SNAL 10-K & 10-Q changes, risk factors and insider trading

A description of the risks and uncertainties associated with our business is set forth below. You should carefully consider the risks and and uncertainties described below, as well as the other information in this Annual Report, including our consolidated financial statements statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These disclosures reflect the Company’s beliefs and opinions as to factors that could materially and adversely affect the Company and its securities in the future. References to past events are provided by way of example only and are not intended to be a complete listing or a representation as to whether or not such factors have occurred in the past or their likelihood of occurring in the future. The occurrence of any of the events or developments described below, or of additional risks and uncertainties not presently known to us or that we currently deem immaterial, could materially and adversely affect our business, results of operations, financial condition and growth prospects. In such an event, the market price of our common stock could decline, and you could lose all or part of your investment.

We license certain intellectual property rights from third parties, including related parties, and in the future, we may enter into additional additional agreements that provide us with licenses to valuable intellectual property rights or technology. In particular, we license intellectual property rights related to our ARK franchise from SDE, the parent company of Studio Wildcard, which is also an entity that is owned and controlled by the spouse of our Founder, Co-ChiefChief Executive Officer, Chief Strategy Officer and Chairman, Mr. Shi. We entered into an original exclusive software license agreement with SDE in November 2015, for the rights to ARK: Survival Evolved, and which ARK1 License Agreement was subsequently entered into the amended and restated ARK1 License Agreement.Agreement Inin December 2022 and further amended in October 2023,2023. weAs amendedamended, the ARK1 License Agreement expires in 2035, with provisions for automatic renewal for three-year terms Agreement.unless either party elects not to renew. The ARK1 License Agreement may also be terminated early for material breach or insolvency by either party. The terms of our license agreements with SDE may differ from those terms which would be negotiated with independent parties. In addition, we may have disputes with SDE that may impact our business, results of operations, financial condition and/or prospects. The ARK franchise contributed 85.1%89.4% of our net revenue for the year ended December 31, 2024.2025. Even if our games that are dependent on third-party license agreements remain popular, any of our licensors could decide not to renew our existing license agreements or not to license additional intellectual property rights to us and instead license to our competitors or develop and publish its own games or other applications, competing with us in the marketplace. Moreover, many of our licensors develop games for other platforms and may have significant experience and development resources available to them should they decide to compete with us rather than license to us. For additional information concerning our license arrangements, including licensing agreements with affiliated third parties, see Item 1 of Part I, “Business—Intellectual Property,” included in this Annual Report for the fiscal year ended December 31, 31, 2024.2025.

The loss of the services of any or all of theseour executive officers, or certain key product development personnel, including those employed by studio partners, such as Studio Wildcard, could significantly harm our business. In addition, if one or more key employees were to join a competitor or form a competing company, we may lose additional personnel, experience material interruptions in product development, delays in bringing products to market and difficulties in our relationships with licensors, suppliers and customers, which would significantly harm our business. Failure to continue to attract and retain qualified management and creative personnel could adversely affect our business and prospects.

Most members of our management team have limited experience managing a publicly traded company, interacting with public company investors and regulators and complying with the increasingly complex laws pertaining to public companies. Our management team may not successfully or efficiently manage our transition to being a public company subject to significant regulatory oversight and reporting obligations under the federal securities laws and the continuous scrutiny of securities analysts and investors. These new obligations and constituents will require significant attention from our senior management and could divert their attention away from the day-to-day management of our business, which could adversely impact our business, operating results and financial condition.

RiskOur online games are vulnerable to the risk of Service Disruptions Due to Large-Scale Distributed Denial-of-Service (DDoS) Attacks

Historically, when next generation consoles are announced or introduced into the market, consumers have typically reduced their purchases of products products for prior-generation consoles in anticipation of purchasing a next-generation console and products for that console. During these periods, sales of the products we publish may decline until new platforms achieve wide consumer acceptance. Console transitions may have a comparable impact on sales of DLC, amplifying the impact on our revenues. This decline may not be offset by increased sales of products for the next-generation consoles. Moreover, it typically takes time before we have products available on next-generationnext generation consoles. In addition, as console hardware moves through its life cycle, hardware manufacturers typically enact price price reductions, and decreasing prices may put downward pressure on software prices. During console transitions, we may simultaneously incur costs both in continuing to develop and market new titles for prior-generation video game platforms, which may not sell at premium prices, and also in developing products for next-generation platforms, which may not generate immediate or near-term revenues. As a result, our business and operating results may be more volatile and difficult to predict during console transitions than during other times.

The size of our active user base with our products areis critical to our success. We are new to the short film drama business. Our financial performance has been and will continue to be significantly affected by our ability to grow and engage our active user base. In addition, we may fail to maintain or increase our user base or our users’ engagement if, among other things:

We have integrated, or are in the process of integrating, artificial intelligence (“AI”) into various aspects of our business business operations. These include, but are not limited to, customer service automation, data analytics, game development, and generation of resources. We evaluate and adapt our AI strategies to optimize operational efficiency and enhance customer experiences. We have made and expect to continue to make investments in AI, including software acquisitions, development of proprietary algorithms, and talent recruitment. These investments are expected to drive innovation, improve operational efficiencies, and contribute to long-term growth. While AI presents substantial opportunities, it also poses certain risks. These include reliance on complex algorithms, potential biases in AI decision-making, cybersecurity threats, and regulatory changes. If the AI tools that we use are deficient, inaccurate or controversial, we could incur operational inefficiencies, competitive harm, legal liability, brand or reputational harm, or other adverse impacts on our business and financial results. If we do not have sufficient rights to use the data or other material or content on which the AI tools we use rely, we also may incur liability through the violation of applicable laws and regulations, third-party intellectual property, privacy or other rights, or contracts to which we are a party. Improper use of AI development tools could also result in a loss of our ability to protect our own IP assets. We seek to mitigate these risks through regular audits, risk assessments, review of privacy standards, security protocols, monitoring, and adaptive AI models. The integration of AI technologies has also led to changes in workforce requirements. We invest in employee training and development to adapt to AI-driven changes. While AI automates certain tasks, it also creates new roles and opportunities within our organization. We anticipate that AI will play an increasingly significant role in our operations and strategy. Ongoing investments and research in AI are expected to yield new capabilities and efficiencies, aligning with our our long-term vision for innovation and growth.

In addition, regulation of AI is rapidly evolving worldwide as legislators and regulators are increasingly focused on these powerful emerging technologies. The technologies underlying AI and its uses are subject to a variety of laws and regulations, including intellectual property, data privacy and security, consumer protection, competition, and equal opportunity laws, and are expected to be subject to increased regulation and new laws or new applications of existing laws and regulations. AI is the subject of ongoing review by various U.S. governmental and regulatory agencies, and various U.S. states and other foreign jurisdictions are applying, or are considering applying, their platform moderation, cybersecurity, and data protection laws and regulations to AI or are considering general legal frameworks for AI. For example, the EU’s Artificial Intelligence Act establishes a comprehensive regulatory framework that may impose significant compliance obligations on companies using AI within the EU, including requirements related to transparency, risk assessment, and human oversight. Certain uses of AI, such as personalized content recommendations or behavioral analytics, could be classified under risk-based regulatory frameworks and be subject to heightened scrutiny or restrictions. We may also face requirements to disclose when content in our games is AI-generated, which could affect player perception and competitive positioning. Additionally, proposed regulations concerning the use of copyrighted materials to train AI models could affect the availability, cost, or functionality of AI tools we rely upon, or expose us to liability if our AI vendors have not obtained appropriate rights to their training data. We may not be able to anticipate how to respond to these rapidly evolving frameworks, and we may need to expend resources to adjust our operations or offerings in certain jurisdictions if the legal frameworks are inconsistent across jurisdictions. Furthermore, because AI technology itself is highly complex and rapidly developing, it is not possible to predict all of the legal, operational or technological risks that may arise relating to the use of AI.

On JuneDecember 27,30, 2024,2025, we received a deficiency letter from the Listing Qualifications Department (the “Staff”) of the Nasdaq Stock Stock Market (“Nasdaq”) notifying us that, for thirty (30) consecutive business days (from MayNovember 10,11, 20242025 tothrough December June29, 26, 2024),2025, the bid price for our Class A common stock had closed below the minimum $1.00 per share requirement for continued inclusion on the Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Rule”). In accordance with Nasdaq rules, we were providedhave ana initialcompliance period of 180 calendar days, or until DecemberJune 24,29, 20242026 (the “Compliance Date”), to regain compliance with the Bid Price Rule. The Staff informed the Companyus that if, at any time before the Compliance Date, the bid price for theour Class A common stock closed at $1.00 or more for a minimum of ten (10) consecutive business days,days (or such additional number of days as Nasdaq may require), the Staff would provide written notification to the Companyus that it complied with the Bid Price Rule and the matter will be closed.

