System1, Inc. 10-K

Item 8. Financial Statements and Supplementary Data. Index to Consolidated Financial Statements Reports of Independent Registered Public Accounting Firm (PCAOB ID 34 ) 65 Consolidated Balance Sheets 66 Consolidated Statements of Operations 67 Consolidated Statements of Comprehensive Loss 68 Consolidated Statements of Stockholders’ Equity 69 Consolidated Statements of Cash Flows 70 Notes to Consolidated Financial Statements 71 64 Report of Independent Registered Public Accounting Firm To the stockholders and the Board of Directors of System1, Inc. Opinion on the Financial Statements 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 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 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 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 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 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 March 11, 2026 We have served as the Company's auditor since 2024. 65 System1, Inc. and Subsidiaries Consolidated Balance Sheets (In thousands, except per share amounts) December 31, 2025 December 31, 2024 ASSETS Current assets: Cash and cash equivalents $ 86,887 $ 63,607 Restricted cash, current 1,243 3,970 Accounts receivable, net 57,289 62,916 Prepaid expenses and other current assets 4,061 3,984 Total current assets 149,480 134,477 Restricted cash, non-current 379 371 Property and equipment, net 1,562 2,104 Internal-use software development costs, net 13,672 14,436 Intangible assets, net 148,089 222,341 Goodwill 82,407 82,407 Operating lease right-of-use assets 9,120 2,644 Other non-current assets 263 349 Total assets $ 404,972 $ 459,129 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 22,016 $ 10,401 Accrued expenses and other current liabilities 46,277 76,200 Operating lease liabilities, current 1,427 2,089 Debt, net 76,718 16,405 Total current liabilities 146,438 105,095 Operating lease liabilities, non-current 8,183 1,365 Long-term debt, net 228,399 255,118 Deferred tax liability 4,013 6,199 Other non-current liabilities 520 6,356 Total liabilities 387,553 374,133 Commitments and contingencies (Note 8) Stockholders' equity: Class A common stock - $ 0.0001 par value; 500,000 shares authorized, 8,225 and 7,365 Class A shares issued and outstanding as of December 31, 2025 and 2024, respectively 1 1 Class C common stock - $ 0.0001 par value; 25,000 shares authorized, 1,813 and 1,870 Class C shares issued and outstanding as of December 31, 2025 and 2024, respectively — — Additional paid-in capital 878,859 863,041 Accumulated deficit ( 847,679 ) ( 782,335 ) Accumulated other comprehensive loss ( 157 ) ( 443 ) Treasury stock, at cost - 137 shares as of December 31, 2025 ( 557 ) — Total stockholders' equity attributable to System1, Inc. 30,467 80,264 Non-controlling interest ( 13,048 ) 4,732 Total stockholders' equity 17,419 84,996 Total liabilities and stockholders' equity $ 404,972 $ 459,129 The accompanying notes are an integral part of these consolidated financial statements. 66 System1, Inc. and Subsidiaries Consolidated Statements of Operations (In thousands, except for per share amounts) For the Year Ended December 31, 2025 December 31, 2024 Revenue $ 266,129 $ 343,925 Operating expenses: Cost of revenue 165,734 242,602 Salaries and benefits 92,747 113,512 Selling, general, and administrative 69,688 76,412 Total operating expenses 328,169 432,526 Operating loss ( 62,040 ) ( 88,601 ) Other expense (income): Interest expense, net 27,556 31,562 Gain on extinguishment of tax receivable agreement liability ( 5,253 ) — Gain on extinguishment of debt — ( 20,109 ) Change in fair value of warrant liabilities ( 275 ) ( 2,386 ) Total other expense, net 22,028 9,067 Loss before income tax ( 84,068 ) ( 97,668 ) Income tax benefit ( 2,875 ) ( 370 ) Net loss ( 81,193 ) ( 97,298 ) Less: Net loss attributable to non-controlling interest ( 15,848 ) ( 22,625 ) Net loss attributable to System1, Inc. $ ( 65,345 ) $ ( 74,673 ) Basic and diluted net loss per share: $ ( 8.32 ) $ ( 10.74 ) Weighted average number of shares outstanding - basic and diluted 7,854 6,955 The accompanying notes are an integral part of these consolidated financial statements. 67 System1, Inc. and Subsidiaries Consolidated Statements of Comprehensive Loss (In thousands) For the Year Ended December 31, 2025 December 31, 2024 Net loss $ ( 81,193 ) $ ( 97,298 ) Other comprehensive loss: Foreign currency translation income (loss) 352 ( 500 ) Comprehensive loss ( 80,841 ) ( 97,798 ) Comprehensive loss attributable to non-controlling interest ( 15,782 ) ( 22,863 ) Comprehensive loss attributable to System1, Inc. $ ( 65,059 ) $ ( 74,935 ) The accompanying notes are an integral part of these consolidated financial statements. 68 System1, Inc. and Subsidiaries Consolidated Statements of Changes in Stockholders' Equity (In thousands) Class A common stock Class C common stock Treasury Stock, at cost Shares Amount Shares Amount Shares Amount Additional Paid-In-Capital Accumulated Deficit Accumulated Other Comprehensive Income Non-Controlling Interest Total Stockholders' Equity Balance at December 31, 2023 6,585 $ 1 2,151 $ — — $ — $ 843,120 $ ( 707,662 ) $ ( 181 ) $ 34,037 $ 169,315 Net loss — — — — — — — ( 74,673 ) — ( 22,625 ) ( 97,298 ) Issuance of common stock in connection with settlement of incentive plan 97 — — — — — 2,464 — — ( 757 ) 1,707 Conversion of Class C shares to Class A shares 281 — ( 281 ) — — — 3,291 — — ( 3,291 ) — 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 355 — — — — — 1,583 — — ( 2,630 ) ( 1,047 ) Issuance of restricted stock for vested replacement awards 47 — — — — — — — — — — Other comprehensive income (loss) — — — — — — — — ( 262 ) ( 238 ) ( 500 ) Stock-based compensation — — — — — — 17,085 — — 263 17,348 Distribution to members — — — — — — — — — ( 27 ) ( 27 ) Balance at December 31, 2024 7,365 $ 1 1,870 $ — — $ — $ 863,041 $ ( 782,335 ) $ ( 443 ) $ 4,732 $ 84,996 Net loss — — — — — — — ( 65,345 ) — ( 15,848 ) ( 81,193 ) Conversion of Class C shares to Class A shares 57 — ( 57 ) — — — — — — — — Issuance of restricted stock, net of forfeitures and shares withheld for taxes 353 — — — — — 627 — — ( 985 ) ( 358 ) Issuance of common stock in private placement 450 — — — — — 3,275 — — ( 1,025 ) 2,250 Class A common stock repurchases — — — — 137 ( 557 ) — 1 — — ( 556 ) Other comprehensive income (loss) — — — — — — — — 286 66 352 Stock-based compensation — — — — — — 11,916 — — 44 11,960 Distribution to members — — — — — — — — — ( 32 ) ( 32 ) Balance at December 31, 2025 8,225 $ 1 1,813 $ — 137 $ ( 557 ) $ 878,859 $ ( 847,679 ) $ ( 157 ) $ ( 13,048 ) $ 17,419 The accompanying notes are an integral part of these consolidated financial statements. 