What changed in this filing

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Item 1. Financial Statements

2025-11-05 compared with 2025-08-07 · 128 added, 95 removed, 410 unchanged (35% of the section changed)

4 unchanged sentences

(In thousands, except par value)

June 30, 2025 December 31, 2024

September 30, 2025 December 31, 2024

Current assets:

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Class A common stock $ 0.0001 par value;

500,000 shares authorized, 8,011 and 7,365 Class A shares issued and outstanding as of June 30, 2025 and December 31, 2024, respectively

500,000 shares authorized, 8,100 and 7,365 Class A shares issued and outstanding as of September 30, 2025 and December 31, 2024, respectively

Class C common stock $ 0.0001 par value;

25,000 shares authorized, 1,869 and 1,870 Class C shares issued and outstanding as of June 30, 2025 and December 31, 2024, respectively

25,000 shares authorized, 1,869 and 1,870 Class C shares issued and outstanding as of September 30, 2025 and December 31, 2024, respectively

Additional paid-in capital 877,108 863,041

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(In thousands, except for per share amounts)

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2025 2024 2025 2024

10 unchanged sentences

Change in fair value of warrant liabilities ( 71 ) 281 29 ( 1,471 )

Total other expense (income), net 7,184 5,937 14,301 ( 6,020 )

Total other expense, net 6,981 8,238 21,282 2,218

Loss before income tax ( 22,546 ) ( 30,054 ) ( 65,878 ) ( 78,916 )

Income tax benefit ( 1,547 ) ( 178 ) ( 1,934 ) ( 226 )

Income tax (benefit) expense ( 543 ) 585 ( 2,477 ) 359

Net loss ( 22,003 ) ( 30,639 ) ( 63,401 ) ( 79,275 )

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(In thousands)

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2025 2024 2025 2024

Net loss $ ( 22,003 ) $ ( 30,639 ) $ ( 63,401 ) $ ( 79,275 )

Other comprehensive income (loss):

Foreign currency translation income (loss) 369 ( 96 ) 382 ( 231 )

Other comprehensive (loss) income:

Foreign currency translation (loss) income ( 119 ) ( 44 ) 263 ( 275 )

Comprehensive loss ( 22,122 ) ( 30,683 ) ( 63,138 ) ( 79,550 )

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Balance at June 30, 2025 8,011 $ 1 1,869 $ — $ 874,008 $ ( 815,680 ) $ ( 133 ) $ ( 4,752 ) $ 53,444

Net loss — — — — — ( 18,516 ) — ( 3,487 ) ( 22,003 )

Issuance of restricted stock, net of forfeitures and shares withheld for taxes 89 — — — 149 — — ( 162 ) ( 13 )

Other comprehensive loss — — — — — — ( 97 ) ( 22 ) ( 119 )

Stock-based compensation — — — — 2,951 — — — 2,951

Balance at September 30, 2025 8,100 $ 1 1,869 $ — $ 877,108 $ ( 834,196 ) $ ( 230 ) $ ( 8,423 ) $ 34,260

System1, Inc.

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Balance at June 30, 2024 6,925 $ 1 2,120 $ — $ 854,278 $ ( 744,572 ) $ ( 295 ) $ 19,867 $ 129,279

Net loss — — — — — ( 23,602 ) — ( 7,037 ) ( 30,639 )

Issuance of restricted stock, net of forfeitures and shares withheld for taxes 121 — — — 288 — — ( 308 ) ( 20 )

Other comprehensive loss — — — — — — 33 ( 77 ) ( 44 )

Stock-based compensation — — — — 4,182 — — 88 4,270

Balance at September 30, 2024 7,046 $ 1 2,120 $ — $ 858,748 $ ( 768,174 ) $ ( 262 ) $ 12,533 $ 102,846

The accompanying notes are an integral part of these condensed consolidated financial statements.

