What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2026-03-11 compared with 2025-03-10 · 388 added, 494 removed, 555 unchanged (61% of the section changed)

1 unchanged sentence

Index to Consolidated Financial Statements

Reports of Independent Registered Public Accounting Firms (PCAOB ID 34 and 238 )

Reports of Independent Registered Public Accounting Firm (PCAOB ID 34 )

Consolidated Balance Sheets

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Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of System1, Inc.

and subsidiaries (the "Company") as of December 31, 2024, the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows, for the year ended December 31, 2024, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024, and the results of its operations and its cash flows for the year ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated balance sheets of System1, Inc.

and subsidiaries (the "Company") as of December 31, 2025 and 2024, the related consolidated statements of operations, comprehensive loss, stockholders' equity and cash flows, for each of the two years in the period ended December 31, 2025, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America.

Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 1 to the financial statements, the Company is experiencing difficulty in generating sufficient cash flow to meet its obligations and sustain its operations, which raises substantial doubt about the Company’s ability to continue as a going concern.

Management's plans in regard to these matters are also described in Note 1.

The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audit.

Our responsibility is to express an opinion on the Company's financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

/s/ Deloitte & Touche LLP

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Goodwill – Partner Network Reporting Unit – Refer to Notes 2 and 4 to the Consolidated Financial Statements

Critical Audit Matter Description

The Company's evaluation of impairment of goodwill involves the comparison of the fair value of the Partner Network reporting unit to its carrying value.

The Company used a combination of valuation methodologies to test goodwill for impairment and estimate the fair value of the Partner Network reporting unit including the income approach and the market approach.

The Company utilized a discounted cash flow model to determine the reporting unit's fair value under the income approach.

This approach requires management to make significant assumptions and estimates including the weighted-average cost of capital, revenue growth rates (including long-term growth rates), and operating margins.

The Company’s goodwill balance was $82.4 million as of December 31, 2025, of which the entire balance was associated with the Partner Network reporting unit.

Given the significant estimates and assumptions made by management when developing the fair value estimate of the Partner Network reporting unit, a high degree of auditor judgment and an increased extent of effort is required in performing audit procedures to evaluate the reasonableness of management’s significant estimates and assumptions, specifically related to the forecasts of future revenue.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the forecasts of future revenue used to estimate the fair value of the Partner Network reporting unit included the following, among others:

• We tested the design and implementation of management’s controls over the revenue forecast used to estimate the fair value of the Partner Network reporting unit.

• With the assistance of our fair value specialists, we evaluated the valuation methodologies, the weighted-average cost of capital and the mathematical accuracy of the calculations.

• We evaluated the reasonableness of the revenue forecast by comparing them to (1) Partner Network reporting unit and third-party historical financial data, (2) current economic factors and analyst reports of the Company and companies in its peer group, (3) industry reports, and (4) assumptions used by the Company in its budgeting process.

• We evaluated management's ability to accurately forecast future revenue by comparing actual results to management's historical forecasts.

• We performed a sensitivity analysis by varying the revenue forecast assumptions to assess the impact of reasonable changes in those assumptions on the fair value of the Partner Network reporting unit.

/s/ Deloitte and Touche LLP

Los Angeles, California

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We have served as the Company's auditor since 2024.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of System1, Inc.

Opinion on the Financial Statements

We have audited the consolidated balance sheet of System1, Inc.

and its subsidiaries (the "Company") as of December 31, 2023, and the related consolidated statements of operations, comprehensive loss, changes in stockholders’ equity and cash flows for the year then ended, including the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit of these consolidated financial statements in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audit provides a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Los Angeles, California

March 15, 2024

We served as the Company's auditor from 2020 to 2024.

System1, Inc.

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(In thousands, except per share amounts)

December 31, 2024 December 31, 2023

December 31, 2025

December 31, 2024

Current assets:

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Intangible assets, net

Goodwill 82,407 82,407

Operating lease right-of-use assets

Other non-current assets

Total assets $ 459,129 $ 605,470

LIABILITIES AND STOCKHOLDERS’ EQUITY

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Operating lease liabilities, current

Debt, net 16,405 15,271

Total current liabilities

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Long-term debt, net

Warrant liability 302 2,688

Deferred tax liability

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Accumulated other comprehensive loss

Treasury stock, at cost - 137 shares as of December 31, 2025

Total stockholders' equity attributable to System1, Inc.

80,264 135,278

Non-controlling interest

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For the Year Ended

December 31, 2024 December 31, 2023

Revenue $ 343,925 $ 401,971

December 31, 2025

December 31, 2024

Operating expenses:

Cost of revenue (excluding depreciation and amortization) 191,561 248,745

Cost of revenue

Salaries and benefits

Selling, general, and administrative

Depreciation and amortization 80,107 78,403

Total operating expenses

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Interest expense, net

Gain on extinguishment of tax receivable agreement liability

Gain on extinguishment of debt

Loss on extinguishment of related-party debt — 2,004

Change in fair value of warrant liabilities

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Income tax benefit

Net loss from continuing operations ( 97,298 ) ( 111,258 )

Net loss from discontinued operations, net of tax — ( 174,327 )

Net loss ( 97,298 ) ( 285,585 )

Net loss from continuing operations attributable to non-controlling interest ( 22,625 ) ( 25,531 )

Net loss from discontinued operations attributable to non-controlling interest — ( 32,833 )

Net loss attributable to System1, Inc.

$ ( 74,673 ) $ ( 227,221 )

Amounts attributable to System1, Inc.:

Net loss from continuing operations $ ( 74,673 ) $ ( 85,727 )

Net loss from discontinued operations — ( 141,494 )

Net loss attributable to non-controlling interest

Net loss attributable to System1, Inc.

$ ( 74,673 ) $ ( 227,221 )

Basic and diluted net loss per share:

Continuing operations $ ( 1.07 ) $ ( 0.94 )

Discontinued operations — ( 1.54 )

Basic and diluted net loss per share $ ( 1.07 ) $ ( 2.48 )

Weighted average number of shares outstanding - basic and diluted

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For the Year Ended

December 31, 2024 December 31, 2023

Net loss $ ( 97,298 ) $ ( 285,585 )

Other comprehensive (loss) income

Foreign currency translation (loss) income ( 500 ) 35

December 31, 2025

December 31, 2024

Other comprehensive loss:

Foreign currency translation income (loss)

Comprehensive loss

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Comprehensive loss attributable to System1, Inc.

$ ( 74,935 ) $ ( 227,186 )

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

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(In thousands)

common stock Class C

Shares Amount Shares Amount Additional Paid-In-Capital Accumulated Deficit Accumulated Other Comprehensive Income Non-Controlling Interest Total Stockholders’Equity

Treasury Stock, at cost

Additional Paid-In-Capital

Accumulated Deficit

Accumulated Other Comprehensive Income

Non-Controlling Interest

Total Stockholders' Equity

Balance at December 31, 2023

Net loss — — — — — ( 227,221 ) ( 58,364 ) ( 285,585 )

Cumulative-effect of adoption of ASU 2016-13 — — — — — ( 327 ) — — ( 327 )

Issuance of common stock in connection with settlement of incentive plan

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Issuance of restricted stock, net of forfeitures and shares withheld for taxes

Common stock cancelled in connection with disposition of business ( 29,075 ) ( 3 ) — — ( 13,570 ) ( 40,818 ) — 13,571 ( 40,820 )

Issuance of restricted stock for vested replacement awards

Other comprehensive income (loss)

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Balance at December 31, 2024

Net loss — — — — — ( 74,673 ) — ( 22,625 ) ( 97,298 )

Issuance of common stock in connection with settlement of incentive plan 970 — — — 2,464 — — ( 757 ) 1,707

Conversion of Class C shares to Class A shares

Tax receivable agreement liability and deferred taxes arising from LLC interest ownership exchanges and the issuance of common stock from equity incentive plans — — — — ( 4,502 ) — — — ( 4,502 )

Issuance of restricted stock, net of forfeitures and shares withheld for taxes

Issuance of restricted stock for vested replacement awards 468 — — — — — — — —

Issuance of common stock in private placement

Class A common stock repurchases

Other comprehensive income (loss)

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For the Year Ended

December 31, 2024 December 31, 2023

December 31, 2025

December 31, 2024

Cash Flows from Operating Activities

Net loss $ ( 97,298 ) $ ( 285,585 )

Adjustments to reconcile net loss to net cash used in operating activities:

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Stock-based compensation

Impairment of goodwill — 115,483

Shared-based compensation liabilities

Impairment of assets held for sale — 3,276

Loss on sale of business — 4,247

Amortization of debt issuance costs

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Deferred tax benefits

Gain on extinguishment of tax receivable agreement liability

Gain on extinguishment of debt

Loss on extinguishment of related-party debt — 2,004

Other, net ( 161 ) 2,042

Bad debt expense

Changes in operating assets and liabilities:

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Accrued expenses and other current liabilities

Deferred revenue ( 364 ) 15,273

Long-term earnout liabilities — ( 20,000 )

Other non-current liabilities

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Purchases of property and equipment

Purchases of intangible asset

Capitalized software development costs

Proceeds from sale of business, net of cash sold

Net cash (used in) provided by investing activities ( 6,255 ) 203,179

Net cash used in investing activities

Cash Flows from Financing Activities

Proceeds from related-party loan, net of lender fees — 11,278

Repayments of related party loan, inclusive of lender fees — ( 2,699 )

Proceeds from 2023 Revolving Note — 64,000

Repayment of 2023 Revolving Note, inclusive of lender fees — ( 66,400 )

Repayment of term loan

Repayment of 2022 Revolving Facility — ( 50,000 )

Payment of acquisition holdback — ( 1,935 )

Payment of promissory note — ( 5,156 )

Proceeds from revolver facility

Taxes paid related to net settlement of stock awards

Distributions to members, net of contributions

( 27 ) ( 97 )

Net cash used in financing activities ( 63,961 ) ( 74,072 )

Proceeds from private placement of Class A common stock

Repurchases of Class A common stock

Net cash provided by (used in) financing activities

Effect of exchange rate changes in cash, cash equivalent and restricted cash

Net (decrease) increase in cash, cash equivalents and restricted cash ( 75,502 ) 104,375

Cash and cash equivalents and restricted cash, beginning of the period 143,450 39,075

Cash and cash equivalents and restricted cash, end of the period $ 67,948 $ 143,450

Net increase (decrease) in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash, beginning of the period

Cash, cash equivalents and restricted cash, end of the period

Reconciliation of cash, cash equivalents and restricted cash to the consolidated balance sheets:

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Supplemental cash flow information:

Cash (refunds) paid for income taxes $ ( 1,617 ) $ 7,102

Cash refunds for income taxes

Cash paid for interest

Operating lease right-of-use assets obtained in exchange for operating lease liabilities

Cash paid for operating lease liabilities

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Settlement of incentive plan through issuance of common stock

Restructuring of holdback liability to promissory note $ — $ 5,156

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

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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.

