8-K: Snail, Inc. Secures $1M via Convertible Note with Aggressive Terms

Sentiment:

Convertible Note Offering 3 December 2025 4:23 PM

Snail, Inc. has secured $1 million in financing through a convertible promissory note with Monroe Street Capital Partners, LP, featuring a significant original issue discount and potential for substantial shareholder dilution.

Capital raiseSnail, Inc. entered into a Securities Purchase Agreement to sell an unsecured convertible promissory note with an aggregate principal amount of $1,100,000 to Monroe Street Capital Partners, LP.The actual purchase price received by the company was $1,000,000, reflecting a $100,000 Original Issue Discount (OID).The note includes a one-time interest charge of 5% ($55,000) on the principal amount, guaranteed and earned in full on the issue date.This transaction is part of a broader 'November 2025 Offering' and is substantially similar to a 'February 2025 Offering' and includes 'October 2025 Securities,' with an aggregate principal amount of up to $11,000,000 for promissory notes.Stockholder approval has been obtained for the issuance of shares upon conversion that exceed 20% of the Class A Common Stock outstanding before the note's issuance.

Worse than expectedThe company received $1,000,000 but is obligated for a principal amount of $1,100,000 due to a $100,000 Original Issue Discount (OID), meaning it effectively paid $100,000 to borrow $1,000,000.A 5% one-time interest charge ($55,000) is guaranteed and earned in full on the issue date, further increasing the cost of capital.The conversion price for a $288,750 portion of the note is tied to 92% of the lowest VWAP, which can lead to significant dilution for existing shareholders if the stock price declines.Numerous events of default trigger a 120% repayment penalty on the outstanding principal plus accrued interest, representing a substantial financial burden if triggered.

Summary

Snail, Inc. (SNAL) entered into a Securities Purchase Agreement with Monroe Street Capital Partners, LP on November 26, 2025, for an unsecured convertible promissory note.
The note has an aggregate principal amount of $1,100,000, but the actual purchase price paid by the investor was $1,000,000, reflecting a $100,000 Original Issue Discount (OID).
A one-time interest charge of 5% ($55,000) on the principal amount is guaranteed and earned in full as of the issue date.
The note matures in twelve (12) months from the issue date, on November 26, 2026.
Any unpaid principal or interest will bear default interest at the lesser of 10% per annum or the maximum legal rate.
The investor has the right to convert all or any portion of the outstanding principal and interest into Class A common stock.
The conversion price is generally $5.00 per share, but for a $288,750 portion of the note, it is the lesser of $5.00 or 92% of the lowest Volume-Weighted Average Price (VWAP) during the five trading days prior to conversion.
The company must reserve a sufficient number of shares for conversion, equal to the greater of 2,139,945 shares or 1.5 times the number of shares issuable upon full conversion at the lower of the applicable conversion price or market price.
The note is a senior unsecured obligation, with priority over all existing and future unsecured indebtedness, except for specific pari passu notes (February 2025 Notes, October 2025 Securities, and other November 2025 Notes).
The company is required to make amortization payments of $115,500 each month from February 26, 2026, to October 26, 2026, with the remaining balance due on November 26, 2026.
Upon an event of default, the note becomes immediately due and payable, requiring the company to pay 120% of the outstanding principal plus accrued interest, in addition to costs and fees.
Stockholder approval for the issuance of shares exceeding 20% of outstanding Class A Common Stock was obtained on February 20, 2025, via written consent, as required by Nasdaq Listing Rule 5635(d).

Sentiment

Score: 3

Explanation: While the company successfully secured financing, the terms are highly unfavorable, indicating a potentially distressed financial position or high perceived risk. The significant Original Issue Discount, guaranteed interest, and especially the floating conversion price for a portion of the note, coupled with numerous and stringent default triggers leading to a 120% repayment premium, suggest substantial potential dilution and financial burden for the company and existing shareholders. These terms are generally considered detrimental to long-term shareholder value.