We intend to actively monitor the closing bid price of the Class A common stock and, as appropriate, will consider available options to regain compliance with the Minimum Bid Price Requirement, including seeking to effect a reverse stock split, if necessary. While we plan to review all available options, there can be no assurance that we will be able to regain compliance with the Minimum Bid Price Requirement during the 180-calendar day compliance period or any subsequent extension period. If at any time we do not satisfy the continued listing requirements of the Nasdaq, including compliance with the Bid Price Rule, within the time frame granted by Nasdaq, our Class A common stock will be delisted from the Nasdaq. Any perception that we may not regain compliance or a delisting of our Class A common stock by Nasdaq could adversely affect our ability to attract new investors, decrease the liquidity of the outstanding shares of our Class A common stock, reduce the price at which such shares trade and increase the transaction costs inherent in trading such shares with overall negative effects for our stockholder. In addition, delisting of our Class A common stock from Nasdaq could deter broker-dealers from making a market in or otherwise seeking or generating interest in our Class A common stock, and might deter certain institutions and persons from investing in our Class A common stock. In addition, if our Class A common stock was delisted, our Class A common stock would be subject to rules that impose additional sales practice requirements on broker-dealers who sell our securities. The additional burdens imposed upon broker-dealers by these requirements could discourage broker-dealers from effecting transactions in our Class A common stock. This would adversely affect the ability of investors to trade our Class A common stock and would adversely affect the value of our Class A common stock. These factors could contribute to lower prices and larger spreads in the bid and ask prices for our Class A common stock.

We collect, process, store, use and share data in our operations. While our business receives limited, if any, personal information of our end users from our platform providers, we may elect to collect such information in the future. Our business and the business of our platform providers are therefore subject to a number of federal, state, local and foreign laws, regulations, regulatory codes and guidelines governing data privacy, data protection and security, including with respect to the collection, storage, use, processing, transmission, sharing and protection of personal information. Such laws, regulations, regulatory codes and guidelines may be inconsistent across jurisdictions or conflict with other rules. As our business expands to include new uses or collection of data that are subject to privacy or security regulations, our compliance requirements and costs will increase, and we may be subject to increased regulatory scrutiny. The online gaming industry in particular has attracted regulatory attention regarding issues such as in-game purchases, age verification, and the protection of younger players, and additional regulation in these areas could impact our business practices or product offerings.

The legislative and regulatory landscapes for data privacy and security continue to evolve in jurisdictions worldwide, with an increasing increasing focus on privacy and data protection issues with the potential to affect our business. In the United States, such privacy and data security laws and regulations include federal laws and regulations like the federalFederal ControllingTrade the Assault of Non-Solicited Pornography and Marketing Act, the Telephone Consumer ProtectionCommission Act, the Do-Not-Call Implementation Act, and rules and regulations promulgated under the authority of the Federal Trade Commission and state laws like the California Consumer Privacy Act (“CCPA”) and the varying data breach notification laws that have been enacted in all 50 U.S. states and the District of Columbia. The CCPA, whichas became effective on January 1, 2020amended, and became enforceable by the California Attorney General on July 1, 2020, along with related regulations that came into force on August 14, 2020, provides additional individual privacy rights for California residents and places increased data privacy and security obligations on entities handling certain personal information of California residents and households. Among other things, the CCPA expands rights related to such individual’s personal information, including the right to access and require deletion of their personal information, opt out of certain personal information sharing, and receive detailed information about how their personal information is collected, used, and shared by covered business. ManyA number of theother CCPA’sU.S. requirementsstates ashave appliedadopted privacy laws that are similar to personalthe informationCCPA. obtained in a businessFailure to businesscomply context,with as well as personal information of a business’s personnel and related individuals, were subject to a moratorium that expired on January 1, 2023. Thethe CCPA providesor similar forstate civillaws penaltiescould forresult violations,in assubstantial wellliability as a private rightresult of action regulatory enforcement and statutory damages for security breaches that may increase security breachprivate litigation. The effects of the CCPA and similar state laws are significant and have required, and could continue to require, us to modify our data collection or processing practices and policies and to incur substantial costs and expenses in an effort to comply. Some observers have noted that the CCPA could mark the beginning of a trend toward more stringent state privacy legislation in the U.S., which could increase our potential liability and adversely affect our business. Further, in November 2020, California voters passed the California Privacy Rights Act (“CPRA”). The CPRA, which came into effect in most material respects on January 1, 2023 with a one-year look back period, significantly amended and expanded existing CCPA requirements, including, among other things, by introducing additional obligations such as data minimization and storage limitations on the sharing of personal information for cross on text behavioral advertising and on the use of “sensitive” personal information, granting additional rights to consumers, such as correction of personal information and additional opt-out rights, and creating a new entity, the California Privacy Protection Agency, to implement and enforce the law and impose administrative fines. There currently are are a number of additional proposals related to data privacy or security pending before federal, state, and foreign legislative and regulatory regulatory bodies, including in a number of U.S. states considering comprehensive consumer protection laws. StatesThese suchlaws asmay Virginia,restrict our Colorado,ability Utah to gather and Connecticut have passed comprehensiveuse data privacyabout lawsour thatusers, haveand becomecould effective,harm our business by limiting the products and services we can offer consumers or willthe become effectivemanner in thewhich nearwe future. advertise and offer them. Such legislation may add complexity, variation in requirements, restrictions and potential legal risk, require additional investment in resources to compliance programs, and could impact strategies and availability of previously useful data and could result in increased compliance compliance costs and/or changes in business practices and policies.

Many of the other jurisdictions where we or our customers do business, including the EU, also have restrictive laws and regulations dealing with the processing of personal information. In addition to regulating the processing of personal information within the relevant jurisdictions, these legal requirements often also apply to the processing of personal information outside these jurisdictions, where there is some specified link to the relevant jurisdiction. For example, the European Union’s Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC (the “General Data Protection Regulation” or “GDPR”) became effective in May 2018, imposes strict requirements on controllers and processors of personal data in the European Economic Area (“EEA”), including, for example, higher standards for obtaining consent from individuals to process their personal data, more robust disclosures to individuals and a strengthened individual data rights regime, greater control for data subjects (including the “right to be forgotten” and data portability) and shortened timelines for data breach notifications. The GDPR created new compliance obligations applicable to our business and our platform and service providers, which could require us to self-determine how to interpret and implement these obligations, change our business practices and expose us to lawsuits (including class action or similar representative lawsuits) by consumers or consumer organizations for alleged breach of data protection laws. Failure to comply with the requirements of GDPR may result in significant fines of up to €20,000,000 or up to 4% of the total worldwide annual turnover of the preceding financial year, whichever is higher, and other administrative penalties. The United Kingdom operates a separate but similar regime to the European Union with which we will have to comply and that allows for fines of up to the greater of £17.5 million or 4% of the total worldwide annual turn over of the preceding financial year. Further, beginning January 1, 2021, we have been required to comply with the GDPR and also the United Kingdom GDPR (“UK GDPR”), which, together with the amended United Kingdom Data Protection Act 2018, retains the GDPR in United Kingdom national law. The relationship between the United Kingdom and the European Union in relation to certain aspects of data protection law remains unclear, and it is unclear how the United Kingdom’s data protection laws and regulations will develop in the medium to longer term, and how data transfers to and from the United Kingdom will be regulated in the long term. For example, while the EU Commission has adopted an adequacy decision in favor of the United Kingdom, enabling data transfers from European Union member states to the United Kingdom without additional safeguards, the decision will automatically expire in June 2025 unless the EU Commission re-assesses and renews/extends it. These changes may lead to additional costs and increase our overall risk exposure.

Recent legal developments also have created compliance uncertainty regarding the transfer of personal information from the U.K. and EEA to certain locations outside of the U.K. and EEA where we or our clients operate or conduct business. In July 2020, the Court of Justice of the European Union (“CJEU”) ruled the EU-US Privacy Shield Framework, one of the primary safeguards that allowed U.S. companies to import personal data from the EU to the U.S., was invalid. The CJEU’s decision also raised questions about whether the most commonly used mechanism for cross-border transfers of personal data out of the EEA, namely, the European Commission’s Standard Contractual Clauses, can lawfully be used for personal data transfers from the EU to the U.S. or other third countries the European Commission has determined do not provide adequate data protections under their laws. On June 4, 2021, the European Commission published new Standard Contractual Clauses (which became effective on June 27, 2021), which impose on companies additional obligations relating to data transfers, including in the transfer, to implement additional security measures and update internal privacy practices. If we elect to rely on the new Standard Contractual Clauses for applicable data transfers, we may be required to incur significant time and resources to update our contractual arrangements and to comply with new obligations. If we are unable to implement a valid mechanism for personal data transfers from the EEA, we could face increased exposure to regulatory actions, substantial fines and injunctions against processing personal data from the EEA. As discussed above, these same considerations must currently be taken into account with regard to the UK GDPR as well. Additionally, other countries outside of the EUEU, such as China, have enacted or are considering enacting similar cross order data transfer restrictions and laws requiring local data residency, which could increase the cost and complexity of delivering our services and operating our business. The type of challenges we face in the EU and U.K. will likely also arise in other jurisdictions that adopt regulatory frameworks of equivalent complexity. Accordingly, any actual or perceived failure to comply with these laws and regulations could harm our business, financial condition and results of operations.