69 System1, Inc. and Subsidiaries Consolidated Statements of Cash Flows (In thousands) For the Year Ended December 31, 2025 December 31, 2024 Cash Flows from Operating Activities Net loss $ ( 81,193 ) $ ( 97,298 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 82,862 80,107 Stock-based compensation 11,312 15,763 Shared-based compensation liabilities 3,429 17,949 Amortization of debt issuance costs 3,595 3,914 Noncash lease expense 1,803 1,991 Change in fair value of warrant liabilities ( 275 ) ( 2,386 ) Deferred tax benefits ( 2,190 ) ( 2,103 ) Gain on extinguishment of tax receivable agreement liability ( 5,253 ) — Gain on extinguishment of debt — ( 20,109 ) Bad debt expense 700 — Other, net 31 ( 161 ) Changes in operating assets and liabilities: Accounts receivable 4,927 ( 6,802 ) Prepaid expenses and other current assets 24 2,846 Accounts payable 12,007 903 Accrued expenses and other current liabilities ( 35,672 ) 1,992 Other non-current liabilities ( 254 ) ( 1,861 ) Net cash used in operating activities ( 4,147 ) ( 5,255 ) Cash Flows from Investing Activities Purchases of property and equipment ( 46 ) ( 31 ) Purchases of intangible asset ( 275 ) — Capitalized software development costs ( 6,402 ) ( 6,224 ) Net cash used in investing activities ( 6,723 ) ( 6,255 ) Cash Flows from Financing Activities Repayment of term loan ( 20,000 ) ( 61,786 ) Proceeds from revolver facility 50,000 — Taxes paid related to net settlement of stock awards ( 356 ) ( 2,148 ) Distributions to members, net of contributions ( 32 ) ( 27 ) Proceeds from private placement of Class A common stock 2,250 — Repurchases of Class A common stock ( 557 ) — Net cash provided by (used in) financing activities 31,305 ( 63,961 ) Effect of exchange rate changes in cash, cash equivalent and restricted cash 126 ( 31 ) Net increase (decrease) in cash, cash equivalents and restricted cash 20,561 ( 75,502 ) Cash, cash equivalents and restricted cash, beginning of the period 67,948 143,450 Cash, cash equivalents and restricted cash, end of the period $ 88,509 $ 67,948 Reconciliation of cash, cash equivalents and restricted cash to the consolidated balance sheets: Cash and cash equivalents $ 86,887 $ 63,607 Restricted cash 1,622 4,341 Total cash, cash equivalents and restricted cash $ 88,509 $ 67,948 Supplemental cash flow information: Cash refunds for income taxes $ ( 43 ) $ ( 809 ) Cash paid for interest $ 25,618 $ 30,677 Operating lease right-of-use assets obtained in exchange for operating lease liabilities $ 8,324 $ — Cash paid for operating lease liabilities $ 2,667 $ 2,583 Stock-based compensation included in capitalized software development costs $ 649 $ 1,382 Settlement of incentive plan through issuance of common stock $ 13 $ 1,707 The accompanying notes are an integral part of these consolidated financial statements. 70 System1, Inc. and Subsidiaries Notes to Consolidated Financial Statements 1. Organization and Description of Business System1, Inc. 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. 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. 71 System1, Inc. and Subsidiaries Notes to Consolidated Financial Statements 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. 2. Summary of Significant Accounting Policies Basis of Presentation and Principles of Consolidation The accompanying consolidated financial statements include the accounts of System1, Inc. and its subsidiaries. All intercompany accounts and transactions have been eliminated in the consolidation of the financial statements. 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. Risks 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. Use of Estimates The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Management’s estimates are based on historical information available as of the date of the consolidated financial statements and various other assumptions that we believe are reasonable under the circumstances. Actual results could differ from those estimates. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, valuation of goodwill, intangible assets and long-lived assets, valuation and recognition of stock-based compensation awards and income taxes. On an ongoing basis, management evaluates our estimates compared to historical experience and trends, which form the basis for making judgments about the carrying value of assets and liabilities. Cash and Cash Equivalents 72 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. Historically, we have not experienced any losses related to these cash balances and we believe that there is minimal risk of expected future losses. However, there can be no assurance that there will not be losses on these deposits. Restricted Cash Restricted cash as of December 31, 2025 and December 31, 2024 primarily related to; (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 We maintain an allowance for doubtful accounts receivable for expected credit losses. In estimating the required allowance, we take into consideration the overall quality and aging of the receivable portfolio, creditworthiness of customers based on