Positives

Secured $1,000,000 in new financing, providing capital for business development, working capital, and general corporate purposes.
The note is a senior unsecured obligation, granting it priority over most other unsecured indebtedness.
Stockholder approval for the issuance of conversion shares exceeding 20% of outstanding common stock has already been obtained, streamlining the process.

Negatives

The company received $1,000,000 but is obligated for a principal amount of $1,100,000 due to a $100,000 Original Issue Discount (OID).
A one-time interest charge of 5% ($55,000) on the principal amount is guaranteed and earned in full on the issue date, adding to the cost of capital.
The default interest rate is high, at the lesser of 10% per annum or the maximum amount permitted by law.
A portion of the note's conversion price is tied to 92% of the lowest VWAP, which can lead to significant dilution for existing shareholders if the stock price declines.
Numerous events of default, some with short or no cure periods, trigger a substantial 120% repayment penalty on the outstanding principal plus accrued interest.
Covenants restrict the company's ability to incur certain types of debt, pay dividends (except stock dividends), repurchase stock (with exceptions), sell significant assets, or engage in certain affiliate transactions without the holder's written consent.
A 'Most Favored Nation' clause ensures the investor receives terms no less favorable than those offered to other investors in future financings.
A 'Leak Out' provision limits the investor's daily sales of converted shares to the greater of $20,000 or 20% of Daily Dollar Volume, indicating potential selling pressure on the stock.
The company is prohibited from effecting or entering into agreements involving 'Variable Rate Transactions' (e.g., equity lines of credit, convertible securities with reset prices) until the note is fully converted or repaid, limiting future financing flexibility.

Risks

**Significant Dilution Risk:** The floating conversion price for a portion of the note, tied to 92% of the lowest VWAP, exposes existing shareholders to substantial dilution if the stock price declines.
**High Default Risk and Penalties:** The extensive list of events of default, some with immediate effect or short cure periods, and the severe 120% repayment penalty on outstanding principal plus accrued interest, pose a significant financial threat to the company.
**Operational and Financial Restrictions:** Covenants limit the company's ability to undertake key corporate actions such as incurring certain debt, paying dividends, repurchasing stock, selling significant assets, or engaging in specific affiliate transactions without the investor's consent, potentially hindering strategic flexibility.
**Future Capital Raising Challenges:** Restrictions on 'Variable Rate Transactions' and 'Dilutive Issuances' could impede the company's ability to raise additional capital through certain equity or debt instruments in the future, especially under unfavorable market conditions.
**Market Price Volatility Impact:** The conversion terms are highly sensitive to the company's stock price, meaning a sustained decline could lead to more shares being issued, exacerbating dilution.
**Regulatory Compliance Burden:** Failure to comply with SEC reporting requirements, Nasdaq listing standards, or the timely effectiveness of the registration statement for resale of conversion shares can trigger an event of default.
**Liquidity Impact from Repayment Clause:** The provision allowing the investor to demand repayment of up to 15% of cash proceeds from future equity/debt issuances or asset sales could divert funds needed for operations or growth.

Future Outlook

The filing primarily outlines the terms of a financing transaction and associated obligations. It indicates a future need for the company to maintain SEC reporting compliance, Nasdaq listing standards, and to ensure the effectiveness of a registration statement for the resale of the conversion shares. The structured amortization payments also outline a clear repayment schedule for the coming year.

Industry Context

This convertible note financing, characterized by an Original Issue Discount, a floating conversion price for a portion of the note, and stringent default provisions, is often utilized by smaller public companies that may face challenges accessing traditional capital markets. Such terms are indicative of a higher perceived risk by the investor and can be a common mechanism for growth-stage companies or those needing capital under less favorable market conditions. The 'Leak Out' provision is a standard feature in these types of deals, designed to manage the market impact of the investor's future share sales.