On August 30, 2021, China’s National Press and Publication Administration announced a new regulation that required online gaming companies limit their services provided to minors to one hour per day on Fridays, Saturdays, Sundays and public holidays. We continue to assess the impact this new regulation may have on our results of operations however, at this time, the impact of this new regulation remains uncertain.

Our effective tax rate was (64.6)% for the year ended December 31, 2025 and 25.7% for the year ended December 31, 2024 and 20.9% for the year ended December 31, 2023.2024. In general, changes in applicable U.S. federal and state and foreign tax laws and regulations, or their interpretation and application, including the possibility of retroactive effect, could affect our tax expense. In addition, taxing authorities in many jurisdictions in which we operate may propose changes to their tax laws and regulations. These potential changes could have a material impact on our effective tax rate, long-term tax planning and financial results.

The CompanyWe hashave debt obligations with short term durations that are coming due within one year.

Our controlling stockholder, Founder, Co-ChiefChief Executive Officer, Chief Strategy Officer and Chairman, Mr. Shi, controls a majority of our outstanding outstanding common stock. As a result, we are a “controlled company” within the meaning of the corporate governance standards of the Nasdaq rules. Under these rules, a listed company of which more than 50% of the voting power is held by an individual, group or another another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including:

Mr. Shi, our Founder, Co-ChiefChief Executive Officer, Chief Strategy Officer and Chairman, controls us, and his ownership of our common stock prevents prevents you and other stockholders from influencing significant decisions.

Mr. Shi, our Founder, Co-ChiefChief Executive Officer, Chief Strategy Officer and Chairman, is a Chinese national. For so long as a Chinese individual continues to exercise majority voting control over us, changes in U.S. and Chinese laws in the future may make it more difficult for us to operate as a publicly traded company in the United States.

Future developments in U.S. and Chinese laws may restrict our ability or willingness to operate as a publicly traded company in the United States for so long as Mr. Shi, who is a Chinese national, or other Chinese investors, continue to beneficially own a significant percentage of our outstanding shares of common stock. The relations between the United States and China are constantly changing. During his administration, President Donald J. Trump issued a memorandum directing the President’s Working Group on Financial Markets to convene to discuss the risks faced by U.S. investors in Chinese companies and issued several executive orders restricting the operations of Chinese companies, such as the company that owns TikTok, in the United States. Additionally, the federal government has recently proposed legislation intended to protect American investments in Chinese companies. PresidentIn In addition, various equity-based research organizations have published reports on Chinese companies after examining their corporate governance practices, related party transactions, sales practices and financial statements, and these reports have led to special investigations and listing suspensions on U.S. national exchanges. While we are not a Chinese company, any similar scrutiny of us, regardless of its merit, could have an adverse effect upon our business, including our results of operations, financial condition, cash flows and prospects. Additionally, should we be the subject of or indirectly covered by new legislation or executive orders addressed at protecting American investments in Chinese or Chinese-owned companies, our revenues and profitability would be materially reduced, and our business and results of operations would be seriously harmed.

The trading market for our Class A common stock is influenced to some extent by the research and reports that industry or financial analysts publish about us and our business. We do not control these analysts. As a newly public company, weWe may be slow to attract research coverage and the analysts who publish information about our Class A common stock may have relatively little experience with us or our industry, which could affect their ability to accurately forecast our results and could make it more likely that we fail to meet their estimates. If any of the analysts who cover us provide inaccurate or unfavorable research or issue an adverse opinion regarding our stock price, our stock price could decline. If one or more of these analysts cease coverage of us or fail to publish reports covering us regularly, we could lose visibility in the market, which in turn could cause our stock price or trading volume to decline.

WeIn addition to our outstanding convertible notes, we also have a credit facility that we may draw on to finance our operations and other corporate purposes. If we default on these credit obligations, our lenders may accelerate the debt and/or foreclose on property securing the debt.

Further, any failure to implement and maintain effective internal control over financial reporting could also adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we will eventually be required to include in our periodic reports that will be filed with the SEC. Ineffective disclosure controls and procedures or internal control over financial reporting could also cause investors to lose confidence in the accuracy and completeness of our reported financial and other information, which would likely have a negative effect on the trading price of our Class A common stock. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on the Nasdaq. As a public company, we are required to provide an annual management report on the effectiveness of our internal control over financial reporting commencing with our second Annual Report on Form 10-K.reporting.

Our independent registered public accounting firm is not required to formally attest to the effectiveness of our internal control over financial financial reporting until the later of (1) our second Annual Report on Form 10-K or (2) the Annual Report on Form 10-K for the first year we no longer qualify as an emerging growth company company.and are deemed an accelerated filer under SEC rules. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our internal control over financial reporting is documented, designed or operating. Any failure to maintain effective disclosure controls and internal control over financial reporting could harm our business and could cause a decline in the trading price of our Class A common stock. In addition, we could become subject to investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities, which could require additional financial and and management resources. These events could have a material and adverse effect on our business, results of operations, financial condition condition and prospects.

We identified material weaknesses in our internal control over financial reporting and we may identify additional material weaknesses in the future that may cause us to fail to meet our reporting obligations or result in material misstatements of our financial statements. If we do not effectively remediate the material weaknesses or if we otherwise fail to maintain effective internal control over financial reporting, we may not be able to accurately and timely report our financial results.

Our management previously identified a material weakness in our internal control over financial reporting involving the failure to properly value determine the fair value of warrants related to the convertible notes and equity line of credit.credit in accordance with applicable accounting guidance. See Part II, Item 9A, “Controls and Procedures,” in this Annual Report for additional information regarding the identifiedmaterial weakness and the remediation actions undertaken by management. Although this material weakness has been remediated, there is no assurance that we will not identify additional material weaknesses in the future, which could impact our ability to accurately and ourtimely actions to date to remediate the material weakness. As a result of the material weakness, our management has concluded that our internal control overreport financial reporting were not effective as of December 31, 2024.results.

We are an “emerging growth company” and a “smaller reporting company,” and we cannot be certain if the reduced SEC reporting and disclosure requirements applicable to emerging growth companies mayor smaller reporting companies will make our Class A common stocksecurities less attractive to investors.

Our mission is to provide high-quality entertainment experiences to audiences around the world. We are a leading, global independent developer and publisher of interactive digital entertainment for consumers around the world. We have built a premier portfolio of premium games designed for use on a variety of platforms, including consoles, PCs, and mobile devices.devices, highlighted by ARK: Survival EvolvedEvolved, which has beenconsistently aranked top-25 sellingamong gametop-grossing titles on the Steam platform by gross revenue in each year we released an ARK DLC.Steam. Our expertise in technology, in-game ecosystems and monetization of online multiplayer games has enabled us to assemble a broad portfolio of intellectual property across multiple media formats and technology platforms. Our flagship franchise from which we generate the substantial majority of our revenues, ARK, is a leader within the sandbox survival genre with 94.8108.7 million console and PC installs through December 31, 20242025 and repeated releases within the top-25 selling top-grossing games on the Steam platform. See below for discussion of key performance metrics and non-GAAP measures. During the fiscal year ended December 31, 2024,2025, ARK: Survival Evolved and ARK: Survival Ascended combined for an average total of 213,000224,000 daily active users (“DAUs”) on the Steam and Epic platforms, as compared to 416,479213,000 in the fiscal year ended December 31, 2023.2024. We define “daily active users” as the number of unique users who play any given game on any given day. For the years ended December 31, 20242025 and 2023,2024, we generated 85.1%89.4% and 87.8%,85.1%, respectively, of our revenues from the ARK franchise.

Our dedication to providing audiences with high-quality entertainment experiences utilizing the latest gaming technology has produced strong user engagement, continued revenue growth, and increased cash flows. Through December 31, 2024,2025, our ARK franchise game has been played for 3.94.3 billion hours with an average playing time per user of 162.1161.4 hours and with the top 21.3%21.5% of all players spending over 100 100 hours in the game, according to data from the Steam platform. For the years ended December 31, 20242025 and 2023,2024, our net revenue was $81.2 $84.5 million and $60.9$84.5 million, respectively. During the year ended December 31, 2024,2025, approximately 42.4%38.4% of our revenue came from consoles, 49.7% from PC and 9.6% from mobile platforms as compared to 42.4% from consoles, 48.1% from PC and 5.5% from mobile platforms during as compared to 43.7% from consoles, 43.4% from PC and 9.6% from mobile platforms during the year ended December 31, 2023.2024. For the year ended December 31, 20242025, we had a net incomeloss of $1.8$27.2 million, as compared to net loss income of $9.1 $1.8 million for the year ended December 31, 2023.2024.