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(In thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash Flows from Operating Activities

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System1, Inc.

and subsidiaries (the "Company", "we", "our" or "us") operate an omnichannel customer acquisition platform, delivering high-intent customers to brands, advertisers and publishers.

and subsidiaries (the "Company", "we", "our" or "us") operates several flagship brands across multiple consumer verticals, including shopping, travel and search, and a best-in-class customer acquisition and marketing platform powered by AI and machine learning.

The Company's platform is omnichannel and omnivertical, delivering high-intent customers to its advertising partners to maximize their reach and effectiveness.

We provide our omnichannel customer acquisition platform services through our proprietary responsive acquisition marketing platform ("RAMP").

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On August 1, 2024, we undertook a corporate reorganization, the result of which was that all of the assets and business operations of the company are now held by System1 Holdings, LLC ("System1 Holdings"), a newly formed intermediate holding company of which we maintain the controlling interest and in which the non-controlling interest is owned by the holders of our Class C common stock.

Following the corporate reorganization, (a) System1 Holdings now owns 100 % of S1 Holdco, LLC ("S1 Holdco"), the previous intermediate holding company with the non-controlling interests, and 100 % of S1 Media, LLC ("S1 Media"), another new subsidiary formed in connection with the corporate reorganization, (b) S1 Media holds the assets and business operations associated with our Products businesses, which include CouponFollow, Startpage and Mapquest, and (c) S1 Holdco holds our remaining assets and business operations associated with our Marketing businesses, including our proprietary RAMP platform.

Following the corporate reorganization, (a) System1 Holdings now owns 100 % of S1 Holdco, LLC ("S1 Holdco"), the previous intermediate holding company with the non-controlling interests, and 100 % of S1 Media, LLC ("S1 Media"), another new subsidiary formed in connection with the corporate reorganization, (b) S1 Media holds the assets and business operations associated with our Products businesses, which include CouponFollow, Startpage and MapQuest, and (c) S1 Holdco holds our assets related to our Marketing businesses.

System1 Holdings holds our remaining assets and business operations.

S1 Holdco and its subsidiaries remain obligors and guarantors under our Term Loan and 2022 Revolving Facility, and System1 Holdings and S1 Media are not parties thereto.

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In our opinion, the condensed consolidated financial statements include all adjustments of a normal recurring nature necessary for the fair statement of our financial position, results of operations, and cash flows.

The results of operations for the three and six months ended June 30, 2025 are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2025 or future operating periods.

The results of operations for the three and nine months ended September 30, 2025 are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2025 or future operating periods.

There have been no changes to our significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024 that have had a material impact on our condensed consolidated financial statements and related notes.

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Notes to Condensed Consolidated Financial Statements (Unaudited)

On June 10, 2025, we filed a certificate of amendment (the "Reverse Stock Split Amendment") to our Amended and Restated Certificate of Incorporation with the Secretary of State of Delaware to effect a 1-for-10 reverse stock split of the Class A and Class C common stock and warrants (the "Reverse Stock Split"), which became effective at 5:01 p.m.

Eastern Time on June 11, 2025.

The Reverse Stock Split Amendment does not reduce the number of authorized shares of Class A and Class C common stock which remains at 500,000,000 and 25,000,000 , respectively, and does not change the par value of the common stock, which remains at $ 0.0001 per share.

Additionally, our outstanding equity-based awards and other outstanding equity rights were proportionately adjusted.

No fractional shares were issued in connection with the Reverse Stock Split.

The Reverse Stock Split was effective for purposes of trading on the New York Stock Exchange as of the opening of business on June 12, 2025.

On June 10, 2025, we filed a certificate of amendment to our Amended and Restated Certificate of Incorporation with the Secretary of State of Delaware to effect a 1-for-10 reverse stock split of the Class A and Class C common stock (the "Reverse Stock Split").

The Reverse Stock Split does not reduce the number of authorized shares of Class A and Class C common stock which remains at 500,000,000 and 25,000,000 , respectively, and does not change the par value of the common stock, which remains at $ 0.0001 per share.

