 | 803 | ||
2026 | 743 | 743 | ||
Thereafter | 272,156 | 272,156 | ||
Total | $ 3,510,638 | $ 3,510,638 |
ACCOUNTS PAYABLE RELATED PARTY
ACCOUNTS PAYABLE RELATED PARTY (Details) - USD ($) | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2022 | Sep. 30, 2021 | Sep. 30, 2022 | Sep. 30, 2021 | Dec. 31, 2021 | |
Related Party Transaction | |||||
Accounts payable - related party | $ 22,330,781 | $ 22,330,781 | $ 23,733,572 | ||
Suzhou Snail | |||||
Related Party Transaction | |||||
License costs to related party | $ 94,836 | $ 200,239 | 316,869 | $ 592,262 | |
Suzhou Snail | License Rights From Related Parties [Member] | |||||
Related Party Transaction | |||||
Royalty payments | $ 1,719,660 | $ 0 |
LOAN AND INTEREST RECEIVABLE _2
LOAN AND INTEREST RECEIVABLE - RELATED PARTY (Details) - USD ($) | 1 Months Ended | 9 Months Ended | |||
Feb. 28, 2022 | Feb. 28, 2021 | Sep. 30, 2021 | Sep. 30, 2022 | Dec. 31, 2021 | |
Related Party Transaction | |||||
Loan to related party | $ 24,506,321 | ||||
Loan and interest receivable - related party | $ 101,249 | $ 203,408 | |||
A Subsidiary of Suzhou Snail | |||||
Related Party Transaction | |||||
Loan to related party | $ 200,000 | ||||
Interest rate per annum | 2% | ||||
Suzhou Snail | |||||
Related Party Transaction | |||||
Amount of loan and interest receivable offset | $ 103,890 | ||||
Suzhou Snail | Suzhou Snail | |||||
Related Party Transaction | |||||
Loan amount and interest assumed | $ 203,890 |
LOAN PAYABLE AND INTEREST PAY_2
LOAN PAYABLE AND INTEREST PAYABLE - RELATED PARTIES (Details) - USD ($) | 1 Months Ended | 12 Months Ended | ||
Jul. 31, 2022 | Dec. 31, 2021 | Sep. 30, 2022 | Feb. 28, 2022 | |
Related Party Transaction | ||||
Loan payable-related parties | $ 400,000 | $ 0 | ||
Interest payable-related parties | 528,439 | $ 527,770 | ||
Loan Payable | ||||
Related Party Transaction | ||||
Loan payable-related parties | $ 400,000 | |||
Interest rate per annum | 2% | |||
A Subsidiary of Suzhou Snail | Loan from related party due in June 2022 | ||||
Related Party Transaction | ||||
Loan payable-related parties | $ 300,000 | |||
Payment of related party debt | $ 300,000 | |||
Suzhou Snail | Loan from related party due in December 2023 | ||||
Related Party Transaction | ||||
Loan payable-related parties | $ 100,000 | |||
Loans payable offset against receivable | $ 100,000 | |||
Amount of interest payable offset by interest receivable | $ 3,890 |
REVOLVING LOAN, SHORT TERM NO_3
REVOLVING LOAN, SHORT TERM NOTE AND LONG-TERM DEBT - Schedule Table (Details) - USD ($) | 1 Months Ended | 3 Months Ended | 9 Months Ended | 12 Months Ended | ||||
Jan. 26, 2022 | Jun. 17, 2021 | Apr. 30, 2022 | Apr. 30, 2020 | Mar. 31, 2022 | Sep. 30, 2022 | Dec. 31, 2021 | Sep. 30, 2021 | |
REVOLVING LOAN, SHORT TERM NOTE AND LONG-TERM DEBT | ||||||||
Total | $ 18,571,482 | $ 12,179,111 | ||||||
Less: current portion | 15,746,092 | 9,293,677 | ||||||
Total long-term debt | 2,825,390 | 2,885,434 | ||||||
Proceeds from SBA loans | 10,000,000 | |||||||
Refund of principal payments | 48,305 | |||||||
Restricted cash and cash equivalents | 6,368,016 | 6,389,777 | $ 6,382,574 | |||||
PPP Promissory Note | ||||||||