We continuously evaluate and invest in content strategy to improve and innovate our games and features and to develop current technological platforms. We are currently actively investing in expanding our gaming pipeline as well as developing media and eSports content related to our gaming intellectual property. We also continue to invest to grow our micro-influencer platform, NOIZ, by attracting new influencers and brand customers. We have established a new division internally under the Interactive Films brand. This division will focus on creating content in the vertical short film segment of the digital entertainment market. TheAs mobileof applicationDecember has31, already soft2025, launched on iOS and Android platforms. Wewe have released thirty-one 140 short film dramas toincluding datelicensed films from external organizations and expect a consistent roll out of new short film dramas.

We are focused on innovation and technology leadership in order to maintain our competitive advantage. We spend a portion of our capital on our research and development platform to continuously improve our technological offerings and gaming platform. Our proprietary video game technology includes a versatile game engine, development pipeline tools, advanced rendering technology and advanced server and network operations. Continued investment in improving the technology behind our existing gaming platforms as well as developing new software tools for new product offerings is important to maintaining our strategic goals, developer and creator talent, and financial objectives. For us to continue providing cutting-edge technology to our users and bringing digital interactive entertainment to market, we must also continue to invest in developmental and creative resources. For our users, we regularly invest in user-friendly features and enhance user experience in our games and platforms. As our industry moves towards increased use of cloud gaming and gaming as a service technology, our ability to bring interactive technologies to market will be an increasingly important part of our business. ToFurthermore, to accompany our entry into the vertical short film market, we have developed a distribution platform, the Salty TVSaltyTV mobile application that allows users to access the content on demand.

We derive nearly all of our revenue from third-party distribution platforms, these include but are not limited to, Xbox Live and Game Pass, PlayStation Network, Steam, Epic Games Store, the Apple App Store, the Google Play Store,Store and My Nintendo StoreStore. and the Amazon Appstore. These digital distribution platforms have policies that may impact our reachability to our potential audience, including the discretion to amend their terms of service, which could affect our current operations and our financial performance. As we expand to new markets, we anticipate similar relationships with additional distribution partners that could similarly impact our performance.

We primarily derive revenue from the sale of our games through various gaming platforms. Through these platforms, users can download our games and, for certain games, purchase virtual items to enhance their game-playing experience. We offer certain software products through third-party digital storefronts, such as Xbox Live and Game Pass, PlayStation Network, Steam, Epic Games Store, the Apple App Store, the Google Play Store,Store and My Nintendo Store and the Amazon Appstore,Store, and certain retail distributors. For sales arrangements through Xbox Live and Game Pass, PlayStation Network, Steam, Epic Game Stores, My Nintendo Store and retail distributors, 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 report revenue on a net basis based on the consideration received from the digital storefront. For sales arrangements through the Apple App Store and the Google Play Store, we have discretion in establishing the price for the specified good or service and have determined that we are the principal to the end user and therefore report revenue on a gross basis. Mobile platform fees charged by these digital storefronts are expensed as incurred and reported within cost of revenue as merchant fees.

General and administrative expenses include rent expense, salaries, stock-based compensation, legal and professional expenses, administrative internet and server expenses, contract costs, insurance expenses, license and permits, other taxes and travel expenses. We expect salaries and wages to increase as we increase headcount aswhen we expandexpanding our product offerings. Stock-based compensation will be recorded within within research and development and general and administrative expense. We also record legal settlement expenses as components of general and and administrative expenses. We expect general and administrative expenses will increase in absolute dollars due to the additional administrative and regulatory burden of becoming and operating as a public company and the inflationary pressures of recent years.

Research and development consists primarily of consulting expenses and salaries and wages devoted towards the development of new games and related technologies and development costs outsourced through Suzhou Snail. We do not fund or enter into arrangements relating to the research and development activities from third-party developers from whom we license games. We expect our research and development to increase as we develop new content, games or technologies.

Provision for (benefit from) income taxes

The provision for income taxes consists of current income taxes in the various jurisdictions where we are subject to taxation, primarily the United States, as well as deferred income taxes reflecting the net tax effects of temporary differences between the carrying amounts amounts of assets and liabilities in each of these jurisdictions for financial reporting purposes and the amounts used for income tax purposes. Under current U.S. tax law, the federal statutory tax rate applicable to corporations is 21%. Our effective tax rate of 25.7%(64.6)% differed from the federal statutory tax rate of 21% primarily due to thestate foreignincome researchtaxes and development deduction, permanent differences,a change in valuation allowance, and change in warrant valuation.allowance.

Net revenues for the year ended December 31, 20242025 increaseddecreased by $23.6$3.2 million, or 38.7%,3.8%, compared to the year ended December 31, 2023.2024. The increasedecrease in net revenues was due to ana increasedecrease in recognition of deferred revenues of $32.2$15.5 million related to the Ark franchise, and, an increaseto a lesser extent, a decrease in sales Bellwright of $5.9$1.5 million, a decrease in revenues related to Myth of Empires of $1.3 million, partially offset by aan decreaseincrease inARK: totalSurvival ArkAscended sales of $13.0$11.3 million, aan decreaseincrease in Ark Mobile sales of $1.0$2.4 million and aan decreaseincrease in therevenues Company’sgenerated otherfrom titlesSaltyTV application of $0.7$0.8 million.

The increase in cost of revenues for the year ended December 31, 20242025 was due to an increase of $5.5$1.7 million in software license royalties – related parties, a result of increased deferred royalty recognition related to ARK franchise, an increase of $3.5 million in license and amortization – related parties due to the increased license fee paid to SDE partially offset by lower amortization expenseprimarily due to a lowerlarger depreciable base ofattributable intangibleto assetsfilm inassets, 2024,an a decreaseincrease in engine fees of $0.5$0.9 million,million decreasedue to a one-time engine expense fee, an increase in internet, server and data center fees of $1.6$1.0 million, aand decreasean increase in merchant fees of $0.5$1.0 million related andto aincrease decreaseARK: inUltimate softwareMobile licenseEdition royalties of $0.5 million.revenues.

General and administrative expenses for the year ended December 31, 20242025 decreasedincreased by $2.9$5.2 million, or 18.6%,40.6%, compared to the year ended December 31, 2023.2024. The decreaseincrease in general and administrative expenses was due to aan decreaseincrease in salaries and wages of $1.3$3.0 million due to thean reversalincrease ofin $0.9an employee headcount and recording $0.4 million in previouslystock expensedcompensation expense in 2025 versus an income related stock based compensation,income aof decrease($0.9) million in 2024, an increase in contractors expenses of $1.0 million, an increase in general office expenses of $0.5 million, an increase in legal and professional expenses of $1.1 million, a decrease in bad debt expense of $0.6 million, a decrease in administrative internet and server costs of $0.4 $0.3 million, an increase in rent, insurance and a decrease intravel expenses of $0.4$0.5 million forand an increase in public company expenses of $0.2 million related to SEC filing fees, investor relations, NASDAQ listing fees and compliance expenses; partially offset by an increasedecrease in non-income related taxes of $0.4 $0.2 million and generalfines officeand expensespenalties of $0.2 $0.1 million.

Research and development expenses for the year ended December 31, 20242025 increased by $6.5$2.9 million, or 130.3%,25.2%, compared to the year ended December 31, 2023.2024. The increase in research and development expenses was due to the outsourced development of For the Stars and projectNine AetherYin Sutra: Immortal paid through Suzhou Snail and increased internal research and development salaries as we continue to build our internal internal development team.

Advertising and marketing expenses for the year ended December 31, 20242025 decreasedincreased by $0.1$3.7 million, or 3.7%,243.8%, compared to the year ended December 31, 31,2024. The increase is due to our presence at GDC in March 2025, and increased advertising campaigns for ARK: Aquatica, 2023.ARK: Lost Colony, Wandering Wizard titles, and SaltyTV content releases.

Interest income was $0.3$1.3 million and $0.1$0.3 million for the year ended December 31, 20242025 and 2023,2024, respectively. The increase was due to $1.1 million of interest income related to the balance interest portion of ourIRS cashrefunds deposits being higher on averagereceived during the year ended December 31, 2024. 2025.

Interest expense primarily related to our outstanding indebtedness with third-party lenders. Interest expense decreasedremained byrelatively $0.8 millionconsistent for the year ended December 31, 2024 because of the Company having a lower average debt balance during the year ended December 31, 2025 compared to December 31, 2024.

