DKI — H1 2026 Financial Report Analysis

DarkIris, a Hong Kong-based publisher of mobile games that sells in-game items through app stores and other third-party platforms, grew revenue 13.9% to $5.93 million in the first half of fiscal 2026 (the six months to March 31, 2026). It still swung from a $0.91 million profit a year earlier to a $1.90 million net loss. The loss came almost entirely from spending choices: $2.13 million of "game enhancement" costs for two games that it expensed immediately, a first-ever $0.80 million advertising budget for new launches, and $0.29 million of post-listing professional fees. The games business itself made more money per player. The bigger story is the balance sheet. Cash fell to $0.47 million, the unaudited statements carry a going-concern warning, and the company has since raised money twice on terms that dilute existing shareholders heavily.

At a glance

• $5.93 million revenue, up 13.9%. Growth came from more paying players and higher spend per player, even though the company's flagship title Floating Myth was shut down on December 31, 2025.
• -32.3% operating margin, against +19.3% a year ago. Operating margin is the share of revenue left after running the business, before interest and tax. Operating expenses rose more than eightfold, from $0.45 million to $3.67 million.
• $0.47 million cash at March 31, down from $1.80 million in September. Management says this raises "substantial doubt" about the company's ability to keep operating (a "going concern" warning). It has since raised about $3.8 million in an April private placement and $6 million gross in an October public offering.

The numbers

n/m = not meaningful, because the result swung from a profit to a loss. Per-share figures reflect the 1-for-16 reverse share split of May 11, 2026: the company swapped every 16 shares for 1, so the per-share numbers are 16 times larger than they would have been before.

Revenue: more payers, each paying more

DarkIris makes money from in-game purchases. Its MD&A (management's discussion of the results) attributes the increase to "the continued contribution of games launched in fiscal year 2025 and the successful release of new titles in fiscal year 2026." Both volume and price helped:

• Paying users. Average monthly paying users were 40,493 in the October–December quarter and 39,115 in January–March, up from 36,349 and 34,517 a year earlier. (The press release adds the two quarterly averages together and reports "79,608 monthly paying gamers" against 70,866. That is the same data in a less intuitive form.)
• Spend per payer. Average revenue per paying user was $22.57 and $22.18 in the two quarters, against $21.99 and $19.01. The January–March jump of 16.7% is the larger one. Management credits "content updates and refined operations" and redesigned in-game items.

The trend within the half is weaker than the year-on-year comparison. Daily active users fell from 6,767 in the December quarter to 6,068 in the March quarter. Monthly downloads fell from 147,511 to 116,406. Paying users eased from 40,493 to 39,115. The filing attributes the drop mainly to "the official removal of Floating Myth," whose players and downloads went away, and to older games reaching a "relatively mature phase." It also explains the December-quarter user growth mostly by a single new game launched on September 16, 2025. Growth now depends on a few recent titles, not on a broad catalogue.

Margins: gross margin improved, then spending erased it

Gross margin, the share of revenue left after the direct cost of delivering the games, rose 1.7 points to 29.6%. Most of DarkIris's revenue goes to others. Platform handling fees (the app-store or distributor's cut, which the filing says typically ranges from 15% to 60%) were $3.33 million, or 56% of revenue. Another $0.83 million went to the outside studios that developed the games. Platform fees grew 9.8%, slower than revenue, and cloud-server costs fell 75% to $10,149 because some platforms now supply servers. Developer revenue-share grew faster than revenue, at 22.8%.

Below gross profit, the picture reverses:

The filing says the enhancement costs for two games were "expensed as incurred." They went straight to the income statement rather than being capitalised as an asset the way game development spending usually is here. That makes the half look worse than ongoing operations. Without the $2.13 million and the $0.29 million listing fees, operating income would have been roughly $0.50 million. That is still about half of last year's $1.00 million, because the $0.80 million advertising budget is new. Whether that budget recurs depends on how many games the company launches.

What the headline numbers hide

• Cash conversion was negative, and capitalised development spending adds to the drain. Operating cash flow was -$0.49 million, better than the -$1.90 million net loss. The gap comes mostly from $1.02 million of receivables collected, which is not a repeatable source of cash. On top of that, the company spent $1.30 million on "intangible assets under construction," meaning game development it records as an asset rather than an expense. Total cash out before financing was about $1.80 million in six months, against $0.47 million of cash left at March 31.
• Some development spending is capitalised and some is expensed. The company capitalised $1.30 million of game development as an asset while expensing $2.13 million of enhancement work. Amortization (writing off capitalised game costs over time) rose to $0.25 million from $1,467 as newer games went live, and net intangible assets rose to $2.23 million from $0.68 million. That charge will keep growing as more capitalised titles launch.
• No real tax benefit. Income tax fell to $62 from $0.12 million. The loss carried almost no tax relief, so the pre-tax and after-tax losses are nearly identical ($1.899 million vs $1.899 million).
• Concentration. One counterparty accounts for 81% of accounts receivable (money owed to the company). Three suppliers, mostly the distribution platforms, accounted for 65%, 14% and 13% of cost of revenue. No single customer is above 10% of revenue because the players are the customers, but DarkIris depends on a handful of platforms to reach them.
• Dilution is the main risk to per-share value. The April private placement sold 10.8 million pre-split shares at $0.35 to raise about $3.8 million. A 10-title film and TV library was paid for with another 2.29 million pre-split shares ($0.80 million). In October the company raised $6 million gross at $1.44 per unit, and each unit carries a warrant (a right to buy another share later). According to the prospectus, if holders use the warrants' "zero exercise price option," they could receive up to 52.4 million new Class A shares without paying anything more, against 2.57 million Class A shares outstanding after the offering. The prospectus says the company "will likely not receive any proceeds from the exercise of the Warrants." The weighted share count used for the -$1.51 EPS was 1.26 million shares. Future per-share figures will be spread over a far larger share count.
• Related party. A 34% shareholder of DarkIris also owns 35.4% of Xiamen Xiqi Network Technology, with which the company transacts. This is disclosed in the notes and worth tracking.

Takeaway: The game operations improved: revenue rose 13.9%, gross margin widened, and spend per paying user rose 16.7% year on year in the March quarter, despite the loss of the flagship title. But the company burned about $1.8 million in six months with $0.47 million of cash left. It is funding a new AI-video business through share issues whose warrant terms could multiply the share count many times over. For a shareholder, the dilution matters more than the revenue growth.

Outlook

Management gave no numerical guidance. It describes a "dual-engine" strategy of mobile games plus AI-generated video and film content. After the period ended, it bought 10 film and TV titles (April 24, 2026) and launched an AI video platform (video.aideptus.com, May 29, 2026). The half-year filing contains no revenue from that business, so it is still unproven. The October prospectus says the new money will go to "expansion of the operations team and rewards to existing team members, product development" and working capital.

Our read: the games business is small but monetises its players well. The March quarter shows the user base shrinking after Floating Myth closed, so the next filing (the full fiscal year to September 30, 2026, due in a 20-F) will show whether the newer titles can grow on their own. Things to watch there:

1. whether second-half revenue holds above the first half's ~$3 million-a-quarter pace without the old flagship
2. whether "game enhancement" costs recur or were a one-time catch-up
3. how many warrant shares have been issued by then

The cash raised in April and October should remove the immediate going-concern pressure. The cost of that funding falls on existing shareholders.