System1, Inc. 10-Q

Item 1. Financial Statements System1, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited) (In thousands, except par value) June 30, 2026 December 31, 2025 ASSETS Current assets: Cash and cash equivalents $ 40,484 $ 86,887 Restricted cash, current 500 1,243 Accounts receivable, net 40,980 57,289 Prepaid expenses and other current assets 7,557 4,061 Total current assets 89,521 149,480 Restricted cash, non-current 379 379 Property and equipment, net 1,358 1,562 Internal-use software development costs, net 13,097 13,672 Intangible assets, net 96,007 148,089 Goodwill 82,407 82,407 Operating lease right-of-use assets 8,315 9,120 Other non-current assets 287 263 Total assets $ 291,371 $ 404,972 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 15,139 $ 22,016 Accrued expenses and other current liabilities 23,367 46,277 Operating lease liabilities, current 1,538 1,427 Debt, net 76,915 76,718 Total current liabilities 116,959 146,438 Operating lease liabilities, non-current 7,312 8,183 Long-term debt, net 214,880 228,399 Deferred tax liability 3,573 4,013 Other non-current liabilities 1,651 520 Total liabilities 344,375 387,553 Commitments and contingencies (Note 7) Stockholders' equity: Class A common stock $ 0.0001 par value; 500,000 shares authorized, 8,406 and 8,225 Class A shares issued as of June 30, 2026 and December 31, 2025, respectively 1 1 Class C common stock $ 0.0001 par value; 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 881,755 878,859 Accumulated deficit ( 907,345 ) ( 847,679 ) Accumulated other comprehensive loss ( 325 ) ( 157 ) Treasury stock, at cost - 190 and 137 shares as of June 30, 2026 and December 31, 2025, respectively ( 759 ) ( 557 ) Total stockholders' equity attributable to System1, Inc. ( 26,673 ) 30,467 Non-controlling interest ( 26,331 ) ( 13,048 ) Total stockholders' equity ( 53,004 ) 17,419 Total liabilities and stockholders' equity $ 291,371 $ 404,972 The accompanying notes are an integral part of these condensed consolidated financial statements. 1 System1, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (Unaudited) (In thousands, except for per share amounts) Three Months Ended June 30, Six Months Ended June 30, 2026 2025 2026 2025 Revenue $ 30,200 $ 78,115 $ 67,434 $ 152,628 Operating expenses: Cost of revenue 5,926 50,212 19,786 96,289 Salaries and benefits 17,113 26,297 37,913 51,285 Selling, general, and administrative 14,541 17,511 31,330 34,085 Impairment of long-lived assets 911 — 37,733 — Total operating expenses 38,491 94,020 126,762 181,659 Operating loss ( 8,291 ) ( 15,905 ) ( 59,328 ) ( 29,031 ) Other expense: Interest expense, net 7,116 7,116 13,745 14,201 Change in fair value of warrant liabilities — 68 — 100 Total other expense, net 7,116 7,184 13,745 14,301 Loss before income tax ( 15,407 ) ( 23,089 ) ( 73,073 ) ( 43,332 ) Income tax benefit ( 75 ) ( 1,547 ) ( 150 ) ( 1,934 ) Net loss ( 15,332 ) ( 21,542 ) ( 72,923 ) ( 41,398 ) Less: Net loss attributable to non-controlling interest ( 2,733 ) ( 4,079 ) ( 13,257 ) ( 8,052 ) Net loss attributable to System1, Inc. $ ( 12,599 ) $ ( 17,463 ) $ ( 59,666 ) $ ( 33,346 ) Basic and diluted net loss per share: $ ( 1.54 ) $ ( 2.23 ) $ ( 7.34 ) $ ( 4.37 ) Weighted average number of shares outstanding - basic and diluted 8,164 7,820 8,127 7,631 The accompanying notes are an integral part of these condensed consolidated financial statements. 2 System1, Inc. and Subsidiaries Condensed Consolidated Statements of Comprehensive Loss (Unaudited) (In thousands) Three Months Ended June 30, Six Months Ended June 30, 2026 2025 2026 2025 Net loss $ ( 15,332 ) $ ( 21,542 ) $ ( 72,923 ) $ ( 41,398 ) Other comprehensive loss: Foreign currency translation (loss) income ( 125 ) 369 ( 204 ) 382 Comprehensive loss ( 15,457 ) ( 21,173 ) ( 73,127 ) ( 41,016 ) Comprehensive loss attributable to non-controlling interest ( 2,755 ) ( 4,009 ) ( 13,293 ) ( 7,980 ) Comprehensive loss attributable to System1, Inc. $ ( 12,702 ) $ ( 17,164 ) $ ( 59,834 ) $ ( 33,036 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 3 System1, Inc. and Subsidiaries Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) (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 Loss Non-Controlling Interest Total Stockholders' Equity Balance at December 31, 2025 8,225 $ 1 1,813 $ — 137 $ ( 557 ) $ 878,859 $ ( 847,679 ) $ ( 157 ) $ ( 13,048 ) $ 17,419 Net loss — — — — — — — ( 47,067 ) — ( 10,524 ) ( 57,591 ) Issuance of restricted stock, net of forfeitures and shares withheld for taxes 77 — — — — — ( 27 ) — — ( 17 ) ( 44 ) Class A common stock repurchases — — — — 53 ( 202 ) — — — — ( 202 ) Other comprehensive loss — — — — — — — — ( 65 ) ( 14 ) ( 79 ) Stock-based compensation — — — — — — 1,470 — — — 1,470 Contribution from members — — — — — — — — — 3 3 Balance at March 31, 2026 8,302 $ 1 1,813 $ — 190 $ ( 759 ) $ 880,302 $ ( 894,746 ) $ ( 222 ) $ ( 23,600 ) $ ( 39,024 ) Net loss — — — — — — — ( 12,599 ) — ( 2,733 ) ( 15,332 ) Issuance of restricted stock, net of forfeitures and shares withheld for taxes 70 — — — — — ( 17 ) — — ( 9 ) ( 26 ) Conversion of Class C shares to Class A shares 34 — ( 34 ) — — — — — — — — Other comprehensive loss — — — — — — — — ( 103 ) ( 22 ) ( 125 ) Stock-based compensation — — — — — — 1,470 — — — 1,470 Contribution from members — — — — — — — — — 33 33 Balance at June 30, 2026 8,406 $ 1 1,779 $ — 190 $ ( 759 ) $ 881,755 $ ( 907,345 ) $ ( 325 ) $ ( 26,331 ) $ ( 53,004 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 4 System1, Inc. and Subsidiaries Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) (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 Loss Non-Controlling Interest Total Stockholders' Equity Balance at December 31, 2024 7,365 $ 1 1,870 $ — — $ — $ 863,041 $ ( 782,335 ) $ ( 443 ) $ 4,732 $ 84,996 Net loss — — — — — — — ( 15,883 ) — ( 3,973 ) ( 19,856 ) Issuance of restricted stock, net of forfeitures and shares withheld for taxes 120 — — — — — 33 — — ( 325 ) ( 292 ) Other comprehensive income — — — — — — — — 11 2 13 Stock-based compensation — — — — — — 2,766 — — 44 2,810 Distribution to members — — — — — — — — — ( 12 ) ( 12 ) Balance at March 31, 2025 7,485 $ 1 1,870 $ — — $ — $ 865,840 $ ( 798,218 ) $ ( 432 ) $ 468 $ 67,659 Net loss — — — — — — — ( 17,463 ) — ( 4,079 ) ( 21,542 ) Issuance of restricted stock, net of forfeitures and shares withheld for taxes 75 — — — — — 145 — — ( 165 ) ( 20 ) Conversion of Class C shares to Class A shares 1 — ( 1 ) — — — — — — — — Issuance of common stock in private placement 450 — — — — — 3,275 — — ( 1,025 ) 2,250 Class A common stock repurchases — — — — — — — 1 — — 1 Other comprehensive income (loss) — — — — — — — — 299 70 369 Stock-based compensation — — — — — — 4,748 — — — 4,748 Distribution to members — — — — — — — — — ( 21 ) ( 21 ) Balance at June 30, 2025 8,011 $ 1 1,869 $ — — $ — $ 874,008 $ ( 815,680 ) $ ( 133 ) $ ( 4,752 ) $ 53,444 The accompanying notes are an integral part of these condensed consolidated financial statements. 5 System1, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands) Six Months Ended June 30, 2026 2025 Cash Flows from Operating Activities Net loss $ ( 72,923 ) $ ( 41,398 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 18,951 41,043 Stock-based compensation 2,619 7,193 Impairment of long-lived assets 37,733 — Amortization of debt issuance costs 1,677 1,816 Noncash lease expense 789 971 Deferred tax benefits ( 440 ) ( 984 ) Share-based compensation liabilities — 1,646 Other, net 17 122 Changes in operating assets and liabilities: Accounts receivable 16,310 ( 7,302 ) Prepaid expenses and other current assets ( 3,522 ) ( 2,234 ) Accounts payable ( 6,876 ) 18,048 Accrued expenses and other current liabilities ( 22,780 ) ( 9,860 ) Other non-current liabilities 276 ( 518 ) Net cash (used in) provided by operating activities ( 28,169 ) 8,543 Cash Flows from Investing Activities Capitalized software development costs ( 3,540 ) ( 2,786 ) Other, net — ( 321 ) Net cash used in investing activities ( 3,540 ) ( 3,107 ) Cash Flows from Financing Activities Repayment of term loan ( 15,000 ) ( 10,000 ) Proceeds from private placement of Class A common stock — 2,250 Other, net ( 237 ) ( 344 ) Net cash used in financing activities ( 15,237 ) ( 8,094 ) Effect of exchange rate changes in cash, cash equivalent and restricted cash ( 200 ) ( 21 ) Net decrease in cash, cash equivalents and restricted cash ( 47,146 ) ( 2,679 ) Cash, cash equivalents and restricted cash, beginning of the period 88,509 67,948 Cash, cash equivalents and restricted cash, end of the period $ 41,363 $ 65,269 Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheets: Cash and cash equivalents $ 40,484 $ 63,648 Restricted cash 879 1,621 Total cash, cash equivalents and restricted cash $ 41,363 $ 65,269 Supplemental cash flow information: Cash (refunds) paid for income taxes, net $ ( 91 ) $ 56 Cash paid for interest $ 12,584 $ 10,828 Stock-based compensation included in capitalized software development costs $ 321 $ 365 Right-of-use assets obtained in exchange for operating lease obligations $ — $ 1,700 The accompanying notes are an integral part of these condensed consolidated financial statements. 6 System1, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) 1. Organization and Description of Business System1, Inc. 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 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 condensed 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 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. 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. Our condensed 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 condensed 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 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-X. Our condensed consolidated financial statements include the accounts of System1, Inc. and its subsidiaries. All intercompany accounts and transactions have been eliminated in the consolidation. Our fiscal year ends on December 31, 2026. These condensed consolidated financial statements should be read in conjunction with the 7 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 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. Use of Estimates The preparation of the condensed 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 condensed 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 condensed 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 condensed 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. 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. Concentrations 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. We had a second Google agreement that originally was scheduled to remain in effect through February 28, 2027, but 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 . 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 8 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. 2025-06, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Softwa re, which amends certain aspects of the accounting for and disclosure of software costs. This guidance will be effective for the annual periods beginning with the year ending December 31, 2028 and interim periods during the year ending December 31, 2028. Early adoption is permitted. Upon adoption, the guidance can be applied prospectively or retrospectively. We are evaluating the effect that this guidance will have on our condensed consolidated financial statements and related disclosures. 3. Goodwill, Internal-Use Software Development Costs, Net, and Intangible Assets, Net Goodwill 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 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 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. The estimated net cash flows were determined utilizing internal forecasts. If forecasted net cash flows were less than the carrying amount of the asset group, an impairment expense would be measured by comparing the fair value of the asset group to its carrying amount. The carrying amount of an individual asset in the group cannot be reduced below its fair value. 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. 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 presented within salaries and benefits expense in our condensed consolidated statements of operations. These actions impacted our publishing business by reducing future cashflows. There were no one-time costs recorded during the three months ended June 30, 2026. 9 System1, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) Internal-use software development costs and intangible assets consisted of the following (in thousands): June 30, 2026 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Internal-use software development costs $ 32,186 $ ( 19,089 ) $ 13,097 Intangible assets: Developed technology $ 196,403 $ ( 196,403 ) $ — Trademarks and trade names 162,502 ( 66,679 ) 95,823 Software 5,100 ( 5,100 ) — Customer relationships 2,900 ( 2,716 ) 184 Total $ 366,905 $ ( 270,898 ) $ 96,007 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 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 June 30, Six Months Ended June 30, 2026 2025 2026 2025 Amortization expense for internal-use software development $ 2,280 $ 1,755 $ 4,436 $ 3,374 Amortization expense for intangible assets $ 4,440 $ 18,625 $ 14,349 $ 37,276 Amortization expense was presented as follows in the condensed consolidated statements of operations (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2026 2025 2026 2025 Cost of revenue $ 1,222 $ 13,091 $ 6,130 $ 26,141 Selling, general, and administrative $ 5,498 $ 7,289 $ 12,655 $ 14,509 10 System1, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) 4. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following (in thousands): June 30, 2026 December 31, 2025 Accrued revenue share $ 13,483 $ 20,865 Accrued payroll and related benefits 6,219 7,552 Shared-based compensation liability 424 13,408 Other current liabilities 3,241 4,452 Accrued expenses and other current liabilities $ 23,367 $ 46,277 CouponFollow Incentive Plan 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. 5. Debt, Net 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 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. 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 Existing Credit Agreement) should not exceed 5.40 . 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 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 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. 11 System1, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) The carrying values of our debt, net of discounts, deferred financing and debt issuance costs were as follows (in thousands): June 30, 2026 December 31, 2025 Term Loan 1 $ 241,795 $ 255,117 Revolving Facility 50,000 50,000 Total debt, net 2 $ 291,795 $ 305,117 _______________ 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. 6. Income Taxes 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. federal income taxes, in addition to state and local income taxes with respect to its allocable share of any taxable income or loss of System1 Holdings, as well as any stand-alone income or loss generated by us. We recorded an income tax benefit of $ 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 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. 12 System1, Inc. and Subsidiaries 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. 7. 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 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. 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 condensed 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 September 2025, certain lenders (the "Lenders") under our Credit Agreement, dated January 27, 2022 (the "Credit Agreement"), filed a lawsuit in the Supreme Court of the State of New York (the "New York Loan Matter") alleging (i) breach of contract against certain named subsidiaries of the Company that are parties to the Credit Agreement related to the corporate reorganization transactions undertaken by us in August 2024 to better align its corporate entity structure with its reportable business segments (the "Corporate Reorg Transactions"), (ii) both intentional fraudulent transfer and constructive fraudulent transfer against certain named subsidiaries of the Company, including certain subsidiaries that are parties to the Credit Agreement, related to certain steps that such defendants undertook in connection with certain transactions undertaken by the Company related to the sale of its Total Security business in November 2023 (the "Total Security Transactions") and (iii) both intentional fraudulent transfer and constructive fraudulent transfer against certain named subsidiaries of the Company, including certain subsidiaries that are parties to the Credit Agreement, related to certain steps that such defendants undertook in connection with the Corporate Reorg Transactions. Concurrently with the filing of the New York Loan Matter, the same Lenders under our Credit Agreement filed a lawsuit in California Superior Court (Los Angeles County) (the "California Matter" and, together with the New York Loan Matter, the "Creditor Lawsuits") alleging intentional and constructive fraudulent transfer against Openmail2, LLC, an entity controlled by our co-founders ("Openmail2") and certain trusts established for the benefit of the co-founders families (the "Co-founder Trusts") which are significant shareholders of the Company in connection with certain arm's-length negotiated loans that Openmail2 and the Co-founder Trusts extended to certain subsidiaries of the Company in fiscal year 2023 (the "Affiliate Loans") and which were repaid with a portion of the proceeds of the Total Security sale. 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 13 System1, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) 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 June 30, 2026 or December 31, 2025, respectively . 8. Net Loss Per Share 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 June 30, Six Months Ended June 30, 2026 2025 2026 2025 Basic and diluted net loss per share Net loss attributable to System1, Inc. $ ( 1.54 ) $ ( 2.23 ) $ ( 7.34 ) $ ( 4.37 ) Numerator: Net loss attributable to System1, Inc. $ ( 12,599 ) $ ( 17,463 ) $ ( 59,666 ) $ ( 33,346 ) Denominator: Weighted-average common shares outstanding used in computing basic and diluted net loss per share 8,164 7,820 8,127 7,631 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. 9. Segment Reporting 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. 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 14 System1, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited) 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 June 30, 2026 Three Months Ended June 30, 2025 Marketing Products Total Marketing Products Total Revenue $ 10,723 $ 19,477 $ 30,200 $ 54,142 $ 23,973 $ 78,115 Less: segment cost of revenue 1,189 1,930 3,119 34,509 1,276 35,785 Segment adjusted gross profit 9,534 17,547 27,081 19,633 22,697 42,330 Other cost of revenue 2,807 14,427 Salaries and benefits 17,113 26,297 Selling, general, and administrative 14,541 17,511 Impairment of long-lived assets 911 — Interest expense, net 7,116 7,116 Change in fair value of warrant liabilities — 68 Loss before income tax $ ( 15,407 ) $ ( 23,089 ) Six Months Ended June 30, 2026 Six Months Ended June 30, 2025 Marketing Products Total Marketing Products Total Revenue $ 29,114 $ 38,320 $ 67,434 $ 106,392 $ 46,236 $ 152,628 Less: segment cost of revenue 7,051 3,456 10,507 64,972 2,584 67,556 Segment adjusted gross profit 22,063 34,864 56,927 41,420 43,652 85,072 Other cost of revenue 9,279 28,733 Salaries and benefits 37,913 51,285 Selling, general, and administrative 31,330 34,085 Impairment of long-lived assets 37,733 — Interest expense, net 13,745 14,201 Change in fair value of warrant liabilities — 100 Loss before income tax $ ( 73,073 ) $ ( 43,332 ) The following table summarizes revenue by geographic region (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2026 2025 2026 2025 United States $ 29,590 $ 77,208 $ 66,191 $ 150,907 Other countries 610 907 1,243 1,721 Total revenue $ 30,200 $ 78,115 $ 67,434 $ 152,628 10. Stock-Based Compensation 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. 15 System1, Inc. and Subsidiaries 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, 2026 2025 2026 2025 Stock-based compensation expense $ 1,354 $ 4,542 $ 2,619 $ 7,193 Restricted Stock Units 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 On May 30, 2025 the SARs plan administrator certified that the trailing twelve month ("TTM") adjusted EBITDA exceeded the Tranche I performance threshold and the Tranche I awards vested ("Vested SARs"). On June 10, 2025 our stockholders approved an amendment to the System1, Inc. 2024 Stock Appreciation Rights Plan, (as amended, the "2024 SARs Plan") and the repricing ("Repricing") of certain outstanding SARs previously granted to our employees and consultants under the SARs Plan (collectively, the "SARs Plan Amendment and Repricing"). The strike price of the SARs granted changed from $ 1.44 to $ 0.44 and the adjusted EBITDA performance threshold for any TTM period concluding on or after the applicable date of grant was modified from (i) $ 60 million ("Tranche II"), (ii) $ 70 million ("Tranche III") and (iii) $ 80 million ("Tranche IV") to (i) $ 55 million, (ii) $ 60 million and (iii) $ 65 million, respectively ("the Modification"). There were no changes to the other terms of the SARs Plan. At the modification date, we used the Hull-White I binomial lattice option pricing model to estimate the SARs option fair value. 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. 17