Comparison to Industry Standards

**Original Issue Discount (OID):** The $100,000 OID on a $1,100,000 principal note (effectively 9.1% discount) is a relatively aggressive term, often seen in financings for companies with higher perceived risk or limited access to conventional capital, compared to standard debt offerings.
**Floating Conversion Price:** The provision allowing conversion at 92% of the lowest VWAP for a portion of the note is a 'toxic' or 'death spiral' financing feature. This is significantly more dilutive than fixed conversion prices and is generally considered unfavorable for existing shareholders, contrasting sharply with more shareholder-friendly convertible structures.
**Default Penalties:** The 120% repayment premium upon an event of default is a very high penalty, exceeding typical default clauses in standard corporate debt, and reflects a strong protective stance by the lender due to elevated risk.
**Covenants and Restrictions:** The extensive list of covenants restricting the company's ability to incur certain debt, pay dividends, repurchase stock, sell significant assets, or engage in specific affiliate transactions without investor consent is more restrictive than what is typically found in investment-grade corporate debt, aligning with higher-risk private placements.
**Registration Rights:** The requirement for the company to file a registration statement within 90 days and have it effective within 120 days for the resale of conversion shares is standard practice for private placements of convertible securities, ensuring liquidity for the investor.
**'Most Favored Nation' Clause:** This clause, ensuring the investor receives terms no less favorable than those offered to other investors in future financings, is common in private placement deals to protect the investor's position.

Corporate Governance

Change Type	Description	Effective Date	Impact Assessment
Stockholder Approval	Stockholder approval was obtained on February 20, 2025, by written consent, for the issuance of shares of Class A common stock upon conversion of the note that exceed 20% or more of the Class A Common Stock outstanding before the issuance, satisfying Nasdaq Listing Rule 5635(d).	2025-02-20	Ensures compliance with Nasdaq listing rules for the potential dilution from the convertible note, removing a potential hurdle for the transaction.
Covenant Restriction on Other Indebtedness	The company and its subsidiaries are restricted from incurring or guaranteeing any unsecured indebtedness senior to or pari passu with the note, except for specific existing notes (February 2025 Notes, October 2025 Securities, November 2025 Notes).	2025-11-26	Limits the company's future financing options and prioritizes this note over most other unsecured debt, potentially making it harder to raise capital from other lenders.
Covenant Restriction on Distributions on Capital Stock	The company cannot pay dividends (except stock dividends) or make other distributions in respect of its capital stock without the holder's written consent.	2025-11-26	Restricts the company's ability to return capital to shareholders, which could negatively impact investor sentiment and share price.
Covenant Restriction on Stock Repurchases and Debt Repayments	The company cannot redeem, repurchase, or acquire its capital stock or repay other indebtedness (except for a specific $5M share repurchase program and a $10M Cathay Bank note) without the holder's written consent.	2025-11-26	Limits the company's financial flexibility, preventing actions that could support share price or reduce other debt burdens without the investor's approval.
Covenant Restriction on Sale of Assets	The company and its subsidiaries cannot sell, lease, or dispose of any significant portion of assets outside the ordinary course of business without the holder's written consent.	2025-11-26	Restricts strategic asset divestitures or restructuring, potentially hindering the company's ability to adapt or raise funds through asset sales.
Covenant Restriction on Advances, Loans, and Affiliate Transactions	The company cannot lend money, give credit, make advances, or repay affiliates in connection with indebtedness or accrued amounts without the holder's written consent (with exceptions for existing commitments and ordinary course transactions with unaffiliated third parties).	2025-11-26	Prevents certain related-party dealings and limits the company's ability to provide internal financing or support to affiliates, ensuring funds are not diverted.
Covenant Restriction on Business Changes and Prohibited Transactions	The company cannot change the nature of its business, sell/divest/change the structure of material assets (outside ordinary course), enter into Variable Rate Transactions, or Prohibited Transactions (merchant cash advance, sale of receivables) without the holder's written consent.	2025-11-26	Significantly limits the company's strategic and financial flexibility, preventing certain types of financing and business model changes without investor approval.

Related Party Transactions

The 'Use of Proceeds' covenant specifically prohibits the use of the purchase price for the repayment of any indebtedness owed to officers, directors, or employees of the Company or their affiliates.
The 'Advances and Loans; Affiliate Transactions' covenant restricts the company from lending money, giving credit, making advances to, or repaying any affiliate (as defined in Rule 144) in connection with any indebtedness or accrued amounts owed to such party without the holder's written consent, with exceptions for transactions in existence or committed on the Issue Date or with unaffiliated third parties in the ordinary course of business.