ongoing credit evaluation, the number of customers, specifically identified customer risks, historical write-off experience and the current economic environment, reasonable and supportable forecasts of future economic conditions, and other factors that may affect our ability to collect from customers. The payment term for our accounts receivable is typically 30 days. Property and Equipment, Net Property and equipment are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. Repairs and maintenance are charged to expense as incurred, while improvements are capitalized. Upon the sale or retirement of property and equipment, the accounts are relieved of the cost and the related accumulated depreciation, and any resulting gain or loss is included in selling, general, and administrative expense on the consolidated statements of operations. The estimated useful lives of our property and equipment for purposes of computing depreciation are as follows (in years): Computer equipment 3 Office equipment 3 Furniture, fixtures and equipment 3 - 7 Leasehold improvements Shorter of the remaining lease term or estimated useful life for leasehold improvements. Internal-Use Software Development Costs, Net 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 marketing 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 73 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: (i) the planning stage, (ii) the application and infrastructure development stage, and (iii) the post-implementation stage. Costs incurred in the planning and post-implementation stages of software development, including costs associated with the post configuration training and repairs and maintenance of the developed technologies, are expensed as incurred. Costs incurred in the application and infrastructure development stage, including significant enhancements and upgrades, are capitalized once the preliminary project stage is completed, management has authorized further funding for the completion of the project, and it is probable that the project will be completed and the software will perform as intended. Capitalization ends once a project is substantially complete, and the software and technologies are ready for their intended purpose(s). Internal-use software development costs are amortized using a straight-line method over an estimated useful life of three years , commencing when the software is ready for our intended use, which approximates the period over which the expected benefits will be derived. 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 Intangible assets primarily consist of acquired technology, customer relationships and trademarks and trade names. We determine the appropriate useful life based on management’s estimate of the applicable intangible asset’s remaining economic useful life at the time of acquisition. Intangible assets are generally amortized over their estimated economic useful lives using a straight-line method, which approximates the pattern in which the economic benefits are consumed . The fair value of the intangible assets acquired in a business combination are determined as follows; (i) trademarks using the relief from royalty method under the income-based approach. Key assumptions include forecasted revenue, an estimated royalty rate applicable to the trademarks, and a discount rate; (ii) customer relationships using an excess-earnings method utilizing distributor inputs. Key assumptions include customer attrition rate, revenue growth rate, existing customer revenue, deferred revenue, and a discount rate; and (iii) technology using the excess-earnings method. Key assumptions include forecasted revenue, technology migration rate and a discount rate. The estimated useful lives of our intangible assets are as follows (in years): Developed technology 4 Customer relationships 3 - 5 Trademarks and trade names 10 Other intangibles 4 Impairment of Long-Lived Assets We assess the recoverability of our long-lived assets when events or changes in circumstances indicate that their carrying amount may not be recoverable. Such events or changes in circumstances may include a significant adverse change in the extent or manner in which a long-lived asset is being used; significant adverse changes in legal factors or in the business climate that could affect the value of a long-lived asset; an accumulation of costs significantly in excess of the amount originally expected for the acquisition or development of a long-lived asset; current or future operating or cash flow losses that demonstrate continuing losses associated with the use of a long-lived asset; or a current expectation that, more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of our previously estimated useful life. 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 74 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. See Note 4, Goodwill, Internal-Use Software Development Costs, Net, and Intangible Assets, Net. Goodwill We perform annual impairment testing on goodwill in the fourth quarter of each fiscal year or whenever events or changes in circumstances indicate the carrying amount of a reporting unit may exceed its fair value. We have the option to assess goodwill for possible impairment by performing a qualitative analysis to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount; 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. 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. The weighted average cost of capital reflect the increases in market interest rates. Our reference transaction model derives indications of value based on mergers and acquisition transactions in the digital advertising industry. 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. 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 . 