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

Operating seamlessly across major advertising networks and advertising category verticals to acquire end-users, RAMP allows us to monetize such end users through our relationships with third party advertisers and advertising networks ("A dvertising Partners ") .

RAMP operates across our network of owned and operated websites and related products, allowing us to monetize user traffic that we source from various acquisition marketing channels, including Google, Meta, Outbrain, and TikTok.

RAMP also allows third party advertising platforms and publishers (" Network Partners ") , to send user traffic to, and monetize end user traffic on, our owned and operated websites or through our monetization agreements .

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 Artificial Intelligence ("AI") and machine learning.

Our platform is omnichannel and omnivertical, delivering high-intent customers to our advertising partners to maximize their reach and effectiveness.

Our platform operates across our network of owned and operated websites, allowing us to monetize user traffic that we source from various acquisition marketing channels.

Our marketing platform allows us to operate seamlessly across major advertising networks and advertising category verticals to acquire end-users, and monetize acquired users through our relationships with third party advertisers and advertising networks ("Advertising Partners").

The platform also allows third party advertising platforms and publishers ("Network Partners") to send user traffic to, and monetize user traffic on, our Products websites or through our monetization agreements.

We monetize user traffic we acquire directly from various marketing channels, across multiple advertising platforms, and have acquired several leading websites, enabling us to control user acquisition and experience and monetize user traffic on our behalf via our network of products.

Today, we own and operate approximately 40 websites, including leading search engines like Startpage.com and info.com , and digital media publishing websites and internet utilities, such as CouponFollow, MapQuest , HowStuffWorks and ActiveBeat .

Our primary operations are in the United States, and we also have operations in Canada and the Netherlands.

Operations outside the United States are subject to risks inherent in operating under different legal systems, as well as various political and economic environments.

Among these risks are changes in existing tax laws, changes in the regulatory framework in foreign jurisdictions , data privacy laws, possible limitations on foreign investment and income repatriation, government foreign exchange controls, exposure to currency exchange fluctuations and employment laws impacting foreign employees .

We do not engage in hedging activities to mitigate our exposure to fluctuations in foreign currency exchange rates.

On June 28, 2021, we entered into a Business Combination Agreement (as amended on November 30, 2021, January 10, 2022 and January 25, 2022), ("Business Combination Agreement") by and among us, S1 Holdco, LLC ("S1 Holdco") and Total Security Limited, formerly known as Protected.net Group Limited ("Protected") .

On January 26, 2022 ("Closing Date"), we consummated the business combination ("Merger") pursuant to the Business Combination Agreement.

We, through Total Security Limited, formerly known as Protected.net Group Limited ("Protected"), also provided antivirus software solutions, offering customers a single packaged solution that provides protection and reporting to the end user.

On November 30, 2023, we completed the sale of Protected, including our antivirus and consumer privacy software solutions, pursuant to the terms of a share purchase agreement ("Share Purchase Agreement").

Pursuant to the Share Purchase Agreement, Just Develop It Limited ("JDI"), one of our significant shareholders, which is principally owned and managed by certain members of the Protected management team ("Purchasing Parties"), acquired all of the outstanding preference and ordinary shares ("Protected Disposition") of Protected for total consideration comprised:

(a) $ 240.0 million in cash, subject to certain adjustments, (b) the return and subsequent cancellation of approximately 29.1 million shares of our Class A common stock, par value $ 0.0001 per share, owned by the Purchasing Parties and (c) confirmation from JDI, Protected and the Protected CEO that the financial performance benchmarks related to certain contingent earnout payments (the "Protected Incentive Plan") based on the future performance of Protected’s business in an aggregate amount of up to $ 60.0 million contemplated by the Business Combination Agreement related to the Merger, will, as a result of the Protected Disposition, no longer be achievable.

The results of operations of our Protected business prior to its sale are presented as net loss from discontinued operations in our consolidated statements of operations for all periods presented (see Note 17, Discontinued Operations).

We have two reportable segments:

Marketing and Products, see Note 11, Segment Reporting .

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 our acquisition marketing platform 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 Revolving Facility, and System1 Holdings and S1 Media are not parties thereto.

Liquidity and Going Concern

We have evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the consolidated financial statements are issued.

We have experienced declining cash flows and financial performance primarily as a result of reductions in Advertising Partners and overall consumer demand for our marketing services.

As of December 31, 2025, we had cash and cash equivalents of $ 86.9 million and total net working capital, which we define as current assets less current liabilities, of $ 3.0 million.

We had an aggregate principal amount outstanding of $ 50.0 million under our revolving facility (as defined in Note 9, Debt, Net ) with a maturity date of January 27, 2027, and $ 260.1 million of term debt outstanding on our term loan which matures in July 2027.

Management determined, as a result of this evaluation, that our current cash and cash equivalents, net working capital position, and the upcoming maturity date of our revolving facility raise substantial doubt about our ability to continue as a going concern for the twelve-month period following the date of this filing.

System1, Inc.

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Notes to Consolidated Financial Statements

associated with our owned and operated products businesses, which include CouponFollow, Startpage and Mapquest, and (c) S1 Holdco holds our remaining assets and business operations associated with our digital advertising businesses, including our proprietary RAMP platform.

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.

We have two reportable segments:

Owned and Operated Advertising and Partner Network ( see Note 14, Segment Reporting) .

Our plan is to continue exploring options of refinancing all of our debt obligations.

Management cannot conclude as of the date of this filing that its plans are probable of being successfully implemented.

There can be no assurance that we will be able to obtain financing that will provide us with sufficient liquidity to satisfy our revolving facility in January 2027.

As a result, management has concluded that substantial doubt exists about our ability to continue as a going concern.

Our consolidated financial statements have been prepared on a basis that assumes we will continue as a going concern which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.

Accordingly, the accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Summary of Significant Accounting Policies

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The accompanying consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP").

To conform to the current period’s presentation, (i) warrant liability was combined with other non-current liabilities in the comparative consolidated balance sheet and (ii) depreciation and amortization expense was reclassified to cost of revenue and selling, general, and administrative in the prior periods consolidated statement of operations.

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").

All share data and per share data amounts included in this Form 10-K have been retrospectively adjusted to reflect the effect of the Reverse Stock Split.

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.

W e recorded revenue of $ 6.6 million from an Advertising Partner and an estimated contra revenue liability of $ 5.8 million for the year ended December 31, 2024 , due to certain Network Partners related to traffic sent to our platform by those Network Partners that generated search advertising revenue.

We have currently withheld payment to the impacted Network Partners pending our comprehensive ongoing review of whether such traffic generating the search advertising revenue was valid or otherwise complied with the terms of our commercial arrangements with such Network P artners.

For any traffic determined to be either invalid or not in compliance with such commercial arrangements, the corresponding amounts may be withheld from our Network Partners as a result of such violations and, in such cases, would be recognized as revenue in the period in which such final determinations are made.

Use of Estimates

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Cash and cash equivalents consist of amounts held as bank deposits.

Cash is deposited with high-credit-quality financial institutions and, at times, such balances with any one financial institution may exceed the insurance

limits of the prevailing regulatory body.

Cash is deposited with high-credit-quality financial institutions and, at times, such balances with any one financial institution may exceed the insurance limits of the prevailing regulatory body.

Historically, we have not experienced any losses related to these cash balances and we believe that there is minimal risk of expected future losses.

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Restricted cash as of December 31, 2025 and December 31, 2024 primarily related to;

(i) cash collateralized letter of credit we maintain in connection with our corporate office lease, (ii) escrow account related to unvested equity awards as of the closing of the Merger that will be cash settled and (iii) escrow account related to the postcombination compensation arrangement related to the CouponFollow acquisition.

(i) escrow account related to the postcombination compensation arrangement related to the CouponFollow acquisition, (ii) cash collateralized letter of credit we maintain in connection with our corporate office lease, (iii) escrow account related to our credit card spend program, and (iv) escrow account related to unvested replacement awards that will be cash settled.

Accounts Receivable, Net

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Internal-use software development costs are stated at cost, less accumulated amortization.

We capitalize certain internal-use software development costs associated with creating and enhancing internally developed software related to our technology infrastructure, including continuing to develop and deploy our RAMP platform.

Deployment activities focus on enhancement of our customer acquisition capabilities, including website enhancements and tools for marketing support, and upgrades of dashboards and reporting tools.

These costs are comprised of personnel costs, which include salaries, bonuses, stock-based compensation and employee benefits’ expenses for employees who are directly associated with, and who devote significant time to, software projects, as well as services consumed in developing or obtaining the software.

Internal-use software development costs that do not meet the qualification for capitalization are expensed as incurred, and are recorded in salaries and benefits expense on the consolidated statement of operations.

Internal-use software development costs that do

not meet the qualification for capitalization are expensed as incurred, and are recorded in salaries and benefits expense on the consolidated statement of operations.

Internal-use software development activities generally consist of three stages:

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We do not transfer ownership of our software or lease our software to third parties.

Internal-use software development costs for software that is near the end of its useful life is amortized using a straight-line method over the remaining useful life.

Intangible Assets, Net

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We perform impairment testing at the asset group level that represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.

We assess recoverability of our long-lived assets by determining whether the carrying amount of the asset group can be recovered through projected undiscounted cash flows over their remaining useful lives inclusive of an estimated residual value.

We assess recoverability of our long-lived assets by determining whether the carrying amount of the asset group can be recovered through projected undiscounted cash flows over their remaining

useful lives inclusive of an estimated residual value.

If the carrying amount of the asset group exceeds the forecasted undiscounted cash flows, an impairment loss is recognized and measured as the amount by which the carrying amount exceeds the estimated fair value.

An impairment loss is recognized in the statement of operations in the

period in which management determines such impairment has occurr ed.

An impairment loss is recognized in the statement of operations in the period in which management determines such impairment has occurr ed.

See Note 4, Goodwill, Internal-Use Software Development Costs, Net, and Intangible Assets, Net.

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or to perform a quantitative goodwill impairment test.

The fair values of our reporting units are determined by weighting a discounted cash flow model and a reference transaction model which include inputs developed using both internal and market-based data, or in a disposal transaction based on the best indicator of fair value which might include the proceeds to be received upon sale.

Our key assumptions in the discounted cash flow model included, but are not limited to, the weighted average cost of capital, revenue growth rates (including long-term growth rates), and operating margins.

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Our reference transaction model derives indications of value based on mergers and acquisition transactions in the digital advertising industry.

Key assumptions in this model include, but are not limited to, the selection of comparable transactions, and the revenue and EBITDA multiples and EBITDA margins from those transactions.