Other income (expense) decreasedincreased by $1.3$1.1 million for the year ended December 31, 2024,2025, in comparison to the year ended December 31, 2023.2024. The decreaseincrease is primarily due to the revaluation$2.0 million fair market value increase of the Company’sour outstanding warrant liabilities and exercised warrant liabilities, contracts.partially offset by a $0.5 million fair market value decrease of our convertible notes, a $0.3 million decrease in Angela Games settlement income and $0.1 million write off of deferred offering costs related to our equity line of credit warrants.

Provision for (benefit from) income taxes

The CompanyWe had an income tax provision of $0.6$10.7 million for the year ended December 31, 20242025 and a benefitprovision of ($2.4)$0.6 million for the year year ended December 31, 2023.2024. Our effective income tax rate was 25.7%(64.6)% and 20.9%25.7% during the years ended December 31, 20242025 and 2023, 2024, respectively. The increase was due to a valuation allowance of $10.8 million for which we determined it is more-likely-than-not that such deferred tax assets will not be realized.

Units sold decreasedincreased during the year ended December 31, 2024,2025, as compared to the year ended December 31, 2023,2024, by 1.6 million units, or 25.3%.32.7%. Units sold of ARK: Survivalfranchise Evolved decreasedincreased by 2.11.7 million units, partially offset by ana increase in ARK: Survival Ascended units sold of 0.3 million and an increasedecrease in Bellwright and West Hunt sales of 0.40.1 million units.

For the year ended December 31, 2024,2025, bookings decreasedincreased by $10.0$12.2 million, or 11.7%,16.2%, compared to the year ended December 31, 2023,2024, because of increased sales at a higher ASP driven by the release of ARK: Survival Ascended indriven by the fourth quarterlaunch of 2023.ARK: TheLost releasesColony in December 2025, the release of ofARK: BobsAstraeos Tallin TalesFebruary 2025 and BellwrightARK: alongSurvival withEvolved had its first sales event in June 2025 since the price drop in August 2023. Additionally, we deferred $6.6 million for ARK: Survival Ascended DLCs,DLC’s Scorchedwhich Earthhave not yet released in April2025 as 2024, Aberrationcompared into September$13.2 2024 and Extinction in December 2024 partially offset the decrease in unit sales in 2024 but each product release was at a lower ASP than the initial release of ARK: Survival Ascended. Additionally, the Companymillion recognized $13.2 million from deferred revenue upon the release of Scorched Earth, Aberration and Extinction in 2024 and deferred $6.7 million in revenues during the year ended December 31, 2024 for the ARK: Survival Ascended DLC’s that have not yet released as compared to $22.0 million in revenues deferred during the year ended December 31, 2023 for the ARK: Survival Ascended DLC’s and parts of Bobs Tall Tales that had not yet launched.released.

We present EBITDA because it is used by management to assess our financial performance, excluding certain expenses that management believes do not reflect the ongoing operating performance of the business. Management uses EBITDA to supplement GAAP measures of performance when evaluating our business strategies, making budgeting decisions and comparing performance against peer companies. Management believes EBITDA is useful to investors and analysts in highlighting trends in our operating performance, while other measures can differ significantly depending on long-germ strategic decisions regarding capital structure, the tax jurisdictions in which we operate and capital investments.

For the year ended December 31, 2024,2025, EBITDA increaseddecreased by $12.9$20.2 million, or 133.4%,627.1%, compared to the year ended December 31, 2023,2024, primarily due becauseto the decrease in gross profit of $7.8 million, an increase in netgeneral incomeand administrative expenses of $10.9$5.2 millionmillion, an increase in research and adevelopment decreaseof $2.9 million, an increase in theadvertising benefitand from income taxesmarketing of $3.0 million, partially offset by a decrease in interest expense and interest expense – related parties of $0.8$3.7 million and an increaseadditional $1.5 million in impairment interest income and interest income – related parties of $0.2 million.expenses.

Our restricted cash and cash equivalents were $0.9$1.9 million and $1.1$0.9 million as of December 31, 20242025 and 2023,2024, respectively. Our restricted cash primarily consists of time deposits and is used as security for certain of our debt instruments and to secure standby letters of credit with certain of our landlords.landlords and hold collateral in reserve related to our revolving line of credit.

As of December 31, 2024,2025, our 2021 Revolving Loan has a balance of $3.0$5.0 million and is due and payable in June 2025.2027. TheAdditionally, Companyin February has2025 repaidwe itsissued convertible notes with a stated value of $3.3 million which matured in February 2026 and have been fully Convertiblerepaid. NotesWe balanceobtained a term loan note of $3.5 million in June 2025 with a maturity date of June 2028. In October 2025, we issued convertible notes with a stated value of $2.2 million, which mature in October 2026; and in November 2025, we also issued convertible notes with a par value of $1.1 million, itswhich $1.5mature millionin financingNovember arrangement,2026. andAdditionally, thewe remaininghave $0.8available to issue up to $4.4 million of itsconvertible short term notes balanceto our existing noteholders. We were in compliance with our debt covenants related to the 2021 Revolving Loan, 2021 Promissory note and 2025 Term Loan for the trailing twelve months ended December 31, 2025. We received a waiver for the covenant breach during the trailing twelve months ended December 31, 2024. InWe concurrencehave with the registration of the convertible notes shares the Company registered shares for distribution inreceived an equityextension lineon of credit. The Company has the right, but not the obligation, to sell up to $5.0 million in Class A common stock to the investor. We intend to renegotiate with the lender to extend the maturity date of theour 2021 Revolving Loan and to negotiate a new Short Term Note. However, there is no guarantee that we will be able to renegotiatefrom the terms of the 2021 Revolving Loan or obtain a new short term note with the lender at terms acceptable to us or at all. The Company was in compliance with its debt covenants related to the 2021 Revolving Note and 2021 Promissory note for the trailing twelve months ended December 31, 2024, however it is probable that the Company will fail the covenants within the next 12 months. As such, the Company has classified the long-term portion of its promissory note as current.lender. There is no guarantee that the Companywe will receive a waiver from the applicable lender if the covenants of the loans are breached in the future. In the event of a future breach of the debt covenants the lender has the right, but not the obligation, to declare all or any part of the debt as due immediately and cease making any advances or extend any further credit to the Company. us.

The CompanyWe hashave raised capital through the issuance of the convertible notes, equity line of credit, a short term financing arrangement with the Company’s internet and data center (“IDC”) vendor,notes and the distribution agreement entered into with our retail partner which provided advanced royalties. We may need to raise additional capital and issue registered shares to draw on an equity line of credit if needed. The need for additional capital depends on many factors, including, among other things, whether we can successfully renegotiate the terms of our debt arrangements, the rate at which our business grows, demands for working capital, revenue generated from existing DLCs and game titles and launches of new DLCs and new game titles, and any acquisitions that we may pursue. From time to time, we could be required, or may otherwise attempt, to seek additional sources of capital, including, but not limited to, equity and/or debt financings. We cannot provide assurance that we will be able to successfully access any such equity or debt financings, that the required equity or debt financings would be available on terms acceptable to us, if at all, or that any such financings would not be dilutive to our stockholders.

Our current unrestricted cash position of approximately $7.3$8.6 million, and our expected revenue receipts will allow the Companyus to continue operations beyond the next 12 months and service itsour current debts.

TheWe Companyhad hada net loss of $27.2 million and a net income of $1.8 million and a net loss of $9.1 million, for the years ended December 31, 20242025 and 2023,2024, respectively, respectively, representing ana increasedecrease of $10.9$29.0 million. The increasedecrease was primarily due to an increasedecrease in net revenue of $23.6 $3.3 million, decreasedan increase in cost of revenues of $4.6 million, an increase of general and administrative expenses of $2.9$5.2 million, an increase of research and development costs of $3.0 million, an increase in advertising and marketing of $3.7 million, an increase in impairment expenses of $1.5 million, an increase in income tax provision of $10.1 million, partially offset by increased research and development costs of $6.5 million, increased costs of revenues of $5.9 million, an increase in expenses related to the revaluation of outstanding and exercised warrants of $1.2 million and a decrease inother income tax benefit(expense) of $3.0 $2.1 million.

Non-cash reconciling items were $0.5$14.0 million and $1.1$0.5 million for the years ended December 31, 20242025 and 2023,2024, respectively, representing aan increase decrease of $0.6$13.5 million. The decreaseincrease in the non-cash reconciling items was due to aan decreaseincrease in deferred taxes of $11.4 million, an increase in amortization of intangible assets and film assets of $1.4$1.7 million, an increase in impairment of film and intangible aassets decreaseof $1.5 million, an increase in stock based compensation expense of $1.7$1.3 million, a decrease in allowance for credit losses of $0.6 million,million; partially offset by an increase on the loss gain in fair value of warrant liabilities of $1.3$2.1 million, anda an increasedecrease in deferred taxesaccretion of $2.1a convertible notes of $0.2 million and a decrease in depreciation and amortization of $0.1 million.

