What changed in Snail, Inc.'s 10-K — 2022 vs 2023

Consolidated Financial Statements Snail, Inc. and Subsidiaries Consolidated Balance Sheets as of December 31, 2023 and 2022 December 31, 2023 December 31, 2022 ASSETS Current Assets: Cash and cash equivalents $ 15,198,123 $ 12,863,817 Restricted escrow deposit - 1,003,804 Accounts receivable, net of allowances for credit losses of $ 523,500 and $ 19,929 , respectively 25,134,808 6,758,024 Accounts receivable - related party - 11,344,184 Accounts receivable - 11,344,184 Loan and interest receivable - related party 103,753 101,753 Prepaid expenses - related party 6,044,404 - Prepaid expenses and other current assets 10,169,448 10,565,141 Total current assets 56,650,536 42,636,723 Restricted cash and cash equivalents 1,116,196 6,374,368 Accounts receivable – related party, net of current portion 7,500,592 - Prepaid expenses - related party, net of current portion 7,784,062 5,582,500 Property, plant and equipment, net 4,682,066 5,114,799 Intangible assets, net - license - related parties - 1,384,058 Intangible assets, net - other 271,717 272,521 Deferred income taxes 10,247,500 7,602,536 Other noncurrent assets 164,170 198,668 Operating lease right-of-use assets, net 2,440,690 3,606,398 Total assets $ 90,857,529 $ 72,772,571 LIABILITIES, NONCONTROLLING INTERESTS AND STOCKHOLDERS’ EQUITY Current Liabilities: Accounts payable $ 12,102,929 $ 9,452,391 Accounts payable - related parties 23,094,436 19,918,259 Accounts payable 23,094,436 19,918,259 Accrued expenses and other liabilities 2,887,193 1,474,088 Interest payable - related parties 527,770 527,770 Revolving loan 6,000,000 9,000,000 Notes payable 2,333,333 5,416,666 Convertible notes, net of discount 797,361 - Current portion of long-term promissory note 2,811,923 86,524 Current portion of deferred revenue 19,252,628 4,335,404 Current portion of operating lease liabilities 1,505,034 1,371,227 Total current liabilities 71,312,607 51,582,329 Accrued expenses 254,731 457,024 Promissory note, net of current portion - 3,221,963 Deferred revenue, net of current portion 15,064,078 5,216,042 Operating lease liabilities, net of current portion 1,425,494 2,930,529 Total liabilities 88,056,910 63,407,887 Commitments and contingencies - - Stockholders’ Equity: Class A common stock, $ 0.0001 par value, 500,000,000 shares authorized; 9,275,420 shares issued and 7,925,145 shares outstanding as of December 31, 2023, and 9,251,420 shares issued and 8,053,771 shares outstanding as of December 31, 2022 927 925 Class B common stock, $ 0.0001 par value, 100,000,000 shares authorized; 28,748,580 shares issued and outstanding as of December 31, 2023 and 2022 2,875 2,875 Common stock, value - - Additional paid-in capital 26,171,575 23,436,942 Accumulated other comprehensive loss (254,383 ) (307,200 ) Accumulated deficit (13,949,325 ) (4,863,250 ) Stockholders Equity Excluding