Key assumptions in these models include, but are not limited to, the selection of comparable transactions, revenue and "EBITDA" is defined as net income or loss, interest, income tax expense or benefit, and depreciation and amortization multiples and EBITDA margins from those transactions.

Unanticipated events or circumstances may occur that could affect the accuracy or validity of such assumptions, estimates or actual results.

We completed a quantitative assessment of our Partner Network reporting unit, the only reporting unit with goodwill, and determined it is not more likely than not that the fair value of the reporting unit is less than the carrying amount for fiscal year 2024.

In conjunction with our fourth quarter assessment of goodwill, our valuation techniques did not indicate any impairment as of December 31, 2025.

All reporting units with goodwill passed the first step of the goodwill evaluation, with the fair value of our Partner Network reporting unit exceeding its respective carrying values by 11.9 % and, accordingly, we were not required to perform the second step of the goodwill evaluation.

There is $ 82.4 million of goodwill residing in our Partner Network reporting unit.

In applying the income and market approaches to determining the fair value of the Partner Network reporting unit, we rely on a number of significant assumptions and estimates including revenue growth rates and gross profit margins, discount rates and future market conditions, among others.

Our estimates are based upon assumptions we believe to be reasonable, but which by nature are uncertain and unpredictable.

Changes in one or more of these significant estimates or assumptions, could affect the results of these impairment assessments.

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

As part of our fourth quarter review for impairment, we assessed the total fair values of the reporting units and compared total fair value to our market capitalization at December 31, 2025, including the implied control premium, to determine if the fair values are reasonable compared to external market indicators.

When comparing our market capitalization to the discounted cash flow models for each reporting unit summed together, the implied control premium was approximately 10 % as of December 31, 2025.

We believe several factors are contributing to our low market capitalization, including the lack of trading volume in our stock and the low market analyst coverage.

Given continuing economic uncertainties and related risks to our business, there can be no assurance that our estimates and assumptions made for purposes of our goodwill impairment testing as of December 31, 2025 will prove to be accurate predictions of the future.

We may be required to record additional goodwill impairment charges in future periods, whether in connection with our next annual impairment testing as of October 1, 2026 or prior to that, if any change constitutes a triggering event outside of the quarter from when the annual goodwill impairment test is performed.

It is not possible at this time to determine if any such future impairment charge would result or, if it does, whether such charge would be material.

See Note 4, Goodwill, Internal-Use Software Development Costs, Net, and Intangible Assets, Net .

For our discontinued operations impairments in fiscal year 2023 s ee Note 17, Discontinued Operations.

Discontinued Operations

We present discontinued operations when there is a disposal of a component or a group of components that represents a strategic shift that will have a major effect on operations and financial results.

The results of discontinued operations are reported in net income from discontinued operations in the consolidated statements of operations for all periods presented, commencing in the period in which the business is either disposed of or is classified as held for sale, including any gain or loss recognized on closing or adjustment of the carrying amount to fair value less costs to sell.

Assets and liabilities related to a business classified as held for sale which also meets the criteria for discontinued operations are segregated in the consolidated balance sheets for the current and prior periods presented.

See Note 17, Discontinued Operations.

We determine if an arrangement is a lease at inception.

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Warrant Liability

We account for Public Warrants ("Warrants") as liabilities measured at fair value each balance sheet date, with changes in fair value recorded in Change in fair value of warrant liabilities in the consolidated statements of operations.

See Note 11, Warrants and Note 12, Fair Value Measurement.

As of December 31, 2025 and 2024, we had outstanding warrants classified as a non-current liability.

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

During the year ended December 31, 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.

Changes in fair value are recorded in change in fair value of warrant liabilities in the consolidated statements of operations.

Fair Value of Financial Instruments

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As of December 31, 2025 and 2024, our outstanding debt included a Term Loan, for which fair value was estimated using an observable market quotation (Level 2).

Our liabilities measured at fair value relate to the Warrant liabilities (Level 1) and share-based liabilities (Level 3).

Certain assets, including goodwill, intangible assets and other long-lived assets, are also subject to measurement at fair value on a nonrecurring basis if they are deemed to be impaired as a result of an impairment review.

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Upon the redemption of Class B Units, our Board of Directors may also elect to settle the non-controlling interest holder's Class B units in cash.

We are required to maintain a one -to-one ratio of Class A common stock outstanding to our Class A units in System1 Holdings and Class C common stock to the non-controlling interest’s Class B units.

We are required to maintain a one -to-one ratio of Class A common stock outstanding to our Class A units in System1 Holdings and Class C common stock outstanding to the non-controlling interest’s Class B units.

As redemptions occur or other transactions result in the issuance or retirement of a share of Class A common stock, System1 Holdings is required to issue or retire a Class A unit in System1 Holdings to maintain in parity with the corresponding number of outstanding shares of Class A common stock.

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As a result, any change in ownership that does not result in a change of control is accounted for as an equity transaction and we adjust for the re-allocation of equity between us and our non-controlling interest.

The following table summarizes the ownership interest in System1 Holdings as of December 31, 2024, based on shares issued and outstanding.

(in thousands)

Class A units of S1 Holdings

73,675 79.8 %

Class B units of S1 Holdings

18,695 20.2 %

The following table summarizes the ownership interest in System1 Holdings as of December 31, 2025, based on shares issued and outstanding (in thousands):

Class A units of System1 Holdings

Class B units of System1 Holdings

Repurchased Shares

Repurchased shares of our common stock are recorded as treasury stock and reduce stockholders' equity in our consolidated balance sheets.

If we reissue any stock, any difference between the repurchase cost and the reissuance price is recorded to Additional paid-in capital (or Retained earnings in the absence of Additional paid-in capital).

Revenue Recognition

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We determine revenue recognition through the following steps;

(i) Identification of a contract with a customer, (ii) Identification of the performance obligations in the contract, (iii) Determination of the transaction price, (iv) Allocation of the transaction price to the performance obligations in the contract, and (v) Recognition of revenue when or as the performance obligations are satisfied.

performance obligations are satisfied.

Revenue recognized from performance obligations satisfied in prior periods is immaterial.

We earn revenue by directly acquiring traffic to our owned and operated websites and utilizing our RAMP platform and additional services to monetize end-users for our Advertising Partners.

We earn revenue by directly acquiring traffic to our owned and operated websites and utilizing our platform and additional services to monetize end-users for our Advertising Partners.

For this revenue stream, we have a single performance obligation and have determined that we are the principal in the transaction.

Revenue is reported on a gross basis for the amounts received from Advertising Partners.

We are the principal since we direct the use of our owned and operated websites, and as such have risk of loss on the user-traffic that we are acquiring

for monetization with our Advertising Partners.

We are the principal since we direct the use of our owned and operated websites, and as such have risk of loss on the user-traffic that we are acquiring for monetization with our Advertising Partners.

Additionally, we maintain the website, provide the content and bear the cost and risk of loss associated with the digital online inventory available on our website.

Revenue is also earned from revenue-sharing arrangements with our Network Partners related to the use of our RAMP platform and additional services in order to facilitate the placement of advertising by our Advertising Partners in the Network Partners digital online inventory.

For this revenue stream, we have a single performance obligation and have determined that we are the agent in these transaction.

Revenue is also earned from revenue-sharing arrangements with our Network Partners related to the use of our platform and additional services in order to facilitate the placement of advertising by our Advertising Partners in the Network Partners digital online inventory.

For this revenue stream, we have a single performance obligation and have determined that we are the agent in these transactions.

Revenue is reported on a net basis, because our network partner runs the campaign to acquire user-traffic, including managing traffic acquisition cost.

We report the revenue generated under our revenue-sharing arrangements on a net basis, based on the difference between amounts received by us from our Advertising Partners, less amounts remitted to the Network Partners based on the underlying revenue-sharing agreements.

Revenue may fluctuate from period to period due to a number of factors including seasonality and the shift in mix of user acquisition sources from Advertising Partners.

We recognize revenue as we deliver user-traffic to our Advertising Partners based on a cost-per-click or cost-per-thousand impression basis.

The payment terms with our Advertising Partners are typically 30 days.

Operating Expenses

Cost of Revenue

Cost of revenue primarily consists of traffic acquisition costs, which are the costs to place advertisements to acquire customers to our websites, as well as domain name registration costs and licensing costs to provide mapping services to Mapquest.com.

Cost of revenue primarily consists of traffic acquisition costs, which are the costs to place advertisements to acquire customers to our websites and services, domain name registration costs, licensing costs to provide mapping services to Mapquest.com and amortization related to our platform.

We do not pre-pay any traffic acquisition costs, and therefore, we expense such costs as incurred.

Amortization related to our marketing platform is recognized over the estimated useful life of the intangible asset.

Salaries and Benefits

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Selling, General, and Administrative Expenses

Selling, general, and administrative expenses consist of fees for professional and subscription services, occupancy costs, travel and entertainment.

These costs are expensed as incurred.

Depreciation and Amortization

Depreciation and amortization expenses are primarily attributable to our capital investments and consist of property and equipment depreciation and amortization of intangible assets with finite lives.

Selling, general, and administrative expenses consist of depreciation, general intangibles amortization, fees for software services, professional services, occupancy costs and travel and entertainment.

Depreciation and general intangibles amortization expense are primarily attributable to our capital investment(s) and consist of property and equipment depreciation and amortization of intangible assets with finite lives.

Stock-Based Compensation

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Stock Appreciation Rights

We use the Black-Scholes option pricing model to estimate the grant date fair value of each Stock Appreciation Right award granted under the 2024 Stock Appreciation Rights Plan ("2024 SAR Plan").

The expected term is estimated using the simplified method, which is the midpoint between the vesting date and the contractual term.

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

We use the Hull-White I binomial lattice option pricing model to estimate the grant date fair value of each Stock Appreciation Right award granted under the 2024 Stock Appreciation Rights Plan ("2024 SAR Plan").

The risk-free rate is based on the U.S.

Treasury yield curve in effect at the time of grant.

We are the sole managing member of System1 Holdings and, as a result, consolidate the financial results of System1 Holdings.

The expected term is equal to the estimated remaining contractual term.

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

During 2024 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.

S1 Holdco was treated as a partnership for U.S.

federal and most applicable state and local income tax purposes.

As a partnership, S1 Holdco was not subject to U.S.

federal and certain state and local income taxes.

Any taxable income or loss generated by S1 Holdco was passed through to and included in the taxable income or loss of its members, including us, on a pro rata basis.

We were subject to U.S.

federal income taxes, in addition to state and local income taxes with respect to its allocable share of any taxable income or loss of S1 Holdco, as well as any stand-alone income or loss generated by us.

