[Company Introduction](index=1&type=section&id=Company%20Introduction) Snail, Inc. is a leading global independent developer and publisher of interactive digital entertainment - Snail, Inc. (Nasdaq: SNAL) is a leading global independent developer and publisher of interactive digital entertainment[2](index=2&type=chunk) [Second Quarter 2025 and Recent Operational Highlights](index=1&type=section&id=Second%20Quarter%202025%20and%20Recent%20Operational%20Highlights) Snail, Inc. reported strong Q2 2025 operational highlights, including robust ARK sales, new game launches, content updates, and a strategic stablecoin initiative - Announced intention to explore a strategic digital asset initiative, including the development and introduction of its own proprietary stablecoin, retaining Dr. George Cao as an external consultant[6](index=6&type=chunk) - Launched pre-order for ARK: Lost Colony and celebrated the **10-year anniversary** of ARK: Survival Evolved (ASE)[6](index=6&type=chunk) [ARK Franchise Updates](index=1&type=section&id=ARK%20Franchise%20Updates) The ARK franchise showed strong Q2 2025 performance with significant unit sales, daily active users, major content updates, and a 10-year anniversary celebration - ARK: Survival Evolved (ASE) sold approximately **1,196,583 units** in Q2 2025, with an average daily active users (DAU) of **156,947** and peak DAU of **258,708**[6](index=6&type=chunk) - ARK: Survival Ascended (ASA) sold approximately **807,065 units** in Q2 2025, achieved **8 million downloads** via PlayStation Plus in May 2025, and surpassed **6.9 million total downloads** by June 30, 2025[6](index=6&type=chunk) - Launched seasonal Eggcellent Adventure and Anniversary event, the first major ARK: Astraeos update, and ARK: Ragnarok Ascended[6](index=6&type=chunk) ARK Franchise Key Metrics (Q2 2025) | Metric | ARK: Survival Evolved (ASE) | ARK: Survival Ascended (ASA) | | :----- | :-------------------------- | :--------------------------- | | Units Sold (Q2 2025) | ~1,196,583 | ~807,065 | | Average DAU (Q2 2025) | 156,947 | 84,585 | | Peak DAU (Q2 2025) | 258,708 | 163,455 | | PlayStation Plus Downloads (May 2025) | N/A | 8 million | | Total Downloads (as of June 30, 2025) | N/A | >6.9 million | [Game Portfolio Updates](index=1&type=section&id=Game%20Portfolio%20Updates) Snail, Inc. expanded its game portfolio with new content for Bellwright, acquired publishing rights for two new titles, and launched several new games - Celebrated Bellwright's one-year Early Access anniversary and introduced significant new content and player-requested features[6](index=6&type=chunk) - Announced the acquisition of publishing rights for Whispers of West Grove and Rebel Engine[6](index=6&type=chunk) - Launched The Cecil: The Journey Begins, Chasmal Fear, Castle of Secrets, Robots of Midnight, and Zombie Rollerz: The Last Ship[6](index=6&type=chunk) [Business Updates](index=1&type=section&id=Business%20Updates) Snail, Inc. announced a strategic digital asset initiative to develop a proprietary stablecoin, establishing a new subsidiary and initiating capital formation - Announced its intention to explore pursuing a strategic digital asset initiative that includes the development and introduction of its own proprietary stablecoin[6](index=6&type=chunk) - Retained external consultant Dr. George Cao, the founder and CEO of AscendEX, a full-stack cryptocurrency financial platform, and seasoned legal advisors[6](index=6&type=chunk)[9](index=9&type=chunk) - Established Snail Coins LLC, a new wholly owned subsidiary, to serve as the dedicated entity responsible for the issuance, management, and operations of its proprietary USD-backed stablecoin project[9](index=9&type=chunk) - Announced an At The Market Offering Agreement to initiate capital formation for the reserve asset backing its stablecoin project[9](index=9&type=chunk) - Company subsidiary Interactive Films LLC announced the development of The Fame Game: Welcome to Hollywood and signed a Memorandum of Understanding with Mega Matrix Inc. for joint development, production, and global distribution of short dramas[6](index=6&type=chunk)[9](index=9&type=chunk) [Management Commentary](index=2&type=section&id=Management%20Commentary) Management highlighted Q2 2025 as a pivotal period, driven by the strategic stablecoin initiative and strong core gaming business performance, particularly the ARK franchise - Co-Chief Executive Officer Hai Shi commented on the pivotal and transformative period, highlighted by the official announcement to develop and launch a proprietary stablecoin, aligning with long-term vision and digital financial innovation[7](index=7&type=chunk) - Co-Chief Executive Officer Tony Tian noted strong momentum in the core gaming business, driven by the annual Steam Publisher Sale event and the **10-year anniversary** of the ARK franchise[8](index=8&type=chunk) [Co-CEO Hai Shi's Remarks](index=2&type=section&id=Co-CEO%20Hai%20Shi's%20Remarks) Hai Shi highlighted the strategic stablecoin initiative as a transformative move, supported by the GENIUS Act, aiming for compliant digital assets and game integration - The stablecoin initiative represents a significant evolution in Snail's business model, aligning with both its long-term vision and broader momentum in digital financial innovation[7](index=7&type=chunk) - The decision to enter the stablecoin space was catalyzed by the recent passage of the GENIUS Act, establishing a formal regulatory foundation[7](index=7&type=chunk) - Envisions the stablecoin unlocking a wide range of external use cases and integrating functionality within the core gaming business to enhance game economies and facilitate seamless transactions[7](index=7&type=chunk) - Deliberate steps include retaining strategic consultant partners and legal advisors, actively building technological infrastructure and compliance architecture, and entering an at-the-market offering agreement for capital formation[8](index=8&type=chunk) [Co-CEO Tony Tian's Remarks](index=2&type=section&id=Co-CEO%20Tony%20Tian's%20Remarks) Tony Tian underscored continued strong core gaming momentum, especially the ARK franchise, driven by sales events and a focus on consistent content updates and new launches - Core gaming business continues to demonstrate strong momentum, with notable performance in June driven by the annual Steam Publisher Sale event[8](index=8&type=chunk) - The ARK franchise remains a key pillar of the content ecosystem, celebrating its **10-year anniversary** with new content drops and updates[8](index=8&type=chunk) - Committed to delivering consistent value through regular content updates and expansions for ARK, while strategically pursuing opportunities to develop, acquire, and launch titles within the indie portfolio[8](index=8&type=chunk) - Teams are focused on preparing for the launch of ARK: Lost Colony and simultaneously advancing a slate of indie titles in the pipeline[8](index=8&type=chunk) [Financial Highlights](index=3&type=section&id=Financial%20Highlights) Snail, Inc. reported increased net revenues and bookings for Q2 and six months ended June 30, 2025, but experienced net losses and negative EBITDA due to higher expenses and a deferred tax asset valuation allowance Key Financial Highlights (Q2 2025 vs. Q2 2024) | Metric | Q2 2025 | Q2 2024 | Change (YoY) | | :----- | :------ | :------ | :----------- | | Net Revenues | $22.2 million | $21.6 million | +$0.6 million | | Net Loss (Income) | $(16.6) million | $2.3 million | $(18.9) million | | Bookings | $27.1 million | $22.9 million | +18.5% | | EBITDA | $(2.4) million | $3.1 million | $(5.5) million | Key Financial Highlights (Six Months 2025 vs. Six Months 2024) | Metric | 6M 2025 | 6M 2024 | Change (YoY) | | :----- | :------ | :------ | :----------- | | Net Revenues | $42.3 million | $35.7 million | +18.4% | | Net Loss (Income) | $(18.5) million | $0.5 million | $(19.0) million | | Bookings | $49.4 million | $42.4 million | +16.3% | | EBITDA | $(5.8) million | $1.2 million | $(7.0) million | [Second Quarter 2025 Financial Performance](index=3&type=section&id=Second%20Quarter%202025%20Financial%20Performance) In