Treasury Stock 11,971,669 18,270,292 Treasury stock at cost ( 1,350,275 and 1,197,649 shares as of December 31, 2023 and 2022, respectively) (3,671,806 ) (3,414,713 ) Total Snail, Inc. equity 8,299,863 14,855,579 Noncontrolling interests (5,499,244 ) (5,490,895 ) Total stockholders’ equity 2,800,619 9,364,684 Total liabilities, noncontrolling interests and stockholders’ equity $ 90,857,529 $ 72,772,571 See accompanying notes to consolidated financial statements F-3 Snail, Inc. and Subsidiaries Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years Ended December 31, 2023 and 2022 2023 2022 Revenues, net $ 60,902,098 $ 74,444,141 Cost of revenues 48,306,403 53,121,676 Gross profit 12,595,695 21,322,465 Operating expenses: General and administrative 15,816,088 18,713,958 Research and development 5,057,421 2,955,592 Advertising and marketing 1,582,464 714,492 Depreciation and amortization 432,306 565,906 Loss (gain) on disposal of fixed assets 427 (17,067 ) Total operating expenses 22,888,706 22,932,881 Loss from operations (10,293,011 ) (1,610,416 ) Other income (expense): Interest income 129,854 200,913 Interest income - related parties 2,000 582,632 Interest income 129,854 200,913 Interest expense (1,531,719 ) (922,293 ) Interest expense - related parties - (3,222 ) Interest expense (1,531,719 ) (922,293 ) Other income 265,980 302,086 Foreign currency transaction loss (68,180 ) (1,945 ) Total other income (expense), net (1,202,065 ) 158,171 Loss before benefit from income taxes (11,495,076 ) (1,452,245 ) Benefit from income taxes (2,400,652 ) (2,446,423 ) Net (loss) income (9,094,424 ) 994,178 Net (loss) income attributable to non-controlling interests (8,349 ) 46,371 Net (loss) income attributable to Snail, Inc. and Snail Games USA Inc. $ (9,086,075 ) $ 947,807 Comprehensive income (loss) statement: Net (loss) income $ (9,094,424 ) $ 994,178 Other comprehensive income (loss) related to foreign currency translation adjustments, net of tax 52,817 (40,643 ) Total comprehensive (loss) income $ (9,041,607 ) $ 953,535 Net (loss) income attributable to Class A common stockholders: Basic $ (1,960,813 ) $ 228,482 Diluted $ (1,960,813 ) $ 228,482 Net (loss) income attributable to Class B common stockholders: Basic $ (7,125,262 ) $ 719,325 Diluted $ (7,125,262 ) $ 719,325 (Loss) income per share attributable to Class A and B common stockholders: Basic $ (0.25 ) $ 0.03 Diluted $ (0.25 ) $ 0.03 Weighted-average shares used to compute income per share attributable to Class A common stockholders (1) : Basic 7,911,369 9,131,512 Diluted 7,911,369 9,131,512 Weighted-average shares used to compute income per share attributable to Class B common stockholders: Basic 28,748,580 28,748,580 Diluted 28,748,580 28,748,580 (1) The shares used for the denominator in the calculation of EPS are presented as if the IPO occurred on January 1, 2022 for comparative purposes.

