What changed in this filing

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Item 9A. Controls and Procedures

2025-03-10 compared with 2024-03-15 · 42 added, 65 removed, 151 unchanged (41% of the section changed)

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Pursuant to Rules 13a-15(b) and 15d-15(b) under the Securities Exchange Act, we have evaluated, under the supervision and with the participation of our management, including our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act as of the end of the period covered by this report.

Based on that evaluation, our CEO and CFO concluded that, as of December 31, 2023, due to the material weaknesses in our internal control over financial reporting described below, our disclosure controls and procedures were not effective to ensure that the information required to be disclosed in the reports required to be filed or submitted under the Securities Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Based on that evaluation, our CEO and CFO concluded that, as of December 31, 2024, due to the material weaknesses in our internal control over financial reporting described below, our disclosure controls and procedures were not effective to ensure that the information required to be disclosed in the reports required to be filed or submitted under the Securities Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in

the SEC’s rules and forms, and (ii) accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control over Financial Reporting

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These material weaknesses contributed to the following additional material weaknesses:

• We did not design and maintain effective controls to timely analyze and record the financial statement effects from complex, non-routine transactions, including acquisitions, dispositions, and post-combination compensation arrangements.

Specifically, we did not design and maintain effective controls over the application of US GAAP to such transactions, and, as it relates to acquisitions, did not design and maintain effective controls over (i) the review of the inputs and assumptions used in the measurement of assets acquired and liabilities assumed, including discounted cash flow analysis to value acquired intangible assets at an appropriate level of precision, (ii) the tax impacts of acquisitions to the financial statements, and (iii)

conforming of US GAAP and accounting policies of acquired entities to that of the Company.

In addition, we did not design and maintain effective controls relating to the oversight and ongoing recording of the financial statement results of the acquired businesses.

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Additionally, we did not design and maintain controls over the classification and presentation of accounts and disclosures in the consolidated financial statements, including the statement of cash flows.

• We did not design and maintain effective controls over accounting for accrued liabilities, stock-based compensation and equity transactions, including accounting for non-controlling interest.

• We did not design and maintain effective controls over the accuracy and valuation of goodwill, including the allocation of goodwill to reporting units and the identification and measurement of goodwill impairment.

These material weaknesses resulted in the restatement of the Company's condensed consolidated financial statements:

as of March 31, 2022 and for the predecessor period from January 1, 2022 to January 26, 2022 and for the successor period from January 27, 2022 to March 31, 2022;

as of June 30, 2022 and the predecessor period from January 1, 2022 to January 26, 2022 and the successor periods for the three months ended June 30, 2022 and from January 27, 2022 to June 30, 2022;

and as of September 30, 2022 and for the predecessor period from January 1, 2022 to January 26, 2022 and the successor periods for the three months ended September 30, 2022 and from January 27, 2022 to September 30, 2022.

These material weaknesses also resulted in immaterial misstatements to substantially all of the S1 Holdco, LLC accounts, which were recorded prior to the issuance of the consolidated financial statements as of December 31, 2021, 2020, 2019 and 2018 and for the years then ended;

as of March 31, 2021 and 2020 and for the three-month periods then ended;

as of June 30, 2021 and 2020 and for the six-month periods then ended;

and as of September 30, 2021 and 2020 and for the nine-month periods then ended.

These material weaknesses also resulted in the revision to the consolidated financial statements for the period from January 27, 2022 to December 31, 2022 and each of the three quarterly periods in the years ended December 31, 2022 and 2023.

• We did not design and maintain effective controls over the accounting for complex financial instruments, including the impact of these instruments on earnings per share.