As of August 1, 2024, we are the sole managing member of System1 Holdings and, as a result, consolidate the financial results of System1 Holdings.

System1 Holdings is treated as a partnership for U.S.

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In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, carryback potential if permitted under the tax law, and results of operations.

If we determine that we would not be able to realize our

DTAs in the future in excess of their net recorded amount, we would make an adjustment to the valuation allowance, which would increase the provision for income taxes.

If we determine that we would not be able to realize our DTAs in the future in excess of their net recorded amount, we would make an adjustment to the valuation allowance, which would increase the provision for income taxes.

We record uncertain tax positions on the basis of a two-step process in which (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of our technical merits and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than fifty percent likely to be realized upon ultimate settlement with the related tax authority.

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Accounting Pronouncements Recently Adopted

In November 2023, the Financial Accounting Standards Board issued ASU No.

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures (ASU 2023-07), which requires an enhanced disclosure of significant segment expenses on an annual and interim basis.

This guidance was adopted during the year ended December 31, 2024, and for interim periods beginning January 1, 2025.

The guidance was applied retrospectively to all prior periods presented in the financial statements.

The adoption of this new accounting pronouncement did not have a material impact on our consolidated financial statements, see Note 14, Segment Reporting.

Accounting Pronouncements Not Yet Adopted

In December 2023, the Financial Accounting Standards Board issued ASU No.

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

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

Early adoption is permitted.

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.

This guidance was adopted during the year ended December 31, 2025.

The guidance was applied retrospectively to all prior periods presented in the consolidated financial statements.

The adoption of this new accounting pronouncement did not have a material impact on our consolidated financial statements, see Note 7, Income Taxes.

Accounting Pronouncements Not Yet Adopted

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

2024-03, Income Statement Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40), which improves the disclosures about a public business entity's expenses and requires detailed information about the types of expenses in commonly presented expense financial statement captions.

This guidance will be effective for the annual periods ending December 31, 2027 and interim periods ending December 31, 2028.

This guidance will be effective for the annual periods beginning with the year ending December 31, 2027 and interim periods during the year ending December 31, 2028.

Early adoption is permitted.

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We are evaluating the effect that this guidance will have on our 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 Software, whic h 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.

Property and Equipment, Net

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Leasehold improvements

Total 4,060 4,251

Less accumulated depreciation

Property and equipment, net

The aggregate depreciation expense related to property and equipment was $ 0.9 million and $ 0.8 million for the year ended December 31, 2024 and 2023, respectively.

The depreciation expense related to property and equipment was $ 0.6 million and $ 0.9 million for the year ended December 31, 2025 and 2024, respectively.

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

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

There was no change to the Partner Network reporting unit.

See Note 11, Segment Reporting, for further discussion of our operating and reportable segments.

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

Upon classifying Protected as held for sale as of September 30, 2023, we performed a goodwill impairment test on the Subscription reporting unit resulting in a goodwill impairment charge.

We recorded an impairment upon the classification of the disposal group as held for sale, see Note 17, Discontinued Operations.

During the fourth quarter of 2025, we performed our annual impairment test and determined each reporting unit's fair value exceeded its carrying amount.

No impairment of goodwill was identified for any of the periods presented relating to continuing operations.

There were no events or changes in circumstances subsequent to the fourth quarter assessment that indicate that the carrying amount of a reporting unit may exceed its fair value as of December 31, 2024.

No impairment of goodwill was identified for any of the periods presented.

There were no events or changes in circumstances subsequent to our annual impairment test which indicate that the carrying amount of a reporting unit may exceed its fair value as of December 31, 2025.

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

Internal-use software development costs, net and intangible assets, net

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December 31, 2025

Gross Carrying Amount Accumulated Amortization Net Carrying Amount

Gross Carrying Amount

Accumulated Amortization

Net Carrying Amount

Internal-use software development costs

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Trademarks and trade names

Software 5,100 ( 3,616 ) 1,484

Customer relationships

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

December 31, 2024

Gross Carrying Amount Accumulated Amortization Net Carrying Amount

Gross Carrying Amount

Accumulated Amortization

Net Carrying Amount

Internal-use software development costs

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Trademarks and trade names

Software 5,100 ( 2,341 ) 2,759

Customer relationships

Total $ 440,181 $ ( 143,180 ) $ 297,001

The internal-use software development costs includes construction in progress which is not being amortized of $ 2.9 million and $ 5.0 million as of December 31, 2025 and 2024, respectively.

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For the Year Ended

December 31, 2024 December 31, 2023

December 31, 2025

December 31, 2024

Amortization expense for internal-use software development $

$ 4,594 $ 2,981

Amortization expense for intangible assets $

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

For the Year Ended

December 31, 2025

December 31, 2024

Cost of revenue $

Selling, general, and administrative $

We test our amortizable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.

Our amortizable intangible assets primarily consist of trademarks and trade names and developed technology.

During 2024 and 2023, no impairment of our amortizable intangible assets relating to continuing operations was identified.

During 2025 and 2024, no impairment of our amortizable intangible assets was identified.

However, due to strategic operational decisions, it is reasonably possible that our estimate that we will recover the carrying amount of these assets from future operations could change in the near term.

As of December 31, 2025, the expected amortization expense associated with our intangible assets and internal-use software development costs was as follows (in thousands):

2025 $ 80,767

Thereafter 49,403

Total amortization expense

As of December 31, 2024, the weighted average amortization period for all intangible assets was 7 years.

We lease office facilities under noncancelable operating lease agreements.

We lease office facilities under non-cancelable operating lease agreements.

During the years ended December 31, 2025 and 2024, we had leases for office facilities in Los Angeles, California;

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and Guelph, Canada.

Our United States leases were re-negotiated during the second half of 2025.

The components of lease expense consisted of the following (in thousands):

For the Year Ended

December 31, 2024 December 31, 2023

December 31, 2025

December 31, 2024

Operating lease expense

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Variable lease expense

Sublease income

Total lease expense

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December 31, 2025

Thereafter 636

Total lease payments

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

December 31, 2024 December 31, 2023

December 31, 2025

December 31, 2024

Accrued revenue share

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The awards consist of a fixed amount of $ 10.0 million (which vests and is settled in three equal annual installments on December 31, 2022, 2023, and 2024) and performance-based amounts of $ 25.0 million which could be earned by achieving three Tiers of EBITDA targets, representing performance conditions.

During the first quarter of 2023, we issued 0.4 million shares of Class A Common stock with an aggregate fair value of $ 1.7 million, net of shares withheld for taxes, on the date of settlement to settle the first $ 3.3 million fixed award that vested on December 31, 2022.

The settlement is net of a $ 0.6 million adjustment to remeasure the liability to its fair value as of the settlement date.

The adjustment represents the difference in fair value between the share-based liability carrying value as of December 31, 2022, and the fair value of the Class A shares issued upon settlement.

On September 6, 2023, the parties made certain modifications to the CouponFollow Incentive Plan.

The restructured CouponFollow Incentive Plan provides for total payments of $ 31.3 million.

There was no change to the fixed amount, except for the requirement for the Company to make the last payment in cash.

There was no change to the fixed amount, except for the requirement for us to make the last payment in cash.

The performance-based amount decreased to $ 21.3 million, with the performance terms changed to allow for achieving three Tiers of EBITDA-target performance conditions over a three calendar year period between each January 1 to December 31 of 2023, 2024 and 2025 (each a "Performance Period" and collectively, "Performance Periods").

These modifications did not result in the recognition of any incremental compensation costs.

As of December 31, 2023, the business had not achieved any performance conditions nor was it probable that the performance conditions would be met, so no amount was recognized for the performance-based awards.

During the first quarter of 2023, we settled the first $ 3.3 million fixed award that vested on December 31, 2022.

A s of December 31, 2023, the business had not achieved any performance conditions nor was it probable that the performance conditions would be met.

During the first quarter of 2024, we issued 1.0 million shares of Class A common stock with an aggregate fair value of $ 1.7 million, net of shares withheld for taxes, on the date of the settlement to settle the second $ 3.3 million fixed award that vested on December 31, 2023.

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The adjustment represents the difference in fair value between the share-based liability carrying value as of December 31, 2023, and the fair value of the Class A shares issued upon settlement.

During the 2024 Performance Period, the CouponFollow business achieved all performance conditions such that the entire performance-based portion of the award vested or is expected to vest, and accordingly, we recognized a short-term liability in shared-based compensation liability within accrued expenses and other current liabilities of $ 17.8 million for the amount vested as of the year ended December 31, 2024 , of which $ 7.8 million was paid in cash in February 2025, and $ 10.0 million is payable 60 days after December 31, 2025.

For the year ended December 31, 2024, we recognized $ 3.3 million for the third installment of the fixed amount within salaries and benefits expenses on the consolidated statements of operations, which was settled in cash in February 2025.

During the 2024 Performance Period, the CouponFollow business achieved all performance conditions such that the entire performance-based portion of the award vested or was expected to vest.

As of December 31, 2024, we recognized a shared-based compensation liability within accrued expenses and other current liabilities of $ 17.8 million for the amount vested as of the year ended December 31, 2024 and the amount expected to vest as of December 31, 2025, of which $ 7.8 million was paid in cash in February 2025.

During the 2025 Performance Period, we recognized $ 3.5 million in shared-based compensation liability expense within accrued expenses and other current liabilities for the performance-based portion of the award that vested on December 31, 2025.

The total amount recognized under the CouponFollow Incentive Plan representing performance-based conditions was $ 21.3 million, of which $ 2.5 million is a discretionary bonus.

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

The total amount to be earned under the CouponFollow Incentive Plan relating to the performance conditions is $ 21.3 million.

For the year ended December 31, 2024, w e recognized $ 3.3 million for the third installment of the fixed amount within salaries and benefits expenses on the consolidated statements of operations, which was settled in cash in February 2025.

If a Participant’s continued employment is terminated prior to vesting, with the exception of the Principal Participant as discussed above, we will reverse all cumulative compensation cost recorded for the forfeited award(s).

If we elect to settle the payment obligations in shares of our Class A common stock, the number of shares payable under the CouponFollow Incentive Plan will be determined based on the VWAP of our Class A common stock.

Domestic and foreign components of our loss before income taxes from continuing operations were as follows (in thousands):

In February 2026, we paid $ 1.5 million in cash for the discretionary bonus.

In March 2026, we expect to settle in cash $ 10.9 million for the final performance-based portion of the award and $ 0.6 million for the discretionary bonus.

The remaining $ 0.4 million discretionary bonus will be disbursed at management's discretion.