Accordingly, all share and per share amounts of common stock for all periods presented in these unaudited condensed consolidated financial statements and related notes have been retroactively adjusted to give effect to the Reverse Stock Split.

As of December 31, 2024 , the Company had outstanding warrants classified as a liability.

These warrants were measured at fair value using Level 1 inputs based on quoted market prices in active markets.

During the quarter ended June 30, 2025, the fair value measurement of the warrants changed from Level 1 to Level 3 due to the delisting of the warrants from an exchange and lack of observable inputs.

Use of Estimates

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On an ongoing basis, management evaluates our estimates compared to historical experience and trends, which form the basis for making judgments about the carrying value of assets and liabilities.

As of December 31, 2024 , the Company had outstanding warrants classified as a liability.

These warrants were measured at fair value using Level 1 inputs based on quoted market prices in active markets.

During the quarter ended September 30, 2025, the fair value measurement of the warrants changed from Level 1 to Level 3 due to the delisting of the warrants from an exchange and lack of observable inputs.

We are subject to certain business and operational risks, including competition from alternative technologies, as well as dependence on key Advertising Partners, key employees, key contracts, and growth to achieve our business and operational objectives.

Concentrations

As of June 30, 2025, we had two paid search advertising partnership agreements with Google, and one paid search advertising partnership agreement with Microsoft.

As of September 30, 2025, we had two paid search advertising partnership agreements with Google, and one paid search advertising partnership agreement with Microsoft.

The Google agreements are in effect through February 28, 2027 and September 30, 2027 .

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Improvements to Income Tax Disclosures (ASU 2023-09), which improves the transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information in the effective tax rate reconciliation and income taxes paid disaggregated by jurisdiction.

It also includes certain other amendments to

System1, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

improve the effectiveness of income tax disclosures.

It also includes certain other amendments to improve the effectiveness of income tax disclosures.

This guidance will be effective for the annual periods beginning with the year ending December 31, 2025.

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Upon adoption, the guidance can be applied prospectively or retrospectively.

We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

We do not expect the adoption of this guidance to have a material impact on our condensed consolidated financial statements.

System1, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

In November 2024, the Financial Accounting Standards Board issued ASU No.

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Upon adoption, the guidance can be applied prospectively or retrospectively.

We are evaluating the effect that this guidance will have on our consolidated financial statements and related disclosures.

We are evaluating the effect that this guidance will have on our condensed consolidated financial statements and related disclosures.

In September 2025, the Financial Accounting Standards Board issued ASU No.

2025-06, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40):

Targeted Improvements to the Accounting for Internal-Use Softwa re, which amends certain aspects of the accounting for and disclosure of software costs.

This guidance will be effective for the annual periods beginning with the year ending December 31, 2028 and interim periods during the year ending December 31, 2028.

Early adoption is permitted.

Upon adoption, the guidance can be applied prospectively or retrospectively.

We are evaluating the effect that this guidance will have on our condensed consolidated financial statements and related disclosures.

Goodwill, Internal-Use Software Development Costs, Net, and Intangible Assets, Net

Goodwill was $ 82.4 million as of June 30, 2025 and December 31, 2024, all of which is attributable to the Partner Network reporting unit.

Goodwill was $ 82.4 million as of September 30, 2025 and December 31, 2024, all of which is attributable to the Partner Network reporting unit.

In the second quarter of fiscal year 2025, as a result of organizational restructuring, the Company changed its identified segments and determined there are now two operating and reportable segments, Marketing and Products.

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No impairment of goodwill was recognized in any of the periods presented.

If revenue and gross profit performance deteriorate further, is it possible that there could be impairment of Goodwill and Intangible Assets in future periods in the Partner Network reporting unit.