Q2 2025, net revenues increased slightly to $22.2 million, but the company reported a net loss of $(16.6) million and negative EBITDA of $(2.4) million, primarily due to increased operating expenses and a $12.9 million deferred tax asset valuation allowance Second Quarter 2025 Financial Performance | Metric | Q2 2025 | Q2 2024 | Change (YoY) | | :----- | :------ | :------ | :----------- | | Net Revenues | $22.2 million | $21.6 million | +$0.6 million | | Net Loss (Income) | $(16.6) million | $2.3 million | $(18.9) million | | Bookings | $27.1 million | $22.9 million | +18.5% | | EBITDA | $(2.4) million | $3.1 million | $(5.5) million | | Unrestricted Cash (as of June 30, 2025) | $7.9 million | $7.3 million (Dec 31, 2024) | +$0.6 million | - Net loss was primarily due to increases in the cost of revenues and operating expenses (increased headcount, research and development, and marketing expenses) and the recognition of a valuation allowance against the Company's deferred tax assets of **$12.9 million**[11](index=11&type=chunk) - Bookings increase was primarily driven by various sales promotions in 2025 that did not occur in 2024, specifically around ARK: Survival Evolved and the release of ARK: Lost Colony to presale in 202

[PART I. FINANCIAL INFORMATION](index=2&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Condensed Consolidated Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) Unaudited condensed consolidated financial statements reveal a significant net loss, decreased total assets, and increased total liabilities Condensed Consolidated Balance Sheets (June 30, 2025 vs. December 31, 2024) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Total current assets | $38,811,455 | $31,246,538 | | Total assets | $57,957,425 | $62,193,364 | | Total current liabilities | $55,160,840 | $36,181,080 | | Total liabilities | $71,449,089 | $58,024,202 | | Total stockholders' equity (deficit) | $(13,491,664) | $4,169,162 | Condensed Consolidated Statements of Operations (Three Months Ended June 30) | Metric | 2025 | 2024 | | :-------------------------------- | :----------- | :----------- | | Revenues, net | $22,185,750 | $21,606,650 | | Gross profit | $6,954,745 | $8,102,476 | | Income (loss) from operations | $(1,817,434) | $2,670,962 | | Net income (loss) | $(16,562,706) | $2,254,616 | | Basic EPS | $(0.44) | $0.06 | Condensed Consolidated Statements of Operations (Six Months Ended June 30) | Metric | 2025 | 2024 | | :-------------------------------- | :----------- | :----------- | | Revenues, net | $42,296,622 | $35,722,379 | | Gross profit | $12,802,272 | $10,176,507 | | Income (loss) from operations | $(5,918,273) | $463,063 | | Net income (loss) | $(18,509,671) | $474,158 | | Basic EPS | $(0.50) | $0.01 | Condensed Consolidated Statements of Cash Flows (Six Months Ended June 30) | Metric | 2025 | 2024 | | :-------------------------------- | :----------- | :----------- | | Net cash (used in) provided by operating activities | $(2,413,125) | $6,983,748 | | Net cash used in investing activities | $(3,026,645) | $0 | | Net cash provided by (used in) financing activities | $5,977,229 | $(6,657,130) | | Net increase in cash and cash equivalents, and restricted cash and cash equivalents | $601,482 | $298,274 | [Snail, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Snail,%20Inc.%20and%20Subsidiaries%20Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Detailed notes to financial statements cover accounting policies, revenue, fair value, related-party transactions, and deferred tax assets [NOTE 1 – PRESENTATION AND NATURE OF OPERATIONS](index=9&type=section&id=NOTE%201%20%E2%80%93%20PRESENTATION%20AND%20NATURE%20OF%20OPERATIONS) - Snail, Inc. was incorporated in Delaware in January **2022**, formed for an IPO to carry on the business of Snail Games USA Inc., which develops, markets, publishes, and distributes games across various platforms[24](index=24&type=chunk) - The condensed consolidated financial statements are prepared in accordance with U.S. GAAP for interim reporting, with certain disclosures condensed or omitted if they duplicate annual report information[25](index=25&type=chunk) Consolidated Subsidiaries and Equity Ownership | Subsidiary Name | Equity % Owned | | :------------------------ | :------------- | | Snail Games USA Inc. | 100% | | Snail Innovation Institute | 70% | | Frostkeep Studios, Inc. | 100% | | Eminence Corp | 100% | | Wandering Wizard, LLC | 100% | | Donkey Crew, LLC | 99% | | Interactive Films, LLC | 100% | | Project AWK Productions, LLC | 100% | | BTBX.IO, LLC | 70% | | Matrioshka Games, LLC | 100% | [NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=11&type=section&id=NOTE%202%20%E2%80%93%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) - Revenue is generated from digital and physical game sales, downloadable content (DLC), and in-app purchases of virtual goods. Revenue recognition occurs at a point in time for product delivery or over time for consumable/durable virtual items and technical support[34](index=34&type=chunk)[36](index=36&type=chunk)[38](index=38&type=chunk) - The Company acts as an agent for sales via platforms like Xbox Live, PlayStation Network, and Steam, reporting revenue on a net basis. For Apple App Store and Google Play Store sales, it acts as principal, reporting gross revenue[41](index=41&type=chunk) Cost of Revenues (Three Months Ended June 30) | Category | 2025 | 2024 | | :-------------------------------- | :----------- | :----------- | | Software license royalties – related parties | $5,754,679 | $4,658,272 | | Licensing fees – related party | $6,000,000 | $6,000,000 | | Merchant fees | $484,461 | $220,051 | | Engine fees | $945,877 | $1,340,897 | | Internet, server and data center | $1,467,078 | $1,221,318 | | Total | $15,231,005 | $13,504,174 | Cost of Revenues (Six Months Ended June 30) | Category | 2025 | 2024 | | :-------------------------------- | :----------- | :----------- | | Software license royalties – related parties | $11,028,407 | $7,932,292 | | Licensing fees – related party | $12,000,000 | $12,000,000 | | Merchant fees | $1,039,156 | $441,500 | | Engine fees | $1,758,826 | $2,302,338 | | Internet, server and data center | $2,763,016 | $2,621,325 | | Total | $29,494,350 | $25,545,872 | - The Company capitalized **$2.6 million** in software development costs under ASC **985** for various titles during the six months ended June 30, **2025**, compared to none in the prior year[62](index=62&type=chunk) Fair Value Measurements (Level 3 Inputs) | Instrument | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Convertible notes | $2,415,050 | $0 | | Convertible notes warrants | $1,066,542 | $1,448,109 | | Equity line of credit warrants | $259,075 | $292,004 | | Total | $3,740,667 | $1,740,113 | - The Company has significant customer concentration, with four customers accounting for approximately **91%** of gross receivables and **44%**, **26%**, **15%**, and **6%** individually as of June 30, **2025**[78](index=78&type=chunk) - SDE, a related party, is a significant vendor, accounting for **56%** and **50%** of combined cost of revenues and operating expenses for the three months ended June 30, **2025** and **2024**, respectively[80](index=80&type=chunk) Outstanding Warrants as of June 30, 2025 | Type | Number Outstanding | Exercise Price | Class | Expiration Date | | :-------------------------- | :----------------- | :------------- | :------ | :-------------- | | Equity line of credit warrants | 334,314 | $1.50 | Liability | August 24, 2028 | | Convertible notes warrants | 1,216,185 | $0.84 | Liability | November 24, 2028 | | Underwriters warrants | 120,000 | $6.25 | Equity | November 9, 2025 | | Total warrants | 1,670,499 | | | | - As of June 30, **2025**, **1,350,275** shares of Class A common stock were repurchased under the Share Repurchase Program for approximately **$3.7 million**, with **$1.3 million** remaining available[95](index=95&type=chunk) [NOTE 3 – REVENUE FROM CONTRACTS WITH CUSTOMERS](index=18&type=section&id=NOTE%203%20%E2%80%93%20REVENUE%20FROM%20CONTRACTS%20WITH%20CUSTOMERS) Net