Domestic and foreign components of our loss before income taxes were as follows (in thousands):

For the Year Ended

December 31, 2024 December 31, 2023

Domestic $ ( 92,190 ) $ ( 126,830 )

Foreign ( 5,478 ) ( 4,799 )

December 31, 2025

December 31, 2024

Loss before income tax

The components of the income tax provision (benefit) were as follows (in thousands):

The components of the Income tax benefit were as follows (in thousands):

For the Year Ended

December 31, 2024 December 31, 2023

Federal $ 145 $ ( 64 )

State 291 ( 662 )

Foreign 1,297 1,431

Total current provision $ 1,733 $ 705

Federal $ — $ ( 17,103 )

State — ( 1,829 )

Foreign ( 2,103 ) ( 2,144 )

December 31, 2025

December 31, 2024

Total current (benefit) provision

Total deferred benefit

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For the Year Ended

December 31, 2024 December 31, 2023

Amount % Amount %

Income tax (benefit) provision at statutory tax rate $ ( 20,510 ) 21.0 % $ ( 27,642 ) 21.0 %

State tax, net of federal ( 797 ) 0.8 % ( 1,718 ) 1.3 %

December 31, 2025

December 31, 2024

Expected income tax benefit at statutory tax rate

State tax, net of federal tax benefit

Foreign tax effects

Effects of cross-border tax laws

Research and development credits

Change in valuation allowance

Nontaxable or nondeductible items:

Stock-based compensation

Non-Controlling interest

Changes in unrecognized tax benefits 754 ( 0.8 ) % 2,320 ( 1.8 ) %

Foreign income taxes at different statutory rate ( 248 ) 0.3 % ( 93 ) 0.1 %

Investment in partnership basis adjustments

Share-based compensation 1,966 ( 2.0 ) % 3,408 ( 2.6 ) %

Change in valuation allowance 15,798 ( 16.2 ) % 19,521 ( 14.8 ) %

Other ( 423 ) 0.4 % ( 4,405 ) 3.4 %

Effective income tax rate $ ( 370 ) 0.4 % $ ( 20,371 ) 15.5 %

Liability reversal

Other nondeductibles

Changes in unrecognized tax benefits

Other adjustments

Income tax benefit and effective income tax rate

On July 4, 2025, Public Law 119-21 was signed into law.

Public Law 119-21 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 do not expect these tax law changes to have a material impact on our financial statements however, we will continue to evaluate their impact as further information becomes available.

The aggregate amount of gross unrecognized tax benefits related to uncertain tax positions were as follows (in thousands):

December 31, 2024 December 31, 2023

Balance at the beginning of the period $ 1,850 $ 593

Increases (decreases) based on tax positions related to prior periods 490 ( 46 )

Increases based on tax positions related to current periods

Balance at the end of the period $ 2,532 $ 1,850

December 31, 2025

December 31, 2024

Beginning balance

Increases based on tax positions related to prior periods

Increases based on tax positions related to current period

Ending balance $

Interest and penalties related to our unrecognized tax benefits are recorded as components of the provision for income taxes.

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Due to our full valuation allowance, the total amount of unrecognized benefits that, if recognized, would favorably affect the effective tax by $ 0.3 million (net of Federal benefit) at December 31, 2025.

We are not currently under examination in any material jurisdiction.

It is reasonably possible that, within the next twelve months, statutes of limitation will expire which could have the effect of reducing the balance of unrecognized tax benefits by an immaterial amount.

The earliest tax years that remain subject to examination in the major tax jurisdictions in which we operate were as follows:

United States

California 2020

Netherlands 2018

The components of the deferred income taxes consisted of the following (in thousands):

December 31, 2024 December 31, 2023

December 31, 2025

December 31, 2024

Deferred tax assets:

Net operating loss and capital loss carryforwards

$ 6,638 $ 6,362

Tax credits 4,894 4,289

Interest expense

Investment in partnerships

Other 225 231

Total gross deferred tax assets

38,863 23,066

Total deferred tax assets

Valuation allowance

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Deferred tax liabilities:

Intangibles $ ( 6,026 ) $ ( 8,243 )

Other ( 420 ) ( 472 )

Total gross deferred tax liabilities

$ ( 6,446 ) $ ( 8,715 )

Total deferred tax liabilities

Net deferred tax liability

$ ( 6,199 ) $ ( 8,307 )

We assess available positive and negative evidence to estimate if it is more likely than not to use certain jurisdiction-based deferred tax assets including net operating loss carryovers.

As of December 31, 2025, we had a full valuation allowance on our U.S.

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The change in the valuation allowance was comprised of the following (in thousands):

December 31, 2024 December 31, 2023

Balance at the beginning of the period $ 22,658 $ 1,087

December 31, 2025

December 31, 2024

Valuation allowance, at beginning of year

Increases in valuation allowance recorded through earnings

Increases in valuation allowance not recorded through earnings

Balance at the end of the period $ 38,616 $ 22,658

Valuation allowance, at end of year $

The income taxes paid (net of refunds received) was comprised of the following (in thousands):

For the Year Ended

December 31, 2025

December 31, 2024

Federal taxes

States taxes:

Other state jurisdictions ( 18 )

Foreign taxes:

Other foreign jurisdictions

Total cash taxes paid

Tax Receivable Agreement

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These increases in tax basis may reduce the amounts that would otherwise be paid in the future to various tax authorities.

On January 27, 2022, we entered into a Tax Receivable Agreement with certain of the then-existing members of System1 Holdings that provides for the payment by us of 85 % of the amount of any tax benefits that are actually realized, or in some cases are deemed to realize, as a result of (i) increases in our share of the tax basis in the net assets of System1 Holdings resulting from any redemptions or exchanges of LLC interests, (ii) tax basis increases attributable to payments made under the Tax Receivable Agreement, and (iii) deductions attributable to imputed interest pursuant to the Tax Receivable Agreement ("TRA Payments").

On January 27, 2022, we entered into a Tax Receivable Agreement ("TRA") with certain of the then-existing members of System1 Holdings that provides for the payment by us of 85 % of the amount of any tax benefits that are actually realized, or in some cases are deemed to realize, as a result of (i) increases in our share of the tax basis in the net assets of System1 Holdings resulting from any redemptions or exchanges of LLC interests, (ii) tax basis increases attributable to payments made under the TRA, and (iii) deductions attributable to imputed interest pursuant to the TRA.

We expect to benefit from the remaining 15 % of any tax benefits that we may actually realize.

We acquired an aggregate of 2.8 million and 0.2 million LLC interests in connection with the redemption of LLC interests in the years ended December 31, 2024 and 2023, respectively, which resulted in an increase in the tax basis of our investment in System1 Holdings subject to the provisions of the Tax Receivable Agreement.

We have recognized a total liability in the amount of $ 5.3 million for the TRA Payments due to the redeeming members, representing 85 % of the aggregate tax benefits we expect to realize from the tax basis increases related to the redemption of LLC interests, after concluding it was probable that such TRA Payments would be paid based on estimates of future taxable income.

During the year ended December 31, 2024, inclusive of interest, no payments were made to the parties to the Tax Receivable Agreement.

The total amount of TRA Payments due under the Tax Receivable Agreement, was $ 5.3 million and $ 0.8 million as of December 31, 2024 and 2023, respectively.

The Tax Receivable Agreement liabilities are classified within Other non-current liabilities on the consolidated balance sheets.

As a result of the full valuation allowance on the deferred tax assets, and projected inability to fully utilize all or part of the related tax benefits, we determined that certain payments to the TRA parties related to unrealized tax benefits under the TRA are no longer probable and estimable.

Based on this assessment, we reduced our TRA liability as of December 31, 2025, to zero , and recognized a gain of $ 5.3 million within our consolidated statements of operations for the year ended December 31, 2025.

If utilization of the deferred tax asset subject to the TRA becomes more likely than not in the future, we will record a liability related to the TRA which will be recognized as expense within its consolidated statements of operations.

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.

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

As of December 31, 2025, we remain contractually obligated to spend $ 1.2 million towards this commitment.

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

In March 2023, we received a demand letter from counsel for Alta Partners, LLC ("Alta"), which purports to be a holder of certain Warrants of the Company ("Demand Letter").

The Demand Letter alleged, among other claims, that we breached the terms of the Warrant Agreement, and that Alta was entitled to approximately $ 5.7 million in damages, plus prejudgment interest, as a result, and subsequently sent us a draft complaint (the "Complaint") alleging substantially the same claims as those set forth in Alta’s Demand Letter.

While we denied liability with respect to the claims set forth in the Demand Letter and the Complaint, the parties entered into a Confidential Settlement Agreement ("Settlement Agreement") in October 2023, which contemplated an immaterial settlement payment that was subsequently paid prior to December 31, 2023 consistent with the terms of the Settlement Agreement .

In October 2023, a putative California class action complaint (the "Complaint") was filed against us and our Protected business regarding alleged violations of California’s Auto Renewal Law requirements related to the marketing and sale of its subscription service offerings for anti-virus and ad-blocking software (the "Protected Software") to consumers.

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While we dispute the claims alleged, we reached a Settlement Agreement during September 2024 and paid $ 2.5 million during December 2024, presented within Selling, general, and administrative expenses in our consolidated statement of operations for the year ended December 31, 2024.

In September 2025, certain lenders (the "Lenders") under our 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 us 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 our 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 our 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.

In November 2025, the Creditor Lawsuits were consolidated into an amended complaint filed in U.S.

District Court for the Southern District of New York, setting forth the same allegations against the same parties as those set forth in the Creditor Lawsuits, since the Lawsuits principally relate to the same allegations and underlying transactions.

Our 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.

We dispute all of the allegations set forth in the Creditor Lawsuits, deny any liability related thereto and intend to defend ourselves vigorously against the allegations and claims set forth therein.

We have 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.

Indemnifications

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

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.

We entered into a term loan ("Term Loan") and revolving facility ("Revolving Facility" and, together with the Term Loan, "Credit Agreement") 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 Revolving Facility provided for borrowing availability of up to $ 50.0 million.

As of December 31, 2024, there was no balance outstanding on the 2022 Revolving Facility and principal of $ 280.1 million was outstanding on the Term Loan.

As of December 31, 2025, there was principal of $ 260.1 million outstanding on the Term Loan.

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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The Term Loan comes with a leverage covenant, which goes into effect only if the utilization on the Revolving Facility exceeds 35 % of the $ 50.0 million Revolving Facility at each quarter-end starting the second quarter 2022, such that the first lien leverage ratio (as defined in the credit agreement) should not exceed 5.40 .

The facility has certain financial and nonfinancial covenants, including a leverage ratio.

The facility also requires that we deliver our audited consolidated financial statements to our lender within 120 days of our fiscal year end, December 31.

The Credit Agreement has certain financial and nonfinancial covenants, including the "springing" leverage ratio covenant.

The Credit Agreement also requires that we deliver our audited consolidated financial statements to our lender within 120 days of our fiscal year end, December 31.