Internal-use Software Development Costs, Net and Intangible Assets, Net

Internal-use software development costs and intangible assets consisted of the following (in thousands):

June 30, 2025

Gross Carrying Amount Accumulated Amortization Net Carrying Amount

September 30, 2025

Gross Carrying Amount

Accumulated Amortization

Net Carrying Amount

Internal-use software development costs

$ 26,534 $ ( 12,364 ) $ 14,170

Intangible assets:

Developed technology

$ 196,403 $ ( 180,344 ) $ 16,059

Trademarks and trade names

Software 5,100 ( 4,253 ) 847

236,053 ( 86,350 ) 149,703

5,100 ( 4,572 ) 528

Customer relationships

Total $ 440,456 $ ( 255,116 ) $ 185,340

2,900 ( 2,476 ) 424

$ 440,456 $ ( 273,742 ) $ 166,714

System1, Inc.

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Total $ 440,181 $ ( 217,840 ) $ 222,341

The internal-use software development costs include work in progress which is not being amortized of $ 2.7 million and $ 5.0 million as of June 30, 2025 and December 31, 2024 , respectively.

The internal-use software development costs include work in progress which is not being amortized of $ 2.2 million and $ 5.0 million as of September 30, 2025 and December 31, 2024 , respectively.

Amortization expense for internal-use software development costs and intangible assets were as follows (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2025 2024 2025 2024

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Amortization expense was presented as follows in the Statements of Operations (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2025 2024 2025 2024

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No impairment of internal-use software development cost or intangible assets was recognized for any of the periods presented.

System1, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):

June 30, 2025 December 31, 2024

September 30, 2025 December 31, 2024

Accrued revenue share $ 21,307 $ 27,656

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Shared-based compensation liability 12,514 17,821

Advertising partner liability 5,494 —

Other current liabilities 3,558 5,390

Accrued expenses and other current liabilities $ 54,255 $ 76,200

System1, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

CouponFollow Incentive Plan

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The carrying amount of the share-based liabilities approximates its fair value, which is determined using Level 3 inputs under the fair value hierarchy.

For the three and six months ended June 30, 2025, we recognized $ 0.8 million and $ 1.6 million in share-based compensation expense within salaries and benefits expenses on the condensed consolidated statements of operations for the performance-based portion of the awards under the CouponFollow Incentive Plan, respectively.

As of June 30, 2025, the remaining share-based compensation expense to be recognized in 2025 is $ 1.8 million.

For the three and nine months ended September 30, 2025, we recognized $ 0.9 million and $ 2.5 million in salaries and benefits expenses on the condensed consolidated statements of operations for the performance-based portion of the awards under the CouponFollow Incentive Plan, respectively.

As of September 30, 2025, the remaining share-based compensation expense to be recognized in 2025 is $ 0.9 million.

We entered into a term loan ("Term Loan") and revolving facility ("2022 Revolving Facility") with Bank of America, N.A., on January 27, 2022, providing for a 5.5 -year term loan with a principal balance of $ 400.0 million and with the net proceeds of $ 376.0 million .

The 2022 Revolving Facility provided for borrowing availability of up to $ 50.0 million .

As of June 30, 2025 , principal of $ 270.1 million was outstanding on the Term Loan and there was no balance outstanding on the 2022 Revolving Facility.

As of September 30, 2025 , principal of $ 265.1 million was outstanding on the Term Loan and there was no balance outstanding on the 2022 Revolving Facility.

Through December 31, 2025, $ 5.0 million of the Term Loan is payable quarterly.

From March 31, 2026, $ 7.5 million of the Term Loan is payable quarterly.

The Term Loan matures in 2027.

The Term Loan matures in July 2027.

For every interest period, the interest rate on the Term Loan is the adjusted Secured Overnight Financing Rate ("SOFR") plus 4.75 %.

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Should we fail to distribute the financial statements to our lender within 120 days, we are allowed an additional 30 days to cure.

We were in compliance with the financial covenants under the Term Loan as of June 30, 2025.

We were in compliance with the financial covenants under the Term Loan as of September 30, 2025.