75 Leases We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use ("ROU") assets, operating lease liabilities, current and operating lease liabilities, non-current in our consolidated balance sheets. Finance leases are included in property and equipment, other current liabilities, and other non-current liabilities in our consolidated balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we generally use our incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at the commencement date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Warrant Liability 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 Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. We measure fair value based on a three-level hierarchy of inputs, maximizing the use of observable inputs, where available, and minimizing the use of unobservable inputs when measuring fair value. A financial instrument’s level within the three-level hierarchy is based on the lowest level of input that is significant to the fair value measurement. The three-level hierarchy of inputs is as follows: Level 1 : Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date; Level 2 : Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and Level 3 : Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. These inputs are based on our own assumptions about current market conditions and require significant management judgment or estimation. Financial instruments consist of cash, cash equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities, and warrant liabilities. Cash equivalents and restricted cash are stated at fair value on a recurring basis. Accounts receivable, accounts payable and accrued liabilities are stated at their carrying value, which approximates fair value due to the short time to the expected receipt or payment date. 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). 76 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. We determine the fair value by applying Level 3 unobservable inputs. Foreign Currency The functional currency of our wholly-owned subsidiaries is the currency of the primary economic environment in which they operate. Assets and liabilities are translated into U.S. dollars, our reporting currency, using exchange rates prevailing at the balance sheet date, while revenue and expenses are translated at average exchange rates during the year. Gains and losses resulting from the translation of our consolidated balance sheets are recorded as a component of accumulated other comprehensive (loss) inco me. Foreign currency transaction gains and losses are recorded in Total other expense, net on our consolidated statement of operations. Non-Controlling Interest We report a non-controlling interest representing the economic interest in System1 Holdings held by certain individuals and entities other than us. The non-controlling interest is comprised of certain selling equity holders of System1 Holdings that retained an economic interest through their ownership of Class B units in System1 Holdings, along with the same number of corresponding shares of Class C common stock in us. The non-controlling interest holders may, from time to time, require us to convert all or a portion of their economic interest via a redemption of their Class B units in System1 Holdings together with surrendering their corresponding shares of Class C common stock in us in exchange for shares of Class A common stock on a one -for-one basis. 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 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. These transactions may result in a change in the total number of units outstanding in System1 Holdings and/or a change in the percentage that we own of System1 Holdings. 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, 2025, based on shares issued and outstanding (in thousands): Units Ownership Percentage Class A units of System1 Holdings 8,225 81.9 % Class B units of System1 Holdings 1,813 18.1 % 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 We recognize revenue when or as control of the promised services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services. 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 77 performance obligations are satisfied. Revenue recognized from performance obligations satisfied in prior periods is immaterial. Advertising 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. 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 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. 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 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 Salaries and benefits expenses include salaries, bonuses, stock-based compensation and employee benefits costs. Selling, General, and Administrative Expenses 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 Stock based compensation expense is recognized in salaries and benefits expenses on our consolidated statement of operations. Restricted Stock Units 78 For awards granted, the fair value of the related restricted stock units is derived from the market price of our Class A common stock, which is traded on the NYSE. As these awards are subject only to time-based service conditions, we recognize compensation expense for these awards on a straight-line basis over the requisite service period for each award, generally three years, and recognize forfeitures as they occur. Replacement Awards Pursuant to the Merger, we were required to replace certain profits interests awards, the value creation units ("VCU") and Class F Units ("F Units"), with a combination of a restricted stock unit ("RSU") in our shares and a cash award (collectively, "Replacement Awards"). The fair value of the Replacement Awards was derived utilizing the transaction closing price of $ 100.00 . The Merger triggered a liquidating event, therefore, the portion of the Replacement Awards issued in connection with the Merger that was associated with services rendered through the date of the Merger was included in the total consideration transferred, with the