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

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

As of December 31, 2024 and 2023, respectively, we had $ 50.0 million available on the 2022 Revolving Facility.

During 2024 we did not have any borrowings from the Revolving Facility and as of December 31, 2024 we had $ 50.0 million available on the Revolving Facility.

During the fourth quarter of 2025, we borrowed $ 50.0 million under the Revolving Facility and the balance outstanding at December 31, 2025 was $ 50.0 million, presented within current liabilities.

We were in compliance with the financial covenants under the Revolver Facility as of December 31, 2025.

Reorganization

System1 Holdings holds our remaining assets and business operations.

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

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

December 31, 2024 December 31, 2023

December 31, 2025

December 31, 2024

Term Loan 1,2

$ 271,523 $ 349,503

Revolving Facility

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_______________

1 Includes unamortized discount of $ 4.7 million and $ 8.1 million, and unamortized loan fees of $ 0.3 million and $ 0.4 million, as of December 31, 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 $ 192.5 million as of December 31, 2025.

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 discount of 64.12 % of its par value).

We used available cash on hand to fund the repurchases.

Our gain on the repurchase was approximately $ 20.1 million before fees and expenses incurred.

There were no repurchases of principal of our Term Loan during 2025 .

As of December 31, 2025, future minimum principal payments on long-term debt were as follows (in thousands):

2025 $ 20,000

Total future minimum principal payment

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Long-term portion

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 discount of 64.12 % of its par value).

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 repurchases.

Our gain on the repurchase was approximately $ 20.1 million before fees and expenses incurred.

Related-Party Transactions

2023 Revolving Note

On April 10, 2023, we entered into a $ 20.0 million Revolving Note ("2023 Revolving Note") with trusts established for the benefit of our co-founders ("Lenders").

Each of the Lenders provided a $ 10.0 million commitment for an aggregate principal of $ 20.0 million under the 2023 Revolving Note.

Any borrowed loan amounts outstanding under the 2023 Revolving Note accrue interest at the rate per annum equal to the SOFR plus 3.15 %.

The Maturity Date under the 2023 Revolving Note is July 10, 2024 ("Maturity Date") with automatic three-month extensions, unless we or any Lenders provide written notice, or unless there is an event of default .

The Lenders are also entitled to (i) an unused commitment fee equal to 1.0 % per annum of the actual daily amount of total unfunded commitments under the 2023 Revolving Note during the period from the closing date to the maturity date, payable quarterly in arrears and (ii) a loan fee equal to 12.0 % of each Lenders' commitment under the 2023 Revolving Note, or $ 2.4 million in total, was originally payable within 180 days of April 10, 2023, and subsequently extended to November 30, 2023.

Upon completion of the Protected disposal, the 2023 Revolving Note and the related loan fee were settled.

The previously unamortized portion of the loan fee of $ 1.2 million was included in loss on extinguishment of related-party debt on our consolidated statements of operations.

The 2023 Revolving Note was subsequently terminated in December 2023.

Senior Unsecured Promissory Note

On September 6, 2023, we entered into a $ 5.2 million Senior Unsecured Promissory Note (the "Promissory Note") with the CouponFollow seller and an employee of ours ("Lender"), in order to convert the amount owed to him as a result of the acquisition of CouponFollow into a loan to us (the "Loan").

The amount of the Loan was equal to the amount of the Holdback liability of $ 5.2 million owed to the Lender.

The Promissory Note accrues interest at SOFR plus 3.15 %.

Under the terms of the agreement, the Promissory Note became due and payable immediately upon sale of Protected.

Per the terms of the note we (i) must prepay the Loan under certain circumstances, which include consummation of a strategic transaction, the refinancing of the existing credit agreement, the incurrence by us of any indebtedness exceeding $ 2.5 million, or the sale of any of our assets in excess of $ 2.5 million;

(ii) may prepay the Loan at any time without penalty or interest;

and (iii) must make four substantially equal amortization payments on April 1, 2024, May 1, 2024, June 1, 2024, and July 1, 2024, unless there is an event of default, including a continuing event of default on the Credit Agreement, at which point the holder may declare all amounts due immediately.

The Lender under the Promissory Note is also entitled to a closing fee equal to 12 % of the initial principal amount outstanding under the Promissory Note with 50 % paid on October 15, 2023 and the remaining 50 % due on December 15, 2023.

We recorded expense of approximately $ 0.6 million within loss on extinguishment of related-party debt on our consolidated statements of operations, which related to the 12 % closing fee payable to the Lender.

Upon completion of the Protected disposal, the Promissory Note, accrued interest and the remaining 50 % of the closing fee was settled.

On October 6, 2023, we entered into a $ 2.5 million Term Loan Note ("Term Note") with Openmail2, LLC ("Term Lender"), which is principally owned and managed by trusts established for the benefit of our co-founders.

The amounts outstanding under the Term Note accrue interest at the rate per annum equal to the SOFR plus 5.75 %.

The maturity date under the Term Note is December 31, 2024, unless there is an event of default, including a continuing event of default on the credit agreement, at which point the holder may declare all amounts due immediately .

We must prepay the Loan under certain circumstances, which include (i) the consummation of a strategic transaction or (ii) upon the full refinancing and termination of the existing credit agreement.

The Term Lender was also entitled to a closing fee equal to 10.0 % of the principal amount of the Term Note, payable within 180 days of October 6, 2023.

Upon completion of the Protected disposal, the Term Note, accrued interest and closing fee was settled.

The previously unamortized portion of the loan fee of $ 0.2 million was included in loss on extinguishment of related-party debt on our consolidated statements of operations.

Secured Facility

On October 6, 2023, Protected, our indirect wholly-owned subsidiary at the time, entered into a Secured Facility Agreement providing for a $ 10.0 million term loan ("Secured Facility") with a subsidiary of JDI ("Secured Lender") , one of our significant shareholders, which is principally owned and managed by certain members of the Protected management team .

Pursuant to the Secured Facility, the Secured Lender provided a $ 10.0 million commitment to Protected, which amount was (i) drawn down in full on the closing date and (ii) secured by the assets of Protected pursuant to a deed granted in favor of the Secured Lender pursuant to a Debenture between Protected and the Secured Lender, dated October 6, 2023.

The amounts outstanding under the Secured Facility accrue interest at the rate of 8.5 % per annum.

The amounts outstanding under the Secured Facility are due upon the earlier of (i) October 6, 2024 or (ii) the date on which Protected undergoes a Change of Control.

The Secured Lender was also entitled to a closing fee equal to 12.0 % the principal amount of the borrowings under the Secured Facility, which was paid in full on the closing date.

In addition, Protected agreed to reimburse the Secured Lender for their reasonable and documented costs incurred in connection with the negotiation, documentation and execution of the Secured Facility.

Upon completion of the Protected disposal, the Secured Facility, the related loan fee and an early settlement fee were settled by the sale.

The previously unamortized portion of the loan fee and the early settlement fee for an aggregate amount of $ 1.4 million was included in net loss from discontinued operations, net of tax on our consolidated statements of operations.

Services Agreement

On June 20, 2023, we engaged with one of our significant shareholders, for management and consulting services .

The agreement was terminated in August 2023.

During the year ended December 31, 2023, we paid all amounts owed and outstanding, tot aling $ 0.1 million.

In June 2020, we issued Warrants.

The Warrants may only be exercised for a whole number of shares.

No fractional shares will be issued upon exercise of the Warrants.

The Warrants became exercisable on April 18, 2022, when the S-1/A registration statement, which was required to be filed under the terms of the Warrant Agreement and the Business Combination Agreement, was declared effective.

The Warrants will expire five years from the completion of the Merger, or earlier upon redemption or liquidation.

Redemption of Warrants when the Price per Class A common stock equals or exceeds $ 18.00 —We may redeem the outstanding Warrants:

• in whole and not in part;

• at a price of $ 0.01 per Public Warrant;

• upon not less than 30 days’ prior written notice of redemption to each warrant holder;

• if, and only if, the last reported sale price of the Class A common stock for any 20 trading days within a 30 -trading day period ending three business days before sending the notice of redemption to warrant holders ("Reference Value") equals or exceeds $ 18.00 per share (as adjusted for share splits, share capitalizations, reorganizations, recapitalizations and the like).

Redemption of Warrants When the Price per Class A common stock equals or exceeds $ 10.00 —Once the Warrants become exercisable, we may redeem the outstanding Warrants:

• in whole and not in part;

• at $ 0.10 per warrant upon a minimum of 30 days’ prior written notice of redemption provided that holders will be able to exercise their Warrants on a cashless basis prior to redemption and receive that number of shares determined by reference to the exhibit in the report on Form 10-K for the year ended December 31, 2021 filed on March 31, 2022, based on the redemption date and the "fair market value" of the Class A common stock;

• if, and only if, the Reference Value (as defined above under "Redemption of Warrants When the Price per Class A common stock Equals or Exceeds $ 18.00 ") equals or exceeds $ 10.00 per share (as adjusted for share splits, share dividends, reorganizations, recapitalizations and the like);

• if the Reference Value is less than $ 18.00 per share (as adjusted for share splits, share dividends, reorganizations, recapitalizations and the like) the Private Placement Warrants must also be concurrently -called for redemption on the same terms as the outstanding Warrants, as described above.

If and when the Warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws.

However, we will not redeem the Warrants unless an effective registration statement under the Securities Act covering the underlying shares of Class A common stock issuable upon exercise of the Warrants is effective and a current prospectus relating to those shares of Class A common stock is available throughout the 30 -day redemption period.

The exercise price and number of common stock issuable upon exercise of the Warrants may be adjusted in certain circumstances including in the event of a share dividend, extraordinary dividend or recapitalization, reorganization, merger or consolidation.

However, except as described below, the Warrants will not be adjusted for issuances of common stock at a price below our exercise price.

Additionally, in no event will we be required to net cash settle the Warrants.

The Warrants are accounted for as liabilities at fair market value at each reporting period, with changes in the fair value presented as change in fair value of warrant liabilities on the consolidated statements of operations.

During the years ended December 31, 2024 and 2023 , there were no Warrants exercised.

The total outstanding Warrants as of December 31, 2024 and 2023 was 16.8 million.

Fair Value Measurement

Financial Liabilities Measured at Fair Value on a Recurring Basis

Level 1 liabilities measured at fair value on a recurring basis are summarized below (in thousands):

December 31, 2024 December 31, 2023

Warrants $ 302 $ 2,688

Fair value of liabilities $ 302 $ 2,688

There were no Level 3 financial liabilities as of December 31, 2023.

There were no transfers in or out of levels for the years ended December 31, 2024 and 2023, respectively .