This material weakness also resulted in a material misstatement of the Trebia warrant liabilities, change in the fair value of the Trebia warrant liabilities, forward purchase agreement liabilities, change in the fair value of the forward purchase agreement liabilities, classification of redeemable shares of Class A common stock issued in connection with Trebia’s initial public offering, additional paid-in-capital, accumulated deficit, Earnings Per Share, and related financial disclosures of Trebia Acquisition Corp.

as of December 31, 2020 and for the period from February 11, 2020 (inception) through December 31, 2020, as of September 30, 2020 and for three month period ended September 30, 2020 and for the period from February 11, 2020 (inception) through September 30, 2020, as of June 30, 2020 and for three month period ended June 30, 2020 and for the period from February 11, 2020 (inception) through June 30, 2020, as of March 31, 2021 and for three month period ended March 31, 2021.

This material weakness also resulted in material adjustments relating to the Trebia forward purchase agreement liabilities and repurchases of common stock impacting the accumulated deficit and additional paid-in capital in the opening balance sheet as of January 27, 2022 and the earnings per share computations for the quarter ended June 30, 2022 of the Company.

Additionally, these material weaknesses could result in a misstatement of substantially all of our accounts or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.

• We did not design and maintain effective controls over information technology (“IT”) general controls for information systems that are relevant to the preparation of our financial statements.

Specifically, we did not design and maintain:

program change management controls to ensure that IT program and data changes affecting financial IT applications and underlying accounting records are identified, tested, authorized, and implemented appropriately;

user access controls to ensure appropriate segregation of duties and that adequately restrict user and privileged access to financial applications, programs, and data to appropriate Company personnel;

computer operations controls to ensure that critical batch jobs are monitored and data backups are authorized and monitored;

testing and approval controls for program development to ensure that new software development is aligned with business and IT requirements.

These IT deficiencies did not result in a material misstatement to the financial statements;

however, the deficiencies, when aggregated, could impact the effectiveness of IT-dependent controls (such as automated controls that address the risk of material misstatement to one or more assertions, along with the IT controls and underlying data that support the effectiveness of system-generated data and reports) that could result in misstatements potentially impacting all financial statement accounts and disclosures that would not be prevented or detected.

Accordingly, we have determined these IT deficiencies in the aggregate constitute a material weakness.

This Annual Report does not include an attestation report of the Company’s independent registered public accounting firm due to a transition period established by SEC rules and regulations for newly public companies.

We are not required to have, or to engage our independent registered public accounting firm to perform, an audit of the effectiveness of our internal controls over financial reporting for as long as we are an “emerging growth company” pursuant to the provisions of the JOBS Act.

are not required to have, or to engage our independent registered public accounting firm to perform, an audit of the effectiveness of our internal controls over financial reporting for as long as we are an "emerging growth company" pursuant to the provisions of the JOBS Act.

Remediation plan for the material weaknesses

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Our efforts include a number of actions:

• Assessing the need of additional senior level accounting personnel with applicable technical accounting knowledge, training, and experience in accounting matters, and hiring the appropriately skilled resources, supplemented by third-party resources;

• Assessed the need of additional senior level accounting personnel with applicable technical accounting knowledge, training, and experience in accounting matters, and hired the appropriately skilled resources.

• Designing and implementing controls to formalize roles and review responsibilities to align with our team’s skills and experience and designing and implementing controls ensuring segregation of duties;

• Engaged an accounting advisory firm to assist with the documentation, evaluation, remediation and testing of our internal control over financial reporting based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission;

• Engaged third-party specialists to assist with the preparation of technical accounting analyses and valuations associated with business combinations, and ensuring adequate review by accounting personnel with applicable technical accounting knowledge, training, and experience in accounting for business combinations or dispositions;

• Designing and implementing controls to address the financial reporting risks over the accounting for dispositions, acquisitions and other complex, non-routine transactions, including controls over the preparation and review of accounting memoranda addressing these matters, valuations and key assumptions utilized in the valuations, tax impacts, and ongoing recording of the financial statement results of the acquired businesses;

• Designing and implementing controls to address the financial reporting risks over the accounting for dispositions, acquisitions and other complex, non-routine transactions, including controls over the preparation and review of accounting memoranda addressing these matters, valuations and key assumptions utilized in the valuations, allocation of goodwill reporting units, tax impacts, and ongoing recording of the financial statement results of the acquired businesses;

• Designing and implementing formal accounting policies with periodic reviews, procedures and controls supporting our period-end financial reporting process, including controls over the preparation and review of account reconciliations and journal entries, business performance reviews, foreign exchange gains/losses for intercompany transactions, appropriate determination of asset groups for impairment consideration and classification and presentation of accounts and disclosures, including the statement of cash flows.