exception of the unvested awards subject to service vesting conditions where the service condition had not been completed. With regards to the remaining unvested portion of the Replacement Awards, we continue to recognize compensation expense on a straight-line basis over the original requisite service period and recognize forfeitures as they occur. For Replacement Awards forfeited prior to vesting, we recognize accelerated compensation expense for the remaining unvested shares and unpaid cash amount, as the shares of our common stock become issuable and the cash amount becomes payable to the previous investors immediately upon forfeiture. Share-based Liability Awards In connection with the acquisition of CouponFollow we effected an incentive plan for eligible recipients. See Note 6, Accrued Expenses and Other Current Liabilities. We recognize compensation cost for these share-based liability awards with performance and service conditions if and when it is deemed probable that the performance condition will be achieved. The probability of vesting is evaluated at each reporting period taking into consideration actual results to-date and forecasts, and compensation cost is adjusted to reflect the completed portion of the service period with a graded vesting attribution . Stock Appreciation Rights 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. 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. Income Taxes 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. federal and most applicable state and local income tax purposes. As a partnership, System1 Holdings is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by System1 Holdings is passed through to and included in the taxable income or loss of its members, including us, on a pro rata basis. We are subject to U.S. 79 federal income taxes, in addition to state and local income taxes with respect to its allocable share of any taxable income or loss of System1 Holdings, as well as any stand-alone income or loss generated by us. We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities ("DTAs" and "DTLs", as applicable) for the expected future tax consequences of events that have been included in the financial statements. Under this method, we determine DTAs and DTLs on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on DTAs and DTLs is recognized in income in the period that includes the enactment date. We recognize DTAs to the extent that we believe that these assets are more likely than not to be realized. 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. 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. We recognize both accrued interest and penalties, when appropriate, in the provision for income taxes on the consolidated statements of operations. Accounting Pronouncements Recently Adopted In December 2023, the Financial Accounting Standards Board issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09), which improves the transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information in the effective tax rate reconciliation and income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. 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 beginning with the year ending December 31, 2027 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 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. 80 3. Property and Equipment, Net Property and equipment, net consisted of the following (in thousands): December 31, 2025 2024 Computer equipment $ 826 $ 786 Furniture and equipment 910 885 Leasehold improvements 2,477 2,389 Total 4,213 4,060 Less accumulated depreciation ( 2,651 ) ( 1,956 ) Property and equipment, net $ 1,562 $ 2,104 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. 4. Goodwill, Internal-Use Software Development Costs, Net, and Intangible Assets, Net Goodwill 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. 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. 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 Internal-use software development costs and intangible assets consisted of the following (in thousands): December 31, 2025 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Internal-use software development costs $ 28,325 $ ( 14,653 ) $ 13,672 Intangible assets: Developed technology $ 196,403 $ ( 192,670 ) $ 3,733 Trademarks and trade names 236,053 ( 92,250 ) 143,803 Software 5,100 ( 4,891 ) 209 Customer relationships 2,900 ( 2,556 ) 344 Total $ 440,456 $ ( 292,367 ) $ 148,089 81 December 31, 2024 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Internal-use software development costs $ 21,393 $ ( 6,957 ) $ 14,436 Intangible assets: Developed technology $ 196,128 $ ( 143,386 ) $ 52,742 Trademarks and trade names 236,053 ( 68,650 ) 167,403 Software 5,100 ( 3,616 ) 1,484 Customer relationships 2,900 ( 2,188 ) 712 Total $ 440,181 $ ( 217,840 ) $ 222,341 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. Amortization expense for internal-use software development costs and intangible assets were as follows (in thousands): For the Year Ended December 31, 2025 December 31, 2024 Amortization expense for internal-use software development $ 7,696 $ 4,594 Amortization expense for intangible assets $ 74,527 $ 74,660 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 $ 53,042 $ 51,041 Selling, general, and administrative $ 29,181 $ 28,213 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 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. 