DEF 14C: Snail Inc. Secures $3.3 Million in Convertible Note Financing, Eyes Additional $7.7 Million

Snail Inc. announces a $3.3 million convertible note financing with potential for an additional $7.7 million, approved by majority stockholders via written consent to comply with Nasdaq listing rules.

Summary

• Snail Inc. has secured $3.3 million through a convertible note financing, with the possibility of raising an additional $7.7 million in future tranches.
• The financing involves the sale of unsecured convertible promissory notes to two accredited investors.
• The initial tranche, closed on February 21, 2025, included two notes: one for $2.2 million (purchase price $2.0 million) and another for $1.1 million (purchase price $1.0 million), reflecting a 10% original issuance discount (OID).
• The notes carry a 5% one-time interest charge and mature in twelve months.
• Investors can convert the notes into Class A Common Stock at a price of $5.00 per share, subject to adjustments.
• A portion of the notes ($577,500 for the first Note and $288,750 for the second Note) can be converted at a price equal to the lesser of $5.00 or 92% of the lowest VWAP over the five trading days prior to conversion.
• The company has entered into a Registration Rights Agreement to register the resale of the Conversion Shares within 90 calendar days of the Issue Date (February 21, 2025) and have such registration statement effective within 120 calendar days following the Issue Date.
• The majority stockholders approved the financing via written consent to meet Nasdaq Rule 5635(d) requirements.
• The proceeds will be used primarily for business development, working capital, and general corporate purposes.
• The corporate action will be effective on or about May 13, 2025, approximately 20 calendar days after the mailing of the information statement.

Sentiment

Score: 6

Explanation: The sentiment is neutral. While the financing provides capital, it also carries risks of dilution and dependence on management's effective use of proceeds. The approval by majority stockholders is a positive sign, but the overall impact depends on future performance.

Positives

• The convertible note financing provides Snail Inc. with additional capital for business development and working capital.
• The financing was approved by majority stockholders, ensuring compliance with Nasdaq listing rules.
• The company has the flexibility to raise up to an additional $7.7 million in future tranches.
• The terms of the notes include a conversion option for investors, potentially leading to increased equity value for the company.
• The company has broad discretion in the application of the net proceeds from the Convertible Note Financing.

Negatives

• The convertible note financing will result in dilution for existing stockholders if the notes are converted into Class A Common Stock.
• The company's management has broad discretion over the use of the net proceeds from this offering, you may not agree with how we use the proceeds, and the proceeds may not be invested successfully.
• The influx of shares of Class A Common Stock into the public market could have a negative effect on the trading price of our Class A Common Stock.

Risks

• The issuance of a substantial number of shares of Class A Common Stock upon conversion of the Notes, or the anticipation of such conversions, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales, which could have a materially adverse effect on our business and operations.
• The company's management has broad discretion over the use of the net proceeds from this offering, you may not agree with how we use the proceeds, and the proceeds may not be invested successfully.
• The company may require additional capital to pursue its business objectives and respond to business opportunities, challenges, or unforeseen circumstances.
• Future sales and issuances of our Common Stock or rights to purchase our Common Stock, including securities exchangeable, exercisable or convertible into our Common Stock, including pursuant to our 2022 Omnibus Incentive Plan and outstanding warrants, could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to fall.
• The company has additional securities available for issuance, which, if issued, could adversely affect the rights of the holders of our Common Stock.

Future Outlook

The company intends to use the net proceeds from the convertible note financing primarily for business development, working capital, and general corporate purposes, with the potential for additional tranches to be issued in the future.

Industry Context

Many companies, especially in the tech and gaming sectors, utilize convertible note financings to raise capital quickly without immediately diluting existing shareholders. This approach allows them to fund growth initiatives and working capital needs.

Comparison to Industry Standards

• Convertible notes are a common financing tool, especially for growth-stage companies.
• The 10% OID is within the typical range for such financings, although the specific terms depend on the company's risk profile and market conditions.
• The conversion price of $5.00 is a key factor, and its attractiveness depends on the current and projected market price of Snail Inc.'s Class A Common Stock.
• Comparable companies in similar situations, such as those in the gaming or entertainment technology space, often use similar financing structures to fuel expansion or bridge funding gaps.

Stakeholder Impact

• Existing stockholders will experience potential dilution if the notes are converted into Class A Common Stock.
• The company's employees may benefit from the increased capital available for business development and growth.
• The company's customers may benefit from improved products and services resulting from the use of the financing proceeds.
• The company's creditors may be impacted by the terms of the notes, which are ranked as a senior unsecured obligation.

Next Steps

• The company will file a resale registration statement for the conversion shares within 90 calendar days of the issue date.
• The company will seek to have the registration statement declared effective by the SEC promptly after the corporate action is effective.
• The company will use the net proceeds from the financing for business development, working capital, and general corporate purposes.
• The company will monitor the market conditions and its financial needs to determine whether to proceed with additional tranches of the convertible note financing.

Key Dates

Keywords

convertible note financing, private placement, Nasdaq Rule 5635(d), Class A Common Stock, Class B Common Stock, Securities Purchase Agreement, Registration Rights Agreement, dilution, accredited investors, Snail Inc.