REVOLVING LOAN, SHORT TERM NOTE AND LONG-TERM DEBT | ||||||||
Total | 216,329 | |||||||
Proceeds from SBA loans | $ 773,810 | |||||||
Principal payment of loan | $ 90,198 | |||||||
Loan forgiven | $ 126,131 | 392,200 | ||||||
Refund of principal payments | $ 48,305 | |||||||
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 | |||||||
Restricted cash and cash equivalents | 5,257,382 | 5,240,752 | ||||||
Debt service coverage ratio | 1.5 | |||||||
2021 Revolving Loan | Prime Rate | ||||||||
REVOLVING LOAN, SHORT TERM NOTE AND LONG-TERM DEBT | ||||||||
Percentage of spread | 0.25% | |||||||
2021 Promissory Note | ||||||||
REVOLVING LOAN, SHORT TERM NOTE AND LONG-TERM DEBT | ||||||||
Total | $ 2,904,815 | $ 2,962,782 | ||||||
Debt term | 10 years | |||||||
Debt instrument, interest rate, stated percentage, period | 5 years | |||||||
Interest rate | 3.50% | |||||||
2021 Promissory Note | Wall Street Journal Prime Rate | ||||||||
REVOLVING LOAN, SHORT TERM NOTE AND LONG-TERM DEBT | ||||||||
Percentage of spread | 0.50% | |||||||
Debt instrument, interest rate, stated percentage, period | 5 years | |||||||
2022 Short Term Note | ||||||||
REVOLVING LOAN, SHORT TERM NOTE AND LONG-TERM DEBT | ||||||||
Total | $ 6,666,667 | |||||||
Principal payment of loan | $ 10,000,000 | |||||||
Percentage of spread | 3.75% | |||||||
Default interest rate | 5% | |||||||
Debt service coverage ratio | 1.5 | |||||||
2022 Short Term Note | Wall Street Journal Prime Rate | ||||||||
REVOLVING LOAN, SHORT TERM NOTE AND LONG-TERM DEBT | ||||||||
Percentage of spread | 0.50% |
REVOLVING LOAN, SHORT TERM NO_4
REVOLVING LOAN, SHORT TERM NOTE AND LONG-TERM DEBT - Paragraph (Details) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2022 | Sep. 30, 2021 | Sep. 30, 2022 | Sep. 30, 2021 | |
REVOLVING LOAN, SHORT TERM NOTE AND LONG-TERM DEBT | ||||
Interest expense | $ 261,070 | $ 114,447 | $ 613,338 | $ 304,918 |
Amortization of loan origination expenses | 6,590 | 8,870 | 19,149 | 22,388 |
Revolving Credit Facility [Member] | ||||
REVOLVING LOAN, SHORT TERM NOTE AND LONG-TERM DEBT | ||||
Interest expense | $ 254,480 | $ 105,577 | $ 594,171 | $ 281,680 |
REVOLVING LOAN, SHORT TERM NO_5
REVOLVING LOAN, SHORT TERM NOTE AND LONG-TERM DEBT - Future minimum payments (Details) | Sep. 30, 2022 USD ($) |
Debt Disclosure [Abstract] | |
Remainder of 2022 | $ 1,269,381 |
2023 | 14,496,804 |
2024 | 82,748 |
2025 | 86,013 |
2026 | 89,115 |
Thereafter | 2,547,421 |
Long term debt | $ 18,571,482 |
INCOME TAXES (Details)
INCOME TAXES (Details) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2022 | Sep. 30, 2021 | Sep. 30, 2022 | Sep. 30, 2021 | |
INCOME TAXES | ||||
Income tax provision (benefit) | $ (398,998) | $ 891,538 | $ 803,305 | $ 4,214,245 |
Effective tax rate | 20.50% | 19.20% | 19.70% | 19.80% |
Federal statutory rate | 21% |
OPERATING LEASE RIGHT-OF-USE _3
OPERATING LEASE RIGHT-OF-USE ASSETS (Details) - USD ($) | 1 Months Ended | 9 Months Ended | 12 Months Ended |
Apr. 30, 2018 | Sep. 30, 2022 | Dec. 31, 2021 | |
OPERATING LEASE RIGHT-OF-USE ASSETS | |||
Right of Use Asset | $ 3,887,326 | $ 5,100,912 | |
Lease Liability - Current | 1,339,172 | 1,688,965 | |
Lease Liability - Long Term | 3,285,679 | 4,375,786 | |