Revenue by Timing of Recognition (Three Months Ended June 30) | Timing | 2025 | 2024 | | :----------- | :----------- | :----------- | | Over time | $1,556,192 | $1,165,995 | | Point in time | $20,629,558 | $20,440,655 | | Total | $22,185,750 | $21,606,650 | Net Revenue by Timing of Recognition (Six Months Ended June 30) | Timing | 2025 | 2024 | | :----------- | :----------- | :----------- | | Over time | $3,374,000 | $2,221,659 | | Point in time | $38,922,622 | $33,500,720 | | Total | $42,296,622 | $35,722,379 | Net Revenue by Geographic Region (Six Months Ended June 30) | Region | 2025 | 2024 | | :------------- | :----------- | :----------- | | United States | $36,818,303 | $30,811,457 | | International | $5,478,319 | $4,910,922 | | Total | $42,296,622 | $35,722,379 | Net Revenue by Platform (Six Months Ended June 30) | Platform | 2025 | 2024 | | :------- | :----------- | :----------- | | Console | $17,797,060 | $14,338,122 | | PC | $19,038,686 | $16,922,466 | | Mobile | $4,384,328 | $2,095,406 | | Other | $1,076,548 | $2,366,385 | | Total | $42,296,622 | $35,722,379 | Deferred Revenue Activity (Six Months Ended June 30) | Metric | 2025 | 2024 | | :------------------------------------------ | :----------- | :----------- | | Deferred revenue, beginning balance | $25,467,447 | $34,316,706 | | Revenue recognized | $(1,472,534) | $(9,607,237) | | Revenue deferred | $8,547,580 | $15,608,213 | | Deferred revenue, ending balance | $32,542,493 | $40,317,682 | | Less: current portion | $(16,601,595) | $(21,451,307) | | Deferred revenue, long term | $15,940,898 | $18,866,375 | [NOTE 4 – CASH AND CASH EQUIVALENTS, AND RESTRICTED CASH AND CASH EQUIVALENTS](index=19&type=section&id=NOTE%204%20%E2%80%93%20CASH%20AND%20CASH%20EQUIVALENTS,%20AND%20RESTRICTED%20CASH%20AND%20CASH%20EQUIVALENTS) Cash and Cash Equivalents (June 30) | Category | 2025 | 2024 | | :------------------------------------------ | :----------- | :----------- | | Cash and cash equivalents | $7,905,426 | $15,494,156 | | Restricted cash and cash equivalents | $935,000 | $1,118,437 | | Total | $8,840,426 | $16,612,593 | - Restricted cash and cash equivalents of **$935,000** as of June 30, **2025**, are held to secure a standby letter of credit with landlords[106](index=106&type=chunk) [NOTE 5 – ACCOUNTS RECEIVABLE (PAYABLE) – RELATED PARTY](index=19&type=section&id=NOTE%205%20%E2%80%93%20ACCOUNTS%20RECEIVABLE%20(PAYABLE)%20%E2%80%93%20RELATED%20PARTY) - The Company has an offset agreement with SDE (a related party) to offset **$0.5 million** per month (**$6.0 million** annually) against payables for royalties, internet, server, and datacenter costs[107](index=107&type=chunk) Net Accounts (Payable) Receivable - Related Party (June 30) | Category | 2025 | 2024 | | :------------------------------------------ | :----------- | :----------- | | Accounts receivable – related party | $4,500,592 | $7,500,592 | | Less: accounts payable – related party | $(5,887,468) | $(3,663,726) | | Net accounts (payable) receivable - related party | $(1,386,876) | $3,836,866 | | Less: accounts receivable – related party, net of current portion | $0 | $(1,500,592) | | Net accounts (payable) receivable - related party, current | $(1,386,876) | $2,336,274 | [NOTE 6 – PREPAID EXPENSES - RELATED PARTY](index=20&type=section&id=NOTE%206%20%E2%80%93%20PREPAID%20EXPENSES%20-%20RELATED%20PARTY) - The Company made **$1.7 million** in prepaid royalty payments for ARK: Survival Ascended DLCs during the six months ended June 30, **2025**, which have not yet been released[110](index=110&type=chunk) Prepaid Expenses - Related Party (June 30) | Category | 2025 | 2024 | | :------------------------------------------ | :----------- | :----------- | | Prepaid royalties | $6,109,122 | $4,378,594 | | Prepaid licenses | $7,500,000 | $7,500,000 | | Other prepaids | $19,429 | $21,291 | | Total prepaid expenses - related party | $13,628,551 | $11,899,885 | | Less: short-term portion | $(5,658,551) | $(2,521,291) | | Total prepaid expenses - related party, long-term | $7,970,000 | $9,378,594 | [NOTE 7 – PREPAID EXPENSES AND OTHER CURRENT ASSETS](index=20&type=section&id=NOTE%207%20%E2%80%93%20PREPAID%20EXPENSES%20AND%20OTHER%20CURRENT%20ASSETS) - In October **2024**, the Company entered a collaborative arrangement for a new title, making **$0.5 million** in prepaid royalty payments capitalized in other prepaids[111](index=111&type=chunk) Prepaid Expenses and Other Current Assets (June 30) | Category | 2025 | 2024 | | :------------------------------------------ | :----------- | :----------- | | Other receivables | $250,442 | $549,103 | | Deferred offering costs | $105,411 | $105,411 | | Other prepaids | $681,495 | $550,270 | | Other current assets | $270,877 | $641,240 | | Total | $1,308,225 | $1,846,024 | [NOTE 8 – PROPERTY AND EQUIPMENT, NET](index=21&type=section&id=NOTE%208%20%E2%80%93%20PROPERTY%20AND%20EQUIPMENT,%20NET) Property and Equipment, Net (June 30) | Category | 2025 | 2024 | | :------------------------------------------ | :----------- | :----------- | | Property and equipment | $9,521,752 | $9,521,752 | | Accumulated depreciation | $(5,279,066) | $(5,143,400) | | Property and equipment, net | $4,242,686 | $4,378,352 | Depreciation Expense (Six Months Ended June 30) | Period | Amount | | :------------------------------------------ | :----------- | | Six months ended June 30, 2025 | $135,665 | | Six months ended June 30, 2024 | $162,892 | [NOTE 9 – INTANGIBLE ASSETS](index=21&type=section&id=NOTE%209%20%E2%80%93%20INTANGIBLE%20ASSETS) Intangible Assets, Net (June 30, 2025) | Category | Gross Carrying Amount | Accumulated Amortization | Net Book Value | | :------------------------------------------ | :-------------------- | :----------------------- | :------------- | | Software and license rights from related parties | $136,665,000 | $(136,665,000) | $0 | | License rights | $5,242,760 | $(3,057,395) | $2,185,365 | | Software | $1,139,232 | $(80,784) | $1,058,448 | | In-progress patent | $270,886 | $0 | $270,886 | | Total | $143,328,623 | $(139,813,924) | $3,514,699 | Amortization Expense (Six Months Ended June 30) | Period | Amount | | :------------------------------------------ | :----------- | | Six months ended June 30, 2025 | $79,424 | | Six months ended June 30, 2024 | $20,864 | - The weighted average remaining useful life for amortization of intangible assets is **4.5 years** as of June 30, **2025**[114](index=114&type=chunk) [NOTE 10 – ACCOUNTS PAYABLE — RELATED PARTIES](index=22&type=section&id=NOTE%2010%20%E2%80%93%20ACCOUNTS%20PAYABLE%20%E2%80%94%20RELATED%20PARTIES) - The Company entered into a software development, publishing, and distribution agreement with Suzhou Snail in July **2024**, involving **$4.5 million** in milestone payments and ongoing royalties[116](index=116&type=chunk) - In December **2024**, an agreement with Suzhou Snail for SaltyTV app development resulted in a **$290,000** development fee capitalized as an intangible asset[116](index=116&type=chunk) Accounts Payable – Related Parties (June 30) | Category | 2025 | 2024 | | :------------------------------------------ | :----------- | :----------- | | Accounts payable - Suzhou | $52,362,069 | $52,998,084 | | Less: accounts receivable - Suzhou | $(37,614,912) | $(37,614,913) | | Accounts payable – SDE | $1,386,876 | $0 | | Total accounts payable – related parties | $16,134,033 | $15,383,171 | [NOTE 11 – LOAN AND INTEREST RECEIVABLE — RELATED PARTY](index=22&type=section&id=NOTE%2011%20%E2%80%93%20LOAN%20AND%20INTEREST%20RECEIVABLE%20%E2%80%94%20RELATED%20PARTY) - The Company has a loan and interest receivable from a wholly-owned subsidiary of Suzhou Snail, totaling **$106,751** as of June 30, **2025**[119](index=119&type=chunk) Interest Income - Related Party Loans Receivable (Six Months Ended June 30) | Period | Amount | | :------------------------------------------ | :----------- | | Six months ended June 30, 2025 | $992 | | Six months ended June 30, 2024 | $997 | [NOTE 12 – REVOLVING LOAN, SHORT TERM NOTES AND LONG - TERM