The interest rate on the 2022 Revolving Facility is the adjusted SOFR plus 2.5 % with an adjusted SOFR floor of 0 %.

As of June 30, 2025 and December 31, 2024, respectively, we had $ 50.0 million available on the 2022 Revolving Facility.

During 2024, we completed the repurchase of $ 64.9 million in principal amount of our Term Loan for an aggregate purchase price of $ 41.6 million (at an average discount of 64.1 % of its par value) pursuant to a Dutch auction tender offer and a privately negotiated repurchase transaction.

Following the repurchases on January 17, 2024 and April 30, 2024, the outstanding principal amount of the Term Loan was $ 301.3 million and $ 295.0 million, respectively.

We used available cash on hand to fund the repurchase.

Our aggregate gain on the repurchase during 2024 was $ 20.1 million before fees and expenses incurred to negotiate, document and consummate the repurchase.

As of September 30, 2025 and December 31, 2024, respectively, we had $ 50.0 million available on the 2022 Revolving Facility.

System1, Inc.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements (Unaudited)

We used available cash on hand to fund the repurchase.

Our aggregate gain on the repurchase during 2024 was $ 20.1 million before fees and expenses incurred to negotiate, document and consummate the repurchase.

The carrying values of our debt, net of discounts, deferred financing and debt issuance costs were as follows (in thousands):

June 30, 2025 December 31, 2024

September 30, 2025 December 31, 2024

Term Loan 1, 2

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_______________

1 Includes unamortized discount of $ 6.4 million and $ 8.1 million and unamortized loan fees of $ 0.4 million and $ 0.4 million, as of June 30, 2025 and December 31, 2024, respectively, recorded as a reduction of the carrying amount of the debt and amortized to interest expense using the effective interest method.

2 Estimated fair value of the Term Loan was $ 139.1 million as of June 30, 2025.

1 Includes unamortized discount of $ 5.6 million and $ 8.1 million and unamortized loan fees of $ 0.3 million and $ 0.4 million, as of September 30, 2025 and December 31, 2024, respectively, recorded as a reduction of the carrying amount of the debt and amortized to interest expense using the effective interest method.

2 Estimated fair value of the Term Loan was $ 129.2 million as of September 30, 2025.

During 2023 and through July 31, 2024, we were the sole managing member of S1 Holdco and, as a result, consolidated the financial results of S1 Holdco .

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federal income taxes, in addition to state and local income taxes with respect to its allocable share of any taxable income or loss of System1 Holdings, as well as any stand-alone income or loss generated by us.

We recorded an income tax benefit of $ 1.5 million and $ 1.9 million for the three and six months ended June 30, 2025, respectively and a $ 0.2 million and $ 0.2 million income tax benefit for the three and six months ended June 30, 2024.

The effective tax rate was 6.7 % and 4.5 % for the three and six months ended June 30, 2025, respectively and 0.5 % and 0.4 % three and six months ended June 30, 2024, respectively.

We recorded an income tax benefit of $ 0.5 million and $ 2.5 million for the three and nine months ended September 30, 2025, respectively and an income tax expense of $ 0.6 million and $ 0.4 million for the three and nine months ended September 30, 2024.

The effective tax rate was 2.4 % and 3.7 % for the three and nine months ended September 30, 2025, respectively and ( 1.9 )% and ( 0.5 )% for the three and nine months ended September 30, 2024, respectively.

The provision for income taxes differs from the amount of income tax computed by applying the U.S.

statutory federal tax rate of 21% to the loss before income taxes due to the exclusion of non-controlling loss, state taxes, foreign rate differential, non-deductible expenses, increase to the valuation allowance related to unrealizable deferred tax assets, and outside basis adjustments.

As of June 30, 2025 , we had a full valuation allowance on our U.S.

As of September 30, 2025 , we had a full valuation allowance on our U.S.

federal and state net deferred tax assets as it was more likely than not that those deferred tax assets would not be realized.

