Note 2: Basis of Presentation and Summary of Significant Accounting Policies

The accompanying interim condensed consolidated financial statements of the Company have been prepared in conformity with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”) and are consistent in all material respects with those applied in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025 filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2026. The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amount of assets, liabilities, revenue, costs, expenses and other comprehensive income/(loss) that are reported in the condensed consolidated financial statements and accompanying disclosures. These estimates are based on management’s best knowledge of current events, historical experience, actions that the Company may undertake in the future and on various other assumptions that are believed to be reasonable under the circumstances. On a regular basis, the Company evaluates the assumptions, judgments and estimates. Actual results may differ from these estimates.

The accompanying interim condensed consolidated financial statements are unaudited, but in the opinion of management, contain all adjustments (which include normal recurring adjustments) considered necessary to present fairly the interim financial statements. Interim results are not necessarily indicative of financial results for a full year. The information included in this Form 10-Q should be read in conjunction with the Company’s 2025 Annual Report.

The following is provided to update the Company’s significant accounting policies previously described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025 filed with the SEC on March 31, 2026.

Foreign Currency Forward Contracts

As of June 30, 2026, gross amounts of foreign currency (“FX”) forward contracts in an asset and liability position subject to a master netting arrangement resulted in a net asset of $5,137 recorded within Prepaid Expenses and Other Assets on the condensed consolidated balance sheets. As of December 31, 2025, gross amounts of foreign currency (“FX”) forward contracts in an asset and liability position subject to a master netting arrangement resulted in a net liability of $43,438 recorded within Other Current Liabilities on the condensed consolidated balance sheets.

For the three months ended June 30, 2026 and June 30, 2025, the Company recorded a realized loss of $24,942 and $24,070, respectively, on FX forward contracts within Production Services Revenue on the condensed consolidated statements of operations. For the six months ended June 30, 2026 and June 30, 2025, the Company recorded a realized loss of $0.05 million and $0.2 million, respectively, on FX forward contracts within Production Services Revenue on the condensed consolidated statements of operations.

Trade Accounts Receivable and Allowance for Credit Loss

The following table summarizes the activity in the allowance for credit losses related to trade accounts receivable as of June 30, 2026 and December 31, 2025 (in thousands):

Tax Credits Receivable

The Company classifies the tax credits receivable as current based on their normal operating cycle. Government assistance, in the form of refundable tax credits, is relied upon as a key component of production financing. These amounts are claimed from the CRA through the submission of income tax returns and can take up to 18 to 24 months from the date of the first tax credit dollar being earned to being received. As this financing is fundamental to the Company’s ability to produce animated productions and generate revenue in the normal course of business, the normal operating cycle for such assets is considered to be a 12 to 24-month period, or the time it takes for the CRA to assess and refund the tax credits earned.

As of June 30, 2026 and December 31, 2025, the Company had $17.5 million and $16.8 million, respectively, in tax credit receivables related to Mainframe’s film and television productions, net of corresponding allowance for credit loss of $0.4 million and $0.4 million, respectively. The Company did not have any non-current tax credits receivable as of June 30, 2026 and December 31, 2025.

Concentration of Risk

The Company maintains its cash in bank deposit accounts which, at times, may exceed the Federal Deposit Insurance Corporation’s (“FDIC”) or the Canadian Deposit Insurance Corporation’s (“CDIC”) insured amounts. Balances on interest bearing deposits at banks in the United States are insured by the FDIC up to $250,000 per account and deposits in banks in Canada are insured by the CDIC up to CAD 100,000. As of June 30, 2026 and December 31, 2025, the Company had eight and six bank deposit accounts with an aggregate uninsured balance of $6.6 million and $1.9 million, respectively.

The Company has a managed account with a financial institution. The managed account maintained its investments in marketable securities of approximately $32.8 million as of June 30, 2026, and $4.0 million as of December 31, 2025. Assets in the managed account are protected by the Securities Investor Protection Corporation (“SIPC”) up to $500,000 (with a limit of $250,000 for cash). In addition, the financial institution provides additional “excess of SIPC” coverage which insures up to $1.0 billion. As of June 30, 2026 and December 31, 2025, the Company did not have account balances held at this financial institution that exceed the insured balances.

As of June 30, 2026, the Company had three customers, the accounts receivable for each of which exceeded 10% of the total accounts receivable. These customers accounted for an aggregate of 69.6% of the total accounts receivable as of June 30, 2026. As of December 31, 2025, the Company had three customers, the accounts receivable for each of which exceeded 10% of the total accounts receivable. These customers accounted for an aggregate of 54.5% of the total accounts receivable as of December 31, 2025.

During the three months ended June 30, 2026, three customers each accounted for more than 10% of the Company’s total consolidated revenue. These customers accounted for an aggregate of 74.2% of the Company’s total revenue for the three months ended June 30, 2026. During the three months ended June 30, 2025, four customers each accounted for more than 10% of the Company’s total consolidated revenue. These customers accounted for an aggregate of 86.6% of the Company’s total revenue for the three months ended June 30, 2025.