• Designing and implementing controls to address the financial reporting risks over accrued liabilities, stock-based compensation and equity transactions, including accounting for non-controlling interest;

• Designing and implementing controls to address the financial reporting risks over the accounting for complex financial instruments, including the earnings per share impacts;

• Designing and implementing controls to address the financial reporting risks over the accuracy and valuation of goodwill, including the allocation of goodwill to reporting units and the identification and measurement of goodwill impairment;

• Designing and implementing IT general controls, including controls over change management, the review and update of user access rights and privileges, controls over batch jobs and data backups, and program development approvals and testing.

We believe the measures described above will facilitate the remediation of the material weaknesses we have identified and will strengthen our internal control over financial reporting.

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Changes in Internal Control over Financial Reporting

There have been changes to our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the three months ended December 31, 2023 which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

On November 30, 2023, we completed the sale of Protected, our subscription reporting unit.

As such, the scope of our remediation plans will no longer include Protected.

Throughout the year ended December 31, 2024, the Company undertook remediation measures related to certain previously reported material weaknesses in internal control over financial reporting.

We completed these remediation measures in the quarter ended December 31, 2024, including testing of the design and concluding on the operating effectiveness of the related controls.

Specifically, we undertook the following remediation measures:

We enhanced the design of controls over accounting for accrued liabilities, stock-based compensation and equity transactions, including accounting for non-controlling interest.

The enhanced controls have operated for a sufficient period of time in order for management to conclude, through testing, that these controls are designed and operating effectively.

We enhanced the design of controls over the accuracy and valuation of goodwill, including the identification and measurement of goodwill impairment.

The enhanced controls have operated for a sufficient period of time in order for management to conclude, through testing, that these controls are designed and operating effectively.

We enhanced the design of controls over the accounting for warrants, including the impact of these instruments on earnings per share.

The enhanced controls have operated for a sufficient period of time in order for management to conclude, through testing, that these controls are designed and operating effectively.

We enhanced the design of controls over all information technology (“IT”) general controls for information systems that are relevant to the preparation of our financial statements.

The enhanced controls have operated for a sufficient period of time in order for management to conclude, through testing, that these controls are designed and operating effectively.

Based on these procedures, we believe that the previously reported material weaknesses related to the above items have been remediated.

However, completion of remediation procedures for these material weaknesses does not provide assurance that our modified controls will continue to operate properly or that our financial statements will be free from error.

We continue to undertake remediation measures related to the remaining material weaknesses disclosed in the Management’s Report on Internal Control over Financial Reporting section above.

Other than the changes disclosed above, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the period covered by this Annual Report on Form 10-K that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Other Information.

Rule 10b5-1 Trading Plans

In the quarter ended December 31, 2023, trusts established for the benefit of our co-founders' families, which include Michael Blend (also our Chief Executive Officer ) and Charles Ursini , each entered into a trading plan intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Securities Exchange Act of 1934, as amended.

The trading plan entered into by the trust established for the benefit of Mr.

Blend provides for the purchase of an aggregate of $ 2.0 million worth of shares of our Class A common stock during the duration of the plan, which will terminate on July 15, 2024, subject to early termination for certain specified events set forth in the plan.

The trading plan entered into by the trust established for the benefit of Mr.

Ursini provides for the purchase of an aggregate of $ 3.0 million worth of shares of our Class A common stock during the duration of the plan, which will terminate on July 15, 2024, subject to early termination for certain specified events set forth in the plan.

In the quarter ended December 31, 2023 , trusts established for the benefit of our co-founders' families each entered into a trading plan intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Securities Exchange Act of 1934, as amended.