See accompanying notes to consolidated financial statements F-4 Snail, Inc. and Subsidiaries Consolidated Statements of Equity for the Years Ended December 31, 2023 and 2022 Common Stock - Snail Games USA Inc. Class A Common Stock Class B Common Stock Additional Paid-In- Due from Shareholder Loan and Interest Accumulated Other Comprehensive Retained Treasury Stock Snail Games USA Inc.

Non controlling Total Shares Amount Shares Amount Shares Amount Capital Receivable Loss Earnings Shares Amount Equity interests Equity Balance at December 31, 2021 500,000 $ 5,000 - $ - - $ - $ 94,159,167 $ (94,353,522 ) $ (266,557 ) $ 16,045,231 - $ - $ 15,589,319 $ (5,537,266 ) $ 10,052,053 Loan to shareholder - - - - - - - (580,878 ) - - - - (580,878 ) - (580,878 ) Dividend Distribution - - - - - - (73,078,112 ) 94,934,400 - (21,856,288 ) - - - - - Withholding tax distribution - - - - - - (8,200,000 ) - - - - - (8,200,000 ) - (8,200,000 ) Reclass of common stock due to IPO reorganization (500,000 ) (5,000 ) 6,251,420 625 28,748,580 2,875 1,500 - - - - - - - - Warrants issued to underwriters - - - - - - 193,927 - - - - - 193,927 - 193,927 IPO, net of offering costs - - 3,000,000 300 - - 10,137,210 - - - - - 10,137,510 - 10,137,510 Return of dividend distribution tax withholding payment Stock-based compensation related to restricted stock units - - - - - - 223,250 - - - - - 223,250 - 223,250 Common stock issued for service Common stock issued for service , shares Repurchase of common stock - - - - - - - - - - (1,197,649 ) (3,414,713 ) (3,414,713 ) - (3,414,713 ) Foreign currency translation - - - - - - - - (40,643 ) - - - (40,643 ) - (40,643 ) Net income - - - - - - - - - 947,807 - - 947,807 46,371 994,178 Balance at December 31, 2022 - $ - 9,251,420 $ 925 28,748,580 $ 2,875 $ 23,436,942 $ - $ (307,200 ) $ (4,863,250 ) (1,197,649 ) $ (3,414,713 ) $ 14,855,579 $ (5,490,895 ) $ 9,364,684 Class A Common Stock Class B Common Stock Additional Paid-In- Accumulated Other Comprehensive Accumulated Treasury Stock Snail, Inc.