Nonfinancial Assets Measured at Fair Value on a Nonrecurring Basis

For further information on the fair value assessment of goodwill and impairment charge recorded for the discontinued operation, see Note 4, Goodwill, Internal-Use Software Development Costs, Net, and Intangible Assets, Net and Note 17, Discontinued Operations.

Net Loss Per Share

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For the Year Ended

December 31, 2024 December 31, 2023

Basic and diluted net loss per share

Net loss from continuing operations attributable to System1, Inc.

$ ( 1.07 ) $ ( 0.94 )

Net loss from discontinued operations, net of tax attributable to System1, Inc.

December 31, 2025

December 31, 2024

Basic and diluted net loss per share

Net loss from continuing operations attributable to System1, Inc.

$ ( 74,673 ) $ ( 85,727 )

Net loss from discontinued operations, net of tax attributable to System1, Inc.

Net loss attributable to System1, Inc.

$ ( 8.32 ) $ ( 10.74 )

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Weighted-average common shares outstanding used in computing basic and diluted net loss per share

Shares of Class C common stock, RSUs and Warrants outstanding for the year December 31, 2024 and 2023, are considered potentially dilutive of 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 were excluded from the computation of net loss per share as the impact was anti-dilutive.

For the year ended December 31, 2024, we excluded 21.9 million Stock Appreciation Rights as they are contingently issuable based on certain performance conditions, which were not achieved.

Shares of Class C common stock, RSUs, Stock Appreciation Rights ("SARs") and Warrants outstanding for the years ended December 31, 2025 and 2024, are considered potentially dilutive of 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 net loss per share as the impact was anti-dilutive.

For the year ended December 31, 2025, we excluded 2.0 million SARs as they are contingently issuable based on certain performance conditions, which are not achieved as of December 31, 2025.

See Note 13, Stock-Based Compensation, for additional details.

We do not consider unvested Class A common stock related to the Replacement Awards as outstanding for accounting purposes as they are subject to continued service requirements or contingencies.

These shares are not included in the denominator of the net loss per share calculation until the employee provides the requisite service resulting in the vesting of the award or the contingency is removed, or upon termination of an employee at which point the common stock underlying award becomes issuable to the previous investors.

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.

Segment Reporting

We have two operating and reportable segments:

Owned and Operated Advertising and Partner Network.

Operating segments are defined as components of an enterprise about which separate financial information is

available that is evaluated regularly by the Chief Operating Decision Maker ("CODM"), in deciding how to allocate resources and assess performance.

We previously managed our business across two operating and reportable segments:

the monetization of end-users acquired directly by us to our websites and products ("Owned & Operated Advertising"), and the monetization of end-users acquired by our Network Partners ("Partner Network").

In the second quarter of 2025, we had an internal organizational change that resulted in a change in how we manage our businesses.

We combined the management of our Partner Network business with the portion of our Owned and Operated Advertising activities related to paid traffic acquisition via advertising costs and direct agency fees ("Marketing") and separately manage our CouponFollow, Startpage and MapQuest businesses which primarily acquire end-users organically ("Products").

This resulted in a change to our operating and reportable segments.

We now have two operating and reportable segments:

Marketing and Products.

All prior year information in the tables below have been revised retrospectively to reflect the change to our reportable segments.

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the Chief Operating Decision Maker ("CODM"), in deciding how to allocate resources and assess performance.

Our Chief Executive Officer, who is considered to be our CODM, reviews financial information presented on an operating segment basis for purposes of making operating decisions and assessing financial performance.

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Adjusted gross profit is also used to determine variable compensation expense for certain employees.

We have not presented segment assets as our CODM does not use segment assets to evaluate or measure segment performance or allocate resources.

The tables below include the following operating expenses that are not allocated to the reportable segments presented to our CODM, such as other cost of revenue (total cost of revenue excluding traffic acquisition cost), salaries and benefits, depreciation and amortization and, at times, certain other transactions or adjustments.

The CODM does not consider these expenses for the purposes of making decisions to allocate resources among segments or to assess segment performance, however these costs are included in reported consolidated net loss from continuing operations before income tax and are included in the reconciliation that follows.

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

For the Year Ended

Owned and Operated Advertising $ 281,930 $ 328,934

Partner Network 61,995 73,037

Total revenue $ 343,925 $ 401,971

Owned and Operated Advertising $ 173,721 $ 221,238

Partner Network 10,136 19,617

Total segment cost of revenue $ 183,857 $ 240,855

Owned and Operated Advertising $ 108,209 $ 107,696

Partner Network 51,859 53,420

Adjusted gross profit 160,068 161,116

We have not presented segment assets as our CODM does not regularly use segment assets to evaluate or measure segment performance or allocate resources.

The tables below include the following operating expenses that are not allocated to the reportable segments presented to our CODM, such as other cost of revenue (total cost of revenue excluding traffic acquisition cost and agency fees), salaries and benefits, selling, general and administrative expenses and, at times, certain other transactions or adjustments.

The CODM does not consider these expenses for the purposes of making decisions to allocate resources among segments or to assess segment performance, however these costs are included in reported consolidated net loss before income tax and are included in the reconciliation that follows.

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

For The Year Ended December 31, 2025

segment cost of revenue

Segment adjusted gross profit

Other cost of revenue

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Selling, general, and administrative

Depreciation and amortization 80,107 78,403

Interest expense, net

Gain on extinguishment of tax receivable agreement liability

Gain on extinguishment of debt

Loss on extinguishment of related-party debt — 2,004

Change in fair value of warrant liabilities

Loss before income tax

For The Year Ended December 31, 2024

segment cost of revenue

Segment adjusted gross profit:

Other cost of revenue

Salaries and benefits

Selling, general, and administrative

Interest expense, net

Gain on extinguishment of debt

Change in fair value of warrant liabilities

Loss before income tax

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

For the Year Ended

December 31, 2025

December 31, 2024

United States

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For the Year Ended

Google 78 % 85 %

December 31, 2025

December 31, 2024

Concentration of accounts receivable from key Advertising Partners

December 31, 2024 December 31, 2023

Google 56 % 69 %

Microsoft 8 % 5 %

Yahoo 7 % 6 %

December 31, 2025

December 31, 2024

As of December 31, 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, 2025 and September 30, 2027.

The Google agreement set to expire on February 28, 2025 was extended through February 28, 2027.

The agreement with Microsoft (our next largest Advertising Partner by revenue) is in effect through June 30, 2025.

One of the Google agreements is in effect through September 30, 2027, and the Google agreement that originally was scheduled to remain in effect through February 28, 2027 was terminated for convenience by Google effective as of February 10, 2026.

The agreement with Microsoft (our next largest Advertising Partner by revenue) is in effect through December 31, 2026.

Under certain circumstances, each of these agreements may be terminated by either us or the respective Advertising Partner immediately, or with minimal notice.

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Holders of Class C common stock may only transfer their Class C common stock to certain permitted transferees, while also simultaneously transferring an equal number of such holder’s System1 Holdings Common Units.

Reverse Stock Split

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

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.

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

Repurchase Program

In August 2022, the Company announced that our Board of Directors authorized up to $ 25.0 million for the repurchase of our Class A common stock and Warrants ( " 2022 Repurchase Program " ).

During the years ended December 31, 2024 and 2023 we did not repurchase Class A common stock or Warrants.

The amount outstanding under the 2022 Repurchase Program is $ 23.9 million.

In August 2022, we announced that our Board of Directors authorized up to $ 25 million for the repurchase of our Class A common stock and Warrants ("2022 Repurchase Program").

During the year ended December 31, 2025, we repurchased 0.1 million shares of our Class A common stock with a fair value of $ 0.6 million , including commissions and did not repurchase any of our Warrants.

During the year ended December 31, 2024, we did not repurchase Class A common stock or Warrants.

The amount outstanding under the 2022 Repurchase Program as of December 31, 2025 is $ 23.3 million.

Stock-Based Compensation

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During the year ended December 31, 2025, 2.3 million grant awards were reserved and authorized for issuance and/or grant under the 2022 Plan.

In addition, the number of underlying shares authorized for issuance/grant under the 2022 Plan are subject to increase each year on January 1, equal to the lesser of (a) a number of shares equal to 2.5 % of the aggregate number of shares of common stock outstanding on the final day of the immediately preceding calendar year and (b) such smaller number of shares as is determined by the compensation committee of the board of directors.

In addition, the number of underlying shares authorized for grant under the 2022 Plan are subject to increase each year on January 1, equal to the lesser of (a) a number of shares equal to 2.5 % of the aggregate number of shares of common stock outstanding on the final day of the immediately preceding calendar year and (b) such smaller number of shares as is determined by the compensation committee of the board of directors.

On January 1, 2026, the number of shares authorized and reserved for grant under the 2022 Plan was increased by 0.2 million shares in accordance with the foregoing provision of the 2022 Plan.

As described in Note 2, Summary of Significant Accounting Policies, the Replacement Awards continue to vest over the original vesting schedule of the original underlying awards.

We recognized stock-based compensation expense for the Replacement Awards of $ 2.2 million and $ 6.6 million during the years ended December 31, 2024 and 2023, respectively.

The unrecognized stock-based compensation expense associated with these unvested Replacement Awards was $ 0.2 million a s of December 31, 2024, expected to be recognized during the first quarter of 2025.

We recorded the following stock-based compensation expenses for equity-classified awards (in thousands) :

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

For the Year Ended

December 31, 2025

December 31, 2024

Stock-based compensation expense

The following summarizes RSU activity:

(in thousands) Weighted-Average Grant Date Fair Value per Share

Unvested as of December 31, 2023 4,423 $ 5.41

Granted 6,135 $ 1.42

Vested ( 4,089 ) $ 4.55

Forfeited ( 544 ) $ 3.14

Unvested as of December 31, 2024 5,925 $ 2.08

As described in Note 2, Summary of Significant Accounting Policies , the Replacement Awards continue to vest over the original vesting schedule of the original underlying awards.

We recognized stock-based compensation expense for the Replacement Awards of $ 0.2 million and $ 2.2 million during the years ended December 31, 2025 and 2024, respectively.

The Replacement Awards fully vested during 2025.

The following summarizes RSU activity during the year:

(in thousands)

Weighted-Average Grant Date Fair Value per Share

Nonvested at December 31, 2024

Nonvested at December 31, 2025

The weighted average grant date fair value per share for the restricted stock units granted during the year ended December 31, 2024 was $ 14.20 .

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During the year ended December 31, 2024, we adopted the 2024 SAR Plan.

The maximum number of Class A common stock that may be issued pursuant to awards of Stock Appreciation Rights ("SARs") granted under the 2024 Plan ("Awards") is 23.8 million shares.

income taxes, depreciation and amortization expense, stock-based compensation expenses, dividends or other distributions to equity holders, expense associated with revaluation of any warrants, costs associated with acquisitions or dispositions, deferred compensation, management fees, minority interest expense, restructuring charges, impairment and certain segment-specific adjustments, and such other adjustments as may be appropriate to accurately reflect performance, in each case, as determined by the 2024 Plan administrator.

In July 2024, we granted 22.4 million SARs.

Each Award is subject to the employee's continued service through the applicable vesting date (as defined in the SAR Plan).

The term of any SARs shall not exceed seven years .

The SARs will vest in four equal tranches upon achieving trailing twelve month Adjusted EBITDA targets of $ 50.0 million, $ 60.0 million, $ 70.0 million, and $ 80.0 million.

The maximum number of Class A common stock that may be issued pursuant to awards of Stock Appreciation Rights ("SARs") granted under the 2024 Plan ("Awards") is 2.4 million SARs.

The pre-modified SARs would vest in four equal tranches upon achieving trailing twelve month Adjusted EBITDA performance thresholds of $ 50.0 million, $ 60.0 million, $ 70.0 million, and $ 80.0 million.

The term of each Tranche shall not exceed four , five , six and seven years , respectively.

Upon exercise, the SARs will be settled in shares of our Class A common stock or in cash at our election.

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Unvested SARs are forfeited upon termination of service.

We use the Black-Scholes option pricing model to estimate the grant date fair value of each SARs award granted under the 2024 Plan.

The expected term is estimated using the simplified method, which is the midpoint between the vesting date and the contractual term.

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

Financial performance in the 2024 Plan is determined by the achievement of Adjusted EBITDA performance targets, defined as, with respect to any particular period, our net income (loss) before interest expense, income taxes, depreciation and amortization expense, stock-based compensation expenses, dividends or other distributions to equity holders, expense associated with revaluation of any warrants, costs associated with acquisitions or dispositions, deferred compensation, management fees, minority interest expense, restructuring charges, impairment and certain segment-specific adjustments, and such other adjustments as may be appropriate to accurately reflect performance, in each case, as determined by the Plan administrator.

In July 2024, we granted 2.2 million SARs.

Each Award is subject to the employee's continued service through the applicable vesting date (as defined in the SAR Plan).

On May 30, 2025 the SARs plan administrator certified that the trailing twelve month ("TTM") adjusted EBITDA exceeded the Tranche I performance threshold and the Tranche I awards vested ("Vested SARs").

On June 10, 2025 our stockholders approved an amendment to the System1, Inc.

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").

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

At the modification date, we used the Hull-White I binomial lattice option pricing model to estimate the grant date fair value of each SARs award granted under the 2024 Plan.

The risk-free rate is based on the U.S.

Treasury yield curve in effect at the time of grant.

The expected term is equal to the remaining term.

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

The following table sets forth the key assumptions used to determine the fair value:

Risk-free interest rate

3.87 % - 4.11 %

Term (in years)

Volatility factor

84.27 % - 97.65 %

Dividend yield

The weighted-average grant date fair value of SARs granted during the year ended December 31, 2024 was $ 0.94 .

A summary of our SARs activity is as follows:

Number of Shares

(in thousands) Weighted Average Exercise Price Weighted Average Remaining Contractual Life (Years) Aggregate Intrinsic Value (in thousands)

Outstanding at January 1, 2024 — $ — — $ —

Granted 22,446 1.44

Forfeited/canceled ( 498 ) 1.44

(in thousands)

Weighted Average Exercise Price

Weighted Average Remaining Contractual Life (Years)

Aggregate Intrinsic Value (in thousands)

Outstanding at December 31, 2024

21,948 1.44 5

Expected to vest as of December 31, 2024

— $ 1.44 5 $ —

As of December 31, 2024, we determined the performance conditions of the Tranche I SARs awards were probable of being achieved before the fourth anniversary date of the awards.

Accordingly, we recognized $ 0.9 million in stock-based compensation expense within equity for the twelve months ended December 31, 2024.

As of December 31, 2024, the total unrecognized compensation cost related to unvested SARs was $ 3.5 million, expected

to be recognized over the remaining period of two years .

No SARs vested or were exercised for the year ended December 31, 2024.

Discontinued Operations

Sale of Protected

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

Total consideration comprised of:

(a) $ 240.0 million in cash, subject to certain adjustments, (b) the return and subsequent cancellation of approximately 29.1 million shares of our Class A common stock, par value $ 0.0001 per share, owned by JDI and other entities and individuals affiliated with the Purchasing Parties and (c) confirmation from JDI, Protected and the Protected CEO that the financial performance benchmarks related to the Protected Incentive Plan, will , as a result of the Protected Disposition, no longer be achievable.

We used $ 51.0 million of the proceeds from the sale of Protected to repay certain of our outstanding indebtedness, including (i) the mandatory repayment of secured and unsecured obligations totaling $ 18.8 million and intercompany obligations totaling $ 9.6 million and (ii) the voluntary repayment of unsecured obligations (inclusive of certain fees and accrued but unpaid interest) totaling $ 22.7 million .

We continue to use the remaining cash proceeds from the sale of Protected for general working capital purposes and to reduce certain of our other existing debt obligations.

Additionally, the 29.1 million of Class A common stock returned to us pursuant to the Share Purchase Agreement as part of the sale of Protected were subsequently cancelled and are no longer outstanding shares of our capital stock.

We have determined that the sale of Protected represents a strategic shift that will have a major effect on our results of operations.

The Protected business met the criteria to be reported as assets held for sale and discontinued operations on September 30, 2023, and accordingly, all prior comparable periods have been recast to conform to the current period presentation.

Impairment of the Subscription Reporting Unit (the Protected Business)

Upon classifying the Protected Business as held for sale, we performed a goodwill impairment test on the Subscription reporting unit resulting in a goodwill impairment charge of $ 115.5 million.

This impairment was the result of decreases in long-term forecasts due to recent adverse customer trends and other macroeconomic outcomes.

We recorded a further impairment charge of $ 3.3 million upon the classification of the disposal group as held for sale, for a total impairment charge of $ 118.8 million that was recorded in the results of discontinued operations for the year ended December 31, 2023.

There was no tax benefit of this charge for the year ended December 31, 2023.

There were no assets and liabilities classified as held for sale from discontinued operations as of December 31, 2023.

The financial results of Protected are presented as loss from discontinued operations, net of taxes in the consolidated statements of operations.

The following table presents the summarized discontinued operations consolidated statements of operations (in thousands):

Year Ended December 31, 2023

Revenue $ 190,090

Operating expenses:

Cost of revenue (excluding depreciation and amortization) 161,134

Salaries and benefits 41,972

Selling, general, and administrative 11,546

Depreciation and amortization 26,727

Impairment of assets held for sale 3,276

Impairment of goodwill 115,483

Total operating expenses 360,138

Operating loss ( 170,048 )

Other expense, net 548

Loss on sale of business 4,247

Loss from discontinued operations before income taxes ( 174,843 )

Income tax benefit ( 516 )

Net loss from discontinued operations $ ( 174,327 )

The following table presents the significant non-cash items and capital expenditures for the discontinued operations with respect to the subscription business that are included in the consolidated statements of cash flows (in thousands):

Year Ended December 31, 2023

Impairment of assets held for sale $ 3,276

Impairment of goodwill

Loss on sale of business $ 4,247

Depreciation and amortization $ 26,727

Stock-based compensation $ 31,850

Capital expenditures $ 1,739

Transition Service Agreement

In connection with a transition service agreement, we agreed to provide certain services for which full reimbursement of cost was provided through November 30, 2024.

We were reimbursed $ 4.3 million in costs through the end of the transition service agreement.

Discontinued Operations Related-Party Transactions

Payment Processing Agreement

Protected utilizes multiple credit card payment processors, including Paysafe Financial Services Limited ("Paysafe").

In March 2021, Paysafe completed a merger with Foley Trasimene Acquisition Corp.

II ("Foley Trasimene"), a special purpose acquisition company sponsored by entities affiliated with a sponsor of Trebia who was also a member of our Board of Directors.

Protected's payment processing agreement with Paysafe was negotiated before the announcements of both (i) the Merger as well as (ii) the business combination between Paysafe and Foley Trasimene.

We incurred credit card processing fees related to Paysafe for the year ended December 31, 2023 of $ 14.9 million.

Office Facilities

We had an agreement with JDI Property Holdings Limited ("JDIP"), an entity controlled by one of our former directors, which allows us to use space at their property in exchange for GBP 0.1 million per year.

The agreement with JDIP terminated concurrently with the sale of Protected.

Protected Incentive Plan Installment Payments

In connection with the Merger, we effected an incentive plan for eligible recipients (the "Protected Incentive Plan") providing up to $ 100 million payable in fully-vested shares of our Class A common stock based contingent upon the achievement of the future performance of Protected’s business.

The incentive plan originally was to be paid out in two tranches based on performance of the business for 2023 and 2024.

The first award (2023), consisting of $ 50.0 million of Class A common stock payable in January 2024, was modified to a cash award resulting in $ 20 million of payments in 2022 and 2023 with an additional final $ 10.0 million, payable upon the achievement of certain performance thresholds around marketing spend and operating contribution of Protected are achieved on or before December 31, 2024.

On November 30, 2023, none of the performance thresholds have been met, and therefore, none of the additional cash bonus payments have been paid.

At the closing of the Protected Disposition, JDI, Protected and the Protected CEO confirmed that the financial performance benchmarks related to certain contingent earnout payments based on the future performance of Protected’s Business will no longer be achievable.

As such, we reversed $ 40.8 million of expense during the year ended December 31, 2023 for the Protected Incentive Plan within loss on sale of business segment of discontinued operations on the consolidated statements of operations .

Outstanding at December 31, 2025

Exercisable at December 31, 2025

Expected to vest at December 31, 2025

The weighted average grant date fair value for SARs granted during the years ended December 31, 2025 and 2024, was $ 6.83 and $ 4.38 , respectively.

For the year ended December 31, 2025, we recognized $ 3.5 million stock-based compensation expense, including $ 0.3 million of incremental expense as a result of the Modification, within equity for the Tranche I awards which vested on May 30, 2025.

As of December 31, 2025, we determine it is not probable we would achieve the performance conditions of Tranche II before the fifth anniversary grant date of the award and reversed $ 0.8 million stock-based compensation expense recognized to date.

As of December 31, 2025, we determined it was not probable we would achieve the performance conditions of Tranche III and IV before the sixth and seventh anniversary dates.

During the year ended December 31, 2025, an immaterial number of SARs were exercised.

Related Party Transactions

On April 28, 2025, we entered into a securities purchase agreement with a founders' family foundation to sell 450,000 unregistered shares of our Class A common stock, at a price of $ 5.00 per share for aggregate proceeds of $ 2.3 million.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

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 8. Financial Statements and Supplementary Data