DEBT](index=23&type=section&id=NOTE%2012%20%E2%80%93%20REVOLVING%20LOAN,%20SHORT%20TERM%20NOTES%20AND%20LONG%20-%20TERM%20DEBT) - The Company was not in compliance with debt covenants for its **2021** Revolving Loan, **2021** Promissory Note, and **2025** Term Loan for the trailing twelve months ended June 30, **2025**, but received waivers from the lender[122](index=122&type=chunk) - Due to probable future covenant failures, the long-term portions of the promissory note, revolving loan, and term loan have been classified as current liabilities[122](index=122&type=chunk) Total Debt (June 30) | Debt Type | 2025 | 2024 | | :------------------------------------------ | :----------- | :----------- | | 2021 Revolving Loan | $3,000,000 | $3,000,000 | | 2021 Promissory Note | $2,679,531 | $2,722,549 | | 2025 Convertible Notes | $2,415,050 | $0 | | 2025 Term Loan | $3,500,000 | $0 | | Total debt | $11,594,581 | $5,722,549 | Interest Expense (Six Months Ended June 30) | Period | Amount | | :------------------------------------------ | :----------- | | Six months ended June 30, 2025 | $229,106 | | Six months ended June 30, 2024 | $538,259 | - The **2025** Convertible Notes, issued in February **2025** for **$3.3 million** principal, are accounted for at fair value, with a fair value adjustment of **$53,803** recognized during the six months ended June 30, **2025**[133](index=133&type=chunk)[136](index=136&type=chunk) [NOTE 13 – INCOME TAXES](index=26&type=section&id=NOTE%2013%20%E2%80%93%20INCOME%20TAXES) Income Tax Expense (Six Months Ended June 30) | Period | Amount | | :------------------------------------------ | :----------- | | Six months ended June 30, 2025 | $12,397,768 | | Six months ended June 30, 2024 | $111,562 | - The effective tax rate for the six months ended June 30, **2025**, was **203%**, primarily due to a full valuation allowance recorded against U.S. net deferred tax assets[141](index=141&type=chunk)[142](index=142&type=chunk) - The Company recorded a full valuation allowance on the opening balance of **$10,815,239** for U.S. net deferred tax assets due to cumulative pre-tax losses and revised profitability projections[142](index=142&type=chunk) [NOTE 14 – OPERATING LEASE RIGHT-OF-USE ASSETS](index=27&type=section&id=NOTE%2014%20%E2%80%93%20OPERATING%20LEASE%20RIGHT-OF-USE%20ASSETS) Operating Lease Right-of-Use Assets, Net (June 30) | Category | 2025 | 2024 | | :------------------------------------------ | :----------- | :----------- | | Net operating lease right-of-use assets | $676,918 | $1,279,330 | Operating Lease Costs (Six Months Ended June 30) | Period | Amount | | :------------------------------------------ | :----------- | | Six months ended June 30, 2025 | $848,780 | | Six months ended June 30, 2024 | $796,512 | [NOTE 15 – COMMITMENTS AND CONTINGENCIES](index=27&type=section&id=NOTE%2015%20%E2%80%93%20COMMITMENTS%20AND%20CONTINGENCIES) - The Company settled a lawsuit with Angela Game in September **2023**, involving an upfront payment and ongoing payments[151](index=151&type=chunk) - A lawsuit filed by Bel Air Soto, LLC against Snail Games USA Inc. and INDIEV (an affiliate) for breach of contract seeks damages over **$3 million**. The Company denies allegations and believes the likelihood of a material loss is remote[152](index=152&type=chunk)[154](index=154&type=chunk) - Aggregate development commitments to related party developers total **$3.5 million** as of June 30, **2025**, in addition to a fixed monthly license fee of **$2.0 million** to SDE for ARK franchise publishing rights[155](index=155&type=chunk) [NOTE 16 – INCOME (LOSS) PER SHARE](index=29&type=section&id=NOTE%2016%20%E2%80%93%20INCOME%20(LOSS)%20PER%20SHARE) Basic Earnings (Loss) Per Share (Six Months Ended June 30) | Metric | 2025 | 2024 | | :------------------------------------------ | :----------- | :----------- | | Net income (loss) attributable to Class A common stockholders | $(4,210,496) | $103,656 | | Net income (loss) attributable to Class B common stockholders | $(14,297,937) | $373,166 | | Total net income (loss) attributable to Snail Inc. | $(18,508,433) | $476,822 | | Class A and B basic earnings (loss) per share | $(0.50) | $0.01 | Diluted Earnings (Loss) Per Share (Six Months Ended June 30) | Metric | 2025 | 2024 | | :------------------------------------------ | :----------- | :----------- | | Diluted earnings (loss) per Class A share | $(0.50) | $0.01 | | Diluted earnings (loss) per Class B share | $(0.50) | $0.01 | - For the three and six months ended June 30, **2025**, convertible notes were excluded from diluted EPS calculation due to anti-dilutive effects[158](index=158&type=chunk) [NOTE 17 – EQUITY](index=29&type=section&id=NOTE%2017%20%E2%80%93%20EQUITY) - The Company has two classes of common stock: Class A (one vote) and Class B (ten votes), with Class B convertible to Class A upon transfer[159](index=159&type=chunk) - Convertible Note Warrants and Equity Line Warrants are classified as liabilities and measured at fair value due to adjustment provisions and potential partial cash settlement[164](index=164&type=chunk)[176](index=176&type=chunk)[178](index=178&type=chunk) Fair Value of Convertible Note Warrants (June 30) | Period | Value | | :------------------------------------------ | :----------- | | Fair value at December 31, 2024 | $1,448,109 | | Change in fair value (six months ended June 30, 2025) | $(487,857) | | Exercises (six months ended June 30, 2025) | $(323,113) | | Fair value at June 30, 2025 | $1,066,542 | Fair Value of Equity Line Warrants (June 30) | Period | Value | | :------------------------------------------ | :----------- | | Fair value at December 31, 2024 | $292,004 | | Change in fair value (six months ended June 30, 2025) | $(32,929) | | Fair value at June 30, 2025 | $259,075 | Stock-Based Compensation Expense (Six Months Ended June 30) | Category | 2025 | 2024 | | :------------------------------------------ | :----------- | :----------- | | General and administrative expenses | $257,642 | $(848,685) | | Research and development expenses | $23,246 | $(63,208) | | Total unrecognized compensation cost (as of June 30, 2025) | $1.7 million | | [NOTE 18 – OPERATING SEGMENTS](index=34&type=section&id=NOTE%2018%20%E2%80%93%20OPERATING%20SEGMENTS) - The Company operates as a single operating and reportable segment, with the Founder, Co-Chief Executive Officer, Chief Strategy Officer, and Chairman, Mr. Hai Shi, serving as the Chief Operating Decision Maker (CODM)[195](index=195&type=chunk) Segment Revenue and Operating Profit (Six Months Ended June 30) | Metric | 2025 | 2024 | | :------------------------------------------ | :----------- | :----------- | | Revenues, net | $42,296,622 | $35,722,379 | | Gross profit | $12,802,272 | $10,176,507 | | (Loss) income from operations | $(5,918,273) | $463,063 | | Net (loss) income | $(18,509,671) | $474,158 | [NOTE 19 – BUSINESS COMBINATION](index=34&type=section&id=NOTE%2019%20%E2%80%93%20BUSINESS%20COMBINATION) - On May **2**, **2025**, the Company acquired the remaining **66.0%** equity interest in Matrioshka Games LLC, increasing ownership to **100%** and obtaining a controlling financial interest[196](index=196&type=chunk) - The acquisition resulted in a gain on remeasurement of previously held equity interest of **$7,857** and is expected to enhance human capital and software development capabilities[196](index=196&type=chunk) [NOTE 20 – SUBSEQUENT EVENTS](index=34&type=section&id=NOTE%2020%20%E2%80%93%20SUBSEQUENT%20EVENTS) - The Company is exploring a strategic digital asset initiative, including developing a proprietary stablecoin, and has set up a legal entity, Snail Coins, LLC[197](index=197&type=chunk) - Federal income tax refunds of **$3.1 million** and **$0.6 million** were received from the IRS for the **2022** and **2017** tax years, respectively[197](index=197&type=chunk) - In August **2025**, the Company entered into two new agreements with Suzhou Snail for quality control services (**$60,000** quarterly) and management of the SaltyTV application (**$180,000** quarterly)[197](index=197&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=35&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial condition and operations, focusing on ARK franchise revenue, strategic investments, recent developments, and liquidity [Overview](index=35&type=section&id=Overview) - The ARK franchise is the primary revenue driver, contributing **90.1%** and **90.8%** of revenues for the three and six months ended June 30, **2025**, respectively[199](index=199&type=chunk) Net Revenue and Net Income (Loss) | Period | Net Revenue | Net Income (Loss) | | :------------------------------------------ | :----------- | :---------------- | | Three months ended June 30, 2025 | $22.2 million | $(16.6) million | | Three months ended June 30, 2024 | $21.6 million | $2.3 million | | Six months ended June 30, 2025 | $42.3 million | $(18.5) million | | Six months ended June 30, 2024 | $35.7 million | $0.5 million | - Daily Active Users (DAUs) for ARK: Survival Evolved and ARK: Survival Ascended averaged **242,000** for both the three and six months ended June 30, **2025**, an increase from **218,241** and **213,691** in the prior year periods[199](index=199&type=chunk) [Key Factors Affecting Our Business](index=36&type=section&id=Key%20Factors%20Affecting%20Our%20Business) - The Company is investing in content strategy, expanding its gaming pipeline, developing media/eSports content, and growing its micro-influencer platform, NOIZ[202](index=202&type=chunk) - User base growth is driven by creating interactive and unique content, including DLCs, to enhance gameplay and retain players. The Company sold **2.1 million units** in Q2 **2025**, up from **1.3 million** in Q2 **2024**[203](index=203&type=chunk) - Continued investment in proprietary video game technology, including game engines, development tools, and advanced rendering, is crucial for competitive advantage and new product offerings[205](index=205&type=chunk) - Strategic relationships with developers like Studio Wildcard (for ARK franchise) and Suzhou Snail are vital for original content creation and ongoing game development support[208](index=208&type=chunk) - Reliance on third-party distribution platforms (e.g., Xbox Live, PlayStation Network, Steam) for nearly all revenue means platform policies and fees can significantly impact operations and financial performance[209](index=209&type=chunk) [Recent Developments](index=37&type=section&id=Recent%20Developments) - Released ARK: Astraeos DLC for ARK: Survival Ascended in February **2025**, selling over **480K units** across platforms[211](index=211&type=chunk) - Announced ARK: Aquatica DLC and Lost Colony expansion for ARK: Survival Ascended, along with teaser trailers for two in-house developed projects: Nine Yin Sutra: Wushu and Nine Yin Sutra: Immortal[212](index=212&type=chunk) - ARK: Survival Ascended was added to PlayStation Plus, driving over **8 million** installs and a healthy uplift in ASA DLC sales on PlayStation[214](index=214&type=chunk) - The Lost Colony Expansion Pass pre-sale exceeded expectations, selling over **160K units** through June 30, **2025**[215](index=215&type=chunk) - Released five indie games in Q2 **2025** and expanded the short film mobile application, Salty TV, with **55** dramas and an MOU with Mega Matrix Inc. for joint development[216](index=216&type=chunk)[217](index=217&type=chunk) - Announced exploration of a strategic digital asset initiative, including a proprietary stablecoin, to position the company as an early mover in digital entertainment[218](index=218&type=chunk) - Entered into an At The Market Offering Agreement (ATM Sales Agreement) on August **7**, **2025**, to sell up to **$4.5 million** in Class A Common Stock[220](index=220&type=chunk)[221](index=221&type=chunk) [Components of Results of Operations](index=39&type=section&id=Components%20of%20Results%20of%20Operations) - Revenue is primarily from game sales through platforms, with recognition varying based on principal/agent determination (net for most platforms, gross for Apple/Google App Stores)[224](index=224&type=chunk) - Cost of revenues includes license royalties, merchant fees, engine fees, and server costs, expected to fluctuate proportionately with revenues[226](index=226&type=chunk) - General and administrative expenses are expected to increase due to public company administrative burdens and inflationary pressures[227](index=227&type=chunk) - Research and development costs are expected to increase with new content, games, and outsourced development[228](index=228&type=chunk) - Impairment of film assets reflects write-downs due to underperforming titles, changes in marketing strategies, or shifts in market demand[230](index=230&type=chunk) - The effective tax rate of (**515%**) for the six months ended June 30, **2025**, significantly differed from the federal statutory rate of **21%** due to a valuation allowance against U.S. net deferred tax assets[231](index=231&type=chunk) [Results of Operations](index=39&type=section&id=Results%20of%20Operations) [Comparison of the three months ended June 30, 2025 versus the three months ended June 30, 2024](index=39&type=section&id=Comparison%20of%20the%20three%20months%20ended%20June%2030,%202025%20versus%20the%20three%20months%20ended%20June%2030,%202024) Financial Performance (Three Months Ended June 30) | Metric | 2025 (in millions) | 2024 (in millions) | $ Change (in millions) | % Change | | :-------------------------- | :----------------- | :----------------- | :--------------------- | :--------- | | Revenues, net | $22.2 | $21.6 | $0.6 | 2.7% | | Cost of revenues | $15.2 | $13.5 | $1.7 | 12.8% | | Gross profit | $7.0 | $8.1 | $(1.1) | (14.2)% | | Total operating expenses | $8.8 | $5.5 | $3.3 | 61.5% | | Income (loss) from operations | $(1.8) | $2.6 | $(4.4) | (168.0)% | - Net revenues increased by **$0.6 million** (**2.7%**) due to increased ARK sales (**$3.3M**), ARK: Survival Ascended platform subscription (**$3.0M**), and ARK Mobile sales (**$0.6M**), partially offset by increased deferred revenues (**$3.7M**) and decreased Bellwright revenues (**$3.0M**)[233](index=233&type=chunk) - Cost of revenues increased by **$1.7 million** (**12.8%**) primarily due to higher software license royalties from related parties (**$1.1M**) and increased license and amortization costs (**$0.4M**)[234](index=234&type=chunk)[235](index=235&type=chunk) - Operating expenses increased by **$3.3 million** (**61.5%**), driven by increases in general and administrative (**$0.7M**), research and development (**$1.4M**), advertising and marketing (**$0.8M**), and impairment of film assets (**$0.4M**)[236](index=236&type=chunk)[237](index=237&type=chunk)[238](index=238&type=chunk)[239](index=239&type=chunk) [Other Factors Affecting Net Loss (Three Months Ended June 30)](index=41&type=section&id=Other%20Factors%20Affecting%20Net%20Loss) Other Factors Affecting Net Loss (Three Months Ended June 30) | Metric | 2025 (in millions) | 2024 (in millions) | $ Change (in millions) | % Change | | :-------------------------- | :----------------- | :----------------- | :--------------------- | :--------- | | Interest income | $0.0 | $0.1 | $(0.1) | (50.4)% | | Interest expense | $(0.2) | $(0.1) | $(0.1) | (19.0)% | | Other income | $(0.7) | $0.2 | $(0.9) | (389.5)% | | Income tax provision | $(13.9) | $(0.6) | $(13.3) | (2,452.6)% | - Interest income decreased due to lower average cash deposits, while interest expense increased slightly due to a new term loan[241](index=241&type=chunk)[242](index=242&type=chunk) - Other income decreased by **$0.9 million**, primarily due to revaluation losses on warrant liabilities (**$0.5M**) and convertible notes (**$0.4M**) in **2025**[243](index=243&type=chunk) - Income tax provision increased significantly to **$13.9 million** (effective rate of **-515%**) due to the valuation allowance against U.S. net deferred tax assets[244](index=244&type=chunk) [Comparison of the six months ended June 30, 2025 versus the six months ended June 30, 2024](index=41&type=section&id=Comparison%20of%20the%20six%20months%20ended%20June%2030,%202025%20versus%20the%20six%20months%20ended%20June%2030,%202024) Financial Performance (Six Months Ended June 30) | Metric | 2025 (in millions) | 2024 (in millions) | $ Change (in millions) | % Change | | :-------------------------- | :----------------- | :----------------- | :--------------------- | :--------- | | Revenues, net | $42.3 | $35.7 | $6.6 | 18.4% | | Cost of revenues | $29.5 | $25.5 | $4.0 | 15.5% | | Gross profit | $12.8 | $10.2 | $2.6 | 25.8% | | Total operating expenses | $18.7 | $9.7 | $9.0 | 92.7% | | Income (loss) from operations | $(5.9) | $0.5 | $(6.4) | (1,378.1)% | - Net revenues increased by **$6.6 million** (**18.4%**) driven by higher ARK sales (**$6.1M**), ARK: Survival Ascended platform subscription (**$3.0M**), and ARK: Ultimate Mobile Edition sales (**$1.9M**), partially offset by decreased Bellwright revenue (**$2.2M**) and a non-recurring Angela Games settlement in **2024** (**$1.2M**)[246](index=246&type=chunk) - Cost of revenues increased by **$4.0 million** (**15.5%**) due to increased software license royalties from related parties (**$3.0M**) and higher license and amortization costs (**$0.7M**)[247](index=247&type=chunk)[248](index=248&type=chunk) - Operating expenses increased by **$9.0 million** (**92.7%**), primarily due to increases in general and administrative (**$3.4M**), research and development (**$3.3M**), advertising and marketing (**$2.0M**), and impairment of film assets (**$0.4M**)[249](index=249&type=chunk)[250](index=250&type=chunk)[251](index=251&type=chunk)[252](index=252&type=chunk) [Other Factors Affecting Net Income (Loss) (Six Months Ended June 30)](index=43&type=section&id=Other%20Factors%20Affecting%20Net%20Income%20(Loss)) Other Factors Affecting Net Income (Loss) (Six Months Ended June 30) | Metric | 2025 (in millions) | 2024 (in millions) | $ Change (in millions) | % Change | | :-------------------------- | :----------------- | :----------------- | :--------------------- | :--------- | | Interest income | $0.1 | $0.2 | $(0.1) | (62.0)% | | Interest expense | $(0.3) | $(0.5) | $0.2 | (52.0)% | | Other income | $0.1 | $0.5 | $(0.4) | (86.9)% | | Income tax provision | $(12.4) | $(0.1) | $(12.3) | 11,012.9% | - Interest income decreased due to lower average cash deposits, while interest expense decreased due to lower average debt[255](index=255&type=chunk)[256](index=256&type=chunk) - Other income decreased by **$0.4 million**, primarily due to a **$0.4 million** expense from warrant liability revaluation in **2025**, compared to litigation revenues in **2024**[257](index=257&type=chunk) - Income tax provision increased to **$12.4 million** (effective rate of **-203%**) due to the valuation allowance against U.S. net deferred tax assets[258](index=258&type=chunk) [Key Performance Metrics](index=43&type=section&id=Key%20Performance%20Metrics) Units Sold (in millions) | Period | 2025 | 2024 | Change | % Change | | :------------------------------------------ | :--- | :--- | :----- | :------- | | Three months ended June 30 | 2.1 | 1.3 | 0.8 | 58.4% | | Six months ended June 30 | 3.7 | 2.4 | 1.3 | 52.4% | - Units sold increased due to higher sales of ARK: Survival Evolved and its DLCs (**0.7M units** in Q2, **0.8M units** in H1) and ARK: Survival Ascended and its DLCs (**0.3M units** in Q2, **0.6M units** in H1)[262](index=262&type=chunk)[263](index=263&type=chunk) Bookings (in millions) | Period | 2025 | 2024 | $ Change | % Change | | :------------------------------------------ | :--- | :--- | :------- | :------- | | Three months ended June 30 | $27.1 | $22.9 | $4.2 | 18.5% | | Six months ended June 30 | $49.4 | $42.4 | $7.0 | 16.3% | - Bookings increased due to various sales promotions for ARK: Survival Evolved and the pre-sale release of ARK: Lost Colony in **2025**[265](index=265&type=chunk)[266](index=266&type=chunk) [Non-GAAP Measures](index=44&type=section&id=Non-GAAP%20Measures) - EBITDA is presented as a non-GAAP measure to evaluate operating performance, excluding interest income/expense, income taxes, and depreciation[267](index=267&type=chunk)[269](index=269&type=chunk) EBITDA (in millions) | Period | 2025 | 2024 | $ Change | % Change | | :------------------------------------------ | :---- | :--- | :------- | :-------- | | Three months ended June 30 | $(2.4) | $3.1 | $(5.5) | (182.9)% | | Six months ended June 30 | $(5.8) | $1.2 | $(7.0) | (616.3)% | - EBITDA decreased significantly for both periods, primarily due to an increase in net loss, partially offset by changes in income tax provision and interest income/expense[272](index=272&type=chunk)[273](index=273&type=chunk) [Liquidity and Capital Resources](index=44&type=section&id=Liquidity%20and%20Capital%20Resources) - Primary liquidity sources are cash flows from operations, with unrestricted cash at **$7.9 million** (June 30, **2025**) and **$7.3 million** (December 31, **2024**)[275](index=275&type=chunk) - The Company has a **$3.0 million** revolving loan (due June **2026**), **$3.3 million** convertible notes (mature Feb **2026**), and a **$3.5 million** term loan (mature June **2028**)[278](index=278&type=chunk) - The Company was not in compliance with debt covenants for its **2021** Revolving Note, **2021** Promissory Note, and **2025** Term Loan but received waivers. All long-term portions of these debts are classified as current due to probable future non-compliance[278](index=278&type=chunk) - The Company has the right, but not the obligation, to sell up to **$5.0 million** in Class A common stock to an investor under an Equity Line Purchase Agreement until December 31, **2025**[278](index=278&type=chunk) Net Cash Flows (in millions) | Activity | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Operating activities | $(2.4) | $7.0 | | Investing activities | $(3.0) | $0 | | Financing activities | $6.0 | $(6.7) | | Net increase in cash and cash equivalents | $0.6 | $0.3 | - Net cash used in operating activities increased by **$9.4 million**, primarily due to a **$19.0 million** decrease in net income/loss and a **$21.2 million** decrease in net accounts receivable[282](index=282&type=chunk)[283](index=283&type=chunk) - Net cash used in investing activities was **$3.0 million** in H1 **2025**, including acquisitions of software, license rights, and capitalized R&D expenditures[287](index=287&type=chunk) - Net cash provided by financing activities was **$6.0 million** in H1 **2025**, driven by convertible notes issuance (**$3.0M**), new term loan (**$3.5M**), and warrant exercises (**$0.2M**), partially offset by debt repayments[288](index=288&type=chunk) [Critical Accounting Policies and Estimates](index=48&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - Deferred revenue recognition and classification rely on estimates of release dates, technical support obligations, and timing of performance obligations, which can materially impact financial statements if estimates change[305](index=305&type=chunk) - Deferred income taxes depend on estimates of future taxable income and utilization of tax loss carryforwards, requiring significant judgment in assessing the realizability of deferred tax assets[307](index=307&type=chunk) [Emerging Growth Company and Smaller Reporting Company Status](index=49&type=section&id=Emerging%20Growth%20Company%20and%20Smaller%20Reporting%20Company%20Status) - The Company is an 'emerging growth company' and 'smaller reporting company,' allowing it to take advantage of reduced reporting requirements and an extended transition period for new accounting standards[309](index=309&type=chunk)[311](index=311&type=chunk)[313](index=313&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=50&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Snail, Inc. is not required to provide quantitative and qualitative disclosures about market risk - The Company is exempt from providing quantitative and qualitative disclosures about market risk due to its status as a 'smaller reporting company'[314](index=314&type=chunk) [Item 4. Controls and Procedures](index=50&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls were ineffective due to a material weakness in warrant fair value valuation - Disclosure controls and procedures were not effective as of June 30, **2025**, due to a material weakness in internal control over financial reporting[316](index=316&type=chunk) - The material weakness relates to the failure to properly value the fair value of warrants connected to convertible notes and the equity line of credit[316](index=316&type=chunk) - Remediation plans include enhancing review controls over fair value valuations and hiring qualified external valuation specialists[317](index=317&type=chunk)[319](index=319&type=chunk) [PART II. OTHER INFORMATION](index=47&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=47&type=section&id=Item%201.