The trading plan entered into by the trust established for the benefit of our Chief Executive Officer provides for the purchase of an aggregate of $ 2.0 million worth of shares of our Class A common stock during the duration of the plan, which was to terminate on July 15, 2024 , subject to early termination for certain specified events set forth in the plan.

The plan was terminated during the second quarter of 2024.

The trading plan entered into by the trust established for the benefit of our Chief Operating Officer provides for the purchase of an aggregate of $ 3.0 million worth of shares of our Class A common stock during the duration of the plan, which was to terminate on July 15, 2024 , subject to early termination for certain specified events set forth in the plan.

The plan was terminated according to the dates in the plan.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

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Consolidated Financial Statements

Refer to Index to Consolidated Financial Statements in “ Item 8.

Financial Statements and Supplementary Data ” herein.

See Index to Consolidated Financial Statements in Part II, Item 8 "Financial Statements and Supplementary Data" herein.

Financial Statement Schedules

No financial statement schedules are provided because the information called for is not required or is shown in the financial statements of the notes thereto.

No financial statement schedules are provided because the information called for is not required or is shown in the consolidated financial statements of the notes thereto.

Exhibits required to be filed as part of this report are:

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8-K 001-39331 3.1 3/1/2023

Amendment to the System1, Inc.

Certificate of Incorporation

4.1 Warrant Agreement, dated June 19, 2020, by and between Trebia Acquisition Corp.

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10-K 001-39331 10.7 6/6/2023

10.8 Amended and Restated Revolving Note, dated May 16, 2023, by and among Orchid Merger Sub II, LLC, Lone Star Friends Trust and CEE Holding Trust .

10-K 001-39331 10.8 6/6/2023

Registration Rights Agreement, dated January 27, 2022, by and among System1, Inc.

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8-K 001-39331 10.1 12/4/2023

10.20 Revolving Note, dated April 10, 2023, by and among Lone Star Friends Trust, CEE Holding Trust, and Orchid Merger Sub II, LLC

8-K 001-39331 10.1 4/12/2023

10.21 Senior Unsecured Promissory Note, dated September 6, 2023, by and between System1 OpCo, LLC and Marc Mezzacca

8-K 001-39331 10.1 9/12/2023

10.22 Term Loan Note, dated October 6, 2023, by and between Openmail2, LLC and Orchid Merger Sub II, LLC

8-K 001-39331 10.1 10/12/2023

10.23 Secured Facility Agreement, dated October 6, 2023, by and among Onyx Asset Finance Limited and Total Security Limited

8-K 001-39331 10.2 10/12/2023

10.24 Debenture relating to Total Security Limited, dated October 6, 2023, by and among Total Security Limited and Onyx Asset Finance Limited

8-K 001-39331 10.3 10/12/2023

10.25 Receivables Purchase Agreement, dated November 8, 2023, between System1 OpCo LLC (and its wholly-owned subsidiaries signatory thereto) and OAREX Funding, LLC

10-Q 001-39331 10.6 11/9/2023

System1, Inc.

2024 Stock Appreciation Rights Plan

First Amendment to System1, Inc.

2024 Stock Appreciation Rights Plan

Letter of PricewaterhouseCoopers LLP dated June 7, 2024

Insider Trading Policy

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23.1 Consent of PricewaterhouseCoopers LLP

(predecessor)

23.2 Consent of PricewaterhouseCoopers LLP.

23.2 Consent of Deloitte & Touche LLP

31.1* Certification of principal executive officer pursuant to Rules 13a-15(e) and 15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

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(Principal Executive Officer)

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Michael Blend and Trividesh Kidambi, jointly and severally, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming that all said attorneys-in-fact and agents, or any of them or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Michael Blend and Tridivesh Kidambi, jointly and severally, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming that all said attorneys-in-fact and agents, or any of them or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities held on the dates indicated.

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Jennifer Prince

/s/ Charles Ursini Director March 10, 2025

Charles Ursini

/s/ Ryan Caswell

Director March 10, 2025

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures