What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2026-08-05 compared with 2026-05-12 · 142 added, 135 removed, 317 unchanged (47% of the section changed)

4 unchanged sentences

(In thousands, except par value)

March 31, 2026

June 30, 2026

December 31, 2025

25 unchanged sentences

Class A common stock $ 0.0001 par value;

500,000 shares authorized, 8,302 and 8,225 Class A shares issued as of March 31, 2026 and December 31, 2025, respectively

500,000 shares authorized, 8,406 and 8,225 Class A shares issued as of June 30, 2026 and December 31, 2025, respectively

Class C common stock $ 0.0001 par value;

25,000 shares authorized, 1,813 and 1,813 Class C shares issued as of March 31, 2026 and December 31, 2025, respectively

25,000 shares authorized, 1,779 and 1,813 Class C shares issued as of June 30, 2026 and December 31, 2025, respectively

Additional paid-in capital

1 unchanged sentence

Accumulated other comprehensive loss

Treasury stock, at cost - 190 and 137 shares as of March 31, 2026 and December 31, 2025, respectively

Treasury stock, at cost - 190 and 137 shares as of June 30, 2026 and December 31, 2025, respectively

Total stockholders' equity attributable to System1, Inc.

7 unchanged sentences

(In thousands, except for per share amounts)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Operating expenses:

20 unchanged sentences

(In thousands)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Other comprehensive loss:

21 unchanged sentences

Balance at March 31, 2026

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

Conversion of Class C shares to Class A shares

Other comprehensive loss

Stock-based compensation

Contribution from members

Balance at June 30, 2026

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

System1, Inc.

and Subsidiaries

Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited)

(In thousands)

Treasury Stock,

10 unchanged sentences

Balance at March 31, 2025

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

Conversion of Class C shares to Class A shares

Issuance of common stock in private placement

Class A common stock repurchases

Other comprehensive income (loss)

Stock-based compensation

Distribution to members

Balance at June 30, 2025

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

3 unchanged sentences

(In thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Cash Flows from Operating Activities

5 unchanged sentences

Noncash lease expense

Change in fair value of warrant liabilities

Deferred tax benefits

6 unchanged sentences

Other non-current liabilities

Net cash used in operating activities

Net cash (used in) provided by operating activities

Cash Flows from Investing Activities

Purchases of property and equipment

Purchases of intangible asset

Capitalized software development costs

2 unchanged sentences

Repayment of term loan

Taxes paid related to net settlement of stock awards

Contributions from (Distributions to) members, net

Repurchases of Class A common stock

Proceeds from private placement of Class A common stock

Net cash used in financing activities

8 unchanged sentences

Supplemental cash flow information:

Cash paid for income taxes, net

Cash (refunds) paid for income taxes, net

Cash paid for interest

Stock-based compensation included in capitalized software development costs

Right-of-use assets obtained in exchange for operating lease obligations

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

4 unchanged sentences

System1, Inc.

and subsidiaries (the "Company", "we", "our" or "us") operates flagship internet utilities including CouponFollow, MapQuest, and Startpage.com, and a best-in-class marketing platform powered by artificial intelligence, enabling third party publishers ("Network Partners") to monetize and maximize the value of user traffic across a wide range of advertising category verticals.

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.

and its subsidiaries (the "Company", "we", "our" or "us") operates flagship internet utilities including CouponFollow, MapQuest, and Startpage, and a best-in-class marketing platform powered by artificial intelligence, enabling third party publishers ("Network Partners") to monetize and maximize the value of user traffic across a wide range of advertising category verticals.

Liquidity and Going Concern

1 unchanged sentence

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 March 31, 2026, we had cash and cash equivalents of $ 51.5 million and negative net working capital, which we define as current assets less current liabilities, of $ 14.1 million.

As of June 30, 2026, we had cash and cash equivalents of $ 40.5 million and negative net working capital, which we define as current assets less current liabilities, of $ 27.4 million.

We had an aggregate principal amount outstanding of $ 50.0 million under our revolving facility (as defined in Note 5, Debt, Net) with a maturity date of January 27, 2027, and $ 245.1 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.

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 or our term loan in July 2027.

At our annual meeting of stockholders held on July 22, 2026, the stockholders approved an exchange agreement with all lenders under our existing credit agreement, satisfying settlement of the outstanding balance on our revolving facility which was due January 2027, reducing the principal of the term loan to $ 150.0 million and extending the maturity date to January 2031, and making a one-time cash payment of $ 20.9 million to the lenders.

For information See Item 1, "Financial Statements — Note 5, Debt, Net" .

Our principal sources of liquidity are expected to be from cash on hand and cash flows from financing activities.

Our ability to fund future operating expenses and capital expenditures, and our ability to meet our future debt service obligations, will depend on our ability to execute on our operational strategy and may be affected by our profitability, as well as general economic, financial and other factors which are beyond our control.

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

Management has initiated cost-reduction programs consisting of reduction in force and reducing activities for businesses, which immediately reduced our cash burn rate.

Management cannot conclude as of the date of this filing that its plans are probable of mitigating the conditions and events that raise substantial doubt.

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

3 unchanged sentences

Basis of Presentation and Principles of Consolidation

The accompanying unaudited interim condensed consolidated financial statements and related disclosures are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") applicable to interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-

System1, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

Our condensed consolidated financial statements include the accounts of System1, Inc.

2 unchanged sentences

Our fiscal year ends on December 31, 2026.

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, as filed with the Securities and Exchange Commission on March 11, 2026.

These condensed consolidated financial statements should be read in conjunction with the

System1, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, as filed with the Securities and Exchange Commission on March 11, 2026.

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

The results of operations for the three months ended March 31, 2026 are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2026 or future operating periods.

The results of operations for the three and six months ended June 30, 2026 are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2026 or future operating periods.

There have been no changes to our significant accounting policies described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025 that have had a material impact on our condensed consolidated financial statements and related notes.

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-Q have been retrospectively adjusted to reflect the effect of the Reverse Stock Split.

Use of Estimates

6 unchanged sentences

Concentrations

As of March 31, 2026, we had one paid search advertising partnership agreement with Google, and one paid search advertising partnership agreement with Microsoft.

As of June 30, 2026, we had one paid search advertising partnership agreement with Google, and one paid search advertising partnership agreement with Microsoft.

The agreement with Google (our largest Advertising Partner by revenue) is in effect through September 30, 2 027.

2 unchanged sentences

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

System1, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

Accounting Pronouncements Not Yet Adopted

4 unchanged sentences

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.

System1, Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

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

6 unchanged sentences

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

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

There was no change to the Partner Network reporting unit.

See Note 9, Segment Reporting, for further discussion of our operating and reportable segments.

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

During the second quarter of 2026, the Partner Network reporting unit forecast was revised to reflect reduced revenue growth expectations and lower projected gross profit margins.

The change constituted a triggering event under ASC 350 and we performed an interim quantitative goodwill impairment test as of June 30, 2026.

Based on the results of the test, the estimated fair value of the Partner Network reporting unit exceeded its carrying amount and no impairment of goodwill was recognized in any of the periods presented.

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

Goodwill was $ 82.4 million as of March 31, 2026 and December 31, 2025, all of which was attributable to the Partner Network reporting unit.

Goodwill was $ 82.4 million as of June 30, 2026 and December 31, 2025, all of which was attributable to the Partner Network reporting unit.

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

During the first quarter of 2026, we significantly reduced our marketing activities for search monetization in our publishing business and performed an analysis of the carrying value of the long-lived assets in our Marketing asset group.

During the first half of 2026, we significantly reduced our marketing activities for search monetization in our publishing business.

The reduction in marketing activities constituted a triggering event under ASC 360 for both interim periods and we performed an analysis of the carrying value of the long-lived assets in our Marketing asset group.

The asset group was tested for recoverability using the undiscounted cash flows over the remaining useful life of the primary asset in the asset group.

2 unchanged sentences

The carrying amount of an individual asset in the group cannot be reduced below its fair value.

We concluded that the carry ing amount of the Marketing asset group exceeded the undiscounted cash flows.

During the first and second quarter of 2026, we concluded that the carrying amount of the Marketing asset group exceeded the undiscounted cash flows.

Consequently, our Marketing asset group was no longer recoverable from future operations and we recognized an impairment to our Marketing asset group trademarks, the only asset in the group to which an impairment could be allocated under ASC 360.

The impairment of long-lived assets expense was $ 36.8 million duri ng the three months ended March 31, 2026, presented in our condensed consolidated statements of operations.

For the three and six months ended June 30, 2026, the impairment of long-lived assets expense recognized was $ 0.9 million and $ 37.7 million, respectively, presented in our condensed consolidated statements of operations.

During the first quarter of 2026, we implemented measures to optimize and improve operating efficiency in response to changes in products offered by Advertising Partners.

As a result of these actions, we incurred $ 2.2 million of one-time costs which were recorded during the three months ended March 31, 2026 , presented within salaries and benefits expense in our condensed consolidated statements of operations.

As a result of these actions, we incurred $ 2.2 million of one-time costs which were presented within salaries and benefits expense in our condensed consolidated statements of operations.

These actions impacted our publishing business by reducing future cashflows.

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

There were no one-time costs recorded during the three months ended June 30, 2026.

System1, Inc.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2026

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

June 30, 2026

Gross Carrying Amount

15 unchanged sentences

Customer relationships

The internal-use software development costs include work in progress which is not being amortized of $ 4.6 million and $ 2.9 million as of March 31, 2026 and December 31, 2025 , respectively.

The internal-use software development costs include work in progress which is not being amortized of $ 2.6 million and $ 2.9 million as of June 30, 2026 and December 31, 2025 , respectively.

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Amortization expense for internal-use software development $

1 unchanged sentence

Amortization expense was presented as follows in the condensed consolidated statements of operations (in thousands):

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Cost of revenue $

Selling, general, and administrative $

Accrued Expenses and Other Current Liabilities

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

System1, Inc.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements (Unaudited)

March 31, 2026

Accrued Expenses and Other Current Liabilities

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

June 30, 2026

December 31, 2025

1 unchanged sentence

Accrued payroll and related benefits

Accrued marketing expenses

Shared-based compensation liability

2 unchanged sentences

CouponFollow Incentive Plan

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.

Accordingly, we recognized a current share-based compensation liability of $ 17.8 million within accrued expenses and other current liabilities as of December 31, 2024 , 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 the first quarter of 2026, we paid $ 10.9 million and $ 2.1 million in cash for the last performance-based portion of the award and the discretionary bonus, respectively.

In the first quarter of 2026, we paid $ 10.9 million and $ 2.1 million in cash for the last performance-based portion of the award and the discretionary bonus of the incentive plan, respectively.

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

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 .

We entered into a term loan ("Term Loan") and revolving facility ("Revolving Facility" and, together with the Term Loan, " Existing 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 March 31, 2026 , there was principal of $ 252.6 million outstanding on the Term Loan.

As of June 30, 2026 , there was principal of $ 245.1 million outstanding on the Term Loan.

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

3 unchanged sentences

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.

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

The Existing 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 March 31, 2026.

We were in compliance with the financial covenants under the Term Loan as of June 30, 2026.

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

During the fourth quarter of 2025, we borrowed $ 50.0 million under the Revolving Facility and the balance outstanding as of March 31, 2026 and December 31, 2025 was $ 50.0 million, presented within current liabilities.

We were in compliance with the financial covenants under the Revolving Facility as of March 31, 2026.

During the fourth quarter of 2025, we borrowed $ 50.0 million under the Revolving Facility and the balance outstanding as of June 30, 2026 and December 31, 2025 was $ 50.0 million, presented within current liabilities.

We were in compliance with the financial covenants under the Revolving Facility as of June 30, 2026.

System1, Inc.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements (Unaudited)

Reorganization

System1 Holdings holds our remaining assets and business operations.

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

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

March 31, 2026

June 30, 2026

December 31, 2025

2 unchanged sentences

_______________

1 Includes unamortized discount of $ 3.9 million and $ 4.7 million and unamortized loan fees of $ 0.2 million and $ 0.3 million, as of March 31, 2026 and December 31, 2025, 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 our debt was $ 229.3 million as of March 31, 2026.

1 Includes unamortized discount of $ 3.1 million and $ 4.7 million and unamortized loan fees of $ 0.2 million and $ 0.3 million, as of June 30, 2026 and December 31, 2025, 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 our debt was $ 229.3 million as of June 30, 2026.

Debt exchange and settlement agreement

On May 29, 2026 we entered into an exchange agreement with all lenders under our Existing Credit Agreement ("Participating Lenders"), which was ratified by our shareholders at the annual shareholder meeting held on July 22, 2026.

The Existing Credit Agreement shall be deemed repaid in full in exchange for:

(i) a new $ 150.0 million term loan facility held by the Participating Lenders (the "Priority Term Loans"), maturing in January 2031 and bearing interest at Term SOFR plus 5.00 % (with up to 50 % of interest payable in kind at a plus 0.50 % margin premium), amortizing at 0.25 % of original principal per quarter, with a 75 % excess-cash-flow sweep and no financial maintenance covenants;

(ii) the issuance of 39,250 shares of Series A Cumulative Convertible Preferred Stock, $ 0.0001 par value per share and initial stated value of $ 1,022.05 per share (the “Series A Preferred Stock”), assuming an initial conversion price of $ 10.40 , convertible up to 5,287,321 shares of our Class A Common Stock, and includes shares of Class A Common Stock issuable upon conversion of the Series A Preferred Stock in respect of accrued PIK Dividends to the Participating Lenders, with an aggregate initial stated value of $ 40.1 million (the "Share Consideration");

and (iii) a one-time cash payment to the Participating Lenders in the aggregate amount of $ 20.9 million.

"PIK Dividends" mean preferential cumulative dividends accruing at a rate of 7.0 % per annum on the stated value of the Series A Preferred Stock and, unless paid in cash, compounded and added to the stated value of the Series A Preferred Stock each calendar quarter from July 23, 2026 until January 14, 2031.

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.

6 unchanged sentences

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

We recorded an immaterial income tax benefit for the three months ended March 31, 2026 and an income tax benefit of $ 0.4 million for the three months ended March 31, 2025.

The effective tax rate was 0.1 % for the three months ended March 31, 2026 and 2.0 % for the three months ended March 31, 2025.

We recorded an income tax benefit of $ 0.1 million and $ 0.2 million for the three and six months ended June 30, 2026, respectively and $ 1.5 million and $ 1.9 million for the three and six months ended June 30, 2025, respectively.

The effective tax rate was 0.5 % and 0.2 % for the three and six months ended June 30, 2026, respectively and 6.7 % and 4.5 % for the three and six months ended June 30, 2025, respectively.

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

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

As of March 31, 2026 , we had a full valuation allowance on our U.S.

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

During the three months ended March 31, 2026 and 2025 , inclusive of interest, no payments were made to the parties to the Tax Receivable Agreement and there were no amounts due, respectively.

As of June 30, 2026 , we had a full valuation allowance on our United States federal and state net deferred tax assets as it was more likely than not that those deferred tax assets would not be realized.

System1, Inc.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements (Unaudited)

During the three and six months ended June 30, 2026 and 2025 , inclusive of interest, no payments were made to the parties to the Tax Receivable Agreement and there were no amounts due, respectively.

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 March 31, 2026, we have fulfilled our contractual obligation towards this commitment.

As of March 31, 2026, we had various non-cancelable operating lease commitments for office space which have been recorded as Operating lease liabilities.

As of June 30, 2026, we have fulfilled our contractual obligation towards this commitment.

A new agreement was signed with the same service provider with obligated spend of $ 5.0 million in each annual period through June 2029.

We also have various non-cancelable operating lease commitments for office space which have been recorded as Operating lease liabilities.

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

4 unchanged sentences

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

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

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

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

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

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

On May 29, 2026, we entered into an Exchange Agreement with the Lenders to (i) exchange all of the outstanding indebtedness under our Credit and Guaranty Agreement, dated January 27, 2022 for a combination of cash, new term loan debt under a Financing Agreement dated July 23, 2026 and the issuance of Series A Cumulative Convertible Preferred Stock (the "Exchange Transactions") and (ii) settle all of the outstanding disputes with the Lenders under the Creditor Lawsuits.

On July 23, 2026, we closed the Exchange Transactions and the parties to the Creditor Lawsuits (including the Lenders) filed a joint stipulation of settlement and dismissal with prejudice of the Creditor Lawsuits.

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

System1, Inc.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements (Unaudited)

indemnifications.

us, or from intellectual property infringement claims made by third parties.

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 March 31, 2026 or December 31, 2025, respectively .

Accordingly, we have no liabilities recorded for these agreements as of June 30, 2026 or December 31, 2025, respectively .

Net Loss Per Share

For the three months ended March 31, 2026 and 2025, basic net loss per share was calculated by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding.

For the three and six months ended June 30, 2026 and 2025, basic net loss per share was calculated by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding.

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Basic and diluted net loss per share

2 unchanged sentences

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

Shares of Class C common stock, restricted stock units, Stock Appreciation Rights ("SARs") and Warrants outstanding for the three months ended March 31, 2026 and 2025, 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 three months ended March 31, 2026, 16.8 million Warrants and 0.5 million vested SARs were excluded from the computation of net loss per share as their impact was anti-dilutive.

Additionally, 1.3 million SARs were excluded as they are contingently issuable upon the achievement of certain performance conditions, which were not achieved as of March 31, 2026.

For the three months ended March 31, 2025, 16.8 million Warrants were excluded from the computation of net loss per share as their impact was anti-dilutive.

Additionally, 2.1 million SARs were excluded as they are contingently issuable upon the achievement of certain performance conditions, which were not achieved as of March 31, 2025.

Shares of Class C common stock, restricted stock units, Stock Appreciation Rights ("SARs") and Warrants outstanding for the three and six months ended June 30, 2026 and 2025, 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 three and six months ended June 30, 2026 and 2025, 16.8 million Warrants and 0.5 million vested SARs were excluded from the computation of net loss per share as their impact was anti-dilutive.

Additionally, 1.3 million SARs were excluded as they are contingently issuable upon the achievement of certain performance conditions, which were not achieved as of June 30, 2026.

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

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.

We manage our business across two operating and reportable segments:

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, our CouponFollow , Startpage and MapQuest businesses which primarily acquire end-users organically ("Products").

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.

2 unchanged sentences

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

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.

System1, Inc.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements (Unaudited)

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.

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 condensed consolidated net loss before income tax and are included in the reconciliation that follows.

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

Three Months Ended March 31, 2026

Three Months Ended March 31, 2025

Three Months Ended June 30, 2026

Three Months Ended June 30, 2025

segment cost of revenue

7 unchanged sentences

Loss before income tax

Six Months Ended June 30, 2026

Six Months Ended June 30, 2025

segment cost of revenue

Segment adjusted gross profit

Other cost of revenue

Salaries and benefits

Selling, general, and administrative

Impairment of long-lived assets

Interest expense, net

Change in fair value of warrant liabilities

Loss before income tax

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

United States

3 unchanged sentences

We are authorized to issue and/or grant restricted stock, restricted stock units, stock options, SARs, and other stock-based and cash-based awards under our 2022 Incentive Award Plan.

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

Three Months Ended March 31,

Stock-based compensation expense

System1, Inc.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

Three Months Ended June 30,

Six Months Ended June 30,

Stock-based compensation expense

Restricted Stock Units

For the three months ended March 31, 2026 and 2025, we recognized stock-based compensation of $ 1.5 million and $ 2.3 million, respectively, within equity.

For the three and six months ended June 30, 2026, we recognized stock-based compensation of $ 1.5 million and $ 2.9 million, respectively, within equity.

For the three and six months ended June 30, 2025 we recognized stock-based compensation of $ 1.6 million and $ 3.8 million, respectively, within equity.

Stock Appreciation Rights

5 unchanged sentences

At the modification date, we used the Hull-White I binomial lattice option pricing model to estimate the SARs option fair value.

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

Risk-free interest rate

3.87 % - 4.11 %

Term (in years)

Volatility factor

84.27 % - 97.65 %

Dividend yield

The risk-free interest 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 contractual term.

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

As of March 31, 2026, achievement of the performance conditions associated with Tranches II, III and IV before the fifth, sixth and seventh anniversary dates of the grant date, respectively, remains not probable.

No stock-based compensation expense was recorded for the SARs for the three months ended March 31, 2026.

For the three months ended March 31, 2025, we recognized $ 0.4 million in stock-based compensation expense within equity relating to Tranche I awards which vested during the third quarter of 2025.

During the three months ended March 31, 2026 and 2025, no SARs were exercised.

As of June 30, 2026, achievement of the performance conditions associated with Tranches II, III and IV before the fifth, sixth and seventh anniversary dates of the grant date, respectively, remains not probable.

No stock-based compensation expense was recorded for the SARs for the three and six months ended June 30, 2026.

For the three and six months ended June 30, 2025, we recognized $ 3.1 million and $ 3.4 million in stock-based compensation expense, respectively, including $ 0.3 million of incremental expense as a result of the Modification, within equity relating to Tranche I awards which vested during the third quarter of 2025.

During the three and six months ended June 30, 2026 and 2025, no SARs were exercised.

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

What changed 10-Q

Item 1. Financial Statements