82 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): 2026 $ 36,185 2027 26,757 2028 25,080 2029 24,336 2030 23,600 Thereafter 25,803 Total amortization expense $ 161,761 5. Leases 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; Bellevue, Washington; 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, 2025 December 31, 2024 Operating lease expense $ 2,194 $ 2,396 Short-term lease expense 145 126 Variable lease expense 311 286 Sublease income ( 129 ) — Total lease expense $ 2,521 $ 2,808 Variable lease expense is primarily attributable to amounts paid to lessors for common area maintenance and utility charges under our real estate leases. Supplemental information related to leases was as follows: December 31, 2025 Weighted average remaining lease terms (in years) 5.5 Weighted average discount rate 7.1 % 83 Maturities of our operating leases liabilities by fiscal year are as follows (in thousands): December 31, 2025 2026 $ 2,036 2027 2,199 2028 2,262 2029 2,336 2030 2,226 Thereafter 380 Total lease payments 11,439 Less: Imputed interest ( 1,829 ) Present value of operating lease liabilities $ 9,610 6. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following (in thousands): December 31, 2025 December 31, 2024 Accrued revenue share $ 20,865 $ 27,656 Accrued marketing expenses 859 9,440 Accrued payroll and related benefits 7,552 15,893 Shared-based compensation liability 13,408 17,821 Other current liabilities 3,593 5,390 Accrued expenses and other current liabilities $ 46,277 $ 76,200 CouponFollow Incentive Plan In connection with the acquisition of CouponFollow, we approved and adopted the CouponFollow Incentive Plan, which includes CouponFollow’s key employees, including CouponFollow’s founder ("Principal Participant" and together collectively "Participants"). The CouponFollow Incentive Plan at the time of acquisition provided for total payments of $ 35.0 million payable at our option in cash or in fully-vested shares of our Class A common s tock, up to a maximum of 4.7 million shares, which subjects these awards to ASC 718, Compensation - Stock Compensation and are therefore classified as share-based liabilities. 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. 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 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. 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. 84 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. The settlement is net of a $ 0.5 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, 2023, and the fair value of the Class A shares issued upon settlement. 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. 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. 7. Income Taxes Domestic and foreign components of our loss before income taxes were as follows (in thousands): For the Year Ended December 31, 2025 December 31, 2024 Domestic $ ( 78,167 ) $ ( 92,190 ) Foreign ( 5,901 ) ( 5,478 ) Loss before income tax $ ( 84,068 ) $ ( 97,668 ) 85 The components of the Income tax benefit were as follows (in thousands): For the Year Ended December 31, 2025 December 31, 2024 Current: Federal $ 35 $ 145 State 35 291 Foreign ( 755 ) 1,297 Total current (benefit) provision $ ( 685 ) $ 1,733 Deferred: Foreign $ ( 2,190 ) $ ( 2,103 ) Total deferred benefit ( 2,190 ) ( 2,103 ) Income tax benefit $ ( 2,875 ) $ ( 370 ) A reconciliation of the statutory tax rate to the effective income tax rate for the periods presented was as follows (in thousands): For the Year Ended December 31, 2025 December 31, 2024 Amount % Amount % Expected income tax benefit at statutory tax rate $ ( 17,654 ) 21.0 % $ ( 20,510 ) 21.0 % State tax, net of federal tax benefit 35 — % 189 - 0.2 % Foreign tax effects ( 1,258 ) 1.5 % ( 104 ) 0.1 % Effects of cross-border tax laws 709 - 0.8 % ( 162 ) 0.2 % Tax credits: Research and development credits ( 1,012 ) 1.2 % ( 830 ) 0.8 % Other 873 - 1.0 % 75 - 0.1 % Change in valuation allowance 6,278 - 7.5 % 15,496 - 15.9 % Nontaxable or nondeductible items: Stock-based compensation 1,082 - 1.3 % 1,954 - 2.0 % Non-Controlling interest 3,710 - 4.4 % 6,661 - 6.8 % Investment in partnership basis adjustments 6,954 - 8.3 % ( 4,375 ) 4.5 % Liability reversal ( 1,103 ) 1.3 % — — Other nondeductibles 56 - 0.1 % ( 190 ) 0.2 % Changes in unrecognized tax benefits 828 - 1.0 % 754 - 0.8 % Other adjustments ( 2,373 ) 2.8 % 672 - 0.7 % Income tax benefit and effective income tax rate $ ( 2,875 ) 3.4 % $ ( 370 ) 0.4 % 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. 86 The aggregate amount of gross unrecognized tax benefits related to uncertain tax positions were as follows (in thousands): December 31, 2025 December 31, 2024 Beginning balance $ 2,532 $ 1,850 Increases based on tax positions related to prior periods 995 490 Increases based on tax positions related to current period 326 192 Ending balance $ 3,853 $ 2,532 Interest and penalties related to our unrecognized tax benefits are recorded as components of the provision for income taxes. Interest or penalties accrued for the years ended December 31, 2025 and 2024 were not material. 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. The earliest tax years that remain subject to examination in the major tax jurisdictions in which we operate were as follows: Tax year United States 2022 California 2021 Netherlands 2019 The components of the deferred income taxes consisted of the following (in thousands): December 31, 2025 December 31, 2024 Deferred tax assets: Net operating loss and capital loss carryforwards $ 15,735 $ 6,638 Tax credits 5,304 4,894 Interest expense 3,397 2,346 Investment in partnerships 21,764 24,760 Other 258 225 Total deferred tax assets 46,458 38,863 Valuation allowance ( 45,541 ) ( 38,616 ) Total net deferred tax assets $ 917 $ 247 Deferred tax liabilities: Intangibles $ ( 3,808 ) $ ( 6,026 ) Other ( 1,122 ) ( 420 ) Total deferred tax liabilities $ ( 4,930 ) $ ( 6,446 ) Net deferred tax liability $ ( 4,013 ) $ ( 6,199 ) 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. federal and state net deferred tax assets as it was more likely than not that those deferred tax assets would not be realized. 87 As of December 31, 2025, we had U.S. federal net operating loss carryovers ("NOLs") of $ 79.1 million that may be used indefinitely and various state NOLs that will expire at different times. Uncertainties that may affect the utilization of our tax attributes include future operating results, tax law changes, rulings by taxing authorities regarding whether certain transactions are taxable or deductible and expiration of carryforward periods. We had an ownership change and as a result certain federal and state NOLs were limited pursuant to Section 382 of the Internal Revenue Code (the "Code"). This limitation has been accounted for in calculating our available NOL carryforwards. The change in the valuation allowance was comprised of the following (in thousands): December 31, 2025 December 31, 2024 Valuation allowance, at beginning of year $ 38,616 $ 22,658 Increases in valuation allowance recorded through earnings 7,290 15,798 Increases in valuation allowance not recorded through earnings ( 365 ) 160 Valuation allowance, at end of year $ 45,541 $ 38,616 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 $ 47 $ ( 152 ) States taxes: California 32 ( 89 ) Texas ( 32 ) 56 Other state jurisdictions ( 18 ) ( 31 ) Foreign taxes: Canada ( 770 ) 615 Netherlands 698 ( 1,216 ) Other foreign jurisdictions — 8 Total cash taxes paid $ ( 43 ) $ ( 809 ) Tax Receivable Agreement Pursuant to our election under Section 754 of the Code, we expect to obtain an increase in our share of the tax basis in the net assets of System1 Holdings when LLC interests are redeemed or exchanged by the other members of System1 Holdings. We intend to treat any redemptions and exchanges of LLC interests as direct purchases of LLC interests for U.S. federal income tax purposes. 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 ("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. 88 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. 8. Commitments and Contingencies 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. As of December 31, 2025, we had various non-cancelable operating lease commitments for office space which have been recorded as Operating lease liabilities. See Note 5, Leases for additional information regarding lease commitments. Litigation We are subject to various legal proceedings and claims that arise in the ordinary course of business. We believe the ultimate liability, if any, with respect to these actions will not materially affect the consolidated financial position, results of operations, or cash flows reflected in the consolidated financial statements. There can be no assurance, however, that the ultimate resolution of such actions will not materially or adversely affect our consolidated financial position, results of operations, or cash flows. We accrued for losses when the loss is deemed probable and the liability can reasonably be estimated. 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. The Complaint alleges claims under California’s false advertising and unfair competition laws and primarily alleges that the marketing and sales checkout flows for the Protected Software did not clearly and conspicuously disclose that the named plaintiffs set forth in the Complaint were purchasing the Protected Software for a promotional period which would auto-renew after the applicable promotional period. 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 89 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 In the ordinary course of business, we may provide indemnifications of varying scope and terms to customers, vendors, lessors, investors, directors, officers, employees, and other parties with respect to certain matters, including, but not limited to, losses arising out of our breach of such agreements, services to be provided by us, or from intellectual property infringement claims made by third parties. These indemnifications may survive termination of the underlying agreement and the maximum potential amount of future payments we could be required to make under these indemnification provisions may not be subject to claims related to these indemnifications. As a result, we believe the estimated fair value of these agreements was immaterial. Accordingly, we have no liabilities recorded for these agreements as of December 31, 2025 or December 31, 2024, respectively. 9. Debt, Net 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, 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 July 2027. For every interest period, the interest rate on the Term Loan is the adjusted Secured Overnight Financing Rate ("SOFR") plus 4.75 %. The Term Loan is amortized in quarterly installments on each scheduled payment date. 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 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. We were in compliance with the financial covenants under the Term Loan as of December 31, 2025. The interest rate on the Revolving Facility is the adjusted SOFR plus 2.5 % with an adjusted SOFR floor of 0 %. 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. 90 Reorganization 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. The carrying values of our debt, net of discounts, deferred financing and debt issuance costs were as follows (in thousands): December 31, 2025 December 31, 2024 Term Loan 1,2 $ 255,117 $ 271,523 Revolving Facility 50,000 — Total debt, net $ 305,117 $ 271,523 _______________ 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): 2026 $ 30,000 2027 230,090 Total future minimum principal payment 260,090 Less: current portion ( 30,000 ) Long-term portion $ 230,090 10. Net Loss Per Share For the years ended December 31, 2025 and 2024, the basic net loss per share was calculated by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding. Basic and diluted net loss per share was calculated as follows (in thousands, except per share data): 91 For the Year Ended December 31, 2025 December 31, 2024 Basic and diluted net loss per share Net loss attributable to System1, Inc. $ ( 8.32 ) $ ( 10.74 ) Numerator: Net loss attributable to System1, Inc. $ ( 65,345 ) $ ( 74,673 ) Denominator: Weighted-average common shares outstanding used in computing basic and diluted net loss per share 7,854 6,955 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. 11. Segment Reporting 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. The CODM measures and evaluates reportable segments based on segment adjusted gross profit. The CODM evaluates both potential future, as well as historical budget to actual variances, adjusted gross profit by segment on a quarterly basis to determine the allocation of capital for acquisition marketing, as well as technical and personnel resources. 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 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. 92 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 Marketing Products Total Revenue $ 172,889 $ 93,240 $ 266,129 Less: segment cost of revenue 101,403 5,537 106,940 Segment adjusted gross profit $ 71,486 $ 87,703 $ 159,189 Other cost of revenue 58,794 Salaries and benefits 92,747 Selling, general, and administrative 69,688 Interest expense, net 27,556 Gain on extinguishment of tax receivable agreement liability ( 5,253 ) Gain on extinguishment of debt — Change in fair value of warrant liabilities ( 275 ) Loss before income tax $ ( 84,068 ) For The Year Ended December 31, 2024 Marketing Products Total Revenue $ 263,388 $ 80,537 $ 343,925 Less: segment cost of revenue 179,918 3,939 183,857 Segment adjusted gross profit: $ 83,470 $ 76,598 $ 160,068 Other cost of revenue 58,745 Salaries and benefits 113,512 Selling, general, and administrative 76,412 Interest expense, net 31,562 Gain on extinguishment of debt ( 20,109 ) Change in fair value of warrant liabilities ( 2,386 ) Loss before income tax $ ( 97,668 ) The following table summarizes revenue by geographic region (in thousands): For the Year Ended December 31, 2025 December 31, 2024 United States $ 262,959 $ 333,069 Other countries 3,170 10,856 Total revenue $ 266,129 $ 343,925 93 Concentrations The following tables illustrate the concentrations as a percentage of total revenue and total accounts receivable for our key Advertising Partners: Concentration of revenue from key Advertising Partners For the Year Ended December 31, 2025 December 31, 2024 Google 67 % 78 % Concentration of accounts receivable from key Advertising Partners December 31, 2025 December 31, 2024 Google 38 % 56 % Microsoft 7 % 8 % Yahoo 10 % 7 % As of December 31, 2025, we had two paid search advertising partnership agreements with Google, and one paid search advertising partnership agreement with Microsoft. 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. 12. Stockholders' Equity We have two classes of stock, Class A and Class C common stock. The voting rights of each class of our common stock is identical. Holders of Class C common stock have no economic rights, only voting rights. We will have at all times, authorized and unissued shares of Class A common stock for the purposes of effecting any redemptions or exchanges. We are not permitted to issue additional shares of Class C common stock other than in connection with the valid issuance of System1 Holdings Common Units under the New System1 Holdings Operating Agreement. 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 94 adjusted. No fractional shares were issued in connection with the Reverse Stock Split. The Reverse Stock Split was effective for purposes of trading on the New York Stock Exchange as of the opening of business on June 12, 2025. 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, 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. 13. Stock-Based Compensation We are authorized to issue and/or grant restricted stock, restricted stock units, stock options, stock appreciation rights, and other stock-based and cash-based awards under our 2022 Incentive Award Plan ("2022 Plan"). 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 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. 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 $ 11,312 $ 15,763 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: 95 Shares (in thousands) Weighted-Average Grant Date Fair Value per Share Nonvested at December 31, 2024 593 $ 20.84 Granted 2,106 $ 6.98 Vested ( 409 ) $ 21.69 Forfeited ( 145 ) $ 11.41 Nonvested at December 31, 2025 2,145 $ 7.70 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 . The weighted average grant date fair value per share for the 0.4 million restricted stock units vested during the year ended December 31, 2024 was $ 45.50 . At December 31, 2025, we had unrecognized stock-based compensation relating to restricted stock units of approximately $ 13.9 million, which is expected to be recognized over a weighted-average period of 1.20 years. Stock Appreciation Rights 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 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. The probability that the award will vest for each of the four tranches will be assessed at the end of every reporting period. If and when the award is deemed probable of vesting, we will recognize stock-based compensation expense for the award on a graded basis through the date of vesting for each individual tranche. Unvested SARs are forfeited upon termination of service. 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 96 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: Input Risk-free interest rate 3.87 % - 4.11 % Term (in years) 3.06 - 6.06 Volatility factor 84.27 % - 97.65 % Dividend yield 0.00 % 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 December 31, 2024 2,195 $ 4.38 5 $ — Granted 94 6.83 Exercised ( 5 ) 4.38 Forfeited ( 279 ) 4.38 Outstanding at December 31, 2025 2,005 4.50 4.5 Exercisable at December 31, 2025 514 Expected to vest at December 31, 2025 — $ 4.50 4.5 $ — 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. 14. 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. 97 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.