During the six months ended June 30, 2026, three customers each accounted for more than 10% of the Company’s total consolidated revenue. These customers accounted for an aggregate of 66.1% of the Company’s total revenue for the six months ended June 30, 2026. During the six months ended June 30, 2025, four customers each accounted for more than 10% of the Company’s total consolidated revenue. These customers accounted for an aggregate of 85.9% of the Company’s total revenue for the six months ended June 30, 2025.

There is significant financial risk associated with a dependence upon a small number of customers. The Company periodically assesses the financial strength of these customers and establishes allowances for any anticipated credit losses.

Fair Value of Financial Instruments

The following table presents the fair values of the Company’s financial instruments measured on a recurring basis, categorized within the fair value hierarchy as of June 30, 2026 (in thousands):

The following table presents the fair values of the Company’s financial instruments measured on a recurring basis, categorized within the fair value hierarchy as of December 31, 2025 (in thousands):

There were no transfers between Level 1, Level 2, or Level 3 during the three months ended June 30, 2026. No allowance for credit losses was recorded for marketable securities as of June 30, 2026 or December 31, 2025. For a description of the Company’s fair value methodologies and classification policies, refer to Note 2 in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2025, filed with the Securities and Exchange Commission on March 31, 2026.

Contingencies

Between May 29, 2026 and June 11, 2026, the Company entered into settlement agreements with six defendants in the action styled Todd Augenbaum v. Anson Investments Master Fund LP, et al., Case No. 1:22-cv-00249 (S.D.N.Y.), an action brought under Section 16(b) of the Securities Exchange Act of 1934 by a stockholder on behalf of and for the benefit of the Company, in which the Company is named only as a nominal defendant, seeking disgorgement of alleged short-swing profits realized by certain investors in the Company’s 2020 private placements. The Settling Parties agreed to pay the Company aggregate settlement amounts of $78.5 million, minus fees and expenses of plaintiff’s counsel (in an amount not yet determined), subject to certain terms and conditions, and the parties agreed to mutual releases. Pursuant to the settlement agreements, 50% of each settlement amount, or $39.2 million in the aggregate, was paid directly to the Company during June 2026, and the remaining 50% was deposited into escrow to fund the court-awarded fees and expenses of plaintiff’s counsel, with any residual balance payable to the Company after the applicable approval orders become final. The Company recognized the $39.2 million received as a non-recurring, non-operating gain, included in Other Income (Expense), net, on the Company’s condensed consolidated statements of operations for the three months ended June 30, 2026. In accordance with ASC 450-30-25-1, any residual amounts distributable to the Company from escrow constitute a gain contingency and will be recognized if and when realized. In connection with the settlement with the Anson Investments Master Fund LP and its affiliates, on June 10, 2026, the Company entered into a standstill and voting agreement with the Anson Parties, under which the Company agreed to pay the Anson Parties $4.0 million and the Anson Parties agreed to certain voting commitments and standstill restrictions through June 11, 2027. The Company recognized this amount as a non-operating loss, included in Other Income (Expense), net, on the Company’s condensed consolidated statements of operations for the three months ended June 30, 2026. The related liability was included in current liabilities on the Company’s condensed consolidated balance sheet as of June 30, 2026 and was paid in July 2026.

New Accounting Standards Issued but Not Yet Adopted

In November 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expense. This update mandates that public companies provide more detailed information about specific expenses in their financial statement notes. The effective date for this guidance is annual reporting periods beginning after December 15, 2026, with interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is in the process of evaluating the impact that the adoption of this ASU will have to the consolidated financial statements and related disclosures, which is expected to result in enhanced disclosures.

In December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270) Narrow-Scope Improvements. The update provides clarifications intended to improve the consistency and usability of interim disclosure requirements, including a comprehensive listing of required interim disclosures and a new disclosure principle for reporting material events occurring after the most recent annual period. The amendments do not change the underlying objectives of interim reporting but are designed to enhance clarity in application. This update is effective for interim periods within annual reporting periods beginning after December 15, 2027. The Company does not expect it to have a material effect on its condensed consolidated financial statements and disclosures.

In December 2025, the FASB issued ASU 2025-10, Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities, which establishes authoritative guidance on the recognition, measurement, presentation, and disclosure of government grants. Under ASU 2025-10, government grants are recognized when it is probable that the entity will both comply with the conditions of the grant and the grant will be received. The ASU provides specific accounting models for grants related to assets and grants related to income, including options to recognize government grants as deferred income or as a reduction of the asset’s cost basis. The ASU also requires enhanced disclosures regarding the nature of government grants, significant terms and conditions, accounting policies applied, and amounts recognized in the financial statements. ASU 2025-10 is effective for fiscal years beginning after December 15, 2028, including interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2025-10.