During the three and six months ended June 30, 2025 and 2024 , inclusive of interest, no payments were made to the parties to the Tax Receivable Agreement.

The total amount of Tax Receivable Agreement Payments due under the Tax Receivable Agreement was $ 5.3 million as of June 30, 2025 and December 31, 2024 .

On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act ("OBBBA").

The OBBBA makes permanent key elements of the Tax Cuts and Jobs Act, including 100% bonus depreciation, domestic research cost expensing, and the business interest expense limitation.

We are currently assessing its impact on our consolidated financial statements.

During the three and nine months ended September 30, 2025 and 2024 , inclusive of interest, no payments were made to the parties to the Tax Receivable Agreement.

The total amount of Tax Receivable Agreement

System1, Inc.

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Notes to Condensed Consolidated Financial Statements (Unaudited)

Payments due under the Tax Receivable Agreement was $ 5.3 million as of September 30, 2025 and December 31, 2024 .

On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act ("OBBBA").

The OBBBA makes permanent key elements of the Tax Cuts and Jobs Act, including 100% bonus depreciation, domestic research cost expensing, and the business interest expense limitation.

The Company does not expect these tax law changes to have a material impact on the Company's financial statements;

however, the Company will continue to evaluate their impact as further information becomes available.

Commitments and Contingencies

In June 2023, we entered into a multi-year agreement with a service provider whereby we are contractually obligated to spend $ 5.0 million in each annual period between July 2023 and June 2026.

As of June 30, 2025, we remain contractually obligated to spend $ 5.0 million towards this commitment.

As of June 30, 2025, we had various non-cancelable operating lease commitments for office space which have been recorded as Operating lease liabilities.

As of September 30, 2025, we remain contractually obligated to spend $ 3.4 million towards this commitment.

As of September 30, 2025, we had various non-cancelable operating lease commitments for office space which have been recorded as Operating lease liabilities.

We are subject to various legal proceedings and claims that arise in the ordinary course of business.

We believe the ultimate liability, if any, with respect to these actions will not materially affect the consolidated financial position, results of operations, or cash flows reflected in the condensed consolidated financial statements as of June 30, 2025.

There can be no assurance, however, that the ultimate resolution of such actions will not materially or adversely affect our consolidated financial position, results of operations, or cash flows.

We accrue for losses when the loss is deemed probable and the liability can reasonably be estimated.

In September 2025, certain lenders (the "Lenders") under the Company’s Credit Agreement, dated January 27, 2022 (the "Credit Agreement"), filed a lawsuit in the Supreme Court of the State of New York (the "New York Loan Matter") alleging (i) breach of contract against certain named subsidiaries of the Company that are parties to the Credit Agreement related to the corporate reorganization transactions undertaken by the Company in August 2024 to better align its corporate entity structure with its reportable business segments (the "Corporate Reorg Transactions"), (ii) both intentional fraudulent transfer and constructive fraudulent transfer against certain named subsidiaries of the Company, including certain subsidiaries that are parties to the Credit Agreement, related to certain steps that such defendants undertook in connection with certain transactions undertaken by the Company related to the sale of its Total Security business in November 2023 (the "Total Security Transactions") and (iii) both intentional fraudulent transfer and constructive fraudulent transfer against certain named subsidiaries of the Company, including certain subsidiaries that are parties to the Credit Agreement, related to certain steps that such defendants undertook in connection with the Corporate Reorg Transactions.

Concurrently with the filing of the New York Loan Matter, the same Lenders under the Company’s Credit Agreement filed a lawsuit in California Superior Court (Los Angeles County) (the "California Matter" and, together with the New York Loan Matter, the "Creditor Lawsuits") alleging intentional and constructive fraudulent transfer against Openmail2, LLC, an entity controlled by the Company’s co-founders ("Openmail2") and certain trusts established for the benefit of the co-founders families (the "Co-founder Trusts") which are significant shareholders of the Company in connection with certain arm’s-length negotiated loans that Openmail2 and the Co-founder Trusts extended to certain subsidiaries of the Company in fiscal year 2023 (the "Affiliate Loans") and which were repaid with a portion of the proceeds of the Total Security sale.