Non controlling Total Shares Amount Shares Amount Capital Loss Deficit Shares Amount Equity interests Equity Balance at December 31, 2022 9,251,420 $ 925 28,748,580 $ 2,875 $ 23,436,942 $ (307,200 ) $ (4,863,250 ) (1,197,649 ) $ (3,414,713 ) $ 14,855,579 $ (5,490,895 ) $ 9,364,684 Balance, value 9,251,420 $ 925 28,748,580 $ 2,875 $ 23,436,942 $ (307,200 ) $ (4,863,250 ) (1,197,649 ) $ (3,414,713 ) $ 14,855,579 $ (5,490,895 ) $ 9,364,684 Return of dividend distribution tax withholding payment - - - - 1,886,600 - - - - 1,886,600 - 1,886,600 Stock based compensation related to restricted stock units - - - - 848,035 - - - - 848,035 - 848,035 Common stock issued for service 24,000 2 - - (2 ) - - - - - - - Repurchase of common stock - - - - - - - (152,626 ) (257,093 ) (257,093 ) - (257,093 ) Foreign currency translation - - - - - 52,817 - - - 52,817 - 52,817 Net loss - - - - - - (9,086,075 ) - - (9,086,075 ) (8,349 ) (9,094,424 ) Net income (loss) - - - - - - (9,086,075 ) - - (9,086,075 ) (8,349 ) (9,094,424 ) Balance at December 31, 2023 9,275,420 $ 927 28,748,580 $ 2,875 $ 26,171,575 $ (254,383 ) $ (13,949,325 ) (1,350,275 ) $ (3,671,806 ) $ 8,299,863 $ (5,499,244 ) $ 2,800,619 Balance, value 9,275,420 $ 927 28,748,580 $ 2,875 $ 26,171,575 $ (254,383 ) $ (13,949,325 ) (1,350,275 ) $ (3,671,806 ) $ 8,299,863 $ (5,499,244 ) $ 2,800,619 See accompanying notes to consolidated financial statements F-5 Snail, Inc. and Subsidiaries Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022 2023 2022 Cash flows from operating activities: Net (loss) income $ (9,094,424 ) $ 994,178 Adjustments to reconcile net (loss) income to net cash used in operating activities: Amortization - intangible assets - license - 250,000 Amortization - intangible assets - license, related parties 1,384,058 7,403,918 Amortization - intangible assets - other 804 3,751 Amortization - intangible assets Amortization - loan origination fees and debt discounts 124,595 26,514 Accretion – convertible notes 306,664 - Depreciation and amortization - property and equipment 432,306 565,906 Stock-based compensation expense 848,035 223,250 Gain on lease termination - (122,533 ) Gain on paycheck protection program and economic injury disaster loan forgiveness - (174,436 ) Loss (gain) on disposal of fixed assets 427 (17,067 ) Interest income from shareholder loan - (580,878 ) Interest income from restricted escrow deposit - (3,804 ) Credit losses 581,498 - Deferred taxes, net (2,644,964 ) 588,478 Changes in assets and liabilities: Accounts receivable (18,939,465 ) 5,486,716 Accounts receivable - related party 3,824,775 (2,908,361 ) Prepaid expenses - related party (8,245,966 ) (2,437,500 ) Prepaid expenses and other current assets 501,104 (1,875,919 ) Other noncurrent assets - (26,052 ) Accounts payable 2,992,856 4,976,192 Accounts payable - related parties 3,176,177 (3,815,313 ) Accrued expenses and other liabilities 659,647 (1,039,927 ) Interest receivable - related party (2,000 ) - Interest payable - related parties - 986 Lease liabilities (205,520 ) (145,949 ) Deferred revenue 24,765,261 (10,729,488 ) Net cash provided by (used in) operating activities 465,868 (3,357,338 ) Cash flows from investing activities: Repayment on loan provided by related party - (300,000 ) Purchases of property and equipment - (5,256 ) Proceeds from sale of property and equipment - 19,500 Repayment on Pound Sand note - 1,496,063 Net cash provided by investing activities - 1,210,307 Cash flows from financing activities: Repayments on promissory note (79,897 ) (70,961 ) Repayments on notes payable (6,500,000 ) (4,166,667 ) Repayments on revolving loan (3,000,000 ) - Borrowings on notes payable 3,000,000 - Borrowings on short-term note - 10,000,000 Proceeds from issuance of convertible notes 847,500 - Refund of dividend withholding tax overpayment 1,886,600 - 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 Cash dividend declared and paid - (8,200,000 ) Purchase of treasury stock (257,093 ) (3,414,713 ) Proceeds from initial public offering, net of offering costs - 11,791,705 Warrants issued to underwriters - 193,927 Payments of capitalized offering costs - (1,247,567 ) Payments of offering costs in accounts payable (342,318 ) - Release of restricted escrow deposit 1,003,804 - Net cash (used in) provided by financing activities (3,441,404 ) 4,843,831 Effect of foreign currency translation on cash and cash equivalents 51,670 (12,730 ) Net (decrease) increase in cash and cash equivalents, and restricted cash and cash equivalents (2,923,866 ) 2,684,070 Cash and cash equivalents, and restricted cash and cash equivalents - beginning of the year 19,238,185 16,554,115 Cash and cash equivalents, and restricted cash and cash equivalents – end of the year $ 16,314,319 $ 19,238,185 Supplemental disclosures of cash flow information Cash paid during the year for: Interest $ 934,523 $ 788,063 Income taxes $ 248,388 $ 888,303 Noncash transactions during the year 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 finance activity during the year for: Issuance of warrants in connection with the equity line of credit $ (105,411 ) $ - Gain on paycheck protection program and economic injury disaster loan forgiveness $ - $ (174,436 ) Snail Games USA common stock transferred due to reorganization $ - $ (5,000 ) Snail, Inc. common stock and additional paid-in capital transferred due to reorganization $ - $ 5,000 Offering costs included in accounts payable $ - $ 605,295 Funding of the escrow deposit $ - $ (1,000,000 ) See accompanying notes to consolidated financial statements F-6 Snail Inc. and Subsidiaries Notes to Consolidated Financial Statements NOTE 1 – PRESENTATION AND NATURE OF OPERATIONS Snail, Inc. was incorporated under the laws of Delaware in January 2022.