Our accounts receivable - related party represent revenues attributable to certain mobile games that, for administrative reasons, reasons, were collected on our behalf by SDE Inc. (“SDE”), an affiliated entity, from fiscal year 2018 through 2021. SDE no longer collects such payments on our behalf; all such payments are received directly from the platforms through which we offer the relevant games. As of December 31, 20242025 and 2023,2024, the net outstanding balances of receivables due from SDE were $7.5$1.5 million and $13.5 $7.5 million, respectively. We expect accounts receivables owed to us by SDE will be repaid within the next two fiscal yearsyear and intend to exercise all legally available means of collection. The Company and SDEWe have entered into an agreement with SDE to offset uncollected amounts against monthly payments due to SDE for operating expenses and costs of revenue. See Note 5-5 – Accounts Receivable -(Payable) – Related Party to our consolidated financial statements included in this Annual Report.

Registered OfferingOfferings

In October 2023, we filed a Registration Statement on Form S-1 Registration Statement with the SEC in connection with our issuance of convertible note, equity line line of credit and warrants related to each financing as noted below.

On December 30, 2025, we received written a deficiency letternotice from the Listing Qualifications Department (the “Staff”) of theThe Nasdaq Stock Market LLC (“Nasdaq”) notifying us that,that for thirty (30) consecutive business days from November 11, 2025 through December 29, 2025, the bid price for our Class A common stock did hadnot closedmaintain below thea minimum closing bid price of $1.00 per share requirement for continued inclusion on (the Nasdaq“Minimum CapitalBid MarketPrice pursuantRequirement”) toas required by Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Rule”). InAt accordancethat with Nasdaq rules,time, we havewere a compliance period ofafforded 180 calendar days, or until June 29, 2026 (the “Compliance Date”),2026, to regain compliance with the Minimum Bid Price Rule.Requirement. TheCompliance Staffcould informedhave usbeen thatachieved if, at any time beforeif the Compliance Date, theclosing bid price forof our Class A common stock closedwere at $1.00 or moreabove $1.00 for a minimum of ten (10) consecutive business days (orat suchany additionaltime numberduring ofthe days180-day ascompliance period, although Nasdaq may require), the theclosing Staffbid would provide written notificationprice to usequal or to exceed the $1.00 minimum bid price requirement for more than ten (10) consecutive business days before determining that ita compliedcompany with the Bid Price Rule and the matter will be closed.complies.

On March 26, 2026, we received a another deficiency letter (the “Letter”) from the Nasdaq Staff notifying us that we arewere not in compliance with the requirement to maintain a minimum of $500,000 in net income from continuing operations in the most recently completed fiscal year, or two of the last three fiscal years (the “Net Income Requirement”). In our Annual Reports on Form 10-K for the year ended December 31, 2023, 2024, and 2025,Although we reported net income from continuing operations in 2024our andCondensed Consolidated Statement of Operations for the year ended December 31, 2024, we reported net losslosses from continuing operations in 2025our Condensed Consolidated Statements of Operations for the years ended December 31, 2023 and 2023.2025. Additionally, we did not meet either of the alternative Nasdaq continued listing standards under the Nasdaq Listing Rules, which include (i) a market value of listed securities of at least $35 million or (ii) a minimum stockholders’ equity requirement of at least $2,500,000 (collectively with the Net Income Requirement, the “Nasdaq Requirements”).

NasdaqOn hasJuly recently22, proposed2026, the SEC approved a new rule change proposed by Nasdaq to (i) adopt Listing Rules 5450(a)(3) and 5550(a)(6) to require issuers listed on the Nasdaq Global and Capital Markets, respectively, to maintain a minimum Market Value of Listed Securities (as defined in Nasdaq Listing Rule 5005(a)(23)) of at least $5 million for a period of thirty (30) consecutive business days, and (ii) amend Rule5810 to suspend trading and immediately delist from Nasdaq securities of issuers that do not satisfy the proposed new requirements, and Rule 5815 to set forth the procedures for requesting a hearing before a Hearings Panel and the scope of the Panel’s discretion (collectively, the “Proposed $5 Million MVLS Rule”). On July 29, 2026, the $5 million MVLS Rule was automatically stayed pending further review by the SEC. We cannot predict when or whether the $5 million MVLS Rule will become effective. As of the date of the filing of this Quarterly Report the market value of our listed securities is less than $5 million. If the $5 million MVLS Rule becomes effective again, we may take actions to increase our Market Value of Listed Securities in order to comply with the $5 million MVLS Rule, and these actions could result in dilution to our existing stockholders.

ARK is a “hit” product and has historically accounted for a substantial portion of our revenue. The ARK franchise contributed 85.7%84.6% of our net revenue for the threesix months ended MarchJune 31,30, 2026, and our five best-selling franchises (including ARK), which may change year over year, in the aggregate accounted for 97.8%97.1% of our net revenue for the threesix months ended MarchJune 31,30, 2026. If we we fail to continue to develop and sell new commercially successful “hit” titles or sequels to such “hit” titles or experience any delays in product releases or disruptions following the commercial release of our “hit” titles or their sequels, our revenue and profits may decrease substantially, and we may incur losses. In addition, competition in our industry is intense and a relatively small number of hit titles account for a large portion of total revenue in our industry. Hit products offered by our competitors may take a larger share of consumer spending than we anticipate, which could cause revenue generated from our products to fall below our expectations. If our competitors develop more successful products or services at lower price points or based on payment models perceived as offering better value, or if we do not continue to develop consistently high-quality and well-received products and services, our revenue and profitability may decline.

We had hadthree customers as of June 30, 2026 and two customers as of March 31, 2026 and December 31, 2025, who accounted for approximately 71%79% and 73% of our our consolidated gross receivables, respectively. Among the twothree customers as of MarchJune 31,30, 2026, one accounted for 53%42%, 24% and another accounted for 18%,13% of the consolidated gross receivables. Among the two customers as of December 31, 2025, one accounted for 56% and another accounted for 17%, of the consolidated gross receivables outstanding. We had twothree customers in the threesix months ended MarchJune 31, 30, 2026 and four customers as of MarchJune 31,30, 2025, that accounted for 62%58%, 12% and 11%10% and 44%, 14%,19%, 14%12% and 12%10% of our net revenue, respectively. Management monitors customer creditworthiness and payment trends on an ongoing basis; however, there can be no assurance that such measures will fully mitigate the risks associated with customer concentration. We continue to evaluate opportunities to diversify our customer base, although there can be no assurance that these efforts will be successful.

We license certain intellectual property rights from third parties, including related parties, and in the future, we may enter into additional agreements that provide us with licenses to valuable intellectual property rights or technology. In particular, we license intellectual property rights related to our ARK franchise from SDE, the parent company of Studio Wildcard, which is also an entity that is owned and controlled by the spouse of our Founder, Chief Executive Officer, Chief Strategy Officer and Chairman, Mr. Shi. We entered into an original exclusive software license agreement with SDE in November 2015, for the rights to ARK: Survival Evolved, which ARK1 License Agreement was subsequently amended and restated ARK1 License in December 2022 and further amended on multiple occasions. As amended, the ARK1 License Agreement expires in 2035, with provisions for automatic renewal for three-year terms unless either party elects not to renew. The ARK 1 License Agreement may also be terminated early for material breach or insolvency by either party. The terms of our license agreements with SDE may differ from those terms which would be negotiated with independent parties. In addition, we may have disputes with SDE that may impact our business, results of operations, financial condition and/or prospects. The ARK franchise contributed 85.7%83.0% of our net revenue for the three months ended MarchJune 31,30, 2026. Even if our games that are dependent on third-party license agreements remain popular, any of our licensors could decide not to renew our existing license agreements or not to license additional intellectual property rights to us and instead license to our competitors or develop and publish its own games or other applications, competing with us in the marketplace. Moreover, many of our licensors develop games for other platforms and may have significant experience and development resources available to them should they decide to compete with us rather than license to us. For additional information concerning our license arrangements, including licensing agreements with affiliated third parties, see Item 1 of Part I, “Business — Intellectual Property,” included in the Annual Report.