The Company subsidiaries that were parties to the Affiliate Loans agreed to indemnify Openmail2 and the Co-founder Trusts for any third-party claims asserted against such parties in connection with extending the Affiliate Loans.

The Lenders are consolidating the Creditor Lawsuits into a single matter in New York since the Lawsuits principally relate to the same allegations and underlying transactions.

The Company disputes all of the allegations set forth in the Creditor Lawsuits, denies any liability related thereto and intends to defend itself vigorously against the allegations and claims set forth therein.

The Company has not accrued a loss related to the Creditor Lawsuits, as a loss is not currently probable and a loss, or range of loss, is not reasonably estimable.

System1, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

Indemnifications

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As a result, we believe the estimated fair value of these agreements was immaterial.

Accordingly, we have no liabilities recorded for these agreements as of June 30, 2025 or December 31, 2024, respectively .

Accordingly, we have no liabilities recorded for these agreements as of September 30, 2025 or December 31, 2024, respectively .

Net Loss Per Share

For the three and six months ended June 30, 2025 and 2024, basic net loss per share was calculated by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding.

For the three and nine months ended September 30, 2025 and 2024, basic net loss per share was calculated by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding.

Basic and diluted net loss per share was calculated as follows (in thousands, except per share data) :

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2025 2024 2025 2024

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Weighted-average common shares outstanding used in computing basic and diluted net loss per share 8,054 7,005 7,773 6,907

Shares of Class C common stock, restricted stock units, Stock Appreciation Rights ("SARs") and warrants outstanding for the three and six months ended June 30, 2025 and 2024, are considered potentially dilutive to the shares of Class A common stock and are included in the computation of diluted loss per share, except when the effect would be anti-dilutive.

For the periods presented in the table above, a total of 16.8 million Warrants and 0.5 million vested SARs were excluded from the computation of diluted net loss per share as the impact was anti-

System1, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

In addition, for the three and six months ended June 30, 2025, we excluded 1.5 million SARs as they are contingently issuable based on performance conditions which were not achieved.

Shares of Class C common stock, restricted stock units, Stock Appreciation Rights ("SARs") and warrants outstanding for the three and nine months ended September 30, 2025 and 2024, are considered potentially dilutive to the shares of Class A common stock and are included in the computation of diluted loss per share, except when the effect would be anti-dilutive.

For the three and nine months ended September 30, 2025, a total of 16.8 million Warrants and 0.5 million vested SARs were excluded from the computation of diluted net loss per share as the impact was anti-dilutive.

In addition, for the three and nine months ended September 30, 2025, we excluded 1.5 million SARs as they are contingently issuable based on performance conditions which were not achieved.

For the three and nine months ended September 30, 2024, a total of 16.8 million Warrants were excluded from the computation of diluted net loss per share as the impact was anti-dilutive.

In addition, for the three and nine months ended September 30, 2024, we excluded 2.2 million SARs as they are contingently issuable based on performance conditions which were not achieved.

See Note 10, Stock-Based Compensation for additional details.

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Shares associated with the vested or forfeited replacement awards are deemed to be issued and outstanding for accounting purposes on the day of vesting or forfeiture.