The terms “Snail, Inc,” “Snail Games,” “our” and the “Company” are used to refer collectively to Snail, Inc. and its subsidiaries. The Company’s fiscal year end is December 31. The Company was formed for the purpose of completing an initial public offering (“IPO”) and related transactions to carry on the business of Snail Games USA Inc. and its subsidiaries.

Snail Games USA Inc. was founded in 2009 as a wholly owned subsidiary of Suzhou Snail Digital Technology Co., Ltd. (“Suzhou Snail”) located in Suzhou, China and is the operating entity that continues post IPO.

Snail Games USA Inc. is devoted to researching, developing, marketing, publishing, and distributing games, content and support that can be played on a variety of platforms including game consoles, PCs, mobile phones and tablets.

On July 13, 2022, Suzhou Snail transferred all of its right, title, and interest to all of the 500,000 shares of common stock of the Company (“Shares”) to Snail Technology (HK) Limited (“Snail Technology”), an entity organized under the laws of Hong Kong, pursuant to the certain Share Transfer Agreement dated July 13, 2022 between Suzhou Snail and Snail Technology.

Subsequently, Snail Technology transferred all of its right, title, and interest in the shares to certain individuals per the Share Transfer Agreement. In connection with the reorganization transaction described below the individuals contributed their interest in the Company to Snail, Inc. in return for common stock of Snail, Inc. in connection with Snail, Inc.’s IPO.

Because the Company and Suzhou Snail are owned by the same shareholders, Suzhou Snail is considered a related party to the Company. Reorganization Transaction and IPO On September 16, 2022, Snail, Inc., filed a Registration Statement on Form S-1 with the United States Securities and Exchange Commission in connection with its IPO.

On November 9, 2022, effective as of the IPO pricing, Snail Games USA Inc.’s existing shareholders transferred their 500,000 shares of common stock of Snail Games USA Inc. to Snail, Inc. in exchange for 6,251,420 shares of Class A common stock and 28,748,580 shares of Class B common stock of Snail, Inc., and Snail, Inc. became the parent of Snail Games USA Inc.

Because the reorganization transaction was considered a transaction between entities under common control, the financial statements for periods prior to the reorganization transaction and the IPO have been adjusted to combine the previously separate entities for presentation purposes.

On November 9, 2022, Snail, Inc. priced its IPO, and on November 10, 2022, Snail, Inc.’s Class A common stock began trading on The Nasdaq Capital Market under the ticker symbol SNAL.

In the IPO, Snail, Inc. issued 3,000,000 shares of Class A common stock at $ 5.00 per share and net proceeds from the IPO were distributed to Snail Games USA Inc. in November 2022 in the amount of approximately $ 12.0 million, net of the underwriting discount and offering costs of $ 3.0 million.

In connection with the IPO, $1.0 million of the IPO proceeds were remitted to an escrow account which is held to provide a source of funding for certain indemnification obligations of Snail, Inc. to the underwriters.

The amount in escrow was reported as a restricted escrow deposit in the consolidated balance sheets as of December 31, 2022, until 12 months from the date of the offering, November 2023, at which time the restrictions were removed and the balance was reverted to unrestricted cash.

Basis of Presentation and Consolidation The accompanying consolidated financial statements have been prepared in accordance with the rules and regulations of the SEC and generally accepted accounting principles as promulgated in the United States of America (“U.S. GAAP”).

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 consolidated financial statements.

F-7 Snail Inc. and Subsidiaries Notes to Consolidated Financial Statements During the year ended December 31, 2023, certain comparative amounts have been reclassified due to immaterial errors identified by the Company in its presentation of certain server hosting costs.

During the three months ended June 30, 2023, the Company began reporting all of its server hosting costs as costs of revenue whereas they were previously reported within both cost of sales and general and administrative expenses.

The Company has assessed the materiality of these errors on its prior annual and interim financial statements, assessing materiality both quantitatively and qualitatively, in accordance with the SEC’s Staff Accounting Bulletin (“SAB”) No. 99 and SAB No. 108 and concluded that the errors were not material to those consolidated financial statements.

However, to correctly present cost of revenues, gross profit and general and administrative expenses, the reclassifications have been made throughout this report and accompanying note disclosures.

The effects on the related captions in the consolidated statements of operations and comprehensive income (loss) for all previously reported periods were as follows: SCHEDULE OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) For the twelve months ended December 31, 2022 As reported Adjustment As adjusted Cost of revenues $ 49,507,888 $ 3,613,788 $ 53,121,676 Gross profit 24,936,253 (3,613,788 ) 21,322,465 General and administrative 22,327,746 (3,613,788 ) 18,713,958 For the three months ended March 31, 2023 As reported Adjustment As adjusted Cost of revenues $ 9,816,397 $ 1,044,540 $ 10,860,937 Gross profit 3,642,091 (1,044,540 ) 2,597,551 General and administrative 5,570,291 (1,044,540 ) 4,525,751 F-8 Snail Inc. and Subsidiaries Notes to Consolidated Financial Statements The consolidated financial statements include the accounts of Snail, Inc. and the following subsidiaries: SCHEDULE OF SUBSIDIARIES INCLUDED IN THE CONSOLIDATED FINANCIAL STATEMENTS Equity % Subsidiary Name Owned Snail Games USA Inc. 100 % Snail Innovation Institute 70 % Frostkeep Studios, Inc. 100 % Eminence Corp 100 % Wandering Wizard, LLC 100 % Donkey Crew, LLC 99 % Interactive Films, LLC 100 % Project AWK Productions, LLC 100 % BTBX.IO, LLC 70 % All intercompany accounts, transactions, and profits have been eliminated upon consolidation.