Gain on lease termination | 122,533 | ||
Terminated and Expired Lease | |||
OPERATING LEASE RIGHT-OF-USE ASSETS | |||
Right of Use Asset | 1,301,571 | ||
Accumulated Amortization | 907,370 | ||
Lease Liability - Current | 442,704 | ||
Lease Liability - Long Term | 74,030 | ||
Gain on lease termination | $ 122,533 | $ 0 | |
Standby Letters of Credit [Member] | |||
OPERATING LEASE RIGHT-OF-USE ASSETS | |||
Maximum borrowing capacity | $ 1,075,000 | ||
Letter of credit term | 1 year |
COMMITMENTS AND CONTINGENCIES (
COMMITMENTS AND CONTINGENCIES (Details) - USD ($) | 9 Months Ended | |
Sep. 30, 2022 | Dec. 31, 2021 | |
COMMITMENTS AND CONTINGENCIES | ||
Estimated accrual as a result of pending litigation settlement | $ 1,330,000 | |
Litigation settlement payment | $ 1,330,000 |
SUBSEQUENT EVENTS (Details)
SUBSEQUENT EVENTS (Details) - Subsequent events - USD ($) | 1 Months Ended | ||||||
Dec. 13, 2022 | Nov. 09, 2022 | Dec. 31, 2022 | Nov. 30, 2022 | Oct. 31, 2022 | Dec. 19, 2022 | Nov. 10, 2022 | |
SUBSEQUENT EVENTS | |||||||
Amount deposited in escrow account | $ 1,000,000 | ||||||
Period amount in escrow is restricted | 12 months | ||||||
Refund received on prior year income taxes | $ 2,500,000 | ||||||
Share repurchase program authorized amount | $ 5,000,000 | ||||||
Number of share repurchased | 1,090,877 | ||||||
Average price paid per share | $ 2.98 | ||||||
ARK, Survival Evolved [Member] | |||||||
SUBSEQUENT EVENTS | |||||||
Royalty payment (as a percent of revenue) | 45% | 25% | |||||
Monthly royalty fee before amendment | $ 1,500,000 | ||||||
Short-Term Debt [Member] | |||||||
SUBSEQUENT EVENTS | |||||||
Outstanding amount | $ 5,800,000 | ||||||
Interest rate | 5.75% | ||||||
Modification fee paid | $ 9,375 | ||||||
Short-Term Debt [Member] | Wall Street Journal Prime Rate [Member] | |||||||
SUBSEQUENT EVENTS | |||||||
Percentage of spread | 0.25% | ||||||
Employees | RSU's | |||||||
SUBSEQUENT EVENTS | |||||||
Awards granted (in shares) | 1,200,960 | ||||||
Awards granted | $ 6,000,000 | ||||||
Directors | RSU's | |||||||
SUBSEQUENT EVENTS | |||||||
Awards granted (in shares) | 24,000 | ||||||
Awards granted | $ 100,000 | ||||||
Omnibus Incentive Plan (Twenty Twenty-Two Plan) [Member] | |||||||
SUBSEQUENT EVENTS | |||||||
Number of shares available for issuance | 5,718,000 | ||||||
Option granted to purchase up to an additional shares | Class A Common Stock | |||||||
SUBSEQUENT EVENTS | |||||||
Warrants issued to Underwriters | 450,000 | ||||||
Stockholders | |||||||
SUBSEQUENT EVENTS | |||||||
Number of shares of common stock transferred | 500,000 | ||||||
Snail Inc | |||||||
SUBSEQUENT EVENTS | |||||||
Net proceeds from shares issued in IPO | $ 12,000,000 | ||||||
Snail Inc | Class A Common Stock | |||||||
SUBSEQUENT EVENTS | |||||||
Number of shares of common stock issued as per agreement | 3,000,000 | 6,251,420 | |||||
Warrants issued to Underwriters | 120,000 | ||||||
Percent of issue price at IPO price | 125% | ||||||
Issue price per share | $ 6.25 | ||||||
Exercisable term | 3 years | ||||||
Snail Inc | Class B Common Stock | |||||||
SUBSEQUENT EVENTS | |||||||
Number of shares of common stock issued as per agreement | 28,748,580 |