System1, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

Segment Reporting

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The following table summarizes revenue, segment cost of revenue and segment adjusted gross profit by reportable segment (in thousands):

System1, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

Three Months Ended June 30, 2025 Three Months Ended June 30, 2024

Three Months Ended September 30, 2025 Three Months Ended September 30, 2024

Marketing Products

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Interest expense, net 7,052 7,957

Gain on extinguishment of debt — ( 433 )

Change in fair value of warrant liabilities ( 71 ) 281

Loss before income tax $ ( 22,546 ) $ ( 30,054 )

Six Months Ended June 30, 2025 Six Months Ended June 30, 2024

System1, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

Nine Months Ended September 30, 2025 Nine Months Ended September 30, 2024

Marketing Products Total

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The following table summarizes revenue by geographic region (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2025 2024 2025 2024

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We recorded the following stock-based compensation expense for equity-classified awards included within salaries and benefits in the condensed consolidated statement of operations (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2025 2024 2025 2024

Stock-based compensation expense $ 2,832 $ 3,783 $ 10,025 $ 11,196

System1, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

Restricted Stock Units

In July 2025, we granted 2.0 million restricted stock unit awards in accordance with the 2022 Incentive Award Plan.

Stock Appreciation Rights

2 unchanged sentences

2024 Stock Appreciation Rights Plan, (as amended, the "2024 SARs Plan") and the repricing ("Repricing") of certain outstanding SARs previously granted to our employees and consultants under the SARs Plan (collectively, the "SARs Plan Amendment and Repricing").

The strike price of the SARs granted changed from $ 1.44 to $ 0.44 and the adjusted EBITDA performance threshold for any TTM period concluding on or after the applicable date of grant was modified from (i) $ 60 million (“Tranche II”), (ii) $ 70 million (“Tranche III”) and (iii) $ 80 million (“Tranche IV”) to (i) $ 55 million, (ii) $ 60 million and (iii) $ 65 million, respectively ("the Modification").

The strike price of the SARs granted changed from $ 1.44 to $ 0.44 and the adjusted

System1, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

EBITDA performance threshold for any TTM period concluding on or after the applicable date of grant was modified from (i) $ 60 million ("Tranche II"), (ii) $ 70 million ("Tranche III") and (iii) $ 80 million ("Tranche IV") to (i) $ 55 million, (ii) $ 60 million and (iii) $ 65 million, respectively ("the Modification").

There were no changes to the other terms of the SARs Plan.

9 unchanged sentences

Volatility is based on a blend of the historical volatility of our common stock and the peer-leveraged volatility.

As of June 30, 2025, we recognized compensation cost for the Vested SARs and determined it is probable we would achieve the performance conditions of Tranche II before the fifth anniversary grant date of the awards.

Accordingly, we recognized $ 3.2 million and $ 3.5 million of stock-based compensation expense, including $ 0.3 million of incremental expense as a result of the Modification, within equity for the three and six months ended June 30, 2025, respectively.

The 2024 SARs Plan was not adopted as of June 30, 2024.

As of June 30, 2025, the total unrecognized compensation cost related to unvested Tranche II SARs was $ 1.1 million.

No SARs were exercised during the three and six months ended June 30, 2025 .

Restricted Stock Units

In July 2025, we granted 2.0 million restricted stock unit awards in accordance with the 2022 Incentive Award Plan.

As of September 30, 2025, we recognized compensation cost for the Vested SARs and determined it is probable we would achieve the performance conditions of Tranche II before the fifth anniversary grant date of the awards.

Accordingly, we recognized $ 0.8 million and $ 4.4 million of stock-based compensation expense, within equity for the three and nine months ended September 30, 2025, respectively.

As of September 30, 2025, the total unrecognized compensation cost related to unvested Tranche II SARs was $ 0.5 million.

During the three and nine months ended September 30, 2025, there were an immaterial number of SARs were exercised.

Related Party Transaction

On April 28, 2025, we entered into a Securities Purchase Agreement with one of our Founder's family foundation, pursuant to which we agreed to sell 450,000 shares of our Class A common stock at a price of $ 5.00 per share.

During the second quarter of 2025, we entered into a Securities Purchase Agreement with one of our Founders' family foundation, pursuant to which we agreed to sell 450,000 shares of our Class A common stock at a price of $ 5.00 per share.

The aggregate proceeds, which were received on May 2, 2025, was $ 2.3 million.

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-Q

Item 1. Financial Statements