%20Legal%20Proceedings) Legal proceedings information is detailed in Note 15 – Commitments and Contingencies-Litigation - Legal proceedings information is detailed in Note **15** – Commitments and Contingencies-Litigation[318](index=318&type=chunk) [Item 1A. Risk Factors](index=47&type=section&id=Item%201A.Risk%20Factors) Significant risks include ARK franchise reliance, third-party platform dependence, internal control weaknesses, financing needs, and stablecoin initiative risks [Risks Related to Our Business and Industry](index=52&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Industry) - The Company is highly dependent on the future success of its ARK franchise, which contributed **90.8%** of net revenue for the six months ended June 30, **2025**. Failure to publish new 'hit' titles or sequels could substantially decrease revenue and profits[320](index=320&type=chunk) - Reliance on license agreements, particularly with related parties like SDE for the ARK franchise, poses a risk if agreements are not renewed on favorable terms or if disputes arise[321](index=321&type=chunk)[323](index=323&type=chunk) - The Company relies on third-party platforms (e.g., Xbox Live, PlayStation Network, Steam) for **94.6%** of its revenue. Changes in platform policies, fees, or access could materially harm the business[324](index=324&type=chunk) - Business and operating results may be volatile during console transitions, as consumer purchases shift and development costs are incurred for both old and new platforms[328](index=328&type=chunk)[329](index=329&type=chunk) - Changes in tax laws or rates, including potential tariffs on R&D operations outsourced to China and Europe, could affect the effective tax rate, increase costs, and disrupt technical development[330](index=330&type=chunk)[331](index=331&type=chunk) - The Company identified a material weakness in internal control over financial reporting related to the fair value valuation of warrants, which could lead to inaccurate financial reporting[333](index=333&type=chunk)[334](index=334&type=chunk) - Additional financing may be required, and the terms of subsequent financings (e.g., equity line, convertible notes, ATM offering) could be dilutive to stockholders or subject to limitations[337](index=337&type=chunk)[338](index=338&type=chunk)[340](index=340&type=chunk)[341](index=341&type=chunk) - Defaulting on credit obligations could interrupt operations, accelerate debt, and seriously harm the business, especially given past non-compliance with debt covenants[343](index=343&type=chunk)[344](index=344&type=chunk) [Risks relating to Stablecoins](index=56&type=section&id=Risks%20relating%20to%20Stablecoins) - The strategic digital asset initiative, including a proprietary stablecoin, may require additional capital and subject the Company to various licensing requirements and significant compliance costs due to an evolving regulatory environment[347](index=347&type=chunk)[349](index=349&type=chunk)[350](index=350&type=chunk) - Negative publicity regarding stablecoins or the broader digital asset industry could significantly harm consumer confidence in the Company's proposed stablecoins, potentially delaying wider acceptance and use[351](index=351&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=57&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities occurred; details on the share repurchase program are provided - No unregistered sales of equity securities occurred during the six months ended June 30, **2025**[352](index=352&type=chunk) - No share repurchases were settled in the three months ended June 30, **2025**. As of June 30, **2025**, **1,350,275** shares of Class A common stock were repurchased for approximately **$3.7 million**, with **$1.3 million** remaining available under the program[353](index=353&type=chunk) [Item 3. Defaults Upon Senior Securities](index=58&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The Company reported no defaults upon senior securities during the period - There were no defaults upon senior securities[355](index=355&type=chunk) [Item 4. Mine Safety Disclosures](index=58&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the Company - Mine safety disclosures are not applicable to the Company[356](index=356&type=chunk) [Item 5. Other Information](index=58&type=section&id=Item%205.%20Other%20Information) No director or officer adopted or terminated any Rule 10b5-1 trading arrangement during the quarter - No director or officer adopted or terminated any 'Rule **10b5-1** trading arrangement' or 'non-Rule **10b5-1** trading arrangement' during the quarter ended June 30, **2025**[357](index=357&type=chunk) [Item 6. Exhibits](index=58&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including the At The Market Offering Agreement and certifications - Key exhibits include the At The Market Offering Agreement (dated August **7**, **2025**), Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, and certifications from the Co-Chief Executive Officer and Chief Financial Officer[359](index=359&type=chunk) [SIGNATURES](index=59&type=section&id=SIGNATURES) The report is duly signed on behalf of Snail, Inc. by its Co-Chief Executive Officer and Chief Financial Officer - The report was signed by Xuedong Tian, Co-Chief Executive Officer, and Heidy Chow, Chief Financial Officer, on August **19**, **2025**[362](index=362&type=chunk)

Core Viewpoint - Snail, Inc. reported a transformative second quarter in 2025, marked by a strategic initiative to develop a proprietary stablecoin, alongside strong performance in its gaming portfolio, particularly the ARK franchise [7][8]. Financial Highlights - Net revenues for Q2 2025 increased to $22.2 million, up from $21.6 million in Q2 2024, driven by a $3.3 million increase in total ARK sales and $3.0 million from ARK: Survival Ascended included in a subscription program [9]. - The net loss for Q2 2025 was $(16.6) million, compared to a net income of $2.3 million in the same period last year, primarily due to increased costs and a $12.9 million valuation allowance against deferred tax assets [10]. - Bookings for Q2 2025 rose 18.5% to $27.1 million, compared to $22.9 million in Q2 2024, attributed to sales promotions and the presale of ARK: Lost Colony [11]. - EBITDA for Q2 2025 was $(2.4) million, down from $3.1 million in Q2 2024, reflecting the increased net loss and higher tax provisions [12]. Game Portfolio Updates - ARK: Survival Evolved sold approximately 1,196,583 units in Q2 2025, with an average daily active user (DAU) of 156,947 [6]. - ARK: Survival Ascended achieved approximately 807,065 units sold, with 8 million downloads via PlayStation Plus in May 2025 [6]. - ARK Mobile surpassed 6.9 million downloads, with an average DAU of 104,135 [6]. Business Updates - The company announced the establishment of Snail Coins LLC to manage its USD-backed stablecoin project and other digital asset initiatives [6]. - A Memorandum of Understanding was signed with Mega Matrix Inc. for the joint development and distribution of short dramas [6]. - The company launched its annual Steam Publisher Sale Event, which significantly boosted sales in June [8]. Management Commentary - The co-CEOs emphasized the importance of the stablecoin initiative as a strategic evolution in the business model, aligning with digital financial innovation trends [7]. - They highlighted the strong performance of the ARK franchise and the commitment to regular content updates and expansions [8].