Stakeholder Impact

**Shareholders:** Face significant potential dilution due to the convertible nature of the note, especially with the floating conversion price for a portion of the note. The 'Leak Out' provision also indicates potential selling pressure on the stock. Restrictions on dividends and stock repurchases limit direct returns to shareholders.
**Creditors:** The note is a senior unsecured obligation, giving it priority over most other existing and future unsecured indebtedness, which is favorable for the noteholder but potentially less favorable for other unsecured creditors.
**Management/Company:** Covenants impose substantial restrictions on corporate actions, including future financings, asset sales, and capital distributions, limiting operational and strategic flexibility. The high default penalties create significant financial pressure on management to meet all obligations.
**Employees:** No direct impact mentioned, but financial strain or operational restrictions could indirectly affect employee morale or future compensation/benefits.

Next Steps

The company must file an initial Registration Statement covering the resale of conversion shares within ninety (90) calendar days from November 26, 2025.
The company must cause the Registration Statement to become effective within one hundred twenty (120) calendar days from November 26, 2025.
The company is scheduled to begin making monthly amortization payments of $115,500 starting February 26, 2026.
The company must maintain its corporate existence and the listing and trading of its Common Stock on the Principal Market.
The company must comply with the reporting requirements of the 1934 Act and make public information available for Rule 144 compliance.

Key Dates

Date	Description
2022-01-26	Date of original $10,000,000.00 promissory note issued by the Company to Cathay Bank.
2022-11-10	Date of authorization for the Company's share repurchase program of up to $5,000,000 of Common Stock.
2023-08-24	Date of August 2023 Warrants issued to certain accredited investors.
2023-08-30	Date of Form 8-K filing disclosing original issue 7.4% discount convertible notes.
2025-02-20	Date of Stockholder Approval by written consent for purposes of Nasdaq Listing Rule 5635(d).
2025-02-21	Date of February 2025 Securities Purchase Agreements.
2025-04-09	Date of preliminary information statement on Schedule 14C filed with the SEC.
2025-04-23	Date of definitive information statement on Schedule 14C filed with the SEC.
2025-10-24	Date of securities issued to Crom Structured Opportunities Fund I, LP (October 2025 Securities).
2025-11-26	Issue Date of the Convertible Promissory Note, and date of the Securities Purchase Agreement and Registration Rights Agreement.
2025-12-03	Date of this Current Report on Form 8-K filing.
2026-02-26	First scheduled amortization payment date of $115,500.
2026-03-26	Scheduled amortization payment date of $115,500.
2026-04-26	Scheduled amortization payment date of $115,500.
2026-05-26	Scheduled amortization payment date of $115,500.
2026-06-26	Scheduled amortization payment date of $115,500.
2026-07-26	Scheduled amortization payment date of $115,500.
2026-08-26	Scheduled amortization payment date of $115,500.
2026-09-26	Scheduled amortization payment date of $115,500.
2026-10-26	Scheduled amortization payment date of $115,500.
2026-11-26	Maturity Date of the Note, when the entire remaining outstanding balance is due.

Recommendation

strong sell

The terms of this financing are highly unfavorable for existing shareholders and indicate a company in a precarious financial position. The significant Original Issue Discount, the guaranteed interest, and particularly the floating conversion price for a portion of the note, coupled with numerous and stringent default triggers leading to a 120% repayment premium, create substantial downside risk. This structure is often associated with 'death spiral' financing, where declining stock prices lead to more shares being issued upon conversion, further diluting existing shareholders and creating a downward spiral. The extensive covenants also severely restrict the company's operational and financial flexibility. These factors collectively point to substantial erosion of shareholder value and make the stock a strong sell.

Keywords

Convertible Promissory Note, Private Placement, Snail Inc, SNAL, Financing, Dilution, Registration Rights, Corporate Governance, Debt Financing, Equity Conversion, Nasdaq Listing, VWAP, Original Issue Discount, SEC Filing

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