Our games are primarily purchased, accessed and operated through Xbox Live and Game Pass, PlayStation Network, Steam, Epic Games Store, My Nintendo Store, and in the case of our mobile games, the Apple App Store and the Google Play Store. Substantially all of the games, DLC and in-game virtual items that we sell are purchased using the payment processing systems of these platforms and, for the threesix months ended MarchJune 31,30, 2026, 96.8%96.0% of our revenues were generated through Xbox Live and Game Pass, PlayStation Network, Steam, Epic Games Store, My Nintendo Store, the Apple App Store, and the Google Play Store. Consequently, our expansion and prospects depend on our continued relationships with these providers, and any other emerging platform providers that are widely adopted by our target players. In addition, having such a large portion of our total net revenues concentrated in a few counterparties reduces our negotiating leverage. We are subject to the standard terms and conditions that these platform providers have for game developers, which govern the content, promotion, distribution, operation of games and other applications on their platforms, as well as the terms of the payment processing services provided by the platforms, and which the platform providers can change unilaterally on short notice or without notice. As such, our business would be harmed if:

We derive most of our revenue from publishing video games on third-party platform providers, such as Xbox Live and Game Pass, PlayStation PlayStation Network, Steam, Epic Games Store, the Apple App Store, the Google Play Store and My Nintendo Store, which, in the aggregate, comprised 96.8% 96.0% of our net revenue by product platform for the threesix months ended MarchJune 31,30, 2026. The success of our business is subject to the continued popularity of these platforms and our ability to develop commercially successful products for these platforms.

Our effective tax rate was 5%3.7% and 43%(200.1)% for the threesix month periods ended MarchJune 31,30, 2026 and 2025, respectively. In general, changes in applicable U.S. federal and state and foreign tax laws and regulations, or their interpretation and application, including the possibility of retroactive effect, could affect our tax expense. In addition, taxing authorities in many jurisdictions in which we operate may propose changes to their tax laws and regulations. These potential changes could have a material impact on our effective tax rate, long-term tax planning and financial results.

Subject to certain limitations in the sales agreement and compliance with applicable law, we have the discretion to deliver placement notices to the Sales Agent in the ATM Offering at any time throughout the term of the sales agreement. The number of shares of Class A common stock that are sold by the Sales Agent as our Sales Agent after we deliver a placement notice will fluctuate based on the market price of the Class A common stock and the trading volume of our Class A common stock during the sales period and limits we set with the Sales Agent. In addition, we may issue and sell shares of our Class A common stock having aggregate gross proceeds of up to $4,500,000$3.5 million from time to time in the ATM Offering. Because there is no minimum offering amount required as a condition of the ATM Offering, the actual total offering amount in such offering, commissions and proceeds to us, if any, are not determinable at this time. The amount of proceeds from the ATM Offering will depend upon the number of shares of our Class A common stock sold and the market price at which they are sold. There can be no assurance that we will be able to sell any shares of our Class A common stock under or fully utilize the Sales Agreement with the Sales Agent as a source of financing.

Risks relatingRelated to Stablecoins

Our mission is to provide high-quality entertainment experiences to audiences around the world. We are a leading, global independent developer and publisher of interactive digital entertainment for consumers around the world. We have built a premier portfolio of premium games designed for use on a variety of platforms, including consoles, PCs, and mobile devices. ARK: Survival Evolved, which has consistently ranked among top-grossing titles on Steam. Our expertise in technology, in-game ecosystems and monetization of online multiplayer games has enabled us to assemble a broad portfolio of intellectual property across multiple media formats and technology platforms. Our flagship franchise from which we generate the substantial majority of our revenues, ARK, is a leader within the sandbox survival genre with 110.6112.4 million console and PC installs through MarchJune 31,30, 2026. See below for discussion of key performance metrics and non-GAAP measures. In the three and six months ended MarchJune 31,30, 2026, ARK: Survival Evolved and ARK: Survival Ascended combined for an average total total of 244,000225,000 and 238,000 daily active users (“DAUs”) on the Steam and Epic platforms, as compared to 243,000242,000 and 242,000 in the three and six months ended March 31,June 2025.30, 2025, respectively. We define “daily active users” as the number of unique users who play any given game on any given day. For the three months ended MarchJune 31,30, 2026 and 2025, we generated 85.7%83.0% and 91.6%,90.1%, respectively, of our revenues from the ARK franchise. For the six months ended June 30, 2026 and 2025, we generated 84.6% and 90.8%, respectively, of our revenues from the ARK franchise Our dedication to providing audiences with high-quality entertainment experiences utilizing the latest gaming technology has produced strong user engagement, continued revenue growth, and increased cash flows. Through June 30, 2026, our ARK franchise game has been played for 4.5 billion hours with an average playing time per user of 160 hours and with the top 21.3% of all players spending over 100 hours in the game, according to data from the Steam platform. For the three months ended June 30, 2026 and 2025, our net revenue was $19.7 million and $22.2 million, respectively. For the six months ended June 30, 2026 and 2025, our net revenue was $47.0 million and $42.3 million, respectively. During the three months ended June 30, 2026, approximately 36.0% of our revenue came from consoles, 55.1% from PC and 6.9% from mobile as compared to 42.8% from consoles, 45.2% from PC and 9.2% from mobile during the three months ended June 30, 2025. During the six month ended June 30, 2026, approximately 32.7% of our revenue came from consoles, 59.6% came from PC and 6.0% from mobile platforms as compared to 42.1% from consoles, 45.0% from PC and 10.4% from mobile platforms during the six month ended June 30, 2025. We had a net loss of $3.0 million compared to a net loss of $16.6 million, for the three months ended June 30, 2026 and 2025, respectively. For the six months ended June 30, 2026, we had a net loss of $0.9 million as compared to net loss of $18.5 million for the six months ended June 30, 2025.

We continuously evaluate and invest in content strategy to improve and innovate our games and features and to develop current technological platforms. We are currently actively investing in expanding our gaming pipeline as well as developing media related to our gaming intellectual property. We also continue to invest to grow our micro-influencer platform, NOIZ, by attracting new influencers and brand customers. We have established a new division internally under the Interactive Films brand. This division will focus on creating content in the vertical short film segment of the digital entertainment market. The mobile application has already launched on iOS and Android platforms. As of MarchJune 31,30, 2026, we have released over 250300 short film dramas on the SaltyTV app. We expect a consistent roll out of new short film dramas. Short film dramas include internally produced and licensed films from external organizations.

We have experienced significant growth in our number of downloads over the last several years. We have sold 58.460.4 million units between January January 1, 2016 and MarchJune 31,30, 2026. During the three months ended MarchJune 31,30, 2026, we sold 2.22.0 million units compared to 1.52.1 million in the three months ended MarchJune 31,30, 2025. Our video games provide highly engaging, differentiated entertainment experiences where the combination combination of challenge and progress drives player engagement, high average player times,engagement and long-term franchise value. The success of our franchise hinges on our ability to keep our current players engaged while also growing our user base by innovating our platform and monetizing new offerings. The degree to which gamers are willing to engage with our platform is driven by our ability to create interactive and unique content that will enhance the game-play experience. We sell DLCs which are supplementary to our master games and expand the gaming universe to continuously evolve the game and retain players. Our master games are the base versions of a specific title, for example, ARK: Survival Evolved is our master game and ARK: Genesis is a DLC.

During the first quarter of 2026, we continued to execute on our multi-year expansion strategy for our foundational ARK franchise. Building upon the successful launch and reception of ARK: Lost Colony late last year, we outlined an ambitious roadmap consisting of four major downloadable content (DLC) expansions for ARK: Survival Ascended in 2026 and three subsequent releases planned for 2027. We anticipate this cadence will provide significant revenue visibility. Upcoming scheduled releases in 2026 include ARK: Survival of the Fittest, ARK: Bob’s True Tales – Tides of Fortune, ARK: World Creator, and ARK: Dragontopia.

At Game Developers Conference (“GDC”) 2026, we provided key updates regarding our product pipeline and unveiled new intellectual property. We provided an exclusive look at For the Stars, our upcoming open-universe AAA space survival RPG. The title continues to progress, with demonstrations of its open-ended exploration and player-driven research systems presented at the GDC Tech Demo Stage. We introduced PixARK Worlds, a new title in development by Studio Sirens and Snail Games, created with guidance from Studio Wildcard, featuring revolutionary user-generated content designed. In broadening our indie portfolio, we officially announced Gobby Gang, a new cooperative multiplayer party game on the Steam platform.

We continue to build on our short film mobile application, SaltyTV, to bring more exclusive, original stories from heart-racing thrillers to jaw-dropping romances to our viewers. WeAs of June 30, 2026, we have released over 250 300 short film dramas through March 31, 2026,dramas, on the SaltyTV app. We expect a consistent roll out of new short film dramas throughout 2026 and beyond.

On December 30, 2025, we received written notice from the Listing Qualifications Department (the “Staff”) of The Nasdaq Stock Market LLC (“Nasdaq”) notifying us that for thirty (30) consecutive business days from November 11, 2025 through December 29, 2025, our Class A common stock did not maintain a minimum closing bid price of $1.00 per share (the “Minimum Bid Price Requirement”) as required by Nasdaq Listing Rule 5550(a)(2). TheAt noticethat hadtime, nowe immediatewere effectafforded on180 calendar days, or until June 29, 2026, to regain compliance with the listingMinimum Bid orPrice trading of our Class A common stock, and the Class A common stock continues to trade on The Nasdaq Capital Market under the symbol “SNAL.”Requirement.