Core Viewpoint - Snail, Inc. will hold a conference call and webcast to discuss its financial results for the second quarter ended June 30, 2025 [1]. Group 1 - The conference call and webcast are scheduled for August 19, 2025, at 4:30 p.m. Eastern time [1]. - Participants can access the live webcast and replay through the provided link or the Company's investor relations website [2]. - Snail, Inc. is recognized as a leading global independent developer and publisher of interactive digital entertainment, offering a diverse portfolio of premium games across various platforms [3].

Core Viewpoint - Snail, Inc. has postponed its conference call to discuss the financial results for the second quarter ended June 30, 2025, which was originally scheduled for August 13, 2025, at 4:30 p.m. Eastern time [1]. Company Overview - Snail, Inc. is a leading global independent developer and publisher of interactive digital entertainment, offering a premier portfolio of premium games across various platforms, including consoles, PCs, and mobile devices [3]. - The company is publicly traded on Nasdaq under the ticker SNAL [3]. Future Communications - The company will issue a press release to announce the new date and time for the postponed earnings call in the future [2]. Investor Relations - Investor contacts for Snail, Inc. include John Yi and Steven Shinmachi from Gateway Group, Inc., with a contact number of 949-574-3860 and email SNAL@gateway-grp.com [4].

Core Insights - Snail, Inc. has launched a new dating simulation game titled "The Fame Game: Welcome to Hollywood," developed by its subsidiary Interactive Films LLC, which focuses on narrative-driven gameplay and emotional interaction [1][2]. Company Overview - Snail, Inc. (Nasdaq: SNAL) is a leading independent game developer and publisher, providing interactive digital entertainment content across various platforms, including consoles, PC, and mobile devices [3]. - Interactive Films LLC, a subsidiary of Snail, Inc., aims to expand new video audiences and engage passionate viewers through storytelling in various formats [4]. Industry Trends - According to Newzoo's 2024 Global Gamer Study, player engagement in life and dating simulation games has increased by 40% year-over-year, particularly among the 18-34 age demographic [2]. - Deloitte's 2023 Digital Media Trends report indicates that 50% of Gen Z and millennials feel a stronger emotional connection to fictional characters than to real people, with nearly one-third believing that games help fulfill their need for meaningful emotional connections [2]. Game Features - "The Fame Game: Welcome to Hollywood" features a simplified design that reduces development costs and accelerates iteration while maintaining emotional depth, making it accessible to casual players and newcomers to narrative-driven games [2]. - The game is exclusively available on the Steam platform and encourages players to add it to their wish lists [2].

Core Insights - Snail, Inc. has announced a new dating simulation game titled "The Fame Game: Welcome to Hollywood," developed under its subsidiary Interactive Films LLC [1][5] - The game is designed to resonate with a broad audience through a narrative told from a male perspective, featuring branching paths and multiple endings to encourage replayability [2][3] Industry Trends - Narrative-led games with relationship mechanics have shown a 40% year-over-year increase in player engagement, particularly among the 18-34 demographic [3] - A significant portion of Gen Z and Millennials (50%) report stronger emotional connections to fictional characters than to real people, indicating a shift in player engagement and emotional investment in games [3] Game Development Strategy - The project utilizes streamlined mechanics for cost-effective development and rapid iteration while maintaining emotional depth [4] - The accessible gameplay structure is designed to lower barriers for entry, appealing to casual players and those new to narrative-focused games, thus broadening the potential audience [4] Launch Information - "The Fame Game: Welcome to Hollywood" will be launched exclusively on Steam, with a call for creators to engage with the game [5]

Core Viewpoint - Snail, Inc. has entered into an At The Market Offering Agreement to sell up to $4,500,000 of its Class A Common Stock to support its digital asset initiative, including the potential introduction of a proprietary stablecoin backed by U.S. dollars [1][2]. Group 1: Offering Details - The Offering will be conducted under a Sales Agreement with H.C. Wainwright & Co. as the sales agent, allowing the company to sell shares from time to time in an at the market offering [1][3]. - The shares will be sold through methods permitted by law, including direct sales on the Nasdaq Capital Market [3]. - The Offering will be made only by means of a prospectus supplement filed with the SEC, which is part of the company's shelf registration statement [4]. Group 2: Use of Proceeds - The net proceeds from the sale of the shares will primarily be used for working capital to support the company's digital asset initiative, including the evaluation of a proprietary stablecoin [2]. Group 3: Company Overview - Snail, Inc. is a leading global independent developer and publisher of interactive digital entertainment, with a portfolio of premium games for various platforms [6].

Core Viewpoint - Snail, Inc. will hold a conference call and webcast on August 13, 2025, to discuss its financial results for Q2 2025, which ended on June 30, 2025 [1]. Company Overview - Snail, Inc. is a leading global independent developer and publisher of interactive digital entertainment, offering a premier portfolio of premium games across various platforms, including consoles, PCs, and mobile devices [3]. - The company is listed on Nasdaq under the ticker SNAL [3]. Event Details - The conference call and webcast will be hosted by Snail Games management, followed by a question-and-answer session [2]. - Participants can access the live webcast and replay through the provided link or the company's investor relations website [2].

Core Insights - The report provides an executive-level overview of the telecommunications market in China, including detailed forecasts of key indicators up to 2029 [2][9] - It highlights the competitive dynamics and evolution of demand by service type and technology/platform across various segments [2][9] Market Highlights - Fixed broadband service revenue is projected to decline at a CAGR of 1.3% during the forecast period due to a significant drop in fixed broadband ARPU as telecom operators offer discounted broadband services [4] - Total telecom and pay-TV service revenue in China is expected to grow at a CAGR of 0.5% from 2024 to 2029, primarily driven by mobile data and pay-TV segments [5] - Mobile data service revenue is forecasted to grow at a five-year CAGR of 5%, supported by the increase in smartphone subscriptions and mobile internet usage, particularly on 5G networks [5] Operating Environment - The report includes an analysis of the demographic and macroeconomic context in China, as well as a review of the regulatory environment and trends over the next 18-24 months [8] - It examines the competitive landscape, focusing on the positioning of leading players in the telecom and pay-TV services market, along with subscription market shares across segments [8][11] Telecom Services Market Outlook - The report provides historical figures and forecasts of service revenue from fixed telephony, broadband, mobile voice, mobile data, and pay-TV markets [8][11] - It offers company snapshots analyzing the financial position of leading service providers in the telecommunications and pay-TV markets [8][11]