Use of Estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and the accompanying notes.

Such estimates include revenue recognition, see Note 2 – Revenue Recognition , provisions for credit losses, deferred income tax assets and associated valuation allowances, deferred revenue, income taxes, valuation of intangibles, including those with related parties, impairment of intangible assets, stock-based compensation and fair value of warrants.

These estimates generally involve complex issues and require management to make judgments, involve analysis of historical and future trends that can require extended periods of time to resolve, and are subject to change from period to period. In all cases, actual results could differ materially from estimates. Segment Reporting The Company has one operating and reportable segment.

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

Liquidity For the first three quarters of the fiscal year 2023 the Company had a net loss, net cash used in operations, debt obligations coming due in less than 12 months, a potential need for additional capital, and had uncertainties surrounding its ability to raise additional capital and renegotiate its debt arrangements.

In the fourth quarter of fiscal year 2023 the Company released ARK: Survival Ascended . The release resulted in significant increases in revenues, receivables and cashflows for the fourth quarter, in comparison to the first three quarters of 2023.

During the year ended December 31, 2023, the Company renewed its 2021 Revolving Loan (as defined below) which will become due and mature at the end of 2024. The Company paid $ 3.0 million of the revolving loan in January 2024.

The Company paid off the $ 0.8 million balance of its 2022 Short Term Note (as defined below) in January 2024 and is in the process of negotiating a new term loan.

The Company also repaid $ 0.3 million of accrued interest and principal on its convertible notes balance and the Company’s $ 1.5 million short term note was paid off in the first quarter of 2024. The Company paid an additional $ 0.3 million of accrued interest and principal on its convertible notes balance in April 2024.

Currently, management expects that the Company will not be in compliance with its quarterly debt covenants for the three months ending March 31, 2024. Management is working with the lender to resolve the expected non-compliance with the debt covenants.

The Company’s ability to comply with the covenants, or receive waivers for the covenants, can lead to the acceleration of payments due under the debt facilities with the lender, which include the $ 6.0 million revolving loan and $ 2.8 million promissory note, cause the lender to cease making advances under the revolving agreement, or allow the lender take possession of collateral.

F-9 Snail Inc. and Subsidiaries Notes to Consolidated Financial Statements From time to time, the Company could be required, or may otherwise attempt, to seek additional sources of capital, including, but not limited to, equity and/or debt financings.

The need for additional capital depends on many factors, including, among other things, whether the Company can successfully renegotiate the terms of its debt arrangements, the rate at which the Company’s business grows, demands for working capital, revenue generated from existing downloadable content (“DLCs”) and game titles, launches of new DLCs and new game titles, and any acquisitions that the Company may pursue.

Our current unrestricted cash position of approximately $ 15.2 million, and our expected revenue receipts will allow the Company to continue operations beyond the next 12 months and service its current debts.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Revenue Recognition The Company’s revenue is generated from the publishing of software games sold digitally and through physical discs (e.g., packaged goods), the publishing of separate downloadable content that are new feature releases to existing digital full-game downloads, and in-app purchases of virtual goods used by players of its free-to-play mobile games.

When control of the promised products and services is transferred to the end users, the Company recognizes revenue in the amount that reflects the consideration it expects to receive in exchange for these products and services.

Revenue from delivery of products is recognized at a point in time when the end consumers purchase the games, and the control of the license is transferred to them. The virtual goods that the Company sells to players of our free-to-play mobile-games, include virtual currency or in-game purchases of additional game play functionality.