InCompliance accordance with Nasdaq Listing Rule 5810(c)(3)(A), wecould have a compliance period of 180 calendar days, or until June 29, 2026, to regain compliance with Nasdaq Listing Rule 5550(a)(2). Compliance may bebeen achieved without further action if the closing bid price of our Class A common stock iswere at or above $1.00 for a minimum of ten (10) consecutive business days at any time during the 180-day compliance period, in which case Nasdaq will notify us if it determines it is in compliance and the matter will be closed; however,although Nasdaq may require the closing bid price to equal or to exceed the $1.00 minimum bid price requirement for more than ten (10) consecutive business days before determining that a company complies.

On March 26, 2026, we received another deficiency letter (the “Letter”) from the Nasdaq Staff notifying us that we were not in compliance with the requirement to maintain a minimum of $500,000 in net income from continuing operations in the most recently completed fiscal year, or two of the last three fiscal years (the “Net Income Requirement”). In our Annual Reports on Form 10-K for the year ended December 31, 2023, 2024, and 2025,Although we reported net income from continuing operations in 2024our andCondensed Consolidated Statement of Operations for the year ended December 31, 2024, we reported net losslosses from continuing operations in 2025our Condensed Consolidated Statements of Operations for the years ended December 31, 2023 and 2023.2025. Additionally, we did not meet either of the alternative Nasdaq continued listing standards under the Nasdaq Listing Rules, which include (i) a market value of listed securities of at least $35 million or (ii) a minimum stockholders’ equity requirement of at least $2,500,000 (collectively with the Net Income Requirement, the “Nasdaq Requirements”).

Comparison of the three months ended MarchJune 31,30, 2026 versus the three months ended MarchJune 31,30, 2025

Net revenues for the three months ended MarchJune 31,30, 2026 increaseddecreased by $7.2 $2.5 million, or 35.7%,11.3%, compared to the three months ended MarchJune 31, 30, 2025. TotalNet revenue increaseddecreased by $7.2$2.5 million primarily attributed to a $4.2 million increasedecrease in sales from ARK: Survival Ascended, a decrease of $1.8 million in sales from ARK: Survival Evolved, a decrease of $0.4 million in ARK: Ultimate Mobile Edition, a decrease of $0.2 million from SaltyTV and a decrease of $0.2 million of other various titles. The decrease in revenue was partially offset by an increase in revenues related to Bellwright of $2.1$1.5 million, and an increase$2.8 million change in deferred revenues recognized of $2.5 million for the three months ended MarchJune 31,30, 2026 as compared to the three months ended March 31,June 30, 2025. The increase in revenue was partially offset by a decrease in revenue from ARK: Ultimate Mobile Edition of $0.8 million and a decrease in revenue from ARK: Survival Evolved of $0.8 million in the three months ended March 31, 2026 compared to the three months ended March 31, 2025.

Cost of revenues for the three months ended MarchJune 31,30, 2026 increaseddecreased by $1.4 $3.2 million, or 9.6%21.3% when compared to the three months ended March 31,June 30, 2025, primarily due to higherlower licensedlicense royalties costs driven by a growthdecrease in revenue during the period.period and a reduction in monthly licensing cost to SDE.

Cost of revenues for the three months ended MarchJune 31,30, 2026 and 2025 comprised the following:

Cost of revenues decreased for the three months ended MarchJune 31,30, 2026 wasprimarily due to ana increase of $1.1$1.2 million decrease in software license royalties – related parties, resulting from increaseda decrease in ARK sales, ana increasedecrease in licensing fees – related party of $1.3 million due to a reduction in licensing costs to SDE, a decrease in license and amortization – related party of $0.3$0.2 million due to the release of DLC Lost Colony, an increase in license and amortization of $0.1 million primarily due to a largerlower depreciable base, and an increase in engine fees of $0.2 million, partially offset by a decrease in merchant fees of $0.2 million related to ARK: Ultimate Mobile Edition revenues.revenues, and a decrease in internet, server and data center costs of $0.2 million due to lower server utilization and a decrease in engine fees of $0.1 million.

General and administrative expenses for the three months ended MarchJune 31,30, 2026 decreasedincreased by $0.3$1.5 million, or 6.3%,43.2%, compared to the three months months ended MarchJune 31,30, 2025. The decreaseincrease in general and administrative expenses was due to aan decreaseincrease in salaries and wages of $0.6 million and a decrease in rent expense of $0.1 million, partially offset by an increase in contractors expense of $0.4$0.3 million, an increase in public company costs of $0.2 million, an increase in office expense of $0.2 million, an increase of $0.1 million in legal and professional fees, and an increase in insurance costs of $0.1 million.

Research and development expenses for the three months ended MarchJune 31, 30, 2026 increased by $0.4$1.2 million, or 11.2%,35.2%, compared to the three months ended June March 31,30, 2025. The increase in research and development expenses was due to an increase in internal research and development salaries as the Company continues to expand its internal development team.

Advertising and marketing expenses for the three months ended MarchJune 31, 30, 2026 decreased by $0.4$0.7 million, or 33.5%,46.4%, compared to the three months ended June March 31,30, 2025. The decrease in advertising and marketing expenses was primarily attributable to lowerlarge promotional costs associatedrelated withto the launch Company’sof presenceARK: atAquatica Gameand Developershigher Conferencemarketing (“GDC”).costs for SaltyTV application in 2025.

Impairment of film assets for the three months ended MarchJune 31,30, 2026 increaseddecreased by $0.1$0.3 million, or 100.0%,76.7%, compared to the three months ended MarchJune 31,30, 2025. The increase in impairment of film assetsdecrease was due to the underperformanceimpairment of specifictwo film assets and changes induring the marketthree conditionsmonths affectingended expectedJune future30, cash2026, flowas compared to the impairment of four film assets during the three months ended MarchJune 31,30, 2026.2025.

Interest expense primarily related to our outstanding indebtedness with third-party lenders. Interest expense increasedremained slightlyrelatively consistent for the three months ended March 31, 2026 due to the increased average debt during the three months ended MarchJune 31,30, 2026, due to the lower outstanding debt following the conversion of the October 2025 Convertible Note and November 2025 Convertible Notes during the second quarter of 2026.

Other incomeexpense

Other incomeexpense was $0.4 million and $0.8$0.7 million for the three months ended MarchJune 31,30, 2026 and 2025, respectively. There was a decrease in the the revaluation of convertible notes of $0.2$0.1 million and a decrease in the revaluation of warrant liabilities of $0.2 million in the three three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 2025.

The Company had an income tax provisionbenefit of $0.1 million and an income tax benefitprovision of $1.5$13.9 million for the three months ended MarchJune 31,30, 2026 and 2025, respectively. This is primarily due to the utilizationimpact of netthe operatingvaluation lossallowance carryforwardsrecorded duringagainst three months ended March 31, 2026, compared to being in aU.S. net lossdeferred positiontax during the three months ended March 31,assets in 2025. Our effective income tax rate was 5% 4% and 43%(515%) during the three months ended MarchJune 31,30, 2026 and 2025, respectively.

Units sold increaseddecreased during the three months ended MarchJune 31,30, 2026, by 0.70.1 million units or 42.6%,7.1%, as compared to the three months ended MarchJune 31,30, 2025. The Company’s units sold decreased due to decreased sales of ARK franchise IPs by 0.2 million units, partially offset by an increase in sales of Bellwright of 0.1 million units. Units sold increased during the six months ended June 30, 2026, by 0.5 million units or 13.8% as compared to the six months ended June 30, 2025. The Company’s units sold increased due to salesthe sale of ARK: franchiseSurvival IPsAscended byof 0.51.0 million units and an increase in sales of Bellwright of 0.2 million units, partially offset by a decrease in sales of ARK: Survival Evolved of 0.7 million units.

For the three months ended MarchJune 31,30, 2026, bookings increaseddecreased by $4.7$5.3 million or 21.1%,19.7%, compared to the three months ended MarchJune 31,30, 2025, primarily drivendue byto improvedlower sales promotions in 2026 compared to 2025, continued benefit from the December 2025of ARK: LostSurvival Colony DLC releaseAscended and Bellwright’sARK: highlySurvival regardedEvolved, contentpartially updateoffset by inbookings lategenerated 2025.from Bellwright.

We define EBITDA as net income (loss) before (i) interest expense, (ii) provision for (benefit from) income taxes, and (iii) depreciation expense, property and equipment.

Below is a reconciliation of net income (loss) to EBITDA, the closest GAAP financial measure.